Transfer of grants to municipalities; NHFC, NURCHA and RHLF consolidation

Human Settlements, Water and Sanitation

03 September 2019
Chairperson: Ms M Semenya (ANC)
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Meeting Summary

The Committee was briefed by the Department of Water and Sanitation (DWS) on its conditional grants, by the National Housing Finance Corporation (NHFC) on the merging of three development finance institutions (DFIs) into a single entity -- the Human Settlements Development Bank (HSDB) --and by the Department of Human Settlements (DHS) on the new Emergency Housing Grant (EHG).

The DWS presentation focused on the Regional Bulk Infrastructure Grant (RBIG) and the Water and Sanitation Infrastructure Grant (WSIG), describing the budget allocation of the grants and their previous and current performance. It explained the revised approach to the RBIG, direct and indirect grants, and why one or the other was chosen in a given situation. Challenges and capacity building were addressed.

The DWS’s new approach to infrastructure development was based on stronger partnerships between the public and private sectors, and with local communities. It was re-thinking its approach to building infrastructure, such as taking greater direct control of implementing new RBIG projects, utilising project management capacity from DWS regional and national offices, the capacity of water boards, and DWS construction.

Members asked what made some municipalities unfit for funding, and why so many underspent their budgets. Did municipalities have the capacity to implement mega projects? Were there concrete plans to capacitate them? They asked whether the DWS could not take responsibility for reticulation as well, as it seemed like municipalities were unable to execute the reticulation projects necessary to get the water to the communities.
The National Housing Finance Corporation (NHFC) described the process involved in merging the National Housing Finance Corporation (NHFC), the National Urban Reconstruction Housing Agency (NURCHA) and the Rural Housing Loan Fund (RHLF) to form the Human Settlements Development Bank (HSDB).  A process of change management had to be embarked upon in order to orientate the staff from the different entities. Workshops had been held to develop leadership cohesion behaviours.

Members asked for the HSDB bill and the business case to be made available for the Committee to study. They also wanted to know how this bank would differ from a commercial bank, and whether the structure of this bank made provision for staff or a panel to communicate with communities about their needs.

The DHS said the Emergency Housing Grant (EHG) had been created to deal with emergencies such as those caused by fires or extreme weather conditions. During recent disasters, it had found it difficult to mobilise resources to provide an immediate and appropriate response, given that funding from the HSDG was often committed to existing projects. The EHG would provide funding to provinces or municipalities for the provision of temporary shelter assistance to households affected by disasters or a housing emergency, or to repair the damage to housing in low income households following a disaster, if the costs of the repairs were less than the cost of relocation and the provision of temporary shelter.

Members asked whether there was a danger that provinces like the Eastern Cape and KwaZulu-Natal (KZN) could deplete this grant because of the large number of mud houses and the severity of storms in those provinces. They also wanted to know exactly what comprised an emergency, as some of the recipients of the EHG were households which should have been identified by the local municipality as being in need of proper housing. 

Meeting report

Conditional grants of Department of Water Affairs and Sanitation

Mr Mbulelo Tshangana, Director General (DG), Department of Water Affairs and Sanitation (DWS) said the presentation would give an overview of the different grants and indicate the purpose and policy intent of the grants. The Urban Settlements Development Grant (USDG), which was meant for the metro’s, would not be covered in this presentation. This presentation would focus on the Regional Bulk Infrastructure Grants (RBIG) and the Water and Sanitation Infrastructure Grants (WSIG). The presentation would look at the budget allocation of the grants and their performance during previous financial years (FY’s), as well as during the current FY. It would also touch on the revised approach to the RBIG, direct and indirect grants and why one or the other was chosen in a given situation. The capacities of municipalities which received direct (5b) grants and those receiving indirect (6b) grants would be covered. Challenges and capacity building would also be addressed.

