Debt owed to municipalities: Department briefing; Municipal Infrastructure Grant: Municipal Infrastructure Support Agent & Department briefing

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Cooperative Governance and Traditional Affairs

09 September 2014
Chairperson: Mr M Mdakane (ANC)
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Meeting Summary

The Department of Cooperative Governance (DCoG) briefed the Committee on the Municipal Infrastructure Grant (MIG). The MIG was the largest local government infrastructure development funding in South Africa. The programme subsidised the capital costs of providing basic services to poor households. Developmental capacity of municipalities was enhanced. Over a 10 year period, over R90 billion had been transferred to municipalities, of which R80 billion was spent. Challenges included inadequate planning; lack of intergovernmental cooperation; lack of capacity to manage MIG projects, and the appointment of service providers who could not deliver. Planning support was currently provided to municipalities through Municipal Infrastructure Support Agent (MISA) planners and professional service providers. MISA provided project and contract management support to municipalities to implement MIG funded projects.

During the discussion which followed the briefing, Members asked questions about value for money and visible impact related to the R80 billion spent. Municipal capacity to implement and manage MIG projects received considerable attention. The Committee felt that the role of MISA had not yet been explained to the fifth Parliament, and that it had to be clarified. There was an extended discussion of service delivery protests. A Member cited claims that there was not a direct link between service delivery and protests, which sparked off a discussion. The Committee concluded that the causes of protests had to be fully understood. Skills shortages received attention. There was interest in MISA internal capacity. There was concern about mismanagement and lack of supervision of infrastructure projects.

The DCoG briefed the Committee on debt owed to municipalities. The largest component of municipal consumer debt was owed by households, followed by commercial or business. Non-payment was due to the economic slowdown, with unemployment making households unable to pay. There was also a lack of political will to collect. Cooperative Government and Traditional Affairs (CoGTA) supported municipalities to assess credibility of credit control and debt policies in line with the provisions of the Municipal Systems Act.

In discussion, Members were concerned over uncertainty with regard to provincial or municipal ownership of properties. It was remarked that municipalities were the last creditors to be paid. Municipalities did not have power of state institutions like SARS to collect debt. Members were in favour of campaigns to promote a payment culture. A payment culture had to capture a sense of patriotic duty to pay for services run by government. There was a call for a firmer revenue collection framework.
 

Meeting report

Department of Cooperative Governance briefing on the Municipal Infrastructure Grant
Mr Khwatlekani Bologo, Executive Manager: Infrastructure at the Department of Cooperative Governance (DCoG), stated that the Municipal Infrastructure Grant (MIG) programme was the largest local government infrastructure development funding in South Africa. The DCoG managed the MIG. The programme subsidised the capital costs of providing basic services to poor households. Funding for municipal infrastructure was distributed in an equitable manner. Developmental capacity of municipalities was enhanced. MIG entered its tenth year in July 2014. Over the ten year period an amount of over R91 million had been allocated and transferred to municipalities. Municipalities reported expenditure of R80 billion over that period.

The Committee was taken through MIG spending trends 2004/05 – 2013/14; performance of municipalities over the previous 10 years; expenditure by province as at June 2014; expenditure in the last three months of the financial year; expenditure per sector as at end June 2014; and actual expenditure on all MIG projects per province. Project status for water and sanitation; roads and storm water; solid waste sites and sport and recreational facilities; community street lighting and public facilities, and household beneficiaries was presented.

Challenges

The challenges faced by DCoG included inadequate planning; lack of intergovernmental cooperation, lack of capacity to manage MIG projects, and the appointment of service providers and contractors who could not deliver. Planning support was currently provided to municipalities in nine provinces through MISA planners and professional service providers. MISA was providing project and contract management support to municipalities to implement MIG funded projects.

