A R1-billion crude oil tender — one of South Africa’s largest ever — went to African National Congress-linked company Imvume Management after an extraordinary series of interventions that suggest the tender was rigged.
This emerges from a Mail & Guardian investigation of the 2001/02 tender process, which resulted in Imvume supplying the Strategic Fuel Fund Association (SFF) with four million barrels of Iraqi oil. The SFF was the state agency that managed the country’s strategic stocks.
Last week the M&G revealed that Imvume was effectively an ANC front. The party promoted the company as an oil purchaser to the Iraqis in return for diplomatic support, and senior government officials travelled to Iraq with Imvume boss Sandi Majali in September 2001 to ask for oil. It appears that Majali was promised large oil allocations.
Three months later the SFF issued a tender to buy Iraqi crude. Evidence, including extensive documentation collected by the M&G, shows that the tender process was riddled with irregularities — all of which favoured Imvume.
The only party-pooper was Renosi Mokate, the then SFF chief executive. She came under intense pressure after she disqualified Imvume for what she said was its failure to meet tender requirements. Her decision was abruptly reversed.
Among the irregularities were:
- Imvume initially quoted the highest in terms of the stipulated price measure, but bidders were allowed to change their bids twice, in violation of tender rules;
- A key figure on the SFF adjudication panel, Riaz Jawoodeen, had a prior, undisclosed association with Imvume;
- Iraqi Basrah Light was specified in the tender documents, though it was known Saddam Hussein was demanding the payment of “surcharges” — illegal kickbacks — for oil;
- Factors that led to the disqualification of another empowerment bidder — including a negative due diligence report — appear to have been overlooked in Imvume’s case.
The Jawoodeen factor
Central to the affair is former SFF board member Jawoodeen, who last year branded as “a lie” M&G suggestions that the tender was tainted.
Jawoodeen was part of the top-level government delegation that travelled with Majali to Iraq on September 11 2001 to ask for oil.
Accounts, including from a former SFF director, suggest that Jawoo-deen knew the ANC, or an ANC trust, the Stalwarts Research Trust, had been secretly intended to benefit from the oil allocations through Imvume.Three months later, when Imvume emerged as a bidder in the tender to supply Iraqi oil, Jawoodeen — far from recusing himself — played a leading role on the tender evaluation panel. A well-placed SFF source charged that while Jawoodeen was open about his own part in the mission to Iraq, he never disclosed Majali’s presence on that crucial trip.
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Indeed, it was Jawoodeen who set the tender process in motion the day after he returned from Iraq on September 18.
SFF correspondence shows that on September 19 Jawoodeen briefed the SFF trading committee on the need to go out on tender for the Iraqi purchase — and that he helped draw up the tender specifications, including that it be Iraqi Basra Light oil.
Jawoodeen also knew that the Iraqis were demanding “surcharges” — in fact kickbacks, which were illegal under the United Nations Oil for Food programme for Iraq — when it sold oil. He allegedly cited this as the reason a government-to-government deal was not an option and the oil had to be bought through a private company.
Said one SFF source: “He said the Iraqis would need ‘favours’ from the South African government [for an oil allocation] and therefore it could not work.”
Three bites at the cherry
On December 5 2001, the SFF issued a tender for four million barrels of Basrah Light to replenish South Africa’s strategic stocks.
The timing was significant: in September already, letters written by Majali show, Imvume was asking Iraq to sell it Basrah — starting in December — and specifically to fulfil the South African government’s requirement for strategic stocks.
The SFF tender invitation undertook to evaluate all bids “in a fair and transparent manner”. It stipulated that bidders who breached conditions would be disqualified; that no changes to tender offers would be allowed; and that the winning bidder would have to post a $1-million performance bond, or bank guarantee, within 10 days of acceptance.
Another key feature was that prices had to be quoted as a premium or discount on Dated Brent, an international crude pricing benchmark.
Each of these terms was flouted or finessed, to Imvume’s ultimate benefit.
On the closing date, December 14, Imvume submitted its bid, quoting a basic price of Dated Brent (the Brent price when a cargo is loaded) less $0,05 per barrel. It was the most expensive of the nine companies that offered Basrah at Brent prices as required, records of the evaluation show.
