Water and Sanitation

Umgeni Water Board: briefing

Date of Meeting: 11 June 2003

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No summary available for this committee meeting.


Minutes

JUSTICE AND CONSTITUTIONAL DEVELOPMENT PORTOFORLIO COMMITTEE

WATER AFFAIRS AND FORESTRY PORTFOLIO COMMITTEE
11 June 2003
UMGENI WATER BOARD: BRIEFING

Acting Chairperson:
Rev Goosen (ANC)

Documents handed out

Umgeni Water Board Presentation (Appendix 1)
Umgeni Executive Management Powerpoint Presentation
NEHAWU (Appendix 2)
Correspondence between NEHAWU, Department of Water Affairs & Umgeni Water (please e-mail
info@pmg.org.za for these documents

SUMMARY
The Committee expressed deep concern at the negative media coverage Umgeni Water Board was attracting and urged all parties to improve communication amongst stakeholders. The Committee was reacting to allegation of malpractice NEHAWU had levelled against the Umgeni Board and which the Board dismissed as irresponsible and largely unfounded.
The meeting was resolved with support for the arbitration that has been agreed between NEHAWU and the Board, and the Management of Umgeni.

MINUTES
The Chair noted that earlier this year the Committee visited Umgeni and the Chairperson of the board raised some historical issues that were hindering the operations of the institutions. The Committee took a decision then to invite all stakeholders to make representations before them. He expressed concern at the negative media coverage the institution had received hoped that this interaction would help reverse that downward trend. He invited NEHAWU to tender their presentations.

NEHAWU Briefing
Mr Themba Mthembu, NEHAWU Branch Secretary at Umgeni Water, said that it was with both pleasure and regret that his organisation had eventually been accorded the opportunity to make a presentation to the Committee on the malpractice that was evident in Umgeni. NEHAWU had at long last found a very important structure of Parliament as an avenue to voice its grievances. It was with regret, however that over a period of more than ten years NEHAWU could not find any joy with either the Department or Umgeni authorities on this matter. This neglect has happened at a massive loss of public funds and service delivery. Mr Mthembu then detailed a litany of malpractice that was affecting Umgeni and blamed this on the Umgeni management and the Department for failing to listen to its cries and intervene timeously. It was due to this malpractice that NEHAWU with the support of COSATU and SACP were demanding an independent commission of enquiry.

Discussion
The Chair applauded the efforts made by NEHAWU in blowing the whistle on the incidences of bad governance, some of which had proven to be true if the recent prosecutions were anything to go by. He however noted that some of the allegations made by NEHAWU were of a historic nature whilst others had been addressed by the relevant authorities.

Mr. Mthembu pointed out that the presentation was a follow-up to the earlier meeting where the Committee asked NEHAWU to make a formal representation on these allegations at the stakeholders meeting. Historical issues gave rise to the slide into the current mess at Umgeni which was currently at a very sensitive stage.

Mr. Maimane (ANC) noted that scorpions were busy at Umgeni to uncover allegations of corruption and wondered whether if it would not be a self-defeating exercise if the Committee were to delve further into the very same issues.

Mr. Mthembu pointed out that it was NEHAWU who approached the Scorpions to intervene in the Umgeni affairs noting that he was quite happy with a number of developments that had happened since this event. He however argued that one had to separate issues of corruption which were of a criminal nature from governance related matters that called for a political solution.

Ms Ngwenya (ANC) said that if the allegations made by Umgeni prove to be true then they were very serious indeed. She hoped that the Scorpion probe would do justice to this otherwise unhappy situation. She concurred with the suggestion by Mr. Maimane that the Scorpions be given time to complete their work.

Mr. Arendse (ANC) noted that Umgeni had a new CEO and hoped that she would turn around the otherwise tarnished name of the organization for better service delivery. NEHAWU's report was sadly full of negativity which may not be necessarily the case. He expressed the view that there must be some good things happening at Umgeni.

Mr. Mthembu acknowledged that there were indeed some positive things happening at Umgeni and singled out the subsisting cordial relationship between labour and management as one area of satisfaction. He however said that it had been frustrating to instill good governance practices at Umgeni.

