Watergate: Zuma buddy scored massive R1bn water deal
A close friend of President Jacob Zuma was paid an R81m advance on a R1bn tender by an entity of the department of water and sanitation.
Philani Mavundla (49), a construction magnate who once offered to pay Zuma’s portion of the security upgrades to his home in Nkandla, is involved in a joint venture which was awarded the R1bn contract to build an acid mine drainage plant in Springs, east of Johannesburg.
However, documents City Press has obtained show his joint venture company was paid the R81m advance before he even broke ground on the plant – which is expressly forbidden by the Public Finance Management Act (PFMA).
Yet, a spokesperson for the department’s entity insists the advance payment was regular.
Mavundla, the former mayor of Greytown in KwaZulu-Natal, was awarded the contract by the Trans Caledon Tunnel Authority (TCTA), which falls under the department of water and sanitation. It is tasked with managing and delivering bulk water-supply projects around the country.
A senior TCTA official told City Press this week: “The media has neglected this organisation, but the rot that is here is enormous. The acid mine drainage projects alone are worth R12bn. Companies have received projects which did not go out via public tender. People are carrying money out of this institution in bags.”
This is the latest instalment of City Press’ Watergate investigation, which has previously exposed the scale of corruption in bulk water delivery projects, as well as how Water and Sanitation Minister Nomvula Mokonyane’s young companion has been effectively running her department, and how Phase Two of the Lesotho Highlands Water Project was stalled by Mokonyane in apparent efforts to ensure that businesspeople close to her got a slice of the R26bn deal.
Last month, City Press also reported that Treasury shot down Mokonyane’s attempt to consolidate the TCTA and the Water Trading Entity into a parastatal with its own board, budget and balance sheet.
The TCTA has also been implicated in further alleged wrongdoing after it paid another company, Intelligent Water Solutions (IWS), R12m before a contract was even signed. Invoices that City Press has obtained show that IWS started submitting invoices from June last year, but the contract with TCTA – for the “maintenance and operations of another acid mine drainage purifying plant” in Germiston, eastern Johannesburg – was only signed in August. The remainder of the R36m they initially billed for was paid by TCTA at the end of August.
The entire 36-month contract awarded to IWS is worth R234m. IWS claims the advance payments were agreed to by TCTA.
MAVUNDLA’S BIG DEAL
Meanwhile, copies of paid invoices and email exchanges between TCTA officials show that in June 2014, the TCTA advanced R81m to a joint venture involving Mavundla and Italian construction giant CMC.
The joint venture, known as CMC-PG Mavundla EB JV, built the R1bn Eastern Basin acid mine drainage purifying plant, which cleans the water filling disused mines and makes it fit for domestic use.
The invoices and emails show that:
- Mavundla’s joint venture was paid the advance, despite officials initially informing them they would not receive an advance payment.
- Even though it had completed and commissioned the plant in June last year, the joint venture continued to submit monthly invoices for the plant’s construction until three months ago.
- The company was paid a further R42m for an “operations and maintenance” contract at the same plant which did not go out to tender and seems to have been extended irregularly.
- The joint venture was paid R93m in unspecified variation orders, but requested an additional R144m for more unspecified variation orders. It is unclear if this amount has been paid.
TCTA spokesperson Wanda Mkutshulwa confirmed that for the main contract, the joint venture was paid R956m, excluding variations, value-added tax and contingencies. She insisted it was all above board.
But a senior Treasury official, who spoke on condition of anonymity, told City Press that “there was no place and space for advance payments in the PFMA”.
“The normal way is that you supply the goods and the services, then we pay – not the other way round. The bidding process is meant to eliminate those who do not have resources and those who do not have the capacity to do the job,” the official said.
“If you can give a tender to anyone and then assist them to do the job, what is the point of procurement policies? Advancing payments means you can give a tender to anyone, without regard to whether they have the resources or capacity to deliver.”
WHO IS MAVUNDLA?
Mavundla found fame in 2014 when he offered to pay back Zuma’s debt following former public protector Thuli Madonsela’s Nkandla finding that the president should personally pay a portion of the R246m security upgrades to his Nkandla home.
One of his companies, PG Mavundla Engineering, was involved in large construction projects in KwaZulu-Natal, Lesotho and Gauteng – including Durban’s Inkosi Albert Luthuli International Convention Centre, Sibaya Casino and the R250m John Ross Highway Bridge in Richards Bay. It is also involved in Eskom’s R20bn Ingula hydro-electricity scheme, near Ladysmith.
In 2011, Mavundla was elected mayor of Greytown’s Umvoti Municipality but declined to draw the R700 000-a-year salary, diverting the money to development projects instead.
He owns a palatial property outside the town, which features a triple-storey mansion with 28 bedrooms, 12 lounges and a gym for him and his immediate family.
By October 2014, he had three wives and 18 children.
He is listed as an active director of 15 companies and owns four more properties, including the Propaganda Hotel and the Mavundla Square Shopping Mall in Greytown.
In 2005, he helped establish the Friends of Jacob Zuma Trust to raise funds for his fraud and corruption trial.
In 2008, Mavundla slaughtered 20 cattle to celebrate Zuma’s ANC presidency victory at Polokwane in Limpopo.
In June last year, Durban’s Daily News reported that “financial constraints” forced PG Mavundla Engineering to cede a R20m Durban housing contract to another company.
WHAT THEY SAY
Mkutshulwa said the advance paid to Mavundla’s joint venture was provided for in the contract.
“It is not true that TCTA refused to pay; neither is it true that this was against the PFMA. The upfront payment was provided for under the International Federation of Consulting Engineers’ conditions of contract. The contract allowed for an advance payment of 10% of the contract amount, in return for an advance payment guarantee.
