Jo-Maré Duddy
26 April 2011
Within a year of partnering up with Glencore to supply half of Namibia’s fuel needs, Namcor got caught in a debt trap which rendered it virtually helpless to find a cheaper supplier, an audit has shown.
Within the first nine months of starting to trade with Glencore, Namcor suffered losses of around N$195 million, plunging it into technical bankruptcy, according to a PriceWaterhouseCoopers (PwC) audit completed in October 2009.
The controversial Glencore contract, among other Namcor issues, has in the meantime been the subject of another audit ordered by Cabinet and has led to the suspension of the corporation’s chief executive officer, Sam Beukes. The new audit ruled that both Beukes and the board of directors at the time,neglected their fiduciary duty to act in the best interest of the company.
Cabinet last year also temporarily halted Namcor’s mandate to import 50 per cent of Namibia’s fuel needs and suspended Glencore’s contract, currently the subject of a legal battle in the High Court. So far, the whole exercise has cost the taxpayer N$538 million.
In the 2009 audit, PwC said the parastatal had “severe cash-flow shortages” and with a single month’s cargo costing about N$200 million, had “insufficient funds to purchase even one cargo of product”.
As a result, Glencore agreed to allow Namcor more time to settle its account, giving it 90 days instead of 45. This, however, “left Namcor extremely vulnerable to its creditors”, PwC said.
“It forces Namcor to continue to purchase from its current suppliers even though other suppliers may potentially offer lower prices,” the audit, of which The Namibian has a copy, concluded.
Namcor commissioned PwC to do the audit after posting disastrous financial results in 2008-09, searching for a turnaround strategy to it could present Government with.
When Namcor clinched the deal with Glencore in the beginning of 2008, oil sold for less than US$90 a barrel. By mid-2008 the price had jumped to a record US$147.
PwC said that during this time, Namcor bought fuel at an exchange rate of N$10,80 against the US dollar. Because of the basic fuel price (BFP) formula used by Government, Namcor could only sell its product at N$7,89 against the US dollar though.
This meant that Namcor was subsidising the local fuel industry with about N$150 million a year, PwC said.
The auditors concluded that Namcor’s “current business model is not sustainable”.
It suggested Government change the BFP formula and that it introduce a security of supply levy. Both these measures would have meant an increase of about 31 cents per litre in the fuel pump price.
At the time, PwC also suggested that Government pump N$200 million into Namcor to recapitalise it.
PwC also considered the option that Namcor cease all its downstream operations, including importing fuel.
“The main concern with this option is the fact that privately owned oil companies will then source 100 per cent of their products from the South African or international markets. This would render the supply of petroleum products, a strategic resource for the country, entirely in the hands of private entities, and Government would not be able to guarantee its supply to its citizens,” PwC said.
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