Then followed an extraordinary process where bidders were invited to quote again — twice. This saved Imvume.
Imvume, like four other bidders, had also submitted a quote in a non-Brent format — the Official Selling Price (OSP) of the Iraqi State Oil Marketing Organisation. Imvume quoted OSP plus $0,485.
Having an OSP quote accepted would have diminished risk for the successful bidder. The oil had to be bought from Iraq at OSP, which fluctuated vis-Ã -vis Brent. If the bidder had to sell at Brent after buying at OSP, it would have no advance certainty about its profit margin.
While bidders may have had good reason to prefer OSP, the SFF may have had equally good cause to specify Brent — buying at an internationally benchmarked price could have given it more certainty.
But at this point the SFF tender evaluation committee departed from both the tender condition that quotes be in Brent and that no changes be allowed after bids had been submitted.
The committee decided to “afford other companies who didn’t quote [OSP] a fair chance …” This chance was a fax from the SFF on December 19, giving bidders until 5pm that day to quote OSP.
When the committee reconvened on December 21, Imvume’s OSP price was beaten by only two companies, one of which lacked empowerment credentials.
The committee now decided to give bidders yet another chance to quote — again in Brent. A possible explanation is that it felt its decision could be challenged if it did not judge on Brent, as per specification. Bidders were asked to fax a third set of quotes to the SFF by 5pm on December 24.
Imvume used this opportunity also to change its OSP quote, shaving off half a cent to find itself on a par, at OSP plus $0,48, with empowerment company Mocoh Services, and another unempowered company. But they were still beaten by another empowerment company, Leokoane Oil Industries.
But the real surprise was on Brent: While no other bidder lowered its Brent quote, the face value of Imvume’s bid dropped by a huge $2,23, from Brent less $0,05 to Brent less $2,28. This catapulted it from the rear of the field to third.
Selective disqualification
When the evaluation committee met again on January 3, it appears to have accepted two shortlists.
On Brent, it ranked Leokoane (Brent less $5) first, Worldwide Africa (less $2,57) second and Imvume (less $2,28) third. On OSP it was Leokoane (less $1,75) first, followed by Imvume and Mocoh (plus $0,48) tied.
In ranking Imvume third on Brent, the committee made the elementary mis-take of comparing apples with pears.
Imvume’s new Brent quote, unlike other bidders’, was “based on November OSP”, not on the Brent at the time the cargoes would be loaded. It was not a Dated Brent quote, but a translation of its OSP quote. This make-belief brought Imvume back into the running.
But Leokoane had quoted best. The committee was concerned about Leokoane’s ability to deliver, as it had quoted a price lower than at which Iraq was selling. On January 4 the SFF board resolved to award the tender to Leokoane subject to the results of a due diligence and Leokoane providing the $1-million performance bond.
Leokoane was disqualified on January 18 on the strength of negative due diligence results and the fact that it was “battling” to come up with the performance bond.
The next best bidder, in terms of the Brent stipulation, was Worldwide. But it appears the OSP list, where Imvume beat Worldwide, was taken partly into account after all.
On January 18 Mokate informed Imvume that it was the preferred bidder to supply half the requested four million barrels of Basrah Light, subject to the $1-million performance bond and a satisfactory due diligence. It is understood Worldwide was asked to supply the remaining half but that, after an interaction with Jawoodeen, it withdrew its bid. The M&G has been unable to obtain an explanation for this.
The effect was to give Imvume — with the worst compliant quote when the tender opened — the chance to supply all four million barrels to the SFF.
At this point Mokate emerged as Imvume’s main headache. On January 23, she complained to Imvume that it was withholding information needed by consultants Deloitte & Touche to carry out the due diligence.
Imvume’s lawyers wrote back saying they were “surprised”, as they were under the impression Deloitte was satisfied.
Handwritten on both Mokate’s fax and the Imvume lawyers’ reply was: “For urgent attention Mr R” and a phone number. SFF director Jawoo-deen’s first name is Riaz, and the number was that of his his fax line. It appears someone in the Imvume stable felt obliged to keep Jawoodeen personally informed.
