A damning but contested new report on Umgeni Water –the giant KwaZulu-Natal utility that has struggled for nearly a decade under a burden of huge debt and poor management — has thrown a critical spotlight on Department of Water Affairs and Forestry Director General Mike Muller.
The report — prepared by a legal investigative team (LIT) originally appointed by Minister of Water Affairs and Forestry Ronnie Kasrils — is highly critical of Muller, who has been director general since 1994, saying he is jointly accountable “not only for lapses of corporate governance” at Umgeni, but “for its general and continued absence … LIT fails to understand why the [director general] not only failed to advise the minister to take firm measures, but also actively obstructed LIT’s investigation.”
However, Muller has hit back saying the LIT’s mandate had been terminated “with the full support of the minister” after its activities went “beyond what was reasonable”. He denied that he or any water affairs official sought to obstruct the investigation.
Muller said the suggestion by the report that the situation at Umgeni had got worse was “self-serving and manifestly incorrect”.
Nevertheless, the report, written by advocate Manie Meyer, is particularly scathing about two Umgeni Water board members: current chairperson Professor Omar Latiff — a former African National Congress mayor of Pietermaritzburg — and former chairperson Brian Wallett. It calls for their removal.
Umgeni under the chairpersonships of Wallet and Latiff had become “typified by unethical conduct, sloppy controls and a waste of assets and talents”, the report claims, citing conflicts of interest, political opportunism, lapses in fiduciary duties and basic failures of corporate governance, such as the alleged fabrication of company minutes.
“Brian Wallett and the chair [Latiff] caused extensive problems and were obstructive, uncooperative and attempted to mislead the investigation,” the report states.
Latiff rejected any suggestion of impropriety. Wallet did not respond. Muller said Kasrils had requested various government institutions to review all the evidence to determine whether action against any person was required. He said any decisions reached would be made public.
Surprisingly, the report comes out in support of Dave King, who negotiated the controversial contract between Umgeni and his company, Specialised Outsourcing (Outsors), which prompted the Umgeni investigation in the first place. King is facing charges by the South African Revenue Service that he failed to pay tax now amounting to about R900-million on profits he allegedly earned on the sale of his interests in Outsors.
The LIT investigation began in December 2000 prompted by concerns relating to the contract concluded by Umgeni with Outsors to take over the management of Umgeni’s huge treasury responsibilities.
In the early 1990s Umgeni had raised about R2,5-billion in the bond market in order to fund rural water projects. These were found to be uneconomical and Umgeni ended up with about R1-billion in surplus cash, which it needed to invest profitably in order to make its long-term debt repayments and mitigate its losses.
A report in 1995 by accounting firm Fischer Hoffman & Sithole pointed out serious weaknesses in the way Umgeni was being run, with a result that the in-house management of the corporation’s huge debt faced a serious risk.
King, who at the time served on a subcommittee of Umgeni’s board, suggested the debt management be outsourced and proffered his company, Outsors, to do the job. The Umgeni board, which already included both Wallett and Latiff, agreed — but left the detail of the contract to Umgeni managers, mainly treasury manager Greg Morris. Morris was offered new employment by Outsors as part of the deal.
By late 2000 King had left Outsors and the new CEO of Umgeni, Cromet Molepo, had repudiated the contract, citing its unfairness.
A union active at Umgeni — the National Education, Health and Allied Workers’ Union — had also levelled serious allegations against members of Umgeni’s board about alleged bene- fits that board members would have received from King and Outsors flowing from the conclusion of the contract.
In these chaotic circumstances Kasrils announced the appointment of an outside investigative team — the LIT — to probe Umgeni’s affairs in conjunction with Molepo.
Six months later, in June last year, the LIT produced an interim report that was accepted, with some amendments, by Kasrils. The interim report pointed to lapses of corporate governance but could not find any individual responsible. The minister said he was not happy with a finding that failed to hold any individual accountable and called for the matter to be finalised with the assistance of the auditor general and the Financial Services Board.
The LIT then attempted to conduct further investigation, but was blocked by the Umgeni board, led by Latiff and Wallett, who maintained the LIT’s mandate had been terminated. Soon afterwards the board appointed an investigation into alleged illegal bugging of Umgeni employees authorised by Molepo — who had worked closely with the LIT. Molepo was found guilty and fired. (He is contesting his dismissal at the Commission for Conciliation, Mediation and Arbitration.)
The result was an extraordinary tussle between the board and its own legal advisers on the one hand and the LIT and the former CEO on the other.
The LIT continued its work, despite the refusal of Umgeni to continue paying the investigators, and Meyer submitted his latest report earlier this month.
In it he states: “LIT was obliged to continue with the investigation from 28 June 2001 to date whilst the chair, Wallet and the [director general] withheld resources from it … it is probable that the chair and Wallett’s conduct was motivated by an expectation that LIT would either withdraw from the investigation or would initiate a legal dispute.”
The report claims that the dismissal of Molepo and the attempt to persuade the minister to terminate the LIT’s mandate was orchestrated by Latiff and Wallett “in order to enable them to avoid accountability”.
The attitude of the minister, who could not be reached for comment, remains unclear.