Corporate governance in Eskom – How Optimum coal mine was purchased

Meeting report

The Chairperson read the oath to the witness. The witness took the oath.

Witness: Mr Piers Michael Marsden

Adv Vanara: Mr Marsden, can you for the record state your full names and provide the Committee with your academic background and working experience?

Mr Marsden: My name is Piers Michael Marsden. I am a CA with 15 years’ experience working in the insolvency industry. I have a postgraduate diploma in insolvency law. I am a registered Senior Business Rescue Practitioner at the CIPC, and I have done many business rescue assignments.

Adv Vanara: The Committee has requested your assistance about a transaction which was the purchase of Optimum Coal Holdings (OCH) from Glencore by Tegeta. What was your involvement with OCH, when did your involvement start, when did it end, the capacity in which you were involved, were you alone on the assignment, also take that further to one of the subsidiaries of OCH which is Optimum Coal Mine (OCM) – when and in which capacity did you get involved with the mine, and whether you are still involved in that relationship?

Mr Marsden: The matter came to my came to my attention a couple of weeks before the business rescue operation was lodged on 4 August 2015. Myself and a colleague, Petrus van den Steen who has given me a letter and authority to appear here in support of my actions and attendance before the Committee. We were communicated by the board of OCH and OCM pursuant to a resolution passed on 31 July 2015 where those two legal entities filed for business rescue. I was formally appointed by the CIPC on 4 August 2015, at which point my involvement with the entities began.

As an overriding process, business rescue is designed to facilitate the rehabilitation of companies and essentially place the management and operational controls of those legal entities into the hands of an independent third party; in this case, myself and Mr Van der Steen. Pursuant to our appointment we understood and tried to get a better understanding of the financial position as well as operational position of the various entities from a structural point of view. OCH is a holding company as the name suggests and had a number of subsidiary companies wholly owned with OCM being the principal focus. Included within the other subsidiaries were Optimum Terminal which had the significant rail allocation through the Richards Bay terminal; Koornfontein Mine; and as well as a number of other subsidiaries which had various mining and prospecting rights.

Effective from my appointment, we understood that Eskom was going to be a fundamental player. They were at the time the only customer for OCM which had a long term supply agreement with Eskom, and as much publicised, it was a loss making coal contract. There is an extensive history prior to my involvement which involved a long term supply agreement, a hardship clause, a cooperation agreement signed to try and find some level of agreement between the parties. Ultimately that resulted in it being approved at various levels within Eskom, but at the highest levels in Eskom, the agreement failed. A penalty was applied on OCM, and as a result the company was financially distressed, causing the board of directors to apply for business rescue.

Adv Vanara: Are you aware of the amount of the penalty, and what the penalty was for?

Mr Marsden: Absolutely. The penalty was R2.1 billion related to historic coal deliveries where product was delivered to Eskom allegedly out of specification, and if my memory serves me correctly, the specification was around the sizing of the product. The real concern however was the forward looking review of the penalty, i.e. if the penalty were to be applied retrospectively, then looking forward and taking the view that Eskom was going to apply that principle, the mine would be in further loss making, given that it would not receive value for the product it had delivered.

So understanding that Eskom was a critical part of any plan to resuscitate the business, for the next two months, a variety of engagements were held with Eskom and other affected parties in the business rescue process. Those discussions were about the supply, ongoing supply of product, various pre-litigation items, the loss making contract, various proposals made by myself and my fellow practitioner about the supply to Eskom going forward, and a variety of administrative actions we were doing as part of our business rescue process. This was designed to ensure that we could avoid liquidation. There was a substantial number of people employed, principally at OCM, but of course if its holding company went into business rescue which it had, that could also have an impact on the other subsidiaries being Koornfontein where there was significant employment. As a result, we had extensive negotiations with Eskom on proposals, supply, proposals on ongoing adjustments or amendments to the coal supply agreement, termination of supply which was resuscitated and supply continued by mutual agreement for the duration of the business rescue process. That proceeded for August and September 2015. We concluded an interim arrangement in the middle of September where the parties agreed to work together to find a solution to the onerous contract.

On or around 5 October 2015, it became apparent to us that a negotiated settlement on the coal agreement was unlikely to happen. We received written confirmation from Eskom that our proposals had been rejected for restructuring the entity in its current format with its current shareholding. We then decided to pivot and see if we could change the paradigm by introducing a potential purchaser for the mine. Around 7 October we signed a binding term sheet with a third party. We had received numerous unsolicited requests to buy the mine but we had at this point decided to move into the second phase. Prior to that we were trying to negotiate a settlement. Included in those unsolicited offers was an advance by KPMG on behalf of Tegeta. On 7 October however we decided to sign with a third party which as one of the core agreements was that the third party would find some solution with Eskom to enable us to overcome the problem of the onerous supply agreement.

Towards the middle and latter part of October that transaction failed. We then implored Eskom to try and find a solution and to resolve the impasse which would have seen not only the saving of several thousand jobs, but also the continued supply of product to Eskom.

Adv Vanara: Sorry Mr Marsden. You are referring to a third party. You are referring to unsolicited proposals to purchase the mine which you turned down. Are you at liberty to share who these parties were that made these unsolicited proposals to you?

Mr Marsden: I am pretty sure I am at liberty to, so I think I can disclose it. The term sheet that was signed was with a company called Phembani. There were a variety of other unsolicited offers. None of which we accepted. We only accepted the Phembani offer. The unsolicited offers did include entities like the State Owned Mining Company as an example.

Adv Vanara: Why did the transaction with Phembani not proceed?

Mr Marsden: At the time we were not given detailed reasons. Further on in the process we received a letter from Phembani confirming that they had not being able to get sufficient answers from Eskom on a proposed transaction.

Adv Vanara: As business rescue practitioners of OCH and OCM, you were prepared to sell OCH with its subsidiaries to Phembani but Eskom did not agree to the transaction. Am I hearing you correctly?

Mr Marsden: Just one minor correction. At this point we were very much in discussion on OCM. OCH was itself a holding a company and did not as such have any liabilities other than the bank debt which stayed as a result of the moratorium. But other than that you are correct, we had signed a term sheet to sell OCM to Phembani.

Adv Vanara: Was there any specific reason that Eskom gave to you why it would not agree to the sale of OCM to Phembani?

Mr Marsden: No. I was given no reason.

Adv Vanara: In your interaction with Phembani, were they given any specific reasons why Eskom could not agree to the sale of OCM to Phembani.

Mr Marsden: I was not privy to the discussions between Eskom and Phembani, so unfortunately I am not qualified or able to answer.

Adv Vanara: I thought you said you received confirmation from Phembani that Eskom did not agree to the sale of the mine, or did I misunderstand you?

Mr Marsden: You are correct. I had received a letter, but not at this point from a chronological point of view. Later, once we had concluded a transaction with Tegeta, we received a letter from Phembani suggesting that effectively they had not been given an opportunity to do a similar type of transaction, but they did not detail any of their discussions with Eskom.

Towards the latter part of October 2015, we once again implored Eskom to reconsider, given the potential liquidation that would have disastrous impact on employment as well as the ongoing supply. From various correspondence, we realised that we had better engage with further parties, and essentially we were left with Tegeta as the remaining buyer for the assets. They requested us to facilitate a meeting between Tegeta and Eskom to see if a deal could be crafted and we had a meeting on 24 November 2015 chaired by Eskom. Eskom’s position was laid out clearly on what a transaction could look like that they would be supportive of. That ultimately involved a transaction of not only OCM, but also the profitable Koornfontein mine and the profitable Richards Bay coal terminal. On that basis Eskom was prepared to look at a transaction. That moved our gaze from being focused exclusively on OCM to a much higher gaze involving the OCH’s entire set of subsidiaries. The rationale for that being that there was a profitable side of the business and a loss making side of the business, and Eskom’s view quite correctly I think was that the one business did need to support the other business and they did a guarantee from OCH. The business would only be sustainable if it included the good and bad sides of the business.

That kicked off a number of discussions with Tegeta. We received a verbal offer to the tune of R1 billion from the Tegeta consortium. We had a meeting with the banking consortium who had security over the assets and who would be another important party in making sure that the business rescue process was concluded. This would have seen them taking a substantial write off on their debt and as a result they rejected the original offer on or around the 26 November. Following a number of discussions, on 1 December Glencore decided that they would rather support OCM and discharge the business rescue. A meeting was held at Eskom at which this decision was made subject to being able to restructure the bank debt to the tune of about R2.5 billion. A meeting was held in early December to let them know this fortuitous piece of news and ultimately it would involve a restructure of their debt, but Glencore supporting the business going forward.

On 4 or 5 December 2015, we received an amended offer from the Tegeta consortium which was the deal ultimately concluded on 10 December 2015. It included a substantially increased purchase price, and it had an effective date of 1 January 2016 with four conditions precedent to the transaction which needed to be met by 31 March 2016. One of those precedents was the Competition Tribunal giving their consent to the transaction which was handed down on 22 February 2016; the second was a guarantee from the purchaser demonstrating their ability to deliver on their purchase price. In that regard we received a letter on 4 March 2016 which saw that condition precedent waived, much to the dissatisfaction of the banking consortium. On 30 March we received the last two precedents which were Eskom’s release letter and consent to the transaction, as well as section 11 consent from the Department of Mineral Resources (DMR). Thereafter the business rescue plan was published on 31 March, and a meeting was held on 8 April 2016 to approve the plan which subsequently happened. Essentially this meant that the purchaser had four days to deliver the funds and the seller had the same number of days to deliver the shares and the Change of Directors resolution – the administrative documents sent to an escrow agent to enable the transaction to close.

