Quietly and with the blessing of his predecessor, Mbhazima Shilowa, Gauteng Premier Paul Mashatile has created a controversial equity fund in the provincial fiscus that could see contracts worth millions of rands being outsourced without public tenders.
The Mail & Guardian can disclose that the provincial treasury has already pumped R40-million into the Gauteng Fund, of which R28-million has been spent on consultants, overseas travel and salaries in the past financial year.
The fund, to which Gauteng’s fiscus is to contribute R500-million before the end of the year, is due to be launched officially next week.
The fund will aim to raise another R6,5-billion from the private sector for investment in infrastructure and service delivery projects in the province.
The M&G is in possession of a presentation marked ”secret” that was presented to Shilowa in September last year and an information memorandum on the fund dated March 2007.
The documentation is frank about the fund’s selling point: to provide private investors with preferential access to a ”pipeline of projects” in which the fund can commercially invest.
This means that when a municipality or government department in Gauteng wants something done it must first give the Gauteng Fund ”preferential access” to the project before putting the contract out to tender.
This is not the first time questions have been asked about Mashatile’s adherence to good governance practices. The M&G reported previously on his friends benefiting from Gauteng contracts and his daughter being employed by an IT firm awaiting the outcome of huge Gauteng tenders.
Senior researcher at the Institute for Democracy in South Africa (Idasa) Len Verwey told the M&G the fund ”clearly blurs the distinction between public and private and in effect promises to use public power to secure private gains — This blurring is the problem with the fund from a good governance perspective. It has potential conflicts of interest as well as kickbacks and the like written all over it.”
The M&G can further reveal:
- The fund’s project director, Abigail Puente, was suspended from the Gauteng Enterprise Propeller (GEP) after she pursued the establishment of an equity fund against the will of chief executive David Morobe.
After her suspension Puente was moved to Mashatile’s department of economic development, where she continued putting together the fund.
- Puente, who is being paid by Gauteng to operate the fund, is a director of Freetel Telecommunications, a company in the Sandton-based Freetel group. Another company in the group, Freetel Capital, was appointed by the province to operate the Gauteng Fund.
- No approval was sought from the national treasury to establish a private equity fund in Gauteng. Treasury spokesperson Thoraya Pandy confirmed to the M&G that no approach was made by the province to launch the fund and that such a scheme would have to be approved by treasury Director General Lesetja Kganyago.
Mashatile, then provincial minister of finance and economic development, announced in his budget speech in February that R500-million would be made available as ”seed capital” for the establishment of the fund.
A ”shortfall in government revenues” is given as the reason for the establishment of the fund.
The ultimate aim of the fund is to raise R7-billion and use it to obtain further debt of R35-billion to be spent on ”pressing needs”.
These include the rollout of the massive Blue Umbrella/Gauteng Link broadband network, the building of hospitals in Soweto and Ekurhuleni, the implementation of the Gauteng freeway improvement scheme, and the construction of the Tshwane International Cargo Airport and Amakhosi stadium precinct in Krugersdorp.
Some of these projects fall under other Gauteng agencies or departments, but will be moved to the fund if investment is secured.
”The most disturbing aspect of the Gauteng Fund is, of course, that of ”preferential access” to deal flows,” says Verwey, whom the M&G asked for an opinion on the fund’s structure. ”As I understand it, in effect Gauteng would be putting pressure on municipalities and departments to use its preferred suppliers and to conduct their operations in a way which ensures the success of a fund which it deems outside the direct ambit of political accountability.”
The M&G is also in possession of a legal opinion requested by Mashatile’s former department from senior counsel Vincent Maleka on whether the Gauteng Fund qualifies as an ”organ of state” in terms of the Constitution.
If it does, legislation governing procurement will apply to the fund’s projects.
Maleka concluded that the fund would not be regarded as an organ of state if it will be involved only in the funding of projects. However, it will qualify as an organ of state if it becomes involved in the implementation of the projects it is funding and the selection of operators related to them.
But, says Verwey, the legal opinion is ”not that useful” because any entity that receives money from provincial revenue must remain politically accountable for its use.
”In essence the fund is trying to seduce the private sector by giving them quasi-monopolistic privileges, which would include the tacit right to set prices hard. This is the problem with the Gauteng Fund; and yes, it is undoubtedly anti-competitive in this sense.”
The auditor general, in its annual report on the fund’s finances, gave the fund a qualified opinion and reported that no proof could be found that consulting services of R26-million were put out to tender.
GEP’s board gave Puente, who started to work as chief operating officer of GEP in July 2006 the task of investigating the possibility of establishing an equity fund. Puente clashed with Morobe, who allegedly perceived her to be working in isolation and refusing to take orders.
Morobe subsequently suspended Puente, who was swiftly moved to the department of economic development and later to the treasury, where she is now the Gauteng Fund’s project director.
Puente is allegedly a close associate of Freetel head Enos Banda and joined his Freetel Telecommunications as a director in June this year. Banda is the former deputy chair of GEP, who quit his position early this year and is indicated in documentation on the Gauteng Fund as the fund manager.