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Eskom contract 'helps turn Gupta, Zuma coal mine around'

Jun 12 2016 16:02
City Press and Fin24

Johannesburg - At the heart of a "spectacular" turnaround of Optimum Coal, which was sold to Tegeta Exploration and Resources - owned by the Gupta family and President Jacob Zuma's son Duduzane - lies an Eskom contract worth more than R564m, City Press reported on Sunday.

In April Eskom awarded the contract to Tegeta to supply the Arnot power station with 1.2 million tonnes of coal over six months. Tegeta received this contract after a 9-month delay by Eskom in awarding a permanent supply contract to replace an Exxaro contract that had expired at the end of 2015.

In a statement issued on Sunday afternoon, Eskom said the City Press article "offers no evidence to support its wild allegations".

"Eskom would like to emphasise that all its contracting relationships are concluded on sound commercial principles and considerations. In addition, all the Tegeta coal contracts with Eskom have been extensively audited by various agencies, including National Treasury," said Eskom.

According to City Press, Eskom said the former Exxaro contract was supposed to be fulfilled in March, but none of the bidders could guarantee the full 5 million tonnes a year. City Press, however, pointed out that the original request for the proposal document issued in August 2015 does not require a single supplier for the full 5 million tonnes.

Optimum Coal is situated in Mpumalanga and is currently in business rescue. It was sold by Glencore to Tegeta in April for R2.15bn. This was after the business rescue practitioners of Optimum projected in March that the mine would likely lose R100m a month.

It was losing millions each day because of a lossmaking contract to supply coal for the Hendrina power station. In terms of this contract, Tegeta must deliver 458 000 tonnes of coal a month to the Hendrina power station. City Press, however, claims it has established that Optimum does not produce enough coal to honour both contracts.

READ: Gupta-owned Oakbay completes Optimum take over

INFOGRAPHIC: City Press infographic on Tegeta

Eskom has confirmed that for the past three months Tegeta delivered only 315 000 tonnes of coal a month to Hendrina. A mining industry financier told City Press it appears that Eskom is allowing Tegeta to divert a significant portion of Optimum's coal from Hendrina (where Eskom pays R174 per tonne) to Arnot (50km away) where Eskom buys the same coal at R580 per tonne.

On Sunday Eskom denied in a statement that it is diverting coal from Hendrina to Arnot. Eskom said it 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. It also said Optimum has committed to meeting the Hendrina requirements going forward.

City Press reported that at the time of the acquisition of Optimum by Tegeta there was widespread speculation that Tegeta would use its political influence to secure more lucrative terms from Eskom. Eskom has repeatedly denied this, insisting there would be no special treatment for the Gupta company.
 
However, the business rescue practitioners now claim the mine could be taken out of business rescue in August or even sooner.

Public Enterprise Minister Lynne Brown told Parliament in May last year that Eskom paid an average price of R230.90 per tonne for coal. Tegeta's Arnot contract is at R470 per tonne and excludes transport costs. City Press says it has established that, with transport, Tegeta is actually paid about R580 per tonne. This makes the value of the 6-month Eskom contract R700m, according to City Press.

READ: How Guptas, Duduzane Zuma could score from coal deal

The business rescue practitioners attribute the turnaround at Optimum to Tegeta boosting production and cutting costs, but has confirmed to City Press that the new Arnot contract played a significant role.

Tegeta responded to City Press that it is committed to the future sustainability and profitability of Optimum and that its strategy for the mine will be announced in due course.

In a statement Eskom said its tactical sourcing of coal saves billions of rands and avoids load shedding.

"I am concerned about the recent media speculation and sensationalism around the procurement of coal," Eskom chair Dr Ben Ngubane said in the statement.

"Eskom stands firm by its process undertaken to conclude extensions of its coal supply agreements with its suppliers. I am satisfied that due process has been followed and we can be proud of the savings achieved by the executive team to date."

ALSO READ: Eskom hits back at Gupta-owned Optimum coal theories

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