How an inattentive Eskom board allowed Guptas to buy a mine using taxpayers’ money

Deputy Chief Justice Raymond Zondo expressed disappointment several times at the Eskom board members’ lack of diligence in doing their job and so allowing billions to be bled from the already ailing Eskom.

Each board member had their turn to be lambasted by Justice Zondo — much like the parliamentarians who came before him in previous days — for not asking informed and probing questions of the executive and performing the oversight role they were assigned to do. In particular, Zondo struggled to believe they did not notice they were handing billions of rands to the “proposed owners” of a coal mine rather than to the mine’s actual owners.

Evidence leader Pule Seleka SC took former board members Professor Pathmanathan Naidoo, Venete Klein and Ms Viroshini Naidoo to a particular day, 8 December 2015, when the board authorised Eskom executives to conclude a R1.68-billion pre-purchase deal for coal from Optimum coal mine, as well as an April 2016 prepayment deal for a further R659-million worth of coal from the mine. 

It was these prepayment deals that financed Tegeta’s purchase of the mine from Glencore’s subsidiary, Optimum Coal Holdings. 

Tegeta’s majority shareholder, according to evidence placed before Parliament in 2017, was the Gupta family’s Oakbay Investments, along with Duduzane Zuma’s company Mabengela.

Testimony by Pathmanathan Naidoo, who took the stand first, set the stage for how a crisis appeared to have been engineered by new Eskom CEO Brian Molefe, which created fertile ground for Tegeta acquiring the mine.

Led by Seleka, Professor Naidoo told how a long-term contract — about 50 years — had existed between the mine, which supplied the Hendrina power station on a cost-plus basis, and Eskom. Hendrina was built to generate electricity from low-grade coal, essentially supplied at cost by the mine, which then made its profits from selling higher-grade coal on the export market. 

But in the 2014-2015 period, export prices had dropped and the mine, owned by Optimum Coal Holdings (OCH) was losing money and sought to invoke a hardship clause in its Eskom contract, requesting a price increase from R150 per ton to R422 per ton. This request came before the board’s Bid and Tender Committee — of which he was chair — on 23 April 2015, the same day Brian Molefe had been seconded as Group Chief Executive by then Public Enterprises Minister Lynne Brown after a series of very suspicious events. 

However, Prof Naidoo said the Bid and Tender Committee (BTC) referred the matter to the board, and the board referred the matter to Molefe to obtain more information and report back, as they believed it was an operational matter. The issue of his reporting back, which did not occur, was a point Zondo pursued with each board member, asking them why they did not follow up. The answers, to Zondo’s frustration and near disbelief at times, were largely that they considered the matter to have been dealt with. 

The only report they received was a brief note in the Chief Executive’s report contained in the reading pack at a September 2015 board meeting, stating the Optimum contract had been terminated. 

The board members said that before that they did not know Molefe had terminated Optimum’s coal contract in July 2015 and, according to evidence before Parliament, levied a R2.1-billion fine against Optimum for historic coal deliveries below specification. This was a fine Eskom inexplicably forgave when Tegeta later offered to purchase the mine.

By 4 August 2015, Optimum was in business rescue. 

The next move was the R1.68-billion pre-purchase agreement sent to the board on 8 December 2015.

Former Eskom board member Venete Klein. (Photo: Gallo Images / Luba Lesolle)