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LOCAL & PROVINCIAL GOVERNMENT; FINANCE PORTFOLIO COMMITTEES: JOINT MEETING
22 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
Proposed amendments as issued after this meeting on 25 August 2003
The Chair urged SALGA to give serious consideration to the proposition that councillors serve on the board of directors for entities that are established by municipal authorities.
Mr Musa (SAGA) pleaded for the Committee's indulgence to enable him go and consult before he can report back on the position SALGA prefers to take.
The Chair asked SALGA to come up with a position at least before Wednesday noting that the Committee was of a strong view that councillors should be allowed to sit on these boards as observers in order to raise the level of accountability.
Mr Musa pointed out that governance issues have already been tightened in terms of the Municipal Finance Management Bill and that there was no need for additional measures in this regard.
Dr Bouwer explained that there was no difference between executive and non-executive directors when it comes to the functioning of the board. He was satisfied with the level of accountability between the board and municipalities.
The Committee continued with deliberations on the Municipal Systems Amendment Bill. The controversial provisions on the requirement of a feasibility study before signing external service delivery agreements and the creation of municipal entities were 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.
The Chair observed that the way Section 93(B) is worded would seem to suggest that municipalities are unduly punishing themselves.
Dr Bouwer explained that in terms of the Municipal Finance Management Bill, municipalities must have a financial recovery plan.
Mr Momoniat said that one does not want to take away the option even if a municipality is found to have no financial plan noting that it is imperative that these entities do not renege on their statutory obligation.
The Chair agreed with the explanation but asked the Department to rephrase the section in a manner that would convey that position in a less unpalatable fashion.
The Chair sought clarity on sub-section (a)(iii) noting that the provision did not apply where councils have sole ownership of the entity.
Dr Bouwer explained that the sub-section address the exercise of functions in the Systems Act and the Municipal Finance Management Bill and noted that it was not necessary to apply the same measure to sole ownership.
Ms Hogan suggested that the Committee flag discussion on the councils' observer status until SALGA's position is made clear. She added that it should be up to the council concerned to decide whom they want to send as their representative.
Mr Momoniat suggested the insertion of a default clause to cater for situations where councils fail to appoint a representative to the board as an observer.
Ms Hogan expressed strong objection to the suggestion noting that it would be unconstitutional to direct councillors on what to do or not to do in this instance. She was however prepared to accept a proposal for a default clause to attach to the municipal manager.
The Chair advised the Department to take Ms Hogan's suggestion and redraft the section in a way that would remove its prescriptive effect so as to be acceptable to SALGA.
Ms Hogan cited sub-section (3) for censure and expressed concern that communications line between the Chair of the Board and the one holding the observer status is seriously blurred. She wondered who among these people would be responsible for official communication noting that it is important to clarify the lines of accountability.
Dr Rabie (NNP) pointed out that it seems there is nothing remunerative or otherwise accruing to the said observer for services rendered.
Mr Musa questioned the rationale for the addition of subsection (3) when (2) conveys the position adequately.
The Chair replied that sub-section (3) spells out in concrete terms what all these processes mean.
Mr Grobler (DA) agreed with Ms Hogan's position that at least the CEO of the council should take full responsibility to report on the workings of the board in order to remove the possibility of scapegoating.
Dr Bouwer suggested that the way forward is to delete sub-section (3)(a) altogether since reporting mechanisms already exist.
Ms Hogan asked if these measures applied only to meetings of the shareholders or to those of the board of directors as well.
Dr Bouwer acknowledged that there was an ambiguity and promised to redraft the section to clearly separate the two processes.
Ms Hogan said that it was important that councillors do not carry the mandate for reporting in addition to their observer status.
The Chair was of the view that councillors should be made to report to the council in general but acknowledged the serious policy question such a mandate implied.
Ms Hogan suggested that councillors report on a voluntary basis instead of being compelled to do so.
Dr Bouwer proposed the insertion of a sub-section (4) to introduce 'may' for reporting so as to remove the obligatory element.
