Gup­tas’ R2.15bn deal for Eskom coal con­tracts

CityPress - - Busi­ness - SU­SAN COM­RIE in­ves­ti­ga­tions@city­

From next year, the in­flu­en­tial Gupta fam­ily will have an even big­ger stake in the Eskom coal mar­ket.

On Fri­day, it was an­nounced that Tegeta Ex­plo­ration and Re­sources, a com­pany partly owned by the Gup­tas, will buy Op­ti­mum Coal Hold­ings, which is ma­jor­ity owned by multi­na­tional min­ing gi­ant Glen­core. The ac­qui­si­tion in­cludes two coal mines in Mpumalanga – Op­ti­mum Coal Mine and Koorn­fontein Mines – as well as an 8 mil­lion-ton ex­port al­lo­ca­tion at the Richards Bay coal ter­mi­nal.

Tegeta al­ready sup­plies Eskom with 2.4 mil­lion tons of coal a year from the Brak­fontein Col­liery in Del­mas.

The Op­ti­mum Coal mine cur­rently has a con­tract to sup­ply Eskom’s Hen­d­rina Power Sta­tion with 5.5 mil­lion tons of coal a year, while Koorn­fontein sup­plies Ko­mati Power Sta­tion with about 2 mil­lion tons a year.

Op­ti­mum Coal Hold­ings was placed in busi­ness res­cue in Au­gust af­ter fail­ing to rene­go­ti­ate Op­ti­mum Mine’s crip­pling Eskom coal con­tract.

Last week, City Press re­ported that the Gup­tas had emerged as po­ten­tial buy­ers af­ter con­firm­ing that a due dili­gence process was un­der way at the mine.

Spec­u­la­tion was rife that while Glen­core and the busi­ness res­cue prac­ti­tion­ers had failed to ne­go­ti­ate a bet­ter price from Eskom, the Gup­tas may be able to use their in­flu­ence to se­cure a bet­ter deal.

On Fri­day, Tegeta con­firmed that it would pay R2.15 bil­lion to ac­quire Op­ti­mum’s as­sets. This would be used to set­tle the R2.55 bil­lion debt that Glen­core in­curred to keep Op­ti­mum afloat while it tried to rene­go­ti­ate the con­tract with Eskom.

Glen­core has also agreed to put up R400 mil­lion to set­tle the rest of the debt.

Tegeta di­rec­tor Nazeem Howa said: “A key is­sue for all the stake­hold­ers in this deal is the se­cu­rity of coal sup­ply to Eskom and the con­comi­tant im­pact this will have on our coun­try hav­ing a se­cure elec­tric­ity sys­tem ... If Op­ti­mum stops the sup­ply of coal, it will place ma­jor con­straints on the grid.”

Howa also high­lighted the im­por­tance of pre­serv­ing the jobs of 500 per­ma­nent em­ploy­ees at Op­ti­mum.

How­ever, Tegeta may have an up­hill bat­tle turn­ing its new pur­chases into lu­cra­tive as­sets.

Op­ti­mum’s R150/ton con­tract with Eskom means that the mine loses R3.7 mil­lion a day by sup­ply­ing Eskom. Tegeta has re­port­edly un­der­taken to con­tinue sup­ply­ing Eskom at this loss­mak­ing price un­til the end of 2018.

Mean­while, Koorn­fontein’s fixed-price con­tract with Eskom comes to an end this month, and Eskom spokesper­son Khulu Phasiwe said they had not en­tered into any ne­go­ti­a­tions to ex­tend it.

The busi­ness res­cue prac­ti­tion­ers said Tegeta would also take on the R2.4 bil­lion penalty im­posed by Eskom on Op­ti­mum for de­liv­er­ing poor-qual­ity coal.

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