The arrest of controversial Dutch oil tycoon John Deuss has exposed a trail of questionable influence leading to South Africa’s second highest office.
The fortunes of Deputy President Phumzile Mlambo-Ngcuka’s political adviser, Ayanda Nkuhlu, are intimately tied to those of Deuss, whose company has seconded him to Mlambo-Ngcuka’s part-time service.
Nkuhlu is in the anomalous position of representing the interests of state oil company PetroSA in a joint venture with Deuss’s Transworld group; of also heading a local subsidiary of Transworld; and of being seconded by this subsidiary to advise Mlambo-Ngcuka, to whom he has been close for years.
Nkuhlu this week denied he acted in Deuss’s interest when he advised Mlambo-Ngcuka, even though Deuss paid the bill.
Deuss has a colourful past, which includes busting the oil embargo for the apartheid regime. In 1985 the then-exiled ANC called him a “criminal … engaged in this nefarious trade”.
He staged a South African comeback four years ago when PetroSA and Transworld formed a joint venture, PetroWorld, to pursue international opportunities in oil and gas. PetroWorld has brought PetroSA little but trouble. Its projects have been disallowed or are on hold. And the Reserve Bank has fined PetroSA R12-million for entering the joint venture in violation of exchange control regulations.
Deuss’s arrest last Friday in Bermuda, his adoptive home of three decades, may come as vindication for oil sector critics who have long questioned his embrace by PetroSA. Bermudan police were acting on an international warrant issued by Dutch authorities.
He was released on $10-million (R75-million) bail on Monday after he agreed voluntarily to accompany detectives to Holland.
The Dutch warrant stated that Deuss was wanted for questioning on allegations of money laundering, handling of stolen property and leading a criminal organisation. This flowed from Dutch and British investigations into “carousel fraud”, which has caused European tax authorities to lose hundreds of billions of rands.
Carousel fraud involves bogus value-added tax refund claims on electronic goods round-tripped in and out of European Union countries. It mushroomed as perpetrators used Deuss’s First Curaçao International Bank (FCIB), based in the Dutch Carribean territory of Curaçao, to create virtual carousels.
Dutch and British authorities last month raided the bank in Curaçao and Deuss-linked properties in Holland and the United Kingdom. Deuss was quoted then as saying that FCIB and its affiliates, including Transworld, “have at all times conducted their business in full compliance with all applicable laws, regulations and rules”. This week a Deuss lawyer was quoted saying: “He is not charged with any criminal offence in The Netherlands, but is simply wanted for questioning.”
Just how Deuss pulled off his South African comeback remains unclear. Sources privy to PetroSA’s affairs have claimed that political pressure was brought to bear on PetroSA to go ahead with a deal that may not have been in its interests. Nkuhlu on Thursday said that Mlambo-Ngcuka, then minister of minerals and energy, “did not pressure nor railroad PetroSA”.
It is also not clear why PetroSA entered the joint venture without obtaining Reserve Bank approval. PetroSA’s 2006 annual report reveals that the Reserve Bank fined the parastatal R12-million, half of it refundable, for the contravention. The report calls it “wasteful expenditure”. Despite the provisions of the Public Finance Management Act, there have been no legal consequences.
The terms of the agreement appear to have been prejudicial to PetroSA in that it tied the parastatal into exclusivity with Transworld on projects abroad. This has not been respected in practice and PetroSA’s present management is understood to have considered terminating the deal.
The connection with Mlambo-Ngcuka, responsible for PetroSA as minerals and energy minister at the time, was apparent from early on.
Nkuhlu had followed Mlambo-Ngcuka from trade and industry, where she was deputy minister, to minerals and energy, where he was her chief of staff. He was later redeployed to PetroWorld to represent the interests of PetroSA. In 2004 a company called PetroWorld RSA was registered locally, with Nkuhlu as CEO.
