Municipal Systems Amendment Bill: deliberations

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Cooperative Governance and Traditional Affairs

26 August 2003
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Meeting Summary

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Meeting report

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

Chairperson:
Mr Y Carrim [PC Provincial and Local Government]

Documents handed out
Local Government: Municipal Systems Act of 2000
Local Government: Municipal Systems Bill [B49-2003]
Draft Municipal Systems Amendment Bill - as certified by State Law Advisors
Amendments Proposed by Department of Provincial and Local Government
Technical Amendments proposed by National Treasury

SUMMARY
Morning session
The Committee considered whether the term "functions" in Clause 2 should be defined, and clarity was sought on whether the "210 days" provided for is sufficient time for the entire assessment process of the assignment to be finalised. The wording of Clause 3 was clarified to make a clear distinction between assignment of functions to municipalities generally in the proposed section 9, and to a specific municipality in the proposed section 10. The Committee decided that the wording of the proposed section 21A in Clause 6 has to be tightened so that it only refers to documentation required to be made public by the Systems Act and the Municipal Finance Management Act. Treasury will fund the establishment of a website for municipalities that cannot afford to set up their own official websites, and SALGA would host this website. The municipality itself will decide whether it can afford to establish its own official website.

During the discussions on Clause 13 Members considered whether it would be constitutionally sound to allow municipal entities that have a private shareholding to be allowed to bypass the competitive bidding process. The very purpose for establishing municipal entities was questioned.

Afternoon session
Deliberations on the Municipal Systems Bill continued late into the night as the Committee tried to meet the 31 August proposed deadline to finalise this Bill.

MINUTES
Municipal Systems Amendment Bill
Long title
The Chair stated that the "and" after "municipalities" has to be deleted.

Dr P Bouwer, DPLG Director: Legal Services, agreed.

Clause 2
"functions"
The Chair stated that the Committee has to look at defining the terms "functions" and "services".

Dr Bouwer replied that this has been considered, and the only place where this could be a problem is where municipal function and service is used together. There are problems inherent in attempting to define "function" in this clause, for example, because it relates to functions that have not yet been assigned. Perhaps the possible definition should state "municipal service or other function" so that it leaves scope for additional functions to be accommodated, without defining the content.

Ms B Hogan (ANC) [Chairperson: PC Finance] stated that the an activity like meter-reading is very much related to the delivery of a service. Her understanding of a function is what is more generally called corporate services, and refers to those series of units within a municipality or a municipal entity that are there to serve that municipality. It would thus include IT, human resources and finances in so far as they deal with the finances of the municipality, and not revenue collection.

The Chair stated that these concerns have to be kept in the background, and the Committee might even decide not to define a "function" in this Bill.

Adv G Grove, Treasury: Legal Drafter, informed Members that "functions" is a generic term used for duties and powers, and it is used in the same sense here. Yet "function" includes municipal services, and therefore "function" is a totality of what a municipality may or may not do in terms of the law. Perhaps Dr Bouwer's proposal that "other" be included should be considered, as this would clearly mean that a service is part of a function.

Mr Ismail Momoniat, Treasury DDG: Intergovernmental Relations, stated that he does understand the legal difficulties involved in attempting to clearly define a "function", but it would assist the management in the street if this Bill were "to call a spade a spade".

Dr Bouwer stated that is precisely for the reason highlighted by Ms Hogan that he would caution against any attempt to define "function". Instead a contrast should merely be created by stating "municipal service, or other function".

The Chair requested the legal drafters to construct a definition. The Committee will now be considering the Department's changes in the document entitled "Proposed Amendments" (document attached).

Proposed Section 9(1)
The Chair asked why the time period has been changed to "210 days"?

Ms Gabi Gumbi-Masilela, Department, responded that the Department believes that this period would allow sufficient predictability for the processes of funding, capacity and planning for example. It does take a municipality a long time to prepare itself to provide a particular function, and they also need to understand the consequences of taking on this function. The "210 days" also provides sufficient time for the matter to go to Cabinet, and this will then allow sufficient time for the full legislative cycle.

Dr Bouwer added that the "180 days" as was originally provided was linked to the introduction into Cabinet. The feeling within the Department was that if it is linked to the introduction into Parliament, it would take roughly a month to process something through Cabinet. Thus the extra 30 days were added to the 180 to accommodate the Cabinet process.

The Chair agreed.

The Chair asked how exactly the Minister or Deputy Minister tell the FFC what the possible impact of assignment would be in the proposed Subsection (a)? It presupposes that the Minister of Deputy Minister would first have conducted an internal audit before requesting the FFC to do its study.