Mr. Arendse said that in his view the situation at Umgeni warranted an in-depth investigation and that therefore a Commission of Inquiry was better by far better placed to carry out large scale probes than the scorpions and the Auditor General combined.

Mr. Mthembu reported that he had learnt from the board and management that an arbitrator had been appointed to look into NEHAWU's allegation and that this move was a welcome gesture.

Mr. Maimane asked if NEHAWU had ever made representations to the Department regarding these allegations.

Mr. Mthembu replied that NEHAWU had consistently communicated these issues to the Department but its efforts had been met with dead silence.

Mr. Maimane pointed out that if the Department's intervention was inadequate this is where the Committee came in through its oversight instrument but that for the present the Committee was satisfied with the steps that had been taken so far to address the crisis.

Mr. Phala (ANC) noted that NEHAWU's allegations on corruption date back to 1992 a time, which the new board was not in office and wondered why they should be held responsible.

Mr. Mthembu replied that his organization had been consistent in raising these issues such that the situation reached a boiling point in 1997 which gave way to the march in 1998 that lasted until the old management was forced out of office.

Umgeni Water Board
Mr. Latiff, Chair of the Umgeni Water Board condemned NEHAWU's allegations, which he termed irresponsible and largely untrue noting that the publication of these allegations had resulted in a marked increase in the cost of water to the consumer. He pointed out that these allegations were selective in that they carry a particular motive. There had been numerous instances when such allegations had been made to the board and it had dealt with them accordingly. His attempt to address each of the allegations was, however, thwarted by the Chair who directed that a rejoinder was unnecessary at this point in time. He assured the Committee that there were no credible allegations that could stand up to scrutiny noting that there were very many positive things happening at Umgeni at present and it would be good to focus on them.

CEO Umgeni Water
Ms G Moloi, CEO, Umgeni Water said that she was new at Umgeni and that when she arrived there was a near state of turmoil which was not peculiar to Umgeni given South Africa's historical past. She called on both the Board and NEHAWU to redirect their energies and focus on taking the organization forward in its service delivery mandate. She expressed concern at the organization's debt level, which she said was unacceptably high. Umgeni's operations had not been efficient and her priority was to explore ways of maximizing service delivery. She regretted that the raging controversy had caused a low morale among staff members and that this needed to be looked into. As for the way forward there was need to work on the corporate image which had plummeted in the recent past. She noted that the number of staff should be decreased and reported that consultations were underway with relevant stakeholders to reduce the work force noting that retrenchments were unavoidable.

Discussion
Mr Bhengu who was an Umgeni board member called on the Committee to point to the way forward for the institution noting that most of the bad publicity was centred around historic issues which the new board was trying to address.

Mr. Arendse said that it was unhelpful to dwell on historic governance lapses and asked that these be left to the scorpion to unravel whilst management direct its energies to service delivery. He expressed optimism that with the arbitration process underway parties are quickly moving towards a resolution of this matter.

Mr. Maimane agreed that after the CEO's input it was clear that there was a motion towards resolving these otherwise intractable issues.

Ms Ngwenya also concurred that the CEO had squarely put the agenda of Umgeni on the tabled and she called on the board and NEHAWU to bury their differences and give the CEO full support to her well intentioned endeavours. What criteria would be used for the proposed retrenchments and what transformation entailed?

Ms Bhengu explained that the process of transformation kicked of in earnest in 1997 and its objective was to implement the national policy which was to ensure that the board and management were representative of the country's population demographics. The current board was sensitive to gender, race, skills labour and other related areas of expertise.

Ms Moloi clarified that the process of retrenchment had not yet been gone into noting that parties were still at the negotiating table to come up with the best way forward but that when this happened it would be undertaken in the context of transparence and fairness.

Mr. Mabusa (ANC) agreed with other members that with the arbitration process in place the end to the dispute was nay. She however called on NEHAWU to refrain from the practice of taking their differences with the board to the media which was not in the interest of Umgeni.

Department of Water Affairs and Forestry
The Director General noted that the Minister had the prerogative to appoint the Board and whenever a crisis occurred within the organisation the Department responded in the context of existing structures. He exonerated the board from the accusation that it had accumulated unnecessary debt noting that the credit facility was justified at that point in time. He explained that this credit was taken to enable Umgeni to supply water to the rural poor and the institution was thereby caught in a situation where debt repayment matured before it could recover the full cost from this project.

