Three Big White owned Firms to face hefty Fines for “Uncompetitive” Contracts with ESKOM

The South African Mining sector has always been a centre point of controversy due to WMC’s long going influence on the same. That could also be the reason why this sector has been attracting corruption activities since decades by the White Companies. Now, as per the recent report published in Sunday Independent newspaper, Competition commission will be investigating on a complaint filed by two members of SCOPA, against White companies Anglo American, Exxaro and BHP Billiton, who are said to be under long term apartheid era contracts with Eskom. and are bound to pay a hefty fine if found to be involved in violation of Competition act 89 of 1998.All three will be charged positively, with a huge amount. Following are the excerpts from the report:

Competition Commission

Big coal mining companies which entered into long-term apartheid-era contracts with Eskom face the prospect of hefty fines amounting to billions of rand if these contracts are found to be in contravention of the Competition Act 89 of 1998. The Sunday Independent can exclusively reveal that the Competition Commission is investigating a complaint lodged by two members of Parliament’s standing committee on public accounts (Scopa), Themba Godi and Mnyamezeli Booi, against Anglo American, Exxaro and BHP Billiton.

In their complaint, the pair have claimed Eskom had entered into long-term exclusive supply agreements (cost-plus contracts) with the three mining giants for the supply of coal to power stations including Kriel, Matla, Lethabo Tutuka and Kendai. Eskom spokesperson Khulu Phasiwe confirmed the existence of the cost-plus agreements, saying they “are long-term legacy contracts concluded in the 1970s and 1980s for supply of coal to various Eskom power stations’’.

“Eskom pays the supplier for the working cost of the mine, together with a return on the mine owner’s original investment. “The working cost includes the labour and operating costs of the mine as well as capital expenditure.“Any additional capital requirements and/or cost increases are for Eskom’s account. Coal reserves are dedicated to Eskom which ensures security of supply.”

Godi and Booi said: “These exclusive contracts have been in place for a number of years and will remain in place for the next year with the earliest agreement terminating in 2019 and the latest in 2033.”The pair added that, because of the cost-plus contracts, Eskom prepaid the three companies before they even supplied the utility’s power stations with coal.

“Effectively, these prepayments are sufficient to cover the overall production costs of Anglo American, BHP Billiton and Exxaro.” Godi and Booi said, as a result of these contracts, “smaller suppliers are unable to effectively compete with Anglo American to supply coal to Kriel, Lethabo and Tutuka power stations due to these exclusive agreements and prepaying agreements.

SA Companies CEO

“The same applies to smaller coal suppliers wishing to compete with BHP Billiton in Kendal and Exxaro in Matla.” The two MPs said “the agreements are anti-transformation, uncompetitive and go against the objectives of an inclusive economy”.

They have further asked the Competition Commission to investigate whether the exclusive agreements reached between the three mining companies and Eskom contravened Section 8 of the Competition Act 89 of 1998. Godi confirmed the lodging of the complaint with the Competition Commission.

“We did so in our capacity as members of Parliament and not in our capacity as Scopa members.” Godi told The Sunday Independent that the matter was first brought to their attention when Scopa was hearing alleged irregularities and discrepancies in a coal supply contract between Eskom and the Gupta-owned company, Tegeta.

“People were correctly making lots of noise about Tegeta, but on closer inspection we realised that the Tegeta contract was just a drop in the ocean compared to big coal mining companies which had concluded long-term exclusive supply agreements with Eskom. “We find it unacceptable that Eskom as a state-owned entity, which has a critical role to play in implementing government policies that seek to empower the previously disadvantaged and economically marginalised, can enter into contracts that entrench the dominance of big corporates to the detriment of small, black-owned competitors,” said Godi.

“We have also obtained information which indicates that there are certain directors of firms that supply coal to Eskom power stations that serve on the board of competing firms. “We believe this cross-directorship may cause the firm that supplies coal to Eskom power stations to collude.” Booi, who also confirmed lodging the complaint, lamented the lack of transformation in the coal mining industry.

“Shockingly, there are very few black firms active in this industry, and the reasons are not hard to come by. It is precisely because these long term cost-plus contracts with big mining companies are sidelining black firms. If big companies are allowed to be given contracts lasting up to 2033, there will never be transformation,” Booi said.

The Competition Commission’s cartels division manager Makgale Mohlala confirmed it was investigating the matter. He said the body was specifically looking into whether the long term coal supply agreements were anti-competitive.Asked what punitive measures would be imposed if any of the companies were found guilty of transgressions, Mohlala said: “Depending on the section of the act found to be contravened, the punitive measure may include an administrative penalty.” Anglo American spokesperson Moeketsi Mofokeng said the group was not aware of a Competition Commission probe. “We can confirm we have long-term coal supply contracts with Eskom to supply Lethabo (New Vaal colliery), Tutuka (New Denmark colliery) and Kriel (Kriel colliery) power stations.

“As you may be aware, Anglo American announced the sale of all three Eskom-tied mines to Seriti Resources earlier this year. This transaction includes the transfer of the current coal supply agreements to Seriti.” Mofokeng said both the Competition Commission and the Department of Mineral Resources gave their approval for the transaction.

“Should the Competition Commission think it is appropriate to carry out an investigation, we will, of course, co-operate fully with them,’’ said Mofokeng. Exxaro spokesperson Mzila Mthenjane said they had not been contacted by the Competition Commission yet and as a result he was unable to comment further.BHP Billiton could not be reached for a comment. Said Phasiwe: “Eskom has and will continue to co-operate with the investigations by any legally constituted body in relation to all its coal contracts, or any other contracts. It is also important to note that the Minister of Public Enterprises (Lynne Brown) announced recently that she has asked the Special Investigating Unit (SIU) to investigate all the coal contracts that Eskom has signed over the past 10 years,” Phasiwe said.

Brown’s spokesperson, Colin Cruywagen, said the minister had referred all coal contracts to the SIU. “Both the minister and the SIU have agreed on the terms of reference for the investigation. The matter has been referred to President Jacob Zuma for approval.”Regarding the probe, Cruywagen said: “The minister expects Eskom to fully co-operate with the commission.” SIU spokesperson Nazreen Pandor said the Department of Public Enterprises had provided the unit with the documentation relating to the allegations. “The SIU has assessed the documents and drafted a proclamation which is currently following the approval process.”

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