🔒 Prologue to a Crash: Nene on why he resisted Zuma’s nuclear folly

LONDON — In late 2015, South African asset prices lost R500bn in two trading sessions. Here’s the back story to Nenegate in the words of the man who gave the scandal its name. – Alec Hogg

This is the Rational Perspective – I’m Alec Hogg. In this episode, the backstory to Nenegate, from the man after whom it is named.

Listening to yesterday’s 4.5-hour testimony by our SA Finance Minister Nhlanhla Nene was riveting. It also forces the rational mind to ponder where this country would have been if this modest man from rural KwaZulu-Natal hadn’t stood-up against the financial wrecking ball of former president Jacob Zuma and his cronies. The country was surely headed the same way as Turkey and if Erdogan’s example is overlaid on SA the currency would today be trading around R25.00 rather than R14.00 to the USD. Interest rates would certainly be double their current level and well over 20%, and the stock market substantially lower.

We got a taste of all of this during two insane trading sessions that followed Zuma’s decision on the 9th December 2015, to fire his respected Finance Minister, an action that spooked investors and sent shockwaves through the financial system. The rand plummeted, bond prices soared and the stock market tanked. I crunched the numbers and quantifiable losses on stocks and bonds totalled over R500bn. Those chaotic few days became known as Nenegate, a crash that was amplified by Zuma’s replacement of Nene with one of his lackies, an unknown backbencher.

The tailspin only levelled out after Zuma bowed to pressure from an unusually vocal business lobby and ANC insiders. Against his wishes, he replaced his recent weekend special Financial Minister with respected Pravin Gordhan, a man he’d fired a few years before and was destined to do it again 15 months later. But yesterday, the man who gave Nenegate its name, spoke of the matter publicly, this for the very first time. After two-years in the political wilderness Nene was reinstated as Finance Minister when new President Cyril Ramaphosa took office in January. We now know that although it struck with a force of a hurricane, Nenegate had been in gestation for almost half a year. The attempt to acquire control of the SA Treasury, surfaced first in July 2015, through a sinister document titled ‘Operation Spiderweb.’ Here’s how the Finance Minister, the man in the middle of the saga, describes it.

This document suddenly surfaced in July 2015, styled as an intelligence report, which suggested that Treasury had been captured by the apartheid era intelligence operatives, as well as ‘white monopoly capital,’ in order to control the country’s finances. The document came to my attention on or just after 20th July 2015. The origin of the document and how it ended up in Treasury is still unknown to me. When I read this document, it reminded me of a remark, if I were to say, that was made by former president Zuma about a month earlier where he told me that there are apartheid agents within Treasury. I dismissed this as a conspiracy theory however, it was clear to me that the Treasury did not enjoy the support of the president.

Nhlanhla Nene
Nhlanhla Nene, South Africa’s Finance Minister. Photographer: Waldo Swiegers/Bloomberg

Looking at it today ‘Operation Spiderweb’ is almost laughable in its absurdity. But those were the times when Bell Pottinger and the Guptas ruled the media roost. Some of that influence remains today. Among the allegations that were made then was that Nene was controlled by the ‘Queen of Leaves’ Absa’s CEO, Maria Ramos and that he was working in cohorts with the PIC CEO Dan Matjila, who remains under attack even now. Matjila will only have his name cleared after his own commission of enquiry into the organisation he runs. But back to Nene’s story. Things quietened down for three-months after the initial breaking of this spiderweb issue but then an even bigger, a more direct bombshell exploded.

The deputy finance minister Mcebisi Jonas, had called him to ask for an urgent meeting. Its content could hardly have been more shocking. Jonas had been offered Nene’s job by the Gupta family confirming that the crony capitalists’ power over Zuma was now absolute.

We indeed met on Monday morning, 26th October 2015, at around 08h15. We were supposed to meet in my office but we decided to go to his office as he had a good balcony, which would be outside and perhaps, which we also thought would be safer. I could see that he was flustered. He informed me of an uncomfortable meeting he had had with the Guptas and Mr Duduzane Zuma in Saxonwold.

