An explosive cache of emails from inside the Gupta empire has provided evidence of how the family captured the president, the government and key state-owned entities. This is the story about one of their most important conquests: Eskom. By AMABHUNGANE and SCORPIO.

In 2015, as Brian Molefe and his key lieutenant Anoj Singh moved across to Eskom, the Guptas turned their attention to the power utility’s R40-billion primary energy budget.

The feast was about to begin.

May 2014-September 2014: The Negotiations

To understand how the Guptas captured Eskom, one needs to go back to May 2014, when a company called Goldridge came looking for an Eskom coal contract.

At the time, the Guptas were well-known, having landed both literally and in the public discourse at Waterkloof airforce base in 2013. However, the Guptas’ fledgling mining companies, Goldridge and Tegeta, were still unknown entities.

Minutes from the meeting held at Megawatt Park on May 9 2014 show that there was some confusion about who actually owned their Brakfontein coal mine – Tegeta or another Gupta-owned mining company, Goldridge. It was Tegeta.

It was Ayanda Nteta, now Eskom’s acting head of fuel sourcing, who pointed out during that first meeting that “Eskom prefers dealing with companies that are 50%+1 black-owned” which Tegeta was not.

At the time, almost 50% of Tegeta was owned by Oakbay Investments, and indirectly Gupta brothers Atul and Ajay and their wives Chetali and Shivani.

Another 21.5% was owned by Bhatia International, a controversial Indian coal company that only a few months before had been charged by India’s Central Bureau of Investigations with allegedly supplying substandard quality coal to India’s version of Eskom, complete with forged lab results.

Only the remaining 30%, held by Aerohaven Trading and Oakbay chief executive Ronica Ragavan, was considered black-owned.

Throughout 2014, Eskom officials did not seem overly interested in the coal resources Tegeta had to offer, as minutes of various Eskom meetings reveal. Goldridge had offered the same resource to Eskom in 2012, which Eskom declined.

Still Eskom’s coal procurement officials agreed to play along and do another round of tests.

The results were not promising: only a small seam of coal from Brakfontein mine known as “seam 4 lower” was considered suitable.

At a meeting in September 2014, Tegeta “asked if there is any way Eskom can accommodate them as they are only looking to supply [a] small amount of coal” from their stockpile.

Nteta responded that “the power stations that could potentially take coal from Brakfontein have all their needs met for this financial year”.

Tegeta persisted, asking about “the possibility of moving some coal in the interim”. Eskom did not budge.

But the Guptas were not going to take no for an answer.

November 2014-January 2015: Enter the Gupta-controlled Board

AmaBhungane understands from sources familiar with the negotiations that Eskom’s coal procurement officials held out as long as they could, but by January 2015, they were receiving pressure “from above” to sign a contract with the Gupta-owned mine.

By this point, Eskom also had a new board. In December 2014, public enterprises minister Lynne Brown replaced eight members of Eskom’s board. Six out of the eight new appointees – Ben Ngubane, Mark Pamensky, Nazia Carrim, Maria Cassim, Devapushupum Naidoo and Romeo Khumalo – were either family of or had business ties to the Guptas and their business partners, according to the Public Protector’s report.

On January 23 2015, Tegeta came with a new offer. Although Eskom tests found that Brakfontein’s blended product (seam 4 upper and lower) was unsuitable, Tegeta offered to supply the blended product at R15/GJ.

Eskom told Tegeta that the price was too high and to come back with a new offer.

Instead of lowering their price, Tegeta came back a week later with reasons why it needed a higher price. Minutes from the meeting show that Tegeta’s chief executive Ravindra Nath told Eskom “they have increased their BBBEE ownership and a higher price would be needed to finance the BBBEE partners”.

This was not true – Tegeta only acquired new black shareholders six months later when Salim Essa and Duduzane Zuma were brought on board.

Minutes show that Nath also tried to argue that “changes in environmental law as well as royalties justified the need for a higher price”.

Eventually, Eskom agreed to accept Tegeta’s offer to supply 65,000 tons per month of blended coal for five years at R13.50/GJ, roughly R277/ton.

It is unlikely that Eskom officials were aware that around the same time, questions about Brakfontein’s coal were being raised in court. As part of a case brought by a former mining contractor against Goldridge, an expert geology report was submitted to court that concluded that “…Brakfontein coal deposit could never support a mine of economic importance”.

