Eskom debt: hearing with municipalities

Public Accounts (SCOPA)

13 June 2018
Chairperson: Mr T Godi (APC)
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Meeting Summary

The Standing Committee on Public Accounts held a meeting with ten municipalities that owe Eskom to explain their debts. The municipalities in attendance were as follows: Maluti A Phofung, Matjhabeng and Ngwathe in the Free State; Emfuleni in Gauteng; Ditsobotla and Naledi in North West and eMalahleni, Govan Mbeki, Lekwa and Thaba Chweu in Mpumalanga.

The Chairperson indicated the meeting was pursuant to a previous engagement with Eskom to which the entity’s challenges were discussed extensively. Part of the challenges which were identified was of unpaid bills by municipalities. Therefore, the Committee wanted to hear from the municipalities about what the real issues were in an effort to map the way forward. Eskom is critical to the economy, and solutions to these challenges of debts owing needed to be found.

The ten defaulting municipalities explained why they continually failed to settle their debts to Eskom. The numerous challenges which were highlighted included: spiralling debt, compounded revenue losses, a chain of non-payment and 'ghost vending'. They cited structural challenges in their own financial practices as well as historical financial constraints. They also blamed their own communities for refusing to pay power rates, and in some cases, said Eskom had unrealistic expectations of their ability to pay their debts. Most municipalities that owe Eskom billions for bulk electricity supply painted a bleak picture of their finances. They cited high unemployment, resistance from consumers to pay and illegal electricity connections for their inability to pay the entity. Some municipalities indicated that they will never be able to settle their debts to Eskom unless the interest costs were waived.

Matjhabeng Municipality, told the Committee that there was a high percentage of unemployment and poverty in Matjhabeng, which has historically had a negative impact on revenue collections. The municipality owes Eskom the sum of R1.7 billion. It was pointed out that consumers were stealing from the municipality through illegal connections. The municipality presented a financial recovery plan to Eskom to audit its meters, as it was found out that even those who can pay are stealing electricity. The municipality was also losing out on revenue from mining houses who have direct supply agreements with Eskom. Notably, before July 2014, the municipality was charging a flat rate for electricity, and not the tariff that Eskom was awarded. But when this was introduced that in July 2014, there was resistance. The municipality went to court and was challenged by the Goldfields Chamber of Business to which a relief in favour of business was granted.

Naledi Municipality told the Committee that Eskom was at the top of its creditor list, alongside other large creditors including the South African Revenue Service, the office of the Auditor General, the Development Bank of South Africa and the South African Local Government Association. The payment of suppliers within 30 days as required by Municipal Finance Management Act (MFMA) was a challenge due to cash flow challenges. Eskom remains the municipality’s biggest liability with the debt currently at R274 977 064. Municipality was currently in negotiations with Eskom for a payment arrangement which should be finalised by the end of the month May 2018. The intention was to ensure that the current account is maintained to avoid further penalties and maintain the payment arrangement entered into with Eskom. The municipality was seriously overspending on capital projects. It also cannot afford its fire, traffic and library services. The commitment of municipal employees, 80% of whom were ostensibly overpaid was questioned. The municipality was spending R1 million a month on their car allowances alone. The municipality has a serious problem of a lack of commitment from staff members. His colleagues were more of politicians than administrators. Residents were also not prepared to pay their bills because they only receive an intermittent water supply from the district municipality which is responsible for water and sanitation. The money the municipality got for electricity was often used to pay salaries and to fund other expenditure items such as fire services, library services and running traffic by-law enforcement at a loss.

The Committee raised a wide range of issues and comments when the presentations were discussed in the afternoon session, with much of its attention focused on governance, accountability and financial mismanagement. Concerns highlighted by Members included:  

  • Most of the municipal managers (MMs) in the municipalities before the Committee were in acting positions -- when would the positions be permanently filled as that affected leadership stability?
  • Punitive measures had to be applied so that people could not simply move from one municipality to another in a different province after leaving their previous positions for disciplinary reasons. Criminal charges had to be followed up in clear cases.
  • Eskom had to explain how its interest rates on debt were calculated, and why the variances were so large.
  • Where businesses had been paying Eskom directly, how had that influenced municipalities’ current accounts?
  • What were municipalities doing about their bloated salary bills while they were in financial distress?
  • Why had the forensic investigations at the municipalities not been made public once completed, or handed over to councils at least?.

The Chairperson commented that the municipalities also needed to introspect, because they could not be pleading poverty while having bloated organograms and political and leadership instability, and becoming tied to all manner of service provider contracts where money was looted. Mayors and council Speakers had to give space to MMs to manage, because political interference seemed to be a long-running thread that affected performance.

Meeting report

The Chairperson welcomed everyone and indicated the meeting was pursuant to a previous Committee engagement with Eskom to which the entity’s challenges were discussed extensively. Part of the challenges which were identified was of unpaid bills by municipalities. Therefore, the Committee would want to hear from the municipalities about what the real issues were in an effort to map the way forward. Eskom is critical to the economy, and solutions to these challenges of debts owing needed to be found. He invited the ten municipalities to make their presentations.

Matjhabeng Municipality

Mr Thabiso Tsoaeli, Municipal Manager, Matjhabeng Municipality, told the Committee that there was a high percentage of unemployment and poverty in Matjhabeng, which has historically had a negative impact on revenue collections. The municipality owes Eskom the sum of R1.7 billion. The municipality entered into a payment arrangement with Eskom in March 2018. The arrangement was tabled in Council for adoption. Since the payment arrangement was been entered into, the municipality has been paying the current account sums ranging between R33 million and R35 million per month. The payment arrangement commenced in March and the last payment would be made in July 2031. >From July 2017 to date, the total amount paid to Eskom was R181 million. There was an in principle agreement with Eskom that if Matjhabeng paid R45 million each time it received the equitable share from government, it would be able to pay the debt over a 13-year period.

Mr Tsoaeli pointed out that consumers were stealing from the municipality through illegal connections. The municipality presented a financial recovery plan to Eskom to audit its meters, as it was found out that even those who can pay are stealing electricity. The municipality was also losing out on revenue from mining houses who have direct supply agreements with Eskom. Notably, before July 2014, the municipality was charging a flat rate for electricity, and not the tariff that Eskom was awarded. But when this was introduced that in July 2014, there was resistance. The municipality went to court and was challenged by the Goldfields Chamber of Business to which a relief in favour of business was granted.

Mr Nkosenjani Speelman, Executive Mayor, Matjhabeng Municipality, said a Revenue Enhancement Committee under his purview had been established. The committee consists of councillors and senior officials of the municipality and meets on a weekly basis. All issues relating to revenue, setting of targets and monitoring of performance were performed by the committee. He added that one of the issues that Parliament should take into consideration was the challenge of departments not paying the municipalities what is owed to them.

Emalahleni Municipality

Mr Sizwe Mayisela, Acting Municipal Manager, Emalahleni Municipality, said the mining town which falls under Emalahleni Municipality has a growing population and high rates of poverty. Population had grown almost threefold in five years. The unemployment rate was high especially for the youth owing to technological innovation which meant the mines no longer use the traditional methods, and thereby no longer employed a lot of people to operate the draglines for opencast mining processes. Emalahleni has a lot of people depending on social grants, increasing from 34 000 to 89 000 between 2012 and 2017. The unemployment rate increased from 25% to 27% in the same period. Among the youth, the unemployment rate is as high as 32%. He noted that Emalahleni is close to Eskom’s Kusile Coal Power Station. The station’s construction was winding down, and a huge number of the people that relied on those jobs during the construction and development phase were returning to Emalahleni with no source of income.

Mr Mayisela told the Committee that former mining villages were refusing to pay for electricity previously paid for by the mines. Emalahleni has a large number of Eskom employees, and the municipality is told that they are involved in illegal connections to electricity in the area. The town was teeming with Eskom electricians who are able to bypass the cut-offs by the municipalities. There is also a culture of non-payment and resistance from the communities, and local officials are threatened when they urge residents to pay. Councillors’ houses were being attacked for trying to encourage people to pay. These were huge challenges as non-payment of service charges by communities meant that raising enough revenue was an uphill task. Emalahleni was currently settling its debt to Eskom. However, while the outstanding balance on the debt in 2012 stood at about R58 million, Eskom arrived at a figure of R1.7 billion in outstanding debt in a space of five years, all while the municipality was servicing the debt.

