Thabazimbi Local Municipality S139(1)(b) intervention: Limpopo inputs

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Meeting Summary

The Select Committee on Cooperative Governance and Traditional Affairs was briefed on the intervention in terms of section 139 (1) (b) in the Thambazimbi local municipality by the Limpopo Department of Cooperative Governance and Traditional Affairs (COGTA) and the South African Local Government Association (SALGA).

An overview of the municipality and the background to the intervention was presented. The financial health of the municipality had deteriorated since the 2011/2012 financial year and it was technically unable to sustain itself. Illegal promotions of personnel had been made which had resulted in high salary bills. Management had also failed to honour financial commitments, which had led to a large debt to creditors. Key discoveries which stood out were the use of the conditional Municipal Infrastructure Grant (MIG) for operational expenses, and the increase in irregular expenditure from R73 million in 2011/12 to R209 million during the 2012/13 financial year, due to a failure to follow procurement processes. 

The Rapid Assessment Team had concluded that the municipality had a total debt of R320 million, which exceeded its total income. Based on its recommendations, Cooperative Governance, Human Settlements and Traditional Affairs (COGHSTA) had seconded the Chief Financial Officer in August 2015 to prepare a detailed analysis of the municipal financial status and develop and implement a financial recovery plan for the municipality with a view to improving the financial situation.

A robust discussion followed, as some Members felt that the municipality had been incompetent as no progress had been made, and there had been a struggle to account for some of the decisions taken which had led to the invoking of Section 139 (1) (b) terms of intervention. There had also been a misunderstanding by the Administrator over what had been expected from him by the Select Committee.

A Member pointed out that the Administrator’s presentation had been the same as the one the Committee had received from Thabazimbi, and that the recommendations made to the Administrator had not been included. She was not happy that the presentation had not been sent to the Committee beforehand and felt that the lack of information required had been an indication of incompetence. She expressed a lack of confidence in the Administrator’s ability to make a difference during his six-month term.

Another Member said that the intervention seemed to be administration-motivated, rather than politically motivated. He also wondered why the municipality had waited so long to make a difference if the challenges had begun in 2011/12 when the MEC had entered into office. There had been a deficit of about R209 million by the end of the 2012 financial year. He was concerned about the approvals made by EXCO without further information on the basis of the decisions made.

Members of the Select Committee did not understand why it had taken COGHSTA from the 2011/12 financial period until recently to intervene, as the results indicated that the municipality had been experiencing financial challenges.

The Select Committee did not make any decisions, however, and would await further information and documents missing from the meeting in order to deliberate further and come to a conclusion about the intervention.

Meeting report

Ms T Mokwele (EFF, North West) said that the Administrator had been requested to make an appearance in order to clarify points that had been raised at the previous meeting in Thabazimbi. She wanted to know why he had not arrived at the meeting.

Ms Patricia Mosito, Mayor of Thabazimbi, said that the Administrator had had other commitments the night before and so he had flown into Cape Town that morning. She reassured the Committee that he would be joining the meeting shortly.

The Chairperson indicated that the Chairperson and the Provincial Executive Officer (PEO) of the South African Local Government Association (SALGA) had also been delayed and would be joining the meeting shortly.

He handed over to Mr S Thobejane (ANC, Limpopo) to give an outline of the meeting that had been held in Thabazimbi and the outcomes thereof. He said that the Committee would be given an opportunity to approve of the intervention according to section 139 (1) (b) or revoke the decisions taken by both the MEC and the Minister, and to give further recommendations.

Mr Thobejane briefed the Committee on the meeting that had been held in Thabazimbi on 15 April 2016. The intervention in terms of Section 139 (1) (b) would be in consultation with the Minister. Although the attendance from the main associates had been poor, COGTA had been able to engage with the team led by the Mayor and the Administrator. The Committee had felt that the Administrator had not followed the terms of his appointment and was unclear of the terms of references for his duties. The Committee had felt that the Administrator had neglected some of these duties during the intervention. It appeared that the Member of the Executive Council (MEC) and the Acting Head of Department (HOD), who had allegedly gone through a breakdown of the duties, had not made clear the plan of action for the intervention. The resolution at the meeting was to invite Limpopo’s Department of Cooperative Governance, Human Settlements and Traditional Affairs (COGHSTA) to appear before the Select Committee before finalising the intervention. The aim was for COGHSTA to provide all the necessary information for consideration before conclusions about the intervention were made.

