KPMG denies any dodgy dealings in controversial Gupta coal deal

Auditing firm KPMG has distanced itself from potentially questionable practices in the Gupta family’s controversial multi-billion rand acquisition of the Optimum Coal mine.

The denials follow detailed questions from TimesLIVE as to the exact role and knowledge that KPMG had in the acquisition plans up until the mine was finally bought in April 2016.

The Mpumalanga mine — which was previously owned by Glencore — was placed under business rescue in August 2015.

In July‚ just three months after the sale of the mine to the Guptas’ Tegeta Exploration and Resources company‚ which is held by the family’s Oakbay company‚ the business rescue practitioners for Optimum laid a criminal complaint under the Prevention and Combating of Corruption Act with the Hawks.

This came after concerns were raised by the practitioners over suspicious financial transactions which emerged after the mine’s sale and apparent pre-bridging financing.

KPMG maintains that it is innocent of any questionable practices around its tax advice and financial and auditing services it provided to the Guptas to acquire Optimum mine - its spokesman‚ Nqubeko Sibya‚ saying the firm’s role in the acquisition was “very limited”.

He said the substance of the work KPMG delivered would not have changed the deal at all.

But‚ it appears KPMG may have played a far deeper role in helping the Guptas in their purchase‚ with questions now raised over why it took the firm so long to begin a review of its dealings with the Guptas.

KPMG began its review recently‚ a year after severing ties with the Guptas.

KPMG severed ties with the family less than two months before Tegeta acquired the mine and a month after former Public Protector Thuli Madonsela released her State of Capture report.

Leaked Gupta emails show that KPMG’s involvement in the deal was far from “very limited”. It represented the Guptas’ Oakbay at ground zero in the deal‚ dealt with the funding model‚ among other things‚ and followed it through until the deal was almost completely finalised. KPMG earned fees of an estimated R6.8-million for its work.

KPMG’s review also appears to have related not to the concerns raised by Optimum’s former business practitioners and Madonsela‚ but to R30-million of taxpayers’ money used to fund the Guptas’ lavish wedding through another of their companies‚ Linkway Trading. The money was meant to help indigent Free State farmers.

Optimum mine’s multi-billion acquisition was ultimately done through Eskom funding‚ with some of these payments made before the mine was officially acquired by the controversial family.

Correspondence in the emails shed light on what KPMG would have known about the transaction which is widely regarded to be riddled with irregularities.

For example‚ the initial brief to KPMG was that Oakbay would fund the deal through “internal cash resources”‚ a KPMG engagement letter from 2015 in the emails shows.

KPMG advised Tegeta in the deal which it termed Project Dragline.

But‚ as the company’s auditors‚ KPMG should have known that there was no way Oakbay or Tegeta would have been able to fund the transaction through its own cash resources‚ which amounted to just over R700-million.

A month later Tegeta was lobbying Eskom for a R1.68-billon prepayment.

The amount coincided with the money the Guptas needed to buy Optimum. Optimum was ultimately bought through Eskom’s R1.6-billon guarantee‚ a R659-million advance payment - also provided by Eskom - and R235-million from controversial financial services company Trillian‚ until recently owned by Gupta associate Salim Essa‚ also indirectly obtained from Eskom.

The leaked emails show how KPMG’s role in the controversial Optimum acquisition began on July 1‚ 2015‚ under a Project McClaren‚ when KPMG sent an anonymous expression of interest to purchase the mine from Glencore.

KPMG’s anonymous client was Oakbay.

The leaked emails show that when the offer was accepted‚ KPMG then launched Project Dragline‚ which involved buying the mine.

In August 2015‚ KPMG’s executive director and corporate tax head‚ Muhammad Saloojee‚ sent then Oakbay director Ronica Ragavan an email with the subject: “Optimum - Very interesting article”‚ linking to an article about how Eskom needed to think carefully over Optimum.

The email‚ which shows KPMG was well aware of what was going on‚ was sent as Eskom fined Optimum a R2.15-billion penalty for low-grade quality coal. The fine forced Glencore to place the mine under business rescue‚ but the fine was reduced to just over R200-million after Tegeta bought Optimum.

Project Dragline also saw KPMG conduct a legal due diligence dated December 4 2015. In the due diligence the penalty is mentioned too.

In December 2015‚ KPMG released what it referred to as a “funding model” for the acquisition of Optimum‚ with Eskom‚ by December 12 2015‚ issuing Tegeta the R1.6-billion guarantee‚ also illustrating that it was aware of the alternate funding source despite the earlier claims it would be done using “internal cash resources”.

Sibya said KPMG’s engagement did not extend to providing advice on the funding aspect of the transaction.

He said KPMG was given confirmation that the acquisition was to be funded from existing facilities available from the Bank of Baroda.

“KPMG’s financial model included operational cash flows only and did not include any financing. KPMG was not made aware of how the final financing was determined.”

“All our work was performed within the parameters of the law.”

Questioned on Saloojee’s email‚ he said it was to highlight the “nature of the existing onerous contract between Eskom and Optimum Coal”.