The R500-million dairy partnership between the Free State government and a company linked to the Gupta family has thumbed its nose at treasury rules drawn up to stop private interests from abusing public money.
This week, the treasury confirmed that its dedicated public-private partnership (PPP) unit had not approved the dairy project, nor had the Free State government sought the required permission to join forces with the company, Estina.
South Africans are carrying the cost of Estina's privileged treatment, as the government has handed it 4 400 hectares of farmland rent-free and a capital injection of up to half a billion rand.
This largesse absolves the company from the substantial risk usually borne by the private party in such partnerships.
Treasury officials declined to confirm that they were investigating the matter.
AmaBhungane recently outlined links strongly suggesting that the Gupta family – which is close to Free State Premier Ace Magashule and employs his son – is behind the dairy project. Estina has denied this and the Guptas have not responded.
On the Krynaauwslust farm near Vrede, the dairy will house 500 cows and a milk processing plant. Another 500 cows will be donated to community members, who will sell milk to the plant.
The land is owned by the province, which has handed it to Estina under a 99-year, rent-free lease.
The Free State has redirected a huge chunk of its budget to the dairy, punting it as a "mega public and private partnership".
In a proposal seen by amaBhungane, Estina asked the provincial government to stump up a R500-million capital injection over five years. The Free State agreed to do this for at least three years.
PPPs such as the Vrede dairy are regulated by a treasury unit empowered by a regulation under the Public Finance Management Act.
The treasury website states that in a contract between a private company and the state, the company typically provides most of the money and expertise, assuming "substantial risk". In return, the state allows the company to use government property for commercial benefit. The project should perform a service to South Africans that the government might ordinarily have provided, be driven by empowerment principles, and generate skills and jobs.
The treasury regulation outlines a strict process to be followed, including a feasibility study, competitive bidding process and robust negotiations. At each step, treasury approval is required through the PPP unit.
99-year lease agreement
But treasury spokesperson Jabulani Sikhakhane confirmed this week that the Free State government had "neither discussed nor sought approval for the project in question from the PPP unit".
Estina appears to have assumed little risk, stating vaguely in its proposal that it would participate financially "when required". The Free State agriculture department told the Volksblad newspaper that Estina would contribute R200-million.
How Estina will raise the funding remains a mystery as it lacks a discernible infrastructure, track record or resources. The answer may lie in another provision favouring the company: its 99-year lease agreement with the Free State allows it to pledge the property as security for a bond. If the project fails, state property will be forfeited to the bank, meaning that Estina may be able to contribute financially, but at the state's risk.
In addition, the agreement does not tie the lease to the project's success. If it fails and a bank does not take the farm, it is Estina's to keep.
In the proposal, Estina claims that Indian dairy giant Paras will provide expertise. But Paras maintains it knows nothing about the project.
The proposed job creation also seems wasteful. If the government stumps up the full R500-million originally requested and 100 people are given five cows each, as proposed, each "job" would cost R5-million.
Estina's only director, Kamal Vasram, said recently: "This project has been initiated after following all due processes." He referred further queries to the Free State agriculture department, which has failed to answer amaBhungane's questions.
* Got a tip-off for us about this story? Email [email protected]
The M&G Centre for Investigative Journalism (amaBhungane) produced this story. All views are ours. See www.amabhungane.co.za for our stories, activities and funding sources.