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Court stops R350m Eskom contract

Red tape: En­gen Re­fin­ery in Dur­ban. Lu­bri­cant and petro­chem­i­cal dis­trib­u­tor MX Dis­trib­u­tors, one of the rec­om­mended bid­ders for the con­tract, ac­cuses Eskom of be­ing ‘anti-trans­for­ma­tion’ by pur­port­ing to can­cel a ten­der aimed at BEE com­pa­nies.
Red tape: En­gen Re­fin­ery in Dur­ban. Lu­bri­cant and petro­chem­i­cal dis­trib­u­tor MX Dis­trib­u­tors, one of the rec­om­mended bid­ders for the con­tract, ac­cuses Eskom of be­ing ‘anti-trans­for­ma­tion’ by pur­port­ing to can­cel a ten­der aimed at BEE com­pa­nies.
/Jackie Clausen

Eskom has been stopped from awarding a three-year, R350m contract for supplying lubricants to its power stations, with a judge ruling that it had not complied with its own procurement risk and governance protocols. The embattled state power utility, which is struggling to service debt of more than R400bn and has a maintenance backlog at power stations, had warned that the interdict would lead to an “unimaginable disaster”, with it running out of lubricant stocks, which are essential to the functioning of equipment at its 17 stations, by the middle of August.

Eskom has been stopped from awarding a three-year R350m contract for supplying lubricants to its power stations, with a judge ruling that it had not complied with its own procurement risk and governance protocols.

The embattled state power utility, which is struggling to service debt of more than R400bn and has a maintenance backlog at power stations, has warned that the interdict would lead to an “unimaginable disaster”, with it running out of lubricant stocks, which are essential to the functioning of equipment at its 17 stations, by the middle of August.

Pietermaritzburg high court judge Mahendra Chetty made his ruling after hearing argument in an urgent application launched by MX Distributors, which accused Eskom of being “anti-transformation” by purporting to cancel a tender aimed at enhancing economic empowerment by targeting BEE-compliant companies.

MX Distributors is a lubricant and petrochemical distributor with a level 1 broad-based BEE certification being wholly blackowned, with a 70% black youth women stake. It entered into a partnership with Engen for the contract and was one of the recommended bidders.

In court papers director Mlungisi Nhlanhla says that while the tenders were being adjudicated it came to his attention that Eskom had put out a second “identical” tender, which did not require any economic empowerment compliance.

While Eskom, in opposing the application, admitted that it had issued a fresh tender in July with no BEE compliance stipulation, it said this was because the bidders for the first tender had failed the adjudication process and its attempt to transform the industry had also failed.

Chetty said Eskom’s warning of a “disaster” should the interdict be granted was an exaggeration. “I was told that the consequences of granting an interdict would be horrendous to the republic. The respondent has attempted to paint a picture of absolute calamity, which is an overexaggeration. The respondent has had two years to finalise the first tender and only jumped into action in July 2019.

“In any event, Eskom has a process to cater for emergency supply from suppliers and it will not be left without oil.”

The judge criticised Eskom for using its “sole sourcing procurement provisions” to issue the second tender and award it to Engen. These required only one supplier of the product. This flew in the face of submissions by Eskom that for 28 years prior to the issue of the “economic empowerment” tender it had procured the lubricants from the big three suppliers, Engen, Astron (Chevron) and BP.

“There has been noncompliance with Eskom’s procedures and no proof that the first tender was properly cancelled. No documents were put up by Eskom to show compliance with its own procurement risk and governance protocols in its decision to appoint Engen in terms of the sole source procurement policies,” Chetty said.

The interdict means that Eskom cannot proceed with the award, pending a judicial review of Eskom’s decision to cancel the first tender and the legality of the second tender.

MX Distributors attorney Justin Klingbiel said: “My client only learnt of the cancellation in Eskom’s answering affidavit. The decision to cancel was allegedly taken by way of a round robin resolution.

“The judge asked Eskom to point to the provisions in the regulations that provide authority for a decision cancelling a tender in excess of R300m to be taken this way. None has been produced to date. Nor has the cancellation letter to the recommended bidders.”

In response to questions, Eskom said it would comply with the court order. “The power stations will procure lubricants at site level until the finalisation of the court proceedings.”

IN ANY EVENT, ESKOM HAS A PROCESS TO CATER FOR EMERGENCY SUPPLY FROM SUPPLIERS AND IT WILL NOT BE LEFT WITHOUT OIL