4.1 QUORUM

4.1.1. GENERAL  

4.1.1.1 The AG concluded that the PHB decision to approve the subsidy allocation for the Provincial Housing Project was invalid inter alia because no quorum was present when such resolution was purportedly adopted.
(Para 4.1.1 of AG Special Report).

4.1.1.2 Para 4.2.4 of the AG Report correctly observes that only six members of the PHB are indicated as having been present at the 18^th Board meeting held on 30 January 1997. In the minutes of that Board meeting (- see Exhibit G19) the following Board members are indicated as having been present:

Moodley
Sithole
Gouws
Mashego
Marks
Mthetwa

Paragraph 4.2.4 further indicates that:

That is not a correct proposition. The minutes indicate that Miss Mthetwa was present at the meeting, but her name does not appear on the attendance register. The register, on the other hand, indicates that Mr Mthombeni was present, but his name does not appear in the minutes.

4.1.1.3 Mthombeni appeared to recollect attending only one meeting at which the project was discussed but acknowledged that his signature appeared on both registers.

4.1.1.4 In view of the number of people required to constitute a quorum in the opinion of the Commission, the issue of whether there were six or seven members present at the 30 January Board meeting is irrelevant.

4.1.1.5 What is clear to the Commission is that no more than seven members could have attended the meeting as all other Board members confirmed to the Commission that they did not attend nor is there any record of their attendance nor is there any claim for reimbursement by them of any expenses in relation to such attendance.

4.1.2 WHAT WAS A QUORUM OF THE PHB ON 30 JANUARY 1997?

4.1.2.1 Section11(2) of the Act determines that a Provincial Board shall consist of not more 18 members and contains the proviso, that, if the number of members so appointed is less than 18, the number of members shall be divisible by three.

4.1.2.2 Section 11 (8) of the Act provides inter alia that the provisions of section 6 dealing with the NHB shall apply mutatus mutandis in respect of the Provincial Board.

4.1.2.3 Section 6 of the Act sets out the circumstances in which a member of the Board shall vacate his or her office. These include the situation in which such member resigns or in which the member is either nominated as a candidate for election as a member of the National Assembly; or is nominated as a senator or as an MEC of a province. Applying these principles to the PHB would require that a member vacate his or her office if the member is nominated as a candidate for election to the National Assembly and, by implication, possibly a Provincial Legislature.

4.1.2.4 By proclamation in a Provincial Gazette dated 5 April 1996 the MEC appointed the following persons as members of the PHB :

4.1.2.5 On 20 May 1996 G J L van Zyl was appointed as a member of the Board, Van Zyl in turn resigned on 17 December 1996.

4.1.2.6 The Commission was advised that both Tolo and Coleman were members of the Provincial Legislature and may accordingly have been barred from holding office as members of the PHB. Coleman in fact never attended any meetings of the Board although Tolo did attend certain meetings in 1996.

4.1.2.7 Accordingly, at 30 January 1997 there was a minimum of 12 duly appointed and serving members of the PHB being the parties listed above save for Coleman and Tolo on the assumption that they may be barred from holding office.

4.1.2.8 The list of members of the Housing Board as at 30 January 1997 prepared by the investigating accountants for the AG is Exhibit G1. The list is incorrect to the extent that the parties identified as numbers 7 and 8 on that list (i.e. Charles Makola and J J Jordaan) were both only appointed by the MEC in February 1997. The list also includes van Zyl who had resigned by that stage.

4.1.2.9 A quorum for the PHB is two thirds of its members (Section 11(7) of the Act read with Section 7(3) thereof).

4.1.2.10 Given the fact that the Board, as at 30 January 1997, consisted of at least of 12 members, a quorum would be 8 of those members. If Tolo and Coleman were still members the quorum would have been even higher. As no more than 7 members were present at the meeting there was no quorum. As a result it was unnecessary for the Commission to determine whether or not members of the Mpumalanga Provincial Legislature are eligible for office as members of the PHB.

4.1.3. THE ATTITUDE OF BOARD MEMBERS TO THE ISSUE OF A QUORUM.

4.1.3.1 None of the Board members who testified before the Commission appeared certain as to the existence of a quorum at the meeting of the 30^th January 1997. Moodley, the Chairperson, believed that there was a quorum but testified that if there was not a quorum the passing of resolutions by what he termed an "inquorate meeting" was not deliberate.

Record
Moodley - 309.6

4.1.3.2 The attitude of the Board members is surprising when regard is had to the fact that it was common cause that at the 17^th meeting of the Board held on 27 November 1996 and also attended by seven persons, the meeting agreed there was no quorum, leading to a situation in which the Board purported to address the problem by referring all of its decisions reached at that meeting to the MEC for ratification. The fact of such ratification is noted as item 4.2 of the minutes of the 18^th Board meeting (Exhibit G19).

4.1.3.3The Board at the November meeting apparently regarded itself as constituted by 14 members as the minutes reflected that the seven parties present constituted 50% of the Board members. Even if, therefore, the resignation of Van Zyl was considered by Board members present at the 18^th Board meeting, there would still, on their analysis, have been 13 Board members and, accordingly, no quorum.

4.1.3.4 It is worth mentioning that de Meyer was apparently regarded by the Board members as having been removed from the Board as his name does not feature in the minutes after the May 1996 meeting. The Commission understands that de Meyer left for the Cape and that the Secretariat had no forwarding address for him. In the circumstances no formal steps were taken for his removal from the list of members of the Board.

4.1.3.5 No satisfactory explanation was provided by the members of the Secretariat as to the absence of any annotation in the minutes of the 18^th meeting reflecting a discussion as to the existence of a quorum or any recommendation by the Secretariat in that regard.

