This article first appeared in Moneyweb.

President Cyril Ramaphosa in his state of the nation address announced the unbundling of Eskom into three operating units. His brother-in-law Patrice Motsepe has emerged as a potential buyer of the assets likely to come up for sale.

The National Union of Metalworkers of SA (Numsa) says Ramaphosa has confirmed its worst fears: the ANC plans to privatise state-owned enterprises (SOEs), continuing two decades of looting and corruption.

Ramaphosa said Eskom will be broken up into three parts: generation, transmission and distribution. He also confirmed that non-core assets would be sold.

Read: SA to split Eskom in rescue plan – Ramaphosa

“This is nothing more than privatisation through the back door and we reject it,” says Numsa general secretary Irvin Jim.

“The ANC and its cronies looted and destroyed Eskom and now they have identified privatisation as a convenient way to cover up for more than two decades of rampant mismanagement, looting and corruption. The ANC is punishing workers for its failures. The unbundling of Eskom will result in massive retrenchments and job losses. For the consumer, it will mean that electricity will cost more, and it will be even more inaccessible to the poor and the working class.”

Adil Nchabeleng, energy analyst and head of Transform RSA, says “unbundling” is code for privatisation. Ultimately the plan is to sell each individual power station, and the private sector is cheering this announcement. The result, however, could be massive job losses across the energy supply chain and further price increases for consumers.

This article first appeared in Moneyweb.

Last week a gang of more than 40 suspected cable thieves overwhelmed security guards and made their way down the 127 metre shaft where they set about cutting copper cable underground.

They previously cut the main power supply to the mine, so the giant fans blowing air into the underground working areas were disabled. This fatal mistake allowed methane gas to accumulate, resulting in an explosion that has trapped 22 miners and hindered rescue efforts due to the continued presence of poisonous carbon monoxide. Five bodies have since been recovered, and one person was rescued alive.

Gloria Coal Mine is one of the former Gupta-owned mines now under business rescue. This was no isolated hit by the gang, says the business rescue practitioner, Mike Elliot. “Several mines in the area have been targeted by copper theft gangs, including Optimum Coal Mine.”

Last year Optimum, another formerly Gupta-owned mine now in business rescue, was temporarily disabled when overhead cables supplying power to trains transporting coal from the mine were cut. Optimum had to replace the cables at a cost of more than R3 million. On another occasion, dragline cables on coal excavators were cut up for sale on the black market. Each time the gangs hit a coal mine in Mpumalanga, production is disrupted. Louis Klopper, business rescue representative for Optimum Coal Mine, says the mines are surrounded by farms, making it easy for thieves to disappear once the police are called.

What is unusual about the Mpumalanga cable thieves is their level of organisation.

This article first appeared at Accounting Weekly.

Pictured: Tito Mboweni, finance minister, South Africa

With Budget Day fast approaching it is worth dreaming of a better tax system.

So, here we go. Hey Tito, how about a flat tax of 20%? It will save the economy, pay for social grants, and get business going again.

It would be great if we could hit the reset button and start our tax system all over again. If we did, we wouldn’t come up with the monstrosity now in place. A flat tax would avoid a stupid tax revolt and a just as crazy wealth tax. Finance minister Tito Mboweni has a golden opportunity to fix SA in one fell swoop.

A flat tax of 20% means no more VAT, income tax or any other forms of tax. It would be easy to administer – saving thousands in salaries and advisory fees. Most importantly, it would promote economic growth.

This is not exactly a radical idea. Most East European countries, including Russia, have adopted flat taxes. Russia dropped its tax rate to a flat 13% in 2000 and almost doubled its tax receipts as a percentage of GDP in 2001. The first European nations to go this route were Estonia (with a flat tax rate of 26%) and Latvia (25%). Though these rates were high, these economies achieved average growth rates of 6,1% in 2001.

Why Hong Kong is so prosperous

Hong Kong has a flat tax of 15% on business and property income, and a graduated tax of 2-17% on labour income. High income individuals pay a flat tax of 15% if they forego personal exemptions. As The Economist noted: “The territory’s tradition of simple and low taxes…is widely seen as a main reason for its stunning rise to prosperity.”

