Business in a Time of State Capture: The Story of Glencore



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For seven months, global commodities company Glencore found itself trapped, paralyzed and punished as it tried to cling to Optimum Coal Mine amid interventions by government officials and Eskom executives purportedly determined to force a sale to the Guptas.

Global commodities giant Glencore had little chance of maintaining Optimum Coal Mine, as the State Capture project triggered a full-fledged strike designed to take the mine out of its hands.

Glencore, pressured to sell a basket of assets to the Guptas in 2015, for the first time publicly disclosed the extension of a campaign that allegedly involved former mining minister Mosebenzi Zwane, former Eskom chairman Ben Ngubane and executives Brian Molefe and Matshela Koko.

It also involved government mining inspectors sent for weekend security checks at the company's mines in order to assault Glencore with Section 54 warnings – those that are so serious that they shut down a whole mine.

Witnessing to the State Capture Commission on Wednesday, Glencore's director and former CEO of Optimum Coal Holdings (OCH), Clinton Ephron, painted a picture of the seven-month campaign that ended in January 2016 when Glencore finally agreed to sell OCH to the Guptas. to R2.15 billion.

The trigger for the attack appears to have been, on Molefe's arrival at Eskom, his rejection of a negotiated and revised coal supply contract that had the backing of executives who had been involved in months of negotiations.

Molefe blocked the agreement in May of that year, insisting the company continue to supply coal even if it was negotiating with Eskom after it had invoked a hardship clause because the price of the coal it was receiving was no longer economically viable.

Ephron said the company sent a detailed letter to Molefe to explain the background and reasons for the negotiations and why it was not wise to suggest that negotiations could only begin after December 2018, the date Optimum would hire the Hendrina plant . of Optimum's business – would expire.

Hendrina is totally dependent on Optimum – the power station was designed based on the coal specifications, logistics and convenience of the location of this mine.

"We knew it would be a big problem if the mine did not continue after 2018. And you do not start trading on December 31 when the coal supply is cut off the next day, "Ephron said.

Today, not a single piece of coal is being supplied by Optimum (after it was bought by the Guptas) to Eskom to Hendrina. The mine is in commercial rescue and has no funds to operate.

Ephron said the only other way in which Hendrina might be getting coal is through road transport, the cost of which is borne by Eskom.

He then witnessed a series of events between May 2015 and December 2016 in which Optimum attempted to hold talks with Eskom even after being forced to rescue companies.

On May 22, 2015, Optimum wrote to Vusi Mboweni, then interim chief of primary energy, and Molefe, in which the company detailed the history of the negotiations and warned that an executive committee of Eskom had already approved the revised contract.

They warned Eskom that their change of heart was undermining Optimum, as an initial green light had convinced creditors and shareholders to extend their financial assistance.

At that time, Optimum had exhausted a facility of R2.5 billion, required $ 100 million per month to operate to provide coal to Eskom, and its major shareholder, Glencore, has already injected about $ 1 billion into the company since 2014.

Without further shareholder support or Eskom's agreement, Optimum would be forced into liquidation.

"Of course, the only possible method of rescuing the CMO is through an amendment to Hendrina's supply contract. "

Optima implored Eskom to review her position, but the following timeline illustrates that it was rough, from the word go:

  • June 11, 2015: Optimum secured a meeting between the CEO of Glencore, Ivan Glasenberg, Ephron and Molefe and his team at Eskom.

"Again, we tried to discuss and see if there was a way forward.

"Again, we received the same response. Eskom is not willing to negotiate. " Eskom's actions insisted that Optimum comply with its contractual obligations under the original contract, as the revised agreement was not in the interest of the company.

  • July 1, 2015: While still trying to negotiate with Eskom, Ephron said it has received a non-binding offer of $ 2 billion, dated July 1, 2015, from Optimum via KPMG on behalf of an anonymous customer who later became Oakbay. The anonymous buyer, it was said, was already a successful supplier of charcoal to Eskom and had letters of support from potential financiers.

  • July 16, 2015: Out of nowhere, Ephron says he received a letter of demand from the Cliffe Dekker Hofmeyr law firm, demanding payment of more than $ 2 billion in fines for Eskom. In summary, the letter and spreadsheet containing calculations showed that all the coal that had been supplied to Eskom by Optimum (between March 2012 and May 2015) had been rejected. Essentially, Eskom wanted a full refund for all the coal it paid Optimum for.

"That was not our biggest problem. We knew we could defend that. The biggest problem was that the clearing process was that the mine would not be paid for any coal delivered after this letter. "

  • July / August 2015: Eskom, meanwhile, also retained R58 million and R34 million for coal delivered by the company.

