A politically connected operator named in the PPE scandal besetting the Gauteng health department made an 800% profit on Covid-19 personal protective equipment he sold the government.
This is according to court papers naming Thandisizwe Madzikani Diko — the husband of President Cyril Ramaphosa’s spokesperson Khusela Diko, and a family friend of Gauteng health MEC Bandile Masuku, in detailed claims laid out by the Special Investigating Unit (SIU).
Among the unit’s claims is that the “extortionate” mark-ups made by Diko’s “proxy” company included buying a million medical disposal bags from a supplier for 75c each and selling them to the health department for R7 apiece.
It also details an alleged attempt to initiate a side deal with a medical manufacturer that would involve defrauding the Industrial Development Corporation (IDC).
The SIU on Thursday obtained an order freezing about R36m worth of assets that it said are the proceeds of corrupt Covid-19 PPE contracts between the proxy company, Ledla Structural Development, and the Gauteng health department.
In court papers, investigator Asashanduki Rabali describes how the SIU came to conclude that:
● The Covid-19 contracts originally awarded to Diko’s company, Royal Bhaca, had been irregular and unlawful;
● Ledla was then used as a proxy for Royal Bhaca;
● The prices for crucial Covid-19 protective equipment were massively inflated; and
● The department later tried to disguise a contract as a donation.
The court papers also state that a department official claims in an affidavit that when she questioned why politically connected Diko — the senior traditional leader of the AmaBhaca — was being invited to tender, she was told “the MEC wants his people”.
Khusela Diko and Masuku’s wife, Johannesburg’s MMC of group corporate and shared services, Loyiso Masuku, are personal friends. Khusela Diko and Masuku have both taken leave due to the scandal.
The interim freezing order was obtained in the Special Tribunal in the absence of those implicated. They will have a chance to tell the court their side of the story in October when the court will decide whether to make the order a final and permanent one.
In papers, Rabali says that, in the wake of Sunday Independent reports about the awarding of the PPE contracts to Royal Bhaca, the Dikos told the newspaper the contract had been cancelled.
This was true, she said, but a fresh contract was awarded to Ledla “simply as a stratagem to make the false representation that Royal Bhaca was no longer contracted to [the health department]. Payments were then made by [the department] to Ledla … instead of Royal Bhaca.
“Ledla was in fact a proxy for Mr Diko and/or Royal Bhaca and … the payments that were made to Ledla were in fact payments made for the benefit of Mr Diko and Royal Bhaca,” said Rabali.
She said the two contracts were “almost identical”, with items and quantities that were “exactly the same”. The letter that awarded the contract to Ledla on May 20 was in fact also sent to Diko in an e-mail from
Gauteng health chief financial officer Kabelo Lehloenya, who referred in the e-mail to an “amended commitment letter”.
The contract with Royal Bhaca was in any event unlawful, says Rabali. It should have been awarded by the head of department and was not. The company was not registered as a Covid-19 supplier on the government central supplier database, but as a supplier of construction services. Also, at the time the contracts were awarded it was not tax compliant and had failed bank verification.
“Royal Bhaca and later Ledla may have been awarded the contracts as a result of Mr Diko’s close personal connection with the MEC,” says the SIU investigator.
Rabali says the department made a payment of more than R38m to Ledla on August 3 — when department officials who processed the payment already knew, “and it was widely reported in the media”, that there was an investigation under way into the contracts awarded to Ledla. Lehloenya resigned in June.
Rabali also details the inflation of prices. She says Royal Bhaca submitted a quote for a million bio-hazard health-care boxes at R40 a box and a million bio-hazard health-care disposable bags at R7 to the department on March 30.
On the very same day, Royal Bhaca was awarded the contract for R47m. The commitment letter awarding the contract was signed by Thandy Pino — chief director of supply chain management — as was a second signed two days later for hand sanitiser and masks, a contract worth R78.7m.
Pino had only been appointed four days earlier and did not have the authority to award the contracts.
Rabali says that according to Pino, who also deposed to an affidavit, Lehloenya invited people to tender via e-mail and phone calls and instructed officials to assist some of the suppliers, including Royal Bhaca, to become compliant with the requirements of the government’s central supplier database.
Pino stated that when she telephoned a representative of Royal Bhaca, the “true caller application” on her cellphone identified the representative as Mr Diko.
Rabali says: “She then immediately inquired from Ms Lehloenya as to why the department was ‘using a company that is owned by someone who is very well-known politically’. She further advised her that Royal Bhaca ‘needs to go away’. Ms Lehloenya’s response was that “the MEC wants his people”. She said she had signed the commitment letters on Lehloenya’s instructions.
Rabali says she interviewed Jonathan Maake, MD of the company Mediwaste, from which Royal Bhaca and Ledla sourced the disposable bags and health-care boxes that they then sold on to the department.
Maake said they had agreed that he would sell the disposable bags to Royal Bhaca for 75c per bag (although later in the affidavit, Rabali says Mediwaste sold the bags to Ledla at 95c per bag). Royal Bhaca, and then Ledla, went on to sell them to the department for R7 per bag, “which translates to R7m for one million bags”, Rabali states.
“Royal Bhaca therefore stood to make a profit of R6.25m (R7m paid to it by GDH less the R750,000 Royal Bhaca had to pay Mediwaste). For Royal Bhaca, this represents a profit of about 800%.”
The health department had been charged almost 10 times Mediwaste’s price. The price charged by Mediwaste “no doubt already included a normal, reasonable profit margin. To charge the provincial government R7 a bag is clearly extortionate”.
Rabali says Maake said he was contacted on April 3 by Royal Bhaca representatives Norman Lehong and Rhulani LehongMboweni, who said they had found his details following a Google search.
Maake recounted how, at a meeting on April 4, Diko expressed interest in buying Mediwaste and suggested Mediwaste apply for a loan from the IDC — to capitalise the partnership.
When Diko was not present, Lehong “suggested to Maake, in the absence of Diko, that the R30m [loan] would in fact be split between themselves — the plan was to ‘run down’ Mediwaste after it had received the loan so Mediwaste can then apply for ‘bankruptcy’. In other words, what Mr Lehong was proposing was a scheme designed to defraud the IDC of R30m.”
An independent company search shows that Lehong and Lehong-Mboweni are directors of Ledla.
Rabali says the manager of the warehouse that received Covid-19 supplies, Lizelle van Rooyen, said that she had been instructed by Lehloenya to register the items received from Royal Bhaca as “donation stock”.
“The inference is irresistible that … the instruction was given simply to create another false impression that Royal Bhaca and Mr Diko would not be receiving payment for those items from the [Gauteng health department], whereas in fact they would and did receive payment for those very goods through Ledla,” says Rabali.
The SIU also asked that Lehloenya’s pension be frozen, which was granted on an interim basis, pending a full ventilation of the case.
Lehloenya told the Sunday Times she had not been served with the application and had not been afforded the opportunity to study and consider it.
“Once I have been served with the application, I will respond to the allegations in an appropriate forum,” she said.
Diko said: “Let’s await the outcome of the investigation; time will tell.”
Lehong did not answer calls or respond to detailed messages.
Masuku said he was barred from commenting but dismissed the allegations as fake news.
A source close to him pointed out that it was Masuku who had initiated the investigation in the first place and said the claims were “baseless”.