Eskom’s coal supply threatened by foiled Optimum deal, Zondo inquiry hears

The decision taken by Eskom’s erstwhile chief executive Brian Molefe to give Optimum coal mine the cold shoulder in 2015 jeopardised the coal supply to the ailing utility’s Hendrina power station, the Zondo commission of inquiry into state capture heard on Friday.

During his testimony on Friday, Eskom’s contract manager Gert Opperman told the commission that the decision not to engage Optimum to ensure continued coal supply to Eskom “significantly impacted on the future supply”.

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

At the time, Eskom was concerned about securing the coal from Optimum and was looking to guarantee the supply until the end of the mine’s lifespan. But this was subject to negotiations with Optimum, which wanted to redraft the specifications for its coal supply agreement with Eskom.

The amended agreement would increase the price of coal supplied by Optimum. Eskom was also considering writing off the certain penalties levied against the mine for poor-quality coal.

But when Eskom’s primary energy division wrote to the board to ask for permission to conclude negotiations with Optimum, the board declined to sign off on the amended agreement.

Though Optimum continued to engage with Eskom in the expectation that the deal was

still supported by the utility, Molefe informed the mining company that Eskom would continue enforcing the existing coal supply agreement.

According to Opperman, he approached Molefe to ask him to reconsider the decision. Molefe declined, he said.

In June 2015, Molefe wrote to Optimum stating that Eskom had terminated the settlement process. Molefe insisted the company continue to supply coal even though it had invoked a hardship clause because the coal price it was getting was no longer economically viable.

In the letter Molefe cited “Eskom’s current financial position” for the utility’s termination of the negotiations.

A month later, the Optimum received a letter from Cliffe Dekker Hofmeyr on behalf of Eskom stating that the power utility’s intention to invoke over R2.1-billion in penalties against it.

As a result, Optimum was forced into business rescue, making it easy pickings for its acquisition by Gupta-linked Tegeta in 2016.

Evidence leader, advocate Vincent Maleka SC, called the decision “reckless in the extreme”. Maleka referred to the now defunct mine, calling it a “scrapyard”.

Hendrina now sources its coal from three or four different mines, Opperman said. This coal has to be transported in by truck.

Opperman told the commission that coal that has to be trucked in costs Eskom R450 per tonne, while the coal transported by conveyor belt from Optimum cost significantly less at around R159 per tonne.

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Sarah Smit
Sarah Smit
Sarah Smit is a general news reporter at the Mail & Guardian. She covers topics relating to labour, corruption and the law.
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