Eskom's Molefe ‘Stonewalled’ Glencore South Africa, ex-CEO Says

(Bloomberg) -- South Africa’s state-owned power utility refused to renegotiate a coal deal with a mine owned by Glencore Plc’s local unit and tried to penalize it for supplying sub-standard fuel, resulting in the operation being placed in bankruptcy protection and being sold, a former head of the business said.

The Optimum coal mine supplied Eskom Holdings SOC Ltd.’s Hendrina power plant and was placed under a local form of bankruptcy protection known as business rescue while owned by Glencore in August 2015. The operation was losing money because the power producer was paying a fixed price for the fuel, but the cost of mining it was rising more quickly than inflation, said Clinton Ephron, the former chief executive officer of Glencore’s local operation.

The only possible way to have saved the business would be to renegotiate the contract, he said. But when Ephron and Glencore CEO Ivan Glasenberg met then-Eskom CEO Brian Molefe about the contract, he said the electricity producer “was not willing to negotiate,” Ephron told a judicial panel probing corruption particularly during Jacob Zuma’s presidency. “It was a stonewall negotiation. It wasn’t a discussion, it was a position.”

In 2015, Glencore was pressured by former Mineral Resources Minister Mosebenzi Zwane into selling the Optimum coal complex to a company part-owned by members of the Gupta family, who were friends with Zuma, for 2.15 billion rand ($155 million). Allegations of corruption against the Guptas helped bring down his presidency. The Guptas, Zuma and Zwane deny any wrongdoing.

Glencore was “suspicious” of the actions of outside parties who forced it to sell Optimum to the Guptas, Ephron said.

The Guptas have left the country, while Optimum has been placed under administration and is in the process of being sold.

A 2016 report by the Public Protector’s office, which was led by Thuli Madonsela and ordered the set-up of the judicial commission of inquiry, found that Eskom’s conduct relating to Optimum “was solely to the benefit of Tegeta,” which belonged to the Guptas.

“We were shocked by what came out subsequently in the Public Protector’s report,” Ephron said, adding that it then became“quite easy for us to connect the dots.”

Nedbank Ltd., South Africa’s fourth-largest bank, estimates that corruption, maladministration and bad policies shaved 470 billion rand ($33.9 billion) off the nation’s gross domestic product between the start of Zuma’s second term in May 2014 and February last year, when the ruling African National Congress forced him to step down to stem a loss of support.

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