Treasury blocks Eskom’s Tegeta contract

Picture: By Susan Comrie (amaBhungane)

The Treasury has blocked an attempt by Eskom to hand a Gupta company an R855m extension to a coal contract without an open tender.

Previously, the same contract was loaded with a R586m extension that Eskom controversially paid up front. The contract is with Tegeta Exploration and Resources for the provision of coal from Optimum Coal Mine, which it acquired from Glencore earlier in 2016, to Arnot power station in Mpumalanga.

Tegeta is majority-owned by the Guptas, their associate Salim Essa and Duduzane Zuma.

Eskom’s failed attempt comes amid fierce blows between it and the Treasury over alleged favouritism towards the Guptas.

Tegeta’s original contract to supply Arnot with coal was awarded at the end of 2015, valued at R235m. At the time, Tegeta was in the process of buying Optimum Coal from Glencore. In April, just days before Tegeta was required to make a large payment on the acquisition, Eskom extended the contract by the R586m paid up front.

Finance Minister Pravin Gordhan had raised concerns about this with Eskom,  according to a Treasury statement on Monday.


AmaBhungane understands that Eskom chief executive Brian Molefe wrote to Treasury three weeks ago requesting permission to extend the contract once more, this time by another R855m.

On Wednesday, Eskom confirmed that the Treasury had denied its request, and that the Tegeta contract had not been extended.

Spokesperson Khulu Phasiwe said: “The National Treasury did not approve the request to extend the contract, but made certain recommendations, which Eskom is in the processes of implementing.”

AmaBhungane understands the Treasury’s “recommendations” included that Eskom should source the coal from a range of potential suppliers and not just Tegeta. Had the deal gone through, it would have meant Tegeta scoring a cumulative R1.7bn to supply the Arnot power station, without participating in an open tender.

Although Eskom declined to comment on the terms of the proposed extension, it would presumably be at the same original price of R19.70 per gigajoule, one of the highest prices Eskom pays for coal.

Tegeta’s coal contracts with Eskom are the subject of a Treasury investigation. When Eskom was confronted about  the R586m prepayment to Tegeta in June, it issued a statement saying that: “All the Tegeta coal contracts with Eskom have been extensively audited by various agencies, including National Treasury.”

But on Monday, the Treasury said that director general Lungisa Fuzile had written to Eskom, instructing it to withdraw its statement, as “clearly that was not the case”.

Winning bidder

Although both Eskom and Tegeta have repeatedly stated that the contracts were arms-length, Tegeta has undoubtedly benefited from a series of inexplicable delays in Eskom awarding a long-term supply contract for Arnot.

Until the end of 2015, Arnot was largely supplied by Exxaro as part of a 40-year cost-plus contract.

Citing the need to source cheaper coal, Eskom ended Exxaro’s contract and issued a request for proposals (RFP) in August 2015.

When bids for the Arnot contract closed in October 2015, Tegeta and, it appears, Optimum Coal were not among the bidders.

Eskom has said that as a result Tegeta, which now owns Optimum Coal, could not be awarded the long-term supply contract.

Eskom was due to announce the results of the RFP before the end of 2015, but failed to do so, and instead appointed seven short-term suppliers, including Tegeta.

In January,  Phasiwe told Fin24: “The winning bidder or bidders will be announced before the end of this quarter.”

That did not happen, and instead Eskom quietly signed extensions with two of the four remaining suppliers, Tegeta and Umsimbithi. Eskom later justified this decision by saying that it was an emergency, as it had a large supply shortfall.

In April, Phasiwe told Business Day that the contract would be awarded by June.

In May, he told MiningMx that Eskom could not award the contract, because no single supplier could supply the full requirement.

In June, when City Press pointed out that the bid did not require a sole supplier, Phasiwe said Eskom might sign with multiple suppliers, but that the contract would be awarded by September.

Phasiwe said on Wednesday: “The evaluation of this RFP is concluded, and a contract for the supply of coal to Arnot Power Station is imminent.”

It is not clear why, if the bid were finally to be awarded, Eskom tried nevertheless to extend Tegeta’s contract.

Treasury said, in line with an earlier statement by Public Enterprises Minister Lynne Brown, that it was “looking forward to resolving the matter inter-departmentally”.

The amaBhungane Centre for Investigative Journalism produced this story. Like it? Be an amaB supporter and help us do more. Know more? Send us
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Susan Comrie
Susan Comrie
Investigative Journalist at amaBhungane Centre for Investigative Journalism

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