The inner-workings of government bureaucracy: Thubelisha Homes Closure Report

17 07 2009

Note: I may be quite interesting to see how these kinds of government commissions operate in relation to controversial projects such as the N2 Gateway.  There is a lot of discussion but the commission does not seem to know what is going on.  Neither does it have any idea what the truth is.  For instance: They ask many times whether there continues to be structural defects in Phase 1 and never get a clear answer.  But shouldn’t they go visit and inspect the flats for themselves rather than talk about theoretically in these kinds of bureaucratic meetings?  Also notice how Phase 1 flat tenants were not even invited to participate despite Thubelisha’s misleading claim that they were being consulted.  Enjoy this insight into how failed government projects are rationalised as inevitable…

Thubelisha Homes Closure Report, Joe Slovo Informal Settlement briefings, Management Committee appointment
Human Settlements
Date of Meeting: 8 Jul 2009
Chairperson: Ms B Dambuza (ANC)
Documents handed out: Thubelisha Homes Mandate Presentation

Thubelisha Homes Closure Report

Constitutional Court Judgment dealing with Joe Slovo Residents

Audio recording of the meeting:
Thubelisha Homes Closure Report, Joe Slovo Informal Settlement briefings, Management Committee appointment

Summary:

The Committee noted that Thubelisha Homes was due for closure on 31 July 2009. The Acting Chief Operations Officer explained that its mandate had been changed in 2006, and in 2007 it was set up as a Section 21 Special Purpose Vehicle company, to procure housing stock in line with Servcon’s rightsizing programme, and with a set closing date. However, Cabinet had not approved the mandate, and National Treasury refused to approve its full funding requirements, so it had become technically insolvent. It was granted a life line to sustain itself until closure, which would take effect on 31 July. The Board was dysfunctional as it did not have a quorum. Thubelisha had a troubled history from the start, due to under costing and its involvement in the N2 Gateway Project, which was dogged with political problems. Members asked questions about the funding to Thubelisha, both by way of the Municipal Infrastructure Grant, and the life line, the appointment of the Acting CEO for another year, whether Thubelisha had charged a management fee, why the mandate was extended in light of Thubelisha’s historically poor performance, its current achievements, and the progress of the closing down.

The Committee was given a briefing on the closing down process, which noted that four task teams had been created. The staff complement had already decreased from 250 to 140 due to resignations, and only 40 of these staff were still not guaranteed of job transfers. Unfinished projects were to be transferred to Provinces. All financial reconciliations would be fully investigated and completed after 31 July. Members asked questions about the closing-down time frames, whether all employees should and would be given job transfers, the reasons why financial reconciliations were not yet completed, why provinces were unwilling to take on staff, how many matters would be taken over by the Housing Development Agency, and the reasons for Thubelisha’s failure. Members had not realised that the closure would be as complex, and the Chairperson noted that there seemed to have been many misunderstandings. Future service agreements would need to be more carefully drafted. Provinces must be told that they could not take on projects without staff.

The Regional General Manager of Thubelisha gave a presentation on the status of and problems surrounding the Joe Slovo informal settlement. Residents were boycotting payment of rent, claiming that it was exorbitant, and had staged a protest march. Members noted that there had been many complaints, initially, of defects in the rental units, and asked whether these had all been identified and corrected, whether there was any other good reason why residents could withhold rent, what remedies were provided for non-payment, whether the difference between anticipated and imposed rentals was a factor, whether the rental units were viable, how many of the original intended beneficiaries were housed in these units, how many were given to people from other areas, and whether the residents were employed and able to pay.

Members were handed a document outlining the history of the Court actions and decisions of the Constitutional Court in respect of the Joe Slovo area, noting that the Constitutional Court had ordered that residents must be relocated to temporary residential areas, and had imposed conditions on the temporary residences. This was due to begin by 19 August, but Thubelisha, the Minister and MEC could not meet this deadline, and had suggested a start date of 19 October. Two representatives from the Joe Slovo Task Team who were present expressed their concern that there had been no engagement with residents on the dates, and called for meaningful future engagements by the Housing Development Agency. The Chairperson acknowledged their concerns and asked that the Department deal with the issues immediately, and report back to this Committee on progress after the recess. She said all parties had contributed to the current problems, and not only Thubelisha could be demonised. Conflicting information had made it difficult to know what had happened, and the Department must report back to the Committee on the current situation.

