French parastatal Areva appears to have tried to buy its way to the front of the queue to build nuclear power stations in SA - a miscalculation.
A frontrunner in the race to build new nuclear power stations in South Africa conducted a costly schmooze campaign during an earlier round of bidding, the Mail & Guardian can reveal.
As the government prepares to reopen bidding for the building of a fleet of nuclear power stations, an investigation of the withdrawn 2008 tender, known as Nuclear 1, suggests that the frontrunner, then and now, French nuclear parastatal Areva, tried to manipulate the process by buying political favour.
The M&G reported in February that Areva was teaming up with a Chinese partner to form a politically favourable consortium.
The new contract, which could be put out to tender later this year, will be worth up to R1-trillion, the biggest in South African history.
Areva's rival, the United States company Westinghouse, hinted this week that it, too, was reviewing its strategic alliances by initiating "a consultation process with staff to possibly restructure its operations … in anticipation of nuclear new-build in the near future".
Areva's attempts to cosy up to a politically connected elite to win the 2008 nuclear tender were ultimately unsuccessful, but it shows how much bidders are prepared to invest to make these connections.
In 2008, Areva's strategy included a takeover of the politically connected uranium mining company UraMin to secure uranium rights in the Karoo, Namibia and the Central African Republic.
Rumours have circulated for years that the French company paid too much for UraMin to gratify former president Thabo Mbeki's allies, at least partly because it believed it would help it to win the huge South African nuclear contract.
But when the ANC sacked Mbeki in September 2008, Eskom withdrew the Nuclear 1 tender. The parastatal later said it could not afford the deal, but the timing suggested the events were linked. It has been speculated that the Jacob Zuma faction, in control of the ANC party machine since the Polokwane conference the previous December, did not want the Mbeki-led government to dispense the patronage from such a large contract.
The cancellation of the tender left Areva exposed to the full cost of buying UraMin, which it bought at the top of the uranium bull market for $2.5-billion. When the Fukushima nuclear disaster in Japan in March 2011 burst the uranium bubble, Areva announced gigantic losses, writing down its UraMin assets by more than $2-billion.
This led to a French parliamentary investigation earlier this year of Areva's handling of the UraMin takeover, which found "some malfunctioning in the company's governance and decisional process", but no clear evidence of fraud.
The Nuclear 1 tender highlights the financial consequences of megadeals built on a surreptitious exchange of political and commercial favours.
The M&G has traced several sources close to the uranium scramble that preceded the tender, who provided circumstantial but telling testimony of the machinations that characterised the process and drove up UraMin's purchase price to astronomical levels.
Rob Scott, former counsel to UraMin's chief executive, said: "Did we have a soft blessing from the politicians? I would be surprised if we didn't. Did any [politicians] make money from it? Not that I'm aware of. Did it suit agendas? Absolutely. Remember that Mbeki wanted South Africa to become a nuclear power."
A consultant to UraMin said there had been an assumed quid pro quo: "The deal was that Areva would buy UraMin and get the nuclear tender in return. Areva paid too much for UraMin – it's worth half [the $2.5-billion]. But they were going to get contracts for reactors and an enrichment plant worth 10 times as much."
Even Areva, following an internal investigation, admitted to paying too much for the assets. "UraMin's acquisition for $2.5-billion was made at a high price with a premium of approximately one-third compared with the intrinsic value that this asset represented for Areva," it said.
But did the company pay this amount to buy political favour? This is harder to prove, but the chronology of a uranium scramble spanning South Africa, Namibia and the Central African Republic is persuasive.
The first stage of the process, between 2004 and 2006, was the speculative acquisition of uranium deposits in these countries by start-up mining company UraMin, which cut in people close to political decision-makers.
In stage two, between 2006 and 2008, Areva bought UraMin and consolidated its nuclear bid consortium allegedly partly in the belief that by gratifying people close to political decision-makers in South Africa it would encourage favourable consideration of its nuclear bid.
