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National Treasury has blocked Eskom from expanding two coal-supply contracts that would have seen a company owned by the Gupta family and President Jacob Zuma’s son Duduzane end up R4bn richer.
A preliminary report compiled two weeks ago, which City Press has obtained, was commissioned by Treasury to investigate whether Eskom followed proper supply chain policies when handing coal-supply contracts to Tegeta Exploration and Resources.
The report also found that:
- In August last year, Treasury shot down Eskom’s request to expand the Tegeta-owned Brakfontein colliery’s 10-year coal-supply contract by another R2.94bn. This constituted a 77.42% increase from the company’s original agreement to supply coal to the Majuba power station in Mpumalanga, and would have increased the contract’s value from R4bn to R7bn.
- That same month, Treasury further barred Eskom from expanding the Tegeta-owned Optimum Coal Mine’s two-month contract to supply coal to Arnot power station, in Mpumalanga, for a further six months without going to tender. The initial contract was worth R235m and the contract’s expansion would have increased the amount by R855m to more than R1bn.
- Tegeta delivered substandard coal to Majuba that the report found Eskom should have treated as “reject coal”.
The report also recommends a forensic audit be conducted to:
- Establish “why Eskom gave and continues to give preferential treatment to Tegeta by not enforcing key conditions of the coal-supply contract”, and why Eskom, through its former chief executive Brian Molefe, “gave assurance that the Brakfontein colliery supplied and continues to supply coal that conforms to the coal-supply agreement, despite ample evidence that there was noncompliance”.
- Determine fruitless and wasteful expenditure regarding payments made to Tegeta for coal from Brakfontein and Optimum.
- Investigate whether modifications of the coal-supply agreement with Tegeta prejudiced Eskom in any way.
A source with knowledge of Treasury’s investigation said: “Even if the quality issues had been sorted out, Treasury would not have agreed for Eskom to go ahead with expanding the contract. Eskom would still have needed to tell Treasury why it was not able to go out on tender and appoint another company.
“I don’t see how Eskom would have convinced Treasury that the Brakfontein colliery is the only company that could supply it with coal.”
Regarding the proposed contract extension for Optimum Coal Mine, the report found: “Eskom requested approval from National Treasury to modify the contract for R855m in a letter dated August 11 2016. The purpose of the modification was to increase the contract duration by six months.”
Eskom tried to justify the contract’s extension by saying that other companies short-listed for the Arnot coal-supply contract would not be able to meet the power station’s coal requirements when Optimum’s contract ended in September last year.
Instead of extending Optimum’s contract, the report states that Treasury instructed Eskom to conduct a “closed bid and request proposals from the identified suppliers”.
“Proposals received and the assessment done must be submitted to National Treasury for verification. Treasury is convinced that the outcome of the closed bid process will prove that the R19.69 per gigajoule paid by Eskom [to Tegeta] was exorbitant.”
The report also found that, in January and February last year, the Brakfontein colliery missed its coal targets to Eskom by 150 000 tons.
Between April 2015 and March last year, Eskom had agreed to buy coal from Tegeta at R13.50 per gigajoule. But from April last year until now, the company had received a 46% increase, to R19.70.
The source said Eskom should not have allowed Tegeta to sell coal at R19.70 when it had massively undersupplied them.
“Treasury sampled January and February 2016 only. But if you look at the entire year, the shortfall is well in excess of 250 000 tons,” the source said.
The report found: “Eskom should have requested Tegeta to supply its shortfall coal for the period April 2015 to March 2016 at R13.50 per gigajoule.”
The delivery of the shortfall, the report found, would have reduced the additional 250 000 tons required per month and would have saved Eskom money.
In the report, Treasury officials also slammed Eskom for hiking coal prices a month after signing contracts with Tegeta, giving the company an increase just one month after signing a contract in 2015.
From April 2015 to March last year, Eskom paid Tegeta R553m. It is not clear how much was overpaid to the company as a result of the inflated prices.
In a statement released publicly on Friday in response to City Press’s questions, Eskom’s spokesperson, Khulu Phasiwe, said: “While working around the clock to finalise its comment to National Treasury for tomorrow, Eskom has been shocked to learn of a further leak of the draft Treasury report to the media.
“Eskom had raised its concerns that the draft report ... was made available to third parties without Eskom having the opportunity to respond to allegations contained in the draft report.
“It seems convenient and coincidental that the report is leaked to the media a day before its comments are due to be issued to National Treasury, which, in the eyes of the public, would now be irrelevant as perceptions would now be reality.
“Eskom remains fully committed to continue to work constructively with National Treasury,” Phasiwe said.