A management committee was elected, consisting of four ANC and three opposition members, for the Committee. Members also adopted the Minutes of meetings on 24 May and 28 June

Minutes:

The Chairperson noted that the meeting would be structured around the closure plan for Thubelisha Homes. She explained that Thubelisha Homes (Thubelisha) had been the provincial implementation agent for the formerly-named Department of Housing (DOH) in terms of two mandates. The Minister had announced that the entity would be wound up on 31 July 2008. Today the Committee would hear about its wind-up plan, the current position of the organisation and the future of its employees, on which certain commitments had been made by the Minister.

Thubelisha Homes (Thubelisha) Mandate Presentation

Mr Mano Pillay, Acting Chief Operations Officer, Thubelisha Homes gave a very brief background presentation on the entity to benefit the new Committee members (see attached document). Thubelisha Homes was a Section 21 company that had been founded in 1997 as a Special Purpose Vehicle to procure housing stock in line with Servcon’s ‘Rightsizing’ programme. On 1 July 2006 its mandate was expanded to include the upgrading of informal settlements, the unblocking of housing projects, the fast tracking of emergency housing solutions, and leading the development for the Government’s Mega Projects. However, the expanded mandate was not approved by Cabinet, which led the National Treasury to reject Thubelisha’s budget requirements from 2006/2007 onwards. This in turn led to the insolvency of Thubelisha. A life-line had been thrown to the company when the MinMEC agreed to let Thubelisha utilise the interest income on advance payments from Provinces, which had been enough to cover the bulk of the entity’s operational expenses.

Discussion

Ms M Borman (ANC) had asked for clarification on the numbers of R6.3 million for 2009/2010 and R6.6 million for 2010/1011 asking if these were the numbers that were the “life-line” referred to. If so, she asked how was the money being spent.

Mr Pillay responded that the R6 million, which was payable to Thubelisha for 2009/2010, represented only a portion of the entity’s operation costs. The sum was not related to the “life line” but had been awarded by the National Treasury, and he did not know how National Treasury had arrived at the specific numbers.

Mr A Steyn (DA) asked why Thubelisha’s Chief Executive Officer (CEO) had not stayed on to see the process of the wind-up through, and why an Acting CEO had been appointed.

Mr Pillay said that Thubelisha had had an acting CEO since 2007, when the previous CEO had resigned. It was the Shareholder’s responsibility to fill that position and to decide on how to do this. Thubelisha’s Board had become dysfunctional in August 2008, as a number of resignations resulted in there being no quorum. Since a new board had not yet been appointed, the accounting officer, in terms of the Public Finance Management Act (PFMA) was now the Acting CEO.

Mr Steyn asked how the Minister could have awarded the extended mandate, including the N2 Gateway project, to Thubelisha, when it had delivered very poorly, delivering only 13 000 homes over six years on its previous mandate.

Mr Pillay said that at the time that Thubelisha was established, it was projected that the rightsizing programme should be completed in March 2006. Once that had been done, Thubelisha was expected to close, since, as a SPV, it had a finite lifespan. However, the Minister then thought in 2006 that Thubelisha could add value to the housing environment, which was the reason for the mandate being extended.

Mr Steyn asked why the National Treasury had not approved the funding.

Mr Pillay said he had been led to believe that this was due to the non-approval of the mandate by Cabinet.

Ms A Mashishi (ANC) wanted bulletin three in the presentation clarified.

Mr Pillay said that the fast tracking of emergency housing solutions related to situations such as widespread fires or other emergencies within informal settlements, although in fact there had not been many other emergencies apart from fires.

Mr R Bhoola (MF) wanted to know more details about the funding. In respect of the “life line”, he asked, if it was used, what percentage this would offset from National Treasury, and whether the life line had assisted in Thubelisha concluding the mandate. He also asked when Thubelisha had found itself in trouble, and whether this was right from the outset or after the completion of certain projects.

Mr Pillay gave some background information before answering the specific questions. He said that the reason for many of the board members’ resignations had been the problems with the funding and the company’s technical insolvency. During the MinMec meeting the funding problems had been discussed. The only viable way to keep Thubelisha as a going concern was to utilise the interest income on advance payments. After the close down on 31 July 2009, all the money that had been forwarded to the entity by Provinces would be returned. The “life-line” funding had enabled Thubelisha to deal with close down costs other than the large accounts such as creditors, Voluntary Severance Packages (VSP) and retirement funds packages, which were to be covered by other funding, as would be explained in the second presentation.

Mr Pillay said that many would have argued that Thubelisha had been in trouble from the onset. He conceded that for Thubelisha only to have right-sized 13 000 houses in six years was not an admirable achievement. However, it had been a very difficult environment to work in. Right-sizing meant that dwellers had to downsize, often from a house of 90m2 to a house of 30 m2, and the beneficiaries were reluctant to move. At the end of the period only 50% of the targets had been met. For the rest of the cases Government had had to pay out banks to allow beneficiaries to remain in their original houses.

