Oil scandal rocks SA
On August 26 1999 Phumzile Mlambo-Ngcuka, then still wet behind the ears as Minerals and Energy Minister, briefed journalists in Parliament: “South Africa is diversifying [its] sources of crude oil; and we are happy that Nigeria has made this allocation for us. Our officials in the Department of Minerals and Energy [and] the Department of Foreign Affairs will be looking at the modalities of transporting it.”
President Olusegun Obasanjo’s government, the business daily said, had allocated South Africa the right to lift, or market, 55 000 barrels of Nigerian crude a day; a government-to-government contract that was a first between the two countries.
It also cited the surprise of an unnamed official who said South Africa “was not involved in tendering for the allocation”. And it quoted Rod Crompton, the man who really should have known as he was Mlambo-Ngcuka’s chief director of liquid fuels, as saying he had no knowledge of it.
In the absence of official elaboration, the only sense that Business Day could make of the allocation was to call it an “unsolicited gift” that, according to industry representatives, “could constitute a statement by the Nigerian government aimed at improving relations with South Africa”.
Mlambo-Ngcuka’s address to the hacks in Parliament was misleading for a simple reason: it perpetuated the pretence that this oil allocation, the largesse bestowed by Nigeria, was to be handled by the government of South Africa for the benefit of the people of South Africa.
In fact, Mlambo-Ngcuka’s officials and their counterparts at foreign affairs were not to exercise their minds on “the modalities of transporting” the oil to South Africa.
Neither the oil, nor the revenue, was to come to South Africa. Ruling party-aligned interests were lined up to benefit (although, as will be seen, some may not have). And the people of South Africa were certainly not to benefit.
Mlambo-Ngcuka’s “mistake” may have been excusable as she was new to the job: only two months earlier had she been elevated to the minerals and energy portfolio in President Thabo Mbeki’s first Cabinet.
But she might have been better informed had she consulted with a number of colleagues in the government or comrades in the African National Congress.
For starters she may have asked her immediate predecessor in the portfolio, current Minister of Justice and Constitutional Development Penuell Maduna, to make some inquiries on her behalf.
While Maduna this week denied involvement in securing the contract or having had knowledge of it at the time, a confidant of his, Brian Casey, was central to it.
Casey, who acted as general manager of the state’s Strategic Fuel Fund during Maduna’s term as minerals and energy minister, was the first chief executive of the company originally lined up to scoop the deal.
Maduna also confirmed to the Mail & Guardian that he knew Kase Lawal, the Nigerian-American businessman who was behind it all.
Mlambo-Ngcuka could also have turned for advice to Minister of Provincial and Local Government Sydney Mufamadi, whose wife, Nomusa Mufamadi, became a director of the company.
Or to Eastern Cape Premier Makhenkesi Stofile, whose brother-in-law, Hintsa Siwisa, became chair. Or ANC treasurer general Mendi Msimang, whose sidekick and party fundraiser, Miles Nzama, became a director.
And then, Mlambo-Ngcuka could have sought clarification from Minister of Trade and Industry Alec Erwin, under whom Mlambo-Ngcuka had served as deputy minister until two months earlier and who only a month earlier had visited Nigeria.
Or she could have asked President Thabo Mbeki, whose correspondence to Obasanjo, borne by Erwin on that trip, was instrumental in clinching the deal.
Another falsehood was being perpetuated at the time: Nigeria, then only six months into the civilian administration of Obasanjo, said it would cut the corruption that characterised its lifeblood oil industry.
Under previous military dictatorships many crude lifting contracts had gone to cronies, at a substantial discount, who on-sold their allocations at market rates.
They split the margin between themselves and their politico-military patrons.
Africa Confidential, under the headline “Cleaning up oil”, explained: “Under previous governments, crude sales were a fountain of political patronage, as military officers and politicians sponsored traders’ bids for contracts.
“Out of such deals the ‘sponsor’ could earn as much as five [US] cents a barrel, which added up nicely when some sponsors controlled more than 70 000 barrels a day â€¦ The commission system may have cost the NNPC [the state oil company, the Nigerian National Petroleum Corporation] as much as $1,5-billion a year.”
What Obasanjo’s government and the NNPC did to “clean up” the oil industry in July 1999 was to cancel all 41 lifting contracts awarded by the former military regime and announce a “transparent” process to award new contracts.
These new contracts, the state oil company said, would cut out the crony intermediaries. To qualify, bidders had to be “bona fide end-users” — that is, companies that owned their own refineries — or recognised “large volume traders”.
Qualifying bidders would also have to show commitment to Nigeria by investing in community development or the energy sector.
