Water and sanitation minister's 'meddling' could cost SA R3bn

2017-09-24 06:05
Nomvula Mokonyane

Nomvula Mokonyane

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Treasury could soon be forced to find R3bn to bail out Umgeni Water after an asset management company’s threat to withdraw bonds from the state utility.

The threat is contained in a letter to Water and Sanitation Minister Nomvula Mokonyane from lawyers acting for asset manager Futuregrowth, in which it accuses her of destabilising the water board.

Futuregrowth, a division of Old Mutual, acts as an agent to a number of companies that hold bonds issued by Umgeni Water.

The company has sent a copy of the letter to Finance Minister Malusi Gigaba.

In the letter, sent two weeks ago by law firm ENS Africa, Futuregrowth told Mokonyane that the governance problems she caused at Umgeni Water could result in “serious risk that the listing of those notes held by bond holders on the JSE Securities Exchange will be suspended or terminated”.

The company added: “There are similar risks of a credit ratings downgrade in respect of Umgeni Water and its debt.”

Two senior executives at Umgeni Water said that, while the letter challenged the legality of Mokonyane’s governance decisions, the company had also in two meetings threatened to withdraw the bonds it had with the water company.

One of the executives said: “You can see that the subtext is: ‘Get back on the straight and narrow, or we will take our money and go.’”

Umgeni has raised bonds in excess of R3bn.

Last year, Futuregrowth announced a suspension of additional loans to state-owned enterprises until it obtained further clarity and comfort regarding their governance.

In the letter, Futuregrowth accuses Mokonyane of causing governance turmoil at Umgeni by flouting the Public Finance Management Act and Water Act by:

- Misleading the public on why she dissolved Umgeni’s board in June;

- Illegally appointing Msizi Cele as both Umgeni’s acting chief executive and accounting officer;

- Illegally replacing Cele with Thami Hlongwa as both the water company’s acting chief executive and its accounting officer;

- Arrogating to herself the powers to appoint chief executives; and

- Illegally appointing an audit committee.

The turmoil at Umgeni will most likely increase anxiety among investors, some of whom have already expressed unhappiness over Mokonyane’s decision to merge Umgeni with Mhlathuze Water.

Two years ago, City Press reported that Treasury had warned Mokonyane that the merger could result in credit downgrades.

Creditors, Treasury argued, could view the merger as a disestablishment of Umgeni, and could demand that their loans and bonds be paid immediately.


In July, City Press reported that Mokonyane had seized power at Umgeni and dissolved the board in what was suspected to be an effort to influence tender processes.

The month before, she wrote to the board, asking it not to renew Umgeni’s former chief executive Cyril Gamede’s contract as she alone had the power to do so. However, the board, which had already extended Gamede’s contract by two years, sought legal opinion, which confirmed that their decision was correct.

While the board was wrestling with Mokonyane over Gamede, an anonymous letter surfaced, implicating him in corruption. Gamede was then suspended.

Following negotiations, he was paid to leave and the anonymous letter was withdrawn.

Before Mokonyane dissolved the board, it appointed Moketenyane Moleko to act in Gamede’s place. Moleko was removed after an anonymous letter implicating him in corruption surfaced.

Mokonyane replaced Moleko with Cele. Six weeks later, she replaced Cele with Hlongwa.

Mokonyane argued that her decision to remove Umgeni’s board was based on a ruling by the Pietermaritzburg High Court in November, which found that she had no powers to extend the Mhlathuze Water board members’ terms of office beyond the maximum period prescribed in the Water Act.

The court action had been initiated against Mokonyane and Dudu Myeni, former chairperson of the Mhlathuze Water board, by the water utility’s suspended chief executive, Sibusiso Makhanya. Myeni suspended Makhanya in November 2015, citing allegations of corruption.

However, Makhanya had rushed to court, arguing that Myeni’s board had no powers to suspend him because its term of office had expired and was illegally extended by Mokonyane. The court ruled in his favour.


Futuregrowth’s strongly worded letter to Mokonyane continues: “This concerns the legality and appropriateness of the Umgeni Water appointment decisions made by yourself as minister of water and sanitation.

“Futuregrowth has several concerns regarding the interim governance framework. Futuregrowth and the bond holders, and no doubt other note holders and their asset managers, rely on Umgeni Water’s compliance with the law and the standards to which it has committed itself in making their investment decisions.”

The company slammed Mokonyane for using the Mhlathuze court judgment to disband Umgeni’s board.

It argued that, in Mhlathuze, all board members had served their maximum terms.

It contended that, at Umgeni, eight board members were still eligible to serve a third and final term. “Therefore, the minister could have reappointed them for a further four-year term, but presumably elected not to.”

Futuregrowth branded Mokonyane’s decision to axe the entire board without starting a process of identifying candidates for a new board as “irresponsible and unjustifiable”.

In the letter, it also criticised Mokonyane for appointing Cele and then Hlongwa as both acting chief executive and the accounting authority. This, claimed Futuregrowth, made Cele and Hlongwa both the chief executive and the board. “The effect is that it makes the acting chief executive accountable only to himself, which, apart from the illegality of such arrangements, is a clear violation of corporate governance principles.”

The company has now given Mokonyane an ultimatum to axe Hlongwa and immediately appoint an interim board, which will then appoint an acting chief executive and an independent audit committee.

Questions and requests for comment sent to Mokonyane, her department and the Umgeni Water board went unanswered.

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