4.1.4 THE DECISION OF THE EXECUTIVE COMMITTEE

4.1.4.1 It is necessary to consider the efficacy of the resolution adopted by the Exco in its meeting on 16 January 1997 in which it accepted the recommendation set out in the Memorandum by Moodley to the MEC dated 25 November 1996 (Exhibit G14) and resolved that:

"Each project be awarded 2 000 housing grants at R15 000 subject to the following:

1. top structures be delivered within 12 months of the contract being signed:
2. a minimum of 1 brickmaking plant be donated to each TLC:
3. Community facilities agreed between the Department and the TLC be donated by the developer / Nedcor."

4.1.4.2 It is this resolution which was purportedly ratified by the PHB at its 30 January meeting.

4.1.4.3 Section 11A of the Act authorises the appointment of an Executive Committee for the PHB. The Executive Committee at 16 January 1997 consisted of :

Moodley
Sithole
Meyer
Mthombeni
Kajee

4.1.4.4 In terms of Section 11A(3) the quorum requirements for Exco are the same as those applied to the NHB – i.e^{. 2}/_{3 .} Evidence before the Commission established that all Exco members other than Kajee attended the 16^th January meeting so that a quorum existed.

4.1.4.5 Subject to the reservation as to the amount of detail provided to Exco members (see Chapter 4 Section 2 of this report) it is apparent that the Exco members present all supported the concept of the Rural Housing Projects and it is common cause that the resolution was passed unanimously.

4.1.4.6 Section 11A(2) of the Act authorises the complete delegation by the PHB to Exco of all of its powers subject to the concurrence of the MEC and to the reservation of the right that Exco cannot alter or rescind any decision made by the PHB. This section also provides that the PHB has the right to alter or rescind a decision of Exco other than a decision under which any person has acquired any right or incurred any obligation or liability, unless such person consents thereto.

4.1.4.7 Moodley testified with some uncertainty in regard to the authority held by Exco to grant subsidy allocations independently of the PHB.

4.1.4.8 The issue was dealt with by Moodley at pages 364 to 368 of his testimony. The issue was also touched on in his written submission read into the record at page 259.21.

4.1.4.9 In his submission Moodley had recorded that the Executive Committee acted in terms of the relevant legislation and the power delegated by the Board. The assertion was made that :

"The Board is tasked with ratifying all the decisions of the Executive Committee and they only overturned decisions that have no financial commitments" (Record - 260.3)

4.1.4.10 At page 366.7 Moodley was asked:

Moodley was then referred to the July 1995 Board minute dealing with delegated authority and paragraph 6.5 of that minute which reads as follows:

Having read this Moodley testified at 367.20 :

You are, so what I am trying to say to you, or what I get from you is that the decisions that Exco took didn’t have any legitimacy until it was ratified by the Board. Is that how it was operated by your Board, or was it the other way around?..….No, I think legal minds will have to interpret how you read these decisions must be ratified as soon as possible by the Board, subject to the conditions as laid down by the Housing Second Amendment Act, and that should say 1994, not 1944."

And later at 368.8 :

"Are you of the opinion that Exco could take a decision, a binding decision on the Board and then you just have to refer it back for knowledge of the Board?…….That is a tricky one. My understanding of ratification was, as it says, ratification, with the strict understanding that if we made financial decisions, you will see at the top of page 8, we could make financial decisions, so you must link and even though you might have several sets of minutes I am glad we have these minutes. You can see at the top of page 8, when we deal with the issues of finance and so on, and you read that in conjunction with special circumstances, you will get a sense of the intent behind this.

4.1.4.11. Copies of the minutes of the 6^th meeting on 17 July 1995 and the 15^th meeting on 29 August 1996 are Exhibits A151 and A152. Paragraph 12 of the minutes of 29 August 1996 (Exhibit A152) represent the current status of delegation of authority by the Board to Exco. In the discussion with Moodley reference was made to both the July 1995 and the August 1996 minutes although the question focused on the July 1995 minute. Questioning related to sub paragraph 5 of the delegated authority as quoted above. In substance the wording in the current delegated powers is the same and reads as follows:

4.1.4.12 It is unfortunate that the Commission did not put to Moodley the specific provision of paragraph 3.1 of the delegated powers which reads as follows:

4.1.4.13 The difficulty in interpreting the conduct and intention of Exco stems from the absence of any indication that the Rural Housing Project was regarded as a "special or emergency circumstance". The Exco minutes of the meeting of the 16 January 1997 (Exhibit G17) indicate that in relation to each of the new applications reviewed by Exco in which it was decided to grant subsidies such decision is recorded as a resolution granting such subsidies and not as a resolution to recommend the grant of such subsidies to the PHB.

4.1.4.14 The evidence of Ms Sithole is perhaps indicative of the true intention of Exco. The following passage of evidence appears at 131.10 of the record :

"What was then resolved by Exco regarding this memo of the Chairperson?….. It was resolved that, the Exco appreciated the initiative taken on rural housing and it was said that, it approved that each rural housing must be given at least 2 000 houses to build.

The perception you have about that approval. Did you see it as an approval of 10 000 subsidies, or have you seen it as a recommendation in general that yes, this rural housing project must be investigated and you will later, the Board must then be approached for formal approval?…..Yes, I took it that way, that this is recommendations then the necessary steps, the application and the rest will follow. I took it like that

You were also then present at the meeting of the full Board on the 30^th January. Is that true?……..Yes.

On the 30^th January, what was discussed about this Rural Housing Initiative?……..In fact, it stemmed out of the Exco meeting. Exco minutes. And the same thing was agreed upon that the, in fact they noted the document which was given in the Exco documents, the letter, the memo to the MEC. It was noted by the Board also, because I think also, they also thought that the necessary steps would be followed.

