Thu, 29 Jul 2021

  • The Turkish company that plans to moor floating power plants at three South African ports has been embroiled in corruption scandals abroad, though it denies wrongdoing.
  • In Lebanon, it is threatened with a $25-million fine over allegations of commission payments to people with ties to politicians.
  • In Pakistan, the company faced compelling accusations of paying bribes to clinch a deal worth over half-a-billion dollars.

The Turkish Karadeniz group has faced controversies abroad that call into question the outcome of South Africa's tender for emergency power in which Karadeniz subsidiary Karpowership SA was named a preferred bidder.

AmaBhungane and others have already questioned the government's handling of the tender. Below, we give two troubling international examples, from Lebanon and Pakistan, in which allegations of bribery have been raised involving the Turkish company.

The allegations are neither new nor secret, but did not affect the outcome if they were considered as part of doing a due diligence on the bidders.

  • In Lebanon, Karadeniz is accused of paying commissions to a company linked to politically connected businessmen. Lebanon's financial public prosecutor has impounded the two ships it operates in that country as surety for a potential $25-million fine.
  • In Pakistan, a Karadeniz subsidiary stands accused of paying politically connected middlemen over $5 million to clinch a five-year contract worth $565 million. The deal was rescinded by the country's Supreme Court in 2012, setting off an epic seven-year legal battle and an ongoing corruption investigation.
The power tender

In March this year, Karpowership SA, a consortium led by the Turkish group, was announced as a preferred bidder and was allocated the largest share of the 2 000MW Risk Mitigation Independent Power Producer Procurement Programme tender

Should its project reach financial close and clear remaining regulatory hurdles, Karpowership would moor power and gas storage ships at three South African ports - Saldanha, Coega and Richards Bay. Their combined output will be 1 220MW.

The tender has been mired in controversy, with allegations that it was skewed to favour gas-fuelled options in general and Karpowership in particular. Rival company DNG Power, whose bid was disqualified, has claimed in court papers that the process was "corrupt and procedurally unfair".

The department of mineral resources and energy, which managed the tender, and Karpowership are defending DNG's court action, insisting that they played by the book.

Lebanon: 'Commissions' and perhaps a $25-million fine

As the controversy over Karpowership SA's local bid unfurled in recent weeks, the Turkish group was also making headlines in Lebanon.

Like South Africa, Lebanon is beset by a prolonged electricity shortage. It is also in the midst of a crippling financial crisis.

In 2012, Karadeniz subsidiary Karpowership signed a contract with the state utility Electricite du Liban (EDL) to deploy two powerships of 404 MW in total; around 20-25% of Lebanon's electricity supply.

The powerships have been in operation since 2013 and in June 2018 the contract was extended for three more years.

Controversy has swirled around the awards from the start, including concerns over their cost and temporary nature.

A 2020 World Bank-funded study said the long duration of the emergency supply tariffs paid to Karpowership meant that "with hindsight, it would likely have been cheaper to have invested in permanent capacity, rather than keep paying high take-or-pay charges".

In its annual report for 2019, Malta-registered Karadeniz Holdings recorded gross profits from the Lebanon operations of $67 million (R940 million now) and $89 million (R1.25 billion) for 2018.

By December 2020, it was reported that EDL was in serious arrears, owing more than $100 million to Karadeniz, which was refusing to be paid in Lebanese pounds.

Then in February this year, the Lebanese television show (roughly translated as "down with corrupt rule") broadcast details of commission agreements allegedly negotiated around the time the 2012 contract was concluded.

A central piece of evidence is a letter of 28 March 2012 titled "Advisory Services - Electricity Sale Agreement with MoE/EDL".

The letter carried the signature of Ralph Faisal, an engineer who represented Karpowership's interests in Lebanon and is said by Lebanese media to be close to politicians. It was addressed to Fadel Raad, an alleged associate of the finance minister at the time of the Karpowership deal, Mohammad Safadi.

The letter referred to "our discussions during the last day concerning the tender" between Karadeniz and EDL and "the advisory services that you intend to provide us on this project, especially the improvement of commercial and financial contractual conditions (including environmental consultancy services) which are necessary to shape our offer and subsequent electricity sale contract".