The Chairperson wanted to know more about the unblocking of housing projects, asking how many projects there were and how many had been successfully unblocked.

Mr Pillay said that about thirty stalled projects had been unblocked. These had been very difficult to manage. There had to be audits performed on all units, estimating the spend, and rectifying houses and other aspects. Unfortunately it would take a long time to get those projects dealt with. There had also been a problem with Provinces’ willingness to cooperate, although some had been helpful. It had be pointed out that the last year had been the most successful one in the lifespan of Thubelisha, with 8 300 houses built, which was only 600 short of its target.

Mr Steyn said that when the Housing Development Agency (HDA) had given a presentation to the Committee, it had been indicated that the CEO of Thubelisha would be transferred to HDA, which contradicted what was now mentioned.

Mr Pillay responded that Mr Steyn’s question about the CEO’s position was very valid. He did not know why the statement had been made that the Acting CEO of Thubelisha would be transferred to HAD, when Mr Pillay had in fact signed a contract employing the Acting CEO for another year.

Mr Steyn also commented on a more general note, saying that this Committee had been under the impression that the mandate given to Thubelisha was approved and above board.

Mr Steyn said that Thubelisha was doing work on behalf of the Provinces, and therefore the Provinces should be paying a management fee that should cover the operating costs. If such fees had been charged perhaps the insolvency could have been avoided.

Mr Pillay responded that Thubelisha had charged a management fee on some of the projects. Other projects had been fully subsidised from the provinces.

Ms Borman said that if the amounts provided by the National Treasury and the life-line were separate amounts, then the Committee needed details on the life line. She pointed out that even if Thubelisha did not know exactly how National Treasury had arrived at its final figure, there should be a business plan that outlined the required amounts.

Mr Pillay said the interest income had been about R2 million a month. There had been a business plan outlining the required funding, but this had requested an amount of R130 million. This was the reason why he was unable to say why National Treasury had fixed the amount of R6 million.

Ms Borman asked whether Thubelisha, having been given the rightsizing mandate, had realised how difficult it would be, and whether it had assessed its ability to successfully complete the mandate.

Mr Pillay explained that when Thubelisha was given the mandates, it was assumed that it would be able to complete them. After the expiry of the first mandate Thubelisha had been trying to reinvent itself, and trying to survive so that it would not lose about 70 staff members. It had, in those circumstances, been willing to take on projects that no one else would touch.

Mr E Mtshali (ANC) asked why Thubelisha had continued its work if the Cabinet refused to approve its mandate.

Mr Morris Mngomezulu, Acting Chief Director, National Department of Human Settlements, said that when the Minister had given Thubelisha its new mandate a submission had been made to the Cabinet for Thubelisha to take on the emergency housing. This outlined, either explicitly or implicitly, other aspects of the mandate including the unblocking and upgrading of housing projects. The Cabinet had approved the submission made by the Minister and the Department had assumed that this had been a blanket approval of the whole memorandum. The National Treasury did not consider that this mandate included the Mega Projects, since they had not been explicitly mentioned in the submission. The Department, on the other hand, did consider that the Mega Projects fell under the housing project upgrades. When Cabinet had approved the emergency housing mandate, Thubelisha had been awarded R50 million to increase its capacity to handle the new mandate. National Treasury was responsible for funding the operating costs, but had only awarded Thubelisha part of its requirements, to match the part that Treasury considered was included.

Mr Mngomezulu said that this begged the question why, if the mandate was not regarded as approved, any funding was awarded to Thubelisha at all. Here it seemed that National Treasury had been exercising its authority over the Department. There had been discussions between the Minister of Housing and the Minister of Finance, but the issue had not been resolved when the previous Parliament’s term had ended.

Another issue that had not been mentioned was that the business model of Thubelisha had given trouble from the start. There had been an under-costing of projects from the beginning, and the fact that the entity got involved in projects that no one else wanted to be associated with also indicated that there was something wrong with the business model. The Department had tried to assist Thubelisha, and had encouraged it to change its business model.

A final point to be taken into account when assessing the performance of Thubelisha was that when the N2 Gateway Project had been assigned there had been three parties; being the provincial, the national and the local authorities. Although he did not want to go into the political aspects, the change of administration of the City of Cape Town had also impacted on the project.

Mr Mtshali asked at what stage Thubelisha had realised that the national government had refused to approve the mandate, and what had been done about it.