“Theoretically the poor quality [coal] can be mixed with another coal supply source to produce an acceptable Eskom quality coal feed, but [this] is a pipe dream,” geologist Gerhard Esterhuizen wrote in his report.

The pipe dream was about to be put to the test.

February 2015-March 2015: The Guptas demand more

The Guptas had finally been promised their first Eskom coal contract, but it is apparent they were not satisfied with their relatively modest contract of 65,000 tons/month.

Just four days after Eskom relented and agreed to take Brakfontein’s coal, Tegeta’s chief executive wrote back to Eskom’s general manager of fuel sourcing, Johann Bester, with a new request:

· Increase the amount of coal supplied from 65,000 tons a month to 100,000 tons a month, starting in October,

· Increase the contract from five years to 10 years, and

· Allow Tegeta a grace period of three years before it needed to become 50%+1 black-owned.

Minutes show that during negotiations, Eskom had requested first right of refusal to coal from the as-yet-unopened part of the coal mine known as Brakfontein Extension. Tegeta was now seeking to convert Eskom’s first-right-of-refusal into a cold, hard contract.

Bester sat on the request for a few days and then wrote back on February 12:

· Eskom would still only agree to take 65,000 tons a month; come October Tegeta could offer Eskom another 35,000 tons a month from Brakfontein Extension, but it would be up to Eskom to decide if it wanted or needed the coal.

· Eskom would still only agree to a contract of five years but there would be an option to extend for another five years when the contract ran out.

· On the BEE requirements, Eskom would agree to a grace period, as it had done with other suppliers, provided that Tegeta remained 50%+1 black-owned for rest of the contract.

Considering that Tegeta’s first coal contract was still not signed – a contract that was awarded without a competitive bidding process – this was an unusually generous concession from Eskom.

Tegeta was not happy though. Nath immediately forwarded Eskom’s letter to Tony Gupta and Salim Essa, saying:

I am not very happy with the wording “Eskom shall [have] an option to enter into an offtake agreement for the additional coal”. Further, ‘option to extend for further five years’. This shows that there is no commitment on the part of Eskom.

It is worth taking a minute to consider this – Tegeta had already used their connections to pressure Eskom to take low quality coal. Now, by refusing to more than triple the contract from roughly R1-billion to R3.8-billion on the basis of a single letter, Eskom was deemed to be showing “no commitment”.

Commitment to what, exactly?

The reply that came from Gupta and Essa is not included in the #GuptaLeaks. But the following day, an emboldened Tegeta wrote back, this time to Nteta, who reported to Bester.

“Kindly recollect our discussions in which I mentioned that we want a 10 years’ contract to satisfy our funders as the loan period is going to be more than 7 years… for the sustainability of the mines we request you to kindly consider the following changes favourably.”

Nath included his proposed changes to the wording of the contract, which would include a 10-year contract and a guaranteed 100,000 tons a month, starting in October.

At this stage, there’s clear evidence that Eskom was aware that Tegeta’s Brakfontein coal mine did not represent the best value-for-money for Majuba power station.

A list of coal suppliers disclosed in the unredacted version of the Denton’s Report shows that in 2015, Majuba power station had seven suppliers – Tegeta delivered the lowest quality coal yet commanded the highest rand per gigajoule rate.

For example, while Tegeta scored R13.50 per GJ, another Delmas-based mine, Kuyasa Mining, was paid R10.41 per GJ. And while Kuyasa as well as four other Majuba suppliers reached Eskom’s target of being 50%+1 black-owned, Tegeta had still not concluded their promised BEE deal.

It is not clear from the #GuptaLeaks what happened over the next two weeks, but on March 9, Eskom relented – Nteta wrote back to Tegeta confirming that Eskom would take 113,000 tons of coal from Brakfontein, starting in October 2015.

The following day, Eskom and Tegeta signed the Brakfontein contract worth R3.8-billion over 10 years.

An unexplained footnote to this saga is that the day after the Brakfontein contract was signed, Eskom’s board suspended four senior executives, including chief executive Tshediso Matona and Matshela Koko, group executive for commercial and technology. Of the four suspended, only Koko would eventually be reinstated.

March 2015: Problems emerge

Tegeta was due to start delivering coal on 1 April 2015, provided that its coal first passed a combustion test at Eskom’s Research, Testing and Development lab in Germiston – this was not as simple as it sounds since Tegeta’s blended coal had failed to pass two previous tests.

