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Locomotive deal done in secret
Deputy President Kgalema Motlanthe's special adviser is set to benefit from a new R1.4-billion Transnet locomotive procurement deal that was concluded without being put out to tender.
This is the second time that Khulu Mbatha, the chairperson of BEE company African Sky Innovative Solutions, will benefit from the deal. The first was in 2006 when Venus Railway Solutions won an open R3.5-billion tender to supply Spoornet with about 150 locomotives. African Sky Innovative Solutions owns 20% of Venus Railway Solutions.
The government said it didn't put the latest deal out to tender because Venus had already built so many of the same locomotives and it needed another 32 urgently. But the development has highlighted a loophole in the law that allows government advisers on five-year contracts to also carry out business deals with government.
Mbatha, who is Motlanthe's special adviser on political issues, was a private businessman when the consortium his company has shares in won the Transnet bid. But he had strong links to the ruling party, having been the first private secretary to the late Foreign Affairs Minister Alfred Nzo. He then became consul-general in Germany, and after that acting director-general of the Department of Home Affairs.
Mbatha's business partner, Zolile Magugu, was the special adviser to former deputy president Phumzile Mlambo-Ngcuka at the time of the first Transnet tender. Magugu is now out of government. At that time, Transnet said African Sky Innovative Solutions held a 15% stake in the deal.
Idasa senior researcher Gary Pienaar said there were no laws stopping government advisers from doing business with government, because they were classified as consultants and not public servants. "It is one of the long-standing loopholes. There are no rules applying to ministers or presidential advisers at all," he said. But good governance means that three quotations should be obtained before any deals are made. "They can't simply extend the contract to existing service providers, otherwise they would end up using one company forever," said Pienaar.
Derek Luyt of Rhodes University's Public Service and Accountability Monitor said: "Ethically, anyone working with government, whether as an employee, consultant or 'special adviser', who is also profiting from government tenders, is involved in a conflict of interests."
The new deal, concluded in December 2010, is for an additional 32 locomotives to transport iron ore from the Sishen mine to the port in Saldanha Bay.
Congress of the People MP Mlindi Nhanha brought the deal to light when he asked Public Enterprises Minister Malusi Gigaba in a parliamentary question last month to explain why there had not been a tender, and how much the deal was worth.
Gigaba replied that government had chosen to give the deal to Mitsui, a Japanese company, because it was already making 44 locomotives of the same kind. "No company tendered for the contract to deliver the 32 locomotives from Mitsui in Japan because the procurement of these additional 32 locomotives was confined to Mitsui," said Gigaba. "The total value of the transaction cannot be made public because it is commercially sensitive. There is no further relevant information," Gigaba said in his reply.
In fact, Mitsui had already announced two months before on its website that the deal was worth $230-million, or about R1.4-billion. Mitsui also pointed out that the contract was between Transnet and Venus Railway Solutions, of which Mitsui only owns 55%. The other 45% is owned by local black economic empowerment companies - African Revival Holdings owns 25% and African Sky Innovative Solutions owns 20%.
Gigaba's spokesperson Richard Mantu defended the deal as an "acquisition process via confinement". Gigaba was correct not to reveal this because all financial information pertaining to the contract was "commercially sensitive".
Mantu said the deal was part of government's New Growth Path economic policy. Because much of the assembly work would be done locally, 734 jobs at the Johannesburg-based Union Carriage and Wagon engineering company had been saved. The companies would also have to operate a welding school to produce nearly 700 welders. An open tender process "would have caused a delay in delivery by a further two to four years ... confinement was considered the best procurement option," he said.
Transnet's head of corporate and public affairs Mboniso Sigonyela also defended the secret deal, saying: "A disclosure of what we paid will give other suppliers an indication of the price we are willing to accept in future transactions. This will have a negative impact on our ability to negotiate competitive pricing in the future."