Top 10 sites of State Capture: What the Guptas really cost our country
What is left after the State Capture wrecking ball, after the looting from so many state-owned entities?
First published in the Daily Maverick 168 weekly newspaper.
Job losses, suicides and sewage running down the roads. This is how the impact of State Capture has played out for ordinary South Africans. Appearing before the Zondo Commission recently, Shadow World Investigations investigator Paul Holden revealed for the first time the top 10 sites of State Capture: those government entities that poured the most money into Gupta Inc. (That’s not counting the money stolen by their local allies.) We took a look at the current state of these captured sites and found heartbreaking accounts of the true impact of the looting on people’s lives and livelihoods.
- Transnet: More than R40-billion looted
Undoubtedly, one of the key government departments at the centre of the Gupta State Capture spree has been Transnet. Since 2018, the Zondo Commission has led evidence that points to officials such as former CEOs Brian Molefe and Siyabonga Gama, along with financial chiefs Garry Pita and Anoj Singh, who signed off dubious contracts with Gupta-linked companies such as Trillian and contracts for the ill-fated 1,064 locomotive deal.
This all cost Transnet R40,084,201,927, according to Holden. Transnet made transactions and payments directly related to the Guptas totalling 81.59% of the total money lost to State Capture.
For employees the impact of State Capture has been severe, said the United National Transport Union (UNTU), one of the largest worker representatives at Transnet. Sonja Carstens, UNTU’s communications officer, told DM168 one of the biggest problems caused by State Capture was the maintenance of Transnet equipment.
“In each of the various divisions, you would see the lack of maintenance, which seems like a simple thing, but across the board contracts have been awarded and no work has been done,” she said. Carstens cited the example of train drivers involved in derailments. “You have to drive a train on one of the lines, which was not properly maintained, and when there is a derailment you are immediately charged for the loss of those goods… There needs to be an independent investigation as to the cause of the derailment,” she explained.
This was also happening at the ports, said Carstens. Crane operators are blamed, but their equipment is not maintained so it causes accidents.
Carstens said the evidence of State Capture at the Zondo Commission was not the full picture. “Last year, Dr Popo Molefe [former board chairperson of Transnet] informed organised labour during a meeting that the impact of State Capture in translation is already, and that was last year in June, amounting to R213-billion.” The union first noticed issues related to State Capture when General-Secretary Steve Harris asked Gama why monies were paid to Gupta-linked media companies such as The New Age and ANN7. Carstens told DM168 that Gama said the allocations to the media companies had “nothing to do with wages”, so the UNTU should not get involved.
DM168 asked Carstens how members felt about State Capture. “All of this leaves a very, very bad taste in the mouth of our members… All of these reports, the evidence in front of the Zondo Commission, where they hear of this great scale of corruption while they are bearing the brunt.”
It was announced in May that McKinsey, which did business with Transnet along with Regiments Capital, had repaid R780-million plus interest from projects done there. In March, it was reported Transnet and the Special Investigating Unit (SIU) had approached the courts to have the locomotive deal set aside.
- Eskom: Almost R7-billion looted
In November 2021, Eskom load shedding turns 14 years old. Load shedding hit the country for the first time in November 2007, disrupting businesses, households and the economy. Today, rolling blackouts are part of everyday life, undermining economic recovery efforts.
Rolling blackouts returned with a vengeance from 1 June 2021, as winter began.
“If you want the true story of State Capture and bad government decisions, then Eskom is a perfect example,” Iraj Abedian, a senior economist at Pan-African Investment and Research Services, told DM168. “The mess at Eskom is a function of policy paralysis at a government level, the corruption that feeds deep patronage networks and just bad management at the power utility.”
A lack of crucial maintenance at Eskom’s ageing power stations has intensified the crisis.
At a policy level, the government continues its love affair with coal, an expensive and polluting source of electricity, when countries around the world are increasingly moving to cheaper renewable energy sources such as wind and solar.
High-level corruption was built into Eskom’s systems for awarding contracts for coal supply, consulting services and the construction of the Medupi and Kusile power stations.
Holden estimated that State Capture has cost Eskom R6.9-billion from 2015, in coal contracts awarded to Optimum Coal Mine and Tegeta Exploration (both owned by the Guptas). Consulting contracts were inflated and awarded to McKinsey, Trillian Group (linked to Gupta family associate Salim Essa), PwC, Deloitte, KPMG, SAP and others.
