/ 5 April 2002

South African-Iraq oil deal shrouded in controversy

In a first for the state oil sector, South Africa is buying R1-billion worth of crude oil from Iraq to replenish strategic stocks. But some industry sources question the deal, saying it "smells" of another oil scandal. Iraq has been under international embargo since the 1990 Gulf War.

In a first for the state oil sector, South Africa is buying R1-billion worth of crude oil from Iraq to replenish strategic stocks. But some industry sources question the deal, saying it “smells” of another oil scandal.

Iraq has been under international embargo since the 1990 Gulf War. Oil transactions with Iraq have to be individually approved by the United Nations in terms of the world body’s “food-for-oil” programme, which intends to ameliorate the humanitarian impact of the sanctions.

Industry sources ask why the Strategic Fuel Fund (SFF), the South African state body responsible for maintaining emergency fuel stocks, specifically called for Iraqi “Basrah Light” crude — a grade of oil they claim is not regularly used by local refineries.

The contract, announced this week by SFF chief executive Renosi Mokate, was awarded last month to a inexperienced black empowerment company, Imvume Resources, in partnership with a Swiss-based trading company, Glencore International.

The government in the mid-1990s sold off large parts of South Africa’s strategic oil stocks held at Saldanha.

In 1999 the government decided to relocate more stocks stored in mine shafts at Ogies, east of Johannesburg, to Saldanha, where it would be more accessible. The idea was to sell the Ogies stocks and acquire fresh stocks for Saldanha.

That decision led to perhaps the greatest scandal yet in a series afflicting the state oil sector, when SFF outsourced the deal to a local and international joint venture without Minister of Minerals and Energy Phumzile Mlambo-Ngcuka’s approval.

Mlambo-Ngcuka fired the entire SFF board in December 2000 and repudiated that contract amid confessions from some officials involved that they had each accepted $20 000 cash bribes.

That matter is still in the courts, but the SFF, under a newly appointed board, completed the Ogies sell-off.

Mokate said in a statement this week that the SFF identified two types of oil — Nigerian Bonny Light and Iraqi Basrah Light — to replenish stocks at Saldanha. The SFF briefing documents said an SFF subcommittee recommended the two types of oil based on the needs of local refineries and the range of oil products that could be produced by them.

Mokate said UN guidelines were that a country should hold 35 days of consumption in stocks — 14,75-million barrels in South Africa’s case.

In November SFF bought two cargoes, or four million barrels, of Bonny Light on the open or “spot” market.

A decision was taken to issue a tender — rather than another spot market transaction or a government-to–government transaction — to buy four million more barrels, this time Basrah Light. “The decision to issue the tender was taken prudently in order to facilitate entry by new players, particularly black-empowerment companies, while at the same time ensuring the best deal for the country.”

The SFF issued the tender on December 5, with a closing date only nine days later, on December 14. The tender asked for delivery of two cargoes of two million barrels each during January and February — a short time considering that the successful bidder would have had to arrange shipping and UN clearance.

The SFF briefing documents deny the initial tender period was “unrealistic”, but say it was extended as “we needed to ensure we received all the information from bidders to enable us to reach a fair and valid decision … the adjudication process was delayed because we required additional information.”

The Mail & Guardian understands, however, that the delay could have stemmed partially from infighting or complaints over the initial tender period and other aspects of the deal that had raised suspicion that a preferred bidder could already have been at the starting blocks.

One source, well placed in the local and international oil industry, disputed that local refineries preferred Bonny and Basrah Light as asserted by the SFF. And he questioned why, even if local refineries needed that grade of oil, SFF’s tender had specifically asked for the Iraqi Basrah Light. If the SFF had specified a grade of oil with the same quality as Basrah Light, rather than insisting on the Iraqi product, a wider range of potential suppliers would have qualified and a more competitive bid would have resulted.

Another oil expert pointed out that quite a few countries produced oil with specifications similar to Basrah Light, and speculated that the tender would have “excluded” certain suppliers.

In the event, the contract, worth about R1-billion according to Mokate, went to Imvume — which the SFF says it chose because of its “competitive price, black-empowerment credentials and capacity to deliver” — a capacity “enhanced by their partnership with Glencore International”.

Imvume is a company with no expertise in the field. It was registered about a year ago and directors Sandi Majali, Elliot Mashile, Mphumzi Mhatu and Phila Venkile were appointed last May. Nomdakazana Mbina was another director mentioned by Mokate. None seems to have a high business profile.

Mokate acknowledged that Imvume did not have oil trading experience, but said that ability would come “partly through Glencore, and partly though one of the [Imvume] partners, who has traded before”.