If you want to extract a hundred million or so from the state, dairy farms and coal contracts are the way to go.

But if you want to extract billions – as those involved in state capture do – then consulting contracts are highly effective.

After months of denials, Eskom finally admitted in July that it paid fees of R1.6-billion to consulting multinational McKinsey and Trillian Capital Partners, the local advisory firm until recently controlled by Gupta lieutenant Salim Essa.

That Eskom initially lied about making any payments to Trillian at all is an issue, but as our investigation shows, the problem is far bigger than that.

An interim report, commissioned by Eskom and produced by G9 Forensic, details how Eskom’s own legal advisers warned it not to enter into an agreement with McKinsey because the proposed revenue model might be illegal. They were ignored.

Leaked documents and emails also show how McKinsey and Trillian – the latter allegedly a key “state capture” player – planned how to extract up to R9.4-billion in fees from Eskom, including by consulting on nuclear.

For McKinsey, a firm with an $8.4-billion (R109-billion) a year reputation, its flirtation with Trillian could end up costing it dearly. It stands accused of having got into bed with a partner whose main role was to help secure stunningly lucrative contracts by dint of its political connectivity.

Corruption Watch this week said it was preparing a submission asking the US department of justice for an investigation into McKinsey’s conduct, “which on our reading is in gross contravention of the US Foreign Corrupt Practices Act”.

McKinsey said in a statement to us: “The fees we charged at Eskom are in line with similar projects we, and other firms, undertake in South Africa and elsewhere around the world. We are proud of our work at Eskom and stand fully behind the impact and value we delivered.”

Trillian said it “charged appropriate fees for all work done”. Trillian added it had not been formally notified about Eskom’s investigation but said all Trillian’s work was carried out by “appropriately qualified professionals which resulted in considerable savings for Eskom”, all of which was approved by an Eskom steering committee.

The R9.4-billion payday

In December 2015, representatives of McKinsey and the newly minted Trillian Capital Partners sat down to divide between the two firms R9.4-billion in consulting fees that they anticipated they could extract from Eskom over four years.

McKinsey had by then spent months negotiating a “no fee, at risk” contract with Eskom to implement a sweeping turnaround project.

There was no competitive bid; instead McKinsey had presented Eskom with a special offer: The turnaround project would be carried out 100% “at risk”, meaning McKinsey would get only a percentage of any upside it achieved for Eskom.

Or, as Eskom said in later press statements: “[I]f no benefits were derived for Eskom no payment would be made.”

McKinsey said in a written response: “A growing share of our work is undertaken ‘at risk’, meaning we are paid based on agreed performance improvements as a direct result of our work.”

It was a gamble for Eskom – if McKinsey could find savings or benefits it would be entitled to just over 10%. But with no limit set and the potential for manipulation, there was a risk that McKinsey’s fees could soon spiral out of control.

As part of Eskom’s “supplier development” requirements, McKinsey needed to ensure that 30% of the contract went to a local, black-owned firm. Enter Trillian.

During the first half of December, emails we have seen show, McKinsey and Trillian representatives had meetings and exchanged spreadsheets detailing how consulting fees from various Eskom projects under proposal would potentially be split.

Work in the primary energy division of Eskom, where coal is procured, was expected to be the most lucrative, with R1.7-billion in fees to be earned over four years. McKinsey was to receive 65%, while Trillian would take 35%.

The spreadsheet included consultancy work beyond the scope of the turnaround project and for which neither McKinsey nor Trillian had yet bid. Fees apparently on the highly contentious nuclear build programme, for instance, were chalked up at R300-million, with R210-million for McKinsey and R90-million for Trillian.

In total, McKinsey and Trillian projected they could extract R4.96-billion and R4.46-billion respectively – all from Eskom, a state-owned entity that recently told the energy regulator it desperately needed a tariff increase of 20% next year.

McKinsey and Trillian did not deny that these exchanges took place, but characterised the discussions as exploratory.

McKinsey’s version of events, often repeated in recent weeks, is that it initially planned to partner with Regiments Capital, another black-owned firm, but that when senior partner Eric Wood decided to split from Regiments to form Trillian, McKinsey “inherited” Trillian.

“Discussions on the possible division of revenue took place during the period of time when we trialled working with Trillian … There was no presumption on our part that we would get work beyond the scope of the [turnaround project],” McKinsey said, adding: “There may of course have been discussions about hypothetical potential future work.”

Trillian, likewise, told us in a written statement:

“It is incorrect that McKinsey and Trillian had identified or earmarked R9.4-billion of work. It is correct that McKinsey and Trillian had agreed to partner to do work for Eskom … and as such Trillian continued to explore possible opportunities.”

Although it is unlikely that Eskom was privy to this spreadsheet of spoils, inside Eskom, opposition to the turnaround project, for which a contract had yet to be signed, was growing.

It won’t cost you a cent

Government consulting contracts are so lucrative and so open to abuse that national Treasury issues practice notes warning departments and state-owned entities not to use consultants unless absolutely necessary, and capping hourly rates.

When the proposed contract for the turnaround project reached Eskom’s general manager of legal services, Advocate Neo Tsholanku, he baulked.

G9 Forensic recounts in its report: “[Tsholanku] was called in towards the end of negotiations to provide legal opinion on the remuneration model and the sole sourcing question; with a view to approving the SLA [service level agreement with McKinsey].

“He stated that he had on numerous occasions warned Edwin Mabelane and Prish Govender that the remuneration model was not consistent with law… Tsholanku confirmed that he did not approve the SLA, which was in essence a McKinsey drafted document.”

Govender, Eskom’s head of capital projects, and Mabelane, its acting head of procurement, led negotiations with McKinsey.

Unconvinced by Tsholanku’s opinion, Govender and Mabelane appear to have gone to Eskom’s external legal counsel. The opinion they got back “was also consistent with Eskom’s Legal Department’s view,” Tsholanku is reflected as telling G9 Forensic.

G9 Forensic recommends that Eskom’s board should answer whether it was “aware that the [service level agreement] drafted by McKinsey was heavily weighted in its [McKinsey’s] favour”.

The G9 report also states that Aziz Laher, Eskom’s group compliance manager and Public Finance Management Act expert, warned the same executives that the contract with McKinsey should not go ahead without national Treasury approval.

“He confirmed that he provided advice to Mr Edwin Mabelane, Mr Prish Govender and Mr Anoj Singh, either in emails or during formal and informal conversations that the [McKinsey] project could not or should not proceed without Treasury approval… In his opinion, irrespective of all of the ‘savings’ or positive impact … such would be nullified if … the expenditure would be deemed ‘irregular’.”

Eskom, it would seem, ignored Laher’s advice and only wrote to Treasury after the contract had been signed.

Eskom refused to comment on the contents of the G9 report, saying its investigations were ongoing. McKinsey said it was “not aware of the G9 investigation until it was completed”, but added that it offered to co-operate with other Eskom investigations.

Trillian, likewise, said G9 had never contacted it for comment and that as such it was sceptical about the veracity and integrity of the report.

McKinsey starts to worry

By January 2016, the contract between Eskom and McKinsey had been finalised.

For McKinsey this was a major coup. An internal McKinsey presentation from the time describes it as “the firm’s biggest at-risk contract”, with projected earnings of R3.6-billion over three years and with the number of McKinsey consultants on the ground increasing from 20 to 68 within the first year.

The contract was also not as risky as one might expect. A resolution presented to Eskom’s board tender committee in October 2015 had promised McKinsey a down payment of R475-million during the first six months of the project. McKinsey would also, according to its internal presentation, be entitled to claim back expenses.

Both McKinsey and Trillian say the down payment was ultimately not paid.

The contract appears also to have been heavily front-loaded in that McKinsey and Trillian were to receive most of the fees before the turnaround strategies were fully implemented and the benefits realised.

The contract was so good for McKinsey that internally the firm fretted that it would be exposed to reputational risk if the “[p]rogramme leaked to the media insinuating unfair placement with McKinsey, exorbitant fees, etc.”.

McKinsey told us in reply: “It is not true to assert that the contract was designed to benefit consultants – it was done on a ‘fees-at-risk’ basis designed to benefit the client… The fees we charged at Eskom are in line with similar projects we, and other firms, undertake in South Africa and elsewhere around the world.”

Meanwhile, McKinsey was also worried about Trillian, and internally warned that there was “[r]eputational risk through association with [Trillian]”. Its solution was to “[c]losely monitor public perception of our partner and in detail document contractual obligations and interactions”.

McKinsey could not sign a contract with Trillian until the latter passed a due diligence by McKinsey’s US headquarters.

At the time, Trillian was 60% owned by Salim Essa, who has become so intertwined with the Guptas that he is often referred to as “the fourth brother”. And Essa was likely to set off alarm bells as a politically exposed person in terms of the US Foreign Corrupt Practices Act.

McKinsey claimed in its response to us that Trillian did not disclose that Essa was a shareholder at any point during their six-month association, and that considering “operational and reputation risks … is standard, good practice”.

“We often assess possible risks from our client work or partnerships. When questions were raised about Trillian we undertook due diligence… Trillian failed our due diligence by, amongst other things, failing to provide information about who its shareholders were,” McKinsey said.

However, it seems unlikely that McKinsey senior partner Vikas Sagar, who was in charge of the Eskom project, was unaware of Essa’s involvement. The #GuptaLeaks includes emails between Essa and Sagar dating back to August 2014 in which Sagar, using his private email address, forwarded information from McKinsey analysts to Essa about uranium mines.

If McKinsey was truly ignorant of Trillian’s level of political connectivity, it is hard to imagine why McKinsey selected Trillian over other well-established and capable black-owned consulting firms that it initially identified in early drafts of its negotiations to share in the project – or why it raised the “reputational risk” of being associated with Trillian.

The same McKinsey document shows that McKinsey was so sceptical of Trillian’s ability to deliver that it proposed to “staff teams sufficiently to deliver out of our own steam”.

