Zuma’s brother in BEE controversy

A group of companies that has made millions in contracts with the police, the City of Cape Town, Transnet and other government departments has been accused of using President Jacob Zuma’s brother Michael for black economic empowerment fronting. This week a stunned Michael Zuma told The Sunday Independent that he has no knowledge of the deal to purchase the companies from its owner, saying he was only an “employee”.

This is despite his name appearing on a letter terminating the sale of shares agreement. Zuma and his business partners, Amahlubi clan Prince Brayce Mthimkhulu and ANC MP Richard Mdakane, allegedly owe more than R64 million in the soured deal to buy Midway Two Holdings. A special investigation by this newspaper has uncovered a litany of allegations of fronting involving the company’s owner “Oom” Daan Scholtz. Among them are claims that Scholtz used his former domestic worker, Maria Jeme, to front over several years, listing her as a director and shareholder while she had no power and received a secretary’s salary.

According to Mthimkhulu, Scholtz deliberately dismantled the deal after the company had won a series of lucrative tenders as a result of its black ownership. Mthimkhulu said these deals include labour contracts with the City of Cape Town and Transnet. Scholtz has rubbished the fronting claims, saying he is no racist. But this week Zuma had no idea what his role in the company was, and was shocked to hear that he allegedly owed part of R64m for the deal. Zuma said he had met Scholtz at his home in George last year. “Oom Daan said he liked me as someone he wanted to hire. We arranged to meet in Joburg at Midway. Then he told us we would be directors.”

When asked what job he would be expected to do, Zuma said he was only called in to attend three board meetings. “Oom Daan said I should sit close to him and he would show me how things work. But we never got to that point,” Zuma said. Documents from the Companies and Intellectual Property Commission show that the trio became directors in May 2011. According to Mthimkhulu, the initial agreement had been for the three to become 51 percent shareholders, but later Scholtz agreed that they would buy him out. “In October or November, we were told that we need to pay R68m within 14 days. They said we are in breach of contract and demanded that we pay R68m. We were up to date with all the payments,” he said.

Mthimkhulu said the “deal” was for him to bring in new clients, and said the company was able to clinch key labour contracts as a result of being partly black-owned. “Where can you raise R68m in 14 days? I fought with him (Scholtz). I said I’m not going to accept this. You can’t make me become window dressing. I’m a successful businessman,” he said. Zuma said he didn’t know why the deal was cancelled. “I was shocked to hear that they were fighting. I didn’t know that we were going to buy the company. I knew we were going to work there.” Despite being a director of the company, Zuma does not appear to know much about its operations. He said the “wages” he had been paid in the several months he had worked at Midway Two had been between R8 000 and R10 000.

“Previously when I worked with Prince at another company I had got around R20 000. At Midway there was only (one time) when I got around R14 000 or R15 000 and that was when I asked for them to increase it. “I didn’t know that I was a shareholder,” he said. Asked whether he agreed with Mthimkhulu’s assessment that the trio had been used as a front, Zuma said: “I don’t know what Prince said. I can only speak about what I know. I can’t say what Oom Daan wanted to do.” Zuma said he, Mdakane and Mthimkhulu had never discussed taking ownership of Midway Two. “In my mind, the company belongs to Oom Daan,” he said.

Zuma had a copy of a letter in which Scholtz alleged breach of contract which he had not read or fully understood. The letter demanded more than R64m, plus interest, as an outstanding amount for the sale of the company. On Saturday, Mthimkhulu said Zuma knew that he was involved in the purchase of the company, but may not have known the details as he was not involved on the operational side. He said the group were hoping for an “amicable resolution”, since their lawyers had been in talks with Midway for several weeks. Numerous sources have told The Sunday Independent that the bulk of the company’s work was with government departments.

Treasury regulations require government departments and municipalities to adjudicate all tenders with a consideration to price and BEE or historically disadvantaged individual (HDI) status ownership. The City of Cape Town confirmed having used Midway contract workers as and when needed, paying the company more than R110.7m since 2005. The most recent contract from the municipality was won in October. Midway would receive a share of the R80m contract depending on what labour it was asked to supply. Cape Town deputy mayor and mayoral committee member for finance Ian Neilson said: “Midway Two received 51 percent HDI points in the tender process”, meaning that company documents submitted showed a 51 percent shareholding by black, female or disabled people.

It was also selected for a R43m contract in June based on having achieved 51 percent HDI points, Neilson said. The group’s brokering arm also currently supplies labour for berthing operations the Richards Bay harbour. Transnet did not respond to questions requesting details on the contract. Meanwhile, Scholtz did not respond in detail to questions sent via e-mail. He said: “In many instances your questions (show) that the individuals to whom you have spoken have not correctly advised you of the history and/or facts pertaining thereto.”

He added that since the matter was being dealt with by lawyers, he did not want to comment. In a follow-up telephonic interview, Scholtz said he had been in business for more than 20 years and had “built many black schools”. “I know more about black empowerment than anyone else. So many people have said I am truly open-minded. “I owe nobody. I put millions into hospitals and schools. I’m not a racist,” he said. Mdakane put the dispute down to a personality clash between Scholtz and Mthimkhulu.