Eskom 'states facts' in state capture report - AS IT HAPPENED

The briefing has ended.

Eskom: We did not favour Tegeta

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.

"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.

Molefe in a good mood...

Pic: Kyle Venktess

Question to Molefe: If you did not go to the shebeen – did you go the the Guptas then? And was that appropriate what you discussed with the Guptas? Are we to believe that at all of those occasions you discussed other things than Eskom business?

Molefe: The Public Protector has not interviewed me on any issues. I want to take legal advice and will respond at the appropriate time about the issues. Who gave her the records of my cell phone. I would have asked for an opportunity to interview the people who gave her the cell phone records. I am taking legal advice. Her failure to ask me the questions has caused damage to me as a person.

Question to Molefe: What is the issue of the shebeen?  

Molefe: I said yesterday when I arrived at work I told someone they say I was in Saxonwold 14 times and he said he goes there every Friday. I did not say I went there. He said there is a place in Saxonwold that HE goes to on Fridays and Saturdays and if HE went there. I did not say I went there to drink.

Question by Netwerk24: There were lots of questions about the cost of coal. Has Eskom ever thought about having a set price for all coal it buys? Why does it differ so much from one mine to another?  

Eskom: Coal pricing in SA is not regulated. We have to compete on the open market for pricing.

Question: Why are you considering asking for a review of the Public Protector report and not asking for an inquiry?  

Naidoo: All we did was give you the facts. Prepayment is part of the structures environment between Eskom and suppliers. That gives us the space to work in with each of our contracts and suppliers. These are long term contracts and we must unpack each one each time.

JUST IN FULL STATEMENT FROM ESKOM

Eskom Board is firmly behind Eskom’s executive management team

The Eskom Board welcomes the release of the Public Protector’s report, and the recommendation that a commission of inquiry be established to investigate all the issues using the Public Protector’s report as a starting point.  

Eskom Chairman Baldwin Ngubane said board members and executives cited in the Public Protector’s report were not given an opportunity to clear their names before the report was published, but would avail themselves should the commission of inquiry require that.  

“Regarding the continued innuendo that Eskom has been giving special favours to Tegeta Exploration and Resources, the Eskom Board stands firm by the processes undertaken by the company to conclude extensions of its coal supply agreements with its suppliers. We are satisfied that due process had been followed and we can be proud of the savings achieved by the executive team to date. In the six months to 30 September 2016, Eskom’s primary energy costs were reduced by 1.5% compared to an average increase of 18% over the past 5 years,” said Ngubane.  

Eskom regularly engages all its coal suppliers on the required volumes and qualities as the demand varies from time to time and contracting relationships are concluded on sound commercial principles and considerations.  

In emergency situations, Eskom 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. The principle of prepayment is prevalent in Eskom’s cost-plus supply contracts with the large mining houses such as Anglo American, BECSA and Exxaro. These mining houses supply approximately 80% of Eskom’s coal while Tegeta supplies less than 5% of the coal volume required by Eskom.  

The coal supply market is in need of major transformation as it has and continues to benefit a small monopoly of companies.  This phenomenon is now under review as requested by the Minister of Public Enterprises in her recent budget speech and Eskom is determined to ensure that emerging black miners also benefit from Eskom’s buying power.

More pertinently, Eskom’s supply mix changed in April 2016 leaving Eskom with a deficit of 2.1 million tons which was required to meet the winter supply plan. Eskom approached its existing suppliers to source additional supply to mitigate this shortfall.    

It must be noted that the Exxaro Arnot Colliery had a contract with Eskom to supply coal to Arnot Power Station for 40 years.  This contract expired in December 2015.  The cost of coal at date of expiry was R1 132/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 Ngubane.

Tegeta was one of the suppliers able to meet Eskom’s need for this additional coal supply at the required coal quality. This company 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 thereby saving thousands of jobs and continuing the supply to Eskom.  

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.  

The Board’s position can be summarised as follows: It is concerned at Eskom not being interviewed by the Public Protector before releasing her report as per the agreed process established in September 2016; It must be noted that Eskom was paying R1132/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.

Tegeta is a 51% black owned emerging miner which meets Eskom’s 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 R38 billion 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.