On 11 April we had a variety of meetings, and on 14 April the transaction closed and Tegeta became the new shareholder of OCM, Koornfontein, and the Richards Bay coal terminal. At that point, OCH having divested itself of all of its assets was discharged from business rescue. However OCM still in business rescue continued to trade as such until 31 August 2016 when we discharged it from business rescue as a result of it no longer being financially distressed. That is the end of my involvement with Optimum.

Adv Vanara: Can we go back to 11 April 2016 and take the Committee through the developments of the day?

Mr Marsden: It is easier for me to read directly from the statement issued to the Directorate of Priority Crime Investigation (Hawks). “The sale agreement was subject to the fulfillment of certain suspensive conditions. These suspensive conditions were fulfilled and or waved on the 8 April 2016 thereby rendering the sale agreement unconditional. The purchase price was required to be paid by Tegeta to the attorneys as escrow agent on the third business day after the date on which the sale agreement became unconditional. The 8th was a Friday, effectively taking us to 13 April. I received a phone call from Mr Howa of Tegeta on 11 April 2016, two days after payment was due under the sale agreement, requesting a meeting at the offices of Tegeta in Sandton on that date. The meeting was held on that date at approximately 10am. At that meeting I was advised by Howa that Tegeta was R600 million short in respect of the purchase price and he requested me to approach the banking consortium to request a bridging loan in the amount of R600 million to finance the shortfall on the purchase price. The purchase price was an amount of R2.15 billion that was required from the purchaser.

At 13:30 on the 11 April, I arranged a meeting with the banking consortium. The meeting was attended by representatives of the consortium of banks as well as Glencore. The consortium requested me to advise Mr Howa that the banks were not prepared to finance the shortfall of the purchase price. I took this message back to Mr Howa at approximately 15:00 on 11 April. On the 14 April the amounts were paid and the purchase price discharged. On the 12 and 19 June 2016, Carte Blanche aired a feature on this transaction which precipitated a release of various articles. A full length interview with Howa was also made available on the Carte Blanche website on 20 June. We viewed the episodes and the interview in the week of 20 June. Pursuant to the interview and articles, we learnt for the first time that Eskom had made a prepayment to Tegeta for the purchase of coal from Tegeta of R586 million. The coal for which the prepayment was made by Eskom appears to have been from OCM for Tegeta and delivered by OCM to Eskom’s Arnot power station. We learnt from the TV episodes that the prepayment was approved by a committee of Eskom representatives who had a meeting at 21:00 on 11 April 2016. This meeting was held on the same day as the request for the bridging finance of R600 million was made to and rejected by the consortium of banks.

Pursuant to the interview, Howa remarked that the prepayment had been made on the basis that OCM was in business rescue and required money for its liquidity and the startup of its equipment. We confirmed that the prepayment was not made to OCM, and that OCM provides a 30 day payment to Tegeta for the delivery of coal. We are mindful of section 34(1) and our obligation to report any suspicious activity. We do not intend to draw any conclusions on the aforesaid, but wish to draw the attention of the Hawks to the circumstance to which we are aware as a matter of caution. We reserve our right to provide supplementary documents, and the contents of this letter is private and confidential”.

Adv Vanara: You then wrote to the Directorate for Priority Crime Investigations, and the letter is signed by the co-business rescue practitioner. Is this correct?

Mr Marsden: It is signed by the both of us. That is correct.

Adv Vanara: On page three, paragraph 23, you say you are reporting on what you perceive to be a suspicious activity. What was the basis of your suspicion?

Mr Marsden: I think everything has timing and context. Mindful that our meeting happened prior to the discharge of the purchase price on 11 April, we were led to believe by Tegeta that they were R600 million short on the purchase price that they needed to close the transaction. And the timing of the prepayment was on the same day at 9 o’clock in the evening for an amount relatively similar. An amount of R586 million as far as I can remember. We believed that the timing and quantum of that was something that required further investigation.

Adv Vanara: Who are the shareholders of Tegeta?

Mr Marsden: There is a detail included in both the Competition filing as well as in the Public Protector report, so please don’t hold me accountable if I am a couple of percentages short. Oakbay and Duduzane Zuma’s company called Mabengela are the majority shareholders. The percentage shareholding of Tegeta is Oakbay 29.05%, Mabengela 28.53%, Fidelity 12.91%, Accurate Investments 8.01%, and Elgasolve 21.5%

Adv Vanara: Who owns Oakbay?

Mr Marsden: I have no personal knowledge of who owns it, but clearly it is the investment arm of the Gupta family.

Adv Vanara: The R586 million which you referred to on page two, paragraph 19.1 of your letter to DPCI as a prepayment to Tegeta. Read that with paragraph 21 of the same letter on page 2 where you are referring to the remarks made by Mr Howa. In light of the two, in whose account would the R586 million have had to be paid to?

Mr Marsden: We had no knowledge of the R586 million. We were not in control certainly of Tegeta. However, post the close of the deal, OCM remained in business rescue from April to 31 August 2016. As a result we were certainly in control of that legal entity, and OCM did not receive the R586 million. Subsequent to the close of the transaction, OCM entered into a sale agreement with Tegeta for the supply of coal to the Arnot colliery. At the time of the prepayment, that payment was not made to OCM. On the date that the payment was made, if the Public Protector’s numbers are correct, the payment was made to Tegeta which was not the shareholder of the mine at the time, it merely had the right to acquire the mine.

Adv Vanara: In your view as the Business Rescue Practitioner of OCM, where should the R586 million have been deposited, into whose account?

Mr Marsden: First of all, the rationale for the money would need to be interrogated in the first place. OCM was in business rescue, so clearly it was financially distressed. We had however negotiated better payment terms on the Hendrina contract. This prepayment agreement was between Tegeta and Eskom; not OCM and Tegeta. It was however back to back subsequent to an agreement between OCM and Tegeta. From an OCM point of view, we never supplied the coal to Eskom, we supplied the coal to Tegeta on 30 day payment terms. So the prepayment was a transaction between Tegeta and Eskom, and the issue we took with regard to the various interviews on the rationale given was two-fold. First of all, the company was in business rescue, second of all, equipment was required to mobilise and increase production. We were currently in control of that mine, and while there was a modest amount required to restart that drag line, it was not anywhere near R586 million.

Adv Vanara: You are probably not aware, but I am aware that there was a R1.6 billion guarantee from Eskom which assisted in the facilitation of the payment of the purchase price. Are you aware of that amount?

Mr Marsden: Just from the press.

Adv Vanara: So on the transaction of the purchase price, you as business rescue practitioners, and I have had a look at the contract on this purchase of share rights, you are one of the parties of the agreement. From your explanation it would appear that you were in the dark as to the source of this funding. Is that correct?

Mr Marsden: The ultimate source is incorrect. When we concluded the transaction, one of the conditions precedent was that the purchaser demonstrate to us that they had the financial ability to conclude this transaction. We were given a letter of comfort from their bankers that they did have the funds available to conclude the transaction. We relied on that letter for concluding a transaction. The ultimate source of the funds that discharged the purchase price only became known to us later and predicated this section 34 declaration.

Adv Vanara: This is very apparent from your statement to the DPCI, and I assume that it is a package of events that informs your suspicion about the activities on 11 September: There is a meeting between you and Mr Howa in the morning, and in the afternoon around three you report back to him that the bank consortium response was unfavourable. At midnight on the same evening, there is a Board Tender Committee (BTC) meeting which you at the time had no knowledge of. Not surprising because you are not a board member of Eskom. At night on the 11th, the BTC approves this R586 million. Those are the facts. What I am interested in pursuing with you is the following: Mr Howa was not a board member at Eskom, is that correct?

Mr Marsden: Yes I believe so.

Adv Vanara: The purchasers were not and still are not directors or board members of the Eskom board. Is that correct?

Mr Marsden: As far as I know, that is correct.

Adv Vanara: I would like your comment on this hypothesis that Mr Howa must have control over the people that convened the BTC meeting the evening of 11 April 2016. What would be your response to that?

Mr Marsden: I think that the timing and quantum certainly look suspicious, but the hypothesis is something I think is above my pay grade whether they have control. We certainly raised the issue, it certainly does not look fantastic. If you look at it in the context of the Public Protector’s report, the communication between Ms Ragavan and Mr Molefe at that point, there is certainly something that requires further investigation.

Adv Vanara: Maybe the word hypothesis scares you. Let’s use common sense. There must have been a relationship which you and I seated here cannot explain. But this relationship….from the purchasers, because surely if they are to get R586 million from Eskom…. If the banks that you had approached were to give Mr Howa R600 million, it would have been because you were approached, you went to the bank, and the bank would have agreed to loan the R600 million. Is that correct?

