Gupta company is saving us billions: Eskom chairman

Eskom board chairman Ben Ngubane says that Tegeta Exploration and Resources, a subsidiary of Gupta owned company, Oakbay Investments, has saved the power utility billions of rand.

In a statement released by the state owned company on Saturday (11 June 2016), Ngubane rejected media speculation of  favouritism towards the Gupta family who have faced criticism for alleged state capture, which they have denied.

President Jacob Zuma’s son Duduzane Zuma also has links to Tegeta.

“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 meet the winter demand,” Ngubane said.

“I am concerned about the recent media speculation and sensationalism around the procurement of coal. Eskom stands firm by its process undertaken to conclude extensions of its coal supply agreements with its suppliers. I am satisfied that due process has been followed and we can be proud of the savings achieved by the executive team to date,” he said.

The senior executive said that Eskom regularly engages all its coal suppliers on the required volumes and qualities as the demand varies from time to time and contracting relationships are concluded on sound commercial principles and considerations.

He stressed that Tegeta supplies less than 5% of the coal volume required by Eskom.

“The coal supply market is in need of major transformation as it has and continues to benefit a small monopoly of companies.  This phenomenon is now under review as requested by the Minister of Public Enterprises in her recent budget speech and Eskom is determined to ensure that emerging black miners also benefit from Eskom’s buying power,” Ngubane said.

He noted that Eskom’s supply mix changed in April 2016 leaving the company with a deficit of 2.1 million tonnes which was required to meet the winter supply plan.

Eskom approached its existing suppliers to source additional supply to mitigate this shortfall.

“It must be noted that the Exxaro Arnot Colliery had a contract with Eskom to supply coal to Arnot Power Station for 40 years.  This contract expired in December 2015.  The cost of coal at date of expiry was R1,132/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 in an eight month period and ultimately, the consumer,” Ngubane said.

Eskom said that Tegeta was one of the suppliers able to meet its need for the additional coal supply at the required coal quality.

“You will recall that this company 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 thereby saving thousands of jobs and continuing the supply to Eskom,” Ngubane said.

The board’s position can be summarised as follows:

  • It is concerned at the recent media speculation and sensationalism.
    It must be noted that Eskom was paying R1132/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 in the 8 months of supplier leading to direct savings to Eskom customers.
  • Tegeta is a 51% black owned emerging miner which meets Eskom’s requirements.
  • Eskom has no issue doing business with the company based on sound commercial considerations and is not driven by unsubstantiated media issues.
  • 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 R38 billion to date this year to companies such as Anglo American, BHP Billiton and Exxarro.
  • Eskom firmly rejects the suggestion that Tegeta is favoured or that due process was not followed.

Read more here

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Gupta company is saving us billions: Eskom chairman