Tyre wars: Was tyre recycling scheme a money making racket?

Johannesburg - South Africa’s controversial tyre recycling scheme may have plundered a tyre levy recycling fund, instead of creating jobs and improving the environment as it promised.

The Recycling and Economic Development Initiative of SA (Redisa), the only approved waste tyre plan for the country, was liquidated on Friday after Environmental Minister Edna Molewa lodged an urgent application in the Western Cape High Court.

She applied for the liquidation after becoming aware of Redisa's intention to cease the collection of waste tyres, but also questioned where millions of rand of Redisa’s funds had been channeled.

On Wednesday one of Redisa's biggest critics, the Organisation Undoing Tax Abuse (OUTA), demanded that criminal action be taken against individuals who abused the programme for personal benefit.

"We are concerned it took five years to acknowledge several industry players' warnings. We hope these transgressors will not only be liquidated but will be prosecuted and held accountable for their transgressions,” said Julius Kleynhans, environmental director at OUTA. 

'Get-rich-quick scheme'

“Our warning that Redisa was nothing other than a get-rich-quick scheme for a small group of individuals turned out to be true.

He said he hoped all the directors who benefited unlawfully from Redisa would be held accountable and money wasted recovered.

Redisa's downfall was sparked when it told the environmental department two weeks ago that the conversion of the recycle tyre levy earlier this year had bankrupted the organisation, and that it could no longer function. The levy had previously been paid directly to Redisa, but a change to the law now stipulated that it goes straight to the South African Revenue Service (Sars). 

The new legislation kicked in on February 1 this year.

Molewa said she had made the urgent application “to safeguard the operations and assets associated with the programme”. She said her department had had enough of Redisa’s refusal to cooperate with it.

The court ordered the appointment of a liquidator, Darusha Moodliar from Sanek Trust Services, to take immediate control of Redisa, including its waste tyre management plan.

Molewa said she made the application after a disastrous meeting with Redisa, where the organisation informed her it would no longer be collecting tyres due to a lack of funds, caused by the new tax regime. Redisa told her it had a cash balance of only R150m, despite collecting tyre levies of over R2bn.

Minister 'being held to ransom'

“This meeting was alarming because this basically indicated that Redisa was not only dissipating assets and creating new expenditure, but it was also holding me to ransom to coerce me into accepting a shoddy, unsubstantiated business plan,” she said. 

Redisa told the minister that unless it received additional funding from government by June 1 2017, it would commence winding down activities from that date to meet the Redisa directors’ fiduciary responsibilities.

Redisa also said that since it is no longer collecting a levy, it is now operating off its remediation reserve and that it currently incurs a monthly “burn rate” of R36.6m. It said that even if it received a “cash injection” of R210m in July, it would only allow the organisation to postpone commencement of the winding down process to October 1.

Molewa attacked Redisa chief executive Hermann Erdmann in a substantial affidavit. She alleges that the organisation channelled public funds derived from the tyre levy to companies linked to Erdmann and his family members. She also accused Redisa of channelling at least R30m to overseas accounts.

In 2012 government launched a revolutionary tyre-recycling programme, which would charge a mandatory levy of R2.30/kg on any new tyre sold. Redisa was appointed to manage the programme, after it undertook to turn “waste into worth”, and create 10 000 new jobs by 2018.

But Redisa drew criticism right from the start, with the SA Tyre Manufacturing Conference, the Retail Motor Industry Organisation and the Tyre Dealers Association launching court applications against the scheme. 

It argued that levies should not be paid to Redisa but to SARS directly, and also questioned why only one organisation should take control of tyre recycling.

At the end of 2015, environmental affairs already launched an investigation into how more than R1bn in tyre levies had been spent. Spokesperson Albi Modise said then that red lights had flickered about where Redisa’s revenue had gone, and whether it had in fact created the jobs it promised.

Molewa said a review of Redisa showed that the organisation has poor governance controls and has not met its own objectives. She said Redisa’s protestations that it has done everything in its power to obtain further funding from her department is a fallacy. 

“Instead of engaging with the department to ensure that adequate funding could be allocated, Redisa has ignored our requests,” she said.

“It is accurate that National Treasury has allocated an amount of R210m to the Waste Management Bureau, but without an acceptable and substantiated business plan, these or any other funds cannot be allocated to Redisa.”

Redisa did not respond to questions from Fin24.