Sensational claims, broken promises
A German shipbuilding giant paid President Thabo Mbeki R30m to guarantee it won the submarine contract in South Africa’s multibillion-rand arms deal. Mbeki gave R2m of this to Jacob Zuma and the rest to the ANC.
This staggering new allegation has surfaced for the first time in a secret report compiled in 2007 by a UK specialist risk consultancy.
The consultancy was commissioned by a leading Central European manufacturer to investigate the worldwide activities and “questionable business practices” of the shipbuilder, MAN Ferrostaal, which had launched a hostile takeover bid against it.
The suspected shady practices included bribery, corruption, money laundering and a failure to deliver on its investment commitments to the countries to which it sold weapons.
Other than South Africa, the probe involved arms deals in Libya, Nigeria, Angola, the Democratic Republic of the Congo and Zimbabwe.
The Sunday Times has also established that the report which makes the Mbeki-Zuma allegation is in the possession of the office of the director-general of the European Commission’s External Relations in Brussels, and the Munich state attorney in Germany.
MAN Ferrostaal, which led the German Submarine Consortium (GSC), won the contract to sell three submarines to the SA Navy, for more than R6-billion.
In return, it promised to build a R6-billion stainless steel mill at Coega in the Eastern Cape, which it promised would provide 1000 direct jobs and 3000 indirect jobs.
The project, which promised billions of rands in export and local sales, has not happened.
On page eight of the report under the South African section of the probe, it alleges:
“A former South African official who had access to such information informed us in confidence that Ferrostaal paid R30-million to current President Thabo Mbeki to gain the arms contract in the first place.
“When questioned by investigators in South Africa, Mbeki claimed that R2-million was given to his former deputy president Jacob Zuma and the rest went to the ANC.”
The report says it was “unlikely that this information will be leaked in the near future because Mbeki maintains a tight (rein) on the National Prosecuting Authority where this matter would be dealt with”.
Mbeki’s presidential spokes-man, Mukoni Ratshitanga, said: “These allegations have been in the public domain for some time, which gives lie to the assertion that they are, for whatever reason, ‘unlikely (to) ... be leaked in the near future’. They are of such fantastical proportions as not to warrant any response.”
The Sunday Times pointed out to Ratshitanga that this was in fact a new allegation. He failed to respond.
ANC spokesman Jesse Duarte said: “Any person anywhere in the world who has evidence of corruption should take it to the police. Anyone can write a document and claim it is authentic.”
The report also states that South African intelligence services have proof that MAN Ferrostaal paid the bribe to Mbeki.
MAN Ferrostaal dismissed the allegations as a “fishing expedition” intended to damage its reputation and that of the South African government.
A number of arms dealers who were involved in bidding for the contracts told the Sunday Times that they knew Zuma acted as Mbeki’s front man during the arms deal negotiations.
They said some of them were summoned to meet Zuma a number of times, and that at least once the four Shaik brothers, Chippy, Mo, Yunis and Schabir, were present.
At these meetings the dealers were told that if they wanted to do business, it had to be through the Shaiks. Yesterday Yunis Shaik said this was “all just lies”.
Others involved in the negotiations told the Sunday Times that bribes had been solicited from them.
They said that during the deal many of the high-ranking politicians and officials involved were so greedy they even asked for money, jewellery and perfume for their wives and girlfriends.Tipp-Ex and Some Dodgy Deeds
In another twist in the arms deal saga, the Sunday Times has come into possession of a draft report into the submarine contract, drawn up by the attorney-general in May 2001. This draft, which has never been made public, was diluted and sanitised before being included in the final report of the Joint Investigation Team, set up to probe the arms deal.
It has emerged from the document that the process of evaluating bidders for the submarines was skewed and highly suspect. The draft says it is apparent that “deviations from the approval process occurred” and that “good procurement practices were lacking”, including:
The Sunday Times has established that Mbeki, when presented with the August 1999 affordability study which assessed the economic and financial impact of the arms deal, chose to ignore it and two vital independent steel reports attached to it.
These warned that Ferrostaal’s stainless steel offset project — the local investment pledge on which it won the submarine deal — was high risk and likely to fail. The studies were conducted by two of the world’s top steel experts, London’s Warburg Dillon Read and New York’s Locker Associates.