Mr Momoniat responded that this is incorporated in the FFC Bill, but the Select Committee on Finance raised amendments because it felt strongly that the Bill had to go further than the current formulation. Some of the words used, such as "fiscal capacity" and "efficiency" have been taken from the Constitution itself. The problem Treasury has been trying to deal with is that in almost every case an assignment impacts on the division of revenue. The question which then arises is whether the provincial equitable share will be reduced, and will the municipal equitable share be increased. These are big issues and there is no point taking a decision on assignment if these issues are not fully considered.

Thus this provision is really requiring the official to take this into account and the FFC can take it further, but it really does force departments to do more thinking in deciding on the assignment. It is thus like a feasibility study really.

The Chair agreed, as the clause is a good improvement. What exactly is a "fiscal power: in proposed Subsection (a)(ii)?

Mr Momoniat replied that it could refer to a tax power. In some cases if a function is shifted for which there is a specific tax, the tax power has to be shifted as well, rather than just the Division of Revenue. It does cover the funding side, effectively. This also acts as a siv so that the FFC is not flooded by hundreds of requests.

Adv Grove stated that he has a fundamental problem with this proposed subsection. It currently provides that before any assignment of even a minor power or duty to a municipality can take place, this entire elaborate process first has to be completed to ascertain whether it has financial implications or not. This provision is too broad. The amendments have now deleted the word "additional", but this does not solve the problem.

Adv Grove questioned the time period of "210 days" at the beginning of the provision. The current wording provides that the entire process, consisting of proposed subsections (a) and (b) must be completed at least "210 days" before the legislation is introduced in Parliament. Surely this is not the intention.

Mr M Tarr (ANC) [PC Finance] agreed, and proposed that the reference to "at least 210 days" be deleted.

Adv Grove stated that this would help.

Adv Kholong, Department: Legal Services, explained that the policy intention here of the Department was that before an assignment can take place the assessment of the FFC must have been completed, and this consultation must have happened. This process has to be substantive such that it allows the whole system to assess the effect of such a decision. Adv Kohlong stated he is not sure whether the deletion of "210 days" would still achieve this policy decision. Perhaps 90 days could be considered.

Mr Musa (SALGA) asked whether the FFC has the necessary capacity to assess the financial implications of these assignment.

Adv Grove replied that the proposed Section 9 deals with the assignment of new functions to municipalities generally. He noted that "generally" has been omitted from the title of the provision and should be re-inserted. The proposed Section 10 deals with the assignment of a function to a specific municipality. The FFC Amendment Act only deals with assignments to specific municipalities, and therefore only impacts on the proposed Section 10.

Ms Hogan stated that the original legislation required the FFC to conduct this evaluation, but the FFC then informed the Finance Portfolio Committee that it would not be able to perform this evaluation. The responsibility to do the evaluation has now shifted to Treasury, and the FFC will now just comment based on the evaluation submitted. She stated that she believes the FFC would be far happier with this proposal than one which requires the FFC to do the evaluation.

Mr G Grobler (DA) [PC Provincial] asked why it has to be limited to a specific number of days, perhaps it should be deleted completely.

Ms Hogan agreed that it be left out. The problem with limiting the introduction of draft legislation to a set number of days, as the introduction of any Bill is dependent on when Parliament itself is sitting. Should one of these Bills be a money Bill, it cannot be introduced to Parliament if Parliament is not sitting. There is no telling how Parliament will structure its arrangements for the next five years.

Ms Gumbi-Masilela proposed that the reference to a set number of days be retained, because it provides a certain degree of urgency and timeframes within which this has to be finalised. It will also allow for a predictable process to be established and implemented.

Dr Bouwer added that the phrase "within a reasonable time" be retained, as was initially proposed by the Finance Portfolio Committee. This would then apply to the entire process in the proposed subsections (a) and (b).

The Chair agreed that just "within a reasonable time" be inserted.

Adv Kholong proposed that, if "within a reasonable time" is to be used, the proposed subsection (a) should clearly state "request and receive", so that it ensures that the FFC duly submits its comment on the assignment.

Mr Tarr contended that this receipt is covered in the proposed subsection 3(b).

Ms Gumbi-Masilela replied that this it is covered, but "request and receive" can be included for certainty in the finalisation of the process.

Dr Bouwer added that the FFC Act mandates it to make recommendations, so this is covered. This mandate originates from the Constitution itself.

The Chair agreed that this is covered. He proposed that "municipality" in the proposed subsection (a)(ii) be changed to "municipalities" and a hyphen has to be inserted between "three year" in the proposed subsection (b)(iv), and noted that Members agreed to these amendments.

