The wreck­ing balls

KILLING CON­STRUC­TION

Finweek English Edition - - FRONT PAGE - BY TINA WEAV­IND ed­i­to­rial@fin­week.co.za

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.

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