The Chairperson thanked Mr Thobejane for providing clarity and reminded Members that the Committee had the right to summon the political heads, according to Section 59 of the terms of Constitution, to appear before the Select Committee in Parliament. All those who had been invited to speak before the Select Committee were expected to honour Section 59 of the Constitution to indicate synergy between the work of the Departments and the Committees.

Before allowing the presentation to proceed, the Chairperson made it clear that the MEC should focus only on the terms of the intervention and not speak about the legal mandate within the report, due to time constraints. The concern was to find out how the MEC had made the decision to invoke the intervention in terms of Section 139 (1) (b).

Ms Makoma Makhurupetje, MEC, apologised on behalf of the management team for not attending the meeting at Thabazimbi. A letter had been received regarding the meeting, but the date had not been given, and by the time the Department was made aware of the date of the meeting, she had been asked to speak at another event in Port Elizabeth. Delegations had been made for a representative to attend on behalf of the Acting HOD, but that person had also not been able to make it, as it was at short notice. She added that the HOD had been suspended according to Section 100 of the Municipalities Act due grant money that had been lost.

Mr Gregory Makoko. Acting HOD and Senior General Manager of Corporate Services, presented the briefing on the intervention terms of section 139 (1) (b). An overview of the municipality and the background to the intervention were highlighted. The Thabazimbi local municipality had begun experiencing challenges in May 2015. A Rapid Assessment Team had been established and constituted by the officials from COGHSTA, the Provincial Treasury and SALGA Limpopo to provide a report on the state of affairs of the municipality, as well as to provide specific recommendations for remedial action and/or support required for the municipality.

The observations made which had led to the intervention were that the governance in the municipality had been compromised. The financial health of the municipality had deteriorated since the 2011/2012 financial year and it was mentioned that the municipality was technically unable to sustain itself. Illegal promotions had been made which had resulted in high salary bills. Management had also failed to honour financial commitments which had led to a large debt to creditors. Among other key discoveries, those that stood out were the use of the conditional Municipal Infrastructure Grant (MIG) for operational expenses. Irregular expenditure had increased from R73 million in 2011/12 to R209 million during the 2012/13 financial year due to a failure to follow procurement processes.  The Rapid Assessment Team had concluded that the municipality had a total debt of R320 million, which exceeded its total income. Based on the recommendations of the rapid assessment report, COGHSTA had seconded the Chief Financial Officer in August 2015 to draw up a detailed analysis of the municipal financial status and to develop and implement a financial recovery plan for the municipality with the view to improving the financial situation.

The MEC had several engagements, which included engagements with the senior management of the mining houses regarding payment of rates. The meetings had assisted in mending the relations between the mining houses and the municipality, and helped it to meet some of its financial obligations. There had also been an extensive engagement with Eskom, to which the Department owed R146 million. A new repayment plan had been agreed upon and signed and Eskom had undertaken to assist the municipality with electricity billing challenges, as well as the determination of correct tariffs that would assist the municipality to correctly bill consumers.

Unfortunately, the municipality had struggled to raise enough revenue to pay back some of its creditors. Through a meeting with National Treasury. the implementation of section 16 of the Constitution of SA was put on hold to allow the municipality time to find applicable solutions for the intervention. COGTA had been engaged to facilitate the transfer of the MIG funding to Waterberg district until the financial situation had been improved. The transfer had been made in March 2016 after both the municipality and COGTA had approved and agreed to the decision in the hope of ensuring that service delivery projects in Thabazimbi would be implemented.

The COGHSTA MEC had seconded the appointment of Mr Pat Khunou as Financial Specialist on 24 August for a period of three months, and Mr Nyiko Mashamba as Acting Municipal Manager on 1 November 2015 for a six month period. The Provincial Executive Council of the Limpopo Provincial Government had considered the progress report on Thabazimbi, as per the COGHSTA intervention from August 2015 to January 2016. The EXCOM had approved that the Thabazimbi Local Municipality was to be placed under Section 139 (1) (b) of the Constitution. It had approved the appointment of an Administrator who would assume the responsibilities of an Accounting Officer for Thabazimbi Municipality in line with Section 139 (1) (b), and had also approved that the Thabazimbi Municipality should invoke Section 152 (1) and Section 152 (2) of the Municipal Finance Management Act, No.56 of 2003. An approval had been granted for COGHSTA to request that the National Treasury undertake a forensic investigation of all municipal activities in order to reveal further finial irregularities.

