Mungo Soggot
The Department of Public Enterprises is going to extreme lengths to shore up a crumbling deal with a private company to run the ailing state diamond company, Alexkor.
The Minister of Public Enterprises is Jeff Radebe, and his wife, Bridget, chairs the private company involved, Nabera.
For several months, Nabera has been in danger of losing its contract because of its failure to put up R120-million.
The contract that gave Nabera the job in February stipulated that Nabera had to show its financial mettle by raising R120-million by June. But Jeff Radebe’s department, which presides over Alexkor, has twice extended Nabera’s deadline for the money.
Without the government’s intervention, the entire agreement would have fallen away. Radebe was not public enterprises minister at the time the contract was awarded, taking over the portfolio only in the June Cabinet reshuffle.
This week the department went a step further in its lenient treatment of Nabera. As the company was coming up against its latest deadline – September 16 – the department proposed renegotiating Nabera’s contract.
In an internal memo, the department acknowledged that Nabera could not come up with the money under the original contract. “Our perspective is that Nabera is unable to comply with the condition precedent and will need to renegotiate the contract to enable ourselves to deal with the situation,” the memo says.
Instead, it suggests, the government will have to raise the necessary money itself, to invest in and support Alexkor.
Nabera beat two other shortlisted consortia for the management contract, including a group led by diamond giant De Beers. The creation of the management contract is considered the precursor to Alexkor’s full privatisation in two years’ time. One of the conditions of the tender was that bidders put up a sum of money to show they were capable of investing in the mine.
The original Nabera contract says that at the end of Nabera’s two-year management stint Alexkor must refund the R120-million and that if Alexkor is unable to do so, the government will step in.
Some diamond company analysts questioned the selection of Nabera in February over what appeared to be more experienced bidders – in particular De Beers – and said the decision to appoint Nabera had been “political”.
The link between Jeff and Bridget Radebe fuelled criticism of the selection process. However, at the time Jeff Radebe was minister of public works. Bridget Radebe’s Mmakau Mining has a 20% stake in the Nabera consortium.
The memo adds that Nabera’s “skills set” should be re-evaluated during the renegotiation of the contract. It also recommends “a detailed review of the business plan and long-term programme of Nabera for Alexkor”.
Jeff Radebe’s press officer, Zaid Nordien, said this week the department had decided to renegotiate the contract because Alexkor was in much greater financial difficulty than previously thought.
“A drastic change in the material conditions since the time of going out to tender until the appointment of the management contractor has necessitated a review of the details of the contract.”
He confirmed that under the new proposal Nabera would not have to put any actual money on the table, but said Nabera was the only company capable of turning around the mine. Nordien said that any changes to the contract would have to be vetted by an interministerial committee on privatisation.
Nordien said the same committee had sanctioned the extension of Nabera’s deadlines.
Nordien added that the government did not want to consider retendering as the delay this would cause could jeopardise the mine.
He said that financial institutions approached by Nabera had not been satisfied with the strength of the contract – even though it said the government would stand surety for Alexkor if Alexkor could not repay the R120- million.
Nabera’s chief executive officer, Larry Neuhoff, said Nabera had had access to the R120-million funds for 10 weeks.
Industry analysts said the government’s safest way of dealing with the ongoing fiasco at Alexkor would be to reopen the tender.
The government’s latest efforts to keep Nabera come amid bitter relations between Nabera and some Alexkor board members and staff, who are unimpressed with the company’s performance so far.
One Alexkor board member who tendered his resignation is the parastatal’s contract compliance officer, Pius Mokgokong. He wrote a letter in August to Nabera stating that the management contract was void because Nabera had failed to come up with the R120-million.
The letter, written on August 17, said: “The 60-day period expired on 19 July 1999 and Nabera Mining has failed to comply with the clause [the financial guarantee] referred to above. As compliance was a condition precedent to the agreement, it does appear that the contract between Nabera Mining Pty Ltd, the Government of the Republic of South Africa and Alexkor is of no effect.”
Nabera replied curtly the following week: “We do not accept the facts as stated in your fax, and have referred the matter to your shareholder [the government]. We suggest that the Alexkor board discuss the issue with its shareholder.”
Approached this week, Mokgokong confirmed he had written the letter and tendered his resignation, but refused to comment further.
Radebe’s office said Mokgokong retracted his resignation this week.
The chair of Alexkor, Nono Gosso, did not respond to requests for comment. Other Alexkor officials said she was wary of talking to the press after having incurred much criticism for discussing the matter with a Cape newspaper. She was quoted last month saying that the government had extended Nabera’s deadlines without the board’s approval and in contravention of the contract.
In July, Nabera released afour-page memo accusing the Alexkor board of milking the state for unnecessary expenses, and suggested it had allowed Alexkor’s management to deteriorate. A day after Nabera released the memo, Jeff Radebe ordered a probe into the allegations. The investigation was carried out by officials in his department and in the departments of finance and minerals and energy.
Meanwhile, one of the unions at the Northern Cape mine, the United Association of South Africa, this week slated Nabera for having caused a collapse of productivity and morale.
Under Nabera’s current agreement, Nabera gets R100 000 a month or 20% of the mine’s profit as well as up to R500 000 in expenses.
The brains behind the Nabera consortium is Adonis Pouroulis, a Cypriot with extensive mining experience in Southern Africa. His company, Petra Mining, which has a 29,5% stake in the consortium, is listed on the London Stock Exchange.
Another member of the Nabera team, Salene Mining, is run by the Pouroulis family. Salene and Loucas Pouroulis masterminded a failed platinum mine venture in the 1980s, which burned many investors.
Adonis Pouroulis is deputy chair of the Nabera consortium.
Nabera appears to have split the Alexkor board, with some members expressing support for the Nabera managers and others expressing their unease at what they termed Nabera’s “coup”.
Independent diamond analysts familiar with Alexkor said there were significant problems with Alexkor’s management – in particular its shoddy security, which is rumoured to have allowed substantial portions of the mine’s annual gem production to be stolen.