N2 Gateway Project Special Audit Report: Department's responses

Committee: Human Settlements

Chairperson: Ms B Dambuza (ANC)

Date of Meeting: 04 Aug 2009

Summary

The Department of Human Settlements had previously appeared before the Standing Committee on Public Accounts (SCOPA), which had asked a number of questions, but had adjourned the meeting because of the lack of coherent responses. The Department was due to return to SCOPA on the following day, and had been asked to brief this Committee on progress made since the first meeting with SCOPA. Most of the questions had related to a review of the N2 Gateway Project, and its challenges. The Department conceded that the project had commenced before a housing policy was in place. Likewise, a coherent business plan had only emerged during the course of the project. There had been issues around the appointment of a project manager. In 2006, the then-Minister had requested a report on the N2 Gateway project, in order to advise government, since there were questions being raised regarding planning, time frames, the affordability of the project, appointment of project managers and payment to the implementing consortium. There had been challenges as to which role players were responsible for what part of the project, and there had not initially been a business plan, although one was later developed. No business plan had been finalised in the early stages, but had subsequently been developed. There had been issues around the appointment of Cyberia, who were not at the head of the list of preferred project managers, but there had been technical investigations by evaluation teams. There were plans to draw up achievable time frames and deal with affordability. Although there was national funding for the Project, the Province and the City of Cape Town were also expected to contribute, which could boost a basic R1,5 billion fiscal grant to R2 billion. The Housing Development Agency had taken over the development. The position of beneficiaries, the health threats posed by the canal behind the development and the creation of temporary location areas still needed to be addressed.

Members expressed the view that this briefing had not provided many more answers, but the Chairperson clarified that the purpose of this meeting was not to interrogate the same issues as SCOPA, but to determine whether the Department had proceeded to obtain any further information and had met with the City and Province. Members asked whether the funding was sufficient, whether there had been a tender in respect of the canal work, whether there had been funding between the City, the Province and the Department, what had been the purpose of appointing Cyberia, and whether there had been participation or meetings with potential beneficiaries. It was clarified that issues around Cyberia, the corrective measures, and the beneficiaries would be answered the following day. Members agreed that the Department would have to finalise the position of beneficiaries, and perhaps consider creating a national policy on beneficiaries.


Minutes

Department of Human Settlements (DHS): Reflection on Special Audit Report on the N2 Gateway Project and responses to issues raised by Standing Committee on Public Accounts (SCOPA)
Mr Itumeleng Kotsoane, Director General, Department of Human Settlements, noted that he had been asked to appear before this Committee to reflect on the Special Audit Report, following the Department’s appearance before the Standing Committee on Public Accounts (SCOPA), which had been convened to interrogate the Special Audit Report.

He noted that when the Department was preparing for the SCOPA meeting, the City of Cape Town (CCT or the City) was not present. Earlier, there had been close cooperation with the City and the Province, with each reporting on what had been done, and what had not. The Departmental responsibilities would be defined by the findings of the Committee and the Auditor General.

The Chairperson interjected that the purpose of this meeting was to find out what had actually transpired. The Committee wished to get a report on the Departmental responses.

Mr Kotsoane continued that in 2006, the then-Minister had requested a report on the N2 Gateway project, in order to advise government, since there were questions being raised regarding planning, time frames, the affordability of the project, appointment of project managers and payment to the implementing consortium.

He said that in regard to legislation and policy, he said that the Department was convinced that it was preferable for both funding and policy to be in place before the start of a project. However, in respect of the N2 project, the social housing policy was only finalised later. He indicated that the legislation regarding both constructing and the Housing Act were observed.

There were challenges regarding the roles of responsible role players. The participation of the City in the Steering Committee had been re-established in the previous year.

No business plan had been finalised in the early stages, but had subsequently been developed. Achievable time frames would be provided, and the questions of affordability would be considered.

Funding had not been secured at the outset, but National Treasury had provided R1 billion for the project. In the current financial year, R400 million would be provided, which would rise during 2009/10 to R500 million, and again to R600 million for the 2010/11 financial year. These were not the only available funds, as there was also a conditional provincial grant.

There had been issues around the appointment of a project manager. Cyberia Technologies had been appointed by the City of Cape Town, and the City Manager had provided a full report. Cyberia had not been at the top of the list of preferred appointments, but there had been a technical investigation by an evaluation team.

Mr Kotsoane expressed the conviction that government had to create institutions geared to achieve objectives, instead of resorting only to the private sector. Such institutions could not be expected to compete in the market.

Regarding future goals, he stated that the Housing Development Agency (HDA), a government institution established by an Act of Parliament, had taken over the development. In regard to the appointment of an implementing consortium, he noted that there had been difficulties with the tender process. The Auditor-General (AG) had expressed concern about the quality of units.

The position of potential beneficiaries needed attention. The canal running behind the Gateway Project was identified as a health threat, and the City had appointed a construction company to restore the canal to proper order. There were also issues around the creation of a temporary location area.

Discussion
Mr A Steyn (DA) remarked that he was none the wiser after the briefing. He queried whether a more detailed report had been prepared for SCOPA. He asked for more detail concerning City participation. He also wondered whether the funding of R1.5 billion, for a three-year project, was adequate. He was concerned about the amount of R29 million for the canal restoration, which seemed a very large amount for remedial work. He also wanted to know if the CCT, when awarding the contract, had gone through the proper channels.

