Oil saga: Replies don't fly

Last week the Mail & Guardian revealed how a lucrative Nigerian crude oil contract, allocated in 1999 to “the Republic of South Africa” after lobbying by President Thabo Mbeki, was scooped by a private company registered in the Cayman Islands.

The contract was widely portrayed — not least by Deputy President Jacob Zuma and Minerals and Energy Minister Phumzile Mlambo-Ngcuka — as belonging to “South Africa”. Yet neither the oil, nor the revenue, has reached the South African state or public.

The multimillion-rand annual profits from selling the Nigerian allocation go to a Cayman-registered entity named South African Oil Company. Camac, a United States-based group of companies led by prominent Nigerian-American Kase Lawal, says it holds 75% of the shares.

Whom the rest belongs to remains a mystery.

A local sister company by the same name, South African Oil Company, was also involved in the deal.
Its shareholders and directors include Minister of Provincial and Local Government Sydney Mufamadi’s wife and Eastern Cape Premier Makhenkesi Stofile’s brother-in-law.

Explanations offered by the Government Communication and Information System (GCIS) and by Camac seek to portray the deal as strictly in the private domain.

Questions that remain unanswered are why, if this was ordinary commerce, the contract was publicly portrayed as “South Africa’s”; why the South African government at such a senior level lobbied for a contract that went to an offshore company; and who, besides Lawal’s Camac Group, the real beneficiaries are.

Here are the GCIS and Camac responses, with M&G comments in bold:

GCIS reply

Attempts by a weekly newspaper to implicate government in some shady “oil dealings” are as ridiculous as they are devoid of any truth.

Trade [and Industry] Minister Alec Erwin did engage the Nigerian government after its return to democracy in discussions on oil supplies to South Africa. This was done as part of building bilateral economic relations…

As the Minister of Trade and Industry and acting for the South African government, such contacts with other governments are carried out wherever the country is trying to build trade links. Actual trade itself takes place within the private sector or with particular state corporations and not between the governments…

Minister Erwin conveyed many messages from the South African government to the Nigerian president and other ministers in Nigeria and there is nothing untoward in these…

To try and create an impression that there was some specific deal that was being arranged and that the minister acted as some kind of “courier” in this is both inaccurate and mischievous in the extreme.

Documents published by the M&G last week show that, indeed, there was “specific” South African government support — and not just from Erwin — for the bid by South African Oil Company.

A Department of Foreign Affairs letter referred to “the exchange of correspondence between [Nigerian] President [Olusegun] Obasanjo and President Mbeki on the term contract for oil sales between Nigeria and South Africa”. It is that “term contract” that was scooped by South African Oil Company.

And a letter from South African Oil Company to the Nigerian National Petroleum Corporation referred to its application for the crude allocation having been “submitted through the office of the President of the Republic of South Africa”.

There is also a tendency in some media houses to seek to sensationalise private activities of spouses or “friends” of ministers. While making for tantalising reading, insinuations about these issues reflect more on the agenda of the authors of these articles than on the ministers themselves.

In the instance of the article in the latest edition of the M&G [May 30], there is not even a suggestion that the ministers referred to were beneficiaries of any business arrangement. Further, if the journalists involved were honestly pursuing the truth, they would have established that no violation of parliamentary and executive codes has actually occurred. Nor is there any reference to state funds being used for personal gain…

The M&G did not imply that “the ministers referred to” were beneficiaries or that the interests were not declared. The GCIS statement, however, sidesteps the real implication of the M&G story: that state resources and effort were expended to back a private company of which the South African version’s shareholders and directors were closely aligned to the ruling party. This could have created a conflict of interest for the state officials who promoted the deal.

With regard to the activities of the so-called South African Oil Company, we wish to emphasise that details of operations of private companies are matters for these companies to deal with, and they should be in the best position to answer questions relating to their activities.

This does not address the central issue highlighted by the M&G: that the crude oil allocation was formally offered to “the Republic of South Africa” and that both South African Cabinet members and Nigerian oil authorities publicly presented it as “South Africa’s” contract. What remains unexplained is why a private company, and not the South African state or public, should have benefited. (The most likely explanation, of course, is that South African Oil Company and its parent, the US-headquartered Camac Group, would not have met Nigerian tender criteria for the crude allocation, so it had to ride on the coat-tails of the South African government. This could be interpreted as subversion of a competitive tender.)

Camac reply

A recent M&G report stated that a Nigerian crude oil contract destined for the South African government was taken up by South African Oil Company, an affiliate of Camac.

Camac refutes any inference of wrongdoing.

