Free Basic Electricity: Department of Cooperative Governance & Municipal Infrastructure Support Agent (MISA) briefing

Energy

09 September 2013
Chairperson: Mr S Njikelana (ANC)
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Meeting Summary

The Municipal Infrastructure Support Agent gave an overview of the indigent policy framework and its implementation guidelines. The challenges to implementation and well as the proposed solutions were also discussed. Section 152 of the Constitution provided a legal basis for the provision of Free Basic Services (FBS). The FBS Policy framework provided guidelines for municipalities when implementing FBS. The guidelines included the selection criteria for indigents, the registration process, screening of indigents and the monitoring of the provision of services and assessing their impacts. FBS includes a range of services that targeted the poor including water supply, sanitation, Free Basic Energy (FBE), Free Basic Alternative Energy (FBAE) and waste removal. Each municipality was allocated an indigent subsidy from the equitable share, to provide basic services to the poor. The total allocation from the subsidy totalled R 277.78 per poor household. In total, there were 278 municipalities in South Africa, of these 225 municipalities had indigent registers. The main challenges encountered by municipalities were that of implementation of the policy and reaching consensus on definitions. Other challenges included poor FBS facilitation by provinces and municipalities. At municipal level, there was an absence of FBS coordination structures. The FBS programme played a strategic role in addressing coordination and implementation challenges. The programme facilitated the monitoring, reporting and evaluation and provision of FBS and created the basis for effective pro-poor strategies to be effected.

Most questions from Members were on implementation. As a result of the 2009 failure of the FBS programme, most programmes were never rolled out, such as the communications strategy, and this was a serious concern. The powers granted to municipalities in the Constitution was cited as a hindrance to the effective implementation of programmes. Members suggested that DCOG forward the blockages caused by the Constitution to the Committee so that constitutional amendments could be suggested. Other questions included:
- Was it possible to have a system where indigents could re-apply regularly to make the database more credible?
- What training had municipal managers received?
- How was the electricity price increase impacting energy allocations for indigents?
- To what extent was the department addressing illegal connections?

The second briefing was by MISA’s Head of Structural Technical Support. MISA was established by a Presidential Proclamation of 2012 and its two-pronged mandate was:
- To render technical advice and support in order to optimize municipal infrastructure provisioning.
- To coordinate the development and implementation of programmes to strengthen the capacity of municipalities for planning, developing, operations and maintenance of their municipal infrastructure.

However it was not within MISA’s mandate to provide funds/grants to municipalities for either infrastructure projects or the costs of maintaining and refurbishing such infrastructure. MISA’s mandate was to give technical assistance to enable municipalities to perform these functions effectively. MISA’s primary roles included supporting municipalities to conduct effective infrastructure planning and supporting municipalities with the operation and maintenance of their infrastructure.

A total of 92 municipalities had been assisted to develop and adopt Integrated Support Plans; these are part of the 108 municipalities prioritised by DCOG for Local Government Turnaround Strategy (LGTAS) support. With regard to progress made on energy in Sector and Grant Support, MISA was currently a member of the Mini ADAM (Approach to Distribution and Asset Management) Steering Committee. MISA was supporting targeted Mini Adam municipalities to submit credible business plans to get funding from the Department of Energy.

Questions raised by Members included:
- What mechanisms did MISA have to ensure that infrastructure at municipalities was implemented to its full capacity?
- What recruitment strategy did MISA have for prospective recipients of bursaries from MISA?
- What plans did MISA have to collaborate with Further Education and Training (FET) colleges and Sector Education and Training Authority (SETAs)?

The South African Local Government Association (SALGA) was also invited to brief the Committee on the progress made with regard to FBE and FBAE - but again said it was unable to be present.

Meeting report

Chairperson’s opening remarks
The Chairperson said the deliberations on Free Basic Services were a continuation from a briefing by the Department of Energy on Free Basic Alternative Energy (FBAE) and the FBE Policy to the Committee in February 2013. DCOG and the South African Local Government Association (SALGA) had been invited to the meeting but were unable to attend at the time. He thanked DCOG for accepting and honouring the invitation and mentioned that SALGA had also been invited but they indicated that they could not attend the meeting. It was of utmost importance that these two institutions brief the Committee on their roles and the work they had done to date. Affordable access to electricity was crucial. The matter of indigents was a sensitive one, but it needed to be addressed regardless. South Africans who could not afford electricity needed to be assisted. He said it would be interesting to hear how FBE and FBAE were integrated into the concept of Free Basic Services (FBS).

