Trouble for Mazars over failed PetroSA deals

by | Feb 9, 2025 | Uncategorized

“Low risk”.

That’s how consultants from the professional services firm Mazars described notorious wheeler dealer Lawrence Mulaudzi in an October 2023 due diligence report.

Mazars made the assessment even though they knew that Mulaudzi had allegedly channelled money to ANC and EFF politicians and that his house and luxury cars had been repossessed over unpaid debts.

Within two months of receiving the due diligence report, the Petroleum Oil and Gas Corporation of South Africa (PetroSA) had signed two offshore gas deals with Mulaudzi: a R21.6-billion deal with Equator Holdings (100% owned by Mulaudzi), and a R5.2-billion deal with EquaTheza (30% owned by Equator).

Then, in March 2024, Equator was liquidated for failing to pay a soccer player on Mulaudzi’s Tshakhuma Tsha Madzivhandila team.

The liquidation of Equator was bad news for PetroSA, but potentially worse news for Mazars who, as the transaction advisors, had helped to green light both the Mulaudzi deals, as well as a third deal with the sanctioned Russian bank, Gazprombank.

Now PetroSA wants some of its money back and has been advised to investigate whether to have Mazars blacklisted from future government business.

“A letter was sent to Mazars on the 1st October 2024, requesting a refund of R1 076 720 within 7 days,” PetroSA’s group supply chain manager Comfort Bunting told the internal audit team in October. “We also intend to claim back the full amount for the due diligence that was done on the grounds that it may be sub-standard”.

Mazars – which is now part of the global firm Forvis Mazars – says it stands by its work: “We are confident with the process we followed and the quality of the advice provided,” the project’s lead partner Taona Kokera told us via email.

“PetroSA has raised concerns, which Mazars is handling. Many of these issues have been resolved,” he said.

Mazars, Kokera added, “strongly disputes the claim that due professional care was not exercised”.

But while the consultants have been keen to downplay their role, PetroSA’s internal audit team paint a jaw-dropping picture of how one of the world’s top 10 accounting firms enabled three disastrous deals.

Toxic partners

Despite the promise of millions of rands in fees, no one wanted the job of transaction advisor to PetroSA. At least not on these deals, which involved the sanctioned Russian bank Gazprombank and its technical partner Ural Himmash.

This nugget of information was revealed by an unnamed member of the management team who told Internal Audit that “Mazars was the only party on PetroSA’s panel that responded to the request for advisory services. Others declined on the basis of Russian links to the respondents of the RFPs and the subsequent US sanctions on certain Russian entities.”

But Mazars – which stood to earn at least R15-million in fees – accepted.

The job was to marshal financial, technical and legal advice on three proposed deals:

When we first approached Mazars last year, director Rishi Juta was keen to distance his firm from the deals. “For the sake of clarity, I can confirm that Mazars did not advise PetroSA prior to its appointment of the preferred partners in terms of [the Equator deal],” he told us.

While technically true – the bid evaluation committee had scored the tenders and selected the preferred bidders – the board would not approve the deals without Mazars’ due diligence.

The fact that no one, aside from Mazars, was willing to work with PetroSA’s preferred bidders should have been an immediate warning sign. The problem was that PetroSA seemed more interested in green lights than red flags.

As part of the EquaTheza deal, for instance, Mulaudzi and his partners had agreed to pay $12-million (R227-million) to PetroSA as soon as the deal was signed, as their contribution towards the upkeep of the rapidly deteriorating offshore FA platform.

“The Acting COO [Sesakho Magadla] at the time was under pressure to conclude the [tender] with the partners because of the much needed $12 million to support PetroSA’s liquidity position,” an unnamed member of the management team told Internal Audit.

Adding to the pressure, EquaTheza allegedly told PetroSA that if it didn’t sign soon, the funds would be diverted elsewhere.

“Equatheza, in particular, had also placed pressure by indicating that the funder requires a signed agreement in order to secure and retain funding for the project else it will be allocated elsewhere to other projects.”

To get the deals over the line, PetroSA turned to Mazars.

The intern

When the project began in September 2023, Mazars found itself stretched thin.

“Based on the CVs submitted by Mazars, we observed that 70% of the work will be subcontracted to other companies. Out of the 17 staff members proposed by Mazars … only 5 are Mazars employees,” the internal audit team noted.

Instead, a large chunk of the work would be carried out by the law firm CLG – formerly Centurion Law Group – owned by the powerful gas lobbyist NJ Ayuk. And it’s here where problems arose.