Mr T Botha (COPE) referred to queries raised about contractors being on site before tenders had been finalised. There was evidence of non-cooperation between National government, the Province and the local authority, and he asked whether funds had been moved from the National to the local authority. Whilst he was aware that there had certainly been pressures, those did not justify the bypassing of tender processes. He also queried what the AG had said about the canal project, and whether there had also been a tender process on this.

Mr J Mcgluwa (ID) asked about the relationship between stakeholders, and asked if there had been any real  participation of potential beneficiaries.
The Chairperson enquired about the reasons for the appointment of Cyberia.

Mr Kotsoane replied that a detailed report to SCOPA would also be made available to Committee Members. This report also reflected on corrective measures taken to address the points.

Mr Kotsoane noted that the CCT had not participated before the SCOPA meeting, but that he had met with the City management afterwards. Both the City and Province had also in the meantime made more information available. Questions around the Cyberia appointment would be shared with Members the following day.

In regard to the questions on funding, Mr Kotsoane noted that R4 billion had been quoted in the initial stages. During 2004/05, R9 million had been made available. A further R36 million was released in 2005/06, and R372 million in 2006/07. He reiterated that for 2009/10, R400 million was awarded, followed by R500 million for 2010/11, and R600 million for 2011/12. Besides money from the national government, there was the expectation that the City and the Province would both contribute. Therefore, although R1,5 billion had been negotiated from the fiscus, there was the possibility that R2 billion could be available.

In regard to the questions on the canal, Mr Kotsoane pointed out that the whole of Joe Slovo lay beneath ground water level. The City had requested that the whole of Joe Slovo be attended to. He assured the Committee that the canal project had been correctly costed.

Returning to funding in general, he said that the project had first been conceived by the City, who approached the Province with a comprehensive plan for funding. The Province then decided to go national, and to propose the foregoing of certain allocations in exchange for funding. At that time, only a raw policy document existed. The City and Province proposals had led to the formulation of a broader policy document. The City and the Province paid for the planning.

Mr Kotsoane said that the Department was piloting a scheme for government to move faster with funding.

Mr Kotsoane said that the Mayor and the Western Cape Premier had engaged with communities. There had been extensive discussion, and it had been proved to the Constitutional Court that there had been adequate communication. The problem was that communities often changed their leaders, which made it difficult to establish continuity of agreement, but he reiterated that nobody could say that they had not been consulted.

Mr Clarence Tshitereke, Chief Director, Department of Human Settlements, said that the tender for a contractor had been done under the Municipal Finance Management Act, and had been a municipal responsibility. The City had to appoint a contractor, and the Chief Financial Officer of the City had done so. The Department had not been furnished with extensive documentation, yet it was known that the tender was submitted on 7 December 2004, and the appointment was made on 17 December. Nine companies tendered. There were three evaluation committees involved.

Ms Dambuza said that more details were needed.

A member asked what the purpose of Cyberia was, as opposed to the consortium.

Mr Mziwonke Dlabantu, Deputy Director General, Department of Human Settlements, replied that Cyberia had been appointed to manage the others. There was a group of four main consortia. Each had to make proposals about specific precincts.

Mr P Ntshiqela (COPE) remarked that he had expected the Department to deal with the AG’s report. Rightfully, the relevant role players had to be there to be interrogated. Recovery of lost funds had to be discussed.

The Chairperson responded that the Committee had access to the AG’s report, which had been available at the SCOPA meeting. The Department was asked to report to this Committee on the progress that it had made since the SCOPA meeting, and she reassured Members that further detail on the Project itself would be available at the meeting on the following day.

Ms M Borman (ANC) pointed out that the AG’s report had noted that Cyberia was sixth on the preferred list of contractors, whereas the Chief Director had now indicated that it was ninth.

Ms Borman remarked that the N2 Gateway Project had been discussed, but there had not been proper surveys done with the beneficiaries, and the question as to who would ultimately benefit from the project had never been answered. She pointed out that people on the ground were angry. not the beneficiaries. Surveys with beneficiaries had not been properly carried out. The question as to who would really benefit from the project was ignored. People were angry.

Mr M Mdakane (ANC) said that several matters were being lumped together in the meeting. Compliance issues were properly the concern of SCOPA. This Committee, however, had to establish and deal with performance difficulties and challenges.

The Chairperson reiterated that there was presently no need for further detail on those points. The question was whether the Department was ready for the meeting on the following day. The position of beneficiaries had to be discussed with the Department. She suggested that it was high time for the Department to think about creating a national policy on beneficiaries.

Mr Kotsoane replied that the Joe Slovo phase had been set aside for social housing, specifically rental housing. Some of the people who were removed had expected houses for free as part of the programme, and it was necessary to explain to them that they had to be in a certain earning bracket that would enable them to afford to pay rent, in order to qualify for the houses.
The N2 precinct was targeted to receive priority. A process was run by the Province to check the income of applicants. People who qualified to be on the list for rental housing were briefed about the implications, and given the option of opting out. However, he admitted that beneficiary management challenges were serious.

The meeting was adjourned.