Compounding the Betamax Conundrum

A week or so ago, Hon Pravind Jugnauth, PM and Minister of Finance of this government, was busy presenting his Budget Speech, an exercise which had raised little expectations – maybe because, this time around, it had not been preceded by any pre-massaging enhancers by various surrogates. Or maybe because government felt that, beyond a couple of welcome measures, there would be little else to write home about or again, that popular disenchantment was scaling new heights. Or yet again, they had advance intimation of such bad news in the offing that sobriety would be more appropriate.

Whatever the level of real or perceived expectations, there was no doubt that any would-be Budget thunder had been pre-empted by a jarring bolt two days earlier from the Singapore International Arbitration Center (SIAC). What had been brewing in the Betamax affair had indeed boiled over at the worst possible time for the authorities. The massive claim by Betamax for damages and reparations against Government’s unilateral resiliation in January 2015 of a major international commercial contract was entirely vindicated by the SIAC. The State Trading Corporation (STC) was condemned to indemnify Betamax, a company with a major local business investor and a Singaporean sector specialist, to the tune of a massive 130m US$.

In an affair where the STC and the Lepep government were without doubt defended by the most able international legal specialists they could find, their arguments seem to have garnered no judiciary sympathy from the international tribunal: Mauritius was condemned to bear all the legal costs incurred by both parties and to pay accruing interest. Even as Government ministers, including the former PM, tried to put on a defiant face and the STC, as if on cue, intimated that it would appeal to our Supreme Court to set aside the execution of the Award, there was no doubt that this event largely overshadowed Hon. Pravind Jugnauth’s 2017-2018 Budget, where, in any case, no mention was made of it, nor of any provisions for that crippling judiciary blow from across the international waters.

All independent and astute legal minds will no doubt peruse in great depth the detailed judgement when it becomes available. We certainly don’t feel entitled and won’t presume to comment on the judicial aspects of the saga. But we cannot quite overlook its significance for the country and a government that was massively elected in December 2014 on the promise of a new way of doing things and a much-vaunted “second economic miracle”. No need at mid-term to dwell on either, as Government has its case, Opposition and the population at large have their own views. But we note the quite perceptible disappointment of private sector economic analysts with the Budget, with soaring public debt, with successive annual “effets d’annonce” and with a government giving the impression that, with such massive borrowings injected in a sputtering economy, it would jubilate should growth rates reach or exceed 3.8% by next June. Let’s go back to the Betamax affair if only to remind ourselves of some salient points.

The international crude-oil context

First, the international volatile crude-oil context between 2005-2008 could not be better recalled than through the following extracts from globalsecurity.org/military/intro/oil-2.htm. These same volatile factors were probably the reason behind the rather massive hedging undertaken by STC and Air Mauritius, unwisely by their scales in retrospect, but judged necessary by their respective Boards at the material times.

“Crude oil prices increased dramatically during 2007, with West Texas Intermediate (WTI) prices climbing from an average of nearly $55 per barrel in January 2007 to over $95 per barrel in early November 2007…

In the first half of the 2008 oil rose from below $100, in part because of perceptions of tenuous supply in several of the major exporting countries. On Wednesday 02 January 2008 oil prices briefly reached $100 per barrel for the first time.

The price of crude oil hit another record high 22 May 2008 of more than $135 a barrel, fueled by worries about supplies and growing demand. Oil prices had been buoyed by fears about production shortages around the world. And there are indications those shortages could become more severe.”

In that volatile period, we understand that even commissioning tankers and ensuring regular energy supplies became a matter of real concern for obvious national security reasons. I seem to recall that the then Government did indeed react to such threatening international circumstances by commissioning a French specialist team to study and report on the feasibility of acquisition of a medium-sized petroleum-products carrier. By late 2007, the idea turned conceptual when the MCCI was invited to ask members to submit expressions of interest to that purpose. Six of them did indeed express interest, of which only one, from Betonix and a specialised Singapore partner, was eventually judged credible by the external Consultant.

Over the next two years, two separate inter-ministerial committees were to pore over the project. External consultants, BDO and the State Law Office had been duly roped in, at one time or another, to oversee or validate the process, until after protracted discussions and exchanges between various parties, the affreightment contract was eventually signed between STC and Betamax (85% Betonix and 15% Singapore company) end 2009. We deliberately won’t go over as they are still a subject of controversy from Police or the authorities of the day.

But from a national security standpoint, the country then could heave a sigh of relief that at least one pioneering and bold non-legacy entrepreneur of some repute had been willing to undertake the massive loans and costs of ship purchase and refurbishment to meet a national demand, albeit captive, on technical and financial terms that were not judged unreasonable by BDO or by the then inter-ministerial committees. Although questions lingered in the press, the contract was never an issue for the MSM after they entered the MSM-LP alliance of 2010 and, if anything, were rather inclined to state that it was a strategic development and in the public interest.

Where, why and how the grapes turned sour will only be known by insiders. The 2014 Lepep campaign hurled accusations of crony capitalism of which Betamax became an example. Within weeks of a massive victory at the polls, the commercial contract was, perhaps against the best legal advice concerning the availability of a Termination Clause, brutally and unilaterally resiliated by the incoming MSM and SAJ-led Lepep Cabinet. Allegations of illegality and impropriety were beefed up by a variety of provisional charges, all to be later dismissed by the Office of the DPP as legally untenable. In parallel, the SIAC has now thrown a further spanner in the works in the form of mammoth damages for Betamax which will be borne by taxpayers.

This legal outcome has little to compare with the hedging story undertaken in the context we know. We cannot say whether the legal challenges entered by the authorities stand some chance of salvaging our reputation, national debt burden and public finances. Arguments and counter-arguments must have been thrashed out in detail at the SIAC and specialists diverge on the ability of our Supreme Court to hear or even over-rule an agreed international commercial arbitration that, under disputed circumstances, can only have been mutually agreed as full, final and binding.

We can only hope that the STC, having been condemned once for political decision-making in early 2015, is not again on the rack due to the doings of political masters with their own agenda.

U.C.