Gangster State

by Pieter-Louis Myburgh

  At this stage, the FSHS was facing disaster. It was already midway into the second quarter of the financial year, and the department had

  spent virtually none of its allocation from the national fiscus. If the province could not spend its money, the new premier’s administration would come under serious fire from the national government, which could lay claim to any unspent money the province had received through conditional grants. An affidavit filed in court explains: ‘If a conditional allocation has not been spent by the end of the financial year, it reverts to and must be repaid to the National Revenue Fund, unless the National Treasury is satisfied that the unspent allocation has been committed to identifiable projects.’9

  Over and above the R1.3 billion the department had received from National Treasury to build ‘sustainable human settlements’, it had another R120 million that had rolled over from the previous financial year. Magashule risked having R1.42 billion taken away from his province because of the FSHS’s inability to spend its allocation.

  ‘If you don’t build houses and spend money during the first two quarters of the financial year, it is pretty much a lost cause,’ explained another former FSHS staffer. ‘December and January are known as dead months in the construction sector because of the holidays, so you’re not going to catch up during that time.’

  As the tender had now lapsed, the department seemingly had no way to appoint a large group of contractors in a short space of time so that it could spend its budget. At the July meeting, the bid adjudication committee therefore resolved to cancel the tender and instead draw up a database of service providers made up of ‘but not limited to’ those who had submitted bids for the lapsed tender. 10 The database could therefore include companies that had not even submitted bids in the first round.

  This was not the only problem. Of the 361 companies that did submit

  bids, 252 either had bid compliance issues, such as not possessing a valid tax clearance certificate, or had failed to ‘meet the minimum functionality threshold’. 11 In other words, they were simply not capable of delivering on large projects. Despite these shortcomings, the department loaded all 361 companies onto its database, along with a few that had not even tendered. Many of them would go on to clinch lucrative contracts to build RDP houses.

  Explaining how fraught the process was, one former department official claimed Magashule was the central figure in the saga. ‘We were asked to load batches of new companies onto the database, but many of them didn’t even have proper NHBRC [National Home Builders Registration Council] papers or the correct CIDB [Construction Industry Development Board] grading, and many of these companies’

  finances weren’t in order,’ this source said. ‘The technical committee raised these compliance issues with the department’s bosses, but they were ignored.’ The source alleged that the head of department, Mpho Mokoena, made it clear where his orders were coming from: ‘Mokoena told us that Ace had instructed him to work with these people [the new contractors who were found to be non-compliant], that we needed to help them become compliant.’

  There were also more overt signs of Magashule’s early meddling in the department’s affairs. In 2009, he launched his now infamous Operation Hlasela (Operation Attack), supposedly aimed at eradicating poverty and improving service delivery in all spheres of government.

  But critics say Operation Hlasela was abused for party-political purposes. 12 Indeed, the public protector would later confirm that it

  ‘conflated’ the functions of the provincial government with the interests of the ANC. 13

  Through Operation Hlasela, which was run out of the premier’s office, Magashule exerted control over departments like the FSHS, whose 2016/17 annual report contains a vague explanation of the programme:

  ‘This [Operation Hlasela] is a specific provincial programme focusing on integrated service delivery. All the department’s activities are coordinated to ensure integrated human settlements. ’14

  But back to the RDP houses. By October, the FSHS was still woefully behind on its expenditure targets, even after appointing new companies from its dubious database. Tokyo Sexwale, the national minister of human settlements, notified the department that it had spent less than 10 per cent of its allocation. 15

  Losing the unspent money to national government was only one concern. If this were to happen, the FSHS also risked losing out on future grants from the national budget. ‘Typically, where a province has failed to spend its conditional allocation, (e.g. for a housing or education project) … the funds will in future years be allocated to other provinces which have a good track record in spending on the relevant housing or education project,’ the aforementioned court affidavit explains. 16

  Having more than R1 billion taken away from the provincial government would also have put lethal political ammunition in the hands of Magashule’s enemies. They would have been able to accuse his administration of incompetence and maladministration barely a quarter of the way into his first term as premier.

  One such political foe was Sexwale. The national housing minister had played a key role in helping Jacob Zuma become ANC president at the Polokwane conference in 2007. For this, Sexwale had been rewarded with a place in Zuma’s cabinet. But by 2010, the tectonic

  plates beneath the perpetually divided ruling party were moving once again. The ANC’s 2012 national conference lay in the not-too-distant future, and Sexwale was already being associated with campaigns and factions that sought to unseat Zuma and his allies. 17 ‘Sexwale wanted Ace to fail. He wanted the Free State to pay back the money it couldn’t spend to make Ace look weak and incapable,’ said a source with insight into the Free State’s RDP debacle.

  To avoid any embarrassment or political damage, the department had to spend its money as quickly as it could. To this end, it developed an expenditure recovery plan (ERP) to fast-track payments to a new batch of contractors. 18 The ERP was, it seems, masterminded by Magashule’s office and enforced by Zwane, but neither man would ever be held accountable for the financial disaster that followed.

