MIG projects in Saldanha Bay Local Municipality: Western Cape Department of Local Government briefing

Meeting report

Introduction by chairperson
The Chairperson welcomed honourable members to the fist meeting of the year. The presentation by the Western Cape Department of Local Government (WCDLG) was to serve as an introduction to the oversight site visit to Saldanha Bay that afternoon and on Thursday 2 February. The Western Cape Provincial Department of Local Government was welcomed. The Financial and Fiscal Commission (FFC) was noted absent. The Municipal Infrastructure Support Agent (MISA) and South African Local Government Association were identified present.

Mr F Essack (DA, Eastern Cape) submitted an apology for Mr O Terblache (DA, Western Cape) who was attending a by-election in George and was therefore not attending.

Briefing on MIG Expenditure Status December 2016/17 FY (Municipal)
Mr Marius Brand, Senior Manager, Western Cape Department of Local Government (WCDLG), gave a briefing on the Municipal Infrastructure Grant (MIG) expenditures for the Western Cape province. He also addressed the monitoring of expenditures on rollovers, performance record and processes, cumulative expenditure and financial and non-financial performances of approved projects. The percentage of the 2015/2016 under-expenditure was higher than predicted, but this was largely due to an additional R24 million that had been granted to the WCDLG in that financial year. Without the extra R24 million, which was granted late in the year, the percentage of performance would be close to 98%. The overall expenditure of the Western Cape as a whole was well above the national benchmark of 40% set by COGTA. The top performing municipalities (above the 20% DoRA milestone) were Matzikama, Cederberg, Saldanha Bay, Swartland, Drakenstein, Stellenbosch, Breede Valley, Langeberg, Theewaterskloof, Hessequa, Oudtshoorn, Bitou and Prince Albert.

The municipalities below the 40% benchmark were Bergriver, Wizenberg, Overstrand, Cape Agulhas, Swellendam, Mossel Bay, George, Knysna, Laingsburg and Beaufort West. The reasons for under-expenditure for these municipalities included, inter-alia, planned "under-expenditure" to accommodate multi-year projects; invoices that were received after the claims period deadline; delays in appraising ring-fenced sports project; and the delays experienced in appointing contractors.

The non-financial performance report indicated the number of households benefitting from MIG projects. Projects were centred around the provision of services relating to water, sanitation, sport, solid waste, public transport and emergency services. Employment figures show that the programme is contributing to creating jobs. Highlighted projects in local municipalities were described in terms of total project costs: Matzikama (R11.9 million), Bergriver (R13.2 million), Langeberg (R23.8 million), Theewaterskloof (R15 million), Cape Agulhas (R13.8 million), Beaufort West (R8.9 million), Prince Albert (R9.8 million), Kannaland (R3.2 million) and Laingsburg (R6.1 million).

Part Two of the Briefing on MIG Expenditure Status: Saldanha Bay Municipality Second Quarter 2015/16 FY (Municipal)
Mr Brand continued presenting with a specific focus on the expenditure performance of the Saldanha Bay Municipality in the second quarter of the 2015/16 financial year. The presentation covered the performance record and commitments; MIG cumulative expenditures; monthly claim/payment status; and a project profiling of MIG projects.

The performance of the municipality of Saldanha was reported as excellent and above 90%. Saldanha Bay and Cederberg were reported to have stood out in their commitment to spending in relation to other municipalities in the province. In Saldanha Bay, the overall expenditure for the second quarter under review accounted for 44.1% of the total Saldanha Bay municipal allocation - above the benchmark of 40%. Planned expenditure for the remainder of the financial year was at 87.7%.

The MIG projects scheduled for the site visit were presented on total project cost, MIG registered amount, counter funding (municipality funding), the number of beneficiaries, and the current status of construction. Challenges included termination of the main contractor due to non-performance; delays in the appointment of the new contractor; securing funding from Transnet; and excessive underground water seepage that delayed the construction and necessitated the use of pumping equipment with a much larger capacity. The Municipal Infrastructure Support Agency (MISA) assigned support in revenue management strategy where required.

