Last week, Oakbay Investments released a statement about its operations at the Optimum Coal Mine, owned by BEE company, Tegeta Exploration & Resources, in which Oakbay has a 29% shareholding, and its relationship with Eskom, the electricity public utility.
The South African investment company, released this statement in response to allegations of conducting business in a non-transparent manner that has been circulating in the media over the past few months.
“Oakbay has been appalled at the constant innuendo circulated and printed by media about the company, based on faceless sources and zero evidence. In recent days, Oakbay has received 21 questions from ‘Carte Blanche’, the M-Net television series, regarding Optimum, Eskom and the supply of coal to the Arnot power station,” the statement expressed.
“We initially referred their questions to Eskom, but yesterday Oakbay offered Carte Blanche an interview with its CEO, Nazeem Howa, either live or pre-recorded, on the proviso that the interview would be aired, unedited. This offer was to guard against selective editing and yet more lies and baseless allegations being disseminated.
“Both offers were rejected by Carte Blanche. Allegations have also appeared in today’s CityPress newspaper,” the company said.
Oakbay Investment CEO turns to film
Oakbay CEO has recorded a 40-minute interview, where he addresses the key issues that have caused concern in recent months.
Transparency is key
Quoting the investment firm, they explain the following in a company statement:
Optimum was acquired by Tegeta, from Glencore, in April 2016, whilst Optimum was in ‘business rescue’ status, in a transaction, which received all regulatory approvals, and saved over 3,000 jobs at Optimum.
The transaction was funded through a mixture of existing funds and debt and, as in any transaction, proof of funding was required ahead of deal signature. This proof was provided in December 2015.
It was further stipulated in the sale agreement that bankers who had advanced loans totalling ZAR2.5 billion ($197 million) to Optimum would have to agree to the transaction by 31 March 2016 before the deal could close. This approval was based on our ability to prove we could fund the deal.
Since deal closure, Tegeta has increased coal production at Optimum from 400,000 tonnes a month (at the time of acquisition) to 800,000 tonnes per month and in the next month will hit the one million tonnes milestone.
This coal is of the highest quality, which meets Eskom’s stringent testing regimen.
Price and efficiency
Most importantly, Tegeta supplies coal to Arnot power station at an average price of ZAR583 ($38) per tonne. This compares with the previous supplier’s price of ZAR980 ($64) per tonne and the new rate it proposed of ZAR1,360 ($90) a tonne.
This huge saving for Eskom, generated by Tegeta, directly benefits South African taxpayers and citizens: cheaper energy.
Eskom subsequently approached Tegeta’s management team to increase its supply of a high calorific value coal to Arnot for the winter months. As the company was in business rescue and therefore did not have any credit facilities, Tegeta initially declined as it was also facing closure of its banking arrangements.
Following several rounds of negotiation the parties agreed to a pre-payment as Eskom needed the supply to guarantee security of power during the cold winter months. In addition, Eskom asked Tegeta to agree to a further discount on the pricing in exchange for the prepayment.
It is our understanding that Eskom has made pre-payments to other clients when faced with similar circumstances, so it is a malicious lie to suggest that special treatment was given to Tegeta.
Currently, Tegeta supplies less than 5% of Eskom’s total coal supply – in some instances at the lowest rates.
The supply of the remaining 80% comes from the same companies who have been supplying for decades, several on a ‘cost plus’ basis, which means Eskom funds both their operating costs and their capital costs – a gravy train all funded by South African taxpayers. Tegeta, on the other hand, has only been a coal supplier to Eskom for a mere 16 months.
Nazeem Howa, Chief Executive of Oakbay Investments, said: “Oakbay is happy to receive scrutiny on any of its transactions as each deal has been done in a transparent, arm’s length manner with pricing negotiated by a willing buyer and willing seller.
“We are competitive in everything we do, including price. By also operating efficiently, we are shining a light on decades of exploitation of South African taxpayers by the major mining companies and they don’t like it.
“South Africans have heard the word ‘capture’ many times in recent months. We are happy to face any scrutiny within the context of the entire mining industry and know that on a like-for-like basis, it is very easy to see where the preferential treatment and capture is.”