Gauteng would have paid R109m to CNBC in questionable deal

10 April 2010 - 13:51 By Rob Rose
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Alarm over guarantee to pay shortfall in advertising sales, writes Rob Rose

US-based business television network CNBC has leapt to the defence of its South African offshoot, as new revelations have emerged that its $3-million sweetheart deal with the Gauteng government was struck "improperly".

Though CNBC Africa denied the existence of such a deal when it launched in 2007, it has emerged that the Gauteng province "guaranteed" to pay $3-million a year to the business channel if it was not able to sell enough advertising.

The five-year deal, signed by the Gauteng Film Commission (GFC) "on behalf of" the Gauteng government, was cancelled in January after only two-years by the film agency's new CEO, Terry Tselane.

The deal has attracted criticism, partly because the secretive nature of the contract has echoes of the "Information Scandal" of the '70s when the National Party government secretly financed the launch of the Citizen newspaper to spread the "apartheid message".

CNBC Africa declined to release the contract to the Sunday Times this week, but it denied that the Gauteng government had received any favourable treatment in news reports which would have compromising editorial integrity.

"Editorial control of all programmes rested with CNBC Africa at all times," it said.

The US-based CNBC International defended its South African arm this week, with spokesman Brian Steel saying the channel retains a reputation for being "unbiased everywhere we operate". CNBC owns no shares in CNBC Africa, but the local business is an "affiliate" of the US brand.

But more questions have emerged over the deal, as the Sunday Times has learnt that the GFC's former CEO Tonny Sauls was axed because he flouted procedures in doing the CNBC deal, and then kept the details hiddenfrom the GFC's own board.

Tselane, who is Sauls' successor, said the board launched an investigation as soon as it found out about the deal. "Based on these investigations, the GFC found that the correct procedures in entering the contract had not been followed, and subsequently (Sauls) was dismissed," he said.

When asked what these irregularities were, Tselane said Sauls "did not consult the board", and signed the deal without authority.

"I discovered this contract when I joined and brought it to the attention of the board. They were worried about it, as the CEO does not have the capacity to enter a contract of this nature," he said.

Tselane said he still has "no idea" why Sauls signed a deal obliging the GFC to pay millions of rands to a TV channel in return for questionable benefit.

The GFC's 2009 annual report said the deal was done by the Gauteng government "to secure CNBC Africa's main studios and operating facilities in Gauteng". It said the province also got a certain amount of free advertising.

But the GFC's financial reports show that had the five-year deal not been terminated prematurely, taxpayers might have had to pay R109-million to CNBC in all.

The reports show that Gauteng has already paid more than R40-million to CNBC - R22.8-million in 2009, and R18.8-million in 2008.

In addition, the financials show that the GFC would have been "obliged to pay an estimated R67.5-million for the remaining three years of the agreement, provided they don't receive any revenue" from other Gauteng agencies.

The odds of this appear slim. For 2009, GFC said "no advertising was secured (by CNBC) during 2008/09 from (the specific) client list (and) GFC is therefore liable for 100% of guaranteed advertising".

CNBC insiders, however, downplayed the Sunday Times' concerns', pointing out that this newspaper is owned by Avusa - which also owns CNBC Africa's business television rival Summit.

However, neither CNBC's US office, nor the South African business, were willing to explain why the organisation initially denied the existence of such a "guarantee" from Gauteng.

In 2007, CNBC's former chief operating officer Trevor Ormerod told Business Day there was no "soft deal" with Gauteng, or any contract providing a guarantee to pay a shortfall in advertising sales. "Gauteng said they would like to advertise, and we have supported them with a (normal) advertising deal, that's all," he said then.

Contacted this week at Primedia, where he now works, Ormerod denied misrepresenting the nature of the deal. "As far as I was concerned, this was a normal advertising deal," he said.

Ormerod said he simply "inherited a deal signed between Sauls and Rakesh (Wahi, co-founder)", which he implemented.

"It was up to the Gauteng departments to provide us with enough content to fill the advertising space. If they couldn't do that, I wouldn't know, because I left soon after," he said.

But critics are not impressed, with website the Daily Maverick saying that a "cloud now hangs over the editorial integrity of the broadcaster".

Lyndall Shope-Mafole, Congress of the People member of parliament and former director-general of communications, said there was no obvious reason why the Gauteng government was willing to hand over so much money.

"The lack of transparency in this deal is also a matter of concern," she said. "Apart from the issues of editorial independence, why is government funding just this one private enterprise and not others? Why should other channels like e.tv not be able to claim similar funds?"

The Democratic Alliance's Jack Bloom described this as "just another fishy deal" negotiated by former Gauteng premier Paul Mashatile.

"The question is, why did the Gauteng government do such a spectacularly unwise deal? They need to be transparent about it, and disclose all the information, considering this is government money being spent," he said.

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