Municipal Viability Indaba Report: briefing by Department

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Cooperative Governance and Traditional Affairs

03 March 2003
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Meeting report

PROVINCIAL AND LOCAL GOVERNMENT PORTFOLIO COMMITTEE
4 March 2003
MUNICIPAL VIABILITY INDABA REPORT: BRIEFING BY DEPARTMENT

Chairperson:
Mr Y Carrim (ANC)

Documents handed out:
Presentation on the Municipal Viability Indaba

SUMMARY
The Department briefed the Committee on the Municipal Viability Indaba, the reasons for the establishment of the Indaba and its results. The Indaba was initiated last year in response to the media reports on the outstanding debts owed by municipalities, which was allegedly standing at R 24 billion. The Department has formulated five municipal revenue enhancement programmes. Members were concerned that the presentation was not geared towards collecting the previous debt, as the proposed enhancement programmes were mainly focusing on collecting future debts.

MINUTES
Mr Manyike (Director: Municipal Finance Policy) conducted a powerpoint presentation (please see document attached), which was supplemented by a number of additional comments.

He informed the Committee that the Municipal Viability Indaba was initiated last year in response to the media reports on the outstanding debts owed by municipalities, which was allegedly standing at R 24 billion. There were continuous reports of municipalities in financial difficulties, particularly with bulk suppliers of water and electricity.

The Minister decided to convene a team under the auspices of the Municipal Viability Indaba to determine the true extent of the problem. Secondly, to gain a thorough understanding of the causes of the problem. Thirdly, to recommend a realistic way forward by highlighting the role that should be played by the National Government. The findings of this team were presented to a conference for mayors, MECs, Speakers, municipal managers and other related entities, where a programme of action was adopted.

Mr Manyike briefly outlined the total accumulated municipal service debt and juxtaposed it with the revenues generated by the respective municipalities. He pointed out that 31% of municipalities' service debt was growing at a rate of less than 5% per year and 32% of municipalities' service debt was growing at a rate greater than 20% per year. He further provided the Committee with a detailed profile of debtors in respect of the current municipal debt. He pointed out that 60% of the debt could be attributed o the household consumers; 30% could be attributed to the private business and 6% was owed by the government.

He further highlighted that the spiral increase in the municipal debt was the result of, inter alia, ineffective municipal administration; inappropriate taxes and tariffs as well as lack of credibility based on going shortcomings.

In an attempt to reinforce and accelerate the effective implementation of existing policies and ongoing support pragrammes as well as improving and sustaining revenue collection, the Department formulated five municipal revenue enhancement programmes. These are:
-public communication initiatives
-revenue enhancement fund
-institutional responsibility initiatives
-sustainable delivery initiatives
-appropriate technology initiatives.

Discussion

Ms Borman (DP) referred to the current debt owed by the municipalities and asked if part of that outstanding debt could be attributed to people who could not afford to pay. Secondly, was the statutory environment making it too difficult for the municipalities to meet their obligations? She also needed some clarity with regards to free basic services and the extent to which the Department had conducted discussions in that regard.

Mr Smith (IFP) asked whether the municipal councils would usually have a bad debt provision.

Mr Manyike conceded that the answer to that question would either be "yes" or "no". In some instances municipalities would have such a provision and others not. The Department has various innovations to try and help municipalities provide for bad debt.

Ms Seaton (IFP) suggested that provinces had a fundamental role to play in helping municipalities meeting their outstanding debts.

Responding to the above question Mr Manyike informed Members that there was no requirement in law for provinces to intervene at that level mainly because the budget of the municipalities was only approved by the councillors and not the provinces.

Mr Kannemeyer (ANC) asked if there were any parallel processes in trying to help municipalities increase their revenue base.

Responding to the above questions, Mr Manyike informed Members that the initiatives that had been taken so far vary from municipality to municipality. There were instances where municipalities used structures created by the legislation for example, the Northern Cape municipality. There the ward committee would furnish the council with a list of people who had defaulted on payments in a particular month and they could also point out loopholes in the municipal billing system.

Ms Seaton asked if the ward committee had a legal mandate to interfere with people's individual accounts and provide such information to the council. She was of the view that if that was allowed, that would amount to breach of the constitutional right to privacy.

Responding to that question, the Mr Manyike conceded the fact that the arrangement had been approved by the wards and by the people themselves. This showed that it could be allowed and it was within that framework that the initiative had to be understood.

Mr Smith asked for clarity on the following issues: with respect to the data presented, more particularly with regards to the accuracy of the alleged R24 billion owed by the municipalities. From what period was that debt calculated and how much of that debt had been growing indefinitely as opposed to the managed debt. Secondly, whether the participants in the conference expressed any views on the statutory environment in respect of debt collection. Mr Smith noted that the presentation had failed to focus on issues of collecting previous debts because the proposed enhancement programmes were geared towards collecting future debts only.

Ms Seaton said that she was not certain about the accuracy of the alleged R24 billion owed by the municipalities, as the Department's billing system was largely faulty.

Mr Manyike responding to the question posited above, explaining that the R24 billion includes all moneys owed to the municipalities since 1994 and some of that debt was still owed by private businesses currently operating. The Department was hoping to collect 30% of that debt. There were plans in place to collect the outstanding debt as this debt was affecting the productivity of the staff as well as service delivery. Mr Manyike was of the view that there was an urgent need to break that cycle. With regard to the question of statutory environment, Mr Manyike informed Members that the statutory environment did provide for an enabling environment as well as useful guidelines on what had to be done. However, the problem was with capacity and implementation.

The Chairperson, Mr Carrim, noted that the presentation by the Department failed to touch on measures and incentives to collect the outstanding debt.

Mr Ngubeni (ANC) asked if the private businesses that were indebted to the municipality were still operating and whether the Department had proper information about them.

Mr Manyike responding generally to the points raised above pointed out that it was important for Members to understand the nature of the debt. The current debt was comprised of inaccurate information and that was mainly the result of the amalgamation of all municipalities. With regard to the need for provincial intervention on debt collection, he pointed out that the role of the provinces was acceptable in so far as they provide support to the municipalities in their billing systems and financial management system. But the role of collecting debts remained the function of municipalities.

Mr Manyike pointed out that all the issues raised by Members would be captured when they presented a final report to the Minister. They would come back to the Committee with a programme with all the input from Members included.

The meeting was adjourned.

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