Discussion
The Chairperson was grateful for the presentation and said that the report provided a very good introduction to the site visit to Saldanha Bay after the meeting. The Chairperson offered honourable members the opportunity to raise any question for clarification.

Mr L Nzimande (ANC, KwaZulu-Natal) referred to phases of construction of the registered projects. It was unclear how long each construction phase has taken until now. He asked for clarification about the timeline of the previous phases of each project. The report did not indicate whether the projects had taken one year or three years.

Mr T Motlashuping (ANC, North West) said that the presentation in the morning session with the Select Committee on Finance listed the same municipalities and similar issues. MIG funds were still under-spent by 11 municipalities in the Western Cape. He asked about the specific result in revenue enhancement from the interventions. The problem of underspending was still unresolved despite interventions that were made to assist municipalities. This was an ongoing challenge. He asked for more reasons for the under-expenditure.

The Chairperson asked about the water deficit in Western Cape and asked for further information on existing plans to deal with water challenges.

Mr Nzimande asked about sustainable job creation for the MIG projects. He referred to information given at the meeting of the Select Committee on Finance. Economic growth of local governments goes hand in hand with sustainable employment strategies.

The Chairperson requested MISA to comment on the report and asked for the further indication whether MISA would be joining the Committee on the site visit to Saldanha Bay.
 
Mr Ntandazo Vimba, Acting Senior Manager: Municipal and Sectoral Technical Support Services, MISA, was thankful for the presentation. He said there were some support programmes implemented to support the municipalities to assist in overcoming the challenges of under-spending. He replied to Mr Nzimande on the issue of providing sustainable employment for these projects, saying that 20 engineers had been employed recently to support the projects in the municipalities as well as some young graduates. He confirmed that his team would be attending the site visit but indicated that he would not be present.

The Chairperson said that the comments from MISA were very useful and recalled a previous report by MISA involving its engagement with municipalities. He asked Mr Vimba to, at some stage, present a national picture of his impressions regarding the MIG expenditure. He said it would be useful information for the committee to engage with.

Ms Zofia Rokita, Chief Engineer, Western Cape Department of Local Government, explained that for construction purposes, the projects were divided into functional sections or items. She referred to the first project: the upgrading of a sewer infrastructure in Vredenburg. The municipality divided the project into five phases that they could complete individually due to funding requirements and shortages. Phase five started approximately two or three years ago. The Municipality experienced a problem with the contractor, and they had to terminate the contract because of non-performance. It took almost a year to re-appoint a new contractor. The final phase was 70% complete when the contract terminated. In another case, phase one of the project in Laingville - the construction of the grand stand - was implemented over two years. The Municipality was currently busy with phase two, to compliment phase one and includes the construction of sports field and flood lights. Emphasis was made that these projects are dealt with separately but could not stand alone. The Laingville project to upgrade storm water network will be implemented over two financial years. The Municipality started in January 2017 and completion is scheduled for next year.

Mr Band clarified that seven of the 11 municipalities that reported under-spending were back-to-basic municipalities. These municipalities need the support of MISA but also COGTA back-to-basic support plan of each municipality. The challenges include unstable internal governance; operative issues of the council; under-capacity of the technical directions; and flaws in the supply chain. The WCDLG was assisting the municipalities to address these issues. Regarding expenditure, it would take longer to show whether the assistance had helped. The biggest contributing factor to under-expenditure predicted for 2017 was caused by the sports project. The sports project was a pilot project from the Department of Sport and Recreation (DSR). These funds were allocated late in the financial year. Initially, the Department indicated that they would be appointing the consultants and contractors. Recent engagement with the Provincial Department of Sport and Recreation indicated that the Municipalities should hire consultants and contractors themselves. It would be unfair to blame the municipalities for under-spending since the consultants and contractors that were promised never arrived. A reason cited for under-expenditure at other municipalities (non-back-to-basic) was insufficient funds to start earlier in the year. The municipalities planned multi-year projects to start later in the year so that they can continue into the next financial year.

