BEE war for prime Cape site

An intense political and commercial war has broken out over plans to sell a 99-year lease on Cape Town’s most valuable piece of state land.

The row pits Western Cape premier Ebrahim Rasool and Public Works Minister Marius Fransman against party colleagues, the DA and their own provincial treasury, while threatening the plans of politically connected empowerment groups vying for the land.

Among those caught up in the controversy are empowerment magnate Tokyo Sexwale and the Public Investment Corporation.

Also centrally involved are Cape businessman Hassan Adams and Dubai World, partners in the company that owns the V&A Waterfront. In February 2007 Rasool announced that the Somerset Hospital precinct — in a prime location between the city’s 2010 stadium and the Waterfront — would be put out to tender. Developers would get a 99-year lease and 33% of the deal would be set aside for BEE groups.

Sexwale’s role

That announcement set off a flurry of negotiations to carve up the BEE stake between business people linked to the ruling African National Congress (ANC).

Philip Dexter, then on the ANC’s national executive committee (NEC), was involved early in the process, chairing meetings between what he described as a ”who’s who of BEE in the province”.

”We wanted to say that this wouldn’t be one of those BEE deals where everyone fights,” Dexter said. ”There was a serious attempt to put together a consortium, but that broke down over disagreement about who should be in and who should be out.”

Dexter subsequently ceased to be involved.

Three other sources party to these discussions said the meetings became increasingly tense over the role of Sexwale and the ANC Youth League leader Lungwa Ncwana, seen as representing Sexwale in the meetings.

Sexwale — the sources suggested — is trying to control both the bid’s empowerment portion and secure the 66% ”lead developer” tender. Evidence supports them.

Sexwale’s Mvelaprops is bidding for the majority stake in partnership with Hassan Adams, whose proximity to Rasool has attracted controversy. Reliable sources said the consortium is financially backed by Dubai World, Dubai’s investment arm, which Adams helped to buy into the Waterfront in 2006.

The Mail & Guardian has reported allegations that Rasool promised the Somerset Hospital site to Adams and Dubai World on during a November 2006 trip to the emirate. Rasool flatly denies this.

Four people familiar with the negotiations surrounding the empowerment component of the Somerset Hospital deal said Adams was also involved in facilitating that.

Among other meetings, they cite an October 17 2007 gathering of about 30 ANC leaders and business leaders at Mallinicks, the Cape Town law firm that represents Sexwale. Some guest saw a clear political dynamic.

A township businessperson who attended the meeting said, speaking on condition of anonymity because all invitees had signed a confidentiality agreement: ”Last year at the ANC branch meetings we first heard of Somerset Hospital. This was before Polokwane. We were told at the provincial general council that people must make sure that they put their names down for Somerset — they said we will benefit if we can ensure that our branches vote for President Thabo Mbeki,” the businessperson said.

”We were called to a meeting at Mallinicks, where we were told a consortium will be put together which will make all of us very wealthy. Mtunzi Malunga and [ANC MP] Lerumu Kalako were the two people facilitating the meeting and talking to us. Most of us are in the service industry and all of us are in the ANC. We were told that we will be given shares in the Somerset Hospital precinct deal and we will make so much money that we never have to work again.

”Lerumo and Malunga made it clear to us that they’re speaking on behalf of the premier. [They] said that they’re speaking on behalf of Fransman and Rasool and that they have the full backing of the province and of our national chairperson James Ngculu.”

ANC insiders describe Ngculu as particularly close to Kalako. He shares business interests with Sexwale and is a key backer of Rasool and Mbeki in the fiercely divided Western Cape ANC.

Kalako, however, denies any knowledge of the meeting.

”I was left with no doubt that these shares are payback time for the ANC – we were offered these shares for voting pro-Mbeki,” the M&G‘s source said this week.

Adams denied attending the meeting or seeking a stake in the empowerment consortium, but said that his consulting firm had helped would-be beneficiaries to prepare their bid.

A shelf company, Any Name 370, of which he was a director, had been made available for that purpose, but he had resigned from it, he said.

”I will put my money where my mouth is,” he told the M&G from Saudi Arabia.

”[Mvela and I] have put together a magnificent bid, with the banks.

”It was on time and to specification, but we have had absolutely no response from the provincial government yet.”

Mvela spokesperson Chris Vick said the company was ”not tendering to participate in the BEE element of this bid as it believes that this element should be in the hands of very broad-based community groupings”.

He declined to comment on the role of Dubai World in the larger development side of the bid, saying Mvela’s backers would be made known if the bid succeeded.

Other sources in the consortium insisted there was no quid pro quo for supporting Mbeki. But they agreed that ”someone could have tried to sell it that way”.

Key players in the empowerment consortium are Ncwana, Mtunzi Malunga, Temba Mvusi, Patrick Parring and Mercia Isaacs, as well as the Sexwale-linked Umkhonto we Sizwe Veterans’ Association. There appears to be no other significant bid for the empowerment stake.

The lead developer stake is being contested by the Mvela/Adams/Dubai group, Brimstone and the Public Investment Corporation in partnership with Iqbal Surve’s Sekunjalo.

It is against this backdrop that the provincial and national treasuries intervened, suggesting that the provincial government’s approach probably violated the rules governing public-private partnerships and the sale of state land.

Treasury report

The M&G has obtained a provincial treasury report which says that the project should be governed by public-private partnership rules and that in its current form it violates these rules.

Provincial and national government officials told the M&G that the legality of the tender was open to challenge. Perhaps more seriously, they said the feasibility study had been so unprofessionally done that it was impossible to establish the real value of the land — which has been roughly estimated at R1-billion.

The treasury also found that Fransman’s department lacked the capacity to handle a project on this scale.

”It’s clear — that the department will have a major challenge to handle a project of this nature, which … is totally driven by a range of consultants who have a vested interest in the project.”

Both the provincial and national treasuries recommend the cancellation of the existing process and a new start using the PPP delivery mechanism, ”as the process would be construed as being irregular and open the provincial government to negative audits and possible legal consequences”.

Reacting, Fransman sparked outrage this week by accusing opponents of the deal of racism. He told the M&G that he was not accusing the responsible treasury official, Joey Pillay, of racism, but ”was rather talking about institutional racism”.

”The pattern of ownership is not changing in town and a PPP will have only a 10% BEE component,” Fransman said.

Western Cape finance minister Lynn Brown said Fransman had misunderstood the figures. ”Under a PPP the BEE component of the deal will be between 33% and 50% of the total deal. Fransman doesn’t understand the deal.”

The 10% referred to the weighting of empowerment factors in considering bids, she said, not the ratio of black shareholders.

”Something very odd is happening here,” Brown said. ”Cabinet took a decision to lease out the Somerset Hospital precinct for 99 years last year. For the next seven months Treasury was not involved at all and then I saw the advertisement in the newspaper in September.

”The normal procedure to follow would have been to take Cabinet’s resolution and look at the financial modelling.

”The financial modelling has to come through us because we are experts on this large-scale project,” Brown said.

She said it had to be remembered that whoever benefited from this deal would probably become dollar billionaires.

”This money has made monsters of good people,” Brown said.

ANC provincial spokesperson Garth Strachan also defended the treasury, saying that the officials who had answered questions on the Somerset Hospital tender in the provincial legislature ”did this to the best of their abilities [and] without malice or racist intent”.

”The executive should defend its decisions and processes on the strength of the content of these decisions, not by imputing unproven ulterior motives to public servants,” Strachan said.

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Nic Dawes Author
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