Department of Cooperative Governance (DcoG) presentation on Free Basic Services
Mr Ongama Mahlawe, MISA Acting Chief Executive Officer, introduced the team from MISA. He relayed an apology from the Minister and the Deputy Minister who were unable to attend the meeting as a result of other commitments. The Director-General of DCOG was also unable to attend as a result of taking part in the short-listing process for members of the Municipal Demarcation Board.

Mr Chris Malehase, DCOG Director: Free Basic Services Coordination M&E, explained the presentation would give an overview of the indigent policy framework and its implementation guidelines. The challenges to implementation and well as proposed solutions would also be discussed. He reminded Members that government introduced the intent to provide Free Basic Services (FBS) in 2000. Section 152 of South Africa’s Constitution provided a legal basis for the provision of FBS. The FBS Policy framework provided a foundation for municipalities to build their own indigent policies/bylaws to meet their responsibility for providing basic municipal services to the poor.

He explained that the FBS Policy framework provided guidelines for the process which was to be employed by municipalities when implementing FBS. The guidelines included the selection criteria for indigents, the registration process, screening of indigents and the monitoring of the provision of services and assessing their impacts. FBS was a range of services that target the poor including water supply, sanitation, energy (FBE and FBAE) and waste removal.

Mr Malehase explained that each municipality was allocated an indigent subsidy from the equitable share, to provide basic services to the poor. The total allocation from the subsidy was R 277.78 per poor household. Of this amount, R 87.90 was for free basic water, R 73.25 for sanitation, R 56.24 was allocated for energy and R 60.39 for refuse removal. The affordability threshold set by government to determine who qualified as an indigent according to income was R23 000. This amount was the combined income per household.

He highlighted some of DCOG’s achievements as follows:
▪ Implementation of the National Policy Framework for municipal indigent policy
▪ Development of guidelines for implementation of municipal indigent policies
▪ Launch of the portal system at a national conference
▪ Establishment of the framework for developing qualifying criteria for municipal indigent policies
▪ Implementation of the FBS integrated communication strategy.

In total, there were 278 municipalities in South Africa, of these 225 municipalities had indigent registers. The main challenges encountered by municipalities with regard to indigents were that of implementation of the policy and reaching consensus on definitions. On implementation, indigent registers had not been implemented, verification of data was a challenge, exit strategies were not clearly defined and the most municipalities could not raise their own revenue therefore cost limitation was another challenge. Added to that, consensus on what an indigent was and what defined a household had not been reached. Other challenges included poor FBS facilitation by provinces and municipalities; at municipal level, there was an absence of FBS coordination structures.

Mr Malehase said there were various solutions which DCOG had implemented to address the challenges. As per the 2013/14 Annual Performance Plan, support was being provided to both provinces and municipalities through capacity building sessions. These sessions were to empower FBS managers and councillors responsible for providing basic municipal services to apply indigent implementation guidelines to develop their own tailor-made credible indigent policies and registers. To date, all municipalities had received support, except for those in Limpopo, Western Cape, Mpumalanga and Gauteng. Also, a Draft Medium Term Strategic Framework Priority Activities (MTSF) 2014-2019 had been developed to facilitate and support provinces to ensure that all municipalities had credible and functional indigent policies that would inform indigent registers, and to develop national indigent exit strategies to assist municipalities’ graduate households whose living conditions had improved.

He concluded that the FBS was a primary programme without which DCOG would be unable to execute its mandate and realize its vision towards the maximization of effective service delivery. The FBS programme also played a strategic role in addressing coordination and implementation challenges. The programme facilitated the monitoring, reporting and evaluation and provision of FBS and created the basis for effective pro-poor strategies to be effected. It also created for the successful tracking of beneficiaries of the programme and created linkages into other government interventions which targeted poverty.

Discussion
The Chairperson thanked Mr Malehase and commended DCOG for its efforts in trying to address all municipal concerns. It was unfortunate that SALGA could not attend the meeting and the Committee would conduct a follow up to find out whether they had received the invitations in time, if so an explanation on their absence was necessary.

