Municipal Systems Amendment Bill: deliberations

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Cooperative Governance and Traditional Affairs

19 August 2003
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Meeting report

PROVINCIAL & LOCAL GOVERNMENT; FINANCE PORTFOLIO COMMITTEES: JOINT MEETING
20 August 2003
MUNICIPAL SYSTEMS AMENDMENT BILL: DELIBERATIONS

Documents handed out:

Municipal Systems Amendment Bill [B49-2003]
Draft Municipal Systems Amendment Bill - as certified by State Law Advisors


SUMMARY
The Chair indicated that the earliest time the Bill could be introduced in Parliament for debate would be 2 September. He noted that Clause 5 which had been inserted into the Bill without the knowledge of the Committee had been deleted. He cautioned the Department against bowing to external forces to introduce amendments without notifying the Committee. He asked the technical team to put together all amendments that had been approved to enable the Committee to process them on Friday.

The Committee continued with deliberations on the Bill. The controversial provisions on the requirement of a feasibility study before signing external service delivery agreements and the creation of municipal entities was taken back to the technical team for redrafting. This decision was arrived at after an exhaustive discussion to explore the merits of the two provisions.

MINUTES
Clause 9: Section 57
Dr. Bouwer (Department drafter) said that 9(b) seeks to tie performance contracts together with employment contracts.

Adv. Grove noted that corporate governance structures would run more effectively when performance contracts are tied to employment contracts.

Mr Smith (IFP) cited many instances where municipal managers are stringed along by contractors who fail to perform and wondered whether there was a possibility to introduce sanctions against such malpractice.

Dr. Bouwer asked Mr Smith to be specific as to what sort of sanctions he had in mind.

Mr Smith suggested termination of the contract though he admitted that this course of action is extreme.

The Chair suggested that giving notice to the contractor to perform within a reasonable time was the preferred cause of action in cases of slow or non-performance.

Mr Tarr (ANC) expressed the view that the whole question of performance is still in its infancy and therefore called for an annual review to gauge its effect on municipal services.

Clause 11: Section 74
The amendment was accepted without debate.

Clause 12: Section 78
Dr. Bouwer explained that Section 78 deals with service delivery by external service providers but that the Department has decided to add the requirement for a feasibility study to inform such about the need for such agreements.

Mr Smith referred to 78(3) and questioned the rationale behind distinguishing 'municipal service' and 'any other function' noting that the requirement should apply to all facets of municipal activities.

Mr Smith was concerned that small-scale external service providers would find the requirement for a feasibility study a most onerous one.

Mr Musa (SALGA) expressed strong objection to the proposed amendment noting that the requirement for a feasibility study is hugely prescriptive to the extent that it introduces too much regulation by the central government in the affairs of municipal authorities.

Adv. Grove noted that municipal authorities for the most part out-source their procurement services and that a clear mechanism for this arrangement is in place and that the same has not been interrupted in any way howsoever.

The Chair pointed out that most public submissions are concerned about the degree of prescription, which they fear is excessive to the proposed measure.

Ms Gumbi-Masilela (DPLG) explained that the MIIU has the key role to ensure that decisions taken by municipal authorities are based on sound scientific findings and that such services guarantee value for money. She added that in other words the amendment seeks to lift the level of predictability which external service providers offer.

The Chair said the Department's explanation sounds reasonable in the sense that it obligates councils to tap into accumulated experience for better results.

Mr Momoniat offered that the MIIU also introduces a level playing field by setting a standard yardstick for tapping into the reservoir of external services.

The Chair reiterated the fact that the amendment seeks to discourage the practice of engaging external service providers without due consideration rather than impede the functions of local authorities by subjecting them to laborious processes.

Mr Smith said that his concern for small-scale service providers had not been addressed. He suggested the introduction of a pecuniary ceiling where certain categories of service provider would be exempt from this requirement.

Mr Momoniat acknowledged the possibility of introducing such a ceiling but doubted its necessity in view of the fact that municipalities already have internal mechanisms by which to sieve through to determine deserving small-scale operators.

Mr Smith suggested that sub-section 3 should apply to Section 78, as a whole instead of its current restriction to the sub-section, which in any case he said, does not make sense.

The Chair expressed worry that the Committee was spending too much time on the preferred ceiling and proposed that a balance be struck between broad principles and too much prescription.

Ms Hogan (ANC) agreed with Smith noting that it was prudent for councils to look at the nature of the contract and the services being rendered. She added that issues touching on assets and liabilities are germane to making such a determination. She endorsed SALGA's concerns on the degree of prescription in so far as small-scale operators were concerned but that larger entities should find no problem in complying with the requirement. She emphasised that local authorities must be in a clear position of control as respects larger firms that run multi-million service contracts.

The Chair agreed with Ms Hogan's viewpoint and noted that the principle is acceptable but the problem was how to crystallise it into law.

