Buffalo City Metro progress report

NCOP Finance

11 September 2018
Chairperson: Mr C de Beer (ANC, Northern Cape)
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Meeting Summary

The National Treasury reported that the Buffalo City metropolitan municipality’s budget assumptions were credible, and revenue estimates were realistic. The Integrated Development Plan (IDP) strategic objectives were aligned to the National Development Plan (NDP), the provincial agenda and the metro growth and development strategy. The capital budget was reflective of IDP objectives, and the pursuit of spatial transformation. Cash flow projections over the medium term revenue expenditure framework (MTREF) were positive, there were adequate cash-backed reserves, and the budget was funded over the MTREF. The metro audit outcome had improved from qualified to unqualified with findings. There were capability constraints, but governance was moving in the right direction.

The Buffalo City metro reported that it had spent 81% of its capital budget. There had been upgrading and refurbishment of critical infrastructure projects to promote economic growth. Challenges were related to the context of stagnant economic growth; increased indigence; a rising demand for services; the influx of rural communities; a strong rural element, and ageing infrastructure. 154 informal settlements had to be provided with services. Investor confidence had to be improved, and special economic zones (SEZs) had to be developed. The total debt to revenue ratio was 9.99%, which made the City highly solvent to meet its debt obligations.

Discussion was limited. The EFF Member had spilt coffee on himself and, visibly embarrassed, had left the meeting. The two DA Members had walked out after being called to order by the Chairperson for talking to each other during a briefing. Of the three ANC members remaining, one declined to comment, and another stated explicitly that he was careful with comments and questions, due to the approaching elections. There were remarks and questions about asset impairment and depreciation; supply chain management (SCM) challenges; consequence management for unauthorised, irregular and fruitless and wasteful expenditure; negative publicity; fiscal risks and poor asset management; capability constraints, and public/private partnerships.

Meeting report

The Chairperson welcomed the Mayor and City Manager of Buffalo City, and the National Treasury (NT). Oversight of the fiscal position of the metro municipalities would be concluded on the day. The nine provincial treasuries also appeared before the Committee. It had to be seen whether the Integrated Development Plans (IDPs) of the metros were aligned to the Economic Development Plan (EDP) and the National Development Plan (NDP), as well as an overview of finances and audit outcomes. A document compiled by the Committee researcher was distributed to Members.

National Treasury: briefing on Buffalo City

The briefing on the Buffalo City metro municipality was presented by Mr Sadesh Ramjathan, Director: Local Government Budgets (LGB), and Ms Samantha Naidu, Director: Cities Support Programme.

They said the budget assumptions were credible and the revenue estimates were realistic. The IDP strategic objectives were aligned to the NDP, the provincial agenda and the metro growth and development strategy. The capital budget was reflective of IDP objectives, and the pursuit of spatial transformation. Cash flow projections over the Medium Term Revenue Expenditure Framework (MTREF) were positive, there were adequate cash backed reserves, and the budget was funded over the MTREF. The budget was therefore funded, credible and sustainable over the MTREF in terms of section 18 of the MFMA.

The metro audit outcome had improved from qualified to unqualified with findings, but only 65% of targets had been achieved. There were capability constraints, but governance was moving in the right direction, with the review and refinement of oversight and governance committees.

Buffalo City briefing

The briefing was presented by Mr Xola Pakati, Executive Mayor, and Mr Andile Sihlahla, City Manager, Buffalo City metro municipality.

The City had spent 81% of its capital budget. The public transport network grant spending stood at 53%. Spatial planning spending was also low, at 48%. There had been upgrading and refurbishment of critical infrastructure projects for capacity to enable economic growth. Challenges were related to the context of stagnant economic growth; increased indigence; a rising demand for services; the influx of rural communities; a strong rural element; and ageing infrastructure. There were 154 informal settlements that had to be provided with services.

The City relied heavily on the automotive industry. Investor confidence had to be improved, and special economic zones (SEZs) had to be developed. There was 99% access to water, 94% access to sanitation, and 90% access to electricity. The total debt to revenue ratio was 9.99%, which made the municipality highly solvent to meet its debt obligations.

Discussion

The Chairperson said that the Select Committee was committed to the enhancement of intergovernmental relations (IGR), in keeping with its National Council of Provinces (NCOP) mandate, and also to robust oversight. The two had to gel. One of the Committee Members, Mr L Nzimande (ANC, KZN), was present at the meeting, and was a local government expert with experience as a local government manager. He thanked Mr Nzimande for the work he had done with the Constitutional Review Committee (CRC) throughout the country, as prescribed by Section 25.