Mr J Selau (ANC) agreed with DCOG that the identification of indigents was indeed a serious problem, especially because people’s lives were not stagnant. As a result it could therefore prove to be difficult to develop a database with a permanent number of indigents. He asked what DCOG was doing to simplify the management of such a database. What checks and balances were there to maintain an updated and accurate database? He asked from where the money for indigents came: was it from DCOG or from revenue generated by municipalities?

Mr J Smalle (DA) said most indigents were on block tariffs for electricity. He asked if DCOG was monitoring the R54.25 allocation for energy to ensure that the funds were not being diverted to other areas, and that the funds were being used for this specific purpose. How possible was it to get to a system where indigents could re-apply regularly to make the database more credible? He made reference to the 2009 collapse with the department and asked whether an impact assessment study had been conducted.

Ms N Mathibela (ANC) thanked DCOG for the presentation. She argued that the municipal councillors of 2007 had very little training and knowledge on how to manage their municipalities effectively. She wondered whether the new municipal managers had received adequate training. She said community development workers (CDWs) received a stipend so that they could assist poor South Africans and asked whether their work was being monitored. She agreed that it would be difficult to maintain an accurate and updated database of indigents as some people registered as indigents might not be honest enough to come forward and remove their names from the database when their income level changed. The department therefore had a responsibility to ensure that they steer away from encouraging a welfare state.

Ms B Tinto (ANC) also referred to the collapse of the FBS system in 2009 and asked what happened to the equitable share allocation when the programme collapsed. Were the allocations for FBS diverted to other programmes?

Mr Selau argued that as tariff prices for electricity increased, the units which indigents received would automatically decrease. How was the electricity price increase impacting energy allocations for indigents? He asked whether DCOG had any plans to level out this situation.

The Chairperson said the dilemma of cross-subsidization was one which could not be ignored. He said although SALGA had presented on the matter to the Committee, cross-subsidization could not be a one-time event. He asked that DCOG share their insights, seeing that it was a very sensitive matter. For the municipalities which had their own indigent policies, how was DCOG monitoring implementation and compliance with these policies? He informed the Committee that some municipalities were still providing free electricity to every community member. Such inconsistencies needed to be addressed. He made reference to the Lukhanji municipality in Queenstown where a system was devised to employ unemployed graduates to clean up the indigent register. This model had proved to be effective and a roll-out to all municipalities would improve municipal effectiveness, and help curb graduate unemployment.

On DCOG’s achievements, he asked whether the communications strategy had been implemented and whether it had proved to be effective. To what extent was the department addressing illegal connections? It was a concern that municipalities were not putting in enough effort to remove people who had graduated from the income household cap for qualifying as an indigent. He said the FBS provincial forums were a brilliant idea. He asked what role other stakeholders such as Eskom and traditional leaders played in this regard. According to DCOG, KwaZulu Natal was one of the provinces which did not have a provincial forum; he asked if there was any relation between provincial forums and the number of municipalities per province.

He welcomed representatives from the National Energy Regulator of South Africa (Nersa) and Eskom.

Mr Malehase replied to the question on KwaZulu Natal and said given the size of the province and the number of municipalities, the province was split up into three sessions and the first session addressed 21 municipalities, but only seven municipalities were present. This poor attendance communicated to the poor planning at provincial level. The department still had plans to convene similar sessions with the remaining municipalities. All regional, provincial and municipal senior managers were expected to take part in these sessions. He thanked the Chairperson for raising the matter of traditional leaders. He acknowledged that DCOG had not factored in the idea during its initial discussions and plans. On achievements, he acknowledged that implementation was very poor. The framework criteria were fully approved but never implemented in 2009. On training, he said during the 2009 restructuring, the Department had trained 165 municipalities. All these municipalities were trained on how to use the M&E system; all the municipalities were trained in Pretoria. But training was never rolled out. He said the department was however challenged by the Presidency about streamlining of reporting; the Department of Energy was the only department which was fully supportive of DCOG as a structure. Most of the time, DCOG struggled to get accurate statistics from other departments. The communication strategy was also never rolled out.

