In­ter­na­tional com­pa­nies linked to the deals

The Star Early Edition - - BUSINESS REPORT -


(Ap­prox­i­mate value of con­tract: R1.5 bil­lion). In April 2015 Eskom an­nounced the ter­mi­na­tion of about R1-bil­lion con­trol and in­stru­men­ta­tion (C&I) works con­tract placed with Al­stom in 2011 for its 4 800MW Kusile power sta­tion, which was un­der con­struc­tion near eMalahleni, Mpumalanga. Shortly there­after, Eskom an­nounced that it had ap­pointed lead­ing tech­nol­ogy group ABB South Africa in­stead.

The ABB con­tract was val­ued at about $160 mil­lion (ap­prox­i­mately R1.5bn), and it is un­der­stood that ABB es­sen­tially started the C&I Works at Kusile from scratch.

In ad­di­tion to pay­ment for work al­ready com­pleted, Eskom had to pay a can­cel­la­tion fee of some R40m to Al­stom to achieve a con­sen­sual ter­mi­na­tion agree­ment on a “co-op­er­a­tive walk-away ba­sis”. The can­cel­la­tion de­layed the Kusile project by about a year.

ABB and Siemens sub­mit­ted ten­ders for the new C&I con­tract. While ABB’s ten­der is be­lieved to have been 25 per­cent higher than that of Siemens’s ABB was se­lected ahead of Siemens after it un­der­took to com­plete the project ear­lier than the former.


(R300 mil­lion, ac­cord­ing to dis­clo­sure by Dlamini in Par­lia­ment in March 2017). EOH is a South African busi­ness and the largest tech­nol­ogy ser­vices or­gan­i­sa­tion in Africa. The JSE-listed group has strong em­pow­er­ment cre­den­tials and 12 500-strong work­force.

EOH has the high­est broad-based black eco­nomic em­pow­er­ment rat­ing and has grown ex­po­nen­tially over the past decade, mostly by gob­bling up smaller com­pa­nies. It earned R12.7 bil­lion last year. EOH is one of sev­eral bid­ders that have al­ready made pro­pos­als to Sassa for a pro­pri­etary pay­ment sys­tem. One of the firms it bought was owned by fa­ther-and-son Danny and Je­han Mackay. Danny was given a seat on EOH’s board and Je­han was ap­pointed as an EOH ex­ec­u­tive. They took a 5 per­cent stake in EOH

Key points:

Dlamini has pushed for a pro­pri­etary sys­tem, which would ap­pear to favour pri­vate tech­nol­ogy firms like EOH.

Early this year, EOH re­sponded to Sassa’s “re­quest for in­for­ma­tion” from com­pa­nies that wanted to dis­trib­ute so­cial grants for Sassa in fu­ture.

Lunga Ncwane, the mid­dle­man who be­lieved to be the con­nec­tor of So­cial De­vel­op­ment Min­is­ter Batha­bile Dlamini to grants con­trac­tor Cash Pay­mas­ter Ser­vices (CPS) has been liv­ing in a R65-mil­lion man­sion, cour­tesy of two direc­tors from JSE-listed group EOH. At time of re­port­ing Ncwana has since va­cated the house to oc­cupy his multi-mil­lion house.


(R100 mil­lion). SAP is the world’s largest busi­ness soft­ware com­pany – founded in 1972 and head­quar­tered in Wall­dorf, Ger­many. The soft­ware gi­ant pro­vides soft­ware sys­tems to multi­na­tional cor­po­ra­tions and gov­ern­ments. To clinch Transnet busi­ness, busi­ness soft­ware gi­ant SAP agreed to pay 10 per­cent “sales com­mis­sion” to a com­pany con­trolled by the Gup­tas. Re­ports sug­gests the com­pany – a lit­tle-known out­post of the Gupta em­pire – was de­lib­er­ately in­ter­posed to ob­scure Gupta in­volve­ment and to laun­der the pro­ceeds to them. The world’s third largest soft­ware com­pany in Au­gust 2015 signed a “sales com­mis­sion agree­ment” with a small Gupta-con­trolled com­pany that spe­cialises in sell­ing 3D print­ers.