Areva told the M&G it had "no intent to reopen debates on that issue that drew intense media attraction at the beginning of 2012. The only priority of the company is its recovery."
Mbeki's spokesperson, Mukoni Ratshitanga, said the allegations of political influence-buying were "entirely without basis", "possibly defamatory" and "typical
of the work of the apartheid-era Stratcom operatives, who concocted false allegations against their real and perceived opponents with deliberate malicious intent".
Matiki Chikala is the chain-smoking, tough-talking founder of Mago Resources, which he established in 2003. He said he saw the potential of uranium in the early 2000s and applied to the then department of minerals and energy for unused prospecting rights, particularly in the Karoo, which he hoped to develop once he found a financier.
In 2004 he was introduced to a company, Beranjou, that wanted to finance Mago's uranium prospects.
Beranjou, which later became UraMin, was an opaque British Virgin Islands-registered company represented by Australian geologist Adrian Lungan and South African businessperson George Roach. Its financial backer was Canadian banker Stephen Dattels.
The UraMin consultant said the company was started by business "cowboys", but they knew they had to achieve scale – or at least a semblance of it – to attract an established mining company to buy them out.
Lungan and Roach did not respond to requests for comment. Dattels, through his lawyers, denied "all impropriety alleged … or implied … regarding UraMin's dealings" and said the M&G's questions were "replete with inaccuracies".
In March 2005, Chikala signed an agreement with Beranjou setting up a joint venture in which Mago had 26% and Beranjou (later UraMin) 74%. The company hired advisers to assist in applying to the minerals department for up to 70 uranium prospecting rights in South Africa.
The consultant, who asked not to be named because of his business interests, said dealing with the department was "a nightmare".
"Corruption was so rife that we'd be allocated mineral rights, but when we looked again they'd been allocated to one of their friends to blackmail us."
Company meeting minutes from November 2005 provide insight into the way UraMin attempted to counter its difficulties in applying for permits. In the minutes, Dattels complained that the "non-issuance of licences" was "a problem" and he "needed to get answers" because it was "a critical time" where "speed is of the essence".
His solution was to "take council [sic]" from influential Ghanaian businessperson Sir Sam Jonah by naming him as one of two representatives authorised to deal with the department. A day before the meeting, UraMin had appointed Jonah, then chairperson of AngloGold Ashanti, to its board.
The other person nominated to interact with the department was Mbulelo Rakwena, a senior South African diplomat with political clout.
Jonah's appointment would turn out to be an inspired move. The consultant said Jonah and Mbeki were "big mates" and that, "if it wasn't for Jonah, this entire [UraMin] deal would never have happened".
Jonah's lawyer said: "The UraMin applications for prospecting rights in South Africa had already been lodged before our client became a director of UraMin and our client has never spoken to Mr Mbeki about [the] same."
Rakwena denied "with contempt any insinuation of wrongdoing on my part", but declined to answer detailed questions.
Chikala and the consultant both identified the deputy director general of the minerals and energy department, Jacinto Rocha, as the department's key day-to-day decision-maker on the awarding of the rights UraMin wanted.
They also noted that Mbeki's deputy president, Phumzile Mlambo-Ngcuka, was a key influence behind the scenes. She had been the minerals minister during the previous six years and many of the department's decision-makers were her appointees.
Even after her departure, the consultant said, she remained so influential that she was effectively "still the minister".
"I'm not saying Rocha did anything wrong. He just bowed to pressure from above. He was the guy who everyone above him referred to, to make sure that everything went according to plan."
Rocha said he had been promoted to deputy director general shortly before Mlambo-Ngcuka left, but insisted she "did not rule from the grave" and that "ministers do not decide on mineral prospecting rights".
Mlambo-Ngcuka declined to comment.
By mid-2006, UraMin was highly vulnerable to political risk. In a listing statement in April, the company noted that competing applications had been submitted to the department for the same prospecting rights in South Africa. By then it held only three of 70 mineral prospecting rights for which it had applied.
