Inside how BCL debacle cost Paul Smith his job

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Just over a year into a five-year contract, Paul Smith’s contract as CEO of Minerals Development Company of Botswana (MDCB) was terminated on April 11, 2017. Smith believes, as a professional with 27 years experience in mining and investment banking, his contract was terminated because he was too candid for the comfort of key stakeholders, as he was not prepared to play along with the rhetoric and political patronage usually associated with management of state-owned companies. In an exclusive interview with BusinessWeek’s BRIAN BENZA, Smith opened up about how his recommendation and actions on handling the BCL and EIH issues led to his termination.

In an interview that spanned over 90 minutes, Smith also spoke about how he has moved on from the agony over the manner in which he was terminated and how he is even prepared to assist Botswana in the country’s mineral sector development agenda

BusinessWeek: Firstly, it has been over seven months since you left, why have you decided to speak out now? 

Smith:  A lot was reported about me but I never responded. I feel now it’s the right time, since I believe most of the things I was said to have done wrong have come out quite clearly in the liquidator’s report. I feel I also need to clear my name, particularly on the issue that I was fired, which implies that there could have been misconduct on my part. I was not fired; my contract was terminated on a technicality, which is actually very unfortunate for the industry and the country.

BusinessWeek: What was you mandate at MDCB?

Smith: The mandate of MDCB was clearly set out in a study that was conducted by the ministry and PWC over two years. One of the core foundations was to separate the role of regulator from the owner of the mining assets. You can’t regulate yourself - and what has happened at BCL is an example of what happens when you try and regulate yourself because the regulator is conflicted with the owner and issues can be hidden. So we were supposed to manage government’s mining assets, both good assets and problematic ones, and at that time BCL was already a problem. Our first task was to transfer the assets of BCL, Morupule Coal Mine (MCM) and the 15% interest in De Beers. We managed to do that in the first phase and we were to transfer Debswana, Botash and DTCB in the second phase, which was approved by the shareholder and was underway.

BusinessWeek: So BCL became one of the first companies you managed. In what state was it when you took over?

Smith: BCL was in bad shape. The management and the board had mismanaged the  company over four or five years and there was no business case anymore. The core mandate of running the company had been abandoned (operating the BCL mines and processing plants efficiently and effectively). They were 20-50% below production budget every year and the mine was becoming dangerous and workers were dying. And this was because they were not spending money appropriately, inclusive of mine development, witch is critical in an operation such as BCL. They were supposed to spend money in the right places and not buying jets and golf courses.

There was also no good financial management and the company had spent a lot of money in engaging advisors who had ended up giving the wrong advice, such as the Polaris II Strategy.

You can’t invest in start-up mines and companies that will take a lot of time to bring in revenue when your core asset is sinking. The board also never gave the required guidance to management. So by the time we took over it was too late to save the company; corrective action on cutting costs should have been taken four or five years ago. Maybe then the mine could have survived by another seven or eight years. The board never held management accountable and we had a management team that was inadequate in terms of skills. 

These are the issues that I was very vocal about and the liquidator has come to make the same findings.

BusinessWeek: Whom did you register these concerns with?

Smith: I raised the issue with the boards of MDCB and BCL as well as the minister. But immediately, the board felt that I was challenging a lot of background relationships. The MDCB board is composed mostly of government officials who take instructions from the minister, and again this brings into question the foundation of MDCB, where you are supposed to separate ownership from regulatory roles. 

BusinessWeek: So at what point did you sense the friction with BCL board and management?

Smith: I first sensed it when the previous chairperson of MDCB wrote me a letter to appear for a disciplinary hearing. They were accusing me of not working closely with them and not working with BCL board and management, and also instructing lawyers to review BCL issues such as the Norilsk deal. But the minister stopped the disciplinary process and that was a pity because they were not going to find any wrongdoing on my part and that would have meant the board itself was going to be fired. In short, it was a case of shooting the messenger.

BusinessWeek: At what point did you recommend that BCL be shut down?

Smith: That was the core issue. I was accused of telling Cabinet to shut down BCL without consultation. But the board chair and some of the board members were there in that Cabinet meeting, where a collective decision was taken by Cabinet to close the mine. I believe some of the stakeholders knew that the mine had to be shut down, but it would have been politically incorrect for them to say it themselves, so they were happy for me to say it. 

BusinessWeek: What was your response to the deal with Norilsk?

Smith: My immediate response was to cancel it. BCL should have never done that deal for that kind of money, and an unclear business case. Of course, there was always going to be litigation, but the lawyers advised us we had a very good chance of winning the case, which I believe is still the case. But when I recommended that, a lot of people were upset. I met with Norilsk and told them BCL was unable to complete the deal, as it was my job to look after the assets of MDCB and BCL, on behalf of the State. Besides the amount being too much, the deal was never going to save BCL. The Nkomati concentrate (feed material) is not directly compatible with the BCL furnace, such that BCL can only accept a third of its feed from Nkomati. So with the BCL mines not producing much, what was the point of buying 50% of Nkomati? Again, it was unclear logic from management and the board never interrogated these issues.

BusinessWeek: The liquidator says the BCL board may face charges over all this, what’s your take?

Smith: The Botswana Companies Act makes them responsible for their actions as Directors. The question is, does Botswana have the will to do it? The behaviour of the board in all respects should be subject of review. There were fundamental deficiencies in executing their duties. And in all this, I never pointed a finger at anyone. All I did was to try and take corrective action, in the interest of the business and the State.

BusinessWeek: There are reports you disregarded or side-stepped the board  in key decisions, and that is why you were fired?

Smith: That’s not true; people just didn’t like hearing the truth and the BCL board was very happy to sit and do nothing. All the big decisions I took were in consultation. The big one, the BCL closure, the board members and management were there in that Cabinet meeting. I was also accused of giving BCL management instructions to close the mine after that accident without consulting the board. But I had to do that because, when I got to the mine the day after the incident, there was not even one board member of BCL on the mine and yet people had lost their lives. On initial investigation, it became very clear the cause of the accident could very easily occur on all the other shafts.

I called for immediate corrective action to be taken. Ensuring the safety of employees will always take preference in any decisions made. On EIH, I have been accused of being obstructive, and not simply going along with the minister’s wishes.

The deal was simply unreasonable, and was not in the interests of the company or the State, and one I could not agree with history has proven that I was right. When I reviewed Pula Steel, and indicated to them it was a bad investment, they didn’t like it. Now BCL has lost over P150 million in Pula Steel.

So in the end, a scheme was crafted to get rid of me through a technicality by reversing all the transactions I had done to transfer BCL, MCM and the 15% stake in De Beers to MDCB. They used a clause in my contract, which stipulated that if government decided to stop the company, then my contract would be terminated and I would be paid a certain amount.

BusinessWeek: Going forward, how do you think MDCB should be run?

Smith: Firstly, the whole concept of MDCB is very forward-thinking and very commendable. That’s what other big mining countries such as Chile have done, with Codelco (state-owned copper mining company). It is important to separate regulation from ownership.

My advice going forward would be, despite the false start, that they should reignite the company and this would require starting with the right board and competent management, with the right mix of international skills and experience, I would be happy to assist. If the board can’t interrogate the issues, then we will have another BCL tragedy. MDCB is supposed to have the right expertise with global experience at board and management level. I would suggest that simply defaulting all decisions back to the ministry is not the answer by any means.

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