Eskom sources coal from Guptas

IOL pic july1 eskom pylon BLOOMBERG File picture: Dean Hutton

Johannesburg - Eskom, SA’s state-owned power utility - has confirmed it is sourcing coal from the Gupta-owned Optimum Coal, along with six others for its Arnot power station.

This follows a Friday report from Bloomberg which, citing sources, said the utility was buying coal from the mine after not renewing a contract with Exxaro Resources.

Eskom has since issued a statement saying it is sourcing coal from seven mines, including Optimum, which was bought by a Gupta unit last December, under an interim agreement. This comes after it let the deal with Exxaro lapse “due to the exorbitant coal price as well as the mine supplying below the contractual requirement”.

One of the seven suppliers is the Optimum mine, which Eskom says provided less than 15 percent of the coal delivered to Arnot in January.

Eskom’s Group Executive for Generation, Matshela Koko, says “to ensure business continuity of Arnot, Eskom has responsibly sourced coal from seven interim suppliers. These interim suppliers will ensure security of coal supply pending the conclusion of the long-term contract.”

Koko notes all the interim suppliers are delivering coal significantly below the previous Exxaro price, which he says demonstrates the correctness of Eskom’s decision to seek a new supplier.”

Eskom, rated as junk by Moody’s, is under financial strain and had to borrow R110 million in bonds towards the end of last year. It also wants a 17 percent tariff hike to claw back costs relating to power supply from several years.

Eskom has also denied being involved with deals relating to the ownership of coal mines and, instead, is “solely focused on procuring coal of the required quality to Eskom’s power stations, at the right time and at optimal cost”.

Koko said Eskom is dismayed by accusations regarding any purchase of coal from Optimum due to an ownership change to Tegeta. Eskom added there was no outcry when Eskom previously bought coal from Optimum when it was owned by Glencore, nor were there any complaints on the ownership of any other coal supplier.

“These double-standards are unfair and Eskom is unapologetic about engaging with any supplier irrespective of ownership. As such, Eskom will fulfil its mandate and assess suppliers only on their ability to provide coal on negotiated terms and conditions irrespective of any perceived political connections,” Koko said.

Deal binned

The renewal of coal supply to Arnot comes after the mine’s previous owner, Glencore, stopped sending the commodity to mine because Eskom refused to renegotiate coal prices. Glencore at the time said that Eskom was responsible for the mine’s financial woes.

Eskom and Glencore ended up in a legal dispute after the power utility slapped it with a R2 billion penalty because Optimum was exporting good-quality coal and not sharing the commodity with Eskom.

Glencore, however, refused to bow down to the utility, arguing that paying the penalty would result in its effectively exporting coal at R1 a ton.

Eskom and Glencore’s coal deal dated back to 1983, but Glencore last year wanted it renegotiated because it was supplying coal to Eskom at a cost significantly less than the cost of production for a number of years. In an August statement, Glencore said Eskom was responsible for its financial woes, which Eskom later denied.

Optimum was contracted to supply 5.5 million tons a year to Eskom, just more than half its total annual output. The deal was subsequently cancelled by Glencore when the utility refused to pay more for the coal and the mine went into business rescue.

The business rescue practitioners subsequently put the ailing mine up for sale and, in December, the controversial Gupta family - which has ties to President Jacob Zuma - bought the mine through a subsidiary.

Tegeta Exploration and Resources bought Optimum for R2.15 billion, saving 500 jobs in the process, Business Report said last December, quoting business rescue practitioners Piers Marsden and Peter van den Steen.

As a result of this purchase, Tegeta, which was formed in 2006 to identify and develop mining assets for the Oakbay Investments Group, undertook to honour the existing coal supply agreement with Eskom.

Oakbay Resources and Energy is a gold and uranium producer, which debuted on the JSE in 2014.

Former mineral resources Minister Ngoako Ramatlhodi threatened to suspend Optimum’s licence in August after it said it had no choice but to cut jobs, but subsequently made a u-turn after consultations with the company.

Eskom spokesman Khulu Phasiwe said in December the purchase by the Gupta family of the mine meant that Hendrina power station’s coal supply was secure.

“It was not clear what was going to happen to Optimum. We made it clear to the new owners we are going to continue with our supply agreement, which is R150 a ton with the new owners until 2018. We are not going to waiver the R2 billion fine to Optimum for supplying poor quality coal. That is our position so far,” said Phasiwe in December.

Income from the sale would go into paying off Optimum’s existing bank debt of R2.55 billion, while Glencore committed to advance about R400 million to Optimum to settle the balance of the bank debt so the deal could go through.

The business rescue practioners added in a statement that Tegeta’s offer presented the most compelling option for all stakeholders of Optimum Holdings.

Tegeta has two other mining rights for coal – Brakfontein and Brakfontein extension – in Mpumalanga and prospecting rights in Mpumalanga, Free State, KwaZulu-Natal and Limpopo directly or through associates.

Eskom, which supplies more than 95 percent of South Africa’s power, will conclude a new long-term supply contract for Arnot by March, “through an open and competitive bidding process.”


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