Documents handed out: Research document by the Committee researcher (to Members only)
National Treasury reported that matters impacting on audit opinion included non-compliance with Supply Chain Management processes and poor management of indigent registers. Fiscal risks related to service delivery included declines in water revenue, unfunded mandates, and the unresolved conflict between eThekwini metro and the Ingonyama Trust. The financial health of eThekwini was improved but still fragile. Irregular and unauthorised expenditure was increasing. The metro was dealing pro-actively with the water crisis. Budget assumptions were credible, and budget alignment to the Integrated Development Plan and Built Environment Project Planning had been verified. Cash flow was sustainable over the Medium-Term Revenue and Expenditure Framework, but cash reserves were deteriorating. The collection rate was high, despite a declining trend. Irregular expenditure was increasing. The financial health of Mangaung was very fragile, and service delivery was in decline. Budget assumptions were not realistic, and revenue forecasts were not achievable. The political leadership had absolved its responsibility with regard to the budget/Integrated Development Plan process. The huge operating deficit projected over the Medium-Term Revenue and Expenditure Framework was not sustainable, the budget was not funded, and Capex funding from own sources was not sustainable.
The eThekwini vision was that it would be the most caring and liveable city in Africa by 2030. Strategic priorities were the creation of sustainable livelihoods, and developing a financially sustainable, safe and accessible city. Challenges to urban transformation were that it was a low-income, low-density and segregated city. Built Environment Project Planning spatial targets recognised the need for economic growth and integration, and resources were directed towards marginalised areas. There were partnerships with the private sector to make the metro more responsive to consumer issues. Integrated Development Plan priorities included the creation of a quality living environment through the provision of engineering, building and built environment infrastructure. The Integrated Public Transport Network project would facilitate equality of access to opportunity. Human settlement challenges included invasion and occupation of unsuitable land. The metro was ranked as the top SA city with the highest quality of living for the fourth consecutive year by Mercer’s Quality of Living Survey.
In discussion, there were remarks and questions about alternative revenue streams; cash flow; revenue collection; city planning capacity; adequacy of National Treasury oversight; Information Technology investment; irregular and unauthorised expenditure; the Ingonyama Trust; land invasion; challenges of low density; indigence, and water demand.
Mangaung was elevated to metropolitan municipality status in 2011. It had the smallest population of all the metros, and covered the largest area. The metro invested R2.6 billion on repairs and maintenance of infrastructure assets over the last 10 years. There was a commitment to eradicate the sanitation backlog. There were a number of projects to address water demand management. Informal settlement upgrading was achieved through in situ upgrading, with relocation only resorted to where development was not feasible. Former unbalanced spatial settlement patterns were to be restructured. Universal access to electricity was to be achieved in 2019. There were projects for area and street lighting to curb crime. Infrastructure construction towards Integrated Public Transport Network was ongoing, and would go “live” in 2019/20. The objective was to build more inclusive communities with access to schools, sports facilities and business opportunities.
In discussion, there were remarks and questions about administrative capacity; the indigent register; the lack of a transport system; vacancy turnaround times; the regressed audit outcome; the CENTLEC board, and the establishment of a financial misconduct board. It was asked if it had been a mistake to grant metro status to Mangaung. The Chairperson appealed to National Treasury to provide better training to officials.
Introduction by the Chairperson
The Chairperson announced that the Mangaung and eThekwini metros would be presenting on the day, with an introduction by National Treasury. Members received a research document, compiled by the Committee Researcher. Engagement with the metros had started with Gauteng. The City of Cape town was engaged the year before, and in the current year there had already been an engagement with Nelson Mandela Bay metro. Engagements were to monitor good governance, sound financial management, value for money and effective spending, and accountability. Tax payer money was being spent. He wished Muslims a blessed Eid Mubarak. No apologies were received.
Briefing by the National Treasury on 2017/18 budget performance of eThekwini and Mangaung metros
The briefing was presented by Mr Sifiso Mabaso, Senior Economist, and Mr Jordan Maja, Director: Local Budget Government Analysis. The financial position at year-ending June 2017, audit outcomes and service delivery performance for Mangaung and eThekwini was placed alongside those of the other six metros. Common matters impacting on audit opinion were, inter alia, non-compliance with Supply Chain Management (SCM) processes and poor management of indigent registers. Fiscal risks related to service delivery included declines in water revenue, unfunded mandates, and the unresolved conflict between eThekwini metro and Ingonyama Trust. The financial health of eThekwini was improved but still fragile. Irregular and unauthorised expenditure was increasing. The City was dealing pro-actively with the water crisis. Budget assumptions were credible, and budget alignment to the Integrated Development Plan (IDP) and Built Environment Project Planning (BEPP) had been verified. Cash flow was sustainable over the Medium-Term revenue and Expenditure Framework (MTREF), but cash reserves were deteriorating. The collection rate was high, despite a declining trend. Irregular expenditure was increasing. The financial health of Mangaung was very fragile, and service delivery was in decline. Budget assumptions were not realistic, and revenue forecasts were not achievable. The political leadership had absolved its responsibility with regard to the budget/IDP process. The huge operating deficit projected over the MTREF was not sustainable, the budget was not funded, and Capex funding from own sources was not sustainable.