Ms Linah Malatjie, Executive Mayor, Emalahleni Municipality, disputed the R1.7 billion Eskom bill and also took issue with the seasonal tariff structures which affects municipal billing and yearly financial planning. The municipality was failing to understand how Eskom reached the figure and would want the entity to indicate how the debt escalated up to this level. She requested further engagement with Eskom for the revaluation of the debt as the municipality could not afford to repay Eskom R4 million per day. Eskom has not been engaging the municipality as to how to bring the situation under control. She recommended the waiving of interest charges and agreements on flexible payment plans to ensure the debts are settled. She expressed the municipality’s commitment to implementation of cost containment measures and ensuring electricity users are billed properly.

Ditsobotla Municipality

Mr Thabo Sebothenyane, Acting Municipal Manager, Ditsobotla Municipality, said the municipality’s current debt with Eskom stood at about R305 million. In 2016, the municipality entered into a payment agreement. Between then and now, the municipality had paid around R50 million, but it was evident that the debt had not decreased. He illustrated the financial crisis of the municipality by noting that the average collection per month was R18 million and operation costs were R20 million, while the salary bill stood at R14 million. On top of this, they had to find a way to pay R10 million to Eskom. Ditsobotla spends 35% of its monthly budget on salaries - but still had to use consultants because staff are incompetent. Municipality also has a high overtime bill, although there was no equipment and money to do the work needed. When an analysis is done, it would be apparent that the majority of the municipality’s headcount was not fit for purpose.

Mr Sebothenyane pointed out that the collection rate at the municipality stood at 50%, and efforts to improve on revenue collection for electricity were being made. Residents were blocking municipal officials from checking their meters, they have burned down the homes of councillors and have also set the council chambers up in flames. Collection rates in five townships were very low - most are Eskom supply areas. The municipality was thus unable to use the mechanism to cut off services in the event of non-payment as this function was under the purview of Eskom. Regulation 32 contracts were also draining the municipality and were a wastage which could be done away with.

Ngwathe Municipality

Mr Bruce Kannemeyer, Municipal Manager, Ngwathe Municipality, said the municipality owed Eskom R969 million spanning from 2013 to 2018, with interest on the debt constituting about 50% of the value. The municipality, however, felt there is basis for the review of the debt owed to Eskom. A payment plan which the municipality believed was more realistic had been developed. He pleaded with Eskom to understand the wide-ranging challenges within the municipality. Notably, technical constraints and efforts by some residents to crook the system had undermined revenue collection from residents that consume electricity. A high level analysis between the consumption billing from Eskom to Ngwathe and Ngwathe municipal billing to the consumer was performed and its outcome indicates that the council had lost R169 million over a period of three years due to technical losses. By-passing and ghost vending (illegal selling of pre-paid electricity) continue to compound the municipality's losses, allowing households to access unlimited electricity without proportional or even flat rates for the power they consume. Some of the cases had been taken to court but most of the judgements were not deterrent enough to assist the municipality. More so, the debts owed by ratepayers presented challenges in raising revenue. Of the total debt to the municipality of about R750 million, more than half of it was owed by domestic households. The average collection was below average and ranged between 43 and 47%.

Govan Mbeki Municipality

Mr Thisha Mhlanga, Acting Municipal Manager, Govan Mbeki Municipality, said the conflation of historical debt to Eskom and the debt on the municipality’s current account made it impossible to get a grip on the spiralling debt. The municipality paid R542 million of the Eskom bill, but was struggling with old historical debt. If this was addressed, the municipality would not have a problem with setting its debt with Eskom.

Govan Mbeki Local Municipality has challenges in revenue collection with significant amounts of money owed to the municipality by its customers. The debt book balance has accumulated over a period of time to R1.1 billion to date. Causes of financial distress included: unfruitful debt collection service provision; impoverished communities where cut-offs creates volatile relations/ protests and municipal property vandalism; high distribution losses (electricity & water); dilapidated, ageing infrastructure [electricity, water, sewer and roads]; and unfruitful debt collection service providers. Notably, in an effort to consolidate its R600 million debt book, the municipality outsourced the services of debt collectors. However, the exercise had proven unfruitful with debt escalating to over R1.1 billion over 5 years and resulting in a legal dispute with service provider. Also, up to 22% of potential revenue was lost through illegal connections and ghost vending.

Ms Thandi Ngxonono, Executive Mayor, Govan Mbeki Municipality, stated that in an effort to curtail the high electricity distribution losses, the municipality, in coordination with Eskom had already generated new Supply Group Codes to Eliminate Ghost Vending. A new Smart Metering prepaid electricity solution acquisition tender was underway, and illegal connections and electricity tampering was to be addressed on a targeted basis with support from South African Police Service and using smart meters that can be monitored on a live basis. She expressed the municipality’s commitment to repayment of Eskom debt and pleaded with the electricity provider’s indulgence mindful of the challenges.

Lekwa Municipality

Mr Lindokuhle Dhlamini, Executive Mayor, Lekwa Municipality, told the Committee that one of the biggest challenges in repaying the debt to Eskom was that payment culture remained extremely low among residents. The municipality was dealing with a situation where it is given 15 days to pay Eskom whereas it gives its consumers 30 days to pay, which allows the interest to accumulate aggressively. The municipality is experiencing challenges in enforcing credit control due to the fact that Eskom is the distributor to the defaulting areas. Because the municipality is partnered with Eskom, it looked up to the electricity supplier to assist in resolving this constructively. Tariff structure also presents challenges and impacts the ability of the municipality to settle its debt obligations.

In its debt collection efforts, the municipality has identified top 200 business and top 200 residents that will be subjected to debt collectors. A tripartite debt collection agreement has been signed with Mpumalanga provincial Department of Cooperative Governance and Traditional Affairs and a company of debt collectors to assist with the following services: handover of the top 200 identified business and residential defaulters; instituting recovery mechanism to recover outstanding debt; preparation of summons; obtaining judgements; negotiation of acceptable payment arrangements; and obtaining emoluments attachment order. Building a culture and attitude of payment of services was paramount.


Naledi Municipality

Mr Tshepo Bloom, Municipal Manager, Naledi Municipality, told the Committee that Eskom was at the top of its creditor list, alongside other large creditors including the South African Revenue Service, the office of the Auditor General, the Development Bank of South Africa and the South African Local Government Association. The payment of suppliers within 30 days as required by Municipal Finance Management Act (MFMA) was a challenge due to cash flow challenges. Eskom remains the municipality’s biggest liability with the debt currently at R274 977 064. Municipality was currently in negotiations with Eskom for a payment arrangement which should be finalised by the end of the month May 2018. The intention was to ensure that the current account is maintained to avoid further penalties and maintain the payment arrangement entered into with Eskom.

Mr Bloom said the municipality was seriously overspending on capital projects. It also cannot afford its fire, traffic and library services. He also questioned the commitment of municipal employees, 80% of whom he says are overpaid. The municipality is spending R1 million a month on their car allowances alone. The municipality has a serious problem of a lack of commitment from staff members. His colleagues were more of politicians than administrators. Residents were also not prepared to pay their bills because they only receive an intermittent water supply from the district municipality which is responsible for water and sanitation. The Auditor-General gave Naledi an unqualified audit, but noted that the council was not a going concern. However, there was little to celebrate there, because if a municipality gets an unqualified audit and cannot deliver services, it does not mean anything. The money the municipality got for electricity was often used to pay salaries and to fund other expenditure items such as fire services, library services and running traffic by-law enforcement at a loss. He proposed that the provincial sphere take on the funding of these functions instead.
Mr N Skalk, Executive Mayor, Naledi Municipality, concluded by indicating that the municipality has the potential to grow over the long term as it has many strategic opportunities in terms of its location and surrounding economic activities. However, the Eskom debt places a difficult decision at the end of each month as income is lower than expenses, such that the municipality finds itself in a predicament to pay debt instead of servicing the communities as mandated by the Constitution. A cash injection/bailout or better payment agreement between the municipality and Eskom should be investigated as it would be the most efficient and effective way for the municipality to strategically turn the situation around and hit the ground running with full service delivery as expected by communities.