South African Oil Company, registered in the Cayman Islands, was one of 18 companies that, in 1999, applied successfully for a contract from the Nigerian National Petroleum Corporation (NNPC) to buy and lift Nigerian crude oil.

This statement is silent on the fact that the South African government and Mbeki had lobbied for South African Oil Company.

Most oil trading companies are registered in tax-efficient jurisdictions such as the Cayman Islands due to the thin margins and the large liability or exposure that oil trading entails.

On this contract South African Oil Company had little risk or exposure, since it on-sold the allocation to Glencore, a large international trading company, which bore the risk. South African Oil Company made a substantial profit with little effort other than landing the contract in the first place.

There are no South African citizens on the board of South African Oil Company Cayman, nor does it have any South African citizens among its shareholders.

Camac has refused to disclose who the shareholders are, earlier saying it was “irrelevant”.

South African Oil Company’s name derives from the fact that Camac had previously intended to use it as a vehicle for the relocation of its refinery from the US to South Africa to create capacity in South Africa to process Nigerian crude oil. Camac was unable to attract enough local support for the project, however, and had to withdraw at a significant loss.

South African company registration documents show that the principals behind the deal scrambled urgently to secure the name “South African Oil Company” from the companies registrar three days after Nigerian oil authorities had offered the crude allocation on August 16 1999. The refinery plan seems to have been a later development, as the refinery that Camac bought and intended to relocate to South Africa was decommissioned by its previous owners in the US only in January 2001. The evidence suggests that the name was for the Nigerian oil deal and not the refinery plan. And, intended or not, the name “South African Oil Company” certainly fits the public pretence that the Nigerian oil contract was “South Africa’s”.

Existing South African refineries are not configured to process crude oil from Nigeria ... Nigerian sweet crude oil sells at a significant premium compared to the heavy crude oil processed by South African refineries, most of which is imported from the Middle East.

South African refineries are not specifically configured to refine Nigerian grades of crude, but by blending them with other grades they refine significant volumes of Nigerian crude. In 1999 and again in 2001 Nigeria was South Africa’s third-largest supplier of crude.

Apart from the fact that there is no capacity in South Africa to process Nigerian oil, it is the NNPC’s practice, as far as Camac is aware, to extend contracts only to private upstream oil operating companies, oil trading companies and oil refinery owners.

It was widely reported in 1999 that South Africa, Ghana and Kenya were recipients of government-to-government allocations from Nigeria. It may not be unusual for the recipient government to use a private company as agent, but not without some revenue flowing to the government. Neither the South African state nor the public benefited.

A letter from the NNPC allocating the contract to South African Oil Company was sent in error to the South African High Commission in Lagos. The letter was subsequently reissued to South African Oil Company, the applicant.

The letter, reproduced in the M&G last week, was not only sent to the South African High Commission, but also addressed to “the Republic of South Africa”. That was consistent with the subsequent public portrayal of the allocation as “South Africa’s”.

Every year since 1999, South African Oil Company has applied successfully to the NNPC for renewal of its contract…

Again, according to Nigerian media reports, this was with the assistance of the South African state (in 2000).

Notwithstanding its unsuccessful attempt to create capacity in South Africa to refine Nigerian crude oil, Camac and its affiliates have invested in other South African ventures and currently employ approximately 1 500 people in the country.

Camac’s principals were supportive of South Africa’s liberation struggle for more than 20 years and with the arrival of democracy Camac has promoted black economic empowerment in the country…

What is meant by “supportive” is not explained. Camac and its chief executive, Kase Lawal, last week told the M&G that “no political party or politician in South Africa has benefited from donations by Mr Lawal and/or any entity within the Camac Group”.

In both [South Africa and Nigeria], the company’s investments underpin its support for the New Partnership for Africa’s Development.

  • Oil scandal rocks SA

  • Stefaans Brümmer

    Stefaans Brümmer

    Stefaans is an old hand at investigations. A politics and journalism graduate, he cut his reporting teeth at the Cape Argus in the tumultuous early 1990s; then joined the Mail & Guardian as democracy dawned in April 1994. For the next 16 years (a late-1990s diversion into television and freelancing apart), the M&G was his journalistic home and launch pad for award-winning investigations focusing on the nexus between politics and money. Stefaans has co-authored exposés including Oilgate, the Selebi affair, Chancellor House and significant breaks in the arms deal scandal. Stefaans and Sam Sole co-founded amaBhungane in 2010. He divides his time between the demands of media bureaucracy (which he detests), coaching members of the amaBhungane team, and his first love, digging for dung.
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