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Volume 5, No. 70, 13 December 2006

In this Issue:





Gautrain’s murky waters: SACP Response

In his December 8th ANC Today “Letter from the President” (“The ANC, ANC leaders, BEE, and corruption”) President Mbeki launched a scathing attack on the SACP, COSATU, the Sunday Times and the Democratic Alliance. The president contemptuously dismissed concerns about senior ANC political figures being involved in businesses that stood to benefit from the R23-billion of public spending on the Gautrain project. These concerns, the president wrote, were motivated by racist assumptions.  

We have no intention of responding in kind. Waving the race card simply detracts from the very serious and principled issues at hand. In addition, throwing the race (or gender) card for expediency has the unfortunate consequence of undermining the very important struggle to rid society of racism (and gender inequalities).

From the beginning of the debate about the wisdom of the Gautrain project, the SACP has endeavoured to focus on the key issues.

  • Is spending R23-billion of public money on a project aimed at a tiny ridership of relatively affluent car-users on the Ben Schoeman highway the right priority? This question must be seen in the context of 10 million existing public transport users who are condemned to the harrowing daily experience of commuting in what is typically unsafe, expensive, unreliable and generally degrading conditions.
  • Will the current R23-billion be the last of our public spending on the Gautrain? The estimated construction costs for the project have already skyrocketed from R7-billion in 2002. Internationally, heavy rail projects of this kind have a record of going hugely over budget, and many of them are left incomplete as a result.
  • What of the operational sustainability? The Development Bank of Southern Africa’s transport economist warns that operationally the project is “high risk”, and that it may require a continuous drain of operational subsidies in order to keep running.
  • Will the Gautrain even be able to impact seriously on its major objective – to alleviate congestion on the Ben Schoeman freeway? The Gautrain project has said, optimistically, that it will cut existing traffic volumes on the freeway by 20% - but by its own admission traffic levels are increasing 7% per annum. In other words, even if optimistic ridership levels are achieved, by the time the project is up and running some time after 2010, the congestion levels will be even worse than at present.

So why has such a seemingly poor decision with high political and economic risks been taken?

The role of the Gauteng province
Part of the problem lies in the process. The National Land Transport Transition Act (2000) lays out clear policy on public transport.  Essentially, public transport planning AND implementation is a municipal/metro requirement. Municipalities are required to draw up integrated transport plans and drive the implementation of such plans. In terms of the law, the role of the provincial and national spheres of government is essentially limited to providing broad framework policy.

However with the Gautrain we have a project that has been driven provincially. The province has by-passed the spirit of the law and of national policy by setting up the Gautrain as a separate public company. The project has ridden roughshod over the integrated transport planning of the three major metros in Gauteng, all of whom have had to retroactively accommodate it, prejudicing their own plans and potentially compromising funds available for more pressing priorities.  In its 2004-2009 ITP the City of Tshwane, for instance, complains quite legitimately that the City’s “Transport Division was not proactively involved, or invited, in the feasibility and planning studies undertaken for the project” (see section 7.6.2).

What is more, having run ahead unilaterally, out of line with national policy and legislation, and having claimed that the Gautrain project would cost R7-billion, which the province could afford, in 2005 they turned to the national treasury cap in hand. Sorry, they said, we’ve made a slight miscalculation, when we said R7-billion we really meant R20-billion. Exceedingly lame excuses were proffered, among them that VAT was not included in the 2002 calculation, which if true raises questions about the competence of the whole feasibility process (which itself cost a modest R1billion).

The approach to the national treasury was accompanied by a great deal of arm-twisting. “If government walks away from the project this late into the tendering, we will never attract serious international investors again”, it was said. Gautrain project leader, Jack van der Merwe, also beat the 2010 World Cup patriotic drum. In the weeks before cabinet was due to decide on the Gautrain, he was quoted in The Star (4th November 2005), claiming that South Africa had a “moral and legal obligation” to complete the train by 2010 as it “formed part of the 2010 bid conditions”. The claim was false, and van der Merwe was reined in by the major international and local construction companies in the tenders, who knew very well that there was no way the whole project could be completed by that time.

So why, to ask the same question once more, did national cabinet, meeting in December 2005, give an in principle go-ahead to the Gautrain, including an in principle commitment to meet the bulk of the projected R20-billion public spend out of the national budget?