Proposed Section 9(2)
The Chair stated that the reference to "210 days" here has to be replaced with "within a reasonable time", as a consequential amendment. The phrase "any category of municipalities" has to be inserted in the proposed subsection (a)(ii), as this will then mirror the proposed subsection 1(a)(ii). The reference to "MEC for local government" in the proposed subsection (b) has to precede "the MEC responsible for finance" because the previous proposed subsection 1(b) refers to the "Minister" first, which means the Minister of Provincial and Local Government. He noted that Members agreed to these amendments.

Proposed Section 9(3)
The Chair stated that the proposed subsection (a)(i) has to include "fiscal' before "financial implications". A hyphen has to be inserted between "three year" in the proposed subsection (a)(ii), and noted that Members agreed to these amendments. The phrase "the assignment of" has to be inserted before "that function" in the proposed subsection (a)(i).

Dr Bouwer agreed.

Adv Grove stated that this would be problematic if there are no "financial implications" at all.

The Chair stated that the current wording has to be retained, otherwise this can be used by municipalities as an escape clause.

Dr Bouwer stated that the this proposed subsection does not prescribe a process but rather the content of the Explanatory Memorandum. Adv Grove's concern is thus covered completely.

The Chair agreed.

Clause 3
Proposed Section 10
The Chair stated that he was under the impression that the heading of this proposed subsection would be changed to "specific municipality or municipalities". Would the headings of the proposed sections 9 and 10 clearly reflect the difference in content between the two?

Dr Bouwer explained that the headings should reflect the content of the provisions. The proposed section 9 refers to the assignment to municipalities in general by an Act of Parliament, whereas the proposed section 10 refers to the assignment to municipalities or a specific municipality.

Adv Grove responded that the heading of the proposed section 9 can be changed to "assignment of function or power to municipalities in general by Act of Parliament of provincial Act". In the text of that section "legislation" can be replaced with "draft Act of Parliament" and "draft provincial Act". The phrase "or to a category of municipalities" should also be inserted after "municipalities" in the proposed section 9(1).

The Chair agreed.

Adv Grove proposed that the phrase "specific municipalities" be included in the heading of the proposed section 10, as this would include the singular in any case. The words "function or power" in the heading should be changed to the plural "functions or powers".

The Chair agreed, and noted that Members agreed to the two proposed amendments in the document.

Clause 4
The Chair noted that Members agreed to the proposed amendment in the document.

Clause 5
The Chair noted that all agree with the proposed amendment that this clause be deleted, because it is inappropriate and unconstitutional.

Clause 6
Proposed section 21A
The Chair noted that Members agreed to the deletion of the current Clause 6, as proposed in the document. In the new clause proposed in the document, the proposed section 21A(1)(a)-(c) should state "documents", not "document". Also, the proposed section 21A(1)(b) should actually be 21A(1)(a).

Adv Grove pointed out that the words " or any other applicable legislation" has been omitted after "Municipal Finance Management Act" in the proposed subsection 1. This should be retained.

Dr Bouwer replied that this phrase was deleted because Treasury indicated that it only wants information required by the Systems Act and Municipal Finance Management Act to be displayed on the website. Dr Bouwer stated that he regarded the same to apply to the proposed section 21A dealing with the documents. Dr Bouwer agreed with Adv Grove that it should be retained, because the proposed section 21A has nothing to do with the information required for the website.

Ms S Mshudulu (ANC) [PC Provincial] stated that he prefers the current formulation because it allows access to such information beyond geographical confines. The problem is that those responsible for posting this information on noticeboards do not always keep to what is expected of them.

Ms Gumbi-Masilela responded that this could be accommodated by the MPCC's, which are regarded as government's "one-stop-shop service centres".

Dr Bouwer added that Mr Mshudulu's concerns is covered by the "satellite offices" referred to in the proposed subsection (b).

Ms Hogan agreed that "displayed" should be retained in this provision, because it does imply that the document cannot simply be lodged at a municipal office and then tossed into some backroom. It also does not mean that a noticeboard has to be used, because it does concentrate the mind and it could then also be displayed on a bookshelf. The word "display" should thus be retained, and it should be left to the individual creativity of the institutions to decide how they will interpret the word.

The Chair stated that a comma should be placed after the word "community" and "21" in the proposed subsection 1(c), because the proposed section 21 could in fact deal with a section of a residential area. The word "document" at the end of this provision and in the proposed subsection 2 should be changed to "documents". He noted that Members agree.

Adv Grove proposed that the proposed subsection 1 read "in terms of the requirements of this Act, the Municipal Finance Management Act or any other applicable legislation". This provides some form of compulsion for the municipality to make these documents public.

