Lesotho: Netcare 'Siphoned' M5 Billion From Tšepong

Local shareholders in the Tšepong Consortium, which was tasked with running Lesotho’s biggest referral hospital, the Queen ‘Mamohato Memorial Hospital (QMMH), never received a single penny in dividends despite the government paying out more than M5 billion for the Consortium’s services at the institution.

Instead all the money went to South Africa’s Netcare Hospital Group, the single biggest shareholder in the Tšepong Consortium, which in October 2008 signed an 18-year Private Public Partnership (PPP) agreement with the government of Lesotho for the construction and operation of the hospital.

While the deal was at the time hailed as an exemplary model of how the private and public sectors could work together to foster efficient health service delivery, it had turned into a bane, with the South African company facing accusations of using the contract to effectively swindle poor Lesotho. The deal was costing about half of Lesotho’s entire annual health budget with no corresponding reciprocal benefits, the Lesotho government argued before terminating the contract in October 2021.

Netcare had argued it was only doing its best to deliver professional health services to Lesotho.

It has since emerged that local shareholders in the Consortium – who collectively controlled 60 percent equity in the Tšepong Consortium – never benefited a penny despite the billions paid out by the government for services.

All the money went to Netcare- which controlled 40 percent of the shares but was in charge of the management contract and operations of the hospital.

The locals-controlled 60 percent equity without day to day operational involvement. These are Afri’nnai Health, Excel Health Services, Women Investment Company and D10 Investments who controlled 20, 20, 10 and 10 percent equity stakes respectively.

In a startling revelation, one of the directors of Tšepong Consortium, Professor Lehlohonolo Mosotho, said the local shareholders had never received a penny from the more than M5 billion paid by the Lesotho government to the Consortium since the hospital opened in 2011 until the August 2021 termination of the contract. The government cancelled the contract citing various reasons. The then Minister of Health, Semano Sekatle, claimed the PPP deal had been plagued with problems from the beginning. The government’s main source of discontent was that Netcare was using the project o unjustifiably swindle half of Lesotho ‘s health budget. There was no transparency in how charges for its services were levied. A strike by nurses, who were then fired by Netcare, around the time of the termination, much to the chagrin of the government, became a trigger for the cancellation. But the dispute had been long simmering.

Of the more than M5 billion paid by the government to the Consortium for running Tšepong Hospital, Professor Mosotho alleges that Netcare had paid itself around M1 billion in dividends. It did not share a penny with the locals despite their 60 percent equity in the deal. Professor Mosotho is the owner of Afri’nnai Health.

He said the local shareholders had demanded a forensic audit to determine how Netcare had been running things but the latter had fiercely opposed that, presumably to avoid exposure of its alleged shenanigans.

Professor Mosotho makes the revelations in a stinging affidavit in opposition to Netcare’s application at the High Court in which it wants to be granted the greenlight to sue the government for M1.6 billion for fees in outstanding services rendered and for prematurely terminating the 18 years PPP agreement.

Netcare wants to be granted permission to sue the government on behalf of all the shareholders in the Consortium. It alleges that the Consortium itself does not have the money to sue the government as it is now bankrupt.

But Professor Mosotho has rejected that allegation. He essentially, on behalf of the local shareholders, accuse Netcare of defrauding them. They therefore don’t want Netcare to institute the action in case it is successful and more monies are paid to the South African company. The locals will still not be able to get a penny of whatever amount was paid to Netcare. Instead, the local shareholders will institute any legal action themselves. He says a meeting of the Tšepong Consortium was convened on 17 May 2023 and resolved to sue the government for any outstanding debts. If successful, the locals don’t want the money to go to Netcare to avoid being “fleeced” again.

This case was argued before Justice Moroke Mokhesi in the Commercial Division of the High Court this week. He reserved judgment indefinitely.

“From the time Tšepong (QMMH) started operating around 2008 or thereabout until it had its contract terminated on 30 August 2021, it has been paid an estimated amount in the excess of M5 billion,” Prof Mosotho states in his affidavit.

“From the time of inception until 2021, Tšepong has never declared dividends. I aver that all the money from the consortium was taken by the applicant. It is not clear to date as to what it did with the revenue ….

Prof Mosotho added: “I must inform the court that the applicant has refused that Tšepong be forensically audited. It (Netcare) has fought tooth and nail to resist the audit.

“All in all, the applicant seeks to achieve nothing else other than to appropriate to itself money that belongs to the first respondent (Tšepong Consortium) and the rest of its shareholders to the prejudice of all as it has happened from inception to date of termination of the contract by the Lesotho government.”

Prof Mosotho attached a table titled Payments to Netcare showing different amounts of money paid to Netcare from 28 October 2016 to 3 August 2020 alone. These amounts add up to nearly M1 billion (M990 049 018.46 to be exact).

Prior to instituting the court action, Netcare had on 31 May 2023, through its lawyers, Bezuidenhout Inc, written to Minister of Health Selibe Mochoboroane, Minister of Finance and Development Planning Retšelisitsoe Matlanyane and Attorney General Rapelang Motsieloa demanding compensation to the tune of M1 601 820 173.

It said the figure consisted of M358 734 537 for services rendered in respect of the hospital, and the sum of M1 243 085 636 for compensation “due to the premature termination of the PPP agreement between the government and Tšepong”.

It demanded payment within 14 days which the government obviously did not do, prompting the court action.

Netcare Hospital Group General Manager, Christoffel Smith, claims in court papers that the Tšepong (Consortium) was insolvent and therefore was unable to pay its debts to Netcare and other creditors, hence his company found it fit to pursue the M1.6 billion claims from the government on behalf of all shareholders.

“Tšepong wholly relies on the payment of monies owed to it by the government of Lesotho, yet it has done nothing whatsoever to recover the debt due to it by the government. It is evident that Tšepong does not intend to institute the legal proceedings or take any steps to recover the actionable claims and the fact that certain claims have already prescribed confirm that Tšepong does not intend to bring any proceedings to recover the actionable claims.

“The current financial position of Tšepong renders it technically insolvent with no financial means to pursue the claims even if the board decides to act responsibly and in the best interest of Tšepong. Tšepong is unable to settle its current financial commitments and unable to incur new obligations such as legal fees. The only realistic option to pursue the outstanding claims is for Netcare to conclude all litigation on behalf of Tšepong.

“I submit that it is in the best interests of Tšepong and the parties to the various agreements that the institution of these proceedings are necessary and in order to recover the debt from the government. Such recovery cannot be left to the directors of Tšepong or the shareholders as a whole who have failed the company in the non-exercise of their fiduciary duties to act in the best interests of the company, inter alia, by recovering debts due to the company. Netcare is well placed to institute these proceedings, Mr Smith argues.

But the local shareholders are fiercely opposed that. They don’t want Netcare to institute any court proceedings on their behalf, lest the company succeeds and get paid to their detriment. They want to do it themselves, hence Professor Mosotho’s scathing affidavit.

Mr Smith also reveals that the government and Tšepong had from November 2016 been locked in arbitration in an attempt to amicably terminate the contract between the two parties.