Former Glencore CEO Clinton Ephron. (Photo: Gallo Images / Netwerk24 / Felix Dlangamandla)
The allegations that Glencore was aiming to use Cyril Ramaphosa to mine Eskom’s silver through the Optimum Coal Mine, and that their attempts at state capture were heroically thwarted by former Eskom CEO Brian Molefe, were refuted by former Glencore CEO Clinton Ephron at the State Capture Commission on Thursday.
After a 10-day hiatus, the State Capture Commission of Inquiry met on Thursday to hear the response from Glencore CEO Clinton Ephron to allegations brought before the commission by former CEOs of Eskom Molefe and Matshela Koko, as well as, to some extent, by former board chairman Ben Ngubane.
Molefe and Koko’s allegations stem from questions surrounding Glencore’s sale of the Optimum Coal Mine, which supplied coal to the Eskom Hendrina power plant, to Gupta-owned Tegeta Exploration and Resources, in 2016. It is was after the mine, owned by Optimum Coal Holdings, which was 67% owned by Glencore, was forced into company bailout when Eskom under Molefe as new outgoing CEO derailed renegotiations of the long-term coal supply agreement. At the same time, Eskom imposed a penalty of R 2.1 billion for the mine’s apparent failure to meet its coal quality specifications.
Molefe and Koko’s claims that Glencore attempted to extort money from Eskom originate from Ramaphosa’s position within Glencore at the time of the acquisition of Optimum Coal Holdings (OCH). As Greg Nicolson explained in Daily Maverick: “Ramaphosa was Glencore’s local empowerment partner in 2012 when the group took a majority stake in Optimum Coal Holdings. Glencore’s company Piruto took a 67% stake in OCH and Ramaphosa Lexshell’s company took around 9%. Whether Ramaphosa became chairman of Optimum was the subject of debate within the committee, but it was widely reported in 2012 that he had been elected chairman, succeeding Bobby Godsell.
Ramaphosa was elected in December 2012 vice-president of the ANC.
Ramaphosa sold its stake in Glencore in 2014.
One of the claims presented to Ephron by leading evidence lawyer Pule Seleka was that Glencore failed to conduct due diligence on OCH and review Eskom’s coal supply contract because Ramaphosa would be used to take advantage of a higher coal price.
Ephron said Glencore, in getting OCH, which was a listed company, had two options. One was to approach the company directly with an offer, the other was to approach the shareholders and secure a certain number of shares, which is the route they took. If they had approached OCH directly, it would have triggered a public announcement, which could have affected the share price, making the purchase more expensive. The downside of not going directly to the company was that they couldn’t enter into a nondisclosure agreement and ‘reject all tires’, which would have included reviewing the supply agreement. in charcoal.
However, OCH had been listed a year earlier and in doing so issued a 300-page listing statement detailing the company. Ephron said Glencore believed it gave them sufficient insight into the business, even though failing to see the coal supply agreement, price adjustment mechanism, and inspection of all assets meant there was an element of risk.
After the acquisition of OCH in March 2012, Glencore found itself forced to sell coal at Rand 150 per tonne with an inflation-linked price adjustment that did not reflect the reality of the inflationary costs of the tonne. mining, which led Glencore to finance the mine to keep it. operational. However, the coal supply agreement contained a hardship clause which could be invoked by either party. It was a way to renegotiate prices, under arbitrage if necessary. It was in 2013, a little over a year after the acquisition of the mine, that Glencore invoked the hardship clause.
In what could be interpreted as a critique of Glencore’s method of acquiring OCH, the chairman of the State Capture Commission of Inquiry, Associate Chief Justice Raymond Zondo, said that “ The difficult situation “in which the mine found itself” was to a very large extent a consequence of the choice “made by Glencore, which prevented it from knowing the coal supply agreement.
“What about the proposition you shouldn’t be complaining about when it has encountered challenges like this is what will happen when you acquire a business without seeing the contracts that bind you, that Glencore is the author of his own misery? “asked Judge Zondo.
