Department of Human Settlements on 2015/16 2nd & 3rd Quarter performance

Human Settlements, Water and Sanitation

23 February 2016
Chairperson: Ms L Mnganga-Gcabashe (ANC) (Acting)
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Meeting Summary

The Department of Human Settlements (the Department) presented their reports on its performance in the second and third quarters of the 2015/16 financial year, but was asked to focus on delivering only the inforamtion about the third quarter. The Department had managed to meet 44% of its annual target by the end of the third quarter. As at 31 December 2015, the Department delivered 107 724 houses and serviced sites for the financial year. Limpopo, Gauteng and Northern Cape were the three worst performing provinces with regards to delivery, since they fell short on delivery and on spending. The Department spent 70% of its R28.9 billion budget.

For the Human Settlement Development Grant (HSDG) total funding available was R18.5 billion and provinces spent R14 billion. Limpopo and Mpumalanga had roll overs from the HSDG budget from the previous financial year. R1.2 billion of the HSDG funds was withheld from Gauteng due to consistent underspending. R900 million was reallocated to the KwaZulu Natal, Northern Cape, North West and Eastern Cape. R300 million was given to the Housing Development Agency (HDA) in Gauteng. R265million was allocated to the Finance Linked Individual Subsidy Programme (FLISP).

Following a request from the Portfolio Committee, the Department said that the draft of the Development Finance Institution (DFI) policy foundation was drawn up, and was tabled at the DFI steering committee and would be presented to the Portfolio Committee soon. Various communication and outreach programmes were rolled out during the third quarter in answer to complaints that the Department was not providing sufficient communication and marketing. Various campaigns were described, including those targeted to youth and military veterans. Figures were presented for delivery of different types of houses, title deeds, release of land, informal settlement upgrades, subsidy units delivered. It was reported that R300 million was transferred to the Housing Development Agency (HDA) in Gauteng, who would agree with the province how to spend. The Department was waiting for gazetting. Workshops with contractors were held to discuss problems.

R11.3 billion, including the roll overs from the previous financial year, was available for the Urban Settlement Development Grant (USDG). Interventions had to be made due to the nature of the grant and the consistent roll overs. Ekurhuleni and the City of Cape Town had the highest roll overs.  Mangaung had a roll over, but the province was showing signs now that it was able to spend the money. The entire grant initial voted allocation was R10.5 billion and the available funds were R11.3 billion, including the roll overs from the previous financial year. The main concern was whether the municipalities will be able to spend the entire amount by the end of the financial year. The variance between the spent amount and the total available fund was R7.4 billion. It was concluded that Ekurhuleni and the City of Cape Town would not be able to spend their entire budgets and they were sent 'Intention to Withhold' letters, and the funding would be re-allocated. 
The Municipal Human Settlement Capacity Grant (MHCSG) had R321 million, which includes roll overs, but only R30 had been spent and this was linked to the poor performance on the USDG because in essence the municipalities were provided with money to create the capacity to be able to spend their budgets and they still did not have the sufficient capacity. The best performing metro for the USDG was Nelson Mandela Bay. The best performing provinces for the HSDG were KwaZulu Natal, Eastern Cape and North West, to whom extra money was awarded.

Members asked why there were still so many high-ranking officials of the Department holding acting posts only. They pointed out that this was not the first time the Department was reporting on poor performance of Limpopo, the Northern Cape and Gauteng, and why the interventions some time ago had failed to resolve the issues. Members asked why Tshwane was not mentioned and what was to be done about underperformance where the metros did not have capacity. Members wanted to know about the spending in the Social Housing Regulatory Authority. Members asked why the Department had set out what it wanted to achieve but then said that it could not be achieved and asked about the alignment between expenditure and delivery. They felt that the reporting was incorrect and should indicate the number of people receiving houses, and the number with title deeds. They wanted an update on Marikana and suggested that the Department should pay more attention to where it would prioritise, and what was being considered for rectification. Members made the point that in addition to providing money, they needed to help municipalities to capacitate and they suggested that the Department should write to those to be assisted to let them know in advance. Members were not generally in support of rollovers but said that they could be useful and withholding of funding impacted on service delivery. They asked about the unlawful exchange of houses through the intervention of certain councillors in certain municipalities.  It was suggested that instead of providing funds to build capacity the Department should clearly identify what exactly was needed.

