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Eskom to bail out Gupta mine

Apr 29 2018 06:00
Yolandi Groenewald

A cash-strapped Eskom is believed to be willing to more than double the rate it’s paying for coal, to rescue the Gutpas’ Optimum coal mine.

Optimum’s business rescue practitioner this week finalised a business rescue plan which affected parties will now have to vote on.

According to the plan, the best option is to make the mine profitable again and sell it off.

Discussions with Eskom’s attorneys indicate that the power utility is willing to pay up to R450 per ton of coal from the mine, more than double the R200 it is currently paying.

In addition, Optimum’s rescue practitioners want to reduce the mine’s supply to Eskom from 400 000 tons per month to 200 000. The difference would be exported at a much better rate.

The plan is therefore based on Eskom halving its claim to Optimum’s coal, while doubling the price it pays.

The only way the company could continue is by increasing the price it charges Eskom to a level where it would lead to a net profit.

Eskom spokesperson Khulu Phasiwe told City Press’ sister publication Rapport that they had not yet seen the rescue plan. The utility is, however, in talks with the business rescue practitioners, but it is too early to say whether they would agree to the amended contract.

Eskom is between the devil and the deep blue sea.

This week, with winter just around the corner, the power utility had to inform the National Energy Regulator of SA that coal stocks at seven of its power stations had dropped below the minimum level of 20 days’ supply.

Koornfontein and Optimum, two of South Africa’s most important coal mines, supply 7.9 million tons of coal to Eskom per year.

At the same time, Eskom has been experiencing liquidity problems and has had difficulty paying for coal and salaries. To this end, it has been trying to borrow around R20 billion for some time.

The Optimum mine delivers coal to the 2 000 megawatt Hendrina power station. Koornfontein delivers to the 1 000MW Komati power station. They are the sole suppliers.

Phasiwe said emergency plans were being put in place to divert coal from other mines to these two power stations. He said Eskom decided to get coal for Hendrina from other coal mines that have healthy stocks.

He did not say if Eskom could afford the suggested price increase, only that they were discussing the issue with the business rescue people.

He said Eskom had budgeted for the purchase of the needed annual coal volumes – within the limits of its corporate plan.

The price of Optimum’s coal is not a new source of controversy. According to a 40-year contract, Optimum is obligated to deliver 400 000 tons of coal at R200 per ton until the end of December, when the contract expires.

Eskom already pays R430 per ton for coal from Koornfontein, which is also under business rescue.

Optimum’s previous owners, Glencore, said the old Eskom contract was slowly choking them and, along with the penalties Eskom was imposing, the mine was on the verge of bankruptcy. This paved the way for the Gupta firm Tegeta Exploration and Resources to buy the mine.

The irony is that Eskom’s dealings with Tegeta have led to the crisis at Optimum.

Another potential hurdle for the business rescue plan is the involvement of Vitol, the world’s largest independent oil dealer.

Optimum is planning to sell the 200 000 tons it wants to take away from Eskom to Vitol at a much higher price. The business rescue plan contains details of the deal between Optimum and Vitol.

One of the conditions of this agreement is that Optimum must deliver proof to Vitol that the contract with Eskom is being amended so that Optimum only has to deliver 200 000 tons to Eskom.

A strike at the mine because wages were not paid has, however, meant that Optimum could not deliver its quota to Eskom. It has since imposed a R800 million penalty on Optimum.

But the business rescue plan relies on the fact that the penalties would only be claimed at the end of the business rescue process, when the mine is sold to a new owner.

Phasiwe said the penalties, as well as other possible future fines, would definitely be claimed.

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