Thubelisha Homes and Servcon Housing Solutions: Closure Plans: Department of Housing and Institutions’ briefing

Meeting report

Thubelisha Homes and Servcon Closure plans: Department of Housing (NDoH) Presentation
Mr Itumuleng Khotsoane, Director General, Department of Housing, noted that it had been agreed that the Department of Housing had to take the lead in parts of the presentations around Thubelisha Homes (Thubelisha) and Servcon Housing Solutions (Pty) Ltd (Servcon). The mandate of both was to be terminated in the light of the imminent Housing Development Agency implementation. He introduced Mr Kaba Kabagambe, new Deputy Director General: Housing Implementation, NDoH.

Mr Mziwonke Dlabantu, Chief Financial Officer (CFO), NDoH noted that his presentation would in part recap on the background to the housing and environmental context, and would deal with the framework for the closure plan in respect of both Institutions. The Department was in the process of establishing the Housing Development Agency (HDA), which was to acquire, develop and release suitable land for housing development. The rationalisation of institutions had led to a decision to close Thubelisha and Servcon, whose original mandates had matured. The Department had acquired specialist support services, both internally and externally. He explained that the closure requirements necessitated that both entities would cease business operations at some point and would be de-registered.

The closure process would deal with the disposal of assts and liabilities, staff matters, closure of bank accounts and then a final audit would be done. Finally the companies would be dissolved and the Companies Registry Office requirements would be fulfilled.

The closure process required three main steps. The detailed closure plan would be completed in two months. The closure plan would be implemented through four work streams, namely human resources, asset disposal, facilities and infrastructure and liabilities and accounting, which also included the legal component.
The four streams would be co-ordinated by an intensive management team, which would consist of representatives from National Treasury, NDoH executives and the Department of Public Service and Administration. The company dissolution would commence after the company activities had ceased and all assets, liabilities and commitments had been dealt with. The final balances in the company would be audited and any surplus would be applied according to the company memorandum and articles. After the closure process a report would be compiled on all relevant details on the closure process. The closure plan would calculate any shortfall that would need to be funded. The timeframe was estimated to be a maximum of six months, depending on the complexity of asset disposal process and the availability of accurate information on assets and liabilities.

Discussion
The Chairperson informed the NDoH that the Committee had expected that the starting point would be to deal with the financial statements and expenditure of Thubelisha and Servcon, then to deal with the closure, but the Department seemed to have started the other way round. During the previous week, the Committee had not dealt with their expenditure as the Department had requested to be part of the process and present a closure plan to their presentations.

Mr Dlabantu asked if the Chairperson wanted the outcomes of last year.

The Chairperson said that the Committee did, as they were not presented.

Mr Dlabantu apologized, as the NDoH had not prepared expenditure performance of both institutions.

Mr Kotsoane requested the Committee if it would be appropriate for the entities to directly present their expenditure performance.

The Chairperson and Committee agreed to the suggestion, but said that they would do so only after they had engaged with the NDoH presentation.

Ms B Dambuza (ANC) asked about the timeframes for the closure plan, since it had been some time that this had been spoken about. She queried if it was likely to take a year to do the winding up.

Mr Kotsoane said that the time frame would probably be around six months. NDoH envisaged that the phases would run concurrently. At the moment it was in its first phase. It was realistically likely that it would not take a full year.

Ms Dambuza asked about the assets and liabilities, and in particular enquired whether these would include the subsidy grants, because to her understanding these entities were part of this year’s budget. She asked if the money would revert back to the NDoH.

Mr Dlabantu said the process of what to do with assets and liabilities was a financial and legal liquidation process. The team responsible for this stream would attend to all aspects and adhere to operational requirements. The plan was how to deal with them in such a way to minimise costs. The housing grants would be identified and the money would go where it was supposed to go. Thubelisha had some money of other provinces, which would be in a trust, and which belonged to the potential beneficiaries, who had been identified. The assets that Thubelisha acquired over time were the assets that belonged to them as an institution.

Ms Dambuza asked if it was intended that the Housing Development Agency would replace these institutions.
 