Briefing by the eThekwini metro on 2017/18 budget performance
The briefing was presented by Mr Sipho Nzuza, City Manager, Mr Adrian Peters, Chief Strategic Officer, and Mr Krish Kumar, CFO.
The eThekwini vision was that it would be the most caring and liveable city in Africa by 2030. Strategic priorities were the creation of sustainable livelihoods, and developing a financially sustainable, safe and accessible city. Challenges to urban transformation were that it was a low-income, low-density and segregated city. BEPP spatial targets recognised the need for economic growth and integration, and resources were directed towards marginalised areas. There were partnerships with the private sector to make the metro more responsive to customer issues. IDP priorities included the creation of a quality living environment through the provision of engineering, building and built environment infrastructure. The Integrated Public Transport Network (IPTN) project would facilitate equality of access to opportunity. Human settlement challenges included invasion and occupation of unsuitable and environmentally sensitive land. The metro was ranked as the top SA city with the highest quality of life for the fourth consecutive year by the Mercer’s Quality of Living Survey.
Ms T Motara (ANC, Gauteng) noted that the metro had asked for assistance through other revenue streams. She asked that some of those be proposed. It was mentioned that cash flow was under pressure. She referred to revenue collection. She asked about plans to increase revenue collection, and what was meant when it was said that it was wished that municipalities could be run like SARS. She reminded the metro that it was a legal entity, and could resort to collection mechanisms. She asked if the metro was qualified for city planning, and if its planning was integrated with National Treasury (NT). She opined that NT had a desk top approach to oversight. There was no insistence on compliance at ground level. Things only looked good on paper. NT was responsible for oversight to assist municipalities. Municipalities had to look at IT as an investment. Human error caused leakage in the system and led to irregular expenditure. To install IT infrastructure could be costly at first, but would pay dividends. It assisted Limpopo when it was coming out of administration.
The Chairperson remarked that there was oversight on the ground at OR Tambo district municipality.
Mr O Terblanche (DA, Western Cape) commended on NT and the metro. The briefings were informative and instructive. What was missing was a clear path outlined to get to the 2030 objective. The two presentations were not speaking to each other. The metro had to give a master plan. There was no vision statement. NT referred to increasing unauthorised and irregular expenditure on slide 17. The metro did not touch on irregular expenditure.
Mr M Monakedi (ANC, Free State) commended the municipality for hard work. Plans had to be aligned to provincial and national priorities. The metro had to try to live up to its plans. He disagreed with Mr Terblanche. He believed that there were tangible and concrete projects to achieve the 2030 vision. It seemed that the metro was reluctant to delve deeper into the Ingonyama Trust matter. He asked what could be proposed, in relation to the medium to long term. It seemed that NT was too ready to excuse municipalities from irregular expenditure. NT was not taking it seriously. It could be addressed in a next interaction. He asked how the invasion of land by Umkhonto we Sizwe (MK) veterans was to be resolved.
The Chairperson emphasised that the Select Committee would take a hard line on irregular, unauthorised and fruitless and wasteful expenditure. One only had to look at what was said in the SONA and the Budget speech. A difficult Medium-Term Budget Policy Statement (MTBPS) was headed for. Economic growth had to be enhanced. Municipalities had to report on Local Economic Development (LED) and IDP.
Mr L Nzimande (ANC, KZN) commended the metro on a good effort. He asked about the terminology that referred to low density in the townships, and asked if that meant that there was space available, but limited settlement. Detail had to be provided. He asked what was meant by township hubs, whether that meant that people would be contained in Apartheid style locations, without there being integration. It was said that NT advised on free basic services, and that it was based on property values, with the limit being R250 000. The NCOP visited eThekwini, and people would report that they inherited a house worth R600 000 from a deceased family member, but they themselves were indigent, they were not rich. He asked what the plan would be in such a situation.