On the distribution and use of the equitable share, he reminded Members that most municipalities were poor and thus could not raise their own revenues; also the equitable share was not a conditional grant. The equitable share was a policy issue; DCOG therefore could not dictate to the municipalities how they should distribute the funds. The municipalities were the only ones who could decide on how to spend their allocations. However, it was a serious concern that some municipalities could still not raise their own revenues. The concern had been raised with National Treasury. One of the outcomes from engagements with National Treasury was that enforcing conditionality on the grant was not an option; it was against the Constitution. He said the viability of some municipalities also needed to be considered. There were a lot of other hindrances posed by the Constitution, and these had an impact on the work of DCOG and its implementation ability.

On monitoring, implementation and compliance, he said no progress had been made and those done prior to 2009 were outdated. As a result, most municipalities have taken a blanket approach to FBE. On the question raised on how equitable share grants were used during the 2009 collapse, he said that once again, DCOG did not have any grounds to dictate to municipalities how the funds should be spent. The matter was a policy issue. He argued that national needed to work together with provinces to ensure proper implementation of policy and to monitor effectiveness. However factors such as municipal autonomy needed to be taken into consideration. On the question on CDWs, he replied that coordination at municipal level was a major concern; it was not up to standard therefore more work needed to be put in on this. Inter-governmental relations needed to be strengthened, and the provincial forums were a start. He agreed indigent registers were not credible. He agreed that DCOG needed to step up and improve monitoring. On re-application, he said the process of selecting indigents was a very tedious process, as it had to be done on an annual basis.

The Chairperson asked if the R56.24 allocation was for both FBE and FBAE or whether it was for FBE only.

Mr Malehase replied that it was for both.

The Chairperson asked what the ratio was for allocation between the two.

Mr Malehase replied that he did not have the exact statistics with him, but the information would be sent to the Committee. On the question on the 2009 collapse and its impact, he said an impact assessment had not been done, however DCOG was aware that the impact was a negative one, which among other things resulted in many of the planned programmes not being rolled out. He reiterated that identification of indigents was a problem to effective implementation and DCOG was doing its best to devise a proper solution.

The Chairperson thanked DCOG for the presentation and said what was key was implementation; and the importance of this could not be over-emphasized. He argued that had most of the plans been implemented, many of the challenges would have been avoided. He thanked DCOG for the level of honesty, as other departments would have opted to brush over their shortcomings. It was important that DCOG work closely with the Committee. He suggested that DCOG communicate to the Committee whenever assistance was needed, especially on matters as important as implementation, monitoring and evaluation. On CDWs, he said they were paid by government and more pressure needed to be put on their delivery according to their mandate. On training, he asked why the 165 municipalities needed to be flown to Pretoria from all over the country; why was training not localised? Tele-training was also an option which could be explored. On data management, he said the Department of Energy was one which was uneasy when the topic arose. Data management at national government level needed to be taken very seriously. He wondered to what extent the data management paradigm was coming together and if DCOG was considering including new graduates to assist in this. He argued that E-government could assist municipalities and provinces better manage their data. He said inter-Committee public hearings could be a great start.

Municipal Infrastructure Support Agent (MISA) role in provision of energy infrastructure
Mr Khwathelani Bologo, Acting Head: Structural Technical Support, MISA explained that MISA was established by a Presidential Proclamation of 2012, which was gazetted in the same year. The establishment of MISA was one of the key thrusts of the Local Government Turnaround Strategy (LGTAS) aimed at creating a dedicated vehicle to support and build technical capacity in local government for the improvement of municipal infrastructure provisioning, refurbishment and maintenance. MISA was therefore operationally ring-fenced from the Department of Cooperative Governance, but linked to it for policy implementation purposes. MISA has been allocated its own operational budget of R820m over the MTEF period, with R262m allocated for 2013/14.

He summarized MISA’s two-pronged mandate as follows:
- To render technical advice and support in order to optimize municipal infrastructure provisioning.
- To coordinate the development and implementation of programmes designed to strengthen the capacity of municipalities for planning, developing, operations and maintenance of their municipal infrastructure

He explained that it was not within MISA’s mandate to provide funds / grants to municipalities for either infrastructure projects or the costs of maintaining and refurbishing such infrastructure. MISA’s mandate was to give technical assistance to enable municipalities to perform these functions effectively. Flowing from the mandate, MISA’s primary role and responsibilities are therefore:
- To support municipalities to conduct effective infrastructure planning;
- To support and assist with the delivery of infrastructure in municipalities;
- To support and assist with operation and maintenance of infrastructure in municipalities; and
- To build the capacity of municipalities to undertake effective planning, delivery, operations and management of municipal infrastructure.