"There can be no assurance that the group will be granted new-order prospecting rights … The group's inability to acquire prospecting rights on certain properties in South Africa could have an adverse impact on the development of its projects in the country," the statement said.
At this point, UraMin's South African joint venture was owned by UraMin Incorporated (74%) and Mago Resources (26%). A month later, it cut another empowerment group into its shareholding. In May 2006, UraMin had written to the department proposing that a new empowerment company, Lukisa, be given a share of Mago Resources's stake.
It did not disclose the identity of those involved in Lukisa in its letter to the department, or when it announced that Lukisa had gained an 8.75% shareholding in the UraMin-Mago-Lukisa joint venture on June 6 2006.
According to Chikala, UraMin had gained a controlling stake in his company and then proceeded to work him out and bring in more politically connected players.
According to a company share register, Lukisa's majority shareholder was Tefo Maloisane. Four sources have independently confirmed that Maloisane was close to Mlambo-Ngcuka's brother, Bonga Mlambo.
Chikala said Dattels introduced Maloisane and Mlambo to him as prospective new empowerment shareholders.
"When Maloisane was introduced to me, he came with Mlambo. And when I complained, saying I did not want a scandal with the deputy president's brother, they pulled Mlambo off a little bit. Then they had meetings behind the scenes, but Mlambo was there, definitely."
Two other sources familiar with Lukisa confirmed that Maloisane and Mlambo were "close" and the relationship stemmed from Mlambo's role as "a kind of Zulu uncle" to Maloisane.
Rocha said: "Companies are clever. They think politically about who they will bring in to try and influence the decision-maker. You can't chase away the deputy president's brother – that would be discriminatory. He's also a historically disadvantaged South African. But it's the companies who choose to bring politically connected people in, not decision-makers in the department.
"My job was simply to make a decision in line with the [Mineral and Petroleum Resources Development] Act and I did so without fear or favour."
Mlambo could not be reached for comment.
Maloisane said: "I'm a professional businessman with qualifications; by no means do I find myself where I am because of connectivity." He referred further questions to Areva.
Dattels said Uramin "worked constantly to ensure its operations in South Africa conformed in all respects to BEE [black economic empowerment] requirements" but did not respond to questions about Maloisane, Mlambo and Mlambo-Ngcuka.
He denied that UraMin had edged Chikala out improperly, saying the company bought Chikala's stake for $51-million in February 2007.
According to the consultant, slow progress in obtaining permits in South Africa made UraMin look elsewhere for uranium deposits to pump up its asset base.
Nevertheless, by the time it sold its assets to Areva in July 2007, it held rights to about half the surface area of the Ryst Kuil uranium channel in the Karoo and had sealed an agreement in principle with a rival company for its share of the rest (See "Another deal on the side").
UraMin bought the company that held the mineral rights to the promising Trekkopje mine in the Namib Desert for $4-million in June 2005.
But by the time UraMin listed on the London Stock exchange in April 2006, the company was forced to declare: "The directors believe that the application for renewal of the existing [licence] is unlikely to be successful and no assurance can be given that the [new] application will be successful. In the event that neither application is successful, the group will have no assets in Namibia."
The company needed political insurance, as it had in South Africa, and a secret report commissioned by Areva in 2011 – following the collapse in value of the UraMin assets – suggests that it bought that insurance.
The report, by Swiss private intelligence firm Alp Services, alleged that Hage Geingob, who was a senior Swapo politician, Namibia's first prime minister and the man tipped to be its next president, "received $300000 for facilitating the sale of UraMin to Areva".
Scott recalled contacting Geingob to give him an update about Uramin's progress in Namibia.
Reacting to the Alp report, Geingob told the Namibian newspaper New Era in February that his company, HG Consulting, was employed by UraMin between 2006 and 2007 and was "paid for services rendered", namely "UraMin obtaining a mining licence". He denied receiving any money for facilitating the UraMin sale to Areva.
Dattels said the same, adding that Geingob "made the appropriate disclosure to the Namibian Parliament".