The terms sug­gest a thinly dis­guised kick­back ar­range­ment: If the Gupta com­pany were the “ef­fec­tive cause” of SAP land­ing a Transnet con­tract worth R100 mil­lion or more, it would get 10 per­cent. In the year to fol­low, SAP paid the com­pany, CAD House, a whop­ping R99.9m, sug­gest­ing SAP used the Gupta in­flu­ence net­work to drive sales of a bil­lion rand to Transnet and other state-owned com­pa­nies. SAP de­nies it paid kick­backs or was party to laun­der­ing the pay­ments, ar­gu­ing that CAD House had “the nec­es­sary skills in terms of po­si­tion­ing our so­lu­tion” and was paid a sales com­mis­sion for act­ing as “an ex­ten­sion of the sales force”.

This week SAP sus­pended its man­age­ment staff in South Africa in re­ac­tion to the cor­rup­tion al­le­ga­tions. The soft­ware com­pany has also launched an in­ter­nal re­view and in­di­cated that it will make the re­sults of the in­ves­ti­ga­tion pub­lic once it has been con­cluded.


Denel is an­other state owned en­tity that has been im­pli­cated in the Gupta cor­rup­tion scan­dal. The Gupta fam­ily set them­selves up to sell state arms man­u­fac­turer Denel’s weapons to In­dia in a deal in­volv­ing a shady In­dian fixer and a pow­er­ful ty­coon close to prime min­is­ter Naren­dra Modi. The Gup­tas ar­ranged to side­line Denel and take the big­gest share for them­selves even though it was Denel’s pro­pri­etary tech­nol­ogy that was to be sold.

These de­tails are re­vealed in the re­cent re­ports by amaBhun­gane, a trove of elec­tronic data sourced from the heart of the Gup­tas’ busi­ness em­pire by the in­ves­tiga­tive cen­tre.

Ac­cord­ing to the re­ports in Jan­uary 2016, Denel an­nounced the for­ma­tion of Denel Asia, a Hong Kong-based joint ven­ture that it con­trolled, hold­ing 51 per­cent. The rest be­longed to a com­pany reg­is­tered to Gupta lieu­tenant Salim Essa.

De­fend­ing them­selves against crit­i­cism at the time, Denel and the Gup­tas claimed that the Gupta fam­ily had no in­ter­est in the Essa com­pany, VR Laser Asia, and by im­pli­ca­tion in Denel Asia. Re­cent re­ports in­di­cated that they were mis­lead­ing South Africans.

Ac­cord­ing to in­for­ma­tion shared by amaBhun­gane, Denel of­fi­cials knew the over­rid­ing pur­pose of set­ting up Denel Asia was to sell arms to In­dia – tar­get­ing more than $8 bil­lion (R107bn) in deals there – via a sec­ond joint ven­ture called Denel In­dia. In Denel In­dia, Denel’s par­tic­i­pa­tion was wa­tered down to just 25 per­cent. The Gup­tas, who brought lit­tle to the ta­ble be­sides their po­lit­i­cal con­nec­tiv­ity in South Africa and In­dia, planned to wield a con­trol­ling 42 per­cent stake – ex­er­cised via Essa and their brother-in-law, Anil Gupta.


KPMG is a global net­work of in­de­pen­dent mem­ber firms of­fer­ing au­dit, tax and ad­vi­sory ser­vices. Their mem­ber firms’ clients in­clude busi­ness cor­po­ra­tions, gov­ern­ments, pub­lic sec­tor agen­cies and not-for-profit or­gan­i­sa­tions. KPMG is trusted for a con­sis­tent stan­dard of ser­vice based on high or­der pro­fes­sional ca­pa­bil­i­ties, in­dus­try in­sight and lo­cal knowl­edge.

