The Public Investment Corporation (PIC) is to invest R3-billion with Kase Lawal, a Nigerian-American who famously appropriated crude-oil allocations meant for South Africa.
The investment, in a United States oil company verging on bankruptcy, will let Lawal and his family pocket a fortune. How the South African teachers, nurses and other public servants whose retirement savings the PIC manages will benefit is unclear.
Lawal moves in high circles in the United States and Nigeria. Locally, he cosied up to presidents Thabo Mbeki and Jacob Zuma. He pledged millions to Zuma's education trust and apparently organised him an honorary doctorate in Texas.
Lawal’s connections and his prolific campaign donations, at least in the US where funding is transparent, raises the question of whether the PIC came under pressure to do a risky deal – and even whether some of the PIC money may flow back to the ANC’s election coffers.
Lawal is a man given to repeated controversy. In 2001, the Nigerian police reportedly charged him with forgery and illegally pumping millions of barrels of oil, depriving the government of royalties. The charges were never tested in court.
Two years later, the Mail & Guardian exposed Lawal as the beneficiary of unrelated government-to-government crude-oil allocations Nigeria had given to South Africa but from which the public got no benefit.
More recently, Lawal allegedly financed an attempt to buy a planeload of illegal gold from a Congolese war crimes fugitive. He has denied all allegations regarding his reputation. (See “Who is Kase Lawal, and who benefits from his largesse?” below)
The PIC will pay $270-million (about R3-billion) for 30% of Camac Energy Inc, which is publicly traded but controlled by a Lawal family vehicle that owns 57%.
Announcing the deal last November, Lawal, who is Camac’s chairperson and chief executive, said: “We are honoured that the PIC has placed their trust and confidence in us.”
Camac’s profile inspires little confidence. It is a penny stock listed on a New York side exchange populated by low-value companies with volatile shares, meaning they are riskier investments.
Although it has rights to explore for oil in Kenya and Gambia, Camac’s only producing asset is 60% of the Oyo oilfield off Nigeria, whose yield has declined from a vaunted 25 000 barrels a day in 2009 to 2 000 now, according to regulatory filings.
By last year, Camac was burning up $1-million a month. In its third-quarter report, the company had to warn: “Current liabilities exceed current assets by $13.4-million. The company has minimal liquid assets and negative operating cash flows … These factors raise substantial doubt about the company’s ability to continue as a going concern.”
Without a sell-off or new investment, Camac would go bust.
But, as Camac’s independent directors noted in a regulatory report, there was a “lack of historical interest on the part of any other companies” and “limited future prospects and alternatives”.
The PIC’s interest was a godsend.
The independent directors held out for a month following the formal tabling of the PIC’s offer last October, concerned that too much benefit would go to Lawal, who championed the offer with increasing urgency.
A week after the bankruptcy warning, on November 20, they acceded.
Since the deal was announced that day, Camac’s market value has surged from $154-million to about $260-million this week.
But the PIC investment assumes the market value will hold firm at a minimum of $900-million once the transaction is concluded. If it does not, the investment will be under water and public servants’ savings at risk.
The $640-million gulf between the current and hoped-for values is a leap of faith. Camac wants to bridge it by buying the 40% it does not yet own of the Oyo oilfield to increase earnings. The 40% is held by Nigeria’s Allied Energy – also owned by the Lawals. Camac will pay Allied $170-million from the PIC money, plus shares and debt.
For the Lawals, it is win-win. They will maintain their 57% ownership of Camac, but with a larger asset base. At Allied Energy, they will get a mountain of cash.
For the PIC and Camac’s minority shareholders, their best hope for returns is that the Oyo oilfield’s decline can be reversed by two new wells, Oyo-7 and Oyo-8.
Oyo-7 has been drilled but must be completed and Oyo-8 is to be drilled later this year. Both depend on the success of a Camac road show to raise even more money – up to $300-million – as working capital.
With the new wells, the PIC has taken another leap of faith. Camac’s regulatory filings show the PIC sent it a “commitment letter” on October 9 last year, before any results from the Oyo-7 drilling were announced. When the PIC signed a firm offer on October 21, only partial results were known.
That was not the only instance of the PIC apparently throwing caution to the wind. When the PIC tabled its formal offer, the negotiations for Camac’s purchase of the Oyo stake were not concluded – meaning it bound itself without knowing how much of its investment would flow to the Lawals as Allied’s owners and how much would stay with Camac, which it would co-own.
Camac’s independent directors, whose sign-off was required as Lawal was conflicted by being on both sides of the transaction, were more careful. Despite Lawal’s repeated assertions that the PIC would withdraw if negotiations with Allied were not concluded urgently, they refused to accede “until the terms of the transaction with Allied had been fully determined”, their report shows.
In the end, they negotiated a substantially better deal for Camac’s minority shareholders.
In a lengthy analysis this week, the Financial Times remarked that, “the PIC at times struggles to shed the perception that political considerations as much as financial ones guide its investment decisions”.
If the perceptions are true, Lawal came with appropriate capital. In the Mbeki era, his South African Oil Company, central to the Nigerian allocations scandal, had a minister’s wife and an ANC treasury official on its board.
In 2010, the Lawals’ holding company signed a memorandum with Zuma’s charity, the Jacob G Zuma RDP Education Trust, pledging R1-million annually for five years. The following year, Lawal accompanied Zuma to his alma mater, the Texas Southern University, to get an honorary doctorate.
The PIC this week failed to answer questions, deferring to Camac. The ANC did not respond to a question whether Lawal had given or promised it funding.
The PIC investment will be finalised imminently following a Camac shareholders’ vote on Thursday.
Who is Kase Lawal, and who benefits from his largesse?