Mr Musa added that the 'may' should come with a rider to the effect that 'may report any deviation from the framework'.
The Chair pointed out that under sub-section (2) the term 'may' would be problematic where the one exercising the observer status is the municipal manager.
Mr Momoniat said that the issue is adequately addressed in the subsequent sections.
Ms Hogan explained that the provisions in sub-section (1)(b) are in line with the King Report on non-executive directors, which uplifts the level of transparency and thereby forestall situations of conflict of interest.
Mr Momoriat clarified that these are directors of the board for entities established by the Council. He added the provision seeks to remove the possibility of an employee of the council making a decision for the board.
The Chair suggested that the number of non-executive directors be increased.
Ms Hogan agreed but instead suggested a figure not more than 1/3 of the board of directors.
The Department and SALGA agreed with this proposal.
Ms Hogan said that where politicians are allowed to serve on the board of directors a conflict of interest would come from another direction.
The Chair noted that there is consensus that all politicians be excluded from the process to avoid areas of conflict.
Ms Hogan wondered what happens when one is a minority shareholder of an entity noting that it would not be prudent to exclude such a person from serving on the board of directors.
Mr Kholong agreed with Ms Hogan and pointed out that it is unlikely that one holding 49% interest would be excluded from the board. He promised to amend the section so as to allow the necessary degree of private sector involvement.
Mr Africa pointed out that board meetings have a standard practice for directors to declare their interest on any matter that comes before them for deliberation. He said that this mechanism takes care of the problem of conflict of interest.
Dr Bouwer noted that there are some policy decisions that need to be taken and suggested that sub-section (1)(b) should be retained but then be suitably qualified so as not to rely on disclosure mechanisms alone.
Mr Komphela suggested that sub-section (1)(b) should be retained to avoid opening a Pandora box of numerous problems.
Mr Mshudulu (ANC) proposed that the sub-section should be redrafted to be very clear on the basis of disclosure noting that human nature is such that they are inclined to circumvent processes in a bid to qualify for whatever interest.
Ms Hogan said that it should be made abundantly clear that minority shareholders have the right to ascend to the board. She added that it is certainly not the intention of the sub-section to disqualify people with specialised skills and expressed preference for the deletion of the sub-section in order to rely on disclosure mechanisms.
Mr Grobler agreed with Ms Hogan that care must be exercised not to exclude the expertise for which the sub-section was crafted in the first place.
Mr Tarr (ANC) said that Clause 93H, in his view, appears to capture and address all the concerns centred on 93F(1)(b).
The Chair agreed that the sub-section should stay.
Mr Komphela objected to the purport of sub-section (d) noting that a court of law has no competence to declare one as being of unsound mind.
Dr Bouwer explained that it is an established principle of the Supreme Court that based on the available evidence, you can be declared of unsound mind which declaration has the effect of limiting your legal capacity.
The Chair proposed and the Committee agreed that a period of five years since the declaration of unsound mind should be provided for under sub-section (1)(e).
Dr Bouwer said that sub-section (2) would be completely deleted to be replaced by new provisions.
Ms Hogan suggested that municipalities should retain the power to fire the entire board where this is desirable.
Dr Bouwer raised objection to this suggestion noting that such a drastic move would defeat the very purpose of taking the private sector aboard.
The Chair proposed and the meeting agreed to delete sub-section (d).
The Chair noted that sub-section (1)(d) significantly accommodates SALGA's concerns and asked them to brief their members accordingly.
Section 93 I
Ms Hogan asked the Department to take note of the observer status and make provision for non-participating officers.
The Chair asked the technical team to sort out the wording in order to recognise the policy reasoning.
Section 93J was passed without debate.
Dr Bouwer suggested that the provision in subsection (1) should be framed to state that 'Municipalities may not'
The Chair agreed that this alteration makes sense.
Clause 28: Section 94
The Chair said that Section 94 should be redrafted noting that the Committee has been over this issue for quite some time without much progress on consensus. He added that should the new formulation fail to achieve consensus, then the matter would be put to vote.