Eskom has recovered some monies from sullied contracts – Deloitte agreed to pay back R150-million in fees. Eskom has also demanded that PwC return R95-million in consultancy fees.
The SIU has frozen assets of former Eskom senior managers implicated in corruption. Eskom also recovered R1.56-billion from Switzerland-based ABB for overpayment of a Kusile contract.
The lasting legacy of State Capture on Eskom shows in its financial and operational crisis. It cannot fulfil its basic mandate of supplying electricity, it depends on government bailouts to survive (see graphic) and cannot generate enough electricity sales to pay its debt of R401-billion. Ultimately, the taxpayer will have to help Eskom pay the debt with bailouts and rising electricity tariffs.
- Free State Provincial Government: More than R440-million looted
“We don’t even talk about sewage, because it’s almost become a normal thing to see sewage running down the roads,” says DA Free State leader Roy Jankielsohn. He was the first to blow the whistle on a mysterious dairy project in the Free State to which millions had been channelled without apparent results. That was Vrede Dairy, coordinated between Ace Magashule, then the Free State premier, provincial officials and the Gupta family.
Because of investigations over the years, we now know that almost R442-million went straight to the Gupta empire from the Free State provincial government. But this is just the tip of the iceberg for the province captured by Magashule, dubbed a Gangster State in the book of the same name by Pieter-Louis Myburgh.
Jankielsohn lists many problems that affect the Free State as a result of money that should have gone to service delivery being stolen.
“Roads are one of the biggest issues. Little towns like Hennenman and Rosendal have become island communities. People are leaving small towns because of the lack of access. If you have a medical emergency, it’s a crisis. Ambulances can’t reach you and police can’t get there.”
Many Free State towns are struggling with water shortages because infrastructure is not maintained. Rubbish collection happens late, if at all.
Over all this hangs the spectre of Magashule, dubbed Mr Ten Percent because of the claim that he would take this cut of every government contract in the Free State.
Political opponents like Jankielsohn say there isn’t a project in the province that wasn’t set up to benefit Magashule in some way – including bursaries. The Free State has spent billions sending students to study in Turkey at the privately owned Bahçeșehir University, which awarded Magashule an honorary doctorate in philosophy in 2017.
There have been repeated reports, including this past week, of Free State students stuck abroad after the provincial government left them financially stranded. A parent of one student stranded in Belarus, who spoke to DM168 on condition of anonymity, said: “The [Free State] government is owing the university since last year till today. Now the authorities from Belarus want to chase away [our children] from the school.”
Law enforcement is catching up. In court this week were key Gupta associate Iqbal Sharma and three former provincial officials, charged with diverting R24-million in rural development funds to the Guptas. This case will be the basis of the National Prosecuting Authority’s (NPA’s) application to Interpol for arrest warrants for the Guptas themselves. Magashule will face the music at his own corruption trial in August.
- Denel: Almost R250-million looted
Since the early 1990s, markets in Asia, Europe, North America and the Middle East have relied on Denel for artillery and armoured vehicles. Denel was profitable.
But its fortunes have changed. Since 2017, Denel’s financial losses (see graph) have been daunting and from 2020, it has been unable to regularly pay full salaries. Denel recently told about 400 workers at one of its largest business divisions, Denel Land Systems, that it lacked the cash to pay full salaries in May. It paid 20%.
It’s unclear if other Denel business divisions – Denel Aeronautics, Denel Pretoria Metal Pressings, and Denel Vehicle Systems – can pay workers in future. The state-owned entity didn’t respond to DM168’s repeated request for comment.
Public Enterprises Minister Pravin Gordhan revealed in Parliament that Denel owes workers R500-million in outstanding salaries, dating back to May 2020 – a heavy toll on Denel workers.
Mawonga Madolo, a metal sector coordinator at the National Union of Mineworkers, which represents Denel Land Systems workers, said he is aware of at least two workers who committed suicide in early February 2021 as they ran into financial troubles after not receiving full salaries.
How did Denel go from being profitable to reporting cumulative losses of R5.2-billion between 2017 and 2019?
