R872 million Telkom Towers debacle

The Auditor-General has revealed how taxpayer money is wasted on government buildings, including The Telkom Towers in Pretoria, with projects dragging on for years.

This information was contained in the Auditor-General’s consolidated general report on national and provincial audit outcomes.

According to the report, numerous properties the government is paying for are in good condition but are not occupied.

One of these properties is the Telkom Towers building, located opposite the national Department of Public Works and Infrastructure headquarters in Pretoria.

The Telkom Towers building was initially purchased on 9 September 2016 for R695 million.

The intention was for the South African Police Service to use the building, but later that year, the department indicated that this move would be delayed for unknown reasons.

As of 31 March 2021, the costs incurred include R152 million paid to consultants, R10 million paid for securing the building and R15 million in facility management costs.

Cumulatively, the sector has spent R872 million — excluding rates, taxes and security costs — on this building that is still not occupied.

The report showed that the Property Management and Trading Entity of the Department of Public Works had 1,239 unoccupied buildings versus 3,246 total leases.

The sector has a strategic initiative to lease out unoccupied buildings to reduce the number of private leases entered into on behalf of user departments.

However, this is not included in the planning documents for some auditees, such as the Free State, Gauteng, KwaZulu-Natal, Limpopo, Mpumalanga, the Northern Cape and the Western Cape.

Where it is included, as is the case with Property Management Trading Entity, the strategic initiative was not achieved.

Many of these buildings are unoccupied because they do not meet the needs of the user departments, and the sector instead relies heavily on private leases to meet these needs.

If the sector reprioritised its budget to fix unoccupied buildings, it could reduce the number of leases held, yielding a significant impact.

It is especially true for the Property Management Trading Entity, which has several properties in good condition that are unoccupied.

The sector holds most expired private lease contracts on a month-to-month basis over long periods, which has a significant impact.

The Armscor building in Pretoria, Gauteng, occupied by the Department of Defence, has been on a month-to-month contract for 17 years since the lease expired in 2004.

Throughout this period, the lease amount has increased by 10% annually, costing the sector R502 million from 2004 to 2020.

If the lease had escalated at 5.5% as approved by the National Treasury, the Property Management Trading Entity would have paid only R455 million — a saving of R47 million over the 17 years.

According to the report, there appears to be a lack of will from the sector, the affected user departments and the lessors to enter into new agreements.

Resources that could have been used to maintain the properties owned by the sector are spent to the benefit of the lessors who own these buildings through lease amounts that continue to escalate at 10%, which is much higher than the national inflation rate.

To date, R1.033 billion relating to expired leases held on month-to-month contracts has been disclosed as irregular expenditure under assessment, while R368 million has already been confirmed as irregular expenditure.

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