Mr Smith offered that the way out of the conundrum was to refine and define different types of contracts and specify to which the amendment would apply.

Mr Momoniat suggested that the number of sub-sections in the section be reduced so that it ends with the following words: ' any other matter prescribed' which he said would allow councils the necessary latitude to differentiate between contracts.

Mr Musa sought to know whose responsibility it would be to prescribe the ceiling and suggested that this provision should be put in the guidelines.

Ms Hogan argued that the logic is that certain core features must be retained but that other criteria should be introduced to cushion those who owing to capacity defiance are unable to meet the stringent requirements.

Mr Musa insisted that the proper route to go was to relegate the regulatory framework to the guidelines noting that some of the proposed criteria were already entrenched in the Act.

Ms Hogan expressed concern regarding the time constraint and proposed the matter be better left to the technical team to suitably redraft the section in view of the numerous concerns that have so far been raised.

The Chair suggested a provision to the effect that 'the Minister may regulate' and then state what may be so regulated in order to ease the obligatory nature of the section. He then mandated the drafters to come up with a suitable version based on the views that had been expressed by various speakers. He observed that he saw nothing unduly prescriptive in undertaking feasibility studies noting that it is an accepted standard practice world-wide

Adv. Grove reiterated his earlier sentiments that the reasoning behind the provision was to help municipalities take informed decisions before committing substantial public funds to projects run by external service providers.

Mr Tarr pointed out that the Committee was interested in the fact that municipal authorities have gone through a rigorous process to arrive at a decision that would commit it to public funds.

Ms Hogan underscored the importance of ensuring that local authorities are made accountable for their decision and that a feasibility study is a solid defence in this regard.

The Chair appealed to the Committee to register SALGA's objection yet considering the length of the process it would be prudent to leave the matter where it is.

The Chair referred to Section 78(3) and questioned the object of the proposed amendment.

Dr. Bouwer explained that the term 'municipal service' has been defined in the definition section.

Clause 13: Section 80
Mr Momoniat explained that the amendment is purely a governance issue that seeks to supply transparency to the process by ensuring that everything comes out in the open.

Dr Bouwer said that it is the responsibility of the relevant organs of state to provider services in their areas of designation noting that water boards are part of the state machinery and therefore cannot be exempted from this obligation.

The Chair concurred with the legal team's explanation and noted that it is an entrenched policy to preclude state organs from competitive bidding.

Mr Grobler (DA) sought clarity as to whether state organs included partly privatised entities. He asked the Department to delete the veto power that has been imposed at 80(3)(b) which he said was clearly unconstitutional.

The Chair concurred that the veto power encroaches on constitutional fundamentals and that therefore it must go.

Mr Africa (DPLG) acknowledged the constitutional question the sub-section raises and promised to remove it.

Adv. Grove agreed that 3(b) raises constitutional problems but explained that it is only unconstitutional nationally noting that it was necessary to have such a provision at the provincial level to empower the MEC to veto such activities.

Mr Smith said that 'state organs' as defined in the constitution is rather problematic since it refers to entities that perform a public service whilst some entities go beyond this definition.

Mr Grove explained that in terms of the PMFA any organ with ownership and control is a state organ noting that 'ownership and control' is defined in the PMFA.

The Chair suggested that the PMFA definition be applied instead of the one in the Constitution, which appear to be too restrictive for the purpose of the provision.

Mr Momoniat agreed with the Chair and gave an undertaking to remove the 'organ of state' and place it in the PMFA.

Mr Bouwer observed that developments in the country had overtaken the constitutional definition of 'organs of state' and cited the case of ESKOM, which performs a public function despite, its majority private ownership.

(Afternoon Session)
Clause 13: Section 80 (continued)
In Section 80(5), Ms Gumbi-Masilela took the Committee through the various entities that local authorities form in order to facilitate delivery of service outside the established local government structures. She listed these entities as co-operative societies, trusts, limited companies and business partnerships among others.

Mr Bouwer explained that national and provincial organs of state fall into two relationships "under section 2" namely governance which refers to the relationship with contractors and the service delivery interface. He however pointed out that the two tiers of relationship are intertwined. The section creates a framework for the governance relationship, which he said in any event, does not affect service delivery agreements.

The Chair observed that there is nothing that prevents municipalities from contracting trusts or co-operatives to deliver services as long as they are not created by the said authorities.

Mr Momoniat pointed out that the key question is why municipalities crave to form these entities yet the very same entity end up performing duties the municipalities are mandated to deliver under the law.

The Chair sought an indication from the Department or SALGA as to the extent of these entities and what happens to them upon the enactment of the law. He also wanted an assurance on the practicality of phasing out such entities.

Mr Momoniat replied that there was no intention to phase out the existing entities but that they will be allowed to convert into companies and other related character in order to acquire a separate existence from that of the municipalities.

