Sappi and Motsepe’s AREP rocked by insurance fraud claim
A senior executive at a Mpumalanga biomass plant majority owned by Sappi and Patrice Motsepe s African Rainbow Energy and Power (AREP) will have to clear his name after being implicated in alleged insurance fraud of R164m.
The high court in Johannesburg found that there was prima facie evidence that Tyrone Hawkes fraudulently claimed a R164m guarantee from Santam and interdicted the insurance company from paying the guarantee until the finalisation of the main case.
Sappi Southern Africa holds a 30% stake in Ngodwana Energy, a 25MW biomass energy plant at its Ngodwana Mill, while AREP also has a 30% interest in the plant that came on stream in May 2022. It sells electricity to Eskom. AREP acquired its 30% equity in the project from original project partner Fusion Energy through a private sector bidding process.
Other stakeholders included broad-based empowerment participation through the Ngodwana Energy Employees Trust and the Ngodwana Energy Community Trust.
The contractor of the plant, a consortium led by South Korean group KC Cottrell alleges that the demand under the guarantee was fraudulently made.
The contract between Ngodwana and the KC Cottrell consortium makes provision for the consortium to pay delay liquidated damages (DLD) in the event of it not achieving the commercial operation of the plant by the contracted time for completion. The agreement also stipulates that the maximum amount of DLD for which the contractor could be liable is R192.3m.
In 2021 the project was delayed from January 19 to July 13 and Ngodwana issued tax invoices in which it levied the maximum amount of DLD for which the contractor could be liable, thus for R192.3m.
According to KC Cottrell, the parties met after the delays that triggered the guarantee and agreed that the DLD would be set off against money that will be due to it. The upshot of this DLD discharge agreement was that the money due to the contractor would not be paid by Ngodwana but be set off against the sum of R192.3m.
The KC Cottrell consortium s argument was that there was no need for Ngodwana to call the guarantee as the DLD was paid by way of a cash payment on December 20 2021 of R28.2m, and by way of set off of R164m, in keeping with the DLD discharge agreement.
Ngodwana denies this. However, it recorded the payments as such in its financial statements. It told the court this was merely an accounting entry based on incorrect facts.
The court was not convinced. Judge Ingrid Opperman in interdicting the payment, said Hawkes and Ngodwana have a case to answer.
The evidence shows a prima facie case that the demand on the guarantee for payment of the DLDs was fraudulent. Mr Hawkes for the employer [Ngodwana] knew that he had manipulated things to secure an entitlement to trigger payment in terms of the guarantee, the judgment reads.
At the trial in due course it can explain why Ms Seate, its financial director, never deposed to an affidavit supporting Mr Hawkes explanation on the annual financial statements and why it did not utilise a suitably qualified expert witness to substantiate its effort to explain the damning entries in such financial statements in respect of which the audit firm KPMG made no adverse comment.
Hawkes LinkedIn profile shows he is or has previously served as vice-president for sustainability and business development at Sappi Southern Africa. Sappi said Ngodwana three weeks ago filed in application for leave to appeal against the judgment.
As you will appreciate, the matter is sub judice and we would therefore prefer to restrict our comments to the above. We consider these fraud allegations in a serious light, and we are confident that the evidence that will be led in the action will prove that no fraud was committed, a Sappi spokesperson said. AREP did reply to requests to comment.
COURT FINDS THERE WAS PRIMA FACIE EVIDENCE EXECUTIVE FRAUDULENTLY CLAIMED A R164M GUARANTEE FROM SANTAM