“Not even enough for a month’s worth of brown bread”
President Mbeki in his ANC Today letter goes out of his way to minimise the role of national cabinet: “This process, in its entirety, was handled by the Gauteng provincial government. The national government was drawn into this matter simply because it became obvious that the Gauteng provincial government would not have the resources to implement the Gautrain project.”

It is true that most of the early running on the project, and the eventual awarding of the tender was handled largely (although not entirely) at a provincial level. That in itself, as we have just said, is a serious problem. Can every province run with similar projects and then, at the last moment, present national cabinet with an alleged fait accompli and a very large bill?  National cabinet’s December 2005 green light for the project, and especially for the huge overrun on the construction budget, was a key turning point and its significance should not be minimised.

Again we ask, why did national cabinet make this decision?

The president seems to think that we are arguing that the Minister of Education, somehow influenced cabinet’s decision, because she has shares in the Black Management Forum Investment Company, which in turn is part of Gautrain’s BEE Strategic Partnership Group (SPG) which has a 25% stake in the billion rand project. We agree with President Mbeki that it is extremely improbable that cde Naledi Pandor did any such thing, even assuming that she was aware of the BMFI’s involvement in the Gautrain project in the first place.

We also have no problem in accepting that, while comrades Nosiviwe Mapisa-Nqakula and Baleka Mbete were among the 12 founding members of another Gautrain beneficiary (Dyambu Holdings), they “have not had any contact with Dyambu since 2000 and do not even own any share certificates”.

But these reassurances raise another set of questions. In the first place, you can bet that in the incestuous rivalries, back-stabbings and elbowing that occurred as various BEE companies scrambled to impress the big multinational bidders, there was much political name-dropping by those who are still active in the likes of BMFI and Dyambu Holdings. Leading political figures should not be surprised then to find their names now popping up.  It underlines the importance of a major re-think on how we draw clear boundaries between political office and private business.

More significantly, President Mbeki assures us that cde Naledi Pandor is after all just one of “the thousands of individual shareholders in these 18 [BEE] companies”, none of whom “could make a killing from the Gautrain contract”. Indeed, the President assures us, cde Pandor won’t even make enough to buy a month’s worth of brown bread. If this is the case, then it raises another question. What is BEE? Are the BEE companies in the Gautrain just thousands of individual (and passive) shareholders without any real impact on the project? Where is the empowerment? Where is the skills transfer? What are they actually doing? Who is really running the show? Is it the foreign giants, the French Bouygues and the Canadian Bombardier groups along with established white capital, like Murray & Roberts? Are we dealing with a neo-colonial project?

Bulelani Ngcuka
We’ll return to some of these questions in greater detail below. But, of course, not all black participants in the Strategic Partnership Group (SPG) own a mere handful of shares. Take Bulelani Ngcuka for instance.

One of the companies included in SPG is ILima Projects. ILima Projects is a joint venture with construction company Basil Read, which owns 30% of ILima. In September 2005, as the Gautrain best and final offer (BAFO) tendering process was approaching finality, Mzi Khumalo and Bulelani Ngcuka were offered 51% of Basil Read shares at 82 cents a share. Who did they buy these shares from? From Bouygues! Yes, the same Bouygues of France, a leading player in the Bombela consortium that just two months before in July 2005 had been declared the preferred bidder for the Gautrain. By May of this year, within 8 months, Basil Read shares had risen to above R5. Was the Bouygues sale of shares at 82 cents in September 2005 a serious miscalculation by the French multinational? Was it a stroke of speculative genius by Khumalo and Ngcuka? Or was something else at play?

At the time of the sale, Basil Read CEO Marius Heyns said the deal would give his company an advantage as it could now claim it was black-controlled. On May 17th Business Day reported that Mzi Khumalo had sold off his 25% share of Basil Read, making an estimated profit of more than R70million after a mere 8 months. And who did Khumalo sell his Basil Read shares to? According to Business Day: “Yesterday, Heyns confirmed Khumalo had sold his last remaining stock to Ngcuka and `another black investor’”.

Those with a conspiratorial turn of mind (and not necessarily only those of us who are anti-French racists) might imagine that Bouygues had smartly won political influence in South Africa at a critical moment by cutting into its South African-based Basil Read operation a prominent ANC political figure like Ngcuka. And then, this is the beauty of the thing, not only consolidating its 25% stake in the R23 billion Gautrain project as Bouygues, but also double dipping, by bringing in Basil Read as a “BEE partner” involved in the SPG component! But of course this is pure speculation, and besides capitalists don’t behave like that, do they?

