Taxpayers suckered in new police leasing deal
At the heart of it is the same business person responsible for the other inflated leases.
Roux Shabangu, the BEE business person at the centre of the police leasing scandal, was the proud recipient of another multimillion-rand state lease—for a building twice as large as the government required and way over its budget.
The R137-million, 10-year lease (which the Mail & Guardian has seen) by the department of public works is for a Pretoria CBD building as the headquarters for the police department’s Independent Complaints Directorate (ICD).
According to the M&G‘s calculations, taxpayers have once again bought Shabangu a building the state itself could have bought for less.
In an interview this week Shabangu’s business partner, Japie van Niekerk, said Shabangu had bought the building because his political connections had told him the public works department wanted to lease it.
This claim was not answered by either Shabangu or the department.
Van Niekerk also stands to benefit because he lent Shabangu the money to buy the building.
Van Niekerk told the M&G that the lease, signed in April 2009, was Shabangu’s first foray into the lucrative state leasing business. It was a trial run for his controversial R500-million lease agreement for the new South African Police Service headquarters in Pretoria and a yet unconsummated R1.1-billion lease for the police in Durban. These were signed in July and November 2010, also with the department of public works.
The Pretoria SAPS lease was the subject of a damaging report by the public protector, raising questions about the involvement of national police commissioner Bheki Cele, Public Works Minister Gwen Mahlangu-Nkabinde and senior officials.
The protector is about to release a report on the Durban lease.
Taxpayers to the rescue
Shabangu’s company, Majestic Silver Trading 275, bought the ICD building, 114 Vermeulen Street, from Pretoria property mogul Sayed Mia in September 2008.
Mia, who owned the building for almost two years, sold it to Shabangu for R23-million, R10-million more than he paid for it.
After Shabangu bought Vermeulen Street, he and Van Niekerk mysteriously transferred it between them twice, with Shabangu’s Majestic Silver ending up as the owner for an escalated purchase price of R41.8-million. Shabangu owed the full amount to Van Niekerk’s company, HMKL 3, in the form of a private bond.
Van Niekerk would not say what interest Shabangu was paying him for the bond other than that it was “prime linked” and had to be paid off over 10 years.
Assuming a 9% interest rate, Shabangu would have to pay Van Niekerk about R530 000 a month for the next decade. Once that is done, the building will belong to Shabangu, unencumbered by debt.
But according to Shabangu’s April 2009 lease agreement with public works, the government would pay him R729 280 a month for the first year, escalating by 10% a year—so that by year 10 he will be paid a handsome R1.9-million a month.
In other words, Shabangu’s bond repayments would be serviced by the taxpayer. Van Niekerk would earn big interest on a big bond and Shabangu would have hundreds of thousands of rands to spare each month.
Problem 1: Insider information
Asked to explain the property transfers and whether Shabangu had secured the lease by legal means, Van Niekerk said: “To get there, I’m going to have to give you some history.”
He explained how he and Shabangu had gone into partnership a decade ago to build shopping malls in “deep rural areas” (see ‘Roux is like my little brother” below).
In 2008 public works announced a new policy to favour BEE companies in the allocation of long-term state leases. “Shabangu — jumped at the opportunity. For him to go and buy a building in the CBD and get the government to rent it from him is an easy deal, a very lucrative deal.
“Roux asked for help with the first one, which was Vermeulen Street. The building was standing empty and he had information that public works was interested in renting that building.”
Here is problem number one. Someone gave Shabangu inside information and, on the basis of this, according to Van Niekerk, Shabangu wanted to buy the building, with an eye to being awarded a lucrative state lease.
Van Niekerk said he did not know who gave Shabangu the information and he was adamant that when they bought the building they had no guarantee Shabangu would be awarded the lease.
“All these guys are politically connected. That’s what we do,” he said.
As it happened, just three months after Shabangu’s Majestic Silver bought Vermeulen Street from Mia, Shabangu was authorised by a company resolution attached to the lease to “negotiate and sign a lease agreement with the department of public works”.
This statement highlights two important points:
- It proves that Shabangu was in talks with the department almost immediately after buying the building, if not before.
- It suggests the department did not follow an open tender process and chose to negotiate directly with Shabangu, opening a window for him to be unfairly favoured.
Asked to comment, Mia said: “I sat with that building for a long time and I couldn’t get a lease. That’s all I can tell you.”
Problem 2: tender process
Asked if an open tender process was followed, Van Niekerk said: “Public works wanted that building. I don’t know if there was an open tender process.”
He said that an open tender would not have been necessary because the department had identified the building and simply needed to approach Shabangu as the owner.
This is incorrect. According to established procurement procedures designed to prevent corruption clear steps should be followed in such cases.
First, the department looking for a lease—in this case the ICD—should identify a need for new accommodation and supply a needs assessment and budget to public works.
Public works then decides whether to follow an open tender process or, if it can provide a valid reason, unavoidable urgency, for example, it can choose to approach property owners and negotiate a lease.
If it chooses an open tender, the department must advertise and choose the most appropriate bidder based on a technical evaluation, cost and empowerment credentials.
When this was put to Van Niekerk, he pointed a finger skyward in a “eureka!” moment: “Oh, yes, he did go through that process. I know there was a tender that went out. I do remember something like that.”
