ATC201021: Report of the Portfolio Committee on Cooperative Governance and Traditional Affairs on the Petition Relating to Allegations of Corruption and Mismanagement at Knysna Local Municipality, Western Cape, Dated 21 October 2020

Cooperative Governance and Traditional Affairs

REPORT OF THE PORTFOLIO COMMITTEE ON COOPERATIVE GOVERNANCE AND TRADITIONAL AFFAIRS ON THE PETITION RELATING TO ALLEGATIONS OF CORRUPTION AND MISMANAGEMENT AT KNYSNA LOCAL MUNICIPALITY, WESTERN CAPE, DATED 21 OCTOBER 2020

 

The Portfolio Committee on Cooperative Governance and Traditional Affairs, having considered the petition calling on Parliament’s urgent intervention into alleged corruption and mismanagement at the Knysna Local Municipality, and the Speaker having referred the petition to the Committee on 29 April 2020, reports as follows:

 

1. BACKGROUND

 

1. On 29 April 2020, the Speaker’s Office referred to the Committee, for consideration and reporting, a petition pertaining to allegations of corruption and mismanagement at the Knysna local municipality. The submission came from Knysna United, a community based organisation operating in the Knysna municipal area. The Committee has a mandate to exercise oversight over the local sphere of government.

 

1. In response to the request, the Committee received a briefing from the Knysna local municipality, and the Western Department of Local Government, on Wednesday 17 June 2020 on the matter.

 

1. PRESENTATIONS

 

1. Introduction of petition by Knysna United

 

After providing a brief background on the genesis of Knysna United, a community-based organisation operating in Knysna, Reverend Ralph Stander, the Chairperson of the organisation, submitted as follows:

 

1. The Knysna Local Municipality forced prepaid water meters onto poor communities, predominantly black, but not on the affluent areas that were predominantly white. These prepaid meters were irregular in that there was no tender issued for their purchase, resulting in irregular, wasteful, fruitless and wasteful expenditure to the value of R113 million. This development informed the genesis of the Knysna United social movement.

 

1. The municipality was in financial distress, to the extent that it could not afford to pay staff in December 2019.

 

1. There was little or no service delivery in the municipality.

 

1. The Small, Medium and Micro Enterprises (SMMEs) were not getting any business in the municipality, while consultants were making large profits.

 

1. A major source of the municipality’s problems was the Chief Financial Officer (CFO), Mr Mbulelo Memani, who held great cloud in the municipality.

 

1. Knysna United had approached the Speaker and the Acting Municipal Manager, the Western Cape Premier, the South African Human Rights Commission (SAHRC) and the Public Protector, calling for a forensic investigation into the affairs of the municipality, as well as the suspension of the CFO. However, with the Deputy Mayor at the forefront, the municipality has opted for a cosmetic investigation against the suspended Municipal Manager, Dr.SW Vatala, with the implicated CFO in charge of the investigation.

 

1. Knsyna United calls for a forensic investigation into the municipality in order to bring to book all those involved in corruption. National and Provincial Government should place the municipality under administration or institute serious intervention measures. The municipality must reinstate the suspended Municipal Manager, Dr. Vatala.

 

1. Response by the Knysna Local Municipality

 

Responding on the municipality’s behalf, newly elected Executive Mayor Mr Elrick van Aswegen submitted (with additional inputs from the Deputy Executive Mayor, the Acting Municipal Manager, Mr Louis Scheepers, and Ms Paulsen, Manager: Legal Services and Properties) as follows:

 

1. The installation of the prepaid meters was optional and not forced upon residents. There was no racial bias in the implementation of this project, as nine out of 11 wards benefitted from installation of the prepaid meters. The value of the prepaid meter contract was R62 million and not R113 million as Knysna United alleges, and the contract followed the National Treasury Regulation 32 process where tender advertisement was not necessary. The municipality agrees with the sentiment that there was no value for money in respect of the procurement of the prepaid meters. For this reason, it was instituting a forensic investigation into the procurement process.

 

1. The municipality was indeed facing financial constraints, to the extent that it did not have the cash flow to pay salaries in December 2019. However, it was incorrect to state that it had used the R71 million loan from the Development Bank of South Africa (DBSA) to pay salaries. The municipality utilised its investments for this purpose. It was also important to contextualise the municipality’s financial challenges in the form of two main external factors: the Knysna fires of 2016, which led to mass business closures and the COVID-19 pandemic. These destroyed the tourism industry in Knsyna, the municipality’s breadbasket. Going forward, the municipality was on a move to diversify its economy in order to minimise its excessive reliance on tourism. It was also advocating for local solution to local problems, rather than imposition of solutions from the Provincial Government.

 

1. In refuting the claim that there was little or no service delivery in the municipality, the Executive Mayor catalogued an exhaustive list of service delivery projects implemented in the municipal area during the 2018/19 and 2019/20 financial years across its water, sanitation, roads, electricity, housing, and water services sections. (A spreadsheet of these projects is available from the Committee Secretary on request).

