A leading diamond merchant’s heavily discounted sale to the minerals and energy minister has posed serious questions of a conflict of interest
Mungo Soggot and Nawaal Deane
The Minister of Minerals and Energy, Phumzile Mlambo-Ngcuka, has opened herself to a serious conflict of interest charge by purchasing a traditional tiara from a prominent diamond merchant at a startlingly low price.
The diamond dealer, Macdonald Temane, is a leading figure at the state diamond board, where he chairs a crucial committee whose work was supposed to be under review by Mlambo-Ngcuka’s ministry.
Mlambo-Ngcuka paid R6 000 for the piece, which is understood to be worth considerably more. Diamond industry sources familiar with the type of stones used have valued it at at least R80 000. It is understood the tiara includes about five carats of diamonds, which would cost about $1 500 (about R17 000 at the current exchange rate) a carat.
When selected for a piece of jewellery, the diamonds would usually cost more. The tiara is also understood to contain about 200g of white gold. On top of all of that would have been the cost of the workmanship, which would have catapulted the price to several times the R6 000.
Temane is a close associate of De Beers. He belongs to a company that is a “sightholder”, or preferred client, of the diamond giant, making him one of the leading figures in the local diamond industry. Temane is a director of Fabrikant Salant Masingita diamond manufacturers, the South African arm of Fabrikant, a leading trader of polished diamonds.
Temane’s diamond board committee presides over a controversial system giving diamond producers such as De Beers an exemption on export duty.
Mlambo-Ngcuka’s spokesperson, Kanyo Gqulu, said this week the minister had given Temane a budget for the head piece and some other items of jewellery and would not have been in a position to know what they were worth. Gqulu said the minister had gone to Temane because he specialised in jewellery that combined traditional beadwork with diamonds, and because he is black and a small operator.
Irrespective of the cost of the jewellery, it is questionable whether she should have transacted with Temane as opposed to a normal retailer in the first place, considering his position.
Temane was vague this week about the type of diamonds that were used, which would determine the price. He initially said the piece contained “12 10 pointers”, but later changed that to “16 five pointers”. Diamond industry sources said the tiara included some 30 pointers, which are more expensive. Approached later to comment on this, Temane said that to calculate the precise amount he would have to reclaim the tiara, dismantle it and weigh each diamond. Asked whether it would not be easier to consult records of the diamonds used, he agreed.
In a subsequent interview Temane said he had not consulted his records. Temane denied he had given Mlambo-Ngcuka a discount. “The minister buys like any other client. Why should I want to give her a discount?” He once again declined to give a documented breakdown of the diamonds used, saying he was ill in bed and would not “jump around for the Mail & Guardian”.
Gqulu said on Thursday afternoon that when he had pressed Temane to explain the cheap price, Temane had conceded that bigger diamonds had been used than he originally told the M&G, but that the diamonds had been “flawed”. Gqulu denied that there was any conflict of interests, saying the ministry had wrapped up its investigation into Temane’s committee.
As the M&G was researching this article this week which included contact with the Ministry of Minerals and Energy the ministry released a press statement to “spin” the story in its favour. The press statement said Mlambo-Ngcuka had trumpeted her intention in February 2000 to stimulate local jewellery beneficiation in previously disadvantaged communities. The statement said that “as the key figure behind this project the Minister of Minerals and Energy personally commissioned a typical Zulu hat, the ‘Isicholo’. To enhance the value, and promote South African culture, she then ordered an adornment band of gold and diamonds to be manufactured and fitted on the traditional headpiece.”
The statement continues: “Macdonald Temane, a renowned diamond and jewellery designer, was commissioned by the Minister, in his capacity as a designer to make the piece.” Bizarrely, the statement is embargoed “until the project is launched”. According to the statement itself, the project was launched in 2000. A ministerial spokesperson subsequently said the statement, intended for the M&G, had been sent to all media organisations accidentally.
In addition to the Isicholo, an invoice dated July last year from Temane’s own company, Masingita, shows the minister also received a “Mandela pendant” for R4 331,88, a bead necklace for R2 607,75 a bead earring set for R769,50 and a bead bracelet for R1 368. Although the ministry’s statement said the Isicholo was commissioned, the invoice from Temane lists it as a “demo model”. Temane has confirmed he got another jeweller to make the piece.
Temane’s committee at the diamond board has been accused of effectively giving diamond producers the most important of which is De Beers carte blanche to export production duty free at the expense of the local diamond-cutting industry. The functioning of the export exemption scheme is one of the most controversial aspects of the local diamond industry. The idea is that the diamond producers get their export duty exemption if they supply the local industry with the stones they desire. But local industry players have consistently complained that they are not looked after, and that the producers get the exemption anyway.
It was Mlambo-Ngcuka’s predecessor, Penuell Maduna, who, in 1998 during a budget vote speech, initially expressed concern that the export exemption system contained under Section 59 of the Diamond Act was being abused. Maduna said in May 1999 that all Section 59 agreements would be reviewed, and appointed a task team to look into the way Section 59 was running. De Beers and the Ministry of Finance subsequently obtained conflicting legal opinions about the interpretation and implementation of these Section 59 agreements. At the same time, the South African Revenue Service started looking into the tax regime of the diamond industry. Mlambo-Ngcuka signed a ministerial decree in September 1999 launching a review, and establishing a task team which was supposed to report back by November the same year. Nothing ever happened.
When Temane became head of the diamond board’s Section 59 committee last year, the chairperson of the diamond board, Abe Chikane, said he would urgently convene a meeting to discuss the matter. Chikane had been asked to comment at the time on the propriety of having a sightholder chair the committee.
The Section 59 committee is supposed to advise the board on the renewal of the agreements, and check whether producers are complying with their agreement to look after the local cutting industry. As far as De Beers is concerned, representatives of the South African diamond industry are supposed to select the goods they want at De Beers’s “layouts”. De Beers then takes the stones the local cutters want to London, and brings back a comparable selection. The Section 59 committee is supposed to monitor De Beers’s compliance with this agreement.
The Section 59 committee presides over which representatives of the diamond industry both sightholders and non-sightholders attend the layouts. These businesses select which diamonds they want to cut in South Africa. De Beers has denied suggestions that the local industry gets a raw deal, saying that South African cutters get access to the full range of its worldwide stock.