South Africa

Days of Zondo: Newsflash

Brian Molefe blocked Optimum Coal’s life-saving Eskom deal, says witness

Clinton Ephron, the former CEO of Optimum Coal Holdings, testifies before the State capture inquiry, on February 27, 2019. News24 Screengrab.

Glencore has for the first time publicly revealed how months of successful negotiations to revise an unprofitable and outdated coal supply agreement with Eskom crashed in May 2015 – a month after Brian Molefe arrived as the new Eskom CEO.

Clinton Ephron, the former CEO of Optimum Coal Holdings, the company Glencore was pressured into selling to the Guptas in 2015, told the State Capture Commission on Wednesday that a “binding” addendum to an original contract suddenly went up in smoke weeks after Molefe’s appointment.

Having failed to engage with Molefe in the weeks after his appointment, Ephron finally secured a meeting with him at Megawatt Park on 18 May 2015.

At the time, the parties were way over a deadline for a negotiated settlement to be signed to avoid an arbitration process after Optimum invoked a hardship clause as it could no longer operate the mine at historically set rates.

It was a brief meeting.”

Molefe simply told Ephron that Eskom would not be amending the terms of the original coal supply agreement with Optimum and that no amendments would be considered until the end of the contract in December 2018.

Until then, teams party to the negotiations at both Eskom and Optimum, were optimistic as the deal had been drawn up and only required Eskom governance processes to kick in to ensure it materialised.

Eskom’s Johan Bester, who was on the negotiating team, had earlier told Ephron that the addendum to the initial contract which contained the new provisions, had been approved by an Eskom executive committee. It was then scheduled to be presented to Eskom’s Board Tender Committee (BTC). Bester is scheduled to testify at the Commission in due course.

Ephron testified that Bester had told him that a meeting of the BTC was scheduled for April and all indications were that there was clear support for the revised deal within Eskom.

My understanding is that on 15 April the fourth addendum was presented to the BTC. They referred the matter to the main board for consideration.”

Senior advocate Vincent Maleka asked Ephron how he had felt about Molefe’s apparent change of attitude. In one word, he said: “Devastated.”

Molefe had told him the deal was a no-go and that Eskom would continue to enforce its rights under the original contract – this included harsh penalties levied against the company over out-out-specification coal.

What is now public knowledge is that several Eskom executives allegedly aided the Guptas in their quest to snatch Optimum Coal Mine from Glencore by pushing the company into a corner as it then filed for business rescue, paving the way for the Gupta purchase.

A key asset, this mine is situated next to Eskom’s Hendrina power station and had, since the 1970s been tied to exclusive, long term contracts with Eskom to ensure security of supply.

Glencore only acquired the mine in 2011.

The sale of Optimum to the Guptas was facilitated through extreme political intervention and the aid of Eskom executives through a controversial R1.6-billion guarantee and a R600-million prepayment for coal to help the Guptas cover a short-fall on the purchase price.

The deal first came under scrutiny in former Public Protector, Thuli Madonsela’s State of Capture report, released in late 2016.

Ephron detailed how Optimum had approached Eskom in 2013 in an effort to alleviate severe financial hardship.

This was because the company had found that the inflationary adjustment in the coal price paid by Eskom was no longer working and that costs of running the mine and producing the coal was exceeding the selling price.

Optimum invoked a “hardship” clause provided for in the original contract to try and mitigate against R829-million in losses it had suffered that year.

The contract dictated that the parties go to arbitration to resolve the issue but this process was later suspended when Eskom Optimum instead tried to negotiate a fair deal for both parties.

It is those negotiations that led to what became known as the fourth addendum to the original Optimum/Eskom contract that Molefe allegedly blocked soon after his arrival at Eskom.

Ephron’s testimony continues. DM


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