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Former Glencore chief executive Clinton Ephron has told the Zondo commission into state capture that he was devastated when former Eskom CEO Brian Molefe told him Eskom would not be updating the company’s contract with the power supplier.
Ephron took to the stand on Wednesday and was widely expected to delve into the extra-ordinary levels of pressure placed on Glencore, allegedly to force it to place Optimum coal mine under business rescue so that it could be snapped up by the Gupta family.
Glencore purchased Optimum Coal Holdings in 2011, which includes Optimum and Koornfontein mines as well as a “generous” allocation at the Richards Bay Coal Terminal. This allows the effortless export of large amounts of high-quality coal mined at Optimum by the owner of Optimum Coal Holdings.
Hendrina power station
But within two years, the mine was bleeding Glencore dry. Glencore was forced to give the mine a R420m cash injection, over and above other measures undertaken to generate cash to keep it afloat.
Before Glencore purchased the mine, Optimum’s owners had had lengthy deals with Eskom to supply coal to Hendrina power station, which is within spitting distance of the mine in Pullens Hope, Mpumalanga.
By early 2015, Glencore was deep into negotiations with Eskom to add a fourth addendum to the original Coal Supply Agreement, which would relax conditions for Glencore-owned Optimum through clauses in the contract that allowed the supplier to declare financial hardship.
Ephron dealt with the Optimum/Hendrina CSA in great detail throughout Wednesday morning, as he was guided by evidence leader Advocate Vincent Maleka. But the negotiations fell apart shortly after Molefe was seconded from Transnet in April 2015.
"There was no contact with Mr Molefe between the time of late April 2015, when [the proposed fourth addendum] was taken to the board and the 18th of May 2015,” Ephron told the commission.
READ: Glencore may face UK probe over DRC deals: report
“After numerous attempts, I finally managed to arrange a meeting with Mr Molefe at Eskom’s offices.”
Ephron described the meeting as “very brief”.
“[Molefe] said to me that Eskom would not be amending the terms of the CSA and that it would continue to enforce its rights in terms of the contract.
"No amendments would be considered until the end of the contract, which at that time was December 2018. And that was the end of the discussion,” he said.
“How did you feel when he conveyed that position as Eskom’s position?” Maleka then asked.
“Devastated,” Ephron replied.
Misplaced optimism
Ephron confirmed that both representatives of Eskom and Glencore were optimistic that the fourth addendum would be approved and that throughout the negotiations, this was the impression he was given.
Did he ask Molefe why the sudden change, Maleka asked.
“Yes. He just said that Eskom can’t change the contract,” Ephron said.
Eskom, Molefe in particular, continued to place Glencore under extreme pressure by enforcing a R2bn historical fine, which eventually forced Glencore to put the mine under business rescue.
Ephron dealt with this in detail when his testimony resumed after lunch.
