Ripping off the state can be big business

Murray & Roberts was guilty of collusion but is suing Gauteng. (Delwyn Verasamy, M&G)

Murray & Roberts was guilty of collusion but is suing Gauteng. (Delwyn Verasamy, M&G)

COMMENT

The government has been criticised many times for being too soft on corporate South Africa, especially when its members act against the best interests of the country and its citizens. Whether the businesses are Sasol and ArcelorMittal and involve attempts to get a “developmental” price for polymers and steel respectively, or telecommunications operators that have been taking South African business and citizens for a ride for decades with exorbitant communication costs, a recent example rams the point home.

It was reported last week that arbitration between the Bombela Civils Joint Venture, in which Murray & Roberts (M&R) is a 45% shareholder, and the Gauteng provincial government will begin this month. The other shareholders are Bouygues (45%) and SPG (10%).

The claim relates to costs allegedly caused by the provincial government through delays and disruptions in the construction of the Gautrain.

The M&R group chief executive, Henry Laas, said the claim amounts to billions of rands.

He was at the helm of M&R when, in July 2013, the construction firm admitted to 21 separate cases of collusion and anticompetitive practices relating to construction projects. M&R settled 17 of these cases, with the Competition Commission stipulating that it should pay a fine of R309-million.

Slap on the wrist
If these violations had not been settled under the commission’s fast-track settlement process, the construction firm could have been liable for a 10% fine on group turnover for every single violation, a fine that would have been so large – think billions of rands – that it could have crippled the company.

So to say M&R got away with a R309-million slap on the wrist is not being disingenuous.

But M&R disputes this.
It says it only won the tenders for seven of the 17 projects it colluded on, and the profit generated from the seven projects was almost half of the fine paid.

“The R309-million penalty levied against Murray & Roberts is a significant fine and will serve as a stark and long-term reminder to employees and management that anticompetitive behaviour will not go unpunished,” the company said in a response to questions from the Mail & Guardian this week.

“The entire process, subsequent findings and resulting negative publicity has weighed heavily on the group, its employees and stakeholders,” Laas said.

According to the settlement agreement, the final R103-million payment of the fine is due sometime around August this year.

Gautrain project
Significantly, one of the projects listed in M&R’s settlement agreement with the commission is the Gautrain project. The document states that Wade Walker, a subsidiary of M&R, colluded with Group Five to rig their budgets for the electrification of the Pretoria, Midrand and OR Tambo Airport stations.

But M&R said the collusion took place on subcontracts to the joint venture and if this had resulted in higher prices, it would have affected the joint venture and would not have cost the Gauteng government more.

The real issue is that M&R is prepared to take legal action against the provincial government to recoup money resulting from delays and disruptions in building the Gautrain, but the provincial government has not made any attempt to recover damages, other than the fine levelled by the commission, from M&R for collusion.


Murray & Roberts chief executive Henry Laas. (Robert Tshabalala, Gallo)

Once a member of a cartel has admitted guilt and the Competition Tribunal has approved a settlement with the commission, a certificate is issued by the tribunal allowing any affected party, including the government, to claim civil damages against the guilty member.

The Gautrain example shows that even on a project in which there was admitted collusion by M&R, the construction firm will pursue its rights in terms of the law, but apparently the government will not.

This raises the questions: Why is the government so reluctant to enforce its legal rights and why is it being so soft on corporate South Africa?

Private sector clients
Not all of the 17 projects named in the collusion case involved the government; some were for private sector clients. M&R and its subsidiaries has admitted to rigging tenders for large private sector companies such as Pretoria Portland Cement, PG Bison, Assmang Iron Ore and East Rand Water Care.

The projects include a pre-heater tower in Dwaalboom, a particle boards plant in Ugie, a processing plant, a product load-out facility, an export railway for Assmang Iron Ore, the electrification of a uranium processing plant in Malawi and a zinc processing plant in Burkina Faso.

But several cases in which M&R has admitted collusion on projects were for state-owned entities or the state itself. These include work done for the South African National Roads Agency (Sanral), Eskom, the Trans-Caledon Tunnel Authority and the Polokwane municipality.

In the case of Polokwane, it was for the construction of the Peter Mokaba Stadium. Concor, a subsidiary of M&R, colluded with G Liviero to rig the tender, the competition authorities heard. But M&R said the tender was awarded to WBHO, not Concor, so it did not benefit from it.

According to M&R’s settlement agreement in 2006, Concor also colluded with Grinaker-LTA to rig a tender for the Komati chimney project for Eskom and in 2004, Concor, in a joint venture with Hotchief, colluded with WBHO, Grinaker-LTA, Group Five, Basil Read and Ceccon to rig the tender for a new dam to be built on the Berg River.

In cases involving Sanral, M&R or its subsidiaries admitted colluding on work on the Gauteng freeway improvement scheme, on the N5 between Senekal and Vaalpenspruit and for maintenance contracts involving the N1 north, N1 south and the N17.

It was also at a meeting of road contractors in 2006, where road contracts were divided up between the participants.

Sanral to sue
Sanral has announced its intention to sue members of the cartel to recoup damages for rigged road tenders. M&R said it is aware of the steps Sanral is taking and has co-operated with it, although “to date, we have received no claims for civil damages from Sanral”.

In a recent opinion piece in Business Report, Sanral’s company secretary and risk officer, Alice Mathew, wrote that Sanral’s commitment to clean governance and taking a zero-tolerance approach to collusion and corruption is well documented.

“For Sanral, it is absolutely vital that we maintain our credibility as a custodian of the money from taxpayers and corporate investors,” she wrote. “Sanral’s decision to pursue action against construction companies found guilty of collusion – which is a form of corruption – is proof of the agency’s commitment to good corporate governance. We have an obligation to recover the money on behalf of citizens.”

What about public infrastructure projects such as the Peter Mokaba Stadium, the Berg River dam and Eskom’s Komati chimney? Don’t citizens deserve to have damages reclaimed on these projects?

The short answer is they do, but only the government can explain why it is reluctant to pursue damages against those in the construction cartels.

Lloyd Gedye

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