When the NNPC announced the successful candidates for the new one-year “term contracts”, as they are called, in August 1999, 13 well-known refiners and traders were included. Three countries that would get “government-to-government” contracts — and it was widely reported as such — were also on the list: Kenya, Ghana and South Africa.
In Kenya and Ghana’s case the successful bidders were reportedly their national oil companies. In the remaining case the recipient was noted simply as “South Africa”.
As it turned out the “South African” recipient would fall into none of the above categories: it was not an end-user; it was not a recognised large volume trader; it was not a government. Certainly, the state and the people of South Africa were not to benefit.
The company that signed the contract was registered in the Cayman Islands, both a tax haven and a haven of corporate anonymity. Named the “South African Oil Company”, it indeed had little to do with South Africa. It was part of Lawal’s Camac Group, an oil-and-gas enterprise headquartered in the United States oil capital of Houston, Texas.
But let’s go back in time. South Africa and Nigeria, the two economic powers of Africa, had been on bad terms for decades; the one a racist autocracy, the other a series of military dictatorships.
When democracy came to South Africa in 1994 Nigeria lagged behind. Relations hit rock bottom the following year when General Sani Abacha’s regime executed imprisoned democracy activist Ken Saro-Wiwa. Then-president Nelson Mandela, in his own words “almost out of control” with anger, spearheaded Nigeria’s suspension from the Commonwealth.
That was all to change when, in February 1999, Obasanjo, himself formerly imprisoned by Abacha, was elected civilian president. Obasanjo was a man South Africa could do business with, so to speak. The foundation was laid for a strong relationship between two countries that would be pillars of the New Partnership for Africa’s Development.
As seems to be the case in international relations, commerce followed politics. Between 1998 and 1999 two-way trade jumped from R730-million to R1,7-billion.
South Africa had technological expertise to offer; hence, for example, the cellular phone network established in Nigeria by South African telecom group MTN and, more recently, fuel giant Sasol’s involvement in a gas-to-liquid fuel plant there. Nigeria had its single dominant export to offer: crude oil.
While Maduna denies that, as outgoing minister, he had anything to do with the negotiations for the contract, Erwin and Mbeki did. Department of Foreign Affairs correspondence obtained by the M&G gives the first clue.
On August 12 1999 South Africa’s high commission in the Nigerian capital, Abuja, wrote to Obasanjo’s special adviser on petroleum, Obasanjo’s minister for cooperation in Africa and the managing director of the NNPC to brief them on a forthcoming visit to their country by “a high-level investment team” from the South African state oil and gas company Soekor (now part of PetroSA).
The letter said: “You will no doubt be aware of the exchange of correspondence between President Obasanjo and President Mbeki on the term contract for oil sales between Nigeria and South Africa.”
An attached briefing note elaborated: “The [Soekor] visit is in response to the recent correspondence relating to oil and gas sales and investment which was exchanged between President Mbeki and President Obasanjo. This correspondence was conveyed during the visit to Nigeria of Minister Alec Erwin, Minister of Trade and Industry, during July 1999.”
Soekor, the note said, was “specifically interested in providing funding and technical expertise to projects in Nigeria, especially within the field of oil production”.
But why would a South African state company have been interested in investing in Nigeria “in response to” Mbeki’s correspondence with Obasanjo on a term contract to lift Nigerian oil?
It may have been coincidence that Soekor was heading to Nigeria exactly when South Africa was asking for the oil contract, but it appears also to have been convenient as it corresponded with one of the conditions set by the NNPC for qualifying bidders: “commitment” to Nigeria through investment in the energy sector.
And so, even though a private company, SOAC, was to benefit from the oil contract, South African state resources were expended on the contract. It was not the first time and, as will be seen, it seems not to have been the last.
On August 16 — four days after the high commission’s briefing note — the deal was on. The NNPC wrote a letter addressed simply to “the Republic of South Africa”, care of the South African high commission, with the heading “Offer of One Year Crude Oil Contract”.
The NNPC letter said: “We refer to your application on the above mentioned subject and wish to convey management’s approval to offer a 55 000 barrels per day crude oil contract for one (1) year to you.”
The offer, clearly, was to the “Republic of South Africa”.
The NNPC letter also asked, pro forma, for details of the intended contracting party’s corporate identity including its certificate of incorporation and its memorandum of association, the latter of which states the company’s operational purpose. The fun was about to start.
Documents at the Registrar of Companies in Pretoria show that a South African-registered company, also connected to Lawal’s Camac Group, was at first the intended beneficiary. This company had started its life in 1997 as Camac International Trading SA, with the main object “to carry on the business of a principal trading company in the mining industry of solid minerals”.
