Nelson Mandela Bay Municipality on IDP, LED & service delivery

NCOP Finance

14 August 2018
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Meeting Summary

The National Treasury (NT) provided an overview of the financial position of all eight metros for the year ending in June 2017. Non-compliance with supply chain management (SCM) processes and ineffective political and administrative leadership were among the salient factors impacting on audit opinion.

In the case of Nelson Mandela Bay Municipality (NMBM), a volatile political environment had spilled over into administration. Relations with the provincial government had to improve in order to address issues such as unfunded mandates. There were high levels of irregular and unauthorised expenditure. The metro’s financial health had improved, and the NT had found the funded budget to be credible, relevant and sustainable. High labour costs were a risk, and there was a need to improve contract management capacity and to increase repairs and maintenance. The human settlements strategy review was at the stage of strategic delivery choices, and stood in need of high level executive and political championing and support.

The NMBM reported that key challenges confronting the metro were a severe drought; unacceptably high water and electricity losses; under- and unfunded mandates; audit qualifications; Inter-Governmental Relations (IGR) challenges; and the situation at Bay World. A credit opinion by Moody’s Investor Services in March 2018 had shown an improvement over the December 2017 rating. The rating had taken into account the metro’s solid financial performance and low debt levels, though debt was expected to increase modestly over the following three years. Continued fiscal consolidation had led to a robust financial performance and a comfortable liquidity position. The rating was also supported by a relatively large economic base, although it was concentrated in the automotive industry

The metro budget was strongly committed to the Built Environment Performance Plan (BEPP) urban network strategy and previously disadvantaged areas. Budget allocations were spatially targetted. The greatest challenge in relation to unfunded mandates was that of libraries. The NMBM vision was that of an iconic, friendly ocean city driven by innovation, service excellence and economic development. It was geared to becoming a destination of choice.

Members raised questions about implementing water metering and the eradication of bucket toilets; the reasons for the dismissal of the Chief Financial Officer; why the Council faced motions of no confidence while it was performing well; how the indigent were identified for free water and electricity; what was being done to improve the metro’s roads; and whether a reduction in the number of employees was being considered as a means to reduce costs.

Meeting report

Introduction by Chairperson

The Chairperson reminded the Committee of visits to metros in the previous year. The Committee exercised fiscal oversight over municipal finances. The nine provincial treasuries had appeared before the Committee, and currently it would be looking at the metros. On the agenda for the day was a presentation by the Nelson Mandela Bay Municipality (NMBM).

Coordinated and continuous support had to be given in terms of section 154 of the Constitution. Strategic areas to be engaged with were the socio-economic overview; the performance of the budget; revenue management; spending; progress with the Integrated Development Plan (IDP); local economic development, and alignment with the National Development Plan (NDP). Economic growth in the metros was important. It was higher than the national average, as more people lived there. There was an ongoing migration from the rural to the urban areas.

He welcomed the NMBM executive Mayor, Mr Athol Trollip. However, Buffalo City had not replied to the invitation to appear before the Committee, and had indicated only on the previous day that it would not be present. The matter would be taken up through the relevant structures. Parliament was not to be ignored. There was a constitutional obligation to be accountable.

National Treasury on NMBM budget performance

The briefing was presented by Mr Sadesh Ramjathan, Director: Local Government Budgets, and Ms Matjatji Mashoeshoe, Deputy Director, National Treasury. It included an overview of the financial position of eight metros for the year ending June 2017, as well as audit outcomes for the 2016/17 financial year. Non-compliance with supply chain management (SCM) processes and ineffective political and administrative leadership were salient factors impacting on audit opinions. Service delivery performance and the medium-term revenue and expenditure framework for all metros had been discussed.

For Nelson Mandela Bay Metro, it had been found that a volatile political environment spilled over to administration. Relations with the provincial government had to improve, to address issues such as unfunded mandates. There were high levels of irregular and unauthorised expenditure. Financial health had improved, and the NT had found the funded budget to be credible, relevant and sustainable. High labour costs were a risk, and there was a need to improve contract management capacity and to increase repairs and maintenance. The human settlements strategy review was at the stage of strategic delivery choices, and stood in need of high level executive and political championing and support.

NMBM on its budget performance for 2017/18
 

Mayor Athol Trollip said the key challenges confronting the metro were a severe drought; unacceptably high water and electricity losses; under- and unfunded mandates; audit qualifications; intergovernmental relations (IGR) challenges, and Bayworld challenges.

A credit opinion by Moody’s Investor Services in March 2018 had shown an improvement over the December 2017 rating. The rating had taken into account the municipality’s solid financial performance and low debt levels, though debt was expected to increase modestly over the following three years. Continued fiscal consolidation had led to the robust financial performance and a comfortable liquidity position. The rating was also supported by a relatively large economic base, though it was concentrated in the automotive industry.

