Peter Bruce: Gupta mining plot thickens

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Peter Bruce: Gupta mining plot thickens
By Peter Bruce on March 15, 2016

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SO, the journalist asked of Oakbay, the listed vehicle of the Gupta family, is it true the minerals resources minister travelled to Switzerland when you negotiated the R2.1-billion purchase of the Optimum coal mine from Glencore?

“Absolute rubbish,” said the offended spokesperson for Oakbay, shocked that anyone would think such a thing.

“Yes he did,” said the minister’s spokesman not long after, apparently unaware it was a secret.

Evidently, when the Guptas said last week they would welcome a judicial inquiry into their ties with the Zuma administration, they had a special kind of inquiry in mind.

In fact, not only was Mosebenzi Zwane at the discussions; he was, and remains, central to the acquisition and Glencore’s role in it.

Thankfully, R2.1-billion is still a lot of money, and as the Guptas plough ahead with the deal, a lot of people are asking the same core question: how will they pay for it? They’re rich, but not an easy R2-billion rich.

There are other questions, of course, many asked by my colleague over at the Mail & Guardian, Phillip de Wet. If an experienced miner such as Glencore couldn’t make Optimum profitable – they bought it for $1-billion seven years ago and are, at this price, practically giving it away – how will the Guptas do it?

It’s an odd deal. We know Eskom is comfortable doing business with the Guptas, as are other state-owned companies. They have been able to engineer positions for business associates on the boards of some state-owned companies, sometimes ensuring one of these proxies runs the procurement subcommittee, and are looked after from there. It happened at Transnet.

Nonetheless, there is symmetry about the Optimum acquisition. The mine supplies Eskom’s Hendrina power station in Mpumalanga. Glencore has sold it because at the coal price its contract with Eskom dictates, it makes a big loss. In turn, Eskom is claiming penalties from the mine of about R2-billion for poor coal quality.

In addition, though, the price agreed, R2.15-billion, is roughly what Optimum owes its creditor banks in South Africa – Investec (R1-billion), RMB (R1-billion) and Nedbank (R500-million). As part of the sale agreement, Glencore will contribute R400-million to paying off that debt. Who in their right mind would fund such a mess?

What follows is my hypothesis, and the answer, I think, lies in the mine itself. All mines in South Africa are obliged to fund and account for a rehabilitation fund, to pay for environmental repair once the mine stops operating.

When Glencore bought the mine seven years ago, its rehabilitation fund was already in the Optimum books at more than R900-million. It is nigh on impossible to know how much this might be now, but miners I consulted say the work at Optimum since then could easily have more than doubled that. So, it would be very close to R2.1-billion. As a mine owner you can create these funds in three ways – in cash (contributions are deductible), with full bank guarantees, or through a trust.

First digression: Optimum is being bought by a Gupta company called Tegeta. The day after the Competition Commission approved (in record time) the acquisition last month, Oakbay agreed to merge Tegeta with its uranium operation, Shiva. On November 20 last year, about half the shares in Tegeta were transferred to Mabalenga, a company in which Jacob Zuma’s son, Duduzane, is a major shareholder. Three weeks later, on December 11, Tegeta’s acquisition of Optimum was announced.

Last month, the Guptas swapped shares in Shiva for the assets of Tegeta, leaving the latter a mere shell and thus making Duduzane a significant shareholder in Shiva.

Shiva and other Gupta enterprises could one day become a major supplier of fuels and other services to Rosatom should Duduzane’s father be able to realise his dream of bringing about 9 600MW of Russian-built and operated nuclear power to South Africa.

If only he could find a finance minister willing to help make it happen. As it is, the Department of Energy is finalising the issue of a request for proposals to the international nuclear industry for supplying the plant required.

This is where the union between the Zumas and Guptas takes a form – Julius Malema calls the new entity the “Zuptas”. They have two problems. First is how to find the R2.1-billion over and above the R400-million Glencore is paying the creditor banks. Second is the R2-billion penalty Eskom is claiming from Optimum.

In my hypothesis, the first is easy. The Zuptas will replace the cash in the Optimum rehabilitation fund with bank guarantees and use that cash to pay the creditor banks. It is perfectly legal.

The guarantees could come from an Indian or Gulf bank. The Guptas would only be able to access the rehabilitation fund once the deal with Glencore is closed, however, so they will need to create bridge financing for a few days.

Banks are happy to provide guarantees like this. It is easy money as they collect every time the guarantee is rolled over. Nonetheless, the rehabilitation funds are lodged with the minerals resources department and access to them is almost unprecedented.

The second problem is more complicated and involves Eskom CEO Brian Molefe. He has had to work with Gupta board proxies for years, at Transnet and now at Eskom. He has insisted he will pursue the R2-billion and, on the face of it, it would be insane not to. If he didn’t, the electricity regulator would use it as another excuse to trim Eskom’s next tariff hike request. And, likewise, if he were suddenly to increase the price he pays for Optimum’s coal.

But if Tegeta is now a shell, how does Molefe get his R2-billion from it? Or will he pursue the assets and, thus, Shiva instead? Would he really cripple the Guptas and the Zumas? We will know him by what he does next. Eskom should keep repeating that it will chase the money. And I hope the Public Investment Corporation, the government pension fund manager, will repeat that it is not involved in any way.

Final digression: on the day he was removed as mineral resources minister, Ngoako Ramatlhodi was called to the president’s office. The story friends tell is that he had waited outside for more than 30 minutes, when the door opened and out walked Duduzane Zuma and Zwane. He went inside and the president informed him he was being moved to a new ministry with immediate effect.