ILima and Group Five
A few weeks before the December 2005 cabinet meeting, on the evening of 14 November 2005 to be precise, Group Five, another major South African construction company, held a gala dinner in Johannesburg to announce its new black partners...and they were…(you’ve guessed it)…ILima Consortium (along together with Tokyo Sexwale’s Mvelaphanda Group Limited). The deal meant that ILima/Mvela now owned 26% of Group Five.
At the gala dinner ILima chairperson Thembalenkosi Lupepe said that “though his company was regarded as a new kid on the block it had been around for a while.” He went on to tell the gala dinner that “His company was also in partnership with the preferred bidder for the Gautrain project, the Mbombela (sic) Consortium, to construct the railway line between Pretoria and Johannesburg.” (see “Group Five announces BEE partners”, www.homecomingrevolution.co.za – a website “proudly sponsored by FNB”).
This is interesting information and it would seem to confirm that before the December 2005 cabinet meeting ILima, Bulelani Ngcuka’s business partners, had become part of the Bombela Consortium. We say this because, as far as we can tell, ILima was not part of the Consortium when Bombela was declared the preferred bidder in July 2005. But in this matter it is difficult to be certain of anything.
The Gautrain website
In his ANC Today letter, President Mbeki clearly believes that the share-holding structure of the Bombela Consortium and particularly of the SPG BEE grouping is a matter of pristine public transparency. “What is the Strategic Partners Group (SPG)”, the President asks. “This information”, he goes on to explain, “is easily available on the Gautrain website – www.gautrain.co.za”.

The President then quotes from the site’s current profile of the SPG:

‘The Strategic Partners Group was formed in early 2002 by a group of 18 companies (not 13 as stated in the Sunday Times article), that represent broad-based interests of the previously disadvantaged communities...The member companies in the Group represent a wide range of South Africa's population, namely, the professionals, youth, women, organised black business, organised black managers etc..”.

In short, motherhood and apple-pie. But, as relatively frequent visitors to this website, we can vouch for the fact that specific details are exceedingly difficult to come by. Those that are provided have a habit of changing (like the number of companies comprising the group, for instance - which is presumably why the Sunday Times and the President have different figures).

This brings us back to ILima/Basil Read. Currently, at least for the purposes of the Bombela Consortium, ILima is in fact two separate companies that are part of the SPG – ILima Projects (in which Basil Read has a 30% stake), and ILima Group. According to the information that we have, ILima was not part of SPG in the bid submitted by Bombela on the 26 January 2005. It was this bid that led to Bombela being awarded the status of preferred bidder on 2 July 2005. We have been told that ILima failed to get on board because it was unable to obtain a tax clearance certificate at the time, since it was technically bankrupt.

The strange disappearing act of Loliwe
However, among the BEE companies that were indeed very much part of the successful Bombela bid in 2005 were two Loliwe companies – Loliwe Rail Contractors and Loliwe Rail Express. On the day of the announcement of Bombela as the preferred bidder by Premier Mbhazima Shilowa, the Gautrain website (the very one to which President Mbeki directs us) posted a document entitled “Bombela Consortium Profile”. There we learn that the shareholding in the Bombela consortium is:

Bombardier     25%
Bouygues…….                     25%
Murray & Roberts             25%
Loliwe Rail Contractors    16,5%
Loliwe Rail Express……… 8,5%

The official Gautrain web-site document goes on to explain that:

“Bombela recognised the importance of `active equity’, and created two new Black Entities from the members of the Strategic Partners Group (SPG), both led by the Black Management Forum Investment Company. The two corporate entities are Loliwe Rail Contractors (16,5%) and Loliwe Rail Express (8,5%), and these companies represent 25% shareholding in Bombela.” (our emphasis)

Later in the same document, in the break-down provided of entities participating in the Loliwe Companies, the BFMI is mentioned, but there is absolutely no mention of Dyambu Holdings or of ILima.

We know from the subsequent court case around this whole matter that by August 2005, a mere month after being declared as 25% stakeholders in the preferred bidder consortium, the Loliwe companies were excluded from ongoing negotiations with the Gauteng provincial government and any reference to Loliwe was air-brushed out of the Gautrain website.