Emfuleni Municipality

Emfuleni Municipality acknowledged the debt it owed to Eskom. The municipality suggested that the Committee give consideration to recommending the writing off interest accruing on the debt owed to Eskom, which would ease the repayment burden. The second consideration by Eskom should be the number of days for the accrual of interest - the 15 day period vis-à-vis 30 days. The 15 days were exerting too much pressure on municipalities as aforementioned. Notably, Eskom issued a notice which creates a great deal of instability in municipalities back in March 2016.
The need for continual engagements on credit measure controls between municipalities and Eskom was identified as paramount. Eskom ought to be a partner rather than a mere service provider so that the municipality could be open about its financial accounts and challenges. Since the municipality entered into a payment agreement, it had been consistent in rendering its obligations. However, the affordability of the debt, adding to the interest, was a challenge the municipality was confronted with. Currently, the municipality was embarking on a turnaround strategy which involved the filling of senior management vacancies and engagement with local communities to encourage payment of services. These were tasks that the municipality was seized with and would appreciate any form of assistance.

 
Thaba Chweu Municipality

Mr Thoka Kgoale, Municipal Manager, Thaba Chweu Municipality, said most of the issues the municipalities would have wanted to ventilate had been talked to. The municipality owed Eskom R464 million currently. However, revenue generation challenges were a principal issue which the municipality was grappling with. The main defaulters in paying municipal services were government and household, the debt amounting to R283 million. Subsequently, the municipality was implementing the Credit Control and Debt Collection policy, which entailed procurement of a debt collector, negotiation of acceptable payment arrangements with the defaulters, and disconnection of electricity for the defaulting customers.
On relevant interventions, council approved the sale of land parcels projected to generate revenue solely to service the Eskom debt. Although there are challenges, the project was underway. The Housing Development Agency’s services have been secured to assist with capital raising and implementation (valuations, infrastructure condition assessments, sales and bond applications, design and construction) of the mega project. The project entails disposal of 170 invaded houses and disposal of about 3000 serviced stands and housing packages. Other quick wins the municipality was looking into pursuing were as follows:

 

  • Thorough consultation with all stakeholders on the Duma public-private partnership project;
  • High level political and administrative support to iron out the Eskom impasse and HDA related challenges;
  • Urgent employment of suitably qualified senior managers;
  • Joint tackling of electricity theft;
  • Accelerate removal of illegal connections and adherence to deadlines;
  • Development of monitoring and evaluation strategy for reconnections;
  • Full support for project Revenue Enhancement Team;
  • Allocation of full time/ dedicated electricians under project revenue enhancement;
  • Development of monitoring and evaluation strategy for reconnections;
  • Secure political and administrative willpower to turn the Municipality around.


Ms Selina Mashego-Sekgobela, Executive Mayor, Thaba Chweu Municipality, concluded by indicating that the municipality was willing to settle the debt despite a myriad challenges. She asked Eskom to allow the municipality to make a presentation before the entity about the projects being embarked upon to address its historical debt.

Maluti A Phofung Municipality

Maluti A Phofung Municipality said its Eskom bill amounted to R1.7 billion. It was pointed out that the municipality held a meeting with the business chamber in early March. At that time Eskom wanted the municipality to pay a R100 million upfront and then enter into an agreement to pay an average of R60 million monthly. It was proposed that a separate account be opened that would ring-fence all revenue from business. The money collected would then be used to settle Eskom debt monthly. Unfortunately, while the proposal was still under consideration, business went to court after disconnection of electricity early March. The basis of the court application was to challenge Eskom on two matters; namely for Eskom to stop the interruptions, not to cut electricity supply on that particular month. The second relief that they sought was for them to pay Eskom directly. These were businesses which provided a huge chunk of revenue to the municipality monthly. The court subsequently granted an interim order allowing these businesses to pay Eskom directly. It was a dire situation and the ruling could set a precedent across the country. Most municipalities were likely to collapse as a result of the ruling. Furthermore, the municipality was confronted with a number of revenue generation challenges largely owing to damaged meters, and by-passing by households among others. Treasury had committed to assisting the municipality in formulating a recovery plan which sought to deal with a lot of capacity constraints. Maluti A Phofung committed to finalising payment arrangements and recovery plan by August 2018.

The meeting was adjourned for lunch break.

 

At the resumption of proceedings, the Committee continued to discuss the presentations.

 

Discussion

 

Mr D Ross (DA) noted that Matjhabeng Local Municipality had engaged the NT inter-governmental relations unit in his presence, and asked if Maluti a Phofung (MaP) had engaged that unit and whether it had not been necessary for NT to limit the decay at that municipality through that unit’s intervention? Were the NT financial recovery plans adequate to address the Matjhabeng problems? Who had been the people that had installed the new billing system, and who had authorised installation of a new billing system which had malfunctioned? In terms of irregular, wasteful and unauthorised expenditure, when the indication had been that no financial statements had been tabled and submitted to AGSA for auditing, that meant that no expenditure had occurred. Did MaP agree with that assessment, and was the municipality engaging AGSA in that regard?

Mr Victor Duma, Head of Department (HOD): Department of Cooperative Governance and Traditional Affairs (COGTA), FS, the MaP administrator, replied that the former municipal manager (MM) at MaP had authorised the new billing system which had been dysfunctional. The MM was no longer with Maluti as his contract had expired. The old billing system had been reinstated as it had been efficient. The financial statements for 2016/17 financial years (FY) had been submitted late and the audit was still inconclusive because the AGSA team had been withdrawn due to communal unrest. Maluti had engaged AGSA recently to return the auditing team at the municipality to conclude the audit.

Mr Ross interjected, asking whether there had been a budget tabled for MaP for 2018/19, or if that was a work in progress.

Mr Duma replied that on 19 June a draft budget for the 2018/19 FY would be tabled, so that on 28 June the final budget could be tabled, as the deadline was the end of June.

Mr Ross wanted confirmation whether indeed there were businesses litigating against MaP, since they had been paying Eskom through MaP. Could MaP give their views on the disconnection notices served to these businesses?

MaP replied that the businesses had been creating job opportunities in the FS province and if indeed the MaP had not been paying over electricity bills to Eskom, that was a risk for the businesses. However, MaP had engaged the businesses to create an account which would allow Eskom to bill them directly, but the businesses had chosen to litigate and MaP was awaiting the conclusion of the court proceedings.

Mr Ross asked if the Lekwa Local Municipality (LLM) trust account option would have been an option for MaP, as that would allow the municipality some influence regarding collection of payments which would also reflect in the financials.

MaP replied that although the legal opinion was to await the court process, the preference had been for the payments to go to the MaP accounts, although not the primary account, because if the money was paid directly to Eskom that would create further problems in terms of accounting for the money as per section 11 of the Municipal Finance Management Act (MFMA).

Mr Ross was impressed that Matjhabeng had achieved an unqualified audit with findings, having moved the opinion historically from disclaimed audit opinions, and having established a multiparty task team where all councillors had worked towards that achievement. The administrative capacity there had proved worthy, but the audit findings needed serious attention, as the unauthorised expenditure of just over R1 billion was extremely concerning. That expenditure seemed to be related to interest on rentals, and he required clarity on that amount. The R186 million of fruitless and wasteful expenditure over and above unauthorised and irregular expenditure seemed to speak to a culture of unaccountability.

Mr Tsoaeli referred to the fruitless and wasteful expenditure, commenting that R182 million of that amount had been interest for Eskom, as Matjhabeng owed R1.8 billion to Eskom. In the year under review, R175 million had been interest on Eskom’s debt only. R474 million of the unauthorised expenditure found by AGSA was non-cash and in the top 10 list within that category of AGSA’s report, the Committee would find that four metropolitan municipalities (metros) were there, three secondary cities and because of their sizes, overspending on the budget could be expected to become an issue. In Matjhabeng, the pressures were for paying for bulk services which spoke to Eskom and Sedibeng Water, and were not necessarily for being irresponsible.

Mr Ross accepted the rationale where secondary city status was concerned and the 40% plus unemployment in that region, but certainly in terms of the Matjhabeng budget being fully funded, NT had indicated to him that Matjhabeng’s indigent register needed upgrading. When last had that register been upgraded? Had Matjhabeng been engaging NT on that register?

