AMABHUNGANE

Tender Comrades Part Two: Tshwane tenderpreneur’s R15m ‘EFF tithe’

By Stefaans Brummer & Micah Reddy for amaBhungane 29 September 2019
Caption
Illustrative image | sources: EFF leader Julius Malema (Photo: Veli Nhlapo) / EFF deputy president Floyd Shivambu (Photo: Sowetan / Thulani Mbele)

We present the clearest evidence yet that EFF leaders are taking kickbacks for contracts in cities where the party emerged as kingmaker after the 2016 municipal elections.

 

In Tender Comrades Part One: Trailing the Juju tractor we wrote about a City of Johannesburg contractor paying “kickbacks” to two Julius Malema companies. Now we move to Tshwane, where the evidence strongly suggests a contractor paid R15-million in “rent” to have the EFF protect his tender turf.

Coincidence or not, the contractor won despite being the most expensive of 10 shortlisted bidders. And then the city overpaid him and two other suppliers by millions due to an “honest mistake”.

On the last day of January 2019, two things happened.

1. The City of Tshwane awarded a tender worth half a billion rand to supply the city with fuel for three years.

2. One of three beneficiaries of that award, Hendrick Kganyago – who should not have won as his prices were very high – paid half a million rand to EFF leader Julius Malema’s slush fund.

Coincidence, one might say. Except that no one is saying it, for no one but the city has responded substantively to our requests for comment.

Neither the coincidences nor the payments started or stopped that day.

***

Seven months earlier, on 5 July 2018, scores of prospective bidders crammed into boardroom A19 of the New Admin Building, downtown Pretoria. They were there for the compulsory briefing by city officials, a key date in the life of a tender.

The next day, Kganyago made his first payment, R250,000, to the company we and others have exposed as Malema’s slush fund.

The tender closed 18 days later, on Monday 23 July. In due course, city officials would have opened the box to evaluate the 85 bids received.

That Friday 27 July, Kganyago made two more payments: R500,000 to the Malema company and R1-million to a company connected to Marshall Dlamini, an EFF MP, central command member and “fixer”.

By 31 January this year, when the city awarded the tender to Kganyago’s Balimi Barui Trading (BBT) and two other bidders, Kganyago and his companies had paid more than R5-million to each of the Malema and Dlamini-linked companies.

And he did not stop. As Kganyago’s profits rolled in – super-profits as the city had made a “mistake” in calculating prices – he kept feeding both companies and a second Malema company. By the end of August this year, the running total topped R15-million.

The city this week admitted significantly overpaying BBT and the other two suppliers, but denied city officials had colluded with the suppliers. It also said it was “yet to be proven” that the award to BBT was untoward.

Kganyago did not respond to a detailed request for comment e-mailed to him three weeks ago nor to repeated attempts to contact him.

Tender turf

Kganyago, 40, has left few personal digital footprints. But his BBT Group’s website and Tshwane procurement records tell a tale of a man caught in the cut and thrust of tenderpreneurship.

BBTs website speaks of a diversified group that includes interests in energy, fleet management, debt collection and retail. Many of its clients are municipalities.

When we first started looking at the Tshwane fuel tender, not long after its award on 31 January, a city source inadvertently sent us in the wrong direction. “Kganyago – ANC?” our notes read.

Procurement records show Kganyago making inroads in Tshwane as of 2014, when BBT won tenders for debt collection, cement supply and a council property. Relevant or not, the ANC ruled the city then.

Before a DA administration took office in August 2016, BBT won more tenders: for debt collection again; to supply underground cable conduit and chemicals; and the big one, awarded in July 2015, to supply the city for three years with fuel for its fleet of cars, bakkies and trucks.

During 15 months between 2016 and 2018 for which we found council records, BBT was mostly among the city’s top 20 vendors, providing it with a monthly average of R10.65-million in goods and services. Fuel would have accounted for most of that.

Kganyago may or may not have been “ANC”, but he had turf to protect when the DA administration – propped up by a sizeable but fickle EFF minority – re-advertised “his” fuel tender in June last year.

Fuel payment’

Mahuna Investments’ Absa account statement shows a R250,000 credit on 6 July last year, the day after the compulsory briefing in downtown Pretoria. Next to it, there is the simple reference “HK” – Kganyago’s initials.

