More headaches for Ramaphosa

As President Cyril Ramaphosa faces a backlash over his new cabinet and parliament's resolution on land expropriation, he and new Finance Minister Nhlanhla Nene now have a new crisis to deal with.

In the past three months Treasury was forced to block state-owned entities and government departments from blowing R15 billion on irregular purchases.

The companies and departments have continued wanting to spend money Treasury cannot afford because of a R50 billion shortfall in the budget. The largest culprits, a City Press investigation found this week, are state companies SAA, Armscor and Eskom which now fall under new public enterprises minister Pravin Gordhan. They account for more than 90% of all spend Treasury blocked for flouting tender and procurement laws.

Treasury documents City Press obtained indicate that in the past three months, Treasury has stopped:

- SAA from sourcing R13 billion in loans to spend on consultants to provide “cultural change services”, “organisational design” and recruiting foreign airline turnaround specialists; - Armscor from spending R330 million on direct procurement to refit the navy frigate Isandlwana;

- The SABC from buying three outside broadcast trailers for R12 million without a tender;

- The SA Post Office from spending R67 million on manufacturing bank cards, without a tender;

- More than five requests from Eskom totalling about R500 million – including R136 million on a security tender extension, R127 million for a technical supplier contract extension, R85million on a printing tender extension and R43 million on a catering contract extension; and

- The environmental affairs department from directly procuring R120 million on goods and services without going to tender.

Senior Treasury officials told City Press that all they could do was refuse, but it did not mean the state companies and departments abided by their decision.

“In some cases government departments go ahead and deviate [from the rules],” said one. Former finance minister Malusi Gigaba warned of this in his budget speech two weeks ago, when he said “a large number of deviations from normal procurement processes have reduced the credibility of the supply chain management system”. “Deviations can also result in anticompetitive practices that open the door to corruption and which limit transformation by preventing small businesses from doing business with the state. In future deviations will be allowed only in rare, well-justified cases,” he said, adding that Treasury would strengthen collaboration with “all law enforcement agencies” to “fight fraud, corruption and abuse” of supply chain management systems.

Two senior Treasury sources said officials at the Office of the Chief Procurement Officer declined numerous requests to “deviate” from tender laws and “extend” existing contracts, all of which amount to “irregular, unauthorised, fruitless and wasteful” expenditure.

They said some officials in state-owned enterprises (SOEs) and departments demand kickbacks from companies after securing Treasury permission to extend or award contracts without their having to tender first. “Very few companies are able to resist this. Some of these tenders are massive and the kickbacks run into millions,” said one.

The other said: “When it comes to extensions, government departments and companies will wait until it is too late to advertise a tender. They will then go to Treasury and ask for the current contract to be extended.

“Often they will find fault in the procurement process, cancel it and advertise again. In the meantime they approach Treasury and request another extension. This means that the contract will be extended several times and, while the process unfolds, money bags and brown envelopes are exchanging hands.” SA Shipyards CEO Prasheen Maharaj, for whose company Armscor applied for a R330 million tender deviation, had no idea that a deviation was requested in his company's favour. “We wish to confirm that SA Shipyards has never received any tender recently or ever from Armscor or any other state entity through a process of deviation,” he said. Deloitte, for which Eskom asked Treasury for a R22 million deviation to supply IT services, was also not aware of the request. “Deloitte is not aware that Eskom was about to award a tender to it,” said CEO Lwazi Bam.



What they said

SAA CEO Vuyani Jarana said he approached Treasury to request the deviations because the airline was in a dire financial situation.

“At the heart of it all were liquidity issues. We understood why Treasury said no, we just wanted to be pragmatic. “When Treasury said no, we went the long route. But the board was anxious to get things done,” he said. But a senior manager at Treasury said “Jarana's requests had no substance”. “In any case, we told him what his procurement department had been telling him all along, to allow procurement processes to be followed to the letter.”

Eskom spokesperson Khulu Phasiwe said it could not appoint Deloitte because Treasury blocked the appointment. Environmental affairs department spokesperson Albi Modise said the request to Treasury to appoint a service provider directly was informed by the agency's internal capacity and specialist staff.

Armscor and SABC were unavailable for comment.

NEWS24