This story exemplifies how state capture affects poor peopleBy Nathan Geffen
28 June 2017
Kwazamakuhle clinic in Hendrina was supposed to open in April. This 24-hour facility will improve health-care for approximately 20,000 people living in this Mpumalanga Province township. But three months later it remains unfinished with no indication of when it will be ready.
The clinic is incomplete because Optimum Coal, a company owned by the Gupta family, failed to pay the company responsible for building the facility. The building of the clinic is part of Optimum’s social and labour commitments in terms of the Mining Charter. All this was explained in a GroundUp article published in December.
Now court documents obtained by GroundUp show Optimum’s cavalier approach to its contractual obligations. Yet there appears to be not the slightest effort by the Department of Mineral Resources (DMR) to take action against Optimum. Another story of Gupta shenanigans might leave readers jaded, but this story exemplifies how state capture affects poor people.
As described in our previous article, Optimum committed to paying for the new clinic. Three amounts had to be paid to the company building the clinic, Re-Action Consulting: R5.6 million on 7 January 2016, another R5.6 million on 16 March 2016, and R3.8 million in August 2016. The first two tranches were paid while Optimum was owned by Glencore. It was then bought by Gupta-owned Tegeta, which failed to make the August payment as well as additional management fees owed to Re-Action.
Nevertheless Re-Action continued to build the clinic using its own funds. However, it has drawn a line in the sand that the finishing touches to the clinic will not be completed nor the facility handed over to the health department until it is paid the money it is owed.
Following months of demands for payment, Re-Action initiated litigation against Optimum in the High Court in Johannesburg. It is asking for Optimum to be wound up on the basis that it is unable to pay its debts.
The court record shows how Optimum has stalled the payment by insisting on documentation from Re-Action and then, upon receipt of this documentation, requesting additional documentation.
Optimum’s own consultant says payPresumably in preparation for the defence of its court case, in March Optimum hired Accura Development Management to assess the “general quality and outstanding work” of the Hendrina clinic. The report confirms Re-Action’s view of things. It found that the clinic was 95% finished and of acceptable quality. The report contains a list of unfinished items, but these appear minor and could certainly not have been expected to have been ready by the time the August 2016 payment was due to Re-Action.
The Accura report further makes it clear that the payment due to Re-Action in August 2016 was not dependent on the clinic being complete. Accura recommends: “Optimum should withhold 5% of the project value as retention which must reduce to 1.25% on practical completion and 0% on final completion.” The 5% retention has already been deducted from the amounts that Re-Action has invoiced Optimum, and for which it is now litigating.
At first Optimum did not make the Accura report available to Re-Action. Optimum quoted from the report in its correspondence with Re-Action in order to justify its non-payment. In the court papers Re-Action describes these quotes as “selective” and “misleading”. To eventually get the Accura report, Re-Action had to make a discovery application under the Uniform Rules of Court (download it here).
Is Optimum solvent?It is unclear why Optimum has failed to pay Re-Action. Its court papers offer a series of excuses that are “spurious” as described by Craig Assheton-Smith, Re-Action’s attorney. Assheton-Smith says Optimum’s actions are “clearly designed to delay” a payment that is contractually clear. He says there is no “bona fide” dispute, and concludes that Optimum is unable to pay.
In Optimum’s court papers it denies that it is unable to pay its debts and claims to have placed the disputed funds in its attorney’s trust account, but it provides no evidence for this. In fact in a letter dated 19 January 2017, Optimum’s attorney states that there is no obligation to maintain the funds in the trust account.
We asked Optimum if it was solvent, as well as several other questions, but the company’s attorney merely responded: “The matter is currently the object of litigation. In light thereof we do not intend to respond to your queries.”
A mining expert told GroundUp the amount of money at stake here was “small change” in this industry. In an industry where transactions in the millions of rands are common and the completion of a public clinic would be a much needed PR win for the Gupta family, it is unclear what other explanation there can be for the non-payment other than Optimum having a serious cash-flow problem.
No enforcement from GovernmentLast year President Jacob Zuma threatened to remove Lonmin’s mining rights if it did not hurry up with the implementation of its housing plan. Optimum appears to be under no such pressure.
On 7 February representatives of the DMR, Optimum and Re-Action met at Optimum’s offices to try to resolve the impasse. Optimum’s executive, George van der Merwe, once more said that the company required documents from Re-Action before payment could be made, but he was unable to say what documents these were. It was agreed that Optimum would supply these within seven days. It did not, and the DMR took no action. (Later, in March, Optimum sent a request for a list of documents, irrelevant to the payment due, which Re-Action nevertheless for the most part says it provided.)
We emailed a short list of questions to the Ministries of Mineral Resources and Health on Tuesday morning. Despite extensive follow-up efforts, neither had commented by the time of publication, more than 26 hours after our initial enquiries. No one answered the switchboard line of the Mpumalanga Department of Health.
Re-Action’s lawyers asked for the case to be heard urgently, but this was denied by the court. It is therefore likely to be years before this matter is concluded, Re-Action is paid, and the clinic is handed over.
In a nutshell, Optimum, perhaps because it is short of liquid assets, is unable or unwilling to pay for the clinic. It is in effect being protected by the DMR. (It’s a matter for speculation what has happened to Optimum’s money.) This is state capture at work. And the people of Hendrina are the victims.
Correction: The article originally gave the incorrect population for Kwazamakuhle (the township at Hendrina).
Published originally on GroundUp .