So, your perception was never that you had granted 10 000 subsidies and this contract must now be signed and this thing must go ahead. .……No. It was not my perception.

Was that a common understanding at the Board meeting that what was being approved, or agreed upon, when at that Board meeting you ratified the minutes of the Exco Meeting? That was all you were doing? You were in principle saying that this project can be taken further? ………Yes."

4.1.4.15 According to Meyer the practice of the Board in relation to delegation to Exco was that applications for subsidies were always considered under the general conditions and not the emrgency or special circumstances and further that the meeting of Exco on 16 January 1997 was not convened or held as an emergency or special meeting.

Record
Meyer - 1256.08

1259.16

4.1.4.16 Meyer further testified that all Exco decisions had to be ratified by PHB.

Record
Meyer - 1253.20

4.1.5 CONCLUSION

The decision of Exco at the meeting of 16 January 1997 was subject to PHB ratification. The effect thereof is that the award of subsidies made by Exco had no legal consequence until ratified.

In the event the PHB meeting at which the Exco decision awarding the 10 500 subsidies in respect of the Rural Housing Project was purportedly ratified did not have a quorum and was therefore invalid.

4.2 ADEQUACY OF INFORMATION.

4.2.1 GENERAL

4.2.1.1 It is common cause that no formal application document according with the requirements of the Manual was ever presented to the PHB members at the 18^th meeting of the PHB held on the 30^th January 1997.

4.2.1.2 It is also common cause that no such document was presented to the Exco meeting of the PHB on 16^th January 1997.

4.2.1.3 Representatives of Motheo suggested that a concept proposal document bearing a title referring to "Delivery of Housing At Scale" was prepared on behalf of Motheo and presented to the Provincial authorities (presumably Moodley / Ngwenya?) in early November 1996 in time for discussions with representatives with local authorities.

Record
Meyeridricks - - 551.25
Ndlovu - 969.20

4.2.1.4 Ndlovu testified at some length in regard to the content of this document which dealt, according to her testimony with the majority of the requirements set out in the Manual and addressed many of the criteria which the Secretariat are required to consider in the preparation of their report to the Board in accordance with the Manual.

Record
Ndlovu - 984.08

4.2.1.5 No copy of this proposal document could be traced in the records of the Province, nor was Motheo able to provide the Commission with a copy of the document – the explanation being that the hard copies of the document had been lost or given away and that the ability to reproduce the document had been lost as a consequence of a change in computer systems.

Record
Meyeridricks - 556.10
Ndlovu - 978.15

4.2.1.6 Gibb’s evidence as to the document made available to the Province in November 1996 tended to describe it as a more "generic" type of document which did not deal specifically with the five project sites in Mpumalanga as these had not yet been identified by that time. The generic nature of the document was evident by the fact that Gibb used it in discussions with two other provinces at about the same time. It’s status, therefore, as a document complying with the requirements of the manual must be seriously questioned.

4.2.1.7 By contrast Moodley testified unequivocally that there was no document available for consideration by PHB members other than his memorandum to the MEC dated 25 November 1996 (Exhibit G14) and that the consideration by the PHB and Exco of the application for subsidies and the allocation of the subsidies was primarily based on oral reports made by Moodley and technical members of the Secretariat.

Record
Moodley - 293.24

  4.2.1.8 Moodley portrayed a process of evaluation which changed as the PHB became more experienced in dealing with housing subsidy applications. His evidence suggested that, as time progressed, less focus was placed upon formal documentary compliance with the requirements of the Manual with the emphasis shifting to the a process of ensuring that the contract with the developer was properly drawn so that developers would be compelled to make good their undertakings made in an attempt to secure subsidy allocations.

Record
Moodley - 280.24

4.2.1.9 In this process, Moodley asserted, the Motheo "application" was subjected to more rigorous scrutiny and a greater requirement of stakeholder approval than any other housing project previously undertaken in Mpumalanga. In support of this contention he referred to the process of requiring Motheo to submit its proposal to an inter-departmental meeting attended by representatives of the local authorities of the 24^th February 1997 and a subsequent full meeting with representatives of the local authorities on the 26^th February 1997, during which a revamped proposal document (Exhibit G26) was presented to the meetings and a plan of the township layouts, service layouts and top structure details were made available for scrutiny by all present.

Record
Moodley - 252.20
Ndlovu - 951.31
Meyeridricks - 565.30
Shrinivasan - 445.11
Ngwenya - 415.25

4.2.1.10 This extensive presentation was, however, presented long after the PHB had purported to consider and approve the allocation of ten thousand five hundred subsidies of fifteen thousand Rand each in the five project areas. In the result one is driven to the conclusion that the documentation submitted both to Exco on 16/1/97 and to the PHB on 30/1/97 was hopelessly inadequate as a basis for an independent assessment of the application by either Exco or the PHB members. In the circumstances the only basis for assuming a proper consideration of the application within the context of the Manual is if it is accepted that the necessary information was passed to PHB members by way of adequate oral reports by Moodley and the technical members of the Secretariat.

4.2.1.11 The evidence of the various PHB and Secretariat members on the adequacy of information provided is as follows:

4.2.1.11.1 Moodley

The PHB members had whatever information was available to him and they had adequate information to enable them to consider and award the subsidies.

Record
Moodley - 293.24

4.2.1.11.2 Marks

Could not recollect whether the Motheo Project was discussed at all at the 30 January Board meeting, although he did recollect having seen a report by Shrinivasan dealing with rural housing.

Record
Marks - 12.11

- 12.25.

Further did not know that on 30^th January 1997 Board the was approving one of the biggest housing subsidy allocations in the country. Not aware of Motheo when he read the Board meeting documentation.

