South African Shipyards vs Sunday Times

Complainant: South African Shipyards

Lodged by: Charles Maher

Article: Jacob Zuma pal’s R406m ship deal raises flag

Author of article: Bobby Jordan and André Jurgens

Date: 5 February 2015

Respondent: Susan Smuts, legal editor of the Sunday Time

Complaint

SA Shipyards (SAS) is complaining about an article in Sunday Times of 14 December 2014, headlined Jacob Zuma pal’s R406m ship deal raises flag.

It complains that the:

·         story contains several statements that are false and misleading (details below);

·         story misleadingly insinuates that Mr Don Mkhwanazi’s friendship with Pres Jacob Zuma has yielded unfair benefits in his favour; and

·         headline is false and misleading.

The text

The story, written by Bobby Jordan and André Jurgens, says the Department of Defence (DoD) funneled R406-million for ship maintenance and repairs to a private company because the DOD said it could no longer look after its own fleet. “And the fortunate recipient of taxpayers’ cash is a company chaired and co-owned by the founder of the Friends of Jacob Zuma Trust, Don Mkhwanazi.” The journalists report that SAS, in which Mkhwanazi and SAS CEO Prasheen Maharaj share a 48% stake, has benefited from six naval contracts in the past three years, including a R335-million deal to refit the arms deal frigate SAS Amatola.

 

The DoD reportedly said it had to outsource the work because of “capacity constraints” at the Simon’s Town naval dockyard. “But the Durban company’s lucrative relationship with the military has raised concerns and prompted a call for a probe by the auditor-general.”

The reporters state the newspaper established that the R335-million Amatola refit tender has ballooned to about R360-million because of “unforeseen events”, and that several industry experts said the original contract amount was inflated by between R60-million and R100-million.

The cost, “one of the most expensive navy refits by a private firm”, prompted questions in Parliament by David Maynier, MP for the Democratic Alliance (DA) and shadow defence minister. In a written response two weeks ago, Defence and Military Veterans Minister Nosiviwe Mapisa-Nqakula confirmed that R406-million was being paid to SAS.

Unlike the previous frigate refit tender issued earlier in 2014, the Amatola tender reportedly was not handled by Armscor but by the navy’s own procurement centre. “Despite insisting the Amatola contract was put out to public tender, the navy has steadfastly refused to clarify queries about apparent irregularities.”

The story says that Mkhwanazi and other SAS shareholders insisted the contract was above board − and that it had nothing to do with the former’s ties to Zuma. Mkhwanazi is also quoted as saying that the president does not award tenders, and as denying that the deal was politically motivated. “We don’t think our offer of R335-million tender was over-priced. In fact, it was the cheapest bid received via an open public tender process.”

Maynier, who called for an independent probe, reportedly disagreed.

Arguments

False, misleading statements

SAS complains about the following sentences:

“The Department of Defence has funnelled R406-million for ship maintenance …”

The company says the use of the word “funnelled” infers that no open tender was available and that the tender was based on an exclusive basis.

Smuts replies that such an interpretation is nothing more than fanciful reading. The money was “funnelled” as a consequence of the deal that was struck. The word does not imply any inference or insinuation about the manner in which the deal was reached. Furthermore the sentence, read as a whole, gives the context that the DoD has contracted a private company because it can no longer look after its own fleet.

My considerations

Amongst synonyms for “funneled” are “channeled” and “directed”. I have no reason to believe that the use of this word carried any negative or untoward inferences.

“R335-million deal to refit the arms deal frigate SAS Amatola.”

SAS argues the use of the word “deal” infers that no open tender was available and that the tender was based on an exclusive basis without due consideration of other bidders.

Smuts denies this and calls it again a “fanciful interpretation of the use of the word”.

My considerations

Again, I do not read anything negative into the use of the word “deal” – this is a normal expression and does not necessarily carry any adverse connotations.

“But the Durban company’s lucrative relationship with the military has raised concerns and prompted a call for a probe by the auditor-general.”

Maher says the “concerns” were raised by David Maynier MP, DA Shadow Minister of Defence and Military Veterans, and were directly related to the Amatola refit program by SAS – not to the entire relationship. All questions raised were answered directly in Parliament to Maynier’s satisfaction with no further re-course, as per his press release on 14 December 2014.

Smuts disputes the contention that Maynier’s comments concerned only the refit program and not the entire relationship, as his comments to the newspaper concerned the totality of the contracts amounting to R400-million. “Furthermore, the responses to his questions to Parliament (the table of costs related to the refit) resulted in further questions.”