He lamented the bad publicity which had characterized Umgeni's operations which he said had unfortunately cost it its corporate image in the eyes of leaders. This damage to reputation was bad news for the future of the organization and more so the workers. Umgeni was at a very critical point of restructuring and that the board had 12 months within which time to carry out the exercise. He called on all stakeholders to lend a hand of support to the management at this critical time of reconstruction.

Ms Bhengu noted that Umgeni's positive gesture in the provision of water to the rural committees happened to be its very undoing in that the outstanding debt had put the organization in bad light.

The Chair expressed appreciation at Umgeni's gesture of social responsibility in the provision of water to the rural poor even at the expense of its reputation.

Prof. Ngubane joined the Chair in applauding Umgeni for the excellent work it had done in the provision of water to the rural communities.

Ms Bhengu appealed to the Committee to issue a press statement to help the very bad publicity that had saturated the media regarding Umgeni's operations.

The Chair concluded that what had come out clearly in the meeting was the importance of communication noting that if parties were talking to each other as they had been in this meeting then this meeting would not have been necessary. He admitted that mistakes had been made in the past but now was the time to bring back balance to the organization. He agreed with Ms Bhengu's request and hoped that NEHAWU would do likewise in an effort to redeem Umgeni's image.

Appendix 1
Umgeni Water - Executive Management Presentation

Content
Status Quo on April 2002 - Report
Consultations
Internal Challenges
External Challenges
Threats to Umgeni Water

Status Quo - April 2003
-High debt position. Prior to 1991 R1 billion raised in 1997 and thereafter R3.2 billion raised by SOL.
-Expenses higher than income since 1999
-Interest on borrowing a huge challenge
since 1990. A major challenge with regard to tariffs
-Volumes are decreasing

-Capex and O & M remain a challenge - runs are sometimes more than 50% anticipated.
-Operational efficiencies not maximised
-overcapacity of staff compliment of organisation
-parastatal with a stron Apartheid history

-Subsidiaries a drain to UW (Watertite, Turngrow)
-No policy to guide activities outside South Africa
-Settlement with SOL was pending
-Media coverage (negative covering a number of areas including previous UW employees setting up a company of similar name, previous CEO issues, SOL, etc
-Dispute with Mani Meyer and told not to have any meetings with him - it was a historical matter
-Disunity throughout the organisation, trust a big problem

Consultations
-Consultation with staff - April 2002
-Consultation with the unions - signed agreement in 16 August 2002
-Consultation with the previous executive management
-Consultation with the Board
-Consultation with customers
-Consultations with DWAF
-Generic discussions with TCTA
-Generic discussions with investors

Internal Challenges
-The funding costs - high debt position
-Operational inefficiencies
-Too many staff - response by the new executive team; corporate strategy; balance storecard; new structure (new executive from January - March)
-Business plans crafted in consultation with staff
-Consultative restructuring process

External Challenges
-Capacity of district municipalities
-Role of Water Boards (Department not too clear on this matter)
-Investor sentiments
-Reducing tariff strategy
-Access to finance & Cost of finance
-Ongoing challenges/ managing the organisation outside the media

Threat to UW's Restructuring Process
-Continuing historical problems
-Culture that there must be a victim
-Relationships still need to be built
-Investor Confidence to be worked on
-What will the water sector look like in 20 years time? Is there a clear vision
-Internal conflicts played in the public domain
-Lack of focus on corporate governance "Institutional creep"
-Some municipal clients have other agendas

Appendix 2

NEHAWU PRESENTATION TO THE PORTFOLIO COMMITTEE ON WATER AND FORESTRY

Allegations of corruption, financial mismanagement in Umgeni Water: A case of engineered liquidation?
The Honourable Chairperson of Water and Forestry Committee, Honourable members of the Committee, Member of the Board present, The Chief Executive of Umgeni Water and invited guest. It is with both pleasure and regret that today we are eventually accorded with the opportunity to present ourselves on malpractices within Umgeni Water. Pleasure because we have at last found a very important structure of the parliament to listen at our grievances. Regret that over a period of more than ten years we could not find any joy with DWAF and Umgeni Water Authorities on these matters at a massive loss of public funds and surely service delivery.
As we were preparing this presentation we told ourselves that there is one thing that must guide us and that is we cannot lie in parliament. In order to save time we will go straight into the matter pertaining to allegations of corruption and mismanagement at Umgeni Water.

