Eskom CEO Says Glencore Held `Gun to Our Head' Over Coal

The chief executive officer of Eskom Holdings SOC Ltd., which supplies almost all of South Africa’s power, said he felt as if there was “a gun to our head” in negotiations with Glencore Plc over a coal-supply contract that the Swiss mining and trading company said it couldn’t honor because the price was too low.

Glencore placed its Optimum coal unit in business rescue proceedings, a form of bankruptcy protection, last year after Eskom fined it under the terms of a contract it had to supply the Hendrina power plant and refused to negotiate over a price of 150 rand per metric ton specified in a contract that runs until 2018. Eskom has said Glencore asked for 530 rand per ton. The mine is now in the process of being sold to Tegeta Exploration & Resources for 2.15 billion rand. Tegeta is controlled by the Gupta family, who are in business with a son of South African President Jacob Zuma.

Eskom refused to increase the coal contract price in July, after four months of intermittent power cuts across the country due to inadequate generation capacity. Glencore said that if it stopped supplying coal to Hendrina that would cause further electricity outages, known as load shedding in South Africa, Eskom CEO Brian Molefe told reporters in Johannesburg on Wednesday. Glencore declined to comment when called by Bloomberg.

“Glencore had mentioned that if they stopped supply of coal from their mine to Hendrina, that would increase load shedding and I felt at that point that that was bad faith," Molefe said.

Eskom has now reduced the cost of its coal supply for Hendrina, he said.

“They had something that they thought could get us to pay an exorbitant amount for their coal. Basically, from where I was sitting rightly or wrongly I felt like they were holding a gun" to my head, he said. "But we were able to procure coal at less than the price they were asking" and the power plant didn’t shut down.

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