More police leases questioned
The South African Police Service has been entered into another multimillion-rand property deal that was not put out to tender, writes Matuma Letsoalo.
The R336-million, 10-year lease deal by the department of public works is for the Tulbagh Park building in Pretoria, used by the SAPS for information systems management.
Confidential documents show how senior SAPS supply-chain officials put pressure on the department to sign a lease with Four Rivers Trading 422 without putting the contract out to tender. Four Rivers Trading is currently under investigation for alleged black economic empowerment (BEE) fronting.
Four Rivers, owned by Kasturi and Pragasen Naidoo, also signed three other multimillion-rand leases with public works – for a police office in Johannesburg, for the department of rural development in Pretoria and for the department of defence in Nelspruit.
Only the Johannesburg SAPS building was put out on tender, according to public works spokesperson Thami Mchunu.
Last month President Jacob Zuma fired Bheki Cele as police commissioner after an independent inquiry found him unfit for office because of his involvement in two separate R1.6-billion police lease deals – one in Pretoria and the other in Durban – that were awarded to controversial businessperson Roux Shabangu.
Shabangu has since written to public protector Thuli Madonsela complaining that he was unfairly targeted for investigation and that 73% of all lease agreements by the public works department were not put out for tender.
In his letter, Shabangu asked Madonsela to investigate all the leases that were concluded using a "negotiated bid process".
"The public protector must then also suspend all such leases pending the finalisation of such investigation," he said.
It is clear from documents in the possession of the Mail & Guardian that the Tulbagh Park building police lease deal was negotiated.
In one document marked for the attention of the director general of public works, Senior Superintendent P Meiring writes: "It is with great disappointment that the SAPS has to approach you personally in order for us to express our dissatisfaction with the services rendered by your Pretoria regional office as well as their sheer disregard for the importance of finalising a lease agreement with occupation date 2009-10-01 for the Tulbagh Park building in Pretoria.
"The SAPS has been working tirelessly with the regional office in an effort to finalise a leasing contract for the Tulbagh Park building that has been motivated by the SAPS to be the only suitable and preferred option for our use."
Four Rivers bought the Tulbagh Park building from Growth Point property developers in 2009 for R125-million. The company secured a R200-million bond from Slip Knot Investments and it is unclear what the additional R75-million was needed for. It appears that Four Rivers later cancelled this agreement and signed a bond of R235-million with Standard Bank in 2011.
The Naidoos are co-directors with Slip Knot directors in three separate companies – Blue Beacon Investments, Copacol and Olympic Park Trading.
Jean-Prieur du Plessis, a director of Slip Knot Investments and a co-director with the Naidoos in other companies, denied being part of Four Rivers, but admitted that they shared directorships in other companies.
He initially promised to answer detailed questions about their business partnership, but his lawyer later declined to do so unless he was provided with a copy of this article prior to publication.
National bid adjudication
Public works deputy director general Lindi Bici was the first to call for an investigation into Four Rivers Trading 422.
In a letter addressed to the public works director general, Bici wrote: "In my capacity as deputy director general of policy and a member of the special national bid adjudication committee, I would like to bring to your attention that big business has now become innovative and have created special vehicles for fronting purposes.
"It has come to my attention that a company by the name of Four Rivers Trading obtains funding at extraordinarily high interest rates [20% plus] using a structured mezzanine vehicle to purchase properties which are then leased to public works. Said company has secured a number of leases with DPW [department of public works]; other companies may also be victims.
"While the leased property is owned by the BEE company, the financier providing the structured mezzanine finance is the true beneficiary by way of income earned by charging higher than normal interest rates, debt and equity.
"The latter applies particularly when the so-called BEE company is in default and the financier seizes the property through normal legal proceedings."
As an example, Bici said a BEE company would tender for the lease of office space in a building that it had under contract, with an agreement of sale for a purchase price of R10-million.
The BEE company was then awarded the tender for a rental of R100 000 a month for five years, wrote Bici. The BEE entity then required funding of R10-million to purchase the building.
"A non-BEE entity then provides mezzanine finance of R10-million to acquire the building. If the interest on the mezzanine finance is 30%, they will be required to pay R3-million interest in the first year while only receiving R1.2-million in rental income.
"The BEE company naturally will default on payment, upon which the non-BEE company will convert the loan into shares and effectively control the entity," Bici wrote.
Kevin Naidoo, a representative for Four Rivers, this week denied it was fronting for Slip Knot.
Mchunu said public works had approached the courts to nullify contracts that were concluded in contravention of the law and to recover those monies from anyone who had unduly benefited.
Complexity of the lease
"We would like to indicate that the minister of public works, [Thulas] Nxesi, has publicly acknowledged that there may be serious irregularities with many of the leases entered into by officials of the department of public works.
"This has also been confirmed by the public protector, the auditor general and the Special Investigating Unit [SIU].
"It has also become clear that the department lacks adequate capacity to deal with the complexity of lease and property management. We are therefore currently putting in place mechanisms to deal with the resultant backlogs as part of a stabilisation strategy within the department. A new lease management policy and strategy is being finalised.
"In relation to irregular leases, we have been greatly assisted by the SIU in identifying such leases and we continue to co-operate in this regard. The leases that Four Rivers has with DPW form part of this investigation," Mchunu said.
National police spokesperson Captain Dennis Adriao said queries about procurement should be directed to public works.