Botswana court delivers damning judgment against PwC over delayed Choppies audit

Written by Ciaran Ryan. Posted in Journalism

The two largest shareholders in Choppies are suing PwC and its auditor for R621m in damages for loss of share value. From Moneyweb.

The auditing firm says it will 'continue to defend the claim'. Image: Moneyweb
The auditing firm says it will ‘continue to defend the claim’. Image: Moneyweb

The High Court of Botswana this week delivered a damning judgment against PwC and auditor Rudi Binedell over delays in the release of group audit results which seriously impacted the Choppies share price.

The judge criticised Binedell who was found to have delayed the Choppies Enterprises audit report because a job he had been offered at Choppies had not materialised.

Choppies, a supermarket chain based in Botswana with stores across the region, is listed on both the Botswana and Johannesburg stock exchanges.

Its two largest shareholders – Ram Ottapathu and Farouk Ismail – are suing PwC and Binedell for a combined R621.8 million for losses on the Botswana Stock Exchange as a result of the delayed publication of Choppies financial results on that exchange, as well as another R416 680 for the similar delay on the Johannesburg Stock Exchange (JSE).

They allege that PwC’s actions caused the loss of over 75% of Choppies market value.

Trading in Choppies shares was suspended on both bourses in November 2018 due to the delayed release of its financial results.

Trading on the JSE resumed in November 2020 after a two-year suspension.

The shares currently trade at around 80c, a fraction of the peak 730c price reached in 2015.

The Botswana court judgment says the Choppies audit was tainted by an offer of employment – with share options – that had been extended to the lead auditor, Rudi Binedell.

Read:Botswanan retailer Choppies plans to exit SA market [Aug 2019]

Choppies resumes trading on JSE [Nov 2020]

Conduct ‘an issue’

The judgment handed down by Justice Boipuso Tshweneyagae in the Botswana High Court this week, said of Binedell: “…[his] alleged conduct is also an issue”.

“The allegation is that he was not arm’s length in his auditing of the Choppies books as he had been offered a job with significant shareholding as incentive.

“When this did not materialise, he used his position as the key lead auditor to compromise the publication of the audit report beyond the publication deadline of 30th September 2018.

“Prima facie … [his] independence as a dispassionate and professional auditor was impaired once he engaged in potential employment discussions with Choppies. He should have recused himself from leading the audit.”

The judgment spells out PwC’s defence in the case: the audit contract with Choppies never stipulated an absolute deadline of September 30 2018 for the audit report. PwC and Binedell argued that the deadline depended on Choppies providing draft annual financial statements for auditing, which did not happen, and that the supporting information was insufficient to complete the task on time.

Seeking greater detail

Ottapathu and Ismail brought the case before the Botswana court, seeking “further and better particulars” about the nature and background of the audit conducted by Binedell and PwC.

This was to remove the element of surprise and ambush in litigation, allowing the other side to better prepare their arguments.

“From the audit agreement, the parties had reciprocal obligations,” reads the judgment.

“Choppies had a duty to provide the information. The defendants had an obligation to finalise the audit report within reasonable time. One might also add that [PwC and Binedell] knowing that Choppies was a listed entity were aware of the timelines of the Botswana Stock Exchange.

“The Plaintiffs [Ottapathu and Ismail] are within their rights to ask what information was not provided by them in order to facilitate the audit. This is because [PwC and Binedell] themselves have introduced the issue of this failure.”

The judge ruled that PwC and Binedell provide the two shareholders with further particulars of their defence, saying: “The information sought from the Defendants is necessary to enable the Plaintiffs to plead and for the court to equally appreciate the issues in dispute.”

PwC was ordered to pay the costs, including the cost of the senior counsel.

Trial date set

The judge ruled that the matter will go to trial from May 9 to 20, 2022, and said there would be no relaxation of the timelines specified for the information to be supplied.

In a written response to the ruling, Ottapathu told Moneyweb that the damage to Choppies went beyond the delay in the audit.

Ram Ottapathu, Choppies, PWC

Ram Ottapathu, a major shareholder in Choppies. Image: Moneyweb

“There was no independent mind behind this audit. Mr Binedell was engaged in discussions with independent board members about his employment.

“When I didn’t support that, because of the conflict of interest, his behaviour changed and all sorts of issues were created” says Ottapathu.

“The judge found that he should have recused himself, and that ‘When [the job] did not materialise, he used his position as the key lead auditor to compromise the publication of the audit report beyond the publication deadline of 30th September 2018’.

“The suspension of Choppies shares that arose from the non-publication of the financial statements damaged Choppies reputation as well as my own reputation and that of my fellow shareholder, Mr Farouk Ismail. We estimate that it caused the loss of over 75% of Choppies market value.”

Choppies appointed PwC as auditor in 2018, with Binedell as the lead auditor. “However, he was in discussion with independent board members about his possible employment as CFO of Choppies with a large financial inducement in shares if he joined. This was a conflict of interest which I did not support,” says Ottapathu.Read:Choppies in chaos [Aug 2019]Board versus CEO in the battle for Choppies [Sep 2019]

PwC responds

PwC issued the following response to the judgment: “PwC Botswana confirms that it has received a court order to produce information in relation to its defence early in the court proceedings. The order asks only that PwC Botswana produces information and is not a judgment or decision on the merits of the claim.

“PwC Botswana will comply with the order and produce the information at this stage of the proceedings.

“PwC Botswana is confident that the court will ultimately find that the delay in the finalisation of the audit was due to accounting and governance matters within Choppies that came to light during the audit, causing – amongst others – two independent investigations to be commissioned by the Choppies board of directors.

“PwC Botswana stands by the work it did and will continue to defend the claim.”

Absa removed me unlawfully from the board – Pityana

Written by Ciaran Ryan. Posted in Journalism

Absa says it took this step because Sipho Pityana had neglected or been derelict in his duties. From Moneyweb.

Image: Bloomberg
Image: Bloomberg

Sipho Pityana has fired back at Absa, saying the banking group “disappointingly and unlawfully” removed him from the Absa Group and Absa Bank boards on which he served – this after he refused to resign.

He added that he was given just 48 hours’ notice to resign as director due to legal action he had instituted against the Prudential Authority, claiming it had gone outside legal processes to block his appointment as chair at Absa.

Pityana refused to resign because “to have done so would have meant succumbing to corporate bullying and intimidation tactics that should have no place in our society.”

Absa on Wednesday said Pityana had been neglectful or derelict in his duties as a director.

Read:
Absa fires Sipho Pityana as a director (Nov 24)
The escalating woes at Absa as Pityana removed as lead independent director  (Nov 15)

This comes barely a week after Absa removed Pityana as lead independent director and as chair of the bank’s remuneration committee. Pityana recently filed a suit in the Gauteng High Court, claiming the Reserve Bank’s Prudential Authority had run an informal selection process which denied him possible selection as chairman of the Absa board. Also cited in Pityana’s court application is Absa.

