Public Protector’s report is not based on fact: Eskom
Eskom says it disputes the the observations of the Public Protector’s report on state capture because its not based on facts.
The report, released on Wednesday, criticised the company over improper hiring of its board and also questioned its deals with Gupta-linked mining company Tegeta and the purchase of the Optimum mine.
In the report Eskom CEO Brian Molefe was also shown to have a close relationship with the Guptas, as evidenced by his visits to their Saxonwold home in Johannesburg and numerous phone calls to Ajay Gupta.
In a statement on Friday, Eskom said it is concerned that the report’s findings make general observations and refers to these as evidence implicating Eskom and the Board
“It is not clear how the conclusion that the Eskom Board acted unethically and unlawfully
can be made.”
Eskom said that all transactions complied with its Procurement Policies and Procedures which are consistent with the requirements of the Public Finance Management Amendment Act. “All transactions are based on sound commercial rational,” it said.
“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,” the public utility said.
Eskom said that its board of directors is considering to take the report of the Public Protector on review.
Read: Eskom CEO Brian Molefe implicated in state capture report
Eskom explained that it regularly engages all its coal suppliers on the required volumes and qualities it needs as demand levels vary, adding that contracting relationships are concluded on “sound commercial principles and considerations”.
It said that in emergency situations, it has utilised the prepayment mechanism to ensure security of supply. “Furthermore, it is important to note that prepayment is a common commercial practice that is used widely and not unique to Eskom.”
Eskom explained that the principle of prepayment is prevalent in its cost-plus supply contracts with large mining houses such as Anglo American, BECSA and Exxaro, which supply approximately 80% of its coal while Tegeta supplies less than 5% of the coal volume it requires.
Eskom said its supply mix changed in April 2016, leaving it with a deficit of 2.1 million tons required to meet the winter supply plan. It approached existing suppliers to source additional supply to mitigate this shortfall.
Eskom had a contract with the Exxaro Arnot Colliery to supply coal to Arnot Power Station for 40 years, which expired in December 2015. The cost of coal at date of expiry was R1 132 per ton.
“I am advised that Tegeta now supplies Arnot at an average price of R500/ton. The unit cost of coal supplied under this contract is at a discounted rate of 3%, resulting in a further saving to Eskom of billions of rand and ultimately, the consumer,” said Eskom chairperson Baldwin Ngubane.
Tegeta was one of the suppliers able to meet Eskom’s need for this additional coal supply at the required coal quality. Eskom said it also stepped in to avert a crisis at the Hendrina power station by offering to take the Optimum Coal Mine out of business rescue from Glencore, an act which saved thousands of jobs and continued supply to the utility.
“Eskom rejects any insinuation of favouritism towards suppliers such as Tegeta who are willing to step in to avert the coal supply crisis and allow Eskom to keep the lights on,” said the power utility.
The board expressed concern that Eskom wasn’t interviewed by the public protector before the release of her report, according to the agreed process established in September 2016. “It must be noted that Eskom was paying R1 132/ton to Exxaro and this was on a cost plus basis. Tegeta supplies Arnot at an average price of R500/ton, leading to savings of over a billion rand, leading to direct savings to Eskom customers.”
Eskom also pointed out that as a 51% black-owned emerging miner, Tegeta meets its requirements. “Eskom has no issue doing business with the company based on sound commercial considerations. Tegeta stepped in to avert a crisis at Hendrina Power Station by saving jobs and continues to supply Eskom at the original contracted price.
“All due process has been followed and Eskom is proud of the savings achieved by its executives. Prepayment is a common practice in coal purchasing and Eskom has used this mechanism previously.
“In fact, the cost-plus mines have been the recipients of an average amount of R38bn to date this year to companies such as Anglo, BHP Billiton and Exxarro. Eskom firmly rejects the suggestion that Tegeta is favoured or that due process was not followed,” said the power utility.
Eskom added that it won’t find a supplier who can beat the Tegeta’s price.
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