But while McKinsey doubted Trillian’s ability to deliver, Eskom pushed for Trillian’s stake to be increased to 50% of the contract, McKinsey’s internal presentation suggests.
(In the end, Eskom paid Trillian around 35% of the turnaround project fee.)

Trillian said it was “unaware of any role played by Eskom in negotiating Trillian’s fees with McKinsey”, while Eskom declined to comment.

As the project got under way in February 2016, McKinsey’s initial concerns appear to have given way to full-blown disdain.

At one point a McKinsey senior partner allegedly told Trillian that the general impression was that Trillian was merely there to receive 30% of the contract “in return for not much work”.

This was according to an internal complaint written by a Trillian executive and annexed to a report prepared by Advocate Geoff Budlender for Trillian.

In the same document, a senior Trillian executive accused McKinsey of treating Trillian like “an unwanted piece of baggage” that had come as part of the lucrative contract.
Whether Trillian was wanted or not soon became irrelevant.

By March 2016, McKinsey had dumped Trillian after it failed its US-run due diligence, and by June Eskom had cancelled the turnaround project completely.

For most companies this would be a major setback, but as we will show in Part 2 of our investigation, the cancelled contract would, as it turned out, deliver extraordinary returns.

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This week, the Guptas announced that they were selling their shares in newspaper The New Age and TV station ANN7.

The family’s businesses have come under much pressure as evidence of corruption and money laundering has mounted. In response, several banks have closed their accounts, apparently making it hard for them to do business.

Their South African empire is under threat.

Ownership changes – real or not – might remove Gupta company names from a banking blacklist.

The buyer of Tegeta’s coal assets is the Swiss company, Charles King SA. It appears simply to be a corporate vehicle for the transaction. Its purported owner is one Amin Alzarooni, according to the Guptas’ Oakbay Investments.

However, we can reveal that Alzarooni previously served as an apparent Gupta front when the family set up a corporate structure in Dubai for Kamal Gupta, Ajay Gupta’s son.

The structure seemed designed to hide the Gupta family’s ownership.

Included in the #GuptaLeaks emails is correspondence between Ronica Ragavan, now the Oakbay acting chief executive; advisors from the Guptas’ former accounting firm KPMG; and a Dubai law firm, King & Spalding. They discussed setting up a “mudaraba” for Kamal, as well as for Varun Gupta, Ajay’s nephew.

In Islamic finance, a mudaraba is a type of contract between an investor and an entrepreneur.

The emails were exchanged at the beginning of July 2015. In them, a King & Spalding lawyer explained that an Emirati shareholder would hold a nominal 51% in the companies, but that the Gupta family’s nominees “will have a share charge and call option over the Emirati shareholder’s shares”.

In terms of United Arab Emirates (UAE) law, a local national, called a sponsor, must hold a 51% share in a local company. A sponsor must be paid a yearly fee which can be negotiated, but the benefit of the share-ownership can be clawed back via a side agreement whereby profit and losses can be shared at a ratio different from the share capital.

In an email, ​the head of KPMG’s tax and legal advisory practice, Muhammed Saloojee, considered whether the Gupta nominees were entitled “to take 99% of all dividends and profits”.

The emails named the Gupta nominees as Soo Young Jeon, in the case of Kamal, and Aashika Singh, in the case of Varun.

They noted that, “Kamal/Varun will have a separate arrangement with Soo Young Jeon/Aashika Singh”, apparently meaning that dividends and profits would to be passed on to them.

Jeon is a former associate of Tony Gupta. She left South Africa to help set up the Guptas’ operation in Dubai.

Singh is an Indian national who was employed by the Guptas’ group of South African companies.

The emails suggested the Dubai structures were designed to create a disconnect between the nominal shareholders and the beneficial owners – Kamal and Varun appear nowhere and the entities avoid South African tax because Jeon and Singh are not South African tax residents.

The emails explained how two special purpose companies would be established in the Dubai International Financial Centre, a financial free zone. These would be used to channel foreign funds to another business in Dubai.

Six weeks after these exchanges, two companies were set up in the free zone.

The first, Special Purpose Company number 1935, was registered as SKG Holdings, with Jeon as a director, together with two place-holder directors from Intertrust, a Dubai company that provides corporate services.

SKG are the initials of the Gupta brothers’ revered father Shiv Kumar Gupta, who founded a spice trading company called SKG Marketing.

The sole shareholder of SKG Holdings is reflected as Amin Jaffar Abdulla Alzarooni, the man who has just bought Tegeta.

The second company that seems to have been set up pursuant to the advice of KPMG, number 1936, was registered as Sinkam Investments, with Aashika Singh and the same Intertrust employees as directors.

In the case of Sinkam, the UAE shareholder was named as Obaid Saeed Obaid Bin Essa Almheiri.

The #GuptaLeaks emails show that both Alzarooni and Almheiri visited South Africa as the guests of the Guptas in October 2015. They both gave their employer as Millennium Real Estate Registration company.

At that time, Optimum was owned by Glencore. But facing pressure from Eskom and loss-making coal contracts, the mine was in business rescue – and the Guptas were preparing to buy it.

Alzarooni and Almheiri were part of a small delegation that included the former director of defense for the UAE, Major General Atiq Juma Ali bin Darwish. They were said to be travelling to South Africa “at the invitation of our business associate, Sahara computers… to explore investment opportunities in the mining sector”.

A Sahara visa application on their behalf requested the South African high commission in Dubai to grant them multiple entry visas, seeing as they would be conducting follow-up visits “every alternate week”.

Sahara assumed responsibility for their lodging and local travel.

Attempts to contact Alzarooni and Almheiri in Dubai were unsuccessful.

KPMG told us that the company “states categorically that we did not provide advice to evade tax. At all times advice was provided within the parameters of the law”.

Alzarooni’s company, Charles King SA, is according to Oakbay, “a Special Purpose Vehicle acquired by Mr Zarooni to facilitate further investments like Tegeta’s Optimum Coal, Koornfontein and Optimum Coal Terminal acquisition”.

In a follow-up statement, Oakbay said Alzarooni was “a leading businessman in the UAE and a highly respected and active participant in global private equity markets” and “involved with various commodity businesses around the world”.

The company said Alzarooni’s businesses comprise a number of joint ventures with French firms.

These include Arep Ville Abu Dhabi (a joint venture with engineering consultants Arep Group France); Egis Emirates Abu Dhabi (another joint venture with a French engineering group, Egis), Nepteam Middle East (a joint venture with the French shipyard Nepteam); and Gimaex – One Seven, a joint venture with Gimaex International, which produces firefighting equipment.

Oakbay also named Golden Triangle Investment, Jaffar Al Zarooni Real Estate and Triangle Business Connection as part of Alzarooni’s portfolio.

It has been argued that Manyi overpaid massively for the Gupta media assets when he purchased ANN7 and The New Age for R450-million – funded with a loan from the Guptas.

Alzarooni might be getting a very good price at just under R3-billion – as long as Eskom maintains the same sweetheart relationship afforded to the Guptas.

Tegeta has sold its interests in Optimum Coal Mine, Koornfontein Mines and Optimum Coal Terminal. It paid R2.15-billion for these in December 2015, after Optimum, then owned by Glencore, had been forced into business rescue.

It was widely rumoured that they immediately started trying to unload the assets.

In August 2016 Vitol announced it would buy a portion of the assets: the Optimum Coal Terminal’s Richard’s Bay allocation. Vitol never confirmed a price but the price floated was $250-million (R3.3-billion).

In August, Tegeta also secured a new R7-billion coal contract between Koornfontein and Eskom. The rumoured selling price for Koornfontein was R1-billion after this contract was put in place.

At the same time, Tegeta negotiated down a R2-billion penalty that Eskom had imposed on Glencore’s Optimum to just R500-million, hugely boosting the value of the mine.

Charles King’s new entity is most likely to be one of the short-listed bidders for a lucrative new contract for Eskom’s Hendrina power station post-2018 and is an obvious candidate to supply Arnot power station, which desperately needs a supplier.

In other words, Tegeta and Eskom have added significant value to the business, yet they are selling it for not much more than what they paid. On the other hand, with so much public and regulatory scrutiny, these coal contracts might be under threat, which could change the equation significantly.

Oakbay has said the new buyer has committed to including a 30% black partner, but confirmed in an email that they haven’t selected a partner yet.

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Bank and accounting records show that two heavy equipment manufacturers – Swiss-based Liebherr-International AG and China’s Shanghai Zhenhua Heavy Industries Limited – funnelled *more than R100-million* to the Guptas, as Transnet awarded them contracts to supply cranes to South African ports.

This brings to seven the number of large, mostly respected companies, known to have secretly paid Gupta fronts in connection with Transnet contracts.

A forgotten tipoff

Four years ago, an anonymous tipster told amaBhungane that Transnet crane suppliers were paying off the Guptas to get their contracts.

The tipster said: “The cranes that are being supplied to the ports from [Shanghai Zhenhua] are with Guptas. Ask Liebherr. While they were the preferred supplier, they were approached by Guptas to do a deal who then referred them to their local [black economic empowerment] partners, who in turn spoke to [then Public Enterprises Minister] Malusi Gigaba. By then Guptas had done a deal with [Shanghai Zhenhua].”

Days before the tipoff, Gigaba and then Transnet CEO Brian Molefe had stood side-by-side, grinning behind a giant red ribbon, which Gigaba cut in presentation of seven new Shanghai Zhenhua cranes for South Africa.

On the day, Molefe told reporters the tender was “transparent”.

Molefe later moved to Eskom, which he recently left in disgrace after evidence emerged that he courted the Guptas while Eskom and Transnet closed allegedly dirty deals for the Guptas.

On Saturday, Transnet spokeswoman Viwe Tlaleane said: “The company is conducting its own internal enquiry and will investigate all allegations made. Where appropriate, it will enlist the services of independent experts, depending on the required expertise”.

