EDITORIAL: Optimum deal way off optimal
The government needs to ask itself why it bent over backwards to do a deal with a company owned by foreigners and the president’s son instead of supporting black entrepreneurs, as it often claims it intends to do
If there is an Exhibit A that SA has been the victim of "state capture", it is the circuitous tale of Optimum coal mine, now jointly owned by the Gupta family and President Jacob Zuma’s son Duduzane.
The company was sold in 2016 by international miner and trading house Glencore for R2.1bn to Tegeta, a company controlled by the Gupta family, who then transferred 26% of the shares to Zuma junior. This part of the transaction is not disputed, but just about everything else is.
The background is that the mine was losing money when the rand was strong and coal prices were weak. Many large mining companies sell coal to Eskom partly because of the security provided by long-term contracts and the local/export mix mining coal provides. Eskom power stations use lower-quality coal and mining companies tend to make higher profits from better-quality export coal. So, it was with Optimum, one of the companies that had the right to export coal from the Richards Bay coal terminal.
But as often happens in the mining sector, a combination of a strong currency and a weak commodity price can be fatal, and the Optimum mines were operating at a loss. Glencore tried for almost two years to get Eskom to revise the contract, but failed. Their problems were exacerbated when then Eskom CEO Brian Molefe slapped a R2bn fine on the company for supplying coal that was below quality. Glencore then put the mine into business rescue.
However, at a meeting between then new Mining Minister Mosebenzi Zwane, representatives of Tegeta and Glencore CEO Ivan Glasenberg, it was agreed that Tegeta would buy the mine operation for about R2bn. For Glencore, it must have seemed like a gift.
Yet since then, the mine’s purchase has been nothing but notorious. It seems Tegeta could not come up with the money, so Eskom, it appears, simply took about R660m out of its own pocket to contribute to the purchase. There was about R1bn in the land restoration fund that mining companies are obliged to create. It is claimed that money was not used to fund the purchase, but so many lies have been told it’s hard to be sure. And then it seems Tegeta decided to sell its rights to export coal from Richards Bay for billions, a deal that is also surrounded by controversy.
It seems Tegeta could not come up with the money, so Eskom, it appears, simply took about R660m out of its own pocket to contribute to the purchase
The public protector’s "state capture" report goes into the deal in detail and it appears the back-room conniving to get the deal done and then to find a way to pay for it caused huge ructions in Eskom and may ultimately have been responsible for Molefe leaving the organisation.
Ripples from those events are still playing out today, and last week, Business Day revealed one aspect of a Treasury report that requires that the R659m Eskom paid to Tegeta be converted into a loan.
The report also finds that Molefe may have misled the fiscus when he gave written assurance in August 2016 that coal procured from Tegeta met the power utility’s requirements. He also observed that erstwhile group executive for generation Matshela Koko, who is now acting CEO, axed contractors Sibonisiwe Laboratory and SGS, which found that Tegeta’s coal did not meet Eskom standards.
The report is in a draft form and parties have yet to put forward their positions. For what it’s worth, Treasury’s recommendations make sense. However, the question is whether new Finance Minister Malusi Gigaba agrees with the recommendations. He needs to make his views explicit.
And, more broadly, the government needs to ask itself why it bent over backwards to do a deal with a company owned by foreigners and the president’s son instead of supporting black entrepreneurs, as it often claims it intends to do. If this is not the definition of corruption, it’s hard to know what is.