Displayed with permission from allAfrica.com
Was Brian Molefe merely trying to protect the electricity supply?
The Public Protector’s report provided some fairly damning evidence about Gupta-owned Tegeta’s purchase of Optimum Coal Holdings (OCH). Industry analysts have speculated on what this means and what the next steps could be.
State of Capture, the report that Thuli Madonsela finalised before concluding her tenure as Public Protector, builds a case about Eskom’s conflicts of interests. It suggests that the power provider was acting at the behest of the Guptas, the family with controversial ties to President Jacob Zuma and other senior government officials.
Eskom CEO Brian Molefe resigned in the wake of the report’s release, but at least one commentator has said that he was simply acting under pressure to avert the power supply crisis, while others have been more sceptical of Molefe’s intentions.
The 355-page report, in part, looked into a deal facilitated by Eskom, that transferred ownership of Optimum Coal Holdings (OCH), formerly owned by Glencore, to Tegeta. co-owned by the Guptas and Duduzane Zuma, the president’s son, in April this year.
Glencore had put the Optimum Coal Mine (OCM) – one of the three entities in OCH – into business rescue. Eskom, as OCM’s only customer, had stated that it would only approve a change in OCM’s ownership if the new owner agreed to pay the R2 billion penalty debt owed to Eskom because the mine had provided the power supplier with substandard coal.
Eskom would also only permit the sale of OCM, not the other two entities that were a part of OCH, as they did not owe debts and were still profitable. These conditions barred many potential buyers from acquiring OCM.
However, when Tegeta entered the playing field, they were not required to pay OCM’s penalty debt immediately, although Eskom has stated that the debt remains in force and payable. Moreover they were able to purchase all three entities in OCH.
In addition, the rehabilitation fund that all mining companies are required to have was allowed to be counted as Tegeta’s asset through a transfer to the Bank of Baroda, which allowed the company to demonstrate that it could pay OCM’s debts if it acquired the mine. Normally, these funds may only be accessed to fund rehabilitation at the closure of a mine.
Finally, the report stated that when Tegeta was still R600 million short of the purchase price, Eskom’s board approved a R659 million prepayment to Tegeta (not to OCH), which enabled the company to buy OCH two days later.
However, Khaya Sithole, a chartered accountant and academic, has released a statement arguing that these actions were mere errors of judgement on the part of Molefe while he acted on the imperative to end loadshedding in South Africa.
Sithole believes that Molefe had to facilitate the sale of OCH to Tegeta because Glencore was threatening to stop OCM supplying coal to Eskom until Eskom agreed to pay more per tonne of coal. This would have caused South Africa’s load shedding problem to continue indefinitely, Sithole says.
“In Brian’s view, his quest to end load shedding at all costs was the driving ambition. Unfortunately, it was limited by the reality of the economic structure that Eskom was stuck with. Brian’s main error was in seeking to bypass such a problem by engaging the Gupta contract – and he will regret this forever … South Africans were very happy that Brian ended load shedding. It is the true mechanics of how he did it that we are now uncomfortable with – and we are letting him burn.”
However, according to Dirk de Vos, director of the corporate finance consulting firm QED Solutions, Molefe’s decision-making around the OCH deal had nothing to do with keeping the lights on.
“The loadshedding we experienced had nothing to do with coal supplies; it was purely a question of generation plant availability. This fell to below 70%, probably due to lack of maintenance and keeping the lights on at all costs in 2010,” he says.
In addition, he says that Molefe’s role in mitigating the energy crisis has been overstated by Sithole. “The work to increase plant availability – to around 75%, which is still below the 80% target – is a result of the engineers at Eskom. There are quite a few of high competence. The fall in demand, due to higher prices and the low commodity prices for South Africa’s mineral exports, played just as big a role.”
He believes that now that the ex-Public Protector has brought this all out into the open, Glencore will be forced by its shareholders to sue Eskom and Tegeta, and a lot will emerge in open court.
“There were many representations to drive this deal forward. Glencore was effectively bullied out if its assets – forced to sell OCH because it couldn’t pay Eskom a R2 billion fine, but then Tegeta got different terms. In fact, the big question for me is why Glencore hasn’t already sued… ”
And despite his sympathy towards Molefe, when approached to clarify his views, Sithole responded on email “The hint of corruption all through the deal cannot be disputed. At the very least, Brian is guilty of the most egregious form of insider trading and really lost track of his fiduciary responsibilities to Eskom.” Sithole further says: “The difficult part with simply concluding that the engineers were the fixers then invites us to interrogate why it took them that long to do that or more explicitly – why it only happened once Brian was in the house. It would be interesting if it turned out that coal supplies did not play a part in the loadshedding saga as Eskom themselves were adamant that the declining availability of coal supplies, due to increased exports, would directly lead to load shedding.”
It remains to be seen whether Glencore will take legal action. Further findings could potentially be brought to light by the National Energy Regulator of South Africa’s (Nersa’s) proposals for the multi-year price determination (MYPD) process, which call for greater transparency and reliability about the supply and demand of coal, which De Vos says would bring the nature of the agreements with coal suppliers like Glencore into the open.
For now, all eyes are on the newly appointed Public Protector Busisiwe Mkhwebane, waiting to see whether she will push for the judicial inquiry recommended in her predecessor’s report.