Working Group on Municipal Finance Management Bill: chapters 10, 15 & 16

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Finance Standing Committee

20 January 2003
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Meeting report

FINANCE PORTFOLIO COMMITTEE WORKING GROUP
21 January 2003

MUNICIPAL FINANCE MANAGEMENT BILL: DELIBERATIONS ON CHAPTER 10, 15 & 16

Chairperson:
Ms Hogan (ANC)

Relevant Documents:
Municipal Finance Management Bill - draft as of 10 January
National Treasury Presentation on External Mechanisms and Municipal Entities, Chapters 10 and 11

SUMMARY
The Committee continued their discussions on chapters 10. Following discussions between the National Treasury and the Department of Local Government (DPLG) in December and January, the drafters had made changes to these chapters. Chapters 15 and 16 were also briefly discussed.

MINUTES
The Chairperson welcomed the Committee back and expressed hope that they will finish this Bill in the near future.

Ms Taljaard (DP) expressed her concern with new clauses which were added to the draft, which she was unfamiliar with.

Ms Hogan asked her to provide the Committee with a list of these clauses.

Mr Momoniat: Deputy Director-General, National Treasury, told the Committee that Adv. Grove (drafter) made some changes to the draft during the last month and therefore there will be clauses that look different.

The Chair said the Committee's concern is that they do not know where all the changes have been made.

Chapter 10
Mr Momoniat then delivered the Treasury's presentation on external mechanisms and municipal entities. (See relevant documents)

Ms Taljaard asked whether the MIIU (Municipal Infrastructure Investment Unit) were consulted in the compilation of chapters 10 and 11 of the Bill.

Mr Momoniat told her that the MIIU has been consulted. He said that they have talked to Karen Pierce, the new head of the MIIU.


The Chair asked for clarity on the external mechanism. She said her understanding is that the Bill is clear that it is not just for a municipal service that you have an external mechanisms, it is for functions and powers of a municipality.

Mr Momoniat said that they wrote this Bill in a way that says that these provisions are applicable for anything that exists which is a corporate entity. He added that the systems Act is silent on corporate entities for non-municipal services. In clause 87 (chapter 10) it says that you cannot form an entity for non-municipal services, but people can presumably still use external mechanisms for non-municipal services. He added that it gets very complicated. Mr Momoniat said that for example you couldn't form a company for your IT or HR functions, but you can have a PPP (public private partnership) for those functions.

The Chair asked whether this does not contradict clause 79(1).

Mr Dorfling (South African Local Government Association, SALGA) commented that the emphasis is to provide any service on behalf of the municipality so it does not concern "in the exercise of its functions or powers " in clause 79(1).

The Chair asked what happens if you have a revenue collection as part of a service of the municipality. That would constitute a function or power of the municipality.

Mr Momoniat said that they are trying to cover all possible options in the legislation.

The Chair expressed her confusion on this matter.

Dr Bouwer (Legal advisor, DPLG) told the Committee that the difficulty is that the concept of external mechanisms in this Bill is much wider than in the Systems Act.

Mr Momoniat said that this is a harmonisation issue that the DPLG will have to consider. He said that they firstly would have to decide whether the intention was for the clause 74 provisions, for appointing external mechanisms, to only apply for municipal services. He added that they would have to legislate somewhere for the cases not dealt with in the Systems Act.

Dr Bouwer felt it might facilitate the debate to consider an attempt to draw a conceptual distinction. He ventured using the term external provider to help clearly define the ambit and application of the MFMB and unnecessarily create confusion with the application of the Systems Act.

The Chair agreed that that would make it conceptually clearer.

Mr Momoniat said that he is happy with the suggestions and he would like Dr Bouwer and Adv. Grove to discuss this.

The Chair stressed the need for harmonisation on this issue. She asked the National Treasury and DPLG to work out the details. She then moved on to the next issue of whether they are happy with the notion that an external mechanism is a governance issue. The Chair said that her concern was where the provisions governing PPP's are in the legislation.

She was told that they are in Sections 77/78 of the Municipal Systems Act.

The Chair commented that it is clear now that they have here the notion of an external provider that is not in the form of an external mechanism. She added that this distinction should be made clearer in the legislation. She then asked the Treasury whether they are happy that the provisions governing the contracting in of an external provider are sufficiently stringent enough to make sure that a municipality is protected from entering into poor contracts.

Mr Momoniat said that in clause 85 (chapter 10) they have provided for assistance from the national government in preparing service delivery agreements. They felt that there is enough protection in place.

The Chair again stressed the need for more clarity in the legislation on what an external provider is. The notion that it is a broader concept than external mechanisms must be made clear.

Ms Taljaard agreed that the conceptualisations of the Treasury are on a collision course with the Systems Act, especially in relation with PPP's.

