Exxaro CEO slams idea of Eskom's prepayment agreements

Cape Town – The idea that prepayment agreements for coal is common is misleading, says Exxaro CEO Mxolisi Mgojo.

Mgojo testified before the portfolio committee on public enterprises when the Eskom inquiry resumed on Wednesday afternoon.

In his opening remarks, Mgojo said that he would address the issue of how Eskom pushed the company out of the coal supply space in favour of “third parties” at a considerably higher cost to the fiscus. He would also address Exxaro’s experience and understanding of Eskom’s policy on prepayment agreements for coal supply.

Mgojo said that Exxaro had never known of Eskom’s prepurchase agreements and only learnt of such through the media, related to repayments made to Gupta-linked Tegeta. “The first time I heard of it was in the Carte Blanche interview with Mr Koko,” said Mgojo.

“Exxaro has not at any point in time received any prepayments or prepurchases of any nature, including in relation to coal or for capital,” he said.

“As far as Exxaro is aware, Eskom does not make prepayments to any other major miners in the industry. The so-called prepayment to Tegeta for coal, of which Exxaro learned through the media, is the only instance to our knowledge where such so-called prepayment was made.”

He labelled former Eskom CFO Anoj Singh’s evidence on prepurchase agreements as “misleading”.

Singh’s said in a written statement prepayment “of this nature” is not unique and was done in the past and will continue to be done going forward.”

Mgojo also referred to Group head of generation Matshela Koko’s submission that prepayments to suppliers for coal was common and “in line” with Eskom policy.

Mgojo said that Eskom’s policy for funding capital projects at cost-plus mines is defined in the coal supply agreements. “The funding of such capital projects does not, however, contemplate any prepayment. Should the relevant cost-plus mine need capital, it is first discussed and agreed with Eskom that the item should be investigated.

“After it is investigated and found to be necessary, the item goes through a project development and approval system at both Exxaro and Eskom.  The project must then be approved by various committees and, if necessary, by the Eskom board.”

Thereafter funding is released in partial payments for work approved and done.

The approved funds are not prepaid to Exxaro, which is only paid as work is done. “These approved funds are, in other words, not prepaid to Exxaro.

"Exxaro incurs capital costs and only later is payment made from Eskom to cover the expenses Exxaro had to incur, he explained.

"To describe the capital payments in this context as prepayments, as Mr Singh does, is misleading.”

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