Municipal corruption in spotlight in R614m water scandal

Government's R15 billion plan to replace its ageing municipal water system is being dogged by accusations of corruption as officials in several provinces repeatedly appoint a shadowy company called Lesira-Teq to install water meters that keep breaking down.

These revelations follow the release this week of a damning report by the auditor general that found municipalities misspent R11 billion in 2010-11 and red-flagged 95% of councils for poor financial controls.

Despite a growing litany of complaints about the quality and price of its products, Lesira-Teq has clocked up contracts worth R614 million in the last five years to install new water meters in 11 municipalities, including Johannesburg, Mangaung and Mogale City.

In some cases, more than 40% of these meters have failed – compared with an industry norm of a less than 2% failure rate -- leaving residents fuming and forcing government to pay extra to fix the problem.

Now the Sunday Times can reveal Lesira-Teq was secretly awarded a three-year R205 million contract by Erkurhuleni municipality last year without following proper procurement procedures.

The contract is currently the subject of a Special Investigating Unit probe and this month led to the suspension of five top municipal officials, including its chief financial officer Zakes Myeza, the head of its water department Slindokuhle Hadebe and his chief water engineer, Nomsa Malimabe.

Hadebe is also the deputy chair of the National Water Advisory Council that advises Water Affairs Minister Edna Molewa. He was previously employed by the City of Johannesburg when Lesira-Teq scored a R170m deal to install water meters there, and has just been tipped to take over as Tshwane's water boss.

SIU sources confirmed this week that corruption allegations involving the contract are being investigated, although spokesman Boy Ndala refused to confirm this “because of the sensitivities of the matter”.

Based on access to council minutes, tender documents and internal correspondence, the Sunday Times established serious procurement flaws. Erkurhuleni first issued a tender several companies put in bids for, then secretly awarded the R204 million contract to Lesira-Teq using a loophole in supply chain rules.

Outlined in paragraph 32 of the rules, it allows municipalities to award contracts without a public tender if the same product was chosen by another municipality after a competitive bidding process. But this is only allowed if there are “demonstrable discounts or benefits” .

According to Lesira-Teq CEO Edwin Sibiya, the Erkurhuleni contract was based on a much smaller deal with Madibeng municipality worth only R40 million. Madibeng is a corruption plagued council in North West province that has received adverse audit opinions from the auditor-general for the past four years.

But the documents show there was clearly no “demonstrable discounts or benefits” in awarding the contract to Lesira-Teq rather than testing the market.

The tender closed on March 8th 2011 and there were five bidders, with Lesira-Teq offering the meters for R1,750/each, compared to Davis & Deale's R1,070, USC Metering at R1,025, Sensus at R1,030 and Elster Kent at between R1,056 and R1,771. None of them got it.

But 10 days later, on 18 March, the council invoked section 32 and awarded Lesira-Teq the R204 million deal at R1 890 per unit “excluding VAT and escalation”. None of the bidders were told. Internal correspondence shows the council also approved Lesira-Teq charging an inflated installation fee of R290 per unit, compared with the then contractor's fee of R100 per unit – adding tens of millions to the taxpayers' bill.

The documents and interviews with Lesira-Teq customers in Erkurhuleni, Mangaung, Johannesburg and Mogale City point to serious reservations about Lesira-Teq's meters. Problems with the meters arose almost immediately in Erkurhuleni, from “no pressure” to faulty valves and electronic systems, “software” problems, and the lids even breaking off.

One consulting engineer interviewed who did not want to be named put the failure rate on a Lesira-Teq project he worked on at over 40%. “It dispensed the wrong number of litres, you can't limit consumption, there are leakages, the valves are faulty, and the electronics have conked out,” he said.

Bobo Makhoba, a Soweto resident, said: “It doesn't show much you bought. The meter is not working. A lot of people have this problem.”

Susan Erasmus in Benoni said her faulty Lesira-Teq water meter had to be replaced soon after it was installed after it left her without water for 26 hours. “I was really cross because my old meter worked fine. Now they put in this new technology and it doesn't work!”

Ashor Sarupen, DA chief whip for Erkurhuleni, said he'd received a stream of complaints about the meters. “That a R200 million contract was awarded without going out to tender is extremely irregular.”

Woodland Hills estate near Bloemfontein experienced “numerous problems” with Lesira-Teq meters, including valves not closing or unexpectedly shutting down, according to manager Gerhardt van Heerden. Woodlands ripped out and replaced 600 Lesira-Teq meters, and is taking legal advice on how to recover millions it has lost.

In another Bloemfontein suburb, Fichardpark, residents last year demanded that Mangaung municipality replace their faulty Lesira-Teq meters worth R40 million with a better product.

Similar complaints were heard in Mogale City, where Lesira-Teq scored a R60m deal. Internal documents reveal a litany of complaints and high failure rates. Spokeswoman Nkosana Zali conceded Mogale had taken “a very hard look at this relationship with Lesira-Teq, especially as to whether it helps us meet our service delivery mandate”.

The suspended Erkurhuleni officials refused to reveal why the contract had been pushed through. “I did not approve the appointment,” Myeza said in a text message. “Speak to the Metro.”

Hadebe insisted the contract “was not dodgy. Asked why Ekurhuleni would put out a water meter tender while simultaneously awarding the contract to Lesira-Teq, he was stumped. "That's the one I would not be able to answer ... it can happen in a municipality as big as Ekurhuleni that processes run in parallel."

Malimabe said she had done “nothing untoward” and referred all questions to Erkurhuleni municipality, which declined to provide any information other than confirming the suspensions.

Sibiya, the Lesira-Teq CEO, claimed the “procurement process was regular and lawfully concluded”, adding: “I cannot speculate on the basis of conclusions and perceptions” of unidentified people.”

But he declined to answer detailed questions about the contract. “The information requested is with the municipality … we view this to be confidential information.”