Tegeta clinched Eskom contract despite low quality coal

September 28th, 2017, Published in Articles: Energize

Eskom awarded an 11-year coal supply contract to former Gupta-owned mining firm Tegeta Exploration and Resources, despite it not meeting coal specification standards.

In a written response to a parliamentary question posed by the DA’s Natasha Mazzone, Public Enterprises Minister Lynne Brown divulged a detailed list of Eskom’s current coal suppliers, the quantity of coal they provide and the duration of each contract.

Tegeta, which used to be partially owned by the Gupta family and President Jacob Zuma’s son Duduzane, is the subject of a number of forensic investigations into the manner in which its coal contract was awarded, and if the Gupta family and their business associates were unfairly advantaged.

In August the family announced that it had decided to sell Tegeta to Swiss-based Charles King SA for R2,97-billion.

Coal toll

In 2015, National Treasury started an investigation into Eskom’s coal contracts with Tegeta, while another forensic report done by PricewaterhouseCoopers (PwC) was recently discussed at a meeting of Parliament’s standing committee on public accounts (Scopa).

The PwC report revealed that Tegeta had started supplying coal to Eskom before the coal mining group had met regulatory requirements.

The requirements included having a water license and infrastructure to test the quality of its coal.

National Treasury officials who presented the report before Scopa said PwC’s report suggested that Tegeta’s Brakfontein colliery in Mpumalanga was not able to supply coal to Eskom.

Despite these shortcomings, Eskom granted Tegeta a contract to supply 1,36-million t  of coal per year for a period of eleven years to the Majuba coal-fired power station.

The coal supply agreement with Tegeta was signed on 10 March 2015 and although Eskom invited competitive bids for coal supply, it approached only Tegeta.

The initial value of the contract was R3,7-billion, but Eskom later intended on expanding it to a further R2,9-billion for the Brakfontein Colliery. Eskom requested approval from National Treasury for the contract extension, which was not granted.

Besides the 11-year contract with Tegeta, Eskom also has a 26-year coal supply contract with Gupta-owned Optimum Mine. The contract dates back to when Optimum was owned by Glencore.

In August 2015, Glencore had to put its Optimum Mine in business rescue, because of an agreement with Eskom whereby the mine was compelled to supply the power utility with coal at a cost significantly less than the cost of production, the company said at the time.

The Gupta family, allegedly with the aid of Mines Minister Mosebenzi Zwane and senior officials at Eskom, bought Optimum from Glencore in December 2015.

All of Eskom’s coal supply contracts are currently being looked into, some of which date back more than 15 years. Brown said during her budget speech in May this year that Eskom’s power stations still receive about 90% of their coal from white-owned companies, some of which have built profitable businesses on the back of the “guaranteed cash-flow” that the contracts with Eskom have provided.

Some of the contracts, such as that with Exxaro’s Grootgeluk Mine, is for a duration of 49 years and 45 years, respectively for coal supply of Medupi and Matimba.

Eskom and Exxaro were involved in a spat earlier this year when the mining company’s shareholders in January this year approved a transaction that saw its black ownership decline from 50% to 30%.

The power utility criticised the move, bemoaning Exxaro’s lack of consultation on the matter, and reiterated at the time that Eskom’s coal procurement policy requires all the mines that supply coal to its power stations to have a black ownership target of more than 50% throughout the life of the mine.

Acknowledgement

This article was first published by Fin24 and is republished here with permission.

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