Mr Tsoaeli said they were finding ways to ensure that those who had to be on that register were there, because when the FS treasury had been engaged to assist Matjhabeng with cleaning it up, the municipality had its register full of people within the public service, including teachers, and people who earned over R6000 were also in there. To date, the indigent register of Matjhabeng stood at 17 000 people, and considering the unemployment rate in the region, and 40 000people were receiving social grants, when Matjhabeng had completed a ward by ward analysis, only about 200 people had registered for that analysis. That had immediately told Matjhabeng that people no longer were interested to register as indigent, as some areas had been accessing services for free. MaP had sought assistance from Eskom in trying to collect, but that had borne no positive result, which was why the collection rate in some areas had been 30% or less.

Mr Ross asked if Matjhabeng foresaw the businesses which it had billed and were paying their bills, continuing to do so when they were being served disconnection notices and having their water curtailed? Matjhabeng had to come to a different agreement with Eskom regarding the disconnections. The credibility of the municipality’s finances had to be restored to avoid the irregular, wasteful and unauthorised expenditures to get to a sustainable management of its finances.

Mr Speelman replied that after a hiatus and a multiparty consultation, all the businesses within Matjhabeng had committed themselves to paying for services as long as the municipality would ensure no disconnection of power would occur.

Mr Ross had observed through the print media a sale of execution of many of the municipality’s properties. Was the municipality dysfunctional because of the debtor’s demands for payment? He had also noted a R15 million payment to SARS. Would the municipality be able to continue the bulk supply monthly instalment, or was the community at risk of being without bulk supply?

Mr Tsoaeli said the 2018/19 council-approved budget had indicated that Matjhabeng had to reduce its contracted services. Contracted services had shrunk from R280 million down to R120 million for 2018/19. That spoke to contractors having withdrawn from servicing the municipalities, and those service providers that had litigated were mainly two security companies, where the municipality owed about R40 million to both. The companies wanted to be paid before the new FY started, because in the new FY amongst the cost containment measures was the in-sourcing of security personnel. The municipality had not collapsed yet, as Eskom’s list of municipalities to be disconnected did not include Matjhabeng. The municipality was also engaged with Sedibeng Water.

Mr Ross asked whether the bloated salary bill remained at R50 million a month. Was Matjhabeng also responsible for the traffic department, as there were 150 vacancies advertised by the traffic department in that region when the salary bill was already that high?

Mr Tsoaeli said that as part of in-sourcing security services for the municipality, Matjhabeng currently paid R8 million to three companies to secure municipal assets, so it had to rethink how it could secure its assets in a way that would be able to sustain its community obligations and commitments as well. The Matjhabeng monthly salary budget remained at R54 million, and a disaggregation of the amounts had shown that R1.7 million for acting positions and overtime had cost R6.2 million. Matjhabeng had therefore decided that in the new FY, it would remove acting positions and confirm people into permanent posts and would reduce its overtime.

Mr Ross asked whether the multiparty task team set-up for a turnaround strategy at Ngwathe had been meeting and was functional.

Mr Kannemeyer replied that the ad hoc committee established through the mayor’s office was functional, but had not been meeting on a regular basis in the absence of a meeting programme schedule. It met as and when convened by the mayor.

Mr Ross urged the mayor to reconvene that ad hoc committee and to structure its programme properly, as it seemed to be dysfunctional. Why had Ngwathe submitted its statements late to AGSA for auditing?

Mr Kannemeyer replied that the late submission of financial statements related to challenges with assets that were Generally Recognised Accounting Practice (GRAP) compliant, where the consultant that had been contracted had been replaced at a very late stage. The provincial treasury and AGSA had been informed ahead about the late submission.

Mr Ross asked Ngwathe if it would be able to submit to the Committee statements on irregular, fruitless, wasteful and unauthorised expenditure.

Mr Kannemeyer said that would be possible.

Mr E Kekana (ANC) asked the delegation from Ditsobotla municipality whether the municipality had a recovery plan.

Mr Sebothenyane said that Ditsobotla had had no substantive directors in key positions for the last year and half and the positions were still vacant to date. Every turn around plan that had been developed had never been implemented as there had been no handover and therefore no continuity.

Mr Kekana asked whether Mr Sebothenyane was implying that Ditsobotla had collapsed.

The Chairperson interjected wanting to know Mr Sebothenyane’s designation

Mr Sebothenyane replied that he was an acting MM appointed on 24 May 2018, and historically each department in the municipality had been procuring individually without going through the supply chain management (SCM) unit of the Ditsobotla Municipality. Ditsobotla had since centralised its SCM, minimised fraudulent invoicing and could quantify its exposure.

Mr Daniel Buthelezi, Mayor of Ditsobotla, said that Ditsobotla had had two former MMs who had not worked for more than 23 months, and the most recent MM had worked for only six months before resigning. On 18 June, Ditsobotla would be interviewing candidates for the MM position. Three other positions were awaiting compliance concurrence, and Ditsobotla was aggressively pursuing updating its indigent register and the installation of smart meters to better manage services and create revenue for the municipalities.

Mr Kekana asked what the South African Local Government Association’s (SALGA’s) role had been in the Ditsobotla situation.

SALGA replied that it had presented to the Standing Committee on Public Accounts (SCOPA) quite recently, where it had defined SALGA’s role in local government. SALGA’s mandate was to lobby, advocate and represent local government and when municipalities experienced problems as severe as those in Ditsobotla. It engaged relevant departments, and in the Ditsobotla case that had been the Department of Cooperative Governance and Traditional Affairs (COGTA) and National Treasury (NT).

Mr Kekana interjected that he wanted to know whether SALGA had performed its role, as articulated in its presentation.

SALGA replied in the affirmative.

Mr Kekana said that he wanted an answer from the Director-General (DG) of COGTA, because all the municipalities at the meeting had reported that national government owed them -- had COGTA been hearing that report for the first time, and if not, what had it been doing to address that?

Mr Dan Mashitisho, DG, COGTA, replied that the portion of the R139 billion owed to municipalities was Government debt, specifically R7 billion. As most Government infrastructure belonged to the Department of Public Works (DPW), COGTA had engaged DPW, which had committed to pay where Government owed municipalities. However, there were cases where the DPW disputed invoices.

The Chairperson interjected, asking why the DPW had not paid the invoices which were not disputed.

Mr Mashitisho replied that that had been COGTA’s position -- that where there were no disputes, DPW had to pay, and the DPW had committed to paying.

The Chairperson interjected again, asking whether there had been no timeframes set for settlement of debt between municipalities and the DPW.

Mr Mashitisho replied that the amounts varied across provinces and in some provinces, the DPW, Treasury and COGTA provincial departments had taken it upon themselves to settle or reduce the debts.

Mr Kekana requested COGTA to submit to the Committee an analysis report of that debt, and what had been reduced or settled.

Mr Mashitisho replied that that would be done.

Mr Kekana said most of the MMs in all the municipalities before the Committee were in acting positions. When would the positions be permanently filled, as that affected leadership stability?

Ms Malatjie said that Emalahleni had concluded interviews for the MM position, and would finalise an appointment by the end of June. It had already appointed a technical services manager who would start in July.

Ms Ngxonono said that Govan Mbeki Municipality had advertised the MM position and would be short listing and interviewing before the end of June 2018.

Mr Duma said MaP had advertised the MM, Chief Financial Officer (CFO) and Technical Director vacancies. The adverts would be closing on 22 June, so it could appoint within 30 days from that date.

Mr Kekana wanted clarity on the trust account from COGTA.

Mr Mashitisho said COGTA maintained that consumers using municipal services within a certain jurisdiction had to pay into the said municipality of residence’s trust account for services. The trust account had been a creation that had emerged from a crisis situation, where Eskom would have disconnected an entire municipality even though businesses and other citizens would have paid for their services and felt disadvantaged. Ordinarily the municipal account would have been used, but in situations where the courts had ruled, that situation would have to apply although it was not ideal.

Mr Kekana said he was not convinced the municipalities were committed to settling their Eskom debt. He required the municipalities to commit that they would be paying Eskom what was due.

Ms T Chiloane (ANC) asked Ditsobotla what disciplinary measures it had initiated against former employees of the municipality which had been found to have contravened the law, in order to recover lost money and enforce discipline.