It was mentioned that the fiscus could shift the building of the Smithfield dam further into the future. As it was, eThekwini was taking water from the province, and yet there was an expressed need for another dam. Parliament was asked to intervene. He asked how a conservation and water demand plan tallied with the cry for the commissioning of a dam.
The Chairperson remarked that the golden rule was that one could not spend money one did not have, else the bank manager would call and ask what one was up to.
Mr Kumar replied on revenue streams, that application was made to NT, with support in principle from the Financial and Fiscal Commission (FFC) for business tax. Clarity would be given in future. On cash flow, that deficit had not been incurred. The surplus for 2016/17 and the current year was R2 billion. The City Manager had referred to the deterioration of the cash position, as own funds were used to cover Capex. There was an impact on own resources, due to the state of the economy. The metro budgeted to borrow R1 billion, the eventual sum was R700 million. The collection rate shifted by 1.5 % from 2015/16 to 2016/17. He was of the opinion that the metro could benefit from the same tax policy and ways to recover debt that SARS followed. Local government could not make use of garnishing orders or tax clearance certificates.
In response to Ms Motara about NT oversight, NT oversight was good. Good governance and financial management were due to NT oversight. There was benchmarking, and Municipal Regulations and Standard Chart of Accounts (MSCOA) issues were brought into play. There was zero tolerance for error and no favours were granted. The metro often fought with NT, and NT reports could be brutal and unkind. But NT set an example that could be looked up to, to uphold good governance.
IT investment was desirable, as the metro wanted to integrate customer relations management. The metro wanted complete billing, and smart meters. A business case had to be provided, and there had to be a grant of some sort. MSCOA was a tremendous system, but the pace had to be slowed down. Section 71 reports told the whole story with regard to the sufficiency of NT oversight. He had served with the World Bank in terms of how other cities could be assisted, and he had been throughout SA and various parts of the world from India to Brazil, and many parts of the developing world, and had never seen anything that could be compared what the metro had in terms of section 71 reporting. It showed what could be achieved through good governance and reporting.
Irregular expenditure amounted to R514 million, but it had to be borne in mind that all except R128 million was taken up by a single item of R385 million, where no valid tax clearance certificate was submitted. All people accountable had to get to root causes, and do the necessary, and report on that. There was monthly reporting on irregular expenditure. The metro had to await the outcome of the commission into Ingonyama Trust, and respect the outcome. The Trust had compelling arguments why it should not be taxed, and the metro wanted wall to wall taxation, and wanted to know how to manage land parcels. NT claimed that the indigent package was too generous, but there were child headed households, and the metro wanted to support vulnerable communities. Indigence was costly, and difficult to maintain and manage.
The Chairperson asked Mr Kumar how long he had been CFO.
Mr Kumar replied that he had been with the same city for 38 years, and had been CFO for 19 years.
Mr Musa Mbhele, Head, City Planning, replied to Ms Motara, that there were indeed qualified city planners, one of them being himself. There was a commitment to dismantle Apartheid city planning. The Mayor and the Provincial Legislature were leading engagement with the Ingonyama Trust board about the land tenure system. The matter that had to be resolved was the power of the traditional authority to allocate land. The depth of traditional authority had to be probed. The metro would return to the Select Committee about the matter.
He answered Mr Nzimande about what was meant by low density in the townships. It was not only in the townships where density was too low to support economic activity. High density supported business. Most post-Apartheid cities did radial planning, but the eThekwini municipal area was too large, reticulation of services was hard to achieve.
Concerning township hubs, the metro wanted to concentrate on investment zones that benefited during Apartheid. The question was how to draw in townships and rural areas. All economic sectors had to be represented in conclaves of high economic development. Townships and developed areas had to be linked.
Ms Zandile Gumede, Mayor, replied on water conservation and the proposed new dam. Alternatives were re-use, desalination, and water conservation. New infrastructure was seen as a last resort. Water conservation was not enough to delay the need. The metro could only survive until 2025.
The Chairperson thanked the Mayor and her team. The implications of decisions made by Council had to be considered. For implementation by officials, expertise was needed.
He introduced Mangaung metro with the observation that Mangaung was a rural metro compared to eThekwini, which remark was greeted by a loud murmur and some laughter. He qualified the remark by saying that the Free State was a rural province, which was greeted by a similar mild uproar.
