Public Enterprises Minister Lynne Brown argued in Parliament on Tuesday that, as a 60% offtaker of coal in South Africa, Eskom should be in a position to command better coal prices and lamented the fact that the State-owned utility’s coal costs were rising at levels above inflation.
“I am well aware of the need to keep a downward pressure on Eskom’s costs, particularly coal, to ensure that electricity remains affordable in an increasingly competitive environment,” Brown said in her Budget Vote address, noting that the utility’s yearly coal costs had risen to R45-billion.
However, she also highlighted that 51% of Eskom’s coal was still supplied from four major coal suppliers at a cost of R23-billion, while dismissing opposition party suggestions that the recent purchase of the Optimum coal mine by the Gupta family-linked Tegeta Exploration and Resources would result in Eskom paying exorbitant prices.
She added, in response to the debate, that the “high cost of coal” should be investigated, especially the costs being paid to the four large well-established coal-mining entities. She also argued that there should be an investigation of the families that owned the South African economy.
“I am not scared of anyone called Gupta or Rupert,” she quipped, as opposition parties raised questions over the so-called “capture” of various State-owned companies, such as Eskom, by the controversial family.
The Democratic Alliance’s Natasha Mazzone called for the Portfolio Committee on Public Enterprises to summon members of the Gupta family to appear before it so that the committee could interrogate their “capture” of companies such as Eskom, Denel and South African Airways.
The Economic Freedom Fighters' Sam Matiase, meanwhile, argued that the Gupta family had garnered Eskom support for its acquisition of Optimum so that Tegeta could secure “inflated” coal contracts. And the Freedom Front’s Dr Pieter Groenewald described the launch of Denel Asia (linked to another Gupta company, VR Laser) as an “international fraud”, in light of the fact that it had proceeded without securing the necessary approvals from the Department of Public Enterprises and the National Treasury.
Brown indicated that she wanted improved visibility of the cost-plus contracts and how they were priced. She was supported by Eskom CEO Brian Molefe, who reported that accountants and lawyers had already been appointed by Eskom to establish whether any of the assets currently associated with the cost-plus mines should rightfully be placed on the books of the utility.
He argued that the mines had been built using Eskom capital and that, while much of that capital may well have been depreciated over the past four decades, the utility was, nevertheless, keen to understand whether or not they had any ownership position that was currently not reflected on its balance sheet.
“We think that is the issue that actually needs to be investigated and not the kangaroo court that has been going on about Tegeta, because Tegeta is very small and is a new entrant,” he said.
The focus on Eskom’s coal costs also came as the National Energy Regulator of South Africa (Nersa) sought to tighten the rules associated with the way coal costs were determined through the multiyear price determination (MYPD) methodology and how variances could be recouped under the Regulatory Clearing Account.
Nersa recently published a consultation paper outlining proposed revisions to the MYPD methodology, including a provision that coal no longer be treated as a single cost centre, but that its various suppliers be interrogated separately.
Molefe said he found the suggestion that Nersa not only regulate the price of electricity at the consumer end, but also at the level of inputs “very interesting”.
He also reiterated that Eskom would be moving to change its coal-sourcing model, in light of the decline in the performance of a number of cost-plus mines, stating, again, that it was interested in securing coal on the open market, rather than through participating in the creation of new mines.
Eskom also argued that it had no interest in the identity of the Optimum buyer and had only insisted, during the mine’s business rescue, that the R150/t contract remained valid until 2018. It also insisted that the R2-billion penalty imposed on Optimum remained in force and payable.
“Of critical importance is to note that Eskom has issued summons against Optimum for failing to supply coal that meets the quality specifications of the Hendrina power station. Once the business rescue process has been finalised, the legal proceedings will continue to run their course,” the utility said.
Meanwhile, Brown acknowledged that she had met a member of the Gupta family in the Western Cape 15 years ago. However, she described as “exceptionally offensive” suggestions that her appointment had been influenced by the family. She also denied having ever been directed by the family to appoint board members or executives at any of the six State-owned companies falling under her authority.
“I am lobbied a lot by loads of people . . . but, no, I haven’t been lobbied by them [the Guptas] to appoint anybody in particular,” she said, adding that she also did not think her relationships “should be regulated by anybody, least of all the media”. “You [the media] regulate my relationships when I do wrong.”
“Should the Guptas be doing business with the State? Well, I don’t know why they shouldn’t be doing business with the State – if nobody has taken them to court, nobody’s charged them, they’ve come in cheaper on coal than other companies, which is better for the taxpayer.
“Are they getting it in an untoward way, are they being favoured. Bring me the proof of it and I will absolutely investigate it,” the Minister said.