Mr Buthelezi replied that Ditsobotla had engaged FS provincial treasury to assist in cancelling all disputed and illegal contracts entered into by former employees on behalf of Ditsobotla, and were still awaiting a response in that regard.

Ms Chiloane said that the issue of punitive measures had to be applied so that people could not simply move from one municipality to another in a different province while it was known that the individual had left as a result of disciplinary action in their previous position. Criminal charges had to be followed up in clear cases.

How much had MaP and GMM already paid Vesta Technical Services (VTS) before terminating the contracts? How were they planning to recover the money, as no services had been rendered?

Mr Duma replied that when MaP had terminated the services of VTS, R3.3 million had already been paid over. The matter was undergoing litigation to try and recover the money.

VTS had already been paid R9.6 million by Sasol through a tripartite agreement with GMM, although GMM had paid no money out of its coffers. VTS had also invoiced GMM for R4 million, but GMM had refused and was currently engaging Sasol to recover the money through litigation.

Ms Chiloane said that there was a trend at local government were municipalities contracted debt collectors to collect fees for services from citizens, and that had not been reported on by any of the municipalities apart from Ditsobotla. How much had Ditsobotla paid the debt collectors?

Mr Duma replied that there had been two instances where Ditsobotla had engaged debt collectors who had worked on average one month, which had really seen no work produced. To date, both instances had yielded settlement agreements worth R15 million that the debt collectors wanted from the municipality, and that had been the type of unjustifiable settlement agreements Mr Duma had referred to earlier.

Ms Chiloane asked whether Ditsobotla were saying they were paying such amounts, or not.

Mr Duma responded that the agreements were historical, and nothing had yet been paid as there were disputes about services actually rendered. There had been that type of conniving between service providers and municipal officials at Ditsobotla.

Ms Chiloane asked whether Emfuleni’s debt collection had yielded a result, and how much that municipality had already paid its debt collector?

Emfuleni replied that if there had been a contract that had led to the collapse of the Municipality, it had been that debt collection contract. Emfuleni was in the process of exiting the contract, and were planning to review it. The contract had been structured so that the debt collector would be entitled to the current account of the municipality, and legally debt collectors had to collect at least 30 days and above. When the municipality had cancelled the contract, the settlement amount had been about R400 million, which Emfuleni had been paying for the past three years, with the balance being R15 million.

GMM had a similar situation to Emfuleni, where the debt collector had been charging its fees on the current account of GMM and that agreement had been entered into by the previous senior management. GMM had terminated the contract and the matter was in litigation, pending an outcome.

Mr Duma said that MaP was engaging the debt collector and wanted to ensure that MaP cleansed the debt and would want to pay for debt collection for bill payments of 90 days upwards so that no commission would be charged to the current account of MaP.

Ms Chiloane asked for the names of the service providers and the amounts paid, to be sent to the Committee.

She wanted to know, where businesses were paying Eskom directly, what the challenge with municipalities’ current accounts had been.

Mr Mayisela said that Emalahleni had challenges with payments to Eskom, but were paying the debt. There was a case set down for June which would be heard in the Mpumalanga high court, where a group called ‘Save Emalahleni’ was advocating for businesses to pay their power utility bills directly to Eskom. The municipality was opposing the application in the high court. Interestingly, the leaders of the group owed municipal services accounts.

Lekwa had had four companies that had been paying directly to Eskom for their power usage in terms of a court order. 50% of the bill the companies were paying had been subsidised for payment into Lekwa’s current account. Lekwa had agreed with Eskom to pay weekly to service its debt, and would be challenging the court order which had granted the four businesses the right to pay utilities directly to Eskom. The challenge with direct payments was that they included money which was Lekwa’s municipal profit, and this created a challenge as the customer accounts would need to be adjusted on the municipal billing side, as the court order had been that the money had to be acknowledged as received, even when paid directly to Eskom.

The Chairperson asked whether Lekwa had not opposed the original application by the four companies; seeing that Lekwa wanted the judgment to be rescinded?

Lekwa replied that it had not opposed the application.

Mr Motete Khoabane, Member of the Executive Council (MEC), FS COGTA, said a task team had been established between COGTA, the provincial treasury and the Premier’s office in the FS to look at programmes to assist in capacitating municipalities. Among the top priorities in those programmes was fiscal discipline and consequence management. In that regard, the province had instructed its legal advisors to review the contracts of MMs so that new contracts would bind them to account for municipalities getting disclaimed opinions. Additionally, the province had requested municipalities to submit a list of ongoing litigation matters against them individually. It was true that government departments owed some municipalities, and the committee of the Premier’s coordinating forum had reached an agreement on a payment plan where all departments would pay their debts to municipalities. The province was also looking into the payment structures of all municipalities in FS to ensure that bulk suppliers would be paid, to avoid disconnections by bulk suppliers.

Ms N Khunou (ANC) said Parliamentarians and councillors all had to take responsibility to go back to their respective communities and constituents to inform them that municipal services had to be paid for, otherwise disconnections would be repeat occurrences. Why was it when councillors knew residents were stealing electricity, they were not notifying the relevant authorities? What quantum of electricity had been found to be stolen, and what had the municipalities done to date to stem that theft and to collect the services fees?

Ms Mashego-Sekgobela said Thaba Chweu Municipality (TCM) had established a revenue enhancement team and the municipality had reported on the dereliction of duty by the South African Police Services (SAPS) officers. SAPS had been part of the problem, as they had participated in the land invasions at TCM.  

Mr Speelman said that if the Committee could put itself in the shoes of councillors, then understanding would be better.

Mr T Brauteseth (DA) interjected on a point of order, commenting that Mr Speelman was casting aspersions on the Committee when he and other members of the Committee had started out as councillors at the local government level, and frankly understood the work of municipal councils.

Mr Speelman said he agreed with TCM that SAPS officers were in dereliction of duty, because even after being hailed, they often fled service delivery protest scenes. He had also written to the Minister of Defence seeking assistance with the scourge of zama-zama illegal miners in Welkom, and at some point there had been a battle between SAPS and zama-zama miners, where the SAPS personnel had eventually fled. The issues that were plaguing FS municipalities were the same issues that had been raised with the late former Minister of COGTA, Mr Sicelo Shiceka, where municipalities had requested bail-outs in a similar manner to South African Airways (SAA). He said committing to pay Eskom was like trying to draw blood from a stone, Matjhabeng was unable to pay the debt owed to Eskom. That was why the proposal was for Eskom to write-off the interest which it was charging on the debt by the 10 municipalities, because Matjhabeng was paying R174 million in interest only.

Mr Kekana interjected on a point of order, said that Mr Speelman was inciting the wrong public response and sympathy, as he was justifying why Matjhabeng would not pay its debt to Eskom. It was irresponsible for Mr Speelman to make such a statement, as the Committee’s stance was that the municipalities had to pay Eskom as they were receiving electricity from Eskom, and the communities had to pay the municipalities for the electricity they received.

The Chairperson ruled that the response was inappropriate, and barred him from continuing to respond in the manner he was doing.

Ms Khunou said the reports of dereliction of duty by SAPS had to be submitted to the Committee so that it could assist where it could, as it was irregular for SAPS to behave like they had. She commented that Naledi Municipality’s salary and electricity supply bills outstripped their council-approved budget. The previous Minister of COGTA, Mr Des van Rooyen, had already had recovery plans developed for municipalities in distress, and she hoped that the submissions from COGTA would speak to that as well.

Mr Mashitisho said that in the succession from one administration to another, the government always had programmes to support municipalities, but the programmes possibly changed names. The current programme in force was ‘Back to Basics,’ and Minister Mkhize had not shelved that programme when he came into administration, but was continuing with it. The shift, however; had been an emphasis on being hands-on, with the Minister going into the municipalities individually to appraise himself of the challenges so as to deploy‘rapid response teams’ in the short term. The diagnostic analysis in the North West (NW) had revealed that 20 out of the 22 municipalities in the province had had disclaimed audit opinions. Naledi Municipality was among the municipalities in trouble but not at the level of Ditsobotla, and COGTA had a plan for municipalities including the 10 distressed before the Committee, where categorisation was financial management, governance and service delivery. At Ditsobotla, COGTA had a plan to deal with the serious administration and political issues that affected governance, including financial management matters, because the current acting MM had been the acting chief financial officer (CFO) when COGTA had been to Ditsobotla a month ago.