The metro’s budget was strongly committed to the Built Environment Performance Plan (BEPP) urban network strategy and previously disadvantaged areas. Budget allocations were spatially targeted. The greatest challenge in relation to unfunded mandates was that of libraries.

The NMBM vision was that of an iconic, friendly ocean city driven by innovation, service excellence and economic development. It was set to become a destination of choice. A strategic planning steering committee had been established.

Discussion

The Chairperson mentioned that if one travelled from Cradock to Cookhouse, a tunnel could be seen that pumped water that landed up in Kirkwood, to irrigate citrus farming land. Water was pumped over a distance of 300 km to poor people. The NT was responsible for bulk water allocations to municipalities. The NCOP had to monitor that, as well as the achievement of bucket eradication targets. People’s dignity had to be considered, so that it would not be necessary for them to go to the hills. There had to be proper toilets. Water metering was an important matter that had to be attended to by the Department of Cooperative Government and Traditional Affairs (CoGTA) in respect of municipalities across the board. Updating the indigent register was another important matter. He asked about economic activity in the townships.

Mr M Shabangu (EFF, Free State) referred to the appointment of a competent Chief Financial Officer (CFO). He asked if the CFO who resigned had been incompetent. He asked why there had been no buses during the World Cup. Why were there motions of no confidence while government was operating well? He asked if there were new devices to check who owned what, with reference to tariffs, and how indigents were identified for provision of free electricity and water. Were houses to be built on wetlands, as part of informal settlement upgrading? It was claimed in the presentation that people wanted houses, rather than water and sanitation. It was accepted practice to build infrastructure first, before houses were erected.

Mr L Gaehler (UDM, Eastern Cape) referred to the statement that the metro was being promoted as a tourist destination, and proposed that the role of tourism be discussed in more depth. He asked whether the 29 000 sites were solely for the lower classes, or whether the middle class would also be catered for. It was true that roads were a national and provincial responsibility, but roads in the metro itself were its own responsibility. What was being done to improve the roads? The NT had referred to SCM challenges, especially concerning tenders – had anyone been disciplined, and how? World Cup buses were not being used, and money had been paid for them -- had anyone been charged?

Mr F Essack (DA, Mpumalanga) referred to the statement by the NT that certain information had not been forthcoming. In slide 2 of the NT presentation, only Nelson Mandela Bay had shown an increase of cash held, whereas all other metros had shown a decrease. He asked what had gone right there, and what had gone wrong with the other municipalities. He asked about the re-statement of corresponding figures, and what the metro could tell the Committee about industrial development zones (IDZs).

Mr M Monakedi (ANC, Free State) referred to slide 3 of the NT’s presentation. Ineffective political and administrative leadership impacted on the audit opinion. He asked about inadequate consequences for poor performance, and what was being done in terms of consequence management. The NT’s slide 4 referred to the implementation of credit control measures in Eskom supplied areas, and it was the responsibility of Eskom to collect. Concerning unfunded mandates, why had the metro agreed to spend money on what was not mandated? Had a reduction of employees been considered as a means to control labour costs? He commended progress made in improving the relationship between the metro and the province. It was desirable that the audit outcome for the metro improve from qualified to unqualified, so that a clean audit could eventually be obtained. He referred to the writing off of debt, and asked if it was due to the fact that poor people were being provided with more services, and how this could be managed.

Mr O Terblanche (DA, Western Cape) sought more clarity about spatial planning, to which a grant was assigned. He asked how irregular and unauthorised expenditure was to be tackled. It had been mentioned that debts were written off on a monthly basis, and wanted to know if that referred to amounts or units consumed, and how it was done. He was impressed by the fact that sites were allocated to individuals, who were allowed to build or develop the site until municipal building could take place. He asked if it would be possible to grant title deeds.

The Chairperson referred to the allusion of sustained high levels of irregular and unauthorised expenditure in the NT presentation. The NT and the metro had to elaborate on that, and supply figures. There were already figures in the document prepared by the Committee researcher. There had to be an action plan to address the challenges. In July, the Public Audit Amendment Bill had been passed, which gave the Auditor General (AG) powers to zoom in on such matters. It could also assist Parliament.

Ms Mashoeshoe replied about a long term financial strategy. The NT assisted the Tswane and Johannesburg metros, but it needed strategic financial information about every area of service delivery to do so. Raw data and financial projections were the information needed to establish priorities.

Mr Ramjathan responded that the depth initiative was geared towards integrating all planning. Financial planning was the key to that. The IDP stretched over five years, and the master plan over 20 years. The master plan was not linked to existing financial information. Perspective on a long term vision was needed.

