Majali jnr’s ‘politics’ cost him gas deal

Son of tycoon cut from Russian energy plan for Mossel Bay

The son of late tycoon and ANC benefactor Sandi Majali has been cut out of a multibillion-rand gas supply deal with Russian utility Gazprom for the idle Mossel Bay refinery plant.

Phillip Majali, 39, was part of the BEE component of the deal to supply struggling state fuels company PetroSA, but his partners removed him after controversy about him being a politically exposed person.

Majali’s company, Ingwescape, had partnered with former public enterprises director-general Sivi Gounden’s Holgoun Group to supply PetroSA with liquefied natural gas. They were the BEE component of the R47bn deal led by an already black-owned company, Delta Natural Gas (DNG). Majali and Gounden’s companies would have shared 30%, or R14.1bn, of the project’s value.

DNG spokesperson Nto Rikhotso said the company learnt of Majali’s involvement in May. He said the Holgoun group, whose role was to supply gas for the project, was only included when PetroSA management insisted that 30% of the deal be given to another black-owned company.

Internal PetroSA documents the Sunday Times obtained show that the deal would have led to DNG supplying gas through a joint venture of Gounden and Majali’s companies, called HG.ING. The documents were part of a submission by PetroSA management, which wanted concurrence from its board to award the contract to DNG.

However, several highly placed government sources said the former PetroSA board, which was disbanded in May, sent the proposal back to management because it wasn’t happy with the deal. The board, led by Frans Baleni, believed it could be cheaper for DNG or PetroSA itself to contract directly with Gazprom, instead of relying on middlemen.

The eight-year deal would have injected new life into the ailing PetroSA, whose R500m Mossel Bay plant has been idle since November due to gas supply constraints.

This week, Gounden said Majali was removed from the joint venture after it learnt of unhappiness with the deal, as well as that PetroSA’s adjudication committee intended to audit players in DNG’s bid because Majali was considered a politically exposed person (PEP).

“After all the issues that were raised, we as the Holgoun group sat down and although we are quite comfortable to demonstrate that Mr Majali was not a ‘PEP’ — a lot of it went back to his dad — we asked Mr Majali to step down because no cash was expended up until then on the process. We filed documentation with PetroSA informing them accordingly. He [Majali] was quite upset about what had transpired,” Gounden said.

Majali’s father was embroiled in the Oilgate scandal involving PetroSA, in which millions of rands were diverted from the company to the ANC before the 2004 general election.

Gounden said the decision was to protect the integrity of the deal and of Holgoun — a company with a R1bn balance sheet and with mining, oil and gas interests — and not because it was admitting to anything untoward.

After telling the Sunday Times in May that Majali had “indicated that he has an agreement with a large oil and gas entity”, Gounden this week insisted that Majali’s exit would not affect the deal.

“He may have had relationships with Gazprom previously ... but I’ve got my own relationships,” he said.

“I have a PhD in engineering and significant experience in designing and constructing gas pipelines and gas power plants in the former Soviet Union ... My relationship with DNG extends beyond the PetroSA bid. I act as a business mentor to upcoming black entrepreneurs like [DNG boss Aldworth] Mbalati.”

Gounden said he worked through DNG because it already had the necessary permits and licences to land gas in SA, which would take him up to two years to obtain.

Majali did not respond to text messages seeking comment from him this week.

A government source said PetroSA wanted DNG and partners to start supplying gas to Mossel Bay from as soon as March next year. However, this looks unlikely because a pipeline of up to 15km would first have to be built.

Besides the warning from its board, PetroSA’s internal auditors expressed concern that DNG was going to buy the gas from the joint venture under the auspices of BEE, saying this would cause an unnecessary rise in costs.

The auditors recommended that management instead negotiate with DNG to buy directly from Gazprom. They also noted that DNG was a black-owned company and could be exempted from the 30% subcontracting requirement.

Management noted and agreed with the comments, saying it would speak to DNG to better understand the value of subcontracting the gas procurement. To mitigate risk further, Gazprom would be a signatory to the final agreement between PetroSA and DNG. PetroSA spokesperson Tumoetsile Mogamisi said it was unable to comment on the matter as the tender process was still under way.

The proposed deal comes at a time when PetroSA is on its knees after years of mismanagement and corruption.

In May, PetroSA acting CEO Pragasen Naidoo told workers that the state-owned company would not be able to pay salaries at the end of that month.

PetroSA’s parent company, the Central Energy Fund (CEF), then came to the company’s rescue with a bailout. Baleni asked the CEF for R800m.

At the time, PetroSA’s board was considering putting it into business rescue or liquidation because it had run out of money.

Earlier this year, attempts were made to retrench 800 workers to cut spiralling costs at the Mossel Bay plant.

Four years ago, the Sunday Times reported that a decision by PetroSA to feed crude oil into the plant and not gas had led to breakdowns that lost the company R500m in revenue.

This week, staff told the Sunday Times that the situation has worsened and it would cost R1.4bn to restore the plant to its full capacity.