Local BEE partner Powergroup SA to get back its 49% share
● The local partnership fight in the R200bn Karpowership deal has taken yet another twist with arbitration essentially reversing the move by Turkish giant Karadeniz Holdings to take local BEE partner Powergroup South Africa’s 49% stake in Karpowership South Africa (KPSA).
Former Constitutional Court justice Sandile Ngcobo issued his ruling on the matter on November 24, ending a three-month impasse between the warring parties.
The Karpowership vessels are floating power plants that would anchor for 20 years in South African ports. They use gas to generate electricity, which is fed into the grid.
Powergroup had approached the Arbitration Foundation of Southern Africa to settle the dispute with its Turkish partner, which had given it notice of its intent to remove the company as shareholders because it had allegedly failed to respond to a notice in March to provide funding for KPSA.
“The first respondent [Karadeniz], alternatively the second respondent [KPSA], is ordered to restore the claimant’s ordinary shares in the second respondent to the claimant within 231 days from the date of the award,” Ngcobo said.
Ngcobo also set aside the March funding notice and a call option exercise notice issued in August after Powergroup failed to honour the funding notice. He ruled that three’clauses in the subscription and shareholders agreement were contrary to public policy and were declared invalid and unenforceable.
One of the clauses related to Karadeniz’s right to exercise a call option on Powergroup’s shares in the event of a trigger event (including failure to fund) without consulting Powergroup itself. This meant Karadeniz could decide who could buy the shares and at what price, without much involvement by Powergroup.
“The problem here is that the call option as well as the trigger events have as their only target, Powergroup,” Ngcobo said.
“The impugned provisions are heavily biased in favour of Karadeniz. They were obviously tailored from Karadeniz’s point of view. They were not merely designed to secure contributions to additional funding but were designed to ensure maximum protection for Karadeniz against any breach of the SHA [shareholders’ agreement] and MOI [memorandum of incorporation] by Powergroup, while subjecting Powergroup to the most stringent and oppressive terms.
“The iniquity of the situation is immediately apparent from the reading of the impugned provisions. This is manifestly unfair and unreasonable,” he added.
Ngcobo refused four of the nine orders sought by Powergroup, as well as Karadeniz’s counterclaim, which was for the validation of the two notices as well as the share transfer. He also ordered that Karadeniz pay two-thirds of the costs in the matter.
On Saturday Karadeniz said that while it appreciates and respects “South Africa's regulatory requirements and the country’s black economic empowerment laws”, it was considering it options.
“We believe it misportrays the positive and inclusive intent with which we entered into the partnership,” it said.
“Our goal in finding the right black empowerment partner was to respect the laws of the country and to ensure appropriate local inclusion in our projects. The contractual terms of the project were very clear from the outset and both parties were aligned on their fairness, otherwise we would never have entered into the agreement. We believe that the ruling does not take full consideration all of the facts provided.”
Two months ago Powergroup lost an urgent high court bid to stop Karadeniz from taking back or transferring the empowerment shares.
In her judgment, high court judge Shanaaz Mia found that Powergroup’s urgent application could not succeed because it had been brought after Karadeniz had already taken back the shares.
“An interdict will not assist in restoring the shares which have been transferred. An interdict can only be called upon to restrict or bar future conduct,” Mia ruled.
Mia ruled: “On [the Turkish parent company’s] version, the issue of the transfer of shares is not an urgent matter. The transfer according to [Karadeniz and KPSA] must be approved by [minerals & energy minister Gwede Mantashe] in any event.”
In court, Powergroup’s advocate Tembeka Ngcukaitobi SC charged that his client had been removed as a shareholder in an underhand way to benefit a new party in a scheme reminiscent of state capture. Karadeniz’s counsel, Adrian Botha SC, dismissed the accusation as “reckless”.