/ 15 September 2017

Boardless Prasa inks R57bn deal

Off course: The multibillion-rand contract to build a railway line on the Molotso corridor between Gauteng and Mpumalanga went to the China Communications Construction Company Limited Delwyn Verasamy, M&G
Off course: The multibillion-rand contract to build a railway line on the Molotso corridor between Gauteng and Mpumalanga went to the China Communications Construction Company Limited (Delwyn Verasamy, M&G)

The Passenger Rail Agency of South Africa (Prasa) last week entered into a whopping R57‑billion deal with a Chinese bank and did so without having a board in place or even a permanent chief executive.

An absent board, far from paralysing the decision-making function at a state-owned entity, appears instead to be a golden opportunity. Without a board, just one individual can enter into contracts without having to run them past a string of directors.

The law allows for this. As outlined in the Public Finance Management Act (PFMA), every public entity must have an accounting authority. This typically takes the form of a board or a controlling body. If such a structure is absent, the chief executive or another person in charge is the accounting authority.

In an “exceptional circumstance”, the treasury may instruct another functionary of a public entity to be its accounting authority.

Prasa did not respond to questions about who its accounting authority is, but its former company secretary, Lindikaya Zide, is the agency’s acting chief executive.

Democratic Alliance transport spokesperson Manny de Freitas said that who exactly had the power to sign on behalf of Prasa was not clear and that this, and other questions, had been submitted for answering in Parliament.

On the sidelines of the Brics (the Brazil, Russia, India, China and South Africa grouping) summit in China last week, Prasa’s accounting authority — whoever that may be — signed South Africa into a R57‑billion deal with the state-owned Export-Import Bank of China to build the Moloto Rail Development Corridor, a new railway line along the notorious Moloto Road linking Mpumalanga and Gauteng. Moreover, the bank requires the China Communications Construction Company Ltd to be awarded the contract.

As such, Prasa would have to obtain permission from the treasury to deviate from procurement law. But the treasury says it has received no such communication from the agency.

Prasa referred questions from the Mail & Guardian to the transport department, which did not respond.

The mooted Moloto rail development had seemingly gone quiet after a feasibility study was finalised at the end of 2014. At the time, the project was estimated to cost R34‑billion.

Last week’s deal follows a long-running battle between the Prasa board (now fired) and former transport minister Dipuo Peters as well as a poor working relationship with the new minister, Joe Maswanganyi.

Earlier this year, the Prasa board voted to dismiss acting chief executive Collins Letsoalo after reports that he had increased his annual salary from R1.7‑million to R5.9‑million in October. Shortly thereafter, Peters dissolved the board and appointed an interim one.

A legal challenge and subsequent judgment found the move to be irrational and ordered that the board be reinstated.

The board had been successful in redressing many instances of corruption and maladministration uncovered by the public protector, but its tenure ended on July 31. Maswanganyi is yet to fill the posts, which the DA has labelled an attempt to facilitate state capture.

Advocate Paul Hoffman, director at Accountability Now, said an absent board “may give opportunity for the corrupt to play in the traffic, but the traffic is still controlled by the Constitution and the law”.

The Constitution, he said, requires public entities to procure goods and services in accordance with a system that is fair, equitable, transparent, competitive and cost-effective. The PFMA has turned this into law.

However, the Moloto rail project will have to circumvent the normal tender procedure if it is to give the work to the China Communications Construction Company Limited. This is also the case with another deal signed on the sidelines of the summit — a R16‑billion deal for the department of water affairs and sanitation’s Mzimvubu Water Project, which requires the same Chinese firm to do the construction work.

Deviation from procurement legislation may be warranted, according to a treasury note, in urgent or emergency cases or where there is only one supplier of a particular product or service, or in circumstances relating to value or national security.

The treasury said the water department had applied for a deviation and had requested a guarantee for the Mzimvubu project on August 31, which were being considered. But the treasury said it had not received a deviation application from Prasa.

Also during the Brics summit, a R5.2‑billion deal was struck between oil and gas parastatal PetroSA with Rosgeo, Russia’s geological exploration company. This comes after the PetroSA board was replaced with an interim structure. A legal challenge was mounted by ousted board member William Steenkamp who, in his affidavit, claimed he and another board member were ejected because they did not support a partnership with the Russians.

The absence of a board or a permanent chief executive “doesn’t sort of magically relieve you of your basic constitutional duty to be fair, equitable, transparent, competitive and cost-effective when you are spending other people’s money”, said Hofmann.

David Loxton, a partner at law firm Dentons, said he could think of no one who has been held to account — either fined or jailed — for contravening the PFMA. “It’s a lame duck as long as you have got a lack of will to enforce it. No enforcement means it’s not worth the paper it’s written on.”

Said Hoffman: “Deterrence has very much to do with: ‘If I get caught, will I be punished?’ And if yes or no is the answer, that can determine the action [that will be taken].”


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