The extension of the contract Eskom had with Gupta-owned TNA Media's The New Age newspaper flouted procurement regulations, but cancelling it would have resulted in expensive litigation and serious losses, MPs heard on Wednesday.
Testifying before the parliamentary inquiry into state capture, former Eskom board chair Zola Tsotsi said there was a contract in place with TNA when he arrived at Eskom in 2011.
At the time of its expiry, in June 2014, Collin Matjila was acting chief executive.
"Mr Matjila acceded to the request that the contract be renewed. In so doing, he failed to apply a provision in the delegation of authority that enjoined him to deal with sponsorship through a committee that was put in place to deal with such matters, thus bypassing the process and acting outside of his delegation of authority."
Tsotsi said objections were raised, but Matjila "disputed" them and proceeded to sign the contract.
This breach was reported, and an audit inquiry found Matjila had acted incorrectly, thereby infringing provisions of the Public Finance Management Act.
Matjila then asked the board to seek a legal opinion on the matter.
This opinion concurred: Matjila had acted outside his delegated authority, and it recommended disciplinary action, but by this time Matjila was no longer with Eskom.
The lawyers also advised that cancelling the contract would result in "expensive litigation and serious losses" to the company.
After deliberating on the matter, "the board accepted this advice, as an irregular expenditure finding was too ghastly to contemplate".
The board resolved to let the contract run the remaining few months of the extension.