Minister's response to Public Protector Report on Lesotho Highlands Water Project; Rand Water replies to tender irregularity allegations

Water and Sanitation

23 November 2016
Chairperson: Mr M Johnson (ANC)
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Meeting Summary

Water and Sanitation Minister Nomvula Mokonyane presented the report drafted by former Public Protector Thuli Madonsela, about a complaint made by former DWS representative to the Lesotho Highlands Water Commission, Dr Zodwa Dlamini. Since joining the DWS in 2005, Dr Dlamini was appointed to the position of chief delegate to the Lesotho Highlands Water Commission in 2009. She was removed in 2015, and replaced by Ms Bheki Nkosi, who had previously served under Minister Mokoyane when she was Gauteng premier.

The Minister recognized that there had been considerable media speculation surrounding the incident, including allegations of political interference on her behalf. She stated that the report of the Public Protector was binding, and that the DWS would not contest the resolution in a court of law. The complainant was entitled to an undisclosed amount in excess of R2 million.

A City Press article published on 30 October 2016 alleged the awarding of irregular contracts by Rand Water to a company called ‘Fast Track Electrical’, to the value of R1.1 billion. The allegations specified contracts for four mega-projects, where advance payments of R56 million were made for incomplete work. Fast Track Electrical, which began in 1996, is owned by Zimbabwean-born Osfael Zusimuzi Mazibuko.

Rand Water Chairperson Adv Faith Hashatse argued that the R1.1 billion was awarded for multiple projects over a period of five years to one company. She stated that the company operates in a specialized industry, where repeat contracts are fairly common. She criticized City Press for quoting the Public Finance Management Act in an “incomplete fashion”, arguing that section 31.1.2(c) allows advance payments if stipulated in the contractual agreement. Adv Hashatse suggested that it was likely that the anonymous source referenced by the City Press may have been a Rand Water employee.

Several members raised concerns about progress at the Rand Water’s Zuikerbosch pumping station. According to Rand Water, a tender of R429 million had been awarded to Fast Track Electrical in 2015. The project was delayed due to civil unrest in the area in the form of rioters and job demands from sub-contractors. To date, the detailed designs have been completed, engineers are on site and the excavation process is close to completion. Rand Water is targeting December 2018 for the project’s completion in its entirety.

Meeting report

Minister response to findings of Public Protector Report on Lesotho Highlands Water Project
Minister Nomvula Mokonyane introduced the report drafted by former Public Protector Ms Thuli Madonsela. The report pertained to a dispute resolution based on a complaint by a former DWS representative to the Lesotho Highlands. Since joining the DWS in 2005, Dr Zodwa Dlamini was appointed to the position of chief delegate to the Lesotho Highlands Water Commission in 2009. Minister Mokonyane noted that there had been considerable media speculation surrounding the incident, including allegations of political interference on the Minister’s behalf. For this reason, the (former) Public Protector’s report would serve to provide clarity on the situation. She informed the Committee that in presenting the report, the Minister does not represent Dr Dlamini, nor does she represent the Public Protector; instead the report briefing will serve to illustrate the process undertaken by all parties.

She noted that the situation had been resolved under the mitigation of the Public Protector, and that the matter was essentially “done and dusted”. The Minister requested that the Committee not labour too much on the contents of the report as it was available as a public document. She noted that the DWS had neglected to attach the letter of apology from the (former) Public Protector regarding her late submission of the report to the Department.

Discussion
The Chair thanked the Minister and invited the Committee to comment.

Mr D Mnguni (ANC) stated that the contents of the report are binding, leaving little to be disputed. He argued that the presence of a neutral entity legitimized the negotiation, but asked if the resolution had been finalized.

Mr L Basson (DA) asked the final cost to the DWS in reinstating, repaying and buying-out the contract of the complainant, Dr Dlamini.