Subsequent payments to Mahuna referenced “Mmaseroka” – the name of Kganyago’s family trust and some of his companies – and “fuel payment”.

Dots were there to connect.

Similar references, often on the same day, appeared on the FNB account statements of a separate company, DMM Media and Entertainment, leaving little doubt that this company was being paid from the same source and for the same purpose as Mahuna.

We identified 17 payments totalling R10.8-million from Kganyago and his companies to Mahuna and DMM Media between the dates of the fuel tender being advertised and awarded.

But who were Mahuna and DMM Media, whom Kganyago had by then paid more than R5-million each?

Both amaBhungane and the Daily Maverick have written about Mahuna, whose bank statements show income also from a City of Johannesburg contractor, Afrirent, and a pattern of expenditure supporting Malema’s lifestyle and EFF party needs.

Neither Mahuna’s sole director, Malema cousin Matsobane John Phaleng, nor Malema and the EFF replied to our requests for comment. Malema announced a ban on amaBhungane attending EFF events after we sent the party initial questions for this story.

DMM Media has not enjoyed similar exposure.

Its website is down. Its Twitter feed, which describes it as an e-commerce company “established by Wesley Dlamini in 2015”, went inactive in 2017 after advertising consumer electronics for a while. A different online entry said it did events management.

Company registration records confirm its sole director is Wesley Dlamini, 30, who did not respond to our requests for comment.

There is much connecting DMM Media and Wesley Dlamini to the EFF and Marshall Dlamini, 42, one of the party’s founding members.

Wesley shares directorships in separate companies with Brian and Lucky Shivambu, brothers of EFF deputy president Floyd Shivambu.

Credit records indicate that Wesley has worked for a civil engineering company, Eyethu Translodge and Plant Hire, that Marshall founded. When Eyethu subcontractors accused Marshall of not paying them in 2016, he reportedly replied that he had sold the company when becoming an MP the year before.

And DMM Media shares its name and a logo with DMM Holdings, whose Twitter profile says “Marshall Dlamini established [it] in 2013 as a black-owned enterprise providing diversified services and products”.

Marshall, whose initials are MMD, has since resigned as a director of DMM Holdings and a dozen other DMM companies. Whether he also relinquished ownership is not clear.

But Marshall Dlamini appears not to have retired from commerce altogether.

When we researched our first story on Afrirent and Mahuna, a former City of Johannesburg executive told us he had been summoned to a meeting with Dlamini, who had tried to influence the award of the city’s fleet contract to Afrirent.

While researching the present story, a source who requested anonymity but is close to events, told us Dlamini interacted with City of Tshwane officials and allegedly attempted to influence procurement.

Dlamini did not respond to a detailed request for comment, but has told us before: “I’m a member and leader of the EFF and deployed as one of its members in Parliament. I’ve nothing to do with what is happening in local municipalities particularly as it relates to tenders or any of the official[s] in the municipalities.”

BBT’s bluff

The City of Tshwane was wracked by infighting during the second half of 2018. The EFF, though in de facto coalition with the governing DA, flexed its muscle by gunning for then-mayor Solly Msimanga and siding with the ANC in saving Moeketsi Mosola, the then city manager, from being suspended over the irregular appointment of consulting firm GladAfrica.

In the meantime, nothing had been done about the fuel tender. It became urgent as Kganyago’s original three-year contract, already extended, was to expire at the end of January 2019.

The record of the procurement deliberations shows that Mosola appointed five officials to a bid evaluation committee on Friday 25 January, tasking them to complete their work over the weekend.

The committee went through the customary disqualification of non-compliant bidders and elimination of those who did not score above a specified threshold on functionality.

The evaluators were left with a shortlist of 10 bidders who they proceeded to rank by price. They put BBT first, recommending that it be appointed along with the next two on their list. (The specification all along had been to split the contract between three suppliers.)

But they ignored a giant red flag: BBT’s prices were wildly out of kilter with those of other finalists. It was hugely expensive on two out of six grades of fuel, which it more than offset by quoting risibly cheaply on the remaining four.

Clearly BBT, as the incumbent, knew something that other bidders did not. We made inquiries. Indeed, figures from several months’ consumption this year showed that the city was using only the two grades on which BBT had quoted high.

