Brian Molefe: Glencore tainted us as Gupta people because I wouldn’t sign coal deal

2 Mar 2021

Brian Molefe took a hard line on Optimum Coal when he became Eskom CEO in 2015, eventually making way for the Gupta-owned Tegeta to purchase the mine. He told the State Capture Commission he was standing up to large, white-owned companies that wanted to bully and overcharge Eskom to the detriment of consumers.

April 2015, shortly after Brian Molefe was seconded as Transnet CEO to Eskom, the power utility’s board discussed its cooperation agreement with Optimum Coal Mine (OCM) that sought to address OCM’s struggles.

The mine was producing coal for Eskom below cost, at around R150 per ton, and was likely to close unless it could secure a higher price. In 2013, OCM had approached the arbitrator in an attempt to raise its price, but then backed down and agreed to work with Eskom to solve its dispute.

The Eskom board mandated Molefe to get information on the negotiations and report back. Molefe took a “dynamic interpretation” of the board’s instruction, he told the State Capture Commission on Tuesday.

Without going back to the board, he decided to discard the cooperation agreement and end talks about increasing the price per ton of coal paid to Optimum, despite recommendations from Eskom managers and independent consultants to negotiate an increase to ensure supply to the Hendrina Power Station.

Molefe said recommendations from Eskom’s fuel sourcing manager Johann Bester and independent consultants to raise the coal price prioritised OCM’s interests while he had Eskom’s best interests at heart.

The former Eskom CEO has been accused of being part of a campaign to force OCM out of the market in order to facilitate its sale to Tegeta Exploration and Resources, owned by the Gupta family and Duduzane Zuma, which took over the company in 2016.

Molefe defended his position on the Glencore-owned mine at the State Capture Commission on Tuesday, claiming he was standing up to one of a number of large, white-owned companies that had plum deals with the energy giant who thought they could dictate their own terms to Eskom and in effect raise the price of electricity for consumers.

“What Optimum was putting on the table was preposterous and illegal because we had an existing agreement until the end of 2018,” Molefe told Deputy Chief Justice Raymond Zondo.

OCM leaders had proposed raising its price per ton from R150 to R442, which Eskom leaders appeared to agree to in principle before Molefe’s arrival.

Molefe said he came to Eskom with a new eye, but he apparently never attempted to negotiate the coal price with OCM, which he viewed as entitled and manipulative.

He questioned the authority of the Eskom official who signed the cooperation agreement, aimed at building a lasting deal with the supplier, and suggested OCM was trying to bully its way out of its contractually agreed price, which it had agreed to when Glencore acquired OCM years earlier without performing its due diligence.

Molefe said Eskom shouldn’t be held liable for Glencore’s failures and he repeatedly suggested that the company was trying to use its political influence, through former shareholder Cyril Ramaphosa, who was the country’s deputy president in 2015, to loot the power provider.

Molefe admitted that an agreement between Eskom and OCM would have been legal, but he maintained OCM was acting like “medieval robbers”. He said Glencore boss Ivan Glasenberg had told him South Africa would experience load shedding if Eskom failed to agree to a new coal price.

“If you’re putting a gun to my head, I’m going to ask you to shoot,” Molefe said he told Glasenberg.

“They were driving the fear of God into us.”

While Molefe emphasised how OCM had created the terms for its downfall, Zondo asked whether it might have been prudent to negotiate with the company to secure the coal supply to Hendrina regardless of how the stalemate was created.

“It was a matter of principle,” said Molefe on his refusal to budge.

Molefe emphasised that South Africa has 400 years of available coal in the ground. The problem wasn’t the availability of coal, it was the few white-owned companies that had long-term agreements with Eskom that had been able to dictate their own terms that led to Eskom paying exorbitant prices, he claimed.

He suggested black-owned companies could fill the supply gap and reduce prices by creating competition as Eskom challenged its legacy suppliers.

When the Guptas eventually took charge of OCM, Tegeta repeatedly failed to deliver coal supplies to Hendrina while exporting much of its supply at a more lucrative price. Eskom then gave Tegeta a discount on the penalties OCM owed to the tune of R722-million.

When OCM went into business rescue in 2015, it stopped supplying Hendrina, but Eskom managed to source coal from a variety of BEE miners in the area, said Molefe, suggesting that Eskom had options other than renegotiating OCM’s coal price.

“If Hendrina closes down, the whole of South Africa has coal. We would make a plan, we would have to make a plan and if we can’t make a plan we’re stupid,” Molefe told Zondo.

Molefe described himself as an innovator who looked for all available options rather than submitting to OCM’s demands. Evidence leader advocate Pule Seleka, however, pointed out that OCM only cancelled its supply for about two weeks while Hendrina has stockpiled coal reserves to last 35 days.

While Molefe refused to budge on the price, Optimum was legally obliged to supply Eskom coal at R150, but that contract fell away when OCM entered business rescue in late 2015.

“That is what happened, chairperson. That is why you and I are here today because I refused to sign at the R450 agreement. I refused to be bullied into acting against the interests of Eskom,” Molefe said, claiming a vengeful Glencore then sold the mine to the Guptas’ Tegeta and sought to paint the CEO and his colleagues as Gupta stooges.

“They sold the mine to the Guptas. I didn’t make them sell the mine, they sold the mine of their own accord,” he said.

“That was a masterstroke because they were so angry with us they were now going to start a campaign to taint us as Gupta people.”

The commission, however, has heard testimony that Eskom executives pressured Optimum and Glencore leaders to sell the mine to Tegeta and ensure they would fund the Gupta’s purchase of OCM, first through an R1.68-billion guarantee and then an R659-million prepayment.

In her report on State Capture, former Public Protector Thuli Madonsela found Molefe had at least 58 phone calls with Ajay Gupta soon after he joined Eskom. Speaking at the commission in January, Molefe described his long relationship with the Guptas who he said had been willing to work with him on a number of projects, particularly attempting to establish a black-owned bank.

When the Guptas eventually took charge of OCM, Tegeta repeatedly failed to deliver coal supplies to Hendrina while exporting much of its supply at a more lucrative price. Eskom then gave Tegeta a discount on the penalties OCM owed to the tune of R722-million.

“The same situation seems to play itself out, but a different mine, the Arnot Power Station, but in respect of both, Tegeta is the common factor,” said Seleka.

He referred to Eskom’s decision to end its deal with Exxaro to supply Arnot in 2015 before its contract was reportedly due to expire in 2023 due to Exxaro’s high costs. Molefe said Exxaro’s coal cost up to R1,030 a ton while Seleka presented evidence showing it cost an average of around R630.

Eskom then sourced coal from six supposed BEE companies, including Tegeta, to supply Arnot. Tegeta, however, was supplying coal to Arnot from OCM with a markup on the cost. Molefe maintained that the deals highlighted his efforts to reduce primary energy costs at Eskom.

“The fact that we could get the coal at R400 from BEE suppliers around that area, that says a lot about exactly what was happening with primary energy costs at Eskom. People were feeling entitled to have their 40-year contracts renewed at much higher prices than what we could get the coal for,” he said.

Molefe is scheduled to continue giving evidence at the commission on Wednesday. He’s expected to be followed by former Eskom CFO Anoj Singh who will give evidence for the first time. Singh is accused of working closely with Molefe to benefit the Guptas. DM

Categories:

Tags:

DM is much better if you are signed in...

Business Maverick