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State defends Limpopo deal

Nov 02 2012 18:40 Sapa

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Pretoria - National Treasury and the health department on Friday defended the decision to buy a Limpopo building owned by controversial property mogul David Mabilu.

A joint statement released by the National Treasury and the health department said buying the building was part of "buy-out clauses" in the 10-year lease agreement which was reached "long before national government intervened in the province in December 2011".

The Limpopo provincial public works department had awarded Mabilu's company, Project Management and Facilitation Co-operation (Promafco), a tender for the construction and lease to the provincial government of a residential property for doctors.

"Included in the lease agreement was a clause giving the provincial department of health an option to buy the property from Promafco," said the Treasury and the health department.

"The purchase of the property was done in terms of this clause and therefore it would have been illogical to issue a tender when government was exercising its right as per the lease agreement."

The buy-out clauses in the lease agreement outlined a formula which had to be used for determining a fair purchase price.

"Applying this formula, a purchase price of R359m (excluding VAT) was derived and this was subsequently revised down to R328m (excluding VAT).

"Subsequently, the national department of health and national treasury negotiated the price down to R298m (excluding VAT), a price which consulting engineers said was fair."

The Mail & Guardian reported on Friday that the move to purchase the building had angered senior provincial government officials and members of the provincial cabinet

According to the report, the provincial authorities allege Mabilu was paid more than R300m for a building worth far less.

In their response, the departments said buying the building was the viable option as an evaluation conducted by external consulting engineers revealed that the rental rate of return of the lease was higher than the industry norm.

Secondly, the rental (reported to be at R2.1m in the Mail & Guardian) had an escalation of nine per cent per year, which was deemed to be fairly high. Thirdly, by the 10th year the rental per month would have increased to R4.5m (excluding VAT).

"This would have brought the total rental paid over the lease period to more than R400m, and government would still not own the property at the end of the lease period. 

Taking all of these factors into account, government came to the conclusion that it would be in its best interest to buy the building."

The two departments also sought to dispel allegations of breaching the Public Finance Management Act. They said Limpopo's financial position was out of the woods.

"As of November 1, the province had cash (amounting to) R2.3bn in its account before further transfers to the province by national government. Compare this with the overdraft of over R700m during the same period last year, on top of which the province was seeking an additional R1bn.

"The cash balance (of the province) excludes the R298m (excluding VAT) already set aside for the purchase of the building... So money is no longer a problem in the province."

The departments said the property developer "has not been paid a cent" and the money was in a trust account.

Sometimes referred to in the media as "Malema's sugar-daddy", Mabilu made headlines for spending around R15m to charter a plane which ferried his associates to Mauritius for a wedding junket.

He was also reported to have also deposited "piles of cash" into Malema's Ratanang Family Trust, named after the expelled youth league leader's son.
limpopo  |  national treasury
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