Mr M Monakedi (ANC, Free State) asked why there had been an increase in asset impairment and depreciation. He referred to supply chain management (SCM) challenges, and asked if there were additional committees tasked with expediting internal processes, and about consequence management for unauthorised, irregular and fruitless and wasteful expenditure.

Mr T Motlashuping (ANC, North West) commented that Buffalo City had received some negative publicity. There were some cases before the courts around the Nelson Mandela funeral issue. Still, he was encouraged by the improved audit outcome. He remarked that the Chairperson might have noticed that he had lately chosen to defend municipalities, as he phrased it. With the elections approaching, he was careful with comments and questions. There were many loopholes, but for the time being he was going to reserve comment.

The Chairperson requested that the metro address matters pointed out by the National Treasury (NT). He referred to fiscal risks and poor asset management. The dashboard slide had referred to capability constraints. He asked how often the indigent register was updated. The metro had to unpack relevant information, and had to provide an action plan. Public Private Partnerships (PPPs) were the way to go. He referred to the President’s chief executive officer (CEO) initiative, which encouraged engagement with the private sector. Economic growth in the metros was higher than the national average -- the metros were centres of economic growth. He asked what Buffalo City was doing to ignite economic growth within the context of PPPs.

Buffalo City’s response

Mr Pakati responded that the comments were encouraging. After the 2016 elections, the current administration had inherited institutional challenges, mostly at the political and administrative interface. The challenges had had to be resolved and the situation had to be normalised. There were only four Heads of Departments (HODs) instead of the required eight. A stable administrative environment had to be created. There was no full-time city manager. Nevertheless a stable administrative environment had been created. The NT had advised the metro to look into governance matters.

He agreed with the Chairperson about PPPs. The metros were economic growth engines, and the private sector had to be involved. The private sector had to be involved to encourage investment.

Mr Sihlahla responded that spending had improved on account of SCM interventions. It was monitored closely to prevent regression back to square one. Action had been taken about irregular and unauthorised expenditure, especially around the Mandela scandal. Irregularity was confirmed, and disciplinary actions were proceeded with. A service provider had been appointed to deal with it properly, through consolidation of irregular expenditure. Employees who participated, whether consciously or unconsciously, would be disciplined.  A report was awaited which would make it possible to identify individuals, and they would be charged.

Regarding the negative publicity, the metro had replied to the letters in newspapers. It had been able to prove that governance had improved. Poor media reporting had been averted through engagement with local newspapers, like the Daily Dispatch. There had been reports that were not based on facts, and the newspapers were encouraged to approach the metro for information.

He replied about depreciation, saying that the metro had under-budgeted for that in the past. It had been advised by the NT to budget for the replacement of infrastructure, so that when it got old, it could be replaced. This had led to a jump in the budget.

The Chairperson concluded that the finance programme for the fifth term of Parliament was being wrapped up. A new Finance and Appropriations Committee would be formed in the following year. Some of the current Members might be returning to the NCOP. He wished the metro well, and hoped that it could make a difference to people’s lives, and lend them dignity. He advised that investors be engaged, as investment created jobs. The metro was fortunate in having the Mercedes Benz factory. The metro had to reflect on how it could be assisted by agricultural development.

Committee matters

The Committee would consider a report on the metros before it went to the NCOP plenary. Members would meet as the Appropriations Committee on the following morning at 10h00 (the Finance and Appropriations Select Committees had the same membership). At 11h30, the Finance Select Committee would be briefed by Adv Frank Jenkins, of the Parliamentary Legal Services, on the Money Bills Amendment Procedure and Related Matters Amendment Bill. The Bill had been referred by the National Assembly to the NCOP, and it would be the first engagement by the Committee with the Bill.

For a second engagement, the Finance Chairpersons from the nine provincial legislatures would be invited. A section of the Money Bills dealt with the Division of Revenue (DOR) Bill and the DOR Amendment Bill, which affected the provinces. The provincial Finance Chairpersons had to be invited and brought to Parliament. On that occasion, there would be a sitting in the morning, and in the afternoon there would be a public hearing, in accordance with NCOP rules. A third meeting would be devoted to dealing with the Committee report.

Mr Motlashuping remarked that the period was approaching when the NCOP had to take Parliament to the people in Gauteng, to deal with negotiating mandates and final mandates. He asked how the programme would be managed.

The Chairperson replied that the chairpersons would be called to Parliament in October. He requested that the Committee support team engage with the Auditor General’s (AG’s) office. Audits on the provinces had been concluded, and the AG could be called to brief on accruals, and on irregular, unauthorised and fruitless and wasteful expenditure. It could be added to the Committee report, to be tabled in the NCOP.

The meeting was adjourned.
 

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