Mr Kotsoane explained that some of the work that had hitherto been done by these institutions would be done by the HDA at a very coordinated level. This would include work at micro and macro level. Their mandates were different but what they had to do was similar. The HDA would not necessarily be replacing those institutions directly.

Mr D Mabena (ANC) wanted to ascertain what would happen to those affected during this six months closure, and in particular the employees. He asked what would happen to those not seconded to the NdoH, and who would bear their costs.

Mr Kotsoane responded that the human resource work stream intended to find skills required by the HDA and NDoH. The NdoH hoped to advise the HDA chief executive officer on human resources, so as to avoid starting from a zero basis, and this would be the function of the HR work stream. Staff considered for transfer would be the existing permanent staff, not those on contract. The cost would relate to the permanent staff.

Mr A Steyn (DA) wanted to know which step of the closure plan NdoH were presently at, and what would happen to existing commitments that may very well go beyond the 10-months period. He asked if they would revert back to NDoH or what other plans were in place.

Mr Dlabantu replied that contracts that would extend beyond the closure plan would have continuity arrangements put in place. There would also be arrangements with provinces to continue with their related contracts. All contracts would be taken into consideration, and an amicable process would be created for all stakeholders.

Mr Steyn noted that according to the HDA Bill, the Chief Executive Officer (CEO) was permitted to employ staff. He asked what process would be followed in transferring staff, bearing in mind the fact that the CEO would not by then have been appointed.

Mr Kotsoane said that as the process unfolded, there would be work needing to be done, as the projects would be running. The NDoH did not want to disrupt the process and personnel would be remunerated accordingly. Depending on the timeframe, as the HDA started to run, it would then take over projects which fell in its sphere of operation as envisaged. People would continue implementing projects.

Mr Steyn commented that as the HDA’s mandate was to acquire and develop land, the NDoH should start getting it into their mindset that, in their future dealings, the HDA mandate would go way beyond just the identification of land, and he pointed out that the Committee had made certain changes to the Bill in that regard.

Mr Kotsoane answered that NDoH was presently at phase one of the plan. The NDoH had met the Board of Thubelisha and would meet the Servcon Board around issues of the closure plan. The NDoH intended to ensure that beneficiaries did not get a raw deal, and was working towards a win /win situation – hence the need to fully examine and discuss the closure plan.

Thubelisha Homes Presentation
Ms Annie Orgill, Acting Chief Operations Officer, Thubelisha, made a brief comparison of actual against budget performance of the key performance areas (see attached presentation). She explained that Thubelisha was a management company working in different areas. There had been a change and an extended mandate that led the entity to do mega projects in pilot form. There was a large difference between the budget and the actual expenditure, which had been brought about by several different factors as Thubelisha moved towards closure. Thubelisha had had several resignations at the top executive and technical levels, due to the expected coming into operation of the Housing Development Agency. Lack of operational capital and problems with the N2 Gateway project were some of the challenges encountered by the entity, and there had also been a large discrepancy between the houses built and houses handed over. The major challenge and reason for the shortfalls was lack of funding.

Discussion
Mr Steyn said that it was patently obvious from the first slide that none of the targets had been reached. He had gathered what some of the reasons were, but had not found them all convincing, as he wondered why not one single target had been reached. He wanted to focus on the lack of correlation between houses built and houses handed over, as well as numbers of serviced stands and houses built. He noted that resignations had been mentioned as the key problem. He thought that the results of Thubelisha would cause the new CEO of the HDA to think twice before taking over any of the staff to the new entity. He believed that without funding from National Treasury, this entity would long since have been liquidated. He asked for a further explanation of the 50% revenue and 50% work done explanation offered in the presentation.

Mr Wayne Bothma, Chief Financial Officer, Thubelisha, replied that there was a deficit, because Thubelisha only received R35 million of their requested operational capital of R177 million, and said that the deficit could otherwise have been a surplus. He agreed that the company was not in a liquid position, but blamed the small allocation for this.

