Eskom chairman, Baldwin Ngubane, says board members and executives would avail themselves should the commission of inquiry proposed in the report require it.
“Regarding the continued innuendo that Eskom has been giving special favours to Tegeta Exploration and Resources, the Eskom board stands firm by the processes undertaken by the company to conclude extensions of its coal supply agreements with its suppliers. We are satisfied that due process had been followed and we can be proud of the savings achieved by the executive team to date. In the six months to 30 September 2016, Eskom’s primary energy costs were reduced by 1,5% compared to an average increase of 18% over the past 5 years,” says Ngubane in a statement.
According to Eskom, it 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.
In emergency situations, Eskom has utilised the prepayment mechanism to ensure security of supply. Furthermore, it is important to note that prepayment is a common commercial practice that is used widely and not unique to Eskom. The principle of prepayment is prevalent in Eskom’s cost-plus supply contracts with the large mining houses such as Anglo American, BECSA and Exxaro. These mining houses supply approximately 80% of Eskom’s coal while 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.
More pertinently, Eskom’s supply mix changed in April 2016 leaving Eskom with a deficit of 2,1m tons, 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 and ultimately, the consumer,” says Ngubane.
Tegeta was one of the suppliers able to meet Eskom’s need for this additional coal supply at the required coal quality. 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.
