Government's failure to pay sank Sanyati

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Malcolm Lobban.jpgInappropriate expenditure and corruption are widely reported in the media – however, 2500 Sanyati Holdings employees now find it on their door step, playing a role in cutting their jobs. The former CEO gave his account of how Government’s failure to pay on contracts has contributed to the black-empowered civil engineering and construction firm’s liquidation.

South Africa has systemic corruption and incompetence in provincial and municipal government, particularly in the Free State, KwaZulu-Natal and Limpopo, said Malcolm Lobban, former CEO of soon-to-be-liquidated civil engineering and construction company Sanyati Holdings.

Lobban, who stepped down as Sanyati CEO in June, said an "unprecedented debacle" involving 23 road rehabilitation contracts awarded by the Free State department of police, roads and transport in 2010 was just the tip of the iceberg.

He said a large number of contractors, big, medium and small, have been affected by "apparent" violations of the Public Finance Management Act by the Free State, and that "irregular and corrupt" behaviour was widespread.

He said South Africa’s ability to deliver infrastructure was being "compromised" by this state of affairs.

His remarks echo wide concern in business as the government prepares to embark on a big infrastructure drive, potentially worth R3,2-trillion.

Lobban said that by the end of last May, Sanyati had an 18-month outstanding claim of R43-million from the Free State roads department, after having received R14-million in part payment late last year. In desperation, he had personally asked the Treasury for payment, to no avail.

Listed engineering and construction contractors including Sanyati, Basil Read, Raubex and Wilson Bayly Holmes-Ovcon (WBHO) have all been affected by protracted nonpayment issues, with the Limpopo government only paying contractors R280-million after a direct appeal to President Jacob Zuma, Lobban said.

The three directors-general employed by the Free State department of police, roads and transport had accused contractors of shoddy work and corruption, and had refused to pay.

"Allegations that our work was shoddy are completely unfounded. It is corruption and incompetence, and if I had to choose one over the other, I would say corruption," said Lobban.

Kobie Botha, group MD for the roads division of WBHO, said the Free State roads department had originally tendered 23 contracts, of which only 12 were carried out. These were spread between WBHO, in a joint venture with Edwin Construction, and Raubex, Basil Read and Sanyati, which won a single (and ultimately disastrous) contract.

"Remember, you had to finance these things — it’s uncommon and that’s the cause of the problems," Mr Botha said.

He said the roads department had said it did not have money, and had asked contractors to design, finance and construct the projects with "milestone" payments over four years.

"They asked for a solution, so we gave them a solution. It was an opportunity, so we took it, with (the Free State) government as a client, but it turned out to be not so great," Mr Botha said.

"We are continually trying to find a solution with the (Free State), and are positive we are close to one. Once agreement is reached we will go back and complete the contracts."

Free State roads department communications director Zolile Walaza said in July that the department had entered into a four-year payment schedule ending in 2013-14 with 12 companies because there was not enough money and "the roads were dilapidated and in need of urgent work".

Mr Walaza would not comment whether the payment schedule agreement complied with the Public Finance Management Act. However, it was reported that a Treasury source close to the matter said that all the contracts contravened the act.

Adapted from BusinessDay, 18 July 2012

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