Eskom seeking Tegeta ‘consent’ to disclose value of Optimum settlement

Department of Public Enterprises director-general Mogokare Seleke revealed on Thursday that Eskom’s legal representatives had approached Tegeta Resources, owner of the Optimum coal mine, to obtain “consent” in making details of a recent arbitration settlement, relating to a R2.2-billion penalty claim against Optimum, public.

In a statement released following news that the State-owned utility and Tegeta had reached a settlement through independent arbitration, Seleke also reported that he had “requested a briefing from Eskom on the arbitration award in the Optimum Mine matter to satisfy [my]self that Eskom’s interests are secure”.

The claim arose as a result of a dispute over coal quality when Glencore was still owner of Optimum, which was controversially bought out of business rescue by the Gupta-family-linked Tegeta. Eskom confirmed the settlement, but did not disclose the value of the award.

“In terms of the rules of arbitration the quantum of the award may be publicly revealed on agreement of both parties. Eskom’s legal representatives have approached those representing Tegeta Resources, owner of Optimum Mine, to obtain the necessary consent,” Seleke said in a statement.

The dispute between Glencore and Eskom featured heavily in former Public Protector Thuli Madonsela’s ‘State of Capture’ report, which resulted in former Eskom CEO Brian Molefe departing the utility in November. Eskom’s commercial relationship with Tegeta has also been the subject of a review by the National Treasury.

Madonsela’s report detailed cellphone records showing that, between the period August 2, 2015, and March 22, 2016, Molefe, then CEO, called Ajay Gupta 44 times and Gupta called Molefe 14 times.

The report also “observed” that the sole purpose for awarding contracts to Tegeta (by then the operator at the Optimum mine) to supply the Arnot power station was to fund Tegeta’s purchase of all shares in Optimum Coal Holdings (OCH). Arnot had previously been supplied by a 'tied mine' operated by Exxaro, which moved to close the colliery when Eskom refused to enter into a new coal supply agreement.

In addition, a hastily approved R650-million prepayment to Tegeta was held up as particularly suspicious, as it appeared to have been used by Tegeta to buy OCH, rather than to capitalise the Optimum mine so as to enable it to supply the Arnot power station. The prepayment also followed shortly after bank funding for the OCH purchase was refused.

The R2.2-billion coal-quality penalty was made public during a high-profile dispute in 2015 between Eskom and Glencore, which described Optimum’s R150/t supply contract with the Hendrina power station as “onerous”.

Glencore indicated that the price being paid by Eskom was below the mine’s operating costs of around R400/t. However, Molefe refused to contemplate a change to the price prior to the contract’s expiry in 2018. As a result, Glencore placed the mine into business rescue in August 2015.

Eskom claims that it continues to receive coal from the Optimum mine at a price of R150/t, while Tegeta has reportedly indicated to Eskom that it intends selling its coal assets, owing to the political fallout over OCH.

Both Eskom and Public Enterprises Minister Lynne Brown have been criticised for failing to disclose details of the claim awarded to Eskom by an independent arbitrator. It has been argued that the R2.2-billion penalty would have been an important factor in determining the price paid by Tegeta for OCH. Tegeta eventually purchased the mine for R2.15-billion and the transaction became effective on April 15, 2016.

Democratic Alliance shadow public enterprises minister Natasha Mazzone has indicated that she will be requesting Brown to release details of the settlement, while AfriBusiness has indicated that it plans to lodge a Promotion of Access to Information Act application to secure details of the award.