Pityana was investigated over sexual harassment claims while chairman at Anglogold Ashanti (AGA), a position from which he resigned in December 2020. In his papers before the court, Pityana denies the sexual harassment claims and says the investigation at AGA was improperly conducted.

In a Sens statement released on Wednesday (November 24), Absa says the termination follows a meeting with Pityana in which he was provided an opportunity to address the Absa group and bank boards on the issue. “The boards considered Mr Pityana’s responses and came to their decision after extensive deliberation.”

In response to the Absa announcement, Pityana says the Absa boards “disappointingly and unlawfully” resolved to terminate his directorship of those boards in terms of the Companies Act. Pityana didn’t get the position of chair, which went instead to Sello Moloko, who replaces Wendy Lucas-Bull at the end of March next year.

“This arises out of my decision to take the Prudential Authority (PA) to court, which according to Absa, has created a material and sustained conflict of interests between Absa and me, amounts to a dereliction of my duties as director and led me to neglect [my] duty with due diligence and care in protecting the interests of Absa,” says Pityana.

“They believe that by bringing my application against the PA, I have implied that the Absa boards acted unlawfully because they participated in the PA’s conduct which I allege was unlawful. This is despite the fact that no relief is sought against Absa, and I have never stated or even implied this.”

Pityana’s termination comes a day after the Prudential Authority’s CEO and deputy governor of the Reserve Bank, Kuben Naidoo, filed his response to Pityana’s affidavit in which the latter asks the Gauteng High Court for a ‘declarator’ that the authority failed to follow the process for nominating a senior bank official as outlined in Section 60 of the Banks Act.

Naidoo denies Pityana’s claims and says the Absa board chose to engage with the Prudential Authority on any potential concerns it might have with potential candidates for chairperson. This was before any written submissions had been received by the authority. Naidoo says the interactions initiated by Absa are not unlawful, nor are they precluded by the Banks Act. Pityana makes clear in his affidavit that he is seeking a declarator from the court as a prelude to a potential claim for damages “as a consequence of (the authority’s) unlawful conduct.”

Firm stance

Pityana’s court papers lay out a sequence of events where AGA chair Maria Ramos is purported to have shared information about the sexual harassment investigation into Pityana at AGA. Pityana says the investigation did not call as witnesses bodyguards who corroborate his version of events.

In a statement release on Wednesday (November 24), Pityana says he was elected by shareholders who showed continued confidence in him when he was elected at the June 2021 annual general meeting. “Only in exceptional circumstances may the board remove one of its members, exactly in order to prevent such abuse. If I believed that such circumstances prevailed, I would have resigned without ever having been asked to do so.”

Pityana adds that he was proud to have led the transformation of Absa’s remuneration framework, which won it the 2020 SA Remuneration Award from the South African Reward Association, after having been the recipient of negative feedback from shareholders in prior years.

As an independent director of Absa, Pityana says he was required to bring independent thinking and perspective. Though Absa is cited as a respondent in his case against the Authority, Pityana says he has made no allegation that it acted unlawfully.

“The message from Absa’s actions to date – removing me as the LID (lead independent director) and Remuneration Committee – and removing me today as a director is clear: ‘If you take on the regulator and exercise your legal rights, you will be punished and removed’. This is unlawful because it discriminates against me and prejudices me for exercising my legal rights set out in the Constitution and the Banks Act,” Pityana says in his statement.

Anonymous group claims ‘crisis’ at EOH was manufactured

Written by Ciaran Ryan. Posted in Journalism

EOH hits back, saying ‘smear campaign’ stems from former EOH executives who face civil claims. From Moneyweb.

EOH has come under fire from an anonymous group of former employees. Image: Moneyweb
EOH has come under fire from an anonymous group of former employees. Image: Moneyweb

A group claiming to be former employees and shareholders going under the name Save EOH, all of whom have chosen to remain anonymous, has made a submission to the Zondo Commission of Inquiry into allegations of state capture claiming current EOH CEO Stephen van Coller gave false testimony to the commission. They claim he orchestrated a crisis that resulted in the group’s market value shrinking by more than half to R6.8 billion from R16.4 billion when he joined three years ago.

The group submitted the submission to the Zondo Commission on Tuesday last week (November 16).

On Monday (November 22) the Zondo Commission replied to Save EOH’s attorney Heinrich Valentine saying: “The Commission is not in the habit of receiving anonymous submissions.”

The commission advised Valentine that should his clients (Save EOH) “want the Commission to consider their submission but keep their identities secret” then “they should motivate [for such] an application to the Commission”.

Save EOH argues that the once ‘great powerhouse’ employed 11 500 people but has since whittled that down to 5 500. “[This has] affected the livelihood of thousands of people, destroyed careers, and caused immeasurable pain and suffering,” says a media release from Save EOH issued last week.

It calls for Van Coller to step down, claiming he perjured himself at the Zondo Commission, and due to his “poor performance” since becoming CEO.

‘Malicious’

In response, EOH hit back and said the “smear campaign” levels malicious and frivolous allegations against Van Coller. The company noted that earlier this year, it had filed civil claims against several former EOH executives to recover damages of more than R6.4 billion, and says this latest campaign by Save EOH is merely an attempt to retaliate against these civil actions.

When contacted by Moneyweb for more details regarding who exactly is part of Save EOH, a spokesperson who asked not to be named said none of the former employees affiliated to Save EOH are being pursued by the company for civil damages, so they are motivated neither by revenge nor financial benefit.

Asked why the members chose to remain anonymous and, in doing so, devalue their claims, the spokesperson says they will remain anonymous for now “due to the fear of targeted harassment and other security issues”.

Valentine, the group’s attorney, also provided no further insight into the identity of the members of the grouping. “All I can say is that I am representing the group,” he told Moneyweb.

Assets sold at giveaway prices

In its media statement, Save EOH says some 60 businesses have been disposed of, including the so-called crown jewels of the company, for a fraction of their value – causing some of the R6 billion loss of market cap.

Included in this was Construction Computer Software (CCS), an SA-owned company that reportedly ranks among the top in the world in its field, with customers in 50 countries. It was sold to a German company for 25% of its market value, claims Save EOH, which points out that it has presented this evidence to the Zondo Commission.

The grouping bewails the continued slide in the share price of EOH from around R40 when Van Coller arrived, to around R7 today.

It also questions why EOH spent R245 million with legal firm ENSafrica, the result of which appears to have been aimed at “simply defaming EOH, purging management and board members, while boosting [Van Coller’s] image as a great leader, great CEO and a ‘corruption fighter’,” says Save EOH.

“Van Coller artificially created a major crisis in EOH when there was none and then promoted himself as the white knight who saves it,” declares the Save EOH statement.

Read: Can EOH become the poster child for crisis turnaround?

Earlier this year, EOH brought civil claims against former CEO Asher Bohbot, former (and late) CFO John King and two other executives for a combined R6.4 billion for governance lapses when they led the company.

