‘State capture on steroids,’ says Karpowership JV partner

Powergroup SA, a joint venture (JV) partner in the controversial Karpowership floating gas powership project, has accused JV majority shareholder Karpowership SA of the “corporate hijacking” of its shares to introduce a new broad-based black economic empowerment (B-BBEE) partner into the project.

The company, which has a 49% shareholding in Karpowership SA, argued in the High Court in Johannesburg that the hijacking of shares represented “state capture on steroids”.

Powergroup SA alleged that Turkey-based privately-owned conglomerate Karadeniz Holdings and Karpowership SA are seeking to elevate Dr Anna Mokgokong and Community Investment Holdings, the entity in which she has an interest, into the project.

The company claimed Dr Mokgokong has significant interests in government tenders and is politically connected.

Neither Dr Mokgokong nor Community Investment Holdings were joined in the high court proceedings.

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Counsel for Turkey-based privately-owned conglomerate Karadeniz Holdings and Karpowership SA said this argument “is reckless”, no case was made by Powergroup SA in its papers, and that this statement is without merit.

Order sought

Powergroup SA was seeking an order interdicting Karadeniz Holdings, Karpowership SA and Minister of Mineral Resources and Energy Gwede Mantashe from:

• Taking any steps to transfer, acquire, sell or in any manner deal with Powergroup subscription shares and ordinary shares until the finalisation of the arbitration dispute referred on 21 August 2023 to the Arbitration Foundation of South Africa.
• Taking any further steps in terms of the shareholders’ agreement pursuant to the call option exercise notice issued by Karadeniz Holdings in terms of a clause of the shareholders’ agreement.
• Interdicting Karadeniz Holdings from negotiating, concluding and entering into any agreement with any party in terms which are in conflict with the provisions of the Memorandum of Incorporation (MoI), the shareholders agreement and the implementation agreement.
• Karadeniz Holdings is alternatively ordered to reinstate Powergroup SA’s ordinary shares pursuant to its call option exercise notice dated 11 August 2023.

Powergroup SA was seeking this interim interdict pending the final determination of an expedited arbitration referral to the Arbitration Foundation of South Africa.

The application was opposed by Karadeniz Holdings and Karpowership SA.

There was no appearance by Mantashe.

Second order sought

Powergroup SA intends in terms of Part B of its application to seek an order:

• Declaring that the MoI and the shareholders’ agreement concluded between itself and Karadeniz Holdings is unconstitutional, unlawful, of no force or effect and is set aside.
• Alternatively declaring certain clauses of the shareholder’s agreement and a clause of the MoI unconstitutional, unlawful, of no force or effect and to set them aside.
• Declaring that Karadeniz Holdings is bound to make a contribution of R350 million on behalf of Powergroup SA in respect of the tender.

Powergroup SA said the relief it seeks on an urgent basis is to restore its position to the state prior to the transfer of shares and specifically to reinstate its shares as well as to declare the agreement unlawful and unconstitutional.

Background

Karpowership is a subsidiary of Karadeniz Holdings while Karpowership SA, which has a 51% shareholding in the JV, is the South African-based holding company for three subsidiaries – Karpowership SA Coega, Karpowership SA Richards Bay and Karpowership SA Saldanha.

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The National Energy Regulator of South Africa (Nersa) in September 2021 granted Karpowership SA three licences to generate power on floating gas ships in Coega, Richards Bay and Saldanha.

The 20-year contract is part of the South African government’s Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP) emergency power procurement initiative that was launched to procure 2 000MW of emergency power capacity to alleviate South Africa’s electricity capacity crisis.

There has been strong opposition to the Karpowership project by civil society organisations because of the cost of the project to the country and the fact the ships will prolong South Africa’s reliance on fossil fuels and thereby delay the country’s transition to a low carbon economy.

Agreements

Powergroup SA and Karadeniz Holdings entered into various agreements, including a MoI and a shareholders’ agreement.

It claimed these agreements constitute contraventions of the law and fronting if they are not amended, and are in violation of the B-BEE Act.

It further stated that in the face of the unlawful and unconstitutional nature of the MoI, which permits Karadeniz Holdings to make key decisions with its 51% shareholding, it now seeks to elevate Dr Anna Mokgokong and Community Investment Holdings, the entity in which she has an interest.

The court heard that Mr Karadeniz engaged with Powergroup SA to offer its shares to a third party for amounts between R3 million to R26 million to bring funding into the project where Powergroup SA had not put up funds.

Disagreements

Powergroup SA claimed Karadeniz Holdings’ plan to replace it with a new BEE partner is contrary to the implementation plan and is unlawful.

Counsel for Karadeniz Holdings and Karpowership SA argued that Powergroup SA was incorrect on a number of points and seeks to set aside the shareholding agreement on the basis that it is contrary to the B-BBEE Act and constitutes fronting.

However, he said Powergroup SA was a party to the agreement it contends is unlawful in many respects and was content to benefit from the agreement it now says constitutes fronting.

Karadeniz Holdings and Karpowership SA denied the shareholding agreement amounts to fronting and is unlawful.

Counsel for Karadeniz Holdings and Karpowership SA pointed out that Powergroup SA on its version will have been participating and seeks to benefit from an unlawful agreement and, if it succeeds in setting aside the unlawful agreement, it cannot gain the shares it says it should receive.

Karadeniz Holdings and Karpowership SA said they will need to take various steps to transfer Powergroup SA’s shares and hand them over to a third party after obtaining Mantashe’s consent in terms of the agreement to comply with the implementation agreement.

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Changes to the bid project are also subject to the decision of Mantashe once Karadeniz Holdings and Karpowership SA have furnished an explanation regarding the circumstances that have changed.

Counsel for Karadeniz Holdings and Karpowergroup SA said his clients stand to lose about R700 million if commercial close is not reached.

Ruling

Judge Shanaaz Mia said Mantashe’s discretion regarding the changes and approval of this appears to be crucial in the circumstances before any changes can be finalised and the project can be given the green light.

Judge Mia said the harm Powergroup SA seeks to prevent – the transfer of shares – has already occurred.

She said Powergroup SA calls it a corporate hijack, which it says must be interdicted until the matter is resolved by a court or in arbitration.

But she said the arbitration proceedings are pending and an interdict will not assist in restoring the shares that have been transferred.

She said an interdict can only be called upon to restrict or bar future conduct and no harm can be averted with an interdict as sought by Powergroup SA, which has not persuaded her that an interim interdict is warranted.

Judge Mia said the relief sought by Powergroup SA in Part B of the amended notice of motion is not urgent, adding there are parties that are affected that may need to be joined and it is premature to grant relief without the input of these parties whose interests may be affected.

In a judgment released on Thursday, Powergroup SA’s application was struck off, with costs reserved.

This article is republished from Moneyweb under a Creative Commons licence. Read the original article here.