Ms Khunou wanted to get COGTA’s view on the issue of aging infrastructure as alluded to in many of the municipal presentations.

Mr Mashitisho said infrastructure maintenance had backlogs all the way from metropolitan municipalities (metros) to local municipalities. In the national fiscus, there seemed to be no resources to assist with maintenance. Departments had to be innovative and COGTA had to develop a municipal infrastructure funding model.

Ms Khunou asked the Eskom representative at the meeting how it had transpired that Eskom received and accepted direct payments from consumers when municipalities had billed the said consumers.

Eskom replied that no municipality billed on behalf of Eskom. Although it was true that Ditsobotla, Lekwa and MaP billed their customers for electricity, the court order had been that some of those customers in those municipalities had to pay Eskom directly. Whatever was paid directly to Eskom was offset against the court-ordered municipalities’ current accounts.

Ms Khunou wanted clarity as to whether Eskom was saying the payments were affecting the debt and decreasing it.

Eskom replied that indeed the payments affected the overall debt, even though analogously it would be like receiving R1 000 against a R10 million debt instead of nothing at all, and was thereby servicing the debt.

The Chairperson interjected that the representative had to stop at whether Eskom benefited from direct payments or not, and not to speak for the municipalities.

Ms Khunou proposed that the Committee invite Eskom to come and explain how its interest rates on debt were calculated, and why the variances were so large.

Ms V Mente (EFF) said Eskom was not a service provider, but a state-owned entity (SOE) that had to generate revenue to assist the state and its sustainability. It contributed to the economy of SA, so for Eskom and the municipalities to be bickering about who gets what was quite wrong. The raising of interest by Eskom seemed to be a thread, and AGSA’s last audit report had indicated that of the 10 municipalities before the Committee, only GMM was not in the red. All 10 before the Committee were submitting excuses as to why they could not pay Eskom, when they also owed AGSA, SARS and even water boards. When Eskom had reported that some of the municipalities were not honouring their settlement agreements, that had been no lie because TCM with only 14 wards -- whose Eskom bill had been R360 million when the new MM had come in -- currently owed Eskom R431 million. Had the mayor and MM of TCM serviced the Eskom account during their tenure?

 

Mr Kgoale replied that TCM was struggling to make monthly payments to Eskom, but the challenge was what TCM billed to customers against what Eskom billed TCM. The additional charges, besides the nominal kilowatt-hour (Kwh) rate, were the levies that Eskom charged TCM, as TCM billed its customers on the Kwh tariffs only and the entire levy arrangements made it difficult for TCM to honour its agreement in full in many instances.

 

Ms Mente asked whether TCM had canvassed the issues with Eskom to get a better resolution about how they were being billed.

 

Mr Kgoale replied that TCM had engaged Eskom accordingly, but had been told that for Eskom to maintain its infrastructure it was obliged to bill levies, and in TCM’s application to the National Energy Regulator of SA (NERSA), NERSA had refused to allow TCM to impose levies on its customers and that had led to TCM sometimes defaulting on its Eskom obligations.

 

Ms Mente said her point had just been illustrated -- that no common ground had ever been reached between Eskom and the municipalities. The presentation by Eskom on 15 May could not be all there was, because either municipalities had not approached the appropriate institution regulating tariffs, or Eskom had not declared accordingly what levies would be charged, and how, to the regulator. The differences between the municipalities and Eskom had not been explained in layman’s terms or included in the presentation, and they would continue to hinder payments to Eskom.

 

In Emalahleni, the Eskom bill had escalated from R200 million to R1.6 billion, and she was struggling to understand how that happened when all the senior manager posts were filled. How did Emalahleni propose to pay that amount going forward?

 

Mr Mayisela responded that in 2012/13, the deficit had been R58 million when Emalahleni had been put under section 139 administration, and for five years the deficit had grown during that period of administration. Before the arrival of the administrator, Emalahleni had been paying Eskom, but during administration the bill had escalated.

 

Ms Mente asked who the administrator was.

 

Mr Mayisela replied that it had been Mr Theo van Vuuren.

 

Ms Mente asked how the current leadership of Emalahleni had gone about tracing how the council-approved budget had not been keeping up with Eskom payments when it had come into office. Why had the Eskom payments allocation not been paid to Eskom? What had happened to Mr Van Vuuren?

 

Mr Mayisela replied that Mr Van Vuuren, after having completed his administering work for Emalahleni, had become the MM, and his term of office had ended in August 2017. The payment rate for municipal bills had decreased in the period to the extent that Emalahleni had had a cash flow problem -- for example, it had closed its books for 2017/18 with a deficit of about R385 million.

 

Ngwathe had mentioned that it had considered paying a once-off settlement with Eskom if the interest on the Eskom debt could be written off. Did Ngwathe have the resources to do that currently?

 

Mr Kannemeyer said Ngwathe did not have such resources, but in its engagements with Eskom the power utility had indicated that it would consider writing off the interest if Ngwathe could raise the amount to service the signed debt agreement once-off. In the current signed agreement with Eskom, there was a provision that if Ngwathe kept paying back its debt every month until March 2024, the interest in Ngwathe’s current account would be written back. His submission earlier had been that if Ngwathe could find bridging finance, it could service the debt once-off completely.

 

Ms Mente said that if Eskom had such an agreement with Ngwathe, the question remaining was if Ditsobotla and Lekwa could raise the capital amount in a similar manner as Ngwathe, would Eskom consider writing off the interest amounts?

 

Eskom replied that had signed payment arrangements with all municipalities in areas apart from the 10, and the provision was that if payments to the current account were kept and terms of agreements adhered to then Eskom would suppress future interest going forward, and immediately a municipality defaulted then the interest would be reinstated. Additionally Eskom was charging NERSA-agreed tariffs and no additional levies or surcharges differently across municipalities.

The average bill for Emalahleni since September 2017 had been about R80 million per month, and Emalahleni had serviced only about R35 million per month, soif only half of what was being charged was being paid, the debt would inevitably escalate and interest then would also get charged on the outstanding amounts.

The 30-day limit had been implemented since 1 July 2017 for all municipalities, except with metros, where the policy had been 15 days since the 1 December 2017.

Ms Mente wanted clarity as to whether Eskom was now saying that if a distressed municipality paid capital owing, together with interest, then the future interest would be suppressed.

Eskom replied in the affirmative, adding that no interest was being charged on overdue amounts as long as the new agreement terms were adhered to.

Ms Mente said the explanation differed from the report from Ngwathe about a once-off capital payment which would suppress any interest.

Eskom said of the various options on the table, not all had gone through the necessary governance processes, but those details could not be divulged by the representative who was speaking on behalf of Eskom.

Mr N Booi (ANC) rose on appoint of order, noting that if the representative could not divulge on the options, what had he been in attendance for, because the executive of Eskom had already presented on some of the input he had made up to that point at an earlier meeting. He required a balanced view which would accommodate the municipalities as well, as he was not impressed with the tone of the responses from Eskom.

The Chairperson said that the Eskom representative had attended only to observe, especially as he had said that he could not commit on behalf of Eskom. Moreover, he had not indicated his designation at Eskom, and the Chairperson did not recall having invited Eskom to the meeting.

Ms Mente said that AGSA had established that at GMM there had been an official who had wasted money by appointing a service provider to deal with water and sanitation infrastructure at a cost of R25 million, where the work had been determined to be of poor quality, with a contract that was never terminated even after the evaluation. She wanted clarity on why GMM had continued to pay for shoddy workmanship while still owing Eskom.

Mr Mhlanga replied that since his appointment, that contract had long been terminated. He asked for clarity on the allegation.

Ms Mente said that shoddy work costing R25 million had been delivered, and the authorising official had continued paying the money to the contractor even after advice that the work was of poor quality. She wanted to know what had happened to the authorising official.

Mr Mhlanga said shoddy work had indeed been commissioned at eMbalanhle extension 21. The authorising official had since left GMM at the expiry of his contract, and the service provider no longer serviced GMM. GMM was attending to the sewage spillage at Ext. 21, where a new contractor had been introduced on site.

The Chairperson interjected that the new service provider would be paid from the municipal fiscus after R25 million had gone down the drain.

Mr Mhlanga said the R25 million had been a provincial grant.

The Chairperson interjected again that the money was still public money.