1) MANCO CONTRACT
In 1992 the old management headed by Graham Atkinson awarded themselves exit packages equal to 9 years 5/12 months of their pensionable years. They claim to be yielding to affirmative action where they will give way to the appointment of Black Executive. The said Directors continued to work as before receiving some pay packages except three Executives namely Graham Atkinson, Charles Crookes and Graham Ward.

We do not know of any Black Executives who were mentored by these Directors except that Brian Walford took over as Chief Executive and dismissed the said management as Graham Atkinsons idea. As NEHAWU we protested and objected against these contracts. We believe these Directors unduly benefited financially without even honouring the contract. Appendix 1 is the contract as signed by the past Directors. A response from former Chief Executive at that time can be seen as Appendix 2.

2) THEFT OF R600 000 BY ONE EX-FINANCIAL MANAGER
As members of NEHAWU we raised the theft of more than R600 000 by ex- financial Manager in June 1999 which was initially denied by the Management. On revealing more facts around the issue, the management eventually agreed on the facts of the matter.

3) BUILDING OF HYPOCHLORITE PLANT THAT WAS NOTED NEEDED
A Hypochlorite generating plant was built under a very controversial circumstances at a total project cost f about R14,6 million. Clear Water a company that was in partnership with Umgeni Water could not meet its financial obligations in terms of the agreement. There were not action taken to recover cost from this company.

BUILDING OF THE OZONE PLANT
An ozone plant was installed at Wiggins Waterworks at a cost of R20 Million Rand. The plant was never commissioned. In 1997/8 the plant was sold as scrap and replaced with another one at a cost of R40 million. It is not clear how the old plant was sold. The new one has not been fully commissioned.

5) DAF PLANT AT DV HARRIS WATERWORKS
An estimated R10 million rands was spent on a DAF in DV Harris in 90's. The plant was not fully commissioned and as at now it has never been operational.

6) OTHER WASTEFUL EXPENDITURE
Other wasteful expenditures amongst many others are the building of the Carbon Dosing plant, DAF plant and a Lime Dosing plant at Wiggins Waterworks with an estimated cost of R25 million rands. All these plants are no longer in use and some has not been commissioned at all eg. The Carbon Dosing plant.
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7) CREDIT CARD ABUSE I
NEHAWU raised the abuse of credit card by the Directors in 1997 with both the Management and the Board. For example one Director was found to have used the company credit card to buy personal items at Woolworth's like groceries and jewellery. No action know to us was taken on the implicated Directors except to stop of the use of the credit cards.

8) CREDIT CARD ABUSE II
The former Chief Executive Cromet Molepe and some board members are alleged to have arranged credit cards for themselves without proper authorization. The credit cards were stopped by the management for use by management in 1997. A follow-up from a letter written by ex Director of Operations indicated that there was a fraudulent use of the credit cards by the mentioned officials which was followed by a cover up. Amount known estimated at R100 000.

9) FAILURE TO RECOVER R2 MILLION FROM BAMBAMANZI
Umgeni Water bought share in Bambamanzi for R2 million rands. The investment was not a success. Umgeni Water could not recover R2 million until it was raised by NEHAWU. Up to now the full amount has not been recovered.

10) PAYMENT OF R1 MILLION RANDS BY MISTAKE
NEHAWU raised the payment of R1 million rand to one contractor in 1998 which cannot be accounted
for. The management agreed to the payment and apologized by saying it was a mistake. We are told they did recover the amount later minus interest. We were informed that the middle man between Umgeni Water and that Contractor was the son of ex Chief Executive.

11) OUTSOURCING OF TREASURY FUNCTION TO SPECIALIZED OUTSOURCING
Umgeni Water outsourced its treasury function to SOL under what it widely interpreted as riddled with controversies. NEHAWU objected on the outsourcing of the treasury. The matter now is under
investigation by the Scorpions and already two of its Senior Executives Dave King and Greg Morries had been charged for corruption and fraud in the Pietermaritzburg Court about two months ago.

