20100906
Business Day

Johannesburg — PRESIDENT Jacob Zuma 's nephew Khulubuse Zuma is reliably understood to have sold on his disputed rights - thought to be worth tens of millions of dollars - to oilfields in the Democratic Republic of Congo, only four months after gaining them in a controversial battle with Tullow Oil, a UK prospector and oil producer.

Khulubuse Zuma was not available for comment yesterday, but news of what would be an extremely rapid enrichment will fuel resentment and anger in SA about the president's friends and family and their involvement in lucrative business deals.

The vice-president for African business of Tullow Oil, Tim O'Hanlon, said yesterday that lawyers for Mr Zuma and the president's lawyer, Michael Hulley, had argued in a letter that Tullow's legal challenge to the granting of rights to Mr Zuma and Mr Hulley was too late because the oil blocks had been sold on.

The case is a mirror-image of the current dispute over the former Sishen mineral rights in which the president's son Duduzane emerged as a shareholder of the victorious company Imperial Crown Trading, except the Congo case has an international dimension. In the Congo case, Tullow Oil had applied for two exploration blocks and were repeatedly informed by Congo's President Joseph Kabila that the application would be approved.

But in May this year, after a much disputed process, the rights were in fact granted to two companies called Caprikat and Foxwhelp. Both companies are registered in the British Virgin Islands, and the shareholding is unclear. However, receipt of the rights was reportedly signed for in the case of Caprikat by Khulubuse Zuma and Mr Hulley signed on behalf of Foxwhelp. Tullow has initiated an administrative action in Paris but also legal actions in the Virgin Islands against both companies. It was apparently in response to the initiation of these legal actions that Tullow became aware that the stakes had been "passed on".

Mr O'Hanlon said yesterday: "The investment community and hopefully South African citizens generally are waking up to the fact that these characters have nothing to offer the destitute people of the DRC."

Mr Hulley did not respond to requests for clarification last night, but it is understood that the legal position of Caprikat and Foxwhelp will be that Tullow never had an effective and valid right to the blocks.

In Congo law, rights have to be approved by a published presidential decree, which Tullow admitted did not happen in its case, despite submitting a production sharing contract (PSC) over four years ago for presidential consideration. A PSC is a common agreement in exploration contracts within the oil industry.

Tullow is likely to counter-argue, however, that its PSC was in fact signed by the finance minister and the deputy energy minister, on behalf of the energy minister, after a long and comprehensive application and negotiation process.

This negotiation process got caught up in the 2006 elections in the Congo, and there was a delay while the outcome of the elections was ascertained.

After the elections, a new energy minister was appointed and he considered that there were problems with Tullow's application, in particular the 500 000 signature bonus applied only to a single block.

This process, it is understood, contrasts markedly with the process in terms of which a subsequent application was made by a company called Divine Inspiration. This claim appears to have morphed into Caprikat and Foxwhelp gaining rights to the oil blocks.

Tullow is likely to argue in court that at the very minimum, countries generally require companies applying for oil exploration rights to have proven technical and financial capability because of the technical difficulties and significant sums of money involved in oil exploration.

However, it appears that in the case of the PSC of Divine Inspiration, neither the financial nor the technical capacity of the company was evaluated.

In another twist, however, it appears that PetroSA was somehow party to proceedings in a secondary capacity since it is understood that the Congo government evaluated the technical capability of PetroSA - though it was not specifically mentioned as a party within the PSC.

Tullow is expected to raise the issue of transparency generally, since the precise ownership and obligations involved in the companies which were granted the rights is unclear.

The confusion about the precise nature of the rights had already created some misunderstanding, after it was reported that Mvelaphanda Holdings was involved. The Mail and Guardian has reported that Human Settlements Minister Tokyo Sexwale was linked to the oil rights claim. Mvelaphanda Holdings CE Mark Willcox denied any stake in the companies, but confirmed he and Mvelaphanda were giving "strategic advice" to the president's nephew. The case involves some of the first oil rights to be granted by the Congo government, but they have likely gained in value significantly, ironically because they border on oil blocks in next door Uganda and which have been developed extensively by Tullow.

The two Congo oil blocks are in the Albertine Graben area near Lake Albert and are considered hot prospects. Tullow has already spend $700m in the Ugandan blocks, which have the potential to transform Uganda's fiscal position. It's not clear how much Mr Zuma's companies or their successors are due to invest, but no prospecting work has begun yet.