A flat tax would also give SA a huge competitive advantage in attracting investment in a world where tax arbitrage is a key factor in business location.

Economist Jasson Urbach says SA would be a very different place if we had adopted a flat tax all those years ago when it was proposed that a flat tax of 19%, with an exemption for income below R75,000 for compassionate and practical reasons, would have generated all the income the government needed.

“Since tax as a proportion of GDP has risen by about 3% of GDP since 2012, so the flat tax rate should rise at a similar rate. However, this does not make much of a difference to the flat tax rate – less than 1%.”

The critical point here is the cut-off level for tax: at R75,000, this means all income below this level is tax-exempt, which mainly benefits the poor.

SA Institute of Business Accountants (Saiba) CEO Nicolaas van Wyk is a long-time advocate of a flat tax. “If we truly want to be an open and free society then our tax system should support this. We want our citizens to achieve both economic and political freedom. Lets get a tax system that actually supports this idea.

This article first appeared in Moneyweb.

This would’ve been the stuff of wild imaginings just a few years ago: a fully automated mine with not a soul in sight, except in a control room located on the surface.

Operating at more than a kilometre underground at the Syama mine in Mali, driverless laser-guided vehicles make their way from the surface along decline ramps to rendezvous with driverless loaders to collect ore and return to the surface where it is crushed, milled and processed.

“This is a world first for automated mining,” says John Welborn, CEO of Australia-based Resolute Mining, which expects to produce 300 000 ounces of gold a year once underground production kicks off at Syama in June this year. Speaking at the Mining Indaba in Cape Town this week, Welborn outlined how technology in mining has finally entered the digital age. Syama, with a projected 14-year life span, expects to produce gold for an all-in cost of US$746 an ounce. That’s a fabulous price for an underground mine in today’s market.

A single operator sitting in a control room on the surface can supervise up to eight trucks remotely, ensuring there is minimal truck downtime.

Resolute acquired the dormant Syama mine from Randgold Resources in 2004 at a time when the gold price was US$350/oz, a fraction of its current level. This has turned out to be a sweet deal for Resolute, which subsequently discovered vast underground resources that became payable as the gold price improved.

Envy

Though drilling and blasting can also be fully automated, this is the one area where Syama will continue to employ humans, says Tal Zarum, head of programmes automation at Sandvik, which is partnering with Resolute to develop autonomous mining solutions. While most mines are happy to shave 2% or 3% off production costs, Syama will be 20% to 30% more efficient than conventional mining methods. Gold miners around the world must be watching this with envy.

One major efficiency at Syama is the virtual elimination of ‘smoke hours’ after blasting, where dust is required to settle before miners can return to the newly blasted area. Driverless trucks are guided by lasers rather than visual cues, so the presence of dust does not interrupt their progress. On the mine surface they are guided by GPS.

When the taps run dry and the lights go out.

This article first appeared in Moneyweb. 

The residents of Bethal, a small farming town in Mpumalanga, know what it is like to live without water. Rand Water reduced the water pressure by 40% in December when the Govan Mbeki Municipality missed payment on its arrears bill of R88 million.

When the taps run dry, schools and businesses close down. Parts of the town still have access to water, but most do not. On Saturday the municipality turned the water back on, but no one knows how long this will last. Local businesses and farmers have come together to solve the problem, trucking in water from surrounding boreholes to supply the town. Local residents have resorted to hauling buckets of water to their homes for washing and cooking. The town’s abattoir was shut down because it could not get water.

A week ago residents marched on the municipal headquarters demanding to know why the water bill has not been paid and when the taps would be turned on again. “We are expecting the lights to go out soon,” says Michelle Rademeyer, a local resident planning to campaign in the upcoming elections for Freedom Front Plus (FF+). There’s a good chance she will clean up in the election, given the level of disaffection with the current municipal leadership. Many residents suspect corruption as the cause of their dry taps. “We may be able to do without lights, but we cannot do without water,” says Rademeyer.

Local government an ‘irrelevance’

The local government has ceased to function, adds local town councillor Aranda Nel-Buitdendag. When that happens, residents take it upon themselves to provide basic services such as water supply and emergency services. The local government has become an irrelevance, or worse, an obstruction to daily life.