Mr Mngomezulu replied that the project had been a flagship of the former Minister and Government, and there was a desire to see it succeed. The N2 Project was unique in that three parties had been involved, and the decision of one party not to pull its weight would not result in the project’s discontinuation. There had been realisation of the difficulties but also the hope that those difficulties could be overcome. The N2 Gateway project had been initiated a while back, but the funds that were due to Thubelisha had been withheld, and only paid this year.

Thubelisha Homes: Closure Report

Mr John Duarte, Acting CEO, Thubelisha Homes, said that the Closure Plan for Thubelisha had been prepared in September 2008 and had been approved by the Minister on 15 December 2008. The implementation of the closure process had commenced on 9 March 2009, with the National Department (formerly named Housing, now named Human Settlements) guaranteeing the closure costs. Four task teams had been established to close down the different areas of Human Resources, Projects, Facilities and Assets, and Finance and Accounting.

He reported that in respect of the closure of Human Resources, a number of staff had resigned during the past year, resulting in the number of staff decreasing from 250 to 124. Out of those 124 current staff members, 40 had not yet been guaranteed another job. The Facilities Task Team had cancelled all rental agreements, had finalised negotiations with Nashua and Telkom, and dealt with relocation and sale of furniture and movable assets.

The Projects Task Team had planned meetings with the different Provinces to discuss the transfer of projects. Draft cession contracts were now being approved by the legal team. Creditors would be notified about the closure of operations by 31 July 2009, and the key focus of the Projects task team would be to deal with the financial reconciliation of all projects after 31 July.

In the area of Finance and Accounting the National Housing Finance Corporation (NHFC) loan had been repaid. Thubelisha was still waiting to receive R60 million from Municipal Infrastructure Grant (MIG) debtors. It was in negotiation with South African Revenue Services (SARS) regarding VAT recovery. Claims had been submitted to the Department for the first portion of the closure cost, but no amount had been received as of yet. Thubelisha needed to bring the financial records up to date, analyse and collect all debts, settle the interest on the NHFC loan and negotiate the future of MIG debtors with the HDA.

Discussion

Mr Steyn wanted to confirm that as of the end of the month Thubelisha would not exist.

Mr Steyn asked, in view of the previous statement that the CEO had been given a contract for one more year, how long the closure period was expected to be, and how this compared with the initial timeframe.

Mr Duarte said that the law required that the operation had to have an accounting officer. Seeing that the Board was dysfunctional, the CEO had taken over the Board’s responsibilities and needed to be in place to sign off on the finalisation processes. The CEO had been appointed internally in this instance because of the lack of a Board.

Mr Steyn said it was of concern that the staff levels had voluntarily dropped; he noted that it was likely that the most skilled individuals had left, and that was why there was difficulty in transferring the remaining 40. Provinces had accepted transfer of the projects but they still did not want to take Thubelisha staff on board. Although he did not want to see people becoming unemployed, it must be questioned whether Thubelisha had a duty to continue to provide staff that were not competent with jobs and salaries.

Mr Bhoola noted, in respect of employment, that if 31 July was the last day of operations then it was important for employees to know if their employment would continue. He noted the comment that the staff in KwaZulu Natal would only be transferred if their salary payments would also be transferred, and he asked what would happen if this was not achieved.

Mr Duarte said that there would be no more Thubelisha staff employed permanently from 31 July. Any staff dealing with the winding up would be employed on a contractual basis, and some had been kept on because they had institutional knowledge that was important to finalise the closure. He agreed that it was often the less skilled staff who had not been transferred, but said that this did not render them any less important. The closure of Thubelisha had not been their fault, and it was the employer’s responsibility to take care of them. In respect of those in KwaZulu Natal, he said that the provinces had changed their minds; KwaZulu Natal, having initially said that it would take on Thubelisha staff, had refused to sign to do so. Similar problems had arisen with almost every other agent with whom there had been negotiations.

Mr Steyn said that he was willing to bet that no Department dealing with housing was fully staffed since all appeared to have vacancies, and therefore he stressed that he could not understand why they had been unwilling to accept Thubelisha staff. He also pointed out that the vacant positions were already funded, so there seemed to be no reason why those provinces should insist that the Thubelisha salaries also be transferred.

Mr Steyn asked whether the R60 million of MIG funding excluded what had been received earlier this year.

Mr Duarte said that MIG funding had always been a problem. The normal financial year ended in March. However, now it was necessary to provide closure accounts to all parties and it was important that these were correct. This meant that complex analyses had to be done in areas where there was a possibility that something could be overlooked. He cited, as an example, a project in Mandela Park, which currently had 50 foundations, 20 walls and various other items, and all of these had to be analysed and quantified correctly so that when the Provinces took over the projects all information was correct. It had to be accepted that this was a complex voluntary liquidation process.

