Prepayment loan advanced to Tegeta earlier this year has been repaid in full
19 October 2016
Following a number of media queries regarding the prepayment that Eskom had advanced to Tegeta Exploration and Resources earlier this year, it is important to note prepayment is a common commercial practice that is used widely, and not unique to Eskom contracts. It is used in large projects, coal mining contracts and emergency supply contracts.
Eskom concluded a contract with Tegeta to supply 1 250 000 tons of coal from April to September 2016 and obtained approval to extend the contract with Umsimbithi to supply 540 000 tons from June to September 2016. These two contracts in our view sufficiently addressed the winter shortfall and security of supply risk relating to coal procurement.
The Eskom contract with Tegeta was concluded on the basis of an off-take agreement between Optimum Coal Mine and Tegeta. Hence the prepayment was paid to the contracting party being Tegeta. Optimum in turn supplied the coal to Tegeta and received payment from Tegeta. Eskom did not have a contractual obligation to pay Optimum Coal Mine as asserted by the business rescue practitioners.
In addition, as can be seen from the narrative below, the timelines as inferred from the purported transactions with the banks, do not coincide with the origination of the coal procurement transaction between Tegeta and Umsimbithi respectively.
Eskom obtained independent intelligence of a potential protest action at Rietkuil and surrounding areas in December 2015, which increased the security of supply risk, prompting a declaration of an emergency. Continued monitoring of the security of supply risk from January to March revealed that Eskom needed to build up its coal stock requirements. Umsimbithi experienced strike action around this same time, which placed a further strain on stock levels, prompting an immediate need for additional coal.
In April 2016, Umsimbithi and Tegeta, were approached to increase supply to mitigate the shortfall. Both suppliers were able to meet Eskom’s requirements for additional coal quantities at the required coal quality which resulted in approval for the extension of both contracts by the Board tender committee on 11 April 2016.
Eskom procured coal from Tegeta and Umsimbithi, who were the only companies able to deliver the additional tonnage of the required coal, to mitigate the risk of load shedding during winter.
Tegeta indicated that the required coal quality can only be sourced if they divert their export quality coal to supply Eskom. In addition, there was an indication that additional equipment was needed to reach the required tempo of coal delivery to Eskom that would mitigate the shortfall. Tegeta mentioned these as the factors that led the company to request a prepayment from Eskom. Umsimbithi indicated that they were able to supply additional coal with no additional resource requirements.
The Tegeta prepayment request was considered on its merits, which were the current security of supply risk circumstance and previous transactions of a similar nature.
We can confirm that the full amount of the prepayment to Tegeta has been recovered via coal delivered to Eskom by the end August 2016. During this period of time Eskom had sufficient security in place to cover any potential default by Tegeta.
These transactions have enabled Eskom to commit to no load shedding during the winter peak period, which is a significant commitment to the country.
An internal audit review has been conducted and concluded that the process followed for the procurement and prepayment complied with the Public Finance Management Act and National Treasury regulations.
Furthermore, Eskom has not been approached by the Directorate of Priority Crime Investigation (DPCI). Should the DPCI approach Eskom, Eskom will cooperate with the investigations.
Issued by Eksom Media Desk, 19 October 2016
