Mail & Guardian reporters The Minister of Mineral and Energy Affairs, Phumzile Mlambo-Ngcuka, has axed the board of the Strategic Fuel Fund (SFF) and called in the police to pursue a criminal investigation of the state oil company’s R1,5-billion deal with an international oil company.
Mlambo-Ngcuka has also asked for the resignation of Keith Kunene, the chair of the Central Energy Fund (CEF), the holding company for all the state’s oil assets. Kunene is a leading businessman, whose interests include a bottling operation and electronics empire.
The contract, which was repudiated by the minister this week, was pulled off without her know-ledge and without an open tender. It is understood that the criminal investigation, which will initially be handled by the Office of the National Director for Public Prosecutions, could examine possible bribes.
The deal that has prompted the minister’s unprecedented move was struck in April this year with a joint venture between High Beam, a South African empowerment company, and Trafigura, an international oil trading group. The joint venture, registered in the Bahamas, was set up expressly for the contract, which made High-Beam/ Trafigura the agents for the SFF’s oil trading operations in exchange for a fee of at least R156-million. About R22-million has already been paid out, and subsequent payments cancelled. The fees are considered to be unusually large.
The government went public about the deal after it was exposed in the Mail & Guardian in November. By then Mlambo-Ngcuka’s department had already completed its own initial investigation into the deal, which has subsequently been found to have contained several flaws. After confronting Kunene, chair of the SFF Seth Phalatse and other players at the oil company, Mlambo-Ngcuka held fire on any action against the company officials. She instead launched a forensic investigation by Kroll Associates, an international investigative firm, and local accountants Nkonki Sizwe Ntsaluba. She also initiated a separate probe into the corporate governance issues at stake.
It is on the basis of these two separate investigations that the minister took action this week. A ministry representative said the report by Kroll was at an advanced stage, but not yet complete.
The South African representative of High-Beam/Trafigura, Moses Moloele, could not be reached for comment. Kunene and Phalatse could also not be contacted at the time of going to press.
Mlambo-Ngcuka said this week that her department would hand to the prosecution authority “the details of those irregularities, which may be of a criminal nature, to the law enforcement authorities”. She said she had decided to dissolve the SFF board because of its members’ failure to “appropriately exercise their fiduciary duties”. She also accused the board members of acting without her authority, of acting beyond the scope of their authority, of bad management of tender procedures and of exercising insufficient due diligence in the award of the contract.
The minister has also decided to appoint an interim board at the SFF and to review corporate governance issues within the CEF companies. The state oil operation has not managed to shake off its shady apartheid-era reputation. The previous chair of the CEF, Don Mkhwanazi, resigned in 1998 after his involvement in the award of a lucrative consulting contract to a controversial Liberian politician who turned out to be a close associate.
The deal with High-Beam/ Trafigura was supposed to effect the transfer of strategic oil stocks stored down a coal mine in Ogies to tanks in Saldanha Bay. The contract, which would have seen High-Beam/Trafigura manage the derivitive trading aspects of the deal, was due to be completed by the end of 2001.
The SFF has shrugged off suggestions that the arrangement left South Africa without a strategic stock, arguing that it could have cashed in its futures contracts for the oil at any time.