 

Meeting report

Election of Acting Chairperson

Ms L Mnganga-Gcabashe (ANC) was nominated as Acting Chairperson, in the absence of Ms N Mafu (ANC).

The Acting Chairperson indicated that there were two quarlterly performance reports to be presented, but the meeting should be focused on the third quarter.

Department of Human Settlements (DHS or the Department) on the 3rd Quarter 2014/15 performance
Mr Mbulelo Tshangana, Acting Director-General, Department of Human Settlements, noted that the Department had a new Chief Financial Officer.
He noted that there were three provinces that have been identified to be underperforming. These were Limpopo, Northern Cape and Gauteng. The necessary measures will be taken to improve the performance of these provinces. The City of Cape Town and The City of Ekurhuleni underperformed with regards to the Urban Settlements Development Grant (USDG). The two metros have had roll-overs for the last two years. Mr Tshangana stated the Chief Operating Officers (COOs) were convinced that the Ekurhuleni Metro was going to find it difficult to spend its allocated budget. The COOs were yet to meet with the City of Cape Town to discuss its underperformance.In cases of  poor performance, funds were reallocated to programmes and projects that were performing within the sector. For the next financial year, the USDG has been reduced by R0.6 billion and the Human Development Settlements Grant (HSDG) has been reduced by R800 million over the next three years. This was due to the consistent requests for roll-overs.

Overall Performance

Mr Neville Chainee, Deputy Director-General: Strategy and Planning, DHS, said the Department managed to meet 44% of its Annual Performance Plan (APP) targets and failed to achieve 56%. This overalll performance was a summary of all the programmes and projects within the Department. In relation to the third quarter performance per programme, he noted that the slides contained a breakdown of the percentage performance and areas where there were red flags raised – namely where there had been underperformance, together with the reasons, such as technical and capacity challenges. As of 31 December 2015 the Department was sitting at 107 724 houses and serviced sites that were delivered and for the entire period last year, 143 911 houses were delivered.The total annual target, across all the provinces, for serviced sites was around 56 000. The Department achieved 34 344 completed service sites. The three provinces that were of concern were Limpopo, Northern Cape and Gauteng, with Limpopo delivering no completed serviced sites out of a target of 3 566. From an annual target of 107 519 completed houses, the Department delivered 73 380. The overall performance in relation to the total annual target was 66% and the expenditure of total annual HSDG allocation was 76%. 

The total HSDG was R18 billion, but when including roll overs, the total available budget was R18.5 billion. As of 31 December 2015, R14.4  billion was transferred and of that, R14 billion was spent by the provinces. The variance of spent funding versus transferred funding and spent versus total available was R732 million and R4.5 billion respectively. Therefore, 79% of voted funds were transferred and 76% of total available funds were spent. When comparing the targets for quarter 3 with the delivery, there were major variances due to the December period, which was referred to as a “dead month” in the construction industry. The Limpopo province was of concern again -  as it had a large variance.The annual target for housing opportunities (houses and serviced sites) was 163  653, of which 107  724 was delivered and 55  930 was still to be delivered in fourth quarter. Preliminary January 2016 delivery was 6  712 and 49 218 was still left to be delivered in the last two months of the quarter. Since 1998, 987  232 serviced sites and 3  003  221 houses have been delivered.

Programme Performance

Mr Chainee said that there have been previous complaints about the Department not proving sufficient communication and marketing about what it does, therefore, programmes around communication were of importance. Face-to-face communication was done with communities during campaigns. Campaigns included the use of the help desk and information desk which were set up in partnership with municipalities and provincial Departments of Human Settlements. The cCommunication and outreach programmes for the third quarter include the launch of Military Veterans Assistance Housing Programme in Mangaung, the launch and reception of the Youth Brigade in the City of Cape Town, the Human Settlements and Banking Association of South Africa plenary session in Boksburg and the Youth Contractor Build in Klerksdorp.

