Property tycoon Roux Shabangu has hit the jackpot with his controversial deal to lease a Pretoria building to the police.
The deal lands him a R100-million bonus while taxpayers buy him a building the police could have bought or built for themselves for less money.
The high-profile deal is the subject of the recent hard-hitting report by Public Protector Thuli Madonsela. The fallout has placed intense pressure on police National Commissioner Bheki Cele, who is expected to have to face up to a second public protector report soon over a similar deal with Shabangu in Durban.
Madonsela found that an agreement signed between Shabangu’s Roux Property Fund (RPF) and the department of public works for the South African Police Service (SAPS) to lease the Sanlam Middestad building was invalid. She also found that Cele and Public Works Minister Gwen Mahlangu-Nkabinde were in breach of duty for authorising the deal.
Last week, shortly after Madonsela’s report was released, two police counterintelligence officers mysteriously visited the public protector’s Pretoria headquarters demanding to know who had leaked certain documents to the Sunday Times.
Madonsela said this week her investigation into the Durban deal would be completed within the next month. If her second report does not halt the Durban deal, Shabangu could once again strike gold at the expense of South African taxpayers, according to a Mail & Guardian source.
Roux hits the jackpot
The structure of the Sanlam Middestad lease and the bond arrangement with Nedbank suggest an unusually lucrative arrangement for Shabangu in that, while commercial property is a long-term investment for most businesses, he will pocket tidy rewards from the word go, according to our rough calculations.
An original R520-million agreement, prepared by public works and signed by Cele in June last year, authorised a 10-year lease with a monthly rental of R2.8-million, increasing by 10% every year. The M&G has a copy of this document.
According to an internal public works investigation, this agreement was superseded by a second agreement in July between Shabangu and the department for a higher first-year rental of R3.3-million, with a 9.5% escalation.
Over 10 years this amounts to more than R600-million, in terms contradicting those that had been approved by the department’s special national bid adjudication committee.
On January 21 this year Nedbank granted Roux Property Fund a bond of R320-million, presumably based on the yields guaranteed by the lease agreement. On the same day the property was transferred into the company’s name for R220-million.
This arrangement guarantees Shabangu R100-million upfront, although he is likely to spend some money refurbishing the building.
Assuming that Shabangu took out a standard 20-year bond with 10% interest, he would be committed to paying R3.1-million every month to service the loan. At the same time, the SAPS would pay him R3.3-million every month for the first year, escalating to R7.4-million in the 10th year.
In other words, the SAPS’s lease payments would cover Shabangu’s bond repayments entirely from the first month. He would also have to pay municipal rates and taxes, but each year the rental payments would increase and Shabangu would be able to pocket the growing difference.
At the end of 20 years, assuming the SAPS renews its lease after 10 years, South Africans would have effectively paid for Shabangu’s building, leaving the businessman to pocket the profit on the rent, on top of the R100-million “bonus”.
Had the police bought Sanlam Middestad themselves for the same price, they could have taken out a smaller bond, paying smaller monthly repayments than the rental they agreed to pay Shabangu. Or better yet, they could have investigated designing and building a new police headquarters to suit their own requirements.
This apparent misdirection of public funds is all the more worrying given Madonsela’s finding that in motivating for the Middestad lease, the police adjusted their stated accommodation needs not according to real requirements, “but to fit the specifications of a single supplier, RPF”.
Public works elected last year to continue with the lease arrangement, in spite of the public protector’s request that it be put on hold and in spite of having obtained two legal opinions that the agreement was invalid.
Among her recommendations, Madonsela said the national treasury should urgently review the agreement “to determine if the contract can be terminated”. A treasury spokesperson said the report was still being considered.
Deal of the decade
An M&G source who was close to the deal — which he opposed — estimated that refurbishments to Sanlam Middestad would cost between R20-million and R30-million.
“[But] I would say no more than R20-million in terms of painting, tiling, setting up cables and electronics,” the source said.
He was of the opinion the building was not adequate to be a police headquarters, primarily because of security concerns: “It was not designed to accommodate police. Point blank, that building cannot be properly secured.”
This was the “deal of the decade” for Shabangu, the source said.
“If you can land just one deal like that, you never have to work another day in your life.”
Jackpot number two?
It is understood Shabangu was set to benefit from similar terms in Durban, where he reportedly discussed leasing another building to the SAPS. The Sunday Times reported last year on documents purported to have been signed by Cele, who agreed to a lease of R4.7-million.
The same M&G source said this included an annual escalation of 10%. The deal is “daylight robbery”, the source said, because the building was put on the market by Transnet for between R40-million and R50- million.
Again, it appears the SAPS would be better off buying the building rather than leasing it on these terms.
The source said when public work’s director general Siviwe Dongwane was appointed in July last year, he started asking “relevant questions” about the lease agreements. But Cele became “furious” and demanded to see Minister Mahlangu-Nkabinde.
Dongwane was suspended in December.
An improper relationship?
In her report Madonsela said there was no evidence of an “improper relationship” between Shabangu’s company and the police.
But speaking to media last week she said she hoped the Durban investigation would shed clarity on Shabangu’s relationship with the SAPS: “One of the things we are still trying to ascertain is how Mr Shabangu got involved with the SAPS.”
Shabangu has previously admitted to being well acquainted with President Jacob Zuma.
Police spokeswoman Nonkululeko Mbatha said Cele and Shabangu did not know each other. “The public pro- tector has put it on record that she could not find any evidence of a relationship between the two individuals.”
On queries regarding the lease and Shabangu’s R100-million bonus, Mbatha directed the M&G to the public works department, which had not responded by the time the newspaper went to press.
Said Mbatha: “SAPS has more than 1 000 buildings. We believe that the public would be interested in knowing about procurement regarding all of them, instead of focusing on just two.”
The M&G contacted Shabangu’s office on Wednesday morning and was asked to submit an email query, which was not answered by the time of going to press.
This article was produced by amaBhungane, investigators of the M&G Centre for Investigative Journalism, a nonprofit initiative to enhance capacity for investigative journalism in the public interest. www.amabhungane.co.za.