New regulations and legislation governing black economic empowerment (BEE) will help address ”challenges” such as those highlighted in reports of a flawed empowerment deal involving entrepreneur Mzi Khumalo.
Minerals and energy spokesman Kanyo Gqulu said in a statement on Tuesday the difficulty in the past was that there was no legal framework assisting government in ensuring the smooth running of BEE related deals.
”It is precisely challenges similar to the ones alluded to in the [Moneyweb] article, that made government to conclude that the best way is to develop a proper framework governing BEE dealings.”
Asked why the government did not participate in negotiations in what is now referred to as the ”Khumalo R1,3-billion sweetheart deal”, he said prior to the advent of the mining charter, most BEE deals were done without the involvement of the department.
According to a Moneyweb investigation, Khumalo hijacked an empowerment deal also involving the Industrial Development Corporation (IDC) and Harmony Gold, and earned himself more than R1-billion.
The former political prisoner took control of Simane Security Systems three days after it secured funding from the IDC to trigger the transaction with Harmony, the Citizen newspaper reported. The IDC extended a R392-million loan to Simane.
Shortly after the deal was signed, new shares were issued in Simane to give Khumalo 67% ownership, and he bought out the remaining empowerment shareholders over the next few months at massive discounts to the true value of the holdings.
Senior IDC officials are reportedly being investigated by the Scorpions for assisting Khumalo to carry out the deal, and for receiving an alleged ”loan” of R6-million.
One senior mining division official, Andile Reve, is now running a company owned by Khumalo, the newspaper said.
IDC spokesperson Neo Sowazi said the corporation had initiated an internal probe, which led to the suspension and resignation of an employee. This investigation was subsequently taken over by the Scorpions.
Regarding the conduct of Khumalo in the empowerment deal, she said the IDC had funded Simane and not Khumalo.
”We cannot really comment on Mzi, because we did not fund Mzi,” Sowazi said.
Harmony said in a statement on Tuesday it regarded the matter as closed.
The gold mining company said the rationale for the transaction had been to strengthen the company’s balance sheet to continue with its strategy of acquiring mainly South African assets.
”Regarding the Simane transaction, Harmony was initially approached by the IDC, who was willing to finance the participation by a [empowerment] company in the growth activities of the company.”
An agreement was initially reached with Komanani, but the IDC proposed replacing the consortium with Simane after the former failed to secure finance for its participation, the company said.
The Department of Minerals and Energy had initially welcomed the structure of the transaction, when it was unveiled in April 2001.
In its response, the Democratic Alliance (DA) said the saga should serve as a stern warning to the government regarding its empowerment strategy.
It showed that its focus on the transfer of existing equity, instead of transformation through real economic growth, was an invitation to the well-connected to exploit BEE for their own enrichment.
”This deal represents everything that BEE should not be. The net result is an insignificant transfer of equity to black ownership and the creation of a single billionaire,” DA trade and industry spokesperson Mark Lowe said. – Sapa