EXCLUSIVE: Guptas' 'unlawful' loan backed by mine rehab fund

Johannesburg - A coal mine owned by the Gupta family landed a R150m bank loan by putting forward the mine's environmental rehabilitation fund as security for the loan - a move that wasn't only unlawful but also jeopardised the mine’s ability to restore any environmental damage in and around the colliery.

News24 has obtained a document that details how the Gupta-owned Koornfontein coal mine in 2016 secured a R150m loan from the Bank of Baroda by means of offering R170m held in the mine's rehabilitation trust as surety for the loan.

Seeing as the bank would have been able to lay claim to the funds in the rehabilitation fund in the event that the Guptas were unable to repay the loan, the transaction posed the risk of leaving the rehabilitation fund completely depleted by the time Koornfontein would have needed to restore the environment at the end of the colliery's lifecycle.

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According to experts, the loan constituted a transgression of the environmental laws and regulations that prescribe how mining companies should manage the funds earmarked for restoring the environment once their mining operations close down.

This new information on Koornfontein's rehabilitation fund is contained in a letter filed in the ongoing court case between the Bank of Baroda and several Gupta-owned companies over the bank's intention to close the Guptas' bank accounts.

The new details also come in the wake of earlier indications that the Guptas' Tegeta Exploration and Resources, which owns the Koornfontein and Optimum coal mines, intended to access money in at least one of the mines' rehabilitation funds with the consent of the department of mineral resources (DMR).

The Mineral and Petroleum Resources Development Act (MPRDA) and the National Environmental Management Act (Nema) dictate that the funds in mines' rehabilitation trusts cannot be used for purposes other than managing the environmental damage caused by mining activities.

The R150m loan

A letter sent by the Bank of Baroda to Koornfontein Mines on 23 August 2016 confirms that Koornfontein secured a loan of R150m in June 2016 by providing the R170m held in the Koornfontein Rehabilitation Trust as security.

The letter was sent by Sanjiv Gupta (no relation to the Gupta family), the chief executive of the Bank of Baroda's South African arm, to remind Koornfontein about the latter's repayment obligations for the loan.

"We understand that a detailed discussion took place on 26.07.2016 with officials of our Bank's corporate office at Mumbai with regard to adjusting the loan availed by you against fixed deposits with us, details are here under," the Bank of Baroda official wrote to Koornfontein Mines.

The "fixed deposit" he referred to was the R170m held in the Koornfontein Rehabilitation Trust, as shown by the letter.

The Bank of Baroda seemed somewhat anxious for the loan to be settled by the Guptas' mine, as suggested in the letter.

"In the meeting, it was assured that the loan against the above FDR [Fixed Deposit Rate] will be gradually liquidated and fully settled by 30.09.2016 [30 September 2016]," the bank wrote to Koornfontein.

"We request that you ensure that the loan against the above FDR is repaid fully by 30.09.2016. In the event of failure to repay the above loan... it is notified that the above loan will be adjusted and liquidated by prematurely paying the said FDR as also mentioned in form LDOC 16(A) executed by you," reads the letter.

In other words, the bank would have been able to access the monies held in the rehabilitation fund in order to settle the loan if Koornfontein was not able to repay the loan.

It is not clear whether Koornfontein has indeed managed to repay the loan, or whether the mine's rehabilitation funds are still intact.

The Guptas, the Bank of Baroda and the department of mineral resources (DMR) all failed to respond to News24's queries.

Two experts in mining legislation told News24 that the use of a rehabilitation fund for the purposes of securing a bank loan would be unlawful in terms of the relevant legislation.

"In such a scenario, the bank or the lender would have security interest in respect of the money in the rehabilitation trust. The lender would, therefore, assert its right to access the monies in the trust in the event that the loan is not repaid," explained Manus Booysen, law firm Webber Wentzel's head of mining, energy and natural resources.

The two sets of legislation that deal with rehabilitation funds make no provision for the use of such funds as security for securing credit, added Booysen.

Melissa Fourie, executive director at the Centre for Environmental Rights (CER) agrees with Booysen.

"Encumbering the financial provision by, for instance, using it as security for a loan, puts these funds at risk. This effectively means that the availability of sufficient funds is no longer guaranteed as required [by law]," said Fourie.

Where has the R110m gone?

The Bank of Baroda letter also suggests that apart from raising bank credit on the back of Koornfontein's rehabilitation fund, Tegeta had also gone through with earlier plans to get its hands on the rehabilitation money itself.

An earlier report by amaBhungane revealed that in May 2016, Tegeta had sought permission from the DMR to access the rehabilitation fund.

In a letter to the DMR, Tegeta highlighted the financial woes Koornfontein and its other mining operations were facing after South Africa's major banks closed the accounts of all Gupta-linked companies.

In her letter to the DMR, Tegeta executive Ronica Ragavan wrote that the standoff between the Guptas' businesses and the major banks and financial services providers had "led to a critical situation hampering [Tegeta's] ability to keep the business and its related jobs afloat."

Ragavan asked the DMR to grant Tegeta "approval to use the above-mentioned funds [the rehabilitation funds] for mining rehabilitation purposes".

Less than a day after the request, the DMR granted Tegeta permission to access the funds, as reported by amaBhungane in November 2016.

At that juncture, the Koornfontein rehabilitation trust contained R280m.

The Bank of Baroda letter, however, indicates that the fund now only contains R170m, meaning R110m may already have been used by the Guptas' Tegeta.

When the DMR granted Tegeta permission to access the funds in May 2016, it came with certain conditions: Tegeta needed to provide the DMR with an "environmental liability assessment report compiled by an independent auditor", as well as a "rehabilitation programme accompanied by an implementation plan detailing the time frames for each rehabilitation phase".

At this point, it is unclear whether these conditions were indeed met, and whether or not Tegeta used the accessed funds for rehabilitation purposes.

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