R462m ‘megafarm’ land reform project in disarray after North West department fails to release funding

A “megafarm” transferred via a land reform programme in North West was meant to improve the livelihoods of the Communal Property Association beneficiaries, yet it is mired in disputes after the province failed to pay the full post-settlement funding.

Among the lush plantation fields of Skeerpoort, half an hour’s drive from Brits in North West, lies the farming community of Khutso Naketsi. 

Sina Modise is one of its oldest members – her identity document shows her to be 115 years of age.

She was meant to be one of the beneficiaries of a “megafarm” purchased by the North West Department of Agriculture, Land Reform and Rural Development (DALRRD) in 2019.

The land was bought as part of a land reform programme and is held under a communal property association (CPA). 

Yet the ambitious project to transfer 70% of a massive, working vegetable farm to community control, at a cost of nearly half a billion rands, is in a shambles.

Its problems highlight not only the policy and practical challenges inherent in the CPA model, but also the seeming complicity of national and provincial departments responsible for land reform, whether through incapacity, neglect or worse.

As with many CPAs before it, the Khutso Naketsi CPA’s problems started when, as a cumbersome legal entity in a rural and underdeveloped community, it was saddled with the responsibility for multimillion-rand businesses.   

In April this year, the previous committee members, elected by beneficiaries like Sina Modise to manage the farm and the CPA’s other properties on their behalf, were voted out.

Like many before them, the committee was perceived as having chosen to fatten their wallets with little regard for the impact on Modise and other beneficiaries. 

Four of the committee members of the CPA, who were ousted in the elections, allegedly misspent or mismanaged about R24-million from the CPA and its subsidiaries.

In addition, an irregular agreement signed by one of these former members almost saw the association lose its chief land asset and income stream.

Sina Modise is 115 years old and one of the oldest Khutso Naketsi beneficiaries. (Photo: Magnificent Mndebele / amaBhungane)

“Those people have made me suffer,” Modise told us while sitting on a couch in her home in Letlhabile township, almost an hour away from the land she once lived on.

“I have nothing to show that I am a beneficiary. We have been waiting for a long time but there is no difference.”

That perception is still a matter of some dispute, but what is indisputable is that it is entirely foreseeable that placing rural community leaders in roles of significant corporate and financial authority is going to create challenges and lead to temptations.

Given this, it seems extraordinary that the provincial and national departments did not, as far as we can tell, put in place effective checks and balances to manage a land transfer as large and complex as this one.

AmaBhungane’s attempts to elicit accountability from officials have been met with a level of non-responsiveness or officiousness that suggests an underlying indifference at best.

Khutso Naketsi

The Khutso Naketsi CPA is one of the country’s 1,720 associations collectively holding millions of hectares of land transferred to land reform beneficiaries in the democratic era.

Its woes offer a window into the widespread dysfunction of the CPA system, which is marred by infighting, opaque management and a lack of post-acquisition government support.

The evidence in amaBhungane’s possession suggests that between 2018 and mid-2022, the CPA and its subsidiaries received at least R27-million in revenues. Yet only R2,985,115 was given to about 325 beneficiaries via a once-off payment in December 2019, amounting to R14,500 per household.

Bank statements and financial reports obtained by amaBhungane suggest that the four former committee members tapped into the CPA’s resources in problematic ways that went beyond their purview, a view bolstered by allegations of their poor performance.

The four erstwhile members allegedly appointed themselves as directors of the CPA’s corporate subsidiaries, consisting of a farming joint venture created from restitution involving the previous landowner and two separate companies created in July 2020.

Their modest R3,500 committee stipends ballooned into self-determined salaries of up to R60,000 a month per person. As a result, the employment costs of the CPA steadily rose from R493,500 in 2018 to R2,423,733 in 2022.

The documents also reveal that R1.283-million was extracted via ATM withdrawals and cashed cheques, with little or no documentation to show where it went.

“We’ve asked them to break down the R24-million [internal spending]. Who did it benefit? There is no benefit to the community,” said Douglas Ncube, the new chairperson of the CPA.

The CPA’s two main corporate assets are Damsig Poultry – a pre-existing asset – and Khutso Naketsi Agri, which controls the more recently acquired mega farm in which the CPA holds 70%.

Damsig, which leases 19 chicken houses to large corporate clients, was overseen by former treasurer Thomas Selahla – a former Klipgat Police Station acting commander – and William Moroke, a former CPA committee member.

