/ 27 February 2019

Molefe blamed for Eskom’s coal supply woes

During his testimony before the commission on Wednesday
During his testimony before the commission on Wednesday, Glencore executive Clinton Ephron detailed the events that led to Optimum going into business rescue. (Gallo Images)

Former Eskom chief executive Brian Molefe “stonewalled” Optimum coal mine in its efforts to negotiate an agreement that would secure its coal supply to the ailing utility’s Hendrina power station, the Zondo commission of inquiry into state capture heard on Wednesday.

During his testimony before the commission on Wednesday, Glencore executive Clinton Ephron detailed the events that led to Optimum going into business rescue, ultimately making the mine easy pickings for its acquisition by the controversial Gupta family.

Ephron told the commission, chaired by Deputy Chief Justice Raymond Zondo, that after Molefe’s appointment as acting chief executive of Eskom negotiations relating to Optimum’s coal contract with the utility broke down.

This despite reports that Eskom’s procurement committee had resolved to settle an agreement with Optimum which would ensure the security of supply of coal for the life of the Hendrina power station.

Ephron recounted a 10-minute meeting with Molefe during which he was informed that Eskom would not negotiate the terms of its contract with Optimum. Ephron said he was “devastated” by Molefe’s position.

Optimum mine was built to supply coal to Eskom’s Hendrina power station. The mine has not supplied coal to Eskom for almost a year.

Amid significant financial strain, Optimum approached Eskom to negotiate “more realistic” specifications for its coal supply agreement. Ephron told the commission that Optimum coal mine lost R829-million in 2013 alone under the Eskom contract.

The amended agreement would increase the price of coal supplied by Optimum. Eskom was also considering writing off the penalties that had been suspended on the mine since 2012. There was a common desire by both parties to resolve these issues, Ephron said.

Ephron recounted a phone call from Eskom’s then coal sourcing manager Johan Bester, who allegedly told him that the utility’s procurement committee had approved the amendment and that it was going to the board tender committee for finalisation.

Optimum had been through a long period of negotiating with Eskom, Ephron said. “And we had got to the point where we felt that we had got to some sort of a conclusion in the Optimum saga.”

But Eskom’s attitude towards Optimum shifted when Molefe took over, Ephron said. Molefe had been appointed amid changes to Eskom’s board in March 2015.

Ephron recounted another meeting with Molefe, which he called a “stonewall negotiation”. “It wasn’t a discussion. It was a position,” he said of Molefe’s stance. In a letter, Molefe cited Eskom’s financial position at the time as why the power utility could not afford to reset the contract price.

Around this time, Optimum had been approached by KPMG on behalf of Gupta-linked Oakbay Investments which was offering to purchase the mine for R2-billion.

According to Ephron’s statement, Optimum received a letter “out of the blue” from Cliffe Dekker Hofmeyr asking for the payment of penalties to Eskom. The letter said the penalties amounted to R2 176 530 611.99.

The letter asserted that all the coal supplied from March 2012 to May 2015 by Optimum coal mine to Hendrina had been rejected. Essentially they wanted a refund for all the coal supplied to Eskom in that period, Ephron said.

Ephron said this was alarming because it meant that Eskom would inevitably withhold payments for coal delivered to the power station after the letter was received. Ephron told the commission that in July and August 2015 coal deliveries were not paid for.

Glencore was forced to put Optimum coal mine under business rescue in August 2015.

The power utility reportedly eventually did pay Optimum for the coal, but only a year later when Tegeta owned the mine.