15/02/2018 11:35 SAST | Updated 15/02/2018 11:52 SAST

Exxaro CEO Fingers Molefe, Guptas Re Eskom 'Prepayments'

The parliamentary enquiry into state capture heard how Eskom defaulted on contractual obligations to Exxaro, to buy coal at a higher price from the Guptas.

Siphiwe Sibeko / Reuters

The parliamentary inquiry into state capture at Eskom sat again on Wednesday, against the backdrop of what public enterprises committee chair Zhukiswa Rantho called "a very interesting political environment".

The probe is being conducted by MPs who serve on the committee, many of whom could be seen during the course of the afternoon frequently scanning their phones and tablets to check for updates on President Jacob Zuma's imminent departure from office.

Siphiwe Sibeko / Reuters

Testifying under oath, Exxaro Resources CEO Mxolisi Mgojo told the inquiry that Eskom's termination of certain coal supply agreements (CSAs) had opened the door for other "third parties" to be brought in, at a higher cost to the fiscus, and had also "unlawfully pushed Exarro out of the coal supply space".

He referred to long-standing contracts the utility had with two of Exarro's so-called cost-plus mines — the Arnot and Matla mines — to supply the similarly named Arnot and Matla power stations in Mpumalanga

In the case of Arnot mine, the termination of its CSA with Eskom had led to the loss of about 1,500 jobs. Mgojo said the mine had been prevented from delivering the quantity of coal required by Arnot power station as a result of "Eskom's non-performance of its contractual obligations".

'Eskom has paid more than an estimated R5-billion for imported coal from third parties from 2015 to 2017'– Mxolisi Mgojo

This reduction in supply "provided the rationale for Eskom to supplement its reserves with coal provided by a third party".

In the case of Matla mine, he said Eskom's failure to provide R1.8-billion to sink a new shaft – the utility is contractually obliged to provide both capital and operating expenditure for cost-plus mines – had caused a drop in coal output.

Again, he said, it had "provided the rationale for Eskom to purchase imported coal from third parties as a substitute".

This had cost the utility an estimated R5-billion more. "Assuming a [coal] price of R500 [per] ton, Eskom has paid more than an estimated R5-billion for imported coal from third parties from 2015 to 2017.

"This inflated cost is impossible to justify when, if the necessary capital were supplied ... Matla mine would be able to supply coal at competitive rates for at least the next 20 years."

The additional R5-billion paid by Eskom to procure expensive coal from third parties would have paid for the capital spending needed at Matla mine "many times over".

Siphiwe Sibeko / Reuters

Mgojo also questioned why Eskom had ended the CSA it had with his company's Mafube mine, which "had charged the lowest price for coal delivered to Eskom in the country".

On prepayments for coal, Mgojo said that as far Exxaro was aware, Eskom had not made such payments to any other major mine in the country, only to the Gupta-linked company Tegeta.

"The so-called prepayment to Tegeta for coal, of which Exxaro learnt through the media, is the only instance to our knowledge where such so-called prepayment was made," he said.

In separate testimonies before the inquiry earlier this year, Eskom's former chief financial officer Anoj Singh and its group executive for generation Matshela Koko both suggested that prepayments to coal suppliers by the utility were commonplace.

Mgojo also told MPs on Wednesday that Exxaro's relationship with Eskom had deteriorated "markedly" after the appointment of Brian Molefe to the power utility's helm.

"Eskom's agreements with Exxaro were in certain instances not adhered to, or where they were being finalised, were frustrated. Despite this, and the fact that Exxaro is the biggest supplier of coal to Eskom, Mr Molefe refused to meet with Exxaro throughout his tenure at Eskom."

Siphiwe Sibeko / Reuters

Exxaro was formed in 2006 from a merger between certain sections of Kumba Resources and Eyesizwe Coal. It is one of South Africa's largest black-empowerment resource companies, operating both domestically as well as in Europe, the U.S. and Australia.

The coal it supplies to Eskom is used to generate about 35 percent of the electricity produced in the utility's coal-fired power stations.

Former finance minister Pravin Gordhan, who serves on the committee as an ordinary ANC MP, asked Mgojo if it would be "fair to say that the concept of prepayment... cooked up by Molefe, Singh and Koko, is precisely that, a little figment, if not fig leaf, presented to us to cover up what they were really up to?"

Mgojo responded: "I think it's very evidently clear, from our submissions, and our understanding of how these contracts work, that never have we ever come across any form of contract – whether it's for a cost-plus [mine], whether it's for a commercial [mine], whether it talks to coal, or whether it talks to capital – that was in the form of a prepayment."

Siphiwe Sibeko / Reuters

Thanking him for his testimony, Gordhan told Mgojo that what he had laid out to the inquiry were the details of "a whole, very transparent, very simple, in fact very crude scheme, to empower a particular family and a group of individuals sitting both on the Eskom board and part of the Eskom management.

"Because I don't think we should be unfair to the thirty or forty thousand Eskom workers; they, in fact, suffered as a result of this. They're not directly involved in the capture process themselves."

Gordhan said those South Africans listening to the inquiry, which is broadcast live, would now be "wiser as to why electricity tariffs increase at the rate that they do".

EFF MP Marshall Dlamini opened his opportunity to pose questions by calling on the committee to welcome the arrests made earlier on Wednesday by the Hawks in a series of raids across Johannesburg, including at the Gupta family mansion in Saxonwold.

"It would be wrong of us as a committee not to welcome the work that is done by the Hawks, by arresting the Guptas," he said, to chuckles from his fellow MPs.

"Because part of the thing we are trying to do here... is to cleanse the country. So we must welcome the action that has been taken by the Hawks."

Dlamini then provoked more laughter when he asked committee chair Zukiswa Rantho how the inquiry was going to hear testimony from the Gupta brothers, if they were in prison.

"According to our programme, the Guptas are coming [to appear before the inquiry]... Do we follow them to jail to deal with this situation, or bring them here in chains? So start working on that process, so we don't have issues," he told her.