The Alexkor diamond mine controversy is far from over, write Donna Block and Mungo Soggot
The government has jumped the gun in its attempt to clear Bridget Radebe’s Nabera consortium of its embarrassing breach of contract. There are still key legal problems preventing Nabera from being truly in the clear.
The Department of Public Enterprises said last Thursday Nabera had now complied with its contractual obligation to raise R120- million for state diamond mine Alexkor. However, the director general of the Department of Public Enterprises, Sivi Gounden, this week confirmed Nabera’s compliance still has to be cleared by the Department of Finance – problematic because Nabera’s bank, which is providing the R120- million, is still insisting on a guarantee.
Gounden says he has taken legal advice and consulted other government departments on the decision to give Nabera yet more time.
The controversy began eight months ago when Nabera was awarded the management contract for Alexkor, a precursor to the mine’s full privatisation.
Questions were asked because Bridget Rabebe is the wife of Jeff Radebe, then minister of public works, and now as minister of public enterprises the man in charge of privatisation.
At the heart of the issue is the fact that Nabera was required to come up with R120-million by June to fund the mine’s development. It failed to do so. Minister Radebe then extended the deadline three times, the latest being last Thursday.
While continually failing to honour its contractual obligations, Nabera’s team installed itself at Alexkor, earning a fee of R100 000 a month and entitled to claim up to R500 000 for monthly expenses.
Public enterprises officials say the contract, signed under the previous minister, Stella Sigcau, was flawed and left the government little room to navigate out of the controversy.
The department’s statement last Thursday – just hours before the expiry of Nabera’s latest deadline – purported to close the door on the controversy: “We have received confirmation from Nabera’s financiers that they have raised the R120-million loan facility in fulfillment of the condition precedent in the management agreement. We are currently in the process of working out the details of the loan agreement. We are also confident that this is a positive signal that the exploration strategy, so vital for the mine, can proceed.”
In fact, Nabera’s bank confirmed this week that although it had granted a “facility letter” for the company, the money would not be accessible to Nabera or Alexkor until a loan agreement was thrashed out. The Department of Public Enterprises conceded these negotiations will involve clearing key policy issues with the Department of Finance.
The problem now is that Nabera’s bank is drafting a loan agreement that will impose financial obligations on the state balance sheet – the bank is still asking the government to guarantee its two-year loan to Nabera.
The sticking point for Nabera so far has been its bank. BoE Merchant Bank has insisted the government provide an express guarantee to repay the R120-million at the end of Nabera’s two-year management term.
Although the management contract allowed Nabera to get its money back from Alexkor – or the government in the event that Alexkor could not repay – BoE has wanted a separate, explicit guarantee. The government has declined on the grounds that such a guarantee would show up on its books as a liability.
It was therefore surprising that BoE last week had appeared to supply Nabera with the necessary funding without a guarantee from the government. This is not the case – BoE now wants its guarantee in the loan agreement, to which it wants to add its signature.
Anton Taljaard, head of specialised finance at BoE Merchant Bank, said: “BoE is seeking to secure its loan to Nabera by being party to the loan agreement.”
Gounden says his legal advisers believed BoE’s signature was not a big enough change to justify the government refusing it.
But Gounden accepted the loan agreement would have to be cleared by the Department of Finance. The finance department has a conservative policy on government guarantees.
All of which means the debate on whether Nabera has complied has come back to square one – the government still has to decide on the guarantee, which it has so far refused.
The Mail & Guardian has established that Sigcau’s department did not clear the management contract with the finance department – despite the fact it included the government’s guarantee to Nabera. This was the root of the problem – the mention of the guarantee to Nabera has made it reasonable for BoE to request the guarantee be extended to itself.
If the guarantee is extended to BoE, Nabera will get to run Alexkor without investing any of its own money – without proving its financial credibility. Gounden said the department in future would seek to avoid giving any contract to a company that did not have to prove its “financial capability” up front. Nabera’s loan agreement now has to be finalised by November 7.