The charges against King and Bohbot include delinquency, breach of fiduciary duties and breach of contract.

As Moneyweb previously reported, other former directors also face charges following a 2019 ENSafrica investigation that uncovered evidence of widespread wrongdoing at EOH. This came after Microsoft terminated its relationship with the IT group over an apparent corrupt Department of Defence contract.

Read: Former EOH finance chief John King dies amid R1.7bn damages claim

Evidence presented to the Zondo Commission, and outlined by ENSafrica’s forensics unit, paints a damning picture of a company involved in corrupt public sector tendering, with suspicious transactions worth about R1.2 billion being discovered in EOH’s public sector subsidiary, EOH Mthombo.

Van Coller was brought in to clean up EOH. The group’s latest results for the financial year to July 2021 show a swing from R1.3 billion operating loss to R147 million operating profit.

Read: A look at how EOH’s turnaround is going

In various presentations, Van Coller has spoken at length of the culture of corruption he discovered at the organisation, and of its various governance lapses.

Save EOH questioned the need to restate the previous four years’ financial statements, resulting in billions of rands of write-offs, and making it impossible to do a proper analysis of the company’s performance. Van Coller is also accused by the grouping of using unfair labour practices “to purge management, board members and any other individual” who stood up to him.

Asked to respond to the claims of the Save EOH group, EOH issued the following response to Moneyweb:

“In June 2021, EOH filed civil claims against a number of former EOH executives seeking total damages of circa R6.4 billion. The EOH board decided to do this after an extensive legal investigation. The charges filed include delinquency, breach of fiduciary duties and breach of contract. Further civil suits against other individuals may follow as the process unfolds.

“The EOH board believes that the recently launched anonymous ‘Save EOH’ smear campaign, which levels malicious and frivolous allegations against EOH CEO Stephen Van Coller, is an attempt to retaliate against these civil actions and Stephen van Coller and his team’s efforts to turnaround the organisation,” reads the statement.

“The EOH board led by its Chair Andrew Mthembu fully support the EOH executive team including CEO Stephen Van Coller and acknowledge their significant achievements over the past three years. The EOH board regards this personal attack as deplorable.”

EOH’s board said it “has no further comment on the matter”.

Africrypt creditors vote to accept R77m payout

Written by Ciaran Ryan. Posted in Journalism

There’s no guarantee the Cajees will avoid jail. Creditors must submit claims by Friday. From Moneyweb.

The decision whether to prosecute or not rests with the NPA in SA. Image: Daniel Acker/Bloomberg
The decision whether to prosecute or not rests with the NPA in SA. Image: Daniel Acker/Bloomberg

There might be some Christmas cheer after all for Africrypt investors, who voted last Friday to accept an offer of R77 million ($4 million) from a mystery investor who proposed taking 51% of the company and, apparently, keeping it alive. The remaining 49% of the shares will be distributed pro rata to the creditors.

Read:Africrypt ‘hack’ of nearly R54bn dwarfs Mirror Trading

Lightning strikes twice for Africrypt’s Cajee brothers

Trail of brothers linked to missing bitcoin stash is still murky

The same investor proposes putting another roughly R15.2 million into the company to keep it going and to take ownership of the intellectual property reportedly created by the two Cajee brothers who founded Africrypt: Raees and Ameer.

“There seems to be a belief among some that there is some useful intellectual property in the company, and the idea is that the company will acquire this as part of the compromise,” says Ruann Kruger, legal representative for the Africrypt liquidators.

Conditions

One condition of the compromise that did not fly with some of the creditors is that criminal prosecution be withdrawn against the Cajees and ‘affiliated entities’. This is likely unlawful, and is referred to as ‘compounding’ in law, which is agreeing not to prosecute a crime in return for a reward. This doesn’t completely remove the threat of criminal charges against the Cajees, though this is unlikely to come from creditors.

The final decision to prosecute or not rests with the National Prosecuting Authority in SA.

Another concession sought by the creditors is board representation: they want a total of four directors to be appointed, two by the investor, one by the liquidator and one by the creditors.

The compromise includes an agreement to hire the two Cajee brothers.

“It’s not the worst deal one could hope for,” said an investor, who asked not to be named. “We get maybe 40c or 50c back in the rand, and the company may be revived in such a way that the other funds are recouped over time.”

Hack?

Africrypt went down in a ball of flames earlier this year after suffering an alleged hack, when an amount of about R200 million was reported to have been stolen. This was not the first time the Cajees’ clients had been the victims of hacks. It happened earlier in May 2019, when an unknown amount of crypto was allegedly hacked.

Creditors are still not convinced this was a genuine hack, and some want to question the Cajees about it to ascertain whether or not it was genuine.

Ironically, had they held onto the cryptos rather than invested in Africrypt, their investments would be worth hundreds of millions of rands today.

Bitcoin is up roughly 200% over the last year, and Ethereum about 1 000%.

Creditor claims deadline

Kruger says it remains uncertain as to the exact quantum of funds lost in the Africrypt hack.

“We’re asking creditors to submit their claims before 16:00 on Friday November 19. Any claims received after this stand a risk of being rejected. The claims must be for the amount deposited only, not the current value of any crypto deposited at the time.”

ZARP, the rand stablecoin opening up a world of DeFi possibilities

Written by Ciaran Ryan. Posted in Journalism

ZARP is fully backed 1:1 with cash reserves and is audited. It’s what you can do with it that makes it interesting. From Moneyweb.

ZARP is built on the Ethereum blockchain. Image: Shutterstock
ZARP is built on the Ethereum blockchain. Image: Shutterstock

Why would you want to purchase a crypto imitation of the rand? And is it legal?

The answer to the second question is yes, it is legal, in the sense that it is not regulated under the Banks Act or the South African Reserve Bank Act, nor is it legal tender. That privilege is reserved for rands issued by the Reserve Bank.

Rand stablecoins mimic the ‘real’ rand but in the cryptosphere, so they can’t be used to purchase coffee or groceries without first converting them to fiat rands, and that comes at a cost.

There’s an ever-expanding number of stablecoins like USD Tether, Dai and USD Coin (USDC), all pegged to the US dollar, that allow crypto traders to park their profits in something less volatile than bitcoin (BTC) or ether (ETH) without having to off-ramp their funds back into fiat currencies and incur the costs of that conversion.

Read: SA to participate in BIS central bank digital currency experiment

Trust

The problem that bedevils some stablecoins, USD Tether in particular, is a niggling doubt about whether they really are backed 1:1 by cash reserves and near-cash assets. USD Tether is the fourth-largest crypto asset with a market cap of $76 billion, with USDC about half its size at $36 billion.

EURS is a rapidly-growing stablecoin pegged to the Euro, and now ZARP offers South Africans an opportunity to park their crypto profits in something a little more stable than more conventional crypto assets.