Liebherr executive Dieter Schmid said: “I can assure you that Liebherr has never had an ‘extensive and direct relationship with the Guptas for years’ as alleged in your e-mail.” But he said the company was “still putting the pieces together” and needed more time.

Shanghai Zhenhua did not respond to questions.

Paying to play

As was claimed by amaBhungane’s tipster, Liebherr’s Gupta payments were indeed preceded by roughly R55-million from the Chinese. In September 2011, Transnet announced that Shanghai Zhenhua would build, deliver and commission seven tandem-lift ship-to-shore cranes for the container terminal at Durban harbour.

According to Transnet documents obtained by amaBhungane, it would pay Shanghai Zhenhua $92-million (about R1.2-billion today) for the job.

Three months later, money started to flow to the Guptas.

Shanghai Zhenhua paid the first tranche of US$969 086 (R12.6-million) that December. According to the Guptas’ accounting records, it went to a United Arab Emirates-registered company called JJ Trading.

JJ Trading has also featured prominently in another Transnet kickback scheme. The #GuptaLeaks reveal China South Rail entered into a “consulting” agreement with JJ Trading, related to Transnet’s 2013 locomotive tender, and paid JJ Trading over US$107-million (R1.4-billion).

• Read the Transnet-related #GuptaLeaks here.

For every tranche of cash received from Shanghai Zhenhua, JJ Trading transferred exactly 4% to a person called “David”, sometimes as cash. The rest flowed to Gupta front companies in the UAE and South Africa.

For example, at the end of January 2013, Shanghai Zhenhua paid US$1.2-million (R15.6-million) to JJ Trading.

Within days, JJ Trading paid US$743 815 (R9.7-million) to Global Corporation LLC’s National Bank of Abu Dhabi account. Global is beneficially a Gupta company. JJ Trading paid another US$256 130 (R3.3-million) to Global’s US Dollar account at Standard Chartered.

In all, Shanghai Zhenhua paid at least US$4.2-million (R54.6-milion) to JJ Trading over 14 months, of which 15% stayed with JJ, 4% was paid to “David”, and the rest went on to the Guptas.

The records also reveal how a confidential Transnet document, related to the subsequent tender for 22 cranes that Liebherr won, had been leaked to the Guptas. It is not clear how, but a top Gupta executive then emailed the document to an Indian national associated with JJ Trading.

Déjà vu

This is not the first time Liebherr has popped up on amaBhungane’s radar.

Last October, amaBhungane linked Liebherr to another apparent Transnet kickback scheme.

AmaBhungane’s investigation revealed that in March 2015, Burlington – a subsidiary of advisory firm Regiments Capital – signed a R5-million contract with Liebherr-Africa to provide it with “market feasibility studies” in relation to the supply of cranes to Transnet.

Liebherr made a R2-million down payment to Burlington, which paid exactly 90% straight on to a Gupta front, Homix.

At the time, Liebherr told amaBhungane that Homix was unknown to it.

It is now clear that Liebherr’s R2-million laundered to Homix was just the tip of the iceberg. The #GuptaLeaks reveal that the family received roughly *$4.2-million (R55-million)* from Liebherr over the course of a year and a half.

Bank records show that in July 2013 Liebherr paid US$905 000 (R11.8-million) to another of the Guptas’ UAE front companies, Accurate Investments.

If Accurate sounds familiar, that is because the Guptas also used it to launder the Free State government’s money to pay for their niece’s notorious Sun City wedding.

On 17 February 2014 – the same day that Liebherr announced it had scored the 22-crane Transnet contract – Liebherr paid Accurate another US$202 008 (R2.6-million).

Liebherr’s cash lands in the US

Although the South African Revenue Service, Hawks and National Prosecuting Authority remain unmoved by the #GuptaLeaks revelations, the shadow of US regulators potentially looms large .

• Read “The Almighty Dollar”

A significant portion of Liebherr’s cash transferred to Accurate was quickly passed along to relatives of the Guptas in the US.

In May 2014, Liebherr made three more payments to Accurate totalling US$1 105 368 (R14.4-million).

On 28 May 2014, two days after Liebherr’s last wire hit Accurate’s account, Accurate bundled Liebherr’s money with other funds and wired it all to Brookfield Consultants Inc in the US.

According to its website, Brookfield specialises in healthcare consulting.

Records obtained by amaBhungane show that Brookfield, incorporated in Texas, is managed by Ashish and Amol Gupta. In correspondence Ashish and Amol Gupta refer to Rajesh “Tony” Gupta as “Respected Tony Uncle”.

Documents contained in the #GuptaLeaks reveal that Ashish and Amol Gupta were respectively 27 and 23 years old at the time Accurate transferred Liebherr’s cash to Brookfield’s account at JPMorgan Chase Bank in New York.

Neither Ashish nor Amol Gupta, nor their father Ramesh, who provided Tony Gupta with Brookfield’s bank account information, responded to any of amaBhungane’s attempts to contact them.

The ever-expanding feeding trough

We have seen no specific evidence of Transnet rigging the crane tenders to favour Liebherr and Shanghai Zhenhua.

However, the payments to offshore Gupta fronts and contemporaneous contract awards trace a Transnet tender pattern that is now well known. Liebherr and Shanghai Zhenhua bring the number of Transnet contractors who have paid the Guptas or partnered with their companies to seven.

SAP: Last week, amaBhungane and Scorpio revealed that German software multinational SAP paid R100-million to Gupta-linked CAD House.

Despite strident denials of wrongdoing from SAP’s local managing director following these revelations, SAP’s international headquarters quickly suspended four South African executives and announced it had hired US law firm Baker McKenzie to investigate.

China South Rail: Last month, amaBhungane and Scorpio exposed a R5.3-billion kickback contract between China South Rail (CSR) and a Gupta company in Hong Kong, after CSR won contracts worth roughly R25-billion to supply Transnet with locomotives.

The contract and other #GuptaLeaks accounting records describe how CSR initially paid JJ Trading and a related Dubai company $124-million (more than R1.6-billion) kickbacks for these contracts. The funds were passed on to Gupta companies.

Recall that Shanghai Zhenhua also paid JJ Trading before the money flowed to the Guptas. In light of the CSR kickback documents, it is possible that similar agreements underlie Shanghai Zhenhua and Liebherr’s crane contracts.

McKinsey: Last year, amaBhungane reported how global consultancy McKinsey won Transnet contracts that were gradually ceded to Regiments Capital and the Gupta-linked group Trillian, which marched off with Transnet contracts worth at least R484-million. Regiments in turn paid R84-million to the Gupta front Homix.

A recent investigation by Advocate Geoff Budlender exposed how McKinsey partnered with Trillian, in a “sham” contract that would milk Eskom.

Neotel: In 2015, amaBhungane exposed how telecoms firm Neotel paid tens of millions of rands in “commissions” to Homix to clinch deals worth more than R2-billion from Transnet.

T-Systems: Questions have also been raised about German IT company T-Systems’ contracts with Transnet and Eskom. T-Systems’ supplier development partner Sechaba Computer Services also paidHomix.

Former Transnet CEO Brian Molefe and CFO Anoj Singh were in charge through most of this. They moved together to Eskom in 2015, where more questionable Gupta deals have been publicly identified.

The investigations multiply

This week, Transnet was the latest company to promise an investigation.

Spokeswoman Viwe Tlaleane told amaBhungane: “Transnet notes recent reports based on leaked emails.

“Some of these reports cast aspersions on the integrity of the company’s governance processes, especially relating to procurement. Transnet views good governance and the integrity of its processes seriously. In this regard, we have put in place various measures to safeguard this integrity. Any breach or allegation of breach is viewed in a serious light.

“Transnet did not make any payments to third parties and has no knowledge of the alleged transactions. Part of the company’s investigation entails approaching suppliers for their perspective on the allegations.

“Should any actionable facts arise, remedial action will be taken.”

KPMG see no evil – Part 2KPMG see no evil – Part 2

For the second time, the #GuptaLeaks show what look like kickbacks flowing into a Gupta company audited by KPMG.

AmaBhungane recently reported how, in the 2014 financial year, public money meant for a community dairy in the Free State was circulated offshore before being channelled through Accurate Investments in Dubai to Linkway in South Africa.

Both companies are Gupta-owned, and KPMG audited Linkway at the time.

The Guptas used some of dairy money to pay for their now notorious Sun City wedding, which KPMG allowed them to write off as a business expense.

To justify this tax write-off, KPMG later claimed that, based on facts known to it, Accurate was not a Gupta company but was “related to” the father of the Sun City bride.

AmaBhungane has yet to discover anything among the millions of pages of documents contained in the #GuptaLeaks to support this.

Crane manufacturer Liebherr’s cash followed the same trail.

Liebherr sent the money to Accurate in Dubai, where it was quickly bundled with other funds flowing through the Guptas’ Dubai bank accounts and, in part, laundered to South Africa.

In one instance – on 25 February 2014 – Accurate wired money to the Guptas’ Linkway Trading [link 140227 Email Linkway Consultancy Payment to Accurate.pdf] purportedly for “consulting” services.

KPMG did not respond to amaBhungane’s questions about Accurate’s popping up yet again in Linkway’s accounts.

In sum – during the financial year ending 28 February 2014 – funds originating from at least two government entities, the Free State and Transnet, were laundered via Accurate in the UAE to Linkway on KPMG’s watch.

KPMG previously said: “We stand by our audit opinion issued.”

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• 

After Matjila was appointed, Gupta-owned TNA Media scored lucrative deals with the power utility.

On March 22, 2014, Gupta associate Salim Essa circulated Matjila’s CV via mail to Gupta brother Rajesh, better known as Tony, and his nephew Srikant Singhala, son of Atul Gupta.

The CV was then forwarded to an employee of the Guptas’ Sahara Computers and Duduzane Zuma – President Jacob Zuma’s son and a business partner of the Guptas.

