Rural Households Infrastructure Grant transfer to COGTA: input by National Treasury, SALGA, COGTA & Human Settlements Departments

Standing Committee on Appropriations

16 August 2012
Chairperson: Mr E Sogoni (ANC) and Ms B Dambuza (ANC)
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Meeting Summary

The Rural Households Infrastructure Grant was being transferred from the National Department of Human Settlements (NDHS) to the Department of Co-operative Governance and Traditional Affairs (COGTA). There were essentially three reasons to phase the RHIG into the MIG:
1) improve the alignment of the functional roles of national and local governments as sanitation was a function that local government was responsible for implementing.
2) ensure that the same institution responsible for planning the construction of VIPs was also responsible for their maintenance.
3) the RHIG had not succeeded in rapidly reducing backlogs as was originally intended.

The intention of the latest change was to incorporate the Rural Households Infrastructure Grant into the Municipal Infrastructure Grant and for its implementation to take place at local government level with the assistance of national. One of the main purposes of the Grant was to address the huge backlog in sanitation that it was currently not managing to do. There was huge underspending of the Grant.
For the ongoing maintenance and functionality of on-site water and sanitation, it was best that they be rolled out by the municipalities that would be responsible for maintaining them. Incorporating the grant into the MIG was supported by municipalities (SALGA). This shift took place in the context of a significant increase in the resources available to rural municipalities.

Members felt that the rationale presented was not sufficient motivation for the change. At the end of the briefings, Members were still not convinced about why the transfer was taking place. They pointed out that the RHIG had been transferred from the Department of Water Affairs to the NDHS and now to COGTA. Where next? The buck stopped with National Treasury and they asked what plan did National Treasury have in place. What would COGTA do that would be an improvement on NDHS? COGTA itself was underspending on its Municipal Infrastructure Grant. Another obstacle was that capacity was lacking at local government level. Members asked what plans were going to be put in place by the various departments and how National Treasury was going to play a supporting role.

Members requested that the government departments involved and the South African Local Government Association had to jointly formulate a consultative, all-inclusive and proactive plan which was going to clearly map the way forward and ultimately improve service delivery. Members said that the officials of the concerned Departments and institutions had to meet as soon as possible to agree on the start of the plan. The committee was expecting a first report on the plan by the end of September 2012.

Meeting report

Standing Committee on Appropriations Chairperson, Mr E Sogoni, at the outset questioned why the Rural Household Infrastructure Grant (RHIG) should be transferred to the Department of Cooperative Governance and Traditional Affairs (COGTA) and not rather remain with the Department of Human Settlements. He pointed out that the RHIG had experienced challenges regarding its performance but grants in general tended to struggle at the outset. The RHIG did have the potential to deal with important issues such as sanitation. He added that in terms of the Money Bill Procedure and Related Matters Act, portfolio committees had to compile budget review reports.

Portfolio Committee on Human Settlements Chairperson, Ms B Dambuza, noted that during the April 2012 Budget Speech, Members were informed that the RHIG was to be transferred from the Department of Human Settlements to COGTA. The present meeting had been called to enlighten Members on the reasons behind the decision. The reason given, that the RHIG was underperforming, was too simplistic. She noted that the Human Settlements Portfolio Committee had kept track of the RHIG ever since it had been transferred from the Department of Water Affairs to the Department of Human Settlements. Members had to be brought on board as to the reasons behind the current decision.

National Department of Human Settlements (NDHS) progress report
The Department of Human Settlements presented a progress report on the Rural Household Infrastructure Programme (RHIP). The Director General, Mr Thabane Zulu, provided some opening remarks and said that only an overview of the RHIP could be provided given the time constraints.

Mr Philip Chauke Chief Director: Sanitation, NDHS said one of the objectives of the RHIP was to support municipalities to address rural basic sanitation backlogs. The RHIG was gazetted as a Schedule 7 Grant, which meant that even though funds were gazetted against municipalities, it was transferred to the NDHS for management/implementation in particular municipalities. The NDHS was responsible for identifying mechanisms for implementation. The implementing agents could be Non Governmental Organisations (NGOs), Community Based Organisations (CBOs), Public Entities or Managing Contractors. The RHIP projects had to be aligned to municipal Integrated Development Plans (IDPs). Members were given a breakdown per province of progress for 2010/11. A total of R100m had been allocated, 26 municipalities had benefitted, the target for Ventilated Improved Pit (VIP) toilets was 11 876 and the number completed was 11 652. The NDHS had thus achieved a completion rate of 98%. Challenges experienced in 2010/11 was that the RHIP had only started in October 2010 as there had been procurement delays. Some water service authorities did not fully grasp the nature of a Schedule 7 grant and delayed signing service level agreements with the NDHS as they wished to implement the RHIG themselves. Furthermore implementing agents struggled to source building materials and have these delivered on site.