Read: Britain will focus crypto rules on stablecoins, minister says

It is not inconceivable that stablecoin forex pairs will eventually nibble into the giant $6 trillion-a-day fiat forex market, which operates through a multitude of brokerages and banks, and allows all manner of inefficiencies, such as wildly differing spreads and commissions, to creep in.

ZARP is the brainchild of Simon Dingle, one of the founding employees of crypto exchange Luno, and Kenny Inggs.

Simon Dingle, ZARP

ZARP co-founder Simon Dingle. Image: Supplied

Says Dingle: “A true stablecoin is backed by hard currency and is independently audited so that users can trust that it won’t lose its peg or that the owners can just mint as much of it as they like.

“We’re proud to be audited by the Kempen Group who regularly attest our token supply and cash held in our treasury account. Our smart contract has been audited by the Solidity Finance team in terms of application and security, and passed in all categories with flying colours. We’re confident that we’ve ticked all the boxes in creating the ultimate stablecoin for the rand.”

Where to find it

The first SA crypto exchange to offer ZARP is Ovex, though Dingle says he hopes to see other exchanges adopt it shortly.

Says Ovex CEO Jon Ovadia: “One of the advantages of owning ZARP is that you enjoy the flexibility of a stablecoin operating on the blockchain. That means you can not only park your crypto profits, you can use this as an on-ramp to decentralised finance (DeFi) where annual percentage yields from ‘staking’ are higher than you would expect in traditional markets, though with commensurate risk.

“ZARP can also be used to conduct arbitrage across markets more efficiently. The number of use cases will continue to grow, and we’re excited by this development.”

Ovadia says liquidity providers for ZARP on Ovex are able to earn substantially more than can be earned in more traditional markets.

What about the risks? Dingle says the risk of any stablecoin is that it is genuinely backed 100% by hard assets, and that assurance must come from trusted third party auditors.

“We went looking for a rand stablecoin to use in our projects and were surprised to find that none existed, so we started one ourselves,” he says.

Not just ahead of the curve …

ZARP is also listed on Curve, an exchange liquidity pool on Ethereum designed for efficient stablecoin trading at low risk, and supplemental fee income for liquidity providers, without an opportunity cost. This means that yield incentives will soon be available on Curve in native ZAR value.

ZARP has also been integrated with the Keep3r Network, a decentralised platform designed to facilitate the coordination between projects that need to source outside development operations and service providers.

Also behind the project is legendary Ethereum developer and DeFi architect Andre Cronje.

“The forex markets are underrepresented in the blockchain ecosystem. Keep3r, specifically its ‘fixed forex’ component, replicates forex on-chain. ZARP allows South Africans access to DeFi while keeping their ZAR exposure,” says Cronje.

ZARP is built on the Ethereum blockchain and plans to launch on additional networks soon, as voted for by its community of users.

The escalating woes at Absa as Pityana removed as lead independent director

Written by Ciaran Ryan. Posted in Journalism

The announcement comes after Pityana cited the bank as respondent in his case against the Prudential Authority, which he says violated procedure in denying him chairmanship of the bank. From Moneyweb.

Rather than jeopardise its relationship with the Reserve Bank, Absa decided not to challenge the decision of its Prudential Authority. Image: Mike Hutchings/Reuters
Rather than jeopardise its relationship with the Reserve Bank, Absa decided not to challenge the decision of its Prudential Authority. Image: Mike Hutchings/Reuters

One can scarcely imagine the awkwardness at Absa Towers in the Joburg CBD when Sipho Pityana arrives for a board meeting.

In essence, he has accused the bank’s former CEO Maria Ramos of kiboshing his chances of becoming chair at Absa by passing on information she happened upon concerning sexual harassment claims against Pityana while he was chair at AngloGold Ashanti (AGA).

Ramos was newly ensconced at AGA and Pityana had a reasonable expectation of picking up the Absa chair position.

Only Pityana says he was never given a chance to contest the sexual harrassment claims, which he denies, nor to call witnesses who would corroborate his version of events.

Here’s the problem: the bid and the ask in this case are unbridgeable.

The alleged victim says it happened, Pityana says it didn’t. If it didn’t, his career and reputation could be ruined over false allegations. If true, Pityana is gaming the system and mocking the alleged victim. We shall likely never know.

AGA initiated an investigation, led by a senior advocate, which was “independent, fair and thorough, and we are confident in its conclusions,” said AGA in a statement to Moneyweb.

As AGA has not been cited as a respondent in this case, we will likely not get to see the contents of that investigation.

“AngloGold’s Board emphatically rejects the allegations being made by Mr. Pityana against Ms. Ramos and AngloGold Ashanti, which are baseless. The matter of Absa’s Chairmanship is one between Mr. Pityana and the Board of that company,” reads the statement.

The awkwardness

Here’s the awkwardness: Pityana has cited Absa Bank, the bank where he serves as an independent director (though as of last Friday no longer lead independent director), as a respondent in his case primarily directed against the Prudential Authority of the South African Reserve Bank (Sarb), claiming it went outside the law in adopting an informal process when it came to considering his nomination for chair of Absa.

Pityana didn’t get the position of chair, which went instead to Sello Moloko, who replaces Wendy Lucas-Bull at the end of March next year.

The reason he didn’t get the post, as laid out in his court application, is that the Prudential Authority, which must oversee high level banking appointments such as this, adopted an informal process in violation of Section 60 of the Banks Act, which deals with these types of appointments. It apparently accepted evidence from Ramos without giving Pityana any chance of rebuttal or objection.

Read: Candidate for Absa chairman role sues regulator over rejection

Pityana was appointed director of Absa in May 2019 and was appointed lead independent director in June 2020. Though removed as lead independent director as of last Friday, he remains on as a director on the Absa board.

He previously served as director of AGA since 2007, and from 2014 to December 2020 he assumed the role of AGA chair.

Succession search

In 2020, Absa started hunting around for a replacement for Absa chair Lucas-Bull, who is coming up for nine years as an independent director, the maximum allowable by the Reserve Bank.

A succession committee started the interviews and concluded that Pityana was the candidate best suited for the role.

A search firm was appointed by Absa to assist with the succession, and part of the job included reference checks, which in turn involved interviewing Ramos, who had then assumed the chair at AGA, and Rhidwaan Gasant, lead independent director on the AGA board. All questions about Pityana’s suitability for the role of Absa chair were directed to Ramos.

Allegations

The Absa board gave the appointment the all-clear, when suddenly there was a hitch: the Prudential Authority’s CEO Kuben Naidoo, an old colleague of Ramos from National Treasury days, had apparently received information from Ramos about the sexual harassment allegations.

Those allegations came from a senior manager at AngloGold Ashanti and were investigated by Advocate Heidi Barnes SC, who produced a report that came to an unfavourable conclusion for Pityana.

That report came out on November 30, 2020, and Pityana’s attorneys responded four days later, pointing out what they saw as flaws in the report, including the failure to interview bodyguards who were with Pityana at the time of the alleged sexual incident and would [they said] have been able to rebut the claims against him.