 

1. The municipality also disputed the claim that SMMEs had no business opportunities in the municipality, insisting that it had spent R67.3 million on Highly Disadvantaged Individuals (HDIs), including SMMEs during the 2018/19 and 2019/20 financial years. There was a further expenditure of R985 000 on SMMEs and small contractors in 2019/20.

 

1. TheDeputy Executive Mayor dismissed Reverend Stander’s allegations against the municipality as a frustration arising from the termination of his corrupt relationship with the suspended municipal manager, Dr Vatala. The Deputy Executive Mayor alleged that Reverend Stander’s current employment with the J.P.B housing company was a product of this corrupt relationship.

 

1. An independent investigator, Mr Andre Swart of Stadler and Swart Attorneys, conducted the investigation against the suspended Municipal Manager, Dr Vatala, not the Deputy Executive Mayor or the CFO, as Knysna United alleges. The investigation was neither cosmetic nor frivolous.

 

1. The municipality’s Public Accounts Committee was fully functional and was at the forefront of the investigations currently taking place in the municipality.

 

1. Response by the Western Cape Department of Local Government

 

Responding on the Western Cape Department of Local Government’s behalf,Mr Graham Paulse, Head of Department submitted as follows:

 

1. In May 2020, the Provincial Department of Local Government conducted a high-level diagnostic/assessment analysing the persistent institutional and financial challenges affecting stability and service delivery in the Knysna Local Municipality. The key findings of the diagnostic/assessment point to political instability in the municipality, as well as a fragmented approach in Council that leads to inadequate oversight and restricted strategic direction. There were also findings in respect of the functionality of municipal Committees including the Municipal Public Accounts Committee (MPAC).

 

1. From the diagnostic/assessment, the Department discovered that the municipality never adopted, nor implemented the actions plans of a diagnostic report developed in 2018. Had the municipality implemented these action plans, it would have never found itself in the current financial quagmire. The municipality had not yet tabled the findings of the 2018 diagnostic report to Council due to the instability in the municipality.

 

1. Following from the diagnostic/assessment, the Provincial Department of Local Government, in collaboration with Provincial Treasury, has, while noting the measures introduced by the municipality itself,developeda comprehensive support package in accordance with section 154 of the Constitution. This includes a comprehensive financial recovery plan.

 

1. Further noting the forensic investigation the municipality was instituting on its own accord, the Provincial Department was also proceeding with the investigation process in terms of Section 106 of the Local Government Systems Act.

 

1. The Provincial Department of Local Government recommended that the municipality actions the recommendations of the diagnostic/assessment within a month following adoption by Council, and that Council adopt the proposed Support Plans.

 

1. Response by the South African Local Government Association: Western Cape

 

A Western Cape representative of the South African Local Government Association (SALGA) noted that SALGA had nothing to add beyond the submission from the Western Cape Department of Local Government. The Committee can expect additional input from SALGA once the Provincial Department has unpacked its Support Package to the municipality.

 

1. COMMITTEE OBSERVATIONS

 

1. There was no value for money in the Knysna Local Municipality’s procurement of prepaid water meters, as the price the municipality paid was almost double the normal market price. The forensic investigation into the tender was therefore appropriate.

 

1. The investigation into the municipality needed to go deeper and broader, and include a probe into how the municipality ran out of cash for paying salaries. The newly elected Executive Mayor also needed to assure the Committee that the municipality will not run out of money again.

 

1. There was an understanding that the Executive Mayor was new in office and had inherited most of the problems besetting the municipality. However, this did not absolve him from the responsibility of developing a credible plan to turn around the dire situation in the municipality. The Executive Mayor and the Acting Municipal Manager’s inputs to the Committee inspired the confidence that things will indeed change for the better in the municipality.

 

1. It was tantamount to a waste of time and resources for the Western Cape Department of Local Government to undertake a new diagnostic/assessment of the municipality without first investigating the implementation of recommendations from its 2018 diagnostic report. Had the Provincial Government done due diligence, the 2020 diagnostic report would not have been necessary. It was also not certain to what extent the municipality would implement the 2020 recommendations given its failure to implement the 2018 recommendations.

 

1. The support from the National Department of Cooperative Governance was missing. Recognising this shortcoming, Deputy Minister Obed Bapela advised that the Department would consider intervention options in terms of section 154 of the Constitution, in lieu of section 139, which has been the unfortunate norm. This would only materialise when the Provincial Department of Local Government was failing to fulfil its executive obligation.

 

1. RECOMMENDATIONS

 

1. The Western Cape Department of Local Government mustimmediately share with the Committee its 2018 diagnostic report on the state of the Knysna Local Municipality. The Municipality must also share with the Committee the 2020 diagnostic report from the Provincial Government immediately after tabling and adoption by Council.

 

1. The Knysna Local Municipality must, in the next quarter when Parliament reconvenes, return and brief the Committee on progress made in restoring governance and financial stability in the municipality. This time allowance is to enable the Executive Mayor to settle down, given that he is still new in office.

 

1. Knysna United should respond, within ten working days after the date of the meeting, in writing to the allegations of corruption labelled against it by the municipality’s Deputy Executive Mayor.

 

Report to be considered.