Fraud accused: Contract breach SIU’s fault

 

 

Fraud accused businessman Mcebisi Mlonzi is blaming the Special Investigating Unit (SIU) for allegedly providing bad advice to the Amahlathi local municipality that resulted in the entity surrendering the heavy construction plant equipment it had already paid him R92-million for.

Mlonzi is one of two men arrested in the Eastern Cape two weeks ago. He appeared in the Stutterheim magistrate’s court last Monday on charges of fraud related to his contract in 2014 to supply heavy plant machinery valued at R107-million to the municipality.

Appearing alongside him was former Amahlathi municipal manager Balisa Socikwa, who was charged with contravening the Municipal Finance Management Act (MFMA). The two were released on R50000 and R30000 bail respectively. Mlonzi told the Mail & Guardian his issues with the municipality were for the civil courts because they were not criminal in nature. “The SIU’s contention is that we entered into a hire-purchase agreement with the municipality without an intention to transfer the plant because it belonged to Avis and Barloworld. But we entered into early settlement with both suppliers, bought the plant, and informed the municipality they could get the equipment once installments were completed.”

He added that at the time of the dispute, in September 2016, Amahlathi had paid a R8.9-million deposit, plus 28 monthly installments of R2.6-million each, and only needed to pay a further five instalments totalling R14.9-million to take full ownership of the equipment.

The municipality’s decision to end the deal followed an instruction by the SIU, whose investigation found that Mlonzi’s company, Kwane Capital, was not the owner of the equipment.


The SIU’s report said it was established that Kwane did not have a hire-purchase agreement with Avis, and did not trigger a purchase option with the other supplier, Barloworld.

Mlonzi said he initiated the outright purchase of the equipment, using another company “with a stronger balance sheet” and informed the municipality and the SIU that he owned the titles to the vehicles.

“The consequences of the municipality’s breach of contract lies solely with the municipality, and statements and media reports attempting to fix blame on Kwane Capital must therefore be evaluated objectively on the basis of the facts disclosed herein.”

SIU spokesperson Kaizer Kganyago said: “The matter is now before the courts, unfortunately we cannot comment any further.”

The SIU’s report said Socikwa did not have a council resolution justifying the contract with Kwane.

In March 2014, after receiving a presentation on a hire purchase arrangement from Mlonzi’s Kwane Capital, Socikwa decided to piggyback on Kwane’s contract with the Port St Johns local municipality to purchase the plant. The SIU noted that the piggyback, through regulation 32 of the MFMA, did not meet requirements because the plant bought by Amahlathi varied from what was bought by Port St Johns.

The report recommended that Socikwa face criminal charges because he signed an agreement to buy equipment for R107-million without a budget or council resolution, failed to ensure it was not underused, failed to ensure that prescripts of regulation 32 were met, and was negligent in letting Amahlathi incur irregular, fruitless and wasteful expenditure of R92-million.

A forensic cost analysis by the SIU found that Mlonzi paid Avis and Barloworld R1.5-million a month for the plant and in return received R2.9-million a month from the municipality. Over the 36-month contract period this would have amounted to a R50.8-million difference for the municipality had it purchased the plant directly.

Mlonzi said the SIU’s calculations did not take into account the finance fees of the hire-purchase agreement, as well as the full maintenance.

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Sabelo Skiti

Sabelo Skiti is an investigative journalist.

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