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Wednesday, March 21, 2007

Russian Corruption Reaches South Africa

South Africa Business Day reports that the shadowy world of Russian business has reached its shores:

A RUSSIAN promise to invest $2bn in a new mineral fertiliser plant in SA has thrown the visit to Pretoria yesterday of Russian Prime Minister Mikhail Fradkov into an embarrassing controversy involving a funding front for the African National Congress (ANC). The controversy involves ANC funding front Chancellor House, and raises prickly questions about possible favours for the ANC arising out of official diplomatic and economic relations between SA and Russia.

Yesterday, Fradkov and Deputy President Phumzile Mlambo-Ngcuka attended the launch of the SA-Russia Business Council in Pretoria, which will be chaired by Mvelaphanda founder Tokyo Sexwale and Russian oligarch Viktor Vekselberg. While Fradkov spoke of “translating the political relationship (between Russia and SA) into practical work”, one of the first actions of the new council was to witness the signing of a memorandum of understanding between Russian agro-industrial company Azot, Chancellor House of SA, and Russian development bank Vnesheconombank. The partners will conduct “feasibility studies” into building a $2bn fertiliser plant in SA, and Azot CEO Mikhail Golubev was quoted in a Moscow newspaper as saying the new plant would produce 2-million tons of mineral fertiliser a year.

This comes months after Chancellor House was exposed as a funding front for the ANC, raising questions on whether behind-closed-doors machinations took place to ensure that Chancellor House was favoured for this partnership, given that its profits are said to flow to the ANC. To make matters worse, the presence of Fradkov and Mlambo-Ngcuka at the signing of the deal lends political credibility to the partnership, and appears to signal the endorsements of both governments. The high-level launch of the new business council was attended by several dignitaries, including AngloGold Ashanti CEO Bobby Godsell and Business Unity SA president Patrice Motsepe. Mlambo-Ngcuka said that the council added to the bilateral agreements with China and India and said the aim was to “get these relationships to sweat” to produce tangible results.

But no details of the agreement between Chancellor House, Azot and Vnesheconombank were released. At the same time, Standard Bank, which already has small representation in Russia, also signed a memorandum with Vnesheconombank. Before the signing ceremony, Chancellor House chairman Taole Mokoena confirmed that his company would sign the memorandum with Azot, saying it was done after his company “invited them to establish a fertiliser plant in the region”, and the partners would now examine the feasibility of going ahead with the project. He denied that either the South African or Russian government had played any role in helping line up the deal.

“I went to Russia and looked for (partners). Government has never been involved, they’ve only been involved now, because (Russia’s foreign office is involved here), but otherwise they never even knew about this.” He said the Russian government’s sole role had been in facilitating the signing of the agreement in the presence of Fradkov. Mokoena said this was “R14bn and no single company has that ... and we can’t start looking for funds” until the results of the feasibility study were known.

ANC secretary-general Kgalema Motlanthe told the Financial Mail in January that Chancellor House was “an ANC vehicle” that existed only to fund the ANC. However, Mokoena denied this yesterday, saying “as far as I know, Chancellor House is a front for nobody”. But significant doubts also exist over whether Azot could even deliver on the promise to create a fertiliser plant. Azot’s CEO Golubev is locked in a battle over who has the legal right to control the Azot company. The rival shareholder, a company called Mezhregiongas - a wholly owned subsidiary of Gazprom, Russia’s most powerful enterprise - told Business Day it knows nothing at all of Golubev’s claim. Mezhregiongas sources added that, with a shareholding of at least 47%, Mezhregiongas must approve any investment project involving Azot, and it has not done so for Golubev. Gazprom and Mezhregiongas also report they have been in litigation for several years to secure majority control of the Azot shareholding, to enable them to take over the company’s management.

Golubev has told Russian reporters he is appealing to Gazprom to participate in ambitious foreign schemes, claiming he has approval from Mezhregiongas - which disputes that. Golubev also claims that he will arrange financing for the SA project with Vnesheconombank (VEB), a state owned and controlled bank with a representative office in Rosebank. A bank which Goloubev controls, Neftegazbank, is also reportedly to participate in the fertiliser project. Official reports indicate that Golubev’s bank was issued with a Moscow court bankruptcy order in 2005. It had been stripped of its banking licence by the Russian Central Bank in April of 2004.

Minister Trutnev came to the federal mining portfolio three years ago from the regional governor’s post in Perm, and he has a history of promoting the interests of powerful businessmen in the energy, minerals, and fertiliser sector. As the Russian co-chairman of the inter-government commission with SA, Trutnev has explicitly promoted African business schemes of Victor Vekselberg, the owner of the Renova group; Oleg Deripaska, owner of Russian Aluminium (Rusal); Vagit Alekperov of LUKoil, and others. On Friday, while he was in transit, Trutnev repeated an earlier claim that Rusal is considering a project to build a new aluminium smelter in SA. Rusal denies the interest. Rusal executives have been in SA considering the procurement of power stations required for a Rusal alumina refinery in Guinea, and a smelter in Nigeria, where electricity is both scarce and costly. Trutnev’s office has issued a statement claiming the MOU signed yesterday in Pretoria was "for the purpose of realiastion of the civil-engineering design of a factory for manufacture of mineral fertilisers between the Foreign Trade and Investment Bank [VEB] and Joint-Stock Company Agrochemical corporation "Azot, and South African company Chancellor House Holdings."

A Vnesheconombank (VEB) spokesman told Business Day that the bank’s delegation in SA is headed by First Deputy Chairman Nikolay Kosov. She said she has no information on what is happening, or on what documents may have been signed. She added that until the VEB officials return to Moscow, she can say nothing more.

Chancellor House is headed by a former SA deputy defence secretary, Mamatho Netsianda and has also been involved in memoranda of understanding promising massive investment in SA’s manganese mining sector. None of this investment has materialised.

Details of SA mine licence transactions involving Russian companies, political influence-peddling, and Chancellor House have been researched by the SA-based Institute for Security Studies, and the Institute Democracy in SA.

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