Guptas’ Oakbay Signs Coal-Export Deal at Premium to Eskom

  • Agreement completed for 150 rand a ton more than Eskom deals
  • A South African party has been using export-terminal rights

Oakbay Investments, owned by the Gupta family, signed a contract to export power-plant coal at a premium to the price it gets from South Africa’s electricity utility, said Chief Executive Officer Nazeem Howa.

“We signed our first export contract this week,” Howa said on a conference call Thursday. “The value of the export contract came in at close to 150 rand ($10.77) a ton more than the highest price we’re getting from Eskom,” he said, referring to the country’s state-owned power producer that uses coal for the bulk of its generation.

The deal comes as the National Treasury investigates Eskom Holdings SOC Ltd.’s coal contracts and suppliers including Tegeta Exploration & Resources (Pty) Ltd., part-owned by the Guptas, who are friends with President Jacob Zuma and are in business with his son. Some officials of the ruling African National Congress have accused the family of trying to influence cabinet appointments.

Commodities trader Vitol Group is interested in buying a stake in Richards Bay Coal Terminal from Tegeta, a person with knowledge of the matter said last week. Purchasing the interest in Africa’s biggest coal-export facility from Tegeta’s Optimum Coal Holdings Ltd. could give Vitol rights to ship about 8 million tons of the fuel annually. Glencore Plc, Anglo American Plc and South32 Ltd. are among shareholders in RBCT.

Export Allocation

Howa declined to comment on whether the export allocation was being sold. Oakbay Investments has “a relationship where one other party is using some of the allocation at the moment,” he said, only identifying it as a South African company.

South Africa, the continent’s biggest coal producer, has high-quality reserves of the fuel, though shipments are constrained by limited port capacity. Only shareholders have an automatic right to export through Richards Bay, which accounts for almost all of the nation’s coal-shipping capacity.

Oakbay hasn’t directly used any of the allocation, Howa said. Its first export contract “is an opportunity for us to grow quite significantly,” he said.

The price of coal leaving the facility at South Africa’s port of Richards Bay has gained 38 percent since December.

With rising prices for coal shipments, exports will also be key for the Optimum mine, which Tegeta took ownership of in April and has expanded, Howa said in an interview at Bloomberg’s Johannesburg offices.

“We hold two of the cheapest contracts with Eskom and we hold a very big loss-making contract,” he said. “If I were to put all the contracts together, we probably make a small net loss on the Eskom contract."

Government contracts accounted for 8.9 percent of 2.62 billion rand of Oakbay’s revenue in the 12 months through February, the company said in an e-mailed statement.

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