Mr Brand addressed the question about water deficiency. Municipalities were informed to prioritise drought-related projects such as retention of water sources, reservoirs, water leakages, and replacement of ageing water networks. The WCDLG had registered the drought, and water security on the provisional risk register. The drought was elevated to an issue of the highest level of risk. A realistic and detailed support plan is in place, which affects various departments.

Mr Brand replied to Mr Nzimande's question on job creation. The report of the non-financial performance of the municipalities clearly indicated that the Western Cape was looking to create jobs through the MIG programmes. Municipalities are encouraged to register the project with Expanded Public Works Programme (EPWP) and Construction Industry Development Board (CIDB). A focus on small contractor development was planned for this year. The Western Cape government will partner with the District Municipalities and Provincial Treasury to create an opportunity for upcoming and emerging practices within the municipalities.

Mr Nzimande referred to the project to upgrade storm water network in Laingville mentioned by Ms Roktia. The project only started in January this year. Was that a rollover? He asked for more clarity on this. He referred to the project in Laingville which was implemented over two years. He asked what governs the division of projects into separate phases. If municipalities receive a grant from the Treasury, the grant is linked into what the municipality could contribute and the money that is available. He asked about the 12 month's delay on the appointment of a contractor. What were the contributing factors to this?

Mrs Roktia replied that the reason for the delay of re-appointing a contractor was due to the long process of evaluation required of a new contractor. The municipality contributed to the remaining funds for the completion of the work by the new contractor. The projects are large and advanced projects. The timeframe was longer than anticipated. However, in construction, it is hard to predict in advance the exact time of completion. She replied to question about the project that began construction in January. Municipalities made a complete plan of MIG projects for the entire year. Due to funding constraints earlier in the year, they would complete the project over two financial years. They started later in the year so that they could continue over the next financial year. She emphasised that in the Saldanha Municipality, funding is divided 50/50 between Municipality and the MIG. Usually, MIG contributes with 70 percent. The Municipality could ask for more funding, but they use their own contribution to the large extent.

The Provisional Treasury was asked to respond to Mr Motlashuping's earlier question of revenue enhancement.

Mr Johannes Alton, of the Provisional Treasury, said that credit control in the assistance of municipalties with revenue management strategy normally fell towards the end of the direct revenue chain. The support that was provided to the municipalities was for different phases of the revenue value chain. For example, in Breede Valley, the focus was on communication between stakeholders. The municipalities, amongst others, improved on the communication strategies as well as the development of a Breede Valley municipality mobile application ('app'). The app was used to enhance the flow of information, particularly pertaining to events in the municipality jurisdiction and accounts that are due for payment. The nature of the projects is different to what was identified by the financial help assessment. Mr Nzimande was correct to identify the correlation between the municipalities that received revenue management initiatives and the related under-spending identified. MISA has highlighted the institutional capacity challenges of the municipalities, which were identified in the report. Each municipality had a specific focus area that was attended to for revenue enhancement. Unfortunately, it did not cover the whole value chain because of the fiscal constraints. The intention was to assist municipalities regarding their mandate to maximise their own revenue.

Mr Motlashuping stated that there was one area that had not been mentioned in the discussion: the outcomes of each intervention. Intervention is good, in whatever form. There is a need to intervene. But the intervention is not the interesting part of the report; the outcome of the intervention is. The report has been focused on explaining the intervention but has left out the productivity and outcome of the interventions. Has the intervention changed the municipalities? Was the desired result achieved? That is the interesting part of the discussion.

Mr Alton answered that the assistance they provided the municipalities was in the form of support and capacity building. He answered that the particular purpose identified for both Breede Valley and Cape Agulhas with specific targets to enhance revenue had been achieved with the desired outcome.

The Chairperson said that further questions could be dealt with after - or in conjunction with - the oversight visit in the afternoon. The presentation could be used during the visit to the MIG projects in Saldanha Bay. Honourable Members were asked to ask questions and raise concerns on site, after a presentation of the projects. He asked Members to request clarification of areas of uncertainty in written submissions, so that they could enrich the report which is planned to be presented to Parliament later this year. 

The meeting was adjourned.