The separate 70-30 joint venture, Khutso Naketsi Agri (KNA), was led by the CPA’s former chairperson Abdullah Lucky Milanzi and Ephraim Mphamo, another member of the CPA.

Now, the new committee is faced with wresting control from the old members, who remain listed directors of Damsig and KNA, as well as trying to find out what went on and put the businesses back on track.

Redistribution of a ‘megafarm’

The CPA was registered as a legal entity on 15 September 2008. This is when the DALRRD restored the first land parcel to the dispossessed Khutso Naketsi community members.

In early 2019, the department bought an additional “megafarm” of 1,923 hectares at a cost of R462-million. This land was returned to the 325 household beneficiaries for whom it should have been a momentous occasion of historical redress.

Any celebration was, it turned out, premature – by 30 September that same year, the community had lost all control over the land.

The post-settlement success of the farm depended not just on the acquisition of the land and agricultural implements, but also on a capital injection agreed to by the department, as well as the transfer of skills to manage such a labour-intensive and technically challenging project.

Setting up a joint venture

In terms of skills transfer, the department recommended that the new landowners enter into a joint venture with the previous owner, Henning Petrus Nicolaas Pretorius.

Seventy percent of the joint venture would be held by the CPA and 30% by Pretorius, trading through his company HPN Bestuur Pty Ltd. This joint venture, KNA, was registered as a private company on 3 April 2019.

Pretorius was the obvious choice to provide mentorship at what had previously been his farm.

The joint venture was to last for five years, whereafter the community could terminate the arrangement and acquire the 30% of the shares held by HPN Bestuur or renew the management agreement.

KNA’s shareholders agreed that the company’s operational costs had to be split between the CPA and HPN Bestuur based on their respective shareholdings.

The CPA’s R87.1-million of “post-settlement funding” was supposed to come from the North West DALRRD, while HPN Bestuur had to provide R26.7 million.

The joint venture was effectively a transitional structure. In a judgment stemming from subsequent high court litigation, the joint venture’s purpose was framed as aiming “… to transfer a going concern to a new corporate governance structure without putting the ongoing of the business at risk and to prevent job losses”.

There are theoretically two income streams for the CPA through the joint venture.

First, the contract makes provision for the CPA to earn a 2% rental fee on KNA’s monthly turnover. This was apparently paid. Then, it should receive 70% of whatever dividends the venture pays. The Khutso Naketsi CPA has received nothing from this second income stream.

This is because the North West DALRRD failed to provide the total portion of the CPA’s funding on time. 

This is where the trouble began.

The shortfall of funding saw Pretorius lend money to the joint venture in the interim, with the CPA’s 70% being given back to him in terms of a supposed share transfer agreement as security, pending payment by the department.

This arrangement was highly problematic. Rather than the CPA’s 70% being encumbered in the event of, and to the extent of, any default, the entire 70% was transferred back to Pretorius as security. This deal was signed by the then-chair of the CPA, Abdullah Milanzi.

The scene was set for the CPA to lose its prize asset, ironically to the very person the state had bought the land from in order to restore it to the dispossessed community.

As it turned out, this was exactly what happened, ultimately leading to an acrimonious court battle.

KNA workers gather at the meeting point for the morning prayer, which has become a tradition among employees in the company. (Photo: Magnificent Mndebele / amaBhungane)

The disastrous cost of delayed ‘post settlement funding’

Milanzi concluded the share transfer agreement on 19 September 2019 on behalf of the CPA.

“As soon as the post-settlement support [from government] is available, the 70% shares will be reallocated to Khutso Naketsi CPA,” reads one of the conditions in the agreement Milanzi signed.

It would take the North West DALRRD nearly two years to release a partial payment of R37,969,190, which was only paid on 1 April 2021, despite R87.1-milion having been approved in June 2019.

This money was for additional agricultural implements worth R16,960,691, as well as crops on land worth R28-million, but for the latter, the department only paid what the crops were sold for on the market, said Stephan Pretorius, the son of the farm owner, who now controls HPN Bestuur’s 30% stake in KNA, along with his brother.

AmaBhungane understands that when Pretorius senior stepped in to fund KNA, it was a contingency plan based on hopes that, in a month or two, government would have released the post-settlement funding. 

