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Verdict: Karpowership’s owner slammed for discrimination against BEE partners

Verdict: Karpowership’s owner slammed for discrimination against BEE partners
Floating powerships designed and developed by Turkey’s Karadeniz group have been deployed to several nations in the Middle East, Africa and Indonesia to provide a quick “plug-in” solution to electricity crises. But a senior CSIR engineer suggests that it comes with a hefty price tag for South Africa if the ships stay for 20 years. (Photo: Karpowership)

Former chief justice Sandile Ngcobo has delivered a damning arbitration ruling in fight over Karpowership’s BEE shares, calling the shareholders’ agreement ‘oppressive' and 'so unreasonable as to offend the core foundational value of equality'.

Former chief justice Sandile Ngcobo has eviscerated Karpowership’s Turkish owner over its “biased” and “oppressive” shareholders’ agreement with its black empowerment partners.

Powergroup SA turned to arbitration when Turkey’s Karadeniz tried to evict it from the R218-billion deal to supply emergency power to Eskom for the next 20 years.

In February, Karadeniz told Powergroup that it needed to fund its portions of a $5-million (R93-million) the Turkish parent said was needed to get the Karpowership deal over the line. 

When Powergroup did not deliver the funds, Karadeniz exercised a call option in its shareholders’ agreement that allowed it to seize Powergroup’s 49% for the princely sum of R83.

Karadeniz, Karpowership’s Turkish parent company, owns 51% of the local joint venture through a subsidiary in Malta. Powergroup, which is owned by local businesspeople – Sechaba Moletsane, Ravin Rajoo, Sureshan Moodley and George Mokoena – held 49% until recently.

Retired Chief Justice Sandile Ngcobo to steer presidential impeachment inquiry process over Phala Phala

Former Chief Justice Sandile Ngcobo. (Photo: Gallo Images / The Times / Daniel Born)

But Ngcobo’s confidential ruling, delivered last week Friday, found that key clauses of the shareholders’ agreement – which only applied to Powergroup and not Karadeniz – smacked of discrimination, and were inconsistent with Powergroup’s constitutional right to equality.

“The problem here is that the Call Option as well as the Trigger Events have as their only target, Powergroup,” Ngcobo wrote in his ruling, which amaBhungane has seen. “The impugned provisions are heavily biased in favour of Karadeniz. They were obviously tailored from Karadeniz’s point of view.”

He continued: “They were not merely designed to secure contribution to additional funding but were designed to ensure maximum protection for Karadeniz against any breach of the [shareholders’ agreement] … by Powergroup while at the same time subjecting Powergroup to the most stringent and oppressive terms … This is manifestly unfair and unreasonable.”

Karadeniz Powership Zeynep Sultan. (Photo: Wikimedia)

During the arbitration hearing, Karadeniz’ lawyers argued that the one-sided clauses were necessary to ensure Powergroup did not get a “free ride” in the deal.

Summarising Karadeniz’ argument, Ngcobo wrote: “Reduced to its essence the assumption is that because Powergroup is a BEE entity and has brought neither capital nor technical skills to the Company, it has no vested interest in the success of the project. 

“This is so notwithstanding access to both capital and technical skills that Powergroup stands to gain by participating in the project. This assumption seems to be based on the premise that because of its contribution to the project, Karadeniz has much to lose if the project does not succeed and therefore it will not do anything that might constitute a trigger event. For this reason, there is no need to put in place contractual mechanisms to ensure it does not fall foul of any provision of the [shareholders’ agreement].”

But Ngcobo rejected this argument: “No facts have been put forward to justify this assumption. There is utterly no basis for this assumption. If anything, it exposes the irrationality of the basis of the discrimination and its unreasonableness. The ineluctable conclusion is that the assumption is based on a predisposition about Powergroup as an entity. This is inimical to our foundational value of equality.”

Read: Karpowership’s failed interdict unearths State Capture on steroids” agreement 

Powergroup also asked Ngcobo to consider whether the arrangement constitutes “fronting”, which is a criminal offence and punishable by up to 10 years in jail.

Karadeniz Powership Osman Khan. (Photo: Wikipedia)

However, while Ngcobo found that there is “a compelling argument” that the clause in question “violates the fronting provisions of the Empowerment Act”, he did not make a ruling on this, reasoning that it was enough to declare the clauses violated the “foundational value of equality” in the Constitution.

The ruling, which is binding, gives Karadeniz 21 days to return the 49% stake in Karpowership to the BEE shareholders.

The only upside for Karadeniz was that Ngcobo agreed that Powergroup had failed to respond to previous calls for funds, which in theory would allow Karadeniz to start the process to push Powergroup out of the deal again.

Although it will struggle to get this right after Ngcobo declared the call option – that allowed Karadeniz to seize back the shares if Powergroup failed to provide funding for the project – “unenforceable”, leaving the two sides in a stalemate. DM

This story was updated post-publication to include additional context on how Ngcobo’s ruling impacts Karadeniz’s ability to push Powergroup out of the deal for a second time.

