The acquisition of Optimum Coal by a “Gupta” company puts one man above all in the pound seats: Duduzani Zuma. It also puts state functionaries in a fix. Should they deny him the consents and contracts he needs, they risk the displeasure of his father, their boss.
AmaBhungane calculates that Zuma Jr owns nearly 30% of Tegeta Exploration and Resources. This makes him the coal miner’s single biggest shareholder – bigger than each of his partners in the Gupta family – and the single biggest stakeholder in the multibillion-rand opportunities and risks that come with buying Optimum.
The deal has attracted much controversy, not least given the impression that the Gupta family, with muscle from South African authorities, made the seller, Swiss-based Glencore, an offer it could not refuse.
Evidence cited in media reports has included Eskom’s refusal to renegotiate a long-term contract that tied Optimum to supplying it with millions of tonnes of coal a year below cost, and Eskom fining Optimum more than R2-billion for supplying substandard coal.
This led to Glencore putting Optimum into business rescue in August, making it a sitting duck for acquisition.
Also cited was the department of mineral resources allegedly throwing the rule book at Optimum, threatening its licence to mine, and its minister arriving alongside a Gupta delegation in Zürich to talk to Glencore.
Eskom has denied it influenced the sale, saying it only enforced its contractual rights, and Mineral Resources Minister Mosebenzi Zwane was quoted as saying he would not be “bought by anybody” and treated the Gupta family like any other investor.
Whatever the rights and wrongs so far, the completion of the transaction and the road to riches for Tegeta and Zuma Jr remains paved with very large decisions that are in the hands of functionaries at state-owned Eskom and other levels of government.
They include, according to a statement from Optimum’s business rescue operators, consent from the following for the ownership transfer from Glencore to Tegeta:
- Zwane: Under mining legislation, the ownership of mining rights cannot be transferred without the minister’s approval;
- The Competition Tribunal: The Competition Commission has recommended that the tribunal, which started hearings on Wednesday, grant approval subject to a ban on retrenchments; and
- Eskom: This presumably derives from Optimum’s long-term supply contract with it.
But the utility holds aces far more significant than simply consent for the transfer.
“We have to be very frank about those issues …”
The first is the R2-billion-plus fine that it levied on Optimum, which it may choose to waive.
The second is the long-term contract that binds Optimum to supplying the Hendrina power station with 5.5-million tonnes of coal a year at R150 a tonne until the end of 2018. When Glencore put Optimum into business rescue, Glencore said the contract was unsustainable because the cost of production had risen to more than R400 a tonne.
This raises the question of how Tegeta will make Optimum viable.
Tegeta director Nazeem Howa perhaps inadvertently emphasised the extent of Tegeta’s reliance on Eskom’s goodwill as Optimum’s main customer and R2-billion-plus creditor. He said a key concern was “how we will deal with the creditors” and that Optimum was “in business rescue not because of any poor management [by Glencore] or anything else; it’s in business rescue because of several cost issues that have to be dealt with. We have to be very frank about those issues …”
Eskom has insisted publicly that it will not renegotiate the deal when Tegeta becomes the new owner. The utility’s spokesperson, Khulu Phasiwe, was quoted last week as saying Eskom “expected” Tegeta both to pay the fine and to keep supplying coal at R150 a tonne until 2018.
If Eskom does not renegotiate the R2-billion penalty, Tegeta’s cost of acquiring Optimum in effect doubles from the R2.15-billion it agreed to pay Glencore – a major blow to Zuma Jr and the Gupta family.
But there are other ways in which Eskom could sweeten the pill, including by paying more for other contracts. Already, Eskom has given Optimum a short-term contract to supply the Arnot power station for more than R400 a tonne.
And City Press reported at the weekend that Eskom had “quietly” extended a long-term contract of Koornfontein, another Optimum group mine, to supply the Komati power station. The contract, for a significant two million tonnes a year, expires at the end of this month.
The Oakbay transaction value
If Eskom grants Koornfontein a new long-term contract to supply Komati at a good price, it will help offset the losses at Hendrina.
AmaBhungane calculates that Zuma Jr owns between 29% and 30% of Tegeta based on his 45% ownership of Mabengela Investments, which holds about 65% of Tegeta.
Brothers Atul and Rajesh “Tony” Gupta hold about 20% and 14% respectively.
Their wives, Chetali and Arti, respectively own about 3% and 14% further, bringing the family’s stake in the business to 51%. The figures are based in part on share information that may have changed.
The Optimum transaction has a corollary that puts Zuma Jr in a position potentially to benefit much more from the nuclear power stations that his father wants to build.
Oakbay Resources and Energy, the Gupta-controlled listed holding company of Shiva Uranium, has proposed to its shareholders that it should acquire all of Tegeta’s existing business – in other words, all but the Optimum group that Tegeta is purchasing from Glencore.
For that, according to a circular from Oakbay last month, it will pay Tegeta’s shareholders by giving them new Shiva shares equating to almost 20% of the uranium miner.
Zuma Jr already owned 4.7% of Shiva through Mabengela, which is named after the hills behind his father’s Nkandla residence.
AmaBhungane calculates that the Oakbay transaction will double Zuma Jr’s stake in Shiva to about 9.5%.
Shiva, and by extension Zuma Jr, could profit from the nuclear build programme through uranium supply contracts and because bidders for the power station contracts may want to buy into Shiva.
It has large uranium resources and a processing plant, making it attractive to bidders who want to score points for “localisation” and “security of supply”.
Oakbay Investments, the Gupta family’s company, declined comment on questions sent to Zuma Jr and a family spokesperson. Zuma Jr did not respond. – Additional reporting by James Wood
*This update was received on Friday morning, post publication of the M&G.
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