Discussion
The Chairperson commended a detailed report. Over a period of ten years R90 billion had been available. He asked what impact had been made. People were protesting in the streets. A lot of money had been made available and there had to be visible impact. He asked where changes in people’s lives could be seen, with regard to improvement in the quality of life. The Department had to oversee the implementation of resources. There had to be an overall assessment. At Kuruman, children had not gone to school for months because of the state of the roads in the area. They were being denied education. Society was not taking the problem seriously. As the Portfolio Committee was designing the oversight programme, it had to be known which of 23 districts had to be visited. There were well equipped sporting grounds that were not being used.

Mr N Godi (APC) remarked that a number of activities were running concurrently. He asked for a list of the 22 new municipalities in eight provinces, so that there could be follow-up on them.

Ms N Mthembu (ANC) said stakeholders had to meet about capacity planning for separate projects. The Department had spent R80 billion and there had to be value for money. People were being left behind.

Ms Mthembu said communities did not attend Integrated Development Plan (IDP) meetings. The briefing had stated that sector departments implemented projects in municipalities that were not part of their IDPs. Projects were not prioritised. The community had to be made to understand that they had to be part of the process.

Ms Mthembu said districts sometimes behaved like competitors. The MIG had to be better managed by the districts. Districts were not assisting and correcting local municipalities.

Mr A Mudau (ANC) asked if the MIG was only the responsibility of the districts. He asked if the population were taken into consideration. Metros inherited people from district councils.

Mr Mudau noted that MISA had replaced the Project Management Units (PMU) in municipalities. He asked what the position was in local municipalities where there was no PMU.

Mr Ongama Mahlawe, MISA Acting CEO, replied that MISA had not replaced the PMU mandate. Municipalities would be helped to build own capacity. MISA would work through the PMU offices, which had to be strengthened. MISA had gone into municipalities to see how the PMU functioned. There were different opinions about skills shortages. There was a skills shortage, and MISA did an assessment on that. There was a development plan to assist with it.

Mr Mudau said the budget cycle had to be streamlined, to prevent underspending.

Mr Bologo replied that it was considered to move the MIG payment from July to March.

Mr M Galo (AIC) asked what the Department was doing about backlogs, to close the gaps.

Mr N Masondo (ANC) said the historical context to MISA was the MIG funding that had been going for many years. MISA would handle the MIG in future. Decentralised funds had not made progress. MISA was formed for intervention, but lacked a sense of strategy or planning. Challenges had to be outlined. An example was the informal settlement problem the country was facing. Centralised funds were not speaking to the problem. There had to be a sense of a coherent implementation plan. Things were not yet concrete enough. A sense of evidence was lacking. MISA had been going for two years. There had to be evidence of progress.

Mr Mahlawe replied that MISA was not involved with informal settlements. Low capacity municipalities were targeted. Metros had to look at informal settlements.

Mr Masondo said sport infrastructure was a problem in South Africa. Standards varied between social groups. In the townships and rural areas there were sub-standards. There was a lack of facilities. The Indian and Coloured areas also could not match the formerly white areas where stadiums for rugby and soccer could be seen. Those were well maintained. Sport complexes had to be established, and the existing ones had to be maintained. It would not do to talk change if it could not be seen. There had to be a sense of visible and tangible change and intervention over and above the budget. There had to be discussions with municipalities to nudge people in the right direction. Grass farms could be established for grassing of sport fields. It could provide employment.

Mr Masondo said there was resistance to the building of community halls. If such were of good quality, it could take care of social needs through hosting funerals and weddings. Challenges were huge. If MISA did not work it had to be disestablished. A plan had to be in place. There had to be evidence of progress. There was the risk of MISA becoming a broker structure. The Department had to guard against that and make MISA work.

Mr N Khubisa (NFP) said in cooperative governance the national government was at the top of the hierarchy. The whip had to be cracked at provincial departments to ensure municipalities did their work. Municipalities had to be brought back on track with speed. Some municipalities had been brought back from a position where there was no service delivery at all. There had to be urgency at the provincial level. If people did not perform they had to be thrown out. There was a shortage of skills. Sometimes engineers did not even know where projects were. There was no local inspection. Officials were not monitoring. No one was prepared to intervene.

