i

TABLE OF CONTENTS
VOLUME 2

THE FREE STATE ASBESTOS PROJECT DEBACLE ....................................... 292

THE FREE STATE R1 BILLION HOUSING PROJECT DEBACLE ..................... 456
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Judicial Commission
of
Inquiry into Allegations

of

State Capture, Corruption and Fraud in the

Public Sector Including Organs of State

Report: Part IV
Vol. 2: The Free State Asbestos Project
Debacle

Chairperson: Justice R.M.M Zondo

Chief Justice of the Republic of South Africa
 i

THE FREE STATE ASBESTOS PROJECT DEBACLE

TABLE OF CONTENTS
FREE STATE ........................................................................................................ 265
Mr Dukoana’s visit to Sahara Computers with Mr Ace Magashule in 2008 .... 268

The visit to the Gupta residence ............................................................................... 269

The “City for Tomorrow” Project .............................................................................. 273

INTRODUCTION ................................................................................................... 292

The Auditor-General ................................................................................................... 300

The Report Of The Public Protector in terms of Section 182 (1)(B) of the
Constitution of the Republic Of South Africa, 1996, and section 8(1) of the Public
Protector Act .............................................................................................................. 301

Whether the Department failed to follow proper procurement processes in awarding the
contract to the Service Provider and whether such conduct was improper, unlawful and
constituted maladministration ................................................................................... 302

Whether the services provided were cost-effective and the Department received value
for money in the execution of this contract ............................................................... 304

Was the advance payment made to the Service Provider irregular and did the invoices
to the Department comply with legislative precepts .................................................. 305

Remedial Action of the Public Protector ................................................................... 306

THE WORK OF THE COMMISSION’S INVESTIGATIONS .................................. 307

Networking for Opportunity ....................................................................................... 307

The Unplanned Project .............................................................................................. 310

No Competitive Bidding Process-Participation in the Gauteng Contract - Reliance

on Treasury Regulations 16A6.6 ............................................................................... 316

No competitive bidding process ................................................................................ 316

Purported Reliance on Treasury Regulation 16A6.6 ........................................ 318

Non Compliance with Treasury Regulation 16A6.6 .......................................... 320

Was this Incompetence, Negligence or Deliberate Malfeasance? .......................... 323

Deviation from the Free State Budget – Approval by the Department of Housing ..... 331
 265

FREE STATE

399. With regard to the Free State Province, the Commission heard evidence relating to

allegations of irregularities and corruption relating to Estina (Pty) Ltd, the Free State

Asbestos Project, the Free State R1 Billion Housing Project, the City of Tomorrow

Project and interactions between Mr Mxolisi Dukoana and Mr Elias Sekgobelo “Ace”

Magashule, on the one hand, and Mr Tony Gupta and other Gupta associates which

include a visit by Mr Dukoana and Mr Magashule to the Gupta residence on which

Mr Dukoana was offered cash in a briefcase if he signed a document which would have

given the Guptas and their associates some work in the Free State. Estina (Pty) Ltd will

be dealt with later in this Report. In this part of the Report only the Free State Asbestos

Project, the Free State R1 Billion Housing Project, the City of Tomorrow Project and the

evidence relating to the bribe referred to above will be discussed.

400. Mr Mxolisi Dukoana was the first witness to give evidence relating to the Free State

Province in this Commission. He gave introductory evidence relating to the Free State

Asbestos Project and the R1 Billion Housing Project both of which will be dealt with

below. He also gave evidence relating to the bursaries or scholarships that the

Provincial Government or Mr Ace Magashule secured from various people or

companies in the Free State including those who or which obtained contracts or tenders

from the Provincial Government which bursaries or scholarships were then awarded to

students at institutions of higher learning both inside and outside the country.

401. By way of introduction to his evidence, Mr Dukoana had this to say about himself, the

African National Congress and the fact that he had decided to come forward and give

evidence before the Commission:

“3. I have deemed it appropriate to render assistance to the Commission on the

State Capture (“the Commission”) in respect of the activities that I have encountered
 292

THE FREE STATE ASBESTOS PROJECT DEBACLE

INTRODUCTION

441. This part of the Report relates to a project that was undertaken by the Free State

Department of Human Settlements in 2014/2015. The purpose of the project was the

identification of all the houses provided by the Provincial Government of the Free State

which had roofs that had asbestos and the removal of asbestos from the roofs of those

houses. In other words was a project for the eradication of asbestos from the roofs of

houses. The houses were mostly those that belonged to or were occupied by poor

people. The rationale for the project was that the presence of asbestos in the roofs of

the houses was a serious health hazard. It was identified that most of the people who

were affected would not have been able to pay for the removal of asbestos from the

roofs of their houses.

