Tegeta can’t unilaterally end coal supply contracts, says Eskom

IT was unlikely that Tegeta Exploration and Resources (Tegeta) would be able to cancel domestic coal supply contracts with Eskom, said the South African utility.

“They [Tegeta] can’t just cancel their contracts with us,” said Khulu Phasiwe, a spokesman for Eskom. “They will need to engage with us first; they need to provide an update to us on what they intend to do. That would be ideal”.

“We haven’t yet started discussions with Tegeta,” he said, adding that penalties would apply. “All of our contracts have take-or-pay penalties at some level. If they fail to fulfill their supply obligations then we would go into negotiations over a penalty. Hopefully, it won’t come to that,” he said.

Tegeta’s Optimum Coal Mine and Brakfontein and Brakfontein Extension mines supply Eskom with about nine million tonnes a year of coal to Eskom’s Hendrina and Majuba power stations respectively. Optimum has also supplied Arnot power station.

On November 4, it emerged at an Eskom briefing that Tegeta had asked for it to be released from its coal contracts. “Given all the media speculation in recent months, and for the good of the country, it would be appropriate that this takes place so the matter can be properly reviewed,” said Eskom at the press conference, citing a statement by Tegeta.

The media speculation refers to the results of a report into state capture by South Africa’s Public Protector which found Tegeta had wrongly used funds provided by Eskom as well as having raided the environmental rehabilitation accounts of Optimum Coal Holdings, a company consisting of the Optimum and Koornfontein coal mines which it had bought out of business rescue proceedings.

Tegeta is a subsidiary of Oakbay Investments which has the Gupta family as a key shareholder. The Guptas, who are close to South African president, Jacob Zuma, have been implicated in wrongful dealings with state-owned companies.

The report into state capture also concluded that Eskom CEO, Brian Molefe, had undeclared close business ties with the Gupta family – an accusation Molefe has stoutly denied.

Molefe subsequently resigned.

Through its public relations agency, Bell Pottinger, Tegeta has declined to respond to questions including whether plans to sell Optimum Coal Holdings 7% entitlement to the 81 million tonnes a year Richards Bay Coal Terminal to Vitol, a Swiss trading company, have progressed.

Industry sources are sceptical regarding Tegeta’s reaons for wanting to stop domestic supply of coal.

“The only reason Tegeta wants to get out of the Eskom deal is that the price of coal recovered significantly from below $50/t, and it will now make more money if it washes and exports their coal through Richards Bay. Don’t be fooled,” an industry source said.