Brian Molefe, the CEO of South Africa’s state-owned power utility, said he will leave Eskom following the release of a report by the nation’s graft ombudsman into the influence of the wealthy Gupta family on the state and the company.
Molefe, who joined Eskom in April 2015, was accused in a report by the public protector published on 2 November of favouring the Gupta family, which is in business with President Jacob Zuma’s son, by handing out coal supply contracts and helping them buy Optimum Coal. He and Eskom deny wrongdoing.
“Brian is the fallen angel for investors,” said Peter Attard Montalto, a London-based economist at Nomura International Plc. He is “now implicated in alleged grand corruption and rent extraction”.
Molefe is leaving “in the interests of good corporate governance”, he said in a statement e-mailed by the Johannesburg-based power utility on Friday. “I do so voluntarily.”
Molefe helped oversee an end to rotational power cuts that crippled Africa’s most industrialised economy in the first half of last year, implementing a maintenance programme designed to trim blackouts. He previously ran Transnet, the country’s profitable rail and logistics company.
The report, written by former public protector Thuli Madonsela, rocked South Africa’s political elite earlier this month as it published evidence that appeared to show the Gupta family exerting undue influence over Zuma’s government and state-owned entities for commercial gain. The Guptas and Zuma deny wrongdoing.
Mobile phone records show Molefe called Ajay Gupta 44 times from August last year through to March, while Gupta called the Eskom CEO 14 times, according to the report.
“I am confident that, when the time comes, I will be able to show that I have done nothing wrong and that my name will be cleared,” Molefe said in the statement.
Eskom’s US$1,2bn of bonds due in February 2025 extended declines after the news, with the yield climbing 43 basis points to 7,75%, the highest since 28 June.
At a briefing last week, Molefe wept as he said there was “no basis” to the public protector’s findings. Madonsela cancelled a meeting in which he was supposed to give his version of events, he said.
In her 355-page report, Madonsela gave a directive that chief justice Mogoeng Mogoeng name a judge to chair a judicial commission of inquiry into allegations of the Guptas’ influence.
“The best way for Mr Molefe — and others mentioned in the report — to clear his name is to encourage that the commission of inquiry is set up as soon as possible,” Madonsela said by phone Friday. “The worst-case scenario here is that they are found to be in contravention of the law.”
Eskom is considering taking the report on legal review, company secretary Suzanne Daniels said last week. Doing this “will just prolong the agony and may mean they never get a real chance to clear their names”, Madonsela said today.
She found that Eskom pushed Glencore, Optimum’s previous owner, into “financial distress” by playing hardball over coal contracts last year. Tegeta Exploration & Resources, then part-owned by the Guptas and Zuma’s son, bought Optimum after it was placed into bankruptcy protection. Tegeta was then awarded a R659,6m prepaid coal contract.
Eskom and Molefe said they acted legally and wanted to get the best deal for the country at a time when the power utility was struggling to get enough coal and blackouts were an almost daily occurrence.
“Thuli Madonsela has struck a deadly blow against Eskom,” chairman Ben Ngubane told reporters on 3 November. “If we lose Brian, she takes the blame.”
Molefe had a “distinct line of communication” with the Guptas during the sale of Optimum coal, the report said. Given their business links with the Guptas’ business empire, which spans computing, mining and media, Eskom’s board appears to be “improperly appointed”, Madonsela wrote.
Both Eskom’s board and its executive committee tried to convince Molefe to stay, company spokesman Khulu Phasiwe said in an interview on Johannesburg-based broadcaster eNCA.
Lynne Brown, minister of the department of public enterprises, which oversees Eskom, said she was “saddened” by Molefe’s departure. “I will work closely with the board to ensure that the company remains stable,” she said in an e-mailed statement. — (c) 2016 Bloomberg LP