MISA had therefore developed and was currently implementing the following programmes to be able to deliver on its mandate and fulfil its roles and responsibilities: the Municipal Technical Support Programme, Sectoral Support, Coordination and Grants, the Capacity Development Programme, the Vendor, Legal and Contract Management programme and Monitoring and Evaluation.

Mr Bologo explained that a total of 92 municipalities have been assisted to develop and adopt Integrated Support Plans; these are part of the 108 municipalities prioritised by DCOG for LGTAS support. Support being provided to these municipalities was therefore intended to mainly address their respective weaknesses in infrastructure and service provision. Currently, MISA had 77 technical (engineering and planning) professionals deployed to support a total of 107 municipalities throughout the country. MISA was also collaborating with sector departments in the provision of integrated support that seek to address service and infrastructure backlogs, appropriate service delivery models and sector specific skills needs in respect of the key sectors such as water and sanitation, energy, waste collection and municipal roads.

With regard to progress made on energy in Sector and Grant Support, he said MISA was currently a member of the MiniADAM Steering Committee. MISA was supporting targeted Mini Adam municipalities to submit credible business plans to get funding from the Department of Energy. The following were some of the activities being performed by MISA to support the ADAM programme:
- Review / update / develop a Master Plan for Energy
- Electricity Operations and Maintenance
- Electricity Loss and Revenue Management Strategies.

He said a key component of MISA’s capacity development programmes was the artisan’s development programme. Currently 32 municipalities in 8 Provinces were being supported with 311 apprentices, 228 section 13 (unemployed graduates) and 83 Section 28 (municipal employees) respectively. A total of 91 students in the technical fields were supported through MISA’s bursary scheme. MISA was also working closely together with the Development Bank of Southern Africa (DBSA) to provide support to municipalities to accelerate the reduction of basic service infrastructure blockages.

The Chairperson asked why MISA’s name was changed from agency to agent at the end.

Mr Victor Mathada, MISA Acting Executive Manager: Strategy and Operations Support, replied that there was no substantial difference between the two, after consultation with the legal team, MISA settled on using “agent”, instead of “agency”.  However, using “agency” would have given the impression that MISA was no longer a government agent.

Mr Bologo concluded that improvement in the management (operations and maintenance) of distribution infrastructure by municipalities was critical for the sustainable supply of electricity in their respective areas. MISA was therefore looking for ways of strengthening its overall support to municipalities on electricity supply and other key sectors. DCOG would continue to facilitate the provision of free basic energy to households, including indigents currently without access. MISA would continue to facilitate improvement in the management of distribution infrastructure by municipalities was critical for the sustainable supply of electricity in their respective areas.

Discussion
The Chairperson thanked MISA for the presentation. He asked that MISA explain what was meant by “electricity connections”.

Mr Selau said it was evident that MISA was still a work in progress. He asked about MISA’s mandate, and whether it included monitoring and evaluation. He said local government had a lot of problems with regard to reaching capacity on implementation. The law provided that disciplinary actions could be taken against failing municipalities. What mechanisms did MISA have in place to ensure that infrastructure at municipalities was implemented to its full capacity for development purposes? He referred to MISA’s progress on the Capacity Building Programme which stated that eight provinces were currently being supported by MISA; which province was not receiving this capacity building support? He thanked MISA for the well-informed presentation.

Prof S Mayathula (ANC) thanked MISA for the enlightening presentation. He asked whether there was a way for MISA to identify municipalities which needed to be included in the Municipal Technical Support Programme. He asked whether MISA had links with the South African Graduates Development Agency (SAGDA) to improve capacity within municipalities. One of South Africa’s realities was high levels of graduate unemployment. He asked that MISA provide a list of all the 92 municipalities which had received technical support. What recruitment strategy did MISA have for prospective recipients of MISA bursaries?

Ms Mathibela referred to the 77 technical (engineering and planning) engineers who were deployed to support 107 municipalities and asked how the arrangement worked, since there were more municipalities than engineers. For those municipalities which did not have Eskom as a contractor; was any assistance being extended to such municipalities? She asked what progress had been made with assisting Elias Motsoaledi Municipality in drafting a Master Plan for Energy and in developing and integrating a Waste Management Plan.