Mr H Chauke (ANC) noted that the Minister had previously provided a verbal account of the matter to the Committee, and commended her on her presentation of the Public Protector’s report, which was coherent with her earlier narrative. Although the matter has been resolved, would there be any unforeseen implications such as that raised by Mr Basson? He applauded the Minister for “leading by example”, and stated that he appreciated her responsiveness to the Committee.

He highlighted page 11 of the report, which stated that taking into account that Dr Dlamini’s contract has expired, the department is obligated to pay the complainant the full settlement within 7 days of the report being released. Addressing the Minister, he asked if this commitment had been met.

Minister Monkonyane replied that the negotiation process had been rigorous. Furthermore, the report was binding, and the department would implement the Public Protector’s decisions with immediate effect. In response to Mr Basson, the Minister said that the department did not “buy-out” Dr Dlamini’s contract. After Dr Dlamini had been recalled as chief delegate, she retained a position at the Trans Caledon Tunnel Authority (TCTA), therefore there was no buying out of any contract. To this extent, she argued that the fundamental difference between these two positions was that Dr Dlamini was no longer a representative of South Africa. Given the binding nature of the report, “All we had to do is honour the issues”.

Mr Chauke stated that according to the Public Protector Act the report is binding “subject to you [the department] contesting the decision in a court of law.” He noted that the department has the right to contest this decision if they feel it necessary.

Mr Basson requested the Minister answer his question about the final cost to the department to compensate the complainant. The Minister does not necessarily have to answer, as he will otherwise submit a written request for this information at a later date.

The Minister replied that she will answer Mr Basson’s question, and pointed out that the relevant information is contained on page 9 of the report. One could use a calculator to derive how much the complainant is entitled to. If Mr Basson is to submit a written request, the Minister would provide him with another copy of the report.

Mr Basson stated that it would be best to flag the question for the following week.

The Minister instructed Mr Basson to observe the figure on page 7 of the report.

The Chairperson revealed the figure as R2 097 261, but noted this specific issue was rather insignificant, as the matter had already been put to rest by the Public Protector. He urged the Committee to conclude, and move on to the next agenda item. He invited the Minister to brief the Committee on the Rand Water matter.

Rand Water on allegations regarding tender irregularities
Minister Mokonyane noted that the briefing had been prompted by a recent newspaper article, however the response of the Rand Water board chairperson was not taken into consideration in the article’s composition. On this basis, the board has a responsibility to present their account to the Committee. She pleaded with the Committee to afford Rand Water the opportunity to provide a report on the project, arguing that not everything that is reflected in the media should be assumed to be accurate.

Adv Faith Hashatse, Rand Water chairperson, introduced the Rand Water delegation. She noted that unfortunately, several board members were unable to attend the meeting. When the article first appeared on the 30 October 2016, it raised questions and concerns amongst the board about the contracts alluded to. The article alleges contravention of legislation and proper procedure. However Adv Hashatse argued that it also included obscure innuendos, suggestions and speculation, which are ultimately detrimental to the reputation of the Rand Water board. In this regard, the article “left a bad taste in the mouth”.

Adv Hashatse noted that City Press had sent a list of questions to Rand Water about the allegations, to which Rand Water provided a response shortly thereafter. City Press proceeded to write the article in a manner that disregarded Rand Water’s responses. Adv Hashatse argued that balanced reporting would require the media to report on what the company has said, as opposed to a one-dimensional perspective. Moreover, the article relies on a single, unnamed source. Considering City Press had ignored Rand Water’s responses, she argued that City Press undertook “irresponsible journalism”.

In response to the allegations, Rand Water had a legal duty to ensure that the internal systems and controls had not missed anything. The advance payment allegations had suggested specifically that a certain company was being favoured for contracts by Rand Water. The first level of inquiry undertaken by the board was making contact with the company’s external auditors, to ascertain whether any of the allegations were, in their experience, substantiated. In this regard, the external auditors did report to the Audit Committee that one of the alleged contracts had in fact been audited previously, without any sinister findings. She stated that the Rand Water Chief Executive had reviewed the relevant legislation in relation to Rand Water’s policies in order to check if any of Rand Water’s regulations “short circuited” these in any way. Adv Hashatse stated that Rand Water relies on the final audit as the last line of defence to ensure that the company’s internal checks and balances are robust enough.

