Letters to the editor: September 15 to 21 2017

Kwane Capital says there was nothing irregular in the procurement process that awarded it a tender to supply earthmoving equipment to the Mahikeng municipality. (Toru Hanai/Reuters)

Kwane Capital says there was nothing irregular in the procurement process that awarded it a tender to supply earthmoving equipment to the Mahikeng municipality. (Toru Hanai/Reuters)

The article about Kwane Capital and me (Ire over plum tender for ANC funder) contains an unfortunate characterisation of me and appears to be largely influenced by a misunderstanding of the business of Kwane Capital.

Kwane Capital derives its income from acquiring new construction plants and equipment by borrowing funds against the value of the equipment and renting that equipment to its clients, which for the most part are municipalities.

The rental is at a margin that exceeds the loan repayments to the bank and that margin constitutes the profit made by the company. At the end of the rental period, full ownership of the plant and equipment is transferred at no cost to the municipality, which then derives continued value from the plant and equipment.

The rent-to-own model is used in various industry sectors and is not unique to Kwane Capital. It allows a cash-constrained municipality to acquire the necessary plant and equipment it could not afford if acquired by direct purchase.
As a result of the rent-to-own model Kwane Capital receives rental instalments for the duration of the rental agreement, which is typically a 36-month rental period with an upfront deposit.

During this period the plant and equipment are under warranty and subject to a 24/7/365 maintenance and service agreement.

Every contract concluded with a municipality has arisen from an open tender or through the provisions of the Municipal Supply Chain Management Regulation 32 of 2005, which allows a municipality to procure goods or services for the municipality under a contract secured by another organ of state (such as another municipality) in the context of competitive bidding processes and using the same terms and conditions of contract.

The suggestion in your article that Kwane Capital secured a R165-million contract without the requirement of having to tender for that contract is not correct. The Mahikeng municipality relied on regulation 32 to acquire plant and equipment from Kwane Capital, having obtained the tender specifications and bid documents from the Mbhashe local municipality, which had awarded a tender to Kwane Capital. Because Kwane Capital had followed a formal bid process with Mbhashe and had been awarded that contract, Mahikeng was entitled to rely on regulation 32.

Thus, though there was no actual tender, the contract was awarded to Kwane Capital in terms of a valid and lawful procurement process, contrary to what is suggested in your article.

The Mahikeng contract required a deposit of R18 113 799.66. This was paid by way of a bank transfer of R10-million on December 23 2015 and the balance of R8 113 799.66 on January 8 2016. Kwane Capital bank statements confirming this have been made available for your inspection.

This dispels the suggestion in your article that the payment of R10-million was for anything other than as stated above.

In response to the insinuation that there was something irregular in the manner in which Kwane Capital was placed on the service provider database of Mahikeng municipality, when a municipality uses regulation 32 it is relying on a service or supply from a service provider of another municipality or organ of state, so [it is] only once the municipality using regulation 32 has approved that process that a company would be placed on its database of service providers.

There was nothing untoward or irregular in the appointment of Kwane Capital as a service provider to Mahikeng municipality and this becomes evident once the provisions and requirements of regulation 32 are understood. The attempt to politicise the Mahikeng transaction is unfortunate.

Mahikeng was placed in administration and the decision by the provincial government to deploy any individual to that administration was unrelated to this transaction. As demonstrated, the speculation that the R10-million amounted to an irregular or corrupt payment was incorrect, as is the attempt to connect that payment to anyone seconded by the provincial government to Mahikeng municipality.

What is not in doubt is that Mahikeng is in possession and makes use of, on a daily basis, R167-million worth of plant and equipment supplied by Kwane Capital with a full service and maintenance contract and the potential to take ownership of this plant and equipment at the end of the three-year period, at no additional cost. This is why there was a R18.1-million deposit and monthly instalments were set up.

I am not averse to a councillor from any political party being given access to any and all of the documents relating to this transaction. If indeed the Democratic Alliance’s Lisa Schickerling has been frustrated by the Mahikeng municipality in her efforts to investigate this transaction, she is welcome to contact me for any documents.

This was not an irregular or corrupt transaction. – Mcebisi Mlonzi, director, Kwane Capital

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