DCEC, DIS probe Guma’s URB and CEDA Dealings

  • P29m tender at Local government attracted BURS
  • Guma Company did not pay VAT
  • Squandered P63m from CEDA, BDC and FNBB
  • Company is now facing liquidation

GAZETTE REPORTER

A company established by Botswana Democratic Party (BDP) legislator Samson Moyo-Guma and his partners has become a white elephant after squandering funds to the tune of over P63 million. According to evidence contained in an internal audit report at Citizen Entrepreneurial Development Agency (CEDA) dated August 2018 reveals the funds were allegedly corruptly acquired.

The Directorate of Intelligence Services (DIS), Directorate of Corruption and Economic Crime (DCEC) are said to have opened investigations into a paper trail to determine how public funds were disbursed and spent by CEDA and URB following Guma’s application for judicial management.

According to the internal report, which has been passed on to investigators, the Agency has been abused by the Executive Management of CEDA not to only exploit the funds availed by the Government to it, but also to enable it to be utilized as a vehicle to fund political interests of a select few and those aligned to the them.

The report has unearthed alleged corrupt practices by United Refineries Botswana (URB), a company owned by Moyo-Guma, Tiedze Chapi, Mmoloki Tibe and Nimesh Shamani when it was awarded a tender to supply Sunflower Oil to the Botswana Government. The tender was for the manufacture, supply and delivery of 161,815.50 cartons of pure sunflower oil to the Ministry of Local Government & Rural Development [Ref: MTC 08/09/01-2017/18] was valued at P 26,983,834.99.

According to the report, it has been determined that URB obtained the preferential supply of sunflower oil at the Ministry of Local Government after making representations that it was the only Company that could deliver the aforementioned tender locally, by providing the refining, packaging and supplying capacity within the jurisdiction.

The implication the company’s representations, according to the report was such that it precluded other locally deserving suppliers who could have sourced the same product from across the border through URB’s misrepresentation. Such misrepresentation amounted to flouting of pertinent corporate governance matters as they pertained to the tender of the supply of pure sunflower oil to the Botswana Government through the Ministry of Local Government and Rural Development.

According to available CEDA documents, it has emerged that because of the lack of capacity the URB tender was subcontracted to the Sefalana Group of Companies which imported the sunflower oil already manufactured from South Africa.

Investigations reveal that the Ministry of Local Government refused to accept the Sunflower oil that was delivered by the Sefalana Group on behalf of URB as it went against the tendering statute that required the sunflower oil to be produced locally.
URB, in an effort to allay CEDA fears, engaged casual workers to replace “Made in RSA” with “made in Botswana” stickers to ensure compliance and payment of the tender, according to the document.

It has also been established that URB / Sefalana Group sourced the sunflower oil at significantly cheaper rates at delivery as they were not required to pay VAT [12 percent] at the border.

At the time, it had been noted that The Ministry had made payments amounting to P15 million for the supply of Sunflower oil.
According to investigations, from the above funds, it has been confirmed that Moyo-Guma had payments made to his company amounting to about P118 000 for his personal effects without formal resolution of the Board of URB which comprises of CEDA Executives.

According to the report, Botswana Unified Revenue Service (BURS) had instructed the Ministry of Local Government to desist from making any further payment directly to URB as the Company owed it an undisclosed amount of money. When contacted, Moyo-Guma said URB is under judicial management, “so no comment”.

Fearing the wrath of the taxman, Guma reluctantly revealed that he had elected to voluntarily apply for the judicial management of URB so as to strategically avoid paying millions of Pula he acquired as loans from his creditors as well as money due to BURS.

Judicial management is just a method of debt restructuring where an independent judicial manager is appointed to manage the affairs, business and property of a company under financial distress. The company is also temporarily shielded from legal proceedings by third-parties, giving it the opportunity to rehabilitate.

After the application for judicial management has been made and before the Court makes its decision on whether to grant the order for judicial management, an interim moratorium (i.e. a temporary suspension of a certain activity) will kick in to restrain certain actions from being taken against the company.

These actions include the starting of lawsuits against the company and the enforcement of charges on, or security over, the company’s property.

The effect of the judicial management moratorium is that it prevents the company’s existing assets from being dissipated through a series of claims initiated by third-parties. The assets can then be better used to satisfy claims by the company’s creditors From its inception, URB has enjoyed a series of loans, and rules were bent to ensure that URB got the money regardless of the consequences.