The Chair agreed.

Adv Grove proposed that "if appropriate" in the proposed subsection 2 de replaced with "if required by legislation referred to in subsection 1, any notification in terms of paragraph 1 of that subsection must invite".

The Chair agreed.

Proposed Section 21B
The Chair reminded Members that the policy decision behind this provision was to require all municipalities to seek to have their own websites, but those municipalities that cannot afford their own websites would have a website setup by Treasury. The latter municipalities would not then call those websites their own official website, as it is really Treasury's website which they are using. Yet this is not reflected in the wording of the provision.

Dr Bouwer agreed with the Chair. In the IT field the official website belongs to the institution whose logo appears on it Thus in the second case of municipalities referred to by the Chair the municipality would only be obliged to furnish Treasury or SALGA with the information that Treasury or SALGA would then display on its their own official website. The cost of operating and maintenance of the website would still fall with Treasury or SALGA as it is their official website, and it is thus not the municipality's website.

Ms Hogan stated that it is fine if Treasury is prepared to bear the costs of establishing and running these websites, but the information can also be hosted on someone else's website where it would be more logical. She stated that the logical reasoning is that this information would be provided on the SALGA website, because it is the first port of call when requiring information on organised local government. It would be to SALGA's advantage to have this information easily at its disposal.

Furthermore, the only requirement in this provision for a website sponsored by Treasury is that that website has to be used for the display of documents which that municipality is obliged to make public. Yet if a municipality hosts its own official website, it can use its website for a whole range of other activities. Thus the sponsored website is a very limited website in that it only displays the documents that it is obliged to make public. It will thus not add to SALGA's workload because it would only have to display the documents of the municipality that have to be made public, and it would thus not be clogged with all types of extraneous documentation.

Mr Momoniat stated that Treasury would only put up information dealing with matters for which Treasury is responsible in terms of the Municipal Finance Management Bill. Treasury will thus not put up information on Integrated Development Plans (IDP's) and related matters, although it can facilitate this for others. Treasury could give funds to SALGA to do it, but it will really only ensure that the budgets of the municipalities are posted as well as the annual reports. He stated that he would have thought that the Department of Provincial and Local Government would have loved to host this information, but Treasury is prepared to do it as well, it is not a problem.

The Chair proposed that the word "sponsored" be replaced with "funded" in the proposed subsection 2.

Ms Hogan stated that the problem with this insertion is that Treasury's commitments from that point onward is not clear. It establishes the website, but is it also responsible for all other additionals that are posted on that website? It surely cannot be, because Treasury's only interest in this matter is ensuring that documents that must be made public are made public. The website is becoming the centre piece for this. Treasury cannot now be expected to fund a website on an ongoing basis, especially all the additionals that are not required by law to be made public. This is unrealistic.

Mr Musa stated that SALGA does not expect Treasury to fund all the additionals, but the initial facilitation will be quite instrumental to provide the frame for this. Organised local government, with a whole range of partners, should find a way to manage the website from time to time. The KPS project will largely deal with this matter, and is funded by DBSA. This could probably assist going forward.

Dr Bouwer stated that the Chair had contended that there seems to be an overlaps between the proposed sections 21A and 21B. The proposed section 21A deals with the process of displaying all documents required by law, which is much broader than the Municipal Finance Management Bill and the Systems Act. Yet the proposed section 21B begins to limit the use of an official website slightly because the sponsored website only has to contain that financial information required by Treasury. Thus this information required by Treasury could very well exclude documents which should be made public under the proposed section 21A. The word "sponsored" should be retained because this is not really direct funding by Treasury.

The Chair contended that Ms Hogan and Mr Momoniat's concern is really addressed now, because the provision only relates to information dealing with the Municipal Finance Management Act and Systems Act.

Ms Hogan disagreed. She stated that the proposed subsection 3 now seems ambiguous, as it refers to "relevant information".

Dr Bouwer replied that this provision merely refers to the responsibility of the municipal manager. Thus if a municipality has its own official website, the municipal manager would have to maintain it. If it does not have a website the only responsibility of the municipal manager is to provide information. Dr Bouwer proposed that the phrase "if in existence" be added after the word "website" in that provision, and the same should be done in the proposed section 21A as well. This would make it clear that if a municipality does not have its own official website, the only information it would have to make available is that required by the proposed section 21B.

Ms Hogan proposed that the word "official" be inserted before "website" in the proposed subsection 2, so that it makes a clear distinction between the proposed subsection 2 and 3.

The Chair agreed.