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Comments - Please in order to comment.

  • Paul T says:

    Yup sounds like BEE. A group of unknown individuals with no track record, no technical skills and no capital stand to get rich off a deal that we pay for, without having to actually do anything.

  • Warren Wilbraham says:

    Shame…now that there is no free ride there is a shout of discrimination. No one held a gun to their head when signing the shareholders agreement. What, exactly, do the empowerment parties bring to the table? It just increases the cost of these projects to the taxpayer to the benefit of a connected elite.

  • Thug Nificent says:

    Isnt BEE similar to how Afrikaaner people came to be what they durinh apartheid?

    Colonialism snd apartheid stole African natives wealth and decimsted its people, when BEE tries to correct that, people cry discrimination.

    • Grumpy Old Man says:

      Ofcourse you are correct that one of the aims of the National Party Govt was to provide employment to the Volk.
      The aim of BEE is not dissimilar & to achieve broad based economic empowerment you need a capable State & well functioning economy that grows jobs!
      I would argue (you might not agree) that arrangements of this nature are carried out in the guise of BEE but are not broad based & benefit only a small number of already wealthy individuals far in excess of the value they bring (all at our expense)
      BEE (in my opinion) should not make goods & services more expensive it’s about allowing persons & entities previously denied opportunity to compete. That does not imply a free ride however; there is still an obligation on these entities to bring value. If they don’t it will simply mean that tax payers (you & I) are paying more for a select few people to get rich. That cannot be what BEE is all about because it will only make the economic situation of our people worse, not better, in the longer term

    • Joe Soap says:

      What ever the Afrikaners did or not do in terms of BEE type procedures it was not legislated. The sin of Apartheid is it was legislated, racist and wrong. Just as BEE is legislated, racist and wrong.

    • Johan Buys says:

      Thug: WHAT ABOUT does not excuse anything.

      We can point to scores of historic cases of terrible treatment. That does not mean we continue abuses under the banner of “yes but what about…”

      at some point the ship must right it’s course

    • J vN says:

      Afrikaners can point to Sanlam, Absa, Sasol, the best highways and rail network in Africa, etc, etc, etc.

      BEE parasites can only point to failure, like Eskom, Transnet and a whole litany of other disasters.

    • Middle aged Mike says:

      The theory of BEE does what you say and in that I supported it. It’s practise, however has given us a new and very small class of fabulously wealthy black people who given a slice of lucrative deals for being black and connected to the ANC. The same group of people crop up in the majority of these deals and the first two Bs of the acronym mean diddly for the intended recipients of its benefits. It and the ‘preferential procurement’ regulations have pretty much destroyed every bit of infrastructure that we had. If it goes on for much longer in its current form there will be very little of consequence left to save.

  • Simon Bell says:

    A contract is therefore not a contract if it doesn’t benefit BEE partners who openly defy it’s terms.

  • Gary De Sousa says:

    The squabbling over millions taints this whole deal even more.

  • Alan Watkins says:

    ” the assumption is that because Powergroup is a BEE entity and has brought neither capital nor technical skills to the Company, it has no vested interest in the success of the project.

    “This is so notwithstanding access to both capital and technical skills that Powergroup stands to gain by participating in the project.”

    This is contradictory. The judge appears to be able to rebut the assumption that Powergroup has brought neither capital nor skills to the project. Then he says that Powergroup stands to gain skills and access to capital by participating which pretty much confirms exactly what he was trying to rebut initially.

    As much as I despise Karpowership, this should serve as a lesson for foreign investors not to get involved in BEE deals, or maybe in any SA deal while BEE is still on the table.

    • William Nettmann says:

      It isn’t contradictory: The assumption is that Powergroup has no vested interest in the success of the project because it has brought neither capital nor technical skills to the Company. This assumption is incorrect, because Powergroup stands to gain both capital and technical skills by participating in the project, and that is a vested interest in the success of the project.

      • bigbad jon says:

        The assumption is correct, they bring nothing to the project.
        What the BEE entity might gain in capital and tech skills by participating is another story, it’s not a vested interest. Their only vested interest is the money they plan to loot. Whether the project is successful or not is secondary to this bunch.

    • J vN says:

      BEE is pure rent-seeking and parasitism, adding not one iota of technical, business or managerial value whatsoever. No better example of not adding one little bit of value than our dear president, who would be hard-pressed to manage mowing the lawn without an army of consultants assisting him, but nevertheless gorged himself, like the parasite that he is on billions in corrupt BEE transactions.

  • Mkulu Sizulumhlopi says:

    Hehehehe as a certain ex president would laugh

  • John Patson says:

    South Africa is getting more like China every day. In China, they welcome you with banquets and feasts, and make you sign “partnerships” with locals. You build factories, start making and exporting things and the money piles up — in China.
    As soon as you try to take some out of China, problems start, and the courts always rule in favour of the Chinese “partners”. At least for these Turks (who have a reputation for squeezing till the pips squeak, and then some more), they did not yet actually have a ship in SA which the courts could seize to ensure the 49% stake was returned. No doubt that will come.