Ms N Ngele (ANC) said that she would ask again for an explanation of the discrepancy between houses built and houses handed over and why did it happen.

Ms Orgill said that Thubelisha encountered operational challenges on the ground that were complex and were politically inclined. Since there were three spheres of Government, Thubelisha had various challenges in coordinating and delivering on their mandate, within this political environment.

Mr Mabena asked about the number of staff lost through skills flight. He noted that Thubelisha had only mentioned problems with the N2 project, and asked what other problems were experienced in other projects, particularly in the Eastern Cape.

Ms Orgill answered that she did not have an exact figure off hand on the numbers of staff lost, but the information would be made available to the Committee. The other projects were inherited as blocked projects and Thubelisha had serious challenges in unblocking those projects, taking into account that it was trying to work with depleted staff numbers. However, there has been tremendous ground gained in unblocking some of the projects, although some were not as successful as others.

Servcon Housing Solutions (Pty) Ltd (Servcon) Presentation
Mr Lindikhaya Mpambani Managing Director of Servcon, gave the Servcon presentation, assisted by Mr M Rakgogo, Executive: Finance, Servcon. Servcon had originally derived its mandate from agreements between the NDoH representing and the Council of SA Banks (BASA), and the aim was to assist with lending in the low cost housing market in RSA. However, by May 2006 there was a restructuring in terms of which NdoH paid the outstanding subsidies, bought the 50% BASA shareholding in Servcon and refunded the participating banks. Servcon had since July 2006 been fully owned by government and had entered into various service level agreements with provincial departments to render services. Its objectives had been to identify, acquire or facilitate acquisition of land, and hold it; to normalise properties built or owned by provincial housing departments and to finalise the ring fenced portfolio. Its mission included normalising the low income housing, and making a contribution to development of integrated human settlements. It was to ensure correlation in the records and rectify the major defects of the pre-2002 housing stock.

Its challenges had included the limited availability of suitable land, coupled with the high cost of this land for housing development. The invasion of suitable land had the potential for risk if not properly managed. The holding costs of land if there was a delay in development threatened the estimated price to develop. It was preferable to try to identify State land for development.  Servcon was conducting an analysis of available land, with a view to assisting the HDA when it was created. Some land was being transferred to municipalities that were urgently in need of it.

Mr Mpambani tabled statistics of the work done on the 12 274 properties, noting that by the end of March 11 474 had been transferred to beneficiaries. The majority of the remaining 800 properties would be completed before 31 March 2009. Subsidies had been fully paid to banks.

Mr Mpambani gave the expenditure report Total income in the last year had been R306 million and for the following year was expected at R362 million. The expenses for the past year were about R278 million, leaving a surplus of R27.6 million. The capital figures, money at bank and staff costs were set out and explained (see attached presentation)

Discussion
The Chairperson noted that Servcon had excellent financial performance and seemed to have been making a profit.

Mr Steyn noted that Servcon seemed to be doing business as usual in this financial year, and wondered if Servcon believed that it would have completed the winding up process in this year.

Mr Mpambani replied that the Director General of Housing had mentioned earlier that there was provision made for the HDA to complete any projects that remained uncompleted by Servcon. These could not simply be regarded as the core responsibility of the HDA but must be regarded as a carry over from the business of Servcon, which would therefore continue up to that point.

Mr Steyn said that lack of funds had been mentioned in respect of land acquisition. No mention had, however, been made of where the money to purchase land would be sourced. The operational costs seemed to be covered by service level agreements

Mr Mpambani said that the purchase of land was part of the initial project planned. An analysis of costs was done. The cost as structured was one-sixth of what was initially proposed by the private sector. Surpluses were to be used to acquire land and negotiations were ongoing with South African Revenue Services (SARS) not to tax Servcon. Therefore the surplus was to be used for the public benefit.

The Chairperson said that the NDoH must convince the Committee that these entities would otherwise have been wound up by November. She hoped that in the process there would not be loss of expertise and the systems created already. Thubelisha’s presentation had caused many concerns and questions. It was however noted that this entity was in the process of disestablishment.

The meeting was adjourned.