/ 4 February 2022

Suspect mega housing development in Klerksdorp evades scrutiny

Playing the system: A whistleblower flagged major tender irregularities with the N12 West housing development, where thousands of low-cost housing units were planned, and reported it to the Hawks two years ago – but the City of Matlosana continues to pay MXN Development Construction millions

A mega development project that was flagged in 2020 for gross irregularities by the City of Matlosana’s former chief audit executive, Mpho Seero, has continued with little consequence for the officials implicated, while the developer is receiving public funds in the absence of monthly progress reports. 

The allegations were also reported to the Hawks two years ago. 

The 153-page internal memo, which the Mail & Guardian has seen, questions who mandated the municipal manager to appoint the developer and enter into a service level agreement for a mega housing development at national government level, and in the absence of a formal appointment by the Housing Development Agency (HDA) which put out the bid on behalf of the human settlements department in 2015. 

The HDA oversees the government’s subsidised housing programme and the appointment of service providers. A project brief on the agency’s website shows that 9 515 potential units were to be built over seven years at an initial cost of R2-billion to the government. This was also supposed to include commercial property and schools. 

The MXN business plan details plans for 20 000 mixed units in a new area called Matlosana Estates.

The N12 West Housing Development would ultimately result in the integration of Klerksdorp with the residential suburbs of Jouberton and Alabama. 

It falls under the national government and the presidency’s distressed mining towns and the human settlements catalytic projects. Documents show that the successful private sector bidder would be required to raise private equity and sell a mixture of rental, gap housing, social housing and serviced sites for employer-assisted housing. 

In addition to creating jobs and easing poverty, the development was meant to upgrade the N12 “diamond route” to Cape Town, Kimberley and Johannesburg. 

Leaked proof of payments from the municipality’s payment system show MXN Development Construction has to date received just over R750-million while R21-million was paid in December 2021. 

The master development agreement entered into between the municipal director and MXN Development Construction states: “The developer shall pay any and all costs and expenses pertaining to the development including the appointment of any member of a professional team and the City of Matlosana is not obliged to make any financial contribution to the development whatsoever.”

One source inside the municipality told the M&G that the process that should be followed is that any money coming from the national government should be approved and included in the budget. It should be accounted for every month in section 52 reports including quarterly reports. 

That this was not done, the source said, is fraud.

“They are looting state money. Projects are being kick-started without following supply chain regulations — this is why we have something like a Zondo commission. People who expose corruption in Matlosana are targeted, instead of the officials who must answer in dozens of cases registered with the Hawks and sent to all levels of government. Any money paid to MXN by the municipality is corruption because it does not have the competency or mandate to appoint a mega housing development or conduct project management,” said the source.

Seero’s memo explains that the payment was not gazetted in terms of the Division of Revenue Act, which is required for an amount as substantial as R200-million. 

Seero, who resigned after failing to have several irregular contracts formally investigated, wrote to the Matlosana municipality’s acting municipal manager, Lesego Seametso, in June 2020 to flag irregularities in the appointment of MXN.

Neither the Hawks nor MXN responded to questions from the M&G on the criminal case or the contract. 

A small number of units appeared unoccupied during a recent visit to the site, while a growing informal settlement is now on the land earmarked for the development. One of the suspensive conditions specified in an agreement between MXN and municipality manager Roger Nkhumise on behalf of the city states that the land must not be occupied. That agreement deals exclusively with the land handover, and not the appointment or project management.

Project not on government documents

Seero’s memo – believed to have been sent to several local and national departments under the Protected Disclosures Act – states that the project does not appear on several other key local government documents including the integrated development plan, the service delivery and budget implementation plan, budget or monthly performance reports. This means it does not appear in the municipal annual financial and annual reports either. 

The Seero report questions how the project has gone ahead unaccounted for in the municipal budget and without the HDA awarding the bid. Seero’s letter stresses that a formal investigation must uncover who is benefitting from the irregular project.

The HDA’s own project summary states that a letter of intent has been issued to a potential developer for the N12 West catalytic project, and that is the last time the tender appears on its registry. There is no proof that the agency awarded the bid. It also states that the project must not be purely government funded, but have a mix of public-private sector financing.

The HDA failed to respond to questions from the M&G about the appointment.

The total cost of the catalytic project, in documents submitted by MXN Development Construction, is R8 392 914 000 – with 87.1% government finance and 12.8% private equity.

The human settlements department confirmed that the project has been purely government funded so far but stressed it was the municipality which made the appointment and put out the tender.

“The City of Matlosana issued the RFI (request for information) and not the HDA. The project would not have commenced if the developer did not meet the stringent supply chain management requirements as ascribed in the City’s RFI,” the department said.

“The North West department of human settlements, through structures created to manage the project, facilitates payments to MXN Development Construction, which is an implementing agent appointed by City of Matlosana Local Municipality.”

Investigations recommended

The auditor’s memo recommends that the municipal manager, chief financial officer, director for planning and human settlements and his deputy director, as well as the deputy director for expenditure, be investigated for allowing payments to be made to the developer in the absence of a mandate to do so. 

The City of Matlosana told the M&G – in response to questions about the buried Seero report – that the recommendations were in fact implemented, but did not confirm that a formal investigation would take the matter further.

“All these matters have been complied to, and the necessary contract documentation and government gazettes are also in place to confirm the authenticity and transparency of the project,” it said.

It went further to say: “The national department of human settlements is funding the project through the provincial department. No budgetary allocations can ever be made, or monies be transferred without any authentic and relevant contractual documents, as well as a gazette in terms of the Division of Revenue Act being in place. The project complies with all these matters.”

“Council approved the land only and not the appointment. Any money coming from the national government should be approved and included in the budget. Everyone knows it is not the municipality that has the competency to oversee a mega low cost housing project. It cannot be a gentlemen’s agreement over coffee and then you decide it is legitimate. That is not how government supply chain processes or the Municipal Finance Management Act works,” the M&G’s source stressed.

The City of Matlosana continues to pay MXN Development Construction millions

Damned if you do, damned if you don’t 

Seero, like many other whistleblowers who reported financial mismanagement and corruption in government, was victimised, suspended and then reinstated through recommendations in a public protector report that exonerated him. 

But sources said he was forced to sit idle, not invited to meetings or required to do any work. He resigned in 2020 and has been unable to find work since. 

Speaking strictly on condition of anonymity out of fear for their lives, three sources said it was evident that those implicated in the deal were protected. 

They said several other matters recommended by the public protector’s report for further investigation in Matlosana had not seen any progress.

That report recommended that Seero be reinstated and that several investigations into the irregularities in municipal contracts as well as the implicated officials get underway. 

The public protector’s report found that Seero had been suspended in retaliation for blowing the whistle on what he deemed irregular and unauthorised expenditure involving R32-million and R160-million, respectively.

Tunicia Phillips is a climate and economic justice reporting fellow, funded by the Open Society Foundation for South Africa