Municipal Systems Amendment Bill: deliberations

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Cooperative Governance and Traditional Affairs

01 September 2003
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Meeting report

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

Documents handed out
Local Government: Municipal Systems Amendment Bill [B49-2003]
Proposed amendments as of 02/09/2003

SUMMARY
The Committee urged SALGA to seriously reconsider the proposal that councillors serve on the board of directors for entities that are established by municipal authorities. The Committee assured SALGA that appropriate mechanisms have been built into the Bill to ensure that councils exercise full control over the entities they establish. The Committee noted, however, that SALGA's concerns were valid and that it would communicate the same in its report to Parliament.

MINUTES
The Chair said that the Committee was in agreement that councillors should not serve full-time on the board of municipal entities.

Mr S Mkhwatshwa (SALGA Chairperson) said that the Committee must be careful since it is dealing with developmental systems of local government and that therefore it was important to put in place mechanisms that ensure efficient and effective service delivery. He asked members to be wary of promulgating laws that would have unintended consequences noting that section 105 of the Constitution obligates the national government to assist municipalities in the fulfilment of the service delivery mandate. He asked the Committee to put more emphasis on a holistic support mechanism rather than multiplying control measures. He added that legislation should be maintained as an enabling tool in order to facilitate service delivery.

The Chair replied that the Committee feels that most of the issues raised by SALGA should be part of the process to reform the entire local government structures. He acknowledged the fact that many of SALGA's concerns came up during the Committee's study tour report. He reiterated that the aim of the Bill is to strengthen not to weaken governance structures especially strengthening assignments. The Committee had indeed considered that there were too many regulations and hence had decided to pull down most of the control provisions.

Mr Nduma (SALGA Chairperson - Gauteng) was concerned that most boards had upon incorporation assumed a life of their own and that if these entities are not strictly monitored, they stand in a position of taking decisions that could be disastrous for councils. Clear provisions should be put in place to ensure safeguards that would forestall such a damaging eventuality.

The Chair agreed and pointed out that there was need to reduce the variety and form of municipal entities most of which were multifarious to the extent that municipal authorities were unable to reign them in. Legislation provides for councillors and officials to serve on the board as non-participating directors since they exercise an oversight role and that these provisions have in fact gone beyond SALGA's expectations. There are clear provisions that seek to empower SALGA to exercise effective control over municipal entities. There were other built-in mechanisms that solidify municipality' authorities' supervisory mandate over these entities. These additional powers, he said, includes appointment, setting targets and indicators, designing of policy within municipalities for reporting mechanisms, receiving reports from municipal representatives on the board of directors and holding the observer status on the board. These measures, he said, were more than adequate in ensuring that municipality's reign in offending municipal entities.

Ms Hogan (ANC) observed that municipalities do not lend themselves to municipal oversight over municipal entities and this necessitates board representation at an observer status. She admitted that it was difficult to exercise oversight over a legally independent body noting that this is the reason the Committee has recommended for the reduction of these entities. She pointed out that the Committee had looked at a range of interlocking mechanisms to ensure that municipalities exercise effective control over these entities. She rejected the idea of councillors being given powers to micro-manage board meetings noting that it would be sufficient for them to merely hold an observer status that would enable them to remit confidential reports to the parent municipality.

Mr Grobler (DP) lamented that the issue of council representation on the board of municipal entities had consumed much of the Committee's time and that relevant issues had been exhausted.

Mr Nduma said that SALGA's main concern was to strike a balance between principles of accountability and service delivery noting that the main worry is situations where the entity's interest gradually supersede that of the council. He added that councillors should be capacitated to play an effective role in the management of the affairs of municipal entities.

The Chair agreed with Mr Grobler that indeed the Committee had spent quite some time on the issue of board representation for municipalities and suggested that SALGA's concerns be made part of the report to Parliament noting that the main issue revolves around tightening of controls measures.

Mr Bouwer warned that one must be careful not to conflate the two levels of relationship between municipalities and municipal entities and advised that the corporate governance and service delivery level agreement operate at different spheres.

Mr Solo reiterated his frustration at the dearth of empirical information on municipal council experience with these entities that would inform the legislative process. He however concurred with SALGA that the boards of municipal entities do indeed tend take their own direction hence the necessity for an observer status by council officials and councillors.

Mr Mbongeni pointed out that the issues raised by SALGA were very pertinent since they are derived from practical experience on the ground noting that indeed for the most part these entities end up competing rather than complementing municipal councils in their service delivery mandate. He called for the strengthening of policy in order to forestall areas of conflict and supply clarity to the corporate governance mandate.

The Chair underscored the importance of submitting regular reports to the parent municipality by municipal entities and asked the technical team to make provision for this obligation. He added that the Committee would include SALGA's concerns in its report to Parliament and registered concurrence with SALGA's view that municipal entities must develop clear policy guidelines in order to avoid conflict with municipalities' service delivery mandate.

Mr Duma pointed out that the salient issue is how effective would the proposed mechanisms operate in situations where there is a violation of performance contracts and how would these mechanisms cushion municipalities from incurring massive liabilities whenever a municipal entity transgress its performance contract mandate. He proposed a mechanisms by which council would be empowered to trigger a shareholder meeting in such an event.

Ms Hogan explained that the primary reporting responsibility rests with the mayor and council's appointee to the board and that such reportage is not predicted on shareholder meeting as such. She noted that there is a whole regime of PMFA provisions related to this mandate.

Mr Momoriat (National Treasury) advised that municipalities must think carefully before setting up entities that would later on burden them with accountability problems. He further advised that in fact weaker municipalities should not set up entities, which later become a law unto themselves.

Ms Hogan assured SALGA that there were a whole lot of mechanisms that have been put in place to prevent municipal entities from encumbering municipalities with financial liability.

The meeting adjourned for a lunch break.

Afternoon Session
The Chair referred to the proposal by the Legal Resource that queried the usage of the phrase "ownership and Control" in the Bill and asked the Department to state its position thereon.

Mr Bouwer noted that the proposition envisages a big policy issue, which would entail taking the process right back to the drafting stage.

The Chair noted that in fact the Legal Resource concerns have been significantly covered in the new amendments.
The Chair asked Mr. Bouwer to respond to the amendments proposed by Rand Water.

Mr Bouwer replied that the amendments refer to page 8 of the printed Bill an area the Committee has decided to de-regulate in which case the proposed amendments have been over-taken by events.

Mr Musa (SALGA) suggested that provision be made to empower municipalities to call an extra-ordinary meeting where it deems necessary to correct certain excesses on the part of a municipal entity.

Dr Bouwer said that SALGA's concern is technically a governance issue since it involves a private company.

Mr Momoriat said that all these concerns have been covered noting that a council is entitled to call a shareholder's meeting or even an extra-ordinary session where it deems it necessary.

The Chair agreed with SALGA's concerns and asked the technical team to explicitly communicate this position in the Bill.

Ms Hogan cautioned that the proposed council's observer status should not be mistaken to for an intervener which eventuality it would defeat the spirit of the Bill.

Mr Tarr (ANC) said that Municipalities have an inherent right to call a shareholder's meeting and that it was unnecessary to re-state the obvious.

The Chair defended his proposition on clearly spelling out this right noting that the situation on the ground was such that most councils do not have a good grasp of the legal provisions and asked the technical team to look for the proper wording.

The Committee then run through the previous amendments most of which were approved. The Chair said that the Long Title would have to be amended to supply clarity to the Bill.

The meeting sat beyond 5.00pm































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