Ms Funani Matlatsi, Chief Financial Officer: NDHS, provided Members with a quick breakdown of the financial performance for 2011/12. She noted that of the R100m allocated to the RHIP in 2010/11, R38m had not been spent. The NDHS requested a rollover from National Treasury but only R26m was approved for rollover. The RHIP allocation for 2011/12 was R231m, plus the rollover of R26m, totalled R257m for 2011/12. Of the R257m only R187m had been spent which left R70m unspent. The RHIP 2012/13 expected delivery figures had an allocation of R479m and 56 municipalities would benefit with an estimated target of 53 266 VIP toilets. The temporary job creation figure for 2011/12 was 4 726 jobs. Challenges experienced in 2011/12 was that the two implementing agents (IAs), Mvula Trust and the Independent Development Trust (IDT), could not implement such a programme at scale and achieve the outcomes set. In addition the existing service level agreements between the NDHS and the Programme Management Support Team, Maxima Global/Transpace, on the one hand and Mvula Trust and IDT on the other, were not consistent with each other. In addition, the two recovery plans submitted in September 2011 by the two IAs were too optimistic. Operations and maintenance challenges were also experienced. In the 2012 Division of Revenue Act (DORA), within the Basic Service component of the Equitable Share there was a breakdown of the allocation between water, sanitation and refuse refusal. These funds were for operation and maintenance which include the emptying of full pits and septic tanks.

The NDHS as a way forward had reduced previous allocations to IDT and Mvula Trust to approximately 60% of the 2012/13 budget in line with the Human Settlements Portfolio Committee recommendations. The NDHS was also in the process of allocating approximately 40% balance of the 2012/13 budget to tender for additional IAs to be added to the programme.

National Treasury briefing
Ms Marisa Moore, National Treasury Chief Director: Urban Development and Infrastructure and Ms Wendy Fanu, National Treasury Chief Director: Intergovernmental Policy presented.

Ms Moore confirmed that Finance Minister Pravin Gordhan had stated that the RHIG was to shift from the NDHS to COGTA. The reason for the shift was that the RHIG was not performing. The budget allowed leeway for this to happen. Perhaps spending would improve. There was a misalignment of functions. Sanitation was a local and national responsibility. The manner in which the RHIP was run kept local government out of the picture. Local government involvement should be ensured instead of national taking responsibility alone. Relating to planning, the problem was that those responsible for implementation were not responsible for future maintenance. She read out the constitutional and legislative framework relating to water and sanitation services.

The introduction of the RHIG and the function shift had resulted in the NDHS becoming an implementing department. It was initially a policy making and oversight department. She elaborated upon appropriate service delivery responses as contained in the Sanitation White Paper. For example, there should be adequate sanitation which met basic health and functional requirements including the protection of the quality of both surface and underground water. The context for the introduction of the RHIG was government’s objective to provide universal access to water and sanitation by 2014.

Members were provided with statistics on backlogs in water and sanitation by comparing years 2001 and 2007. Backlogs in water and sanitation were greatest in the most rural municipalities. Decreases in water backlogs in these municipalities between 2001 and 2007 were modest whereas sanitation backlogs actually increased. The RHIG was introduced in response to the high backlogs in rural areas and was intended to respond to the specific conditions of rural areas which made it too costly to provide rural households with connector services. The RHIG was introduced in order to rapidly rollout on-site infrastructure. To accelerate implementation of the grant in areas where municipalities generally had weak capacity, the RHIG was introduced as a Schedule 7 (indirect) DORA grant implemented by national government. Members were given insight into the operational budget of sanitation. Ms Moore stated that expenditure trends within a given year often changed. To install pit latrines was expensive and the initial allocation had only been R100m. Figures for delivery performance on VIPs for 2010/11 was 46% and for 2011/12 was 69%. However for both years there was no delivery on on-site water provisions. The Auditor General’s Report had for 2010/11 and 2011/12 noted under-spending of R38.4m and R70.2m respectively.