  • August 4: Optimum goes into business rescue. Several attempts are made for a meeting with Eskom by business rescue professionals, but Eskom will not budge. The supply of coal to Hendrina is suspended, and business bailiffs, through lawyers, offer an interim agreement awaiting negotiations for a long-term solution. Briefly trapped, Molefe and Koko called Ephron and rescue workers to a meeting in which they are allegedly committed to resume negotiations so the coal supply can continue. Business rescue professionals took this in good faith and agreed, as it was a way to avoid winding up the company. Eskom, it seems, had other plans.

  • September 2015: Former Mining Minister Ngoako Ramatlhodi testified at the State Capture Commission on a meeting held with Molefe and Ngubane, during which Ngubane allegedly instructed him to close all Glencore mines. Ngubane wanted an immediate decision to be able to report to President Jacob Zuma, Ramatlhodi said.
  • September 17, 2015: Optimum responds to the demand letter he received from Cliffe Dekker Hofmeyr and makes an offer accordingly. The law firm responds by saying that Eskom is not a recipient and insists that paying $ 2 billion in fines is non-negotiable.

  • September 21, 2015: Oakbay makes a second non-binding offer to Optimum, this time at half the initial price it offered, now at R1 billion.

  • September 22, 2015: Mosebenzi Zwane is named the country's new mining minister.

  • October 2015: Negotiations for the possible sale to Oakbay had advanced. Ephron attended a meeting with the business rescue professionals at the Guptas' home in Saxonwold. The Guptas were informed that a sale would involve only Optimum Coal Mine and not two other assets of Optimum Coal Holdings – a profitable stake in the Richards Bay Coal Terminal (RBCT) and another mine, Koornfontein.

  • November 2015: Again, unexpectedly, Ephron says he was contacted by someone wholly unrelated to the negotiating parties, a deputy director general of the Department of Mineral Resources, who allegedly told him that the sale of the mine would not be enough for that business. would have to include all OCH assets, including RBCT's share.

  • November 24, 2015: Eskom calls a representative of Glencore for a meeting of Optimum's business rescue professionals and a Gupta team consisting of Nazeem Howa, Ashu Chawla (the man whose emails became known as #GuptaLeaks), and Ronica Ragavan. Koko, Suzanne Daniels and Edwin Mabelane participate in Eskom.

Now, in the middle of the negotiations for the sale, a condition that Optimum has already defined and communicated to Eskom and the Guptas is answered by Koko. He allegedly told them that Eskom would not authorize the sale until Optimum included the full basket of assets. Eskom's consent was a stipulation for the coal supply agreement that dates back many years.

  • November 26, 2015: Glencore's mines receive four Section 54 notices issued in extreme cases of mine safety infractions. The company already had warnings from the S54 before, he said, he said. In this case, everyone was frivolous and unduly harsh, among other things, an unlicensed bulldozer, a seat belt not used by a lorry operator, an unregulated operator's seat, oil leaks, cracked windshield and four trucks found without first aid kits. The inspectors had worked for a weekend to issue them.

  • November 29, 2015: Convinced that she could easily defy a billion pounds on penalties, Glencore decides to continue funding Optimum to get the bailout out of the deal, since Gupta's offer was laughable. The news came that Optimum was no longer in danger and that, in addition to the legal proceedings that needed to work out, he could stay in the hands of Glencore.

This, Ephron said, the warnings in Section 54 were "a warning shot" for Glencore from the Department of Mineral Resources, a message to support the sale to the Guptas on their terms.

Enter Mosebenzi Zwane

The year ended with a supposed call from Zwane's office for a meeting with Glasenberg in Switzerland. Ephron said Glasenberg told him details of the December 1, 2015 meeting at the Dolder Grand Hotel in Zurich. He was assisted by Zwane, Glasenberg and Gupta kingpin Salim Essa.

Zwane, he said, allegedly did not want to discuss with Glasenberg the warnings of Section 54. Glasenberg then told the former minister that Glencore would take Optimum out of the bailout, but it was open to a sale for the right price.

For price negotiations, Ephron said he was called to a meeting with Glasenberg, Essa, Zwane and Tony Gupta at the same hotel the next day.

This meeting, Ephron testified, was opened by Zwane, who noted the importance of avoiding liquidation of the company, the importance of retaining jobs and allegedly added that the best possible outcome was that Glencore would reach an agreement with the Guptas.

Zwane left, leaving the rest of them to discuss the $ 2.15 billion deal.

Ephron said that Glencore ended up selling because she was satisfied with the price and because the transaction made commercial sense.

But about a week before the payment was due, That phoned to say that it was missing six hundred million.

"He asked us to fund the deficit and said he would get Eskom to make a prepayment. "

Glencore refused.

Another plan to raise money through a consortium of banks fell, and Eskom quickly rushed to approve a prepayment of R600 of coal that the Guptas would now provide from Optimum Coal Mine after its successful acquisition. DM

The commission resumes on Thursday with the testimony of former ministers Siphiwe Nyanda and Trevor Manuel.

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