Guptas’ R2.15bn deal for Eskom coal contracts

2015-12-13 15:00

From next year, the influential Gupta family will have an even bigger stake in the Eskom coal market.

On Friday, it was announced that Tegeta Exploration and Resources, a company partly owned by the Guptas, will buy Optimum Coal Holdings, which is majority owned by multinational mining giant Glencore.

The acquisition includes two coal mines in Mpumalanga – Optimum Coal Mine and Koornfontein Mines – as well as an 8 million-ton export allocation at the Richards Bay coal terminal.

Tegeta already supplies Eskom with 2.4 million tons of coal a year from the Brakfontein Colliery in Delmas.

The Optimum Coal mine currently has a contract to supply Eskom’s Hendrina Power Station with 5.5 million tons of coal a year, while Koornfontein supplies Komati Power Station with about 2 million tons a year.

Optimum Coal Holdings was placed in business rescue in August after failing to renegotiate Optimum Mine’s crippling Eskom coal contract.

Last week, City Press reported that the Guptas had emerged as potential buyers after confirming that a due diligence process was under way at the mine.

Speculation was rife that while Glencore and the business rescue practitioners had failed to negotiate a better price from Eskom, the Guptas may be able to use their influence to secure a better deal.

On Friday, Tegeta confirmed that it would pay R2.15 billion to acquire Optimum’s assets. This would be used to settle the R2.55 billion debt that Glencore incurred to keep Optimum afloat while it tried to renegotiate the contract with Eskom.

Glencore has also agreed to put up R400 million to settle the rest of the debt.

Tegeta director Nazeem Howa said: “A key issue for all the stakeholders in this deal is the security of coal supply to Eskom and the concomitant impact this will have on our country having a secure electricity system ... If Optimum stops the supply of coal, it will place major constraints on the grid.”

Howa also highlighted the importance of preserving the jobs of 500 permanent employees at Optimum.

However, Tegeta may have an uphill battle turning its new purchases into lucrative assets.

Optimum’s R150/ton contract with Eskom means that the mine loses R3.7 million a day by supplying Eskom. Tegeta has reportedly undertaken to continue supplying Eskom at this lossmaking price until the end of 2018.

Meanwhile, Koornfontein’s fixed-price contract with Eskom comes to an end this month, and Eskom spokesperson Khulu Phasiwe said they had not entered into any negotiations to extend it.

The business rescue practitioners said Tegeta would also take on the R2.4 billion penalty imposed by Eskom on Optimum for delivering poor-quality coal.

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May 19 2019