Before you proceed, Minister, when you say, ‘it had a good balcony, which would be safer.’ Would you be a bit more specific please?

Well, in the environment where Project Spiderweb and all of these things you would actually, even when you look at a flowerpot you’re not too sure whether it has something so, you think that perhaps the balcony outside might be a safe place to discuss a matter of confidentiality.

Thank you.

He then told me that during that meeting he was offered the position that I was holding at the time, that of Minister of Finance. He also told me that Mr Ajay Gupta offered him R600,000 in cash immediately, and a further R600m to be deposited in a bank account offshore. Mr Jonas told me that he rejected the offer of the deposit and the cash that he was invited to take immediately. At that stage there were already rumours circulating in the media about an imminent Cabinet reshuffle. My name was amongst the ministers who were reported to be due for removal. I had paid these rumours no regard. Mr Jonas then informed me that the Guptas were aware of this intended reshuffle and that they had informed him that they were influential in the removal of certain ministers from their positions. I recall saying to him, ‘who are they to offer you the job of minister?’ I suggested to him that I should resign, perhaps, since I was to be fired anyway but Mr Jonas pointed out, and I agreed with them that I should consider to hold the line at the Treasury and not give in to these threats. I was already concerned about attacks on the Treasury and the intentions of those behind Project Spiderweb dossier that had been released a few months earlier.

Rumbling in the background, however, was the biggest prize of all for those planning to plunder the SA public purse. A project for the Russian government to build a nuclear power fleet that SA didn’t need, and most definitely could not afford. It was Nene’s resistance to this scheme that eventually led to Zuma firing his obstinate Finance Minister.

In December 2013, the Department of Energy provided Treasury with a draft feasibility study for the nuclear program.

Treasury’s response?

And upon review of the Treasury’s analysis of the draft feasibility study it became apparent to me that regardless of the underlying policy rationale to develop nuclear energy capacity. The costs associated with it were astronomical. The envisaged 9.6 gigawatt a nuclear new build program would have constituted the largest public investment program in SA’s history. Relative to the size of this SA economy, it would have been one of the largest public sector investments ever undertaken internationally. The total investment required would have had material consequences for Eskom and the country’s foreign and domestic debt, fiscal and financial position, the balance of payment and sovereign balance sheet for decades to come. As well as investment grading, which would have had implications for all South Africans.

Could you give the Chair an idea of the size of the financial investment that would be required in relation to the budget?

I remember, I just don’t have the figures with me but I remember one of them actually, where we had said, if we were to break it down into sizeable chunks, where at least 2.5 gigawatts were to be the initial phase, it would be worth, and taking into account the exchange rate at that time, it would have perhaps come to something like a quarter of a trillion, R250bn.

That’s just for a phased approach?

For a phased approach that was about…

Would that mean if one tried to cost, in the most general terms, the project as a whole, it might exceed R1trn?

It could have, given the exchange rate at that time, by going forward, but it was one of those that you couldn’t conclusively say that was the figure because it needed more work to be done in order to be able to arrive at a real number.

What would the consequences or implications be for future generations?

Well, our concern was that the recovery of the nuclear build cost through the tariff. Through the tariff would have profound consequences for the economy and the South African users of electricity. This point had become much clearer for me in the face of mounting resistance to the electronic tolling in Gauteng, where the user pay principle was being turned on its head. Construction costs that had originally been meant to be recovered through tariffs were being paid for from general tax revenue with deleterious consequences for public policy and fiscal management.

And you refer to consequences being there for decades?

Yes, correct. There would have been large risks associated with the nuclear build program. Global experience also, if I were to venture into that one, has shown that that large upfront capital investment, long construction period and the complexity of nuclear projects means that nuclear power projects are especially sensitive to construction risks, arising from delays and disruptions. The cost overruns and the increases in financing costs. If these risks materialise the increased costs are locked into the cost of electricity for the lifetime of the project.

These implications, did that place any burden on Treasury?