The affordability study and its annexures, presented to Mbeki almost a year after he announced who would get the submarine contract , have never been released to the public.
Circulation of this document has, over the past nine years, been strictly controlled.
Locker Associates warned that the mill, with an annual capacity of 800 000 ton stainless flat-rolled steel, was highly risky.
Warburg Dillon Read said that South Africa did not need another steel plant in addition to the many in the country.
Paul Dunne, a professor of economics at the University of the West of England, who specialises in the economics of peace, security and military spending, described the affordability study as “a very thorough piece of work”.
“I think ignoring these warnings was most definitely reckless,” he said.The Story So Far
In 1995 the ministry of defence highlighted the need to restructure the new South African National Defence Force.
The defence review of 1998 said the SANDF needed to be re-equipped to meet the national security needs of the new democracy. The review aimed to provide credible and convincing reasons for investing large amounts of money in defence.
The result was the proposal of a multibillion-rand strategic arms procurement package, now widely known as “the arms deal” .
By the end of 1999, the South African government had signed contracts totalling 4.8-billion (R30-billion in 1999 rands) to modernise its defence equipment, which included the purchase of corvettes, submarines, light utility helicopters, lead-in fighter trainers and advanced light fighter aircraft.
Since then taxpayers have forked out billions of rands to pay for the massive loans that the government took out from banking institutions around the world.
The ANC's Oilgate
A Mail & Guardian investigation into covert party funding has revealed how R11-million of public money was diverted to African National Congress coffers ahead of the 2004 elections.
In what may be the biggest political funding scandal since 1994, the M&G has established that South Africa's state oil company, PetroSA, irregularly paid R15-million to Imvume Management -- a company closely tied to the ANC -- at a time when the party was desperate for funds to fight elections.
The M&G possesses bank statements and has seen other forensic evidence proving that Imvume transferred the lion's share of this to the ANC within days. PetroSA this week said it was unaware of this. The ANC denied impropriety and said it was not obliged to discuss its funders.
The scheme unfolded in two stages. First, PetroSA management bent over backwards to pay Imvume the money as an advance for the procurement of oil condensate. Then, when Imvume diverted the funds to the ANC instead of paying its own foreign suppliers, PetroSA had to cover the shortfall by paying the same amount again.
A multimillion-rand hole remains in the parastatalis books. PetroSA has gone through the motions to recover the debt by suing Imvume -- but most of it remains outstanding.
The effect of the entire transaction was that PetroSA, and ultimately the taxpayer, subsidised the ruling party's election campaign: a blatant abuse of public resources.
Imvume's role as an ANC "front company" first emerged in February last year when the M&G exposed its oil dealings with Saddam Hussein's Iraq. Imvume principal Sandi Majali obtained lucrative crude oil allocations from that regime when he travelled to Iraq with top ANC officials between 2000 and 2002. More recently, Imvume described its boss as ANC secretary-general Kgalema Motlanthe's "economic adviser".
The deal puts the spotlight on PetroSA's management, which approved the payment; Imvume boss Majali, who asked for the advance and then issued the cheques to the ANC; and Motlanthe, who was Majali's ANC patron.
Imvume, now unable to pay its debts, was once the empowerment pin-up of the oil industry.
The contract that caused all the trouble was awarded by PetroSA to Imvume on October 15 2002 -- the day President Thabo Mbeki publicly launched PetroSA as the national oil company.
Under the contract, Imvume -- with the backing of Swiss-based resource trader Glencore International -- was to supply PetroSA with regular cargoes of condensate, a feedstock for PetroSA's Mossel Bay gas-to-liquid fuels plant.
A number of condensate cargoes were delivered to Mossel Bay during 2003. The standard contractual procedure was for PetroSA to pay Imvume the full cargo price no later than 30 days after the bill of lading date (the date the cargo was loaded for shipment to Mossel Bay).
Once it received payment from PetroSA, Imvume would immediately pay it on to Glencore, which sourced the cargo on international markets. Glencore paid Imvume a commission.
But in December 2003 the pattern was broken, and PetroSA has confirmed that standard procedure was departed from. The bill of lading date for that cargo was December 6 2003, meaning PetroSA's payment for the cargo -- worth $10-million (about R65-million) -- was due on January 5 2004. But Imvume's Majali asked PetroSA for an advance of R15-million (just more than $2-million of the $10-million) which was paid even before the cargo was discharged on December 22. PetroSA paid the advance into a different account to that usually used by Imvume for the contract.