One of the internal audit team’s concerns was that consultants had been substituted at the last minute, without their CVs being assessed. As they note, “the quality of due diligence report may be compromised as it might have been performed by unqualified individuals with insufficient knowledge, skills and experience required.”

One example flagged by the internal audit team was that PetroSA was billed for 223 hours of work by a senior legal consultant on CLG’s team, a role that required at least six years’ experience.

Yet, when the internal audit team looked into the consultant in question, they concluded that she had just two years’ experience. In fact, the consultant’s LinkedIn profile shows that when Mazars began working on the project she had just 10 months’ experience: eight months as a legal intern and two as a junior legal advisor.

We asked both Mazars and CLG to explain how someone freshly promoted from an internship had been billed out of as a senior legal consultant at R2 000/hour.

Mazars initially side-stepped the question, telling us: “The individual was not involved in delivering the due diligence report … [She] was involved in legal work separate from the due diligence report.”

This, we pointed out, didn’t make it okay. Asked whether the rest of the details were nonetheless accurate, Kokera told us: “This relates to a subcontractor. The rate allocated to [the consultant in question] is currently being resolved with PetroSA.”

The preliminary due diligence

A “Desktop Preliminary Investor Due Diligence” was presented to PetroSA’s Investment and Procurement Committee (IPC) on 22 September 2023.

This was a critical meeting, but the preliminary report was mostly made up of marketing material sourced from Mulaudzi and his partners.

The slides, which carry the Mazars logo and those of its partners, regurgitate a range of uncritical claims, including that EquaTheza’s “hydrocarbon experience put them in an advantageous position to reduce carbon emissions. Their values are underpinned by their knowledge and capabilities and driven by good corporate governance.”

EquaTheza was, in reality, a dormant special purpose vehicle that had been registered just two months earlier.

Under key personnel, Mulaudzi’s brief stint in 2003 as the Chief Technology Knowledge Officer for the Presidential National Commission was mentioned; the 2019 Mpati Commission’s investigation into alleged corruption and malfeasance in his multi-billion-rand PIC-funded deals was not. 

The presentation carried more weight than normal: as a sub-committee of the board, the IPC would normally be only one step in the chain of command. Under PetroSA’s dictatorial chair Nkhululeko Poya, however, the PetroSA CEO’s delegation of authority had been capped at R50 000 and executive decision-making had instead been vested in the three-member IPC, chaired by Poya himself.

When we asked Mazars about its presentation, Kokera confirmed that a team had attended the meeting but flat-out denied that any due diligence had been presented: “This is not accurate. No representative from Forvis Mazars presented our due diligence findings at an IPC workshop on 22 September 2023.”

Mazars, he added, only began its due diligence on EquaTheza five days later, on 27 September. 

As for the 15 slides bearings Mazars’ logo, and described  as a “Desktop Preliminary Investor Due Diligence,” Kokera declined to answer any further questions.

The final due diligence

The official due diligence report delivered two weeks later was more comprehensive: the work, Mazars told us, “was completed by forensic experts with over 20 years of fraud investigation experience”.

But the end result was similar: Mulaudzi and his partners were “low risk” and the kind of people PetroSA could do business with.

This time around the due diligence flagged “negative press” about the colourful Limpopo businessman: “We identified negative press/media relating to alleged corruption by [Mr Mulaudzi’s] company Blackgold Oil and Gas. It is alleged that [Mr Mulaudzi] and his company Blackgold Oil and Gas made payments to a transfer attorney in favour of Former Health Minister Mr Zweli Mkhize’s company (ZLM Trust).”

In fact, Mulaudzi had allegedly been paying other politicians as well, including then deputy president of the EFF Floyd Shivambu.

In 2017, Shivambu had sent Mulaudzi a series of WhatsApp messages telling him that there was “a great need for urgent intervention” and providing the bank account details for Grand Azania, the company fronted by Shivambu’s brother Brian. Between 2016 and 2017, Mulaudzi paid R500 000 into Grand Azania’s bank account, according to Daily Maverick.

Mulaudzi had also bankrolled a beauty salon owner at the behest of then-PIC chief executive Dan Matjila, around the time that Mulaudzi was securing multi-billion-rand loans from the PIC.

Mulaudzi later told the Mpati Commission that he had no hesitation about paying the R300 000 to the young woman who had Matjila’s ear: “At no point did I regard this as a loan. This was based on the request made by Dr Matjila … it was only natural for me to comply with his request, as I have been funded by the PIC in my business ventures.”

The Commission had even uncovered a “highly irregular relationship” between Mulaudzi and the PIC’s transaction advisor from Nedbank, who had received an undisclosed R400 000 loan from Mulaudzi, paid into his wife’s bank account.

