To: All Media

Subject: Kabuso Report – Nelson Mandela Bay Metro Municipality

Date: 26 October 2011

Issued by the Eastern Cape Local Government and Traditional Affairs Ministry

The Department notes the judgement handed down by Judge Dukada on 20 October 2011, which inter alia orders the Department to deliver to Avusa Publishing Eastern Cape (Pty) Ltd within 5 (five) days of the order a copy of the complete report, together with its annexures. As the MEC I am considering the Judgement but the Kabuso forensic report and annexureswill be delivered to the Avusa Publishing Eastern Cape (PTY) LTD as ordered.

Judge Dukada has made a finding that the initial reasons afforded for the refusal to make the Kabuso report available do not constitute “adequate reasons”. In this regard the learned Judge subsequently makes a definitive finding that I was “justified in terms of section 44(1)(a) and (b) of PAIA to refuse access to the Kabuso report.”

To this, important extent, my approach has been fully justified. It is significant, but nevertheless disappointing, that this important finding has received no publicity or emphasis whatsoever.

We areperturbed by the actions of the Herald which has made an unofficial copy of the Kabuso report and legal opinions available on its website since 21 October 2011, without affording the Department the opportunity to comply with the order. I wish to stress that the release of the legal opinions was not part of the judgement and further that the legal opinions are privileged information and for departmental consumption only. In my opinion the decision by the Herald to make an unofficial copy of the report, including legal opinions, available on its website constitutes unethical conduct without regard for the execution of the court order, which process was instituted by Avusa Publishing Eastern Cape (Pty) Ltd.

It is essential for a proper contextualisation of the developments to explain briefly my obligations in terms of section 106 of the Local Government: Municipal Systems Act 32 of 2000 (“the Systems Act”) as well as sections 139 and 154 of the Constitution.

  1. The Systems Act and the Constitution

My responsibilities as the MEC responsible for Local Government broadly stated, are to monitor and supervise the performance of municipalities across the Province of the Eastern Cape.

As part of the monitoring and supervisory process, I am empowered by section 106(1)(b) of the Systems Act to appoint a person to conduct an investigation into the affairs of any municipality in the province, whenever I have reason to believe that such a municipality cannot, or does notfulfil its statutory obligations, or that maladministration or fraud or corruption or any other serious malpractice has occurred or is occurring in that municipality.

Once an investigation into the affairs of a municipality has been finalised, and upon consideration of the findings of the investigation, if it appears that a municipality cannot or does not fulfil its statutory obligations, or that there is maladministration or fraud or serious malpractice in that municipality, the Constitution enjoins me, as the MEC responsible for Local Government to intervene into the affairs of such a municipality in order to ensure the fulfilment of its statutory obligations.

Broadly stated, the Constitution permits and requires of me, as MEC responsible for Local Government, to supervise the affairs of the municipalities and to intervene when things go wrong. In particular, I am obliged in terms of section 139(1)(a) of the Constitution, upon failure by a municipality to fulfil its statutory obligations, to issue a directive to the Municipal Council describing the extent of the failure to fulfil its obligations and the steps required for it to fulfil its obligations.

I mention that Section 154 of the Constitution envisages less drastic measures than those contemplated in section 139 of the Constitution. It enjoins the provincial government to support and strengthen the capacity of the municipalities to manage their own affairs, and to perform their functions through legislation and other measures.

I also mention that in order for me to be able take a decision on appropriate interventions, or a decision on whether an intervention would be appropriate at all, it is necessary for me to provide the Municipal Council with the findings of the investigations, and to afford it an opportunity to respond to the issues raised by such an investigation.

I have provided the NMM with the Kabuso report, and have invited its responses to the various issues raised therein.I have been informed by the Executive Mayor Wayile (“the Mayor”) that Council will convene on 27 October 2011 to deliberate and resolve on the responses to the Kabuso report.

Below I deal with the steps that I have taken in ensuring that I deal with this matter with the expedition that it deserves, as well as the steps taken by the NMM thus far.

