Public Works to pay up to R50m to settle lease for never-occupied building

The Department of Public Works and Infrastructure may be liable for up to R50 million to settle a lease for a building it never occupied, Minister Dean Macpherson told the National Council of Provinces during the department’s Budget Vote address.

What happened: a costly lease with no tenant

Macpherson said an internal investigation by the department’s Anti-Corruption Fraud Awareness unit found that a lease was concluded in March 2023 for the then Department of Public Enterprises. The contract was for almost R70 million over five years, yet occupation of the premises never took place.

Macpherson said the lease was concluded even though “the president [had] already announced that the Department of Public Enterprises would be reconfigured and closed.” He added:

“In plain terms, roughly R70 million was committed for a lease without a tenant.”

He warned that the state now faces potential legal and financial exposure after the matter was highlighted in the internal report, and said “it now seems increasingly likely that we are going to be financially responsible for up to R50 million to settle this matter with the tenant.”

Failures flagged in procurement and oversight

The report raised concerns about the procurement process. Macpherson said officials had recommended canceling the bid twice, but the process continued regardless. He said that

“BBBEE compliance was ignored. Procurement process and national treasury prescripts were also ignored, but they proceeded anyway.”

Although occupation did not take place and the lease had not become affected at the time, the report warned of the potential legal and financial exposure that is now being realised. Macpherson said he did not accept the report’s recommendations because they “failed to hold a single person accountable.”

Wider problems at PMTE and departmental reforms

Macpherson described the Property Management Trading Entity (PMTE) as intended to be a key instrument for managing public land, buildings and leases, but said it is instead “often associated with financial pressure, delayed leases, underutilised buildings, poor systems, and weak accountability.”

He stated the PMTE “has not achieved a clean audit, since it was established in 2014,” and that its overdraft “has doubled to nearly R4 billion in the last 20 months.” Macpherson also said the government continues to spend approximately R6 billion a year on private leases, despite owning thousands of vacant buildings and large amounts of land.

Macpherson said an internal study showed leases “average between 17% and 34% above market-related rentals, and in some instances, for higher.” He said the department will provide oversight where leases were not properly concluded.

Related departmental actions

Alongside the lease disclosure, Macpherson announced reforms and programmes in other department areas. He outlined a reform of the Expanded Public Works Programme (EPWP) with the launch of a Working on Infrastructure pilot program, aimed at providing longer, structured work opportunities linked to skills development.

Macpherson said the pilot was launched in KwaZulu-Natal and that “at the end of this month, we will be launching the second program in the province of Limpopo.” He described the pilot as responding to “two realities in South Africa. The first is an unemployment crisis, and the second is an infrastructure maintenance crisis.”

On the lease dispute specifically, Macpherson said he has requested guidance from National Treasury and that “anyone involved in wrongdoing like this must be identified and must be held accountable.”