Record
Marks - 14.11

- 15.8

4.2.11.3 Mthetwa

Mthetwa had a recollection of the Rural Housing Project being discussed, but this appeared to refer to the informal discussion at the time of the proposed April PHB meeting which could not proceed because of the absence of a quorum.

She could not remember the 15% geotechnical allowance being discussed, nor could she recollect any details of documentation being submitted. She acknowledged that when she went home after the 30^th January meeting she was not aware of the fact that a R180 million development had been approved.

Record
Mthetwa - 41.- 43

4.2.1.11.4 Gouws

Gouws testified that his recollection was that the only information provided at the 30^th January Board meeting was that Mr Moodley informed the Board that there was a rural initiative and that Nedcor was involved in it and that it would provide a big boost to the delivery of houses in the project as there was private sector involvement. No specific details were provided, nor was any report presented to the Board. All that he could recollect was that the minutes of the Exco meeting were presented for ratification. He accepted that a big project was being dealt with, but no specific details were provided – no names were mentioned. He was in favour of the housing initiative in principle although he accepted he had insufficient details to realise that he was actually part of such a significant decision making process. He first heard of Motheo in the press when the matter became an issue of public debate. There was no discussion of a 15% allowance.

4.2.1.11.5 Sithole

  Sithole testified that Moodley went through the content of his memorandum to the MEC (Annexure G14 ) and that the recommendation for the approval of the subsidies was confirmed by the Exco meeting. However she understood that this was not the final step in the process and that the application would then be processed and the necessary detail in regard to the number and size of the structures would be provided in due course. Although she accepted that Moodley was the party authorised to sign documents on behalf of the Board she did not consider that this project had been finally approved and said that she was surprised that the contract had been signed before the Board had "explored it more".

4.2.1.11.6 Meyer

Initially Mr Meyer did not recollect being at the 16^th January Executive Committee meeting. He was definitely not at the 30^th January PHB meeting. When it became clear that he did attend the Exco meeting he reviewed the agenda and documentation provided to members and confirmed that he was indeed at such meeting. He confirmed that Moodley’s memo of 25 November 1996 was available at the meeting, but said that no other details of the project were available and that his concurrence in the adoption of the resolution was based on the fact that this rural initiative was part of an initiative being handled at a higher level in the Province and that it provided housing in rural areas which was necessary.

4.2.1.11.7 Shrinivasan

Shrinvasan testified that he attended the Exco meeting on the 16^th January and was requested to give an oral report on the work that his department had done which was limited to suitability of sand and the brick making issues. He said that his impression was that the project was being rushed and that details of the project were not known to him. At the meeting of the 30^th January his recollection was, once again, no details were discussed. In each instance as the question of approval was an administrative matter he did not participate.

4.2.1.11.8 Appasamy

Appasamy testified that at the time of the Executive Committee meeting he, as the head of the Secretariat, had made no assessment of the Rural Housing Project within the criteria set down in the Manual because it was not possible to undertake that exercise in the absence of a proposal. The resolution of Exco was reached without any advice from his administrative Secretariat.

Record
Appasamy - 81.23

There was no reference to or consideration of any of the finer details of the Motheo Scheme either at the Executive Committee meeting or at the Board meeting attended by him. No additional documentation was available to Board members on the 30^th January.

4.2.1.11.9 Mthombeni

Mthombeni is reflected in the attendance registers as having attended both the 16^th January Exco meeting and the 30^th January Board meeting. He could remember only one meeting at which the Rural Housing Project was discussed. He did, however, remember that the Chairman had given a description of the project in the sense that he had described the use of Dri-Block; that the project would involve the provision of block-making machines for the community and that it contemplated the involvement of women of the community. He remembered this detail because of his own experiences in relation to the requirements of his constituency which was the Emerging Builders Association. He endorsed the concept and was of the opinion that it had been approved at the meeting which he could remember attending. He could remember no other details in regard to the project itself although he did remember that the name Motheo was used at the meeting he attended.

4.2.2 DETAILED ALLEGATIONS IN AG REPORT IN REGARD TO INADEQUATE INFORMATION.

4.2.2.1 No exact details of project

It is apparent from the evidence of the majority of the PHB Board members and the Secretariat officials that the evidence presented at both the Exco meeting and the Board meeting was very limited. Exco members had some perception of the broad details of the project, but none of the detailed information necessary to permit full consideration of the project, e.g. name and details of the developer size and design of the top structures, details of the professional team engaged by the developer, detailed delivery programme etc.

4.2.2.2 Role of the financial institution not defined.

The only document containing information in regard to the project which was provided to Exco and Board members was the Memorandum to the MEC by Moodley dated 25 November (Exhibit G14). That document made extensive reference to Nedcor but provided no detail as to its involvement in the project. The absence of any clear definition is one of the features which has given rise to allegations of misrepresentation.

See Chapter 5 of this report dealing with the topic of misprepresentation.

4.2.2.3 No information on Motheo or it’s track record.

For all parties other than Moodley this was an issue which had not been canvassed.

For Moodley financial information and track record were not a feature of his enquiry in respect of Motheo or any other project. He "ignored it".

Record
Moodley - 299.2

4.2.2.4 Site information sketchy and no clarity on whether the selected sites could carry development.

At the time of the approval of the subsidy allocation by the Executive Committee (16^th January 1997) it is common cause that no locality plans could be prepared as the process of agreeing the sites with the various local authorities was still under way. An abbreviated report on the generally identified sites was prepared by Cheriyan and dated 7 January 1997 and is Exhibit G16. It is likely that this report, which deals with each project area under the headings :

Land, infrastructure services available, nearness to amenities, self sustainable activities, level of crime, religious institutions, available capacities, map of the town.

was the basis of the technical report which Shrinivasan states was provided to the Exco meeting. The status of the technical evaluation by the 30 January 1997 PHB meeting is uncertain but probably summarised by the brief report by Shrinivasan dated 22^nd January 1997 which is Exhibit A1. This confirms the above information and that a meeting took place on the 22^nd January between Nortier and Associates and the Technical Directorate at which areas for the brick manufacturing yards were set aside and sites for show villages identified at each project. The report concludes with the statement that:

"As soon as the preliminaries have been crystallised, an action programme will be worked out, hopefully within three weeks."