Lately the re­spected global au­dit­ing firm has not lived up to its stan­dard if the re­cent re­ports are any­thing to go by. KPMG is no stranger to con­tro­versy. Its re­port was used to pur­sue Pravin Gord­han dur­ing his ten­ure as fi­nance min­is­ter.

This re­port was later dis­puted and dis­missed as ir­rel­e­vant be­cause it was a draft re­port. KPMG is in the news again, due to its links with the Gup­tas. This time around for the mat­ter that relates to them not rais­ing con­cerns about pay­ment for wed­ding ex­penses.

Ac­cord­ing to an in­ves­ti­ga­tion con­ducted by amaBhun­gane, Linkway, a Gupta com­pany, “paid” for the wed­ding ex­penses; and was “re­im­bursed” by the sup­pos­edly un­re­lated Ac­cu­rate In­vest­ments.

KPMG of­fered no ex­pla­na­tion in Linkway’s au­dited fi­nan­cials why a sup­pos­edly un­re­lated third party in Dubai would pick up the Gup­tas’ R30 mil­lion wed­ding bill – or why a wed­ding was a bona fide busi­ness ex­pense.

The net ef­fect of this ac­count­ing sleight-of-hand is that not only was the wed­ding ef­fec­tively paid for from funds di­verted from the Free State gov­ern­ment’s cof­fers, but the Gup­tas paid no in­come tax on this wind­fall.

This in­come was off­set against Linkway’s ex­penses, re­sult­ing in Linkway’s re­ceiv­ing zero tax­able in­come from its Free State wind­fall.


McKin­sey is a world­wide man­age­ment con­sult­ing firm that con­ducts qual­i­ta­tive and quan­ti­ta­tive analy­ses in or­der to eval­u­ate man­age­ment de­ci­sions across the pub­lic and pri­vate sec­tors.

This “trusted” con­sult­ing firm has also been em­broiled in a scan­dal re­lated to the Gup­tas.

It was hired by Eskom for R1 bil­lion to im­prove ef­fi­cien­cies and cut waste­ful ex­pen­di­ture. In­stead the deal McKin­sey struck with Tril­lian Cap­i­tal Part­ners mocked Eskom’s prob­lems by hand­ing at least R266 mil­lion of Eskom’s money to a com­pany that in the words of McKin­sey’s own ex­ec­u­tives’ was merely there to re­ceive 30 per­cent of the con­tract “in re­turn for not much work”.

In the past few days ad­vo­cate Ge­off Budlen­der re­leased his re­port into al­le­ga­tions of state cap­ture car­ried out by Tril­lian, the com­pany ma­jor­ity-owned by Gupta as­so­ciate Salim Essa. The re­port de­tails how McKin­sey agreed to sub­con­tract 30 per­cent of their Eskom work to Tril­lian un­der the guise of “sup­plier de­vel­op­ment”, a pro­gramme in­tended to up-skill small, black-owned busi­nesses.

In­stead doc­u­ments from Budlen­der’s re­port as well as in the #Gup­taLeaks show that Tril­lian planned to siphon huge chunks of the money it re­ceived to a com­pany par­towned by the Gup­tas and an­other com­pany in Dubai.

This in­for­ma­tion has been pre­sented to high­light even more the ex­tent to which the cor­po­rate sec­tor con­trib­utes to cor­rup­tion. It is hoped that this in­for­ma­tion can as­sist in the process of al­le­vi­at­ing cor­rup­tion in South Africa. Lo­cal busi­nesses with ca­pa­bil­ity to carry out some of the con­tracts high­lighted in this re­port lose out due to cor­rup­tion. As part of trans­form­ing the econ­omy it is im­por­tant to high­light the con­trib­u­tors to lack of lo­cal eco­nomic de­vel­op­ment. The Cor­po­rate Cor­rup­tion Re­port will be up­dated over time to add more sim­i­lar com­pa­nies that are neg­a­tively im­pact­ing on the South African eco­nomic well-be­ing.

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