From CEDA alone, URB was advanced a total of P31 361 483 in financing as at November 2017. #CEDA had extended URB funds by exceeding the P 30 million permissible per funded company thus contravening section 8.3.1 of CEDA Guidelines which restricts the CEDA Board of Directors from approving amounts exceeding P 30 million. Such approval for such funds can only be approved through a Cabinet Directive, which CEDA had initially circumvented.

Evidence shows that URB first approached CEDA for equity funding of the construction of an edible oil factory in 2013 with an original funding request of P14 million. Subsequently URB increased the project size to P40.7 million at which time CEDA purchased a forty percent equity stake for price consideration of P 7.3 million whilst the promoters held the balance of sixty percent equity with the intention of making contribution worth P 11 000 000.

Documents reveal that whilst CEDA made its payment of P7 333 333 for its 40 percent shareholding, the other promoters failed to raise any contribution , in cash or kind, save for Tiedze Chapi who made a land contribution valued at P11 000 000 through TEC (Pty) Ltd. From the Company’s inception the other parties, namely Mmoloki Tibe, Samson Guma-Moyo and Nimesh Shamani, did not fulfill their subscription for shares as per the Subscription Agreement and as such have no ground for claims of shareholding dividends.

Funds advanced to URB were deemed insufficient by the Company and hence numerous subsequent additional funding was led and facilitated by the institutional investor, CEDA, within itself and other financial institutions such as FNBB and BDC. CEDA facilitated in excess of P28.1 million for United Refineries Botswana of which the known amounts as at November 2017. CEDA also facilitated for BDC to fund URB to the tune of P11 million. In addition to the existing facilities CEDA had already invested an additional P13 million.

In total CEDA facilitated further funding for URB amounting to over P63million. CEDA has made concessions for URB to dilute its 40 percent shareholding to a paltry 18 percent. Subsequent contributions were made by the founding shareholders to meet the funding requirements of the business via shareholder loans and capital calls that CEDA did not participate in.

This being noted, the document warns that the dilutions have not followed the parameters of dilution as per the Shareholders Agreement.

The document critically reveal that in addition to the financial assistance that the company obtained, CEDA was instrumental in influencing URB to gain cash and land for its other projects. URB gained 600 hectares of land in the North East; and, P1.2 million was diverted and spent on a feasibility study for a Coal To Liquid (CTL) business through funds earmarked for the edible oil project. Further, CEDA influenced for URB to also grab 5 000 hectares of land in Pandamatenga which was envisaged to have downstream production of sunflower seeds.

Amongst a series of corporate governance procedures that were flouted, URB has been conducting its business and board meetings without a Company Secretary contrary to Botswana’s Companies Act and the Subscription Agreement between CEDA and its promoters. Instead the majority of the meetings have been conducted by the incumbent Managing Director, Mmoloki Tibe which not only presented conflict but also contravenes clause 5.2.5. Subscription Agreement. The report states that this has had a profound impact on the integrity of the conduct of the Board of Directors of URB , which includes CEDA Executive Management.

It emerges that the promoters of URB have issued a number of capital calls for further investment on a different occasions which have had the effect of diluting CEDA equity contrary to the provisions of the Shareholders Agreement. Clause 18.1 of the Shareholders Agreement between CEDA and the promoters dictates that “the Shareholders agree that they shall not be entitled to sell, alienate, transfer, in any manner or otherwise dispose of, pledge, or in any way manner otherwise encumber any of the shares held by them in the share capital of the Company, or all or portion of their claims for a period of 5 (five) years from the Effective Date or until CEDA ceases to be a shareholder whichever comes first” The report also notes that there was no resolution by both the URB and CEDA board for the dilution.

The document finally reveals that no audits have been conducted or concluded on URB since 2013. This contravenes the Company’s Act and the Shareholders Agreement which requires books of account and financial audits to be conducted regularly on the Company.

It was also revealed that URB provided highly questionable and suspicious documentation to CEDA in order to solicit further funding amounting to P9.2million, restructured down to P7.4million. These documents according to the audit include “audited” financial statements for 2015/16 by Mazars; Product Supply Agreements with Unibulk, Guarantee Agreement with Intratek for raw edible oil.

According to the audit report, its purpose is to bring attention to the deep rooted corruption that prevails at CEDA. “It must be noted that the incidents reported herein are neither exhaustive nor even begin to scratch the surface of the extent of the decay of corporate governance in a critical financial institution that was intended to drive the economy and lives of ordinary Batswana.”