Now remember that as this is happening, at pretty much the same time (September 2005) that Bouygues sells Ngcuka and Khumalo a 51% equity stake in its South African operation, Basil Read, in order that the latter might qualify as a “BEE company”.

We will pick up the threads of this in a moment…but first back to Loliwe. Why did it get excluded?

Based on the findings of Justice Schwartzmann in his Johannesburg High Court judgement of 2 November 2005, it seems that Mbuli Swana, director of both Loliwe companies, had got exceedingly greedy and over-reached himself. Swana was originally brought in by SPG as a consultant from (yes, again!) Group Five. That was in March 2003, and he was to assist SPG in the preparation of the Social Economic Development/BEE element of the Bombela Bid. In September 2003 Bombela’s initial SED/BEE proposal was submitted to the Gauteng Provincial Government. In January 2004 this part of the proposal was rejected by the Gauteng government because, it seems, the BEE component was dominated by passive share-holders (presumably by thousands like cde Naledi Pandor), with insufficient participation by active black-owned and controlled contracting companies.

It was against this background that Swana and others set about forming the two Loliwe companies which, at least on the face of it, involved black owned and controlled construction companies with some track-record in the field (although Justice Schartzman subsequently referred to the Loliwe companies as “flawed and a charade”). At least the Loliwe companies seem to have impressed the Development Bank of Southern Africa, because it was through a loan from the DBSA to Loliwe that the BEE component of Bombela successfully raised its equity contribution to the consortium. This is recorded in the 25 January 2005 minutes of the Bombela consortium as noted in Judge Schwartzman’s judgement:

“The financial commitment obtained by the Loliwe Contractors from DBSA can be used in the Submission to the Client as being SPG’s equity contribution to Bombela.”

The presence of the Loliwe companies was evidently critical to Bombela being awarded preferred bidder status. So why within a matter of weeks of being awarded preferred bidder status, did Loliwe suddenly disappear into thin air?

It seems Swana over-reached himself, and sought to present the Loliwe companies as the new BEE umbrella with himself at the head, thus completely displacing SPG. Indeed, he would have been justified in believing that he had pulled off this coup in the light of the triumphant media releases that came pouring out on the day of the announcement of the preferred bidder – from the Gautrain project itself, and from the other major partners, Bouygues, Bombardier and Murray & Roberts. All of them paraded the Loliwe companies as their BEE partners, without a mention of SPG. However, immediately after being awarded preferred bidder status, the other components of Bombela began to freeze Swana (and through him the various companies within Loliwe) out of the process. When Swana attempted to have his coup against SPG legally confirmed, he lost his court case, since there were no legally binding agreements to show that Loliwe had displaced SPG – there were just press statements and the ever-shifting Gautrain website.

Swana, no doubt, deserved to lose in court, but in losing he also effectively sold the participating black-owned engineering and other active companies in the Loliwe fold down the drain. Justice Schwartzman merely pronounced on the contractual legalities of the matter – but what about the actual economic and operational aspects? The two Loliwe companies were brought into the SPG fold in order to meet the financial and operational requirements set by the Gauteng Provincial Government particularly in regard to the need for active BEE participation, as opposed to mere passive and diluted share-holding. With the Loliwe companies excluded by the rest of the Bombela consortium within a matter of weeks of having being heralded by these very same entities, did Bombela still comply with Gauteng’s BEE requirements?

And with active BEE construction companies now excluded, was this the gap that Bouygues spotted and which led to its hurried sale of 51% of Basil Read to Ngcuka and Khumalo (neither of whom, as far as we know, have any engineering experience), so that its South Africa arm could now become the major “BEE” construction entity in the Gautrain project?

And was this also the context in which Group Five now sidled up to the formerly bankrupt ILima, having lost its BEE entry-point into the Gautrain project with its (ex?) employee Swana losing his court case?

What is the way forward?
There are dozens more issues surrounding the whole Gautrain project that require much greater clarity and transparency if the project is to restore some public trust. In all that we have said above, we have relied on matters of public record, but there is a great deal of opacity surrounding many things, including critically the role of the Provincial Government.

