By Louise Flanagan
Gauteng broke finance laws by putting R55-million into a private diamond business run by a former MP - but the province says it wasn't help for a friend.
African Romance (Pty) Ltd received the money in August last year in a deal which contravened the Public Finance Management Act (PFMA).
Former MP Mohseen Valli Moosa, who helped draft the 2001 law on mineral beneficiation, received the money to help get his new diamond beneficiation business in Sandton off the ground.
The Industrial Development Corporation lent him even more.
Gauteng's money was handed over by the Department of Economic Development, then headed by MEC Paul Mashatile, and head of department Sibusiso Xaba, as an investment in preference shares.
Preference shares offer a fixed interest rate, and the holder has priority over other shareholders in getting the investment back if the business is liquidated.
Moosa is a former director of the Gauteng Tourism Agency, which is part of the department.
The Auditor-General has called the R55m that Gauteng spent "irregular, fruitless and wasteful expenditure".
On Tuesday, Economic Development's chief financial officer, Lawrence Mathebula, confirmed to The Star that the deal was against the PFMA but said it wasn't wasted.
"No it's not written off. We are going to recover the money."
He said the province would get its money back from Moosa in August 2012 with compound interest at the prime rate and that it had made the deal as African Romance was the only such business in the country.
Mathebula said the IDC, which is part of the national Department of Trade and Industry, lent Moosa about R80m for operational costs.
The province would normally make such an investment through the department's trading entity the Gauteng Enterprise Propeller (GEP) but it couldn't in this case because GEP had a maximum threshold of R5m, said Mathebula.
On Tuesday, Moosa told The Star he agreed with the AG's findings. "We think it was a correct finding" because it should have been funded through the GEP entity.
He said the department had agreed to move the project to GEP during budget allocations last year, but never did.
Moosa said he couldn't get funds from commercial banks because they would not fund beneficiation projects.
Mathebula said the department did a similar deal with an investment in The Lion King, but as a large amount of the investment was repaid within the same financial year, the threshold problem was avoided.