So BBT had gamed the system, seemingly confident that the city would not call its bluff. It would win the bid by quoting very low on fuels the city did not use; then profit from supplying, at extortionate prices, the two fuel types that the city used.

When we re-ranked the bidders by weighting the shortlisted bidders’ prices according to actual consumption, BBT came in an expensive, distant last. For details, see BBT’s bluff explained at the end of this story.

The evaluation committee sent its recommendation to the adjudication committee composed of top officials who met on Monday and Tuesday 28 and 29 January.

The procurement record shows that one adjudicator “expressed his concern with the discrepancy in prices of the respective service providers”. Apparently, he saw the red flag we did.

But the committee’s solution was not to ask the evaluators to weight the prices and re-rank the bidders. Rather, it endorsed the appointment of BBT and the two others, recommending only that city manager Mosola negotiate each of them down to the best price any of them had quoted for each fuel type.

The city last week defended the appointments, pointing in a written response to the above solution as an attempt to avert the “risk of significantly higher prices”.

It said: “Any possibility of BBT ‘gaming’ the City was not successful as the City is now benefitting from lower prices on grades that are not widely used and market related prices [for grades] that are widely used.

Whether there was collusion or wilful negligence, it is yet to be proven if such is the case. At a committee level, value for money was taken into consideration and the City is still of the view that the award made was in the best interests of the City.”

But the city has not been benefitting at all. Read on.

Honest mistake’

A day after the adjudication committee made its recommendation, another R501,200 from Kganyago hit the account of Dlamini-linked DMM Media. The next day, Thursday 31 January, it was the turn of Malema’s Mahuna, which got R501,400.

That same Thursday, Mosola signed off on the tender award to BBT and the two other bidders. His letters set as a condition that the bidders accept the lower prices that the adjudication committee had recommended.

So BBT might not have deserved to win the tender, but at least would not make the super-profits it had aimed for by gaming the system, right? Wrong.

The city has not responded to our questions about who finalised the pricing and contracts. But whether by accident or design, the culprits gave Kganyago the means to keep paying Mahuna and DMM Media.

First, a detour into fuel pricing, which is regulated by the national government:

Each month the Department of Energy revises prices, starting with a “basic fuel price” based on the cost of imported fuel. Then substantial taxes, levies, costs and permissible margins are added to give wholesale and retail prices.

(As an aside, BBT’s bluff of quoting low on grades the city did not use should have been obvious from the mere fact that it quoted below the basic fuel price for low-grade diesel.)

The upshot is that fuel price quotes are variable – they can be expressed as a premium or discount to the regulated price and should be adjusted accordingly each month.

Tshwane’s tender documents recognised this principle, asking bidders to give the wholesale price for each grade of fuel as at the tender closing date in July last year, amended by their own discounts and premiums.

When the tender was awarded six months after it closed, regulated prices had dropped more than R2 per litre of petrol and more than R1 for diesel. The prices accepted by the city should have been revised downward by the same margin when the contracts started in February.

Instead, someone adjusted them upwards, city financials show. The calculations are ours.

And so, despite the apparent attempt to limit the damage of BBT’s bluff, the city ended up paying an extraordinary R4.74 more per litre for unleaded 95 and R2.51 more for high-grade diesel, the two grades in demand.

This was not only back in the ballpark of BBT’s very high quotes, but also above pump prices – obliterating the purpose of going out to tender for wholesale supplies.

Using the city’s estimates of its monthly fuel consumption, we calculate it has overpaid by about R2.6-million a month, which adds up to more than R18-million until the end of August.

If the overpayment continues, the waste of ratepayers’ money will approach R100-million at the end of the three-year contract period.

The city responded by paradoxically agreeing that the three bidders’ appointment was “subject to their acceptance of the revised rates”, but adding that “this was the initiation of the negotiations and offered bidders an opportunity to counter”.

Beyond the prices then agreed – which the city seemed to suggest were the accepted quotes without adjusting them for the big intervening drop in regulated prices – the city admitted to “a mistake in recalculation done monthly to cater for the rise and fall in fuel prices”.

The figures amaBhungane has seen suggest the same “mistake” has been replicated faithfully, month after month, since February. Give or take some cents, the margin between the accepted quotes and what the city paid has remained the same.

