Media Releases

Inside OUTA September 2017

Dear OUTA supporters and followers

As with every month at OUTA, the levels of energy and intensity appear to reach new heights, as we break new ground with the positive outcomes and achievements that set new boundaries for our role in changing South Africa’s future.

There’s no doubt that civil society is making huge strides and the house of cards that surrounds the architects and purveyors of state capture is starting to crumble.

The internal energy at OUTA was recently heightened through our interdict to secure and freeze the mine rehabilitation funds for the Guptas’ Optimum and Koornfontein coal mines, following the Bank of Baroda’s successful court application to close the Gupta business bank accounts.  While this is an interim interdict (Part A of the application), it blocks the Guptas from taking these funds, which are legally required for the rehabilitation of those mines at the end of their useful life. Part B will be heard in the high court at the end of the year, at which time we will seek to have the trustees of these funds reviewed, along with conditions to secure these funds for their lawful and intended use into the future.

The groundswell of support for action to tackle state capture is growing, both from the general public and within business leadership circles. The fact that big business is now coming to the fore and speaking out against corruption and state capture, is a very positive sign.  However, we need more people in senior business leadership positions to stand up to Government.

We also need business leadership to drive a new energy in the auditing industry, one that will ensure more questioning of Government based contracts and questionable “commission fees” and “contract finder fees” to the middlemen who broker the corrupt deals behind the scenes.       We want to know more about how different sectors are blocking state capture, refusing to pay bribes and reinforcing ethical leadership.

There is no doubt that the NPA and the Hawks are coming under pressure for their lack of action, which is now an untenable situation that cannot last, while more and more people in positions of authority are being charged for their transgressions, something that OUTA is at the forefront of filing against those implicated in wrong doing.

October will see OUTA’s efforts focussed on challenging Eskom’s request for a 20% electricity tariff hike, which is absurd against the backdrop of gross maladministration, wasteful spending, inefficiency, poor productivity and corruption throughout this state owned entity. OUTA is currently drafting a detailed submission to the National Energy Regulator (NERSA) outlining our case to halt Eskom’s request.

Once again, we extend our thanks and gratitude to our supporters, who enable us to carry out our work in the fight against corruption and mismanagement of state funds. We need more of you, to do more of the same.  Please share this newsletter with your friends and family and encourage them to become active citizens, by getting behind us through an affordable monthly contribution.

Wayne.

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The state capture gang are on the run

South Africa is turning against those implicated in state capture, as business leaders take a stand against the corrupt and OUTA wins an order freezing key Gupta funds.

“This is the beginning of the end,” says Ben Theron, OUTA’s Chief Operating Officer. “We can definitely see the tide turning in the way companies, once respected, are being exposed for being party to corruption even if it is just through their silence,” says Theron.

On 26 September, OUTA won a significant legal action, obtaining an urgent interim interdict against the Bank of Baroda which preserved the R1.75 billion mine rehabilitation funds for the Gupta-owned Optimum and Koornfontein coal mines. This is believed to be the first freezing order against Gupta assets, a crucial step in ending state capture. This matter is back in court on 7 December for finalisation.

“The Bank of Baroda interdict specifically speaks to preserving the mine rehabilitation fund for the purposes intended and it cannot be taken by the Guptas for selfish reasons,” says Theron.

In July, OUTA wrote to the South African Reserve Bank (SARB) and the Financial Intelligence Centre, calling on them to cancel the banking licences of the Bank of Baroda and the Bank of India following revelations of problems with the Guptas’ bank accounts. Within days, the Guptas told their staff that the Bank of Baroda – the last bank to do business with them – was closing their accounts. The Guptas took the Bank of Baroda to court in a desperate attempt to keep their accounts open, but lost. OUTA watched this case and, hours after that judgment, brought the urgent application to freeze the funds.

The extent and depth of state capture was exposed by the #GuptaLeaks initially by investigative journalists AmaBhungane and Scorpio. The information #GuptaLeaks has also been a crucial part of OUTA’s actions against state capture, starting with the dossier delivered to Parliament in June and continuing with charges against implicated individuals.

Opposition to state capture is now coming from a broader section of society, following the increasing exposure of big brand companies as implicated in state capture, through direct pay offs (like management consultants McKinsey and Trillian), through helping the Guptas cover up (like PR company Bell Pottinger) or by helping manipulate inconvenient financial legalities and turning a blind eye (like auditors KPMG).

During September, Business Leadership South Africa kicked out first KPMG then Eskom and Transnet over their involvement in state capture. Auditors SizweNtsalubaGobodo finally cut ties with the Gupta family’s business Oakbay which it took on last year, with CEO Victor Sekese saying their involvement was contrary to standards set by the Independent Regulatory Board for Auditors (IRBA). “It was a professional consideration,” Sekese told eNCA. SizweNtsalubaGobodo founder Nonkululeko Gobodo, who is no longer with the firm, questioned why the government is still silent on state capture, telling Moneyweb: “Their silence is actually quite audible”.

On 28 September, civil society activists picketed the National Prosecuting Authority’s offices in Cape Town, calling on National Director of Public Prosecutions Shaun Abrahams to take action against state capture, reported GroundUp.

