A damning but contested report commissioned by the Lesotho government accuses transport and logistics group Imperial of not giving the mountain kingdom its money’s worth in a multimillion-rand vehicle fleet outsourcing contract.
This mirrors allegations reported by the Mail & Guardian in March, and those being investigated by South Africa’s Department of Transport and the Scorpions, that Imperial did not give the South African government its fair share in its car-fleet deal.
Imperial holds contracts to run both governments’ outsourced car fleets. Imperial rejected the allegations in the South African deal as ”unfounded”, saying they were disseminated by a ”disgruntled former employee”.
In Lesotho, the probe into Imperial’s contract looked at, among other things, whether the charges ”imposed” by Imperial on the Lesotho government were ”in accordance with agreements”.
The report of the probe, obtained by the M&G in the first week of April, claims that Imperial engaged in business practices that financially disadvantaged the Lesotho government.
It claims that Imperial charged the Lesotho government higher daily rates on short-term rentals than on normal private hire in Lesotho.
”We find this quite surprising,” the report noted.
Walter Hill, Imperial Fleet Services managing director, hit back at the report, saying it was ”flawed and has never been published”. Hill declined to comment further, saying the M&G should ”take it up with the government of Lesotho”.
At the end of March the Lesotho government declined to give the M&G the report.
”The contents of the report are still confidential and cannot be publicised while it is still under the consideration of the government of Lesotho. Please be assured that you will be furnished with the report and its outcomes as soon as the government’s consideration is completed,” said Makalo Ntsasa, senior information officer for the privatisation unit of the Lesotho government.
The 80-page report, compiled by MMR Advisory Services, is particularly scathing about the way Imperial carried out the contract and the various charges the company imposed on the Lesotho government.
The report also raps Imperial for failing to perform on the contract, saying the company failed to issue monthly reports to relevant ministries in time.
The procurement division of the Lesotho government claims in the report that it received Imperial’s reports only in the first year of the contract.
The report suggests that the Lesotho government should withhold payment to Imperial as a penalty for failing to submit the monthly reports.
However, it advises the Lesotho government not to terminate Imperial’s contract but rather to seek ”to renegotiate certain terms and conditions and also improve its monitoring and enforcement capability with respect to the agreements”.
Imperial manages the Lesotho contract through a company called Imperial Fleet Services Lesotho. Imperial holds 80% of the company and the Lesotho government has 20%. This part ownership by the Lesotho government achieves a similar effect to a provision in the South African contract where profit is shared between Imperial and the government.
The allegation is that in both countries Imperial diverts profits from sources in which the government can share. The Lesotho report claims Imperial subsidiary companies charged Imperial Fleet Services Lesotho exorbitant administration or management fees, some of which were unnecessary and could have been provided internally.
It says the Lesotho government has not felt the benefits of the costs of the administration or management contracts and that Imperial charged another administration fee for the ”maintenance management of vehicles”, which was too high and was unjustified as it was part of the company’s internal operations.
Imperial, the report says, charged overhead fees that were ”extremely out of line with standard industry charges”.
The report claims Imperial also loaded ”way too high” overheads on to Imperial Fleet Services Lesotho in order to ”achieve some level of profitability that Imperial envisaged during the tender process”. It says the total overhead costs for the year ending June 2001 were 20-million Lesotho maloti (equivalent to rand) and M22-million in the next financial year.
Questions have also been raised about the way Imperial handled an insurance fund built into the car fleets contract. The premiums on the fund, which is managed by an Imperial subsidiary, were ”too high” considering profits made from it, the report says.
The report makes the following findings:
Imperial Fleet Services South Africa charges the Lesotho Imperial Fleet Services a management fee. In the financial year ending June 2001 this amounted to M660 000 and M789 000 the following year — an increase of 20%. ”We do not believe that Imperial Fleet Services Lesotho needs to pay this management fee. We believe that Imperial Fleet Services Lesotho cannot pay both salaries to senior executives and a management fee for external management services,” says the report.
The company charged Imperial Fleet Services Lesotho M468 000 in the year ending June 2001 and M460 000 the following year, to train local Basotho panelbeaters. Although more than M800 000 was spent to train the local panelbeaters ”only 11 trainees have been taken on and only one Mosotho panelbeater has ‘qualified’ from the apprenticeship programme”.
Imperial Fleet Services Lesotho does not keep a maintenance fund account separate from its operation account. This means that Imperial, as 80% shareholder of Imperial Fleet Services Lesotho, makes profits from the maintenance fund, which profit, according to the report, should only be distributed once the fund/company is closed. ”We believe that this is wrong practice from Imperial Fleet Services Lesotho.”
The Lesotho government is being charged between 10% and 13% higher daily rates and rate per kilometre on short-term rentals than is normal for private hire in Lesotho. ”We find this quite surprising as one would think that the Lesotho government would pay a discounted price rather than an increased price.”
The insurance fund is placed with Regent Short Term Insurance, a subsidiary of Imperial. The excess on the insurance fund is declared as profit to Imperial Fleet Services Lesotho. Imperial Fleet Services Lesotho initially claimed, says the report, that profits declared from the insurance fund up to June 2001 were M1,5-million. However, the report says, subsequent documentation provided revealed that the revenue declared up to June 2001 was M3,9-million.