Dr Bouwer requested that the phrase "if the municipality regards it as affordable" be used instead of "deemed"

A representative from SALGA stated that this does not make a fundamental difference. If any municipality thought it could afford a website it would have added one by now. If it does not know the cost it would them deem the website unaffordable. SALGA will put those websites on a portal basis with the assistance of Treasury, or would use some other infrastucture. The question is whether Treasury will provide the funding or not, and the bottom line really is whether the municipality has a website or not. If not, provision will be made for them through a common infrastructure, which would make it cheaper for the municipality to provide a website in any case.

Adv Kohlong recommended that the word "deemed" be retained as is.

Ms Hogan proposed that the affordability be retained, because the municipality has to finally make a decision as to whether it wants to have its own website or not. She proposed that the provision simply state that the "municipality must establish its own official website if it is affordable". This then makes it an objective decision.

Mr Momoniat proposed that the provision should read "sponsored or facilitated by the National Treasury", as this would add clarity as to who's budget vote the funds are to be appropriated from. It does not really matter, but it just adds certainty.

Ms Hogan agreed.

Mr B Komphela (ANC) suggested that the decision as to the affordability of the website should be left to the municipality.

Adv Grove suggested that the words "deemed" and "regarded" can be done away with, and the provision can simply state "decides".

The Chair noted that Members agreed to the proposed amendments.

Clause 7
The Chair noted that Members agreed to the two proposed amendments in the document.

Mr Momoniat suggested that the proposed section 46(1)(c) be deleted. The annual performance report will be published about seven months after the end of the financial year, and the next financial year would already have started. In a sense all those service delivery targets are already in a budget document. It does not really make sense to put this in an annual report. The timing is too late as well.

Ms Hogan agreed.

The Chair noted that Members agreed to its deletion.

Clause 8
The Chair noted that Members agreed to this clause as it currently stands in the Bill.

Clause 9
Proposed subsection 4A
The Chair asked whether this provision includes existing performance contracts.

Dr Bouwer responded that this is covered in the provision.

Adv Grove suggested that it read "accounting officer of the municipality", because the Municipal Finance Management Bill also provides for accounting officers of municipal entities.

The Chair noted that Members agreed to the proposed amendment.

Proposed subsection 4B
Mr Momoniat proposed that the phrase "after the end of the financial year" be inserted at the end of the provision, because an evaluation of performance can only really be done at this time.

The Chair noted that Members agreed to the proposed amendment.

Mr Tarr contended that this provision is absurd, because it provides that performance bonuses can only be awarded after an evaluation of performance.

The Chair agreed with Mr Tarr, but recommended that this provision be retained as it currently reads. He noted that Members agreed to the proposed clause, as amended

Clause 10
The Chair noted that Members agreed to this clause as it currently stands in the Bill.

Clause 11
The Chair sought clarity in the precise meaning of this clause.

Mr Momoniat responded that it firstly deals with the regulation of the rate of the increase on specific taxes and rates for the annual budget. The second aspect is that it exempts municipalities from that limit, and other tariff limits for a long-term contract concluded in terms of a fairly onerous consultative process.

The Chair stated that this matter has to be deferred because this Committee cannot really accept this issue now.

Clause 12
The Chair noted that Members agreed to the first proposed amendment in the document.

Proposed subsection 3(c)
The Chair suggested that the entire subsection (vii) be deleted and moved to Clause 18 which deals with regulations and guidelines.

The Chair asked what criteria were used to decide what should be included in the Bill, and what should be left to the Minister to determine via regulations. Secondly, is this too regulatory?

Dr Bouwer replied that the Department included the core component that has to be included in the feasibility study in the proposed subsections (i)-(vi). The rest was reduced to the prescription provision. Dr Bouwer stated that he does not know which criteria were used, but this was decided via discussion.

Ms Gumbi-Masilela added that the core components were defined as issues that would have financial implications for the municipality, which would determine the impact of the service that is being delivered, considerations of value for money and that the municipality is certain that it would derive the maximum benefit for the beneficiary in terms of the services delivered..

The Chair asked why specific reference is made to "number of years" in sub (vii).

Dr Bouwer replied that if it for a reasonable innocuous service then the number of years is not really an issue. Yet if it relates to matters such as water services, for example, the number of years can then be used as the cut-off to make the service more substantial.

Ms Gumbi-Masilela added that this does have a number of implications. Firstly, it has implications for the long-term contracts that municipalities conclude. It also has financial implications for the projections of the municipality's budget, its capacity to be a sustainable entity and also its ability to ensure the sustainability of the services it provides. There thus has to be a projection of how long the municipality would need to use this long-term mechanism, and when it will be able to take over itself on a sustainable basis.