On 27 September a heated debate at Wits University involving former finance ministers Pravin Gordhan and Nhlanhla Nene and economist Iraj Abedian strongly criticised auditing and financial firms like KPMG for their complicity in state capture and costing South Africa billions of rand. “We are grateful that our economy is growing by 0.3%‚ when we should be furious. The damage these professionals‚ like those from KPMG‚ are doing is not just financial damage. It is impacting on unemployment,” says Abedian, reported The Times.

Abedian has spoken out strongly against the businesses – like auditors – who have facilitated state capture. “Ever since the advent of the #GuptaLeaks, and a growing body of evidence implicating KPMG, Bell Pottinger, McKinsey and SAP, it has become clear that corruption is not confined to the public sector, political leaders and the executives of state-owned companies,” Abedian wrote in BizNews. “In fact, it has become clear that in today’s complex and globalized financial markets, no serious corruption can be sustained without an intricate and close working relationships among sophisticated and competent private sector professional firms and those who hold high offices – whether in public or in the private sector.”

OUTA is now looking to the auditing industry to take a hard introspective look at their conduct.

“We’re currently looking at how the auditing firms have become complicit in state capture by purely ticking boxes,” says Theron. OUTA is arranging meetings with organisations that oversee the auditing industry, such as the South African Institute of Chartered Accountants (SAICA), the Independent Regulatory Board for Auditors (IRBA), the Auditor General of South Africa and Parliament, to discuss ways of halting state capture.

Theron says the main focus of state capture has been in the state-owned entities (SOEs), which have massive budgets and are targeted by the corrupt as cash cows: Eskom, Transnet, Prasa, SAA and SABC.

“Virtually all SOEs are affected,” says Theron.

“How it affects the person in the street is that Eskom has colluded with the Guptas and other companies to siphon off billions of rand. That missing money now reflects in the 20% increase in tariffs that Eskom requested, because they’ve got to recoup their losses. They caused the losses and they’ve got to recoup it,” says Theron.

“So there’s a direct link between Eskom’s corruption and my pocket.

“What we’ve been doing is to identify the money flows, because corruption thrives on money flows. We’ve started shutting the cash taps. We’ve shut down their bank accounts. We’ve frozen the R1.75 billion mine rehabilitation funds. On a day-by-day basis we are identifying where else we can stop the corruption.”

The PIC has also come under the spotlight, with concerns that it may be used to “invest” in the disintegrating SOEs. “We are protecting the future of ordinary citizens by making sure that the PIC does not invest in bankrupt or poorly managed organisations,” says Theron.

“We will leave no stone unturned to arrest corruption and to put South Africa on a path to achieve the moral high ground that we once had. OUTA will pursue all people involved in corruption, because that affects our taxes and South Africa’s future.”

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Eskom price application: help OUTA stop this

OUTA needs your help in opposing Eskom’s 20% price increase request.

OUTA is opposing the Eskom application and we would like your support.

“We ask our supporters to send NERSA their comments on Eskom’s application, attend the hearings to oppose it and, if you can’t get into the hearings, protest outside the venues at the public hearings,” says Ted Blom, OUTA’s Portfolio Director for Energy. Blom is leading OUTA’s opposition to the price hike.

“Watch OUTA’s website, as we’ll publish our submission to NERSA when it’s ready.”

The National Energy Regulator (NERSA) is currently considering Eskom’s electricity price application and the public participation process is now open. There are strict timelines on this.

Eskom filed its updated application to NERSA on 25 August and NERSA published it on 13 September.

The public may submit written comments on Eskom’s application to NERSA, before 4pm on 13 October. Comments may be emailed to mypd@nersa.org.za.

NERSA will also hold nine public hearings on Eskom’s application.

If you want to attend any of these hearings or present your views at the hearings, you must alert NERSA to this. Send your request to NERSA at publichearings@nersa.org.za by 3.30pm on 23 October.

This is the schedule for the public hearings:

30 October: Cape Town

1 November: Port Elizabeth

3 November: Durban

6 November: Kimberley

8 November: Polokwane

10 November: Mbombela

13 November: City of Matlosana

15 November: Bloemfontein

16 November: Midrand, Gauteng

Venues have not yet been announced.

If you don’t want a massive increase in your electricity bill next year, you don’t have much time left to object to it.

“If we don’t object, it will be implemented,” says Blom. “Please help us stop this.”

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Eskom’s 20% increase is even higher for you and risks  137,000 jobs

If Eskom’s price application is approved, your electricity bill will rocket way more than 20% and hundreds of thousands of jobs may be lost. This is what’s in the Eskom price application.

Eskom’s proposed increase to municipalities is 27.5%, which will have to be recovered mainly from the higher income groups.

Eskom wants a 19.9% price increase, but this is the increase overall to Eskom’s electricity revenue, so different tariffs will increase at different rates. This means that for all but the very low electricity users, the bills will go up much more than 20%. If you are reading this, you are probably employed, which means you likely fall into a customer category that will get a much, much higher price hike.

