In December 2015 and January 2016, the Strategic Fuel Fund Association (SFF) quietly sold off South Africa's strategic oil reserves.
The SFF sold 10 million barrels to three companies which in turn resold the oil. Much of the oil remained stored in the SFF tanks in Saldanha Bay, with the SFF charging the companies storage fees. This was almost the entire legally required reserves of 10.3 million barrels (the equivalent of supplies for 21 days).
The SFF is the state-owned entity responsible for managing the reserves. It is a wholly owned subsidiary of the Central Energy Fund (CEF), also an SOE.
The SFF and CEF boards found out only after the deals were done. The National Treasury, legally required to sign off on such deals, didn't find out until May 2016. By the end of 2016, questions about the transactions were raised in reviews by the Treasury and the CEF, and in the Auditor-General's report.
When the fact of the sale subsequently emerged in public, the SFF claimed it was rotating the oil stocks, to replace them with higher grades of crude oil. However, the stocks were not rotated but disposed of and half were of the grade which which they were supposedly being replaced.
In March 2018, the CEF and SFF, both by then under new management, filed legal action in the Western Cape High Court to have the sales declared illegal and overturned. Court action was delayed by the various reviews and investigations, and the changes in SFF and CEF management, and in Ministers of Energy.
The CEF chair, Luvo Makasi, is leading the action to overturn the sales and has outlined in court papers what happened.
The sales were carried out by the SFF's acting CEO, Sibusiso Gamede, acting without the knowledge of the SFF and CEF boards. They were approved by the then Minister of Energy, Tina Joemat-Pettersson. Much of the wrongdoing points to Gamede and Joemat-Pettersson, particularly Gamede who found the buyers, ran the sales and acquired approvals from the Minister.
Gamede was also Joemat-Pettersson's Special Advisor while he was acting CEO.
There was no public tender process, no bid specifications and contracts were hidden from the boards. The money from the sales should have been paid into the Equalisation Fund but was put into a CEF account without the authorisation of the Minister of Finance. The first the CEF knew of the sales was when the money arrived in the account.
Makasi said in his court papers that there was no commercial rationale for the sales. “The oil was sold well below the prevailing market price,” he said.
Makasi said the reserves were for emergencies or catastrophes. "It is akin to a burn-shield in a first aid kit that lies dormant in the home for years, but it is indispensible in the time of need," he said. "Mr Gamede unlawfully and irregularly disposed of a fundamental national public insurance."
According to the evidence before the court, at the time of the transactions, Gamede received R20 million into his law firm’s trust accounts and his personal bank account. Most of the money was received in cash instalments of R20 000 that was physically loaded into ATMs around the country. The Hawks are currently investigating the matter.
About half of the crude oil was Bonny Light and the other half Basrah Light.
Bonny Light is worth more than Basrah Light. Bonny has a lower sulphur content so causes less corrosion to the refinery and is less environmentally harmful.
The 10 million barrels were sold as follows:
-
3 million barrels of Bonny Light crude oil sold to Venus Rays Trade for $90 224 970, in a deal on 15 December 2015. This is an average of $30.075 per barrel. Payment was made on 3 March 2016. Venus (based in Cape Town) then sold this to Glencore Energy UK (based in the UK).
-
3 million barrels of Basrah Light crude sold to Vitol SA for $78 606 000. This is an average of $26.202 per barrel. Payment was made on 29 February 2016.
-
2 million barrels of Basrah Light and 2 million barrels of Bonny Light sold to Taleveras for a total of $112 000 000, in a deal on 28 December 2015. This is an average of $28 per barrel. Payment was made on 25 February 2016. Taleveras (a formerly Nigerian company now based in Dubai) then sold this to Contango Trading SA (based in France).
There were other deals as well:
On 20 January 2016, 3 million barrels were sold to Vesquin Trading (a Cape Town company), which wasn't a buyer approved by the Minister. Vesquin then sold these back to the SFF.
Sometime in 2015/16 the SFF "loaned" 300 000 barrels (believed to be the rest of the 10.3 million barrels of the reserves) to a company called Enviroshore, which failed to return them. The SFF subsequently wrote off R60.402 million for this loss, according to its annual reports.