Upon the assumption of responsibility as per section 139 (1) (b), the MEC for COGHSTA had appointed the second Acting Municipal Manager, Mr Nyiko Mashamba, as an interim administrator with effect from February 18, 2016 until the current Administrator, Advocate Letsepe Thubakgale, was appointed on March 2 2016. The Municipal Infrastructure Support Agent (MISA) had seconded the addition of Mr Shandukani Mphego, an engineer, to form part of the Administrator’s team. COGHSTA had further seconded the Chief Director responsible for Regulation and Compliance (Legal Services) to the team. The Chief Financial Officer of COGHSTA would remain at the municipality to assist the Administrator and his team with finalising the recovery plan.

COGHSTA had also filed papers on behalf of Thabazimbi to invoke section 152 (1) and section 152 (2) of the Municipal Management Act, No 56 of 2003. The order had been granted and publicised as per the order. Lastly, an official statement had been sent to the Minister of Finance for the appointment of a competent company to have a forensic investigation done as resolved by EXCO. COGHSTA was still waiting for a response from the Minister.

The main concern was to ensure that service delivery was not affected within these communities and to find ways to increase the remuneration received through negotiations to take place between now and August.

The Chairperson gave the members from SALGA an opportunity to introduce themselves before proceeding with the meeting, as they had arrived after the meeting had begun.

Discussion

The Chairperson asked the Mayor for input on the matter addressed.

The Mayor, Ms Mosito, thanked the Select Committee for the support and interest shown towards the Thabazimbi intervention. She felt that it had been a privilege for the municipality to have received the assistance it had from SALGA during the crisis it was facing. SALGA had been able to help the municipality come up with ways to deal with the financial challenges and, together with other organisations, they were trying to implement strategies in order to continue service delivery but also to raise the amount of revenue required to cover the use of services, as most people in the community were non-contributors. The high unemployment rate had had a negative impact on the ability of the municipality to raise revenue.

Ms T Wana (ANC Eastern Cape) felt that the Mayor was not discussing topics related to the presentation, and asked that she spoke only on the issues relevant to those raised in the report.

The Chairperson agreed with Ms Wana and asked that the Mayor give feedback only on matters related to the report which may have been left unclear during the presentation. He asked the Mayor to elaborate on what the municipality had done since the beginning of the intervention.

The Mayor spoke about the municipality’s failure to meet the financial requirements. It had a challenge with Eskom, as Eskom had constantly threatened to switch off the electrical supply due to the large unpaid debt. She also emphasised the role of the Administrator in correcting the illegal processes that had led to unfunded promotions. She said that the municipality had begun to address irregular expenditure and would try to prevent bad service delivery.

Report by Administrator on Intervention

 

The chairperson asked the Administrator to report on the terms of reference for his appointment as Administrator, and particularly to address the Committee on the matters of clarity from the previous meeting.

 

The Administrator, Mr Thubakgale, mentioned the terms of reference as provided on page three and four of his presentation.

 

The Chairperson was not entirely impressed with the Administrator’s presentation, and asked about his input on the organised labour. However, the Administrator responded that he was not aware that he would be presenting at the meeting. He did not make any comments about the organised labour, but said that a report would follow.

 

The Administrator was interrupted by Ms Wana who wanted to know what he had managed to accomplish during his term thus far. She was not interested in the terms of reference that the Administrator had been given, as she was concerned about knowing the amount of progress he had made since his appointment.

 

The Chairperson said that Members who had attended the meeting had specifically asked for the terms of reference in order to hold the Administrator accountable for any lack of performance.

 

Ms Mokwele said the presentation had been the same as the one the Committee had received from Thabazimbi, and that the recommendations made to the Administrator had not been included. She was not happy that the presentation had not been sent to the Committee beforehand and felt that the lack of information required had been an indication of incompetence. She expressed a lack of confidence in the Administrator’s ability to make a difference during his six-month term.

 

Mr Thobejane clarified that the agreement had been to have Mr Thubakgale email his presentation prior to the meeting. It seemed there had been a misunderstanding about what the Select Committee had expected from the Administrator. The Administrator, however, had mentioned that the presentation had been sent to the Members. The presentation had been printed by the secretary and re-distributed during the meeting.

 

Discussion

Members indicated they were not impressed with the Administrator’s report, and Mr Thobejane was displeased with the manner in which the Administrator had handled his failure to email the presentation on time.

