Gup­tas

In­dus­try in­sider says paras­tatal’s deal with fam­ily’s com­pany is ‘sleight of hand’ as coal is di­verted from one power sta­tion and bought for a higher price at another

CityPress - - News - SUSAN COM­RIE in­ves­ti­ga­tions@city­press.co.za

Eskom has qui­etly awarded a con­tract worth more than R564 mil­lion to a coal min­ing com­pany owned by the Gupta fam­ily and Pres­i­dent Ja­cob Zuma’s son Duduzane. Two months af­ter be­ing awarded the lu­cra­tive con­tract, Tegeta Ex­plo­ration and Re­sources ap­pears to have per­formed a fi­nan­cial mir­a­cle.

In March, the busi­ness res­cue prac­ti­tion­ers of Op­ti­mum Coal – which was sold to Tegeta in April for R2.15 bil­lion – re­ported that the mine was pro­jected to lose R100 mil­lion a month.

But now, they say that the Gup­tas’ new mine will be taken out of busi­ness res­cue in Au­gust, or even sooner.

At the heart of the com­pany’s spec­tac­u­lar turn­around is the R564 mil­lion con­tract Eskom qui­etly awarded to Tegeta in April to sup­ply Arnot power sta­tion with 1.2 mil­lion tons of coal over six months. With trans­port costs added, Eskom is pay­ing just un­der R700 mil­lion – ex­cel­lent, by Eskom stan­dards.

Un­til re­cently, Op­ti­mum Coal, sit­u­ated just south of Mid­del­burg, Mpumalanga, was owned by min­ing gi­ant Glen­core. It was an­nounced in De­cem­ber that Tegeta would buy it. It was later al­leged that min­ing min­is­ter Mosebenzi Zwane trav­elled to Switzer­land with the Gup­tas to help them seal the deal.

Tegeta’s ma­jor share­hold­ers in­clude the Gupta fam­ily’s Oak­bay In­vest­ments (29%); Duduzane Zuma’s Maben­gela In­vest­ments (28.5%); Gupta as­so­ciate Salim Essa’s com­pany, El­ga­solve (21.5%); and two un­known in­vestors in Dubai.

When Tegeta took over Op­ti­mum in Jan­uary, it was los­ing more than R3 mil­lion a day be­cause of a loss­mak­ing con­tract to sup­ply coal for the Hen­d­rina power sta­tion. At the time, there was wide­spread spec­u­la­tion that Tegeta would use its po­lit­i­cal in­flu­ence to se­cure more lu­cra­tive terms from Eskom.

Eskom, though, has re­peat­edly de­nied this, in­sist­ing there would be no spe­cial treat­ment for the Gupta com­pany. “There’s an im­pres­sion that we are do­ing spe­cial favours for them. This is not true,” Eskom spokesper­son Khulu Phasiwe said on Thurs­day.

But a City Press in­ves­ti­ga­tion has iden­ti­fied a num­ber of ways Eskom is help­ing to bail out Tegeta’s new mine.

Pricey coal

At R470 a ton, Tegeta’s Arnot con­tract is one of Eskom’s most ex­pen­sive.

In May last year, Pub­lic En­ter­prises Min­is­ter Lynne Brown told Par­lia­ment that Eskom paid an av­er­age price of R230.90 a ton for coal, and that the av­er­age price of Eskom’s five most ex­pen­sive con­tracts was a “de­liv­ered price” of R428.84 a ton.

How­ever, the price paid to Tegeta ex­cludes trans­port costs. Eskom re­fused to re­veal the trans­port costs, say­ing th­ese are “com­mer­cially sen­si­tive”. How­ever, City Press has es­tab­lished that, with trans­port, Tegeta is paid roughly R580 a ton, push­ing the to­tal value of the six-month con­tract up to just un­der R700 mil­lion.

Of­fi­cially, the busi­ness res­cue prac­ti­tion­ers say the turn­around at Op­ti­mum is thanks to Tegeta boost­ing pro­duc­tion and cut­ting costs, but spokesper­son Louise Brug­man con­firmed the new Arnot con­tract played a sig­nif­i­cant role.

Wait­ing for the Gup­tas

Tegeta only re­ceived this lu­cra­tive con­tract thanks to a nine-month de­lay in Eskom award­ing a per­ma­nent sup­ply con­tract to re­place a 40-year-old Exxaro con­tract that ex­pired at the end of 2015.

Eskom was sup­posed to award the con­tract in Novem­ber, but this was ini­tially de­layed un­til March, and then de­layed again un­til Septem­ber this year.

When Tegeta started sup­ply­ing Arnot in Jan­uary, they were one of seven short-term sup­pli­ers.

In a rare pub­lic state­ment, the Gup­tas’ Oak­bay In­vest­ments in­sisted they had only a small piece of the pie: “We had a one-month con­tract in Jan­uary, sup­ply­ing less than 15%.”

But by the end of March, the con­tract for Arnot had still not been awarded.

“Ini­tially, the con­tract was sup­posed to be ful­filled in March, but we couldn’t do that be­cause out of the five [short-listed bid­ders] none of them was able to give us the full 5 mil­lion tons a year,” said Phasiwe.

But the orig­i­nal re­quest for the pro­posal doc­u­ment is­sued in Au­gust last year does not re­quire a sin­gle sup­plier for the full 5 mil­lion tons.

Eskom says it ap­proached the four re­main­ing ad hoc sup­pli­ers at Arnot and of­fered them the op­por­tu­nity to

Un­der the ex­ist­ing Eskom con­tract that Tegeta in­her­ited from Glen­core, Tegeta must de­liver 458 000 tons of coal a month to the Hen­d­rina power sta­tion.

But City Press has es­tab­lished that Op­ti­mum does not pro­duce enough coal to honour both con­tracts.

In what one min­ing in­dus­try fi­nancier de­scribes as a “sleight of hand”, it ap­pears that Eskom is al­low­ing Tegeta to di­vert a sig­nif­i­cant por­tion of Op­ti­mum’s coal from Hen­d­rina power sta­tion, where Eskom pays them R174 a ton, to Arnot power sta­tion 50km away, where Eskom buys the same coal at R580 a ton.

Eskom con­firmed that for the past three months, Tegeta de­liv­ered, on av­er­age, 315 000 tons of coal a month to Hen­d­rina.

Four dif­fer­ent coal in­dus­try an­a­lysts and min­ers City Press spoke to ques­tioned why Eskom did not take pos­ses­sion of the full 458 000 tons of coal at R174 a ton, but al­lowed Tegeta to use them to in­crease its sup­ply to Arnot.

Yes­ter­day, Eskom said it had re­duced the coal re­quire­ments at Hen­d­rina in the past few months.

“As far as we are con­cerned, no coal meant for Hen­d­rina is be­ing di­verted to Arnot.

“De­liv­er­ies early in the year were re­duced by Eskom due to a lower burn re­quire­ment at Hen­d­rina power sta­tion,” Phasiwe said.

“The com­mit­ment from Op­ti­mum, go­ing for­ward, is to meet the Hen­d­rina burn re­quire­ments.”

Tegeta de­clined to re­spond to a de­tailed list of ques­tions, say­ing: “We are com­mit­ted to the fu­ture sus­tain­abil­ity and prof­itabil­ity of Op­ti­mum. Our strat­egy for the Op­ti­mum mine will be an­nounced in due course.”

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