Transcript Slide 1

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Workshop title: WS 2.6
Clean Energy – Corruption and
Conflicts of Interest in the Electricity Sector
Davida Wood, World Resource Institute
13 November 2010
Name: Gary Pienaar
Organisation: Idasa
www.14iacc.org
www.iacconference.org
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UN and AU Conventions
• United Nations Convention Against Transnational
Organised Crime, 2000
• United Nations Convention Against Corruption, 2003
• African Union Convention on Preventing and Combating
Corruption, 2003
• South Africa has signed and ratified these treaties, which
require:
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Independent anti-corruption agency
Transparent, effective, objective procurement systems
Effective access to information regime
Transparency, accountability in the management of public affairs
SA Constitution, 1996
• Human dignity and equality – s.1
• Supremacy of the Constitution and the rule of law – s.1
• Democracy to ensure accountability, responsiveness and
openness – s.1
• Access to information – s.32
• Just administrative action – s.33
• ‘Values and Principles of Public Administration’ – s.195:
Efficient, effective, impartial, fair, equitable, without bias,
responsive, accountable, transparent, timely and
accurate information
Failure 1:
Independent anticorruption agency
• All three require the establishment of specialised and
independent anti-corruption agencies:
– UNCAC - Article 36
– AUCPCC - Article 5(3)
– UNCATOC - Article 9(2)
• Scorpions (2000 – 2008):
– Unit of NPA: ‘without fear, favour or prejudice’ – s.179(4) of the
Constitution)
– High Court: “right hand of the judiciary”
• Hawks (2009) within SAPS:
– Accountable to Commissioner of Police and a Ministerial
Committee
– Complaints Mechanism – retired judge - unlawful abuse of power
or political interference
Failure 2: Recruitment
• AUCPCC – Art. 7.4
– transparency, equity and efficiency
• UNCAC – Art. 7.1(a)
– efficiency, transparency and objective criteria such as
merit, equity and aptitude
• Constitution – s.195
– ‘Good’ HR practices: ability, objectivity, fairness, need
to redress imbalances of the past
– Broadly representative (affirmative action)
– High standard of professional ethics
Reason: Deployment
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1997, ANC’s national conference resolution:
National Working Committee (NWC) should deploy ANC ‘cadres’ to
all state institutions, including judiciary, public service, local
government administration, statutory bodies, parastatals, security
forces, central bank, public broadcaster
Ensure “deployees” remained “informed by and accountable to” the
ANC
Cadres bound to defend and implement the will of ANC leadership
with “maximum political discipline”
Implication: state officials to implement ANC decisions rather than
fulfil their Constitutional obligations
– Independent action >> dismissal eg Vusi Pikoli, former National Director
of Public Prosecutions, when he refused to drop fraud charges against
now-President Jacob Zuma
• Effect: eliminated the constitutionally crucial concept of the
separation of party and state
• Does SA remain a constitutional democracy?
Failure 3: Code of conduct
and Declaration of interests
• UNCAC – Arts. 7 and 8
– Duty to report corruption
– Declarations of interest
– Conflicts of interest
• AUCPCC – Art. 7.1
– on assumption of and departure from office
• UNCAC – Art 8.5
– ‘outside activities, employment, investments, assets and
substantial gifts or benefits from which a conflict of interest may
result’
• SA: Has codes for executive, legislators, public servants
(excluding public enterprises), judiciary (forthcoming)
Failure 4: Party funding
• AUCPCC – Art. 10
– ‘Each State Party shall adopt legislative and other measures to:
(a) Proscribe the use of funds acquired through illegal and
corrupt practices to finance political parties; and
(b) Incorporate the principle of transparency into funding of
political parties.’
