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The Sorfert Appeal Trial



The Sorfert affair is back in the news again with today’s appeal trial at the Hai Djamel Eddine court in Oran. It will be recalled that the former CEO of Sorfert was sentenced on March 5 to a five-year prison sentence and a fine of 27.7 millions Algerian dinars.

A 2.2 billions dollars scandal

This affair concerns the project to construct a $2.2 billion ammonia/urea plant in Arzew that was used as a slush fund for Sawiris' shady dealings. The former CEO of Sorfert, Amr Hassaballah, who fled the country and is currently in hiding, was prosecuted by the specialized criminal unit at the Hai Djamel Eddine court in Oran, where he was sentenced to five years in prison and a fine of 27.7 millions Algerian dinars, while the company's legal director, K.F., was given two years in prison and ordered to pay a fine of the same amount.

The accused, both Egyptian nationals, were prosecuted for having illegally transferred abroad more than $300 millions. The court also ordered them to pay a so-called solidarity fine of 2 millions Algerian dinars. A third man, Z. Motrani, a transport contractor involved in this case, was sentenced to one year in prison and fined 200,000 Algerian dinars. In addition, the court confirmed the international warrant for the arrest of Sorfert’s former CEO.

Though charged with having violated foreign exchange laws and made illegal capital transfers, they were found not guilty on this account. The representative of the Public Prosecutor's Office had previously demanded a ten-year prison sentence for the two Egyptians and seven years for the transport contractor. The prosecutor also requested that each of the accused pay a fine, approximately double the amount of the sum misappropriated ($16 millions). It should not be forgotten that, on 18 October of last year, the criminal court at Oran had sentenced Sorfert’s CEO, in absentia, to 5 years in prison and the company's attorney to 2 years.

In 2012, the Oran criminal court began an investigation into the illegal foreign transfer of more than 300 millions US dollars by Orascom Construction, Sonatrach's partner with Sorfert in the Arzew fertilizer plant construction project. The investigation was launched when Sorfert’s auditor refused to approve a number of financial transactions carried out by this company - the management of which is in the hands of the Egyptian stakeholder which possesses 51% of the total shares – and then brought the matter to the attention of the magistrates. The auditor refused to approve these transactions because the company's financial services did not comply with Algerian law on foreign currency transfers. This was in 2015, when an attempt was made to transfer abroad, via the BEA [Algeria’s foreign exchange bank], a sum totalling 16 million US dollars. This total, it was claimed, corresponded to the salaries of the company's foreign employees. But no text or authorisation had previously mentioned the recruitment of employees abroad. During the trial, the manager responsible for the finance of Sorfert’s factory invoked the company’s private status which would supposedly mean that it was exempt from the law on financial markets.

Specialized in the production of ammonia and urea and based in Arzew (Oran), Sorfert Algeria is a joint venture between Orascom Construction and Industries (OCI) and the Sonatrach group.

Some in the media are attempting to defend those involved in a lawsuit which is still yet to be considered by the courts. This case involves the Sorfert ammonia and urea manufacturing plant in Arzew, owned by the brother of the Egyptian magnate Sawiris, the very same man who had fallen foul of Algerian law in the Djezzy [Algeria’s mobile network operator] affair. In an attempt to exonerate this company, a media campaign has been recently launched to suggest that it was unfairly treated by the Algerian legal system. The factory is a joint venture between OCI and the Algerian state oil company Sonatrach. Crésus devoted a special report to this case on 18 July 2017 (see Crésus n°94), following an article published on this matter by the Arab daily El Khabar.

 

Sawiris’ Scam

The Egyptian billionaire and businessman Sawiris was found guilty for what was believed to be his final evil deed perpetrated against Algeria. There have been many others, some of which yielded astronomical profits, gained at the expense of the Algerian people. And there are undoubtedly others similar to the Sorfert scandal.

