10/10/2017 13:24 SAST | Updated 10/10/2017 15:50 SAST

McKinsey’s Gambit Won’t Stop It Being Reported To US Graft-Busters

The consultancy announced it would deposit R970-million it earned from Eskom into a ring-fenced account.

Management consultancy McKinsey & Company has offices worldwide.
Arnd Wiegmann / Reuters
Management consultancy McKinsey & Company has offices worldwide.

The global management consultancy McKinsey & Co on Tuesday announced it would deposit R970-million it earned from Eskom into a ring-fenced account and challenged the power utility and its black empowerment partner, Trillian, to submit the troubled contract for review to the High Court.

But Corruption Watch says this would not stop its request to the US Department of Justice to probe the contract the organisation called "outrageous", "clearly illegal" and "ludicrous".

"To provide reassurance to the citizens of South Africa, we will support a review by the High Court of the validity of the turnaround-programme contract. We invite Eskom and Trillian to submit themselves to this programme too," said McKinsey in a statement.

McKinsey's 12-year-long relationship with Eskom hit the skids as the consultancy accused its client of lying about whether or not it had received requisite Treasury approvals before signing a deal that was worth a potential R7-billion, before it blew up in allegations of state capture.

"We were advised by Eskom on 5 February 2016 that it received National Treasury approval and we have reviewed Eskom's Steering Committee minutes from 9 February 2016 that confirm that fact," said McKinsey in a statement in which it also defended its work for the first time.

Eskom has demanded its money back from McKinsey as it says the contract its now-suspended executives signed was illegal. The Public Finance Management Act does not permit contracts that allow contractors to earn a percentage of savings achieved, as these are regarded as perverse incentives.

While Corruption Watch said McKinsey had done little to earn its whopping fee, the company said: "...we stand by our work at the company. We believe our work on the turnaround programme created substantial value, helping [to] improve operating performance by, among other things, increasing plant availability and reducing contractor claims on the new build programme."

But Corruption Watch director David Lewis said the evidence showed McKinsey received massive prepayments on savings that had not yet been achieved after an initial Eskom contract was cancelled. Reports show it was also paid R70-million in fixed fees.

"The contract was an absolute sham," said Lewis. "Paying back the money doesn't make the US case moot. You can't go and take money that is not yours and as soon as you're caught, say I will pay it back. It doesn't work like that." The Corruption Watch complaint to the US Department of Justice will be ready in the next 10 days, according to the corruption-buster.

The investigation is being requested in line with the US Foreign Corrupt Practices Act, which has a global remit. McKinsey & Company is an American company. Corruption Watch will also ask the Department of Justice to probe the consultancy for money laundering if any of the Eskom payments were remitted out of South Africa.