Susan Comrie | 2 December 2023
Former chief justice Sandile Ngcobo has eviscerated Karpowership’s Turkish owner over its “biased” and “oppressive” shareholders’ agreement with its black empowerment partners.
Powergroup SA turned to arbitration when Turkey’s Karadeniz tried to evict it from the R218-billion deal to supply emergency power to Eskom for the next 20 years.
In February, Karadeniz told Powergroup that it needed to fund its portions of a $5-million (R93-million) the Turkish parent said was needed to get the Karpowership deal over the line.
When Powergroup did not deliver the funds, Karadeniz exercised a call option in its shareholders’ agreement that allowed it to seize Powergroup’s 49% for the princely sum of R83.
Karadeniz, Karpowership’s Turkish parent company, owns 51% of the local joint venture through a subsidiary in Malta. Powergroup, which is owned by local businesspeople – Sechaba Moletsane, Ravin Rajoo, Sureshan Moodley and George Mokoena – held 49% until recently.
But Ngcobo’s confidential ruling, delivered last week Friday, found that key clauses of the shareholders’ agreement – which only applied to Powergroup and not Karadeniz – smacked of discrimination, and were inconsistent with Powergroup’s constitutional right to equality.
“The problem here is that the Call Option as well as the Trigger Events have as their only target, Powergroup,” Ngcobo wrote in his ruling, which amaBhungane has seen. “The impugned provisions are heavily biased in favour of Karadeniz. They were obviously tailored from Karadeniz’s point of view.”
He continued: “They were not merely designed to secure contribution to additional funding but were designed to ensure maximum protection for Karadeniz against any breach of the [shareholders’ agreement] … by Powergroup while at the same time subjecting Powergroup to the most stringent and oppressive terms … This is manifestly unfair and unreasonable.”
During the arbitration hearing, Karadeniz’ lawyers argued that the one-sided clauses were necessary to ensure Powergroup did not get a “free ride” in the deal.
Summarising Karadeniz’ argument, Ngcobo wrote: “Reduced to its essence the assumption is that because Powergroup is a BEE entity and has brought neither capital nor technical skills to the Company, it has no vested interest in the success of the project.
“This is so notwithstanding access to both capital and technical skills that Powergroup stands to gain by participating in the project. This assumption seems to be based on the premise that because of its contribution to the project, Karadeniz has much to lose if the project does not succeed and therefore it will not do anything that might constitute a trigger event. For this reason, there is no need to put in place contractual mechanisms to ensure it does not fall foul of any provision of the [shareholders’ agreement].”
But Ngcobo rejected this argument: “No facts have been put forward to justify this assumption. There is utterly no basis for this assumption. If anything, it exposes the irrationality of the basis of the discrimination and its unreasonableness. The ineluctable conclusion is that the assumption is based on a predisposition about Powergroup as an entity. This is inimical to our foundational value of equality.”
Powergroup also asked Ngcobo to consider whether the arrangement constitutes “fronting”, which is a criminal offence and punishable by up to 10 years in jail.
However, while Ngcobo found that there is “a compelling argument” that the clause in question “violates the fronting provisions of the Empowerment Act”, he did not make a ruling on this, reasoning that it was enough to declare the clauses violated the “foundational value of equality” in the Constitution.
The ruling, which is binding, gives Karadeniz 21 days to return the 49% stake in Karpowership to the BEE shareholders.
The only upside for Karadeniz was that Ngcobo agreed that Powergroup had failed to respond to previous calls for funds, which in theory would allow Karadeniz to start the process to push Powergroup out of the deal again.
Although it will struggle to get this right after Ngcobo declared the call option – that allowed Karadeniz to seize back the shares if Powergroup failed to provide funding for the project – “unenforceable”, leaving the two sides in a stalemate.
This story was updated post-publication to include additional context on how Ngcobo’s ruling impacts Karadeniz’s ability to push Powergroup out of the deal for a second time.
‘Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER’.