My considerations

When looking in isolation at the sentence in dispute, the reference to the word “lucrative relationship” may refer to either the refit program or to the entire relationship. However, when read in context, I do not believe that this sentence is out of context or inaccurate.

“The R335-million Amatola refit tender has ballooned to about R360-million because of ‘unforeseen events’.”

SAS complains that the use of the words “ballooned” and “unforeseen events” infers that no control measures are in place and that an escalation of costs is not part and parcel of any upgrade project. A portion of costs can be accounted for, but not all refurbishment items can be 100% predicted without the opportunity to open for inspection. “This is no different from any commercial maritime project contract. Furthermore, any variation of contract is calculated and assessed prior to the work commencing.”

The newspaper denies that the use of the words in dispute implies that no control measures are in place and that an escalation of costs is not part of upgrade projects. “It simply means, in plain English, that the costs have increased since the initial estimate. It is self-evident that the cost of refurbishments cannot be predicted with 100% accuracy. Furthermore, the phrase ‘unforeseen events’ was used by SAS’s Mr Maharaj in reply to questions from Sunday Times.”

My considerations

SAS reads too much into the use of these words. “Ballooned” simply means “increased” – possibly with the extra meaning of “increased rapidly”. I also have no reason to doubt that Maharaj used the phrase “unforeseen events”.

“Several industry experts said the original contract amount was inflated by between R60-million and R100-million.”

Maher says the unnamed “industry experts” have not supported their comments with any valid facts. The use of the word “inflated” infers that that contract price was allowed to be increased in order for larger project margins to be manufactured and that the DoD was not extracting the best value from the project upgrade.

Smuts replies that three experts in the shipping industry – all independent of each other – examined a detailed breakdown of the R335-million repair job and told the reporters the price was excessive.

Furthermore, the story reflected Maharaj’s response that the contract was won through a public tender process, and that SAS’s bid was, in fact, the cheapest.

My considerations

If “industry experts” did not support their comments with “valid facts”, it is not the newspaper’s fault. Moreover, the story did not state the “inflated” amount as fact, but ascribed it to these sources. I also do not have reason to believe that the sources were not independent of each other. There is no reason for the newspaper to have quoted the sources differently from the way it did.

“Despite insisting the Amatola contract was put out to public tender, the navy has steadfastly refused to clarify queries about apparent irregularities.”

SAS calls this “lazy reporting”. It says the journalists have failed to carry out a basic investigation and obtain open and freely available documentation supporting the legitimacy of the tender process. The tender was issued by the DoD in the Government Gazette of 21 June 2013, on an open tender basis.

The newspaper says the story does not dispute that the contract was put out to tender, and nowhere does it say or imply that it was not.

“We obtained the relevant portion on the Government Gazette ahead of publication. Potential bidders were advised to get tender documents from the navy’s…procurement centre. However, this document does not reflect the outcome of the tender process. Sunday Times asked the navy on several occasions where it had published information on the tender being awarded on an open tender process. The navy did not share this information.”

Smuts says the story quotes Maharaj as saying that every government contract SAS has won has been through a public tender process.

She adds the apparent irregularities refer to allegations that, unlike with previous tenders, the tender award for this one was not publicised. It was also allegedly issued by the navy, and not by Armscor, as was the case with previous tenders. “Furthermore, we have been told that only two companies bid, one being SAS and the other a previously unheard-of company.”

In conclusion, Smuts says the navy did not answer questions about how many people bid for the tender; whether the tender was issued by the navy or by Armscor; whether it was a normal public tender process or a closed procurement process; or who sat on the Department of Defence’s commercial procurement board.

My considerations

Given the newspaper’s reply, I have no basis to find against it on this issue – I believe that Sunday Times did obtain the relevant documentation; furthermore, the sentence in dispute states that the Amatola contract was put out to public tender (and that the navy has steadfastly refused to clarify queries about apparent irregularities).

“Maynier, who called for an independent probe, disagreed: ‘First, the cost of the SAS Amatola’s refit was stratospheric and may have been inflated by as much as R100-million’.”

Maher complains that there is no basis or factual evidence to support Maynier’s statement. “It is highly irresponsible for a high profile Member of Parliament to insinuate that irregularities exist without providing any evidence. As such it has cast doubt on the reputation of a private company and could possibly influence the awarding process on future projects.”