  1. Progress made thus far

In March 2009, the Council of the NMM, passed a motion of exigency to the effect that maladministration had occurred and was occurring in the Municipality

During that time the then MEC for Local Government and Traditional Affairs, MEC Gqobana received a letter from the then Executive Mayor, N Maphazi, wherein she raised her concerns that certain acts of maladministration were occurring in the Municipality.

In August 2009, MEC Gqobana, exercised the power entrusted to him by section 106 (1)(b) of the Local Government : Municipal Systems Act, 2000 (Act No. 32 of 2000) and appointed Kabuso, an independent firm of forensic investigators to investigate the following matters:

2.1The manner in which the Madiba Bay Project was initiated and executed;

2.2Slow progress and lack of creative solutions to overcome the problems regarding the following projects;

2.2.1Missionvale Garden Lots Housing Program;

2.2.2Embizweni Development;

2.2.3Beachview Development;

2.2.4Walmer Gardens (Ward 4) methane gas problem; and

2.2.5Njoli Square Development Project;

2.3How the Motherwell Urban Renewal Program was managed;

2.4How the following projects were initiated and executed;

2.4.1Kwantu Towers;

2.4.2Red Location Museum;

2.4.3Housing roof;

2.4.4Security tender by the Mandela Bay Development Agency;

2.4.5Automatic meter reading; and

2.4.6Municipal grant for the returning exiles, the Matomela Projects;

2.5The claims and counter-claims between the Municipality and Africorp International Properties;

2.6Whether councillors and senior managers’ declared interests and other indirect business, as required;

2.7Whether the Municipality implemented Broad Based Black Economic Empowerment and whether any support was provided to local black businesses in development matters;

2.8Whether there were any reporting mechanisms with regard to service delivery projects, and if so, how regular reports were submitted to the mayoral committee, council and respective benefiting communities;

2.9Whether supply chain management processes were followed in acquiring legal services from January 2006 onwards;

2.10Circumstances surrounding the dismissal, reinstatement, re-employment or withdrawal of disciplinary proceedings in respect of certain municipal employees;

2.11How it came about that the right to lease and renovate the Van Staden’s Resort was granted to Buhlebendalo in 2004;

2.12How the agreement to sell the Swartkops power station was initiated and implemented;

2.13Whether supply chain management processes were followed prior to and during the sale of the Swartkops power station; and

2.14The circumstances surrounding the disposal of Erf 7234, Sidwell in Port Elizabeth and the legality of the disposal thereof.

During March 2010, Kabuso submitted a report relating to the above matters. It must be noted that the matters investigated and reported on by Kabuso spanned over the period 2003 to August 2009.

The Department then appointed a Senior Legal Counsel to provide opinion on the findings of the Kabuso report, the said opinions were finalised in October 2010.

On 27 November 2010, I assumed the position of MEC of the Department and on 20 December 2010, I was briefed on the Kabuso report and legal opinions.

Subsequent to the briefing, I requested that a process plan, setting out the steps that should be followed towards the tabling of the above stated report, be developed.The said process plan was finalised in January 2011.

On 28 March 2011, I presented a condensed report, containing the findings of the Kabuso report, to the Mayoral Committee and requested specific responses thereto.

On 20 May 2011, the Mayorprovided me with the NMM’s responses to the issues raised in the Kabuso report. I was not satisfied with the responses that I was provided with, as they were inadequate and did not address all the issues raised in the report in detail, further the responses were not endorsed by Council.

Accordingly and on 22 June 2011, I addressed a letter to the Mayor and expressed my concerns in respect of the inadequate and incomplete manner in which the NMM dealt with the issues raised in the Kabuso report. In that letter, I specifically outlined the level of detail and particularity with which the NMM was expected to deal with the issues raised by the Kabuso report, in order to assist me in taking an appropriate decision.

I gave NMM a period of 30 days within which to adequately deal with the issues raised in the Kabuso report.