The extent to which all of this information was made available to PHB members on 30 January 1997 is debatable. None of the Board members appear to have any detailed recollection of detailed site information being available.

4.2.2.5 No proposal was placed before the Executive Committee.

In the sense that a proposal is represented by an application complying with the requirements of the Manual, it is common cause that no such proposal was presented either to the Executive Committee or the Board. At best the information available was the Moodley memorandum dated 25 November 1996 (Exhibit G14), oral information provided by Moodley and the report by the Chief Engineer.

4.2.2.6 No indication of any financial implications was given.

It is common cause that no indication of financial implications was given either in documentary form or by Moodley at either the Executive Committee meeting or the PHB meeting on 30/1/97.

4.2.2.7 Was the decision based upon an evaluation of the size of the structure, the delivery programme and the support of the local community?

Other than the assertion to this effect by Moodley no testimony supporting this contention was given before the Commission.

4.2.3 AG’S COMMENTS ON THE EVALUATION BY THE PHB OF THE MOTHEO PROPOSAL IN TERMS OF THE REQUIREMENTS OF THE MANUAL

4.2.3.1 Adequate access to financial resources and managerial competence in order to undertake the proposed projects successfully.

4.2.3.1.1 In so far as Exco and the PHB is concerned it is common cause that no information in regard to access to financial resources was provided. In Moodley’s view this information was irrelevant and unnecessary and ignored by him in this and any other project considered by the Province (see Chapter 4 Section 2 of this report). The remaining members of both Exco and the Board received no information in regard to access to financial resources although some of them assumed that the reference to Nedcor indicated that Motheo had the backing of financial resources from that institution. (See Chapter 5 of this report). It is common cause that the extent of the backing or involvement by Nedcor was not investigated by any member of the Board or the Secretariat other than, possibly, Moodley.

4.2.3.1.2 In regard to access to managerial competence it is again common cause that no documentary evidence in regard to managerial competence was submitted to the Executive Committee or the PHB. No information in regard to the project team was recalled by any member of the Board. It is possible that by the 30^th January meeting the technical department may have made reference to their meetings with Nortier and Associates.

Apart from Moodley’s general assertion that all information available to him was passed to Exco and the Board members there is no evidence that individual Board members were aware of or enquired about the managerial competence of Motheo.

4.2.3.2 Insufficient information regarding legal competence, financial position and technical expertise of joint venture partners.

The finding of the Auditor General on this topic is based on the premise that a joint venture existed. This is not a proposition supported by the evidence before the Commission. It is, however, correct that the involvement of Nedcor as a participant in the "Joint Initiative" was never investigated by any member of the Board on or before the date of the subsidy allocation on 30 January 1997. Moodley appears to have been aware from inception that Nedcor was not a joint venture partner in a risk-assumption sense.

4.2.3.3 Detailed motivation for 15% increase in subsidy.

4.2.3.3.1 The resolution of Exco ratified by the Board makes no award in respect of a 15% subsidy increment.

4.2.3.3.2 It is common cause that the issue of such increment was not considered either by the Exco or by the PHB.

4.2.3.3.3 The attitude of Moodley was that the allocation of the 15% supplementary allowance was a matter falling within the competence of the Secretariat to which the adjudication of such applications had been delegated by the Board.

4.2.3.3.4 The Secretariat first considered this request after the PHB meeting on 30 January 1997. The matter was the subject of correspondence and the provision of information between the technical department and Nortier and Associates both before and after the date of signature of the subsidy agreement by the Department on 14 March 1997.
Exhibits A23, A24 and A25.

4.2.3.4 No copy of a social compact agreement was provided.

4.2.3.4.1 It is common cause that no social compact agreements were entered into.

4.2.3.4.2 Evidence from Moodley and Ngwenya was that social compacts were no longer a requirement. Cobbett confirmed that the requirement of a social compact agreement had been withdrawn by specific amendment of the Manual.

Record
Cobbett - 874.07

The Commission was not given a copy of such amendment, but it appears common cause that it is no longer a requirement.

4.2.3.5 Copy of the agreement between the developer and Nedcor as a stakeholder.

This finding of the Auditor General is premised on the existence of a joint venture relationship between Nedcor and Motheo. It is common cause that no such relationship existed.

4.2.3.6 Locality sketch, preliminary layout plan and proposed house plans or sketches with full specifications for top structures.

It is common cause that no such details were provided to the Executive Committee or to the Board.

Record
Moodley - 293.24

4.2.3.7 Details of quality control measures or details of warranties in respect of building defects.

4.2.3.7.1 It is common cause that no such details were provided in writing. Although not specifically canvassed in evidence with Moodley there is no basis for suggesting that this sort of detail was addressed by him in any of his oral reports to the Exco or the Board. Certainly no reference is made to this detail by any Board member.

4.2.3.7.2 The AG report offers the additional comment that the Department usually also insists on "retentions and professional indemnities".

4.2.3.7.2 The AG suggests that there were no retentions provided for in the subsidy agreement or in the certificates of progress payments. This statement may be misleading. Paragraph 3.9.2 of the subsidy agreement does, in effect, provide for a limited retention in that it requires the developer to provide a bank guarantee for an amount equal to 10% of the progress payment made on final hand over of a top structure. In addition the Department did require and received professional indemnity certificates from the consulting engineers responsible for the design of the services. (Agreement Exhibit G30 : Indemnity certificate Exhibit G35).