As a result, since KNA’s inception, the company has had to borrow about R20-million from Pretorius and still owes him around R8-million. 

“It was never meant to be R20-million. He was forced to continue supporting the company,” said Stephan Pretorius.

On 25 May this year, the CPA argued in court that Pretorius’ agreement with Milanzi, giving him 100% of the company as security, was void.

Acting Judge Karin Strydom agreed, ruling that the agreement signed with Milanzi was invalid because it was not approved by a majority of heads of households in the community.

She restored the CPA’s rights as “the holder of 70% of the authorised and issued share capital in the first respondent [KNA].”

But what she could not restore was the money and goodwill that had been lost.

Why was the funding delayed?

It has been difficult to get information from the North West DALRRD, but documents obtained by amaBhungane show that post-settlement funding – in the full amount of R87.1-million – was approved by the chief director of the regional land claims commissioner and the DALRRD’s provincial shared services centre as early as June 2019.

There appear to have been bureaucratic delays, mainly because the province wanted the funds paid into an account controlled jointly by Khutso Naketsi Agri (the joint venture) and “the identified accountant”, apparently referring to a transaction advisor insisted on by the province. 

This meant that a transaction advisor had to be appointed and a deviation approval required, which seems only to have happened in November 2019.

Stephan Pretorius gave us his recollection of events:

“What happened was, it was in a government meeting where … it was decided that they have not yet assigned a transitional advisor, and this is after the project had started, and they assured us that once that person gets assigned, the money will be released quickly. This is at the start of the company. 

“My father said he will lend us to start everything and as soon as the transactional advisor gets appointed, [KNA will] pay back the money. When the transactional advisor came in, we already had a financial year and showed a loss.” 

This was around February 2020. Then, Stephan says, the department changed its tune and said “it was too risky for them to give the money out because they think we are going to lose the money… they need to reanalyse the business”.

He said the department wanted them to change their management structure to bring in another person to oversee the project.

No comment

AmaBhungane reached out to a number of those involved at the department, without success.

We also tried reaching out to the transaction advisor, Balebetje Makua. Eventually, this reporter sent an SMS: “I would really love to have a chat with you regarding your role… I am about to run out of time.”

She responded: “Since you’re out of time and I have none at the moment. I am no longer on the project as you know. The project is in the full custody of the department … they are very open with the challenges of the project.”

That has not been our experience.

We eventually reached Richard Keothaile, chief director of North West DALRRD’s provincial shared services centre, which renders corporate support services. 

He was one of the first officials to sign off on the R87.1-million, and whose delays and partial payment seemed to have been the original cause of the joint venture’s operational and legal problems. Listen to the full interview here. 

In essence, however, Keothaile said he would not discuss the issue with the media, but only with the CPA committee.

We tried to explain, “We have come to you guys because we’ve spoken to those people and they have allegations against you guys.”

Keothaile said he was not aware of any allegations or differences between the department and the beneficiaries. And if there were, the CPA should bring them up with the department.

Keothaile: “I will respond to the CPA itself if they raise questions and not to you specifically.”

Reporter: “The very same CPA that is frustrated with you guys and has come to the media saying you guys are not doing your duties?”

Keothaile: “Then refer them to us. We can discuss with them… But what you are doing is trying to get information from government and say government must just speak everything openly to any people identifying themselves to be… representing the public. Unfortunately, I won’t fall into that trap… This is private matters for Khutso Naketsi.”

Intervention

Seemingly in response to amaBhungane’s efforts, North West DALRRD officials held a meeting with the Khutso Naketsi CPA committee members on 1 November 2023 in Mahikeng. 

In a recording of the meeting obtained by amaBhungane, one official, Kenneth Matukana, the director of operational management, can be heard downplaying their contribution to the post-settlement agreement. In fact, Matukana denies the existence of the agreement.

“It was a gentlemen’s agreement,” said Matukana in the recording. “Let me not even call it a gentlemen’s agreement. We said, ‘Pretorius, since you are the owner with… experience, let us see in the five-year how can this relationship be enhanced. It is not something that is binding.”

The province’s internal approvals give lie to this claim. It is apparent that the approval of the R87.1-million was based on a detailed post-settlement plan. Now it seems the department wants a new plan.

“I am not going to release money until there is a plan,” another official, Lengane Bogatsu, the chief director of land restitution support, told those at the meeting.

But what is not clear is who will provide this plan.