  With the initiation of the ERP, the money sluices were now well and truly open in the Free State. This sudden profligacy attracted all manner of connected contractors, some of them closely linked to Magashule. One was Rachelle Els, a businesswoman and, according to several sources, a ‘close friend’ from his hometown. Most concerningly, Els and Magashule were once business partners, or at least intended to be. Company records list Magashule and Els as co-directors in an entity called National Pride Trading 456, which was established in mid-2007, about two years before Magashule became premier. It has since been deregistered. A subsequent chapter details the contracts awarded to Els.

  ‘Ace literally ensured that people got allocated RDP projects,’ said one former FSHS insider. ‘He would meet with someone like Rachelle Els over the weekend, then on the following Monday we were told that we needed to award 50 or 100 houses to Els’s company.’

  Several FSHS sources told me there were ‘zero tender processes’

  followed for any of these contracts. They claimed that, through Operation Hlasela, Magashule would hand-pick contractors like Els and ensure that their companies were given RDP contracts. In later court proceedings, the department itself would label the contracts signed in late 2010 and early 2011 a ‘fraudulent scheme’. 19

  When the national department and National Treasury got wind of the FSHS’s radical expenditure drive, they warned that the ERP was a bad idea. Their main concerns were that the department intended making large advance payments to companies before any work had been done and that the new contracts were signed without following proper procurement processes. They urged the FSHS not to proceed with the ERP, but it pressed ahead anyway. 20

  Between November 2010 and March 2011, the final months of the financial year, the FSHS hastily splurged more than R1 billion, or 90

  per cent of its entire budget, on payments to companies appointed for new RDP projects. These projects, awarded
to more than 100

  contractors, were supposed to have delivered nearly 15 000 houses. 21

  Together with contracts signed earlier in 2010, the department now had to deliver around 21 000 houses at a cost of just under R1.5 billion. 22 It was a massive undertaking, and it would soon become evident that the department had bitten off more than it could chew.

  The plan could have worked if the department had been capable of monitoring the rapid increase in expenditure. However, what ended up happening was that the FSHS simply emptied its coffers at an alarming rate without putting in place the necessary checks and balances to ensure that the new contractors actually delivered. Of the more than R1

  billion the department spent in the last five months of the financial

  year, over R600 million was paid to materials suppliers, 23 and about R500 million was paid to building contractors.

  According to one of my sources, the ERP was not necessarily a bad idea. Some of the materials suppliers, such as brick manufacturers, required advance payments to keep operating during the weeks in December and January when they would ordinarily have closed shop.

  The problem was that the department was completely incapable of monitoring the situation to determine which of the materials suppliers had delivered their goods and which of the contractors were building their houses.

  When FSHS inspectors did go out to select sites, they found that some of the contractors and materials suppliers had been cheating to increase their profit margins. ‘The contracts with the department stipulate that houses need to be built with SABS [South African Bureau of Standards]-approved materials,’ my source told me. ‘But either the contractors or the materials suppliers, or both, were cutting corners by using cheaper, low-quality materials. That is why some houses in the province started falling apart after two years.’ In some instances, contractors had run out of money halfway through their projects.

  Others had simply not built any houses whatsoever.

  At the end of the 2010/11 financial year, after the aggressive expenditure drive had come to a close, the FSHS had still failed to spend R260 million. This money was subsequently reapportioned by national government. 24 It did not reflect well on Magashule’s administration, but it was a hell of a lot better than having to pay back more than R1 billion.

  From the perspective of the province’s would-be recipients of low-cost housing, however, there was little cause for celebration. Some

  communities witnessed RDP projects grinding to a halt right in front of their eyes as the inexperienced contractors started running into financial trouble. ‘There were young, new contractors who had never built a single house before,’ one former FSHS official said. ‘Now they suddenly had a R17-million contract to build 200 houses. Some of them took their first payments from the department and bought fancy cars. Others went to the Durban July and partied like there was no tomorrow.’

  Some department staffers knew that the situation would inevitably explode into the open. The first sign of trouble came in early 2011, before the financial year-end. In February, Magashule reshuffled his executive council. He sent Zwane to the Department of Agriculture and Rural Development. Mamiki Qabathe, who would later become the speaker of the provincial legislature, replaced Zwane at human settlements. 25

  The move could be interpreted in a variety of ways. One source, a former Magashule ally, said the premier was angry with Zwane because of the R260 million in unspent housing money that the province had lost out on. But perhaps that had merely provided Magashule with an excuse to move Zwane to a department in which his friends from Saxonwold, the Guptas, would soon require a man on the inside. After all, the infamous Vrede dairy project would be initiated in 2012, not long after Zwane became MEC for agriculture, as described in Chapter 14. More likely, however, is that Magashule needed to parachute his henchmen out of the FSHS before any probes into the housing contracts commenced.

  Sources familiar with the saga revealed some astonishing information that seems to support this theory. When Zwane left human settlements

  for agriculture, he took with him two of the department’s most senior financial officials, Seipati Dlamini, the chief financial officer for the cooperative governance and traditional affairs segment of the department, and Mmuso Tsoametsi, the CFO for human settlements.