Evidence in the M&G's possession confirms that Imvume Management's corporate account was credited with R15-million a day later, on December 19. And the M&G has seen forensic proof that within the next four days, Imvume's Majali issued a series of four cheques to the ANC -- for R4-million, R3-million and R2-million (twice). These cheques, totalling R11-million, were all transacted on December 23.
This week Majali and Imvume did not dispute that the money was paid to the ANC, but claimed their support for the party was a "private affair".
The transfers to the ANC came four months before the elections, held on April 14 2004. A number of sources have described the party's financial straits around that time, claiming it had a bank overdraft typically running at more than R100-million.
When payment for the cargo became due to Glencore on January 5, Imvume failed to pay the company the R15-million advance -- and, effectively, also withheld another R3-million from the balance owed.
Glencore turned to PetroSA for what it was owed, eventually threatening in February not to offload the next cargo. PetroSA agreed to cover the shortfall of R18-million, for fear that the Mossel Bay plant would run out of feedstock, leading to greater losses. Effectively, PetroSA paid R18-million twice -- once to Imvume, and once to Imvume's supplier.
PetroSA maintains that the special circumstances of the empowerment environment largely excuse the actions of its management. It also denies that there was pressure from either the Minerals and Energy Ministry or the ANC to approve the advance to Imvume.
Circumstances, however, suggest that empowerment is not a sufficient explanation and that Imvume's ANC links played a role. These links were no secret in oil trading circles. A businessman active in the sector told the M&G last year: "It was talked about when they got tenders ... that it was an ANC company ... I certainly understand that ANC fundraising has a keen interest."
The advance payment to Imvume was irregular in that it was a departure from standard procedures. PetroSA maintains procurement policy allows for advance payments, but admits it "should have checked" whether the money was going into the usual account.
When the transaction with Imvume blew up in its face, PetroSA continued treating the company with kid gloves.
On February 23 last year, four days after PetroSA had been forced to settle Imvume's debt with Glencore, Majali signed an acknowledgement of debt to PetroSA, agreeing to repay the R18-million plus interest within 90 days. He also ceded his company's revenue stream as security. But Imvume paid nothing in terms of that agreement.
Court records show more than a month passed after the expiry of the 90-day term before PetroSA issued a letter of demand. (See "PetroSA vs Imvume Management" download box on top right of this article for full documents).
PetroSA's choice of lawyer employed to pursue the demand raises further questions about PetroSA's seriousness of purpose.
The lawyer, Leslie Mkhabela, was previously Imvume's own attorney and still has a business relationship with Majali via their common interest in Forever Resorts Aventura, the privatised state leisure company. This raises conflict-of-interest questions.
Mkhabela maintained this week that this was not a problem as he had disclosed his business relationship with Majali to PetroSA.
The agreement signed between Mkhize and Majali was still not enforced. Instead new terms, much more favourable to Imvume, were agreed between PetroSA chief executive Sipho Mkhize and Majali in September last year.
Now PetroSA waived any claim to interest and agreed that Imvume could repay the capital amount in monthly instalments over four and a half years.
But again, in February this year and after paying only R1,33-million, Imvume defaulted, court papers show.
PetroSA took off the kid gloves for a little while, filing an application for summary judgement in the Johannesburg High Court. But the matter was postponed twice, and on a third court date -- May 3 this year -- PetroSA removed the matter from the roll. PetroSA this week claimed that this was to allow Imvume to remain operational, which would give PetroSA a better chance eventually to recoup the debt.
The ANC this week threatened legal action against the M&G without confirming or denying the flow of money to it.
Circumstantialevidence strongly suggests the ANC knew exactly where the funding was coming from. Between 2000 and 2002, when Majali was trading in oil allocations from Saddam Hussein's Iraq, the ANC's Motlanthe repeatedly accompanied him to that country.
ANC treasurer general Mendi Msimang also went along on at least one occasion.
It is rumoured that the relationship between Majali and Motlanthe has cooled recently, but an Imvume brochure last year still described Majali as "economic adviser to the secretary general of the ANC". Describing the company's "winning formula", the brochure said Imvume had "access and influence on economic policy".