Mr M Matlhoko (EFF) referred to skills shortages. In municipal projects politics overrode administration in terms of employment and deployment of staff. Unskilled people were appointed. PMU people appointed officials without relevant qualifications. The question had to be whether a person was able to monitor and implement projects. Skills started with employment in key delivery areas. There were complaints about skills shortages in South Africa, and yet there were enough universities and technikons. People were sleeping under trees all day long because they were reporting to politicians, not officials. Politicians were not supposed to be managers. They had to do oversight.

Mr M Mapulane (ANC) said one had to look at the impact of the R80 billion that was spent. An interesting research report was cited in the City Press on the previous Saturday. The report stated conclusively that there was no relation between the high level of protests and service delivery. There had indeed been an increased level of services during the post-Apartheid era. Spending of R80 Billion could account for better service delivery by municipalities. The question was why there were protests at all, when progress was being made in the country.

Mr Vusi Madonsela, DCoG Director General, replied that the country had done well to expand access to service. Yet there had been an increase in protests. The question was whether it was right to describe the protests as service delivery protests. The jury was still out on that. Statistics South Africa had recorded that government had done well. But there were still people who had no access. But relative to countries at a comparable level of development South Africa was doing well. There was no direct correlation between service delivery and protests. Another commentator had remarked that there would be protests, even if there was 100 percent service delivery. Only district and local municipalities received the MIG. Metros did not get MIG, but received the urban development infrastructure grant. Metros were accredited to run their own services. The MIG had a ten year history of consolidation, but MISA was only established in April 2012.

Mr Bologo added that some metros were accredited for housing, and would get housing money besides the urban development grant.

The Chairperson remarked that it was the twenty first century, and there had to be an understanding of why people protested. It would not do to throw bones about it. It had to be found out exactly what caused it. In Kuruman children had not gone to school for three months because of the condition of the road. Perhaps that was not a job for the Department. Protest was always classified as service delivery protest. The Premier had said the day before that roads were being dealt with, but that did not necessarily mean that protests would cease. It had to be known what protests were linked to. The Department had to tackle issues.

Mr Madonsela replied that the Department accepted the challenge. Protest could be due to political infighting. There might be underlying problems at Kuruman. The stakes seemed bigger. One could not lay a finger on it. Broader societal discussions were needed. The question was what underlying causes motivated people to burn a library.

Mr Bologo added with regard to Kuruman that an inter-ministerial committee was currently looking at road ownership. Some were saying that the district owned the road, and others said it was the province. Road classification had to be finalised. People were influenced by things other than road conditions. There had to be community ownership of infrastructure. It had to communicate what government was doing for people. If people were not involved, they tended to flow with the mood. Every project had a steering committee. During implementation communities had to take ownership of the project.

Mr B Bhanga (DA) suggested that a survey be commissioned to investigate the matter.

The Chairperson remarked that the Department coordinated the cooperative governance entirely. That included traditional leaders. All spheres had to participate in a seminar.

Mr Mapulane said not employing permanent engineers led to lack of capacity. If consultants were employed to manage, there was no capacity building. The question was how the Department ensured that resources allocated to capacity building was utilised.

Mr Bologo replied that capacity implied more than skills for the Department. R40 million was enough for engineers, but they were not being appointed.

Mr Mapulane said he was worried about the fact that only R80 Billion of the R90 billion allocated was spent. MISA was introduced to support capacitation. R10 billion over 10 years had not been spent. He would have thought that MISA would come up with a plan to support municipal spending. The role of MISA had to be explained in a briefing. The role of MISA may have been explained to the fourth Parliament. But the current Committee could not yet get a sense of the MISA role.

Mr Mahlawe replied that he supported the suggestion for a briefing, so that the Committee could be taken through the management of MISA. The history of MISA had to be explained. It had to be known, for instance, that MIG was not centralised in MISA. It was not for MISA to direct money to the municipalities. Improvement of municipalities could be demonstrated with reference to municipalities that had received support. There was improved MIG spending as a result of cooperation between MISA and the DCoG. Infrastructure challenges were being addressed.