A few months later, Duduzane was spotted lunching with Tom Moyane, the head of the South African Revenue Service (SARS). They know each other well. Moyane would sometimes take care of the Zuma children in exile.

As it happens, the Zuptas will need approval from just two institutions, if I’m right, and they are indeed going to swap out the Optimum rehabilitation cash. One is the Department of Mineral Resources. The other is SARS.
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THICK END OF THE WEDGE: #Gupta: An affair to remember
by Peter Bruce, 18 March 2016, 06:17

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Duduzane Zuma. Picture: KATHERINE MUICK-MERE

SO, I had a new theory to share with you today about how the Gupta family might pay the R2.1bn to close their deal with Glencore to buy the Optimum Coal mine that supplies Eskom’s Hendrina power station in Mpumalanga.

Last week, I theorised that one way to do this would be to replace the R2bn or so in the mine’s rehabilitation fund with bank guarantees. It would be an almost unprecedented event in the mining industry, but perfectly possible provided the minerals resources minister and the South African Revenue Service agreed.

Since then, veterans in the mining industry have made other suggestions. One is that the Guptas could make the mine a totally Eskom-facing operation and sell its stake in the Richards Bay Coal Terminal (RBCT) to raise the required funds.

Then, Deputy Finance Minister Mcebisi Jonas dropped his bombshell on Wednesday, confirming reports that the Guptas had offered him the position of finance minister to replace his then boss, Nhlanhla Nene. He declined, and Nene was fired a few days later, at enormous cost to the economy.

Jonas’s disclosure makes the entire Optimum acquisition moot. It is hard to believe any bank, domestic or foreign, would finance it now. The Guptas must be under the most ferocious pressure to complete a deal to which they have committed themselves in law.

Even if they tried to sell their rights in the RBCT, buyers would squeeze them by holding back.

The pressure will also be on Duduzane Zuma, President Jacob Zuma’s son, who is now a major shareholder (along with the legal obligations he will have committed himself to) in Shiva, the Gupta mining vehicle into which its Tegeta company has been folded.

The moment positively bristles with threat. If the president chooses to fight the growing clamour for him to cut his ties with the Guptas (or even to resign), he risks dropping not only the Guptas, but Duduzane too, into a deep financial hole. If he caves in, the result is the same. He is trapped and it will take a miracle to rescue him.

The fact is that the Zuma family and the Gupta family have become financially entwined. Duduzane is not a lone outlier making his way in the world. He is also a middleman between his father and the Guptas. It is just way, way, too close.

You have to ask yourself how the participants in this joint effort could have thought it would not raise any eyebrows.

The Guptas are brash and loud, as the famous Waterkloof airbase wedding flight demonstrates. Instead of developing a quiet relationship with a head of state, they have paraded it as if it would somehow be appreciated by a grateful and admiring nation.

They are ubiquitous. In Eskom. In Transnet. They are desperate to do business with, if not control, South African Airways (SAA). They engineered a relationship with state arms maker Denel that saw big changes to the board.

The attempt to recruit Jonas is probably not a one-off. Already, former senior African National Congress (ANC) MP Vytjie Mentor has said she was offered former public enterprises minister Barbara Hogan’s job by the Guptas, provided she compelled SAA to drop the Indian route that they wanted to control.

Hogan herself has come close to disclosing details of instructions she was given as a minister by Zuma to make appointments she did not want to.

There will be more disclosures as people find their courage, or at least lose their fear of speaking out, and they will all point, inevitably, to the capture, if not of the state, then of the president.

Zuma told an audience in East London recently that he was grateful to the Guptas because they had given Duduzane a chance in life as he struggled to find work, and you can understand the gratitude.

But, it has come at a terrible price to Jacob Zuma, and for the life of me, I just cannot see how he will be able to complete his final term in office. He will certainly now have lost any ability to control both his succession as party leader and as president of the country.

Instead, the president is faced with an ANC national executive committee meeting this weekend that could have severe consequences for him personally.

Yes, the Guptas have denied Jonas’s claims, as they have Mentor’s. Our own humaneness demands that the denials are noted and that they should be somehow tested. The Guptas may have behaved poorly in assuming their political connections granted them special privileges and special access. But if they have broken any laws they need to be investigated.

A judicial commission has been suggested. But that would have to be constituted by the president himself, and he is conflicted in the matter.

The Democratic Alliance has suggested a parliamentary inquiry, which has some appeal, provided it could be adequately funded.

The Guptas themselves could trigger an inquiry of sorts by following up on their threat to sue journalist Alec Hogg for republishing articles on his website that are critical of them and that allege that they have indulged in "state capture". Such a case, should it come to court, would in turn, trigger a process of discovery that would require deep and expert auditing of their relationships with politicians and state-owned companies.

In the meantime, while we wait for the weekend’s ANC meeting, banks, lawyers, suppliers, business partners and clients of the Gupta business empire will be waiting too. They will want to know how legally and politically secure their relationships with the family are. The answers are not yet clear.

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ON A related matter, I have been amazed at how one of the world’s great auditing firms, KPMG, has managed to become tangled up in a political standoff between SARS and the Treasury.

The South African KPMG unit appears to have produced a report for SARS that purports that an unlawful act — the creation of a "rogue unit" within SARS to investigate tax evasion — occurred, but for which they had not interviewed any of the people who apparently were guilty of this act.

What is more, their report contains large chunks of text delivered to them in correspondence by a firm of lawyers acting for SARS. And then they instructed their own clients that their report must not be used against those people.

What were they thinking?

The reputational damage this could do to a brand as big as KPMG is enormous, particularly if, as is possible, this investigation is one day tested in court and found to have no merit.
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