At the end of that month Matjila, who had been on the Eskom board since 2011, replaced Brian Dames as CEO in an acting capacity. His short tenure would soon turn into a boon to the Guptas’ TNA Media, publisher of the overtly pro-government newspaper The New Age.

In October 2014, amaBhungane reported that “Matjila allegedly disregarded internal legal advice and approved a budget-busting R43-million New Age business breakfasts sponsorship”.

The business breakfasts, now reportedly being cancelled by the SABC, were regularly broadcast live on the state broadcaster at its expense. They featured prominent political figures, including President Jacob Zuma.

Those widely seen to be in the Zuma camp and close to the Guptas are heavily represented at these events, which have raked in large sponsorships from state-owned entities and which industry experts say are a major money spinner for an otherwise struggling newspaper.

Now, the leaked emails corroborate amaBhungane’s previous report of the exorbitant sums Matjila lavished on the The New Age’s flagship television show, and at a time when the power utility could ill afford it.

On 4 April 2014, just after Matjila had moved into his new role, an email containing a proposal for renewing and expanding Eskom’s sponsorship of the business breakfasts was sent from Nazeem Howa, the CEO of Gupta-owned Oakbay Investments, to another Gupta employee, Ashu Chawla.

The proposal, dated to the previous month and addressed to Chose Choeu, Eskom’s executive for corporate affairs, reads: “It is with pleasure that we submit the following proposal for the period 1 April 2014 to 31 March 2015 for sponsorship of 12 Business Briefings for a total investment of R14,400,000.00, excluding VAT and agency commission.”

Email correspondence from about a month after the proposal was circulated shows TNA Media’s business development manager Wiedaad Taliep and Eskom’s Choeu arranging a meeting to “discuss the breakfasts logistics and related issues”.

On 6 May, Chose wrote that the “the contract has been signed by our CEO”, referring to the business breakfasts.

That correspondence was then forwarded to Atul Gupta.

The amaBhungane report from later that year stated that “the new contract for R43-million allegedly approved by Matjila commits Eskom to sponsoring roughly one monthly briefing for three years”.

If the R14.4-million cited in the proposed contract were to be extended to three years the figure would be almost identical to the alleged R43-million.

That report alleged that the final contract was especially onerous because it did not contain an exit clause – something that Eskom’s lawyers had allegedly raised with Matjila before he signed off on it.

The deal caused such concern at board level that the chair of its audit and risk subcommittee raised the alarm with Public Enterprises Minister Lynne Brown.

At around the same time as the business breakfast deal was being hammered out, Eskom also entered into a new contract for the bulk buying of copies of The New Age.

Attached to the same email containing the business breakfast proposal was a newspaper subscription agreement between Eskom and TNA Media, effective 1 May, 2014.

The unsigned copy of the agreement committed Eskom to purchase 4,000 daily copies of the The New Age over a period of 36 months. The cost was calculated at the full cover price of R3.50 at 256 publishing days per year, plus 50 cents on each paper for delivery.

The total cost for a year’s subscription: R4,096,000. No discount was offered on the cover price – highly unusual for such a large purchase.

The agreement tied Eskom down by stating that it shall remain “in full force and effect indefinitely” unless either party were to terminate it by “giving to the other Party six months’ written notice of termination”.

The TNA business model relies heavily on government contracts for advertising and subscriptions.

Previous amaBhungane reports, citing data from global market research firm Nielsen, showed that ad-spend from government and state-owned companies has propped up The New Age.

The paper receives a disproportionate share of government ad-spend while the private sector has been largely unwilling to advertise in a paper that does not release comprehensive audits of its circulation figures.

The Guptas’ government-focused business strategy was stated unambiguously in recently leaked emails concerning a plan to take over the Mail & Guardian newspaper.

The emails show that the plan to make the Mail & Guardian profitable was to steer it in the same direction as The New Age – adopt a pro-government editorial position and attract government ad-spend.

According to Nielsen figures, this approach netted The New Age R2.2-million worth of advertising from South African Airways, R3.4-million from the SABC, and R4.5-million from Transnet for the year ending 31 October, 2016.

Fin24 reported in 2015 that SAA had spent R9.4-million to purchase nearly six million copies of the paper.

For Eskom, relations with TNA Media did not begin when Matjila took the helm. The utility has publicly stated that it had dealings with The New Age since 2011, and between 2011 and early 2014 it had spent at least R12-million on 10 business breakfasts.

But Matjila appears to have been particularly eager in dispensing largesse to the Guptas, and this in a year when the cash-strapped state-owned company faced major delays and cost overruns with new power station construction, was on the brink of another load shedding crisis, and was desperate for a bailout after a shortfall of hundreds of billions of rand.

Asked if the volume of Eskom’s expenditure on The New Age could constitute wasteful expenditure, Eskom gave the following generic response: “Regarding the incidence of fruitless and wasteful expenditure in general, Eskom regularly reviews its internal control processes to minimise the risk, and where an incident occurs Management takes appropriate measures to deal with the matter, including disciplinary action and/or criminal or civil action against those involved, as considered appropriate.”

Eskom did not answer detailed questions, including those regarding the role of Matjila. It also did not respond to follow-up questions.

Gupta lawyer and regular spokesperson Gert van der Merwe has refused to comment on #GuptaLeaks claims, saying: “I have no documents or context or instructions. It is inappropriate.”

Gupta Link

Matjila’s link to the Guptas can be traced back to his chequered history as chief executive of Cosatu investment company Kopano ke Matla, where he was implicated in a number of cases of financial mismanagement before resigning in 2014 when he took up his executive position at Eskom.

Under his watch at Kopano ke Matla the Financial Services Board picked up a web of suspicious payments including one of R1.3-million to a company he owned. In response, Matjila told the FSB the payments were “personal commissions”.

Cosatu also commissioned its own forensic report in 2013 in an attempt to get to the bottom of numerous allegations of financial misconduct at its investment arm.

This showed that Matjila had only handed over a summary of the FSB report to Cosatu while he sat on the full report.

The Cosatu report also alleged that Matjila undersold an old Cosatu property by as much as R9.5-million, and paid an inflated price for a new property – R6.3-million more than it was worth.

It found that the task team led by Matjila that negotiated the property transactions was “informally assisted” by Essa, the Gupta associate who sent Matjila’s CV to Tony Gupta. It added that Kopano had previously worked with Essa through Inca Energy, an entity jointly owned by Kopano and Essa.

Chequered Past

Matjila’s tenure at Eskom, first as member of the board’s tender subcommittee and then as acting CEO, was also marked by his involvement in the awarding of a controversial R4-billion contract to replace ageing steam generators at Koeberg nuclear power station.

The never-ending tender would drag on for years as Matjila and other political appointees at board and ministerial level appeared to use every opportunity to block the bidder preferred by Eskom’s technical teams.

The tender was originally awarded in 2011, with the lion’s share going to Japanese-American corporation Westinghouse, and a smaller portion of the deal going to its French rival Areva. But it was halted by then public enterprises minister Malusi Gigaba, who claimed that Eskom had not received ministerial approval.

Eskom reopened the tender process in 2012 and the following year Eskom’s technical team reaffirmed its choice of Westinghouse as the preferred bidder. But when its decision was taken to the board’s tender subcommittee, then chaired by Matjila, it stalled again.

Matjila appeared to be creating a parallel tender process by bringing in external consultants who reported to him and contradicted the work of the Eskom technical team and backed Areva.

As the process dragged on into the second half of 2014 Matjila, then acting CEO, and Matshela Koko, acting group executive for technology and commercial, co-signed an unsolicited memo recommending Areva.

Despite Eskom’s technocrats continuing to support the cheaper Westinghouse bid, the tender committee awarded the contract to Areva. After a drawn-out legal challenge by Westinghouse, the Constitutional Court ruled against setting aside the tender award to Areva.

AmaBhungane tried numerous times to contact Matjila on several phone numbers linked to him. He did not answer, nor did he respond to text messages.

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In 2015, as Brian Molefe and his key lieutenant Anoj Singh moved across to Eskom, the Guptas turned their attention to the power utility’s R40-billion primary energy budget.

The feast was about to begin.

May 2014-September 2014: The Negotiations

To understand how the Guptas captured Eskom, one needs to go back to May 2014, when a company called Goldridge came looking for an Eskom coal contract.

At the time, the Guptas were well-known, having landed both literally and in the public discourse at Waterkloof airforce base in 2013. However, the Guptas’ fledgling mining companies, Goldridge and Tegeta, were still unknown entities.

Minutes from the meeting held at Megawatt Park on May 9 2014 show that there was some confusion about who actually owned their Brakfontein coal mine – Tegeta or another Gupta-owned mining company, Goldridge. It was Tegeta.

It was Ayanda Nteta, now Eskom’s acting head of fuel sourcing, who pointed out during that first meeting that “Eskom prefers dealing with companies that are 50%+1 black-owned” which Tegeta was not.

At the time, almost 50% of Tegeta was owned by Oakbay Investments, and indirectly Gupta brothers Atul and Ajay and their wives Chetali and Shivani.

Another 21.5% was owned by Bhatia International, a controversial Indian coal company that only a few months before had been charged by India’s Central Bureau of Investigations with allegedly supplying substandard quality coal to India’s version of Eskom, complete with forged lab results.

Only the remaining 30%, held by Aerohaven Trading and Oakbay chief executive Ronica Ragavan, was considered black-owned.

Throughout 2014, Eskom officials did not seem overly interested in the coal resources Tegeta had to offer, as minutes of various Eskom meetings reveal. Goldridge had offered the same resource to Eskom in 2012, which Eskom declined.

Still Eskom’s coal procurement officials agreed to play along and do another round of tests. The results were not promising: only a small seam of coal from Brakfontein mine known as “seam 4 lower” was considered suitable.

At a meeting in September 2014, Tegeta “asked if there is any way Eskom can accommodate them as they are only looking to supply [a] small amount of coal” from their stockpile.

