Public Protector questions Phumelela

Phumelela & East Cape racing

Why DID the Gauteng provincial government sign a memorandum of understanding (MOU) with horse racing stakeholders to prop up a soon-to-be-listed company with the free transfer of three racecourses, and tax concessions?

This is one question public protector Thuli Madonsela will ask as she investigates how Phumelela Gaming and Leisure, now with a market capitalisation of R809.6 million, was granted exclusive licensing rights to manage horse racing in Gauteng without a transparent, public or parliamentary process.

A complaint has been lodged by the Africa Race Group (ARG) and Phindi Kema, a thoroughbred horse breeder. They have been joined in their complaint by the SA Grooms Association (Saga).

Before the signing of the MOU, the provincial government allocated R17.5 million in the form of a grant to turf club members for the building of accommodation for grooms who were living in sub-standard conditions.

The MOU was agreed between the provincial government as represented by Jabu Moleketi, the then MEC for finance and economic affairs, and the members of three turf clubs in Gauteng in June 1997. The racecourses involved were Turffontein, Newmarket and Gosforth Park.

The assets of the Totalisator Agency Board, the Highveld Racing Agency and the existing clubs were to be incorporated into a new company, later known as Phumelela.

The new shareholders were a racing trust, empowerment groups and strategic investors.

The memorandum of understanding stated that 3 percent of the 6 percent taxation on betting turnovers would be passed on to the new company.

It stated: “In order to bring protection to this new company, it was agreed to investigate the possibility of providing an initial exclusive totalisator licence to the new company for a period of up to 10 years.”

Having been formed in 1998, Phumelela still has this exclusive licence, four years after the 10-year period lapsed.

The MOU stated that if necessary, legislation would be introduced in the provincial legislature to give effect to it.

Phumelela has since taken over all the racecourses in seven provinces through this corporatisation process.

Kema and ARG want to buy the Arlington racecourse, in Port Elizabeth, but have objected to Phumelela’s reported R50 million asking price. They said the company paid only R1 for the asset.

Ian Jayes, the former chairman of the Racehorse Trainers’ Association and a critic of Phumelela, says the company used R3.6m of the R17.5m grant to build extensions to the Vaal stabling complex and then put the balance of R13.9m into its accumulated profits.

However, Rian du Plessis, the chief executive of Phumelela, has taken issue with Jayes on this, and Kema and Saga by extension.

He says a legal audit was done on the use of the grant by a firm of attorneys and Phumelela had been cleared, although the finding was that the transaction could have been executed better.

Du Plessis said last week that the arrival of other betting opportunities on the gambling scene, such as casinos, had caused severe financial distress to the turf clubs and horse racing in general, which had until then been the only legal form of gambling.

This resulted in the Gauteng turf clubs approaching the provincial government for relief in the form of reduced tote tax rates. He said as a precondition, the Gauteng government insisted on corporatisation, the introduction of appropriately broad-based empowerment, and that the company obtained a listing on the JSE.

In its interim results to January, Phumelela reported its income was up by 2 percent to R451.7m, in comparison to R443.4m in the six months to January 2011.

Its net attributable profit rose by 11 percent to R35.6m, compared to R32m in the previous corresponding period.

– extract Business Report, Wiseman Khuzway

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