  Dlamini became CFO at agriculture under Zwane, where she got herself tangled up in the Vrede dairy mess. She was arrested and charged over the matter along with agriculture HOD Peter Thabethe in early 2018. 26 Tsoametsi became a deputy director-general at agriculture. 27

  Mpho Mokoena, the HOD for human settlements at the time of the R1-billion spending spree, was also quietly moved to another job. He became head of human settlements at the Mangaung metro municipality.

  Sources close to the matter say those four officials – Zwane, Dlamini, Tsoametsi and Mokoena – should have answered for the debacle at the FSHS. ‘They were the ones who were getting the instructions from higher up to pay the companies and they were the ones who had the power inside the department to make sure the payments went through,’

  said one former insider. ‘There is no way that a provincial department can spend R1 billion without the approval or involvement of its MEC, HOD and financial heads.’

  The FSHS’s inability to build houses, meanwhile, was starting to cause unrest and tension in some parts of the province. One tragic day in April 2011, Andries Tatane, a resident of the eastern Free State town of Ficksburg, was shot dead by police during a violent service-delivery protest. He quickly became a martyr of sorts in the intermittent battle between government authorities and some of the country’s poorest communities. One of the issues Tatane and his fellow protesters were

  angry about was the shortage of decent housing in their area.28

  In July, police were again called in to disperse angry protesters, this time in the eastern Free State township of Tshiame. They too were angry about government’s failure to deliver low-cost housing. 29 And in Bethulie, frustrated residents showed a Sowetan reporter a site where a contractor had left behind houses without roofs, windows or doors. 30

  In early 2012, Magashule again subjected his executive council to a round of musical chairs. The MEC for economic development, Mxolisi Dukwana, a former Magashule ally, had to go. Dukwana had abandoned the Magashule fold and planned to challenge him for the position of provincial chair as a member of the so-called Regime Change group. 31 Led by Mpho Ramakatsa, the Regime Change faction later protested Magashule’s re-election as ANC provincial chair by taking the matter to the courts. 32

  Magashule duly fired Dukwana and replaced him with Mamiki Qabathe. 33 The vacant job at human settlements was then given to Olly Mlamleli, who would remain in that position until she became mayor of Mangaung in late 2016. Mlamleli had been close to Magashule since at least 2008. She had worked for him when he was an MEC in Beatrice Marshoff’s administration.34

  The department also got a new HOD in the form of Nthimotse ‘Tim’

  Mokhesi, a former senior official in the Maluti-a-Phofung local municipality in the eastern Free State. Mokhesi served on the board of directors of Maluti-a-Phofung’s water utility, where he rubbed shoulders with fellow director Glen Netshivhodza, 35 a businessman from Parys and a close confidant of Magashule. Two of Netshivhodza’s companies were among the scores of contractors who benefited from the big RDP splurge of 2010.

  Several sources, including department insiders and other government officials, former Magashule allies and some FSHS contractors, all say Mokhesi became the premier’s right-hand man in the department.

  Under Mlamleli and Mokhesi’s stewardship, the FSHS would become the site of even more egregious looting involving Magashule, his associates and his direct family.

  But first they had to help clean up the fallout from their new department’s R1-billion mess. They deftly began tackling the problem in a manner that made it appear as if they truly wanted to get to the bottom of the fiasco.

  In July 2012
, Mlamleli told the pro-Magashule newspaper The Weekly that six department officials linked to the scam had been suspended.

  The six suspended officials had allegedly made unlawful prepayments to some of the companies involved in the scheme and had manipulated the department’s individual subsidy system to make sure the companies got paid, according to the news report. Department officials had also done very few inspections to make sure that the contractors were actually building houses. In her ‘exclusive’ interview with the publication, Mlamleli vowed to ‘root out corruption’ at her new posting.36 In a subsequent annual report, the department explained that there had been ‘collusion between employees and suppliers and overriding of internal controls and the department’s information systems’. 37

  But according to my sources, the six suspended officials were just scapegoats. ‘Those are all people on the level of director or chief director,’ said one. ‘They reported to the MEC, the HOD and the CFOs, so it made no sense that they alone were made out to be the masterminds. Some of them may have been guilty of some

  wrongdoing, but they couldn’t be held accountable alone.’ But Zwane and Mokoena, former MEC and HOD respectively, were of course safely tucked away in other spheres of government by then. So too was Dlamini, the former CFO.

  Around this time, the auditor-general also probed the debacle and confirmed that houses that had been uploaded onto the department’s housing subsidy system (HSS) could not be physically verified. 38 In other words, some of the contractors had been paid for houses that were never built. Others had started their respective projects but then abandoned them, leaving scores of unfinished houses all over the Free State. 39

  Magashule and Mlamleli met with senior department officials in April 2012 ‘to discuss the fact that contractors appointed to construct the …

  houses were simply not performing’, this according to an affidavit to which Mokhesi would later depose. 40 ‘At the meeting, it emerged that the contractors’ failure to perform under their contracts was largely caused by the fact that materials had not been delivered to them by the suppliers,’ Mokhesi stated.