The city maintained: “The payments made exceeding the agreed-upon prices were processed for all three appointed service providers. It is clear that the intention was not to benefit the service provider in question [BBT] but rather an administrative error and honest mistake made by the City.”

The price of tenderpreneurship

As BTT’s windfall rolled in month after month, so did that of the EFF-linked companies, although in April Kganyago started paying Santaclara Trading instead of Mahuna.

Santaclara, who we first wrote about a fortnight ago, is Mahuna’s twin.

Last December, after Mahuna was exposed, it changed its name to Rosario Investment – reference to Che Guevara’s birth city in Argentina. Santaclara shares a name with the Cuban town that houses Guevara’s mausoleum.

Phumi Jimmy Matlebyane, Santaclara’s sole director, has shared an address with Malema. He did not respond to us.

Noteworthy perhaps is that during this time, the City of Tshwane adjudicated a separate tender for the operation of a fuel management system. It was awarded to BBT.

By the end of August, Kganyago and his companies had paid a total of R15,070,230 to Mahuna, Santaclara and DMM.

Tenderpreneurship, it would seem, has a price where the EFF has power. DM

SIDEBAR

BBT’s bluff explained

The evaluation committee in the Tshwane fuel tender whittled down 85 bids to a shortlist of 10, which they arranged by total price, which was achieved by simple addition.

BBT was right at the top by virtue of its R73.50 total for a litre of six grades of fuel – a quote that beat the next bidder by more than R10.

This ranking earned BBT the tender award, along with MDZ Fleet Solutions and Rheinland Investments (as the intention was always to split it among the top three bidders).

But look closely at BBT’s quotes. They were wildly out of kilter with those of other finalists – hugely expensive on unleaded 95-octane petrol and high-grade diesel, but laughably cheap on the remaining four grades of fuel.

It seemed BBT, as the incumbent supplier, knew something other bidders did not. We made inquiries. Indeed, figures from several months’ consumption this year showed that the city was ordering only the two grades for which BBT had quoted high.

So BBT had gamed the system. It would win the bid by quoting very low on fuel grades the city did not use; then profit from supplying at extortionate prices the two grades actually in demand.

What should the evaluators have done? The obvious. When quotes for separate items needed in different quantities must be tallied, the rational solution is to weight each quote according to the demand for that item.

We did just that, armed with two assumptions:

  • That demand for all but unleaded 95 and high-grade diesel is nil, based on the post-tender consumption figures which showed just that; and
  • That the demand for diesel would be about nine times that of petrol. This we based on consumption figures the city gave in the tender specification, which distinguished between petrol and diesel, not between grades of each.

BBT emerged an expensive, distant last.

Even if we allowed for not-insubstantial volumes of the grades that the city did not order at all in the first months of the new contract, BBT remained last.

The city last week defended the appointment of BBT, MDZ and Rheinland, saying in a written response [LINK] that it was “still of the view that the award made was in the best interests of the City”.

It claimed that its method of simply adding quotes without weighting was “based on the specification that was approved and advertised to public as part of the tender”.

It conceded that “the bid submitted by BBT would have seemed to have taken advantage of the larger volumes that are in high demand. This, BBT would have deduced from publicly available information on volumes that was shared with all prospective bidders as part of the specification.”

The city is correct that the specification was for all types of fuel. However, we have seen nothing suggesting that bidders were warned that simple addition would be used over weighting, which in this instance would have been the rational evaluation method. And if weighting meant that some grades for which quotes were asked were discounted largely or altogether, that would have been rational too.

The city’s assertion that all bidders had access to the same information as BBT is a serious stretch. The bid specification broke down petrol versus diesel consumption overall and included a throwaway line about the city using high-grade diesel. It did not break down petrol consumption between grades at all.

Bidder 41, which came first in our recalculation, complained on its bid form that the “product splits between … grades is not clear” for both petrol and diesel.

The fact that no other finalist attempted to game the system suggests they were all angels – or just not given the information BBT had as the incumbent. DM

The amaBhungane Centre for Investigative Journalism, an independent non-profit, produced this story. Like  it?  Be  an  amaB  Supporter to  help us do more. Sign up for our newsletter and WhatsApp alerts to get more.

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