NEHAWU, COSATU and SACP were than appalled when Umgeni Water quickly settled on almost 2 years litigation case after the former SOL Executives were asked to appear in court to face corruptions and fraud charges. The decision to settle with SOL was taken by improper constituted Board meeting and it costed the company R21 ,5 million rands. We are of the strong view that if proper information were shared with the Board a different decision might have been taken. NEHAWU has evidence that Dave King and the Chairperson of the Board signed an agreement admitting that there were irregularities in the contract.

12) INSTALLATION OF THE SECURITY SYSTEM AT MR MOLEPO'S AND CHAIRPERSON OF THE BOARD'S PRIVATE PROPERTIES
In 2001 we aggrieved to the management and the Board on the installation of the top of the range security system as Mr Molepo's private dwelling at a cost of about R250 000. We took the action as the misappropriation of public funds and the decision taken was irregular as well as payments made were through irregular procedures. We were continuously dismissed by both the management and the chairperson of the Board who both justify the actions. NEHAWU has evidence that points out to the fact that the action was irregular and against company policies. Another Security System was installed at Chairperson of the Board's private house at a cost of approximately R8 000.

13) IRREGULAR PAYMENT TO MR CROMET MOLEPO OVER AND ABOVE WHAT WAS AUTHORIZED BY THE MINISTER
Mr Cromet Molepo was paid substantial amount over and above what was authorized by the Minister. The total cost to the company approved by the Minister was R855 812 per annum. Over and above this, the Chairperson of the Board and the Director of Human Resource (who has since been dismissed for financial irregularities) arranged the following payments which we consider as being irregular:
13.1 R1 million rands was said to have been paid to FNB as a security for the raising of the bond by Mr C Molepo. It is claimed that FNB refused to approve Mr Molepo's bond because he was blacklisted.
13.2 Umgeni Water paid for the transfer cost on bond registration for Mr Molepo's house. The amount was R40 000.
13.3 An amount of R214 061,51 was paid to Mr Molepo. It is claimed that it was the amount that Mr Molepo would have earned if he was still in Eskom's employment.

13.4 There were also payments made for security guards, water and electricity rates.

14) THE NIGERIAN DEAL
Umgeni Water entered into a deal with City State of Port Haucourt in Nigeria in 2000. After some excitement with the deal a number of unpleasant happenings emerged.
It appeared that the deal was individual driven than organizational driven. Some members of th Board appear to have personal interest in the deal. Later it emerged that the Children of one Minister were alleged to have been sponsored by Umgeni Water to attend school's in Pietermaritzburg.

A Consortium was put together comprising of former Umgeni Water employees, one employee who was directly involved with the Nigeria Project and the forum of the Chairperson of the Board. The consortium was to be christened with a name similar to Umgeni Water.

The Nigerian deal collapsed sometime last year at a loss of R14 million rands.

15) INVESTMENT BY UMGENI WATER IN SUBSIDIARIES
Umgeni Water invested in a number of subsidiaries namely Turngro, Watertite, BioChlor and Bambamanzi. All of those investments were seen as a loss to Umgeni Water. The auditing firm of the Chairperson of Board was responsible for drawing memorandum of agreement for a least two of the above-mentioned subsidiaries. The investment are seen as contrary to the provisions of Water Services Act of the PFMA. In each of these subsidiaries Umgeni Water provided indefinite, interest free loans of a minimum of R800 000.

16) ACCUMULATION OFR4,2 BILLION DEBT
Umgeni Water accumulated a debt of R4,2 billion over approximately ten year period. It has been difficult to translate this debt into service delivery or to the number of people who has been accessed to safe drinking water.

17) LITIGATION CASE AGAINST CITY PRESS
The Chairperson of the Board interdicted the City Press Sunday Newspaper for publishing articles that was critical of the Chairperson. Umgeni Water has lost the case in High Court recently with cost. There is a singed affidavit done in High Court that the then Chief Executive disapproved the action taken by the Chairperson of the Board.

It is for the above reasons that NEHAWU now supported by COSATU and SACP are demanding an independent Commission of Enquiry to the above allegations.


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