442. The Provincial Department of Human Settlements set aside R255 million for this project

after it had received and approved an unsolicited proposal for this project from a Joint

Venture called Blackhead Consulting/Diamond Hill Joint Venture. The Department gave

the job to Blackhead Consulting/Diamond Hill Joint Venture. This was done without

following any competitive process. The Department paid about R255 million to the Joint

Venture but ultimately no asbestos was removed from the roofs of houses. It turned out

that this Joint Venture was not even qualified to undertake the removal of asbestos

despite the fact that they had told the Department in their proposal and in the Service

Legal Agreement that they signed with the Provincial Department that they had the

qualifications, skill, expertise and experience required for the job. This was not a Free

State Asbestos Project. It was a Free State Asbestos Project Debacle. Here is how this

debacle unfolded.
 390

“COST OF BUSINESS” SCHEDULE - SECRET BENEFICIARIES

771. A spreadsheet594 entitled “Cost of Business” contains a schedule of payments to various

entities or persons some of which or whom are identified only by initials. Against each

name is recorded a sum of money in Rands ranging from R1 million to R10 million. The

“Total Cost of Business” is added up to the sum of R82 608 567,90 (eighty-two million,

six hundred and eight thousand, five hundred and sixty-seven Rand and ninety cents).

The Project Value is recorded as R255 million (with R127.5 million to be paid to the

Joint Venture over 2 financial years, that is 2013-2014 and 2014 to 2015). Against the

R255 million the Total Cost of Business amount, as scheduled, is set off

(R82 608 567.90) resulting in a “Project Value-Cost of Business” of R172 391 432,10

(One hundred and seventy-two million, three hundred and ninety-one thousand, four

hundred and thirty-two Rand and ten cents). From this “Project Value” amount it is

itemised that R86 195 716,05 (eighty-six million, one hundred and ninety-five thousand,

seven hundred and sixteen Rand and five cents) each is allocated to Blackhead and

Diamond Hill.

772. The schedule also contains three columns entitled “1st payment”, “2nd payment” and “3rd

payment”. Sums are identified against all but one of the names, under one or more of

those columns.

773. Mr Sodi explained that he and Mr Mpambani had a discussion about the preparation of

this document which was to set out the costs of the project. Mr Sodi said that after the

discussion he left his office for another meeting in the boardroom and, in his absence,

Mr Mpambani prepared this “Costs of Business” schedule on Mr Sodi’s own

computer.595 The purpose of the spreadsheets, said Mr Sodi, was to indicate “how much

594 Exhibit TT8, p 123.

595 Transcript 19 August 2020, p 133, lines 18 -22.
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Judicial Commission
of

Inquiry into Allegations

of

State Capture, Corruption and Fraud in the

Public Sector Including Organs of State

Report: Part IV
Vol. 2: The Free State R1 Billion Housing
Project Debacle

Chairperson: Justice R.M.M Zondo

Chief Justice of the Republic of South Africa
 i

FREE STATE R1 BILLION HOUSING DEBACLE

TABLE OF CONTENTS

INTRODUCTION .................................................................................................... 456

DORA funding and low cost housing ........................................................................ 458

Bigger and better houses ........................................................................................... 461

Problems in procurement .................................................................................... 462

The collapsed tender process .................................................................................... 462

The establishment of a “database”............................................................................ 463

Mr Zwane’s versions ................................................................................................. 464

Mr Mokoena’s supplementary statement ................................................................... 467

Outcome of procurement irregularities ..................................................................... 470

Consequences of the unspent ALLOCATION .................................................... 470

The Expenditure Recovery Plan ......................................................................... 472

Formulation of the plan .............................................................................................. 472

Nature of the plan ........................................................................................................ 475

Material Supply and Cession Agreements ................................................................. 475

Manipulation of the HSS System ............................................................................... 476

The “War Room” used to circumvent proper procedures ........................................... 477

The Advance Payment System ........................................................................... 478

Responsibility for the APS ......................................................................................... 478

The Welkom Meeting ................................................................................................ 479

The “War Room” meeting .......................................................................................... 480

Mr Zwane’s alleged threat to Mr Mokoena ................................................................. 482

Receipt of Mr Tsoametsi’s Document ........................................................................ 483

Mr Tsoametsi’s document .......................................................................................... 485

The document as a purported legal opinion ............................................................... 485

The theory behind the document ............................................................................... 488

 456

THE FREE STATE R1 BILLION HOUSING PROJECT DEBACLE

INTRODUCTION

923. This Chapter of the Report deals with a project that the Commission has called during

the investigation “The Free State R1 Billion Housing Project”. After the investigation and

the hearing of evidence and as this part of the Report was being prepared, it has

become crystal clear that this project was a debacle, hence the title of this Chapter:

“The Free State R1 Billion Housing Project Debacle” because of the manner in which

the Free State Provincial Government, through its Department of Human Settlements,

handled the project. It was a dismal failure: a debacle.

924. The Free State R1 Billion Housing Project was not mentioned in the Public Protector’s

Report called “State of Capture”. However, it falls within the terms of reference of the

Commission. In particular, reference can be made to term of reference 1.4 of the

Commission’s terms of reference. In terms of that term of reference the Commission

was required to investigate and inquire into “whether any public official or employee of

any state owned entity breached or violated the Constitution or any relevant ethical

code or legislation by facilitating the unlawful awarding of tenders by SOEs or any organ

of state to benefit the Gupta family or any other family, individual or corporate entity

doing business with Government or any organ of state”.

925. On 25 March 2010 the Department of Cooperative Governance, Traditional Affairs and

Human Settlements, Free State issued a media statement that read as follows in part:

“The Free State government has allocated R1.3 billion for the construction of
housing units towards addressing the 200 000 housing backlog.