Tegeta coal prepayment “amounts to fraud”, says Public Protector

Arnot Power Station

THE relationship between Eskom and the Gupta family’s Tegeta Exploration & Resources (Tegeta) is a prominent feature of the Public Protector’s report into state capture, published on Wednesday afternoon.

Key among the findings is how a prepayment of R659m to Tegeta by Eskom, ostensibly for urgent supplies of coal to Arnot power station, was used by the Gupta family firm towards the R2.15bn purchase of Optimum Coal Holdings which it could not afford.

It said that Eskom convened an urgent board meeting on April 11 to approve prepayment for the coal. This was the same day that Tegeta informed the business rescue practitioners of Optimum Coal Holdings that it was R600m short of the R2.15bn sum.

“In light of the extensive financial analysis conducted, it appears that the sole purpose of awarding contracts to Tegeta to supply Arnot Power Station, was made solely for the purposes of funding Tegeta and enabling Tegeta to purchase all shares in OCH [Optimum Coal Holdings],” the report said.

Eskom and Tegeta argued, however, that prepayment for coal was a standard and long-standing procedure. The Public Protector’s report stated, however: “Tegeta’s conduct and misrepresentations made to the public with regards to the prepayment and the actual reason for the prepayment could amount to fraud”.

The report also notes that Tegeta had not met all its obligations to Optimum Coal Mine as it was owed about R148m by Tegeta as at July 31 and some R289.8m as at August 31.

Astonishingly, the report said that Glencore had been prejudiced by Eskom when the utility refused to sign a new coal supply from Optimum Coal Mine – that Glencore then owned – to Hendrina Power Station.

The Public Protector was quizzical of the need for then acting Eskom CEO, Brian Molefe, to provide his approval for the supply of coal from Optimum Coal Mine to Hendrina when approvals for the supply contract had already been established.

The report concludes that this was a successful attempt to force Optimum Coal Mine into financial distress and business rescue.

The report also highlighted Tegeta’s intention to sell Optimum Coal Holdings’ entitlement to export capacity through Richards Bay Coal Terminal (RBCT) even though Eskom said it was important the RBCT entitlement ought to be kept together with that of Koornfontein, a mine that also fell under the control of Optimum Coal Holdings.

It emerged in September that privately-owned Burgh Group, which owns coal mines in South Africa, had teamed up with Tegeta to sell RBCT entitlement to Vitol, the Swiss-based trading group. The sale would have bagged a $150m profit for Tegeta.

Optimum holds a 7.5% stake in the RBCT which would be equivalent to an annual export quota of six million tonnes (mt) of coal at a total annual terminal throughput of 81mt

Elsewhere in the report, the role of the Bank of Baroda, a large state-owned Indian bank, is thrust under the microscope in respect of the purchase of Optimum.

The Public Prosecutor said that the bank had informed Tegeta’s then banking partner, FirstRand Bank, that it would lend the Gupta company R2.15bn. Instead, Tegeta raised the monies elsewhere, in various sums, which it deposited with the Bank of Baroda – a development described by the Public Protector as suspicious.

Questions are also posed about the treatment of Optimum Coal’s R1.75bn rehabilitation fund which Tegeta said last week had been transferred to the Bank of Baroda because its accounts with South African banks had been shut down.

The Public Protector, however, said interest from the rehabilitation fund, and other funds raised by Tegeta and deposited with the Bank of Baroda were retained and utilised instead of being invested in capital growth.

The report goes on to suggest that there was a strong relationship – described as “cozy” – between Molefe and the Guptas with mobile phone records placing the Eskom boss in the Saxonwold vicinity, where the Guptas live, on numerous occasions. This close relationship was not declared by Molefe.

The report notes elsewhere that the reshuffled Eskom board as of December 2014 “…  consisted predominately of individuals with direct and indirect business or personal relations with Mr D. [Duduzane] Zuma [President Jacob Zuma’s son], the Gupta family and their related associates”.

Molefe is due to present Eskom’s interim operating and financial results tomorrow (Thursday).