• UNCAC – Art. 7.3
– ‘enhance transparency in the funding of candidatures for elected
public office and, where applicable, the funding of political
parties’
• SA
– Limited public funding (90:10 – entrenches status quo)
– No regulation of private funding – despite undertaking to court
Idasa v ANC and Others
SA anti-corruption and
ethics framework
• Public Finance Management Act, 1999
– Duty to report corruption
• Prevention and Combating of Corrupt Activities Act, 2004
– Duty to report corruption
• Executive Members’ Ethics Act, 1998
– Executive Ethics Code, 2000
• Code of Conduct for Members of Parliament, 1999
• Code of Conduct for the Public Service, Chapter 2 of the Public
Service Regulations, 2001 (Public Service Act, 1994)
• Municipal Systems Act, 2000
– Schedule I: Code of Conduct for Municipal Councillors
– Schedule II: Code of Conduct for Municipal Staff Members
• Municipal Systems Amendment Bill, 2010
– Clause 56(a) ‘A municipal manager and managers directly accountable
to a municipal manager may not hold political office in a political party,
whether in a permanent, temporary or acting capacity.’
Efficacy of SA corruption
and ethics framework (2009)
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Public Service Commission (Chapter 9 institution):
About 300 high-ranking civil servants are repeat offenders for not disclosing
private business interests to employers
Including directorships and partnerships
Many failed (some refused!) to submit required annual financial disclosure forms
National departments: finance, environment, energy, minerals
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Auditor-General (Chapter 9 institution):
2319 officials were found to be directors of companies or members of close
corporations doing business with the state, to value of R600m
Senior public servants awarded contracts to themselves, family or associates
from August 2007 to July 2008
Little or no departmental disciplinary action taken by August 2009
Inadequate systems in place to deal quickly and decisively with offenders
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Parliament’s Standing Committee on Public Accounts
Strong condemnation
Summoned directors-general (accounting officers) to give account
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Register of tender defaulters – remains empty
SA transparency and
accountability
• AUCPCC – Art. 7.4
– transparency, equity and efficiency
• UNCAC – Art. 9.1
– effective transparency, competition and objective criteria in
decision-making
• Transparent procurement systems
– Public Finance Management Act, 1999
• Effective access to information regime
– Promotion of Access to Information Act, 2000
– Protected Disclosures Act, 2000
– Protection of Information Bill, 2010
• Parliament’s Standing Committee on Public Accounts
– By convention, chaired by an opposition party
SA Procurement Framework
• Constitution, 1996
– S.217: ‘fair, equitable, transparent, competitive and costeffective’
• Public Finance Management Act, 1999
• Treasury Regulations
• Code of Conduct for the Public Service, Chapter 2 of the
Public Service Regulations, 2001
• Code of Conduct for Supply Chain Management
Practitioners, 2003
• Code of Conduct for Bid Adjudication Committees, 2006
• Preferential Procurement Policy Framework Act, 2000
• Broad Based Black Economic Empowerment Act, 2003
SA Procurement Framework
Public Finance Management Act
Section 50(2):
A member of an accounting authority may not act in a way that is
inconsistent with the responsibilities assigned to the accounting
authority or use the position of or confidential information obtained
as accounting authority for personal gain or to improperly benefit
another person
Section 50(3):
(a) Must disclose to the accounting authority any direct or indirect
personal or private business interest that that member or any
spouse, partner or close family member may have in any matter
before the accounting authority; and
(b) Must withdraw from the proceedings of the accounting authority
when that matter is considered, unless the accounting authority
decides that the member’s direct or indirect interest in the matter is
trivial or irrelevant.’