But the Alp report went further, suggesting that Geingob had "worked according to the wishes" of the ANC's treasurer general at the time, Mendi Msimang.
If true, the crossborder co-operation between senior liberation party cadres lends weight to suggestions that UraMin enjoyed top-level backing in both the South African government and the ANC.
Geingob refused to answer other questions about his alleged interaction with Msimang.
Msimang said: "I had no wishes and was in no way aware of, or involved in, any such transaction. I have no personal relationship with Geingob other than in the context of the bilateral relationship between the ANC and Swapo."
Central African Republic
UraMin acquired its third major uranium asset, the Central African Republic's Bakouma mine, for $27-million in June 2006 through Mbeki's direct intervention, according to the UraMin consultant.
Mbeki's alleged role in facilitating the deal is hearsay, but President François Bozizé had been fighting a sustained rebel incursion by supporters of ousted rival Ange-Félix Patassé for nearly a year and had begun to lean on South Africa for support.
In January 2006, the South African military went to the Central African Republic on a "fact-finding mission" and Bozizé visited South Africa on a "working visit" in April.
A South African foreign affairs department communiqué emphasised the Bozizé entourage's dealings with "a wide spectrum of South African business people and organisations that have interests" in the Central African Republic with an emphasis on "mining and exploration".
It is, therefore, possible that a beleaguered Bozizé was trading off some of his country's prized mineral deposits, including uranium, for South African military support, which was forthcoming later that year.
A United States diplomatic cable in December 2006 concluded that South Africa's intervention was designed to "stabilise" the Central African Republic, but added that "mining interests, while not the dominant factor, no doubt played a role in the [South African government's] decision to become involved".
According to several sources, UraMin's key point man for the Central African Republic deal was Jonah, who was influential among the West African elite.
Scott said Jonah's "[contacts] book in Africa is very extensive".
"I know Bozizé came [to South Africa] a couple of times because Sam actually claimed for expenses," he said.
Scott also recalled an incident in which UraMin staff working in the Central African Republic were arrested en route between Bakouma and the capital, Bangui, and Jonah negotiated their release.
Jonah told the M&G he had not wined and dined Bozizé in South Africa, and had never discussed UraMin with Mbeki.
With Bakouma in the bag, UraMin had assets in three countries and was sufficiently bolstered by its balance sheet and political connections to find a buyer.
The "key facilitator", said the consultant, was Jonah, who served on Mbeki's international investment council – incidentally, with Areva chief executive Anne Lauvergeon. Jonah was a nonexecutive chair of the UraMin board for at least six months before it was bought by Areva.
The first tentative engagement between UraMin and Areva began in October 2006, according to a UraMin circular to shareholders.
On July 31 2007, Areva sealed a $2.5-billion deal for UraMin, paying $7.85 per share – 21% more than the market value at the time.
Jonah was handsomely rewarded: according to a director's circular, he held nine million shares and would therefore have walked away with about $70.65-million (R505-million at the exchange rate at the time).
His company, African Facilitation Services, also received a 0.4% commission on the Areva deal worth $10-million. Of all UraMin's directors only Dattels, its founder and executive deputy chairperson, made more money.
Jonah's lawyer confirmed these figures were "roughly correct", but said: "There is no nexus between our client's involvement in Mbeki's international investment council and the events which transpired.
"Areva was not the only company which showed interest in UraMin. All negotiations with prospective buyers were conducted on UraMin's behalf by a reputable Canadian investment bank, BMO, and Areva's advisers were Rothschild."
Dattels did not answer questions about Jonah's role in negotiations with Areva, except to confirm that he was UraMin's nonexecutive chairperson at the time.
Scott echoed Jonah, saying that UraMin "played a clever commercial game".
"We made sure it was known we were meeting one another. Prices were high, there were supply shortages and huge demand. People were desperate for uranium. Did the French pay a princely sum? Absolutely."
Scott added that Jonah's link to Lauvergeon, through Mbeki's investment council, was unforeseen and "possibly really lucky".