Mkhuleko Hlengwa, the chairperson of the parliamentary committee, said Denel “was essentially just looted”. During its investigation into Denel, the SIU found that the intellectual property for some of Denel’s highly sought-after missiles was stolen in 2018 by unnamed current and former workers and allegedly given to Saudi Arabian Military Industries. Without the intellectual property, it is no longer a secret how Denel manufactures air-to-air missiles, stand-off weapons, surface target missiles, air defence, and unmanned aerial vehicle systems. Saudi Arabian Military Industries can manufacture these goods, taking lucrative orders from Denel.
Board appointments at Denel were allegedly influenced by members of the Gupta family under the stewardship of Gordhan’s predecessor, Lynne Brown. Bad business decisions were also made. Denel partnered with Gupta associate Salim Essa’s company, VR Laser, which supplied the state-owned entity with combat vehicles in 2014 at an inflated rate. VR Laser and Denel launched a joint venture to pursue arms opportunities in Asia, which contributed to Denel’s irregular expenditure of R500-million in 2017.
Denel also became a cadres’ feast. The son of former North West premier Supra Mahumapelo got a R1.16-million bursary from Denel, which was later declared illegal by the company. The SIU is working to recover losses Denel incurred through irregular expenditure or State Capture.
- Industrial Development Corporation: R250-million looted
In the State Capture playbook, some individuals directly benefit from the looting at SOEs and state organs. Then there are what Hennie van Vuuren, the director of Open Secrets, calls “the enablers of State Capture”, such as banks, other financial institutions and auditors. These enablers provide funding, open their facilities to make questionable transactions possible, or fail to spot red flags.
The Industrial Development Corporation (IDC), a state-owned development finance institution, could be considered an “enabler”. The IDC provides funding to projects tied to SA economic development and industrialisation.
Unlike other SOEs, the IDC remained profitable in recent years (this all changed in 2019 – see graphic). It created jobs and has not depended on taxpayer-funded bailouts. But, in Holden’s testimony at the Zondo Commission, he said the IDC disbursed about R250-million in funding to an entity linked to the Gupta family.
In 2010, the IDC loaned the Guptas R250-million (the capital amount) to acquire Shiva Uranium mine in Klerksdorp. Later, Oakbay Resources, the Gupta entity that acquired Shiva Uranium, struggled to pay back the IDC loan. To settle a portion of the monies owed, the IDC converted the interest on its loan to Oakbay into shares at R9 a share when the Gupta-owned company listed on the JSE in 2014. Oakbay delisted from the JSE in 2018 as the Gupta empire began to crumble. Oakbay shares traded at less than R6 a share when it delisted, and the IDC booked losses of at least R90-million on the open market.
The IDC has launched court proceedings to recover monies owed by Oakbay: the R250-million and payments in arrears of R37.5-million. These funds could have gone to the government’s black industrialist programme, which is heavily supported by the IDC, to fund emerging black entrepreneurs and create desperately needed jobs. Instead, the funds went to the Guptas.
- SABC: More than R62-million looted
“The SABC was also embroiled in State Capture,” Communications Minister Stella Ndabeni-Abrahams told MPs in December 2020. Indeed, the public broadcaster paid a heavy toll.
The SABC contributed almost R63-million to Gupta coffers when Hlaudi Motsoeneng was in charge. By the 2016/17 financial year, it was recording a financial loss of R1-billion a year, and by 2019 it was begging Parliament for a bailout.
The current SABC board, chaired by Bongumusa Makhathini, says it is finally turning things around financially. But cost-cutting has been painful: 621 staff members left the SABC at the end of March, 346 taking “voluntary severance packages” and 275 being made redundant.
These are the SABC’s figures, but the Communication Workers’ Union’s Aubrey Tshabalala told DM168: “In our view, the number is way beyond what SABC has disclosed.” He said the official number of job losses did not account for freelancers whose contracts would not be renewed.
One axed staffer said the process was so traumatic that she could not discuss it. Others were more vocal. “I’m not traumatised, I’m gatvol,” former SABC executive producer Jenine Coetzer told DM168. Coetzer was retrenched after 35 years at the broadcaster. “We didn’t know at all… When they started talking about retrenchments, we all thought it would be Hlaudi-era people – people on the higher floors.”
Coetzer says there was no consultation and no forewarning before they got retrenchment letters in November 2020. “I just feel that there was absolutely no compassion and no decency,” she says, adding that their final day, 31 March 2021, passed without even a “thank you” to those leaving.