Mr Pillay added that the MIG funding mentioned by the Department had related specifically to the NHFC loans that Thubelisha had taken out a few years ago to fund some of the MIG expenses. The R60 million did not relate to that at all, but was funding that was owed to Thubelisha for work that had already been done.

Mr Steyn was worried by the statement that creditor and debtor analysis was still ongoing, as he would have expected this to have been done earlier; the majority of it should already have been finalised so that Thubelisha could get a clear picture of its status. It was also worrying that the Committee was not being provided with the full picture.

Ms Borman asked within what time frame the task team in charge of finalising the winding up was working. He commented that it was important that the final creditor and debtor statement was produced in order to provide an insight into future balances and settlements.

The Chairperson said that Thubelisha was still awaiting approval from National Treasury about transfers, but no timeframe had been mentioned within which the matter was to be finalised.

Mr Duarte responded to all the questions on time frames together. As a Section 21 company, Thubelisha had to adhere to the PFMA, which meant that the closing down procedure was complex. It had been agreed that the operations would be closed down on 31 July 2008. It was not possible to give an exact time frame by when the smaller task teams would be able to wrap up. For example, in the Human Resources area, the final taxation, VSPs, UIFs, reconciliations and other matters still had to be done, which meant that the task team would be busy for another 30 to 90 days. Thubelisha was a relatively large company when judged by cash flow, but it had a relatively small number of staff, which added to the complexities in shutting down.

Mr B Dhlamini (IFP) asked the Department what indications there were that things would be done in a different way now that the HDA was to be taking over Thubelisha’s mandates.

Mr Mngomezulu said that the N2 Gateway Project had provided many lessons to be learnt. It could already be seen at Zanemvula, which had been much better implemented. The Department believed that with the transfer to HDA there would be a great improvement. Not only staff, but also expertise needed to complete the projects would be transferred. HDA would be run in a different way from Thubelisha, since lessons had been learned from the problems with Thubelisha and Servcon. The Committee could rest assured that there would be an improvement.

The Chairperson asked how many of these projects would be transferred to the HDA, and what timeframe the HDA had to complete these projects, so that the Committee could continue to carry out its oversight duties.

Mr Duarte said that Thubelisha had not prepared an analysis of the projects to be transferred for this presentation, but would gladly revert with those details. It was fortunate that the closure had informally started a long time ago, when Thubelisha had stopped taking on new projects. This had decreased the operational sustainability due to the decrease in investments, but it had also resulted in staff leaving and costs decreasing, which had contributed naturally to the closing down progression.

The projects that were transferred would be outlined in the closing down report. Corporate governance would be honoured as a third party company had been brought in to ensure proper procedures. A closing down Committee had been established, with representation from the Department, National Treasury and Thubelisha, as well as various watch dogs to ensure that the process was carried out correctly. Thubelisha was appreciative of all the questions asked during the meeting because some of them had highlighted sensitive areas that might needed to be reexamined.

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Mr Steyn asked if anyone could say why Thubelisha had failed and what was responsible for the difficulties.

Mr Duarte responded that the failure had been due to poor internal management. Thubelisha had been successful in the last year, which meant that it must previously have had a capacity for success.

Joe Slovo Residents’ protests: Briefing

Prince Xanti Sigcawu, Regional General Manager: Western and Eastern Cape, Thubelisha Homes, gave a briefing on the march the previous week by protesting Joe Slovo residents. Some residents, who were currently residing in Thubelisha’s rental stock in the N2 Gateway Project Phase One, had marched to express dissatisfaction with the rentals they were paying. He noted that before these residents had been allowed to take up occupation in the rental homes, a company had been appointed to screen all beneficiaries’ financial capacity to pay the rental of the different units. After being approved, these beneficiaries would also have signed a contract agreeing to pay the amount of rental, so it was clear that the people now protesting were defaulting on their agreements. There had been structural defects with the units initially but these had all been corrected, and now residents were expected to comply with the contracts they had signed.

Discussion

Mr Steyn said that the first concern was that the current tenants were not the ones whom the N2 Gateway Project was supposed to benefit initially. Secondly, the people who had been screened and deemed qualified to pay rentals had boycotted doing so due to the structural defects of the houses. It was crucial to ensure that all these defects had in fact been corrected. If so, and there were no defects that would justify non-payment, then the law should be allowed to take its course, because Government could not afford to lose any more money on the rental units. Money should instead be spent on building houses for those who were initially supposed to have been the beneficiaries of the units, but who had now had to wait for an additional two or three years. The fact that there had been structural defects also lowered his confidence in Thubelisha’s capacity. That aside, he believed that the Committee should do a site inspection to ensure that all defects had been attended to.