The original intent, according to Nkuhlu, was for PetroWorld RSA to be a local subsidiary of the Bermudan joint venture holding company, PetroWorld Limited, but the Reserve Bank disallowed this as it would have created a “loop structure”.
Such arrangements are outlawed because they could defeat foreign exchange regulations.
As a result, PetroWorld RSA was created as a straight subsidiary of Deuss’s Transworld. This put Nkuhlu in the ambiguous position of being in Deuss’s employ, but also of representing PetroSA’s interests vis-à -vis him.
It is PetroWorld RSA — effectively Deuss — that has seconded Nkuhlu to Mlambo-Ngcuka’s office as a part-time adviser. Nhkulu is particularly trusted and influential in her office.
Nkuhlu on Thursday argued that there was nothing untoward about his overlapping roles in the deputy presidency, PetroSA and PetroWorld, saying: “It will not only be unfair but factually incorrect to say that John Deuss’s ‘questionable influence’ has reached the Deputy President’s Office. I do not represent PetroWorld RSA … when I act in my capacity as part-time adviser to the deputy president.”
John Deuss in a nutshell
Johannes Deuss (64), was once asked why money was so important. He reportedly replied: “Don’t you understand that it’s a question of power and money means power. It’s as simple as that.”
Duess’s quest for power has repeatedly taken him to the margins of legality. Born the son of a Dutch garage owner, he set up Bermuda-based JOC Oil in 1973 and, later, Transworld.
In 1976 he contracted with the Soviet Union’s national oil company to buy oil for resale — but Deuss fell behind with payments, leaving JOC owing $101,8-million (R771-million).
Years of legal wrangling followed, with Deuss using the loophole that the deal had been signed by only one Soviet director, culminating in an out of court settlement reputedly highly favourable to JOC.
During that time he feared assassination by the KGB and hired ex-CIA super-spook Ted Shackley, who reportedly helped pave the way for his lucrative entry into the sanctions busting game for apartheid South Africa.
According to one estimate, Deuss supplied 25% of South Africa’s oil imports between 1979 and 1983 and profited massively from the premiums the regime paid to buck oil embargos. In 1985, the ANC publicised a secret report by the auditor general probing oil premiums being paid and highlighting the role of Deuss and fellow sanctions breaker Marc Rich. The ANC urged governments to take action against “these two criminals”.
But Deuss lived a charmed life. In 1984, he missed a firebombing by Dutch anti-apartheid activists that partially destroyed his $6-million Dutch castle.
Deuss’s money bought him power, influence and a bank in Bermuda — where he was widely believed to have bankrolled the opposition PLP party’s rise to power in 1998.
A Dutch journalist who gained access to his mansion in Bermuda several years ago described it as “something out of a Harold Robbins novel”. “He had this big villa where girls in bikinis were lounging around. A girl would bring him a telex about some deal and he would say ‘yes’ or ‘no’ and she would go away to carry out his orders.”
PetroWorld’s projects
As a first project, John Deuss tried to sell Gulf of Mexico gas assets owned by his Transworld group into the joint venture. PetroSA, according to Nkuhlu, “could not agree with Transworld on risk and value of the project”.
In July 2003, PetroWorld signed an agreement to develop “the world’s first floating large-scale, fuel-grade methanol plant”, to be deployed off the west coast of Africa. It is unclear what follow-up, if any, there has been to the agreement, which was signed in Pretoria under Mlambo-Ngcuka’s auspices.
In September 2003 PetroWorld and the Qatar state oil company signed an agreement, under the auspices of Phumzile Mlambo-Ngcuka and her Qatari counterpart, to develop another “large scale fuel-grade methanol plant”, to convert gas from the emirate’s offshore North Field. The Qataris have put the project on hold pending an audit of gas reserves.
In 2004 PetroWorld was mooted as a partner, with Libyan and Gabonese state companies, in the newly launched African Investment Corporation, which was to have focused on African investment opportunities. Nkuhlu says the PetroWorld board turned it down as the areas of interest “would have been wider than oil and gas”.