Optimum Coal Mine has failed to pay a R4.2-million invoice to a company contracted to build a new state-of-the-art public health clinic.
The Gupta family-owned Optimum is the company at the centre of the Public Protector’s State of Capture report. Optimum owns a coal mine in Hendrina, Mpumalanga. Its mining rights are dependent on fulfilling its social and labour commitments in terms of the Mining Charter. By failing to pay for the new clinic Optimum is at risk of losing its mining rights. And, following litigation launched in the Gauteng High Court, Optimum is also at risk of being liquidated.
In December 2015, Optimum hired Re-Action Consulting to manage the construction of a new 24-hour clinic for Kwazamokuhle in Hendrina. The cost of the contract was R17.2-million, to be paid in three tranches. The project was part of Optimum’s Social and Labour Plan that companies with mining rights are legally obliged to implement.
At the time Optimum, a supplier of coal to Eskom, was owned by Glencore, and the first two tranches of the contract were paid on time.
Then in April 2016, Tegeta, a company owned by Oakbay – a holding company owned by the Gupta family – purchased Optimum. (The controversial circumstances of that sale are described here and here.) The third and final tranche of R4,204,206 for the clinic, due in August 2016, has not been paid to date.
Re-Action Consulting’s attorneys, Craig Assheton-Smith Inc., sent a letter of demand to Optimum on 7 November 2016. The deadline for Optimum to pay passed on 7 December, and an application has since been lodged in the Gauteng High Court by Re-Action, asking the court to wind up Optimum.
“It is apparent that [Optimum] continues to trade in insolvent circumstances and presently owes creditors … many millions of rands,” states the founding affidavit.
Yet the Sunday Times reported that Atul Gupta, “the most prominent of three brothers from the family who have been accused of using their close relations with President Zuma to unfairly enrich themselves”, is the seventh richest person in South Africa, with his personal wealth valued at over R10-billion.
In correspondence viewed by GroundUp, Optimum asked Re-Action to supply documents before paying, including “site meeting schedules, signed payment certificates and minutes of site meetings”. In a letter, Optimum’s lawyer states: “You will be aware of the fact that a new acting Chief Executive Officer has been appointed for Oakbay Investments and it is in light hereof that strict compliance is required on all projects.”
In response, Re-Action’s lawyers wrote: “In light of the information provided to you, which included photographs of the site, the only explanation for your client’s failure to effect payment to our client is because it is unable to effect payment, and the request for yet further documents is simply a ruse to delay effecting payment.”
In the meantime, the clinic is almost ready to be opened and handed over to the Department of Health. Re-Action’s director, Sharon White, told GroundUp that officials from the Department of Mineral Resources had visited the clinic and told her that they found the construction to be in order and that they could not find any fault in the construction. The clinic “allows for a community to have access to services like maternity, emergency, primary health care within walking or a short drive distance … We have continued to complete the construction of this clinic for the Department of Health and the community of Kwazamokuhle under great difficulty and strain to us,” she said.
Optimum referred GroundUp to Oakbay for comment. Asked if the company was having cash flow problems, a spokesperson responded: “Since Oakbay Investments acquired the Optimum Coal Mine in April 2016 our programme to turn around the mine has seen it discharged from business rescue. We have not made any retrenchments and are expanding operations at Optimum.”
As to why Optimum has not paid Re-Action, “When the project has been successfully completed, Re-Action Consulting will be paid like any other contractor. However, work has not been completed yet. We do not anticipate any problems operationally or financially with Re-Action Consulting’s contract to construct the clinic.”
But this position is in violation of Optimum’s contract with Re-Action which explicitly states that the completion date for the project is 31 March 2017 and that the final payment to Re-Action was due in August 2016.
The Department of Mineral Resources, asked whether Optimum risked losing its mining rights if it failed to pay for the clinic, replied by e-mail: “The Department will follow the relevant processes if the company is found to be non-compliant, in line with the Mineral and Petroleum Resources Development Act.”