Among other policies in place to prevent maladministration and corruption, Adv Hashatse noted that staff members are required to sign off on declarations, and that the department even conducts lifestyle audits to ensure that no staff members are abusing their position for financial gain. Rand Water has undertaken continual improvements particularly with regards to procurement. For example, before contracts are awarded, the internal auditor is required to check that everything is up to standard, specifically that the contractor has the capacity and that the relevant financial resources are available. Moreover, Rand Water’s capital investment committee exercises oversight on all major projects. This same committee is expected to visit sites to investigate challenges to specific projects that may be causing delays. On the basis of these internal measures, Adv Hashatse argued that Rand Water was unable to find information that corroborates the suggestions and innuendos being alleged by City Press.

Adv Hashatse then proceeded with Rand Water’s slideshow presentation. She said one of the first things that must be considered in awarding contracts is whether there is compliance with the relevant legislation and Rand Water’s own internal policies. One of the allegations made by the City Press publication was Rand Water’s advance payments in contravention of the Public Finance Management Act (PFMA). City Press quoted PFMA in an “incomplete fashion” and she argued that the PFMA allows advance payments if stipulated in the contractual agreement. These payments were contractually stipulated, and were made in manner that benefitted the overall progress of the project in question. The second relevant piece of legislation is the Construction Industry Development Board Act (CIDB) Act of 2000. She noted that the CIDB Act sets out the rationale for grading and tracking the performance records of contractors, in order to ascertain what level of work contractors are capable of doing based on their history. She argued that all contracts awarded have been aligned with CIDB policy.

On Rand Water’s policy in awarding contracts, Adv Hashatse said that the company does not necessarily award to the cheapest contractor, but considers business evaluations in terms of the risk that the project will not be completed. In this regard, Rand Water has its own internal quantity surveyors that examine the scale of the project to estimate the price before the company considers tenders. By doing so, Rand Water is not solely reliant on contract bidding, but has a scientific basis to ascertain whether companies are undercutting or overpricing contracts. She noted that Rand Water’s internal policies are regularly reviewed and aligned with the guidelines of the National Treasury, in the interest of awarding work in a manner that is fair and transparent. Rand Water was moving towards a new e-tendering platform, improving accessibility, transparency, and providing a much more straightforward paper trail for auditors to follow.

Adv Hashatse noted that the City Press article, published on 30 October 2016, alleges irregular contracts with the company ‘Fast Track Electrical’ to the value of R1.1 billion. These were in fact multiple projects, awarded over a period of five years. This exchange was by no means unusual, nor is Fast Track Electrical the only company that gets repeat work from Rand Water. In this regard, she noted that Rand Water operates in a “specialized space” where repeat contracts are not unusual in the industry more broadly.

The City Press article alleges that R56 million was awarded in advance for incomplete projects. She argued that these payments were made according to the contract terms, as specified in the PFMA. The contractual terms stipulate payments at particular milestones of the project’s progress. Of the R56 million, a payment of R31 million was made for progress on the Palmiet pump station, and a R25 million payment was made for progress on the B17 Pipeline. She argued for this reason that the payments were not in fact irregular, and that there is a segregation of duties and a specific process in awarding advance payments. Rand Water’s project engineer is firstly required to sign off on the progress, thereafter the project manager is required to do the same, followed by the COO. After this process, the payment is then processed by Rand Water’s finance management team. She argued that this system is effective in providing checks and balances that prevent individuals from processing advance payments irregularly.