There has been a request by the Portfolio Committee for a consolidation of the Development Finance Institutions (DFIs) to a single DFI. The draft of the Development Finance Institution (DFI) policy foundation was tabled at the DFI steering committee and will be presented to the Portfolio Committee. Feedback on the policy review and implementation were as follows:

- the Department was in the process of consultation with provinces on the Draft White Paper Human Settlement
- The Policy for Inclusive Development was in its draft framework stages
- Consultation on the rationale for amending the Housing Act was in progress
- The mine worker strategy has been implemented and housing opportunities have been yielded in Marikana
- The proposed Backyard Policy programme was in its final stages for adoption and implementation.

The figures of the sector performance were as follows:

-     144 762 subsidy houses delivered at the end of September 2015

-     40 953 title deeds were registered for new development

-     76 618 title deeds were registered for pre and post-1994 properties

-     1 239 hectares of land were released for human settlements development

-     128 informal settlements were assessed and categorized

-     9 informal settlements upgrading plans have been developed

-     109 318 households were upgraded to Phase 2 of the informal settlement upgrading

-     23 441 households were upgraded to Level 2 of the informal settlements upgrading programme

-     23 376 subsidy units were delivered

-     257 new title deeds were issued

-     5 020 title deeds of pre and post-1994 properties were transferred

-     716.5 hectares of land has been released for human settlements development

Financial Performance

Ms Funani Matlatsi, Chief Financial Officer, DHS, said the Department's total allocation for transfer payments as at 31 December 2015 was R29.8 billion and the total expenditure was R21 billion, therefore 70% of the allocation was spent. The remainder could not be spent because only nine months of the financial year were accounted for in the report.

The HSDG for the year was reduced due to the continuous roll overs. The voted funds were R18.2 billion and the available funds were R18.5 billion, including the roll overs from Limpopo and Mpumalanga. 79% of voted funds were transferred to the provinces and 76% of total available funds were spent. With regards to the consistent underspending of the grant by provinces, the national Department made a decision that it would intervene if a province underspends a certain amount over a certain period of time, to see where the money can be spent in other provinces. R1.2 billion was withheld from the Gauteng Province, of which R908 million was reallocated to other provinces as follows:

-     R308 million to KwaZulu Natal

-     R100 million to the Northern Cape

-     R100 million to the North West for the mining towns

-     R400 million to the Eastern Cape - to be ring fenced for the Nelson Mandela Bay municipality.

R300 million which was part of the R1.2 billion was transferred to the Housing Development Agency (HDA) in Gauteng. The province and the HDA will enter into an implementation protocol to spend the funds, with the land purchases being part of that. All the processes regarding the compliance of the Division of Revenue Act (DORA) were followed and the documents were forwarded to the National Treasury to gazette the reallocations. The Department was still waiting for the National Treasury to gazette the funds and once this had been done, the funds would then be transferred. However, the R300 million for the HDA was transferred on 2 February 2016. As soon the gazette was in effect, the HSDG expenditure will be the same, there will be no additional funds, just reallocations.

The Minister held a workshop with contractors on 28 January 2016. One of the issues that was raised was the cash flow problems that resulted in contractor not being paid on time. The affected provinces were the Eastern Cape, KwaZulu Natal and the Free State. A decision was taken to bring forward the balances that were supposed to be transferred in March, to February.

R265 million was allocated to the Finance Linked Individual Subsidies Programme (FLISP). The annual targets were 2 090 sites and 2 732 units. As at 31 December 2015 only 1 487 units were delivered and R58 million was spent. 6 059 units were targeted for the Rectification programme with an allocated budget of R471 million. The Department managed to deliver 6 400 units and spent R562 million. R410 million was allocated to the Disaster Relief Grant and R199 million was expensed, delivering 301 sites and 1 487 units.

