Failed Mozambican deal hits SA firms

South African blue-chip companies have ended up on the wrong side of a soured R3.7-billion Mozambican port deal, including Esor Franki and law firm Bowman Gilfillan.

South African taxpayers also look set to lose out as the Development Bank of SA has already sunk $1.5-million into the deal to construct a port at the Pemba oilfield terminal project.

The story is that the government of Mozambique awarded a South African company, Muyake SA, the contract to build the port in 2012. Muyake set up a company called Gingone Logistics, and began working on the project.

It hired SA firms to do the work - including Johannesburg-based project managers Prop 5 Corporation, Esorfranki, NRM Consulting, Hatch Goba, DDJ Law, Bowman Gilfillan and AS Nonyane.

But Muyake then discovered that ENH Integrated Logistics had swooped in and grabbed the contract. ENH is 51% owned by Mozambique's government. The other 49% is owned by a murky entity called Orlean Invest Nigeria, in partnership with Sonangol Integrated Logistics Services, according to the Mozambique Mining & Energy Post.

The South African firms were then booted off the project, according to a court order.

Now Muyake has filed papers in Mozambican courts demanding $143.9-million from the government, arguing that the state-owned port authority Portos De Cabo Delgado SA was reneging on an out of court deal that was agreed after Muyake discovered it had been sidelined.

According to that "settlement", Muyake was to be included in the new concept with ENH, and refunded its costs.

Muyake's claim includes $8.8-million for services performed in the "promotion and implementation" of the project, $25-million for services performed in line with contracts between Muyake and the South African firms, and $110-million for future profits that have now been lost.

In all, Muyake owes the other SA firms $63.2-million, of which it has already paid just more than $25-million.

Prop 5 CEO Mbali Swana says in a letter to Muyake CEO Simao Muhai dated July 25 that Muyake owes other SA firms $63.2-million but has not yet paid $36.5-million, which excludes the costs of winding up the contracts.

Said Swana: "The sudden termination of the contracts and suspension of the project has the undesired effect of terminating the cash flow provided by the Development Bank of Southern Africa. Service providers and contractors are out of pocket."

"They have not been paid for a long period, and there is no indication that you are ready to make such payments. You have therefore left us with no option but to demand that you honour your payment obligations."

The Development Bank of Southern Africa, which is funded by South African taxpayers' money, released $1.5-million as a "project preparation facility" out of a total $6.6-million it had committed to give, according to a letter of demand seen by Business Times.

The project would have been a big deal for the South Africans as the port authority has a lease to run the terminals at the Bay of Pemba and in Palma for over 30 years - which is expected to become a regional hotspot for Mozambique's booming natural gas industry.

Mozambique has one of the world's largest natural gas reserves with 170-trillion cubic feet discovered already, while the natural gas sector is expected to attract capital inflows worth over $70-billion in the next decade, according to Esperança Bias, minister for mineral resources.

Extensive documents confirm that Muyake had got the contract, but a statement was released to the media in April saying "the licence would be issued in favour of a foreign third party with prejudice to the complainant", Muyake said.

Swana said in an interview the business was worth $330-million, and two private equity players had been approached to take up stakes in Gingone Logistics, a special purpose vehicle, created for the project.

"In April, we suspected that something was not right," he said. The project was stymied a month and a half from financial close.

"We never got to draw the [DBSA] loan. [The port authority] understood there was a time limit. They frustrated the project for six months from December to June," Swana said.

But the South African companies, perhaps wary of offending a foreign government, are treading lightly. Muhai referred enquiries to Prop 5.

Bowman Gilfillan, which conducted a legal review which determined that Gingone still legally had the rights to the project, was also not keen to comment.

Anne McAllister, a director at Bowman Gillfillan, said she could not discuss client matters.

The DBSA was also initially reluctant to comment.

It has since confirmed its involvement but said less than a quarter of the approved funds were disbursed.

Its current exposure to the project was less than 0.025% of DBSA's total assets, it said.

The DBSA had also reviewed agreements between the parties and was comfortable that Muyake was considered the preferred bidder.

But it said that the government of Mozambique held the right to award the concession to whomever. The DBSA had reviewed the settlement agreement.

"It goes without saying the costs incurred by Muyake would include the facility provided to it by the DBSA.

"The DBSA will continue to monitor this matter and seek repayment of the funds disbursed to Muyake as and when it is appropriate to do so," the bank said.