Auction for Gupta mining assets hots up

Written by Ciaran Ryan. Posted in Journalism

This article first appeared in Moneyweb.

Project Halo is the preferred bidder but two late entrants have thrown their hats in the ring.

The auction for the Gupta mining assets, including Optimum and Koornfontein coal mines in Mpumalanga and a stake in the Richards Bay Coal Terminal, just got a whole lot more interesting.

Eight Gupta companies, including the mining assets, were placed in business rescue a year ago after commercial banks distanced themselves from the Guptas and cut off transactional banking facilities. The business rescue practitioners have been racing to wrap up the sale of the key mining assets so that the mines can return to full production and pay their workers – who stopped receiving salaries in October last year.

In December last year, a group called Project Halo was announced as the preferred bidder with an offer of R3.6 billion for the assets, which includes R600 million of post-commencement funding that will be used to return the rapidly deteriorating mines to operational efficiency.

The other two bidders are the state-owned Central Energy Fund (CEF), which manages SA’s oil and gas assets, and the Phakamisa consortium, headed up by mining stalwart, Bernard Swanepoel.

Business rescue practitioner Louis Klopper says the bids are competitive in terms of price, and differ primarily in their funding structure. “We are hopeful that by February this year the creditors will decide which deal is the most attractive and vote on it. We don’t want to delay the process, and so we have engaged frantically with the key stakeholders in securing meaningful feedback on bids so that the revised business plans can be published with haste. Our priority is to get the workers paid and back on the job.”

Optimum, in particular, has been the victim of looting and sabotage, with electricity cables and equipment stolen and destroyed. The underground Koornfontein mine is in better shape, and will likely be in production before Optimum.

Project Halo is 40% owned by four directors, Mbongiseni Duma, Paul Buckley, Julian Kidd and Nkanyiso Buthelezi. A further 20% is held by an A-rated financial institution, which provided initial funding, and 12% by an established mining house. The names of these shareholders have been withheld until the creditors have voted on the proposed acquisition. A further 8% of the shareholding has been allocated to each of the workers, a women’s consortium and the community.

Some criticism

There has been some criticism that creditors will be asked to consider a bid without being privy to the identity of all Project Halo shareholders. Questions are also likely to be asked about the source of the CEF funds, and whether National Treasury is guaranteeing or fronting funds for its bid.

Are you suffering from corruption fatigue yet?

Written by Ciaran Ryan. Posted in Uncategorized

This article first appeared in Accounting Weekly.

Suffering from corruption fatigue yet? You better get used to it, because it looks like the Zondo Commission of inquiry into state capture is just getting started.

This week the commission heard from Angelo Agrizzi (pictured), a former executive with Bosasa and, boy, did he name names.

Bosasa (now called African Global Group) paid R50,000 a month to Communications Minister Nomvula Mokonyane, as well as truck loads of whiskey and liquor. The good people at Bosasa also paid money for funerals for Mokonyane’s family members. Mokonyane, now environment minister, has called the bribery claims “preposterous”.

Agrizzi said no financial benefit was received by the company as a result of these bribes. When he raised this point with his boss Gavin Watson, he was told: “You are in Africa, do as in Africa.” The Watsons, for those too young to know, were treated as heroes in the apartheid years for refusing to play rugby in racially segregated teams. They clearly capitalised on their fame when the ANC got into power.

Who else is alleged to have received money?

R500,000 a month went to officials at the Department of Justice and Correctional Services. This increased to R750,000 a month when former SA Revenue Services (Sars) head Tom Moyane was head of correctional services. (Bosasa supplies food and other services to prisons).

Vincent Smith, ANC MP and co-chair of the constitutional review committee looking at the issue of land expropriation, was paid R100,000 a month.

The former CFO of the Department of Correctional Services, Patrick Gillingham, as also on the payroll.

Agrizzi testified that former President Jacob Zuma was paid R300,000; former SAA chair Dudu Myeni received a designer bag stuffed with money.

It was also claimed that former National Prosecuting Authority (NPA) bosses Nomgcobo Jiba and Lawrence Mrwebi were also apparently bribed.

Let’s bear in mind these are untested accusations at this point so the presumption of innocence must be respected. But what a list of names Agrizzi provided. This is starting to show how potentially rotten HMS South Africa has become.

Coal mining community shows the beautiful side of SA

Written by Ciaran Ryan. Posted in Journalism

This article first appeared in Groundup.

Shafted by the Guptas, the people of Blinkpan, Mpumalanga have transcended race and class barriers to help each other.