SA Procurement Framework
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Companies Act, 1973
Section 234
A director of a company has a duty to disclose any direct
or indirect material interest in a contract which has been
or is to be entered into in pursuance of a resolution taken
or to be taken at a meeting of directors of the company
A director must disclose his/her material interest in
writing before the meeting of the directors where a
possible contract is considered for the first time
The disclosure must be read out to the meeting or each
director present has to state in writing that he/she has
read the declaration
Possible liability for loss arising from breach of duty or
trust
Recruitment in the
SA public energy sector
• Eskom (national electricity utility with a virtual monopoly):
– Eskom Conversion Act, 2001: a public company
– Members of Board appointed by Minister of Public Enterprises
– Eskom’s Articles of Association: State as shareholder appoints
non-executive directors, the chief executive and, after consulting
[not ‘in consultation with’] the Board, the chairperson. Executive
directors appointed by Board after shareholder’s approval
• National Energy Regulator of SA:
– National Energy Regulator Act, 2004
– Members are appointed by the Minister of Energy in a nontransparent process
Valli Moosa,
Eskom Board Chairperson
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Minister of Constitutional Development from 1994 to 1999
Minister of Environmental Affairs and Tourism from 1999 to 2004
Served on a number of boards of public and private companies
African National Congress, National Executive Committee
– manages and controls all ANC national and international assets; and
– appoints the National Finance Committee, which reports to NEC at least
twice a year on the finances and budget of the ANC
• Appointed as Non-Executive Chairperson of Eskom Board,
approved by the Cabinet on 19 July 2005
• Medupi power station – boiler contract
• Hitachi Power Africa – second choice
• Chancellor House Trust – 25% shareholding in HPA, worth R5bn
Eskom’s Guidelines for
Directors, March 2004
• One of the crucial fiduciary duties of any director is to act always in
the best interests of the company and to avoid any action or conduct
on his part that could be construed to be in conflict with the interests
of the company.
• Conflicts of interest could be anything concerning which a director
may indirectly gain some benefit, and should be treated with
considerable circumspection to ensure that his personal integrity is
not compromised, even by association.
• Regardless of having made a general disclosure of the nature
prescribed, it is necessary for directors to remind the board of any
interest they may have at the beginning of each meeting where a
matter is on the board agenda for discussion which could relate to
that interest, either directly or indirectly.
• The best policy for a director to adopt, is whenever there is
uncertainty as to whether there may be a conflict of interest, is to be
transparent and make the disclosure anyway. The remaining
members of the board can decide for themselves if there is in fact
any conflict or not, whether actual or perceived.
Eskom’s Conflict of Interests
Policy, November 2006
• Obligations of employees and directors with regard to
conflicts of interest and the declaration and management
of these interests
• Eskom, its directors, its employees, its customers, and
its suppliers act with integrity and create public
confidence by conducting business in a fair, impartial
and transparent manner
• A ‘personal interest’ may be an actual or potential, direct
or indirect interest of an employee or a director in any
business, entity, undertaking, or investment, as a
shareholder, director, associate, member,
adviser/consultant, or in any other capacity
• ‘It is important to note that conflicts of interest can arise
in various situations and are not confined to interests in
contracts or direct financial interests’
Conflicts of Interest Policy
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Management of conflicts of interest
Declare conflict of interest
Recusal unless otherwise agreed by the
Board
Additional responsibilities are imposed on
directors and senior managers of Eskom subject to greater scrutiny
Non-compliance could amount to
misconduct
Alleged conflict of interest
• Allegations reported in the Mail & Guardian
• Deloitte investigation at Board’s request: cleared
Chairperson
• Complaint lodged by leader of official
Parliamentary opposition, Democratic Alliance
• Office of the Public Protector, national ethics
ombudsman
• Chapter 9 of the Constitution: ‘independent’
• Public Protector Act, 1994: powers
Public Protector’s findings
Report No. 30 of 2008/9
Did Eskom act unlawfully or improperly by awarding a contract
to a consortium in which the ANC has an interest?
• No law or policy prohibited the awarding of the contract to an
entity in which a political party represented in government has an
interest
• State and not the ANC is the sole shareholder of Eskom
• Awarding the contract to the Hitachi Consortium did not make the
State a player and a beneficiary, given the differences between the
concepts of “the State”, “the Government” and political parties
represented in government
• The latter are private entities whose fundamental rights, including
the right to trade freely, are recognised and protected by law
• Comment: Ignored reality of conflation between party and state:
party policy of ‘deployment’
Public Protector’s findings:
mitigating factors
• Independent audit of the procurement process
relating to the Medupi Boiler Contract:
– No indication that the ANC in fact exerted political
pressure on Eskom to award the contract to the
Hitachi Consortium
– Change of award of boiler contract to the Hitachi
Consortium was based on merit and after obtaining
independent legal advice
– But auditors apparently unaware of Eskom’s
Guidelines or Policy
Public Protector’s findings
• However, it would be naive to disregard the
perception that the ruling party could use its
political influence to improperly benefit from
contracts with public entities
• The issue of whether or not political parties
should be allowed to be involved in business
dealings with government or public entities,
should be regulated by legislation
• Comment: To date, it has not
Public Protector’s findings
• Noted: ANC leadership changed in December
2007, shortly after the awarding of the contract
to the Hitachi Consortium
• Noted: New leadership expressed concern
about public comment on ANC involvement in
contract with Eskom
• Noted: ANC Treasurer-General stated that,
because of “governance issues”, Chancellor
House would be exiting from the deal with
Eskom
• Comment: To date, ANC has not done so
Public Protector’s findings
Did Mr Moosa have a conflict of interests as the Chairperson of
the Board of Directors of Eskom because of his private interest
in the ANC?