  • Fathima Dada says:

    Ridiculous. It is not sustainable to force organizations to provide BEE shareholding for free. If funding is not forthcoming then shareholding should be rescinded. All shareholding contracts are strictly in favour of the main business. Minority shareholders are protected if they meet funding and contractual obligations.

  • Fathima Dada says:

    It is not sustainable to force organizations to provide BEE shareholding for free. If funding is not forthcoming then shareholding should be rescinded. All shareholding contracts are strictly in favour of the main business. Minority shareholders are protected if they meet funding and contractual obligations.

  • Johan Buys says:

    I love it when things go foul among thieves.

    The entire premise of the power ships is as corrupt as Karadeniz‘s operations have been exposed to be around the world. I have no fear of a slander case, the court findings are a matter of public record.

  • James Webster says:

    What’s the point of having contracts when every time a bunch of ANC stooges get outsmarted by their opposite numbers, they run to daddy crying about inequality. Either they are adult human beings and they have agency or they don’t. If they have agency then if they get outsmarted they must shut up and sit down, if they don’t have agency, they should not be entering into the contracts in the first place !

  • William Kelly says:

    Did they sign it?
    End of discussion.
    If they’re too stupid not to understand what they are signing what are they doing in a multi billion dollar contract? Greed is their undoing.
    Good. And bwaa haa haa!

  • Cunningham Ngcukana says:

    The former Chief Justice who is known for having a deep knowledge of the law and being upright I would not question his findings just like in Phala Phala. The fronting that he has exposed has to be laid at the door of those who have been paid by this Turkish company to get the tender. The former Chief Justice does not pander to political interests but to the higher calling calling that he swore to uphold. The deal has to be scrapped and criminal proceedings be pursued against those involved including Ministers who have been spokespersons of this company. The former Chief Justice found the rat from where the foul smell is coming from and he must be commended for his findings just like in Phala Phala. I have had a lot of respect for him because he does not bow to political power but to his calling.

  • Geoff Coles says:

    There’s an old Greek saying ‘Never trust a Turk’….. I have heard it the opposite too in fairness.

  • Rob Wilson says:

    Exactly why so much expertise and job creation has moved offshore. The ANC’s version of BEE is self enrichment, period. It is not founded in contributing anything or building skills, its all about taking from others. But the gravy train of Eskom, Transnet, SAA and other SOE’s is fast running to empty.

  • Andrew Wallace says:

    Although not a fan of the powership idea in it’s entirety, it seems quite simple to me; Powergroup has knowingly signed an agreement with conditions that it cannot meet.
    One must assume that these are seasoned business executives who no doubt had the usual expensive contract lawyers scrutinise proposed contract terms, before it was signed, and now they cannot man-up.
    Feeling sorry them not.

  • alison ellard says:

    I understand your comment on apartheid. The white flourished at the expense of the black South African. But what is wrong now is the majority of African people are not flourishing under this regime. And they should be!! The African youth that surrounds me don’t care about revenge for apartheid, they want to build a future for themselves and their children. And although well educated are unable to get jobs and elevate themselves beyond township living. The ANC is not delivering a future for them. When I read the comments by white South Africans on this forum I can understand why as a Black South African it feels as if all black people are being painted with the same brush. And I find that offensive. It is an issues of a government not delivering to its people, that is corrupt and inept. Black South African should not feel that they need to offer them any protection because they are Black. The government is here to serve your needs. And if they don’t they should be replaced. I would like to see Black and White stand together and demand more from the government. It doesn’t matter what party is in power , if they don’t deliver then they should go.

  • Johan Herholdt says:

    Looks like Powergroup were merely Black, eyeing the Billions and Bereft (Entirely) of Energy and Expertise – in other words, a normal BBEEE transaction. That means the good judge’s suspicion of fronting is entirely correct. No doubt the Turks thought this was a done deal – with so many high-placed politicians working so diligently for their cut. Lots of lekker eating!

  • Penny Philip says:

    What exactly are Powergroup bringing to the partnership, other than racial quotas?

  • Willem Joubert says:

    For the life of me- what skills will be transferred and to how many and how will it benefit the country future???
    There is perhaps a political will to empower people, but there is a total lack of skill and ability to enact it. How many BBEEE companies will be competitive if the empowerment rules is scrapped?

  • Middle aged Mike says:

    “Reduced to its essence the assumption is that because Powergroup is a BEE entity and has brought neither capital nor technical skills to the Company, it has no vested interest in the success of the project.”

    The fact that you can be a 49% partner without bringing either of those things to the table goes a long way to explaining the mess we find ourselves in as a country and how people like our inflatable prop of a president are so fantastically wealthy.

  • Bob Kuhn says:

    Bee unhappy and unequal?…..then I suggest you build your own power ships and stop stealing from those who did!….its called “investing” and bares no relationship to the more populist anc ideology of “looting”.

  • Patrick Mavhivha says:

    BEE is outdated. The state must be a shareholder of that 49%. Individualism won’t succeed a majority poverty stricken nation.

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