Ms Borman said that the problem was that people were desperate for houses and it was important to be extremely careful in the criteria used when allocating houses. Her concern was that the final list of beneficiaries had not been properly screened. She noted that having one structural defect often led to the appearance of others, and she agreed that it was very important for the Committee to pay a visit to the site to ensure that there was nothing currently wrong with the units.

Mr Dhlamini said that the situation at Joe Slovo was not unique. Many people wanted houses but they did not want to pay the rent, or they wanted to buy units. People were desperate and would often do anything to make themselves appear as qualified for the house, whether or not they could afford to keep it. It was the Committee’s responsibility to determine if the Department was providing a service that was needed, since there were generally problems with rental stock.

Mr Bhoola was curious to know details of the agreement between the beneficiary and Thubelisha Homes, asking what legal action could be taken in terms of non-payment. Although the Committee had to be sensitive to the human factor, clearly it could not allow a culture of non-payment to take hold. He suggested that clarity was needed whether the non-payments had been due to residents having to pay to fix their own defects, or if they were due to a general inability to pay.

The Chairperson asked about the initial version of the building plan for the rental stock. From previous reports it had been suggested that it was to be an affordable housing rental stock, and that people would qualify to rent the houses if they earned at least R1 200 a month. However, when the programme was actually implemented, the minimum salary requirement had been raised, so that it was then stated as between R1 500 and R7 500 per month. She asked whether Thubelisha was sure that all those who entered into the agreements were indeed qualified to benefit from the programme. She also noted that changes in the programme had led to other changes, including the design of the houses, and asked that this be further explained.

Prince Sigcawu commented in general on all the questions. He said that Thubelisha could not be held responsible for the poor quality of the Phase One units, since it had only got involved in the N2 Gateway Project in 2006, when Phase One was 95% complete. He said that the screening process was reliable in that the company used had performed similar services in other campaigns and had always completed its mandate successfully. The contracts specified the legal action that could be taken in terms of non-payment, and those who refused to pay had to be evicted. However, before taking steps to evict, it was important to engage with the residents so that they understood the gravity of the situation. Thubelisha had engaged with residents extensively in this manner, but had up until now been unsuccessful in getting residents to pay the rent. In order to further emphasise the seriousness of their situation, eviction letters had been sent out to the residents, but these too seemed to have no effect. After closure of Thubelisha, the task of collecting rent would be transferred to the HDA, who were currently negotiating with the Cape Town Housing Company to run the project.

Prince Sigcawu said that in respect of the rental model, a survey had been done, before the units were completed, indicating that the units would cost between R160 and R650 a month. After the completion of the units, it became clear that they had been more expensive than projected, and as a result the rental amounts were raised to between R500 and R1200 per unit. Residents would obviously have to be earning in proportion to what they would have to pay on rental. The rental model had been brought in by the Social Housing Foundation and employees from the Department of Housing (as it was then named). He said that the design of the houses Joe Slovo Phase One had not changed.

Mr Mngomezulu added, specifically addressing Mr Dhlamini’s question, that the provision of rental units was much more expensive than providing ordinary Reconstruction and Development Project (RDP) houses, and in addition the running costs were higher. The units had been intended for employed persons who had relocated to the city. Other urban dwellers should be afforded ordinary houses.

Mr Steyn said that since the units had proved more expensive, and the rentals had increased, there had also been a change in beneficiaries. When the Committee had last visited the area they had seen expensive German sedans parked outside the houses, and had queried this, to which the Department had responded that those renting the units were not the people originally on the waiting list for housing, but were employed people. Mr Steyn asked how large was the percentage of defaulters, since he suspected that there had been a concerted effort by all the tenants to get their housing for the lowest possible price.

Mr Steyn also noted that there was no confirmation that the complaints list and the defaults had been attended to. He also enquired if there had been any additional complaints that Thubelisha had perhaps deemed it not necessary to respond to.

