The wrecking balls
South Africa’s big construction companies are facing a wrecking ball from a number of fronts. The global economy has put the brakes on some of the more lucrative infrastructure work and, back at home, the government’s promised build programmes have yet to break ground.
On top of all that, the Competition Commission is refusing to let go the issue of collusion and bid rigging that was endemic in the sector for years. On 13 November, the commission announced the tranche of deals relating to the World Cup stadia build programme. Five of the seven implicated companies have denied any collusion took place in the projects into which taxpayers poured R20bn.
In the middle of last year, the companies that had done the deals in the three-year non-prescription period were f ined a collective R1.46bn. All fines ar e paid into the National Revenue Fund.
But Group Five, WBHO, Basil Read and Stefanutti Stocks have dug in their heels regarding the World Cup stadia projects. Construction company Murray & Roberts – which was given corporate leniency for snitching and for continuing to assist the commission – identified two meetings at which it said the massive World Cup stadia tenders had been rigged.
The Competition Commission is looking for 10% of the revenue each company earned in the subsections that were involved in the work.
Mike Wylie, WBHO executive chairman, has long been adamant that the public and the media have misunderstood the purpose of the collusion. One analyst who didn’t want to be named said that the meetings in which alleged collusion took place had come after the Local Organising Committees had demanded assurance that the massive projects would be completed on time. If they couldn’t deliver, the “World Cup would have been moved to Germany or Australia”.
Talking about the collusion between major construction companies, Wylie said that “it wasn’t so bad”.
The Competition Commission demanded WBHO pony up R311m last year – the biggest fine of all the 21 construction companies identified as having colluded during the three-year non-prescription period.
Mava Scott, spokesman for t he Competition Commission, said that it had “evidence” to prove that, at the end of 2006, the companies got together and discussed how the stadium tenders should be divvied up. The commission’s i nvestigations allegedly show t hat cover prices for the tenders had been arranged and that the companies agreed to aim for a 17.5% profit margin on the projects. However, no evidence was presented in the referral papers.
Speaking after his company’s annual general meeting last week, Wylie, who last year admitted he had been personally involved in the backroom conspiracies, likened the once-endemic scams to “going through a red robot”. The company had paid its dues, he said: “If you do something wrong you get fined.”
Wylie said that it was in the spirit of cooperation and in order to put the matter to bed and move on that the company agreed to pay the fine. “In our view, the fine is significant, and is more than just a slap on the wrist.”
He said after searching through more than 2 000 tenders submitted in the nonprescribed period, just “22 potential transgressions” had been found. This amounted to “just 1% of the tenders”.
Wylie has long been of t he opinion t hat the collusion issues has been blown out of proportion and misconstrued, but ref used to go i nto detail about what the true picture was, saying that it “would take too long”.
Last week, Group Five reported dismal news that earnings per share and headline earnings per share for the six months ending 31 December would be more t han 20% lower than in the same period last year. Investors panicked and the share price dropped 19% in less than two hours.
The drop was attributed l argely to a weak civil engineering market and the costs in a rest r uct uring process that is only expected to start making a difference to the balance sheet in 2016. Also the delay in the massive Kpone project i n Ghana had materially affected profits. Much of this bad news was due to the poor performance of its Mozambique pipe factory Capital Star Steel, which the group had pulled the plug on in August. In addition, Wylie said that the drawback on demand for resources had a f fected constr uction in the lucrative mining sector in Africa.