Mr Africa said that the original purposes of allowing the creation of these entities was to empower municipalities to render services within a limited capacity but that some of these entities have failed to live up to this mandate. He said the Department would require more time to determine how many entities are in existence.

The Chair wanted to know what the future dispensation would be like.

Mr Momoniat explained that entities are not a new feature in municipal management noting that the trouble is that most of them are not transparent and for all intents and purposes municipalities lose control over larger entities. The Department was desirous that municipalities exercise full control over these entities. He added that weak municipalities are increasingly unable to require and ensure that these entities account to them - the reason being lack of capacity on the part of the municipalities.

Mr Musa noted that indeed some entities - especially those within the metros - have been a success story whilst others have been a dismal failure. He contended that these entities are not a problem per se but that the problem resides in the manner in which they are managed and he called for sound management systems.

Mr Smith expressed doubt that the Department has tabled conclusive evidence to make a case for the interference into the functions of these entities.

The Chair sought to know whether problems in this area are significant enough to warrant the proposed change.

Mr Smith was of the view that the manner in which the Department is approaching the whole question suggests that it is anticipating problems. This approach was flawed. He noted that once the private sector is excluded from service delivery processes then one questions why they were asked to get involved in the first place.

The Chair concurred with Mr Smith and pondered why municipalities entered partnership with these entities in the first place if they pose problems as the Department claims.

Mr Tarr raised a query on why municipalities delegate the duty to provide services unless of course there are vested interests for such a detour in service delivery.

Ms Hogan foresaw problems with the proposed conversions and advised instead that existing entities be left to operate so that municipalities could tap into their expertise and experience. She concurred with Mr Momoriat's sentiments to the effect that well resourced municipalities, unlike their under-resourced counterparts, would have no problem calling its entities to account. She suggested that the scenario be left as it is and deal with new developments as they unfold. She questioned the rationale for municipalities to create entities when they lack mechanisms to influence policy decisions in these entities. She offered that most local authorities go for these entities due to tax considerations while over-looking other salient features of governance.

The Chair amplified Ms Hogan's contribution by noting that the amendment is intended to end the current openness in the municipal systems where municipalities indiscriminately create entities without due consideration for operational implications.

Ms Hogan was of the view that the current system be maintained but that the Department put in place appropriate mechanisms to control the creation of new entities.

Mr Musa (SALGA) observed that all entities are faced with different kind of problems depending on the management style and other issues at play. He argued that it is futile to change the collaborative structure of local government without clear evidence of the advantage such a drastic action would avail.

Mr Gobler doubted the bona fides of creating these organs noting that those who go to great length to create the entities always have a hidden agenda.

Mr Komphela (ANC) concurred with Ms Hogan's suggestion that the current entities be left to run whilst appropriate mechanisms should be put in place to monitor new creatures. He pointed out that the Department and SALGA have both failed to argue a compelling case for the tempering with the status qua.

Mr Sithole wanted to know what becomes of entities that fail to live up to their service delivery mandate.

Dr Bouwer explained that the reason municipalities create these entities is to go around the legal limitations that are placed on them.

Mr Musa pointed out that the city of Johannesburg alone has over 23 entities most of, which have done a superb job so far. He noted that these entities have managed to attract investment capital and tap into the private sector's high calibre skills. He cautioned that should a decision be taken to phase-out some of the entities the question of fairness would arise such as which ones should go and those that should remain.

Mr Momoniat said that agreements with entities look good on paper but that when one delves into the small print most of them portend serious financial implications for the municipalities. He sued for a provision in the Act that would ensure that these entities render annual reports. He added that the entities should also adhere to the fiduciary relationship they have with the municipal authorities.

Mr Solo (ANC) lamented the dearth of data that would otherwise enable members to better understand what is happening on the ground with regard to the relationship between these entities and municipal authorities. He questioned the extent to which the creation of these entities impacts on the lives of the ordinary person.

Mr Smith argued for the public - private sector partnership but urged that the process be brought out in the open to counter accusations of underhand dealings.

The Chair expressed frustration that public submissions do not point to clear evidence of things falling apart yet the Committee lacks time to call for such conclusive evidence. He noted that the current system is rather open-ended and called for some pruning.

Ms Hogan inquired whether the provisions were constitutional in their current form noting that if enacted it would affect existing rights.

Adv. Grove assured the Committee that the provisions were constitutional since such changes happen all the time. He explained that new legislation does not affect existing rights. He however agreed with Ms Hogan that all existing entities be left to continue but that it should be made easy for them to convert instead of compelling them to do so.

The Chair then endorsed Ms Hogan's proposition with a rider that an appropriate provision be introduced so that entities that do not meet the requirement would then fall away.

Mr Momoniat suggested that the provision be backdated to last month (July) a suggestion the Committee duly endorsed.

The Chair said the Committee has made significant strides in an effort to accommodate SALGA's concerns and suggested that the technical team would come up with a clear and final position on the issue.

The meeting adjourned at this juncture.

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