Mr Marsden: Certainly that is the request that was made of me.

Adv Vanara: You and I might not know the roleplayers, but it would appear that somebody must have initiated this special odd meeting on the same day for that meeting to take place.

Mr Marsden: I would imagine that meetings like that do require notice and certainly the commendable work ethic to meet in the evening. But I have no knowledge about what the required timeframes and notices that Eskom’s internal meetings have. It may have been called earlier. I have no knowledge of that.

Adv Vanara: I know that before your meeting and your response to Mr Howa on 11 April 2016, there was no special BTC meeting convened, and certainly not to look at that R600 million you had requested. That you can accept from me. So I am saying if the R586 million paid the purchase price, those in need of the R586 million would’ve had to approach Eskom in one way or another for them to get the R586 million in the same manner you approached the banks.

Mr Marsden: That appears to be correct. The convening of the meeting I have no knowledge of so to that extent I will rely on your knowledge. It does seem an extraordinary large amount of money to not only approve, but to pay in such a short period of time.

Adv Vanara: At this stage you and I might not know who approached whom but we know that someone convened that meeting and the sole issue on the agenda was this particular matter. What I am interested in is that the meeting gets to be convened and money paid contributing to the purchase price. Would you then say directly or indirectly that Eskom contributed to the purchase price for the purchase of the mine?

Mr Marsden: Certainly, that is the conclusion that the former Public Protector reached, and it seems unequivocal in terms of the flow of funds as detailed in her report.

Adv Vanara: When did you report this to the police?

Mr Marsden: 1 July 2016.

Adv Vanara: It has been over a year, have you heard anything from the DPCI regarding this matter?

Mr Marsden: We received an acknowledgment of receipt immediately we reported it. In May 2017, between the 18th and 23rd, I was contacted by a Warrant Officer for further particulars which culminated in the 34(3) affidavit that I signed, almost identical to the one you are looking at here. Those interactions culminated in my signing a further 34(3) affidavit in July 2017 with the Warrant Officer. As recently as Thursday of this week, I received an email from the new investigator requesting further interviews, but I have been here and hope to see him in the next couple of days.

Adv Vanara: So the first meeting was to record your letter in a different format in the form of an affidavit. Do I understand you correctly?

Mr Marsden: That is correct.

Adv Vanara: And that was just over nine months after you had lodged your letter?

Mr Marsden: Correct. The discussions commenced from 18 May 2017. There was a lot of documentation that was required to ensure we were dealing with the right parties, and ultimately there was a meeting held and a further affidavit signed in July 2017. The original application was on 1 July 2016.

Adv Vanara: Given the developments around the 11th and looking at the shareholders of the purchaser, do you have any reason to believe that the prepayment of R586 million had anything to do with who owned the purchaser?

Mr Marsden: I have got no knowledge of that. I wouldn’t be able to comment.

Adv Vanara: So your only concern about the transaction are the events on 11 April 2016 which you became aware of much later?

Mr Marsden: I think that is the principal item we were concerned about. Throughout the transaction we encountered a particularly acrimonious relationship with Eskom that we inherited when we started business rescue, and it was quite difficult to engage with Eskom on a meaningful basis in trying to find a solution for the business rescue of both the coal mine and the coal holdings. This could have been ascribed to playing hardball or a commercial rationale, but it certainly was not an easy transaction. We had formidable players in the game from Eskom, the Department of Mineral Resources (DMR), and Glencore. It was a particularly difficult transaction.

Adv Vanara: Let’s go back to the two point odd billion fine. What happened to the fine at the time you were business rescue practitioners, at the time of the sale, and at the time you closed the business rescue?

Mr Marsden: The fine was one of the principal reasons for the company entering into business rescue, for both OCM which had the long term supply contract, but also OCH had signed the guarantee for the obligations of OCM hence the reason for OCH going into business rescue as well. One of the advantages of business rescue is that it puts a stay on legal proceedings, and the view we took throughout the business rescue process was to use that shield of the business rescue process to avoid having to litigate on that particular matter. I think that the fine itself is an item that was subject to much technical dispute and would have required extensive arbitration not only from a legal point of view, but also from a technical point of view to determine the veracity or the quantum of the claim. In terms of the purchase, that liability remained with the legal entity, so OCM as a legal entity was acquired by Tegeta and that issue was kicked down the road post the end of the business rescue. Throughout the business rescue process, we used the stay on legal proceedings to not deal with it in terms of arbitration and or litigation.

Adv Vanara: Before you decided to sell the mine and later the holding company with all its subsidiaries, this fine which had brought the company into the situation it found itself, which as you reflected was subject to a lot of technical discussion negotiations. What was the attitude of Eskom toward the fine?

Mr Marsden: The component of the fine is two-fold. The R2.1 billion relates to the historical coal that had been used. Perhaps more relevant is looking forward, and if Eskom was to apply the strict criteria going forward for the remainder of the contract you would have a quantum in far excess of the R2.1 billion. The fundamental issue was that there needed to be satisfactory resolution not only on the R2.1 billion fine, but also for the contract going forward and the couple of billion rands that would ultimately come out of that. Eskom’s position I think has been clearly laid down in the press and in various meetings and correspondence that we had. Their expectation was that the fine needed to be settled and they were quite unequivocal about that.

Adv Vanara: Surely you must’ve engaged with the shareholder - Glencore - when you took over, particularly about the fine because that brought a lot of burden and strain to the business. What was their attitude about the fine?

Mr Marsden: I think the fine itself is an item which could’ve been arbitrated on. There were many legal protections included in the agreement and those mechanisms had been applied prior to business rescue. The hardship clause, the cooperation agreement signed between Optimum and Eskom prior to the business rescue, and ultimately their view on the fine is like “going to a restaurant and eating a steak and when you have finished it, saying you don’t have to pay for it because you didn’t like it”. There is a certain view about the fact that the product was already utilised. I think if product is out of specification, you say “take your product back, rather than consume it.” Certainly Glencore would have had the stomach to fight the fine and arbitrate on it. The real issue was about the ongoing obligations. If the attitude persisted on insisting on those items there would be very little liquidity in the business because your customer would not be paying for the product supplied. That is perhaps the more relevant component of the fine.

On their attitude, I always believed that the former shareholders believed that the fine itself could be argued. And maybe there may have been a component that was valid, but the vast majority could probably be resolved in arbitration.

Adv Vanara: And that position was put to Eskom, and Eskom remained adamant that the historical fine had to be settled.

Mr Marsden: Eskom wished to arbitrate in the business rescue process. We believe that we certainly did not have a liquidity to mount a substantial arbitration, so we used the business rescue to not get into the matter. However, we did have discussion with Eskom on the resolution of the fine and as stated they remained adamant that the fine should be paid in totality.

Adv Vanara: After the successful sale of the mine and holding company, the fine in excess of R2.1 billion that Eskom was adamant had to be paid, was reduced to less than R600 million. What would be your take on that?

Mr Marsden: First of all, the speed in which it was resolved was a surprise. We believe that it would involve extensive arbitration. Secondly, we always believed that there was an element of the fine that in detailed legal and technical discussion would be overturned.

Adv Vanara: Earlier on you testified that what was to be sold was OCM. Later on Eskom insisted on the sale of the entire OCH with its subsidiaries. You said “at the time it made sense to you”. Does it make sense now?

Mr Marsden: I thought it made sense to me because the other mine within the group, Koornfontein, was reliant on Eskom to be a customer for the Komati power station, and it would seem unusual for Eskom to suffer a loss on the one hand and contribute on the other. Certainly, our view given that Eskom had the holding company guarantee was that that made prudent financial sense from Eskom’s perspective to ensure that the ‘in the money contract’ balanced the ‘out the money contract’. So that made a lot of sense. And from an OCT perspective, the rail allocation is clearly a valuable asset. How it currently sits, I have no personal knowledge of the current state of affairs after 31 August 2016, but it certainly does appear as if the other parts of the group have either been sold or are in the process of being sold. That kind of flies in the face of the rationale that those profitable assets are needed to support OCM to fulfill its obligations till the end of December 2018 in terms of the loss making agreement.

Adv Vanara: If the Richards Bay terminal is a subsidiary making money, it makes sense for Eskom to say we need to balance and get both the money-making and where-we-are-bleeding. If the Richards Bay component is sold, what would the effect be on Eskom’s financial position where the Richards Bay subsidiary is part and parcel of the holding company?

Mr Marsden: Eskom has a guarantee from Tegeta which replaced OCH in the structure. Post December 2018, if OCM delivered 100% compliance with the agreement there would be no financial effect. If it were to be sold prior to that and those funds were allowed to be discharged to shareholders or whoever, and as a result Optimum was not able to deliver, Eskom would not have the ability to look to the profitable assets of the subsidiary for the performance of the shareholder. It is all about timing. To the extent those assets are disposed of, and Eskom does not act on its guarantee for the OCM obligation, potentially it may be in a bad position. But this is all speculation.

Adv Vanara: No further questions.

Questions from members
Chairperson: In your statement you are saying the meeting on 11 April 2016 was a meeting of Eskom representatives. You are not specific in saying it is the Eskom board or executives. Is it possible that those representatives are people who had an interest in the transaction or people who would not even know what the transaction was about?

