1.1 On 3 October 1997 the Hon. N M Phosa, Premier of Mpumalanga, appointed a Commission of Inquiry consisting of:

H R Dreyer (Chairperson)
A P Smuts
M J Hart

Referred to in this report as "the Commission" and "the Commissioners" respectively.

1.2 The Commission was instructed to investigate and report:

• On alleged malpractices and the alleged non-compliance with laid down directives and procedures concerning the Mpumalanga Rural Housing Project (South African Housing Fund) which allegations emanate from the Special Report of the Auditor-General dated 28 August 1997. ("The AG report").

• Apart from the remarks of the Auditor-General in the report the Commission was further instructed to pay specific attention in it’s report to the following issues:

1. Whether any misrepresentation was made by any individual or organisation to the Provincial Housing Board ("PHB") or the Provincial Department of Local Government, Housing and Land Administration ("The Department") or any other party to this project.
2. What the motivations and reasons for entering into, as well as the full implications of the agreement with Motheo Construction (Pty) Ltd ("Motheo") were, with particular reference to inter alia –
1. The evaluation process that was followed to identify the appropriate developer for the project concerned:
2. Authorisation for concluding the said agreement.
3. Funding of the said project.
4. The accountability and responsibility of all parties concerned: and
5. Whether anybody or any body, directly or indirectly, benefited financially form the said agreement and if so, the extent thereof.

1.3 The Commissioners began the assembly of evidence on 3^rd October 1997 and formal hearings of the Commission were held in the Magistrates Court Nelspruit from the 9^th to the 31^st October during which time the testimony of the 27 witnesses identified in Annexure 3 on page 137 of this report was heard.

1.4 In addition to the formal hearings the Commission requested the forensic services of Deloitte and Touche to undertake a forensic audit of the accounting records of Motheo at that company’s Johannesburg office. This process, which was undertaken with the full collaboration of Motheo, was the subject of a report, a summarised version of which is set out in Annexure 6 of this report. The detailed report is Exhibit A137.

1.5 The Commissioners enjoyed the support of a Secretary, Mr M Senyatsi, appointed by the Premier in terms of the Ordinance. Secretarial and support services were provided by the Nelspruit offices of Deloitte & Touche.

1.6 From the outset the Commissioners were determined to comply with the instruction that their report should be made by 3 November 1997. Without the resources of an independent investigative support unit the Commission was conducted as an investigative commission with the Commissioners (with the assistance of the Secretary) undertaking the function of locating and securing the attendance of witnesses; obtaining access to documentation and preparing for and interrogating the witnesses.

1.7 Within these logistical and time constraints the Commissioners believe that they have been able to obtain the evidence of a sufficient number of the role players to enable them to report in accordance with the terms of reference. It goes without saying that, given more time, there are further witnesses whose testimony may have been sought by the Commission but the Commissioners have no reason to believe that such additional evidence would materially alter the conclusions reached in this report.

1.8 The Commissioners wish to express their appreciation to all of the parties who testified before the Commission or who provided documentation and other assistance to the Commission. Without exception such parties all showed a willingness to collaborate with the Commission in achieving the objective of reporting by the 3 November target date.

2.1 To facilitate an objective assessment of the subject matter of this report it is necessary to provide some historical and chronological background. The Commission heard no expert testimony in this regard, but each of the major role players was requested to and provided a subjective, factual assessment of the period and events leading up to the contract in regard to the Rural Housing Project. The summary in this chapter is distilled from the factual accounts of these witnesses.

2.2 By the end of 1995 there was a common perception that the Government’s programme for the delivery of housing to the lower income sector of the population had become log-jammed. This was attributed to a number of causes which had their origin in the socio-economic and political environment associated with the traumatic and fundamental change through which the country was going.

2.3 Two of the primary causes were seen to be the formidable bureaucratic process through which new housing projects were expected to pass and the failure by the financial services sector to provide the necessary innovation and products to cope with this new market sector, troubled as it was by a process of civic transition and the culture of non-payment which was a part of that process.

2.4 This inability to deliver led to the extraordinary situation in which central government funds allocated to the provinces were either not being fully utilised or were being committed to sterile projects which did not get off the ground. The situation arose in which housing authorities in the provinces were authorised by central government to "over commit" their annual allocations.

The notion that substantial funds were available within the central government coffers and that the failure to utilise those funds might lead to a reduction in the budget allocation for housing appears to have filtered down even to the level of provincial housing boards. The perception was that the allocation of subsidies to any viable housing project was justified and that "funds would be found".

2.5 In the province of Mpumalanga the issue of non-delivery was a matter of concern at all levels of government and within the housing authority in particular. At the beginning of 1996, therefore, there was a strong desire within the province to break the log-jam and a willingness to be innovative in achieving that objective.