In January 2021, meanwhile, the High Court in Johannesburg ruled that Motsoeneng must reimburse the SABC for the more than R850,000 spent on legal costs as Motsoeneng fought to stay on as COO. The SIU has said it hopes to recover other funds unlawfully spent.
- North West Provincial Government: Almost R40-million looted
“It’s collapsed.” That’s how Freddy Sonakile, DA spokesperson on the Premier’s Office in the North West legislature, described the North West government.
North West lost R39,308,888.02 to State Capture linked to the Guptas and their businesses, as revealed by Holden – 0.08% of the total amount lost by SA to State Capture.
The commission’s transcripts show the following monies directed to the Guptas:
Mediosa (a Gupta-linked mobile health services provider) was paid R30-million in an upfront payment by the provincial health department; and the Office of the Premier of the North West paid The New Age R9,308,888.02.
The money lost might not be large compared with Transnet or Eskom, but it directly affects residents of the province. Sonakile told DM168 the province’s ambulance services were not functioning. Yet, in February 2018, it was revealed the health department made an upfront payment of R30 million to Mediosa, which, said Sonakile, “was supposed to deliver ambulances and stuff like that. None of that happened… Obviously, patients get affected and it was one of the biggest scandals of the North West.”
The upfront payment was given without following any tender process, the Hawks stated. Ambulances are badly needed, especially in the far-flung rural parts of the province. Some are 100km from the nearest hospital, said Sonakile. “People are dying.”
Former health minister Dr Aaron Motsoaledi said the Mediosa contract was “an ATM card for the Guptas to withdraw money from the department”, reported Spotlight at the time. Sonakile told DM168 he has laid charges with the police, some dating back to three years ago, but these cases have stalled.
In 2018, Cabinet placed several North West departments and municipalities under administration, including the health department. The Office of the Premier was also placed under “intervention” by Cabinet.
In March this year, the Hawks told Parliament’s National Council of Provinces’ ad hoc committee on Section 100 intervention that criminal charges of fraud and corruption had been laid and were now reaching the court. The Hawks had arrested Thabo Lekalakala, the former departmental head for health, in relation to the Mediosa scandal. That case is remanded to 26 July 2021. The SIU said at the same briefing that Lekalakala was at the Special Tribunal in a bid to recover the funds lost via Mediosa.
- SAA and SA Express: Almost R26.5-million looted
Both state-owned airlines have been grounded for more than a year, thanks to a cash crunch. And their workers have been left high and dry.
Michael* has been working in South Africa’s aviation industry for 15 years, seven years of which have been at SA Express, which operates flight routes that serve smaller, outlying cities.
“I always had a dream of working at SA Express. It could reach places that privately owned airlines wouldn’t ordinarily go. And I wanted to serve my government,” he told DM168. But his dream has “turned into a nightmare”.
The grounding of SA Express since March 2020 has meant that Michael has not received a salary for more than a year and has now run into financial problems. Michael has lost his home and was forced to move into his parents’ home in Limpopo, along with his wife and two young daughters.
“We are depending on my parents for survival. I am worried about my kids and what is going to happen to them. I am running out of cash and won’t be able to pay school fees in the next few months.”
This is the plight of 690 SA Express workers who have lost their jobs as the airline fights for survival under a provisional liquidation process.
At SAA, pilots haven’t received salaries for more than 14 months. They have been out of work since SAA was grounded during business rescue. “SAA and SA Express workers are paying the heavy price of corruption and poor decisions taken by government officials over many years,” said an experienced SAA pilot.* Jobs have also been cut at SAA (see graphic).
SAA and SA Express have featured heavily in the State Capture story. At SAA alone, the SIU is investigating irregular and wasteful expenditure of more than R350-million. The corruption-busting agency is probing more than 80 contracts relating to procurement and maintenance of aircraft, consultancy and legal work offered to SAA.
The contracts include, among others, SAA’s purchase of 15 aircraft from Airbus in 2015; the R172.26-million in irregular expenditure incurred from SAA’s lease agreement with FlyFofa Airways for second-hand cargo charters; more than R12-million paid to McKinsey for consultancy work; and R170-million paid to various service providers to help SAA implement failed turnaround plans.
At SA Express, the findings of a 2019 forensic investigation unveiled irregular expenditure of more than R50-million. The investigation found, among other irregularities, that SA Express paid R5.7-million to the Gupta-linked Trillian Capital for advisory services and to help the airline raise capital.