Mr Marsden: The meetings that I attended on the 11th was with Mr Howa at Tegeta, and a follow on meeting with the banking consortium. I was not present, nor do I know what type of committee it is at Eskom. I have zero knowledge of who attended.

Chairperson: But you are aware there was a meeting in the evening of that day?

Mr Marsden: I became aware of it as a result of the Carte Blanche show.

Chairperson: Mr Howa remarked on OCM rescue according to your statement. Does this mean that the banks did not give the guarantee, the money, or did not agree on rescuing OCM, but Eskom was adamant that OCM needs to be rescued regardless of what is happening, and Eskom would go beyond their principles and policies and just pay OCM so that it gets rescued then.

Mr Marsden: I certainly can’t speak on behalf of the banks. There were three of them. I think their view was merely as lenders. They had a substantial debt obligation owed of about R2.5 billion. It is certainly not their obligation to rescue the business. It is my job. However, what it does require is their consent to any plan that had been proposed. The plan that was ultimately proposed was the sale to Tegeta. They were in support of it, subject to receiving the proceeds, and those proceeds were scheduled to be R2.15 billion, not R2.15 billion less R600 million. Clearly their view was that their support was contingent on receiving the full purchase price, hence their unwillingness to bridge that shortfall.

With regard to Eskom, I can’t once again pretend to speak for Eskom, but certainly one of the key considerations for Eskom throughout this process was the continued coal supply to the Hendrina power station. So, the ability to have that supply guaranteed, must certainly have factored into their thinking, amongst other factors.

Chairperson: Were you not suspicious when the investigating officer after such a long time now all of a sudden wants to meet you? I am asking this because this inquiry has been publicised and some of the witness are well known by everyone. Were you not suspicious of why the officer had an interest all of sudden in responding to a statement you gave long time ago?

Mr Marsden: I was grateful to have someone to engage with in trying to move the ball forward. I have not yet met the individual because I was preparing for this, but I hope to meet him in the next couple of days.

Ms N Mazzone (DA): Tegeta was an unknown entity when it entered into the scheme of things. Did you know at the time that it was Gupta affiliated and that Duduzane Zuma was one of the shareholders of Tegeta?

Mr Marsden: Yes. We knew from the start.

Ms Mazzone: In your business rescue practice, was this the first time you did a business rescue proposal for a mine, or had you done mines in the past?

Mr Marsden: I have done similar mining rescues.

Ms Mazzone: Did it come as a surprise to you that Tegeta, this very unknown entity, suddenly became a big role player?

Mr Marsden: I think certainly it was a concern we had. And the way the deal was structured ensured that they had financial ability to conclude the transaction.

Ms Mazzone: How did you know that they had the financial ability to conclude the deal?

Mr Marsden: We received a letter from a banking institution confirming that on closure of the transaction, the funds were available.

Ms Mazzone: Obviously you are a Business Rescue Practitioner and you know your stuff. There is no doubt about that. Certainly it becomes extremely concerning when you find out a company like Eskom, who is well known to be in a financial state of distress, institutes a prepaid amount that obviously is thrown into the mix to break up a deal you have been brokering. What do you do at that moment and who do you turn to?

Mr Marsden: So we became aware of this after the closing of the deal. We turned to the DPCI based on this report.

Ms Mazzone: In the negotiations when the business rescue was brought to you, the amount of R2 billion is a penalty. We know that Eskom does a lot in its power not to enact penalty clauses against companies. Did you think it strange that after such a long period of time having accepted what they now said is substandard coal from Optimum, all of a sudden this penalty clause was enacted?

Mr Marsden: I have no personal knowledge of what happened prior to business rescue, but I have had sight of documents. There appears to have been a long history to this with a 25 year long supply agreement, and it had bought in it what you would expect in an agreement of this nature with hardship clauses, and there was a substantial amount of effort that had gone into it. Optimum under the control of its shareholdings and Eskom and the previous shareholders and Eskom in trying to find a solution to that particular problem. That culminated in a cooperation agreement being signed prior to business rescue. Ultimately those negotiations failed at the senior level, and a penalty was then applied.

Ms Mazzone: In terms of substandard coal, why would it be in Eskom’s interest to ensure that this company is bought out and substandard coal continues to be supplied to Eskom?

Mr Marsden: Their view has always been that it needs to be within specification. Not only must it be delivered at the price, but it must be within specification. I don’t think it was ever their intention to expect that we would accept substandard coal.

Ms Mazzone: In the lead up to your dealings with putting together the business rescue, you said you received unsolicited approaches. Is this normal that you receive unsolicited approaches to purchase a company during business rescue?

Mr Marsden: Absolutely. It happens all the time.

Ms Mazzone: In these unsolicited bids, did you have personal interaction with these companies. In other words, did the Guptas or Duduzane Zuma themselves ever approach you directly?

Mr Marsden: Not directly. They were working via their auditors at the time. But certainly we had unsolicited approaches from them prior to business rescue.

Ms Mazzone: What is the name of the auditors?

Mr Marsden: KPMG.

Ms Mazzone: KPMG was representing Duduzane Zuma and the Guptas and they approached you for an unsolicited purchase of the mine?

Mr Marsden: That’s correct.

Ms Mazzone: The acrimonious relationship that you said existed in Eskom must’ve been difficult for you. Why do you think this acrimonious relationship existed, because to me it seemed like it was a fabricated acrimonious relationship because it suited certain individuals to have an acrimonious relationship?

Mr Marsden: I don’t think I can comment on that because it was prior to business rescue. When I got there it was relatively an acrimonious relationship.

Ms Mazzone: Can you tell me specifically between which parties this acrimonious relationship existed?

Mr Marsden: I think between Eskom senior executive and Glencore senior executive, the former shareholders of Optimum.

Ms Mazzone: Do you think there was a deliberate attempt by Eskom to ensure that the business rescue you put on the table failed so that Tegeta would come in and purchase the mine.

Mr Marsden: I think that is a very difficult question. I think that certainly we ran out of options for what is available in a business rescue. Generally you try and restructure the affairs of the company and retain the structures as is. As I detailed at the start, that process of about two months was challenging in just trying to get constructive discussion going about restructuring it. The next phase was to try to approach buyers to see if we can change the paradigm so that if there is an unfair or acrimonious relationship between the existing shareholders, we can change that dynamic, i.e. get a new shareholder, would that change the dynamic? And I think that we saw a number of suitors not able to come to terms with Eskom, which left us with one party.

Ms Mazzone: In this business rescue structure that you put forward, and with your knowledge of the South African financial laws, in your professional opinion, what laws do you think have been breached in the purchase of Optimum by Tegeta?

Mr Marsden: I am a chartered accountant, certainly not a lawyer. I don’t think I am qualified to answer that question.

Mr M Gungubele (ANC): If you were penalised for the state of coal you were supplying at that time, what has changed in the coal being received now?

Mr Marsden: Not all coal is created equal. I am not a technical person, but in my limited knowledge you are able to beneficiate coal to get it within specification either by washing it or by handling it. One of the major components was the sizing. Certainly, you are able to amend and change specification. Throughout the period of the business rescue, we had an interim agreement with Eskom. They gave us less stringent quality criteria for the period of the business rescue. Post the business rescue, I can’t comment.

Mr Gungubele: Less stringent as compared to the time the penalty was imposed?

Mr Marsden: Yes, I think so.

Mr Gungubele: What was the purpose of the less stringent criteria?

Mr Marsden: We entered into an interim agreement largely about amending the payment terms. We were initially paid within 30 days, but considering business rescue, we needed a bit more liquidity so we amended that to seven days. They agreed to not enforcing penalties on substandard coal. Of course we tried to deliver coal within specification, and it really depends on the seam at that point.

Mr Gungubele: Do you have detailed knowledge of the specific deficit at the time of imposing the penalty compared to the time when the requirements were less stringent?

Mr Marsden: Not on me, but I would have that information available.

Mr Gungubele: Did you have it.

Mr Marsden: Yes.

Mr Gungubele: During your less stringent period, were you giving less quality than during the time of the penalty?

Mr Marsden: The issue relates primarily to the sizing of the coal. The quality of the coal was of sufficient quality in the calorific value of the ash and moisture. It was really about the percentage of product that is sized differently. So the coal was of good quality.

Mr Gungubele: So Optimum had pre-stated the specifics, and when the penalty was charged, does that mean they were not meeting those specifics?

Mr Marsden: Certainly that was the allegation levied by Eskom.

Mr Gungubele: In your own assessment, was that the situation?

Mr Marsden: I think it is not a static position. I think the quality of coal changes. There would’ve been periods where the coal quality would not have been within specification but there would’ve been periods when it was within specification.

Mr Gungubele: You seemed to have reached an agreement with Phembani to buy. What was the attitude of Eskom?

Mr Marsden: We signed a term sheet. I was not party to their discussions with Eskom. It appears that they were not able to come to terms with Eskom and as a result our transaction with them failed.

Mr Gungubele: But the first interface was between yourself as rescuers and Phembani, and you assessed them and thought they were competent to buy. Was it not important to find out why Eskom insisted on their position despite your assessment?

