The rise and spectacular fall of former Group 5 CEO Mike Lomas

He arrived back in SA from the UK under police escort to face criminal charges related to the award of a corrupt tender for Kusile Power Station.

Former Group 5 CEO Mike Lomas has fallen far from his perch as a one-time icon of corporate respectability and affable conductor of what was once a formidable force in SA’s construction sector.

The now wheelchair-bound 78-year-old was extradited back to SA, arriving on Friday on a flight from London accompanied by a doctor and members of the South African Police Service (SAPS).

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Read:
Top construction company accused of R20m Kusile bribes [Nov 2017]
Briton must face South African Eskom bribery charges, court says [Aug 2024]

Lomas has already appeared in court and will return on Friday (27 September) to apply for bail.

It is widely believed he will turn state witness in the hope of securing a suspended sentence.

By all accounts he is in poor health, no doubt aggravated by the multi-year investigation into his role in the corrupt R1.4 billion tender awarded to Tubular Construction Project (TCP), founded by his former Group 5 colleague, Antonio ‘Tony’ Trindade. Lomas retired from Group 5 in 2007 and a year later was contacted by Trindade to consult Tubular on various management issues.

Listen/read: Mike Lomas: Outgoing CEO, Group Five [Feb 2007]

Lomas must be ruing the day he met Trindade, who departed Group 5 in the late 1990s to set up the Tubular Group as an engineering company eager to ride the construction wave that was about to crest.

Co-accused

UK-born Lomas is one of five co-accused facing charges related to the same case.

The others are:

• Former Eskom group executive for group capital division Abram Masango;
• Former Eskom senior manager for group capital division France Hlakudi;
• TCP’s former CEO Tony Trindade; and
• The owner of Babinatlou Business Services, Hudson Kgomoeswana.

Special Investigating Unit spokesperson Kaizer Kganyago said in a statement: “This extradition is part of implementing the National Anti-Corruption Strategy, which sees law enforcement agencies coming together to eradicate corruption in South Africa and ensure the continued cleaning up of state-owned entities like Eskom from corruption.”

The issue of Lomas’s mental health and risk of suicide came up during his extradition proceedings in the UK.

The UK court dismissed these concerns, arguing that the SA prison system is capable of addressing his medical and mental health needs.

Forensic investigator Paul O’Sullivan got involved in the case in 2018 when TCP minority shareholder Brian Bestenbier asked him to investigate possible fraud and theft at the company with a view to opening a criminal docket and recovering up to R1.4 billion in stolen funds.

Read: Vintage Paul O’Sullivan confrontation outside magistrate’s court [Sep 2019]

Bestenbier had been brought in as a BEE partner but received nothing in the way of dividends.

The glory days

As CEO of the subsequently delisted Group 5, Lomas was able to report six consecutive years of double-digit profit growth.

This was the period of infrastructure investment – soccer stadiums, highways, residential developments and office parks.

The accolades came pouring in: FinWeek ranked it seventh in its Top 200 companies list in 2005, and it made it onto the Sunday Times Top 100 companies list in the same year.

The 2010 World Cup Soccer tournament was a money machine for virtually all SA construction companies, Group 5 included. It built the Green Point Stadium in Cape Town, but was later accused of colluding with competitors to share contracts and fix prices ahead of the World Cup stadium building projects.

That case would play out in the courts for the next decade, with Group 5 claiming it had been granted immunity by the Competition Commission for its contrition and cooperation over the stadium tender rigging claims.

The courts found in favour of Group 5, all the way to the Constitutional Court, but the company was by now a skeletal remnant of what it once was, delisted from the JSE and under business rescue.

Read: The final big mistake that sank Group Five [Mar 2019]

Lomas had in any event moved on by now.

The Tubular era

While at Tubular, Lomas brought in a chartered accountant to help him assemble an asset register to account for the more than 100 cranes and numerous properties owned by Tubular, value the plant, and negotiate a settlement with the South African Revenue Service (Sars) over an outstanding tax claim.

Trindade then asked him to sort out some contracting issues with DB Thermal, which had been appointed to supply and install air conditioning units at Kusile.

Tubular was appointed a subcontractor to DB Thermal, which had since been taken over by a company called SPX. The relationship with SPX deteriorated into disputes over the execution and measurement of the job.

Tubular was unhappy that the contract with SPX prevented it from repricing its work, and the matter went to arbitration.

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Lomas and Eskom’s then project manager at Kusile France Hlakudi apparently struck up a tight relationship that was to bear fruit later on.

We know from an affidavit provided to the police by Patrice Tiberi, then senior project estimator at Tubular Technical Construction (one of several companies in the Tubular group), that Lomas and Hlakudi planned to bypass SPX and negotiate a contract directly with Eskom for the installation of air conditioning units that had originally been awarded to Alstrom (with SPX and Tubular as subcontractors).

Pricing

Tiberi says he was instructed by Lomas to start preparing prices whereby Tubular would become the main contractor for installation of the air conditioning units.

The figure he came to was R1.53 billion. The problem was that Eskom would not accept a price in excess of R715 million.

Any amount above this would have to be approved by the Eskom board.

Tiberi says he was instructed by Lomas to adjust the tender price to the original base rate as of July 2006, which would allow Hlakudi to motivate to Eskom’s procurement unit a direct comparison with SPX’s original tender price. This brought the tender price down from R1.53 billion to R785 million, which was still outside Hlakudi’s discretion level.

The tender price was eventually dropped to R709 million based on 2006 prices. Eskom’s legal representative pointed out that this equated to a price of R1.38 billion once indexed to consumer inflation.

Lomas and Trindade decided to submit the R708 million tender, but bump it up to R1.53 billion by submitting false claims and variation orders later.

Eskom signed the deal, without its legal department having to get involved.

The result was a fraud on Eskom of anywhere between R700 million and R1 billion, according to Tiberi.

Slippery slope

A sworn statement by Lomas in 2019 is less specific in the details, but in it he admits to paying Hlakudi – at the alleged instruction of Trindade – several hundred thousand rands out of his own bank account after Hlakudi informed him that there was a demand from certain parties at Eskom for financial assistance.

Read:
The Kusile matter that is too secret to share [Oct 2017]
Eskom’s Hlakudi resigns [Nov 2017]
I did not take bribes – Hlakudi [Dec 2017]

“I realised where this was going and decided to escalate to Trindade,” says Lomas in his sworn statement.

“Trindade told me to pay Hlakudi, whatever I had to pay, and he would repay me. Trindade wanted me to pay out of my own account, which I did.”

Lomas says he recalls Trindade telling him he would pay R20 million to the site manager at Kusile.

“I recall telling him [Trindade] it was wrong and he should not do it. I have no personal knowledge as to how much, if any, was actually paid, but the payment from Eskom to Tubular was agreed and paid,” added Lomas.

“I subsequently decided, after making the payments to Hlakudi, that if I kept on with this, I would be on a slippery slope with no way out.

“I therefore decided to leave Tubular and go my own way by the end of March 2015.”

Tubular has since been liquidated and Trindade was sequestrated, though O’Sullivan says he likely moved millions of rands offshore before the ship sank.

“We know that because we’ve got evidence, and we gave that evidence to the liquidators,” O’Sullivan told BizNews.

Read: More woes for Tubular as BEE partners apply for liquidation [Jul 2018]

Whether there is any chance of recovering any of the funds allegedly looted from Eskom remains to be seen.

For Mike Lomas, it’s a sad way to end a career that was, up to a point, not without its glory.

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