MIKE TEKE: South 32/Seriti deal is about taking a loss-making colliery to break-even
The allegation that this is a rerun of the state capture saga of past years is defamatory
A number of misleading reports and ill-informed commentaries have surfaced in various media in recent weeks, including in this newspaper, raising doubts about the integrity of the commercial relationships between Eskom and the current and possible future owner — South32 and Seriti respectively — of the colliery that has supplied Eskom’s Duvha power station over a number of decades.
The Duvha contract has been in place since 1994 and is a long-term coal supply agreement between Eskom and SA Energy Coal (SAEC) that sees 10-million tonnes of coal a year delivered directly to the power station, most of it via low-cost conveyor. The contract has been significantly loss-making for some time and, despite numerous cost reduction initiatives implemented by South32, the contract remains economically unsustainable.
SAEC applied for interim relief for the Duvha coal supply agreement in accordance with the terms of the contract, and this was approved by Eskom and the National Treasury, and subsequently extended with all necessary approvals. The interim relief has reduced the losses but has not enabled the pits that supply Duvha to break even.
The sale of SAEC to Seriti Resources and an employee and community trust was agreed in November 2019, though it is not yet concluded. Approvals have been received from the department of mineral resources & energy, the Competition Tribunal, foreign competition authorities and Richards Bay Coal Terminal.
Eskom’s consent to the change of ownership and agreement to amend the Duvha coal supply agreement are the final conditions to completing the transaction. Eskom, South32 and Seriti have been engaging on an amendment to the Duvha coal supply agreement which would see a continuous supply of coal to the power station and a sustainable operation for the coal supplier, whether SAEC or Seriti.
Without a mutually acceptable amendment to the coal supply agreement, which would do no more than lift the coal operation out of a loss-making situation and into a break-even one, the transaction in its current guise would not go through, and the colliery is likely to be forced to shut down. It would make no sense for anyone else to purchase a loss-making colliery. The consequence of the colliery’s closure would mean the loss of 2,000MW of Eskom grid power.
Seriti is aware that Eskom is working on an application to the National Treasury for a lifting of the coal supply agreement price for four years to that break-even point, and is further planning on going out to the market for a new tendered contract price thereafter.
Seriti, which should by then be the owner of the Ifalethu Mine, is supportive of that arrangement. We are confident that the mine will be able to submit a highly competitive tender for the supply of the 10-million tonnes of coal a year to Duvha power station. In the end, we have no doubt that Eskom will make a decision based on its needs, on the capacity of the entity to deliver, and on price.
All of which renders nonsensical the assertions and theories that have been carried in newspapers and on television in recent weeks. It is unclear who has been feeding this false information to journalists and commentators, which they have so readily swallowed, or whether it has been propagated out of ignorance or malice.
It is notable that suppliers of the information have remained anonymous. One would hope that the media propagators of this false information and the tendentious theories will at some stage stop and question the motives of their informants. This is particularly so where they may be individuals resentful at the outcome of the bid process for the SAEC assets, or those who imagine that, if the mine is forced to close, they might benefit from transporting coal to Duvha at prices far higher than the Ifalethu Mine is able to supply. Or even acquire the mine at a cut price.
Which leads to this next point. The allegation by some of these commentators that this is a rerun of the state capture saga of past years is defamatory. On the contrary, by assisting those seeking to block a relatively modest coal supply agreement amendment, they are abetting precisely what the architects of state capture did to then Glencore’s Optimum Colliery. Optimum was forced to run at a loss as the state capture leaders blocked any coal supply agreement amendment. It had to be sold to the Gupta firm Tegeta for a song. And soon thereafter Tegeta was granted a huge coal price hike.
Similarly false is the allegation that the pending SAEC sale to Seriti is a consequence of links between some of the latter’s shareholders’ association and the governing party. For South32 the sale was based on the bidders’ capacity and integrity to manage the operations and serve the main customer and SA’s public, and of course, the price offered. This is another lazy allegation based on zero evidence.
We invite the public to assess the situation as it is and to question ill-intended or lazy commentary.
• Teke is Seriti Resources CEO.
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