Smuts says this quote was obtained from Maynier. It was accurately reflected and properly attributed. “There can be no legitimate reason to prohibit us from using them.”

My considerations

There is no reason for the newspaper to refrain from using a quote such as this one, as long as it was properly attributed (which it was).

“Second, the SAS Amatola’s refit brought the local shipbuilding industry to its knees because the dry dock was effectively shut down.”

SAS says:

·         There is no basis or factual evidence to support this statement;

·         The Transnet Graving Docks are a common user facility and open to all industry players to use;

·         Commercial repairs in the dock have taken place over a similar time period without commercial damage to other industry players;

·         The Durban Graving Dock caisson has been in the dock for 14 months;

·         An initial tender was released by Transnet for blasting and coating − but failed to mention any steel renewals;

·         Once the caisson was blasted, it was discovered that it required approximately 30 tons of steel replacement, but Transnet had not catered for this and thus no tender was put out. It had no choice but to complete the tender and fully coat the caisson;

·         The caisson is thus unable to be floated until the steel replacement is carried out and re-coated, which has limited the dock space to one vessel at a time for the past 14 months; and

·         This is a Transnet issue, not an SAS responsibility.

                                                My considerations

The same argument as immediately above applies here.

“And third, it’s strange that [R400-million] would be sunk into a private company in Durban, rather than into the South African Navy dockyard.”

Maher states the DoD has been clear that it does not have the capability to carry out the refurbishment and, in agreement with Armscor, made the decision to put out the tender to private enterprise. “This information was available at the time of print and is irresponsible and lazy journalism.”

My considerations

The same argument applies here.

Yielding unfair benefits

SAS complains the story misleadingly insinuates that Mkhwanazi’s friendship with Pres Zuma has yielded unfair benefits in his favour.

Maher says it is true and common cause that Mkhwanazi is a close friend and associate of Zuma. This has never been a secret. He makes no apologies for this association, and it is a friendship that has developed over many years.

“To boldly infer that this friendship has yielded unfair benefits in favour of…Mkhwanazi’s business interests is a stretch to say the least. This is the crucial: Where is the evidence to support this link? How was the President able to influence a public tender process? In…Mkhwanazi’s words: ‘The president does not award tenders…’ Any relationship with the president cannot be linked to contract awards made via a public tender process,” he argues.

Smuts replies the story does not say or suggest that Zuma is able to influence a public tender process. “In our view, it is of legitimate public interest to know the relationships and connections between people in various spheres of influence in South Africa. We did not seek to take the observation further than the fact that Mr Mkhwanazi and Mr Zuma enjoy a close relationship.”

My considerations

The story indeed does not suggest that Zuma could have influenced the tender process. I also agree with Smuts that the connection between Mkhwanazi and Zuma is of legitimate public interest, and that the article leaves it at that.

The headline

The headline reads, Jacob Zuma pal’s R406m ship deal raises flag.

SAS complains this:

·         falsely and misleadingly insinuates that the tender was awarded as a result of a personal relationship rather than an open and legal tender issued by the South African Department of Defence; and

·         emphasises and questions this relationship, rather than the tender itself.

 

Smuts says the headline is a straight-forward reflection of the content of the story, and insinuates none of what is alleged in the complaint.

“[Mkhwanazi]…is a close friend of President Jacob Zuma. The company which he chairs and co-owns has won contracts worth R406m from the Department of Defence for ship maintenance and repairs. The DA shadow minister for defence, David Maynier, said he would ask the Auditor General Kimi Makwetu to investigate the deal. These are the underlying facts that are reflected in the headline. The headline is an accurate reflection of the story.

“There is no reason why the headline should have emphasised the tender, as the complainant suggests. The headline we used does not breach the Press Code.”

My considerations

Section 10.1 of the Press Code reads: “Headlines…shall give a reasonable reflection of the contents of the report…in question.” I have already decided that the story was not in breach of the Code. Because the headline merely reflects the content of the story, it follows that it cannot be in breach of the Code.

Finding

The complaint is dismissed.

Appeal

Our Complaints Procedures lay down that within seven working days of receipt of this decision, either party may apply for leave to appeal to the Chairperson of the SA Press Adjudication Panel, Judge Bernard Ngoepe, fully setting out the grounds of appeal. He can be contacted at Khanyim@ombudsman.org.za.

Johan Retief

Press Ombudsman