Indeed, which meant that Treasury needed to carefully study the feasibility and fiscal affordability of the proposed nuclear project. The funding model was central to the determination of affordability. In other words, key issues were the fiscal affordability of the funding or guarantees to secure borrowing that would be required to finance the project, and the impact on the economy of the electricity tariff required to repay the debt used to finance the project. In the light of legal obligations of my position, I would ultimately have to approve on behalf of government, the funding model based on its viability.

Read also: The Nenegate legacy – what doesn’t kill you makes you stronger

So, in Nene’s opinion, the buck stopped with him, and for so long as he was running the finance ministry he would ensure there would be no mortgaging for future generations on an unaffordable project. But he soon ran into serious interference from the very top. He explains what happened when SA Cabinet Ministers met in Ufa, in Russia, ahead of the July 2015 BRICS gathering.

In Ufa I, together with other Ministers, attended a briefing meeting with former president Zuma, on the 8th July 2015. The intention was to brief Mr Zuma on the summit and his forthcoming one-on-one meeting with President Putin of Russia.

What was the practice in relation to your role at such a summit and the need to brief the president?

Well, the president had to be briefed on a number of things, including agreements. In this instance, as we had just concluded the establishment of the bank. All of that information needed to be given to the president so that the president is aware of those things because the Heads of State Summit is mainly for Heads of State. Our contribution is a supportive role.

Matters of some importance I presume?


Rather than deal with these matters the former president chose to deal with the issue of nuclear procurement, am I correct?

Indeed, president Zuma proceeded to discuss the issue of nuclear procurement in SA. In a sense, he wanted to know as to what progress the Minister of Energy and I had made on the nuclear deal, as Cabinet had directed us to prepare a memorandum on, among others, the financial implications and funding model of the nuclear program.

How did you respond?

I indicated to the president that the absence of details regarding the proposed financing of the project made it difficult to make progress with the memorandum. I was also surprised that the Treasury officials were not allowed in the meeting, even though the Director General of the Department of International Relations and cooperation was.

What was the tone of the meeting?

The tone of the meeting was indeed, it felt very tense and hostile towards me. The president criticised me for not finalising the financial aspects of the proposed nuclear deal with Russia. He also said that he was happy that I was not doing what I was supposed to have done a long time ago, so that he could have something to present when the meetings with his counterpart, President Putin, for their one-on-one meeting.

What was your understanding, at that stage, of the former president’s expectations in regard to what he would be discussing in regards to this deal with President Putin?

The expectation was that we must have made enough progress, so that in his conversation with his counterpart he’d be able to present a case.

Nene was then presented with a letter by Energy Minister Tina Joemat-Pettersson. He was expected to sign it but he refused.

Given your duties, was it possible for you to respond positively to the request to sign that letter?

No, it would not have been prudent for me to do so.

Well, would it have been legal for you to do so?

Without following due process, no.

Did the Minister of Energy, as far as you know, appreciate that it was necessary for the feasibility study that you say, I think, had not been completed, to be completed before such a commitment could be made?

I think she did appreciate but I think she also felt under pressure to have the matter concluded. I felt that the letter was not the correct approach also, of dealing with matters of this nature.

You have said that if you had signed that letter that would have resulted in a commitment with huge financial implications for the country. You say, she also would have appreciated that.

I expected her to appreciate that.

Now, the pressure that you say you think she was under, also, came from whom or from where?

The pressure, I think for both of us, came from the former president, Mr Zuma.

Read also: Trevor Manuel, Floyd Shivambu – exposing Guptas as puppeteers in #Nenegate

There were further attempts by Zuma to coerce Nene into approving the nuclear deal, including a gathering on the 8th December 2015, of all the Cabinet Ministers whose portfolios were affected by it. Tellingly, Zuma met with the other before Nene arrived, having built consensus in this corrupted caucus. His proposal was then formally tabled but even then, there were some obvious errors.