The results of the combustion test, conducted by Eskom’s special-purpose built lab, were delivered two days after the contract was signed. The report, which forms part of an ongoing investigation by Treasury, concluded that Brakfontein’s coal was “not suitable for all power stations”.

Of the 14 power stations in Eskom’s fleet, the coal was considered “not acceptable” for 10, while four were considered “marginal”. Majuba, where Brakfontein’s coal was contracted to go, was one of the power stations marked “not acceptable”.

In particular, the report warned that Tegeta’s plan to blend higher and lower quality coal was risky, saying: “…producing a consistent blend … is difficult to maintain. This can result [in] producing a blend with a hardgrove [index] which is worse than the one analysed, and also surpassing the … ash and CV rejection limit.”

In other words, the coal from Brakfontein mine was too marginal, the risk of the coal quality dipping below the rejection limit on a regular basis too high.

At this point, Eskom should have told Tegeta the deal was off. Instead, Eskom ignored its own technical experts and okayed Tegeta to start delivering coal to Majuba.

March 2015: Ben’s Board

By this point, the Guptas were also starting to throw their weight around with the Eskom board.

On March 19, Nazeem Howa, then-chief executive of Oakbay Investments, sent Salim Essa a statement that he had drafted for the Eskom board to send out announcing that it had decided to relieve chairman Zola Tsotsi of his duties.

In the email Howa refers to the statement as “a first draft”, saying to Essa:

“Let me have your thoughts and I will work to polish further.”

Although Tsotsi would only step down two weeks later, it appears the Guptas were not only given advanced warning that the Eskom chairman would resign, but had taken the liberty of drafting a statement for the new chairman, Ben Ngubane.

On Thursday, Tsotsi said he was “not surprised” that the Guptas were privy to information about his removal:

“I suspected my removal was orchestrated by them. In fact, the Guptas told me a couple of weeks before, at the State of the Nation Address [February 12], that if I would not co-operate with them that they will see to it that I am removed as they were the ones who made sure that I was retained as chairman.”

Tsotsi said that at the time he was not aware that his replacement, Ngubane, and several members of the Eskom board had connections to the Guptas.

The #GuptaLeaks show that Ngubane and Essa were already well-acquainted, being business partners in Gade Oil and Gas, a company that tried to gain oil concessions in Central African Republic in 2013.

Two weeks later, the day after Tsotsi resigned, Howa sent Essa an “amended version of the statement for Ngubane, “for your approval”.

The statement that Ngubane released on behalf of the Eskom board later that day differs substantially from Howa’s final draft, but Howa’s fingerprints are clear in a few of his sentences that survived.

One of Howa’s phrases that did not make it into the final statement was that the board “will not tolerate incompetence, tardiness, any dereliction of duty from any member of the Eskom team, saying:

“We know that there is no alternative but to implement several radical solutions.”

Things were about to get a lot more radical at Eskom.

April 2015-June 2015: Enter Molefe and Singh

With Eskom chief executive Tshediso Matona on suspension, Minister Brown announced that she would be moving Transnet chief executive Brian Molefe across to Eskom. Coming with him would be Transnet chief financial officer Anoj Singh.

Invoices show that Singh had already made four trips to Dubai by this point, where he stayed in the luxury Oberoi Hotel, enjoyed spa treatments and was chauffeured around in a limo – all paid for by the Guptas’ Sahara Computers.

Although there’s no record of Molefe visiting the Guptas in Dubai, the Public Protector’s State of Capture report detailed 58 phone calls between Molefe and Ajay Gupta starting soon after Molefe joined Eskom.

The arrival of Molefe and Singh at Eskom ushered in a new era for the Guptas’ mining ambitions.

When Tegeta started delivering coal to Eskom’s Majuba power station in April 2015 production was slow – just 54,041 tons in the first month – but deliveries soon ramped up and by July, Tegeta was delivering and being paid for more than 100,000 tons; far more than the 65,000 tons Eskom agreed to take for the first six months of the contract.

Considering that Tegeta had scored a 10-year contract without participating in a competitive bidding process, this was a major triumph. But Tegeta now wanted more.

In a new proposal sent to Eskom in June, Tegeta proposed that come October, its mine would deliver 200,000 tons of coal to Eskom, up from the already inflated 113,000 tons agreed to in the contract. Eskom agreed, provided that Tegeta’s coal passed the required qualify tests.

However, as production volumes increased at Brakfontein mine so too did the problems.

A technical report commissioned by Treasury and based on documents from Eskom shows that in August 2015, 34% of Tegeta’s stockpiles were rejected because the quality did not meet Eskom’s specifications.

