Former Glencore chief executive Clinton Ephron on Thursday conceded that the company took a risk by buying Optimum without conducting full due diligence, but rejected former Eskom chief executive Brian Molefe’s claim that it tried to hold the power utility to ransom for coal price increases in a prime example of state capture.
He said Glencore may have been the author of its own misfortune in taking over a company locked into a contract with escalation clauses determined in 1993, but that invoking the hardship clause in it when operations were running at a monthly loss of R100-million was standard business practice.
“If that is state capture, then I certainly don’t understand state capture. Because in my mind, who are we capturing in this instance in terms of asking for a price increase?”
It was his second appearance at the Zondo commission, and was designed to deal with Molefe’s claims that the global commodities trader blithely entered into the deal because its real risk calculation was the political influence of former business partner and future president Cyril Ramaphosa.
Molefe, who stands accused of enabling Tegeta’s takeover of Optimum Coal Holdings (OCH) and the Optimum Coal Mine and thereby the corruption of the parastatal by the Gupta family, sought to implicate Ramaphosa in state capture when he appeared before the commission in January.
He accused Glencore of trying to extort R8-billion from Eskom through exorbitant price hikes, and cast himself as the man who thwarted this while Ramaphosa tried to assist his former business partners at the commodity giant.
“Instead of conducting due diligence and understanding how the coal-supply agreement worked, they did something extraordinary. They sold 9.46% of the shares in the newly acquired company to Mr Cyril Ramaphosa, a political heavyweight and made him chairman of the newly acquired company,” Molefe had said.
“That was a strategic decision to use the former secretary general of the African National Congress and former secretary general of the National Union of Mineworkers, a member of the national executive committee of the ANC at the time.”
His testimony led to a charge of fraud and theft being brought against Ramaphosa, and these president’s political foes have predictably sought to leverage this in the tug of war within the ANC over the suspension of officials accused of corruption.
Ephron was grilled by evidence leader Pule Seleka, firstly about the failure to perform comprehensive due diligence. and secondly the decision to place the Optimum Coal Mine into business rescue as negotiations with Eskom hit a dead end.
In reply, he insisted that Glencore’s acquisition of Optimum in 2014 was “a transaction, not a very good one, but it was a transaction in the ordinary course of business”.
He said OCH had listed on the JSE a year earlier, and to do so had to submit independent assessments that ran to 300 pages. Glencore chose to rely on these and its own knowledge of the industry to perform a value assessment, because instead of approaching the company directly, which would have created a competitive situation, it chose to make offers to shareholders individually.
“We knew there was a risk in not doing a full due diligence … That was one of the things we had to accept,” he said.
He rejected Molefe’s claim that it did not probe deeper because it planned to lean on Ramaphosa’s influence to strong-arm Eskom into a price revision.
“That allegation is preposterous and I can’t understand how and why someone would think such a thing.”
Ephron said Optimum was put into business rescue as a last resort when losses were compounded by the fact that Eskom, with Molefe at the helm, was not only refusing its demand for a price increase, but refusing to pay at all.
The relationship with Eskom was so dire that it was not possible to secure an appointment with officials, never mind a proper meeting to trash out an understanding.
To his mind, it would have been a win-win scenario for both sides if the contract had been amended to include an additional 30 tonnes of coal for the remaining lifespan of the Hendrina power station, but Eskom was not prepared to entertain the proposal.
“These kinds of discussions are happening every day between Eskom and other industry players as we speak: Why is it okay today and wasn’t okay in 2015? Was it state capture in 2015 and not today? So I don’t understand the allegation and I strongly deny it.”
Asked by Deputy Chief Justice Raymond Zondo whether he was accusing Eskom of bad faith, Ephron said he would allow the commission to reach its own conclusion.
But he added: “You need to look at the sequence of events post business rescue and you need to look at the full picture to make a conclusion. This is chapter one; there is a continuation of the story.”
Tegeta bought Optimum in 2016, in part thanks to an advance payment of R659-million approved by then Eskom chief financial officer Anoj Singh, without which the company would not have been able to put up the asking price of R2.7-billion.
The mine is no longer operational.
It went back into business rescue in February 2018 when the banking facilities of the Gupta family and affiliated businesses were withdrawn by the banks, forcing Eskom to source coal for Hendrina elsewhere.
Ramaphosa is scheduled to resume his testimony before the commission later this month.