There were essentially three reasons to phase the RHIG into the MIG:
1) improve the alignment of the functional roles of national and local governments as sanitation was a function that local government was responsible for implementing.
2) ensure that the same institution responsible for planning the construction of VIPs was also responsible for their maintenance.
3) the Schedule 7 RHIG had not succeeded in rapidly reducing backlogs as was originally intended.

Ms Fanu continued the briefing, noting that there was generally not only one type of rural municipality. The first type had a small urban core and a small population. The second type of municipality was in the former homelands which had large populations that were poor and had poor access to services. The question that needed to be asked was whether additional allocations had made an impact and whether these funds had been spent. There had been increased differentiation in transfers to local government. Further differentiation was being explored such as infrastructure conditional grants and capacity support. Another issue to take into consideration was reforming the local government fiscal framework to take account of changing circumstances. Some reforms currently under way were to increase differentiation in the system, review the local government equitable share formula and to possibly improve infrastructure funding (as informed by the 2011 Census). It was believed that the results of the 2011 census would identify where the actual backlogs were and would guide the targeting of the grant system appropriately. To address backlogs either connector solutions or on site solutions were needed. In conclusion, she said that the
RHIG was introduced for a specific purpose and only intended to last for a limited time. For the ongoing maintenance and functionality of on-site water and sanitation, it was best that they be rolled out by the municipalities that would be responsible for maintaining them. Performance of the grant had been disappointing. Incorporating the grant into the MIG was supported by municipalities (SALGA). This shift took place in the context of a significant increase in the resources available to rural municipalities.

Department of Co-operative Governance and Traditional Affairs (COGTA) presentation
Mr Muthotho Sigidi, Acting Director General: COGTA, said he was glad that the RHIG was to be transferred to COGTA and agreed with the reasons that National Treasury had given for the transfer.

He noted that o
ver the period 2004 to date there were various sector grants that had been introduced most of which had a bearing in the municipal space. Some of these grants have been seen to have the same purpose but were very fragmented in their application and not integrated. Local government was where the implementation should take place in terms of its powers and functions. Provincial and national government had to support local government to deliver. The support should be co-ordinated at local government level. With any grant, norms and standards needed to be both set and monitored by sector departments.

He said the rationale for having the RHIG while there was a MIG was not clear.
Municipalities should be strengthened and supported to deal with their mandate. The support should include resourcing this sphere so that it delivers services. Disintegrating funding resources does not assist the sector to realize its mandate. Challenges of having grants per sector department

were that multiple grants required multiple reporting systems and here was where many municipalities suffered most. Another challenge was that there was a disjuncture with coordination. Principles that should guide changing the grant system were: what reforms had taken place in the last ten years, what challenges were understood by stakeholders and what lessons were learnt; the time taken to adapt to a new system. It took a minimum of three years for grants to perform and two years to implement.

Mr provided a table with separate comparisons on water and sanitation delivery and the results showed that impact was being made. Comparing Census 2001 with the 2007 community survey, it was clear that municipalities had addressed 48% of water backlogs and 71% of sanitation backlogs.

 On looking at the way forward, he said:
• The 2014/15 baseline allocation for RHIG was to be incorporated within the MIG
• This was the appropriate solution since MIG had matured systems for the funds to be spent
• However, consideration may need to be made not to allocate the rural infrastructure through the MIG formula
• The funds should be allocated separately and be added to those municipalities that were experiencing huge backlogs
• RHIG should therefore be prioritised for the 21 district municipalities that were Water Services Authorities outside the MIG formula.
• This initiative was proposed as part of the differentiated approach in financing rural municipalities.
• The Municipal
Infrastructure Support Agency (MISA), introduced as a government component, would offer the best solution as it had been taken over from the Siyenza Manje initiative managed by Development Bank of Southern Africa without introducing new systems
H
e said that if the RHIG was incorporated into MIG, the Department of Water Affairs would still have to set norms and standards which needed to be monitored.

South African Local Government Association presentation
Mr Mthobeli Kolisa, Executive Director: Municipal Infrastructure Services, SALGA, noted the question posed by Chairperson Sogoni as to whether the RHIG should be shifted from the NDHS to COGTA. He noted that SALGA had a different understanding; SALGA asked whether the RHIG should be moved from national to local government. When it became incorporated into the MIG it became a local government grant. COGTA would oversee the RHIG. SALGA as local government understood the role of national government ie policy development, setting norms and standards and supporting local government. SALGA was aware that some municipalities had challenges on the delivery of services especially rural and district municipalities. Some of the reasons were financial constraints, institutional capacity constraints and also the poor conceptualisation of targets. The role of local government needed to be deepened in the decentralised form of government which SA had. The issue of support and the need to build capacity needed to be looked at. SALGA supported the incorporation of the RHIG into MIGs. It was better to strengthen local government performance via the MIG.

