Justice Sandile Ngcobo Strikes Down Discriminatory Karpowership Agreement with BEE Partner

In a pivotal arbitration ruling, former South African Chief Justice Sandile Ngcobo has condemned the shareholder agreement between Karpowership’s owner Karadeniz and its Black Economic Empowerment (BEE) partner, Powergroup SA. The deal, worth an estimated R218-billion, involved supplying emergency power to state-owned enterprise Eskom over two decades. However, the Turkish conglomerate's opprobrious attempt to oust the BEE firm from their arrangement over financial disagreements has now backfired.

According to documents reviewed by the investigative journalism team amaBhungane, Karadeniz presented Powergroup SA with an ultimatum in February to come up with $5 million to contribute to the emergent costs required to seal the deal. When Powergroup failed to raise the amount, the Turkish company triggered a call option based on their agreement—ironically allowing them to acquire Powergroup’s substantial 49% share at an inconceivably low price of just R83.

In his ruling, Justice Ngcobo meticulously outlined how the agreement’s clauses egregiously favored Karadeniz at the expense of Powergroup. A key issue was the call option and associated “Trigger Events” that exclusively penalized Powergroup, showcasing a clear bias and potential prejudice against the BEE partner. He contended, “The impugned provisions are heavily biased in favor of Karadeniz. They were obviously tailored from Karadeniz’s point of view.”

Karadeniz’s defense argued that Powergroup, lacking capital and technical acumen, should not benefit from a "free ride" within the joint venture. Justice Ngcobo, scrutinizing these claims, found them unsubstantiated and underscored the absence of any compelling evidence that could justify such discriminatory assumptions against Powergroup.

Moreover, the accusation of "fronting" – a serious offense under South African law wherein a non-BEE entity misrepresents its BEE status – was raised by Powergroup. While Justice Ngcobo did not issue a definitive verdict on fronting, he emphasized that the disputed clauses already fell short of upholding the constitutional principle of equality.

The binding judgment grants Karadeniz 21 days to revert the 49% stake back to Powergroup, candidly calling into question the fairness of shareholder agreements in deals involving BEE partners. Ngcobo agreed that Powergroup had neglected their funding obligations, enabling Karadeniz to potentially reinitiate the process of excluding Powergroup. However, for now, the balance of equity has been squarely addressed, reiterating the South African judiciary's commitment to the principles of equality in business partnerships.

The ruling has profound implications, affirming that even in ventures reflective of high-stake corporate interests, adherence to constitutional values and fairness in BEE engagements are not just ethical but legally enforceable expectations.