Eskom insists it did not pay Tegeta for stockpiles that were rejected, but the records provided to Treasury show that Tegeta was still paid for well over 65,000 tons of coal it was contracted to deliver – R35.3m for 122,617 tons in July, R33.2m for 112,207 tons in August, R42m for 139,386 tons in September.

August 2015: Problems emerge

By the end of August 2015, Eskom could not ignore the problems with Tegeta’s coal. On August 31, Koko – who had recently been reinstated to his position as group executive of technology and commercial – suspended Tegeta’s contract as well as two independent laboratories that were testing Tegeta’s coal.

The suspension of its contract came at an inopportune time for Tegeta. Just three days before Tegeta had written to Eskom with yet another offer, this time to supply an additional 150,000 tons of coal a month – Tegeta would source the coal from other mines and blend it, not as a middleman per se, but a “value-adding trader”.

For most junior coal suppliers, the suspension of a coal contract would be a major crisis. Tegeta seemed undeterred. On September 4, Tegeta increased their offer to supply coal as a value-adding trader to 200,000 tons.

At the same time, Nath wrote back to Koko explaining that despite accredited independent laboratories rejecting numerous samples of being too high in sulphur, Tegeta’s own in-house tests found the sulphur levels to be acceptable.

There is no indication in the #GuptaLeaks that Tegeta sent the result of the in-house tests to Eskom. Despite this, Nath’s letter seems to have sufficed. The following day, Koko lifted Tegeta’s suspension “whilst [Eskom] continues its investigation”.

Koko would later claim in an interview that their investigation found that one of the labs was at fault, saying: “…We had conclusive proof that this lab was fabricating results … that is why we suspended them,” Koko told Carte Blanche in June 2016.

However, an October 2015 report by Dr Chris van Alphen, Eskom’s chief adviser on coal quality, lays the blame squarely on Tegeta and its apparent inability to produce a consistent blend of coal.

According to a technical report prepared for Treasury’s investigation, when three labs analysed what were supposed to be identical samples of Brakfontein’s coal from August 2015, the results varied so dramatically that one technician remarked: “They do not look like the same coals never mind the same samples.”

For Tegeta it was business as usual, but the episode also resulted in four Eskom employees being suspended including Dr Mark van der Riet, Eskom’s most senior coal scientist who was tasked with investigating the discrepancies in Brakfontein’s coal qualities.

Almost two years later, Van der Riet remains on suspension. After Van der Riet and his union representative approached the Labour Court, Eskom finally agreed to hold an internal disciplinary hearing later this month.

“If Mark’s matter is such a serious matter why has it taken more than a year for Eskom to deal with it? Eskom seems to be using delaying tactics, hoping the employee will eventually resign,” Numsa’s Bonny Nyangwa said on Wednesday.

Eskom’s official line is that Van der Riet’s 22-month suspension is not linked to his role in investigating Brakfontein’s coal qualities.

Nyangwa disputes this, and confirmed that Eskom added new charges against Van der Riet earlier this month: breaching Eskom’s confidentiality policy by allegedly forwarding information about the Brakfontein investigation to his personal email address.

September 2015: Tegeta ups the game

Even after Tegeta’s contract was reinstated, Brakfontein’s coal continued to periodically fail lab tests, according to Treasury’s technical report. In September 2015, for instance, 38% of Tegeta’s stockpiles were rejected, most for having excessively high sulphur levels, the cause of toxic sulphur dioxide air pollution.

There’s no evidence that Eskom was deeply concerned by this development. Instead, starting October, Tegeta increased deliveries to Majuba power station to more than 200,000 tons a month.

Keep in mind that this was during summer, when Eskom’s coal requirements have always been lower. Despite this, Tegeta was now delivering three times what was originally agreed to in the January 2015 negotiations with Eskom.

For the next several months, Tegeta reaped the rewards despite there being no evidence that any other mines were given an opportunity to bid to supply extra coal to Majuba.

At the same time Tegeta was also pushing Eskom to agree to their long-standing proposal to become a “value-adding trader”. Finally, at the end of September, Eskom official Thabani Mashego pushed back.

In a tone that the Guptas must have been unused to hearing, Mashego told Tegeta chief executive Ravindra Nath in an email:

“Eskom will be going out on open enquiry to fulfil their coal shortfall requirements going forward. Tegeta is therefore advised to respond to such enquiries, which will be advertised in the print media and the Eskom Tender Bulletin shortly.”