This, of course, was not good enough for a company that wanted to scoop South Africa’s lifting rights to Nigerian crude oil. Not only was “solid minerals” a problem, but Camac, due to its links with its US parent company, might have sounded decidedly un-South African.
And so, on August 19 1999 — three days after the NNPC’s request for company details — lawyers in Pretoria lodged an application, stamped “urgent”, to the companies registrar. The application was to reserve the name “South African Oil Company” — the same name as Lawal’s Cayman entity — with the main object “to carry on the business of trading and managing crude oil”.
There was a momentary hiccup when the registrar disallowed that name on the grounds that it was too similar to that of an existing entity. But the registrar allowed the name “SAOC Oil Company”’, an awkward abbreviation of the same name that was being sought.
After another application in December, the registrar relented: Camac had transformed into the South African Oil Company. This local version of the South African Oil Company, while 49% owned by another two of Lawal’s companies, included as shareholders and directors a number of ANC-aligned individuals and interests.
On August 18, two days after the NNPC’s letter to “the Republic of South Africa”, the South African Oil Company, address Johannesburg, wrote to NNPC managing director Jackson Gaius-Obaseki “to thank NNPC for selecting us as one of the Nigerian crude oil lifters â€¦ We applaud your leadership of NNPC fore the transparency through which the exercise was conducted.”
The letter continued, again emphasising the government’s — and specifically Mbeki’s — involvement: “SAOC, through the support of the government of South Africa, will do everything to live up to the confidence of NNPC in us â€¦ A copy of our application submitted through the office of the President of the Republic of South Africa and other related correspondents [sic] are attached for your records. We hope that SAOC will receive a copy of the letter of award together with NNPC draft contract as soon as possible.”
The contract, however, was not signed by the South African entity. Lawal’s Cayman-registered South African Oil Company stepped in to sign the deal with Nigeria.
How did that change the beneficiary breakdown? While the South African-registered company was 49% owned by Lawal’s Camac Group, the Cayman company is, according to the Camac Group website, 75% owned by it. The rest is not declared. Lawal this week refused to elaborate, saying it was “irrelevant”. The directors and shareholders of Cayman offshore companies, as this is, are not publicly declared and are protected by secrecy laws.
In October 1999 the oil started flowing. A contemporaneous industry publication, citing an announcement by the Nigerian high commissioner to South Africa, said: “Nigeria started supplying 55 000 barrels per day of crude oil to South Africa.”
It also said: “Earlier, South African President Thabo Mbeki commended Nigeria’s decision to allocate 55 000 barrels of crude oil to his country, stating that it marked the ‘first great step at cooperation between the two greatest African nations’.”
The South African Oil Company, Cayman, was now the proud recipient of 55 000 barrels of Nigerian crude each day — enough to fill a large crude carrier every month or so.
But were these crude carriers to set sail for South Africa? No.
The South African Oil Company engaged Glencore, a Swiss-based international trading company, as its “risk management” partner. That means the allocation was on-sold to Glencore.
Glencore would have paid the South African Oil Company a fixed amount per barrel of crude, while Glencore took its chances selling the oil on the international market to see what extra margin it could make: the intermediary system revived and the purpose of the NNPC’s “transparent” new contracts defeated.
With little effort other than bagging a contract that had been secured with the assistance of the South African government, the private South African Oil Company, Cayman, was assured substantial and steady profits.
How much were those profits? Oil traders estimate the South African Oil Company could have reaped around seven US cents a barrel. In the first year of the contract that would have been worth about $1,4-million (R11,2-million at R8/dollar).
As of October 2000 the contract was extended for another year, and it was soon increased in volume to 120 000 barrels a day. That would translate to a profit of about $3-million (R24-million).
The contract is still alive but, according to Lawal, since December 2001 the NNPC has been under-performing and has supplied only about 25% of the volume.
But to get back to the increase in volume after October 2000: in September that year, Nigerian newspapers reported that a delegation led by Thibedi Ramontja, then a senior official in South Africa’s Department of Minerals and Energy, had applied to the NNPC to increase “South Africa’s” allocation. Another case of South African state support for Lawal’s company?
But what if the media got it wrong all along, mistakenly reporting that this was South Africa’s contract and not Lawal’s? Well, even Deputy President Jacob Zuma perpetuated the myth. In April 2001 he was quoted as saying during a parliamentary debate on bilateral relations: “It is also significant to note that Nigeria increased South Africa’s crude oil allocation â€¦ to 120 000 barrels a day.”
Lawal confirmed this week that the South African state and public have not benefited, maintaining that the contract was “a private commercial arrangement” between the NNPC and his company — in other words completely unrelated to the South African government.