It was a dismal Christmas for thousands of coal miners in Mpumalanga when the formerly Gupta-owned coal mines of Optimum and Koornfontein, now under business rescue, stopped paying workers and contractors in October last year. It was the same story for workers at other nearby mines: Woestaleen, Boschmans, Klipbank, Setemba and Sandile.

In December a group of determined women, all of them employees of the nearby coal mines, decided to do something about it.

They set up a non-profit organisation called Feed the Miner and approached local businesses and farmers for donations. Six weeks later the organisation is providing food and grocery hampers to 650 families.

All of this is being run out of the Blinkpan home of Christo Mostert, a production foreman contractor at Koornfontein. Scores of miners and their families gather at his house twice a week to receive grocery hampers that should keep them going for a few days. Miners of every race join hands in prayer to give thanks for these modest blessings. They are surprisingly cheerful, given the miserable conditions they now find themselves in.

When the formerly Gupta-owned mines were placed under business rescue in February last year, staff never knew from one day to the next whether they would be paid. When the salaries stopped coming in October, so too did their pensions and medical aid. Many workers have had to borrow from family members to pay lights and water. There were no presents for the children at Christmas and no books or uniforms at the start of the 2019 school year.

There was jubilation in Blinkpan last week when a group called Project Halo was announced as the preferred buyer for the Optimum and Koornfontein mines, and the hope is that the R3.6 billion deal will be concluded within the next week or two.

“Project Halo was assessed as the best bid on the table, and of course we want to wrap things up as fast as possible so workers can get paid, but unfortunately there is a process that must be followed and certain legal steps must be taken first,” says Louis Klopper, business rescue practitioner for eight Gupta companies (including Optimum and Koornfontein) placed under administration when the major commercial banks distanced themselves from the Guptas.

In a statement issued this week, Project Halo said a priority is to “get the workers to keep their jobs, provide backpay and generally get their morale back again”.

Why do we keep on taking advice from the clueless?

Written by Ciaran Ryan. Posted in Journalism

This article first appeared in Moneyweb.

One of the great economic questions of our age is what caused the Great Depression and can we avoid a repeat?

Steve Keen, self-proclaimed ‘anti-economist’ professor of economics at Kingston University in London, has applied himself to the question for four decades and believes he has the answer. Debunking Economics (Zed Books, 2001; revised and updated 2011) is the product of that exploration. It is also a frontal assault on mainstream economics for lacking the rigour demanded of other scientific disciplines.

Whether a great depression can happen again – or indeed is already underway – is important because the last such period was accompanied by genocide and fascism. The stakes are high and the current prescription of bailing out failed banks, rather than over-indebted consumers, is merely prolonging the day of reckoning.

Keen is merciless in his attack on neoclassical economists. They are not up to the task of steering the world economy and their intellectual ministrations are not only misguided, they are fatal, he says. Our current economic system is held up by matchsticks that will likely lead to two outcomes: starvation or emigration. Either we reform the current economic system, including its money, or we risk ending up in a Hunger Games hell.

There is an element of apocalypse fatigue surrounding our economic trajectory with so many depressing books exploring aspects of the subject, but to turn away from the signals is criminally negligent. The markers of economic catastrophe are all around us: the debt-to-GDP levels hit 300% of GDP in 2008 when the world’s biggest banks ran to their respective governments looking for bailouts. That was 1.7 times the levels reached in the 1930s. The Great Depression was deepened by the massive deleveraging that took place in the 1930s, as people raced to pay down debt. The result was deflation, falling economic output and massive job losses. Followed by war.

Eskom is sinking the economy in the name of greening it

Written by Ciaran Ryan. Posted in Journalism

This article first appeared in Moneyweb.

Eskom’s renewable energy drive is a financial disaster for consumers and an economic disaster for the country, according to papers before the Pretoria High Court.

The Coal Transporters Forum is asking the court to have dozens of power purchase agreements (PPAs) signed with independent power producers (IPPs) set aside on the grounds that the National Energy Regulator of SA (Nersa) authorised them without proper public consultation.

Lack of public participation sank the proposed nuclear deal in 2017 when challenged in court by Earthlife and the South African Faith Communities Environment Institute. Coal transporters believe the Pretoria court should find in its favour on the same grounds.

The court papers provide a fascinating insight into the costs of alternative energy. Eskom is purchasing renewable energy for 214 cents per kilowatt hour (kWh) when coal can produce the same electricity for 32 cents.

