My Day Nine at the State Capture Commission: Matshela Koko

Former Eskom Acting CEO Matshela Koko.Picture by BHEKI RADEBE/African News Agency/ANA

Former Eskom Acting CEO Matshela Koko.Picture by BHEKI RADEBE/African News Agency/ANA

Published May 26, 2021

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MATSHELA KOKO

Eskom’s Former Interim Group Chief Executive

“I took the prescribed oath for the 9th time at the State Capture Commission on 19 May 2021.

I did so to assist the commission to get to the truth with respect to the following topics: The Optimum hardship claim of July 3, 2013, the Co-operation Agreement between Eskom and Optimum of May 23, 2014, the Optimum’s business rescue notice of August 4, 2015, the R1.6 billion guarantee by Eskom in favour of Tegeta of December 10, 2015 and the R659 million prepayment by Eskom to Tegeta on April 11, 2016.

I appreciated the opportunity to tell the true story of state capture.

Most importantly I was able to show the commission why in my view the State of Capture Report by Professor Thuli Madonsela was defective and could not be relied upon.

The Deputy Chief Justice Zondo treated me with utmost respect at all material times and for that I am grateful.

The first point I made was that the Co-operation Agreement that Ms Kiren Maharaj concluded with Optimum on May 23, 2014 did not fall within her authority and was not authorised by Eskom board.

This agreement was irregular, and it was a stratagem to cover-up the penalties that were not enforced during the period since March 2012.

The co-operation agreement was also an irregular attempt by Optimum and Eskom officials to resolve the hardship claim of Optimum of July 3, 2013.

Consequently, Professor Thuli Madonsela was wrong to rely on the co-operation agreement in her State of Capture Report.

The second point I made was that the hardship claim of Optimum of July 3, 2013 could only have been resolved in terms of the hardship clause 27 and the arbitration clause 30 of the Coal Supply Agreement; and not through the Co-operation Agreement of May 23, 2014.

The arbitration agreement was signed on December 12, 2013, and it was abandoned on or around March 2014.

Former Eskom head of generation Matshela Koko is giving evidence at the Zondo commission. Screengrab: SABC/YouTube

In terms of the arbitration agreement Optimum had to show that relevant circumstances had arisen since April 12, 2011 and that these relevant circumstances were outside the control of Optimum and could not have been anticipated by both parties.

This, they failed to do.

They then caused the Co-operation Agreement of May 23, 2014.

It was not only irregular to replace the Arbitration Agreement of December 12, 2013 with the co-operation agreement on May 23, 2014 it was also unlawful.

I fail to see how Professor Thuli Madonsela missed this crucial point.

The third point I made was that Eskom’s negotiating team, armed with a mandate from the Board Tender Committee that would have enabled them to accept the Optimum’s coal price proposal of R285 per tonne without negotiating it down, came back six months later on April 15, 2015 to recommend to the Board Tender Committee and the Board that Eskom should agree to a base price of R442 per tonne, nearly three times the base price that was obtained at the time.

The base price of R442 per tonne was later increased by the Business Rescue Practitioners to R513 per tonne on August 20, 2015.

In his testimony to the commission Mr Bester, Eskom’s general manager: Fuel Sourcing at the time, suggested that Eskom should have agreed to the R442 per tonne price and that it was unreasonable for Eskom not to have done so.

The question that arises is why the negotiating team in April 2015 recommended a price to the Board Tender Committee and Board so startlingly higher than the price that Optimum had apparently been willing to agree to some seven months earlier; a base price nearly three times what had been agreed with Optimum as recently before as 2011.

Prima facie the negotiating team was trying to achieve that Eskom should treat Optimum, having become part of Glencore, far more favourably than could be justified in the circumstances.

In any event the Optimum proposal was going to cost Eskom R5.5bn and that was not budgeted for.

Incurring this additional unbudgeted expenditure would have been against the Public Finance and Management Act (PFMA).

The fourth point I made was that the termination of the co-operation agreement of May 23, 2014 which was followed by the instruction to proceed with the letter of demand on Optimum on 16 July 16, 2016 demanding payment in an amount of R2 176 530 611.99 (two billion one hundred and seventy-six million, five hundred and thirty-six hundred and eleven rand and ninety-nine cents) was based on the legal advice from Cliff Dekker Hofmeyr Attorneys of June 3. 2015.

Mr Brian Molefe was new at Eskom, and he relied on the legal advice given to him by Cliff Dekker Hofmeyr.

Professor Thuli Madonsela ought to have known that the termination of the Co-operation Agreement was based on the advice provided by Cliff Dekker Hofmeyr Attorneys on June 3, 2015.

Earlier on March 17, 2015 Cliff Dekker Hofmeyr Attorneys had advised Eskom that should Eskom not cancel the co-operation agreement of May 23, 2014 and institute arbitration proceedings, every month which lapses meant that Eskom would forfeit about R50m on average that was related to the coal quality penalties.

The termination of the co-operation agreement indeed made perfect sense.

The last point I made was that any dispute between the parties regarding any matter arising out of the Coal Supply Agreement including the dispute of hardship was to be decided by arbitration in the manner set out in the Coal Supply Agreement and not through the business rescue proceedings.

Glencore, according to Mr Ivan Glasenbeg’s affidavit opted to place Optimum under supervision and subject to business rescue proceedings because they wanted to suspend or even cancel the Coal Supply Agreement.

The Coal Supply Agreement was eventually suspended on August 20, 2015.

The Coal Supply Agreement afforded Eskom the right to acquire the mining rights of Optimum on the terms regulated by the Coal Supply Agreement.

When the Coal Supply Agreement was suspended by the business rescue practitioners, the contractual right of Eskom to acquire Optimum Mine was also suspended.

The reason Glencore placed Optimum under supervision rather than to go for arbitration was to make sure that Eskom had no enforceable contractual right to acquire Optimum Mine.

It was for this reason that Eskom missed out on the opportunity to acquire Optimum Mine when it was under the condition of hardship.

My biggest regret is that I could not make my submissions related to the R1.6bn and the R659m prepayment transactions of December 10, 2015 and April 11, 2016.

The commission ran out of time.

These transactions were compliant with the Eskom procurement and supply chain procedure 32-1034 and the PFMA.

They were both duly approved by the board.

Optimum under the control of the Business Rescue Practitioners advised Eskom in writing on December 1, 2015 that they will stop the supply of coal to Eskom on January 31, 2016 unless Eskom agrees to a coal price of R513 per tonne, scraps the R2.17bn of penalties and signs a new Coal Supply Agreement.

This demand by Glencore would cost Eskom over R8bn that it did not have.

We refused to be bullied and our refusal was correct.”

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