Briefing by Mangaung metro on 2017/18 budget performance
The briefing was presented by Mr Tankiso Mea, City Manager. Mangaung Metro, was elevated in 2011 from a category B local municipality to a category A metropolitan municipality. The metro comprised of some smaller towns and extensive rural areas, had the smallest population of all metros, and covered the largest geographical area. The city invested more than R2.6 billion on repairs and maintenance of infrastructure assets over the preceding 10 years. The metro was committed to eradicate the sanitation backlog. A number of projects were implemented as part of water demand management. Informal settlement upgrading would be through in situ upgrading and relocation only where development would not be feasible. Former unbalanced spatial settlement patterns would be restructured. Universal access to electricity was aimed at for 2019. Projects for area and street lighting were implemented to curb crime. Infrastructure construction for IPTN was ongoing, and the project would go live during the 2019/20 financial year. The metro was committed to building more inclusive communities with access to schools, sporting facilities and business opportunities.
The Chairperson referred to expenditure ceilings. The admiration had to take care not to waste money that could be used for the advancement of people.
Mr Shabangu thanked both the NT and the Metro. He had an interest in the Free State, as he represented that province. The water board that set the tariffs was an entity of the metro, planning had to be done together. The metro was not justified to complain that tariffs were raised without its knowledge. In the Free State, only Thaba ’Nchu was tribal land. The province paid the chiefs well. He referred to a lack of administrative capacity. If there were qualified officials, the question was why there was such a mess. SA was a water scarce country. Mangaung water losses amounted to 34.8 percent, and electricity losses were 10.77 percent.
He asked about a remedy or mechanism to curb maladministration. Poor management of the indigent register led to problems with revenue collection. Tender processes were the sole responsibility of the administration.
He asked why there was political interference in tendering.
Mangaung had no metro police. It could be asked how it dealt with crime without a metro police force. Establishing such a force was a means of job creation. The unemployment rate was 40.7 percent. He asked how unemployment would be dealt with.
There was no effective transport system in the city.
He asked how spillages and potholes were dealt with. He asked when the inherited infrastructure would be removed. It was claimed that inherited infrastructure would be removed, but it had to be borne in mind that there had been no infrastructure at all in the past. People were still using buckets.
Mr Terblanche asked NT about non-compliance with procurement outcomes. Service delivery targets were not achieved, SCM processes were not adhered to, and credit control procedures were not in place. Overtime depleted resources. Service delivery was in decline.
Mr M Monakedi (ANC, Limpopo) asked about turnaround time for vacancies. The acting CFO had been in office for four months. The previous CFO must have given one-month’s notice, there was enough time to fill the position. NT had to pick up on that. He asked what caused the challenge of a long turnaround time for vacancies. 81 percent of the budget was funded through grants. He asked if it had been a mistake to declare Mangaung a metro. He asked how many municipalities were established to form part of the metro, and what had become of the district of which Mangaung was a part. The metro had to put its foot down about overtime protests. When workers marched and burned properties down, the metro had to take the lead. He asked why the audit outcome had regressed from unqualified to qualified. The municipality was losing staff. There had to be exit intervention, also to understand why people were leaving.
The Chairperson remarked that the metro had to be decisive when dealing with protests.
Ms Sarah Mlamleli, Mayor, replied that the metro had indeed put its foot down. There were tensions on account of actions taken. Cameras were used at the burning of the city hall to see what had happened. Staff learnership and internships had to be augmented. When it was elevated to a metro, the city inherited small municipalities like Naledi, De Wetsdorp, Wepener and Van Stadensrust, which had to be integrated. Those were small towns without budgets that were not viable. Unfunded mandates were crippling the metro.
The Gariep pipeline was started in 2004, and was then priced at R2 billion. The Metro had to compete with Water and Sanitation, and the NT only came in at the end of the day. It was agreed that Water and Sanitation would implement, but the price had escalated to R8 billion, and the Department did not have money.
There were seven land parcels that the metro wanted to develop, with infrastructure already delivered. There was still no light at the end of the tunnel. The metro was visited by the Portfolio Committees of Appropriation and Water and Sanitation. The current price tag was R8 billion. She deemed it necessary that it become a Public Private Partnership (PPP) project, as the seven land parcels, including the airport, could not be without water. The Department of Water and Sanitation confirmed to the Portfolio Committee Chairpersons that there was no money. 67000 VIP latrines had to be eradicated. The lesson to be learnt from KZN was that there had to be public/private partnership. Credit control and financial recovery had turned into a war for her. She did some introspection before calling NT in. She did an introduction, and called NT, the provincial Cooperative Governance and Traditional Affairs (CoGTA), the office of the Premier and the Provincial Treasury. She did not want to employ consultants. There were metro officials who worked from eight to five, five days a week, who could produce documents, when the CoGTA Minister visited. All political parties agreed to work together to implement plans. Performance agreements were informed by audit and recovery plans.