Eskom is then on-selling this renewable energy to the consumer at 86 cents per kWh. This cost the economy R9 billion in 2016, a cost that will be repeated each year until 2021. It also reduces coal consumption by three million tons a year, rising to 10 million tons by 2021, the court documents state.

Massive risk

These IPP contracts expose Eskom to massive risk, says the Forum. Nersa’s 2.2% tariff increase for 2017/2018 effectively means Eskom is sinking deeper into liquidity problems, at the ultimate cost of consumers and taxpayers.

“This means government is providing guarantees to the IPPs to destroy jobs in the mining sector,” says the Forum, which tallies the economic cost of the renewable energy programme as follows: Eskom will be forced to shut down at least five coal-fired power stations, one million permanent jobs will be lost, and 17 towns in three provinces reliant on coal mining will become ghost towns. Many more thousands of workers involved in coal transportation will be retrenched.

In short, it threatens to sink swathes of the economy in the name of greening it.

How did we end up in this mess?

In its answering affidavit, Nersa concedes that it did not allow for a public participation process, but followed the then minister of energy’s decision to procure renewable energy. The type of energy to be produced by Eskom is the minister of energy’s decision, in consultation with the regulator. The then minister Tina Joemat-Pettersson pushed the renewable energy contracts even though Eskom had spare capacity of 23%, excluding imports, renewable energy and other power purchases, says the Forum.

Fight between energy minister and nuclear company board gets nasty

Written by Ciaran Ryan. Posted in Journalism

This article first appeared in Moneyweb.

The three suspended board members of the South African Nuclear Energy Company (Necsa) will get their day in the Pretoria High Court next week, but are having to fund it themselves – to the tune of R1.5 million. They are bringing an urgent case before the court to overturn the minister’s dismissal.

The trio believed their court costs would be paid by their employer as funds had been set aside for just such an eventuality. Instead, they are having to fund their court application with borrowed funds.

Energy minister Jeff Radebe suspended chairman Kelvin Kemm, CEO Phumzile Tshelane and audit and risk director Pamela Bosman in November last year on the grounds of “defiance and ineptitude”.

Read:

South Africa axes state nuclear firm Necsa’s board

Axed Necsa board blames resistance of ‘privatisation by stealth’ for dismissal

The removed board members say more sinister motives lie behind their dismissal; that the minister is party to plans to sell NTP Radioisotopes, a 100% Necsa subsidiary and one of the few profitable state-owned companies, to an American customer.

Radebe has specifically accused the suspended board members of unauthorised foreign travel, dissemination of false information to the media, unauthorised increases in remuneration, the months-long shutdown of the NTP medical isotope production facility, and the “unlawful” signing of a memorandum of understanding with Russian nuclear healthcare company Rusatom.

South African men are worse off than women – study

Written by Ciaran Ryan. Posted in Journalism

This article first appeared in Moneyweb.

International study overturns a few cherished assumptions about gender.

It’s always dangerous to challenge someone’s cherished victimhood, but a new academic study does just that: men in South Africa are more disadvantaged than women.

This may upend a few certitudes about gender equality, where women are perceived as the natural victims of discrimination. That certainty has launched a thousand think tanks and academic studies and embedded itself into every aspect of our law.

Rather than conduct a straightforward headcount of women and men in all aspects of life, this study looks at quality of educational opportunities, healthy life expectancy, and overall life satisfaction – and coverts this into a numerical value, the Basic Index of Gender Inequality (BIGI).

These three factors were identified as the minimal ingredients of a good life. Gender parity does not mean everything in life is rosy, say the authors. Men and women can be equally miserable, which will not show up on the parity rankings.

The study was carried out by researchers from the University of Missouri in the US and the University of Essex in the UK. The survey covered 134 nations, representing 6.8 billion people.

The researchers preface their findings by highlighting the limitations of other attempts to rank gender inequality by failing to look at areas where men are disadvantaged, such as healthy lifespan.

Interestingly, Bahrain comes out as the top country in terms of gender equality. Life expectancies between men and women are equal, though men fall slightly behind in terms of basic education and life satisfaction.

Israel is the highest ranking country in which men have it better than women, though the difference is small.

China is another country where men have it better. Chinese girls fall behind considerably in basic education, but men have a lower life expectancy (66 years, compared to 69 years for women).

SA deviates from most African and developing countries in that women have it better. This is particularly evident in education, where men fall considerably behind women. “In this regard, South Africa deviates much from many other sub-Saharan nations (where often girls fall behind). Further, men have a shorter healthy life expectancy (48 years for men and 51 years for women in the 2012-2016 period),” says the study.