Born to a local politician in sprawling Ibadan, Nigeria, Kase Lawal left for the United States in the early 1970s to study chemistry and business administration. He founded the Houston-based Camac Group in the 1980s, exporting tobacco to Africa before migrating to the oil sector.
In 1996, Lawal reportedly rubbed shoulders with Thabo Mbeki in the US, calling him his long-time friend. The following year he was in business with African Renaissance, a group of South African investors close to Mbeki.
In 1999, with help from Mbeki, who wrote to then-Nigerian president Olusegun Obasanjo, Lawal won the right to buy and trade 55 000 barrels of crude a day from Nigeria’s national petroleum company. It was awarded on a “government-to-government” basis, which tended to come at a discount and with potential for greater profit.
Although these government contracts were meant to benefit countries, the rights were accepted by the private “South African Oil Company”.
Registered locally, it was half-owned by two Lawal entities, a quarter by a who’s who of ANC politicians’ relatives, and the rest by an opaque shelf company.
Directors included Zwelibanzi “Miles” Nzama, an ANC fundraising official.
Strangely, the contract was then signed by a mirror “South African Oil Company” in the Cayman Islands, a tax and secrecy haven. Lawal’s Camac Group admitted to owning three-quarters of it, but the balance remained opaque.
Mbeki and members of his Cabinet reportedly hailed the Nigerian allocation as a breakthrough in relations between the countries – but no benefit flowed to South Africans. The Mail & Guardian exposed the scandal in 2003, saying it “appears to be a fraud on the South African and Nigerian public”.
Mbeki’s spokespersons justified his support of a “local” company, but said it was “not the responsibility of the president to investigate” what followed.
Lawal also denied wrongdoing. But, contradicting Mbeki, he claimed the application had been by the Cayman-registered company all along and an ordinary private deal. He denied any South African politician or party benefited.
In the late 1990s, Lawal engineered a scheme that ended in the collapse of a listed company and criminal charges against him, although these appear to have been lost in the Nigerian criminal system.
Lawal brought in the Camac Group and Tuskar Resources, a listed Irish oil explorer, to help to develop an oil field belonging to Nigeria’s Cavendish Petroleum Resources. Following a dispute with Cavendish, which blocked any further pumping of oil, Tuskar collapsed, costing investors millions.
Criminal charges were filed in Lagos in 2001, naming Lawal and two Camac companies for allegedly forging papers and illegally pumping more than 10-million barrels of crude from the field, depriving Nigeria of $1.9-million in royalties.
Lawal and Camac have denied these allegations, pointing out that Lawal has travelled to Nigeria repeatedly since then and claiming that “official documentation … from the attorney general in Nigeria explicitly confirms that all allegations in this regard were investigated [and] completely cleared”.
Lawal’s reportedly wanted status in Nigeria became an issue in the US, when he emerged in 2008 as one of Hillary Clinton’s “Hillraisers” – the major fundraisers for her presidential campaign.
But Lawal kept giving and candidates kept taking.
US records show that between 2009 and 2012 Lawal made more than 20 personal donations totalling $152 400 (about R1.7-million) to political campaigns, including that of Barack Obama.
His continued connectivity on both sides of the Atlantic was confirmed in 2010 when Obama appointed him to a key trade policy committee and Nigeria’s Goodluck Jonathan made him a member of his advisory council.
They took Lawal at his word, it seems, when he said of the Hillraiser affair: “My company, my actions and everything that we have done have always been above board.”
What happened next must test this view.
Congolese general Bosco Ntaganda’s war crimes and crimes against humanity pre-trial proceedings started this week at the International Criminal Court in The Hague. The counts against him include using child soldiers, murdering civilians, rape and sexual slavery.
At the height of his power in February 2011, Ntaganda met Camac representatives in Goma, in the lawless eastern Democratic Republic of Congo.
Lawal’s half-brother and Camac Nigeria head Mukaila Lawal, accompanied by another Camac employee and a diamond dealer, handed a reported $6.8-million (about
R75-million now) to Ntaganda for almost half a tonne of gold.
Boxes supposedly containing the gold were loaded on to a Camac Gulfsteam jet. But immediately afterwards an apparently different security force faction arrested the three men, confiscating the boxes.
They were charged with money laundering and illegally transporting a banned material. They were released seven weeks later after Camac paid $3-million in “fines”.
Lawal and Camac tried to distance themselves, claiming the company had no interest in the deal and no charges were filed. But a United Nations report disagreed, presenting evidence that Lawal himself financed the deal with Camac money and was told Ntaganda was the seller.
Camac this week said it was in possession of a letter from the DRC prosecutor general clearing Lawal and other Camac employees “of any legal action at any level”. – Stefaans Brümmer
Camac Energy responds
Camac Energy, answering for both itself and Kase Lawal, this week said that “no funding or donations have ever been made to the ruling party in South Africa or to any other political cause in or related to South Africa”.
Regarding the PIC entering the deal while there were fears about Camac as a going concern, it said that the negotiations had gone on for more than a year “and had nothing to do with our ‘going concern’ status [announced in the third quarter last year]”.
It also pointed out that the company’s market value had increased since the announcement and said its “growth strategy has been very well received by the investment community”.
Regarding uncertainty about the Oyo oilfield’s production and the two new wells, it said that it was “comfortable” with a prediction of 7 000 barrels a day for each new well, which would give a revenue of $500-million a year. Any valuation should take into account “management quality and technical skills” and “potential discoveries of oil”.
It disagreed that the PIC had taken a leap of faith and said the PIC had “engaged reputable third-party independent natural resources consultants and experts to determine the valuation of Camac”.
It said there was further potential for growth. After the PIC transaction, Camac will own seven exploration blocks and one producing block in Nigeria, Kenya and Gambia, which presented a “significant farm-down opportunity to generate additional returns for shareholders”.
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