Discussion
Ms L Yengeni (ANC) asked why Mr Sigidi was representing COGTA alone and when he had been appointed as acting director general. Would he on his own be able to answer questions asked by Members?

Mr Sigidi responded that his colleagues were in Pretoria preparing for an Implementation Forum that was to take place in Parliament on Monday 20 August 2012. He responded that he had been Acting Director General since 1 April 2012. He had been with COGTA from 2004 to 2007and had been employed by a municipality from 2007to 2010. From 2010 onwards he had been employed by COGTA again. As far as answering questions he would be able to answer some and most probably not all.

Mr M Swart (DA) said it was sad that there was a lack of planning and service delivery. Did it really matter where the RHIG was to reside? Whether with COGTA, Department of Water Affairs or the NDHS all that was needed was that the RHIG had to work and service delivery had to take place. The funding was there but delivery was not taking place. R1.2 billion had been allocated but delivery had to take place. He addressed the NDHS and asked who determined where sanitation should be installed.

Ms Yengeni directed her comments to National Treasury and said she wished to understand the role it played to assist the government department responsible for the RHIG (whichever one it was) and support municipalities as well. There were persons in National Treasury tasked with this support function but the question was whether it was done. Was planning done? What diagnosis was done to identify the bottlenecks that the NDHS would experience? The RHIG had been transferred from the Department of Water Affairs to the NDHS and now to the COGTA. Where next? The buck stopped with National Treasury. She asked what plan National Treasury had in place. If the RHIG was failing, whose responsibility was it? Was it the responsibility of the NDHS?

She addressed COGTA and stated that in 2008/09, in excess of R9 billion had been allocated to MIG, why had only R5 billion been spent. The underspending trend was the same for 2009/10 and 2010/11 where only R2.4 billion and R2.1 billion respectively had been spent. The figures for 2011/12 were still to be seen. The question which National Treasury had to consider was whether the allocations for the RHIG were going to be spent.

Ms M Borman (ANC) noted that things were not good in sanitation. The Portfolio Committee on Human Settlements considered sanitation to be a bit of a joke. She pointed out that the RHIG had been dumped without a proper handover to the NDHS. The NDHS tried its best under the circumstances and yes mistakes were made. If it was true that the RHIG should be with COGTA as National Treasury contended, then why was the RHIG transferred to the NDHS in the first place? She highlighted the fact that MIG funding was not being spent either. Why was the RHIG being transferred instead of just strengthening the system in the NDHS? In any event, she felt that transfer had not been done properly.

Mr S Mokgalapa (DA) was worried about the inconsistent application of the RHIP. National Treasury seemed to dispute the targets achieved by the NDHS which made the Portfolio Committee on Human Settlements even more suspicious. He asked National Treasury whether it should not impose stricter grant conditions to ensure proper implementation. The RHIP had only one and a half years left in its cycle but it did not even make a dent in the sanitation backlog. The Portfolio Committee on Human Settlements had moved away from the premise of houses only and considered sanitation an important issue. Basic sanitation needed to be provided. He addressed COGTA and noted that COGTA welcomed the RHIG transfer to it - yet it was underspending on its MIGs. Money was being spent on the wrong things. He asked how the COGTA was going to manage the RHIG.

Mr Mokgalapa stated that SALGA was considered to be the implementing agent at grassroots level. The prevalent problem was intergovernmental relations which was non existent at grassroots level. Most of the district and local municipalities did not communicate with each other. SALGA’s priorities were all wrong. It was SALGA’s responsibility to see to it that local government had the capacity to implement. Integrated Development Plans needed to be strengthened and, yes, he was aware that it was a challenge. It was all good and well that houses were built but there was no sanitation. Infrastructure needed to be in place before houses were to be built. Another problem was that the two service providers could not handle the national rollout of the RHIP. It was a massive programme.

Ms R Mashigo (ANC) felt that the technical unit in National Treasury should have stepped in when problems with the RHIG arose. If COGTA themselves said that it took three years before a programme performed, there would be delays as the process was started all over again. She noted that COGTA and SALGA should have had more proactive measures. COGTA welcomed the RHIG and SALGA said that it should go to local government, yet local government had problems. She felt it was up to the NDHS and National Treasury to come up with suggestions on how to connect things.