Similar to the HSDG, interventions had to be made with the Urban Settlement Development Grant (USDG) due to the nature of the grant and the consistent roll overs. Ekurhuleni and the City of Cape Town had the highest roll overs. The two municipalities were red flagged as they had shown repeated underspending similar to the previous financial years. Mangaung had a roll over, but the province was showing signs now that it was able to spend the money. The entire grant's initial voted allocation was R10.5 billion and the available funds were R11.3 billion, including the roll overs from the previous financial year. The main concern was whether the municipalities will be able to spend the entire amount by the end of the financial year. R6.1 billion of the funds were transferred and the municipalities only spent half the amount. The variance between the amount spent and the total amount available was R7.4 billion. An enquiry was put out to Ekurhuleni, eThekwini and the City of Cape Town to find out if they would be able to spend the funds. It was concluded that Ekurhuleni and the City of Cape Town would not be able to spend their entire budgets and they were sent “Intention to Withhold” letters. R150 million and R300 million was to be stopped from the City of Cape Town and Ekurhuleni respectively, and be reallocated to identified metros that have the capacity to absorb the funds.

Mr Chainee said R100 million was provided for the Municipal Human Settlement Capacity Grant (MHCSG) and R321 million, which includes roll overs, were the available funds. As at 31 December 2015, only R30 million was spent. 90% of the available funds were not spent. The performance of the MHSCG was to be linked to the performance of the USDG because in essence the municipalities were provided with money to create the capacity to be able to spend their budgets and they still did not have the sufficient capacity. The best performing metro for the USDG was Nelson Mandela Bay. The best performing provinces for the HSDG were KwaZulu Natal, Eastern Cape and North West. This justified the funds that were reallocated to them.

Mr Tshangana reiterated that the Department's budget needs to be allocated to programmes and metros that have the capacity to spend their funds.

Discussion
Mr L Sithole (IFP) said that he was concerned about the number of high ranking officials of the Department that were acting in their posts. He pointed out that it was not the first time the Department had reported on the poor performance of Limpopo, the Northern Cape and Gauteng. He then asked what the outcomes were of the remedies that were said to have been put into place some time ago, since the same challenges were being cited again. He added that the Chief Financial Officer was aware of Gauteng's challenges and what was happening in Ekurhuleni. He stated that nothing was mentioned about Tshwane and asked why the Department was overlooking the issues of the metros. He asked what would be done about Ekurhuleni's USDG underperformance because the metro does not have capacity, furthermore what had been done since officials were sent to assess the situation in the metro, including in Cape Town. He pointed out that the budget for theSocial Housing Regulatory Authority (SHRA) indicated that there was no spending there and asked what had happened. He referred to the funds that were allocate to the HDA and asked how funds can be transferred to an entity if it was not budgeted for.

Ms V Bam-Mugwanya (ANC) stated that the Department had clearly set out, at the start of the presentation, the targets that it wanted to achieve, but the presenter stated at the end that the targets were unlikely to be met. She questioned the contradiction . She asked if there was proof of alignment of expenditure to the number of delivered houses. She too was concerned about the number of people in acting posts.

Mr S Gana (DA) pointed out that the Department focused on reporting the number of houses that were delivered, as opposed to the number of people that received housing. Reporting the number of title deeds was a good indication of the number of beneficiaries, as the owner could be traced to the house. It was reported that 40 000 title deeds were issued and he asked what happened to the other 30 000 houses. He suggested that in future, the Department should report more on the human settlement's aspects. The situation in Marikana was escalating. He asked the Department to provide a status update regarding illegal occupation of houses in the area. When comparing the second and third quarter, the performance dropped from 43  000 to 35  000. He asked how a target of 55  000 houses will be delivered in the last three months. He agreed with Mr Sithole's point in relation to Gauteng. He said that funds were transferred to Nelson Mandela Bay Metropolitan Municipalitybecause it was performing, and added it was due to the intervention by the Department in the metro. He asked if the same intervention could then be applied to Limpopo and Gauteng. The Department needed to look into how it chooses and prioritises the areas where it implemented intervention programmes. He said that he was concerned about the overspending by the Eastern Cape on rectification, and questioned if it was a problem of planning. Speaking to the municipal grants, he said that it seemed as if the Department was throwing money at the problem. Funds were given even though there was no capacity to spend the funds. A proper report on what the municipalities had failed to spend on, and what they would have wanted to spend on, was needed.

