By Richard Davies and Gordon Bell
There is prima facie evidence of "serious misconduct" in the financial affairs of KwaZulu-Natal's Umgeni Water Board (UWB), says Water Affairs Minister Ronnie Kasrils.
In a statement on Thursday, coinciding with the public release of a hard-hitting investigative report into the affairs of the parastatal, he said the matter will be referred to the auditor-general for further investigation.
The report - commissioned by Kasrils - was written by a four-member legal team, tasked with, among other things, "protecting UWB's resources and recovering any losses".
Its release on Thursday occurs against a background of four years of allegations and charges of financial mismanagement levelled at the UWB and its associates.
These revolve around the board's raising of a reported R2,6-billion in bonds, of which more than R1-billion is understood to be surplus to its needs.
They also involve charges of mismanagement and manipulation of a company established to handle the parastatal's "excess liquidity" - Specialised Outsourcing Ltd, also referred to as Outsors.
Kasrils on Thursday said it was no secret UWB was carrying excess liquidity.
"It is, however, also a matter of record that after the 1994 elections, government... came to the conclusion it would not be possible to finance the infrastructure for rural water supplies on the basis of loans.
"We simply did not believe the poor would be able to pay enough for their water to redeem such loans," he said.
On this basis, UWB's efforts to raise funds in this manner was "ill-advised".
In an ironic twist, an auditor-general report issued earlier this week pinpoints a lack of funds as being a major reason for a huge backlog in water service provision in KwaZulu-Natal.
The AG's report - for the 1999/2000 financial year - says the backlog in the province on March 31 last year was over 74 percent.
UWB supplies water to the greater Durban-
The corporation handed over the management of its treasury to Outsors in 1997. According to the investigative report, the contract was not only "vague and uncertain", but also "unfairly balanced" in favour of Outsors.
The contract has also provoked allegations of bribery and fraud.
Outsors' CEO, David McLean, accuses the company's founder, Dave King, of granting UWB's former financial and treasury manager, Greg Morris, 400000 shares at R1,20 each three weeks before the agreement was signed on October 30, 1997.
He made the claim in a letter to current UWB MD Cromet Molepo in December last year.
"This constitutes an omission by the CEO of Outsors that his company, albeit represented by King at the time, committed bribery and corruption to Umgeni's prejudice," the report says.
Morris resigned from UWB and was appointed in an executive capacity at Outsors in early 1998.
King, however, according to the report, has claimed McLean misrepresented the true facts to damage his reputation.
The report says that apart from McLean's admissions, "no evidence exists to substantiate fraud".
A war of words has raged between the two men.
In 2000, King established a new company, Specialised Insourcing, which competed with Outsors for UWB business.
The investigative report further states the conduct of Morris and a former UWB finance and administration director, Avison Carlisle, was suspect.
Both held shares in Outsors.
Kasrils on Thursday said: "There is prima facie evidence of serious misconduct that must be addressed."
It would be "wholly inappropriate" for certain of the party's concerned - namely Outsors and King - to have any further engagement in the affairs of UWB, until such time as external affairs were completed, he said.
"The point is that Umgeni borrowed more than it could responsibly deploy, and yet it is now obliged to service those loans.
"The pressures created by that over-borrowing might have been compounded by the way in which its finances were managed in the mid-1990s... ," Kasrils said.
The investigative report recommends compensation of R70-million "should be sufficient" to remedy any "historic disadvantage" UWB has incurred as a result of its contract with Outsors.
The contract was cancelled late last year due to allegations of irregularities.
Kasrils has taken up the report's recommendations that the Financial Services Board, and the auditor-general, conduct an investigation.
"I accept the conclusion that the contract entered into with (Outsors) in 1997 was unfair, unbalanced and prejudicial to Umgeni.
"I further accept that the fees paid by Umgeni were excessive in the circumstances," he said.
The minister also announced a new board will be appointed on July 1.
"I can inform you that certain members of the current board will be replaced, not as a result of any findings against them... but in terms of good corporate governance."
Kasrils said the board's chairperson, Omar Latiff, would continue in his position.
- Business Day on Thursday reported UWB was planning to "beg" national government for a R450-million bale-out for investments in "unviable, unsustainable water reticulation schemes".
This, the report says, follows a dispute with the Durban Metro over who should foot the bill for the projects. - Sapa