It will be noted that we have never once used the word “corruption”. If there is, indeed, any corruption involved in the Gautrain project then it should certainly be exposed and dealt without fear or favour. However, as the SACP, we are concerned that allegations and counter-allegations around corruption in cases like this often distract us from what are perhaps even more central questions:

  • How do we ensure that the use of billions of rands of public funds are not directed to the overwhelming benefit of established capital (international and local) and emerging local capital…perhaps without any technical corruption as such occurring? Are we in a situation in which the overlapping interests of big multinationals, established local corporations and an emerging elite, linked to our own movement, are now so intermingled and incestuous that anti-poor decisions involving billions of rand can be taken…even without actual corruption?
  • How do we ensure that public trust in public office is restored by not allowing the continuous blurring of the distinction between being a public representative and being involved in private business?
  • What can we learn from the Gautrain project so that we do not repeat the same patterns of behaviour in other major infrastructure programmes – 2010, the Dube Trade Port, etc.?
  • Is it not time to clarify much more clearly the role of provincial governments – not least in the area of big infrastructural spending?
  • Above all, is it not imperative that we conduct a comprehensive review of BEE? Is it contributing actively to economic growth and social transformation, or is it a subtraction from growth, a 25% surcharge that we impose collectively on ourselves for major projects to the benefit of a new elite? And who is really scoring on the BEE process - the people of South Africa, a small elite, or the established mega corporations, both foreign and local? The latter seem extremely adept at bending BEE to serve their own purposes?

Unless we begin to treat these concerns seriously, we will find ourselves staggering from one round of allegations and counter-allegations to the next.


Response to Moipone Malefane's article on Sunday Times (6 December 2006)

The article on the Sunday Times of December 03, 2006,  “SACP provincial leader slams Nzimande” by Moipone Malefane refers. Whilst it is not in the nature of the SACP to respond to such ill-informed articles, it is quite important that we expose values and principles that the media want to impose on the SACP.

This agenda seeks to project the SACP as a deeply divided organization, through deliberately turning a blind eye on how the SACP operates. Our organization operates according to the principle of democratic centralism. This means that we encourage robust and democratic debate within our structures. But once decisions have been taken we expect everyone to implement them, even if they might have argued against them during debate. This also means that after such robust internal debate, decisions of higher structures are binding on lower structures, and that the minority must subject itself to the views of the majority. Perhaps it is too much to expect Malefane to know and understand how our Party operates since she has never bothered to fully inform herself about this.

Just to take one issue where there is supposedly division in the SACP, let me cite one decision from the SACP statement of the SACP issued after our November 2005 Central Committee meeting:

“ The SACP’s approach to the situation of Cde Zuma continues to be informed by the position we adopted at our previous CC in August. At that CC, the SACP endorsed the resolution of the ANC’s National General Council that reaffirmed Cde Zuma’s position as Deputy President of the ANC, and committed the ANC to support him through the difficult period he is facing. This support was never understood by the SACP to be support for a presidential succession campaign. Nor have we ever understood this support to be functional or to be directed against any other grouping within the alliance.

“The CC reaffirmed that we will continue to offer principled support to the ANC’s Deputy President. This support will be carried forward within the discipline of our organization and it will continue to be coordinated by the constitutional structures of our alliance. The CC encouraged those who so wish to contribute to the Friends of Jacob Zuma Trust Fund

“The CC also reaffirmed the decisions of the last alliance 10 –a – side that agreed that perceptions of a conspiracy against Cde Zuma were widespread”

This is a standing decision of the SACP that now Malefane and others want us to believe it is a source of divisions in our organization; and there is no such. Therefore to cite one individual’s views without bothering to check our decisions is actually sloppy journalism, if not mischievous. Also, had Malefane bothered to do some more research, she would have discovered that the views of the individual leader she refers to had actually been rejected by the SACP Gauteng provincial council a week before, as not representing the views of the SACP in Gauteng!

We however have a more serious concern about the manner in which The Sunday Times cover press briefings of the SACP Central Committee meetings. Because we normally hold these briefings on a Sunday, the Sunday Times never bother to come. Because they feel pressurized to report, they then frantically call their faceless sources, or seek whatever document they can lay their hands on the day before, and write about these as if they reflect our decisions. This is highly unprofessional, to say the least. We do not mind critical engagement, but it must at least be based on principled and professional engagement.

The agenda is clear to us. It is part of a broader class offensive to isolate our General Secretary from the Party, by presenting his utterances as personally his own, whilst painting a picture of a divided SACP. This agenda will not succeed.

Malesela Maleka
SACP Spokesperson