Despite his objections, Pityana’s court papers say Barnes went ahead anyway and issued her final report on December 9, 2020, rejecting his representations and confirming her original findings that “my alleged utterances and actions – telling the complainant that I was in love with her, holding her hand in the car and asking if I could park my car and come up to her room” – had in her view occurred and constituted sexual harassment.

“I have always denied and still maintain my denial that these utterances and actions occurred. I also deny that we were in the car together,” reads Pityana’s affidavit.

This is an unbridgeable dispute of fact. AGA is standing behind Barnes and her conclusions.

Yet none of this will feature in the court action now underway.

Problematic

This is where it gets problematic.

The Absa board had appointed Peter Harris, a senior attorney at Harris Nupen Molebatsi Inc, to review the documents in the sexual harassment investigation and decide whether the Barnes report findings were reasonable.

Harris found that the report did not take into account all the relevant evidence, and was flawed to the extent it did not obtain corroborating evidence from independent sources, such as the aforementioned bodyguards.

With these reports in hand, the Absa board maintained its confidence in Pityana’s suitability for the role of chair. That decision was supported by 10 out of 13 directors (not the full board support that previously existed).

These same reports made their way to the Prudential Authority, and on August 2, 2021, Lucas-Bull received a call from Naidoo informing her that the majority of governors at the Prudential Authority would object to Pityana’s appointment.

No reasons were given by the Authority, but rather than jeopardise the bank’s relationship with the Reserve Bank, Absa decided not to challenge Sarb about its decision.

Pityana’s attorneys fired off a letter to Naidoo asking why the authority had compromised his rights under Section 60 of the Banks Act (dealing with the appointment of bank directors and senior officials) by denying him the right to respond to objections to his nomination.

Naidoo replied that as the authority had not received any formal nomination (of Pityana as Absa chair), it had accordingly not made a decision for which reasons were required.

Pityana is asking the court to decide whether, by adopting an informal process not covered by law, the authority had overstepped the bounds of its powers, which are strictly curtailed by Section 60 of the Banks Act.

The Banks Act makes it clear that the appointment of a CEO, director or executive officer of a bank must be approved by the authority, but that any objection can be disputed by the bank or the nominee.

If the authority was running a parallel and unlawful process here, then Pityana wants the court to tell it so.

Pityana speaks to Moneyweb

“I don’t mind if someone more suitable was selected as chair at Absa, but what I do object to is this back door process where I am denied positions based on flawed and false information that I have not been given a chance to respond to,” Pityana told Moneyweb.

“The allegations that have been made against me are untrue and extremely damaging to my reputation and I had a reasonable expectation of being appointed to the Absa chair, since this was the finding of the Succession Committee and the Absa board.

“You cannot have an authority running on rumours and innuendo.”

Pityana claims in his court papers that Ramos disseminated false information about the reasons for his resignation from the AGA board – coming as it did immediately before the release of the Barnes report. She allegedly claimed Pityana left AGA to avoid any adverse reaction arising from the report, whereas Pityana, in his court papers, provides an entirely different view of a board at odds with itself in certain key areas as the reason for his departure.

Absa’s stance

Absa issued the following statement: “We confirm that Absa Group Limited and Absa Bank Limited have been cited in proceedings instituted by Mr Sipho Pityana in which he seeks a declaratory order against the Prudential Authority. Absa is cited as an interested party, but no relief is sought against it.

“Absa has conducted a robust Chairman succession process, which started in October 2020. During this process which involved an extensive search, Absa considered both internal and external candidates who applied for the position of Chairman of the Absa boards. After the completion of this process the Absa Boards resolved to nominate Mr Sello Moloko for the position and submitted his nomination as Independent non-executive director and Chair to the Prudential Authority for approval. The Prudential Authority approved Mr Moloko’s nomination and Absa has made the appropriate announcements in this regard.”

On Friday, Absa issued a brief Sens statement saying the Absa Group and Absa boards had resolved that Pityana “will cease to be lead independent director of Absa Group and Absa Bank, chairman of the Remuneration Committee (RemCo) and, as a consequence, member of the Directors’ Affairs Committee (DAC), with immediate effect”.

“The Boards will appoint a new Lead Independent Director and chairman of the RemCo and advise shareholders in due course,” it said.

The Prudential Authority has indicated its intention to oppose the ‘declarator’ (that it was running an informal and unlawful process in blocking his nomination) sought by Pityana.

Bitcoin smashes through R1 million – where to next?

Written by Ciaran Ryan. Posted in Journalism

This level was considered fanciful a few years ago. Experts say it could easily ramp up ten times from here over the next few years. From Moneyweb.

In the last month alone, more than 360 000 new people have become bitcoin holders. Image: Bloomberg
In the last month alone, more than 360 000 new people have become bitcoin holders. Image: Bloomberg

As bitcoin crashed through the R1 million this week, analysts are casting their eyes to the next target, with some seeing R2 million by the end of 2021.

The prospect of a R1 million bitcoin seemed fanciful just a few years ago, just as the shrieks of “bubble” rang out when it cracked R300 000 in 2017. In retrospect, it was a bubble. The price dropped 84% before commencing its climb to where it is today.

Bitcoin price in rands

Farzam Ehsani, CEO of crypto exchange VALR, says bitcoin breaking R1 million shouldn’t be surprising to those who have taken the time to educate themselves about this asset.

“In my view, while I expect volatility to persist, we’re looking at a very undervalued asset in Bitcoin and an undervalued asset class in cryptocurrency overall,” says Ehsani.

“I expect that in the next few years we’ll see Bitcoin ten times from here, but there will be tremendous peaks and troughs along this path as we have seen in the past.

“While Bitcoin is breaking all-time highs consistently, it’s not the only asset class to do so. Stock markets around the world have also been breaking all-time highs.

“So while one may be tempted to speak about Bitcoin strength I think we’re witnessing the weakening of fiat government currencies such as the rand and the dollar against a wide range of real assets and services.”

Says Jon Ovadia, CEO of crypto company Ovex: “I think we’re going to $150 000 by the end of the year. I had complete conviction we were going past $100 000 this year until Elon Musk started tweeting (implying that Tesla might sell some of its bitcoin, though he later pulled back from this). If Elon had gone full bear, it would have been hard to see $100 000.”

Dean Joffe, co-founder of crypto investment platform BitFund, believes bitcoin’s bull run is likely just starting as all short-term indicators have shown 100% buy pressure. “This is uncommon, as ordinarily, when an asset hits a new all-time high, the market signals sell pressure as investors try claim gains from their holdings. The short term is looking extremely bullish for bitcoin, as it continues to trade above the 100- and 200-day moving average.”

According to the Crypto Fear & Greed Index, the market is in an “extreme greed” territory, meaning that as investors rush into the market to buy more bitcoin, the price should continue being pushed up (although resistance levels may be expected at certain price ranges).