Nteta responded that “the power stations that could potentially take coal from Brakfontein have all their needs met for this financial year”. Tegeta persisted, asking about “the possibility of moving some coal in the interim”. Eskom did not budge.

But the Guptas were not going to take no for an answer.

November 2014-January 2015: Enter the Gupta-controlled Board

AmaBhungane understands from sources familiar with the negotiations that Eskom’s coal procurement officials held out as long as they could, but by January 2015, they were receiving pressure “from above” to sign a contract with the Gupta-owned mine.

By this point, Eskom also had a new board. In December 2014, public enterprises minister Lynne Brown replaced eight members of Eskom’s board.

Six out of the eight new appointees – Ben Ngubane, Mark Pamensky, Nazia Carrim, Maria Cassim, Devapushupum Naidoo and Romeo Khumalo – were either family of or had business ties to the Guptas and their business partners, according to the Public Protector’s report.

On January 23 2015, Tegeta came with a new offer. Although Eskom tests found that Brakfontein’s blended product (seam 4 upper and lower) was unsuitable, Tegeta offered to supply the blended product at R15/GJ.

Eskom told Tegeta that the price was too high and to come back with a new offer.
Instead of lowering their price, Tegeta came back a week later with reasons why it needed a higher price.

Minutes from the meeting show that Tegeta’s chief executive Ravindra Nath told Eskom “they have increased their BBBEE ownership and a higher price would be needed to finance the BBBEE partners”.

This was not true – Tegeta only acquired new black shareholders six months later when Salim Essa and Duduzane Zuma were brought on board. Minutes show that Nath also tried to argue that “changes in environmental law as well as royalties justified the need for a higher price”.

Eventually, Eskom agreed to accept Tegeta’s offer to supply 65,000 tons per month of blended coal for five years at R13.50/GJ, roughly R277/ton.

It is unlikely that Eskom officials were aware that around the same time, questions about Brakfontein’s coal were being raised in court.

As part of a case brought by a former mining contractor against Goldridge, an expert geology report was submitted to court that concluded that “…Brakfontein coal deposit could never support a mine of economic importance”.

“Theoretically the poor quality [coal] can be mixed with another coal supply source to produce an acceptable Eskom quality coal feed, but [this] is a pipe dream,” geologist Gerhard Esterhuizen wrote in his report.

The pipe dream was about to be put to the test.

February 2015-March 2015: The Guptas demand more

The Guptas had finally been promised their first Eskom coal contract, but it is apparent they were not satisfied with their relatively modest contract of 65,000 tons/month.

Just four days after Eskom relented and agreed to take Brakfontein’s coal, Tegeta’s chief executive wrote back to Eskom’s general manager of fuel sourcing, Johann Bester, with a new request:

• Increase the amount of coal supplied from 65,000 tons a month to 100,000 tons a month, starting in October,
• Increase the contract from five years to 10 years, and
• Allow Tegeta a grace period of three years before it needed to become 50%+1 black-owned.

Minutes show that during negotiations, Eskom had requested first right of refusal to coal from the as-yet-unopened part of the coal mine known as Brakfontein Extension.  Tegeta was now seeking to convert Eskom’s first-right-of-refusal into a cold, hard contract.

Bester sat on the request for a few days and then wrote back on February 12:

• Eskom would still only agree to take 65,000 tons a month; come October Tegeta could offer Eskom another 35,000 tons a month from Brakfontein Extension, but it would be up to Eskom to decide if it wanted or needed the coal.
• Eskom would still only agree to a contract of five years but there would be an option to extend for another five years when the contract ran out.
• On the BEE requirements, Eskom would agree to a grace period, as it had done with other suppliers, provided that Tegeta remained 50%+1 black-owned for rest of the contract.

Considering that Tegeta’s first coal contract was still not signed – a contract that was awarded without a competitive bidding process – this was an unusually generous concession from Eskom.Tegeta was not happy though.

Nath immediately forwarded Eskom’s letter to Tony Gupta and Salim Essa, saying:

I am not very happy with the wording “Eskom shall [have] an option to enter into an offtake agreement for the additional coal”. Further, ‘option to extend for further five years’. This shows that there is no commitment on the part of Eskom.

It is worth taking a minute to consider this – Tegeta had already used their connections to pressure Eskom to take low quality coal. Now, by refusing to more than triple the contract from roughly R1-billion to R3.8-billion on the basis of a single letter, Eskom was deemed to be showing “no commitment”.

Commitment to what, exactly?

The reply that came from Gupta and Essa is not included in the #GuptaLeaks. But the following day, an emboldened Tegeta wrote back, this time to Nteta, who reported to Bester.

“Kindly recollect our discussions in which I mentioned that we want a 10 years’ contract to satisfy our funders as the loan period is going to be more than 7 years… for the sustainability of the mines we request you to kindly consider the following changes favourably.”

Nath included his proposed changes to the wording of the contract, which would include a 10-year contract and a guaranteed 100,000 tons a month, starting in October.

At this stage, there’s clear evidence that Eskom was aware that Tegeta’s Brakfontein coal mine did not represent the best value-for-money for Majuba power station.

A list of coal suppliers disclosed in the unredacted version of the Denton’s Report shows that in 2015, Majuba power station had seven suppliers – Tegeta delivered the lowest quality coal yet commanded the highest rand per gigajoule rate.

For example, while Tegeta scored R13.50 per GJ, another Delmas-based mine, Kuyasa Mining, was paid R10.41 per GJ. And while Kuyasa as well as four other Majuba suppliers reached Eskom’s target of being 50%+1 black-owned, Tegeta had still not concluded their promised BEE deal.

It is not clear from the #GuptaLeaks what happened over the next two weeks, but on March 9, Eskom relented – Nteta wrote back to Tegeta confirming that Eskom would take 113,000 tons of coal from Brakfontein, starting in October 2015.

The following day, Eskom and Tegeta signed the Brakfontein contract worth R3.8-billion over 10 years.

An unexplained footnote to this saga is that the day after the Brakfontein contract was signed, Eskom’s board suspended four senior executives, including chief executive Tshediso Matona and Matshela Koko, group executive for commercial and technology.

Of the four suspended, only Koko would eventually be reinstated.

March 2015: Problems emerge

Tegeta was due to start delivering coal on 1 April 2015, provided that its coal first passed a combustion test at Eskom’s Research, Testing and Development lab in Germiston – this was not as simple as it sounds since Tegeta’s blended coal had failed to pass two previous tests.

The results of the combustion test, conducted by Eskom’s special-purpose built lab, were delivered two days after the contract was signed. The report, which forms part of an ongoing investigation by Treasury, concluded that Brakfontein’s coal was “not suitable for all power stations”.

Of the 14 power stations in Eskom’s fleet, the coal was considered “not acceptable” for 10, while four were considered “marginal”. Majuba, where Brakfontein’s coal was contracted to go, was one of the power stations marked “not acceptable”.

In particular, the report warned that Tegeta’s plan to blend higher and lower quality coal was risky, saying: “…producing a consistent blend … is difficult to maintain. This can result [in] producing a blend with a hardgrove [index] which is worse than the one analysed, and also surpassing the … ash and CV rejection limit.”

In other words, the coal from Brakfontein mine was too marginal, the risk of the coal quality dipping below the rejection limit on a regular basis too high.

At this point, Eskom should have told Tegeta the deal was off. Instead, Eskom ignored its own technical experts and okayed Tegeta to start delivering coal to Majuba.

March 2015: Ben’s Board

By this point, the Guptas were also starting to throw their weight around with the Eskom board.

On March 19, Nazeem Howa, then-chief executive of Oakbay Investments, sent Salim Essa a statement that he had drafted for the Eskom board to send out announcing that it had decided to relieve chairman Zola Tsotsi of his duties.

In the email Howa refers to the statement as “a first draft”, saying to Essa: “Let me have your thoughts and I will work to polish further.”

Although Tsotsi would only step down two weeks later, it appears the Guptas were not only given advanced warning that the Eskom chairman would resign, but had taken the liberty of drafting a statement for the new chairman, Ben Ngubane.

On Thursday, Tsotsi said he was “not surprised” that the Guptas were privy to information about his removal:

“I suspected my removal was orchestrated by them. In fact, the Guptas told me a couple of weeks before, at the State of the Nation Address [February 12], that if I would not co-operate with them that they will see to it that I am removed as they were the ones who made sure that I was retained as chairman.”

Tsotsi said that at the time he was not aware that his replacement, Ngubane, and several members of the Eskom board had connections to the Guptas.

The #GuptaLeaks show that Ngubane and Essa were already well-acquainted, being business partners in Gade Oil and Gas, a company that tried to gain oil concessions in Central African Republic in 2013.

Two weeks later, the day after Tsotsi resigned, Howa sent Essa an “amended version of the statement for Ngubane, “for your approval”.

The statement that Ngubane released on behalf of the Eskom board later that day differs substantially from Howa’s final draft, but Howa’s fingerprints are clear in a few of his sentences that survived.

One of Howa’s phrases that did not make it into the final statement was that the board “will not tolerate incompetence, tardiness, any dereliction of duty from any member of the Eskom team, saying:

“We know that there is no alternative but to implement several radical solutions.”

Things were about to get a lot more radical at Eskom.

April 2015-June 2015: Enter Molefe and Singh

With Eskom chief executive Tshediso Matona on suspension, Minister Brown announced that she would be moving Transnet chief executive Brian Molefe across to Eskom. Coming with him would be Transnet chief financial officer Anoj Singh.

Invoices show that Singh had already made four trips to Dubai by this point, where he stayed in the luxury Oberoi Hotel, enjoyed spa treatments and was chauffeured around in a limo – all paid for by the Guptas’ Sahara Computers.

Although there’s no record of Molefe visiting the Guptas in Dubai, the Public Protector’s State of Capture report detailed 58 phone calls between Molefe and Ajay Gupta starting soon after Molefe joined Eskom.