The letter said that Raad would be entitled to a commission of $0.08 per kilowatt hour if Karadeniz won contracts for both the ports of Zouk and Jieh (which it did) and half that amount if it was awarded only one ship, in Zouk. The cost of the electricity provided by the ships, excluding fuel, was around $0.50 per kilowatt hour.

Commissions may be legal, but they raise red flags, especially when they are secret, and may become illegal if they are intended to exert undue influence on public officials.

This particular commission agreement appears to have gone through various iterations and was later changed to a fixed amount. In a modified letter of agreement from June 2012, the commission was $5 650 000 (about R80 million now). In January the following year it had changed again, with the letter now stating that "you shall be entitled to a fee of 3 550 000 USD".

The reports seemingly prompted action. In March, financial prosecutor Ali Ibrahim, whose position is akin to that of an investigating judge, applied for arrest warrants for Faisal and Raad.

Early last month, Ibrahim ordered the Lebanese finance ministry to halt further payments to Karpowership pending a potential $25-million fine against it over possible corruption or bribery. He also ordered that Karpowership's vessels be detained as surety. The Lebanese customs authority and security forces were told to prevent the ships from leaving Lebanese waters.

Ibrahim's order, in Arabic, referred to a preliminary investigation done by Ibrahim's office and also to an anti-corruption pledge from Karpowership in July 2012.

Signed by Karadeniz chief executive Orhan Karadeniz, the pledge vouched that "neither Karpowership ... nor any of its directors, employees or agents ... has offered, gave or promised any material benefit" with the aim of influencing public officials.

"In case a breach of this Letter of Undertaking is proven in a Lebanese competent Court of Law ... we undertake to pay 25 000 000 USD ... as pre-agreed penalty damages to the government of Lebanon in addition to the penalties applied as per Lebanese Law."

In response to Ibrahim's order, Karadeniz warned the Lebanese authorities to revoke the arrest of its vessels and sort out the arrears or it would shut down its electricity supply to the country.

Karpowership managing director Zeynep Harezi told a Turkish news agency the company's "assets, reputation and business ... are under threat due to the unlawful and unjust payment demanded by the Lebanese local authorities".

"We notified the Lebanese authorities that we would stop the electricity supply if this situation, which lacks legal basis, is not reverted."

On 14 May, Karpowership made good on its threat, powering down generators on the two ships, citing the $100 million Lebanon allegedly owed it.

In the weeks that followed, broadcast leaked voice recordings in which Faisal, Raad and a nephew of Safadi, the former finance minister, can supposedly be heard discussing commissions. The recordings also implicated Gebran Bassil, who was minister of energy and water at the time Karpowership originally clinched the Lebanon deal.

Bassil subsequently claimed the show "distorts the truth", including by alleging that the discussion had mentioned "commissions" when what had been discussed were "tensions".

Safadi distanced himself from the actions of his nephew, reportedly alleging that his nephew was using his name without his knowledge.

Faisal, who was arrested alongside Raad following Ibrahim's application for arrest warrants, reportedly denied wrongdoing and said the recordings were taken out of context. His lawyer was quoted as claiming the prosecutions were being carried out "based on recordings made and edited ... with the intention of blackmailing".

In a statement, Karpowership affirmed its "full confidence in Mr Ralph Faisal". The company asked the Lebanese judiciary to prioritise the case to end what it called a campaign of "extortion and defamation".

Faisal reportedly fled the country after being released on bail.

This was not the first time Karadeniz had been ensnared in corruption allegations. It had already spent years fending off similar allegations in Pakistan.

Karadeniz responds

Summing up the allegations in Lebanon and Pakistan, amaBhungane put it to the Turkish company's public relations team that it appeared that Karpowership had a practice of entering new markets by paying large facilitation fees to politically exposed persons which could be construed as bribery.

The company responded, "It is unfortunate that you only take very limited parts of the events into consideration rather than the whole picture using the full portfolio of facts already provided.

"Your allegations are completely incorrect and unsubstantiated, and Karpowership rejects them in their entirety. The facts are that Karpowership SA was awarded projects because we provided the best combined package of affordability, cleaner energy, proven technology and economic development initiatives."

Source: News24

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