The payment of R31 million to Fast Track Electrical for the Palmiet pump station was contractually payable on delivery of a pump manufactured in Germany. The contract terms were in accordance with the format of the International Federation of Consulting Engineers (FIDIC), with the inclusion of a clause allowing for advance payments upon delivery of the pump, as opposed to the pump’s installation. To this extent, she argued that there was nothing irregular about this particular payment. The R25 million payment for the B17 pipeline was not a FIDIC contract, but rather a General Conditions Contract which provided for interim payments for work done off-site. The contract allows for advance payments once the project reaches certain milestones; in this instance for the completion of the pipe’s construction, but not its installation. Adv Hashatse stated that these payments were verified according to the processes on the ground and approved by the delegated authority.

The City Press article suggests that Fast Track Electrical is a little-known company. Adv Hashatse dismissed this claim, noting that the CIDB has graded the company to undertake (large-scale) level 8 and level 9 projects. Moreover, Rand Water has awarded at least four contracts to Zimbabwean-born Osfael Mazibuko’s close corporation. Despite his Zimbabwean heritage, Mazibuko has a South African identify, his company is registered in South Africa with the South African Revenue Service (SARS) and is compliant with Black Economic Empowerment (BEE) requirements. The company was established in 1996, and describes itself as “100 percent black-owned”. The article suggests that Fast Track Electrical is a struggling company, but still receives contracts from Rand Water. In response, she argued that Rand Water conducts evaluations on all companies it does business with. Moreover, Rand Water actively consults both the company’s internal blacklist and companies blacklisted by the National Treasury before awarding contracts. Due to the scale of projects such as the Palmiet and the Zuikerbosch pumping stations, multiple contracts were awarded by Rand Water for each project, therefore the suggestion made by City Press that Fast Track Electrical is the sole beneficiary of these tenders is unfounded.

With regards to the delays and penalties for unfinished projects, Adv Hashatse said that there was a one-year delay on the L17 pipeline due to the issuance of a water-use licence by the DWS. Major issues leading to delayed projects pertain to changes in the specification of the pipe in response to underground conditions, regulations around blasting, and redirecting pipelines. For example, in the wetlands, concrete reinforcement blocks are required to prevent pipeline floatation, necessitating changes in the pipeline chamber design. On both the Palmiet pumping station and the B17 pipeline, Rand Water granted contractors time extensions at the contractors’ own cost. She stressed that penalties for these companies are only applicable according to the reasons for the time delay.

Adv Hashatse concluded by stating that she hopes that the City Press article has been provided with an appropriate response on the matter. Lastly, Rand Water had begun audit preparation for 2016/17, to be undertaken by the Auditor-General.

Discussion
The Chairperson stated that the interest of the Committee in this matter revolved around safeguarding the taxpayers’ money, as well as enforcing transformation, guided by the regulations of the PFMA. The “media is a very interesting type of animal”, and he expressed concern that black companies are discredited by media actors as a matter of principle. He asked rhetorically “at what stage will we see these [black-owned] companies thriving in their own right?”. He argued that one of the biggest challenges to deracializing the South African economy was the media’s favoring of big players, established companies: “the darlings of the media”. It was necessary to strive towards a society where there is no black and white, but only South Africans, however in this regard we are making headway and moving forward. He then invited the Committee to raise any concerns.

Ms M Khawula (EFF) expressed her thanks to the Chairperson for pursuing change in South Africa. She questioned where the City Press was receiving its information, stating that the allegations were insulting to the Committee. She raised concern about the appointment of such costly contractors, arguing that Rand Water was spending exorbitant amounts for no reason. She asked how Rand Water measures the quality of the work of contractors. She cited the example of a bridge in Johannesburg which a contractor did not finish. For this reason, children are forced to walk on stones to cross the river, even in flood conditions. How did the service provider get the tender to build this bridge? She asked how one verifies that contractors are not foreigners with falsified South African qualifications?

