Local politicians have criticised the treasury's role in buying a building that was meant to be leased. Matuma Letsoalo reports.
Property magnate David Mabilu got more than he bargained for when the Limpopo provincial government paid him more than R300-million for a building that was worth far less than that, according to senior provincial government officials.
The deal, which was not put out to tender, was negotiated and endorsed by the national treasury, confidential documents reveal.
The controversial businessperson is best remembered for spending R15-million to charter a plane to ferry hundreds of friends, family and entertainers from South Africa to Mauritius for a weekend wedding party. The Mail & Guardian reported last year that he had earned millions in questionable land transactions in Polokwane.
Kenny Brown, the treasury's deputy director general responsible for intergovernmental relations, said in a letter to the provincial health department: "National treasury hereby endorses the deed of sale to be entered into by the above mentioned parties. The outright purchase of erf 213177 Pietersburg Ext 11 described in title deed No T000048666/2011, including all its fixed, permanent improvements such as, but not limited to, buildings.
"National treasury and the national department of health were instrumental in negotiating the outright purchase of the property as reflected in the deed of sale. National treasury agrees with the purchase price of R298.9-million and the amendments to the deed of sale," Brown wrote.
The move has angered senior provincial government officials and members of the provincial cabinet, who described the government's decision to go for the outright purchase of the building as wasteful expenditure.
Mabilu's company, Promafco Project Management and Facilitation Co-operation CC, initially entered into a 10-year lease agreement with the provincial public works department to provide accommodation for health professionals in the province. In terms of the lease agreement, the provincial government would pay Promafco a monthly rental of about R2.1-million.
But the initial arrangement was changed soon after the government put six departments, including health, under administration because of cash-flow problems.
The treasury and Mabilu told the M&G the deal had been in the best interests of the government, which would have spent more than R400-million by the end of the 10-year lease.
But senior provincial government officials claim that the treasury failed to follow proper procedures when it opted to buy the building.
Mabilu said despite the sale, his company would continue with the facility management contract, which would earn him R180 000 per month for the next 10 years.
"Firstly, the national treasury did not put out any tender so that all property owners in the province could be given the opportunity to bid for the deal. Secondly, the R340-million paid to Mabilu was not approved by the provincial legislature, as required by the law. There is a potential illegality here by the national treasury. This constitutes unauthorised expenditure and is in violation of the Public Finance Management Act," said a senior provincial government official.
Treasury spokesperson Jabulani Sikhakhane defended the department's decision not to put the building out to tender. "Long before the intervention, the Limpopo provincial department of health issued a tender for the construction and lease to the provincial government of a residential property for doctors. The contract was awarded by the provincial department of health to Promafco.
"Included in the lease agreement entered into with Promafco was a clause giving the provincial department of health an option to buy the property from Promafco. The purchase of the property was done in terms of this clause and, therefore, it would not have made sense to issue a tender as government was exercising its right as per the lease agreement."
Sikhakhane said the provincial and national departments of health and consulting engineers evaluated the property and concluded that it would be in the best interests of the government to buy the building.
"The buy-out clauses in the lease agreement outline a formula to be used in determining the fair purchase price. Applying this formula, the purchase price came to R359-million, which after further evaluation was revised down to R328-million. The national department of health and national treasury negotiated the price down to R298-million, a price which consulting engineers said was fair.
"First, the evaluation indicated that the rental rate of return of the lease was higher than the industry norm. Second, the rental had an escalation of 9% per year, which was deemed to be fairly high. Third, by year 10, the rental per month would have increased to R4.5-million [excluding VAT]. This would have brought the total rental paid over the lease period to more R400-million and the government would still not own the property at the end of the lease period," said Sikhakhane.
A provincial legislature member, who asked not to be named, dismissed his claim that the initial lease agreement between Promafco and the provincial department of public works included a clause that gave the Limpopo government the option to buy the property. He also said the building was worth less than R100-million.
"All government leases have the same clause. Why not use this in other buildings? What criteria did the national treasury use? Why buy the building that is new? There are many buildings which could have been sold far much less in the province," said the legislature member.
He asked why the national treasury had instructed the provincial treasury, through the national administrator, to transfer the money to Mabilu before the building was completed. "What was the rush? Why take the money from government's coffers and put it in someone's account?"
Sikhakhane said that, in terms of the deed of sale, the developer had to complete the building before the department could take full ownership of it. "So, the developer has not been paid a cent and the money sits in a trust account and will only be paid over to the developer once all conditions have been met," Sikhakhane said.
Mabilu told the M&G that he had approached the treasury and national department of health after financial institutions refused to finance the project.
"I decided to sell because national government gave me an offer to purchase. However, it is true that the financial institutions were hesitant to provide finance for the project because the agreement was signed by a province which had been placed under administration by the time I applied for a loan.
"One of the financial institutions had expressed interest. However, they insisted that the national government, in particular the treasury, should ratify the agreement in writing because they would then be the accountable department."