 

Mr David Magabe, Chairperson of SALGA Limpopo, said he had been unaware of the first meeting and had been informed by the MEC about the presentation to take place. It had been part of the SALGA mandate for the organisation to participate in supporting the intervention and to remain the voice of local government in South Africa. An interaction with ESKOM had taken place when the electricity was about to be turned off. The distribution of electricity was affecting not only the Thabazimbi municipality, but many other municipalities in Limpopo.

Ms Mokwele asked the Acting HOD about slide 10, which indicated that municipal finances had begun to deteriorate during the 2011/12 period. She highlighted that the challenge had arisen immediately when he had come into power. The Municipality had realised that the problem had persisted throughout the 2012/13, 2013/14 and 2014/15 financial years, which were placed under Section 191 (1) (b). She asked what had made COGHSTA decide to intervene after so long. What had the application of Section 154 been? She said that even though the intervention had been applied according to Section 139 (1) (b), it seemed as though there had been no active municipality. She was not convinced that there would be a difference in the next three months. She asked what had led the EXCO to approve of Section 139 (1) (b) and why Section 139 (1) (c) had not been invoked instead. She felt that it was evident that the municipality was failing to take a proper resolution.

The Chairperson translated what Ms Mokwele had said into English.

Ms B Engelbrecht (DA, Gauteng) agreed with Ms Mokwele and asked the MEC why it had taken so long to intervene? The lack of governance and accountability in the Department was evident.

Ms Wana asked what the institutional arrangement was in Thabazimbi. She asked that the financials be made specific, as it seemed as though there were no human resources (HR) within the finance department. She asked if there were frequent audits and how promotions were made around a deficit. She asked what had happened to the auditor, and if he had been suspended. The programme or input did not mention anything about the progress of the intervention. The MEC was not disclosing information about the legal mandate of the report. Furthermore, she wanted to know how much litigation was involved.

Mr M Chetty (DA, KZN) said that the intervention seemed to be Administrator-motivated, rather than politically motivated. He also wondered why the municipality had waited so long to make a difference if the challenges had begun in 2011/12 when the MEC had entered into office.  He pointed out that there had been a deficit of about R209 million by the end of the 2012 financial year. He was concerned about the approvals made by EXCO without further information on the basis of the decisions made. He felt that the intervention had not been politically motivated. The council had been remotely controlled and run.

The Chairperson ruled Mr Chetty’s input out of order. He was asked not to make determinations, but to ask for clarity instead.

Mr Chetty knew that what he was saying sounded wrong. However, the point that he was trying to make was that no implementation had taken place. The municipality was not in control of its own resolutions.

The Chairperson called him to order, and asked him to put his statement in the form of a question.

Mr Chetty said it had been nine months since the challenge had been identified, and the interventions were to be explored for six months. However, he wanted to know what improvements had been made in the municipality since the Administrator had been appointed.

Mr D Ximbi (ANC, Western Cape) asked what the role of the district municipality was. What action had been taken by the district municipality?

Mr Magabe said that SALGA had engaged with COGHSTA throughout the municipal challenges. SALGA had also interacted with the leadership when the intervention had been decided upon. The solutions decided upon by COGHSTA were supported, as he believed that the intervention had been the last straw. It was important for the municipality to put together a plan of action to increase revenue in rural areas so that service delivery did not become compromised.

The Chairperson asked what the results of the intervention were.

Mr Magabe said that it would be difficult to measure the progress made within the municipality by the intervention. He emphasised that work had been done and that progress would continue to be made.

The Chairperson reminded the Department that the Committee would decide whether to support the intervention based on the information that it received. The Committee would acknowledge only the evidence brought forward by the Department, so his plea to the Department was to make sure that all relevant information was not withheld from the Committee, especially if it would strengthen the case when conclusions were made.

Mr Thapelo Matlala, Provincial Executive Officer (PEO), emphasised that the biggest problem was the ESKOM bill. The municipality was struggling to raise revenue and the little that it had would be used to pay off liabilities. The municipality needed to raise revenue – more than R130 million -- within the to pay the ESKOM bill alone, which was R146 million as of March 2016. The municipality was putting together structural agreements to figure out how the ESKOM bill would be covered. Unfortunately, the municipality was currently technically bankrupt.

Mr Magabe asked the Chairperson to allow SALGA and the Department to prepare an intervention plan to show the progress made since 2011.

The Chairperson stressed the need to find out why the Department had opted for Section 139 (1) (b), instead of Section 139 (1) (c).

