Eskom came out swinging for its embattled CEO, Brian Molefe, on Friday following allegations made in the State of Capture report released by the Public Protector last week.
“Regarding the continued innuendo that Eskom has been giving special favours to Tegeta Exploration and Resources, the Eskom Board stands firm by the processes undertaken by the company to conclude extensions of its coal supply agreements with its suppliers. We are satisfied that due process had been followed and we can be proud of the savings achieved by the executive team to date,” said Eskom Chair, Dr Baldwin Ngubane.
Ngubane was joined on the dais by Dr Pat Naidoo, the lead independent non-executive director of the Eskom board, CFO Anoj Singh, and company secretary, Suzanne Daniels. Brian Molefe sat in the audience but rose to address specific questions where necessary.
Naidoo made a presentation which addressed the issues that had been raised around the Tegeta prepayment and contracts it had received to supply Majuba, Hendrina, Arnot and Komati power stations. Naidoo stated categorically that all contracts were awarded in line with Eskom’s procurement policies, and where conflicts of interest existed between board members and related parties, the conflicts were disclosed and dealt with.
While presenting Eskom’s side of the story – much of which we can only take at face value as there is no tangible way of verifying – Naidoo repeatedly said they were here to present the facts so they could get on with running the business.
The irony is that this briefing only came about because of a damning report by the Public Protector. So where has Naidoo been hiding for the last five months? Where was Ngubane, as chair of the board, when all of these accusations began swirling in early June? Where was Molefe when the highly incriminating, almost comical, interview with Koko on Carte Blanche aired on June 12? (Molefe only responded to the issue almost a month later at the group’s annual results presentation when asked by Moneyweb.)
None of the board has intervened until now to address issues that have been in the public domain for months, and which have rightly or wrongly affected the reputation of the utility and the way it goes about conducting its business.
But back to the issues. Despite being pressed multiple times on the purpose of the prepayment to Tegeta, there were no satisfactory answers. “It was for coal,” was the standard response.
The need for financial assistance implies the supplier would have a problem supplying the coal Eskom sought in the time frame they required – otherwise, why request it?
Eskom describes numerous examples in its press release that demonstrated this is a common practice for the utility to undertake.
Some examples include: “During the 2008 emergency, Eskom Board approved advance payments to the value of R400 million to enable suppliers to undertake projects needed to supply coal.” (We added the emphasis).
And: “Furthermore, a prepayment in the form of a loan was provided to Liketh in 2008 to buy equipment to process coal from the Kleinkopje Pit 5 West.”
Also: “Eskom has also entered into loan agreements to assist Rand Mines for capital expenditure.”
As you can see from the above, there was a specific purpose for the prepayments. But when pressed on the issue, no-one from Eskom could explain what the money loaned to Tegeta was actually used for.
The other gaping hole in their narrative involves Koko (Eskom’s Head of Generation). If prepayment was such a common practice, why did he deny any transfer of money to Tegeta in his interview on Carte Blanche? He could have just said Eskom needed the coal, as soon as possible, and this was standard practice. The silence from the assembled executives and board members on this point was deafening on Friday.
It has since come to light by amaBhungane that the prepayment made to Tegeta was approved in a matter of hours by the Eskom board just two days before the company had to pay R2.15 billion to acquire Optimum. The amount of the loan extended corresponds neatly with the amount of money Tegeta was short to meet the purchase price of Optimum.
The circumstances leading to the sale of Optimum by Glencore are also highly disputed. According to the Public Protectors’ report, Eskom and Glencore had made good progress in resolving the issue of the price Optimum received for the coal it supplied to the Hendrina power station.
As far back as July 2013, Optimum had written to Eskom invoking the “Hardship clause” in its contract, stating that “the difference between the cost to produce coal and the selling price to Eskom is approximately R166.40 [per tonne]” – State of Capture (5.158 b. pg 137).
This began a process of negotiation and evaluation by the two parties (described in the report) which included Eskom agreeing to a new price based on the fact Eskom and its advisers had extensively audited Optimum’s costs (5. 169 of the report).
The process went so far down the road that Eskom’s Executive-Procurement Committee approved a new contract on March 25 2015, and advanced it to the Eskom board for final approval.
Concurrently, Brian Molefe was appointed acting CEO of Eskom on April 17 2015.
The full Eskom board met on April 23 2015 but declined to make a decision on the matter.
On May 18 2015, in a meeting between Molefe and the CEO of Optimum – a month after his appointment – Molefe advised Optimum “Eskom would not be concluding any deal with OCM and would continue enforcing the existing coal supply agreement.”
Molefe later cited the reasons for the about-turn. In a letter to Optimum on June 10, he wrote, “considering Eskom’s current financial position, which is public knowledge, we unfortunately cannot afford to reset the contract price, to that proposed by Optimum Coal Mine.” The correspondence added later that “It remains priority for Eskom, to ensure the security of the coal supply to Hendrina Power Station..”.
At this point, Optimum had exhausted its available credit lines and was requiring R100 million per month to keep itself afloat.
An uninformed reading of the letter would suggest Eskom could not afford to increase the price of coal, nor could it afford any interruptions in supply to Hendrina, given that the company was load-shedding at the time.
So Moneyweb put the question to Molefe on Friday: why did he do an about turn against the recommendation of his own people? He was, of course, fully entitled to, as the executive head of the organisation to overrule recommendations of subordinates, but he declined to state the reasons for doing so. Instead, he replied by stating this was a question that should have been put to him by the Public Protector.
What he did make clear in his presentation on Thursday, was that Glencore CEO Ivan Glasenberg had in effect, “held a gun to our head” in the negotiations between the two parties. “He threatened to close down the operations unless they received a higher price,” said Molefe. This is an accusation hotly disputed by Glencore.
Molefe also refused to discuss the reasons for the 58 phone calls between himself and AJ Gupta at the same time as he was embarking on the u-turn with Glencore. Nor did he reply to any questions on the nature of his relationship with AJ Gupta or the broader family. But he is on the record as saying “they are nice people” and that he “has met them once or twice.”
Eskom summarised Molefe’s conflicts of interest in the following way:
But he is a member of the board, the same one that met and then refused to agree to a new contract with Glencore. But then again, neither are any of the Guptas officers of the government or members of cabinet. So, perhaps Eskom is missing the point. They need to investigate the relationships between the Guptas, Molefe and the Board to establish motive and whether there has been any undue influence.
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