The sales are detailed in the CEF court papers and in a reply to Parliament in December 2016.
The oil was sold when the global oil prices were depressed. In addition, the prices were discounted.
Even though the sales agreements allowed the SFF to repurchase the oil, this would likely have been at a loss or possibly not even available in an emergency.
The average crude oil spot price during that period was:
30 November 2015: $43.11 a barrel.
31 December 2015: $36.57
31 January 2016: $29.78
31 December 2016: $52.62
The court case was filed in March 2018 in the Western Cape High Court and aimed to declare the Oilgate decisions and transactions of December 2015 and early 2016 illegal and thus overturn them.
The applicants
The applicants were the Central Energy Fund (CEF) and its subsidiary the Strategic Fuel Fund Association (SFF). Both are SOEs. Both are under different management from those involved at the time of the Oilgate deals.
The respondents
Eight of the respondents are companies which benefited in the transactions. Some were the direct buyers, some were secondary buyers and some were linked in other ways.
The respondents are:
1. Venus Rays Trade (Pty) Ltd, based in Cape Town.
2. Glencore Energy UK Ltd, based in the UK.
3. Taleveras Petroleum Trading DMCC (formerly a Nigerian company, now based in Dubai, and associated with Taleveras Oil SA based in Cape Town).
4. Contango Trading SA, based in France.
5. Natixis SA, a French investment financial institution which owns Contango.
6. Vesquin Trading (Pty) Ltd, based in Cape Town.
7. Vitol Energy (SA) (Pty) Ltd.
8. Vitol SA, based in Switzerland.
9. The Minister of Energy, the shareholder representative for the CEF and SFF, who must authorise the disposal of the reserves.
10. The Minister of Finance, who is responsible for enforcing compliance with the Public Finance Management Act and who must approve the disposal of the reserves.
The outcomeThe 166-page judgment was handed down on 20 November 2020 in the Western Cape High Court, and overturned the sale in 2015/16 of 10 million barrels of South Africa’s strategic oil reserves. South Africa gets ownership of the oil back and, in a complicated calculation, must both refund the sale price plus pay additional costs for some of the parties involved.
The transactions involved the state-owned entity (SOE) the Strategic Fuel Fund (SFF), a wholly owned subsidiary of the Central Energy Fund (CEF), selling the crude oil to three businesses, two of which on sold the oil. Although ownership changed, the oil didn’t leave the SFF tanks and various storage agreements were made. The court ruled all the transactions involving the SFF invalid due to illegality and corruption, and found two of the original buyers were also implicated. While the CEF and SFF themselves brought the action, the court found that they were unnecessarily tardy about doing so which unnecessarily inflated the costs of innocent parties, so the state must bear additional costs.
The oil was sold for $280 830 970 (worth R3.317 billion in March 2018 when the case was launched and R4.313bn at current rates) and SFF must now pay $420 802 481 (R6.463bn) in restitution and compensation to get it back. While the oil did not disappear, reversing the sale meant that SFF did not have to buy it back at an even higher rate.
The judgment pointed to the culprits: the then acting CEO of the SFF, Sibusiso Gamede, who engineered the sale of the oil at heavily discounted prices, kept the deals as secret as possible, arranged ministerial permissions, took bribes and didn’t keep proper records; and the then Minister of Energy Tina Joemat-Pettersson, who signed what Gamede – who was also her advisor – told her to sign without applying her mind. Both Gamede and Joemat-Pettersson unsuccessfully tried to intervene in the court case; they failed or withdrew because legal precedent has held that reputational harm is not a justification for intervention.
While they were the main culprits, the court found wider failures in governance, with “a pervasive lack of oversight and intervention by SFF’s senior management and the boards of SFF and CEF” and pointed to the “acquiescence or supiness of SFF’s senior managers and directors”. This points to the entrenched nature of corruption and the weakness of those entrusted with governance.