Mr Marsden: Eskom made their position to us very clear that unless a party came to the table that took the contract as is and would commit to the penalty, they would not want to engage further. We certainly did get Eskom’s view on this. You would have to ask Phembani why they withdrew. I suspect it was as a result of them not being able to meet those criteria.

Mr Gungubele: In your view do you think Eskom unfairly increased the stringency of measures or what exactly happened, knowing what Eskom told you?

Mr Marsden: I think they were applying what they believe to be their legal decision. I can’t comment whether that is common practice or not, but certainly they took a pretty hard line attitude toward the enforcement of the agreement.

Mr Gungubele: What was their attitude toward Tegeta later?

Mr Marsden: I think their attitude was that on the basis that Tegeta could meet their requirement, they would be prepared to engage with them.

Mr Gungubele: Requirements as stated to Phembani?

Mr Marsden: Requirements as stated in the contract, yes.

Mr Gungubele: I am saying requirements as stated to Phembani?

Mr Marsden: I am not party to their conversations with Phembani.

Mr Gungubele: But they told you the reasons. If I heard you correctly, you were saying Eskom told you the reasons they could not get into a deal with Phembani?

Mr Marsden: Eskom didn’t. Phembani told us.

Mr Gungubele: I thought you were saying Phembani did not share this with you, but Eskom told you?

Mr Marsden: Eskom never spoke to us with specific reference to Phembani. They simply said that any party would have to meet ‘these criteria’.

Mr Gungubele: They told you the criteria?

Mr Marsden: They did indeed.

Mr Gungubele: Is it the same criteria they gave to Tegeta?

Mr Marsden: That’s correct.

Mr Gungubele: What was the basis of the agreement with Tegeta on 10 December 2015? I am asking this question because later, there were problems.

Mr Marsden: This is the agreement that gives effect to the sale transaction. This is the agreement we signed as business rescue practitioners in the sale of OCH detailing the mechanism of this sale to Tegeta.

Mr Gungubele: Am I correct in saying you would’ve assessed the condition of all the parties, in particular the prospective purchaser in this instance. Were you happy with the situation of the prospective purchaser which was Tegeta?

Mr Marsden: What we catered for within that agreement is that any uncertainty we had needed to be dealt with before that condition became…

Mr Gungubele: What were the uncertainties here?

Mr Marsden: Our constituency as business rescue practitioners were all conditions precedent to the agreement. The bank consortium was required to approve the transaction, Eskom was required to approve the transaction, the Competition Commission was required to approve the transaction, and the Department of Mineral Resources was required to approve the transaction. We had done an element of due diligence, but before the transaction closed, it did require the sign off of all those parties.

Mr Gungubele: Am I correct in saying there must be a document detailing the sale of the agreement and those suspensive conditions?

Mr Marsden: It is in the pack as well. I am happy to go to it. It was one of the specific documents. It is styled “sale of shares in claims agreement”. If I can take you to paragraph three of that agreement, it details the suspensive conditions that are required in order take this to a binding agreement. If I can take you through the relevant ones on page 17; in clause 3.1.3 the proposed transaction is approved by;
- The lenders and security agent,
- The competitions authority,
- The Minister of Mineral Resources
- Eskom’s consent.

Mr Gungubele: Do you have the financial suspensive conditions there?

Mr Marsden: It is embedded in 3.1.3.1 whereby the lenders in order to give their consent to the transaction required a proof of funding. And the letter from Tegeta is addressed to the bank consortium as opposed to myself because it was required in order to meet that particular condition. The letter is from the Bank of Baroda addressed to the banking consortium.

Mr Gungubele: You were satisfied with the ability of Phembani, were there similar suspensive conditions, was Phembani meeting all the requirements compared to Tegeta?

Mr Marsden: We never got to the stage with Phembani of signing a comprehensive legal agreement. We simply had a terms sheet signed. And certainly the conditions that would’ve been included in the term sheet would’ve had very similar to these in dealing with the consent required from Eskom in terms of 3.1.3.4. Another important consideration is that Phembani were at that point looking at OCM as opposed to OCH. There were differences between the transactions.

Mr Gungubele: In your view as a business resuce practitioner and the academic qualification you have, what was more cost effective for Eskom, the rescue of Optimum or dealing with a new and alternative supplier?

Mr Marsden: I think you would have to ask that question to Eskom. I suppose it would be like gazing into a crystal ball. There is a short term, medium term, and long term cost. And the story is not fully played out yet. I think the contract to supply Hendrina, which is the onerous contract, expires at the end of December 2018, and we can only quantify which was the best alternative if and when that contract is completed in its entirety.

Mr Gungubele: In the prepayment, who is the payer and who is the payee?

Mr Marsden: From what I understand in the Public Protector report, Eskom paid it, and Tegeta got it. Not OCM.

Mr Gungubele: And at that time Tegeta was the owner of the company?

Mr Marsden: That is correct.

Mr Gungubele: At what point was ownership transfer executed?

Mr Marsden: The closing date of the transaction was either the 14 or 15 April.

Mr Gungubele: You received acknowledgement in May 2016 for your affidavit. Another affidavit was made in July 2017. If you are using your own assessment, what were the material distinctions between the requirements of May 2016 and July 2017?

Mr Marsden: The affidavit that I signed on the original application and the further affidavit in July 2017 are almost identical.

Mr Gungubele: So there were no material difference?

Mr Marsden: That is correct.

Mr Gungubele: Did this not frustrate you?

Mr Marsden: A little bit yes.

Mr Gungubele: What did this make you think of the law enforcement agency?

Mr Marsden: I think I would have expected at least the opportunity to present the position, even if my suspicions were incorrect.

Mr Gungubele: How did this thought aggravate with the recent email and the new investigator?

Mr Marsden: As I said previously, I remain here to assist the authorities in whichever capacity I can. To the extent that my suspicions are unfounded, I would sleep well at night. I would prefer to have slightly more efficient services.

Mr R Tseli (ANC): The meeting of 11 April 2016. Did you not have any interest in knowing who the Eskom representatives were that approved the R586 million?

Mr Marsden: I would now. But I was unaware of the meeting at the time obviously. I was not present at the meeting and I was not aware the meeting was happening. I could hardly have been expected to have an interest.

Mr Tseli: The meeting on 24 November 2015 followed by the other meeting in December, you are saying it was chaired by Eskom. I am interested to know who from Eskom was chairing that meeting?

Mr Marsden: The meeting on 24 November 2015 was chaired by Matshela Koko. I am not sure of the other meeting. If you give me the date I can check. I am not sure to which meeting you are referring. We signed the agreement in December 2015 but there would not have been a meeting for that.

Mr Tseli: How do you know that Phembani’s proposal was rejected?

Mr Marsden: They let us know sometime in October that they would not be able to fulfill the transaction, and that was done informally. At the meeting on 8 April 2016 to approve the plan, Phembani was a minority shareholder in OCM. They gave me a letter detailing the fact that they were not given a similar opportunity and the fact that they had displeasure in the process.

Mr Tseli: The R600 million shortfall. You were requested to go back to the banks by a Mr Howa to raise this. Why was Mr Howa not part of the meeting where the banks informed you that they would not offer the loan?

Mr Marsden: I think that the bank consortium wanted to engage with me as the business rescue practitioner. They would not have wanted the potential purchaser in the room, and they certainly caucused with me and without me at that meeting. I was acting as a practitioner in my capacity in scheduling the meeting for the purchaser.

Mr Tseli: Is that standard practice?

Mr Marsden: I am not sure it is standard practice post the conditions being met to renegotiate an agreement

Mr Tseli: In your letter directed to the anti-corruption desk, paragraph 10, I am interested in knowing the conditions you are talking about. What were those conditions?

Mr Marsden: Those were the conditions in the agreement we just went through about bank consent, competition approval, consent of the DMR, and the consent of Eskom to the transaction. As well as the adoption of the business rescue plan. Those were the suspensive conditions that were required to be met before a deal could be finalised.

Mr S Swart (ACDP): The meeting on the 11 April, obviously you wouldn’t have been at that board meeting, but the concern in your letter to the Hawks was that the prepayment did not go to where it should have gone. In terms of the Public Protector report about that meeting which you have had sight of, those board members would have known that the prepayment was actually to buy shares and not for any production requirements for OCM which would have been the normal business practice. That was the finding of the Public Protector. In all probability, would you tend to agree with that, that given the board members were fully involved with the background of OCM, and with the financial implications, that suddenly they have been asked to approve a prepayment for preproduction mining which is normal, but they know it is not actually for that. It is in fact to buy shares. That is also the reason that you filed that complaint with the Hawks.

Mr Marsden: Once again, I had no knowledge of that meeting, I am not even sure who attended. I don’t know if it was a board or a subcommittee. I certainly don’t know what knowledge they would’ve had about the transaction, when it was closing, or what was payable. Unfortunately I would love to help but I just don’t have any knowledge.

Mr Swart: Obviously you have been very involved in this process, you are negotiating with the board. I am not asking you to speculate. To me, it is very clear that they would have known at that stage and that is the finding of the Public Protector. Let’s leave it at that.