4.2.3.8 List of names of all the professional consultants and contractors.

It is common cause that no such list was available to Exco or PHB members at the time of the January 1997 meetings. See Chapter 4.2 of this report.

4.2.3.9 Programme for the implementation of the project.

It is common cause that no such programme was provided before the Executive Committee or Board meetings of 16 and 30 January respectively.

4.2.3.10 Application for project subsidy should be submitted within a programme of publicly-specified dates.

It is correct that there is such a provision in the Housing Manual. Its application to this project appears entirely inappropriate.

4.2.3.11 No project to be approved unless funds are allocated to the project.

4.2.3.11.1 This requirement is set out in para 3.4.6 of the Guidelines set out in Part 3 of the Manual. The paragraph reads as follows:

"If the project is approved, the Provincial Housing Secretariat will register that approval, and inform the Project Applicant and the relevant Provincial Housing Department. No projects will be approved unless funds are allocated to the project."

4.2.3.11.2 The paragraph follows immediately after the paragraph dealing with the assessment of an application by the housing Secretariat in accordance with the evaluation criteria. It is common cause that the function of allocating funds to a particular project is the responsibility of the provincial accounting officer.

4.2.3.11.3 The wording of the Manual is unfortunate as it would seem illogical for the accounting officer to allocate funds to the project before the project has been approved by the PHB.

If that were not so urgently needed funds would be locked up by allocation to projects which have not yet been considered by the PHB. If, on the other hand, the purpose of the provision in the Manual is to indicate that PHB approval is conditional upon allocation of funds by the provincial accounting officer before the approval is put into effect by the signature of a subsidy agreement, this would represent both a logical method of operation and avoid the requirement that subsidy funds are locked up in pending applications.

4.2.3.11.4 It is common cause that no funds were allocated to this project prior to the PHB meeting on the 30^th January 1997.

4.2.3.11.5 In regard to the allocation of funding prior to the signature of the subsidy agreement the Commission refers to the section on funding in Chapter 4.3 of this report.

4.2.3.12 Evaluation of the proposal by the Secretariat and the preparation of a motivated recommendation to the PHB for consideration.

4.2.3.12.1 It is common cause that the Secretariat did not consider the proposal in terms of the criteria because it did not have any proposal to consider.

Record
Appasamy - 81.30

4.2.3.12 2 Both Moodley and Ndlovu contend that the criteria which the Secretariat was intended to apply were taken into account in the development of the proposal. Moodley testified that whilst the approval process may not have followed the letter of the Manual it did follow the spirit thereof and that

"I can go through the fifteen points and show you how most, if not all of them, have been addressed in terms of the inter-actions."
(Record 338.13)

4.2.3.12.3 Ndlovu dealt in detail with the respects in which the proposal put to the Province in November 1996 provided information which would have enabled the Secretariat to assess the project in the light of the criteria set out in paragraph 3.5 of the guidelines to part three of the Manual. Her detailed evidence in this regard appears at pages 980 to 984 of the record. In the absence of any copy of the document the Commission is unable to assess the extent to which such proposal would in fact have enabled the Secretariat to apply the relevant criteria.

4.2.3.12.4 The fact of the matter is, however, that the Secretariat did not purport to apply such criteria save to the minimal extent reflected in the report by Cheriyan dated 7 January 1997
(Exhibit G16)

4.2.4 CONCLUSION

4.2.4.1 The documentation submitted both to Exco on 16/1/97 and to the PHB on 30/1/97 was hopelessly inadequate as a basis for an independent assessment of the application by the Exco or PHB members.

4.2.4.2 Apart from the general assertion by Moodley that adequate information was given to Exco and Board members by way of his oral reports at both the Exco and PHB meeting, there is no acceptable evidence that the Exco or PHB members received detailed information as contemplated by the Manual so as to enable them to independently apply their minds to the approval of the application for subsidies in respect of the Rural Housing Project.

4.2.4.3 The Provincial Housing Secretariat did not consider the criteria set out in the guidelines in part three of the Manual as it did not receive any proposal to enable it to do so.

4.2.3.5 Subject to the recorded minor reservations, the conclusions of the AG in regard to the absence of technical compliance with the requirements of the Manual in the process of deliberation on the Rural Housing Project by the PHB are correct.

 4.3 FUNDING

4.3.1 BACKGROUND

In order to address funding of this project in the appropriate context it is desirable to review the process by which funds are made available to provinces.

4.3.1.1 National

Soon after the democratic elections of 1994 the National Government of South Africa set a national target of building 1 million houses by the year 1999.

In 1995 the SAHF was established for the purpose of funding delivery of this housing programme. Funding is provided to SAHF by National Government on an annual fiscal budget basis.

SAHF allocates the funds received annually to the 9 provinces of the country through a forum of interaction between the National Ministry of Housing and the provinces, known as MinMec Housing.

The proportion of funds allocated to provinces is negotiated and determined annually with reference to inter alia the following:

• The relative size of each province
• The need for housing in each province, bearing in mind the profile of residents found in provinces.
• With effect from 1997/98 track record of performance and delivery criteria were added to the equation.

Historically Mpumalanga Province received allocations of some 5.3% of the national budget of SAHF during the years, 1995/96 and 1996/97. Expectations in Mpumalanga in March 1997 were that based on actual performance in those two years, the proportion allocated to Mpumalanga for 1997/98 would be somewhat higher than 5.3% and possibly as much as 8%.

4.3.1.2 Provincial

Housing delivery is organised in Mpumalanga under the Provincial Department of Housing together with the Provincial Housing Board. Details are set out in Chapter 3.