Mr T Botha (COPE) commented that Mr Dhlamini’s question was very pertinent, since this situation did not affect rental stock. The Department had invited the private sector to build affordable houses, in order to address a market whose affordability problems would otherwise not be addressed. However, once people were given houses, they were either unable or refused to pay for them. Servcon had been created in order to help with the normalisation of payments and to ensure that houses were only given to persons who, based on their earnings, were shown to be able to afford the bond payments. Because there were people who could not pay bonds, the Department then decided also to provide rental stock. People moving into the units had found fault with them, were unwilling to pay the rental, and in most cases nothing was done about it. The Department now had to find some way to stop the political mobilisation against payment of rentals. The N2 Gateway Project had had very little to do with affordability and much to do with the politics of Cape Town. There had been tension between the national, provincial and municipal departments, which had resulted in costing problems, as well as contractors going on to site before proper contracts were put in place. The one thing that could be learnt from the N2 Gateway Project was how not to do things.

Mr A Figlan (DA) asked why people were refusing to pay rent, whether there had been any communication between Thubelisha and the N2 Gateway tenants, and whether any repairs had been carried out. He pointed out that he had visited the development two or three times and noted that many of the residents were not employed or working.

Mr Bhoola said that the original intended beneficiaries had been given false expectations that their rental would be between R160 and R500. This had subsequently been increased. He asked if the people who had qualified for the higher rental were the same beneficiaries, or were different ones. If they were different, then he asked what was being done for the people who were initially expecting to be housed.

Mr Mtshali asked who was responsible for the cost of repairing structural defects.

Mr Dhlamini pointed out that in 1996 large contractors were employed to develop low cost housing. This had been badly done, and the State had had to intervene to rectify their mistakes. After that, commercial contractors had refused to touch that market. In order to entice commercial contractors back to work on these projects, Government had changed the plans for the market to include rental stock and better quality houses. When the commercial contractors did return, they did so on their terms, not wanting to build the cheaper units, unless this was done in terms of the mixed development concept. This meant that the development of housing was not driven only by the needs of the people, but also by the needs of the large developers. The Department needed to explain its financial model, so that problems similar to Joe Slovo could be avoided.

Mr Dhlamini concurred that some people did not want to pay for housing. This may be so, but they had also been given the expectation that rentals would be between R160 and R600, when in fact they then rose to between R500 and R1200. He said that promises were being made to the people, and they must be fulfilled.

Ms Mashishi said that there were a number of contradictory remarks. The Department had said that the residents were employed, but Mr Figlan said that he had observed that this was not so. She asked if a proper quality monitoring had been done.

Mr Botha pointed out that people had to be working in order to qualify to be allocated rental stock. If they were not working, then there was something wrong with the process. He said, to clarify the points made by Mr Dhlamini, that at one stage the larger contractors had stopped building in this market but that the Department had tried to get them back because the small contractors were not able to build at the rate that the Government wanted houses delivered. The housing mix had then been implemented, so that there would be a cross subsidisation of the infrastructure cost. On that basis, the commercial contractors had agreed to come back. It was expected that those moving into the houses would be paying for their accommodation. Government only subsidised the indigent. It was unfair to lambast the commercial contractors, as they had been invited to participate on specific terms. This was a political issue since Government and politicians gave conflicting signals in this area.

Prince Sigcawu said that Mr Botha’s comment indeed did answer Mr Dhlamini’s question. He said that there had been constant communications between the tenants of Joe Slovo Phase One and Thubelisha. Many of the flats were now being sublet. The default rate was between 75% and 80%. The expectations created in terms of the initial rentals did not apply to the residents who were now in place, and who had been screened for their ability to pay the higher rentals. He was not aware of any complaints that would justify residents not paying their rents. The contractors had had to pay for the costs of the structural defects, and Thubelisha had compiled a report on how it had attended to defects, which would be forwarded to the Chairperson.

Mr Pillay added that the capital grants were given to Thubelisha for repairs and maintenance of the units, but that these grants only covered the initial period. If Thubelisha did not receive the due rentals there would inevitably be a deterioration of the area, since the cost of the maintenance was about R300 000 a month and Thubelisha had been receiving about R40 000 a month in rentals.

Ms Borman asked if there were any controls in terms of the subletting and if tenants had been told during the screening process that subletting was not allowed.

Prince Sigcawu replied that the rental contracts did specify that residents were not allowed to sublet the flats, but as alluded to previously, there had been some political problems with the matter, sometimes even to the point where Thubelisha could not even carry out its administrative tasks.

Mr Figlan said that there had been a split of 70%:30% in residency between local residents and others. He suggested that perhaps some people had become unemployed and asked if adherence to the original allocation may have resulted in the current problems.

Prince Sigcawu responded that this was not the case. Thubelisha had abided by the policy that 70% of the houses were to be offered to local residents of Joe Slovo, and the remaining 30% to residents of Langa. However, some from the local community who had qualified for the rentals had declined to move into the new units. Thubelisha had then offered those declined houses to people outside, such as those from Nyanga and Gugulethu. Residents who were unemployed and not earning anything were given free housing.