Eskom’s price calculations mean that the price of electricity to municipalities will go up 27.5%, so this is likely to be the standard tariff increase.

The municipalities then calculate their own price hikes based on the extra 27.5% they will pay to buy bulk electricity from Eskom, so expect the municipal increases to start high and go higher.

Most households are on “inclining block tariffs”, with the higher blocks (for higher usage) charging more, which was designed to discourage consumption. Although Eskom now has excess capacity, those blocks remain and the higher blocks are usually hit with the greatest increases.

If granted, the Eskom increase will start on 1 April 2018.

The municipal increase will then start on 1 July 2018, when the municipal financial year starts.

Eskom’s price application hints at worse to come: 20% increases every year for five years, with massive job losses as the economy falters.

Eskom’s price application is for one year only but the utility has done the price modelling based on a scenario “where electricity tariffs increase at an annual rate of 19% over five years”, says its application.

That modelling hints at devastation to the economy: 137 000 fewer jobs a year, a total of 685 000 jobs less over five years.

Eskom’s application says that possible scenario is a better economic option than setting a lower price hike – such as 8% – because that would increase government debt costs too much and affects the economy in other ways.

Here is Eskom’s problem, which it’s dumping on you, the paying customer: electricity is getting so expensive that more customers are struggling to pay so Eskom’s bad debt is rising. Eskom’s solution is to charge those who are still managing to pay even more, to make up for those who can’t.

Eskom expects sales to drop (overall sales are dropping year-on-year as the economy flounders and those who can afford to are going off the grid), but Eskom wants an overall year-on-year 7% increase in its revenue so the massive 20% increase request is based on the expectation that there will be fewer customers to provide Eskom with more revenue. While Eskom does some limited planning around lower primary energy (coal) costs as less coal will be needed if overall sales drop, Eskom doesn’t seem to think that any of its other production costs may also drop.

The South African Local Government Association (Salga) underlined the problem of expecting to keep increasing prices in its response to Eskom’s draft application: “Approximately 50% of municipal electricity customers are residential customers. Approximately 40% of these are indigent. It is felt that this is a vicious cycle.”

Eskom agrees that this is a problem – it expects around R4 billion in bad debt for the year – but says this challenge must be looked at “holistically”. That means Eskom’s not budging.

The increases for the indigent are expected to be low, but Eskom’s lowest increase on the lowest block of the residential tariff is 17.5%. Tariffs to other customers, particularly for any usage above 300kWh a month, will be heavily loaded to make good on that 20% increase to Eskom and 27.5% increase to municipalities.

Eskom does not provide detailed tariff breakdowns, only the bare bones for its own direct customers:

  •         27.53% increase to municipalities
  •         19.90% to 22.04% increases to key industrial and urban customers
  •         19.9% increase to rural customers
  •         17.50% to 19.90% increases to Homelight (residential) customers

Even low-income households using very little power will be hit, as many people rent out shacks in their backyards which are linked to the main house’s electricity supply. As multiple households run off the same connection, it pushes consumption into the higher more expensive tariff blocks. This is one of the problems – which Eskom and municipalities have still failed to resolve in the block tariffs – which push low-income households into huge difficulties with their electricity bills.

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OUTA says Eskom doesn’t deserve any price increase

Try a 0% price change, says OUTA.

Eskom’s requested 20% price hike is unjustifiable and is being opposed, says Ted Blom, OUTA’s Portfolio Director for Energy.

OUTA is preparing a detailed response to Eskom’s price increase application and will publish it on our website as well as submitting it to NERSA. The deadline for submissions is 13 October.

“It’s unacceptable for a number of reasons,” says Blom. He is leading OUTA’s opposition to Eskom’s hike.

“Firstly, it’s a slapdash application.

“Secondly, it’s an application on a ‘business as usual’ basis and ignores the extraordinary circumstances surrounding Eskom.

“Thirdly, they’ve merely taken the historical numbers and escalated them, and they’ve given no explanation of how much of the historical numbers incorporate gross fraud of unbelievable proportions – we don’t know if it’s R 8 billion or R10 billion or what it is.” That means Eskom’s claimed increase in costs applies to the “cost” of corruption too – an extra 20% of it.

“Fourthly, they’ve perpetuated the notion that Eskom is entitled to charge whatever it costs Eskom to run, with no evidence of belt tightening, the National Energy Efficiency Strategy strategy to reduce energy intensity, the migration from the grid to self-generation of electricity. It’s not incorporated in those numbers.

“This plan doesn’t reflect any effort to restore Eskom to its previous record of efficiency.”

Blom says there’s no consideration of the customers, but instead a move further and further away from a justifiable price for electricity.

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Brief: Those e-toll SMSes keep coming

OUTA’s supporters are still reporting getting text messages about unpaid e-toll bills from debt collectors.

You’ll find OUTA’s advice about the e-tolls and the debt collectors on our website here.

OUTA’s e-toll defence umbrella is in place to defend the public if summonsed for non-payment of e-tolls. The details are on our website here.

Our court case against the e-tolls is continuing, with legal papers still being finalised. Our most recent update on this action is on our website here.

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