In 2019, UDM leader Bantu Holomisa told the Mpati Commission: “We think it would be wise to inquire … why it seems so easy for Mr Mulaudzi to gain access to PIC funding.” Referring to one of the messages, he said it “seems to reinforce … the idea that Lawrence Mulaudzi had a hotline with the PIC management”.

Yet when Mazars queried this episode, Equator’s finance director Lot Magosha told them: “Mr Mulaudzi volunteered to spearhead the process of appearing before Mpati Commission of the PIC and provided credible evidence which helped the Commission to come to a conclusion to exonerate any unfounded allegations against the transaction.”

In fact, the Commission had recommended a forensic audit and, potentially, legal action to reclaim funds paid out.

It is unclear why Mazars accepted these claims at face value, particularly from Magosha, who had himself had been implicated in corrupt dealings at the PIC.

In 2018, advocate Terry Motau’s report on the collapse of VBS Mutual Bank identified two front companies that PIC executive Paul Magula used as fronts to receive apparent kickbacks from VBS and other PIC-funded deals: Investar and Hekima. Magosha had been the sole director of both.

Although the Mpati Commission failed to make the connection, Investar had been gifted shares in both of Mulaudzi’s PIC-funded deals worth roughly R24-million.

When we confronted Mulaudzi about this in 2019, he claimed he had been in the dark.  “[W]e held a special board meeting to address this matter and it was resolved that [the company] enters into a mutual separation agreement with Mr Magosha.”

Five years later though, Magosha was still very much in the picture as Equator’s financial director.

Asked why it had failed to raise a red flag about Magosha, Mazars told us: “Mr Magosha was not listed as a director on CIPC, and therefore checks on Mr Magosha were outside the scope of our assignment.”

Instead, Mazars said its due diligence was limited to conducting a security clearance and reviewing EquaTheza’s legal status and B-BBEE compliance. This, however, included looking into criminal records, conflicts of interest, the presence of politically exposed persons, directors and shareholders.

Even within this limited scope, however, Mazars had fallen short. Theza Oil & Gas, which owned 70% of EquaTheza, didn’t provide a share register to Mazars, saying that the shares were in the process of being transferred to various trusts.

The original shareholders had been local businessman Barend Hendricks (51%), and two Russian business partners: engineer Albert Iskhakov (25%) and Sergey Okhotnikov (24%), the former chair of a Russian state company.

“The transfer of the above shareholders into a trust may result in the ultimate shareholders and/or beneficiaries being unknown,” Mazars had noted, without stressing that the ultimate beneficiaries of the EquaTheza deal now appeared to be Mulaudzi and three unidentified trusts.

Mazars didn’t want to respond to our questions on this point but stressed that its due diligence was not a blanket endorsement.

Its assessment that Mulaudzi and his partners were “low risk” was supplemented by drawing PetroSA’s attention to the alleged payments to Mkhize’s trust and the fact that Mulaudzi’s brother, Thilivhali Mulaudzi, who was a director of Equator, was under debt review.

But whether PetroSA even noticed these caveats is unclear.

“Mazars, as our Transaction Advisors, through a due diligence identified … Equatheza and Equator as low risk and as a result did not foresee any reason not to proceed with the partnership transactions,” a member of PetroSA’s management team later told Internal Audit.

The final due diligence was delivered to PetroSA on 10 October 2023; the following day PetroSA signed a profit-sharing agreement with EquaTheza.

Inadequate due diligence

The $12-million EquaTheza had promised never materialised and in June 2024, PetroSA pulled the plug on the deal.

For months, EquaTheza had been arguing that it could not pay the $12-million until an agreement on how the FA platform would be operated had been signed. PetroSA’s view was that the profit-sharing agreement simply said “pay” and EquaTheza hadn’t paid.

Internally, questions about how EquaTheza had been appointed in the first place began to emerge.

In fact, the preliminary desktop due diligence – the September 2023 slides that Mazars has attempted to disown – had identified that there was a risk that EquaTheza would not be “sufficiently resourced to execute the [work programmes] (refers to both technical ability and the ability to secure debt funding)”.

To mitigate the risk, the plan had been to conduct a due diligence on the “commercial and technical competency of EquaTheza”.

Yet the “final due diligence” report – delivered in October 2023 – made no mention of EquaTheza’s financial capabilities. The report had briefly mentioned that Equator’s last set of financial statements was three years old and that Theza was “a [special purpose vehicle] that has not traded before,” but no conclusions were drawn from that.

“The due diligence is silent on the capability of the partners to technical[ly] and financial[ly] execute the work programs which we believe are critical indicators of the service provider’s capability,” the internal audit team noted in its draft report.

