Eskom coal supply manager was kept in dark‚ state capture inquiry hears

Deputy Chief Justice Raymond Zondo yesterday heard how an Eskom coal supply manager was kept in the dark when his client was slapped with a hefty penalty that forced the company into business rescue.
Deputy Chief Justice Raymond Zondo yesterday heard how an Eskom coal supply manager was kept in the dark when his client was slapped with a hefty penalty that forced the company into business rescue.
Image: Alaister Russell/The Sunday Times

The man who managed Eskom's contract with the Optimum coal mine was not consulted when the utility's senior executives slapped the mine with a R2.1bn penalty‚ forcing it into business rescue.

Gert Opperman‚ a coal supply unit manager at Eskom‚ was in charge of managing Optimum's contract to supply coal to the Hendrina power station from 2012 when international mining giant Glencore bought a controlling stake in the mine.

But despite his position‚ he was not consulted on critical decisions taken by Eskom's board and senior executives - a number of whom have been implicated in state capture - on matters pertaining to a lucrative coal supply agreement with Optimum and a massive fine imposed on the mine for substandard coal.

Speaking at the state capture inquiry on Friday‚ Opperman described the lead-up to Glencore placing Optimum into business rescue.

"After the purchase of the mine by Glencore‚ Optimum started to supply coal to Hendrina that did not meet the supply specifications‚" he said.

Eskom had conducted a study into Optimum’s operation and found that the coal was subject to degradation because of a high number of transfer points on a 35km conveyor belt that the coal ran on. By April 2013‚ the coal from Optimum was no longer suitable in terms of sizing‚ at least for Hendrina.

Slapped with penalties for substandard coal‚ Optimum agreed there was a need to renegotiate its coal supply contract with Eskom.

"We embarked on some inspections by independent specialists in November 2013. They did an exercise on the sampling plant. We were still trying to determine what is the reason for this sizing and we could not get to it. The issue with the sizing persisted. It got to the extent where the sizing was out throughout the month… This continued to October 2015 when there was a significant improvement‚" Opperman said.

His testimony corroborates a statement by Glencore's former chief executive‚ Clinton Ephron‚ who appeared before the commission last week.

Ephron told the commission that Optimum had to invoke a "hardship clause" in 2014 because its coal production costs were exceeding the selling price to Eskom.

"What we came to realise in 2013 is that the inflationary adjustment used in the contract was no longer representative of the genuine costs the mine was incurring. Eventually there came a time when the costs exceeded the selling price to Eskom‚” Ephron had said.

Opperman formed part of the negotiation team that represented Eskom in talks with Glencore over amendments to Optimum's coal supply agreement. By the time Brian Molefe took over as chief executive of Eskom in 2015‚ there was an understanding between both parties that an addendum would be put in place that would see Eskom increase the price it would pay for Optimum’s coal to the cost of its production.

A submission was made to Eskom's board requesting that it mandate the utility's Primary Energy Division to conclude negotiations with Eskom as soon as possible to secure the coal supply to Hendrina.

But the board refused. Molefe‚ and the board‚ also refused to accept the addendum to Optimum's coal supply contract.

Instead‚ Optimum was slapped with a R2.17bn penalty for the supply of substandard coal since 2012. The move forced the mine into business rescue.

This was at the time the Gupta family was actively lobbying for the purchase of Optimum through their company‚ Tegeta Exploration and Resources.

After the Guptas bought Optimum from Glencore‚ Eskom reduced its penalty to R254m.

Opperman said he was neither consulted when the penalties were enforced on Optimum under Glencore's ownership nor when Eskom settled with Tegeta on a reduced penalty.

Advocate Vincent Maleka‚ who was leading Opperman's evidence‚ made a point that penalties were imposed on the mine regardless of change of ownership.

He inferred that it was "favourable treatment" simply because there was a new owner. Opperman responded: "That's correct‚ yes".

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