Ms Makhurupetje, MEC, said that the view had been to invoke Section 139 (1) (b) as the role played by the Council was still needed. The community had to be made aware of the circumstances. She admitted that the governing structure at Thabazimbi had collapsed. The challenge was to rebuild municipal institutional capacity, as the office of the CFO had also undergone a series of challenges. She clarified that Mr Mashaba had entered into office as an Accounting officer and had had to take on the role of Administrator for three months until the appointment of the new Administrator, which had taken place in March. The issues raised by Members would be dealt with accordingly.

She said that since the deterioration of finances during the 2011/12 financial year, the municipality could not account for the Municipal Infrastructure Grant (MIG). Recovery would be possible through revenue growth, and reports on revenue collection would be made available to the Select Committee. She believed that the Administrator would play an important role in increasing revenue because of his a good relationship with the Council. The municipality had made promotions without following the proper processes, which had led to a sharp increase in the salary bill. Financial recovery was important, as the expenditure exceeded the revenue. She also mentioned that progress made by the Administrator would be monitored, as he had just begun implementing solutions according to the observations made by himself and his team.

The Chairperson asked what the organogram was, and what the leadership structure looked like. He asked about the most recent audit outcome and wanted to know why the MIG had been used for operational purposes. The Members of the Committee also wanted to know whether the Mayor was aware that the Administrator was partially responsible for managing the audits.

The Administrator assured Members that there was an audit committee, but it had not been functional. The audit outcome for the past three years had indicated five recurring issues -- cash flow, plant property and equipment balances, receivables and irregular expenditure. He said that there were 107 vacant positions and some included positions according to Section 57 managers.  There was no Municipal Manager (MM) or CFO, and the vacancy for Manager of Community Services was still not filled. The salary bill figure was to be confirmed, but it had been stipulated to be 42%. Further investigations were being conducted on the litigation. He also said that there was no justification for the use of money from the MIG.

Ms Makhurupetje said that the intervention had been administrative in nature.

The Chairperson asked whether there had been quarterly reports as well as supply chain reports since 2011.  He was frustrated with some of the answers given, as the answers were unclear and had led to follow up questions, such as what measures would be taken to ensure capacity building and what the role of the community was. He would have liked to understand whether the municipality had an enhancement strategy, and how it would be taking place.

Councillor Sylvia Matsietsa said that it would be possible to provide reports on the enhancement strategies. She said that a workshop had been arranged by SALGA for capacity building.

Ms Mosito said the revenue had been handled by the Council, as there were challenges with collecting revenue. The unemployment rate was high in the area. She said that there was no indigence policy and the register was not up to date.

The Chairperson did not understand why the register had not been updated, as it was supposed to be completed on a yearly basis. It would be of value, as the government would be able to help subsidise the rates paid by the municipality.

Ms Mosito said that the register was being updated. She felt that it was important to have the Administrator present, as well as the auditor, to help answer questions about what was happening in their departments

The Chairperson asked what COGHSTA had done when it was discovered that according to Section 71, the expenditure exceeded the revenue.  

The Mayor said that the CFO and the Municipal Manager had been suspended and disciplinary action had been taken against them. The CFO had resigned before the procedure had been completed and there had been delays in the investigation. The Municipal Manager had eventually been expelled, which had led to the vacant positions for the CFO and Manager of Community Services. The positions had been advertised, but were not yet filled.

Ms Mokwele asked that the Mayor be relieved from answering questions. She was afraid that the Mayor would jeopardise the progress that had been made during the presentation as her answers were raising questions that could not be answered during the period of the meeting.

The Chairperson asked whether the Mayor had anything to add to the report that had been given.

Ms Mokwele said that the Administrator’s report had included no turnaround strategy. It had not included recommendations. The area was one of the richest in SA in terms of mining and agriculture. She asked what the municipality was doing to help out the nearby communities. The MEC had mentioned appointing the financial officials based on section 154. However, along with the analysis, there was no indication that that municipality had been given support.

Mr Magabe said that a formal report would be compiled and sent to the Select Committee by Tuesday, 10 May 2016.

The Administrator said that the progress report would be emailed by Tuesday.

Ms Makhurupetje said that COGHSTA appreciated the Committee’s inputs and the opportunity to come before them to present. To get progress as a Department, they needed to make sure that there was progress in Thabazimbi.

The Chairperson said that capacity building was important and that he was generally impressed with the presentation given by the MEC and the Acting HOD. It was important for all parties to interact so as to hold members of the Department accountable. Further deliberations would be made to reach a conclusion and all information from the meetings and documents would be considered.

The meeting was adjourned.

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