On the Brink. Claire Bisseker
service and state-owned companies.
So, despite what Zuma told the ANC congress in Irene that day, for a businessman to be shopping around cabinet positions, with all the discretion of a drunk at a poker game, suggested that the executive had indeed been captured. One needed to look no further than Eskom and Transnet, where evidence was rapidly stacking up of the extent to which they had been compromised by the Guptas.
Foremost is the case of Eskom. With revenues of a staggering R163 billion, Eskom is one of the 20 largest companies in Africa. It produces 95% of South Africa’s electricity but its reach is far wider – nearly one in two people on the African continent rely on Eskom for power. So what happens at Eskom matters plenty. A study by Quantec Research found that approximately 7,4% of South Africa’s GDP can be traced back to the direct, indirect and induced impacts of Eskom.13 In fact, more than 516 000 South Africans – nearly 1% of the country’s population – rely on Eskom for income, including those employed directly and indirectly, and their family members.14
In 2016, 1 656 companies sold services and products to Eskom, for which taxpayers paid almost R170 billion. (This is equivalent to what it costs the country to repay interest on its government bonds every year.)15 Given that Eskom’s mandate from Zuma was to use procurement to empower smaller black-owned firms, its deep pockets were of considerable interest to the Gupta family. And considering that 30c of every R1 Eskom spends is on coal, the most obvious route in was to buy a coal mine.
As luck would have it, Glencore, a global commodities trading giant based in Switzerland, and headed by South African Ivan Glasenberg, had a mine it was looking to sell – Optimum Coal. Optimum even had a supply contract in place with Eskom, dating back to 1993. Only, by 2015 it had become severely loss-making for Glencore in a world where coal prices were falling and labour costs were soaring.
Not only was Eskom, under its new boss Brian Molefe (more on him later), unwilling to negotiate higher rates, it slapped a R2,5-billion ‘fine’ on Optimum for providing low-quality coal. With this liability hanging over its head, Optimum was essentially bankrupt. In August 2015, Optimum was placed in business rescue. Still, a few potential bidders popped up, most notably a company called Pembani, controlled by billionaire Phuthuma Nhleko, former chief executive of MTN. But Eskom vetoed Pembani. Eskom vetoed everyone, except for the Guptas.
The dark heart of state capture
The story of how the Guptas got their hands on Optimum is perhaps the single most illustrative example of the dark heart of state capture.
In December 2015, Tony Gupta and one of the family’s business partners, Salim Essa, flew to Switzerland to meet Glasenberg in Zurich. Their aim: to convince him to sell Optimum. On this trip, curiously, the family would have high-level help. The Gupta delegation was accompanied by no less a person than Mosebenzi Zwane, South Africa’s freshly minted mining minister.
At that stage, Zwane was less than three months into the job, but he’d already been linked to the Guptas. The red flags included his surprisingly rapid elevation from being a teacher to head up agriculture and tourism in the Free State and then to lead one of the country’s most mission-critical industries, mining.
When the Guptas held a private wedding in South Africa and wanted to use the Waterkloof Airbase for the convenience of their guests, they got Zwane to write a letter inviting their family to South Africa under the pretext that they were visiting for government-related purposes, according to Malema. Zwane’s presence on that trip to Switzerland, alongside the Gupta negotiating team, to wrangle with Glasenberg over the sale of Optimum, was no less brazen.
It also seemed to flout Parliament’s ethics code, which states that members must ‘avoid placing themselves under any financial or other obligation to any outside individual or organisation where this creates a conflict or potential conflict of interest with his or her role.’16 Later, after his trip was exposed, Zwane argued that he’d done nothing wrong.
‘Let me put the record straight: I met with [the Guptas], I’ve engaged them, I’ve engaged other big mining giants and will continue to do so in future,’ said Zwane. ‘One of my responsibilities is to attract investment in the country and you can’t attract investment in the country if you’re not talking to people like the Guptas.’17
But the penny was beginning to drop, at least in the public mind. As a result, the Guptas were fast becoming public enemy number one. By February 2016, Absa Bank had already terminated their bank accounts, and the other three big banks in South Africa were soon to follow suit.
Funding was becoming a problem for the Guptas. After all, shaking hands with Glasenberg was only half the battle; finding the R2,1 billion to actually pay for Optimum Coal was the real trick. If the banks weren’t going to lend this money to the family to buy the ailing coal mine, they needed to come up with another plan. Luckily, the Indian state-owned bank, Bank of Baroda, was willing to lend them the first R1,5 billion – but that still left them around R600 million short.
The way in which the Guptas got this final tranche of cash was audacious, to say the least. The details emerged in a complaint submitted to the Hawks, under Section 34 of the Corruption Act, by Optimum coal’s business-rescue practitioner, Piers Marsden. In it, Marsden sketches out the bizarre events of Monday 11 April – the day before the Guptas had to pay the final instalment.
It went like this:
10 am:Nazeem Howa, who was CEO of the Gupta’s investment vehicle, Oakbay, meets Marsden and tells him that Tegeta is ‘R600 million short’. He asks Marsden to approach the banks – FirstRand, Investec and Nedbank – for a R600-million ‘bridging loan’.
1.30 pm:Marsden races to meet the consortium of banks at FirstRand’s office in Sandton to ask them to lend the money to Oakbay. But the banks refuse.
3 pm:Marsden phones Howa to tell him this.
9 pm:Eskom’s board holds a special meeting at which the board, headed by Ben Ngubane, agrees to make a R586 million pre-payment to Optimum for the future supply of coal.
Not only was this an exceedingly strange thing for a country’s electricity utility to do, but the pre-payment was not made to Optimum but to another of the Guptas’ companies, Tegeta. This meant that Marsden, as the business-rescue practitioner running Optimum, never saw Eskom’s R586 million.
At the time, Tegeta didn’t even own Optimum nor did it have a stitch of coal. It was just a cash shell with little more than the right to buy a coal mine. In other words, the money didn’t go to buy coal, it went elsewhere – to help the Guptas buy a mine.
How Brian Molefe threw away a brilliant career
So, how did Eskom end up bending over backwards to help the family? The answer is that, by this stage, the Guptas had enough friends in high places to ensure they could get what they wanted – even R600 million at short notice from a state company that has no place pretending to be a bank.
At Eskom, the CEO at the time was a smart technocrat named Brian Molefe. A fast-talking, charismatic dealmaker, Molefe had been singled out by Nelson Mandela shortly after the democratic election in 1994 as someone with a bright future. Mandela had decreed that while the older struggle veterans could take their places in Parliament after that historic election, ‘the younger ones must go to school’. So Molefe, along with a number of other promising young party cadres, including Lesetja Kganyago (now the governor of the Reserve Bank), were sent to study economics in London.18
After Molefe had returned to South Africa, he was summoned by the then finance minister, Trevor Manuel, to become a director of assets and liabilities at the Treasury. His star shone even brighter when he was appointed CEO of the Public Investment Corporation, a state-owned fund manager that manages more than R1,8 trillion in pensions of government employees. After a spell in the wilderness (penance, some say, for the Public Investment Corporation’s habit of financing deals for those close to Zuma’s nemesis, Mbeki), Molefe returned as CEO of Transnet. Some sources say the Gupta family were instrumental in rehabilitating Molefe, after which he seemed to be back in Zuma’s good graces.19
This is given further credence by the curious fact that the Gupta-owned