S Africans stake claims to Congolese oil

By William Wallis and Simon Mundy in Johannesburg

Published: August 1 2010 18:05 | Last updated: August 1 2010 19:43

Women wash clothes at Tchomia on the Congolese shore of Lake Albert, the disputed site of vast oil reserves

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.