Mr Momoniat stated that the proposed subsections (aa), (bb) and (dd) should in any event be part of the feasibility study. It is not sure why the Department wants to further prescribe these, because these are three pretty standard portions of any feasibility study.

Mr Tarr proposed that the initial wording "conduct or commission a feasibility study which must include" in the proposed subsection (c) is preferred to the new proposed wording.

Dr Bouwer replied that he agrees that it is awkwardly worded, but the phrase "take into account" in the new provision is aimed at ensuring that the municipality considers the feasibility study. It can be reworded to read "conduct or commission a feasibility study, which must be taken into account, and which must include-".

The Chair agreed.

Clause 13
The Chair informed Members that the Committee decided that those cases in which a municipality or municipal entity enters in agreement with a national provincial organ of State would best be dealt with under the Municipal Finance Management Act. The amendments proposed here in the document thus seeks to restrict this provision to cases in which the organ of State is another municipality.

The Chair suggested that the proposed subsection 80(aA) has to be deleted.

Dr Bouwer agreed that it should be deleted, but stated that the reference to "subsection (3)" then has to be inserted into subsection (a). If a service delivery agreement is entered into with another municipality, that municipality would in any event have to conduct a feasibility study.

The Chair noted that Members agreed.

Mr Momoniat stated that a potentially complicating issue now arises in the proposed subsection (a): would it really by possible to exempt a municipality that has a private shareholding from a competitive bidding process. The Constitution is clear that procurements have to be generally competitive and if an agreement involving a municipality with a private shareholding is exempted from this competitive bidding process, this could run into a Constitutional challenge.

Dr Bouwer responded that competitive bidding is presently dealt with in Chapter 8 of the Bill, and deals with municipal services and service delivery agreements related to that. Yet what is being proposed here is fundamentally different. The entering of the private sector into municipal entities is a governance issue that has been introduced via a new chapter, and the question now is whether this should also be the subject of competitive bidding. It is thus not sufficient to simply refer to the competitive bidding provisions in Chapter 8 here. Instead there have to separate competitive bidding provisions in the new Section 8A, which deals with the establishment of municipal entities.

It will have to be made clear that the introduction of the private sector into municipal entities has to be made subject to competitive bidding. Dr Bouwer stated that he is not certain whether this is feasible or whether it is desirable. This then begins to dabble in share prices and their premiums, and really becomes a corporate governance issue.

The Chair stated that this is an important concern, and neither the Department nor this Committee is equipped to deal with such corporate governance issues.

Mr Momoniat replied that there is an easy solution to this matter: simply exempt municipalities or municipal entities that have a private shareholding from qualifying for the exemption.

Adv Grove agreed. He suggested that a new clause be inserted to state "Subsection (1)(a) and (aA) does not apply to a municipal entity or a public entity in which the private sector has a stake or an interest, and subsection (1)(b) applies to such entity".

Dr Bouwer responded that this requirement that municipal entities have to take part in the competitive bidding process undermines the very concept of a municipal entities and the purpose for which it is established. This proposal suggests that the municipal entities may lose out on the competitive bidding process. It would then have to disestablished, because there is really no other reason for utilising the municipal entity then. This does not make sense.

Ms Gumbi-Masilela agreed. This is a catch 22 situation.

Mr Momoniat stated that the Bill does not allow the private sector to take up a majority shareholding here. If it wishes to come in other than on a minority shareholding basis, it would have to enter into a Public Private Partnership (PPP) or a normal procurement contract.

Ms Hogan stated that she does understand the concerns being raised, but it is not such a big problem. Surely one of the primary purposes of establishing a municipal entity is to transfer risk so that the municipality does not carry as much risk, and the municipal entity can then absorb most of the risk. The municipality will still assume a certain amount of risk by taking up a majority shareholding, and it will lose out if the municipal entity caves in.

Furthermore, the onerous feasibility study does protect the residents of a municipality from the municipality simply getting into this comfortable kind of relationship where it protects a private company. The Chair stated that this is one of the anomalies that just have to be lived with. If too much is prescribed here no private sector player will ever enter into this process.

Afternoon session
Clause 12
Proposed Section 78
Dr Bouwer said that the proposed subsection (6) has been amended to obligate the Department of provincial and local government to give such assistance as may be requested by municipalities in compiling a feasibility study.

Ms Hogan raised objection to this proposition noting that it would amount to shifting of responsibility from municipalities to the central government, which scenario is entirely unacceptable.

Ms Gumbi-Masilela explained that the amendment was necessitated by the need to create safe corridors for municipalities that lack capacity to reach out to the local government for assistance.

