It was a crusher! Eskom reveals why Guptas got reduced fine on Optimum - as it happened

Public Enterprises Minister Lynne Brown said on Wednesday:

"Eskom is in a better financial position than it was a year and two years ago. I have asked Eskom’s new leadership to roll up its collective sleeves and immediately address three operational matters: contract management, supply chain management, conflicts of interest & other matters that would improve the reputation of the company."

Former acting Eskom CEO Matshela Koko will face disciplinary action, relating to tenders awarded to Impulse International while his stepdaughter was a director at the firm.

Eskom reduced a massive R2.1bn fine levied on partly Gupta-owned Tegeta because of a problem with the coal crusher, explained Eskom chief financial officer Anoj Singh on Wednesday.

Full presentation by Eskom:

No financial crisis at Eskom

Eskom CFO Anjoj Singh: If you look at cash to service costs, you look at operations and EBITA. You can see then that there is profitability. We successfully reduced use of diesel, which was R1bn a month (during load shedding). We also reduced cost of coal. It increased over the past five years. There has been a 100% cost in the price of coal of five years. But the last year, coal costs only increased by 3%. Coal suppliers are hurting in this process. But we still need tariff increases.

The financial results:

Acting Eskom CEO Johnny Dladla

Eskom CFO Anoj Singh

Why Guptas got reduced Optimum fine: It's all about the crusher

Eskom CFO Anoj Singh:

I want to know why the R2.1bn figure was put out in the first place. It was a demand to Optimum at the time. It was accumulated over a period dating back to 2012. The letter of demand was meant to keep the claim alive. The subsequent process was an arbitration process between Eskom and Tegeta to resolve disputes.

This was attempted with the previous owners (Glencore). The evidence has to be provided and legally acceptable. Eskom went into this process with legal opinion saying it should settle this claim. The underlying nature that gave rise to the claim was that Eskom was disputing coal quality from the mine.

The reasons for the poor quality was due to the sampling equipment that was changed in 2010. The change meant it was different than the original sampling equipment. The new design had a crusher, which increased the reject coal put in the plant. It gave a false positive of quantity of reject coal. This was the outcome of investigations over three to four years.

We realised the contract was punitive and poor quality coal was being delivered. That is why the amount ramped up so quickly. When we realised the crusher was the problem. We understood that we had sufficient information that crusher was causing this. That is why we went into settlement. The contract manager said the claim should be R700m. This was then discounted to R255.4m.

RECAP: Eskom takes action against Koko

Eskom board chairperson Zethembe Khoza said the board has instituted disciplinary action against former acting Eskom CEO Matshela Koko.

He was addressing media at Eskom's financial results presentation in Johannesburg on Wednesday.

Eskom's external auditors, SizweNtsalubaGobodo, reported the state utility to the Independent Regulatory Board of Auditors earlier this month, postponing its original financial results announcement. 

Eskom spokesperson Khulu Phasiwe confirmed that one issue related to Koko and the other to former CEO Brian Molefe.

Koko was placed on special leave in May pending an investigation by Cliffe Dekker Hofmeyr after concerns were raised about an apparent conflict of interest. Eskom awarded tenders worth R1bn to the company Impulse International, but it emerged that Koko’s stepdaughter, Koketso Choma, was a director in Impulse.

That report has not been made public yet, but Fin24 understands Eskom has met with investigators in preparation for steps against Koko.

Eskom's financial statement:

Dladla: We have produced positive results. New build is delivering to plan. Financial liquidity has been restored. Surplus capacity has increased and will continue to do Medupi and Kusile come online. We saw a 14.4% increase in EBITA. This was by achieving R38bn against a target of R30bn. There was a 7.9% revenue increase.

SizweNtsalubaGobodo's actions in reporting Eskom is no small matter and Fin24 understands that the new board is itching to make a strong stand against corruption at the utility.

Matshela Koko was placed on special leave in May pending an investigation by Cliffe Dekker Hofmeyr after concerns were raised about an apparent conflict of interest. Eskom awarded tenders worth R1bn to the company Impulse International, but it emerged that Koko’s stepdaughter, Koketso Choma, was a director in Impulse.