Municipal Finance Management Bill: deliberations

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Finance Standing Committee

13 November 2002
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Meeting report

FINANCE PORTFOLIO COMMITTEE
14 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 the 8 November Working draft of Chapter 9 on Clause 53

MINUTES
Chapter 9: Governance of Municipal Entities
Dr Woods queried the use of the word manage in Clause 53(1).

Mr Momoniat (Deputy Director-General, National Treasury) agreed with him that this is a problem and that they need another word.

Dr Woods proposed replacing manage with oversee. The change was made.

Mr Lekgoro (ANC) said that in his experience of how boards work you do not necessarily have to have the requisite range of expertise as stated in Clause 53(1). The expertise is the business of managers. All that is needed to be on a board is a general understanding of things.

Mr Mnguni (ANC) commented that he is a member of a Water Board and in his experience some expertise would be of help.

Ms Mabe (ANC) added that she would also prefer that board members have expertise in the areas that they have to make decisions on.

Mr Glasser (Treasury) noted that originally the first draft had said that all individual members should have expertise. That had been changed and it now says that the board as a whole must collectively have the range of expertise.

Dr Woods (IFP) commented that Clause 53(3) is grammatically wrong.

Mr Van Ronge (South African Local Government Association, SALGA) added that the use of the word controlling in 53(3) bothers him.

Mr Momoniat told the Committee that the phrase or official has to be deleted. He also agreed that controlling should be deleted. That was agreed on. He also proposed deleting the last part of the sentence. Clause 53 (3) would now read: "No councilor of the municipality of a municipal entity may serve as a member of the governing body of that entity."

The Chair commented that Clause 54(6)(b) is not a sentence. The wording was thus changed to: "be nominated by the municipality, if the appointment must be made by a shareholders meeting or other mechanism."

Mr Van Ronge stated that they would still need to find a way to get clarity on who votes at a shareholders meeting on behalf of council. Not allowing a councilor on the board of an entity would create accountability problems.

The Chair agreed that how a council can hold a municipal entity accountable, is problematic. She referred this issue to Mr Momoniat to come up with a solution.

Mr Momoniat agreed that they would have to say more about the composition of the board in the legislation.

The Committee also agreed that the majority of the members of the board of an entity would be independent.

Mr Dorfling (SALGA) commented that in Clause 56 he would like to see the disclosure of particulars of compensation packages for board members as part of the annual report of that entity.

The Chairperson agreed with him. She added that in the King Commission Report it is required that in the annual report one must state all rewards to directors etc.

Mr Momoniat agreed that all this should be in the annual report and the budget statement.

Mr Dorfling emphasised that they want the full package of senior management, including all bonuses, to be made public.

The Chair asked which mechanisms could be used for a municipality to intervene in a municipal entity when their hands are tied because councilors are not allowed to be board members.

Mr Glasser told her that in a sense it is an irresolvable problem. The reason for setting up municipal entities is for them to be somewhat independent from the municipality. To the extent that you get that independence for operating efficiency, or whatever rationale is behind the decision, you also give away some control. The council, as a shareholder, has the right to collapse the entity, if it is wholly owned, and to replace all the directors.

Mr Van Ronge expressed his misgivings about municipal entities. He was worried that municipalities will pass on their problems to entities where the legislation cannot intervene. This could lead to bigger problems and some municipalities could fall apart because of this. He would have preferred to have no entities at all.

Mr Momoniat said that his personal opinion is that if the municipality does not have a controlling share in an entity, there is not going to be any effective accountability.

Dr Woods suggested that they add one clause to give the municipality intervention rights to intervene when they have reason to believe that the public monies or assets are in jeopardy.

The Chair agreed that they must verify the circumstances under which a municipality can intervene and how it can intervene. They also need to distinguish what the difference is going to be between intervention and interference. She proposed that Treasury and the Department of Provincial and Local Government look at this Bill and the Municipal Systems Bill and advise the Committee on what grounds a municipality can legitimately intervene without interfering from a financial management perspective.

Mr Momoniat commented that he does see gaps in the legislation as it is now and they will have a look at this. He was not surprised that they are facing difficulties as these are very hard issues.

The Chairperson agreed with him and emphasised that they are learning as they go along.

Mr Momoniat commented that there is currently a major review within government on the role of and relationship with entities.

The meeting was adjourned.

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