• He was aware of the ANC’s interest when he chaired Board meeting
where resolved to award contract to Hitachi Consortium
• He maintained that his membership of the NEC of the ANC did not
give rise to a conflict with his duty as the Chairperson of the Eskom
Board of Directors
• He had disclosed his membership of the NEC and he was not a
director, member, trustee or beneficiary of Chancellor House
• He contended that as he did not benefit from the contract awarded
to the Hitachi Consortium and therefore had no material interest in
the contract, there could not have been a conflict of interests
Public Protector’s findings
• However, disclosing an interest did not mean that there
was no conflict that had to be managed.
• It was not alleged that Mr Moosa had any direct
relationship with Chancellor House, other than
involvement with the ANC, that owns it
• PFMA, the Policy and the Guidelines do not exclude
non-material interests from conflict of interests
• Not consistent with national and international best
practice to focus only on material interests when defining
and managing conflicts of interests
Public Protector’s findings
• The issue: whether Mr Moosa’s interests in the governing structure
of the ANC that controls its finances and assets could have, or could
have been perceived to have influenced his objectivity in
participating in a decision by the Board to award a contract from
which the ANC would benefit financially
• No doubt that Mr Moosa, as a member of the NEC and its Finance
Committee owed a duty to the ANC to act in its best financial
interests
• Likewise, as the Chairperson of the Eskom Board of Directors it was
expected of him to act in the best financial interests of Eskom
• These two interests were therefore in direct conflict at the time
when the awarding of the contract to the Hitachi Consortium was
considered by the Board
• As Chairperson of the Board, it was reasonably expected of a
person of the calibre of Mr Moosa, to have led by example in the
application of and compliance with the Policy and the Guidelines
and to be seen to be acting in the best interests of Eskom
Subsequent developments
• Some time afterwards, Mr Moosa was ‘redeployed’
• Ruling party officials, relatives of elected representatives and public
servants frequently benefit from contracts with the State or from
BBBEE contracts = ‘repeated re-empowerment’
• No progress in reducing tender irregularities – many commitments
• Revolving door: 1 year ‘cooling off’ period mooted by Public
Administration Management Bill (2008)
• SACP: ban public servants from having business interests
• ANC: has acknowledged it faces ‘moral decay’ and repeatedly
proposes regulating members’ business interests with the State
• Parliament’s Members’ Ethics Committee proposed tightening up
Code of Conduct - rejected (2010)
• ID: asked the Public Protector to table Eskom report in Parliament
• DA: tabled a Private Member’s Bill to ban public servants
contracting with the State – history unfavourable
• Minister of Finance: “R25bn misappropriated under
investigation may be the tip of the iceberg” >> rash of new
government commitments
Future of procurement in the
energy sector
• 1999 ‘Arms Deal’ – R70bn – R1bn in bribes alleged
• Draft Integrated Resource (electricity) Plan IRP 2010
– 20 year plan
– R1 trillion
– Includes a proposed fleet of six nuclear power stations
• SA Nuclear Energy Policy: Extensive executive
discretion
• IRP 2 Procurement: IPPs: 30% of new generation
capacity
• Protection of Information Bill, 2010: May classify:
– All commercial information provided to the State as part of a
procurement process
– All matters relating to the protection and preservation of all
things owned or maintained for the public by the State