Mr H Memezi (ANC) also raised a concern about the numbers of officials in acting posts. Some of the officials have been involved in the Department before, such as the current CFO, and he recognised that change can sometimes be good. In regard to the municipal grants and the capacity to spend, he acknowledged that the Department had taken steps to help municipalities capacitate themselves, but besides giving money, there should also be internal interventions. There was a need for the Rectification Programme but there needed to be a proper report of what was being fixed. There should be consequences for projects that were left unfinished, including blacklisting of those responsible. He commended the intervention in Nelson Mandela Bay and sai that there was evidence of the impact of the intervention. The third quarter report showed that the Department had risen to the challenges. He suggested that while the Department was waiting for the gazetting from National Treasury, it should write to the recipients of the reallocated funds, alerting them that they will be receiving the funds, so that they could plan how to spend the money before they receive it. He commended the legal action that was taken by the Department in the North West on the illegal occupation of houses.

Mr L Khorai (ANC) thanked the Department for their good work. He asked what steps were going to be taken to turn around the situation in the Department. He raised a concern about the Free State and asked that the figures on slide 35 be clarified for this province, as there were no annual target figures available, but only the delivery performance figures were indicated.

Ms T Gqada (DA) said that the presentation gave a clear indication of what was happening in the Department. She then pointed out that the Department needed to number its presentations slides correctly. She said that she does not condone roll overs but pointed that, given the USDG underspending, they should be considered as useful in cases of emergency; they had been given in the past. She was concerned about the money that was going to be withheld from the City of Cape Town and Ekurhuleni. The funds were budgeted for and were linked to projects. The withholding of funds has a risk in terms of service delivery. She recommended that the metros should be called to the Portfolio Committee to present where they were with their planning for the funds that would be withheld. She wanted to add to what Mr Gana had said, and cautioned that the HDA will eventually be over capacitated and will end up running the Department. The issue of staffing had already been addressed. There was a lot of instability in the Department.

Ms M Mokause (EFF) asked the Department to share its challenges and to state what the real interventions were. In relation to title deeds, she asked what the Department’s stance was on the unlawful exchange of houses through the intervention of certain councillors in certain municipalities.

Mr L Capa (ANC) also asked that slides be numbered in the future. The Eastern Cape and KwaZulu Natal have large rectification expenditures, he asked that the Department should justify this. He asked that it should be clarified what will be done to correct the poor performance. There was no explanation as to why there was intervention in Nelson Mandela Bay. On the issue of poor capacity, funds should not be given to build capacity; instead the Department needs to identify what was needed to build the capacity.

The Chairperson commended the Department on its progress since December 1995. She raised a concern about the delivered 34 344 completed serviced sites versus a target of 56 135, and the fact that house individual units were counted. There was inconsistency in the data that had been presented, especially on the overall performance. The underspending of metros after being given a capacity grant was of concern, and she suggested that the Department needed to identify in what respects the metros were lacking and assist accordingly. The Department will discuss the 21 mining towns, including Marikana, in the next meeting.

Mr Tshangana replied that although the officials were acting in their positions, they were permanent in the Department. The CFO position was permanent, the CEO of Social Housing Regulatory Authority (SHRA) has been appointed, the position for Director General had been interviewed and would be filled as soon as possible. In the new financial year, all the positions would be filled. The remedy put in place for Gauteng was that this province, along with other provinces, were allocated a DDG. Mr Tshingana was allocated Gauteng. He met with the Head of Department (HOD) and the DG of the province on a weekly basis, where the credibility of the construction pipeline was considered. The only way in which allocated funds can be spent would be to ensure that the contractors were on site in the construction pipeline, and not at the stage of dealing with environmental approvals. In Gauteng there were regions where the contractors were not on site and the regions were stuck in procurement processes. The new MEC was briefed on which areas needed to be targeted. The province was struggling with procurement. It took six months to procure and send contractors on site. The Chief Operating Officer (COO) of Gauteng went through the business plan for the next financial year, and there was an indication that the problems in the province would be dealt with. Gauteng spent money on planning and accruals and not on actual output. The province had been told to focus on projects that will produce units. Mr Tshingana said that he believed that Gauteng should perform better than last year, delivering more than 40 000 units.

He said that the picture on the Restructuring Capital Grant (RCG) and SHRA will change. The drawdown for the last financial year was R109 million. A new Chief Operating Officer had been appointed. There was a plan on how to improve the social housing pipeline.