Nath wrote back the next day, essentially instructing Eskom to sign the contract.

“[W]e have to advise that on the basis of the letter and the subsequent meeting thereafter we have already tied up the coal offtake and it is not possible to come out of it. We therefore request you to arrange for the contract in this regard.”

It is not clear whether Eskom capitulated and signed this contract – this is one of the many questions that Eskom chose not to answer. Either way, Tegeta did not need this off-take agreement – it was about to become a major coal supplier to Eskom.

April 2015-December 2015: Next Target: Optimum

It is worth taking a step back for a minute to understand how the Glencore-owned Optimum coal mine became a target in Tegeta’s rapidly expanding coal empire.

Hidden in the #GuptaLeaks is a letter addressed to Glencore’s chief executive Clinton Ephron. Dated April 13, the letter was from Dam Capital, representing the little-known Endulwini Consortium, and contained an offer to buy Optimum Coal as well as Optimum’s Richards Bay export allocation for $200-milllion.

“We have commenced putting together a consortium of South African investors, led by Black people, with an established presence in the mining industry,” the letter reads, “[t]he identity of whom will be disclosed as we reach an agreement that the assets are available for sale.”

No more is heard from Endulwini or Dam Capital in the cache of leaked emails, and it is not clear if the Guptas were the anonymous investors referred to in the letter. What we do know from the Public Protector’s report is that in July, Glencore received an almost identical offer to buy Optimum Coal from KPMG representing an anonymous client. When Glencore questioned KPMG it discovered the bid had come from Oakbay.

Glencore refuses to comment on the Dam Capital offer, and we know from the Public Protector’s report that it rejected the similar overtures by KPMG.

Soon though, Glencore was facing new problems from Eskom as newly appointed Eskom chief executive Brian Molefe took a hardline approach, refusing to renegotiate the price Eskom paid for Optimum’s coal. At R150/ton Optimum was sinking deeper and deeper into financial trouble. In August, Glencore placed the mine in business rescue in a bid to stave off liquidation, but Molefe remained unmoved.

Instead it is alleged that Molefe and Eskom chairman Ben Ngubane tried to persuade mines’ minister Ngoako Ramatlhodi to cancel Glencore’s other mining rights in a bid to force Glencore to capitulate.

On August 7, after Optimum’s mining licence was briefly suspended and then reinstated by the Department of Mineral Resources, a Gupta lieutenant, Ashu Chawla, received an email from someone only identified as “Business Man” using the email address “[email protected]”.

Attached to the email was a letter Optimum’s business rescue practitioners had sent to Eskom’s senior executives regarding Optimum’s mining right suspension. The letter itself is not particularly explosive, but what is apparent is that someone with access to confidential information in Eskom was leaking it to the Guptas.

“Business Man” features in the #GuptaLeaks again in November when Matshela Koko forwarded two emails from his private Yahoo email address to “Business Man”, both containing confidential Eskom information.

In one, Koko asks “Business Man” to pass the Eskom documents on to “the Boss” – the email was then forwarded to “Western”, another anonymous email address that appears to be a proxy for one of the Gupta brothers.

In the second email Koko passed on a sensitive legal opinion exposing how weak Eskom’s position was in their ongoing battle with Optimum Coal. Again, “Business Man” and “Western” passed these on to Chawla.

A day later, Koko sent a particularly vitriolic letter to the business rescue practitioners, threatening to review all of Glencore’s other Eskom contracts – it is not clear how, but the #GuptaLeaks show that Tony Gupta was given an advanced copy of Koko’s letter.

A few days later, the business rescue practitioners signed a term sheet with the Guptas, formally entering negotiations to sell Optimum Coal.

We can also see from the #GuptaLeaks that on December 2, when mines minister Mosebenzi Zwane failed to board his official flight from Zurich to Dubai, he was allegedly on board the Guptas’ Bombardier jet, ZS-OAK, along with Tony Gupta and Salim Essa.

The former Public Protector’s report concluded that Zwane had played a central role during the negotiations in Zurich where Glencore agreed to sell Optimum to the Guptas. What her report was unable to explain however was how the minister got from Zurich to Dubai – from the #GuptaLeaks we now have evidence that Zwane spent the next two days in India with the Guptas before flying back to Dubai and catching his official flight back to Johannesburg.

