M&G stuck in a thumb, pulled out a bad plum

Mail & Guardian - - Comment & Analysis -

The ar­ti­cle about Kwane Cap­i­tal and me (“Ire over plum ten­der for ANC fun­der”, Au­gust 25) con­tains an un­for­tu­nate char­ac­ter­i­sa­tion of me and ap­pears to be largely in­flu­enced by a mis­un­der­stand­ing of the busi­ness of Kwane Cap­i­tal.

Kwane Cap­i­tal de­rives its in­come from ac­quir­ing new con­struc­tion plants and equip­ment by bor­row­ing funds against the value of the equip­ment and rent­ing that equip­ment to its clients, which for the most part are mu­nic­i­pal­i­ties.

The rental is at a mar­gin that ex­ceeds the loan re­pay­ments to the bank and that mar­gin con­sti­tutes the profit made by the com­pany. At the end of the rental pe­riod, full own­er­ship of the plant and equip­ment is trans­ferred at no cost to the mu­nic­i­pal­ity, which then de­rives con­tin­ued value from the plant and equip­ment.

The rent-to-own model is used in var­i­ous in­dus­try sec­tors and is not unique to Kwane Cap­i­tal. It al­lows a cash-con­strained mu­nic­i­pal­ity to ac­quire the nec­es­sary plant and equip­ment it could not af­ford if ac­quired by di­rect pur­chase. As a re­sult of the rent-to-own model Kwane Cap­i­tal re­ceives rental in­stal­ments for the du­ra­tion of the rental agree­ment, which is typ­i­cally a 36-month rental pe­riod with an up­front de­posit.

Dur­ing this pe­riod the plant and equip­ment are un­der war­ranty and sub­ject to a 24/7/365 main­te­nance and ser­vice agree­ment.

Every con­tract con­cluded with a mu­nic­i­pal­ity has arisen from an open ten­der or through the pro­vi­sions of the Mu­nic­i­pal Sup­ply Chain Man­age­ment Reg­u­la­tion 32 of 2005, which al­lows a mu­nic­i­pal­ity to pro­cure goods or ser­vices for the mu­nic­i­pal­ity un­der a con­tract se­cured by another or­gan of state (such as another mu­nic­i­pal­ity) in the con­text of com­pet­i­tive bid­ding pro­cesses and us­ing the same terms and con­di­tions of con­tract.

The sug­ges­tion in your ar­ti­cle that Kwane Cap­i­tal se­cured a R165-mil­lion con­tract with­out the re­quire­ment of hav­ing to ten­der for that con­tract is not cor­rect. The Mahikeng mu­nic­i­pal­ity re­lied on reg­u­la­tion 32 to ac­quire plant and equip­ment from Kwane Cap­i­tal, hav­ing ob­tained the ten­der spec­i­fi­ca­tions and bid doc­u­ments from the Mb­hashe lo­cal mu­nic­i­pal­ity, which had awarded a ten­der to Kwane Cap­i­tal. Be­cause Kwane Cap­i­tal had fol­lowed a for­mal bid process with Mb­hashe and had been awarded that con­tract, Mahikeng was en­ti­tled to rely on reg­u­la­tion 32.

Thus, though there was no ac­tual ten­der, the con­tract was awarded to Kwane Cap­i­tal in terms of a valid and law­ful pro­cure­ment process, con­trary to what is sug­gested in your ar­ti­cle.

The Mahikeng con­tract re­quired a de­posit of R18 113 799.66. This was paid by way of a bank trans­fer of R10-mil­lion on De­cem­ber 23 2015 and the bal­ance of R8 113 799.66 on Jan­uary 8 2016. Kwane Cap­i­tal bank state­ments con­firm­ing this have been made avail­able for your in­spec­tion.

This dis­pels the sug­ges­tion in your ar­ti­cle that the pay­ment of R10mil­lion was for any­thing other than as stated above.

In re­sponse to the in­sin­u­a­tion that there was some­thing ir­reg­u­lar in the man­ner in which Kwane Cap­i­tal was placed on the ser­vice provider data­base of Mahikeng mu­nic­i­pal­ity, when a mu­nic­i­pal­ity uses reg­u­la­tion 32 it is re­ly­ing on a ser­vice or sup­ply from a ser­vice provider of another mu­nic­i­pal­ity or or­gan of state, so [it is] only once the mu­nic­i­pal­ity us­ing reg­u­la­tion 32 has ap­proved that process that a com­pany would be placed on its data­base of ser­vice providers.

There was noth­ing un­to­ward or ir­reg­u­lar in the ap­point­ment of Kwane Cap­i­tal as a ser­vice provider to Mahikeng mu­nic­i­pal­ity and this be­comes ev­i­dent once the pro­vi­sions and re­quire­ments of reg­u­la­tion 32 are un­der­stood. The at­tempt to politi­cise the Mahikeng trans­ac­tion is un­for­tu­nate.

Mahikeng was placed in ad­min­is­tra­tion and the de­ci­sion by the pro­vin­cial gov­ern­ment to de­ploy any in­di­vid­ual to that ad­min­is­tra­tion was un­re­lated to this trans­ac­tion. As demon­strated, the spec­u­la­tion that the R10-mil­lion amounted to an ir­reg­u­lar or cor­rupt pay­ment was in­cor­rect, as is the at­tempt to con­nect that pay­ment to any­one sec­onded by the pro­vin­cial gov­ern­ment to Mahikeng mu­nic­i­pal­ity.

What is not in doubt is that Mahikeng is in pos­ses­sion and makes use of, on a daily ba­sis, R167mil­lion worth of plant and equip­ment sup­plied by Kwane Cap­i­tal with a full ser­vice and main­te­nance con­tract and the po­ten­tial to take own­er­ship of this plant and equip­ment at the end of the three-year pe­riod, at no ad­di­tional cost. This is why there was a R18.1-mil­lion de­posit and monthly in­stal­ments were set up.

I am not averse to a coun­cil­lor from any po­lit­i­cal party be­ing given ac­cess to any and all of the doc­u­ments re­lat­ing to this trans­ac­tion. If in­deed the Demo­cratic Al­liance’s Lisa Schick­er­ling has been frustrated by the Mahikeng mu­nic­i­pal­ity in her ef­forts to in­ves­ti­gate this trans­ac­tion, she is wel­come to con­tact me for any doc­u­ments.

This was not an ir­reg­u­lar or cor­rupt trans­ac­tion.

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