Tshwane was not mentioned because it had a significant number of serviced sites, and additional funds cannot be allocated to the metro as it does not have the capacity to absorb them. Tshwane’s performance will be watched. Cape Town and Ekurhuleni have had roll overs for the last three consecutive years. This indicates that the allocated funds were not required. After assessing the business plans and projects of the two metros, it was concluded that they do not have any contractual commitments that will help them to spend their funds. Therefore, the roll overs have a ripple effect as surpluses will not be spent. Both Ekurhuleni and Cape Town projected that they would reach 90% of expenditure, and not 100%, and therefore the remaining funds would need to be reallocated.

He assured the Committee that the reporting of beneficiaries of housing and title deeds issued will be looked at.

He also said that the Nelson Mandela Bay Metro was not he only metro that received internal intervention. Interventions were done in Limpopo and there had been improvement from the previous financial year. It was recommended that the province expand the scope of its existing contractors so that they can improve their performance.

The target of 55 000 was made up of structures and serviced sites. Reporting of delivery performance was based on work in progress. The Department will return in due course to present the state of readiness to meet the 55 000 target.

Mr Tshangana said the Department did not want to move funds from Gauteng. The province spent R1.4 billion in the last month and National Treasury was not pleased with this. The funds from Gauteng will be reallocated to other provinces, only R900 million was moved. HAD must assist the province to spend the R300 million, that is remaining in the province, on projects. Recipients of the reallocated funds had been informed but Treasury needed to gazette the funds before they could be transferred. There was internal intervention in all the regions which were at risk of underspending.

Mr Tshangana said that he was never in favour of the capacity building grant, but he had been convinced by his colleagues. He felt that in order to improve capacity, the actions of other Departments needed to be considered – whether, for example, it was possible to consider using engineers from other Departments as project managers for DHS programmes. A different model for capacitating municipalities was needed. The purpose of the grant was to provide funding to pay for specialists such as town planners and other built environment expertise that will manage projects. The grant was going to be discontinued in the next financial year because it was not performing well. Rollovers cannot be allowed to continue except under certain conditions, where they would need to be specifically applied for.

Mr Tshangana said that he would not dwell upon the issue of Marikana, save that to say that the DHS was working with the police and was aware of what was happening. Houses were handed out in the area.

He pointed out that KwaZulu Natal has stayed with its rectification budget. The policy says only 10% of the allocated budget to the province can be spent on rectification. The Eastern Cape has gone above 10%. The province will be warned on this point.

He then dealt with questions around ownership, and pointed out that the re-selling of houses was illegal within the first eight years of ownership. When the owner does decide to sell, the government has the first right of refusal. Unfortunately, some owners in the township were selling their houses without knowing their market value.

Mr Chainee said that the policy implementation issues around the Finance Linked Individual Subsidy Programme (FLISP) have been revised. There were two issues around FLISP that were preventing the government from scaling up the programme. These were, firstly, the inability of people to access finance due to income constraints and poor credit record, and secondly, the mismatch between the supply and demand of housing. There was a partnership with government departments that provide housing schemes such as for nurses and other civil servants that fall into the middle-income gap. It needs to be highlighted that housing was a concurrent responsibility between the national Department, the provinces and the municipalities, therefore there needs to be cooperation amongst all entities. There have been systematic institutional changes in Ekurhuleni and Cape Town, which has changed its entire senior structure of the Department. A question has been raised of whether municipalities were paying enough attention to human settlements, and this was being addressed.

Mr Tshangana replied that there had been poor planning by the Free State in terms of rectification, especially the costing. The Department was aware of this.

Ms Motlatsi replied that the Department would have to consider carefully why there was so much rectification and consider the consequences. This presentation had not been able to present all the reasons that provinces could not spend their funds. The report on the spending in the last quarter would be more detailed and the Department should be in a position to be able to indicate the interventions.

The Chairperson said that most of the responses that were put forward by the Department were not new. The reporting of beneficiaries cannot be measured by counting title deeds, since many of those occupying houses did not have title deeds and this should be a delivery target in itself.

The meeting was adjourned.

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