“It is important to note that when investors get too greedy, the market is ordinarily due for correction,” says Joffe.

“With a market capitalisation of more than $1.25 trillion (R20 trillion) and with global institutions pouring into this new asset class, we may continue to see a sharp rise in bitcoin’s price. According to research by Glassnode, as supply continues to be an issue, and as demand increases, the price will continue to increase.

Joffe adds that the downside to this bull market may be regulatory uncertainty, as seen in South Africa, and interference by governments, which stifles innovation. However, based on past history, the breakout of bitcoin may signal the start of a final push this year, before a consolidation early next year. “Naturally however, due to various economic and regulatory circumstances, this cycle may not follow past history,” says Joffe.

According to an analysis by crypto exchange Kraken, if the bitcoin price copies its 2017 performance, this cycle’s top could end up being approximately $96 355 for bitcoin. The pseudonymous crypto analyst, ‘PlanB’ has predicted that bitcoin will reach $98 000 (approximately R1.5 million) by the end of November and conclude the year at $135 000 (approximately R2 million).

“However, the market may turn at any time due to regulatory interferences or other similar events. Therefore, it remains a fundamental principle to have a well-diversified cryptocurrency portfolio, and a reasonable and sound allocation to cryptocurrencies,” says Joffe.

One of the factors driving bitcoin is investors’ adoption. In the last month alone, more than 360 000 new people have become bitcoin holders. According to CoinMarketCap data, the number of bitcoin addresses increased to just under 39 million. There is a proven link between the increase in bitcoin addresses and the bitcoin price. Apple’s CEO Tim Cook recently confirmed that he holds bitcoin, and if Apple was to announce a holding like Tesla or MicroStrategy, a sudden surge in price could follow.

Says Joffe: “Arguably, the traditional financial markets have been reeling from the inflation fear over the past 18 months due to Covid-19. As a hedge against inflation, new investors have bought cryptocurrencies such as bitcoin, causing a surge in price. As investors continue to wait for inflation data, bitcoin has emerged as the primary inflation hedge for mainstream investors, specifically at a time [when] gold and other inflation hedges were on a downturn.”

Sars hits a dead-end in Lesotho number plate case

Written by Ciaran Ryan. Posted in Journalism

The seizure of cars bearing number plates from neighbouring countries is unlawful, say lawyers for the winning team. From Moneyweb.

Lawyer Mkhosi Radebe, who is now planning a class action suit against Sars for acting unlawfully, with his equally tenancious client Joaquim Alves. Image: Supplied
Lawyer Mkhosi Radebe, who is now planning a class action suit against Sars for acting unlawfully, with his equally tenancious client Joaquim Alves. Image: Supplied

The Supreme Court of Appeal (SCA) has dismissed with costs a South African Revenue Service (Sars) request to review a decision in favour of Ficksburg resident Joaquim Alves, whose Nissan Serena station wagon was impounded by customs officials in 2019 on the grounds that it was being driven in SA with a Lesotho number plate and without the necessary import permit.

Read:Midnight Express at the Lesotho border

Sars gets blown in Lesotho number plate case, class action to follow

Sars gets kicked to touch in Lesotho number plate case

Alves’s vehicle was being driven by a friend in the border town of Ficksburg when customs officials stopped the driver and asked to see the import permit.

Alves raced to the scene and argued with the customs officials that the vehicle was legally registered in Lesotho, and hence no import permit was required. The customs officials impounded the vehicle. Believing the law was on his side, Alves went to the municipal compound and retrieved the vehicle.

The next thing he knew, SA Police Service officers arrived at his door and arrested him. He ended up in hospital that weekend due to a pre-existing heart condition, and on the following Monday appeared in the Ficksburg Magistrates Court.

The magistrate ordered the release of the vehicle, though Sars failed to comply with this order.

Sars out of options

Mkhosi Radebe of MC Radebe Attorneys in Pretoria and Bloemfontein, who is representing Alves in the case, says Sars has exhausted all legal options in this case, and has been ordered to pay costs and adhere to the previous order to return the vehicle.

The ruling has some interesting ramifications, says Radebe.

“Firstly, it means anyone driving a car registered in Lesotho, Botswana and eSwatini, all of which are part of the Southern African Customs Union [SACU], is free to drive their vehicle unhindered on South African roads. Secondly, it means Sars has been overstepping its powers for years and has never been held to account – until now.”

Radebe is planning a class action suit against Sars for unlawfully impounding vehicles registered in neighbouring countries.

Arguments

In the court action, Alves’s lawyers argued that the Customs and Excise Act and various other pieces of legislation relied upon by Sars were so poorly worded that the tax authority was able to repeatedly overstep its legal powers.

“Unfortunately, they ran into Mr Alves who was determined to bring this to a positive conclusion, which we have now done.”

Alves’s team also argued that the imported vehicle could only enter the SACU after paying the appropriate duties at Durban Port, and was thereafter free to drive on SA roads without hindrance.

The prohibition on importing used vehicles from Japan and elsewhere is intended to support the local car manufacturing industry. As Moneyweb previously reported, to import one of these second-hand vehicles you need to apply for a permit from the International Trade Administration Commission of South Africa, which is limited to returning residents and immigrants for the most part.

The same rules do not apply to neighbouring countries such as Lesotho, where second-hand imported vehicles are everywhere in sight, and which is why you see so many of them in border towns.

The International Vehicle Identification Desk Southern Africa has reckoned a loss to the fiscus of billions of rands due to illegal imports of vehicles bleeding across the border from neighbouring countries.

Pillar to post

Moneyweb approached The Department of Trade, Industry and Competition for comment, and was referred to Sars.

Sars provided the following statement: “In terms of legislation, Sars is prohibited from commenting on confidential tax affairs, including whether or not companies and or their directors are under investigation or the subject of any tax administrative action or any such planned action.”

As to the likely impact of this ruling on the retail car market in SA, the National Automobile Dealers’ Association (NADA) says it “is not in a position to comment on the case without the benefit of being privy to all official documentation and facts on this matter.”

Radebe tells Moneyweb there has been a noticeable change in behaviour of customs officials, who are less enthusiastic about detailing vehicles with foreign number plates.

“We now have to get accountability from these officials, and that is what the class action suit will accomplish.”

Read:Sars abuses wide powers of debt recovery

Sars versus taxpayers

Sars behaving badly

Local government will never be the same again

Written by Ciaran Ryan. Posted in Journalism

Smaller parties focused on local issues made their mark in areas where they were well organised. From Moneyweb.

Of the 26m South Africans registered to vote, less than half actually did. Image: GCIS
Of the 26m South Africans registered to vote, less than half actually did. Image: GCIS

The era of liberation party politics may be coming to a close.

The big picture is this: the ANC polled 46% of the national vote in the last local government elections, followed by the DA with 21.8% and the EFF with 10.4%.

Read: ANC gets 46% in local vote, worst result yet

The graph further down shows the ANC-controlled areas in green, but what it doesn’t show is how well some smaller parties and community forums did at the local level with just months, and in some cases weeks, to prepare for the election.