Ms Mente asked whether GMM had recovered the money from the contractor that had done shoddy work.

Mr Mhlanga said it had not.

Ms Mente said there was at least a criminal case there, because it was fraudulent to do sub-standard work knowingly and willingly.

Mr Mhlanga agreed that he had been appointed to improve on such occurrences.

Ms Mente said she required information on what steps had been taken to followup on that matter.

Mr Mhlanga said GMM was in the process of establishing a committee to deal with irregular contracts and expenditure as part of its action plan from the recommendations of AGSA.

Ms Mente said that TCM was pleading poverty, but had recently procured camera equipment for R7.2 million and outsourced investigations. She wanted to know why those had been prioritised.

Mr Kgoale replied that TCM remained with a sea of challenges since his appointment, and indeed R931 000 had been spent to assist with the forensic investigations, as TCM had wanted to establish the historical unauthorised, irregular, fruitless, and wasteful (UIFW) expenditure of R345 million over 12 years. The COGTA MEC in Mpumalanga had advised that it could not be business as usual, as recommendations would be made to the Municipal Public Accounts Committee (MPAC) that there needed to be investigations. When TCM had concluded its assessment, it had realised that there had to be procurement of expert services from knowledgeable persons about the verification which had been required to ensure that the irregularities in expenditure could be known. Forensic services had been procured and completed its work, and the nature of the work had justified the expenditure for investigating. A corollary question had been why the MM had not followed the normal processes, and given the sensitivity of the issues to be dealt with, regulation 32 had had to be invoked. He had personally dealt with the procurement and the investigation implicated a lot of personnel within TCM.

Regarding the cameras, TCM had lost considerable property and the cameras which were still being deployed in the environment were to secure its property. Before his appointment as MM, the TCM’s “Wendy House” offices had mysteriously been burned to the ground with a lot of TCM archive documentation, and at one point it had employed about 15 security companies where, for instance, a single company would be paid millions of rands to guard one transformer. The television cameras had cost less than R100 000 as part of the close circuit television (CCTV) deployment in protection of TCM property.

Ms Mente asked whether there was no other state institution that could have assisted TCM with the investigation, instead of outsourcing the investigation for close to R 1 million.

Mr Kgoale said he perceived that it could be said that there was the integrity commission in the Premier’s office and others, but the UIFW expenditure had existed at TCM before he had been appointed, and therefore one could ask why no one had bothered to investigate. Given that challenge, TCM had required credibility in the process of investigating, so the procurement of outside forensic services had been the best option.

Naledi had reported that there had been R250 million of debt which no one had bothered to follow and service, even though there had been a budget to do so. What had happened to the budget?

Mr Bloom said both the former CFO and MM were no longer in the employ of Naledi, and his understanding was the budget was a plan that needed cash in a municipal account to be implemented. Therefore he was unable to respond on behalf of personnel that were no longer a part of Naledi

Ms Mente said that Naledi’s books had a trail that could be followed, and therefore she required the officials from Naledi to say where the money had gone, as it was immaterial that they were not in the employ of the municipality at the time.

The Chairperson reiterated Ms Mente’s sentiments.

Mr Bloom said that Naledi had a high salary bill where the money would have gone to. It had a traffic department which generated not more than R2 million in revenue, but required R12 million in salaries. There were also library and fire department services, and the fire dDepartment was not generating any revenue, but Naledi was also spending more than R12 million on salaries there as well.

Mr Brauteseth asked why TCM had brought five delegates, including the mayor’s driver, to the meeting.

Mr Kgoale said that it was imperative that the mayor had her driver with while travelling down to Cape Town, as the mayor had had prior commitments before boarding a flight to Cape Town.

Mr Brauteseth asked why the trip had cost R68 000 for five people. How many days was the TCM trip?

Mr Kgoale said the chauffer and driver were part of the mayor’s package, and the risk associated with the kind of work the TCM mayor was doing. He was being prudent regarding the protection of the mayor.

Mr Brauteseth said the TCM schedule of payments to Eskom had shown that in August 2017 it had been billed for R22 million, but had paid only R342 000, although it had collected R13 million in the same month. In November, TCM had been billed R12 million, and it had collected R12 million, but had paid only R3 million to Eskom. In February 2018, it had been billed R12 million and had collected R11 million, but paid Eskom only R2 million. In April, it had collected more than Eskom had invoiced, it but had paid nothing to the power utility. He wanted to know why the shortfall had not been paid over to Eskom when people had paid it to TCM for electricity. What had the money been used for?

Mr Kgoale replied that during the early days of his appointment, he had realised that TCM was going through rough waters. An example was that in his tenure, there had been a day where more than 130 municipal workers had come to work to find themselves promoted to managerial positions without any human resources (HR) protocols having been followed. The current management at TCM had inherited a municipality that was over-contracted, and he had become an enemy of service providers in that region as he had terminated some of those contracts as they were unnecessary. Currently, the TCM was in a situation where robbing Paul was done to pay Peter. The profit made from electricity also unfortunately subsidised other things at TCM, and struggling as they were, it was trying to recover some of its municipal operations.

Mr Brauteseth said the TCM mayor was refusing to hand over the forensic report recently completed to the TCM council. Why was she refusing to publicise the report? He extended the question to all the municipalities present at the meeting as to why the forensic investigations had not been made public once completed, or handed over to their councils at least.

Ms Mashego-Sekgobela replied that the report had been presented to council, and the TCM council had resolved to implement the report.

Mr Brauteseth requested that the report be provided to the Committee.

Ms Mashego-Sekgobela said because there were names of peoples that had not been redacted, and she was asking that this be allowed.

The Chairperson said that if they had stolen public money, there could be no secrecy about criminality. He required that report.

Mr Brauteseth reminded Ms Mashego-Sekgobela that she was before the Standing Committee on Public Accounts, and therefore every cent of government money had to be accounted for before the Committee.

Mr Kgoale said the report could be made available to the Committee, but explained that when it was not available publicly it had been because he had asked the TCM council for room for him to consult all the individuals implicated in the report.

Mr Brauteseth reiterated his broader question about completed forensic reports from all 10 municipalities being sent to the Committee.

He said he understood that VTS, having been recommended and approved by the provincial treasury, had operated for about six months or so at GMM and MaP without producing anything. Why had this not been picked up earlier? If it was considered that the R300 million-plus could have been sitting int both municipalities’ accounts earning interest, they had to consider the loss in revenue they would have had in their accounts, and that was damage. Had either of the municipalities considered trying to recover the loss from VTS?

Mr Mhlanga said indeed the target had been to have a financial system for GMM up and running by 1 July 2017, and GMM had engaged VTS. Provincial treasury had been brought in when GMM had realised there was a challenge. That had yielded no results, and NT was then been called upon to intervene.

The Chairperson interjected, wanting an explanation on what type of engagement Mr Mhlanga was talking about, because GMM had contracted people to deliver certain services which had not materialised.

Mr Mhlanga said that both the provincial and national treasuries had not supported GMM adequately until it had decided to terminate the VTS contract.

Mr Brauteseth intervened wanting confirmation that Mr Mhlanga had written to NT about VTS, and that NT had simply ignored GMM. Was there a cache of emails, letters and a thread about the correspondence?

Mr Mhlanga replied that when the steering committee had done due diligence on evaluating, they had recommended Moonsoft to NT. However, the advice from NT had been that VTS was a suitable service provider and the steering committee had then changed its resolution. All that had happened before his appointment, and when he was appointed he found that VTS had done nothing, and indeed emails had been kept of the exchange of correspondence between NT and GMM.

The Chairperson requested that the correspondence be forwarded to the Committee.

Mr Duma said to date, MaP had written to the former Acting MM to provide reasons as to why it could not institute punitive measures against him. He could provide correspondence to the Committee that he had engaged Mr Jan Hattingh of NT, and the only response available was that MaP could participate in an RT 2510. He had then asked NT if he could reinstate the previous system MaP had used, and that was possible, and so the previous system had been used to date.

Mr Brauteseth said the only correspondence he required from MaP was a summons to VTS asking VTS to appear in civil litigation for the recovery of money MaP had spent, including the interest that MaP would have generated had VTS done its work.

Mr Duma said MaP could commit to that, as the State Law Advisors were actually looking into litigation.