It will be recalled that Sawiris, using money from Lafarge and OCI, acquired fertilizer plants in Dubai and Egypt and so, overnight, acquired the status of an industrialist in the fertilizer manufacturing sector. With the Arzew fertilizer plant, his new reputation enabled him to secure extraordinary financial advantages from both ANDI [Algerian National Agency of Investment Development] and the government. The plant in question - 51% of which is held by Orascom while the government, via the national banks and Sonatrach, provides 85% of the project’s finance - is not the only one in Arzew. In similar circumstances, another one was generously awarded by mutual agreement to Bahwan, an Omani company.

The CPA, BEA, BNA, BDL and CNEP [Algerian banks] were instructed to finance 75% of the total cost of these two projects. What we have here is scam: 400 billions Algerian dinars were wasted by public banks while Orascom and Bahwan, the two companies which control the companies, were set to reap all the profits. There is, moreover, talk of another case involving a handout of 5000 billions Algerian dinars for the supply of gas, which was supposed to be exported, sold to the factory at the domestic price. For the attentive observer, this nothing short of embezzlement, the misappropriation of public funds generously granted to pseudo shareholders. Orascom is looking to sell its assets in Algeria and reap another windfall (along with those it made in the cement business and in the Djezzy deal) totalling several billion dollars associated with the "capital gain" of the 20-year gas supply contract (35 billion m3), sold at a symbolic price compared to the market price (export price).

 

Massive over-spending

A Sonatrach vice-president, CEOs of six banks together with a number of ANDI officials were all dragged into a multi-million dollar scam. After having gained $12.9 billions from the sale of its cement business to the French company Lafarge, the Egyptian conglomerate OCI, belonging to Sawiris, decided to participate in the project to construct the Arzew plant, which was set to become the largest ammonia plant in North Africa by 2010.

Sonatrach and Sorfert (a joint venture between Sonatrach and Orascom construction industries) signed a natural gas sales and purchase agreement to supply the Arzew ammonia and urea plant. This was scheduled to come on stream for mid-2011. In the presence of Chakib Khelil (Energy and

Mines Minister), Mohamed Meziane (Sonatrach's CEO) and Egypt's ambassador to Algeria, the 20-year contract for an annual volume of 1.75 billion cubic metres of natural gas was signed by Chawki Rahal (Sonatrach's vice president) and Osama Bishai (Sorfert's CEO)

Investigations carried out at the time revealed massive overspending in the procurement and signing of contracts with foreign companies specializing in oil and para-petroleum services. In an attempt to convince Algeria not to squander its gas, the Russian group Gazprom proposed to finance and construct petrochemical production facilities and offered to buy the gas at the international price.

Sonatrach did not respond to Gazprom. It preferred to deal with Sawiris who, unlike Sonatrach and the Russian giant, has no experience or knowledge of the petrochemical industry.

 

THE STATE MUST MAKE A CLEAR DECISION

Let there be light!

Sorfert, a company recognised under Algerian law and a flagship of Algerian industry, is the product of a public-private partnership. It enables Algeria to export its hydrocarbon-based products. National banks are involved in this company in so far as they participated in the financing of this project. Sorfert’s estimated share capital totals two (2) billion dollars. If it were to run into financial difficulties, Algerian banks would not be able to recover their money.

Some experts believe that the Algerian stakeholders should be allowed to "manage the situation", including the relationship with its foreign partners. In their view, all efforts should be made to buy out the foreign shareholders or, as a last resort, take them to an international court in order to maintain Algerian control of this essential economic lever. In an interview with Crésus, the former CEO of CASH said that the company "is prepared to play its role as an insurer", notably in relation to creditors benefiting from a subrogation clause.

Can the state intervene, "on the spot", directly or indirectly through public investors? Even if its position is far from easy, it is obliged to act quickly so that is not then – rightly – blamed for having remained inert in the face of a situation which could seriously undermine the country’s economy.

Even if it means that the government runs the opposite risk of being accused of meddling in a private decision-making process, it must do so – judiciously - for it is not merely question of a company's financial performance but the protection of "national champions" in the face of international competition.

 

TRANSLATED BY: JAMES A. POLLARD

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