December 2015: The R1.68-billion prepayment

By early December, the Guptas were finally about to get their hands on Optimum Coal. Thanks to Koko, insisting at the last minute that Glencore sell the entire Optimum Coal Holdings portfolio, Tegeta would not only be buying the loss-making Optimum Coal Mine, but also Koornfontein Mines and a 5.5m-ton/year export allocation at Richard’s Bay.

Tegeta now needed to find a way to pay for it. The problem was that Tegeta would not be paying the R2.15-billion purchase price to Glencore, but to a consortium of three banks which had loaned money to Glencore during a period of several years.

On December 8, Tegeta chief executive Ravindra Nath met with First National Bank, Investec and Rand Merchant Bank and put a proposal on the table: Tegeta would settle an undisclosed portion of the debt now and the rest would be paid to banks in 11 monthly instalments.

The banks politely but firmly declined and told Tegeta they wanted the full debt settled.

Around the same time, Tegeta also called a meeting with Koko. We know about this meeting because it is referred to in a letter sent to Koko on December 9 and disclosed in the #GuptaLeaks. Based on the letter we can deduce that Eskom agreed in principle to give Tegeta a massive R1.68-billion upfront payment for future coal deliveries from Optimum Coal.

It appears from the #GuptaLeaks that Tegeta wanted to use their yet-to-be acquired mine to secure a sizeable chunk of money from Eskom – money that could then be used to pay the purchase price of Optimum.

Tegeta appears to have been so confident of receiving the payment that Koko was requested “to kindly send us a written confirmation regarding the payment for supply of coal amounting to R1,680,000,000 (Rand one billion six hundred and eighty million)”. Nath finished off his letter by attaching the Guptas’ lawyers bank details to the bottom of the page.

It is not clear from the #GuptaLeaks if Tegeta received the R1.68-billion prepayment it requested. On the same day Koko received the prepayment request, Zuma fired Nhlanhla Nene as finance minister, triggering the political equivalent of a nuclear bomb ripping through the markets.

By Monday 14 December, sanity had prevailed and the Guptas’ hand-picked finance minister Des van Rooyen was shifted out of Treasury. It is possible that the entrance of Pravin Gordhan as finance minister put any plans of a R1.68-billion prepayment on hold. But the Optimum deal was by no means off the table.

On December 16, Eskom CFO Anoj Singh flew to Dubai – the trip, paid for by the Guptas, cost AED20454 (R71,610). In January, Koko followed suit, staying at the Oberoi Hotel for two nights at the Guptas’ expense.

The #GuptaLeaks provide no detail on whether Singh or Koko met with the Guptas during this time or what they spoke about if they did. However, based on the largesse that was about to flow in the Guptas’ direction, we should be deeply concerned by meetings such as these.

January 2016: A red-carpet welcome

Although Tegeta would only formally take ownership of Optimum Coal in April, from January 1, Tegeta was running the mine for its own profit or loss.

Tegeta was now supplying Majuba power station from their Brakfontein mine, Hendrina power station from Optimum, and Komati power station from Koornfontein mine.

The great mystery of the Guptas’ bid to grab Optimum was how they planned to turn a mine that was haemorrhaging R100-million a month and turn it into a profitable venture.

The assumption was that Eskom’s reluctance to renegotiate the price of R150/ton that Optimum received would fall away as soon as the Guptas took over the mine. But Eskom’s refusal to renegotiate the price had become such a cornerstone of Eskom’s fight with Glencore that there was no way to change the price now.

The dilemma was quickly solved because by January, Eskom had conveniently cleared the way for Optimum to start supplying coal to Arnot power station in Mpumalanga.

In 2015, Eskom had taken the decision not to renew Exxaro’s cost-plus contract to supply Arnot as the price Eskom paid for the coal had become unsustainably high, sometimes exceeding R1,000/ton.

That decision may have made financial sense. What made less sense was Eskom’s decision to terminate a second Arnot contract, this time with Mafube, a joint venture between Exxaro and Anglo American that mines coal just north of the N12 highway and supplies it via a long conveyor belt system to Arnot power station.

Eskom’s Denton’s report shows that in July 2015, Mafube provided the cheapest coal on Eskom’s books at a fixed price of R132/ton. The coal was not great quality, but since 2004 the mine had delivered 1.18m tons a year to Arnot power station. According to Denton’s report the contract was due to run until the end of 2023.