The presentation, for instance, assumed an exchange rate of R10.00 to the Dollar. Whereas the exchange rate assumed by the National Treasury was between R12.00 and R14.00 to the Dollar. In fact, on that day, the exchange rate was R14.57 to the Dollar. Yes, so simply put, failing to show the committee a scenario depicting the rate at which the Rand was exchanged for the Dollar on that day – it meant that committee was presented with a 40% understatement of the cost of nuclear. So, if the price, for instance, of 9.6 gigawatts was $100bn the understatement was going to be $40bn, and that was about R560bn. This was a truly gross material understatement of the project. While it could have been possible to argue that the Rand could regain its strength. It is instructive that the Rand is trading at around R14.00 as we speak, this week.

After the presentation did you have an exchange with the former president?

The former president asked me if I had anything to say in response.

This was in the meeting still?

In the meeting, yes. I pointed out that the concerns of Treasury were not included in the presentation. In particular, I noted that the assumptions in relation to the exchange rate were optimistic and that there was still no funding model accompanying the presentation. I didn’t really think that there was any point in saying more and resisting any further. I suggested that the officials from the Department of Energy and Treasury finalise the presentation for the cabinet meeting the next day. I further requested my Director General at the time, Mr Lungile Fuzile, to give his input. He expressed serious concerns at length, regarding the cost implications of the proposal and the failure by the Department of Energy to phase the construction over a long period of time.

When you say, ‘you didn’t really think that there was any point in saying more and resisting any further,’ what were your actual considerations at that time?

I thought I had reached a point where I had done everything humanly possible to express our views on the matter. But seeing that it continues to be either undermined, excluded and not being part – I thought there was just no point in continuing to raise the issues.

Do you mean that you may have reached a point where, as far as you were concerned, the relevant people were not going to listen to reason?

There was enough evidence of that because it was clear that for instance, after so much work that had gone into it with our officials, to come to a meeting and allow the officials of one Department to present their views to the complete exclusion of the views of the National Treasury team. Also, that’s why I just stated the obvious with regards to the exchange rate assumptions and also, the absence of the funding model. But beyond that I thought I had expended all my fighting power.

Thank you.

How did the meeting conclude, Minister?

It concluded with the decision to proceed with the nuclear program proposal by the Department of Energy, despite the contrary views of the Treasury.

When Zuma’s coup de grace came, it was swift. After a marathon Cabinet meeting on the 9th December, where Zuma forced through his nuclear deal proposal he asked to see Nene at six o’clock in the evening. The process that followed, which would rock financial markets and smash South African asset prices, took just a couple of minutes.

He said, ‘you’d remember that when we were discussing the establishment of the Africa Regional Centre, I had said that we would have to deploy a senior high-ranking individual in that position.’ I confirmed that I recalled the president saying that. Now, by the Africa Regional Centre the president meant the Africa Regional Centre of the BRICS New Development Bank, which we call the BRICS Bank. The BRICS countries had signed an agreement establishing the BRICS Bank at the 6th BRICS Summit on the 14th July 2014, in Brazil. The BRICS Bank had to have regional offices and the first of which is the Africa Regional Centre, located in Johannesburg, speaking in isiZulu, he did say that, we discussed this matter with the top-6 and we agreed we should put you there. I asked when this decision was to take effect and he informed me that he would be making an announcement shortly. I thanked the president for having provided me with the opportunity to serve the country as Minister of Finance. We shook hands, and I left. The entire meeting lasted two to three minutes. The president made no mention of any other reason for my removal. I didn’t ask him for reasons for this decision as I did not think it would be appropriate. That was the first and last time we ever spoke about the position at the BRICS Bank. It is obvious that the deployment to the BRICS Bank was a fabrication, if I were to say so. I say so because the president had no authority to offer me a position or to deploy me to a position in the BRICS Bank. Nor could such an appointment be considered at that stage, at least without due process, which also involves other member countries.

It’s worth remembering that Nene was already a Governor of the main BRICS Bank, which means that the supposedly important assignment that Zuma had for him would be like asking a bank’s director to be promoted into managing a branch. Disingenuous, to say the least.

This has been the Rational Perspective. I’m Alec Hogg. Until the next time, cheerio.

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