The Chair then told her that PPP's are not internal mechanisms and the DPLG agreed with her. She summarized some of the difficulties they have been dealing with. She said that an external mechanism could deal with a municipal entity; that would be something separate that a municipality sets up. Another external mechanism would be where two municipalities work together to deliver equally with an organ of state. The notion of a public private partnership is not clear enough in the legislation.

Mr Momoniat commented that the way PPP's are defined limits it to municipal services and they want it to extend beyond municipal services. He said he would consult with the drafter to extend the definition.

The Chair summarized that they have now reached an understanding of the external mechanisms where there is an agreement that there be restrictions on the municipal entities side and that it is fairly open-ended when they get to public private partnerships.

Ms Taljaard and the Chair asked for more clarity on the "applicable requirements" that are referred to in clause 80A(3).

Mr Momoniat said that this is one of the issues that still have to be harmonised with the Systems Act. He added they would argue that some of these provisions would make more sense to be put into the Systems Act.

The Chair agreed that there is a need to harmonise the process for deciding on which mechanisms to use.

Mr Dorfling commented that clause 80B is problematic for local government, especially with regard to the rendering of electricity in various townships. In one township Eskom promulgates tariffs and in the other the council promulgates tariffs. Eskom promulgates from 1 January, while the council promulgates from 1 June. Currently local government has no control over these networks taken over by Eskom prior to 1994/5. He added that this process has to be rectified along the way.

Mr Momoniat agreed that this is a problem. He stressed that Eskom should only be providing electricity in a township as an external mechanism. There has to be a service delivery agreement. This already applies through the Systems Act.

The Chair asked what Eskom's view would be on this.

Mr Momoniat said that they are scheduling a meeting with Eskom. He added that there are discussions going on between the Departments of Local Government and Minerals and Energy on this issue.

Mr Dorfling again stressed that 80B is problematic for local government. He asked how local government is going to make Eskom understand that they want to enter into service agreements to make it applicable in their municipal areas.

The Chair summed it up by saying that SALGA feels that Eskom is encroaching on the functions of local government. The Chair said she was satisfied that Eskom is an external mechanism and proposed holding hearings on this.

Mr Momoniat agreed that Eskom, Water Affairs, Department of Minerals and Energy and the National Electricity Regulator should be invited to the hearings. He added that of the above only Eskom is an external mechanism.

On clause 87(2) Mr Glasser (Treasury) said that the wording would have to be looked at. The current wording is a bit vague.

Mr Momoniat agreed that this is another issue to sort out when they harmonise the Acts.

The Chair then asked what the phrase "service utility" in 87(2)(b) actually means.

Mr Glasser told her that it is currently a meaningless phrase, which is also used in the Systems Act. It was put there to allow flexibility for municipalities to create things. He added that the Companies Act is not wholly appropriate for a municipal juristic person. The phrase "service utility" leaves the door open for new creations.

The Chair liked the idea of leaving the door open. She proposed leaving it as it is.

Mr Momoniat disagreed. He felt that they are leaving the door open for abuse.

The Chair said that she could see arguments both ways and that they have to make a choice.

Mr Dorfling agreed with Mr Momoniat that this is a dangerous clause and wanted it taken out.

Mr Glasser added that by deleting this phrase they will be changing the Systems Act and he asked the DPLG for their opinion.

Dr Bouwer stated that he did not have the mandate to answer and will have to consult his department.

It was agreed upon to leave the clause 87(2)(b) as it is.

Chapter 15

Mr Dorfling commented that the chief financial officer should be included in clause 175(6). He was also worried that 175(5) are not compatible with labour legislation.

Mr Momoniat stated that they did check up on this when they worked on the Public Finance Management Act.

The Chair proposed consulting the Ministry of Labour on this issue to find out if this undermines the Labour Relations Act.

Dr Bouwer asked whether sufficient attention has been given to the collective nature of some of the councils. He stressed that in these collective systems the Chairperson of the executive Committee never acts alone. He wondered how they would deal with making an individual responsible for a collective action or non-action.

The Chair commented that they need a much more substantive discussion on this because of the consequences of these clauses. She asked the DPLG and the Treasury to meet and work out the particulars of these clauses and especially who can be culpable of what. She also suggested suspending discussions on these chapters until they have met and they have a schedule of possible offences.

Chapter 16

Various members expressed their uncertainty on the meaning of the words "done in good faith" in clause 182.

Mr Momoniat felt that these were policy issues that were best not discussed at this moment.

Mr Titus disagreed. He said that Mr Momoniat was implying that anything done in bad faith is punishable. Mr Titus (special advisor to the Minister, DPLG) stated that you couldn't imply that from clause 182. He added that there is no crime without a law and therefore they should set out clearly in the Act what criminal conduct they are talking about.

The Chair summarised the issues still outstanding. In chapter 16 they have to check on the limitation of liability (clause 182). For chapter 15 the Chair requested that the Treasury provide the Committee with a list of the possible criminal offences. They can then go through the list and decide whether it is tight enough or not etc. the Chair also requested a schedule for the repeal and amendment of legislation.

The meeting was adjourned.

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