The businesses involved were not all innocent: Venus Rays Trade and Taleveras Petroleum Trading (two of the three who bought from SFF directly) were found to be complicit. Venus had no history in the oil business and made a profit of $10.536m by buying 3 million barrels from SFF and onselling these the same day to Glencore, then made another $9.742m over about 20 months by leasing storage from SFF at $0.11 per barrel per month and charging the unknowing Glencore $0.25 a barrel. Taleveras paid bribes to Gamede to get the deal. The judge’s payment order does not benefit Venus and Taleveras; rather, they may be open to further action by those who bought oil from them.
Court papers
The Central Energy Fund notice of motion and founding affidavit is here (
part 1 and
part 2).
The OUTA application to intervene in August 2020:
OUTA's founding affidavit is
here and the Transparency International report annexed to it is
here.
OUTA's heads of argument are here (part 1 and part 2).
Heads of argument in the main application:
CEF and SEF heads (filed 31 July 2020) are here.
The Vesquin and Vitol heads (filed 21 August 2020) are here.
The Taleveras heads (filed 21 August 2020) are here.
The Glencore heads (filed 21 August 2020) are here.
OUTA's counsels notes for arguments (15 September 2020) are here.
OUTA's counsels notes on irregularities (15 September 2020) are here.
Judgment: November 2020
Judgment in the case was delivered on 20 November 2020. The judgment is here.
Application for leave to appeal: December 2020
On 7 December 2020, the CEF and SFF applied to the Western Cape High Court for leave to appeal. The application is here.
On 8 December 2020, the Vitol group (the sixth to eighth applicants) applied for leave to cross-appeal if the CEF and SFF were granted leave to appeal. Their application is here.
On 22 December 2020, the CEF and SFF were granted leave to appeal sections of the judgment and the Vitol group was granted leave to cross-appeal. The matter was referred to the Supreme Court of Appeal. This ruling is here.
The payments
In February 2021, the parliamentary Portfolio Committee on Mineral Resources and Energy conducted an oversight visit to the SFF storage facility and received an update on the court case. The SFF told the committee that it had made the following payments in terms of the December 2020 court order:
The SFF said this was a total rand cost of R4.7bn. The SFF said it had received R4.2bn in 2015 when it sold the stock, that it had spent about R30m on the court action so far, and that the appeal application cost was estimated at R2.2bn [sic - presumably an error].
The committee's report was tabled in Parliament on 19 March 2021 and is here (pages 7-20).
In June 2019, OUTA called on the Minister of Mineral Resources, Gwede Mantashe, to intervene in the court case, after a dispute over documents between the CEF and Glencore threatened to derail the case. Glencore wanted to exclude supplementary affidavits which the CEF wanted to file.
Weeks later, the dispute was called off so the case continued, which OUTA welcomed.
In August 2020, OUTA applied to intervene in the case as an amicus curiae (friend of the court), to ask the court to prioritise public interest over company profits. OUTA believes the sale was illegal, should be cancelled and the stocks returned. The court later approved OUTA's application.
OUTA’s application calls on the court to hear the CEF-SFF matter, even though it was filed years late, due to the importance of overturning illegal government decisions. OUTA also calls on the court to prioritise public interest in the spending of public funds over any financial loss to the companies from cancelling the sales. If the sales were irregular, these transactions could never serve the public good, and the courts should not protect the private companies from financial losses. Public interest in the spending of public funds is more important than any potential financial loss to the respondents from cancelling the sale of the oil reserves.
None of the parties are opposing the CEF-SFF claim that the contracts were entered into illegally. The disputes were primarily over the remedy.
The case was finalised in November 2020.
In January 2021, OUTA lodged a complaint with the Legal Practice Council against Sibusiso Gamede, a practising attorney and the former acting CEO of the Strategic Fuel Fund who was instrumental in setting up the 2015/16 Oilgate deal, over his conduct and involvement in the corrupt activities. See
here.
In February 2021, OUTA submits information on the Central Energy Fund and the 2015/16 Oilgate deal to the NPA in terms of section 27 of the NPA Act. This is information which arose out of the court case which overturned the deal.