Residents know who to blame, and the ruling ANC can expect a thrashing in Bethal come election time. Smaller parties such as FF+ and the Economic Freedom fighters (EFF) are expected to gorge themselves on this mess.

Rand Water supplies bulk portable water to 17 municipalities in Gauteng, Mpumalanga, North West and the Free State. As of January 23, it was owed R708 million in arrears. Bushbuckridge Municipality, also in Mpumalanga, has had its water flow reduced by 20%. Worst affected is Victor Khanye Municipality, also in Mpumalanga, where water flow has been reduced 60%, impacting the surrounding areas of Delmas, Botleng, Eloff and Sundra. It owes Rand Water about R86 million in arrears.

Asked whether the delinquent municipalities were managing to catch up on the arrears, Rand Water cryptically replied: “Some municipalities have been improving and adhering to the repayment arrangements [more] than others.”

Other towns in Mpumalanga dependent on coal mining have been devastated, but for different reasons. Blinkpan, which abuts the Koornfontein Coal Mine, has been in virtual shutdown since workers stopped getting paid in October last year. Koornfontein, like its sister mine Optimum, forms part of the Tegeta group, once owned by the Guptas. Both mines were placed in business rescue in February 2018.

This article first appeared in Moneyweb.

Matshela Koko, the former acting CEO of Eskom once described as ‘the face of corruption’, recently tweeted out a chart showing operational performance under different Eskom management teams.

The chart shows power generation performance, which has been in steady decline since 2000 but improved sharply once Koko and then-chair Brian Molefe took over. Load shedding also stopped during their tenure between 2015 and 2017.

Performance has just as abruptly taken a turn for the worse since Jabu Mabuza and Phakamani Hadebe have taken control of the electricity company. The chart is extremely flattering to Koko and Molefe.

Koko and Molefe were maligned in the press and by political parties as ‘Gupta stooges’. The deal that sank their careers at Eskom was a coal supply agreement concluded with Gupta-owned Tegeta (now in business rescue), which was presumed to be corrupt. Glencore, the former owner of Optimum Coal Mine, became a forced seller when it was slapped by Eskom with a R2.1 billion fine for the supply of sub-standard coal to Hendrina Power Station. In stepped the Guptas, who, with no money of their own, managed to pick up Optimum with a R1.6 billion guarantee from Eskom and a coal pre-payment of R658 million.

On the face of it, it looked dirty as all hell. Eskom had acted as an enabler in what amounted to the theft of a key Glencore asset.

Reality is somewhat more nuanced. Firstly, the Eskom fine has not gone away but may end up being substantially less than R2.1 billion, as Optimum – now also in business rescue – hunts for a new buyer who will want to make peace with Eskom. Secondly, Eskom’s coal costs had been escalating at 17% a year since 2008 and Koko made it a priority to bring this under control. He contacted Eskom’s mining suppliers and laid down the law: the average delivered cost was to be no more than R437 per ton, which was the average cost of good quality coal for Eskom at the time.

This article first appeared at GroundUp.

Inmates at Johannesburg “Sun City” Medium B prison say prison authorities are violating a court order issued by Acting Judge SM Wentzel in June 2018 that ordered the Department of Correctional Services (DCS) to serve three meals properly spaced throughout the day.

In January 2018 inmates complained to Acting Judge Wentzel in the South Gauteng High Court that they were going 20 hours between meals because of lack of staff. They were being served lunch and supper (consisting of bread and jam for the most part) at 1pm each day. This was expected to last until breakfast the following morning.

In a damning judgment Wentzel ordered DCS to ensure prisoners were served three meals a day, properly spaced throughout the day. She also stated that “it is high time” that inmates were served a hot meal of meat and vegetables in the evening “to sustain them”.

While the inmates are now receiving three evenly-spaced meals a day, they say that instead of a hot meal of meat and vegetables they are served bread and a sachet of juice powder.

Inmates say the refusal of prison authorities to honour Wentzel’s court order violates their human rights and the Correctional Services Act. The Act requires food to “be well prepared” and to be “served at intervals of not less than four and a half hours and not more than 14 hours between the evening meal and breakfast during each 24-hour period.”

