Joburg gave R200m tender to firm facing fraud charges of R94m

The City of Johannesburg granted the R196 million tender to repair Lilian Ngoyi Street after last July’s explosion to a company on trial for defrauding municipal entity City Power of nearly R94 million. 

As a result, the Johannesburg Roads Agency (JRA), the municipal-owned company responsible for the repair, must search for a new contractor, meaning completion of the project will be delayed.

JRA acting chief executive Lufuno Mashau confirmed to the Mail & Guardian this week that the first phase of the street upgrade will be completed in May 2025, instead of the December 2024 deadline the city had set in January. 

“The new contractor will be appointed on 21 August 2024 with work to start [in] early September,” Mashau said. “Phase two’s duration will be 12 months starting [in] May 2025 and will be completed in May 2026.”

A company background search by the M&G showed that Step Up Engineering — which was awarded the contract in January to reconstruct Lillian Ngoyi Street, formerly Bree Street, in the city centre — was called Setheo Engineering before changing its name in January 2022. 

Tinashe Mangwana and Nomathemba Precious Ncube — the former directors of Setheo Engineering, previously known as Setheo Investments — are on trial in the Johannesburg specialised commercial crimes court on 31 counts of fraud, forgery and theft, according to the charge sheet presented by the National Prosecuting Authority’s advocate Terrence Zitha. 

The company search shows that Mangwana and Ncube resigned as Setheo Engineering directors on 15 January 2022. Vuthlari Chewane came in as the sole director on 19 October 2022, the same day that Bridgette Shumba, the last of the previous directors, also quit.

Step Up Engineering uses the same company number as Setheo Engineering, the registration of which was in June 2010. 

The revamping of the busy street, which is home to a major taxi rank, follows last July’s explosion that city manager Floyd Brink said was caused by methane gas combustion and resulted in one death and nearly R200 million in property and infrastructure damages.

In January, then Johannesburg mayor Kabelo Gwamanda, speaking shortly before Step Up Engineering was to begin its work, said the city would “waste no time in ensuring that we act with diligence and speed to ensure the speedy implementation of the supply-chain management processes that would allow us to commence with the rehabilitation work”.

But more than seven months later, Lilian Ngoyi Street remains closed off and dilapidated, adding to traffic congestion in the area and inconveniencing residents and businesses.

The M&G has established that Step Up Engineering is the same company that received more than R93.7 million to rehabilitate and extend the Eldorado Park substation, on behalf of City Power but the state claims no work was done. 

According to the charge sheet, Mangwana and Ncube, with the alleged help of former City Power employees Godfrey Mulaudzi and Maete Thoka, are accused of orchestrating the theft of municipal funds after the award of the 36-month substation contract, which began on 1 April 2015. 

The trial began earlier this year, about seven years after the first arrests were made in August 2017, when former city mayor Herman Mashaba’s administration opened criminal charges. 

Testifying during the trial in June, Mashaba said it was “completely abnormal for anyone to receive money for no work done”, recalling how he noticed towards the end of November 2016 that City Power was allegedly paying for services it was not receiving. 

“During my time as the mayor of the City of Johannesburg, we never recovered any money [from the R93.7 million] that was paid,” Mashaba testified. 

But, under cross-examination from advocate Lawrence Mrwebi, the legal representative for Mangwana and Ncube, Mashaba conceded that he had not read the contract between City Power and its service provider. 

Mrwebi, on behalf of his clients, dismissed allegations that no work was done on the substation, claiming that 70% of the project’s budget was earmarked for the purchase of equipment, while the remaining 30% would be for civil costs. 

“I put it to you, Mr Mashaba, that, had you read the contract, you would not have made these accusations. You don’t know the nature of the contract,” Mrwebi stated, adding that Mashaba had jumped the gun by laying charges because his clients had three years to complete the Eldorado Park construction. 

“If you had issues with that contract, there were dispute resolution mechanisms built into the contract. They [Setheo] performed to that extent of procuring equipment to the value of more than R78 million. 

“That equipment was bought and remained in storage,” the defence advocate added, arguing that the money paid to his clients had not been wasted. 

But the state claimed that the accused forged an Absa bank guarantee, which was one of the requirements for the winning bidder to provide to City Power as insurance in case Setheo Engineering did not deliver on its mandate, so that the city could recoup its losses.

“The account number mentioned in the guarantee does not exist [and] the purported bank guarantee presented to City Power by Setheo is a fraudulent document,” Absa said in its response to City Power in the 2016-17 financial year, as quoted in the charge sheet. 

The awarding and cancellation of the contract to rebuild Lillian Ngoyi Street drew allegations from several sources in the City of Johannesburg of financial and governance mismanagement in the metro’s entities. 

An insider in the city’s management offices — who alerted the M&G to Step Up Engineering’s appointment — said the JRA’s bungling of the street refurbishment followed the “same corruption that you find at [waste-management company] Pikitup”. 

“If the city can fold its arms while the board of directors at Pikitup conceal evidence of R1.3 billion corruption at the entity, then it as comes as no surprise that a company with a fraud dark cloud lingering over it is appointed for such a massive project,” said the well-placed source, who asked to remain anonymous. 

The insider was alluding to the M&G’s investigative reports that a forensic report found that Pikitup had blown R1.3 billion through “fraud and corruption” during the procurement of external vehicle companies to supplement the entity’s insufficient waste-management fleet. 

City spokesperson Nthatisi Modingoane referred all questions to JRA chief executive Mashau.