Nomvula Mokonyane’s water department is bankrupt
Johannesburg - The department of water and sanitation is broke.
The critical department is now R4.3 billion in the red, leaving hundreds of contractors unpaid for at least seven months.
Senior executives from National Treasury, the department and a key water board told City Press a few days ago that Cabinet should place it under administration because “internal controls, project management and contract management have collapsed”.
The situation has become so dire that in late November last year, Finance Minister Pravin Gordhan called a crisis meeting with Water and Sanitation Minister Nomvula Mokonyane to discuss the department’s deteriorating finances.
The cash woes come at a time when Mokonyane’s department is facing investigations by both Public Protector Busisiwe Mkhwebane and the Special Investigating Unit (SIU), sparked by City Press investigations.
Mkhwebane, who confirmed her probe a few days ago, will investigate the R26 billion Lesotho Highlands Water Project. Mkhwebane and the SIU are investigating tender and other irregularities in the controversial Giyani Emergency Project, the cost of which has already ballooned from R500 million to over R5 billion.
What the documents reveal
Confidential emails, contracts and letters City Press obtained further reveal that:
. The department has unpaid invoices amounting to R1.7 billion for the current financial year. According to the Auditor-General, the department ended the previous financial year with unpaid invoices worth R1.1 billion.
. The same email trail reveals that the Water Trading Entity, a department unit that deals with water sales and rights, has racked up an overdraft of more than R2.6 billion.
. At least one of the contractors is suing the department for more than R400 million for unpaid invoices, which it cannot pay. More lawsuits are expected.
. The department’s cash crunch has led to the stalling of critical service delivery projects such as the Giyani Emergency Project.
. Confidential department documents dated August 2014 reveal that the Giyani project began with a R500 million budget, but contracts worth R2.2 billion were soon added to LTE Consulting’s original emergency tender without tender processes being followed. Emails, documents and letters written over the past seven months sent between LTE, water authority Lepelle Northern Water and Simbi Phiri, the boss of Giyani project contractor Khato Civils, reveal that even more contracts have since been added without tenders, bringing the total cost of the project to more than R5 billion.
. Senior officials fear the department will pay “significantly more” for all projects, as stoppages and go-slows led to massive cost escalations.
Senior bureaucrats speak out
A senior National Treasury official said “the department is bankrupt and we started raising these issues with them about seven months ago.
“Internal controls, project management and contract management have collapsed completely. The department should be placed under administration,” the source said.
The highly placed official, who was part of the team Treasury sent to Limpopo when it was placed under administration in 2012, said: “Limpopo was placed under administration for R2 billion. This is far worse.”
A senior executive in the department, who has seen financial documents presented to both the risk and finance committees, said: “Unpaid invoices amount to R1.7 billion. The Water Trading Entity has accumulated an overdraft of over R2.6 billion. The situation is ugly. The department should be placed under administration, but because of politics, I know it won’t.”
The stalled projects
The Giyani Project, intended to provide a constant water supply to Limpopo’s Mopani district, has drawn fierce political heat.
City Press has learnt that, in an effort to get rid of Khato Civils, water officials told Phiri that Treasury wanted the contract terminated. This prompted Economic Freedom Fighters deputy president Floyd Shivambu to write to Gordhan to enquire why.
But in his response dated January 11 2017, Gordhan said this claim was not true and that the project was instead “progressing according to plan” and funds had been set aside to “take it to completion”.
However, Phiri a few days ago vowed to leave the site if he was not paid the R250 million he is owed by the end of February.
Last year, City Press exposed how, in 2014, Lepelle appointed LTE to deliver a “turnkey emergency water” project in Giyani. LTE, a company with close ties with Mokonyane, was appointed without a tender process and officials justified the move saying the project was commissioned on an emergency basis, which Treasury allows. LTE appointed Khato Civils to do the construction.
Another document reveals that the department owes Vharanani Properties more than R400 million. The company, owned by property tycoon David Mabilu, has worked on two projects for the department: one a sanitation project intended to eradicate bucket toilets across the Free State and the other a water pipeline in Thohoyandou, Limpopo.
Mabilu declined to comment; however, a source close to him said he was suing the department. “He has filed papers and the matter will be heard in the Pretoria High Court next week Friday.”
What the department says
The department’s deputy director-general of communications, Matlakala Motloung, confirmed the meeting between Gordhan and Mokonyane, but said: “I don’t want to call it a crisis meeting. It was just a meeting between two colleagues.”
With regard to Shivambu’s letter to Gordhan, Motloung said suggestions that the department wanted to get rid of Phiri were “lies.
“We couldn’t do that because he has a legitimate contract and we are happy with his work,” she said.
Mokonyane’s spokesperson, Sputnik Ratau, said: “The department is not broke, as alleged. Out of the R15.5 billion budget allocation for the department, the department has spent R12.6 billion and still has R2.9 billion available.” He denied that the department had an overdraft.
Ratau said the contractors will be paid “without any delay”. “Other than Vharanani, the department has no pending court cases against it brought by contractors due to delay in payments. The department is in the process of settling the dispute between it and Vharanani,” he said.
The Giyani water project is divided into three stages: critical emergency, emergency and long term.
. The critical emergency stage involved fixing 154 boreholes and building water and wastewater treatment plants.
. The subsequent emergency stage involved building pipelines, nine reservoirs, a water treatment plant in Thohoyandou and a wastewater treatment plant in Giyani.
. The long-term projects, for which the department is yet to allocate funds, include water supply to village homes.
But the project appears to have gone awry.
In July last year, Lepelle Northern Water chief executive officer Phineas Legodi wrote to LTE ordering it not to start constructing the emergency stage reservoirs and treatment plants. He did not say why.
Phiri said the directive was unfair because his company had already “done the designs, costing, employed people, set up equipment and established sites and they tell us to stop because they have to go out on tender.
“We will go to court if there is no amicable settlement. In any case, if these projects don’t move parallel with the pipelines we are finishing, what is the point? The pipes will become white elephants without the reservoirs and treatment plants, and communities will still be without water.”
LTE boss Thulani Majola said the construction of the reservoirs and the treatment plants was never part of the agreement with Phiri. “They must produce the contract and appointment letters as proof.”
But an email sent in August last year, from LTE’s chief engineer, suggests otherwise. Engineer Kenneth Chitenhe told Khato Civils its quotation for one of the reservoirs was overpriced and had to be revised.
A letter from Phiri to Legodi sent last month, and cession letters, reveal that LTE didn’t have professional staff on site, failed to attend critical meetings and ceded most of the work to South Zambezi, a consulting firm Phiri also owns.
A senior official in the department who monitors construction projects said: “It was a big anomaly for LTE to cede work to South Zambezi. It means that, on the same project, Phiri was consulting via South Zambezi and constructing through Khato Civils. He is both player and referee. That is not allowed in construction. I don’t know how the department allowed it.”
The official, however, said the department was happy with Phiri’s work, saying “few black construction companies can complete over 380km of piping in two years, much less in rocky and rugged terrain such as in Giyani.
“Phiri has imported four hard-terrain trenchers, worth over R100 million, from Spain and Italy. Of course, the department has serious questions to answer about these contracts, but his work ethic is impressive,” he said.
Legodi, whose water authority is responsible for the Giyani project, said it has “continued paying service providers for the work done and Khato Civils has also been paid”.
“According to our records, invoices received from Khato Civils were and are paid as per the funds’ availability.”
A senior Lepelle official said: “I feel for Legodi. His hands are tied. He gets most of his funding from the department.
“As such, if the department is broke, you can expect him to be equally broke.
“I know that he also has many contractors queuing at his door for payment.”