The arrival of Molefe and Singh at Eskom ushered in a new era for the Guptas’ mining ambitions.

When Tegeta started delivering coal to Eskom’s Majuba power station in April 2015 production was slow – just 54,041 tons in the first month – but deliveries soon ramped up and by July, Tegeta was delivering and being paid for more than 100,000 tons; far more than the 65,000 tons Eskom agreed to take for the first six months of the contract.

Considering that Tegeta had scored a 10-year contract without participating in a competitive bidding process, this was a major triumph.

But Tegeta now wanted more.

In a new proposal sent to Eskom in June, Tegeta proposed that come October, its mine would deliver 200,000 tons of coal to Eskom, up from the already inflated 113,000 tons agreed to in the contract.

Eskom agreed, provided that Tegeta’s coal passed the required qualify tests. However, as production volumes increased at Brakfontein mine so too did the problems.

A technical report commissioned by Treasury and based on documents from Eskom shows that in August 2015, 34% of Tegeta’s stockpiles were rejected because the quality did not meet Eskom’s specifications.

Eskom insists it did not pay Tegeta for stockpiles that were rejected, but the records provided to Treasury show that Tegeta was still paid for well over 65,000 tons of coal it was contracted to deliver – R35.3m for 122,617 tons in July, R33.2m for 112,207 tons in August, R42m for 139,386 tons in September.

August 2015: Problems emerge

By the end of August 2015, Eskom could not ignore the problems with Tegeta’s coal.

On August 31, Koko – who had recently been reinstated to his position as group executive of technology and commercial – suspended Tegeta’s contract as well as two independent laboratories that were testing Tegeta’s coal.

The suspension of its contract came at an inopportune time for Tegeta. Just three days before Tegeta had written to Eskom with yet another offer, this time to supply an additional 150,000 tons of coal a month – Tegeta would source the coal from other mines and blend it, not as a middleman per se, but a “value-adding trader”.

For most junior coal suppliers, the suspension of a coal contract would be a major crisis. Tegeta seemed undeterred. On September 4, Tegeta increased their offer to supply coal as a value-adding trader to 200,000 tons.

At the same time, Nath wrote back to Koko explaining that despite accredited independent laboratories rejecting numerous samples of being too high in sulphur, Tegeta’s own in-house tests found the sulphur levels to be acceptable.

There is no indication in the #GuptaLeaks that Tegeta sent the result of the in-house tests to Eskom. Despite this, Nath’s letter seems to have sufficed. The following day, Koko lifted Tegeta’s suspension “whilst [Eskom] continues its investigation”.

Koko would later claim in an interview that their investigation found that one of the labs was at fault, saying: “…We had conclusive proof that this lab was fabricating results … that is why we suspended them,” Koko told Carte Blanche in June 2016.

However, an October 2015 report by Dr Chris van Alphen, Eskom’s chief adviser on coal quality, lays the blame squarely on Tegeta and its apparent inability to produce a consistent blend of coal.

According to a technical report prepared for Treasury’s investigation, when three labs analysed what were supposed to be identical samples of Brakfontein’s coal from August 2015, the results varied so dramatically that one technician remarked: “They do not look like the same coals never mind the same samples.”

For Tegeta it was business as usual, but the episode also resulted in four Eskom employees being suspended including Dr Mark van der Riet, Eskom’s most senior coal scientist who was tasked with investigating the discrepancies in Brakfontein’s coal qualities.

Almost two years later, Van der Riet remains on suspension. After Van der Riet and his union representative approached the Labour Court, Eskom finally agreed to hold an internal disciplinary hearing later this month.

“If Mark’s matter is such a serious matter why has it taken more than a year for Eskom to deal with it? Eskom seems to be using delaying tactics, hoping the employee will eventually resign,” Numsa’s Bonny Nyangwa said on Wednesday.

Eskom’s official line is that Van der Riet’s 22-month suspension is not linked to his role in investigating Brakfontein’s coal qualities.

Nyangwa disputes this, and confirmed that Eskom added new charges against Van der Riet earlier this month: breaching Eskom’s confidentiality policy by allegedly forwarding information about the Brakfontein investigation to his personal email address.

September 2015: Tegeta ups the game

Even after Tegeta’s contract was reinstated, Brakfontein’s coal continued to periodically fail lab tests, according to Treasury’s technical report.

In September 2015, for instance, 38% of Tegeta’s stockpiles were rejected, most for having excessively high sulphur levels, the cause of toxic sulphur dioxide air pollution.

There’s no evidence that Eskom was deeply concerned by this development. Instead, starting October, Tegeta increased deliveries to Majuba power station to more than 200,000 tons a month.

Keep in mind that this was during summer, when Eskom’s coal requirements have always been lower. Despite this, Tegeta was now delivering three times what was originally agreed to in the January 2015 negotiations with Eskom.

For the next several months, Tegeta reaped the rewards despite there being no evidence that any other mines were given an opportunity to bid to supply extra coal to Majuba.

At the same time Tegeta was also pushing Eskom to agree to their long-standing proposal to become a “value-adding trader”. Finally, at the end of September, Eskom official Thabani Mashego pushed back.

In a tone that the Guptas must have been unused to hearing, Mashego told Tegeta chief executive Ravindra Nath in an email:

“Eskom will be going out on open enquiry to fulfil their coal shortfall requirements going forward. Tegeta is therefore advised to respond to such enquiries, which will be advertised in the print media and the Eskom Tender Bulletin shortly.”

Nath wrote back the next day, essentially instructing Eskom to sign the contract.

“[W]e have to advise that on the basis of the letter and the subsequent meeting thereafter we have already tied up the coal offtake and it is not possible to come out of it. We therefore request you to arrange for the contract in this regard.”

It is not clear whether Eskom capitulated and signed this contract – this is one of the many questions that Eskom chose not to answer. Either way, Tegeta did not need this off-take agreement – it was about to become a major coal supplier to Eskom.

April 2015-December 2015: Next Target: Optimum

It is worth taking a step back for a minute to understand how the Glencore-owned Optimum coal mine became a target in Tegeta’s rapidly expanding coal empire.

Hidden in the #GuptaLeaks is a letter addressed to Glencore’s chief executive Clinton Ephron. Dated April 13, the letter was from Dam Capital, representing the little-known Endulwini Consortium, and contained an offer to buy Optimum Coal as well as Optimum’s Richards Bay export allocation for $200-milllion.

“We have commenced putting together a consortium of South African investors, led by Black people, with an established presence in the mining industry,” the letter reads, “[t]he identity of whom will be disclosed as we reach an agreement that the assets are available for sale.”

No more is heard from Endulwini or Dam Capital in the cache of leaked emails, and it is not clear if the Guptas were the anonymous investors referred to in the letter.

What we do know from the Public Protector’s report is that in July, Glencore received an almost identical offer to buy Optimum Coal from KPMG representing an anonymous client.

When Glencore questioned KPMG it discovered the bid had come from Oakbay.

Glencore refuses to comment on the Dam Capital offer, and we know from the Public Protector’s report that it rejected the similar overtures by KPMG.

Soon though, Glencore was facing new problems from Eskom as newly appointed Eskom chief executive Brian Molefe took a hardline approach, refusing to renegotiate the price Eskom paid for Optimum’s coal.

At R150/ton Optimum was sinking deeper and deeper into financial trouble. In August, Glencore placed the mine in business rescue in a bid to stave off liquidation, but Molefe remained unmoved.

Instead it is alleged that Molefe and Eskom chairman Ben Ngubane tried to persuade mines’ minister Ngoako Ramatlhodi to cancel Glencore’s other mining rights in a bid to force Glencore to capitulate.

On August 7, after Optimum’s mining licence was briefly suspended and then reinstated by the Department of Mineral Resources, a Gupta lieutenant, Ashu Chawla, received an email from someone only identified as “Business Man” using the email address “infoportal1@zoho.com”.

Attached to the email was a letter Optimum’s business rescue practitioners had sent to Eskom’s senior executives regarding Optimum’s mining right suspension.

The letter itself is not particularly explosive, but what is apparent is that someone with access to confidential information in Eskom was leaking it to the Guptas.

“Business Man” features in the #GuptaLeaks again in November when Matshela Koko forwarded two emails from his private Yahoo email address to “Business Man”, both containing confidential Eskom information.

In one, Koko asks “Business Man” to pass the Eskom documents on to “the Boss” – the email was then forwarded to “Western”, another anonymous email address that appears to be a proxy for one of the Gupta brothers.

In the second email Koko passed on a sensitive legal opinion exposing how weak Eskom’s position was in their ongoing battle with Optimum Coal. Again, “Business Man” and “Western” passed these on to Chawla.

A day later, Koko sent a particularly vitriolic letter to the business rescue practitioners, threatening to review all of Glencore’s other Eskom contracts – it is not clear how, but the #GuptaLeaks show that Tony Gupta was given an advanced copy of Koko’s letter.

A few days later, the business rescue practitioners signed a term sheet with the Guptas, formally entering negotiations to sell Optimum Coal.

We can also see from the #GuptaLeaks that on December 2, when mines minister Mosebenzi Zwane failed to board his official flight from Zurich to Dubai, he was allegedly on board the Guptas’ Bombardier jet, ZS-OAK, along with Tony Gupta and Salim Essa.

The former Public Protector’s report concluded that Zwane had played a central role during the negotiations in Zurich where Glencore agreed to sell Optimum to the Guptas.

What her report was unable to explain however was how the minister got from Zurich to Dubai – from the #GuptaLeaks we now have evidence that Zwane spent the next two days in India with the Guptas before flying back to Dubai and catching his official flight back to Johannesburg.

December 2015: The R1.68-billion prepayment

By early December, the Guptas were finally about to get their hands on Optimum Coal.