Eastern Free State

One of these is the Setsoto Service Delivery Forum (SSDF), which won eight seats in three wards in the Eastern Free State. The ANC squeezed by with a majority 17 seats on the same wards, though SSDF spokesperson Selloane Lephoi reckons the forum is just a by-election away from dethroning the ANC forever from its long and fruitless rule in the Eastern Free State.

Smaller opposition parties won 16 seats against the ANC’s 17.

“Last time the ANC got 21 seats in this area. This time it is 17. We are suspicious of the results, particularly in those areas where we weren’t fully resourced or vigilant about minute polling details. Those areas where we were vigilant, we won. There’s no question in our opinion that theft went on in this election.”

The SSDF fought a vigorous campaign focused on local issues – potholes, corrupt tendering, unrepaired water pipes, arrogant ANC councillors deployed for party affiliations rather than any particular talent for administration, and a desire to see business investment return to the area.

“This is the start of something,” says Lephoi. “We are very proud of our result, considering we only had a few months to prepare for this, but we are known entities in this community, unlike the ANC councillors who are put into positions of management because they [are] loyal to the party big-wigs.

“We are now in a position to watch them like hawks and get them out of public service.”

North West

Like the SSDF in the Eastern Free State, the Azanian Independent Community Movement (AICM) fought an energetic campaign in North West province based on reining in corruption and cronyism, and came away with eight seats in five municipalities. AICM coordinator Mandla Mpempe, like Lephoi, believes the election was anything but free and fair in some of the wards.

He has complained to the Electoral Commission of SA (IEC) of bias among IEC officials towards the ANC – complaints that were dismissed as being without merit.

AICM is nevertheless delighted that it secured eight seats in ANC strongholds.

“The face of local government will never be the same again,” says Mpempe.

“We have only just begun our journey to hold the crooked and corrupt municipal officials to account and chase them out of office. Our message to the ANC officials is their time is up. We are here for one reason only – to restore accountability and good governance to local government.”

And, like the SSDF, AICM is now setting up an office and preparing for much bigger things. AICM’s success was achieved with virtually no financial support and only weeks of preparation. “Imagine what we could do with more time to organise, and more funds – which we will get,” says Mpempe.

Makana, Eastern Cape

The Makana Citizens Front (MCF) won five seats on the Makana Council (Grahamstown), giving it the same number of seats as the DA and cutting the ANC’s majority to less than 1%.

“If you put one lion into a council of chickens, the chickens will be terrified. The people of Makana have put five lions into Makana Council,” says MCF management committee chair Lungile Mxube.

“We have a highly qualified, diverse slate of candidates. As a civic organisation with a campaign less than five months old and minimal funding, we have shown what people power can do. Despite ANC dirty tricks, we almost pushed them out of office.

“We now focus our attention on bringing government to the community and calling government to account. Our biggest promise was a different way of governing that involves the whole community and we will demonstrate that in practice from opposition.”

ANC wake-up call

It was the worst election for the ANC since it swept to power in 1994 as the party of liberation.

The DA has drawn comfort from the fact that the ANC’s overall support has dropped below 50% and the EFF, with its race baiting and divisive politics, did not gain significantly.

While the ruling party traditionally fares worse in local government than national elections, there are some who believe the ANC might not recover from this.

It now appears that all metros (with the exception of East London/Buffalo City) are lost to the ANC, and the big shock in this latest result was the loss of eThekwini (Durban), a traditional ANC stronghold. This time it polled just 42% and will have to cobble together a coalition to retain control.

The blame game has started, with the ANC’s equivocal response to the July riots and looting, the devastating economic effects of the Covid lockdowns and years of administrative entropy being pointed to as sources of the ruling party’s dismal result.

ANC national spokesperson Pule Mabe says the low voter turnout, especially in traditional ANC strongholds, communicates a clear message: “The people are disappointed in the ANC with the slow progress in fixing local government, in ensuring quality and consistent basic services, in tackling corruption and greed. People are happy with the renewal of the ANC and therefore, our nation’s mission in building a better life for all.”

Midvaal and Emfuleni, Gauteng

The DA won outright control again in Midvaal in Gauteng, where 34 year-old Mayor Bongani Baloyi built a reputation for running a clean ship (six clean audits) and cash reserves of more than R2 billion.

Read: Emfuleni and Midvaal enter the record books, but for very different reasons

That success has not gone unnoticed in neighbouring Emfuleni, generally reckoned to be one of the worst run municipalities in Gauteng.

The ANC lost outright control, with its share of the vote dropping to 38% (55.8% in 2016), while the DA increased its share to 24% (24.6%) and the EFF 14% (12.2%). The Freedom Front Plus also picked up a significant number of votes.

Emfuleni has had three mayors since 2016 and three municipal managers, and has been a basket case of misgovernance, with unpaid Eskom bills, sewage leaking onto the streets and almost complete breakdown of basic services.

Baloyi, who is exiting the Midvaal mayorship, says the Midvaal success undoubtedly had an impact on the ANC’s declining support in neighbouring Emfuleni. “It’s the best exit I can ever dream of. I think it is as a result of the hard work during the [last four-year] term and endeavouring to fulfil the promises we made to our community in 2016.

“Clearly the consistent, reliable delivery of service, good governance, transparency and ethical leadership enabled us to build a stronger bond and trust with our community,” says Baloyi.

“And that is why we were elected with an increased majority. I think [the declining ANC support in Emfuleni] is a combination of lack of service delivery, voter apathy and Midvaal’s success.”

uMngeni, KwaZulu-Natal

The DA also won control of uMngeni municipality in KwaZulu-Natal, the first time it has secured a majority in a local council in the province.

The DA won 13 seats to the ANC’s 10.

Incoming Mayor Chris Pappas, a fluent Zulu speaker, has promised to fix the council and throw open the area’s doors to business. Municipal workers who didn’t do their jobs “better not be at work when the DA comes to the office”, he said, according to Times Live.

Source: IEC

Joburg, Gauteng

Former Joburg Mayor Herman Mashaba’s ActionSA polled almost the same as Freedom Front Plus at 2.36%, a surprisingly strong showing given it only contested a handful of metros.

Action SA has become a potential kingmaker in metros where it did well, but has sworn not to enter any coalition with the ANC.

“ActionSA contested six municipalities with the principle that we would not be an opposition party. In all six of these municipalities, the ANC has been pulled under 50% and, in three municipalities the ANC has been pulled under 40%, leaving coalitions wide open,” says Mashaba in a post-election analysis of the party’s performance.

Further analysis

Inkatha Freedom Party also polled well at 5.7% nationally, a much better performance for a party that seemed destined for irrelevance just a few years ago.

Of the 26.1 million South Africans registered to vote, slightly less than half of that actually turned out, with the ANC winning a majority in 161 of the 213 municipalities contested. The DA won a majority in 13 and the IFP in 10 municipalities.