On the same day Imvume’s lawyers forwarded to the SFF a letter from ANZ Bank, London, which undertook to issue Imvume’s $1-million performance bond “in due course”. Imvume wanted SFF to accept this in lieu of the actual bond until a supply contract had been agreed.
With a day to go before Imvume’s January 25 deadline, Mokate shot down Imvume’s proposal, insisting that a contract be drawn up only once the company had met the tender conditions.
Imvume tried again — it attached a pro-forma bond from ANZ Bank, operable only once the SFF agreed to a number of conditions. Among these was that the SFF would pay Imvume its OSP quote and that the deal be subject to English law. Both of these violated the tender conditions. Mokate wrote to Majali telling him Imvume’s terms “differ materially from the terms and conditions set out in our tender notice” and that the pro-forma document “does not constitute a performance bond”.
On January 28 she informed Imvume: “Failure by your company to submit a performance bond by the 25th of January as per the conditions led to an automatic disqualification …”
In a letter to Majali the next day, Mokate defended her decision, emphasising that the tender document “stipulated a dated Brent pricing method and not [OSP] … Your company further accepted and committed itself to these conditions when it signed the tender document.”
But mysteriously, Mokate relented almost overnight. On January 31 she sent a faxed invitation to Majali to discuss the performance bond and a draft supply contract “in pursuance of the tender process”.
A week later ANZ bank issued a new pro-forma performance bond, still conditional on a “mutually acceptable” contract being signed — this time seemingly without objection from Mokate.
What lay behind Mokate’s abrupt somersault? SFF sources said Imvume had “reported her” to SFF chairperson Mphuthumi Damane, who had been furious with her. The M&G is aware of an allegation that ministerial pressure was also brought to bear.
A scathing report
By the time the Deloitte due diligence report on Imvume landed, Mokate appears to have been sidelined from the process. This was just as well, as the report was scathing. A partial draft obtained by the M&G said among other things:
- Imvume was owned by three charitable trusts, but had no shareholders’ agreement. The trusts had “wonderful intentions” but “no ability to assist Imvume in its contractual obligations”.
- Imvume said it would be partnered by Swiss trading major Glencore International, but there was no signed agreement between them.
- Imvume had submitted a misleading bank testimonial relating to a different company. Imvume itself had never traded and had no employees or infrastructure.
- Imvume had no current purchase agreement with the Iraqi State Oil Marketing Organisation.
Significantly, some of the complaints were similar to the due diligence issues held against Leokoane when it was disqualified.
Despite these shortcomings, the SFF and Imvume on March 6 2002 signed a contract for the supply of two million barrels of Basrah Light. The right to supply the remaining two million barrels, originally allocated to Worldwide, went to Imvume separately, without a further tender. And despite the tender demand for a price quotation in Brent, the SFF agreed to pay Imvume’s quote of OSP plus $0,48.
Imvume had come from the rear of the field through three tender rounds, and got the OSP price that it had wanted all along — less only the half a cent it had shaved off in round three.
It seems Mokate staged a last stand by refusing to sign the final deal until checks and balances were built in. That led to another backlash. According to Mokate’s own published account later in Business Day, SFF chairperson Damane “accused me of being obstructionist and threatened to fire me”.
That August — after an investigation led by Jawoodeen — Mokate was suspended pending charges of financial mismanagement and dereliction of duty allegedly costing the state R70-million. These trading losses were unrelated to the Imvume deal.
Mokate was dismissed, but has since been effectively rehabilitated by President Thabo Mbeki, who appointed her to chair the Financial and Fiscal Commission.
The SFF, through its holding company, the Central Energy Fund, this week responded: “The article you intend publishing is riddled with distortions, inaccuracies and lies. This does not warrant a response from us save [to state] that the deal we entered into was good for SFF and good for the country because it saved significant amounts of money.”
The ANC, through its lawyers, accused the M&G of “litigating through the media” as it had brought a defamation action against the M&G after an initial exposÃ