PetroSA, the state-owned enterprise at the centre of the Oilgate scandal, admitted to the auditor general that it should have conducted a due diligence investigation before advancing R15-million to Imvume Management in December 2003.
As the Mail & Guardian revealed earlier this year, Imvume passed on R11-million of the advance to the African National Congress, which was suffering a cash-crunch at the time.
When Imvume defaulted on paying Glencore, its international supplier of oil condensate destined for PetroSA’s Mossel Bay plant, PetroSA opted to pay the advance amount a second time.
The due diligence admission is contained in new documents released to Parliament’s standing committee on public accounts (Scopa) this week. These include a letter from the auditor general raising queries about the 2003/04 audit, in which he blamed the Imvume debacle on an absence of “appropriate due diligence reviews of contractual parties”.
PetroSA’s chief financial officer Nkosemntu Nika noted that such policies were in place, but admitted to the auditor general: “However, we concur that when Imvume requested advance payment a review should have been conducted.”
The admission contradicts the finding in the public protector’s controversial report on the Oilgate saga, which completely exonerated PetroSA’s decision to pay the advance. Public Protector Lawrence Mushwana found the advance payment was “lawful, well-founded and properly considered in terms of the legal and policy prescripts that applied to PetroSA”.
By contrast, the follow-up 2004/05 auditor general’s audit letter, delivered to PetroSA prior to the public protector finalising his report, stated the “root cause” of the Imvume problem was that “no due diligence review was conducted on Imvume”.
Mushwana’s report also emphasised PetroSA’s procurement policy, which stressed the need to provide support for black economic empowerment companies, including through “financial assistance” and “expedited payment”.
But a copy of PetroSA’s procurement policy, also released to Scopa, shows the company highlighted the need to do this in a manner that would “realise best value for money, minimise risk and safeguard PetroSA’s interests”.
Mushwana found that PetroSA could not have foreseen that Imvume would not pay Glencore, but his own report and subsequent evidence before Scopa makes it clear PetroSA was told by Imvume that it needed the advance because of “cash flow problems related to the company’s monthly commitments”.
This was an obvious warning signal for PetroSA to establish how Imvume was going to meet its commitment to Glencore, which fell due about two weeks later — hence the need for a due diligence study.
Up to now, PetroSA has publicly defended its decision to pay the advance, arguing that it was in line with procurement policy, and admitted only that it may have erred in not giving attention to the fact the R15-million advance was paid into a local account different from the dollar account previously nominated by Imvume — another sign that Imvume intended to use the money for purposes other than paying Glencore.
In the event, Glencore threatened to shut down PetroSA’s Mossel Bay plant by refusing to offload the next cargo of condensate unless the shortfall — which in the end totalled R19-million — was made up.
PetroSA opted to pay, rather than go to court to secure its shipment, although Glencore had, on the face of it, no legal claim against it.
The new documents also reveal that a final settlement agreement for Imvume to repay the money to PetroSA was signed less than a month ago — only after the issue was forced into the open by the M&G.
Since August last year Imvume has made sporadic repayments towards the R19-million and reneged on at least two commitments to pay. The major portion — R4,7-million of the R6-million confirmed repaid so far — was forthcoming only after the M&G’s exposÃ