Mr Musa voiced support for the amendment noting that there was nothing intrinsically wrong for less endowed municipalities to seek assistance from the local government structures where indeed such assistance would facilitate efficient service delivery.

Ms Hogan said that municipalities must show an honest endeavor at conducting a feasibility study without having to look to the local government structures for this initiative. She added that if indeed municipalities are unable to commission a feasibility study then it is most unlikely that they would be in a position to carry through the underlying mandate.

Mr Elroy Africa, Department DDG: Governance and Development, noted that there was merit in the two propositions and asked the Committee to find a middle ground in order to ensure that as much as the central government would be ready and willing to assist weak municipalities they must take ownership of the processes.

The Chair concurred with Mr. Africa's suggestion and called for a compromise that would many the two extreme positions. He called on SALGA to indicate the nature of assistance it would require in this regard.

Mr Musa said municipalities would require comprehensive assistance in terms of the complexity and weight of the project at hand.

Ms Hogan insisted that SALGA was making a thinly veiled attempt at transferring a fundamental obligation to another sphere of government whilst on the other hand municipalities are traditionally territorial against any interference by the central government.

Adv. Grove said that it is important to look at the constitutional mandate under Section 139 of the Constitution where it is provision is made for the provincial government to ensure that municipalities comply with their constitutional mandate.

Ms Hogan suggested that the subsection be drafted to remove the prescriptive effect and instead say that 'may assist as per agreement to which the Committee registered its concurrence.

Dr Bouwer clarified that the provision should apply to the feasibility initiative as well as service delivery obligation.

Clause 13
Proposed Section 80
Mr. Momoriat said that the national provincial organ of state should not be exempted from competitive bidding.

The Chair pointed out that the issue of exempting organs of state from competitive bidding was a policy decision, which has not been pronounced upon before, and that therefore it was not necessary to open an endless discussion at this late stage.

Mr Momoniat instead of the current Bill.

Clause 18
Proposed Section 86A
Mr Momoriat said that an additional proposed subsection (d) had been added on the latest version to cap on tariffs and rates.

Ms Hogan noted that the Finance Portfolio Committee had taken out everything related to expenditures due to the fact that this is an administrative function.

The Chair suggested that this proposed section remains the way it is.

Dr Bouwer pointed out that the section should be numbered to reflect the latest changes.

Clause 19
Proposed Section 86B
Dr Bouwer proposed that the section be crafted in the negative to which the Committee consented.

Adv. Grove suggested the removal of 'recognise' from the proposed subsection 1. The Committee endorsed this proposition.

Adv. Grove pointed out that the proposed subsection 3 should be made clearer noting that the way it has been worded is too windy.

The Chair said it was not necessary for the Committee to belabour such an issue and mandated the technical team to come up with a suitable wording.

Proposed Section 86C
Dr Bouwer said that amendments in this section are merely consequential.

Ms Hogan queried the legal utility of the proposition to penalise a director through suspension.

Dr Bouwer referred to the many options the section offers, which he said, were wide enough to take care of disciplinary measures.

The Chair agreed with Ms Hogan that suspension is not an appropriate penalty and suggested that the item should be removed from the list of disciplinary measures.

Proposed Section 86E
The Chair noted that the national treasury had registered objection to the usage of the term ownership and control and called on Mr Momoriat to state his current position on the section.

Mr Momoriat said that the national treasury's view was that one must take into account the position of the CEO and that is why treasury is in favour of the term 'effective control' to avoid the attending confusion.

Adv. Grove said that the definition of the term 'ownership and control' in the PMFA was very elaborate noting that this discourse was deliberate in order to cover all manner of entities. He averred that what was needed under the proposed subsection 86E is a simple definition to describe the control which municipal authorities exercise over an entity. He expressed the view that the term 'effective control' was too restrictive for the purposes of the section.

Dr Bouwer explained that adjustment to section 86A necessitated the current adjustments to this proposed subsection in order to achieve consistence.

The Chair suggested that the section be left to the technical team to come up with an acceptable wording that would capture the underlying policy reasoning.

Proposed Section 86E
Dr Bouwer reported that the entire sub-section (a) would change and so it falls away whilst sub-section (b) stays.

Proposed Section 86F
Dr Bouwer referred to the proposed subsection 1(b)(ii) and pointed out that he would investigate the query regarding consistence if the Committee decides to retain the sub-section.

Ms Hogan said that she had great difficulty with the usage of the term 'economic benefit'.

The Chair proposed that 'benefit' be used in place of 'economic benefit' in order to close ranks with subsection 1(b)(ii) and the proposed subsection 86K(b)(ii).

Proposed Section 86G
The Chair noted that the requirement on co-ownership was limp and to that extent unsatisfactory.