Barend Hendricks, the chair of EquaTheza, told us that Mazars had, in fact, asked questions about their funding, which was initially going to come from Russia’s Eximbank.

“Equatheza has submitted proof of funding on various occasions. When Mazars as part of their due diligence flag[ged] our potential funding source from Russia as political sensitive, we raised alternative funding,” he told us over email.

This didn’t make it into the report either.

“Due professional care was not exercised by Mazars,” the draft internal audit report concluded. An “inadequate due diligence” may have led PetroSA to take “uninformed decisions” and “get into business with unsuitable service providers”.

The internal audit team reached a similar conclusion about Mazars’ work on the Gazprombank due diligence. Although we haven’t seen a copy of this due diligence, a second draft internal audit report concluded that it too “may be sub-standard”.

“Dying slowly”

Unsurprisingly, Mazars rejects the criticism of its work.

In part, Mazars assumed that PetroSA had already assessed the bidders’ financial viability when it evaluated the bids. “[A]s part of the evaluation criteria, the bidders would have had to provide documentation indicating ‘sufficient funding to support proposal’ … Therefore PetroSA would have considered their partners’ capacity to sufficiently fund the project before our appointment,” Kokera told us.

He added that the “final due diligence” report, delivered in October 2023, was only the first step in the due diligence process and that a more detailed financial due diligence would have been done when PetroSA was ready to make a final investment decision.

“There appears to be a misunderstanding between the initial due diligence we conducted and the in-depth financial due diligence scheduled for a subsequent stage to support a final investment decision,” he told us.

In other words, the “preliminary” due diligence should be ignored, the “final” one should be treated as preliminary and the actual final due diligence was yet to be done.

It’s worth pointing out that there is no mention of this distinction in the “final due diligence” report that was delivered to PetroSA.

However, when Internal Audit raised this with management – in relation to the parallel Gazprombank tender – they confirmed that the intention was for Mazars to conduct further due diligence down the line.

“The risk with PetroSA [ is that] we ask for details needed at [final investment decision] … and when we don’t get those answers we restart and we keep reagitating without any significant progress,” Sesakho Magadla, the acting COO, told Internal Audit. “In that time the organisation is dying slowly.”

The other plank of Mazars’ defence is that the profit-sharing agreement gave PetroSA an exit strategy.

“Mazars played a key role in developing the conditions precedent in the profit-sharing agreement and advised PetroSA regarding termination when these conditions were not met,” Kokera told us.

The profit-sharing agreement, he added, gave PetroSA “legally permissible exit clauses if the partners did not deliver”.

Reading between the lines, it appeared to us that Mazars wasn’t about to tell PetroSA that the partner it so desperately wanted was lit up like a fire truck with alarm bells, and instead added an escape route for when cooler heads prevailed.

We asked Kokera if he and his team had felt pressured to approve PetroSA’s chosen partners.

“We conducted ourselves professionally and acted without undue influence from the client or elsewhere,” he told us.

The problem is that not everyone agrees that the conditions precedent gave PetroSA a foolproof exit strategy. EquaTheza – which dropped Mulaudzi as a partner in January – has threatened to sue PetroSA over its decision to cancel its contract.

“Should it become apparent that PetroSA intends to persist in its contrived termination of the [agreement], our instruction are … to institute review proceedings to set aside the unlawful decision taken by PetroSA,” its lawyer told PetroSA in June.

“Equatheza has worked for over 8 years on this project,” Hendricks told us last week.

“Equatheza can confirm that it is ready, able and willing to commence the work and will exercise it rights as per the profit share agreement to the benefit of PetroSA and the country at large.”

Double dipping

Despite the cursory nature of Mazars’ work, the 12-member transaction advisory team still billed PetroSA for 1 898 hours of work between September and December 2023.

This wasn’t just for work on the due diligence: the legal team had drawn up the profit-sharing agreements, while others had drafted memos for the board and for Cabinet.

When Internal Audit reviewed the billing, however, it noticed issues, including a partner from CLG who worked an improbable 10-hours a day for two months straight at a cost of R4 160/hour.

“Of concern is that individuals charged out at Partner rate e.g. R4 160 per hour, generally worked longer hours compared to the assigned team. Furthermore, the individual charged out as the Legal Partner exceeded the average 40 hours per week for both September and October 2023,” a second draft internal audit report noted.

The partner in question, Oneyka Ojogbo, is the Deputy Managing Partner at CLG in Johannesburg. According to the draft internal audit report, PetroSA was billed for 158 hours of her time in September 2023 and 220 hours in October 2023 – the equivalent of working from 8am to 7pm every day of the week.

