Eskom board chairman Ben Ngubane on Saturday rejected suggestions that Tegeta Exploration and Resources, which is owned by the Gupta family and President Jacob Zuma’s son Duduzane, is being favoured to supply coal for power stations.
“I am concerned about the recent media speculation and sensationalism around the procurement of coal,” he said in a statement.
“Eskom stands firm by its process undertaken to conclude extensions of its coal supply agreements with its suppliers. I am satisfied that due process has been followed and we can be proud of the savings achieved by the executive team to date,” he said.
Eskom regularly engaged all its coal suppliers on the required volumes and qualities, as the demand varied from time to time and contracting relationships were concluded on sound commercial principles and considerations.
In emergency situations Eskom had used the prepayment mechanism to ensure security of supply. It was important to note that prepayment was a common commercial practice used widely and not unique to Eskom. The principle of prepayment was prevalent in Eskom’s cost-plus supply contracts with the large mining houses such as Anglo American, Becsa, and Exxaro. These mining houses supplied about 80 percent of Eskom’s coal while Tegeta supplied less than five percent of the coal volume required by Eskom.
The coal supply market was in need of major transformation as it had and continued to benefit a small monopoly of companies. This phenomenon was now under review as requested by the minister of public enterprises in her recent budget speech and Eskom was determined to ensure that emerging black miners also benefitted from Eskom’s buying power, Ngubane said.
“More pertinently, Eskom’s supply mix changed in April 2016 leaving Eskom with a deficit of 2.1 million tons which was required to meet the winter supply plan. Eskom approached its existing suppliers to source additional supply to mitigate this shortfall.
“It must be noted that the Exxaro Arnot Colliery had a contract with Eskom to supply coal to Arnot Power Station for 40 years. This contract expired in December 2015. The cost of coal at date of expiry was R1132/ton.
“I am advised that Tegeta now supplies Arnot at an average price of R500/ton. The unit cost of coal supplied under this contract is at a discounted rate of three percent, resulting in a further saving to Eskom of billions of rand in an eight month period and ultimately, the consumer,” he said.
“Tegeta was one of the suppliers able to meet Eskom’s need for this additional coal supply at the required coal quality. You will recall that this company also stepped in to avert a crisis at the Hendrina Power Station by offering to take the Optimum Coal Mine out of business rescue from Glencore thereby saving thousands of jobs and continuing the supply to Eskom.
“Eskom rejects any insinuation of favouritism towards suppliers such as Tegeta who are willing to step in to avert the coal supply crisis and allow Eskom to meet the winter demand,” Ngubane said.