LETTER: What did Tegeta promise?
Eskom says the advance payment it made to Tegeta for coal was acceptable commercial practice
Eskom says the advance payment it made to Tegeta for coal was acceptable commercial practice. Why do your reports not focus on the guarantees for such a payment?
When advance payments are made, especially in the case of capital investments requiring substantial predelivery work by the contractor — not commodity-supply agreements as here — it is normal that the customer making the advance payment receives water-tight performance guarantees for eventual delivery as contracted.
The security almost always required is a demand bond drawn on a first-class bank.
The circumstances of this payment seem to preclude that. The question arises: what other watertight performance guarantee may have been given? Could it be a bond on the supplying company, which may ultimately be asset-stripped and liquidated without even receiving any real investment by the owner? In effect, this is no real guarantee, meaning that any decent auditor would have to write off the advance payment entirely as an asset in Eskom’s books.