For more than two weeks the department has failed to explain how Shabangu was awarded the lease.
Problem 3: an inflated lease
Approached for comment, Moses Dlamini, the ICD spokesperson, said he did not know whether an open tender process was followed—that was public works’s responsibility—but the ICD had submitted a needs assessment and a budget.
The ICD needed 3 668 square metres of space, with 105 parking bays, at a budget of R6.2-million for the first year of the lease.
But with Shabangu’s building the ICD got 7 614 square metres and 102 bays, for which it had to pay R8.8-million in the first year. The rent would increase at a top-end rate of 10% a year.
In other words, the ICD received more than twice the space it needed at more than 40% above its budget.
Mia is the same business person who later sold Sanlam-Middestad to Shabangu. Sanlam-Middestad is the building Shabangu acquired in the SAPS Pretoria leasing scandal.
Cele has protested that he cannot be blamed for the fact that two SAPS leases were awarded without an open tender.
But there is one more glaring coincidence—both the SAPS and the ICD report to the same ministry—that of police.
Asked who decided that the ICD needed a new building, Dlamini said: “The top management of the ICD was responsible. At the time the ICD was housed in two different offices because of space constraints.”
Shabangu has refused to answer detailed questions (see “I’ll tell the ANC on you!” below).
‘Roux is like my little brother’Roux Shabangu is a big man. He has presence, he is intelligent and has unbelievable drive, according to property developer Japie van Niekerk.
“I like to call it ‘horsepower’,” said Van Niekerk, a charming man who refuses to talk on the phone.
Sitting in his office in Lyttelton, Pretoria, this week, surrounded by collages of shopping mall developments, Van Niekerk described his relationship with Shabangu in glowing terms.
“Ten years ago, Roux Shabangu came to me and had nothing. I saw a lot of myself in him when I had nothing. I wanted to help the guy.”
He said he gave Shabangu a car, clothes, an office and a secretary. “And I offered him a stake in some developments.”
Van Niekerk’s New Africa Developments was building malls in “deep rural areas”, where a lot of time needed to be spent negotiating with locals, “securing the land from the local chiefs” and “going through the government”.
Shabangu was good at this, said Van Niekerk. “He was instrumental in obtaining the land. He was good at negotiating. He liked to engage with communities.
” I went out of my way to teach him to do the right things, to get the right attorneys and the right auditors. I explained that tax is a thing that you need to pay so the business sits legally clean.
” He was like my little brother. He went through the process of crawling and walking and then he was ready to run.
“That is where Vermeulen Street came in,” Van Niekerk said, referring to Shabangu’s first state lease.
By then, about two to three years ago, Shabangu had bought his own office space in Irene, Van Niekerk said.
” In that time, he came to me and said he wanted to do these government buildings.”
This was after the department of public works announced a policy in 2008 to award long-term state leases to black property owners.
“He wanted to jump and I said: ‘You must do it’.”
It was easy money.
Van Niekerk funded Shabangu’s first deal, which he explained in detail (see main article, above).
“Subsequent to that, I had no dealings with Roux.”—Craig McKune
‘I’ll tell the ANC on you’Instead of denying that he secured a lease by means of political connections, Roux Shabangu said he would use his political connections to deal with the Mail & Guardian.
In a hotly worded response to questions, Shabangu turned on his business partner of 10 years, Japie van Niekerk, suggesting there was “growing animosity” between them because Shabangu had entered the property market, “the so-called ‘white man’s terrain’”.
He also accused the M&G of seeking “to put our government, its leadership, state organs and Nedbank [who bonded his purchase of Sanlam-Middestad] into disrepute”.
“By continuing to pursue its own agenda, M&G has helped us confirm what we have always suspected, identify one of the culprits [sic] —
“With regard to [the Independent Complaints Directorate headquarters at] Vermeulen 114, suffice to say it was a legitimate transaction between two astute business partners who have been doing business together for over 10 years.
“We want to put it on record that we will not be drawn into accusations that are a foregone conclusion in the eyes of [the] M&G. Seemingly, Mr Van Niekerk knows everything and has all the answers. In view of all this, it might be in M&G‘s best interest — to stick with its sources and publish what it wants.
“NB.If you choose to report selectively, as has been the case in previous articles, we reserve the right to escalate your questions to other newspapers, all ANC and government structures and our response to that effect.”—Craig McKune
State leases costing billionsPublic Works Minister Gwen Mahlangu-Nkabinde has finally realised the state is wasting billions on state leases of the kind described on these pages.
In her budget speech this week she announced plans to slash spending on state leases over three years.
“The leasing portfolio is costing the state a lot of money. The department has, in the past year, spent billions on leases and functional accommodation for client departments,” she said.
“Investment in repair and maintenance, continuous maintenance and construction of new government buildings could generate major savings for the state.”
Last week the Mail & Guardian exposed how state leasing had reached scandalous proportions. Businesspeople around the country are using their political connections to secure inflated state leases, which, in turn, service overblown bonds, enriching them at the expense of taxpayers.—Craig McKune
The M&G Centre for Investigative Journalism, supported by M&G Media and the Open Society Foundation for South Africa, produced this story. All views are the centre’s. www.amabhungane.co.za.