Photographer: Waldo Swiegers/Bloomberg

Eskom Questions Trillian's Ownership in McKinsey Fee Dispute

Updated on
  • Utility lacked approval from Treasury on contract structure
  • Eskom said in 2015 meeting contract methodology was confirmed

Eskom Holdings SOC Ltd. questioned the black-empowerment credentials of McKinsey’s South African partner, Trillian Capital Partners, as it demanded that the U.S. consultancy return 1 billion rand ($74 million) despite assurances by the state power utility that National Treasury had approved the contract.

“Trillian was a broad-based black economic empowerment partner/supplier development partner to McKinsey under the 2015 contract,” Eskom’s lawyers said in a letter to McKinsey and Trillian and seen by Bloomberg. “At the time payment was claimed and made, Trillian had no black ownership.” Trillian disputed this assertion.

McKinsey said in an emailed response to questions that it wasn’t a formal partner of Trillian and didn’t have a contract with the firm.

Eskom is at the center of allegations that the Gupta family used their relationship with President Jacob Zuma to win lucrative contracts from state companies. The Guptas and Zuma have denied any wrongdoing. Trillian, a financial services firm, is linked to the Gupta family through business associate Salim Essa, who was its principal shareholder until he sold out in July. South Africa’s government has enacted empowerment laws to help redress the legacy of apartheid and state companies must ensure suppliers have black partners.

“Trillian had at least 60 percent black economic empowerment at all times for the duration of the Eskom contracts,” Trillian said in an emailed response to questions. “Salim Essa, a black South African, held 60 percent of the total issued share capital in Trillian from Nov. 2015.”

Documents seen by Bloomberg show that Eskom had in 2015 told officials at the consultancy that it had clearance from the state finance department to sign the contract. Trillian, McKinsey’s black empowerment partner in the deal, has also been asked to return money to the utility. Eskom has suspended officials because of their conduct around the signing of contracts including the one with McKinsey, saying they misrepresented information.

Read more about the relationship between Eskom and Trillian

Interim findings of investigations by the utility “have demonstrated unequivocally that certain decisions which Eskom took, and payments which were made to McKinsey and Trillian in 2016 and 2017, were (amongst other things) unlawful,” Eskom’s lawyers wrote to the U.S. consultancy and so-called development partner Trillian in a letter dated Oct. 4. McKinsey on Tuesday said it’s willing to repay the fees if a court finds the payments were illegal.

A July 2015 review of an Eskom steering committee meeting held to discuss the McKinsey contract, showed that assurance was given by Eskom that “National Treasury approved confirmation of the contract methodology for the risk-based approach with the chief procurement officers office,” according to a document outlining the proceedings that was seen by Bloomberg. Committee members included senior executives from Eskom, McKinsey and Trillian.

“Discussions are ongoing and therefore we are not at liberty to divulge any further details at this stage,” Eskom said in a response to questions.

Payments made to McKinsey based on the 2016 contract could also be unlawful because the about 540 million rand in down payments were “well in excess of what had been authorized on 21 October 2016 by the Eskom Board Tender Committee,” according to the letter. McKinsey didn’t receive a down payment and was “paid only based on impact delivered,” it said.

— With assistance by Arabile Gumede, and Janice Kew

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