At the time Areva also thought it had sealed a great deal: uranium deposits in three African countries and a politically connected company in its fold to bolster its bid for the South African nuclear tender.
Areva's next move
Lukisa's frontman, Maloisane, was appointed Areva's country manager for South Africa in July 2008 – at the time when Eskom was considering bids from both Areva and Westinghouse.
Chikala said political decision-makers would have noticed that a company associated with the deputy president's brother was part of Areva's bid consortium.
In the long run, the ANC's elective conference in Polokwane proved to be a massive defeat not only for Mbeki and his political allies, but also for Areva. Eskom's board put the tender award on hold in the week that the ANC sacked Mbeki and the tender was formally withdrawn two months later.
Areva will have to rebuild its alliances and wait for the tender to come around again. And it is likely it will want to recoup some of its misplaced investments (See "Another deal on the side").
Meanwhile, the ANC's next elective conference in Mangaung looms with the promise of a similarly decisive impact on politically backed megadeals. The question is: Who will bear the cost of political machinations this time?
Another deal on the side
Shortly before selling to Areva, UraMin agreed to acquire another company that had participated in the scramble for uranium rights in the Karoo near Beaufort West.
There are parallels between Areva's purchase of Great Karoo Metals and its acquisition of UraMin that suggests it wanted the same outcome from both: the indulgence of people close to then-president Thabo Mbeki in the hope of favourable consideration in the nuclear tender.
The ANC's Western Cape chairperson at the time, James Ngculu, held a 6% stake in Great Karoo and was briefly deputy chairperson of the private equity firm that held a further 35.75% stake.
Between November 2004 and May 2005, Great Karoo invested R40-million in buying and developing uranium rights. Areva bought Great Karoo Metals for $50-million in August 2007, a tenfold increase on Great Karoo's initial investment.
According to media reports, Ngculu was a key supporter and funder of the Mbeki campaign in the build-up to the ANC's Polokwane conference in December 2007. In the weeks before the conference, the Sunday Times quoted Ngculu as saying he would defend Mbeki "with my soul" and the Mail & Guardian reported that lobbyists for the Jacob Zuma faction had noted he displayed "particularly deep pockets" on the campaign trail.
Responding to the M&G's questions, Ngculu said it was "offensive" and "devoid of any truth" to suggest that he had supported Mbeki for factional interests. "I was a staunch ANC man and never a 'lobbyist' or 'outspoken supporter' as you suggest, save to support him as the elected president of the ANC." He said his reported financial and other ties to the pro-Mbeki campaign before the Polokwane conference were "rumours mongered by the 'unnamed sources' so loved by your paper", but did not rebut the Sunday Times quotation attributed to him.
In terms of the uranium deal, Ngculu said it was done "entirely on commercial grounds". He said UraMin persuaded Areva that it had a "moral obligation" to sign the deal Great Karoo had made in principle with UraMin.
UraMin had offered Great Karoo Metals a cash-and-shares deal worth "between $43.5-million and $47.5-million", Ngculu said, whereas Areva – having bought UraMin – had no interest in shares and so "insisted that the transaction be settled in cash".
"Given that the UraMin share price had risen since the original transaction was agreed to between Great Karoo and UraMin [an increase of about 50%], the final price agreed was $50-million.
"The price was based ultimately on the market value of uranium exploration and producing companies at the time," Ngculu said.
Despite requests to both Ngculu and Tefo Maloisane (in his capacity as an Areva representative), the M&G could not access full records of Great Karoo's shareholding.
Julian Williams, Ngculu's partner and co-founder and partner in private equity firm Basileus – a successor to the private equity firm that held 35.75% in Great Karoo – was shot dead in his Cape Town office last week in an altercation with an investor. It appears the dispute was based on the fate of investors' funds in another company in which Basileus had an interest, Avalloy, which benefited from Mbeki administration arms-deal offsets through investment by British aero-engine manufacturer Rolls Royce.