4.3.2 ACTUAL POSITION AT THE TIME THE AGREEMENT WAS SIGNED.

4.3.2.1 The actual financial position of the PHB at the time the contract was entered into was as follows: -

•  Funds available 175
• Commitments 392

Over commitment R217 million

(as per computation prepared by Dr Barnard of NDH on 10 March 1997: Exhibit 120/2).

Further evidence of the amount of over-commitment at that time is contained in Exhibit A120/1 which is a report dated 19 February 1997 by Ngwenya’s office to the DG. The commitments disclosed therein amount to R399 million. This report does not state the amount of funds available at the time but on the basis of the manner in which funds available are normally calculated the amount at that time would be approximately R185 million, thus producing a calculated over-commitment of R214 million at that date, which is similar to the over-commitment at 10 March 1997.

The AG expresses the amount of the over commitment as R313 million calculated as at 29 April 1997. (Para 4.2.5(d))

The Commission prefers to use the amount calculated at 10 March for the following reasons:

• It is very close to the actual date of the agreement, i.e. 14 March.
• It is before the end of the fiscal year on 31 March, thus avoiding any consideration as to whether and the extent to which any new year allocation should be added to funds available.

All of the calculations referred to above exclude any commitment to the Motheo Rural Housing Project. The stated over-commitments should therefore be increased by at least R158 million being the basic amount of the Motheo contract at R15 000 per house for 10 500 units.

4.3.3. DISCUSSIONS WITH THE NDH.

4.3.3.1 Officials of the Department testified that they considered it necessary to consult the NDH in regard to the funding of the Rural Housing Project prior to the signature of the subsidy agreement. To this end an urgent meeting was arranged with the DG and senior members of his staff in Pretoria on 5 March 1997.

Record
Ngwenya - 405.26
Cobbett - 826.10
du Plessis - 219.10

4.3.3.2 It is common cause that at that meeting and at an earlier meeting with Gibb the concept of the Rural Housing Project was enthusiastically endorsed by the DG.

Record
Cobbett - 825.13
Ngwenya - 406.28
Gibb - 1171.09
Shrinivasan - 472.18
Barnard - 1034.16

4.3.3.3 Having regard to the extent of the over-commitment of funds within the Mpumalanga Province the meeting discussed the accommodation of the project within the provincial allocation by the cancellation of inactive projects together with an indication by the DG that some additional funding may be forthcoming if the exercise of freeing inactive funds produced a result which brought the additional over-commitment down to a level which the DG considered feasible. Further evidence of Cobett’s preparedness to accommodate the Province can be found in a memo from the DG to the National Minister – see Exhibit 108, paragraph 8.

Record
Cobbett - 827.17
Cobbett 858.18
Ngwenya - 407.07
Barnard - 1024.29

4.3.3.4 It is further common cause that the meeting agreed that a team of officials would be sent down to Mpumalanga urgently to assist in the process of identifying the extent of the funds which could be freed by cancellation of inactive projects.

4.3.3.5 It is at this point that there is a significant and fundamental divergence between the evidence of the DG and the evidence of the provincial officials. The DG stated that there was no doubt that the provincial officials left the 5^th March meeting under the firm understanding that if the process of cancellation did not free sufficient funds the subsidy agreement could not be entered into.

The provincial officials, on the other hand, understood that the endorsement of the project by the DG was unconditional and that the only exercise that required to be undertaken was the process of re-allocation of funds within the provincial budget by cancellation or re-organisation to which end the visit of the officials from the National Department had been organised.

When Ngwenya’s version was put to Cobbett his response was :

4.3.3.6 At the 10 March meeting the process of re-allocation of funds was discussed with representatives of the National Department. It is common cause that possible projects for cancellation were identified at the meeting of 10 March 1997 in accordance with the list prepared by Dr Barnard (Exhibit A120/3) at a figure of R154 210 000 equivalent to 10 230 subsidies.

4.3.3.7 It is also common cause that the National Department officials did not indicate to the provincial representatives that, as far as the National Department was concerned, the Province was prohibited from entering into the subsidy agreement.

4.3.3.8 The extent of Dr Barnard’s reservation in this regard was limited to an admonition to du Plessis that the provincial representatives should be careful and think twice before signing the agreement.

4.3.3.9 The provincial representatives, therefore, approached the matter on the basis that there was support from the National Department for the project in principle and an amount of funding capable of re-allocation which was sufficiently close to the requirement for the Rural Housing Project for them to proceed with the agreement subject to the admonition by Dr Barnard that they should be careful and think twice before doing so.

4.3.3.10 The attitude of the National Department Representatives at their meeting with the province on 10 March is in stark contrast to the description by Cobbett of the report made to him by department officials on their return.

A review of the report prepared (Exhibit A120/4) reveals that the attitude of the team in regard to the Rural Housing Project was substantially influenced by the belief that this project, as with the Condev project, would not proceed. The comment is:

The conclusion reached in regard to over commitments is that:

It is common cause that this ruling or decision was not conveyed to the provincial representatives by the team on 10^th March 1997 and was only conveyed to the Department in a letter dated 11 April 1997 by which date the contract had been signed and the NDH had already paid over the first draw of R9.24 million.

4.3.4. ACCOMMODATION OF THE OVER-COMMITMENT

The Provincial Department was of the opinion that although the PHB was over committed in a technical sense, they were nevertheless going to be able to fund their cash flow commitments in the ordinary course of activities.

Principally this was to be accommodated as follows:

• Cancellations
• Over-statement of cash flow commitments.
• Temporary accommodation at National level
• New year allocation
• Prospective project commitments

4.3.4.1 Cancellations

These have already been dealt with in 4.3.3.3 to 4.3.3.6

4.3.4.2 Over Statement of cash flow commitments

The concept of over statement of cash flow commitments is referred to by Ngwenya at 1108.27 and explained in more detail by du Plessis at 1136.29 and 1140.24 with reference to Exhibit A127.