Optimum Coal workers go unpaid as rescue practitioners race to sell mine

Written by Ciaran Ryan. Posted in Journalism

This article first appeared in Moneyweb.

It was a bleak Christmas for nearly 8 000 Optimum Coal mine workers and contractors who were last paid in November.

The former Gupta mine was one of eight Gupta-owned companies placed in business rescue nearly a year ago after local banks withdrew transactional banking facilities, making it impossible to settle creditors and pay workers.

In a statement released on Wednesday, the business rescue practitioners (BRPs) explain the current cash crunch that made it impossible to pay workers for the last two months. The monthly wage bill is about R30 million, but the BRPs say the sale of Optimum and sister mine Koornfontein should be wrapped up in the next two weeks, at which point workers will be paid.

The BRPs have provisionally accepted a combined offer from the Project Halo consortium to purchase three companies (Optimum Coal Mine, Koornfontein Mines and Optimum Coal Terminal) at R3 billion plus post-commencement funding of R600 million. Project Halo also put in separate bids of R200 million for Koornfontein Mines, R2.8 billion plus pre-commencement funding of R600 million for Optimum, plus another R50 million for Optimum Coal Terminal at Richards Bay.

“That being said, the BRPs must emphasise that the decision of accepting the offer contained in the business rescue plans lies solely with the mines’ affected persons,” say the BRPs in a statement.

Read: Custody battle for Gupta’s orphan mines nears end

One of the BRPs, Louis Klopper, says solutions to the current impasse are being considered as a matter of urgency.

Optimum Mine workers staged protests outside Eskom and the mine itself earlier this week, demanding payment of their wages. The National Union of Mineworkers blamed the BRPs for workers going unpaid, saying they had violated the commitment to continue paying workers and creditors so long as there was production.

Klopper replies that a resolution of the cash crunch is imminent. “What people need to understand is the terrible condition of operations we inherited in February last year when we took over, and the work that had to be done to keep operations going.”

An agreement was concluded in March 2018 with Burgh Group Holdings to provide management assistance and the necessary transactional banking facilities. This was critical, as if this agreement did not come into being, the BRPs would have had no other option but to liquidate the mining companies in April last year.

The rescue practitioners had to defend or institute nearly 50 court cases over the last 10 months against entities that either tried to liquidate the mines (which would have instantly caused thousands of job losses), or entities and individuals linked to the Guptas that tried to frustrate the business rescue process.

The statement issued by the BRPs details how the Guptas nearly wrecked the mine and then diverted R90 million – and possibly much more – in Vat payments to fund operations. The Vat money was recovered after the BRPs obtained a court interdict. The Guptas failed to secure surface rights, drained cash away from essential maintenance in machines and mining operations, and failed to develop underground operations at both Koornfontein and Optimum, resulting in a section of Optimum being closed.

It’s election year, so expect a wild ride

Written by Ciaran Ryan. Posted in Journalism

This article first appeared in Moneyweb.

If volatility is your thing, 2019 could be a great year. All the elements for a roller coaster ride are in place: an election in May, a trade war between the great powers, and the unresolved land expropriation issue.

It’s going to be bumpy, but not necessarily bad.

Bianca Botes, corporate treasury manager at Peregrine Treasury Solutions, paints a number of different scenarios for the year. They range from the good to the ugly: at its best, state-owned companies are turned into cash machines, land expropriation is handled sensibly, the global trade war resolves, SA’s credit rating improves and the rand strengthens to R10 to the US dollar.

That’s unlikely, certainly in 2019. Also unlikely is the worst-case scenario where SA goes the way of Venezuela with hyper-inflation; state-owned companies go bankrupt; land redistribution is mishandled, resulting in mass defaults on mortgage loans; capital flees the country; and business and consumer confidence is destroyed. Should that happen, expect the rand to go to R25 to the US dollar, says Botes.

A more likely outcome for the year lies somewhere between these two extremes, with the rand trading between R14 and R16 to the US dollar. That requires no serious shocks to the system, state-owned companies continue to muddle along in a generally poor state of financial health, the economy shows no real spark and outside geopolitical events remain volatile. In other words, pretty much like last year.

A slightly better outlook is also a definite possibility: finance minister Tito Mboweni gets a steady grip on state-owned companies and ratings agencies improve the sovereign rating by a notch, there is a gentle up-tick in the economy, interest rate changes are carefully paced, and land redistribution is handled sensibly and equitably. In this instance, the rand’s range would be between R11.50/$ and R13/$.