Ms A Mfulo (ANC) pointed out that there seemed to be a lack of reporting systems. The end result was poor service delivery. National Treasury needed to come up with a holistic approach. The approach should not be to work in silos. How could COGTA welcome the RHIG when it had underspending in its MIGs? What was lacking needed to be identified.

Ms A Mashishi (ANC) asked why the COGTA welcomed the transfer. She supported the President’s statement that the RHIG was to be transferred.

Ms Yengeni stated that of the R11.2 billion MIG, the COGTA only spent R3.4 billion and R7 billion remained unspent.

Chairperson Dambuza said she had had enough of the use of agencies to handle implementation. She agreed with Minister Trevor Manual that no more agencies should be used. Capacity needed to be built in government departments and local government. She felt that government needed to build capacity from within. The RHIG was set up for failure when it had been transferred to the NDHS. Systems needed to be put in place. Even though the transfer had taken place three years ago, no movement had taken place.

Chairperson Sogoni noted that it was clear that SALGA wished the RHIG to go to local government. The main aim of the RHIG was to provide access to sanitation at grassroots level. Planning seemed to be lacking. It was assumed that the NDHS had already built infrastructure but now the RHIG was being transferred away from them. Members needed to know what COGTA’s plan was. Funds were not being spent and service providers like Mvula Trust lacked the capacity to implement the RHIG. He was convinced that there were other service providers who could deliver. He said that the NDHS should inform Members what the plan for the RHIG was. National Treasury had made it clear that they were not rigid in the belief that the RHIG needed to be transferred. He asked all the departments present to tell Members what their plans were. The briefings were appreciated but did not shed much light on the issue as to why the RHIG was being transferred. The RHIG had not even been fast tracked - yet it was already being transferred to another department.
 
Chairperson Sogoni
said that the Committee accepted that the objective of the grant was to fast track delivery but now the objective had not been achieved, yet it was being transferred? It was important for the services to be delivered so as to avoid the daily protests for service delivery. The confrontation with protests for delivery was because officials failed to do the very small and basic things.

Ms L Yengeni (ANC) said that the Department of Human Settlement must present a plan as to how they intended to use the money. The National Treasury also had to account for the money that it had given to the Department of Human Settlements. How was National Treasury going to assist the Department of Human Settlements in discharging its responsibility. The Committee needed the plan from National Treasury and NDHS before Members rise for September recess.

Mr Sogoni said that the plan from Human Settlements had to involve the National Treasury and SALGA. The plan had to be a consultative and all-inclusive one.

Ms Dambuza, Housing Portfolio Committee Chairperson, said that there was a need for a marked out plan for sanitation. She asked the Director General of the Department of Human Settlements to give a concluding remark on behalf of the Department.

The Director General of the Department of Human Settlements, Mr Thabane Zulu, said that the Department has provided a way forward which formed part of the plan. Measures had been taken to improve on the service delivery mechanism of the department and it was informed by the lessons which had been learnt from the implementation of the programme. An executive decision had been taken to address the concerns raised about the capacity of service providers. The major lesson was the need for the various stakeholders to act and interact as one government, be it at national, provincial or local government. The plan was going to be presented to the Committee which would indicate the way forward.

Ms M Borman (ANC) said that the planning and the delivery had to start immediately.

Ms Wendy Fanoe, Chief Director: Intergovernmental Policy, National Treasury, said that it was not the National Treasury that introduced grants. It was the sector department that requested the establishment of a grant. This grant was introduced through a budget process where there was a specific need identified to target rural sanitation. In order to fast track service delivery, the grant was established.

Ms Dambuza said that the Members were aware of the details which Ms Fanoe was presenting. What was important was to identify the way forward. It was important for the officials from National Treasury to carry the message on and ensure follow up.

Mr Sogoni said that the Departments were now compelled to sit together and come up with the plan.

Mr Sigidi, COGTA Acting Director General, said that the point of entry of all plans was the Integrated Development Plan. There was a strategy to facilitate the entry into municipalities so as to avoid conflicts with other municipal plans.

Mr Sogoni said that the officials of the concerned Departments and institutions had to meet as soon as possible to agree on the start of the plan. The Committee was expecting a first report by the end of September 2012.

The meeting was adjourned.

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