by Gavin du Venage
As of press time, South Africa has little more than 30 days of coal stocks as the country goes into winter peak demand, a situation complicated by the legal troubles of one of its largest producers. Supplies at six power stations in the Mpumalanga province, where most of the generation occurs, are especially low, raising the possibility of load shedding–controlled blackouts hitting the country. National utility Eskom regularly has to run emergency diesel turbines to meet heightened demand, costing millions of dollars in fuel each month.
Coal still accounts for more than 90% of the country’s energy generation, state figures show. “The latest coal supply reports suggest that Eskom’s current coal supply problems are as serious‚ if not worse‚ than those that existed in South Africa shortly before the load shedding of 2008‚” said Chris Yelland, an energy expert.
At least three of the Mpumalanga stations are supplied by Tegeta Exploration and Resources, an entity belonging to the Gupta brothers. The three Indian born siblings had over the past decade come to dominate the local mining industry, thanks to their influence over former President Jacob Zuma.
Until recently, the Guptas influence extended to the hiring and firing of senior officials including the mines minister and senior Eskom executives. A parliamentary investigation is now underway to discover the extent of their grip on state assets which they used to secure lucrative state contracts for their expanding business empire.
Tegeta’s prize asset is the Optimum coal mine, which it acquired under dubious circumstances from Swiss—based Glencore in 2015. At the time Glencore had little option but to sell the operation, after Eskom hit it with around $200 million in penalties for quality issues. Eskom also refused to renegotiate purchases contracts that resulted in Optimum selling its coal to local power stations below cost.
The Guptas swept in and bought Optimum – and soon after Eskom waived the penalties it had issued against the company. Eskom also renegotiated the price it was paying for Optimum coal upward, ensuring the mine was once again profitable. It has since emerged that the Gupta’s included several of Eskom’s board, including ex-chairman Brian Molefe within their circle of friends.
However, the fortunes of the Guptas began to swiftly unravel after Cyril Ramaphosa won the presidency of the ruling African National Congress at its elective in December last year. By March, he was president of South Africa as well.
Ramaphosa has since replaced the country’s mining minister — also part of the Gupta inner circle — and appointed the respected technocrat Pravin Gordhan to administer state operations such as Eskom. Gordhan in turn has taken the ax to the Eskom board, booting Gupta supporters out the door.
The Guptas themselves have fled to Dubai, and will likely be the subject of an international arrest warrant as local crimefighters build a case against them. Meanwhile their company Tegeta has filed bankruptcy, which has severely hampered operations at its mines including Optimum.
“Other coal supply challenges at Eskom’s Arnot‚ Hendrina and Komati power stations arise from the dysfunctional Tegeta coal mining operations‚ that have left Eskom high-and-dry in the months prior and subsequent to the Gupta mines filing for business rescue in February 2018,” Yelland said.
With new management at Eskom trying to clean itself up after years of corruption — while still trying to balance its books and keep the country’s lights on — Treasury officials said they have given permission to waive normal tender procedures. This will allow Eskom to source coal wherever it can find it and ignore rules that require it to buy from mostly black owned companies.
South Africa’s bankruptcy process is similar to that of the U.S., and Tegeta together with its assets will be administered by court appointed officials, whose job includes keeping the mines functioning.
With the Guptas in the wind, administrators are now looking for new owners. Glencore, essentially swindled out of its prize South African coal asset by the Guptas together with Eskom, may bid to retake Optimum.
Administrators for Tegeta told parliament recently that they are seeking alternative funding for the mines, to keep them and the 1,500 or so employees working.
It won’t be easy. State rail operator Transnet has suspended services to Optimum, costing it around 350,000 tons a month in exports. Rivals such as Exxaro have said they will try and acquire Optimum’s export quotas, although not the mine itself.
Should Optimum fail to keep up production it is likely that coal resources will drop further, and South Africa could once again experience cold hard winter of regular power cuts.