Mr Bologo replied that municipalities could return money to the Treasury for a rollover or pay back. There had been 10 years of accumulated underspending. MIG policy did not allow for spending on operations and maintenance. The Department differed from the Treasury, and wanted five percent set aside for repairs.

Mr Mahlawe added that because money was not set aside for operations and maintenance, a mechanism had to be set aside to ensure options. Ring fencing for operations and maintenance could be considered.

Mr Mapulane remarked that professionals and engineers had to be employed. It was necessary to spend money on new infrastructure but sufficient funds had to be allocated to the maintenance of existing infrastructure. The MIG had to be extended to poor areas. Municipalities had to be able to budget. Municipalities were forced to allocate out of the operational budget for maintenance.

Mr M Hlengwa (IFP) asked if MISA had internal capacity. It was a mammoth task to gauge the level of in-house capacity. There were a lot of figures that showed service delivery progress on the ground. Yet there was a surge of dissatisfaction. The question was whether money was spent where it was supposed to be spent. It was irrational to spend faster as the year developed. There had to be monitoring of spending patterns to guard against fiscal dumping. Linkage with the AG was needed to assess the financial management of municipalities. To continue to pump in money without management controls was to recycle the problem. Money had to be spent properly. The extent of finance capacity had to be known.

Mr Mahlawe replied that MISA had to strengthen its internal capacity. There were still unfilled positions.

Mr K Mileham (DA) said operating expenditure had to be set aside for long term maintenance of infrastructure. Municipalities with limited revenue used it all and had nothing left for capital projects. The Department had to consider putting a portion of the MIG funding aside for maintenance and upgrading. He had visited Lepalale, and had seen thousands of pipes connected to a sewer hole. Too much pressure made the pipes burst. The criterion had to be the number of households that benefitted.

Mr Bologo replied that there had to be a policy review. Schemes were not being attended to. There were people who had tools but nothing to work on. There was water but no pipes. At Makado the Ryperd Association took the municipality to court for not having skills. The Ryperd Association was currently saying that the municipality had achieved capacity.

Mr Mileham asked how capital expenditure from own funding compared to that from the MIG. He asked how strictly the R49 million spent on roads in Gauteng had been controlled.

Mr Mileham said the status of projects had to be known. It had to be registered which projects were lying idle. He asked what was done to track the time it took for a process to move from tender to completion. MIG funds could be used for operational pressure.

Mr Mileham asked what was done to recover misspent funding. There were promises that Makado municipality would be improved, but there was no improvement. There was raw sewage, and no chlorine, and no supervisor.

Mr Mileham noted that 32 municipalities supported apprentices. He asked which did not support them.

Mr Bologo replied that a list would be made available.

Mr Bhanga asked if the Western Cape was doing its work with regard to water and sanitation.

Mr Bhanga referred to the crisis at Makana. He asked what interventions there would be. There were no roads.

Mr Bhanga asked why the situation with regard to infrastructure could not be turned around. People were saying that the bulk of infrastructure was not maintainable.

Mr Bhanga referred to skills transfer. People left municipalities to become consultants, and took millions with them. He asked what money was given to build internal capacity, and what prevented consultants from taking their knowledge elsewhere. A road builder had told him that poor road building service would continue because people who developed roads where making money from every centimeter. Outsiders did not bring in skills. There had to be engineering capacity.

Mr E Mthethwa (ANC) noted that municipalities had done badly with the AG. Money was shifted from the MIG to administration. Spending trends had to be known.

Department of Cooperative Governance briefing on debt owed to municipalities
Mr Muthotho Sigidi, Deputy Director General: Intergovernmental Relations at DCoG, noted that the largest component of municipal consumer debt related to households, which accounted for 61.1 percent or R57.9 billion, followed by commercial or business at 21 percent or R19.7 billion. Non-payment could be attributed to economic slowdown, with unemployment impacting on the ability of households to pay, as well as the lack of political will to collect.