Mr Leonardo Manus, Acting Deputy Director General (DDG): Infrastructure Development, (DWS), said the question had been asked: “What is the difference between the RBIG and the WSIG?” The RBIG was established in 2007, and was based on the 23 district municipalities at the time that had the greatest backlogs. It was intended for regional bulk water infrastructure and regional bulk sanitation collection, and that included water treatment works, abstraction works and the bulk supply, and excluded the reticulation part of the business. Budget allocations for the 2019 medium term expenditure framework (MTEF) was R18.7 billion, while an estimated R70 billion investment was required. Water boards had been involved, as they also own infrastructure in this space and of the R18.7 billion, R2.4 billion was earmarked for water boards.

The WSIG had been in existence for three years. It came after the merging of the Municipal Water Infrastructure Grant (MWIG), the Water Services Operational Grant (WSOS) and other smaller grants. This grant was supposed to focus on the reticulation of water to households within municipalities. The budget allocation for the 2019 MTEF was R13.7 billion.

The purpose of the RBIG was to assist Water Services Authorities (WSA’s) to develop new, and refurbish, upgrade and replace, ageing water and sanitation infrastructure of regional significance which connected water resources to infrastructure, serving extensive areas across municipal boundaries, or large regional bulk infrastructure, and serving numerous communities over a large area within a municipality. It also served to implement bulk infrastructure with the potential of addressing water conservation and water demand management (WCWDM) projects.  

The purpose of the WSIG was to facilitate the planning and implementation of various water and on-site sanitation projects and to accelerate backlog reduction, especially in rural municipalities. It also served to provide interim, intermediate water and sanitation supply that ensured the provision of services to identified and prioritised communities, including through spring protection and groundwater development. It supported municipalities in implementing water conservation and water demand management projects, supported the closeout of the existing bucket eradication programme (BEP) interventions in formal residential areas, and supported drought relief projects in affected municipalities.

The DWS’s new approach to infrastructure development was based on stronger partnerships between the public and private sectors, and with local communities. It included a special package of financial and institutional measures to boost construction and prioritise water infrastructure, roads and student accommodation through a more efficient use of budgeted money. Government would continue to provide employment through the Expanded Public Works Programme, (EPWP), especially in labour intensive areas like maintenance, clearing vegetation, plugging water leaks and constructing roads.

Mr Manus explained how the RBIG aligned with the State of the Nation Address (SONA) and described the DWS policies governing the RBIG. In terms of the policy, ’regional bulk’ was understood to mean the infrastructure required for connecting the water resource on a macro or subbing regional scale (over vast distances), with internal bulk and reticulation systems, or any bulk supply infrastructure that may have a significant impact on water resources in terms of quantity and quality. ‘Macro’ was defined as infrastructure serving extensive areas across multi-municipal boundaries, and ‘sub-regional’ was defined as large regional bulk infrastructure serving numerous communities over a large area, normally within a specific district or local municipal area. Over ‘vast distances’ was considered as any distances greater than 5 km. Bulk infrastructure that had a ‘significant impact on water resources’ included any bulk scheme that was designed for a maximum demand of 5 Ml/day or more, any waste water treatment plant that discharged into a fresh water resource system, and any water treatment plant that was designed for a maximum demand of more than 2 Ml/day.

Funding was allocated for implementation only once the projects were ‘implementation ready’, which meant that projects must be aligned with regional and national water resource development strategies, including compliance to WCWDM, provide for realistic longer-term development scenarios, have stakeholder involvement and commitment, and were environmentally acceptable -- with an approved environmental impact assessment (EIA) and environmental management plan (EMP).

He explained the difference between schedule 5b and 6b grants. In short, a schedule 5b, or direct allocation, was a grant allocated to a municipality by National Treasury (NT) and the DWS with the understanding that the municipality had the requisite project and financial management skills to manage the project and the finances independently. A schedule 6b grant was a grant allocated to municipalities where the DWS and NT were aware that they did not have the necessary project management and financial management skills to manage a project of this magnitude. The DWS and NT basically then managed the project with the assistance of the municipality.