The DCS has a completely different interpretation of Wentzel’s judgment. “The department was never ordered to serve a specific kind of meal for dinner. In terms of the court order, the department was ordered to serve three meals and also comply with the Correctional Services Act in terms of intervals between meals. The order has since been implemented effective from 6 September 2018. Inmates are served three meals which are spaced accordingly as per the court order,” says the DCS.

While Wentzel does make specific reference to a hot meal of meat and vegetables in her judgment, she did not include it within the order.

The Participative Management Committee (PMC), representing the inmates, last week attempted to bring an urgent application before the South Gauteng High Court to force prison authorities to honour Wentzel’s court order.

However, they say their efforts were sabotaged when the prison failed to arrange transport to the court. Judge President Dunstan Mlambo saw no urgency in the matter, which has now been set down on the normal roll.

Lucas Mokholo, head of the PMC, says inmates have been victimised for daring to take prison authorities to court. They have been subjected to indiscriminate cell raids that tried to humiliate them and “physically molest them in the cruellest way possible.”

The prisoners also claim to have been uprooted in the middle of the night and transferred to other prisons, without following due process or the requirements of the Correctional Services Act.

The PMC’s court application states that prison officials “proudly informed all and sundry that no judge will come and tell them how to run and/or execute laws” within the prison.

When PMC members attempted to bring the matter to court in November 2018, they arrived too late to argue their case. In papers filed before the court, they argue that one of the paroled PMC members managed to make it to court in time, only to hear that the other PMC members would not be in court as they had been transferred to other prisons. This was a lie, they argue.

Furthermore, the PMC’s court file had inexplicably disappeared from the court. Inmates say this was orchestrated by prison officials to frustrate its attempt to seek justice.

Responding to the claim that prisoners were prevented from travelling to court to have their matter heard, the DCS says according to its records, no requisition was made for the inmates to travel to court.

“In terms of departmental policies, whenever inmates intend to approach the courts on their own initiative, they are required to do so through their lawyers or family members. It is only when the courts request their appearance in court that the department has a duty to transport them. The department prides itself with its efforts towards ensuring that the rights of inmates are respected and upheld at all times. The allegation that the department is deliberately sabotaging the case and their rights is untrue.”

In response to questions from GroundUp, the DCS in Gauteng says it notes with great concern the allegations of harassment of inmates involved in litigation against the prison. “So far, we have no knowledge of any harassment in that regard because no complaint has been lodged regarding the allegation. However, we will look into the matter.

“General and surprise searches are part of the Correctional Services routine which is done to enhance security and to minimise criminal activities which may take place within correctional centres. It is done to ensure a safe and secure environment for officials, offenders and the public at large.”

Ironically, facilities company Bosasa (now called African Global) – which has been the subject of damning corruption allegations at the Zondo commission of inquiry into state capture – is the company responsible for providing meals at the prison. Mokholo says the PMC will apply to the Zondo Commission to provide testimony on behalf of prisoners relating to African Global.

This article first appeared in Moneyweb.

South Africans tuning into the Zondo Commission of Inquiry into State Capture may be horrified at the depth and extent of corruption alleged to have infested our government – but Zimbabwe is at a whole different level.

To take just one example: those with access to foreign currency allowances approved by the Reserve Bank of Zimbabwe, mostly those with top level Zanu-PF connections, were able purchase fuel at US$0.45 a litre in Zimbabwe and sell it in South Africa at US$1.20/l and in Zambia at US$1.10/l.

It doesn’t take long to become a dollar millionaire with that kind of arbitrage opportunity. It is the same story with maize meal, bread, flour, cooking oil and other basics. Connected Zimbabweans are making millions while ordinary people – or at least those with fixed salaried jobs – are paying 50-100% more for basic goods. They can barely feed their families.

This explains the recent rioting and violence in the country, says Bulawayo-based economist Eddie Cross. The country is a cesspool of infighting and intrigue, with President Emmerson Mnangagwa fighting rearguard action against his enemies who see an opportunity to unseat him.

“One of the problems we have here is open conflict between the ministry of finance and the Reserve Bank of Zimbabwe,” says Cross. “The Reserve Bank recently announced it is taking 50% of export proceeds from companies like Zimplats and offering them artificial exchange rates which are less than a third of their real value.