The ANC’s slippage in the major metro areas continues.

It polled 33.6% in Johannesburg, against the DA’s 26.5% and ActionSA’s 16%.

Read: It’s the day after elections and load shedding looms

The only municipality in Gauteng the ANC managed to win outright was Lesedi, and even here the percentage drop in support is alarming – from 62% in 2016 to barely over 50% this time around.

Even more alarming was the ANC’s extraordinary drop in support in Maluti-a-Phofung in the Free State, where it polled 39% (down from 67% in 2016).

The ANC was dealt a crippling blow in the area by a group of former ANC members who blew the whistle on corruption and now contest the area as MAP16 – which won 20 seats in the municipality, making it the kingmaker in coalition negotiations now underway.

The DA also out-polled the ANC in Nelson Mandela Bay, with 39.9% against the ANC’s 39.4% and the EFF’s 6.4%.

In Tshwane, the ANC out-polled the DA 34.3% to 32.3%, with the EFF coming in at 10.6%.

In Ekurhuleni, the ANC won 38.2% against the DA’s 28.7% and the EFF’s 13.6%.

The ANC won just 18% of the vote in Cape Town against the DA’s 60%. It looks like the city is lost forever to the party of liberation.

What remains to be decided is which party ends up running these hung metros once coalition negotiations are formalised.

In the remaining 66 municipalities, no party achieved an outright majority. As this article is being written, negotiations between political foes are hammering out the finer details over who gets to rule where and at what cost.

In the EFF’s case, that cost is delivering on expropriation without compensation (EWC) within six months. Various polls show there’s not much enthusiasm for EWC.

But for smaller parties campaigning on local issues, the focus is on fixing the streets and sewage pipes outside the place where you live. And getting jobs and businesses back into the locality.

It already seems to be having an effect: Lephoi points out that the election shock of an emergent new force in the Eastern Free State motivated the local municipality to start doing what it should have been doing years ago – clean the streets.

“They know we’re coming for them,” she says.

Crude prices soar, coal futures tank while Western leaders debate energy future

Written by Ciaran Ryan. Posted in Journalism

Amid COP26 in Glasgow, South Africans brace for a record rise in fuel prices. From Moneyweb.

Image: SeongJoon Cho, Bloomberg
Image: SeongJoon Cho, Bloomberg

There is some irony in the fact that as world leaders meet at the COP26 climate change conference in Glasgow this week to discuss ways to reduce carbon emissions, South Africans are having to fork out an additional R1.21 a litre for petrol and R1.48 for diesel. The R20-per-litre of fuel level is now within sight.

This comes in the same week that President Cyril Ramaphosa announced a historic agreement between SA and several of the world’s leading economies to secure R131 billion to finance the country’s transition to a low carbon economy.

Read: SA secures R131bn commitment to transition to low carbon economy

While welcomed by climate activists and those supporting wind and solar solutions, others are less convinced there is much good in the R131 billion deal for SA.

“With access to electricity at only 56% of the African continent — and at less than 40% in more than a dozen countries — our top priority remains achieving universal access to energy,” says NJ Ayuk, chairman of the African Energy Chamber.

The charts below tell the energy story.

Surging oil prices are the result of a global supply crunch due to the economic rebound post the Covid collapse in March 2020. At the same time, China’s decarbonisation efforts have been given urgency given the upcoming Olympics in February next year and a campaign by Chinese President Xi Jinping to show the world clear, blue skies.

While world leaders gather in Glasgow and plan for an accelerated phase-out of coal, hard-nosed economic realities suggest events may not play out as planned. China, like SA, has been getting a dose of rolling blackouts, and that’s put a crimp in economic growth expectations. China is gripped by a shortage of coal, yet the country’s central economic planners have proposed a cap on coal prices to reduce costs for power generators. That sent soaring coal futures back to earth, along with the prices of iron ore and coking coal.

WTI crude oil (USD)

Source: Share Magic

The knock-on effect on SA coal, iron and energy shares was immediate.

Kumba Iron Ore is down by nearly half since topping out in August, coal producer Thungela Resources is down by 35% over the last month, and Exxaro Resources is down more than 12% in a month. These price drops are the result of political meddling in the Chinese energy market, and are predicted to eventually fail, resulting in prices returning to the dizzy heights seen in recent weeks.

Meanwhile, Bloomberg reported that China’s central government officials “ordered the country’s top state-owned energy companies to secure supplies for this winter at all costs.”

This caused oil prices to surge, while coal futures tanked on news of China imposing price caps on producers. Those price caps may be politically popular, but are economically unsustainable, meaning the Chinese state will have to subsidise energy production or introduced a differentiated pricing structure for local and foreign suppliers.

Blanket bans on public funding for fossil fuel projects

Against this backdrop, world leaders and climate activists gathered in Glasgow believe that renewables can replace fossil fuels in pursuit of a ‘net zero’ carbon emissions target by 2050. As part of this endeavour, most banks have withdrawn from funding fossil fuel projects – something welcomed by climate activists, but deplored by many oil and gas executives, particularly those involved in natural gas which is seen as a transitional fuel to a decarbonised economy.

They see the West, having benefitted from more than 100 years of industrialisation powered by fossil fuels, now changing the rules to benefit themselves and cripple Africa, just as it realises its economic potential by exploiting its natural resource endowment.

Africa’s population is expected to double over the next three decades, and with rapid urbanisation, energy needs will likely double or even triple by 2040. “With blanket bans on the public funding of fossil fuel projects, the West is pulling the rug out from under African hydrocarbon exploration and production, insisting that Africa meet ever-expanding demand on the continent’s fledgling wind and solar power sources,” says Ayuk.

Gas-to-power projects are a huge and growing opportunity for Africa, and a far more effective way of ensuring a just transition to clean energy, he adds.

Ahead of the COP26 conference, Ugandan President Yoweri Museveni wrote in the Wall Street Journal that Africa cannot sacrifice its future prosperity for Western climate goals. It’s a sentiment that resonates with African leaders facing calls to walk the decarbonisation route mapped out by Western nations, many of them among the world’s worst polluters.

“Windmills and solar panels may be all well and good for places like the US and Europe with their more established electricity grids, although calm winds in Europe this summer means the UK, for one, is thinking of a return to burning coal for heat in the months ahead, but in Africa, they only exacerbate the continent’s electrification woes. By producing what Museveni called ‘unreliable and expensive electricity,’ wind and solar force Africans to compensate with CO2-spewing diesel generators or batteries instead. Ironic, isn’t it?” writes Ayuk in a recent editorial.

Coal futures price plunges (ICE NewCastle Coal Nov ’21)

Source: Barchart.com

Des Muller, spokesperson for the SA Nuclear Build Platform, told Moneyweb that the Western nations may try to convince SA that its coal power plants can be repurposed with renewable energy, but renewables would be lucky to achieve 10% of the power output of a coal-fired power plant.