Prior to 1994, the National Department of Public Works was deemed the custodian of most State owned properties. In April 2008, provincial properties were devolved to the provincial departments of Public Works. Prior to the devolution of function to provinces, the National Treasury made budget available for the payment of all outstanding rates. The Committee was taken through the status of government debt.

CoGTA was supporting municipalities by assessing the credibility of the credit control and debt policies in line with the provisions of the Municipal Systems Act. Campaigns were run to cultivate a culture of payments by communities.

Discussion
Mr Masondo praised a good report. It was clear that something had been achieved. There was the problem of properties. Formerly in the hostels, everyone paid for his own bed and monies could be collected. But a situation developed over the years where there was no longer a linkage to beds. Anybody could stay in the hostel. Criminals from KZN were staying in the hostels. A complex system of hostel administration had collapsed. Some hostels belonged to municipalities, and some to the provinces. Provinces caused lack of control when they were unable or unwilling to pay municipalities for services like water and waste removal.

Mr Sigidi replied that the Department of Human settlements would be approached about the issue.

Mr Mapulane said the briefing was straightforward, especially with regard to what the Department was doing. Appointments of a service provider by the DPW would close that week. He asked if the Department did any follow up on tenders. 

Mr Sigidi replied that there would be an intergovernmental team workshop about tenders on 15 September. There was involvement with the DPW, who sent a representative when tenders were adjudicated.

Mr Mapulane said municipalities were the last creditors paid by everyone. There were people who were able to pay municipalities, but they did not because they started somewhere else. With SARS the situation was different, because one simply had to pay. The Department had to liaise with SARS, SALGA and the municipalities. SARS had recourse to the necessary legislation to collect. Municipalities did not have the powers of other State institutions.

Mr Sigidi replied that municipalities were not allowed to use the instruments SARS used. SARS had a good database, which municipalities did not have, and an indigent register. When someone started work they were removed from the indigent register.

Mr Mapulane suggested a campaign to promote a payment culture. People had to be moved from the mindset they were in. There could be improvement in debt collection from business. Business had to be able to pay, because profits were being made. It was understandable that households could not pay but business had no excuse.

Mr Matlhoko advised that the culture of non-payment could be addressed through administering a billing system.

Mr Sigidi replied that a billing system was used to identify where assets were, so as to deliver an invoice to the right person.

Mr Bhanga remarked that the document talked to issues of revenue collection. Organs of State were indebted to municipalities. It was setting a bad example to the public, who could argue that if government did not pay, neither should they. There had to be a firmer, stronger framework. There had been cases in PE where commercial businesses had made illegal electricity connections. Government had to be firm and penalise such actions. Business and government owed too much to municipalities. In the Eastern Cape, municipalities had cut off services to schools.

Mr Sigidi replied that it was part of the back to basics initiative to be able to measure electricity and water used through illegal connections. It had to be possible to measure kilowatt hours at the point of distribution to determine losses. There was collusion between the business sector and officials.

The Chairperson remarked that it was not right that people who drove smart cars could not pay five hundred rand per month. There were large numbers of indigents who could pay. It had to be phrased as illegal to not pay for services. If that was not done the local stage would collapse. A payment campaign had to capture that it was a patriotic duty to pay for government to run services. All South Africans were responsible for the survival of the State.

Mr Sigidi replied that a campaign was being modeled around the Masakane campaign.

Mr Mthethwa referred to the 201 percent debt cited for the Western Province on slide 12.

Mr Sigidi replied that the Western Cape paid the total amount. It did rectification for each municipality and then paid in bulk once. It was possible that the payment had not been made yet.


Mr Madonsela concluded that the Department took the debt issue seriously. Various stakeholders were indebted to municipalities. Municipalities also owed money to entities like ESCOM. The Department had to look at the level of indebtedness. People had expectations around debts owed to them, but did not feel equally responsible to pay their own debts. The biggest chunk of work was lying ahead. Due to the back to basics initiative, the following year could tell a different story. The question was if all public servants, SALGA, councillors and senior executives were paying. Government had to set a good example. Parliament was the most representative of all institutions, and could set a good example.

The meeting was adjourned. 

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