Subsequent to that letter, and on 1 August 2011, Mr Khanyile, the Superintendent-General, met with the Mayor, again with a view to impressing upon him, the significance of providing appropriate and adequate responses to the issues raised in the Kabuso report with a degree of expedition. At that meeting, the Mayor undertook to finalise the responses by no later than 31 August 2011, after which such responses would be tabled before the Municipal Council for consideration and endorsement.

I mention that in the interim, and in an effort to rebuild the institutional structures of the NMM, the Mayor has sought my assistance as well as that of the National Department of Co-operative Governance and Traditional Affairs(“CoGTA”) in providing support, and strengthening the capacity of the Municipality in areas of Supply Chain Management, Human Resources Management, Contract Management, Legal Advisory Services, Financial Management, and Economic Development.

After considering the Mayor’s request I have come to the conclusion that the appropriate steps to take in respect of the institutional challenges that the Municipality currently faces, are for the provincial government to provide support and strengthen the capacity of the NMM as required by section 154 of the Constitution.

In this regard, a task team comprising of the officials of CoGTA and the Provincial Department of Local Government has prepared a process plan to assist the NMM in enhancing its institutional structures.

I mention that this process is not directly as a result of the issues raised in the Kabuso report, but as a result of the review process undertaken by the NMM in terms of its capacity to function properly. However, I have no doubt that the issues raised in the Kabuso report will also be useful in assisting me in taking the appropriate decision in order to render further support to the NMM.

The Mayor has advised me that a Council meeting was convened on 9 September 2011, at which meeting the Mayor tabled the Kabuso report, together with recommendations that a task team consisting of 3 members of Council be appointed to deal with the matter. In other words, the NMM will only be able to provide me with appropriate and complete responses to the issues raised in the Kabuso report once those responses have been considered and endorsed by Council.

On 18 October 2011, as I had not yet received a response from the NMM, I addressed a letter to the Speaker of the Council and requested that the matter be expedited.

On 21 October 2011, I met with the Mayor who gave me a letter, confirming that a Task Team comprising of 3 Councillors has been established and will be supported by technical expertise from within and outside the NMM.

I once again wish to reiterate that until I have received responses, endorsed by Council, from the NMM on the issues raised in the Kabuso report, I am not yet in a position to make determinations on the further action and /or appropriate steps on the issues that are raised in the Kabuso report.

As I have already indicated above, it is my intention to expedite this process. I mention that I am aware that in a constitutional democracy such as ours, one of the basic values and principles governing public administration is transparency. I am acutely aware that transparency demands that the public must be provided with timely, accessible and accurate information.

Below I deal with further processes that must follow once I have been furnished with appropriate responses by the NMM.

  1. Processes on receipt of appropriate responses

I shall, as soon as I have been provided with the appropriate responses, endorsed by Council, on the issues raised, consider same and make determinations, should it be necessary.

Once I have taken the decision, I shall prepare and submit a report on the findings of the Kabuso investigation, the NMM responses thereto, as well as my reasons for my decision to the national Minister of CoGTA, the national Minister of Finance, the Provincial Legislature, as well as the National Council of Provinces. I previously estimatedthat the entire process wouldhave taken approximately three months to conclude. This timeframe was communicated to the NCOP, the national Ministers of Finance and CoGTA respectively. As the MEC, I will consider the appropriate action to be taken in finalising the section 106 process and communicate that with all relevant stakeholders.

  1. Responses required from NMM

I have applied my mind to the findings of the Kabuso report and the various legal opinions and accordingly requested that the Council deliberate and provide written responses to the following:

