Trea­sury blocks R4bn Gupta deals

CityPress - - Front Page - SIPHO MASONDO sipho.masondo@city­press.co.za

Na­tional Trea­sury has blocked Eskom from ex­pand­ing two coal-sup­ply con­tracts that would have seen a com­pany owned by the Gupta fam­ily and Pres­i­dent Ja­cob Zuma’s son Duduzane end up R4 bil­lion richer.

A pre­lim­i­nary re­port com­piled two weeks ago, which City Press has ob­tained, was com­mis­sioned by Trea­sury to in­ves­ti­gate whether Eskom fol­lowed proper sup­ply chain poli­cies when hand­ing coal­sup­ply con­tracts to Tegeta Ex­plo­ration and Re­sources. The re­port also found that: In Au­gust last year, Trea­sury shot down Eskom’s re­quest to ex­pand the Tegeta-owned Brak­fontein col­liery’s 10-year coal-sup­ply con­tract by an­other R2.94 bil­lion. This con­sti­tuted a 77.42% in­crease from the com­pany’s orig­i­nal agree­ment to sup­ply coal to the Ma­juba power station in Mpumalanga, and would have in­creased the con­tract’s value from R4 bil­lion to R7 bil­lion.

That same month, Trea­sury fur­ther barred Eskom from ex­pand­ing the Tegeta-owned Op­ti­mum Coal Mine’s two-month con­tract to sup­ply coal to Arnot power station, in Mpumalanga, for a fur­ther six months with­out go­ing to ten­der. The ini­tial con­tract was worth R235 mil­lion and the con­tract’s ex­pan­sion would have in­creased the amount by R855 mil­lion to more than R1 bil­lion.

Tegeta de­liv­ered sub­stan­dard coal to Ma­juba that the re­port found Eskom should have treated as “re­ject coal”.

The re­port also recommends a foren­sic au­dit be con­ducted to:

Es­tab­lish “why Eskom gave and con­tin­ues to give pref­er­en­tial treat­ment to Tegeta by not en­forc­ing key con­di­tions of the coal-sup­ply con­tract”, and why Eskom, through its for­mer chief ex­ec­u­tive Brian Molefe, “gave as­sur­ance that the Brak­fontein col­liery supplied and con­tin­ues to sup­ply coal that con­forms to the coal-sup­ply agree­ment, de­spite am­ple ev­i­dence that there was non­com­pli­ance”.

De­ter­mine fruit­less and waste­ful ex­pen­di­ture re­gard­ing pay­ments made to Tegeta for coal from Brak­fontein and Op­ti­mum.

In­ves­ti­gate whether mod­i­fi­ca­tions of the coal­sup­ply agree­ment with Tegeta prej­u­diced Eskom in any way.

A source with knowledge of Trea­sury’s in­ves­ti­ga­tion said: “Even if the qual­ity is­sues had been sorted out, Trea­sury would not have agreed for Eskom to go ahead with ex­pand­ing the con­tract. Eskom would still have needed to tell Trea­sury why it was not able to go out on ten­der and ap­point an­other com­pany.

“I don’t see how Eskom would have con­vinced Trea­sury that the Brak­fontein col­liery is the only com­pany that could sup­ply it with coal.”

Re­gard­ing the pro­posed con­tract ex­ten­sion for Op­ti­mum Coal Mine, the re­port found: “Eskom re­quested ap­proval from Na­tional Trea­sury to mod­ify the con­tract for R855 mil­lion in a let­ter dated Au­gust 11 2016. The pur­pose of the mod­i­fi­ca­tion was to in­crease the con­tract du­ra­tion by six months.”

Eskom tried to jus­tify the con­tract’s ex­ten­sion by saying that other com­pa­nies short-listed for the Arnot coal-sup­ply con­tract would not be able to meet the power station’s coal re­quire­ments when Op­ti­mum’s con­tract ended in Septem­ber last year.

In­stead of ex­tend­ing Op­ti­mum’s con­tract, the re­port states that Trea­sury in­structed Eskom to con­duct a “closed bid and re­quest pro­pos­als from the iden­ti­fied sup­pli­ers”.

“Pro­pos­als re­ceived and the as­sess­ment done must be sub­mit­ted to Na­tional Trea­sury for ver­i­fi­ca­tion. Trea­sury is con­vinced that the out­come of the closed bid process will prove that the R19.69 per gi­ga­joule paid by Eskom [to Tegeta] was ex­or­bi­tant.”

The re­port also found that, in Jan­uary and Fe­bru­ary last year, the Brak­fontein col­liery missed its coal tar­gets to Eskom by 150 000 tons.

Be­tween April 2015 and March last year, Eskom had agreed to buy coal from Tegeta at R13.50 per gi­ga­joule. But from April last year un­til now, the com­pany had re­ceived a 46% in­crease, to R19.70.

The source said Eskom should not have al­lowed Tegeta to sell coal at R19.70 when it had mas­sively un­der­sup­plied them.

“Trea­sury sam­pled Jan­uary and Fe­bru­ary 2016 only. But if you look at the en­tire year, the short­fall is well in ex­cess of 250 000 tons,” the source said.

The re­port found: “Eskom should have re­quested Tegeta to sup­ply its short­fall coal for the pe­riod April 2015 to March 2016 at R13.50 per gi­ga­joule.”

The de­liv­ery of the short­fall, the re­port found, would have re­duced the ad­di­tional 250 000 tons re­quired per month and would have saved Eskom money.

In the re­port, Trea­sury of­fi­cials also slammed Eskom for hik­ing coal prices a month af­ter sign­ing con­tracts with Tegeta, giving the com­pany an in­crease just one month af­ter sign­ing a con­tract in 2015.

From April 2015 to March last year, Eskom paid Tegeta R553 mil­lion. It is not clear how much was over­paid to the com­pany as a re­sult of the in­flated prices.

In a state­ment re­leased pub­licly on Fri­day in re­sponse to City Press’s ques­tions, Eskom’s spokesper­son, Khulu Phasiwe, said: “While work­ing around the clock to fi­nalise its com­ment to Na­tional Trea­sury for to­mor­row, Eskom has been shocked to learn of a fur­ther leak of the draft Trea­sury re­port to the me­dia.

“Eskom had raised its con­cerns that the draft re­port ... was made avail­able to third par­ties with­out Eskom hav­ing the op­por­tu­nity to re­spond to al­le­ga­tions con­tained in the draft re­port.

“It seems convenient and co­in­ci­den­tal that the re­port is leaked to the me­dia a day be­fore its com­ments are due to be is­sued to Na­tional Trea­sury, which, in the eyes of the pub­lic, would now be ir­rel­e­vant as per­cep­tions would now be re­al­ity.

“Eskom re­mains fully com­mit­ted to con­tinue to work con­struc­tively with Na­tional Trea­sury,” Phasiwe said.

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