The Chairperson asked whether municipalities needed to submit applications to NERSA for regulation matters such as tariff increases and/or licensing.  He asked whether MISA had any plans to engage Further Education and Training (FET) colleges and Sector Education and Training Authority (SETAs). If so, what were they? It was important to involve SETAs as they formed part of the private sector.

Mr Selau said that if there were areas in the Constitution proving to be problematic, Members of Parliament should be consulted so that a constitutional amendment could be considered. He suggested that all the problems MISA was experiencing with the Constitution be forwarded to the Committee in writing so that solutions to these problems were found.  On municipal revenue, he said each municipality needed to have its own tax base in order to provide a single public service. It was therefore a serious challenge that there were still municipalities without their own sources of revenue.

Mr Mahlawe thanked Members for the interaction with the presentation. He said various team members from MISA would be responding to the questions relevant to them.

Mr Bologo replied to the questions on monitoring and evaluation and said monitoring and evaluation was a function of DCOG, even though MISA also monitored municipalities and reported to Parliament. The impacts of DCOG’s programmes and their effectiveness were therefore evaluated. Municipalities were also supported to monitor their own sectors through the technical support they received from MISA, such as Information Technology support systems. However more funding was needed for these. Section 46 of the Municipal Systems Act stipulated that the function of monitoring resided with DCOG. Even though municipalities were autonomous, they received guidance for how to efficiently use the Municipal Infrastructure Grant. He agreed that some municipalities were failing and were thus proving to be unsustainable. Section 139 of the Constitution provided for such municipalities to be put under new administration when the need arises. However he warned Members that the section had proved to pose serious challenges and complications. On Elias Motsoaledi, he said DCOG was assisting the municipality with developing a waste management integration plan to ensure that the landfill sites were in the right places. The municipality was also being rehabilitated, and this was a very expensive task.

On tariffs, he agreed that cross subsidization was indeed a challenge. Many municipalities collected money as an electricity vendor but they also needed to use these funds to provide other services. Most municipalities were still poor; they depended on government assistance to survive. On the other hand, some municipalities owed money to Eskom. ADAM therefore was implemented to address the financial challenges which municipalities faced. Municipalities which were unable to buy in bulk from Eskom would face serious problems. The Integrated National Electricity Programme (INEP) was part of government’s grant support, and therefore assisted Eskom with providing electricity to all municipalities. Some rural municipalities however did not have master plans, and this posed serious administrative problems. On the matter of revenue, MISA’s Chief Executive Officer would be in a better position to provide clarity. A written response would be forwarded.

Mr Themba Dladla, MISA Head: Technical Support, replied to the question on operations and maintenance and said municipalities did not use the revenues they generated for operations and maintenance, and this was a concern. Municipalities therefore needed to be assisted in developing asset management plans and operations and maintenance plans. Most municipalities did not have asset registers and as a result they received poor outcomes from the Auditor General; whereas upon successful implementation of operations and maintenance plans, municipalities could better deal with asset management and budgeting. On the service delivery budget implementation plan, he said in order to avoid simply being reactional, municipal budget implementation plans needed council approval. On electricity efficiency, he said master plans and asset management planning would be developed to assist municipalities in providing electricity to rural communities.

Mr Zakhele Mnqayi, MISA Executive Manager, replied to the question about the eight provinces and said Gauteng was not included as part of the municipalities which received technical support from MISA. This was because they already had their own programme for artisan development. However, Gauteng would soon be included in the municipal technical support programme. He said the bursaries were advertised nationally and all relevant information was disseminated at provincial and local government levels. MISA had signed Memoranda of Understanding (MOUs) with three SETAs. The first SETA focused on artisan development and a R12.5 million deal was signed, the other two SETAs focused on electrical and biodiesel mechanics and on the development of civil engineers. Various other MOUs were signed between MISA and universities of technology to assist municipal employees attain the relevant diplomas.

Mr Mahlawe added that because of time, all other questions would be responded to in writing. MISA would however appreciate and opportunity to engage the Committee further and to provide the Committee with feedback on the progress made.

The Chairperson thanked both MISA and DCOG for the presentations. He agreed that in the interest of time, any other questions and comments which Members might have would be forwarded to the entities at a later stage.

The meeting was adjourned.

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