The internal audit team found this unlikely and instead suggested that Mazars may have been double-dipping on fees, i.e. billing PetroSA for an hour of Ojogbo’s time on the Gazprombank deal and billing it again for the same hour of her work on the Equator and EquaTheza deal.

In the draft report, the internal audit team advised PetroSA to “initiate a process to investigate the validity of the excessive hours charged by Mazars and investigate the possibility of duplicate charges being made in terms of the same individuals working simultaneously on [the Gazprombank deal] & [the EquaTheza and Equator deals].”

Mazars denies that it engaged in overbilling. “We dispute that excessive hours were billed … The project’s tight timelines necessitated work on weekends, so substantial overtime was incurred. PetroSA reviewed and approved all submitted invoices, substantiated by evidence of work performed,” Kokera told us.

However, when we asked Kokera if he was arguing that Ojogbo’s 220 hours of work billed in October 2023 could be explained by overtime and work on weekends, he prevaricated: “This relates to a subcontractor. Please approach [CLG] for comment,” he told us.

We reached out to Ojogbo and CLG’s chief executive but received no response.

Conflicted

There was another problem with CLG, Internal Audit noted: the controversial law firm appeared to be acting as transaction advisors to PetroSA while also acting for Mulaudzi.

As legal advisors to PetroSA, CLG would play a critical role in drafting the contracts that PetroSA and Equator would eventually sign. Its lawyers were also involved in the due diligence, and its legal opinion on the sanctions risk of the Gazprombank deal was a critical green light.

Yet according to Internal Audit, Equator’s bid listed CLG as its partner.

Whether there was a partnership and whether Mazars knew, is contested.“We were unaware of any conflicts with Equator and Centurion Law Group when we completed the due diligence,” Kokera told us.

Early drafts of the internal audit report still include reference to a “possible conflict of interest on law firm,” but it was removed in later versions after CLG told Internal Audit that it had no relationship with Equator.

At the very least, the internal audit team concluded, Mazars should have queried this during the due diligence.

“Had Mazars conducted the due diligence adequately on Equator’s partners, it would have revealed that the claimed partnership between Equator and CLG was non-existent (as per the email from CLG). This would raise concerns about the reliability and legitimacy of the proposal information submitted by Equator,” the draft report noted.

Pay back the money

In October last year – after the Equator and EquaTheza deals had been cancelled, and with Gazprombank’s on life support – PetroSA wrote to Mazars “requesting a refund of R1 076 720 within 7 days”.

 It is unclear how PetroSA reached this figure, but it appears to be based on consultants charging higher rates than their job titles allowed. To speed up the process, management told Internal Audit that it planned to deduct the money from Mazars’ final invoice.

So far, that hasn’t happened.

“We reviewed PetroSA’s explanation of how they reached this figure and noted that it was informed by incorrect assumptions and / or lack of information that has since been furnished to PetroSA,” Kokera told us.

We pointed out that despite Mazars’ explanation, negotiations were still ongoing three months later, suggesting that PetroSA was unconvinced.

“PetroSA has raised concerns, which Mazars is handling. Many of these issues have been resolved,” Kokera said. Mazars, he added, “has not refunded any fees nor committed to any refund. PetroSA has not deducted any amounts”.

PetroSA – as is its custom – declined to answer our questions. “We are cognisant of … the important role played by media in ensuring integrity and transparency through access to information. As PetroSA, we reserve our right not to provide any comment,” Nonny Mashika-Dennison, the general manager of communications, told us.

If PetroSA remain unconvinced, the potential consequences for Mazars, which took ultimate responsibility for the project, are severe.

“If these hours cannot be substantiated and are not aligned with the deliverables and/or actual hours worked, the incurred expenditure will need to be reported as fruitless and wasteful expenditure and be recovered from Mazars,” the internal audit team wrote. “Appropriate action should then also be instituted against the supplier that will include recovery of the money and being ‘blacklisted’.”

Blacklisting by National Treasury is the most severe form of sanction a company can face. Of all the firms implicated in State Capture the only one to be blacklisted is Bain, the consulting firm that helped to gut Sars.

If Mazars is added to Treasury’s list of Tender Defaulters, it would be banned from public sector work for the next 10 years.

We asked Kokera whether the firm was concerned about the reputational damage the three failed deals could cause. “Mazars did not appoint the partners, nor did we provide a ‘greenlight’ … The scope of this due diligence was insufficient to provide a go or no-go decision,” he told us, adding: “We are confident of the process we followed and the quality of advice provided at every stage of the project.”

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AmaBhungane Centre for Investigative Journalism