4.1 Madiba Bay Project

  • Did the municipality comply with the provisions of the Cape Municipal Ordinance in the award of the development lease to East Cape Show Case, if not, then the municipality would be entitled to approach the court for an order declaring the lease to be invalid.
  • What steps has the municipality taken to prevent itself from submitting to an unlawful contract as the Municipality is entitled, indeed obliged, to ignore ‘such contract’ and ‘to resist attempts at enforcement’.
  • What steps has the municipality taken to abide by its decision to treat the written lease as cancelled.
  • What steps has the municipality taken to evict East Cape Showcase from the municipal land. Such proceedings will serve to precipitate matters in relation to the validity of the cancellation.
  • Has the municipality reported the matter regarding the grant of R2 million to the South African Police Services for fraud and related criminal offences to be defined by the Director Public Prosecutions against both Nceba Faku and the directors of Madiba Bay Resorts (Pty) Ltd, especially Johann Dreyer a signatory to the written lease agreement who was instrumental in the transaction to extract R2 million to fund the renovation and operation of the Willows Resort.
  • What steps has the municipality taken through legal action to reclaim the R2 million grant from the Madiba Bay Resorts (Pty) Ltd, Johann Dreyer and the other directors and Nceba Faku, the one paying for the other to be absolved on the basis of fraud and, in relation to Nceba Faku, recovery in terms of section 10(g) of the Local Government Transitional Act for unauthorised expenditure.
  • What steps has the municipality taken to claim from East Cape Show Case such rates and taxes as are payable in terms of the written lease agreement through legal action.
  • What is the municipality’s action regarding the management of the Willows Resort by the Madiba Bay Resorts (Pty) Ltd.
  • What steps has the municipality taken to claim the R1 million performance guarantee in terms of the written lease agreement.

4.2Embizweni Development

  • The rationale of the final extension granted to Embizweni in May 2009 to comply by 30 June 2009. Notwithstanding that it could be reasonably anticipated that Embizweni were not in a position to comply by 30 June 2009 due to the lengthy Environmental Impact Assessment process.
  • Since the land availability agreement stands cancelled what is the proposed action by the municipality regarding the development of the land.
  • What steps has the municipality taken to claim the R1 million Performance Guarantee as the Lease agreement is technically cancelled.

4.3Beachview Development – Isimilo

  • What steps has the municipality taken to cancel the written lease agreement with Isimilo.
  • What steps has the municipality taken to evict Isimilo from the municipal property.
  • Has the municipality reported the matter regarding the grant of R422, 182.89 to the South African Police Services for fraud and related criminal offences to be defined by the Director Public Prosecutions against both Nceba Faku and the directors of Isimilo.
  • What steps has the municipality taken through legal action to reclaim the R422, 182.89 grant from the Directors of Isimilo and Nceba Faku, the one paying the other to be absolved on the basis of fraud and in relation to Nceba Faku, recovery in terms of section 10(g) of the Local Government Transitional Act for unauthorised expenditure.
  • What steps has the municipality taken to claim the R200, 000.00 performance guarantee as the lease has technically lapsed.
  • What steps has the municipality taken regarding claiming from Isimilo the R100, 000.00 in respect of the loose items.

4.4Van Stadens Resort

  • What steps has the municipality taken to cancel the written lease agreement with Buhlebendalo. The cancellation of the lease agreement would serve to revive contractual arrangements between Calvus and the municipality in terms of which the public are entitled to access to the resort for an indefinite period being not less than 99 years from January 1989.
  • What steps has the municipality taken to evict Buhlebendalo, especially Kobus Smit and Mkuseli Faku from the municipal property.
  • Has the municipality undertaken an evaluation of the extent of additions and renovations for the private purposes of Kobus Smit and Mkuseli Faku and further, what steps has the municipality taken to recover damages arising from such additions and renovations from Buhlebendalo, especially from Kobus Smit and Mkuseli Faku, the one paying for the other to be absolved on the basis of fraud.
  • What is the municipality’s recourse against Buhlebendalo considering that the R200, 000.00 performance guarantee has technically lapsed.
  • What steps has the municipality taken regarding claiming from Buhlebendalo the R436, 303.02 in respect of the loose items.
  • What disciplinary actions is the municipality intending to take regarding the various officials’ inexplicable lack of oversight and compliance regarding monitoring the development and further the condonement of irregular structures constructed for the private purposes of Kobus Smit and Mkuseli Faku on municipal property.
  • Why would the municipality deem it necessary to evaluate a “quick fix” plan by the developer, which is not in line with the ODP.
  • What steps has the municipality taken to cancel, reclaim and evict the Lessee from the municipal land.

4.5Red Location Museum