Mr Mnguni thanked the Rand Water. He paraphrased the writing of Malcolm X, stating: “one must be careful of the media, as you may find yourself fighting against the poor for the rich based on what the media is saying.” Nevertheless, the media allegations provide an opportunity for introspection by the Rand Water board, regardless of their credibility. The newspaper allegations cannot merely be wished away, the board must provide responses that are convincing to the public. The article alleges that Rand Water awarded Fast Track Electrical R490 million to design and build an engine room and reservoir at the Zuikerbosch Pumping Station in Vereeniging. They report that up to today, there is no one on site, despite scheduled completion in 2018. Further, Rand Water awarded a R151 million contract to install four electrical motors at a pumping station in Meyersdal in Midvaal. The project was supposed to have been completed 21 months ago, however it remains incomplete, despite Fast Track Electrical already being paid R143 million. Considering this, is Rand Water using public funds responsibly?

Mr Mnguni highlighted the issue of work being delayed on Rand Water’s own permission. How long does it take to access and give permission to contractors for this purpose? He asked on what basis Rand Water agrees to stipulate advance payments in their contracts. How will you explain these advance payments to the Auditor-General? Lastly, he noted that it had come to his attention that a pipe had burst in his Mpumalanga constituency. Is Rand Water aware of this, given the current drought in South Africa?

The Chairperson stated that one of the fundamental roles of the Committee is to be an ambassador for saving water. The Committee has a mandate to promote responsible water consumption in South African society.

Mr Basson stated that he has no problem awarding tenders to any company that is capable of doing the job. He made reference to the R490 million contract awarded to Fast Track Electrical for the Zuikerbosch pumping station, as alleged in the City Press article. Specifically, how much money has been spent on this project so far, considering the lack of visible progress on the ground?

Mr Chauke commended Rand Water for their sound presentation, however he noted that they did not go into too much detail regarding what was reported by the media. The media would always play an oversight role between the state and the public. The City Press non-inclusion of Rand Water’s responses to their questions suggests that City Press had its own perspective on the story. He argued that revealing City Press’ anonymous source is “not our domain”. The Committee cannot request the whistleblower to come and explain. The issues raised must be taken seriously, and present an opportunity for introspection by the Rand Water board. Quite a number of tenders had been awarded, and he requested a comprehensive list in writing of all the tenders that had been awarded by Rand Water, within 14 days.

Mr Chauke noted that the under the Apartheid government, the Foreshore bridge in Cape Town was never completed, as two separate contractors had miscalculated its construction. Rand Water had the genuine opportunity to change the lives of individuals, and they should therefore take the matter seriously. He noted that in January 2017, Rand Water would be submitting their Annual Report before the Committee, at which point further details on the incident can be provided. Procurement policies are key. He “did not want to dwell too much on the issue of the refugee, the Zimbabwean”, but emphasized the importance of providing support to South African black-owned companies within the confines of the law. The Committee should not condemn the media, but rather engage with media actors to help us know things we otherwise would not know. Lastly, he restated the call for Rand Water to go about further introspection.

The Chairperson noted that Rand Water had cited examples of delays, cost escalations, and other variables such as inflation that had incurred overhead costs on projects. What is Rand Water’s policy in dealing with these? The Committee should have one session in the presence of National Treasury representatives in order to clarify policy frameworks. He cited the example of the Clanwilliam Dam, which was estimated to cost around R2 billion, but which eventually escalated to R4 billion. He urged Rand Water to guard taxpayer money and ensure that it is not abused.

Adv Hashatse welcomed the suggestions made by the Committee. Rand Water does not consider the matter as concluded, instead the board would see what lessons can be taken forward. She revealed that the unnamed media source may in fact be a whistleblower from within the department. They would make a commitment to ensure that, in future, approaching the board is a safe space for whistle blowing.

