NEWS

Eskom Ignored Advice To Stop Paying McKinsey

The power utility received legal advice that McKinsey's payment model was "very unusual".

05/10/2017 07:58 SAST | Updated 05/10/2017 07:58 SAST
Mike Hutchings / Reuters

A report by US risk management firm Oliver Wyman warned Eskom against paying millions of rands to consultancy firm McKinsey, but the power utility went ahead with the contract anyway.

McKinsey subcontracted Gupta-linked Trillian as part of the contract, in a controversial deal which saw Trillian allegedly being paid millions for doing little work -- a claim Trillian denies.

Eskom reportedly claims it paid Trillian at McKinsey's request, but McKinsey says they were not subcontracted by it.

Reuters reported this week that Olive Wyman advised Eskom that McKinsey had a "very unusual" payment model in which it charged above-market rates for its services.

Eskom reportedly claims it paid Trillian at McKinsey's request, but McKinsey says they were not subcontracted by it.

By the time Oliver Wyman had drafted its report, in December 2015, R950-million of the total R1.8-billion owed by Eskom had been paid to McKinsey, Reuters reported.

Oliver Wyman then advised Eskom to withhold payment of 45% of the remaining fees pending a legal review.

The payments to McKinsey were "not transparent" and "poorly documented", the report said.

Eskom said it was investigating a range of issues, including why these payments were made.

Oliver Wyman also reportedly criticised McKinsey's payment model, where it was paid a percentage of savings made by Eskom as a result of the advice it received instead of a flat rate.

The firm said this was "very unusual, particularly of such contractual magnitude".

It also found that McKinsey and Trillian appeared to have double-billed in one instance.

"Terms of the contract appear to favour the supplier," the report said.

A spokesman for McKinsey, Steve John, told Reuters: "The fees we charged at Eskom are in line with similar projects we, and other firms, undertake in South Africa and elsewhere around the world."

Trillian said it was not involved in negotiations between McKinsey and Eskom.