Ephron replied, “You are right. You are 100% right. There was a risk… we did not know the extent of the losses suffered by Optimum.
But, he said, the hardship clause was part of the 25-year coal supply agreement established in 1993 that accompanied the mine, and it was invoked under the rights of the contract.
“It was a mechanism that we decided after the fact to use to reduce the amount of financial hardship we were facing.”
He said at the same time that a proposal had been made to Eskom to extend the contract beyond its 25-year end date in 2018 and “make it a win-win”. Alternatively, if no solution could be found with Eskom, the mine would have to be put into liquidation, which would end Eskom’s coal supply.
He said any entity that acquired OCH would have faced the same situation.
Responding to Zondo presenting allegations from Molefe, Koko and Ngubane that Glencore was seeking to extort money from Eskom by trying to increase the price of coal by 100%, Ephron said the allegations were “absurd” because the costs were evaluated with Eskom experts.
Zondo made Molefe’s claim that when he was seconded from Transnet as CEO of Eskom in April 2015, he thwarted the cooperation agreement that was being negotiated following the invocation by OCH of the hardship clause, because the renegotiated coal price, at nearly R300 per tonne, was not in Eskom’s best interest.
Ephron said Molefe terminated an agreement that was at this point in its fourth addendum and that the terms for extending the coal supply agreement until the end of the life of the Hendrina plant, which was in 2023, had already been agreed. Arbitration dates had also been set for May 2016, but that was Molefe’s decision and ‘what we would have to live with’.
Asked by Seleka why the arbitration wasn’t set for earlier dates, Ephron replied, “You couldn’t even get a meeting with Eskom no matter what date… we got those dates and locked them down. We have done everything in our power to obtain them. Appointment.”
The Seleka advanced to Ephron the allegation that OCH engaging in the rescue of the company was used as a mechanism to allow the mine to avoid complying with the coal supply agreement.
Ephron said that after invoking the hardship clause and entering into a cooperation agreement which was canceled by Molefe, they received a letter from Eskom’s law firm Cliffe Dekker Hofmeyr on July 16, 2015, demanding the payment of alleged penalties of R 2.1 billion. This was to fail to comply with the size and grade specifications of the coal, which he said they were discussing with Eskom for the past three years, as the specifications were no longer possible to meet due to the age of mine.
“The demand for immediate payment or a subpoena was totally unreasonable.” But he said the problem that got them into rescuing companies was that continued penalties would be applied, which would prevent Eskom from paying for the continuous delivery of 300,000 to 350,000 tonnes of coal per month.
In addition, Eskom withheld payment of about R 92 million “for no reason” for coal delivered in the previous two months.
All this despite the invocation of the hardship clause. He said that left OCH directors with no choice but to embark on a business bailout or risk trading recklessly. They were losing R100 million per month before Eskom stopped paying for coal, which meant they would lose R200 million per month.
“They knew we were on the ropes. ”
Responding to Zondo’s presentation of allegations by Molefe, Koko and Ngubane that Glencore was seeking to extort money from Eskom by trying to raise the price of coal by 100%, Ephron said the allegations were “absurd” because the costs have been evaluated with Eskom’s experts.
A win-win scenario, with Hendrina supplied with coal until the end of her life, was in sight, he said. “I do not understand the allegation and strongly deny it.”
For his part, Ephron was unwilling to criticize. Asked by Seleka if he thought Molefe and others in Eskom had an ulterior motive in pressuring OCH, he replied, “I can’t answer that.”
Glencore eventually sold OCH to the Guptas for R 2.15 billion, thanks to Eskom’s intervention with a coal prepayment guarantee of R 1.68 billion.
Zondo said the committee was scheduled to hear requests “by various parties” for permission to cross-examine witnesses on Tuesday afternoon, and that it would meet again on Thursday, June 17. DM
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This notice was published: 2021-06-10 21:43:46