Thanks to Koko, insisting at the last minute that Glencore sell the entire Optimum Coal Holdings portfolio, Tegeta would not only be buying the loss-making Optimum Coal Mine, but also Koornfontein Mines and a 5.5m-ton/year export allocation at Richard’s Bay.

Tegeta now needed to find a way to pay for it. The problem was that Tegeta would not be paying the R2.15-billion purchase price to Glencore, but to a consortium of three banks which had loaned money to Glencore during a period of several years.

On December 8, Tegeta chief executive Ravindra Nath met with First National Bank, Investec and Rand Merchant Bank and put a proposal on the table: Tegeta would settle an undisclosed portion of the debt now and the rest would be paid to banks in 11 monthly instalments.

The banks politely but firmly declined and told Tegeta they wanted the full debt settled.

Around the same time, Tegeta also called a meeting with Koko. We know about this meeting because it is referred to in a letter sent to Koko on December 9 and disclosed in the #GuptaLeaks.

Based on the letter we can deduce that Eskom agreed in principle to give Tegeta a massive R1.68-billion upfront payment for future coal deliveries from Optimum Coal.

It appears from the #GuptaLeaks that Tegeta wanted to use their yet-to-be acquired mine to secure a sizeable chunk of money from Eskom – money that could then be used to pay the purchase price of Optimum.

Tegeta appears to have been so confident of receiving the payment that Koko was requested “to kindly send us a written confirmation regarding the payment for supply of coal amounting to R1,680,000,000 (Rand one billion six hundred and eighty million)”.

Nath finished off his letter by attaching the Guptas’ lawyers bank details to the bottom of the page.

It is not clear from the #GuptaLeaks if Tegeta received the R1.68-billion prepayment it requested. On the same day Koko received the prepayment request, Zuma fired Nhlanhla Nene as finance minister, triggering the political equivalent of a nuclear bomb ripping through the markets.

By Monday 14 December, sanity had prevailed and the Guptas’ hand-picked finance minister Des van Rooyen was shifted out of Treasury.

It is possible that the entrance of Pravin Gordhan as finance minister put any plans of a R1.68-billion prepayment on hold. But the Optimum deal was by no means off the table.

On December 16, Eskom CFO Anoj Singh flew to Dubai – the trip, paid for by the Guptas, cost AED20454 (R71,610). In January, Koko followed suit, staying at the Oberoi Hotel for two nights at the Guptas’ expense.

The #GuptaLeaks provide no detail on whether Singh or Koko met with the Guptas during this time or what they spoke about if they did. However, based on the largesse that was about to flow in the Guptas’ direction, we should be deeply concerned by meetings such as these.

January 2016: A red-carpet welcome

Although Tegeta would only formally take ownership of Optimum Coal in April, from January 1, Tegeta was running the mine for its own profit or loss.

Tegeta was now supplying Majuba power station from their Brakfontein mine, Hendrina power station from Optimum, and Komati power station from Koornfontein mine.

The great mystery of the Guptas’ bid to grab Optimum was how they planned to turn a mine that was haemorrhaging R100-million a month and turn it into a profitable venture.

The assumption was that Eskom’s reluctance to renegotiate the price of R150/ton that Optimum received would fall away as soon as the Guptas took over the mine.

But Eskom’s refusal to renegotiate the price had become such a cornerstone of Eskom’s fight with Glencore that there was no way to change the price now.

The dilemma was quickly solved because by January, Eskom had conveniently cleared the way for Optimum to start supplying coal to Arnot power station in Mpumalanga.

In 2015, Eskom had taken the decision not to renew Exxaro’s cost-plus contract to supply Arnot as the price Eskom paid for the coal had become unsustainably high, sometimes exceeding R1,000/ton.

That decision may have made financial sense. What made less sense was Eskom’s decision to terminate a second Arnot contract, this time with Mafube, a joint venture between Exxaro and Anglo American that mines coal just north of the N12 highway and supplies it via a long conveyor belt system to Arnot power station.

Eskom’s Denton’s report shows that in July 2015, Mafube provided the cheapest coal on Eskom’s books at a fixed price of R132/ton. The coal was not great quality, but since 2004 the mine had delivered 1.18m tons a year to Arnot power station.

According to Denton’s report the contract was due to run until the end of 2023. Exxaro’s spokesperson Mzila Mthenjane will only say that the contract came to an end.

However, Exxaro’s own annual report refers to “Eskom’s decision to terminate the Mafube supply agreement”, and according to a source familiar with the operations, the contract was cancelled without reason in December 2015.

By the end of January, a steady stream of 30-ton coal trucks was running from Optimum mine to Arnot power station roughly 60km away.

And while Optimum received R150/ton for coal delivered to Hendrina power station, Optimum scored R470/ton for coal delivered to Arnot power station, excluding transport costs. The cost of transporting the coal – another R60/ton or R1,800/truck – was paid by Eskom.

Eskom maintains that the coal delivered to Arnot justified a higher price on the basis that the coal had a lower abrasiveness index – this version is disputed by numerous sources familiar with the on-the-ground operations.

Later, when demand for coal at Arnot rose, and Optimum no longer had enough coal to supply both contracts, Eskom appears to have obligingly reduced the amount of coal Optimum was required to deliver to Hendrina power station, freeing up additional coal for the more lucrative Arnot contract.

January 2016-February 2016: Brakfontein goes on sale

Around the same time, Tegeta announced it would sell Brakfontein mine with its Eskom contract to Shiva Uranium, a subsidiary of the Guptas’ listed company Oakbay Resources and Energy – Tegeta would transfer Brakfontein and all its contracts to Shiva and in exchange Tegeta would receive shares in Shiva worth R2.1-billion.

On February 24, Oakbay’s shareholders approved the deal, and Brakfontein became part of the newly formed Shiva Coal. However, even though the mine changed hands, Eskom kept paying Tegeta for the coal.

AmaBhungane discovered this after submitting a PAIA request to Eskom for a list of Eskom’s coal suppliers and their percentage of black ownership – the list we received in March this year did not include Oakbay or Shiva.

In terms of the Public Finance Management Act, Eskom has to pay the rightful owner of the coal it receives. However, Eskom’s own records show that Tegeta continued to receive payments for Brakfontein’s coal for months after the mine was sold.

Sources say that as of last month Tegeta was still receiving the payments for Brakfontein’s coal.

When we queried this with Eskom in a meeting in April, Ayanda Nteta, the outspoken executive from the 2014 meetings, told us: “In terms of Brakfontein, my understanding is that Shiva Uranium has bought in shares in terms of Brakfontein so there was a flow through… The contract we have is with Tegeta, that’s why … Shiva wouldn’t be listed.”

In fact, Shiva did not buy the shares in Brakfontein or Tegeta. Instead the circular is explicit that Shiva bought the mine with its contract. Shiva is now the rightful owner of the coal, but instead Eskom is continuing to pay Tegeta.

“We will look into that. Our legal people understand in terms of the flow through and who bought the shares,” Nteta said.

Eskom has failed to respond to any follow-up questions on the issue. Questions were also sent to Oakbay Resources & Energy two weeks ago – chairman George van der Merwe responded last week confirming that Shiva had bought the Brakfontein mine with its contract but offered no explanation for why Tegeta was still being paid.

February 2016: Briefly empowered, always empowered

It is hard to imagine why a JSE-listed company like Oakbay would allow Eskom to pay another company for its coal. The answer may lie in Eskom’s requirement that its coal suppliers be 50%+1 black-owned.

“We have a shareholder compact which targets us to spend at least 40% of our total procurement on black suppliers. Coal being the biggest commodity, the more we can do it on coal the easier it gets,” Edwin Mabelane, Eskom’s head of procurement, told amaBhungane.

When the original Brakfontein contract was signed in 2015, it contained a suspensive condition – Tegeta needed to reach Eskom’s black empowerment target of 50%+1 by 2018 and remain empowered for the rest of the contract.

“In terms of [Tegeta’s] contract, they were given a certain period; we said to them, ‘You have a [10-year] contract, you need to move to black-owned within a certain amount of time,’” Nteta confirmed.

In November 2015, just before Tegeta bought Optimum Coal, Tegeta reached that target when Duduzane Zuma and Salim Essa became shareholders through Elgasolve and Mabengela Investments respectively.

As a result, Tegeta’s black-owned shareholders own 775 shares versus the 774 shares held by Oakbay and several off-shore companies – through a byzantine share structure the majority of control still rests with members of the Gupta family and two Gupta-controlled companies registered in Dubai.

However, this raises an interesting question: if Shiva takes possession of the contract as it is legally entitled to do, would Shiva be required to become 50%+1 black-owned by next year?

And if Shiva failed to become majority black-owned, would Eskom be entitled to cancel the contract even though it is still scheduled to run until 2025?

In other words, for the Brakfontein contract, does once empowered (albeit briefly) mean always empowered?

Currently, Shiva is 41% black-owned thanks to Tegeta and another Duduzane Zuma-owned company, Islandsite Investments 255. However, due to the complicated share structure, more than 50% of the Shiva is owned by members of the Gupta family.

April 2016: Eskom asks Treasury for even more

It has been well-established that throughout 2016, Tegeta raked in almost R1-billion from their “emergency” contract supplying coal to Arnot power station.

Unfortunately, the #GuptaLeaks provide no further detail on the Guptas’ dealings with Eskom beyond the early negotiations in 2016.

In April 2016, Eskom delivered on part of the prepayment Koko promised when, in a late-night special tender committee meeting, Eskom agreed to prepay Tegeta R587-million for coal. Eskom’s decision came just hours after the consortium of banks refused to provide Tegeta with a R600-million bridging loan.

In August, Treasury refused Eskom’s request to extend Tegeta’s contract to supply Arnot power station by another R855-million over six months.

However, Treasury gave conditional approval to Eskom to sign a R7-billion expansion to the Koornfontein contract to supply Komati power station for the next seven years, provided that there were no other potential suppliers. Eskom appears to have ignored this condition and handed the contract to Tegeta two weeks later.

