Presentation to Portfolio Committee: REDISA – Litigation, Performance & Deviations May 2018

Presentation Outline # TOPIC 1 The REDISA Plan 2 Performance Targets 3 Performance Review 4 Further Analysis of Information 5 Litigation 6 Leave to Appeal

1. The REDISA Plan The REDISA Integrated Industry Waste Tyre Management Plan was approved by the Minister of Environmental Affairs on 29 November 2012, for a period of 5 years. The objective of the REDISA Plan was to remediate waste tyres and develop the industries and market for recycled tyre products. The Plan was intended to create employment and develop Small, Medium and Micro-sized Enterprises (SMMEs). REDISA in turn appointed a “management company” known as Kusaga Taka Consulting “to handle all operational aspects of the Plan”. The Plan would have expired by operation of law on 30 November 2017.

Estimated 5-Year Target Actual Performance as at end-Year 4 2. Performance Targets The REDISA Plan estimated specific targets that would be achieved during the 5-year implementation period. The independent verifications conducted by the DEA indicated the following actual performance: # Detail Estimated 5-Year Target Actual Performance as at end-Year 4 1 Jobs 10 000 REDISA only achieved 1435 jobs – 20% of the estimated target. 2 Depots 150 25 depots of the estimated 110 depots. 3 Processors 50 21 processors of the estimated 36 processors 4 Transporters 4000 121 transporters of the estimated 2900 transporters 5 Training 1% of Revenue Only 18% of the training budget was used. 6 Research 2,5% of Revenue Only 0,26% of research budget was used.

3. Performance Review Governance Performance Deviations Alignment Serious conflict of interest (Directors’ shareholding in KTC, set-up and structure of related companies that benefit from the Plan). Job performance figures inflated with micro-collectors and well below estimated targets. Only 20% achieved by Year 4. Export of waste tyres which is not provided for in the Plan. The bulk of the “recycled” tyres were actually exported (December 2016 – 56% exported). REDISA is not aligned to the new regulatory framework. REDISA was not ready nor willing to comply with new requirements of the regulatory framework. REDISA has launched legal challenges against the Pricing Strategy and the 2016 amendment to the Waste Tyre Regulations. Board of Directors not compliant with composition requirements in Plan or MOI. Computer System (NCCS) paid for by REDISA but owned and operated by KTC. The system was non-functional at the time of the review. Definition of jobs created amended in order to inflate job performance targets. Duplication/blurring of roles and responsibilities between REDISA and KTC. Underperformance in terms of training – 18% of training budget utilised. Creation of the Product Testing Institute with investment of R 150 million by REDISA. Inadequate company record-keeping (Board minutes, resolutions). Underperformance in terms of depots, processors and transporters. Expenditure and loans for research into new waste streams. Not authorised by the Plan. Non-compliance with MOI in terms of eligibility of Directors. Over-spent on marketing by 0,96% of revenue. Informal collectors were paid R2,00 p/tyre. Underperformance in terms of research and development – Only 0,26% of revenue was spent. Transporters were paid on a fixed rate per route instead of a per kilogram rate, including distance travelled. Annual external performance audit required by Plan was never completed or submitted to the DEA.

4. Further Analysis of Information The following key information was also pertinent to the review of REDISA’s performance: There is little distinction between the actual operations between REDISA and KTC. Both companies operate from the same address. Additionally, at least 25 of Mr Erdmann’s private companies operate from the same address as REDISA. REDISA submitted its 2016 financial statements which contained a sudden disclosure of several “subsidiary” companies. These companies had not been declared previously by REDISA and all of these companies are controlled either by Mr Erdmann or Ms Davidson or in combination with other individuals. Some of these companies were involved either directly or indirectly with the Plan e.g. Imvelo Rubber Products, Waste Beneficiation, Ordipoint, the REDISA Academy. There was evidence of possible abuse of the funds controlled by REDISA: Purchase of properties in Gauteng - R 20 million; Expensive vehicles - R 4,4 million; Office refurbishments - R 6,4 million; Security Services at private residences of Directors.

5. Litigation On 1 June 2017, the Minister brought an application to provisionally liquidate REDISA and on 8 June 2017, she also brought an application to liquidate Kusaga Taka Consulting (KTC). Both companies were placed under provisional liquidation on the respective dates. Furthermore, on 9 June 2017 the Minister obtained a provisional liquidation order against the Product Testing Institute (PTI). The return date has been extended, by agreement, to 12 October 2018 pending the finalization of the appeals lodged with the SCA on REDISA and KTC. On 15 September 2017 the High Court placed both REDISA and KTC under final liquidation.

6. Leave to Appeal to the Supreme Court of Appeal REDISA and KTC applied for leave to appeal to the Supreme Court of Appeal (SCA) against the entire judgement and order of Mr Justice Henney. The SCA granted the leave to appeal on 14 February 2018. The matter has not yet been allocated a date for hearing by the SCA.