“An advance payment serves to fund initial site establishment costs and payment for long lead items. It is repaid by the contractor over a predetermined fixed period during the life of the contract.”
Although the contract was concluded in June 2016, Mkutshulwa said such projects had a standard three-month trial period to ensure the plant operated well.
“Further payments were for an extended period for the operations of the plant and for noncritical work done during the 12-month defects liability period, which was part of the original contract,” she said.
Mkutshulwa said Treasury approved the extension of the contract for another year for operations, which was not included in the contract which ended in August last year.
She said the company would be paid R98m for operations, adding that this figure excluded R48 million in variations. Variations for the original contract amounted to R150m.
Mkutshulwa said there was no tender for the IWS contract as no other company could do the work.
She said the company was paid before the contract was signed in August because there was an “interim contract” between April and July. The invoices paid before then were for the “interim agreement”.
About the IWS contract, she said: “Only a letter confirming the conclusion of negotiations was sent to IWS on July 28 2016, but because of internal processes, the relationship for the 36-month contract was terminated in December 2016 before a contract could be signed.
“Although we had terminated the 36-month contract, we renegotiated a six-month interim contract while we went on an open tender, which was approved by the board in December 2016.”
IWS boss Dumi Luthuli also said there was an “interim three-month agreement”, adding that the money paid before the contract was signed was for management, personnel, maintenance, repairs, quality management and chemicals.
After initially being by told CMC-PG Mavundla EB JV lawyer Nicqui Galaktiou that her client would only be able to answer the list of questions sent to them on Friday morning by Wednesday, we received a detailed response after City Press had already gone to print.
Below is the detailed response:1. When was PG Mavundla appointed to handle this project?
PG Mavundla was NOT appointed. Following a Two Envelope Tender submitted and evaluated the Joint Venture between CMC SA Branch and PG Mavundla Engineering (Pty) Ltd was appointed as per the Letter of Acceptance dated 21 May 2014 received from TCTA (the Employer) on 23 May 2014.
2. How much was PG Mavundla’s contract worth?
Once again for the sake of clarity we record that the contractor duly appointed was CMC / PG Mavundla Engineering Eastern Basin Joint Venture(“CMC PGM JV”). The accepted contract amount was R956,141,123.68 (Nine Hundred and Fifty Six Million, One Hundred and Forty One Thousand, One Hundred and Twenty Three Rand and 68/100), excluding VAT, escalation and contingencies.
3. For how long was the contract supposed to be?
The duration of the contract on conclusion of same was expected to be 18 months (15 months for the construction works followed by 3 months of plant trial operation) and thereafter a one year maintenance period which is the defect notification period.
4. PG Mavundla was paid an upfront of R81 million, despite the TCTA’s refusal to do this due to the fact that this is not in line with the PFMA. Why was PG Mavundla paid an upfront fee of R81m?
The above was forseen in the Tender Documents available to all tenderers specifying that same will be a condition of the Tender on Award. The advance payment was accordingly duly provided for in the contract entered into with CMC PG JV. The contractual condition for payment of the advance payment was that the contractor would provide a Guarantee in favour of the Employer before payment. The Guarantee was duly issued prior to payment being effected. An advance payment was contractually necessary so as to to enable the contractors to place the order for the deep mining submersible pumps (long lead items). The Employer was not prejudiced in any way in light of the Guarantee requirement.
5. Who approved the advance payment?
As per above mentioned point, an advance payment was foreseen in the Tender documents and on Award became a contractually binding obligation. As per the usual contract procedure and conditions (FIDIC 1999) the advance payment was certified by the Employer’s consultant (“the Engineer”).
6. This plant was completed and declared operational and commissioned in June last year. But the company continued submitting invoices until, at least, February this year. What was the company invoicing for?
It was agreed between the Parties by way of a duly concluded addendum that CMC-PG JV’s operation of the plant would be extended until August 2017, in addition to certain necessary additional works related thereto to ease the plant operation and to dispose of the sludge. This is currently being implemented.
7. As far as City Press is concerned, PG Mavundla was contracted to build the Acid Mine Drainage purifying plant. But it appears that, from documents we have received that the TCTA paid about 7 invoices “Maintenance and Operations” invoices to the company, to the tune of over R40 million. This was from September last year. Did PG Mavundla receive a “Maintenance & Operations” Tender?
Refer to response in paragraph 6 above.
8. If yes, when did the company receive the tender?
Addendum 3 was concluded on 2nd February 2017.
9. How much was the tender worth?
The final cost is not yet determined as the additional work is not yet completed.
10. Was the tender ever advertised?
11. If yes, when was it advertised?
The Tender documents were available for collection from 23 July 2013.
12. In which media outlets was it advertised?
Our client is not in a position to indicate the list of media outlets. The Employer will be in a better position to do so. Our client can however confirm that it, as with most other companies, monitors Tenders advertised in newspapers on a daily basis including on line subscription services such as ‘On line Tender SA” and the CIDB website.
13. Please send us all minutes of all the tender processes.
Our client was not involved in the Employer’s Tender adjudication process, which is something you would know. Kindly refer this request to the Employer.
14. PG Mavundla claimed about a further R93m in variations orders. And this was paid. However, according to documents received by City Press, the company further claimed about R144m in variations orders. What was this R144m for?
The total amount of variations certified as per the conditions of the contract by the Employer’s representative , AECOM (the Engineer) as at IPC in 2017, amounts to R152 701 982.27. In light of your unreasonable timeframes our client cannot confirm what portion of these certified amounts have in fact been received to date. The main variations relate to the realization of an Eskom sub-station to provide power to the plant and improvements to the electro-mechanical components of the plant.
15. Why did the TCTA paid this R144m as it had already paid R93m?
The cumulative amount of variations certified is reported above.