R600m for a vacant building

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The state-of-the-art building the North West Health Department refuses to move into or pay rent for, despite a R600m disputed tender.

CANDICE BAILEY and DIANNE HAWKER

A GAUTENG property developer has turned to the courts to force the North West Department of Health to move into a R600 million white elephant office park.

Peolwane Properties director Reginald Kukama is asking the Mafikeng High Court to compel the provincial government to pay the company R30m in arrear rental.

His company won a R600m tender to lease the building, but the department never moved into the building. The state-of-the-art office park remains vacant. But the department is arguing that the tender and lease are invalid.

Interestingly, the department wants to buy the building, but the company argues that the price offered is below market value.

The lease agreement and the tender have been the subject of a forensic investigation since 2010.

The investigation was commissioned by the provincial Department of Public Works. The Sunday Independent has seen a copy of the report dated February 2011.

Should Kukama win this battle, he would get his R30m arrear rental and the legal fees of his David and Goliath battle, which has been playing out in court since December.

Kukama built the building to the provincial Health Department’s specifications – with offices, covered and open parking and a clinic.

The building has been ready since June last year – five months before the lease was supposed to begin. But according to papers filed in the court this week, the department has failed to pay the monthly rental of R3.9m since the contract took effect in November.

Kukama claims his company agreed to a R42 million annual rent for the building. The lease is for nine years and 11 months, and would amount to R660m.

In the court papers, Kukama says that, despite the department’s rants that the lease is invalid, it has taken no action to nullify the lease.

“The tender documentation was completed in 2008. Four years have passed since then, and no concrete steps have been taken by any of the respondents to set aside the tender,” he said in the papers.

Kukama refers to a previous court battle pertaining to the same tender, where the department had, in fact, validated Peolwane’s lease.

Kukama used an affidavit from the provincial head of public works, Motlapele Ntshabele, to show how the department had justified his lease despite the government’s sudden summersault invalidating the contract.

“In this affidavit, the second respondent makes it plain that it does not consider there to have been any impropriety relating to the award of the tender to Peolwane,” the papers state.

“Since late 2011, the North West provincial government has been negotiating with Peolwane to reduce the rental payable in respect of the building, notwithstanding the terms of the lease.”

The Sunday Independent understands that the provincial treasury recently hired independent evaluator Eben Zietsman to assess the rental value of the property.

Zietsman would not comment on the work he did. However, it is understood that he recommended a monthly rental of R2.5 million, in stark contrast to the current monthly rental of R3.9 million.

Lambert Lobelo – Kukama’s former business partner, who is a 50 percent current shareholder – said the company had done a private evaluation and estimated the building could sell for around R450m.

However, he would not reveal the Health Department’s offer.

Provincial treasury spokeswoman Kesalopa Gill said the department did not wish to comment on the matter, as it was the subject of a court case.

She would not provide any details of the court case, saying merely that the provincial treasury was not a respondent in the matter.

Provincial health spokesman Tebogo Lekgethwane said the department had not moved into the new office park because there was a dispute between the government and Peolwane. But he confirmed that there were negotiations to buy.

Provincial Public Works spokesman Matshube Mfoloe would not comment on the building, saying it was not a government property.

Kukama did not wish to comment.

Kukama’s attorney, Kuvashen Padayachee, told The Sunday Independent: “The outcome of the matter will not only have implications for our client in particular, but also for the future of construction and lease contracts… between government and companies, and the financing of these contracts from financial institutions in general.”

DA North West Scopa member Chris Hattingh said the building was an extravagance the province could not afford.

The matter will be heard late next month.

candice.bailey@inl.co.za

dianne.hawker@inl.co.za