Leadership fallout

Based on documents and interviews obtained by amaBhungane, the Khutso Naketsi CPA was beset by leadership problems. 

Milanzi, the former chair who signed away the CPA’s 70% share to Pretorius, is accused of being part of a “scheme” that syphoned money from the CPA.

Milanzi and Ephraim Mphamo, who became KNA board directors representing the CPA in the joint venture with Pretorius, were selected to be part of the skills transfer programme. They were required to report to the KNA farm daily.

KNA would initially pay Milanzi and Mphamo R20,000 a month each. 

However, according to Stephan Pretorius, Milanzi told them one day that the CPA had decided he should earn R60,000 a month, while Mphamo continued to earn R20,000.

Pretorius said they initially refused the request, but “Milanzi, through the CPA, forced us to increase his salary to R60,000 through the majority shareholder”.

Stephan said the duo failed to meet their contractual obligations. Stephan and his father opted to freeze the duo’s skills transfer money.

This allegedly led to Milanzi obtaining a monthly payment out of the account of the CPA that was presented as a “loan” to KNA. According to the figures that amaBhungane reconciled, the “loan” – which stretches from 29 June 2021 to 23 September 2022 – amounts to R932,700.

We sent detailed questions to Milanzi on 11 September 2023, asking him to explain the KNA loan as well as the mysterious cash withdrawals from the CPA’s account that totalled R1.283-million. 

He failed to respond in detail, saying only that the matter was currently under investigation by the Hawks.

“All the money was correctly accounted for,” Thomas Selahla, the former treasurer, told us before his sudden death at the beginning of November.

“We were sometimes forced to use the services of skilled labour which we didn’t have. Most of the labour is people from other countries with no identification, which then necessitated us to use proforma [invoice] to record everything that does not appear on the bank statement.”

What is clear is that both men had access to the bank accounts of the CPA as designated signatories.

“The money used to pay stipends to the executive committee was agreed upon,” Selahla told us.

Damsig Poultry

Damsig, the CPA’s other corporate subsidiary, established in July 2020, is another headache for the incoming committee.

Selahla, along with William Moroke, also a former committee member, was fully responsible for its operations.

The CPA inherited 19 chicken houses with a capacity ranging from 20,000 to 40,000 birds.

“It was impossible to start running the business (Damsig) as there was no start-up funding,” Selahla told us. “The total cash needed to start was about R3-million. We had no cash and tried for funding from the department but to no avail.”

Damsig’s directors turned to the shareholder, the CPA. 

“We went back to the beneficiary and reported the dilemma we are in; it was agreed to use some money which was needed urgently for things like the generator,” Selahla said.

The full extent of the money that went through Damsig is not clear because Damsig used a separate bank account from the CPA. It appears that when the erstwhile members were ousted from the CPA’s committee, they failed to hand over the financial records of the company.

One of the companies to which Damsig leased chicken houses, Avon Chicken Farming, paid rent of R350,000 per month directly into the CPA’s Standard Bank account. In total, the amount paid to the CPA between 15 May 2018 and 3 April 2020 was R9.1-million.

The Damsig directors couldn’t do as they wished with this money as it went into the collective account. 

Another renter, Daybreak Farms, paid funds into Damsig’s own account. We managed to trace the payment requests which suggests that Daybreak Farms paid rent amounting to R7,111,490 to Damsig between 21 July 2020 and 11 January 2021.

This R7.1-million, which never went to the CPA, remains unaccounted for. 

“When we stopped growing for Daybreak in March 2022, we had not broken even,” said Selahla.

When questioned by amaBhungane, Moroke distanced himself from Damsig’s finances, saying that he oversaw production while Selahla focused on handling the money.

William Moroke, a director of Damsig Poultry, was in charge of the entity along with the late Thomas Selahla. At least R7.1m that Damsig received remains unaccounted for. (Photo: Magnificent Mndebele / amaBhungane)

Moroke said that between 2020 and April 2022 Damsig’s bank accounts received an average of R1.5-million every six to eight weeks. The total revenues generated by Damsig between 2020 and 2022 are estimated to be in the region of R17-million.

We were unable to establish a breakdown of the company’s expenses over this period.

Khutso Naketsi Holdings

So far, what is clear is that all these newly acquired businesses failed to contribute to the community. Perhaps in a bid to manage the situation, the former committee members decided to set up a holding company in July 2020: Khutso Naketsi Holdings (KNH). 