2.6 Parallel with this provincial development was a process of introspection in the banking and financial services sector and in particular within Nedcor Bank Ltd ("Nedcor"). A decision had been taken at the highest level of Nedcor in the second half of 1995 that the bank should actively engage in the process of facilitating the delivery of housing to the lowest income group in fulfillment of the obvious socio-economic needs of the country and in response to the government’s appeal for the assistance of the private sector in the achievement of that objective. A significant resource including senior management was allocated to this task and a process of engagement with national and provincial housing authorities was undertaken.

2.7 It is not surprising that the shared ideals and objectives within Nedcor and the province of Mpumalanga led to the establishment of a relationship between the task teams within the bank and the housing authority in the province dedicated to "breaking the mould" and, by innovation and resourcefulness, facilitating what came to be known as the delivery of low cost housing at scale.

2.8 This relationship, stimulated by a challenge issued to the banking and financial services sector by Premier N M Phosa ( "the Premier") in late 1995 led to the signature of a "Memorandum of Understanding" (Annexure 7) between the Province, Nedcor and Murray and Roberts Ltd ("M&R") in February 1996 and to the first joint initiative between the province, Nedcor and M&R in the same month for the delivery of 6000 houses within Mpumalanga by a joint venture between Nedcor and M&R.

This Memorandum of Understanding and the joint initiative was to provide a stimulus for the development of similar relationships and joint ventures between provincial authorities and banks in other provinces. This led to the perception that, in many respects, Mpumalanga was leading the way in breaking down the barriers to the provision of low cost housing

2.9 Having launched this common initiative with such enthusiasm at the beginning of 1996 it was understandable that both Nedcor and the province were concerned about the failure of the project to address the critical need for housing in the most needy section of the provincial community- namely the lowest income group within the province’s vast rural community. Through a combination of circumstances which are not relevant to the terms of this report the February initiative, to the extent that it was successful, provided housing at a higher income range, and predominantly, within urban areas.

2.10 By the last quarter of 1996 it was apparent to those within the Province and to Nedcor that delivery of housing within the rural communities was both desperately needed and represented a significant gap in the housing initiatives being undertaken within the Province. A salutary example of a rural initiative undertaken by an inexperienced developer utilising innovative methods and involving the local community was provided by the launch of the Mhinga development in the Northern Province in mid 1996. Nedcor was a participant in that project and the launch was attended by most of the role players in the subsequent Mpumalanga Rural Housing Project. The recognition of the obvious need and the commitment of all parties to the process of innovation combined with the Mhinga experience to provide the factual environment in which the rural housing project emerged from discussions between the Province and Nedcor in October 1996.

 
3.1 MPUMALANGA HOUSING BOARD

3.1.1 Establishment of the Housing Board

The MEC for Housing in the Mpumalanga Provincial Legislature established a Provincial Housing Board for the Province in terms of Section 11(1) of the Act. The Board that was originally appointed held office until 31 March 1996. From 1 April 1996 a second Board was appointed and the names of the members appeared in Provincial Gazette Extraordinary Number 136 dated 5 April 1996.

3.1.2 Powers duties and functions of the Mpumalanga Housing Board.

On 2 March 1995 the National Minister, in consultation with the MEC, issued a determination in terms of Section 11(4)(a) of the Act that the PHB should perform such functions, powers and duties of the NHB as are set out in paragraph 3.4. of Annexure 1 as read with paragraph 3 thereof and as supplemented by Annexure D thereto of Exhibit A120/6

3.1.3 Conditions, qualifications and exclusions to PHB functions

The Minister further determined in terms of Section 11.5(a) on the 2^nd of March 1995 after consultation with the MEC and with concurrence of the National Housing Board that the Mpumalanga (Eastern Transvaal) Housing Board shall perform the functions as referred to above subject to, inter alia, the following conditions, qualifications and exclusions.

It is thus clear that the guidelines in the Manual may not be deviated from by the PHB without referral of the proposed deviation to the NHB.

The AG in his Special Report has taken the view that the Manual is a rule book rather than a guideline. The Commission finds itself in agreement with this view save to the extent to which the Manual itself permits the exercise of discretion.

3.2 SECRETARIAT OF THE PHB

In terms of Section 14 of the Act the administrative functions of the Board shall be performed by officers and employees in the employment of the Provincial Administration concerned and who are designated by the member of the Executive Council.

In the Mpumalanga Province in the relevant period the Deputy-Director of Housing Administration, Appasamy, has been designated as head of the Secretariat to perform the administrative functions of the Mpumalanga Housing Board.

In the performance of his duties as head of the Secretariat Appasamy is assisted by the Directorate Housing Administration headed by du Plessis and the Directorate Technical Services headed by Shrinivasan.

3.3 ACCOUNTING OFFICER OF THE PHB

In terms of Section 13(2) the head of the department is the accounting officer in respect of funds made available from the National Housing Fund to the Provincial Department. The head of department during the relevant period was Mr B S Ngwenya.