How could the Eskom board reinstate someone who had resigned in November under a cloud of corruption allegations? That’s been the focus of much of the outrage about Brian Molefe’s Eskom return, which comes after the utility’s shareholder minister, Lynne Brown, declined the R30m pension the board had agreed to grant him, but then had to agree to a deal in which he returned to his post because it was "a significantly better value proposition for the SA fiscus".
What emerges is a bizarre story of the contractual dealings between the board and Molefe, who essentially had Eskom and Brown over a barrel — giving them little option, as they saw it, but to agree in effect that November never happened. As it turns out, Molefe didn’t resign. What he actually said at the time, after he went all emotional about the public protector’s State of Capture report, was that he had "decided to leave his employ at Eskom".
It now looks like that statement would have been crafted by his lawyers and Molefe then applied to the board to take early retirement, an application the board accepted.
That triggered the R30m pension in terms of the Eskom pension fund rules and the contract of employment the board signed with Molefe when Cabinet approved his appointment as CE in September 2015 (he had been acting in the post since April 2015). Though Molefe is only just 50 years old, the Eskom pension fund’s rules do allow permanent employees to take early retirement from the age of 50, as long as they have been there for at least 10 years. Molefe wasn’t there that long, nor was he a permanent employee — Browne insisted in 2015 that he be appointed on a five-year contract, in line with a cabinet directive on state-owned enterprise (SOE) CEs. However, it is understood that the contract the board signed with him allowed him the early retirement option — in part because the board wanted to lock him in. The board agreed that Eskom, as the employer, would top up his contributions so that he would get the pension he would have been entitled to had he worked until retirement age.
Keep in mind that Eskom’s pension fund is a so-called defined benefit fund — so retirees receive a monthly pension based on final salary, though the law allows them to take a third in cash at the time they go on pension. Molefe took his third, amounting to R7.6m, Business Report reported Eskom as saying. The company would have had to stand good for the rest of the R30m actuarial valuation, to ensure the pension fund had the resources to meet its obligations to Molefe over the next however many years.
Of course, the board should have included a fail-safe clause preventing Molefe from taking early retirement if he failed to serve out his five years. And it should have barred him from taking another state or parastatal job, with another pension. But it doesn’t seem to have put in any of those safeguards. Whether this was because the contract was signed in a hurry under political pressure or because Molefe is simply a lot smarter than the board, or a bit of both, is not clear.
Either way, when news of the R30m leaked and Brown said no, there wasn’t much room for manoeuvre. One option, presumably, was for Eskom to rescind the early retirement and demand the R7m back, in which case Molefe would surely have taken the company to court. A public legal battle would have been quite a spectacle.
But an even more bizarre scenario could have been if Brown as the shareholder had taken the Eskom board to court on the grounds that the employment contract it signed with Molefe was pretty idiotic and should never have been signed. Since that happened under her watch, one doubts it was an attractive option.
That left paying him out or persuading him to agree to withdraw his application for early retirement, which is what the board did. One imagines Molefe was no pushover, so who knows what deal might have now been agreed to. It’s a salutary lesson to any board to be mindful that CEs have their own interests, which are not identical to those of the firm, and that good governance is precisely about being vigilant about such matters.
But the decision Brown and the board made is a bizarre case of false economy, assuming they really did have no legal option other than to pay him out or take him back.
This way, Molefe is still entitled to his pension after five years, but he gets paid to be the CE as well until then. There is no saving and the issue is still whether someone whose reputation is as clouded as Molefe’s should be allowed to run Eskom.
As it is, ratings agencies have flagged governance at SOEs as a key concern and it is hard to believe Molefe’s return will not trigger a Moody’s downgrade. The question now is who will take the fall. Eskom’s annual meeting is in June and both Molefe and the board’s survival are surely in question.
The minister is under pressure from the ANC to dissolve the board. She said an external review was under way. A public enterprises spokesman says it is normal for the board to be reviewed ahead of the annual meeting, when appointments are renewed (or not). The board should surely take the fall, starting with chairman Ben Ngubane. But the minister must also be in the firing line.
• Joffe is editor-at-large.
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