Joe Slovo Constitutional Court Case: Briefing

Prince Sigcawu said that he had provided an eight page document for the Members to read and that he would only highlight the most important aspects.

He noted that Thubelisha, the National Minister and the Provincial MEC had originally challenged the residents of Joe Slovo in a Western Cape court and won their case. An appeal was lodged, which found in favour of Thubelisha, the Minister and the MEC. However, the Constitutional Court was then requested to rule on the matter, and, on 10 June 2009, laid down certain conditions, such as that the residents had to be relocated to temporary residential areas. These areas’ units must be 24 m2, should have electricity, there must be tarred roads, and other conditions. The relocation should begin by 19 August, but unfortunately Thubelisha, the Minister and MEC were not in a position to meet that deadline. The lawyers for Thubelisha and the lawyers of the Joe Slovo residents had met and it had been suggested that the relocation should start on 19 October. The document provided was self-explanatory, save that he asked that paragraphs 26, 27 and 28 be deleted, since they were not applicable. He suggested that the Committee should ask any questions to clarify the matter.

The Chairperson of the Task team for Joe Slovo noted that Thubelisha had been ordered by the Constitutional Court to consult with Joe Slovo residents, and the due date had been the previous day. He said that he could not understand how the date for the relocation had been decided before Thubelisha had engaged with the residents.

The Chairperson noted that she had not been aware that the Joe Slovo Task Team were present in the meeting, and confirmed that the Committee needed to hear the questions of the residents and ensure that they were addressed.

Mr Mtshali suggested that the Department and Joe Slovo Task Team should be given the opportunity to engage, but that the Committee should not intervene in this process.

The Chairperson said that the Committee would offer the Department the opportunity to engage with the residents, and would monitor to ensure that this was done. She pointed out that Members, having been appointed to represent the electorate, had a responsibility to listen and deal with their questions very thoroughly.

Mr Mzwanele Zulu, Spokesperson for the Joe Slovo Task Team, said that it was important that the new Housing Development Agency should meaningfully engage with residents of Joe Slovo so that the houses were not further delayed. The issues being discussed today should never have been allowed to arise. RDP houses should not have been delayed as they were by a lack of transparency and meaningful consultation. All residents needed to be consulted on housing developments, so that marginalised people were allowed to be part of the development and were empowered, not forced to the outskirts of the city. Relocation had been an apartheid policy that should not happen in a democratic South Africa.

The Chairperson responded that the Committee took these views seriously and needed to establish a timeframe. When Parliament reconvened in August, the Committee would follow up that the Department had indeed discussed the matters raised by the Joe Slovo residents. At least half of the matters brought up should have been dealt with. The need for consultation was not even up for debate.

The Chairperson commented that there were many lessons to be learnt from the N2 Gateway Project, and these should be applied by all to ensure that a similar situation did not recur. The Committee had believed that the process of closing down Thubelisha would be more simple, but this was clearly not the case. It was also evident that there had been many misunderstandings between the parties involved. In the future the service level agreements must be clear, so that everything could be more easily understood by the Portfolio Committee.

The Chairperson said that it was also clear that all parties involved had contributed to the “current mess” and Thubelisha could not be demonised as the only perpetrator. A special report commissioned by the Department had made it clear that the environmental assessments had not been done, that there was conflicting information, making it difficult to know what had really been happening. The Committee should request the Department for a report on the current situation, since the Committee would advise and assist the Department as part of its oversight. The Committee had not been informed that the Thubelisha Board was dysfunctional.

Provinces should be told that they could not take on projects without also taking on Thubelisha staff. It was the responsibility of the Government to retrain employees to ensure that they were skilled.

The Chairperson also said that after the recess the Members would visit the N2 Gateway Project.

Election of Management Committee

The Chairperson asked Members to nominate members to a management committee for this Portfolio Committee. This management committee would deal with the day to day running of the Committee, including preparing the budget and the strategic plan. It would be made up of seven members – four from the ANC and three from the opposition. The ANC delegates would include the Chairperson and the Whip, so an additional two ANC members needed to be nominated.

Members nominated and accepted Ms Borman and Mr M Motimele as the ANC additional members. They then nominated and accepted Mr Steyn (DA), Mr Botha (COPE) and Mr Dhlamini (IFP) as the opposition members.

Adoption of Minutes

The Committee considered and adopted the Minutes of the meetings on 24 May and 28 June, as amended.

The meeting was adjourned.

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