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NUM implicates Eskom in procurement corruption

The union wants the SIU to investigate.
Image: Moneyweb

The National Union of Mineworkers (NUM) has raised red flags over Eskom’s plan to raise the price it pays Australian mining company South32 to procure coal for its Duvha power station in Mpumalanga.

The union claims the power utility plans to finance the sale of South32’s subsidiary, South African Energy Coal (SAEC), to mining company Seriti Resources. This will be done, according to NUM, through a coal price hike and through a R1.3 billion prepayment of coal supplies to South32 by Eskom.

NUM’s allegations follow Eskom’s June 2020 application to National Treasury for price deviation for the remainder of a four-year coal supply agreement contract (CSA) with South32. The price hike would see the power utility increase the coal price from R416 a tonne to R478.40 a tonne at a cost of R67 billion.

Eskom made the application after South32 declared a hardship. In February, Eskom told parliament’s Standing Committee on Public Accounts (Scopa) that the deviation was to negotiate with the tied colliery to continue supply to Duvha until the end of the power station’s life.

Eskom also applied to have the CSA contract with South32 extended by 10 years from 2024 to 2034.

This request was shot down by the National Treasury. Eskom has indicated, however, that it is in the process of submitting another application to Treasury for the supply of South32’s coal to Duvha, which would secure approximately 2 875 MW of electricity. 

Treasury’s response to Eskom’s request for deviation for the supply of its coal from South32. Source: William Mabapa’s affidavit

New owner

The deal for Seriti to acquire South32’s coal assets was announced in 2019. Once the transaction is finalised, the black-owned mining company would be one of Eskom’s key coal suppliers. At the time of Eskom’s application for a price deviation, the deal was still in progress. 

South32 notified its shareholders on March 29, 2021, that the sale was expected to be finalised by the end of March. The company had not responded to Moneyweb’s queries at the time of publication.

In an affidavit seen by Moneyweb, NUM acting general secretary William Mabapa states that Eskom has already paid R100 million towards the sale of South32 coal assets, although the assets are estimated to be worth R10.3 billion, according to SAEC’s valuation. 

Mabapa wants the Special Investigating Unit (SIU) to probe “coal price increases [which] are unlawful, corrupt and a fraud”, adding that Eskom CEO André de Ruyter and Public Enterprises Minister Pravin Gordhan have been negligent in ensuring cost-effective procurement practices at Eskom.

Mabapa states that the rest of the purchase price would be paid for by Eskom through the escalation of the price of coal the power utility pays to South32, which was rejected by National Treasury.

Mabapa alleges the cost of this would-be coal price hike would be passed on to Eskom’s consumers and was based on an “accounting fiction”.

The trade unionists pointed to comments attributed to De Ruyter in Business Day, in which he says the continued contract with South32 and the proposed coal price hike is necessary to ensure that Eskom has sufficient generation capacity.

“This is factually incorrect, and merely a pretext to advance the criminal scheme to enrich selected individuals and entities including the ANC’s investment vehicles,” Mabapa says.

He alleges that the ANC would benefit from the price coal hike through the Batho Batho Trust and Thebe Investments, which are both ANC investment vehicles and shareholders of Seriti.

“Now it [ANC] seeks to insert its investment vehicles into a company which is to be paid extortionate and overvalued prices for coal at a cost of R69 billion on top of the previous price points, which will be paid by way of a 15% hike in electricity rates for all consumers,” Mabapa adds.

When approached for comment, Eskom said: “public discussion of these ongoing negotiations regarding proposed transactions is not in the best interests of Eskom, and prematurely making these discussions public can only be designed to irregularly influence and undermine crucial operational processes.”

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If you are looking for large-scale corruption and abuse of members look no further than the unions. It has long been my contention that unions do their members a disservice and it is time authorities had a good look into this industry.

In this case I think they (NUM) have a point. To me this is exactly how the Gupta Optimum deal was funded. Eskom suddenly paid an increased rice for the same poor quality coal they had been using all along once an ANC connected entity came along. New deal, new crooks, same result, ANC (and their pals) enrichment. They should allow open tenders (no BEE ? AA crookedness) for the coal supply. Simple but not so able to be crooked.

Lets just shut down Duhva and if anyone asks then refer them to the NUM for explanations.

Shut it down and send them home without pay you mean?

By all means this should investigated. Let there be complete transparency about the shareholders and beneficiaries of this deal to see if there’s merit in allegations of corruption. If we’re talking about prepayments to help finance a purchase of a coal supplier’s assets, this smells like the Gupta shenanigans in buying Optimum coal mine all over again. Of course, feel free to disagree with the unions on issues of labour or their own practices, but when they are exposing potential corruption of others, let nobody be blinded by prejudice. Rather offer the unions a salary increase if they end up saving inflated coal costs.

In most normal business, if I own a longterm asset that over time appears to be problem asset (was a nice building in a nice part of town but now that is not a nice part of town anymore for example), then me as the owner swallow my pride and sell it for what it is worth.

I don’t get to have its rent pegged at higher than market value so that I can sell it at a nice price.

The Australians can sell it for the price its contracts justify. At some price the mine is worth what its coal is worth at its contracted price. If it is worth negative then ask them to transfer the rehabilitation fund before they leave. At worst Eskom can pay an operator (the Union?) to honor the coal contract. With rehab funded and the coal reserves for free, there must be a better solution than re-pricing the coal!

Are contracts no longer binding?

End of comments.

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