KNH was purportedly intended to oversee the subsidiaries. However, KNH also ended up straining the finances of the CPA. The holding company’s employees were paid what the current committee members felt were exorbitant and unjustified amounts.

Thathi Samuel Tau was hired as the chief executive officer. Tau was seemingly entitled to remuneration of R1.26-million per annum, including benefits such as a 13th cheque, medical aid, housing and car allowance.

Tau’s employment is under dispute and a case is currently before the Commission for Conciliation, Mediation and Arbitration (CCMA). 

The new Khutso Naketsi CPA committee has questioned Tau’s status.

In a submission to the CCMA, they claimed that he “was involved in a scheme with erstwhile committee [members]… disguised as employment… To date, it is unknown what the applicant was appointed to do and what his duties and responsibilities are.”

Tau told amaBhungane that his duties were to ensure that there was compliance among the subsidiaries and the CPA regarding annual returns and audits; to enable good governance; negotiate for business, network and get stakeholders to grow the business; safeguard the property of the CPA from legal disputes that could potentially result in the CPA losing its land and, last, control dividends so that beneficiaries would receive what was due to them.

Tau told amaBhungane that the re-audit by the accountancy and auditing firm, whose reports were not out at the time, would clear his name.

CPAs have potential, but…

Khutso Naketsi is one of many CPAs that have the potential to radically improve the livelihoods of beneficiaries.

However, Khutso Naketsi is just another CPA that purchased land through the public purse to rectify historical injustices and that failed to deliver due to infighting and alleged misuse of money.

This has become a common story for CPAs, largely due to DALRRD’s failure to administer and support them.

The CPA model was created in 1994 as the primary vehicle for land reform. As of 2022, there are 1,720 CPAs across the country, comprising millions of hectares of land.

However, only 23% of these CPAs are, according to DALRRD’s 2021-2022 annual report, compliant with the required standards.

Two-thirds of the country’s CPAs are non-compliant and one in 10 will never be compliant.

“It is clear that many of them are dysfunctional,” said Prof Ruth Hall, director of the Institute for Poverty, Land and Agrarian Studies at the University of the Western Cape.

“In abstract, the CPA model is a very powerful one, but only if it is for holding land and not for running a business. Second, if they are adequately set up.”

KNA farmworkers tend vegetables. (Photo: Magnificent Mndebele / amaBhungane)

No political will to support CPAs 

The power of CPAs is that they oblige the state to provide the beneficiaries with additional support, and in doing so break down the division of state and private land, noted Hall.

The DALRRD minister is meant to ensure that every CPA has its finances audited and that annual general meetings are held. One of the difficulties is that when CPAs were established, said Hall, DALRRD massively underestimated the programme.

“What officials would say to me is that the problem with the CPA model is that you can never finish a project cycle. You are always called back, and officials want to go on to create new projects,” Hall said.

“In fact, the very institution that is meant to be responsible for them, successive senior officials and ministers, have said, ‘We do not support the CPA model’.”

But the department denies this allegation.

“The Department continuously supports CPAs and there are targets in the Department Annual Performance Plan and the quarterly reports and Annual performance reports are provided. The Department is not aware of the allegations that the officials dislike CPAs.”

Nolundi Luwaya, a researcher at the Land and Accountability Research Centre at the University of Cape Town, echoes Hall’s sentiments:

“The other part of the failure rests squarely in the present, in this ministry and those who have preceded it. They have failed to provide adequate support to CPAs.”

Luwaya added that once DALRRD has restored land to the community via the CPA model, there seems to be a perception that everything will automatically move smoothly. As a result, the department’s ability to provide ongoing support “has been problematic”.

This observation resonates with the Khutso Naketsi CPA.

Its shortfalls are a double-edged sword for the beneficiaries for whom land is bought, yet who never reap the benefits, as well as for the country, as these farms are purchased at market value, yet the department fails to provide support or administer CPAs.

The committee called for a special meeting on 5 November 2023 to brief the community about the auditor’s report on the financial mismanagement by the previous committee members. (Photo: Magnificent Mndebele / amaBhungane)

Thus beneficiaries are robbed of the chance to improve their lives.

Khutso Naketsi is just a drop in the ocean – a story of one of many CPAs in the country whose millions of hectares of land are lying fallow. DM