Johannesburg: The Democratic Republic of Congo’s volatile Ituri province is already home to a gold rush. Now, prospectors are staking claims to oil proved to exist in vast quantities under Lake Albert on the other side of the disputed border with Uganda. In their latest incarnation, the prospectors are South African. Big names from Johannesburg have emerged as triumphant in the latest round of a long battle for control of exploration rights and knocked Ireland’s Tullow Oil off its perch.
According to a production-sharing agreement seen by the Financial Times, Khulubuse Zuma, nephew of Jacob Zuma, South Africa’s president, signed for Caprikat, one of two British Virgin Islands-registered companies which paid $6m (€4.6m, £3.8m) for control of rights awarded by Joseph Kabila, Congo’s president in June. Michael Hulley, lawyer to the South African president and business associate of his nephew, signed for Foxwhelp, the other company.
Advising Khulubuse Zuma on the deal was Mike Willcox, chief executive of Mvelaphanda Holdings Ltd, the company of Tokyo Sexwale, billionaire businessman and South Africa’s housing minister. Foxwhelp lists its address at an office in Johannesburg registered to Mr Sexwale, although Mr Zuma told the FT Mr Sexwale was not personally involved.
The deal offers a potential bonanza. Tullow is already developing a block on the other side of Lake Albert with an estimated 2bn barrels of oil. The terms of the agreement are highly favourable to the new entrants, which can expect significant profits.
The South African and Congolese governments’ interests dovetail neatly. South Africa has long sought commercial gain from its involvement in peacemaking efforts in Congo, and has been seeking a foothold in Africa’s new oil provinces.
For Mr Kabila, bringing in well connected business people from the continent’s economic powerhouse potentially buttresses him against some of his more hostile neighbours.
But not everybody is happy. The deal has raised fresh concern among western donors about the way Congo is managing its vast mineral wealth. Local interests in Ituri province - host to some of the worst massacres of the 1998-2003 war - are also up in arms. FTSE-listed Tullow, which has been battling for four years to activate exploration rights in the same area has responded furiously.
Mr Kabila never approved Tullow’s licence, for which the company paid $500,000 in 2006, and was reportedly holding out for more cash.
Representatives of the Irish company say they have sought to persuade Kinshasa of the benefits for stability as well as logistics of developing the shared oilfield jointly with Congo’s former enemies in Uganda.
'There aren’t going to be two pipelines for the oil export: one Ugandan and one Congolese,' Tim O’Hanlon, Tullow’s vice- president for Africa, told the FT. 'This is one geological resource, one commercial reserve, one community of Africans around one isolated lake with a border down the middle.'
Complicating matters further, one of the blocks was also claimed by Divine Inspiration, another South African group.
'Our original contract is still absolutely valid. We don’t accept the second contract on top of ours, let alone the third,' Mr O’Hanlon said, adding that, if necessary, the company would defend its claim using legal channels.
Andrea Brown of Divine Inspiration said her group paid a $2m signing bonus for one of the blocks only after the Congolese government had cancelled Tullow’s original contract. She, too, is seeking compensation.
Lambert Mende, Congo’s information minister, has dismissed criticism of the deal by both companies as sour grapes.
Businesspeople and diplomats in Kinshasa believe the new licence holders could attempt to sell on quickly to experienced operators such as Italy’s ENI.
But Khulubuse Zuma said he had no intention of selling. He told the FT that he planned to merge Caprikat and Foxwhelp into a single entity called Congo Oil and bring 'new players' into the new company’s shareholding structure. 'As an example, if we see PetroSA [South Africa’s state oil company] as being strategic and adding value, they will be invited,' he said. 'Also, Congolese entrepreneurs, if we feel they will add value, we will invite them too. Every expertise will be included.'
Zuma’s nephew reveals business ambitions
Khulubuse Zuma has enjoyed a rapid rise to prominence in South African business since his uncle, Jacob Zuma, assumed the presidency in April last year, writes Simon Mundy in Johannesburg.
The younger Mr Zuma, 40, worked as a driver for his uncle after the latter’s return from exile in 1990. He later started a security company in Durban and ran a fleet of taxis for several years.
But the scale of his ambition became clear last July with the announcement of a R93.5m ($12.8m, €9.8m, £8.2m) foray into the Zambian forestry industry.
The acquisition of Redwood Timber Merchants was made through Aurora Empowerment Systems, an investment company chaired by Mr Zuma that has Nelson Mandela’s grandson, Zondwa, as its chief executive.
Aurora’s highest-profile move was a R605m bid for two mines formerly owned by the liquidated Pamodzi Gold, although the deal has since run into problems and production stopped at the mines in March as workers walked out over unpaid wages.
Mr Zuma is clear about his ambition. 'I want to do a major deal in every African country,' he told the Financial Times. 'For people like me who are not scared of going to Africa, there are huge opportunities.'
In June, two companies owned by Mr Zuma’s Impinda Group won mining rights oil blocks in the Democratic Republic of Congo. Mr Zuma kept up the momentum last month by announcing tie-ups with South Korea’s Daewoo Shipbuilding & Marine Engineering and the Chinese carmaker Dongfeng Motor Group. Further deals with companies in Saudi Arabia and India are in the pipeline, he said.
He shrugs off accusations that he is exploiting his relationship with the president. Such claims are unfair, Mr Zuma said. 'But if my name provides some magic in what I’m doing, all the better for me.'
* By William Wallis and Simon Mundy in Johannesburg
* Copyright The Financial Times Limited 2010.
