Storm over Limpopo municipality’s R135m ’irregular’ building deal
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Pretoria – The embattled Fetakgomo Tubatse Municipality in Burgersfort has been accused of squandering taxpayers’ money after it entered into a lucrative deal to purchase an office building worth R135 million despite having alternative municipal offices, which could be expanded.
According to the Sekhukhune Residence Association, a local lobby group which threatened to embark on a legal bid to overturn the multimillion-rand deal, the agreement is “ethically unsound”.
Association chairperson, Makalakatje Phasha, insisted the municipality should instead spend almost R50m of the R135m on expanding the council offices it currently owns.
The offices in question were owned by the then Fetakgomo municipality before it was merged with its counterpart Tubatse to form Fetakgomo Tubatse Municipality.
Phasha said the option could save the municipality more than R80m, which could be channelled into service delivery. Fetakgomo Tubatse, which is part of the Greater Sekhukhune District Municipality, is one of the poorest councils in the country. Most of its residents live in abject poverty, they are ravaged by rampant unemployment while basic services such as water, roads and sanitation are in short supply.
The association said it had previously taken up the matter with the provincial Cooperative Governance and Traditional Affairs (Cogta) HOD Ngaka Dumalisile without success.
Dumalisile said tersely: “I am the accounting officer of Cogta, not the municipality.”
Cogta spokesperson Motupa Selomo did not respond to detailed questions sent to him on Friday.
The offices (in a) building located on a farm called Mooifontein, were leased to the municipality by Tubatse Properties for more than a decade.
Council documents, seen by the Pretoria News, showed both parties entered into a lease agreement in 2006, but the 10-year deal only took effect in June 2010 until May 2020.
The initial monthly rental was R495 000, but it subsequently shot up to R2.1m due to an annual 10% escalation rate.
On September 25 last year, council took a resolution to purchase the property at the cost of R135m, including VAT of R25.2m.
Before the resolution, the municipality appointed two valuers to assess the property’s market value, concluding it was worth R70.8m and R64.5m, respectively.
Tubatse Properties also appointed two valuers, who determined the property was valued at R146m and R153m, respectively.
The varying purchase prices have since fuelled suspicions that the R135m figure was allegedly inflated by more than R80m.
Municipal manager Walter Phala was, however, adamant the deal was bred after a prolonged negotiation process which started two years ago.
The initial engagement with the property owner started around R200m, and went down to R190m, he said.
“We arrived at R135m and the landlord said he couldn’t go any further. Council approved the acquisition around September last year with the opposition parties in council,” Phala said.
In a written objection to the property acquisition, Thakane Thobejane, a ward 39 resident, claimed the building cost was inflated from R70m to R135m.
Phala, however, said residents never objected but instead opted to go to complain to the media when an advert was put out for public comment. He said the municipality had looked at the option of constructing a new building, but it was going to be too costly.
The new building would have cost in the region of R200m, including R2m monthly rentals incurred by the municipality while it waited for the construction to be completed.
Phala said the former Fetakgomo building was now used as regional offices of the municipality, however, they were too small to accommodate all the workers.
In assessing the deal, the provincial Treasury stated that it was unclear how the two parties had arrived at the purchase figure of R135m.
In a council report, the Treasury raised concerns that the transaction ran the risk of being declared “irregular expenditure” after it flouted the supply chain management processes.
“The negotiations to purchase the civic centre building started as far as December 2017 without following the supply chain management process to identify the property to be purchased,” the report read in part.
It further said in light of evidence that no supply chain management process was followed the transaction would be “classified as being non-compliant and any expenditure on it would be deemed to be irregular expenditure”.
Phala insisted the building acquisition was a done deal, saying the property would be in the municipality’s name in three months following the registration of the title deed in December.
According to him, the transaction couldn’t be irregular because it had been budgeted for and its budget was approved by council.
The Treasury had suggested the municipality didn’t budget for the acquisition of the building in its 2021-23 Medium Term Revenue and Expenditure Framework budget.
In terms of the purchase agreement, the municipality would pay a deposit of R50m and a monthly instalment of R2.9m over a period of three years.
Phala said: “The money which we used to pay rent turned it into a settlement of acquisition. They (property owners) gave us an interest free arrangement."
Attempts to reach out to the property owner based in Polokwane failed on Friday as he was unavailable.
According to council documents, the provincial Cogta initially wanted the valuation process to be put on hold until valuers from the Department of Public Works had assessed the property’s market value.
However, before the new valuers could be brought on board, a meeting was arranged between the municipality and Cogta’s political and administrative leaders, where the issue about the building costs was clarified.
Phala said the MEC conceded to have jumped the gun on the matter after “he actually got the facts from the media without understanding”.