Mr Brauteseth asked Naledi municipality to comment on the allegation that Mr Bloom had been appointed irregularly, and had received a R348 000  salary increase without Naledi council approval.

Mr Bloom said his salary had not been increased, but was being paid according to the upper limit as determined by the Minister of COGTA.

Mr Skalk said that he would provide all the relevant documentation relating to Mr Bloom’s appointment at Naledi.

Mr Brauteseth requested that all 10 municipalities submit to the Committee a statement of what percentage of their equitable share allocation annually was spent on Eskom repayments.

He said that part of bail-out deals by the South African Reserve Bank (SARB) for commercial banks was to change the management of the bank, and that was normal procedure everywhere where bail outs were concerned. Were each of the MMs of the municipalities prepared to resign from their posts for their municipalities to take bail-outs?

The Chairperson said the question could be taken rhetorically, as the proposition was that if there were going to be bail-outs, they would come with conditions, including restructuring of management where dereliction of duty was found.

Mr Brauteseth advised that all the senior managers with their mayors had to be absolutely frugal in how they ran their respective municipalities, because the issues had gone beyond money, and were about confidence that they could lead.

Mr Booi pleaded with the municipalities to cooperate with Eskom and administrators when they were appointed, because South Africa did not want to become a failed state. Non-payment of Eskom affected the power utility’s drive to garner international investors. How much interest did Matjhabeng owe Eskom?

Mr Tsoaeli replied that the amount from May 2017- February 2018, was R175 million.

Mr Booi said he had wanted to indicate that it would not be easy for Parliament to convince Eskom to write off the amounts that the municipalities owed Eskom, as they were exponential.

Ms G Ngwenya (DA) asked GMM whether its draft budget for the 2018/19 had been approved by the council.

Mr Mhlanga replied in the affirmative.

Ms Ngwenya asked how that budget had been approved, when the sitting had not been quorate on the day of the tabling, as there were councillors that had been against provision in the draft budget for the GMM Speaker’s vehicle to the value of R700 000, and mayor’s car, which would cost around R900 000.

Mr Mhlanga said that when the meeting where the budget had been tabled had taken place, all the councillors had been present and the meeting was quorate. During the debate onf the budget, some councillors had left proceedings.

Ms Ngwenya requested that GMM provide the attendance register of that meeting to the Committee for verification.

Ms Ngxonono replied that when the meeting was under way, the councillors that had vacated proceedings had refused to sign the attendance register.

The Chairperson said the Committee still required the register of those that had signed, because the matter raised questions around whether the budget had actually been passed or not.

Ms Ngwenya recalled that GMM had alluded to a planned massive cuy-off of services. Was there a cut-off list for businesses separate from that of individual homes?

Ms Ngxonono replied that those lists were available, as they were complied monthly.

Ms Ngwenya requested that the lists be submitted to the Committee.

She also asked Lekwa whether there had been money paid over to Mahachi Electricity, and specifically how R35 million had ended up with the service provider. Had the R21 million supposed to be paid back to Lekwa been received and if not, what measures had been put in place to recover that amount?

Mr Dhlamini said the service provider under question had been tasked to instal smart meters for prepaid vending. The matter was at arbitration, as Lekwa believed it had to recover the money. While busy with vending, the service provider had decided to pay itself before invoicing Lekwa, and the municipality’s argument was that the money for vending had to first be handed over to Lekwa so that invoices could be submitted by the service provider.

Ms Khunou said that as AGSA had alluded to a lack of leadership and accountability being the biggest drivers of disclaimed audits and other maladies at municipalities, the 10 municipalities had agreed at that meeting that those indeed were deficiencies. She proposed that a skills audit be undertaken at local government level to ensure that whatever outcomes derived from the meeting, their implementation could be fast tracked.

Ms Chiloane recalled that Lekwa had alleged that Eskom owed Lekwa R6 million, and she required elaboration on what that debt entailed.

Mr Dhlamini replied that the debt related to property rates and services.

The Chairperson asked the DG of COGTA if he had any closing remarks.

COGTA’s response

Mr Mashitisho said among the 10 municipalities’ presentations, the thorny issue seemed to be who the electricity distribution service authority was at local government, between municipalities and Eskom. In an attempt to resolve that, the Minister of COGTA had established a panel whose report was due by the end of July 2018. SALGA’s position in terms of the SA constitution, the Municipal Systems Act (MSA) and the Municipal Finance Management Act (MFMA), was that local government was the authority in electricity, whereas Eskom disputed that, as the power utility also was licensed by NERSA.

Municipalities had been promising to encourage residents to pay for services, but the system where services were consumed first and paid for later had failed. Only in a prepaid metering system was payment recovered, and that had been seen at Ditsobotla. However, the problem there had been that Ditsobotla had decided to give 60% of its profit to the service provider. On a provisional payment system, 48% of payment was recovered and what was needed was use of what worked. In the villages, Eskom was raising revenue because people were using prepaid metering, whereas in the townships people consumed first and then refused to pay afterwards. The R139 billion owed to municipalities was where people used conventional metering systems.

There was a municipality amongst the 10 before the Committee which had 153 000 non-South African inhabitants consuming services, but when the equitable share formula was being implemented, the 153 000 warm bodies would not be counted, even though they constituted a whole separate municipality on their own. Therefore the equitable share grant for that municipality was distorted. This was the same at informal settlements -- because people did not have municipal accounts, the equitable share formula was also distorted, as it counted only individuals with municipal accounts. This needed review.

Furthermore there was an inter-municipal dispute between district and local municipalities about who the authority was on the basis of levies for utilities and rates, and who provided bulk services and other matters. Those issues were what COGTA was working on to resolve at a policy level. COGTA had analysed all 257 municipalities on their capacity to deliver services, governance and financial management, and on average 30% of the challenges were administrative matters including skills levels, and the remaining 70% were issues of political governance which influenced administrative performance. COGTA had moved to deal with those issues with NT and provincial treasuries, as well as the Municipal Infrastructure Support Agent (MISA).

COGTA had also realised that until it had provincial COGTAs that had capacity, then little would improve as the provincial COGTAs were supposed to use the section 51 (4) to support municipalities. However, the provincial COGTAs had been found to lack capacity, which was something COGTA hoped to resolve.


The Chairperson requested SALGA to make its closing input as well.

SALGA’s response

SALGA referred to the period of transition between the White Paper on Local Government and to date, and what had actually developed over time. The current funding model of municipalities was something that legislatures had to grapple with, otherwise the Government would always be catching up to new developments at local government level. Linked to that was that at local government, there was the policy stance that no ward or proportional representative would owe money to a municipality, but national and provincial government employees could owe municipalities for services and utilities.

SALGA agreed with Mr Mashitisho on the weak collection tools at local government. For example, nowhere in SA would it be allowed for a business to go and operate elsewhere without a tax clearance certificate, but at local government an entrepreneur could run from one province to another and conduct business with another municipality. SALGAs view was that the capacity for collection at municipalities needed improvement and that did not seem to be on the agenda in many discussions.

The Chairperson asked that all the documentation the Committee required be collected through the DG’s office and then sent to the Chairperson’s office. He asked the DG to check how Ditsobotla had agreed to a third party to collect its electricity revenue at a 60% rate for service provided, because COGTA needed to review that decision urgently whilst identifying who the officials were that had signed that contract.

 

The Committee had to follow up on ghost vending of electricity, and why the sentences after litigation seemed to be less than those which would be given for food theft at a retailer.

 

The issue of how Eskom billed interest also needed the Committee to engage Eskom, as some debts showed interest which was more than the consumed amount of electricity.

 

Municipalities also needed to introspect, because they could not be pleading poverty while having bloated organograms and political and leadership instability, and misuse of regulation 32, where municipalities got tied to all manner of service provider contracts where money was looted. Mayors and council Speakers had to give space to MMs to manage, because political interference seemed to be a long-running thread that affected performance.

 

Mr Kekana interjected that in the list of SAPS officers occupying council houses, the report of Matjhabeng had also alluded to senior council officials as occupying council houses. The list had to include that as well.

 

The Chairperson thanked the municipalities for sending presentations on time, as that had afforded the Committee better engagements and allowed the municipalities to move into the light, as they were always being accused of simply being delinquent without being given a chance to respond.

 

The meeting was adjourned.

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