There has been comeuppance for wrongdoers at SAA, but not much accountability at SA Express. McKinsey has agreed to pay back fees earned for its work at SAA and the airline’s former chairperson, Dudu Myeni, whose stewardship led to the conclusion of questionable deals that resulted in irregular expenditure, has been officially declared a delinquent director by the high court.
- Office of the Premier: Mpumalanga
Ask Fred Daniel if he’s surprised that the Office of the Mpumalanga Premier made the top 10 list of sites of State Capture, and his response is immediate: “No, not at all.”
Daniel’s story – as captured by journalist Rehana Rossouw in her book Predator Politics, and also told by Kevin Bloom in a series for Daily Maverick – is by now well known. His attempt to create a large conservation area in Mpumalanga culminated in Daniel fleeing the province in 2019, fearing for his life. He told DM168 he has not set foot there since.
Daniel had a front-row seat at the capture of Mpumalanga by the former MEC for agriculture and land affairs and subsequent premier, David Mabuza. A report on State Capture submitted by the Government and Public Policy (GAPP) think-tank to the Zondo Commission in May 2021 states that what Daniel came up against “was not simply corruption, but a new model of patronage politics”.
In Mpumalanga, land reform has been one of the major tools of corruption, together with the commercialising of environmental assets.
Holden told the Zondo Commission that more than R6-million was channelled from the premier’s office to the Guptas by means of payments made to The New Age newspaper. But it doesn’t end there, says Daniel.
“Mabuza [and his allies] repurposed the whole civil service,” he claims.
“It’s a terrible thing because everyone is deployed to divert money from service delivery.”
The effects for residents of the province have been catastrophic. Even the most basic of services are not being supplied to those who live in informal settlements like eMalahleni, who are required to dig their own pit toilets.
Daniel says that tourism spots and game reserves in the province are now in “terrible condition”, with animals “disappearing” and billions of rands of dagga being openly cultivated in game reserves.
The title of the 2020 Auditor-General’s report on Mpumalanga municipalities says it all: Not Much to Go Around, Yet Not the Right Hands at the Till. The report found that “internal controls did not work effectively at almost any of the municipalities in the province”.
Daniel is pinning his hopes for personal justice on his upcoming court case, in which he is suing Mabuza and the Mpumalanga government. “We are not looking at compensation; we just want to be vindicated in our rights,” he says.
- South African Forestry Company Limited: More than R5.7-million looted
When Holden appeared before the Zondo Commission to lay out his calculations on State Capture, evidence leader Matthew Chaskalson asked him to explain, for the benefit of the public, what “Safcol” was.
The South African Forestry Company Ltd (Safcol) is one of the smallest and least scrutinised of South Africa’s state-owned entities – which might help to explain how the Guptas managed to suck more than R5.7-million from it without detection.
Someone with a special interest in Safcol, however, was former president Jacob Zuma. Former Minister Barbara Hogan told the State Capture inquiry in 2018 that Zuma had made specific inquiries to her about who would be the next chairperson of the Safcol board.
It would later emerge that, in 2015, Safcol acting CEO Harvey Theron had awarded his business partners a R13-million contract two days after being appointed. The tender was given to 2RM, a subsidiary of Vumela Holdings, a company run by ANC deputy secretary-general Jessie Duarte’s ex-husband John Duarte, his son Yusha, and Malcolm Mabaso, political adviser to the then Minister of Mineral Resources Mosebenzi Zwane.
The contract, ironically, was to conduct a due diligence investigation into Safcol’s performance and financial status.
Despite Safcol’s raiding as one of the State Capture piggybanks, it has escaped with less damage than many of the other government institutions. Indeed, in 2020 it was reported as being the only state-owned entity under the Department of Public Works not to be lossmaking. DM168
On Friday, the NPA executed wide-ranging restraint order for assets belonging to the Guptas and their associates in Cape Town and Johannesburg. The order, which also covers Iqbal Sharma’s ‘Top Billing’ mansion and two others in the UAE, is being served on him in police holding cells at Bainsvlei in the Free State. Read here.
*The names of Michael and the SAA pilot are known to DM168. Both spoke on condition of anonymity, for fear of reprisals.
This story first appeared in our weekly Daily Maverick 168 newspaper which is available for free to Pick n Pay Smart Shoppers at these Pick n Pay stores.
Daily Maverick © All rights reserved