Regarding the restatement of corresponding figures, when the auditor presented its findings, municipalities had to respond, but that could happen only in the succeeding cycle. Correct figures could be produced on the basis of evidence. Poor political and administrative leadership could in part be attributed to the turnaround of municipal managers. He referred to the statement about the implementation of credit control measures in Eskom supplied areas, and said it was true that Eskom had to collect, but the statement referred to the inability of other services to use a cut-off as a lever.

The Technical Finance Committee had instituted game changers to improve SCM. Those were revenue management; audit outcomes; Municipal Standard Chart of Accounts (MSCOA); funded budgets, and asset and revenue management. All were linked. For revenue to improve, asset management had to be in place. Municpalities could not cope without support. The NT provided support through the provincial treasuries.

NMBM response

Mr Trollip answered about meters. The Opposition was opposed to meters, as it did not want its constituency to be held accountable. The NT had committed to funding the eradication of illegal electricity connections, but the promised funding of R150 million had not been honoured. To verify assistance to the indigent, the action taken had been to knock on every door to determine the income of a household. Questions were asked about income, and bank statements had been required. Previously there had been exclusion in terms of the Assistance to the Poor (ATTP) programme if the value of a house was less than R100 000. However, currently even Reconstruction and Development Programme (RDP) houses were worth more than that, so many RDP owners would not be excluded.

He answered about the competence and professionalism of the previous CFO. Irregularities around the awarding of contracts had led to a forensic investigation. After delaying the disciplinary process for 18 months, the CFO had resigned.

World Cup buses had notoriously been parked in an open lot since 2010. Eventually, the buses were in complete disrepair, and had had to be renovated to be roadworthy. The infrastructure had been incompatible with the buses. Currently the buses were on the road, and kept in a well managed terminal. R2.5 billion had been spent, and for a time there had been no bus service.

He answered about motions of no-confidence. There had been four such motions, but none had been put, because numbers were lacking. Julius Malema had said that the throat of his whiteness had to be cut, although Mr Trollip had not necessarily done anything wrong, had managed the city well, and was not corrupt, but still he had to go.

Concerning tariff arrears, he answered that the debtors’ book was not bad, but had been affected by the drought. It was badly affected by water tariff increases. The non-revenue loss of water had to be reduced. Excesses had in the past been calculated incorrectly, and currently a formula was being used to write off excesses. Indigents were identified by also questioning neighbours. If neighbours witnessed that the man left the house in a police uniform in the morning, and the wife in a nurse’s uniform, they could not qualify as indigent, as they were obviously employed. Use was made of cross-verification.

Regarding the upgrading of informal settlements, the policy was to upgrade where people lived, but when people lived on flood plains or under power lines, they had to be moved. People were not necessarily agreeing to the building of houses without services. People who lived in temporary structures did not want communal toilets built, as they felt that it would perpetuate their condition. They wanted houses built for them. In the past, houses built without bulk infrastructure in place were a disaster, such as in Missionvale. At Kayamnandi, toilets built without houses had been equally disastrous. Currently sites were supplied with water and electricity and tarred roads. A slab with a toilet and electricity connection could be supplied, and future occupants could build their own informal infrastructure.

Tourism was a main focus, especially sports tourism. The metro would host the World Iron Man competition, which would be the biggest sporting event hosted after the soccer World Cup. It  hosted more national sports events than ever before, and formed part of the golden tourism area. Efforts were being made to promote the metro as part of the Garden Route, to encourage tourists to spend more bed-nights there. The metro had hosted the SA Tourism Services Association conference.

The 29 000 sites were for low-income housing, but there was also allocation for “gap” housing, and partnering with housing developers, to allow opportunities to obtain housing for middle-income earners in the R250 000 to R300 000 bracket.

Roads in the metro itself would be upgraded for the hosting of the World Iron Man Championships. The province had undertaken to grant R200 million, but it had not been honoured. R30 million of NMBM’s own funds would be allocated for that. Unsurfaced roads were to be surfaced in the townships.

Concerning SCM challenges and consequence management, he answered that there had been contracts that had run for years. The contract around the World Cup buses had led to the asset forfeiture unit taking possesion of properties built with the proceeds of crime. The former CFO had been implicated. People had been fired.

He answered Mr Essack that non-forthcoming information was being discussed with the NT. The metro was proud about the increase in cash holdings. It had made it possible to obtain a bank loan of R750 million, which was an unprecedented achievement.

Concerning the special economic zone (SEZ) at Coega, he noted that there were two major ports, of which one was a deep water port. It was 15 minutes from the airport to Coega, and five minutes to the Port Elizabeth (PE) harbour. There was an increase in cruise ships coming in -- from 17 the year before, to 23 in the current year.

