By: Matshela Koko
IN THE State of Capture Report the former Public Protector, Professor Thuli Madonsela dedicated substantial space explaining how Glencore was pressured into selling Optimum Coal Holdings (Optimum) to the Gupta-linked firm Tegeta.
Tegeta allegedly did not have the money to buy Optimum. Eskom, under the control of Dr Ben Ngubane, Mr Brian Molefe and Mr Matshela Koko “stepped in” to impose a R2.15 billion penalty on Optimum. According to the State of Capture Report, Eskom was not entitled to impose these penalties. The penalties “forced” Optimum into the conditions of hardship.
Eskom allegedly then moved to sign a R1.68 billion guarantee in favour of Tegeta on 10 December 2015 and later made a prepayment of R659 million on 11 April 2016 to Tegeta apparently to help them bridge the shortfall on their R2.15 billion acquisition of Optimum.
The facts do not support the claims in the State of Capture Report and that Mr Brian Molefe was brought to Eskom in April 2015 to pressure Optimum that was then under the control of Glencore into conditions of hardship and to make sure that it is rescued under the new ownership of Tegeta. As a matter of fact, Optimum’s hardship notice was issued by Optimum in July 2013 and the arbitration agreement between Optimum and Eskom to arbitrate the hardship claim was signed in December 2013.
I will present the facts to the State Capture Commission on 1 March 2021 at 10am and arising out of that Professor Thuli Madonsela will have to do the honourable thing and apologise to us for making claims in the State of Capture Report that cannot be supported by the facts.
When Glencore and Mr Cyril Ramaphosa bought Optimum in March 2012, they inherited a 1993 contract to provide coal from the Optimum mine to Eskom’s Hendrina power station. In terms of this contract, Eskom was the primary customer of Optimum and the coal requirements of Eskom enjoyed preference over other customers of Optimum and Eskom was entitled to first call on any coal produced by Optimum including export quality coal.
All coal supplied to Eskom by Optimum had to conform to the specifications in the coal supply agreement and Optimum was obliged to pay Eskom the penalties relating to any coal delivered to Eskom which did not comply with the specifications in the coal supply agreement.
The penalties and the right of rejection in the coal supply agreement constituted the sole remedy of Eskom for the failure by Optimum to meet the coal quality specification. In terms of the Coal Supply Contract Optimum was not liable for general, special, or consequential damages or loss which Eskom suffered because of failure of the coal to conform to the coal specification in the contract.
In the period from March 2012 until May 2014, Eskom did not apply coal quality penalties to Optimum. As of 31 May 2014, the penalties that had accrued against Optimum amounted to R1 589 816 477, of which only R158 386 758 had been set-off against payments to Optimum.
This could not have occurred without the connivance of the Eskom Executives who were responsible for this coal supply agreement. In the period June 2014 until May 2015 the coal penalties against Optimum mine were suspended. This arose under the so-called Co-operation Agreement that was irregularly signed on 23 May 2014. This Agreement was a stratagem to cover-up the penalties that were not enforced during the period since March 2012 and an attempt to resolve the hardship claim of Optimum via the back door.
Eskom cancelled the Co-operation Agreement on 10 June 2015. It was within its rights to do so. Its position was that Optimum invoked the hardship clause in July 2013 and the arbitration agreement was signed in December 2013. Eskom was happy for the arbitration process to take its course.
To the extent that Optimum felt Eskom took a hard-line stand on its position of hardship, it had a remedy in terms of clauses 27.2 and 30 of the coal supply agreement and that remedy was to pursue arbitration up to the end. Eskom was ready to comply with the award of the arbitrator.
I will advise the Deputy Chief Justice Zondo on 1 March 2021 that the R1.6 billion and the R659 million prepayment transactions of 10 December 2015 and 11 April 2016 respectively were compliant with Eskom procurement and supply chain procedures 32-188 and 32-1034 and that they were both duly approved by the board. The transactions were prudent and in the interest of Eskom. The results speak for themselves.
I will also advise the chairman of the commission that historically coal emergencies were declared in Eskom in 2004, 2006 and 2008 and these emergencies were handled in terms of the procurement and supply chain procedure 32-188.
In February 2008 following a coal emergency, the Eskom chairman alone approved the mandate to negotiate and conclude coal contracts to the tune of R17.7 billion for a period of two years. This, he did on a round robin in accordance with the recommendation of the group executive of generation, the chief financial officer, and the group executive officer.
The terms and conditions of these contracts were never presented to the Eskom Board. They did not have to be presented to the Eskom Board. It was not and it is still not the requirement of the procurement and supply chain procedures 32-188 and 32-1034 that the terms and conditions of contracts be presented to the Eskom Board before contracts are signed. If the Deputy Chief Justice Zondo does not like this, he must recommend to the president to have it changed.
We did nothing different during the coal emergency of 2015 and 2016 compared to what was done previously. We acted within the scope of authority as delegated to us by the Board of Eskom and we complied with the procurement and supply chain procedure 32-1034. We complied with the Eskom’s standard forms of contract as approved by Eskom Legal Department. We saved Eskom money and we defeated load shedding for three uninterrupted years.
Professor Thuli Madonsela owes us an apology.
Matshela Koko is the former Eskom interim group executive officer