Adv. Grove proposed that the wording be strengthened by adding the term 'enter into agreement'.

Proposed Section 86H
Adv. Grove explained that the section refers to the clause in the MFMA that deals with disposal of capital assets.

The Chair asked the technical team to insert the relevant MFMA section in the wording for purposes of clarity.

Proposed Section 86I
The Chair wanted to know whether the usage of the term 'objects' had been changed as requested by the Committee.

Dr Bouwer requested the Committee to reconsider its proposition in view of the fact that all other areas in the Bill refer to 'functions and powers' and that the term 'objects' makes a clear distinction.

The Chair replied that the proposed subsection 2(a) would have to change to reflect the position advanced by Dr. Bouwer.

Adv. Grove proposed that 'objects' should change to 'purposes' to which the Committee agreed.

Propose Section 86J
The Chair noted that 'objects' in this case would change to 'purposes'.

Proposed Section 86K
The Chair inquired whether it would be appropriate to slot in the controversial provision on unsolicited bids but add a rider that the Minister must regulate this regime.

Mr Musa agreed with the Chair but pointed out that the best way to go is to require municipalities to develop policy on unsolicited bids.

Ms Hogan shot down SALGA's suggestion noting that it is not feasible and that it would give undue advantage to the originator of the bid. She said this area was too volatile and that there was need for a complete framework within which to administer such processes.

Mr Momoriat proposed that the item on unsolicited bids should be taken to the Procurement Bill where it is properly suited.

Mr Africa said that there was a great need to offer an incentive to people to come up with innovative ideas but agreed with Ms Hogan's proposition that the Minister should regulate these processes through appropriate guidelines.

Ms Hogan said that the Procurement Bill has very flexible approach, which should be emulated in this case.

Dr Bouwer advised that the Systems Act does not deal with procurement matters and that therefore this item should be located elsewhere.

Mr Momoriat requested for time indulge to check on what policies there are on procurement before he could report on the suggested proposition.

Clause 20
Proposed Section 87
Dr Bouwer reported that this section would be redrafted to provide for 'Rights and Functions'.

Clause 21
Proposed Section 88
Dr Bouwer said that the amendments, which the Committee suggested, would be effected accordingly.

Clause 22
Proposed Section 89
Dr Bouwer reported that the suggested amendments are already in place.

Clause 23
Proposed Section 90
The Chair noted the redrafted amendments endorsed them.

Clause 27
Proposed Section 93B
The Chair noted that the section goes along way to address SALGA"s concerns but wondered whether the use of the term 'sole' was still relevant in this particular case.

Adv. Grove agreed with the Chair's observation and proposed that the wording should change to take care of single parent municipalities exercising effective control. He added that there must be agreement between the municipality and the entity.

Dr Bouwer undertook to slightly alter the wording but insisted on retaining the proposed subsection (b) the way it had been crafted noting that municipalities must reach agreement with the board of directors.

Mr Mbongeni (ANC) said that it makes perfect business sense for shareholders to exercise the power to kick out non-performing directors and that the proposal for an agreement is right on target.

Mr Tarr referred the drafters to take care of the consequential amendment at the proposed subsection (b).

Adv. Grove suggested that in order to achieve legislative consistence, which was of paramount importance, the proposed subsection (b) should state 'in accordance with the PFMA'.

The Chair referred the matter to the technical team to come up with an appropriate wording.

Section 93C
The Chair noted that the proposed subsection (a) has been redrafted and that although it sounds a little difficult it is nonetheless more acceptable that way.

Section 93D
The Chair wanted to know whether it was the council or an official of the council who would represent the municipality.

Dr Bouwer explained that the Municipality would decide on the cadre of representative or representatives to the council.

Ms Hogan said that it is not possible to dictate to the municipality on how to select their representative to the board. She argued that the importance of the shareholders' meeting was such that a senior official like the Mayor should represent the municipality.

Dr Bouwer raised an objection to the proposition for two sets of representatives and instead advised that the old wording be retained to refer to the executive Mayor or any official designated by council.

The Chair asked the legal team to redraft the section in order to convey the policy reasoning in a simple manner.

Ms Hogan reiterated her earlier concern that council representatives should not be responsible for communication under the proposed subsection 1(a).

Mr Momoriat said that communication should be channelled through the municipal manager in order to maintain consistence. He added that there would be problems if no council official takes responsibility for reportage.

The Chair noted that Ms Hogan's concerns around official lines of communication had not been addressed. She asked the technical team to take another look at the matter.

[PMG note: The PMG monitor left the proceedings at 7.00 p.m. The Committee continued for another 30 minutes]

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