Essentially what they were saying in relation to over statement was that cash flow estimates are prepared on the basis of estimates prepared by developers. In practice these estimates are always optimistic with the result that actual delivery is slower and payments are therefore usually some 30% to 40% lower than the estimate.

4.3.4.3 Temporary Accommodation.

Various officials of the Department testified to the effect that over commitment is not only tolerated by NDH but constitutes the norm, i.e. accepted practice which is condoned by NDH on an ongoing basis.

There is also evidence to the fact that over commitment is even encouraged - see copy of a speech by the National Minister on 10 March 1997 to the effect that under commitment represents under performance.
(Refer Exhibit A 126)

 4.3.4.4 New year allocation.

Evidence regarding the amount and availability of new year allocations was heard from :

The legal position is dealt with in paragraph 13 of the Act and it is clear from the evidence referred to above that the manner in which funds are made available is in writing by notifications which are referred in the Housing Department as letters of allocation.

Evidence was heard from various officials that the new year’s allocation of funds would be available to meet the Departments’ commitments including Motheo.

Whilst conceding that the amount of funding in respect of the 1997/98 year was not known or certain on 14 March 1997 when the agreement was signed on behalf of PHB and the Department, the evidence of these Provincial officials as referred to above appears to be (although not consistently so expressed) that under normal circumstances the allocation for the new year was:

• imminent in the sense that it would become available in time to meet the Motheo contract.
• Likely to be sufficient even at the historical level of 5.3% to cover the Dept/Board’s commitments during the 1997/98 financial year, including those relating to Motheo.

On the basis of all the above factors the department felt that it would be able to meet its cash flow commitments in the ordinary course of activities.

4.3.4.5 Prospective Project Commitments

Du Plessis testified that the Department’s normal procedure is to submit projects to the PHB for approval subject to availability of funds. As soon as projects have been approved by the PHB they are entered as commitments although no formal contract with a developer has yet been entered. Since approval by the PHB does not represent a binding commitment to the developer, there exists a flexibility to delay the project should circumstances require.

Commitments at 10 March 1997 include a total of R38 million in respect of projects approved but not yet contracted.

4.3.5 CONCLUSIONS

4.3.5.1 No (or insufficient) funds for the project

A technical conclusion that the entering into of the Motheo Contract placed the PHB / Department in a financially over committed situation on the date of the signature and that there were, as a result, no or insufficient funds for the project, is inescapable. This was the conclusion of the AG in his Special Report at paragraphs 4.2.5(d) and 4.2.7(b) and (c).

The Commission believes however that this conclusion should be seen in the context of the evidence given by various witnesses referring to over commitment (in some cases of up to billions of Rand) being encouraged and being the norm.

In his evidence Dr Barnard introduced documents which show the extent of over commitments in other provinces. Exhibit A120/6.

The encouragement to deliver and therefore commit is clearly reflected in the speech of the National Minister at Exhibit A126.

The conflicting testimony of the officials at Provincial and National level of the conclusions reached at the 5 March 1997 meeting and the NDH officials neutral contemporaneous response to the 10 March 1997 investigation reflect a misunderstanding between the parties.

That there was a misunderstanding seems clear from the conduct of the Provincial officials. It was their decision to seek approval from the NDH before concluding the agreement. It was also Ngwenya’s evidence that he would not have signed the agreement if he had been told that funds were not available. If he had understood that the NDH attitude was that the agreement could not be signed, his conduct in doing so renders the whole exercise of seeking approval meaningless.

As a result the Commission is of the opinion that the conclusion referred to above is a technical view based on a "snapshot" assessment of the financial position as at the particular date. It does not make allowance for the flexibility that was seen to exist by the Provincial representatives in the management of their own allocation and their legitimate expectation of a further allocation of funds to a Province seen to be performing well and in accordance with Ministerial policy. The enthusiastic endorsement of the Director-General and the hint of assistance if the shortfall was manageable would have strengthened that expectation.

4.3.5.2 Ability to meet commitment

The evidence reflects that the officials were able to enumerate a plausible list of mechanisms of which they were aware that would assist them to manage their cash flow. They did not measure the amount which each mechanism would have contributed to the cash flow but were of the opinion that the range was sufficient for the purpose:

The identification of various techniques to assist in the management of cash flow points to an awareness of the situation on the part of the officials concerned as well as an obvious attempt to achieve performance in relation to a project which was enthusiastically endorsed by all levels of government.

In the end result evidence before the Commission suggested that a combination of the Motheo experience and the discovery that there was a huge over commitment on a National basis has led to the situation in which further allocation of funds has been put on hold whilst the National department develops a strategy to cope with the general over-commitment. The suggestion is that the situation is being "managed" at National level. Had this change not occurred the Provincial officials believe that the project could have been accommodated by the management mechanisms referred to. The Commission is unable to make a finding on that assessment but accepts that it is at least possible that the project may have been accommodated.

However, with the benefit of hindsight and in the absence of any further Provincial allocation, the conclusion by the AG in paragraph 4.2.8. of his report that the over committed financial position creates a serious risk of the Department not being able to meet its commitments on this project if and when they become due, is probably correct. The issue may, of course, become academic in view of the invalidity of the contract.

In any event the current state of the National over commitment raises serious reservations as to the justification for the isolation of Mpumalanga and the Motheo Project as the recipient of a demand for refund when other provinces find themselves in a far worse position.

It appears to the Commission that the issue requires resolution by means of a process of negotiation, possibly at MinMec level.