Exxaro’s spokesperson Mzila Mthenjane will only say that the contract came to an end. However, Exxaro’s own annual report refers to “Eskom’s decision to terminate the Mafube supply agreement”, and according to a source familiar with the operations, the contract was cancelled without reason in December 2015.

By the end of January, a steady stream of 30-ton coal trucks was running from Optimum mine to Arnot power station roughly 60km away.

And while Optimum received R150/ton for coal delivered to Hendrina power station, Optimum scored R470/ton for coal delivered to Arnot power station, excluding transport costs. The cost of transporting the coal – another R60/ton or R1,800/truck – was paid by Eskom.

Eskom maintains that the coal delivered to Arnot justified a higher price on the basis that the coal had a lower abrasiveness index – this version is disputed by numerous sources familiar with the on-the-ground operations.

Later, when demand for coal at Arnot rose, and Optimum no longer had enough coal to supply both contracts, Eskom appears to have obligingly reduced the amount of coal Optimum was required to deliver to Hendrina power station, freeing up additional coal for the more lucrative Arnot contract.

January 2016-February 2016: Brakfontein goes on sale

Around the same time, Tegeta announced it would sell Brakfontein mine with its Eskom contract to Shiva Uranium, a subsidiary of the Guptas’ listed company Oakbay Resources and Energy – Tegeta would transfer Brakfontein and all its contracts to Shiva and in exchange Tegeta would receive shares in Shiva worth R2.1-billion.

On February 24, Oakbay’s shareholders approved the deal, and Brakfontein became part of the newly formed Shiva Coal. However, even though the mine changed hands, Eskom kept paying Tegeta for the coal.

AmaBhungane discovered this after submitting a PAIA request to Eskom for a list of Eskom’s coal suppliers and their percentage of black ownership – the list we received in March this year did not include Oakbay or Shiva.

In terms of the Public Finance Management Act, Eskom has to pay the rightful owner of the coal it receives. However, Eskom’s own records show that Tegeta continued to receive payments for Brakfontein’s coal for months after the mine was sold. Sources say that as of last month Tegeta was still receiving the payments for Brakfontein’s coal.

When we queried this with Eskom in a meeting in April, Ayanda Nteta, the outspoken executive from the 2014 meetings, told us: “In terms of Brakfontein, my understanding is that Shiva Uranium has bought in shares in terms of Brakfontein so there was a flow through… The contract we have is with Tegeta, that’s why … Shiva wouldn’t be listed.”

In fact, Shiva did not buy the shares in Brakfontein or Tegeta. Instead the circular is explicit that Shiva bought the mine with its contract. Shiva is now the rightful owner of the coal, but instead Eskom is continuing to pay Tegeta.

“We will look into that. Our legal people understand in terms of the flow through and who bought the shares,” Nteta said.

Eskom has failed to respond to any follow-up questions on the issue. Questions were also sent to Oakbay Resources & Energy two weeks ago – chairman George van der Merwe responded last week confirming that Shiva had bought the Brakfontein mine with its contract but offered no explanation for why Tegeta was still being paid.

February 2016: Briefly empowered, always empowered

It is hard to imagine why a JSE-listed company like Oakbay would allow Eskom to pay another company for its coal. The answer may lie in Eskom’s requirement that its coal suppliers be 50%+1 black-owned.

“We have a shareholder compact which targets us to spend at least 40% of our total procurement on black suppliers. Coal being the biggest commodity, the more we can do it on coal the easier it gets,” Edwin Mabelane, Eskom’s head of procurement, told amaBhungane.

When the original Brakfontein contract was signed in 2015, it contained a suspensive condition – Tegeta needed to reach Eskom’s black empowerment target of 50%+1 by 2018 and remain empowered for the rest of the contract.

“In terms of [Tegeta’s] contract, they were given a certain period; we said to them, ‘You have a [10-year] contract, you need to move to black-owned within a certain amount of time,’” Nteta confirmed.

In November 2015, just before Tegeta bought Optimum Coal, Tegeta reached that target when Duduzane Zuma and Salim Essa became shareholders through Elgasolve and Mabengela Investments respectively.

As a result, Tegeta’s black-owned shareholders own 775 shares versus the 774 shares held by Oakbay and several off-shore companies – through a byzantine share structure the majority of control still rests with members of the Gupta family and two Gupta-controlled companies registered in Dubai.

However, this raises an interesting question: if Shiva takes possession of the contract as it is legally entitled to do, would Shiva be required to become 50%+1 black-owned by next year? And if Shiva failed to become majority black-owned, would Eskom be entitled to cancel the contract even though it is still scheduled to run until 2025?