She answered on the decrease in service delivery, that a situation was inherited where the former council wanted a bond of R5 billion. The bond was not approved, but projects were retained. When the current administration arrived, it found that there had been overspending. Ten infrastructure contractors were employed for bucket eradication, and the metro had to borrow R500 million, half of which was used to pay them.
The Chairperson remarked that the South African Local Government Association (SALGA) claimed that there were workshops where people were instructed. When problems were inherited, as the Mayor had indicated, people had to know how to do differently to correct matters. He appealed to the NT that when people left workshops they had to understand how to perform their duties. People could be given assignments, so that they could go back to their offices to implement what they had been trained to do.
Mr Mea replied that Bloem Water was an entity of the Water and Sanitation national department. It was not a metro entity. CENTLEC, the electricity entity, worked well with the traditional authority. Qualification of officials had to be discussed. There was an attitude problem among people below the top layer. The engineering services HOD could touch on water losses. Money had to be provided for a condition assessment survey that dealt with infrastructure. Most of the budget had to go to water demand.
He answered about the establishment of a metro police force, that crime was under control, through SAPS campaigns.
Attention to spillages and potholes were ongoing, with R50 million to go to repairs and maintenance.
Staff turnaround was linked to the operational budget decrease. The metro had to slow down on appointments. Targets were corrected to be in line with the downward adjustment of the budget. Money was removed from some of the targets. Credit control went along with cost containment. It had not been wrong to declare Mangaung a metro, but there was a lack of resources to help the small municipalities. Personnel was inherited from the small towns. Criminal cases were lodged with the SAPS after the burning of the City hall. The metro could not produce documentation for the instalment of water meters, and there was as yet no agreement with the Office of the Auditor General ( A)G about the way forward. There was exit intervention to learn lessons about reasons for resignations.
Ms Mlamleli replied that an application was submitted for the establishment of a metro police force. A response from the National Commissioner was awaited. She reported to Council about the board of CENTLEC, the electricity entity. The board wanted to call an AGM without consulting the mother board, which was Mangaung. She asked for reports of AGM meetings from 2014 to date. It was found that there had been no AGM meetings since 2014, and performance had never been assessed. Some members had been on the board for terms of 3, 5, 7 or 11 years. Council disbanded the board, and six months were granted for the appointment of a new board.
The Chairperson advised that there had to be expertise on the board. R1 billion was owed by provincial departments to the metro. There were structures in each province chaired by senior members of provincial treasuries, which could zoom in on monies owed. Municipal managers and CFOs could be called. It was operative in the Northern Cape. The NT could also zoom in on that, as part of oversight.
Ms Mlamli replied that she sat on the Presidential Infrastructure Coordinating Forum. When money was owed by government, water and electricity was switched off, even in the office of the Provincial Treasury, and the office of the Premier. There was an uproar, the metro was not protected. Calls were received from national departments, and even, she suspected, from the Treasury. Yet they sat down and paid at least an amount and made commitments. The metro needed assistance. Electricity was switched off at the Provincial Treasury offices, and the MEC called to reprimand the metro. The metro wanted assistance and support from the NCOP and the NA. She had told those who complained that they had to pay up, before discussion could start.
The Chairperson advised that the MECs of Finance and CoGTA be engaged. In terms of section 154 of the Constitution, national and provincial departments had to assist local government. The AG was assisted by the Public Audit Amendment Bill, to assist councils with irregular and fruitless and wasteful expenditure. The NT had issued a directive that financial misconduct boards be established to deal with cases of transgression against the Municipal Finance Management Act (MFMA). He asked if the metro had established a financial misconduct board.
The Mayor replied that it would be done. It had to be elevated to the Mayoral Committee. Only officials had been contacted. It had to be brought to the Mayoral Committee, so that it could be known how to proceed.
Mr Shabangu asked if MyCiti would be established.
Ms Mlamli replied that an Integrated Public Transport Network was being established. It was dealt with in the report. Initial phases were completed, and there was zooming in on Thaba Nchu and Botshabelo.
Mr Mlondolozi Ndlovu, HOD, Engineering Services, replied that implementation of IPTN had commenced in 2014. The metro cooperated with the Department of Transport. The metro would go live in 2020. Work was done with the taxi associations and bus companies, with meetings on a monthly basis. Some infrastructure was already in place. There was a main busway, and the bus depot was reconstructed.
The Chairperson told the Mayor that he could see that she was passionate. It was clear that there were plans in place. The NCOP would visit the Free State in the following week, and she could then put issues on the table.
The Chairperson adjourned the meeting.
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