/ 1 November 2017

‘How Eskom paid Tegeta to go treasure hunting for coal’

Outa is suggesting that Eskom be divided into two corporations to break the power utility's grip on energy.
Outa is suggesting that Eskom be divided into two corporations to break the power utility's grip on energy.

Business rescue practitioner Piers Marsden alleges that Eskom paid Gupta-owned Tegeta for coal, even though the company had not yet acquired Optimum Coal Mine, and therefore had a low supply of coal.

After Eskom filled Tegeta’s pockets to cover a shortfall in the company, Tegeta purchased Optimum Coal Mine in 2015. The mine had been made insolvent by a R2.1-billion penalty for poor quality coal.

Faced with serious trouble, Marsden and his team were called in to rescue the mine.

They worked with the mine from August 2015 to August 2016. In the first few months, the team received solicited and unsolicited approaches to buy the mine, Marsden said before the parliamentary inquiry into Eskom.

In his testimony, the business practitioner said that Eskom had slammed other proposals to acquire coal, because it wanted the Koornfontein and Optimum coal mining terminals – subsidiaries of the Optimum Coal Holding group. These subsidiaries would form part of the sale to Tegeta.

“There was a profitable and loss-making side of the business and Eskom believed that the business could only be successful if it included both the good and bad sides,” Marsden explained to the inquiry.

Tegeta had received approval from the mineral resource department and the competition committee (a statutory body) to purchase Optimum Coal Mine. But to complete the sale, Marsden said, Tegeta was required to pay R2.15-billion by April 2016. Much of the the parliamentary inquiry focused on April 11 2016, where Tegeta was R600-million short to complete the purchase of Optimum Coal Mine.

Marsden met with a consortium of banks and Glencore to borrow the R600-million on April 11, but the banks were not prepared to fund Tegeta’s shortfall.

Instead, in an Eskom board meeting also held on the same day, and at a meeting Marsden was not aware of until later, Eskom agreed to make a payment to Tegeta — asking Tegeta for coal to the tune of R586-million. But the call for coal from Eskom did not go to the Optimum mine.

“In fact, on the day that the payment was made to Tegeta, it was not yet a shareholder of the mine,” said Marsden.

When asked whether the business practitioner thought that the amount the Eskom board paid to Tegeta was used to facilitate the purchase of the coal mine, Marsden said: “The timing and quantum certainly look suspicious, but the hypothesis is above my pay grade. We certainly raised the suspicion, but it does not look good”.

A mine in trouble

According to Marsden, his team worked to ensure that the purchaser of Optimum Coal Mine would be able to afford the mine, and take on the previous purchasing agreement between Glencore and Eskom.

This meant that the mine’s buyer would not only purchase the mine, but it would also take on a R2.1-billion penalty — it was this penalty that forced Glencore to seek business rescue for the Optimum Coal Mine and its holding company, Optimum Coal Holdings Limited.

In 2015, Marsden and his team were focussing on Phembani Holdings to take over the coal mine as it was a minor shareholder in Glencore and Eskom. It was also financially viable. However, Eskom slated the transaction within a month.

Eventually, there was only one possible purchaser towards December 2015, the Gupta-linked Tegeta who had made unsolicited approaches for the purchase of the coal mine, through its auditor KPMG.

Since Tegeta bought the coal mine, the penalty that Eskom had imposed on Glencore, because of the poor quality of coal supplied to the Hendrina power plant, was discounted by 75%, Marsden explained. In March 2017, Tegeta had to only pay the power plant R500-million, in place of the R2.1-billion penalty.

In August 2017, Tegeta Exploration and Resources was sold to Swiss-based Charles King SA for R2.97-billion, it announced on Wednesday.