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Eskom CEO Molefe Says Focused on Coal Cost, Not Mine Owners

Eskom Holdings SOC Ltd., South Africa’s state-owned power company, can’t afford to pay “exorbitant” amounts of money for coal used in its plants, Chief Executive Officer Brian Molefe said, responding to criticism of the utility’s purchase of coal from a company owned by business associates of President Jacob Zuma’s family.

Eskom has been buying coal from the Optimum Coal mine, which is being taken over by a company controlled by the Gupta family, since the beginning of the year, after letting a contract with Exxaro Resources Ltd. to supply about 20 percent of the Arnot power plant’s coal supply expire. Exxaro has said it may need to close its own mine and fire workers. Optimum had been placed in business rescue, a form of bankruptcy, by Glencore Plc after Eskom refused to relax the terms of a contract that Glencore said made the mine unprofitable.

“We are under pressure,” Molefe said. “On the one hand certain mining companies want to keep us paying exorbitant amounts of money for coal and we need to cut our costs. When we ask for increases in electricity pricing, then the same people are also unhappy.”

Family Businesses

The Gupta’s Tegeta Exploration & Resources agreed to buy Optimum in December for 2.15 billion rand ($134 million). Tegeta and other companies are supplying Eskom’s Arnot power station with coal for about 400 rand per ton, less than the 900 rand per ton Exxaro charged, Molefe said. Zuma’s son Duduzane sits on the boards of a number of companies with the three Gupta brothers -- Atul, Rajesh and Ajay -- who run the family’s businesses.

Johannesburg’s Sunday Times reported that Mosebenzi Zwane, South Africa’s mines minister, traveled to Zurich at the same time as a delegation from the Guptas and met with Glencore’s Chief Executive Officer Ivan Glasenberg. Glencore said it worked with “stakeholders” including the government to facilitate the sale of Optimum. It didn’t respond to a question about whether Zwane met Glasenberg.

“We can’t continue to be quiet over this matter because workers are threatened with retrenchments because people want to buy certain businesses,” Sdumo Dlamini, the president of the Congress of South African Trade Unions, South Africa’s biggest labor group, told the Sunday Times. “Eskom is saying that Exxaro must reduce their coal prices. If they don’t do that they will cut the contract, which forces the company to close down. You have to look deeper, what lies behind that. It’s the Guptas in this one.”

Taxpayers’ Money

Dlamini didn’t answer calls made to his mobile phone.

Tegeta is supplying Arnot at 150 rand per ton, saving Eskom and therefore taxpayers’ money, according to Nazeem Howa, the chief executive officer of Oakbay Investments, the Gupta family’s investment vehicle, which has a stake in Tegeta.

“Surely we have a right to compete and to tender and we’ll do that on any fair grounds,” Howa said in an interview aired by the South African Broadcasting Corp. on Monday. “I’ll be the first to stand in line and to take responsibility if anything untoward happened on any of these contracts.”

While Optimum is now selling some coal to Arnot, the supply contract to take over Exxaro’s share has not been awarded yet, according to Eskom. Optimum is also supplying the Hendrina power plant. Its agreement to supply at 150 rand a ton runs until 2018. It was too little to keep the mine running, according to Optimum. Glencore wanted to charge Eskom as much as 530 rand per ton, which was unaffordable, Molefe said.

Eskom is the biggest buyer of coal in South Africa with almost all of the power it generates coming from the fuel.

Source: Bloomberg