Makhosandile Zulu
3 minute read
12 Feb 2020
12:31 pm

Former SAA Technical head says R60m deposit paid to contractor had no impact on entity’s finances

Makhosandile Zulu

The Zondo commission heard that a letter of credit would have sufficed instead of the payment which was made when SAAT's finances were not in a good position.

Former HOD procurement at SAAT, Nontsasa Memela.

The former head of procurement at South African Airways Technical (SAAT), Nontsasa Memela, has said she does “not accept” that the R60 million security deposit the entity paid to a contractor did not impact SAAT’s financial position when at the time it was not in good financial standing.

Memela was on Wednesday giving testimony at the commission of inquiry into state capture chaired by Deputy Chief Justice Raymond Zondo.

The commission heard last week from the acting head of department (HOD) of supply chain management at SAAT, Schalk Human that the payment of the deposit – via wire transfer – of US $4.32 million, which at the time was just over R60 million, to American-based AAR Corporation as opposed to giving the company a letter of credit as per common practice, was illogical.

READ MORE: Excessive penalties ‘chased up costs of SAAT contract with AAR Corp’

In May 2016, AAR Corporation and locally-based JM Aviation were awarded a contract for the supply of components for a period of five years, valued at R1.3 billion.

The commission heard that Memela had communicated with her colleagues that SAAT was contractually obligated to pay the deposit and that there had been negotiations that the payment would be staggered.

The commission further heard that by 2017, AAR was pushing for the deposit to be paid before the end of May that year as this was the company’s financial year-end.

Memela said according to her understanding, giving a guarantee by way of an irrevocable standby letter of credit from the bank to AAR would have been inconsequential because SAAT would still have to provide the money.

She added that an individual in the finance department at SAAT at the time would have to answer to this matter, however.

Evidence leader at the commission, Kate Hofmeyr pointed out that clause 4.26 in the contract provided for the payment of the deposit by way of an irrevocable standby letter of credit from the bank and in instances of a late payment by SAAT, then AAR would be entitled “to drawdown of the strength of the letter from the bank”.

“Chair, I will put it this way, it was not onerous for SAAT to pay that amount,” Memela said, adding that failure to do so would have had adverse consequences for the entity.

Hofmeyr said according to the arrangement between SAAT and JM Aviation, the latter was entitled to 5% of all revenue generated through the contract, which means it would be paid R3 million from the security deposit.

However, Memela said her understanding of the security deposit was that it could not be defined as revenue and functioned much like a deposit a tenant paid towards a property they sought to rent, with that deposit kept in an interest-bearing account.

“So I don’t see that as revenue,” she said.

In response to Hofmeyr’s question whether it wa checked that the deposit SAAT paid to AAR was treated in that manner, Memela said: “No, chair.”

The commission heard last week that JM Aviation paid R2.5 million towards Memela’s property worth R3.8 million which she procured in 2016.

However, Memela said the R2.5 million was actually not paid by JM Aviation but by the company’s director, Vuyo Ndzeku.

She told the commission that Ndzeku had purchased land in the Eastern Cape owned by her mother and that the arrangement had been that the money Ndzeku paid her mother would be redirected to her property.

READ MORE: Former SAAT exec says nothing improper about R2.5m paid towards her property

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