In other words, for the Brakfontein contract, does once empowered (albeit briefly) mean always empowered?

Currently, Shiva is 41% black-owned thanks to Tegeta and another Duduzane Zuma-owned company, Islandsite Investments 255. However, due to the complicated share structure, more than 50% of the Shiva is owned by members of the Gupta family.

April 2016: Eskom asks Treasury for even more

It has been well-established that throughout 2016, Tegeta raked in almost R1-billion from their “emergency” contract supplying coal to Arnot power station.

Unfortunately, the #GuptaLeaks provide no further detail on the Guptas’ dealings with Eskom beyond the early negotiations in 2016.

In April 2016, Eskom delivered on part of the prepayment Koko promised when, in a late-night special tender committee meeting, Eskom agreed to prepay Tegeta R587-million for coal. Eskom’s decision came just hours after the consortium of banks refused to provide Tegeta with a R600-million bridging loan.

In August, Treasury refused Eskom’s request to extend Tegeta’s contract to supply Arnot power station by another R855-million over six months.

However, Treasury gave conditional approval to Eskom to sign a R7-billion expansion to the Koornfontein contract to supply Komati power station for the next seven years, provided that there were no other potential suppliers. Eskom appears to have ignored this condition and handed the contract to Tegeta two weeks later.

By this point, Brakfontein’s deliveries to Majuba power station were back down to the contractual 113,000 tons of coal a month. A few days later, Eskom returned to Treasury with a new request – Brakfontein had more coal to offer and Eskom wanted to extend the contract by another R2.9-billion.

During the interview in April this year, Eskom explained that the request for a R2.9-billion expansion of the Brakfontein contract was as a result of Eskom’s earlier agreement from June 2015 to increase deliveries to Majuba power station to 200,000 tons of coal a month.

“What Eskom decided to do was [to be] more proactive – because actually it was agreed on prior and we should have just continued – we opted to inform National Treasury to say, ‘By the way we were supposed to get [a certain number of tons] and this [additional amount] was supposed to kick in in October. We would like to now exercise this requirement,’” Nteta said.

What Eskom was asking for was to increase the already inflated contract from R3.8-billion to R6.7-billion. Treasury baulked and told Eskom it could not support Eskom’s decision to take further coal from Brakfontein until the year-long Treasury investigation was completed.

2017: Eskom on the ropes

We’re now in mid-2017 and the empire that the Guptas built at Eskom is crumbling.

Brian Molefe has been removed as chief executive, Matshela Koko is under investigation and unlikely to return to his position as acting chief executive. Meanwhile both Parliament and Treasury are demanding answers to know why Eskom rolled out red-carpet treatment for the Guptas.

By our calculation the Guptas have received contracts worth R11.7-billion from Eskom for coal alone. None of these contracts was awarded as the outcome of a competitive bidding process, and the R11.7-billion does not include the contracts that Tegeta inherited when it bought Optimum Coal, nor does it include invoices totalling R419-million for management consulting and advisory services delivered to Eskom by Trillian Capital Partners, a company majority owned by Salim Essa.

Last week, we wrote to Eskom asking how it planned to deal with allegations contained in the #GuptaLeaks considering that Eskom’s former chief executive (Molefe), Eskom’s former acting chief executive (Koko), Eskom’s chief financial officer (Singh), Eskom’s chairman (Ngubane) and half of Eskom’s board were named and potentially implicated by the emails.

Eskom chose not to respond to the three pages of questions we sent; instead spokesperson Khulu Phasiwe said Eskom supports minister Lynne Brown’s decision to institute an investigation via the Special Investigating Unit into all the allegations against Eskom and will fully co-operate with the investigation.

“As you may be aware, the Minister of Public Enterprises Lynne Brown said … that she is in the process of instituting an inquiry into these allegations with the aim of getting to the bottom of these matters once and for all. Eskom supports the establishment of this enquiry, and will co-operate with the investigators once that process gets underway. In addition, the National Treasury has also been investigating these contracts since July 2015, and as the Treasury has informed Scopa … it is happy with the level of co-operation it is getting from Eskom in getting to the bottom of these allegations.”

The Gupta family’s lawyer did not respond to similarly detailed questions, but told amaBhungane that the Guptas could not comment on the #GuptaLeaks until they had a copy of the leaks in their possession. DM

Photo: Hendrina Power Station (Photo by Eskom)

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