• Eskom applied for deviations worth R1.2 billion in the first quarter and R68.7 billion in the second quarter of 2020/21.
  • The biggest contributor in the second quarter was the renegotiation of the coal supply by South32 to the value of R66.9 billion.
  • Acting chief procurement officer Estelle Setan said her office observe poor governance and more disputes over audits among departments and entities.

Eskom’s acting chief procurement officer Estelle Setan told Parliament that the power utility consistently led among state-owned entities when it came to deviation applications worth R1.2 billion in the first quarter, R68.7 billion in the second quarter, and R421 million in the third quarter of 2020/21.

Setan told Parliament’s Standing Committee on Public Accounts (SCOPA) during a virtual meeting on Tuesday morning that the top 20 applications for deviations for the first two quarters of the 2020/21 financial year totalled R9.7 billion in the first quarter and R75.2 billion in the second quarter.

Government regulations, including the Public Finance Management Act and National Treasury’s own regulations on public spending, allow governments and parastatals to either deviate from original spending plans, extend contracts with service providers if approval is sought and secured.

This is allowed in instances when a department or entity is looking to procure services in an emergency or where there is only one supplier that can offer the goods and services according to the bid specifications.

However, deviation applications have involved billions of rands and are growing.

Setan said the spike in deviation applications in the second quarter were largely due to some applications to deviate from originally forecast spending by Eskom, which related to coal-supply contracts at the energy parastatal.

Not supported

“This spike in quarter 2 is mostly due to about eight applications from Eskom to the value of about R68.7 billion and the biggest of that was the re-negotiation of the coal supply by South 32 to the value of R66.9 billion. But this application was not supported,” said Setan.

Setan said in the first quarter Eskom also applied for deviations related to the manufacture, supply and delivery of air heater spares to Arno, Hendrina and Duvha power stations.

Other large contributors to deviation applications included the Department of Higher Education and Training’s R3.7 billion application in the first quarter due to the supply of laptops and the South African Police Service’s R1.2 billion in the same quarter over procurement of protective personal equipment.

Setan said the top 20 applications in the first two quarters accounted for about 95% of the deviation applications by government departments and entities in rand value. 

Setan said National Treasury observed trends among departments and entities including increased departure from the competitive bidding process, continuous modification of contracts that keep same service providers and audit disputes.

“Some accounting officers and authorities procure through deviation even though the Treasury has declined such a deviation. We have also observed poor procurement planning and poor implementation of projects leading to either contract expansion or single source deviations,” Setan said.

She added that many entities and departments had poor governance structures and poor levels of consequence management on officials who cause irregular expenditure or fail to act appropriately against it.

Setan said there was an increase in applications for deviations from planned expenditure, but that where it was not approved, the office of the Auditor General could weigh in through their audit reports where the office could either condone the deviation or uphold it as irregular expenditure.

“Where departments and entities do incur deviations that we declined, it will reflect as irregular expenditure and they will have to go through a rigorous process to have the spending condoned and respond accordingly if any criminal conduct is behind the expenditure,” Setan said.

“The issue of giving the OCPO more teeth is being managed in the new public procurement bill so we can have more power to intervene, but currently we do not have these powers and we are dependent on law enforcement agencies and the Auditor General when we encounter criminal activity,” Setan said.

SCOPA chair MP Mkhuleko Hlengwa raised concern at the position of chief procurement officer and other positions in the office remaining vacant for extended periods and the risk this presents to the office’s capacity. Setan has served as acting chief procurement officer since January last year.

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