A challenge related to the PE port was that there were manganese storage dumps, and bulk fuel storage. Facilities had been depreciated and written off. Portnet had moved the removal of these facilities to 2023. Companies that used to store fuel and manganese did so on a profitable basis, due to the write-off and depreciation. If the companies moved to new facilities, they would have to comply with new environmental standards, which would cost more. There was extreme resistance. There had been meetings with Transnet and partnership with the Mandela Bay business chamber, to place more pressure on Transnet to implement foreshore and waterfront development.

He answered Mr Monakedi about the NT comments on the political and administrative leadership. He considered that to be a subjective statement. There could be no objective measurement of political instability. There had been four motions of no-confidence which had not been submitted. The metro had taken a while to pass the budget and adjustments budget, but it had been done. Service delivery targets had been met. It was not a case of political instability which had made the metro ineffective. It had to be borne in mind that it was a coalition government, which could be hard to manage.

Concerning consequences for performance transgressions, he said that officials were treated professionally. There were two tracks -- professional and administrative. Appointments were made on merit. Of 26 managers appointed, not one was white, or aligned to his party.

The metro had to respond to the citizens’ need for libraries. It had received 50 percent of the provincial library allocation. Bay World as a tourist attraction was currently owned by the province, and a Memorandum of Understanding (MOU) had been signed about how it was to be run. The metro might take over.

There was a task team that assessed posts in the city in order to address labour costs. There was benchmarking with other metros. Critical vacancies were being filled, but the micro and macro organograms were being restructured, and consultancy and contract fees were being reduced. The goal was to make people more productive. People could not be fired, but there could be a reduction in contracting fees and rentals, and money spent on hiring vehicles when vehicles were in the workshops.

There was an action plan to improve audit outcomes. Irregular expenditure of R8.8 billion had to be regularised. The AG report for the current year would be better. Historical problems had to be cleared out of the system, but Council had had to wait for four months to sit. There had been four Council meetings where the opposition had walked out. If deadlines were not met by the end of August, there would be another qualification.

He answered Mr Terblanche about spatial planning. The Integrated City Development Grant was small. The budget could be spent better. SCM processes could be improved by preventing open-ended tenders. Irregular and unauthorised expenditure had been addressed through improving the internal audit component. The metro had got rid of the KPMG auditing firm, and the staff who worked for them had had to be absorbed.

Mr Johann Mettler, City Manager, confirmed that the 29 000 sites were exclusively for lower income individuals. It was considered that people could be allowed to move in, provided that there was a plan for the development of the site that could be adhered to. Title deeds were a problem. The allocation of beneficiaries was dealt with after the fact. Ideally it had to be linked to the identity documents (IDs) of people currently on the waiting list, which was not currently the case. It meant that when houses were built, the metro would have to place security guards to prevent invasion. People could move in only once electrical work had been completed, else they would make fires. Allocation and building processes had to be reworked. The ideal would be to identify sites to persons through technology, which could provide all the needed information even before the house was built. Such information could form the basis for awarding title deeds. Currently, once it got to the title deed process, the original person could be long gone, with the house rented out three or four times.

He answered about consequence management, and said that there were two levels. Irregular expenditure went through the Municipal Public Accounts Committee (MPAC), and at first it was only the money that was dealt with. For consequences, it had to be determined who was responsible. There was irregular expenditure of R8.8 billion dating back to 2002. Sometimes there was a lack of the documentation needed to identify individuals. If individuals or directorates could be identified, there could be follow-up. At a second level, civil actions were instituted against fraud and corruption, as had been done with the previous CFO and other defendants. There were also criminal cases. There was one case number and one set of detectives assigned to cases. Detectives worked with the NT and the AG. Unspent public money had to be returned. MPAC sat to consider all cases every month, to report on progress with disciplinary cases and criminal investigations.
Regarding the audit outcomes, there were three matters from the 2016/17 financial year -- irregular expenditure, asset impairment and contractual retentions. Measures had been taken to prevent a recurrence. Repeat findings were measured, also on his own scorecard.

Conclusion

The Chairperson remarked that the priority for the financial year was contained in the President’s State of the Nation Address (SONA), and had later been elaborated upon by the Minister of Finance in the National Budget. Funds had to be dedicated to NDP priorities. The National Council of Provinces (NCOP) had to monitor that. Title deeds were a serious matter. The Budget Forum would meet on 20 September, and the CoGTA Members of Executive Councils (MECs) had to be there. There were water meters in his constituency, at Klipfontein and Twee Rivieren, although the towns were small.

Libraries as a facility were linked to schools. There had to be internet connections. If libraries did not function, the community suffered. The library situation had to be monitored, and money had to be followed. Libraries had to function.

When the auditing process was concluded, there had to be an input from the NT and the AG about audit outcomes. The Mangaung and eThekwini metros would be met with in the following week, and Cape Town on 4 September.

The meeting was adjourned.

 

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