Eskom Holdings SOC Ltd. will cancel a contract to buy as much as 14 billion rand ($826 million) of fuel oil from Econ Oil & Energy Ltd. after a probe it commissioned found Econ’s fees had been inflated, according to a person familiar with the matter.
Nothemba Mlonzi, a director at Econ Oil, declined to comment because she said the matter is a legal dispute, without elaborating whether any legal proceeding has been filed. The company is a Black women-owned business that supplies fuel oil to clients in a number of industries, according to its website.
The process of canceling the contract began earlier this month, following completion of the report, the person said. Eskom confirmed the contract is being canceled, without specifying its size.
“A review of the circumstances leading to the tender being awarded to the company revealed serious irregularities in the process, including inflated prices charged to Eskom when lower-priced alternatives were evident,” the utility said in a statement Friday. “Eskom is currently reviewing the roles played by all stakeholders in awarding the tender, including the role of its own employees. Where applicable, disciplinary processes will be pursued and criminal charges laid.”
The probe was conducted by Wim Trengove, one of South Africa’s best-known lawyers, after Eskom’s management initially asked the board for permission to cancel the contract in January, said the person, who asked not to be identified as a public statement about the probe hasn’t been made. Sifiso Dabengwa, an Eskom director at the time, asked for the probe, the person said.
Dabengwa has since resigned from Eskom. In his resignation letter, verified by Bloomberg, he disagreed with the findings of the probe and said they didn’t prove there had been “fraud and corruption,” but only that there had been allegations of the crimes.
Dabengwa declined to comment when called by Bloomberg. Trengove didn’t respond to a request for comment.
The expected move to cancel the five-year contract and seek supplies directly from oil refineries comes as Eskom Chief Executive Officer Andre de Ruyter seeks to cut expenses. The state-owned utility, which supplies 95% of South Africa’s power, is struggling to meet the cost of maintaining its power plants and servicing a 480 billion-rand debt burden.