/ 20 February 1998

State probe blasts Shaw appointment

Minister of Minerals and Energy Penuell Maduna this week effectively backed Emanuel Shaw II and Don Mkhwanazi – two men implicated in corruption at the state oil company – when he rubbished his own commission of inquiry into Shaw’s appointment. Answering questions in Parliament, Maduna said the commission’s report showed ”basic flaws” and would not help resolve the crisis at the Central Energy Fund. Maduna said he had told this to President Nelson Mandela.

Maduna promised to release the report – which recommends he sack Shaw, Mkhwanazi and the rest of the fund’s board – next week. A leaked copy shows the probe found Mkhwanazi had cleared Shaw’s appointment with the fund’s board five months after his Liberian associate signed the contract, and one month after it was reported in the Mail & Guardian.

The probe, which also concluded Mkhwanazi had a ”personal interest” in appointing Shaw, says the fund’s board ratified Shaw’s appointment only on December 4, ”after the appointment became a matter of public knowledge”.

Maduna appointed the probe into Shaw’s appointment last November, a week after the M&G reported how Mkhwanazi gave the Liberian politician the R3-million-a-year job in July. He has not commented on it since releasing a summary of its recommendations three weeks ago, but has held lengthy discussions with Mkhwanazi and Shaw.

The report documents a string of corporate governance breaches by Mkhwanazi and his board. It accuses Mkhwanazi of failing to disclose to the board his personal and business links with Shaw before making the appointment – a breach of the companies Act – and criticises the board for its general lack of concern over the recruitment of Shaw.

It says by the time the board cleared the appointment on December 4, it was aware of Shaw’s relationship with Mkhwanazi. He informed the board of Shaw’s appointment as a matter of record on September 29.

The report says Mkhwanazi indicated to the panel ”that he has long-standing personal and business relationships with Mr Shaw which were developed outside the context of Central Energy Fund. The nature of the relationship, as explained by the chairman, is such that the panel could objectively presume that in the absence of evidence to the contrary, the chairman had a personal interest in the appointment of Mr Shaw.”

The M&G reported last week how one of Shaw’s companies channelled money into an account of Mkhwanazi’s, which pays the bond on a R2,4-million house in Johannesburg. Maduna released a statement this week carrying Mkhwanazi’s denial that he received money from Shaw.

Maduna said he will refer these kickback allegations to the public protector. The Office for Serious Economic Offences is already investigating the transfers which appear in recent bank statements from Shaw and Mkhwanazi, both of whom bank at the same Johannesburg branch of a leading bank.

Mkhwanazi has frequently sought to saddle the Central Energy Fund’s acting general manager, Howard Roberts, with the responsibility of Shaw’s appointment. The report dismisses this attempt to pass the buck, saying Mkhwanazi ”did approve the appointment of Mr Shaw and therefore had the obligation to disclose his interest to the remaining board members”.

The report also found the board irresponsibly allocated R5-million of the fund’s budget – which was supposed to be spent on advisers for restructuring Mossgas, the fuel-from-gas operation in the Cape – to pay Shaw.

With this budget allocation, Mkhwanazi was technically entitled to appoint Shaw as what the fund’s internal rules term a ”preferred supplier” – a route which excused him from putting the post out to tender.

The report says the board’s minutes did not show any discussion on switching the Mossgas money to Shaw. Although the board cleared this expenditure for a restructuring consultant – not specifically Shaw’s International Advisory Services – it should have only done so in consultation with Maduna, who was only alerted to the appointment when his special adviser had to sign for Shaw’s paycheque in October.

The report notes ”with dismay” that Shaw’s contract was not cleared with anyone with a legal background, adding that the contract lacked several basic clauses which ”would ordinarily be insisted upon by a party in the Central Energy Fund’s position and which would be expected in an agreement of its kind for the protection of [the fund’s] interests.

”In general, the board’s lack of interest in relation to the appointment of Shaw for such an important task shows the board’s lack of appreciation for the process of restructuring,” it reads.

It says board members did not exercise their fiduciary duties by using the money meant for Mossgas; not participating on the appointment of a consultant; and not challenging Mkhwanazi when they found out about his close links with Shaw.

Mkhwanazi’s board includes attorney Keith Kunene, who is also on the board of Mkhwanazi’s National Empowerment Trust Investment Fund. Kunene is also a director of Southern Bank, a joint-venture Malaysian bank of which Mkhwanazi is chair.

Other board members include Kaya Ngqula, who, like Mkhwanazi, sits on the board of Industrial Development Corporation, and Johan Basson from the Department of Minerals and Energy, who recently resigned.

The deputy director general of minerals and energy, Gordon Sibiya, was the only member of the board who stood up to Mkhwanazi and tendered his resignation from the board.

The panel recommends several changes to the Central Energy Fund Act to increase the company’s accountability to the government. It also says the Chemical Workers’ Union testified that the fund does not consult with labour on its restructuring and privatisation plans, and that it has no guidelines on empowering black South Africans when it procures services.

The report also says the commission failed to discover who leaked the contract to the M&G.


M&G Newspaper