Export industries’ hands tied

“As a result, all export industries are effectively going bust. The biggest ferrochrome producer in the country, owned by Chinese investors, says it will have to suspend operations because a large part of its revenues are effectively confiscated by the Reserve Bank.”

Gold sales are down nearly 50% as a result of the Reserve Bank’s confiscation, so gold is now being marketed informally on the black market.

These dollars confiscated by the Reserve Bank are then allocated to the politically connected, who use them to arbitrage fuel, food and other commodities. Most Zimbabweans are forced to use so-called ‘real-time gross settlement’ (RTGS) dollars, which are worth less than a third of the value of US dollars.

Zimbabwe’s finance minister Mthuli Ncube is taking heat for the current economic crisis as inflation soars to 50%, raising fears of a return to the country’s hyper-inflationary past when consumer goods prices were doubling every few hours. That was a decade ago. The crisis was brought under control by introducing US dollars and South African rands as the accepted payment method. Almost instantly, inflation reduced to less than 3% a year.

Ncube’s economic reforms seemed sound enough. Public sector wages swallowed more than 90% of revenues, and the fiscal deficit was running at 40% of the budget. Something had to be done to fix this. In August last year he announced a roadmap of reforms, including lowering government expenditure and additional sources of revenues.

One of the new sources of revenue was a 2% tax of all money transfers. This is expected to generate US$2 billion on the roughly US$120 billion from electronic money transfers each year. Announcing these reforms in August 2018, Ncube also allocated hard currency accounts to all Zimbabweans, allowing them to receive payments in dollars, rands or other hard currencies.

This article first appeared in Moneyweb.

Every mining accident is a tragedy, but few compare to the horror of the collapse of a supporting pillar at Lily gold mine in Mpumalanga in 2016 which claimed the lives of three workers operating the lamp room in a shipping container on the surface.

The collapse of the pillar buried the container under 60 meters of rock and debris. The bodies of Solomon Nyirenda, Yvonne Mnisi and Pretty Nkambule remain buried there.

This tragedy brought an abrupt end to mining operations at Lily and its sister mine, Barbrook, one of the oldest gold mines in the country. The mines are owned by Vantage Goldfields, which has been in business rescue for three years. The nearby town of Louisville was devastated by the loss of nearly 1 000 jobs when the mines were shuttered.

Earlier this month a glimmer of hope returned to Louisville when Vantage Goldfields cleared a major hurdle in its path to recommence mining operations after Siyakhula Sonke Empowerment Corporation (SSC) and its subsidiary Flaming Silver were granted approval for the transfer of control of mining rights by the department of mineral resources (DMR).

Last week Flaming Silver announced that its offer to purchase Vantage Gold had become unconditional.

“This is a historical and transformational event in the history of the 52 year old Vantage Goldfields Group, whereby control of the company will for the first time change to black ownership,” said SSC in a statement.

But the deal is far from in the bag, according to business rescue practitioner Rob Devereux.

Straight-out street fight

There’s no doubt the Vantage business rescue has been a straight-out street fight. Nor is there doubt that the relationship between SSC head Fred Arendse and Devereux has been anything but smooth. This is not uncommon in business rescue, where creditors continually weigh the pros and cons of liquidating rather than saving the company.

Read: One of SA’s oldest gold mines fights for its life

The chief bone of contention in the Vantage case is how SSC will come up with the R50 million equity capital needed to trigger R190 million in loan funding from the Industrial Development Corporation (IDC) which would allow the rescue to proceed.

Arendse says Devereux failed to timeously disclose additional mineral assets capable of generating revenue of about R550 million over three years, and accused him of “capturing” Vantage, effectively delaying its return to operations for three years. “Creditors’ businesses would have been saved and a lot of people’s livelihoods would have been saved by them continuing to be employed on the mines,” said Arendse, adding that Vantage had been subjected to “attacks, sabotage and interferences.”

Devereux was recently joined by fellow business rescue practitioner, Daniel Terblanche, who appears more to Arendse’s liking.

Ciaran Ryan talks with Nompumelelo Siziba on SAfm on who stands to take over the failed Gupta mining assets.