Mr Percy Sechemane, Rand Water CEO, responded to Ms Khawula, stating that the awarding of contracts is reliant on CIBD grading. He noted that contractors do not begin with a rating of 8 or 9, they start at 1, and receive a higher rating based on their competence and quality of service. Therefore, the CIBD rating creates a timeline that can be critically assessed. The site engineer had the job of monitoring the process of the project from start to finish. Since there is a great deal of infrastructure underground, its condition is difficult to assess, therefore these individuals are forced to rely on scientific methodology. Soil and movement of rock often cause the erosion of pipes, thus he stressed the complexity of the projects. Once projects are complete, the company undertakes a post-assessment on the contractor’s performance, which is the basis for which a contractor can be retained. The company had a database that considers contractors’ previous performance and grading. Once you repeat business with someone, you can determine their capacity to deliver. However, this repeat business causes onlookers to become critical that Rand Water is favoring certain companies, it is a ‘Catch-22’.

Mr Sechemane noted that ownership of contracting companies often changes frequently, however unplanned visits have revealed a degree of fronting among certain companies. In response to Mr Mnguni about the media source, even if there is no truth in something, the company must show that its processes are strong enough to clearly articulate no wrongdoing. With regards to the Zuikerbosch project, there is a particular process governed by a particular piece of legislation. It was one of the most sensitive projects. In response to Mr Basson about the engine room at Zuikerbosch station, many of the components were imported from Germany, but he reassured him that the COO would further explain the nature of spending.

On the burst pipe in Mpumalanga, Mr Sechemane stated that DWS is not at a point where assets belong specifically to the municipality or the department, and Rand Water awaited the decision about the transfer of assets in the area. On the record, “these are not our assets”. On the issue of the water-use licence that caused a cost escalation from R31 million to R41 million, the project had taken place in the wetlands. Special procedure is required in this environment, as any variation in scope, no matter the size of the project, is dependent on the underground conditions. Given the immense size of the project, it cannot merely be abandoned two-thirds of the way through, as that would only create more wasteful expenditure. However, the Committee were correct in demanding that taxpayer money is used effectively.

Mr Sipho Mosai, Rand Water Chief Operating Officer, replied about the Zuikerbosch station that a tender of 429 million had been awarded to Fast Track Electrical in 2015. The project was delayed due to civil unrest in the area in the form of rioters and job demands from sub-contractors. To date, the detailed designs had been completed, engineers are on site and the excavation process is close to completion. Rand Water is targeting December 2018 for the project’s completion in its entirety.

Mr Mosai said that Rand Water does not only consider the CIBD grading when conducting business assessments. They analyse technical experience, capacity, references, and the quality of the previous work. If they have not performed well, they will not receive the job. On fronting, it would be necessary to demand to know who owns the company, and engage with CEOs and COOs to ensure that fronting is no longer practical on an executive level.

The Chairperson stated that he was satisfied with Rand Water’s response to the media allegations. He offered members of the Committee the opportunity to raise any further comments.

Mr Basson stated that he regards Rand Water as one of the best water boards in the country, providing water for around 12 million people. He commended the board on their excellent work. For this reason, Rand Water should provide information on every point raised by the media, in order to repair its strained reputation. Advance payments were part of the industry, however tender information should be provided to the public in detail. He argued that more black-owned companies should be encouraged to undertake these projects, perhaps through joint ventures with larger firms. When the contract bidding space becomes more competitive, tender costs decrease and more jobs are created. Once again, he commended the Rand Water board on their performance and responsiveness to the Committee.  

Ms Khawula asked what Rand Water is doing as an organization to uplift up-and-coming contractors to enable them to become big players, as well as fight the scourge of poverty. She noted that the Committee had identified certain dilapidated infrastructure, what is Rand Water doing in this regard?

Adv Hashatse stated that she appreciated the comments and criticisms provided by the Committee. The advance payments were aligned with legislation, provided for in the contractual agreements, and therefore clearly explainable. Lastly, she argued that some of the other “innuendos” alluded to in the City Press article are not as easy to respond to.

The Chairperson stated that he appreciated the presence of the Rand Water board at this meeting. The Committee has an oversight responsibility to hold the board to account in responding to allegations in the media, and that the matter was a work in progress. He thanked the Rand Water delegation, and the meeting was adjourned.

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