Mr Swart: In September 2015, Mr Molefe and Dr Ngubane met with the former Mineral Resources Minister Ramathlodi asking him to suspend all of Glencore’s mining licences. So it is clear that there was pressure from Eskom against Glencore. The Minister refused to suspend the licences and was then fired. The new Minister we now know is Gupta-aligned. In the time that you were the business rescue practitioner, you might not have had knowledge of Mr Ramathlodi, but in September 2015, the new Minister applied Section 54 stoppages on all Glencore mines including OCM, which is the one under business rescue. You should have been aware of that, and was this a concern of yours as to why there was additional political pressure on OCM from outside?

Mr Marsden: I can’t comment about Glencore mines. But certainly for OCM we did receive a stoppage notice. It wasn’t a Section 54, I think it was a Section 92 right at the start of the business rescue process within two or three days of being appointed. The stoppage related to a technical infringement and we were able to have it uplifted within a couple of days. Certainly we heard all the stories about pressure being exerted on Glencore; once again not in my personal knowledge, so I am unable to comment on it.

Mr Swart: We also know that Tegeta started to get involved and they were doing small mining activities such as Brakfontein, and those mining activities increased and there was a problem with their quality. Would that have had any bearing with Tegeta and their history with Eskom, and the fact that some of their stockpile was rejected? Did you have knowledge of those Tegeta mines prior to this whole engagement? Whilst you were business rescue practitioners and you are approached by Tegeta, you know that Tegeta is already involved with Eskom and other mines and there have been problems with those mines. Was that an issue?

Mr Marsden: It certainly came into our consideration. I think that we took a couple of things out of it. First of all, OCM had an excellent management team in place and would operate under our control, and they would certainly not have an ability to influence that. Secondly, they were an existing Eskom customer and we thought that because of that, Eskom would have knowledge of them. To the extent that we brokered a transaction, they would at least be an approved vendor.

Mr Swart: Was it not strange to you why the negotiations on the coal service agreements that seemed to be proceeding well suddenly stopped once Mr Molefe came in, and there is this acrimonious attitude with a company that has had a long term contract for 25 years?

Mr Marsden: I certainly think we walked into a pretty difficult hornet’s nest in terms of the relationships. Obviously no comments to the prior engagement and knowledge, but certainly it became quite apparent and clear that a transaction that involved a simple reshuffling of the contract with Glencore as a shareholder was unlikely to meet the approval of Eskom. The hard stance that the Eskom executives took at the time was something that could stand up to commercial muster. Somebody pushing back against Glencore is unusual, somebody insisting on enforcing a contract that in the short term would have been to the benefit of Eskom to get coal at short term supply, the maneuvering of Eskom to have the good and bad part of the business included in the transaction made commercial rationale to us. Somebody was playing hardball, I don’t think there is an issue with that. In fact I think it made commercial sense to us. I think where the picture starts to get murkier is post the recent facts that have come out post the event.
 
Mr Swart: If I understand you correctly the negotiations were done and there was commercial sense to them. Why then would it have been necessary to have a meeting in Switzerland with the Minister of Mining, the Guptas, and Glencore - to cause a Minister to act in that capacity, which is unheard of. If that was commercially sound, why was that necessary?

Mr Marsden: It had some commercial sense from Eskom’s point of view. I don’t know what happened in Switzerland. I certainly know that an offer that was capable of being concluded arrived relatively shortly after that meeting. I am not sure what a Minister’s portfolio is meant to be. It certainly does seem unusual

Mr Swart: What I am trying to understand is that OCM is in dire stress which puts them into business rescue. The negotiations on the hardship agreement took place and the penalty was not settled, and the loss making contract was for the supply of the Hendrina station. We now know that the Hendrina power station supply was reduced, and the OCM coal sold to Tegeta went to Arnot at a radically increased price. Had you had that option prior to business rescue, surely there would have been no reason for business rescue at all?

Mr Marsden: I think that option was tabled prior the business rescue for switching some of the  product to supply Arnot. Once again we were looking for any options from Eskom, and in the first 60 days we made a number of different proposals to Eskom for the continued supply of product to Hendrina. Once again, going to the prepayment issue, the coal that was supplied via Tegeta for Arnot came from OCM so certainly that would have been an option that was available but we were not able to conclude any of that.

Mr Swart: The Phembani contract is also mentioned in the Public Protector report and there was an issue during the negotiations, according to the Public Protector, related to the penalty and the consideration of the coal supply agreement on exactly the same terms that Tegeta got. I think the distinction you make is that they were only looking at the one element and not the whole total. It seems very clear to me that this whole deal was structured from a political perspective and from an Eskom perspective to make sure that Tegeta benefits and receive the mines at the end of the day. As soon as they got the mines then Eskom makes sure that OCM was a profit making company. Would you be in agreement with that?

Mr Marsden: I think that is the conclusion that the Public Protector came to.

Mr M Dlamini (EFF): You said you signed the term sheets from Phembani. Was that the first company you engaged with?

Mr Marsden: That is correct.

Mr Dlamini: When did you start speaking to Tegeta?

Mr Marsden: They had approached OCM prior to business rescue, they approached us prior to accepting the Phembani transaction. We really started to engage with them once the Phembani deal had fallen over.

Mr Dlamini: So the formal engagement was only after the Phembani deal had fallen over?

Mr Marsden: We had a variety of other interactions with them, we had signed a non-disclosure agreement, as well as provided them with high level information on the asset, conducted a site visit in September, but in actually moving forward and closing a transaction, this only happened once the Phembani deal had fallen over.

Mr Dlamini: Is that the norm that I come to you and make an offer, we sign a term sheet, but on the other side you are doing site visits with someone who wants to make a counter offer?

Mr Marsden: It is certainly not normal, and once we signed the term sheet with Phembani there was an exclusivity on that. From the time we signed the term sheet until it failed, there was no interaction with other parties.

Mr Dlamini: Why did you do site visits with Tegeta then?

Mr Marsden: It was a question of timing. The site visit was prior to the signing of the Phembani term sheet.

Mr Dlamini: You mentioned there was a shortfall of R600 million, and you were made aware through the interview on Carte Blanche that Eskom paid R586 million to Tegeta and the reason for that was that they wanted to recapitalise the operations, and improve the cash flow. Where did you get this information?

Mr Marsden: The reason that Mr Howa gave on Carte Blanche was that the company was in business rescue and needed cash quicker. The second reason was that the mine had a number of drag lines used in the mining process that needed to be recommissioned to increase the production such that they could supply or such that we could supply Tegeta in terms of the agreement. The amount of cash required for that is in the region of about R10 million. Not more than that.

Mr Dlamini: When did you hand over the mine with its full operation, you are saying 31 August. Which year?

Mr Marsden: 2016.

Mr Dlamini: Did that money come through to do exactly what was said in the interview? Did that money come there while you were still involved with the operations?

Mr Marsden: The money definitely did not come to the mine.

Mr Dlamini: Did you report that to the authorities?

Mr Marsden: When we became aware that a prepayment had been made, we reviewed the bank statements and that money had obviously not flowed directly to the mine. We had supplied the mined coal to Tegeta and we had received certain payments from Tegeta for the supply of coal, but that was on a 30 day account based on delivery. The prepayment amount certainly did not come to the mine.

Mr Dlamini: So Nazeem Howa on that recording you got from Carte Blanche was lying?

Mr Marsden: It would seem so.

Mr Dlamini: And that is included in your statement to the Hawks?

Mr Marsden: That is correct.

Mr Dlamini: You are saying the R586 million was paid to Tegeta and it is the Bank of Baroda that wrote to the other banks to say we have got the money, and the money was paid on the agreed date before the cutoff date by the Bank of Baroda?

Mr Marsden: You are correct, but I just want to break it down into a couple of items. We had received a letter of comfort from the Bank of Baroda that Tegeta had sufficient funds to discharge the R2.15 billion. On the 11 April they came and said they were short, and the banks refused to fund the shortfall. The money then arrived before the cutoff date – 14 or 15 April. Money was paid into an escrow account, and it flowed through the Bank of Baroda. The purchase price was discharged in full. We only became aware of the source of those funds when all of this stuff came to the fore, and that is why we made the submission.

Mr Dlamini: What is Nazeem Howa’s role in Tegeta?

Mr Marsden: He was our principal point of contact throughout the discussion. I stand under correction, but I believe he was the CEO of Oakbay Holdings.

Mr T Rawula (EFF): What were your experiences with Phembani and how they were executing their duties; before we interrogate the view of Eskom on working with them?

Mr Marsden: I think we had relatively limited engagement with Phembani. They were known to the company being a minority shareholder, they were a well-known organisation and certainly the term sheet that was signed would have resolved the business rescue of OCM. We were not involved very long with them. It was relatively quick. Within less than a month they pulled out of the transaction. They didn’t give us many reasons at that point. We only received a letter from them on 8 April 2016 as to the specifics for their withdrawal. We did not have intimate knowledge of their discussions with Eskom. We knew of the preconditions of a deal that was acceptable both to Eskom and to us, and I really can’t comment how those discussions went between them and Eskom. All I know is that our deal fell away and I was only informed of the rationale for that when we had concluded the next deal.