Mr Momoriat said that another issue was long-term contracts but that it has since been resolved.
Clause 29: Schedule 2
The Chair said that Item 14A(2)(c) failed to distinguish between suspension during investigation and the one that is a punitive measure after a guilty verdict.
Mr Tarr agreed with the Chair and asked the drafters to make it clear that the suspension takes effect only when one has been found guilty.
Ms Hogan said that suspension without pay for a 12 months period is rather excessive and proposed three months instead. The Committee agreed.
The Chair sought clarity on the position regarding 'other benefits' that would be due to the suspended employee.
Dr Bouwer said that the other benefits equally fall away and this is why he is in agreement that the 12 month period was rather severe. He explained that the provision for 'such other disciplinary measures may include:' is to allow the municipality the latitude to peg the penalty according to the nature of the transgression.
Rev. Goosen (ANC) wanted to know what constitutes 'appropriate fine' and wondered if it would have been better to indicate the exact amount.
The Chair objected saying that a pecuniary ceiling is rather problematic when it comes to implementation. He urged that the provision be left open-ended to allow the necessary flexibility depending on the severity of the offence.
Dr Bouwer explained that what the Department was doing is to set up the enabling environment within which municipal authorities would then establish their own disciplinary machinery.
The Chair said the mood of the meeting was to leave the provision the way it is but check whether suspension was still considered a punitive measure in the relevant law.
Mr Lyle (ANC) singled out Item 14A(2)(c) for criticism noting that it is clearly uncharacteristic of a disciplinary measure since the culprit will merely move to a new post to carry on with his/her wayward behaviour.
The Chair explained that the sub-section is appropriate and one that would take care of relatively minor offences especially those to do with inter-personal dynamics.
Dr Bouwer offered that it happens all the time in practice and agreed with the Chair's assessment that indeed it is one of the least onerous disciplinary measures but one that is relevant to co-operate governance structures.
Clause 30 Transitional provisions
Dr Bouwer pointed out that the Department has redrafted the transition arrangements based on the Committee's deliberations. It has been left open to the municipal entities to convert if they so wish.
Clause 13: Section 80
Dr Bouwer reported that it has been decided to take out this provision and locate it in the Finance Management Act where these matters would be suitably addressed. A new sub-section (3) has been redrafted to address the constitutional question that had been raised in the draft.
Clause 14: Section 81
Dr Bouwer reported that the amendments here are purely technical.
Clause 18: Section 86A
The Chair noted that some constitutional concerns had been raised over sub-section (1)(b)(ii) and asked whether the Department had addressed them.
Dr Bouwer replied that regulations cannot be made on the equitable share noting that what has been provided are mere guidelines which do not raise any fundamental constitutional concerns. He added that guidelines are not obligatory and so would not impede the municipal council's activities.
Mr Grobler argued that guidelines are extremely useful in view of the past experience where some municipal authorities misapplied funds meant for other national goals.
Mr Musa insisted that the Constitution could not be interpreted in an ordinary Act, which he said defeats the whole purpose of constitutional supremacy.
The Chair said that when it comes to national goals, municipal authorities must deliver relevant services. He suggested that the contentious sub-section be put in abeyance to facilitate further consultations with SALGA. He asked SALGA to seek expert opinion in order to be in a position to convince the Committee that the provision is indeed unconstitutional.
Clause 19: Section 86C
Ms Hogan singled out sub-section 14(1)(a) and questioned the competence of shareholders to investigate a director.
Mr Africa said that the sub-section applies to directors appointed by municipalities and not any other.
Dr Bouwer admitted that the sub-section is flawed and clarified that the power to investigate a director is vested in the board of directors.
Mr Momoriat agreed that the board should carry out the investigation whilst a code of conduct should apply to the employees of the entity.
The Chair criticised the Memorandum noting that it is too weak and could do with some refinement.
The meeting adjourned.