Failure by Gupta-linked company to supply coal at Majuba eroded its stocks

The commission of inquiry into state capture heard from the acting senior general manager of the primary energy division at Eskom, Daniel Mashigo, on Tuesday about the impact of the failure by the Gupta-linked Tegeta to supply coal at Majuba power station.

Tegeta was placed under business rescue from February 2018, which resulted in the company’s coal mine in Brakfontein failing to meet its contractual requirement of 10 years entered into in 2015 to supply the power station with coal.

This led to the Majuba power station having to use coal from its stockpiles, which dwindled to way below the 40 days’ of coal the entity is required to maintain as stock levels as per the South African Grid Code.

Mashigo told the commission that, when running normally, the power station burns 42,000 tons of coal each day.

“The Tegeta contract is supposed to supply 113,000 tons per month, but of that 113,000, the penalties can accrue only if they supply below the contractual minimum [106,000 tons, equivalent to 2.4 stock days for Majuba],” Mashigo said.

Penalties that have been imposed by Eskom on Tegeta now amount to R500 million.

Tegeta supplied coal to Eskom but in Nov 2017, the supply started to dwindle until the company went into business rescue in Feb 2018. Mashigo says by end 2018 Eskom imposed penalty fee amounting to R500 million. #StateCaptureInquiry

— State Capture Commission (@StateCaptureCom) February 26, 2019

“Every month that Tegeta has failed to supply coal to Majuba from Brakfontein is equivalent to 2.4 days, meaning that we had to go to our strategic pile and burn off that two days because it is not coming from Tegeta, and we could not replace that coal quick enough,” Mashigo told the commission.

This led to Majuba having “a severe deterioration” of stock levels of coal, dropping below 10 days’ of coal of stock levels “which is very, very critical; it was very low”, Mashigo said.

“But the total amount, the equivalent amount of stock that Majuba lost by virtue of Tegeta not supplying coal is equivalent to 24 days,” Mashigo added.

However, he noted that this was not the only contributor that placed the power station at risk.

Tegeta’s failure to supply coal at Majuba forced Eskom to continuously source coal in the markets.

“But this is coal that was contracted, it was in the plan, it was supposed to be there for 10 years since 2015, so there was absolutely no reason to plan for this coal not coming in,” Mashigo said.

He added that when the mine was placed under business rescue on 17 February last year, it was only at that time that Eskom had to source coal supply to replace the supply from Tegeta.

“And the procurement process is not that quick enough to find replacement coal; it was during a time when the price of export coal was high, so there was competition for exporters and our process is quite tedious and lengthy to conclude a coal contract, which is why Majuba decayed.

“In and around October, that is when some of the new contracts started kicking in and, we could supply more than what we were consuming and we started stockpiling more,” Mashigo said.

The power station currently has slightly above 20 days’ of coal in its stockpile, which places it “in a much better situation and is in line with what the national grid code is saying”, Mashigo said.

The code normally requires that power stations maintain a stockpile of coal for 20 days, however, Majuba, Mashigo explained, has a higher requirement because it is located farther away from coal mines.

Mashigo says Tegeta failed to supply 50% of contractual supply of coal.
He says at the moment Majuba power station is sitting at 20 days coal stock pile. #StateCaptureInquiry

— State Capture Commission (@StateCaptureCom) February 26, 2019

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