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Eskom: We did not favour Tegeta

Nov 04 2016 12:38

Cape Town - Power utility Eskom rejected any insinuation of favouritism towards Tegeta in a statement on Friday.

Eskom explained that it regularly engages all its coal suppliers on the required volumes and qualities it needs as demand levels vary, adding that contracting relationships are concluded on "sound commercial principles and considerations". 

It said that in emergency situations, it has utilised the prepayment mechanism to ensure security of supply. "Furthermore, it is important to note that prepayment is a common commercial practice that is used widely and not unique to Eskom."

Eskom explained that the principle of prepayment is prevalent in its cost-plus supply contracts with large mining houses such as Anglo American, BECSA and Exxaro, which supply approximately 80% of its coal while Tegeta supplies less than 5% of the coal volume it requires.  

Eskom said its supply mix changed in April 2016, leaving it with a deficit of 2.1 million tons required to meet the winter supply plan. It approached existing suppliers to source additional supply to mitigate this shortfall.    

Eskom had a contract with the Exxaro Arnot Colliery to supply coal to Arnot Power Station for 40 years, which expired in December 2015. The cost of coal at date of expiry was R1 132 per ton.  

“I am advised that Tegeta now supplies Arnot at an average price of R500/ton. The unit cost of coal supplied under this contract is at a discounted rate of 3%, resulting in a further saving to Eskom of billions of rand and ultimately, the consumer,” said Eskom chairperson Baldwin Ngubane.

Tegeta was one of the suppliers able to meet Eskom’s need for this additional coal supply at the required coal quality. Eskom said it also stepped in to avert a crisis at the Hendrina power station by offering to take the Optimum Coal Mine out of business rescue from Glencore, an act which saved thousands of jobs and continued supply to the utility.  

"Eskom rejects any insinuation of favouritism towards suppliers such as Tegeta who are willing to step in to avert the coal supply crisis and allow Eskom to keep the lights on," said the power utility.  

The board expressed concern that Eskom wasn't interviewed by the public protector before the release of her report, according to the agreed process established in September 2016. "It must be noted that Eskom was paying R1 132/ton to Exxaro and this was on a cost plus basis. Tegeta supplies Arnot at an average price of R500/ton, leading to savings of over a billion rand, leading to direct savings to Eskom customers."

Eskom also pointed out that as a 51% black-owned emerging miner, Tegeta meets its requirements. "Eskom has no issue doing business with the company based on sound commercial considerations. Tegeta stepped in to avert a crisis at Hendrina Power Station by saving jobs and continues to supply Eskom at the original contracted price.

"All due process has been followed and Eskom is proud of the savings achieved by its executives. Prepayment is a common practice in coal purchasing and Eskom has used this mechanism previously.

"In fact, the cost-plus mines have been the recipients of an average amount of R38bn to date this year to companies such as Anglo, BHP Billiton and Exxarro. Eskom firmly rejects the suggestion that Tegeta is favoured or that due process was not followed," said the power utility.

Eskom added that it won't find a supplier who can beat the Tegeta's price.


tegeta  |  eskom  |  coal  |  energy  |  electricity
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