Mr Rawula: What was your own assessment of the capacity of Phembani to do the work?

Mr Marsden: No, they are a very well-known organisation, financially stable, and deep mining experience in the industry. I had no concerns about their ability to conclude a transaction.

Mr Rawula: And they had no links with the Guptas?

Mr Marsden: Not that I am aware of.

Mr Rawula: What was supposed to be the payment approach for the purchase price?

Mr Marsden: When all the suspensive conditions have been met, they had three working days to deliver the full purchase price.

Mr Rawula: Did the suspensive conditions have any bearing on the price?

Mr Marsden: No, the price was agreed upfront.

Mr Rawula: Was the prepayment laid out in the contract or was it a new development?

Mr Marsden: The prepayment is not mentioned anywhere in the agreement. We had no knowledge of it until it became public information. We signed a number of different coal supply agreements with Tegeta for the supply of product, they then had an agreement I presume with Eskom. Embedded in the agreement with Tegeta there was certainly no prepayment.

Mr Rawula: Was this the first payment as it was expected from Eskom to Tegeta?

Mr Marsden: I cannot talk to the agreements Tegeta had with Eskom. Prior to that, we had supplied Tegeta from OCM and they had paid us for that product.

Mr Rawula: Paragraph 13 says that you were approached by Mr Howa to approach the banks since Tegeta had a shortfall of R600 million whereas you were contracted business practitioners for OCM. Why would you be expected to be the ones to approach the banks for a loan on behalf of Mr Howa when it was OCM that is expecting the payment?

Mr Marsden: OCH was the recipient of the funds. In other words, OCH disposed of its shares and interest in the underlying subsidiaries but the banks had security of the assets of the company. The funds were paid into escrow on behalf of the company, but then the company had to pay those funds to the bank in order to discharge their obligations.

Mr Rawula: Can you tell us in detail what your suspicions of corruption were and what your own views were when you suspected there was foul play. Give us the names of those people and their own interest. What exactly was your suspicion?

Mr Marsden: As detailed in the report, the issue that was suspicious to us was the timing of the prepayment. Tegeta had reported to us that they were R600 million short, but in the evening of the same day a very similar amount is advanced as a prepayment. I do not have sufficient access into the internal Eskom rationale as to when the meeting was called, who attended the meeting or what was discussed. I am unqualified to make that call, hence I said it is worthy of investigation and handed it to the investigative body that is meant to follow up on those questions I cannot answer.

Mr Rawula: Would it be a reasonable suspicion for us seated here that Mr Howa, as a Tegeta executive who claims to have paid R586 million to OCM which OCM claims was not paid to them, would it be justified to say that he and his fellows in Tegeta embezzled the money.

Mr Marsden: I think what would be justified is an investigation.

Mr Rawula: Now that OCM has not received its money, and you are business rescue practitioners are charging a fee. I want to believe that your interest is that you have not been paid. Is that the case?

Mr Marsden: We were being paid. We were paid 30 days on delivery based on what was actually delivered. Effectively post-closing on 14 or 15 April, we were supplying coal to Tegeta and were providing them 30 day terms. In addition to that the company was still supplying coal to Hendrina. So yes I was being paid for that as well.

Mr Rawula: How much are you owed now?

Mr Marsden: I am not owed anything.

Dr Z Luyenge (ANC): There is a general hypothesis in the country that there is looting of state resources and in particular in SOEs. And for us at this level we require enough and sufficient evidence that will prove that this hypothesis is a fact. In executing our duty, we want people like yourself who are bold and have enough evidence to assist us to unearth corrupt sources. Would you be able at a later stage, as and when it happens that this process is taken to another level, to assist the process?

Mr Marsden: I am absolutely a South African citizen and I think there is a desperate need to colour in all the aspects of this particular issue. As I stated before, there certainly is sufficient documentary evidence to warrant further investigation and I would avail myself to the best of my ability to assist in that process.

Dr Luyenge: Was it the first time that you came across KPMG or had you worked with them before?

Mr Marsden: I have worked with KPMG previously.

Dr Luyenge: Is it normal that when they interact with you that they declare whom they are representing?

Mr Marsden: Generally, yes.

Dr Luyenge: Did they indicate that they represented the Guptas or Mr Duduzane Zuma?

Mr Marsden: At the initial meeting prior to business rescue, they were acting on behalf of an undisclosed entity. In all of my engagements with them, we knew and they disclosed who they were representing.

Dr Luyenge: Did they officially declare that they were representing the Guptas?

Mr Marsden: I am not sure if I received a formal correspondence in that regard, but certainly they would have arrived at meetings with their representatives around them. It wasn’t a big jump.

Dr Luyenge: I don’t think I am satisfied with that kind of response. I want something that says “we are so and so, and we are representing such a person”.

Mr Marsden: I will have to check documentation. It is likely that we will have something on which we were engaging with them on a number of issues.

Dr Luyenge: The prepayment – R586 million – it is unusual, but we will get used to these figures. If there are instances that huge amounts of money can be pre-paid in this country and you are not sure as to whether that was done in good faith. Was there anyone who applied for a prepayment on the basis of “1, 2, 3, 4 or was it just part and parcel of generosity coming from elsewhere?”

Mr Marsden: I had no knowledge of the prepayment or the lead up or build up to how it was given effect.

Dr Luyenge: After having smelt a rat, did you get cooperation from the agencies you reported to, or did they only take the information you submitted and never got back to you?

Mr Marsden: They have largely got the information and all the affidavits I submitted originally. I had an interview with a warrant officer, I signed a second affidavit in a format similar to the first. I have not been asked to submit further documentation or had further interviews.

Dr Luyenge: Are you happy with that? My own understanding is that when you wake up at home and you approach them, you want action to be taken or if not, to be informed why an action would not be taken?

Mr Marsden: I certainly would’ve liked a degree of urgency on this. To the extent that my suspicions might prove to be invalid, then great. To the extent that my suspicions were valid, then I would have liked to see more significant progress made.

Dr Luyenge: Who is the most legitimate source that you think can add to the thickness of things and you would say this is the road I am going to use. A legitimate source that would be regarded as being a prima facie kind of evidence and if us as Parliament do nothing about that you would cry foul?

Mr Marsden: I think this forum is certainly constituted to try and get us as far as possible, not that I am a lawyer and understand but you certainly have the ability to request document and subpoena people to fill in the missing puzzle pieces. Forums like these would have the credibility in trying to find the smoking gun you are looking for.

Dr Luyenge: Do you know how long Glencore was doing business with Eskom?

Mr Marsden: Other than “very long”, I am not sure. They continue to do business with Eskom.

Dr Luyenge: So there is no smelling of a rat around them?

Mr Marsden: Not to my knowledge.

Mr E Marais (DA): To your general knowledge, who was the Eskom CEO at the time the meeting was held on 11 April 2016?

Mr Marsden: I believe it was Mr Molefe.

Mr Marais: And who was the CFO?

Mr Marsden: I believe it was Mr Anoj Singh.

Mr Marais: Who was the board Chairperson of Eskom?

Mr Marsden: I think it was Dr Ngubane.

Mr P Gordhan (ANC): You have been quite helpful to reinforce what is already in the public domain and it is fairly strong for the Committee to come to a direct hypothesis of the link between the appointment of Mr Molefe as CEO, the appointment of Mr Anoj Singh as CFO, the presence Dr Ngubane as the Chairperson of the board, the meeting with the former Minister Ramatlhodi, the subsequent appoint of Minister Zwane, the visit to Switzerland, the opportunity that Optimum saga presented when there was a lapse in the quality, and then you get all of these transactions concocted in order to seize this opportunity to transfer mining operations from one set owners to another set of owners. I think it is helpful to let the public know that those are dots that are connectable, and the Evidence Leader should bring on more witness that would have to connect more of the lines and confirm this hypothesis.

Mr Gordhan: The Bank of Baroda says they have R2.15 billion to pay for this transaction is that correct?

Mr Marsden: Correct.

Mr Gordhan: R586 million was the missing amount out of the R2.15 billion?

Mr Marsden: There was a slight timing difference. The Bank of Baroda letter is issued on the 4th of March 2016. The discussion about the R600 million shortfall is on the 11th of April. A month and a bit afterwards.

Mr Gordhan: When was the R2.15 paid?

Mr Marsden: It was payable I think on the 14th of April.

Mr Gordhan: And is it your assumption that the R586 million was necessary to make up the R2.15 billion?

Mr Marsden: That is the conclusion that the Public Protector came to in her report.

Mr Gordhan: You then said that money went into the Tegeta account, and not OCM account.

Mr Marsden: It was paid to Tegeta, and Tegeta paid an aggregate amount in the escrow account for the discharge of the purchase price.

Mr Gordhan: In simple terms, the R586 million was used to make up the R2.15 billion.

Mr Marsden: It appears so.

Mr Gordhan: The then CEO made a big case of that publicly that this about buying future production, but actually, this is about buying shares in a company. Is that correct?

Mr Marsden: Correct. At the time of the payment, Tegeta was not the owner of the mine. It simply had the right to acquire the mine.

