Municipal Finance Management Bill: deliberations

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Finance Standing Committee

12 November 2002
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Meeting report

FINANCE PORTFOLIO COMMITTEE
13 November 2002
MUNICIPAL FINANCE MANAGEMENT BILL: DELIBERATIONS

Chairperson: Ms B Hogan (ANC)

Relevant documents:
Municipal Finance Management Bill: Draft of 13 September
Working draft of Chapter 8A: Utilisation of External Mechanisms for Performance of Municipal functions
Working draft of Chapter 9: Governance of Municipal Entities
Working draft of Chapter 10: Financial Reporting and Auditing
Working draft of Chapter 11: Resolving Financial Problems in Municipalities

 

Working draft of Chapter 12: General Treasury Matters

SUMMARY
The committee continued their discussion on Chapter 8A from Clause 45II to Clause 51. Small changes were made to the wording of certain clauses.

MINUTES
Working draft of Chapter 8A: Utilisation of External Mechanisms for Performance of Municipal functions
Mr Smith (IFP) asked what is the purpose of regulating the maximum stake a private party may hold if it is prescribed that the organs of state hold the ownership control in Clause 45II.

Ms Hogan proposed deleting fixing the maximum stake a private party may hold in such a company or body.

Mr Kahla (legal advisor to the Treasury) agreed and the amendment was made.

Mr Smith asked why the word real in 45J (c) is used. He suggested that another adjective should be used. He proposed using significant.

Ms Hogan agreed and it was changed.

Mr Dorfling (South African Local Government Association, SALGA) commented that 45J (a) is too open. He referred to the phrase in the exercise of any of its functions or powers. He suggested limiting this because there are some functions that a municipality cannot privatise.

Ms Hogan replied that you have to have to read (a) and (b) together and then it is not open-ended.

Ms Joemat (ANC) asked about the change they had made from real to significant in (c). She asked how significant is going to be measured.

Ms Hogan agreed and proposed deleting it. The change was made.

Mr Dorfling suggested making a change to 45K (b). He suggested changing mutual agreement to mutual written agreement.

Ms Hogan accepted that and also changed the participating municipalities to participating parties.

Dr Woods (IFP) asked whether they have had a legal opinion to make sure that the provisions in this Bill are consistent with the Companies Act.

Ms Hogan said that her understanding is that this will fall under the ambit of the Companies Act. She added that concerns have been before on the relationship between this Act and the Companies Act. These concerns deal with corporate ventures outside the framework of the Companies Act. She added that they would prefer this bill to fall under the ambit of the Companies Act.

Mr Glasser (Treasury) pointed out that a lot of municipalities have established trusts and other joint ventures that are not companies and do not fall under the Companies Act. He added that the Systems Act uses the terminology municipal entities to include all of these things.

The Chairperson commented that this opens up another can of worms.

Dr Woods wondered whether it would not be a good idea to insist that any corporate venture a municipality gets into should be a company. He added that the Companies Act gives a lot of protections. He commented that the two problematic issues here are corporate ventures and ownership.

Ms Hogan stated that they would have to get clarity on the relationship between the Companies Act, other legislation and this Bill.

Mr Smith said that under the definition of ownership control there is no necessary link between ownership control and the size of your equity in a company. You can have a minority share but have equity control; it all depends on how the company is structured. He added that Part 2 of this chapter is crafted under the assumption that ownership control could be equated with a majority equity stake, which is wrong. He suggested revisiting those clauses dealing with ownership control.

Mr Glasser said that Mr Smith is correct in identifying a gap here. He explained that the Treasury's policy position was to prohibit both majority ownership and ownership control by private parties.

Mr Smith emphasised that there is a problem with the text that has to be reconciled.

Dr Woods said that he agrees with Mr Smith's point when it comes to public companies, but that he would not say that it is necessarily the case with private companies. He asked whether any of these ventures with private companies are envisaged.

The Chairperson noted that they have to make sure that the wording is reconciled with the definitions.

Ms Taljaard (DP) reminded the Committee that in another section of the Bill, the phrase "joint ownership control" is used and that has to be included in the reconciling of the wording.

Mr Dorfling raised his concern about Clause 45M. He wondered to whom a municipality might transfer ownership, when the municipality must have a majority stake in that company, unless it is transferred to the state.

Mr Pillay (Treasury) replied that it has to be read with the earlier clause on disposal of assets.

Ms Taljaard commented that when investments are going to be unbound, private companies would litigate in some of these contracts. In particular long-term contracts will be challenged. She asked whether the Treasury had thought through the potential implications of this and also the legal cost implications for the municipality.

Mr Pillay replied that one of Treasury's problems was that it had requested certain information, on these type of entities, from municipalities and had got almost no response. Therefore they currently cannot measure the implications.

Chapter 9: Governance of Municipal Entities
Mr Pillay told the committee that Clause 46 must be deleted and replaced with Clause 45I. Clause 47 also gets deleted, as it is included in Chapter 12.

Ms Taljaard asked whether there is a reason for omitting the Companies Act in 49 A or whether it is implicit.

Mr Smith replied that it does apply.

Ms Taljaard asked whether the intention in 49 (c) is not perhaps to protect the financial integrity.

Mr Pillay replied that the idea is that they do not want a municipality to undermine the operations of an entity.

Mr Smith commented that (c) is the flipside of (b) and perhaps they should be incorporated into one clause.

The Chair commented that she would like to leave it there as it gives protection against overzealous councilors.

Mr Lekgoro (ANC) supported the clause as it is, because it forces the municipality to protect the integrity of the entities. He did wonder however if Clause 49 (b) could not perhaps give the municipality endless scope for intervention.

Ms Taljaard agreed with Mr Lekgoro. She asked where the line would lie between interference and the legitimate exercise of ownership control.

Mr Smith queried whether this is not an issue, for example in respect of corporate entities, that is regulated by the Companies Act.

The Chair asserted that the one point they have to check is whether the ownership control factors either work against the grain of the Companies Act or are compatible with the Companies Act so that you could use those provisions here.

Mr Smith commented that the Companies Act only applies to corporate entities and that the problem is that municipal entities go beyond that, including trusts and various other things. Therefore you cannot simply add "subject to the Companies Act" to these clauses.

The chairperson said that means that they have to look at the governance arrangements for the other institutions where you don't have equity partnerships.

Mr Smith suggested that the drafters look at governance relationships in a separate section.

Dr Woods proposed deleting Clause 49A, as it is superfluous. It was agreed on.

Mr Smith proposed adding the words deemed by council after capital asset in Clause 51 (1). It was agreed on.

Mr Dorfling suggested changing policy to policies in 51 (5). The change was made.

Mr Smith questioned the need of having Clause 51, sub-clause (3). He said that it is logical that when they sell something they cannot afterwards change their decision. He proposed deleting it and it was agreed on.

The meeting was adjourned.


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