South African Treasury & Eskom Row Over Coal Contracts as Government Rifts Deepen

JOHANNESBURG (Reuters) – South Africa’s Treasury and state-owned Eskom clashed on Monday over a probe into coal contracts between the power utility and a company linked to the wealthy Gupta family that is accused of holding undue political sway over President Jacob Zuma.

The row further scarred relations in a government rocked by a police investigation of Finance Minister Pravin Gordhan over a suspected surveillance unit set up when he ran the tax service. The turmoil has weakened South African assets.

Analysts say Zuma’s team and the Treasury under Gordhan have disagreed about government spending at state companies and the tussle between Treasury and Eskom signalled a prolonged dispute.

In a statement, the Treasury accused executives at Eskom, including Chief Executive Officer Brian Molefe, of resisting attempts to investigate coal contracts between the utility and Tegeta, a company controlled by the Gupta family.

The Treasury said Eskom had blocked its probe since April.

“The National Treasury would like to categorically state that its efforts have met resistance,” it said in a statement.

Eskom denied preventing the investigation into its deals with Gupta-controlled Tegeta Exploration & Resources Ltd. and said that it was “shocked and perplexed” by the statement issued by the Treasury.

The Gupta family, which is being investigated by the anti-corruption watchdog on suspicion of influencing government appointments, announced on Saturday that it planned to dispose of its South African businesses before the end of the year.

The Guptas, a family of Indian-born businessmen who moved to South Africa in the early 1990s, have denied trying to influence political appointments or using their ties to Zuma for advancing their business interests, saying they are the victims of a plot. Zuma has also denied any wrongdoing.

Eskom said in a statement over the weekend the Treasury had not issued any conclusive findings against it on any of the utility’s coal contracts‚ and that it was cooperating with the Treasury on its investigations of the contracts.

The Sunday Times reported that the Treasury’s investigation had revealed that Eskom paid more than 130 million rand ($9 million) to a mining company owned by the Gupta family for coal the power utility could not use.

The Treasury said on Monday it had sent a report to Eskom’s Chief Executive Officer Brian Molefe and board Chairman Ben Ngubane for their comment and requested a list of payments made to Tegeta, both of which the utility ignored.

The Treasury said Gordhan escalated the matter to Ngubane, raising concerns about advance payments made to Tegeta, but this also failed to bear fruit.

Eskom said it had received the Treasury’s lengthy report in April and had requested for additional time to issue its reply and would do so by the end of September after a board meeting.

FRUSTRATION

On Thursday, the presidency defended a new plan to give Zuma supervision over state-owned firms after Gordhan’s allies said this would limit the finance minister’s control.

Such firms include Eskom and the South African Airways, which has announced plans to raise 16 billion rand ($1 billion) for working capital and debt repayment.

A Zuma-backed plan to build a series of nuclear power plants, at a cost of as much as $60 billion, has caused tension with the Treasury for months. The presidency has said that Zuma was not warring with Gordhan.

Gordhan said on Wednesday he had done nothing wrong by setting up the surveillance unit at the tax service and declined to obey a police summons linked to the probe, setting the stage for a drawn-out confrontation between him and authorities.

“This is almost a public justification of Gordhan’s frustration over the running of state owned firms,” said Daniel Silke, a director at Political Futures Consultancy, referring to the statement issued by the Treasury on Eskom.

The ructions in government have weakened the rand and bonds in an economy teetering on recession, but the central bank said it will not respond to short term market volatility triggered by news of possible charges against Gordhan.

(Editing by Toby Chopra)