By this point, Brakfontein’s deliveries to Majuba power station were back down to the contractual 113,000 tons of coal a month.

A few days later, Eskom returned to Treasury with a new request – Brakfontein had more coal to offer and Eskom wanted to extend the contract by another R2.9-billion.

During the interview in April this year, Eskom explained that the request for a R2.9-billion expansion of the Brakfontein contract was as a result of Eskom’s earlier agreement from June 2015 to increase deliveries to Majuba power station to 200,000 tons of coal a month.

“What Eskom decided to do was [to be] more proactive – because actually it was agreed on prior and we should have just continued – we opted to inform National Treasury to say, ‘By the way we were supposed to get [a certain number of tons] and this [additional amount] was supposed to kick in in October. We would like to now exercise this requirement,’” Nteta said.

What Eskom was asking for was to increase the already inflated contract from R3.8-billion to R6.7-billion. Treasury baulked and told Eskom it could not support Eskom’s decision to take further coal from Brakfontein until the year-long Treasury investigation was completed.

2017: Eskom on the ropes

We’re now in mid-2017 and the empire that the Guptas built at Eskom is crumbling.
Brian Molefe has been removed as chief executive, Matshela Koko is under investigation and unlikely to return to his position as acting chief executive.

Meanwhile both Parliament and Treasury are demanding answers to know why Eskom rolled out red-carpet treatment for the Guptas.

By our calculation the Guptas have received contracts worth R11.7-billion from Eskom for coal alone.

None of these contracts was awarded as the outcome of a competitive bidding process, and the R11.7-billion does not include the contracts that Tegeta inherited when it bought Optimum Coal, nor does it include invoices totalling R419-million for management consulting and advisory services delivered to Eskom by Trillian Capital Partners, a company majority owned by Salim Essa.

Last week, we wrote to Eskom asking how it planned to deal with allegations contained in the #GuptaLeaks considering that Eskom’s former chief executive (Molefe), Eskom’s former acting chief executive (Koko), Eskom’s chief financial officer (Singh), Eskom’s chairman (Ngubane) and half of Eskom’s board were named and potentially implicated by the emails.

Eskom chose not to respond to the three pages of questions we sent; instead spokesperson Khulu Phasiwe said Eskom supports minister Lynne Brown’s decision to institute an investigation via the Special Investigating Unit into all the allegations against Eskom and will fully co-operate with the investigation.

“As you may be aware, the Minister of Public Enterprises Lynne Brown said … that she is in the process of instituting an inquiry into these allegations with the aim of getting to the bottom of these matters once and for all.

Eskom supports the establishment of this enquiry, and will co-operate with the investigators once that process gets underway.

In addition, the National Treasury has also been investigating these contracts since July 2015, and as the Treasury has informed Scopa … it is happy with the level of co-operation it is getting from Eskom in getting to the bottom of these allegations.”

The Gupta family’s lawyer did not respond to similarly detailed questions, but told amaBhungane that the Guptas could not comment on the #GuptaLeaks until they had a copy of the leaks in their possession.

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Last month Koko stood down as acting chief executive and went “on leave” pending the outcome of an investigation into allegations that he channelled lucrative contracts to a company partly owned by his 26-year-old stepdaughter.

Now the #GuptaLeaks provide further evidence of a cosy relationship with the Saxonwold family too.

Leaked e-mails now show that:

• In December 2015 the Guptas’ Tegeta Exploration and Resources lobbied Koko for a massive R1.68-billion prepayment, which would have allowed it to fund much of the Optimum Coal acquisition. While this appears not to have happened, it is known that Koko headed up a late-night meeting in April 2016 that approved a smaller, R659-million prepayment.
• Koko may have leaked a highly-sensitive Eskom legal opinion to the Guptas, and,
• Koko stayed in a luxury Dubai hotel at the Guptas’ expense.

‘The Boss’

In November 2015, the Guptas were in negotiation to buy Optimum Coal, but despite Optimum’s dire financial state, the mine’s owner, Glencore, was reluctant to sell.

On November 3, the business rescue practitioners who had been placed in charge in the struggling mine wrote to Koko, at the time Eskom group executive for generation.

They informed Koko that if Eskom did not make a reasonable offer to renegotiate their loss-making coal contract, they would have to consider liquidating the company.

Two days later, Koko wrote back full of vitriol, threatening to seek intervention from the department of mineral resources. Eskom, he warned, may be forced “to review the engagement with Glencore from a portfolio perspective” unless the business rescue practitioners concluded a deal.

What the #GuptaLeaks now show is that on November 4 and 5, the Guptas, who were offering to buy Optimum from Glencore, were right in the thick of the action.

Late at night on November 4, two e-mails were sent from the e-mail address matshela2010@yahoo.com. Both e-mails bounced through two anonymous e-mail addresses, identified only as “Business Man” and “Western”, before landing up with Gupta lieutenant Ashu Chawla.

Like other e-mail providers, Yahoo does not reveal the identity of its users. However, the content of the e-mails makes it clear that they either came from Koko or from someone similarly senior at Eskom.

The first e-mail was sent at 10.39pm with the message: “Please give the Boss. The fight begins”. Attached was a confidential correspondence between Eskom and one of the Guptas’ competitors.

The second e-mail was sent at 11.46pm. This one contained a legal opinion that Eskom received from its own legal counsel – Eskom wanted to know two things: Could a court remove Optimum’s business rescue practitioners? And could Eskom force Optimum to keep delivering coal at the loss-making price of R150/ton, now that the mine had been placed in business rescue?

The legal opinion warned that Eskom was in a weak bargaining position, especially considering that “Eskom currently had no supply of coal; has not considered and/or identified an alternative supply…”

Eskom’s lawyers advised the executives to negotiate with Glencore.

The last thing any responsible Eskom executive would want is for a sensitive legal opinion like this to fall into the hands of the company that was in negotiations to buy the mine from Glencore.

But whoever “Matshela2010” is, he or she delivered the damning legal opinion to the Guptas.
By 10.05am the following morning, the Guptas had both the Eskom legal opinion as well a draft of Koko’s vitriolic letter that he would later send to Optimum’s business rescue practitioners.

It’s not clear how the Guptas received Koko’s letter, still in draft format – all the #GuptaLeaks shows is that the letter came from Rajesh “Tony” Gupta’s e-mail account.
Within days of Koko’s letter being sent, the business rescue practitioners agreed to enter formal negotiations with the Guptas.

The R1.68-billion prepayment

A month later, Glencore had agreed to sell and the Guptas’ Tegeta was about to enter the mining major league – but only if it could come up with the R2.15-billion purchase price for Optimum Coal.

The #GuptaLeaks now reveal that the Guptas planned to fund much of the acquisition from Eskom’s books using a R1.68-billion prepayment from Eskom against future coal deliveries from Optimum.

Correspondence between Koko, Tegeta chief executive Ravindra Nath and Tony Gupta shows that on December 9, 2015, Tegeta wrote to Koko referring to a meeting where it appeared the prepayment had been agreed in principle.

In the letter the Tegeta boss confidently asks Koko “to kindly send us a written confirmation regarding the payment for supply of coal amounting to R1,680,000,000 … detailing the agreed terms and conditions”.

Tegeta even attached their lawyer’s banking details, apparently convinced the prepayment was a done deal.

• Read the letter here or via Dropbox here.

The exchange took place even before Tegeta announced on December 11 that it had signed a deal to buy Optimum for R2.15-billion – in other words, it appears Tegeta planned to fund its acquisition of a major coal mine in part by pre-selling coal from the mine it did not yet own.

It is not clear why Eskom appears not to have followed through, but it is now well-known that four months later, Koko headed a late-night special tender committee meeting that gifted Tegeta the final R659-million prepayment it needed to finalise the Optimum Coal acquisition.

The spectre of load-shedding

In June 2016, when Koko was first confronted about the prepayment during an interview with Carte Blanche, he initially denied that any prepayment had been made, then changed tack, saying: “I’m not aware that it’s paid. But in the event that it’s paid, it’s not unusual,” adding: “Let’s say I’ve made a mistake.”

Since then Koko, Molefe and Eskom board chair Ben Ngubane have spun a story that the prepayment to Tegeta was necessary to avert load shedding during winter.

In countless statements, Eskom has detailed how ongoing threats of strikes left their power stations short of coal, and by April Eskom’s only option was to offer a prepayment to Tegeta to be spent on equipment and opening up new mining areas.

But the emergence of Tegeta’s December 9 letter to Koko, asking for a prepayment four months earlier, confirms what has long been suspected: that the primary objective was to use Eskom’s balance sheet to fund the Guptas’ purchase of Optimum Coal.

Two days in Dubai

In January last year, just a few days after Tegeta took possession of Optimum, Koko allegedly flew to Dubai. Records from the #GuptaLeaks show that Koko stayed just two nights at the Oberoi Hotel in Dubai – Monday 4 and Tuesday 5, at a total cost of around R11,500. The bill was picked up by the Guptas.

In the months following Koko’s brief stopover in Dubai, Gupta-owned companies benefited from astonishing growth of their business with Eskom:

• In January 2016, Eskom dished out a lucrative “emergency” coal contract that saw Tegeta supplying coal at upwards of R470/ton to Arnot power station for nine months.
• In April 2016, Eskom handed Tegeta the R659-million prepayment.
• In August 2016, Eskom tried to sign three contracts worth R10.5-billion with Tegeta in the space of a few weeks without following a competitive bidding process – the two smaller contracts were blocked by Treasury but Tegeta received a R7-billion contract to supply Komati power station.

During 2016 Trillian, a company majority-owned by Gupta associate Salim Essa, is alleged to have benefited from hundreds of millions of rands in Eskom consulting work.

• Persons named in this story were not contacted for comment. This is permitted by the South African Press Code in a situation where a publication “has reasonable grounds for believing that by doing so it would be prevented from reporting”. We invite those named in this article to provide us with comment and clarification after publication.