Eskom coal contract under scrutiny as former Glencore CEO testifies at state capture inquiry

Date: Feb 29, 2019

Former Glencore chief executive Clinton Ephron has detailed to the state capture inquiry how its Optimum coal mine tried to renegotiate its contract with Eskom before penalties were imposed on it by the parastatal. 

Ephron, whose evidence before the Zondo commission was led by advocate Vincent Maleka on Wednesday, said the mine was “suffering hardship” – as per a hardship clause enshrined in its coal-supply agreement with Eskom – when they entered into negotiations with the utility.

He said Glencore believed the negotiations went well as an addendum was put in place that would see Eskom increase the price it would pay for Optimum’s coal to the cost of its production. The addendum would be in place until 2023. 

“What we came to realise in 2013 is that the inflationary adjustment used in the contract was no longer representative of the genuine costs the mine was incurring. Eventually there came a time when the costs exceeded the selling price to Eskom,” Ephron told the commission.

“There was also a clause that envisaged, because you are talking about a vast resource of reserves in the ground, that there’s no way of knowing the qualities of coal [that was] was going to come out as. Optimum geographically expanded over 20 years. What was envisaged at the time was that some of the qualities of the coal may vary. One of those was the sizing. Because the mine had expanded so significantly, the coal was naturally degrading.”

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