Mr Gordhan: Here is a mine that is selling coal to Hendrina power station. Is that correct?

Mr Marsden: Correct.

Mr Gordhan: Are we right that this coal from this mine is now been sold to the Arnot power station.

Mr Marsden: That’s correct.

Mr Gordhan: Whereas the coal was sold at X Rands, it is now been sold at X plus Rand to Arnot. Is that correct?

Mr Marsden: Correct.

Mr Gordhan: Do you have the amounts?

Mr Marsden: 2X or 3X is maybe better than X plus. Slightly different qualities of coal. It is not completely like for like in that the power stations each have a unique coal specification. But essentially it is the same product.

Mr Gordhan: Because it is from the same mine?

Mr Marsden: It is from the same mine, just washed and treated slightly differently to upgrade the coal to a certain degree for Arnot.

Mr Gordhan: Who benefits from this?

Mr Marsden: OCM ultimately benefitted from the ability to sell product, at round numbers. R500 per ton to Tegeta who then on sold it to Arnot as opposed to supplying it for R150 to Hendrina.

Mr Gordhan: So the new owners benefit from the additional amount?

Mr Marsden: Correct.

Mr Gordhan: Is that the amount that was required to make Optimum financially viable, or is it beyond that amount?

Mr Marsden: It really depends on the mix and the volume, but certainly it would contribute to making it financially sustainable if you are able to sell product at a higher price.

Mr Gordhan: Sustainable or super profitable?

Mr Marsden: I think the context of Optimum would always be sustainable. The issue rises in terms of the good and bad side of the business. If you are able to remove the negative, then the profit arises not only in the legal entity, but in the overall picture.

Mr Gordhan: I think you were hinting earlier on that what was originally the profitable side of the business; Koornfontein and the Richards Bay terminal, those are now been disposed of.

Mr Marsden: It’s been in the press. Whether it’s concluded or not, I have no knowledge.

Mr Gordhan: If that is been disposed of, the question of balancing profitability doesn’t come into the equation. The standalone mine is now profitable otherwise they wouldn’t be in that business and you wouldn’t have done your job of rescuing the business.

Mr Marsden: Correct.

Mr Gordhan: From cost of coal to quality of coal, what has changed during this whole period? This whole saga started because the quality was poor, and that was a public discourse about the supply of Optimum coal to Eskom. And Optimum is under a different set of owners supplying the coal to Eskom.

Mr Marsden: A number of things could’ve changed. Of course I have no knowledge after August 2016. A couple of items could’ve changed; I think that there was an issue in the methodology on how the coal was sampled. Which was effectively giving error on product. It is essentially the same coal, but you could wash and or screen to beneficiate the coal to get it back within standard specifications. Obviously reducing your yield, but there would be certain technical methodologies that could be used to take the same product coming off the same seam to upgrade it into a different product. Once again, that is hypothetical.

Mr N Shivambu (EFF): I want to raise the same concern I raised yesterday. We are dealing with crime that has not ended. Perhaps we must take certain decisions in terms of what should happen. Tegeta is owned by Oakbay and Mabengela investment which is almost 100% owned by Duduzane Zuma. They want to buy OCH from Glencore which is broadly a company based in Switzerland. They first approach Ngoako Ramatlhodi who is the Minister of Mineral Resources to say, “Utilise the legislative influence to push OCH out of business or into a risky situation”. Ramatlhodi says no, and there is an undisputed newspaper report that when Ngoako Ramatlhodi went to see Mr Jacob Zuma, he met Duduzane Zuma sitting with Mosebenzi Zwane in the same meeting. Zwane is the person who gave the Estina dairy farm to the Guptas in the Free State in Vrede to do business which was illegal. Zwane is the person who has signed a letter inviting the Guptas which ultimately led to the airplane landing at Waterkloof. A few months later he gets appointed as a Minister of Mineral Resources, and his first stop is Switzerland to talk with Glencore about the whole OCH which they then syndicate a fund to buy it. They use part of their money, they take R160 million from the Baroda account which Trillian had. Salim Essa is involved, and Eric Wood, and all of those people. And when there was a shortfall of R600 million, they go to Eskom and ask for a prepayment. That group of Brian Molefe, Anoj Singh, Ben Ngubane, and Matshela Koko approve the prepayment to complete the syndicate fund to purchase Tegeta mine and then increase the allocations of the tons that Tegeta can supply to Eskom on a monthly basis so that they can make maximum profit with ease. When all of that is brought to the public discourse and is been exposed now, they sell Tegeta to themselves, to a shell company somewhere in Dubai and they continue to supply coal to Eskom through a deal that is illegal. There is prima facie evidence that is illegal, and when you raise this and go to the police, or to the National Prosecuting Authority (NPA) they say “we are going to work on it”.

Tegeta is still the recipient of millions of Rands from Eskom as we speak, which is directly benefitting the same people who claim to have disposed of it. They have not disposed of it, they have just put it in a different form. What do we do? I think this is a question that we should respond to. If the SABC inquiry is anything to go by in terms of the legal standing, we should perhaps make some immediate resolutions and check if Parliament can’t take some immediate resolution to hold some of the ongoing crime that is been committed now.

What are the implications of all of these things? The implications is on ordinary people who are now going to be forced to pay 20% more for electricity because of the mismanagement of Eskom. Eskom is asking for 20% increase on tariffs and that has direct impact even on what ultimately could be air recovery of the economy. There is a shortfall of more than R50 billion on what is required for the state to operate optimally, and you are increasing electricity under those circumstances. We have to do something. I don’t think our hands are completely tied. We should look into tabling a preliminary report; make concrete recommendations; and if whoever is affected thinks that we have acted outside of the law, they must subject us to judicial review and then we will take it from there. I am more than convinced that a rational court of law will appreciate that Parliament has been able to act in a rational way to stop the corruption that is ongoing. The industrial looting scale that is ongoing in South Africa currently. We can ask questions, and we must not delay this thing. We are going South Africa and the entire fiscus in our watch without having done anything and when history looks back and asks what you did, we will say we were just talking amongst ourselves and asking each other questions when the crime was ongoing. We have an opportunity to do something, and let’s discuss how we table a preliminary report. Wishfully, in the next sitting of the National Assembly (NA) we must table a preliminary report on observations and take concrete resolutions that certain things must be stopped so that we are able to stabilise the situation.

Ms G Nobanda (ANC): What is your understanding of the cost plus mines future investment/prepayment capital requirement?

Mr Marsden: I think that it is a very good question and often misinterpreted. OCM is not a cost-plus mine. It has a long term supply agreement signed in 1993. So I think the concept of cost-plus mine and prepayment are quite linked. But OCM is not a cost-plus mine. It has to deliver a fixed price of coal escalated on a bunch of matrix. Prepayment has generally been used in the context of cost-plus mines.

Ms Mazzone: The name of Mark Pamensky came up continually during the evidence that was given yesterday and he was on the board of Directors of Eskom and of Oakbay. He also was a partner at a company called Blue Label, now, someone that used to be a partner at Matuson, Gary Kaplan, was also a partner at Blue Label. Is there any chance given the fact that someone in Matuson is so connected to some at Oakbay and Eskom that there is any connection in the purchasing of Tegeta. It is as little bit fishy the way it is coincidental that he was on your letter head and then he wasn’t. I am confused and concerned at the same time.

Mr Marsden: It is not nearly as dramatic as that. We employed Gary’s son in our organisation and thought that it was inappropriate to have his son employed. He was a non-executive Director of our company. He is a lifelong friend of Les Matuson, I think he resigned from Blue Label 15-20 years ago. It is an unusual circumstance, but it is not as dramatic as you suggest.

Mr Gordhan: Can you help me clarify whether you interrogated the quantum of the fine and whether it had some mathematical rationale. And whether it should have been R700 million instead of R2.1 billion, and also how did the fine disappear?

Mr Marsden: We certainly did interrogate the fine. We spent quite a lot of time investigating it and prepared a very extensive report on it. It had a variety of different categories in the claim. Certainly some of it have been arguable that the fine should have been levied, there was coal as per specification. Some of it would have been argued the other way that it wasn’t. In terms of the settlement that happened post the 31st of December, judging on the press reports on the settlement, someone did mention R600 million but I am not sure if that’s the number that’s been agreed on. It is not a publicly available document. But it could have been in that quantum but it would very hard to assess. It would have been down to technical analysis, down to evidence of experts in the matter.

With regards to the last point on the similarities between the purchase price. The purchase price was actually a bit more than the R2.15 billion. That were the contributions that had be made by Oakbay. Glencore also contributed a percentage of the purchase price in order to meet certain other obligations. The purchase price was about R2.6 billion, so in think that is purely a coincidence.

Chairperson: Do you think that these monies that were played with within the entities of Public Enterprises will ever be recovered? What is your suggestion on how we can get those monies back?

Mr Marsden: I certainly hope so. I think that urgency and timing are always critical in these items and the chances in most situations of ultimately recovering from parties if they have done wrong decreases over time. The sooner the action is taken, the better the prospect of success are.

Chairperson thanked Mr Marsden for availing himself and for providing information to the Committee.

Chairperson also thanked the members on the questions they raised.

The meeting was adjourned.