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Eskom board still considering whether to take State of Capture report on review

Eskom board member Dr Pat Naidoo

Eskom board member Dr Pat Naidoo

4th November 2016

By: Terence Creamer

Creamer Media Editor

  

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The Eskom board reported on Friday that it was taking legal advice on “inconsistencies” in the Public Protector’s ‘State of Capture’ report, including whether or not to take the report on legal review.

The board also insisted that all directors had declared conflicts of interest, complied with their fiduciary duties and acted in the best interest of Eskom when deciding on commercial coal contracts involving Tegeta, a mining company linked to the controversial Gupta family.

Board member Dr Pat Naidoo, who spoke at a briefing in Johannesburg also attended by chairperson Dr Ben Ngubane and CEO Brian Molefe, asserted that Eskom had cooperated with the Public Protector, but had not been afforded right of reply. “Eskom’s board of directors is considering to take the report of the Public Protector on review,” he said, adding that the decision would be communicated in due course.

In her report, former Public Protector Thuli Madonsela outlines various questionable actions by the Eskom board, its executives and Mineral Resources Minister Mosebenzi Zwane in relation to the Optimum Coal Mine (OCM), which was placed into business rescue by then owner Glencore after it failed to secure Eskom’s agreement for a renegotiation of a R150/t coal supply agreement.

Glencore argued that it was facing “hardship” as a result of the contract, while Eskom insisted that it would not entertain any change until the agreement expired at the end of 2018. It also imposed penalties of R2-billion on OCM relating to a coal-quality dispute.

As a result of the dispute, Glencore placed OCM into business rescue and eventually agreed to sell Optimum Coal Holdings (OCH), which owned OCM and other assets, to Tegeta. In the intervening period, it is alleged that Zwane participated in a meeting with Glencore that took place in Zurich, Switzerland, at which the Gupta’s were also present.

The report also states that Eskom’s R659.6-million prepayment to Tegeta to facilitate coal supply to the Arnot power station may not be in line with the Public Finance Management Act (PFMA), as prepayment was not used to fund OCM operations, but rather to fund the purchase of all shares in OCH.

It notes that, on April 11, 2016, Tegeta informed the business rescue practitioners and Glencore, which, in turn, informed the loan consortium, that they were R600-million short. On the very same day, Eskom held an urgent board tender committee meeting at 21:00 to approve the R659.6-million prepayment.

Madonsela’s report also states that, in light of the extensive financial analysis conducted, it appears that the sole purpose of awarding contracts to Tegeta to supply Arnot power station was to fund Tegeta and enable it to purchase all shares in OCH. “The only entity which appears to have benefited from Eskom’s decisions with regards to OCM and OCH is Tegeta, which appears to have been enabled to purchase all shares held in OCH.”

Also observed in the report is a seemingly close relationship between Molefe and the Gupta family, with cellphone records showing that, between the period August 2, 2015, and March 22, 2016, he called Ajay Gupta 44 times and Gupta called Molefe 14 times.

The report recommends that President Jacob Zuma convene a commission of inquiry within 30 days, which should be led by a judge selected by Chief Justice Mogoeng Mogoeng. The commission should complete its task and present the report with findings and recommendations to the President within 180 days.

Molefe insisted that he had suffered “enormous prejudice” as a result of the report and what he termed Madonsela’s “failure” to give him a hearing and said he was taking legal advice on how to respond. He indicated that he was would speak about his relationship with the Gupta family in the right forum, be it a judicial review or a commission of inquiry.

Naidoo argued, however, that it was not clear how the conclusion was drawn that the Eskom board acted unethically and unlawfully.

“Eskom has cooperated with the Public Protector by providing all the required information. However, it has to be noted that Eskom was not afforded a right of reply or the opportunity to cross examine the Public Protector’s evidence,” he argued.

In a case-by-case presentation of “the facts”, Naidoo insisted that all transactions involving Tegeta had complied with Eskom’s procurement policies and procedures, which are consistent with the requirements of the PFMA.

“All the transactions are based on sound commercial rationale,” he added.

Naidoo also argued that billions of rands in shareholder value had been created as a result of the various coal supply contracts scrutinised in the report. “Consequently the board does not believe any fruitless and wasteful expenditure has been incurred as value has been demonstrated and it has exercised a duty of care”.

In fact, in a slide titled ‘shareholder value created by the various coal agreements’, the board calculated the “real benefit” associated with the Hendrina and Arnot arrangements with Tegeta, including the prepayment, at over R17-billion.

Eskom also claimed that several prepayments had been made, since 2008, to other coal suppliers, indicating that these payments ranged in value from R100-million to R400-million. However, Ngubane refused a request for the names of the companies, citing confidentiality.

Processes had been resurrected, after OCM’s emergence from business rescue at the end of August, to recover the R2-billion in penalties Eskom felt was still owing to it by OCM, now owned by Tegeta.

Naidoo also announced that it had been advised by Tegeta on October 3 of the miner’s intention to reach a mutual agreement on specific terms to terminate all contracts with Eskom in respect of Brakfontein, Hendrina and Koornfontein.

Edited by Creamer Media Reporter

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