How they responded ...
The cornerstone of this deal is the policy adopted by PetroSA, which is a national initiative, black economic empowerment (BEE). PetroSA has a mandate to introduce hitherto disadvantaged South Africans into the oil and gas industry. PetroSA had a choice: to continue business as usual and exclude historically disadvantaged South Africans from the mainstream economy and prolong, if not propagate, the two-economies concept, or use our procurement muscle to bring fundamental change to the industry.
To procure a raw material referred to as condensate, the requirement was that the preferred supplier must have a South African partner who qualifies as a BEE candidate. This in effect introduced a major shift in the industry. We deliberately signed deals with the historically disadvantaged party to ensure that they were not "brought along" to the deal, but in fact they were the "principal partner" in the deal.
Mkhabela assured PetroSA of the following: he acted on behalf of Imvume during 2002/03. He later decided to resign from their business. While he acted for Imvume, he was invited into a consortium that submitted a bid for the Aventura Resort in exchange for his services. He retains no personal friendship with Imvume.
At the request of Imvume, PetroSA effected a pre-payment into an account different from the normal account. We changed the account without considering that there may be negative ramifications. PetroSA has since tightened the controls around channels of communication and instruction from vendors on payments. PetroSA in its enquiry has not found any wrongdoing by any individual or individuals within PetroSA or external to PetroSA with line of sight to PetroSA. All the procedures and processes were followed. PetroSA honoured the letter of the contract. At times we assist suppliers to better deliver to PetroSA where possible. The procurement policy at PetroSA allows for payments of this nature.
Glencore held the product. Even though PetroSA did not have a contract with them, they had a ship in the harbour with our product. As we had already paid, PetroSA had to make a decision; to either pay them and deal with Imvume later -- this would cost us $2,8-million -- or refuse to pay and have our refinery cease operating for a minimum of 40 days, at the cost of $1-million daily. The PetroSA board ratified the decision.
It is the intention of PetroSA to recoup all the funds involved in this dispute. A liquidated Imvume would not generate the required proceeds for PetroSA. This would lead to an outright loss. PetroSA needs Imvume to pay back the money owed to PetroSA.
BARRY AARON & ASSOCIATES (lawyers for Majali and Imvume):
Our clients have requested us to record that Imvume had legitimately withheld payment in the sum of $2,8-million from Glencore against receipt of the expected commission on the profit-sharing arrangement in relation to Imvume's contract with PetroSA.
The withholding of this payment was not contested by Glencore until immediately prior to delivery of the next shipment, which it then refused to offload until such time as the shortfall (as Glencore perceived it) on the previous shipment had been paid. This resulted in PetroSA effecting payment of the shortfall and Imvume executing the acknowledgement [of debt] in favour of PetroSA.
The issue of commission from Glencore remains unresolved. Imvume expected to repay PetroSA from anticipated funds and separately resolve the issue with Glencore. Unfortunately, the anticipated funds did not materialise. Imvume has concluded arrangements with PetroSA for repayment. Imvume intends honouring its obligations to PetroSA. Our clients have no objection to fair investigative journalism and comment. [The M&G] however continues to harass our clients in an ongoing witch-hunt. [The M&G] appears to have accessed Imvume's private and confidential records, including (in particular) its banking records, constituting an invasion of our clients' rights to privacy, conduct way beyond the norms of responsible or acceptable investigative journalism. Our clients are a private businessman and a private company respectively, engaging in the legitimate pursuit of their activities. Their business activities and support for the ANC are their private affair. [The M&G] is sabotaging and subverting a legitimate black empowerment initiative.
MNMR Attorneys (for the ANC and Kgalema Motlanthe)
The short time period provided for comment demonstrates that the M&G will not give proper consideration to our clients' submissions. We wish to note that following the recent decision of the Cape high court in the Idasa matter, our clients are not obliged to discuss donations received by it from any person. Even if it were so, our clients would have no obligation and would not always have the ability or means to verify the identity of the sources of all donations made to it. We record, however, that our clients deny any insinuation that they acted in any corrupt, illegal or improper manner. Our clients will not hesitate to protect their rights should the M&G publish the defamatory material contemplated in [your] e-mail.