He added that the WSIG financed bulk water supply infrastructure, but on a smaller scale known as ‘secondary bulk.’ It financed new or augmentation source development such as boreholes, spring protection, refurbishment, water conservation and water demand management, as well as on site sanitation. WSIG connected from bulk to communal reservoirs and stand pipes.

The Municipal Infrastructure Grant (MIG) focused on the reticulation, source development, water conservation and water demand management, refurbishment, augmentation as well as sanitation.

The DWS co-works with municipalities and the Department of Cooperative Government and Traditional Affairs (CoGTA) to plan and manage projects. (See presentation).

To monitor the grants, the DWS had developed a monthly reporting template. Municipalities submitted monthly and quarterly performance evaluation reports in line with section 71 of the Municipal Finance Management Act (MFMA) and section 10(7)(b) of the Division of Revenue Act (DoRA). Municipalities submitted annual performance reports in line with section 10(8). The DWS conducted regular scheduled and unscheduled site meetings and conducted induction workshops on grant management. It also had regular meetings with the Municipal Infrastructure Support Agency (MISA), COGTA, Treasury and provincial premiers.

An overview of the spending for the 2918/19 FY showed that for both the RBIG and the WSIB, the total budgets had been transferred. Under the RBIG, R1.539 bn out of a potential R1.963 bn had been spent, and under the WSIG, R2.335 bn out of a potential R4.777 bn had been spent. These were schedule 5b grants. The Committee was given breakdowns of these budgets per province and the budget spend on drought relief expenditure for the 2018/19 FY. The projected budgets for the following three FY’s, in rounded off figures, amount to R10 billion for FY 2019/20, R11 billion for 2020/21 and R12 billion for 2021/22.

Mr Manus described how the budgets were divided amongst programmes and amongst provinces. Limpopo province had the biggest allocation at 20%, while the Western Cape (WC) had the smallest allocation at 2%. Gauteng had 6%.

Since its inception, the RBIG had completed 91 projects and impacted 3 161 521 households. The WSIG had created nearly 3 000 jobs over the three years of its existence. (See presentation).

The RBIG 6b actual expenditure up to 26 August had amounted to R310 million, or 14% of the R3.037 bn budget. RBIG actual transfers to water boards had amounted to R345 million, or 44% of the R783 million budget. Projects earmarked for completion within the near future included mega projects like the Jozini Bulk Water Scheme (BWS), the Umshwathi BWS Phase 3, and the Sebokeng Waste Water Treatment Works (WWTW) Phase 1 of 2. WSIG 5b actual transfers up to 26 August had reached a total of R766 million out of a possible R3.67 bn, which was 87% of the transfers planned for the period.

WSIG 5b MTEF projected budget allocations over the next three FYs were R3.5 bn for 2019/20, and R4 bn for the following two years. The Committee was given details of how the budgets were going to be divided amongst the provinces, as well as the projects they were going to be spent on within those provinces.

The presentation had mentioned earlier that the DWS was re-thinking its approach to building infrastructure. Some of the changes it wanted to make included the Department’s resolve to take greater direct control over implementing new RBIG projects, utilising project management capacity from DWS regional and national offices, the capacity of water boards, and DWS construction. Where feasible, new assets would be transferred to water boards. It would also focus on the sustainability of projects, as well as operations and maintenance.

Regarding capacity building, schedule 6b municipalities were supported and capacity was built within them to elevate them to schedule 5b municipalities, while schedule 5b municipalities were supported to maintain and improve their capacity. A number of Water Service Authorities (WSAs) were continuously supported, amongst which were Bushbuckridge local municipality (LM) and Zululand district municipality (DM)

Challenges experienced by the DWS were that municipalities did not co-fund these projects, although they enjoyed the benefit; the lack of capacity in municipalities to implement mega projects; the implementation of unplanned projects as a result of poor planning and monitoring practices by municipalities; and inadequate funding. Interventions were different and better funding arrangements with the NT, better integrated planning practices by the DWS, in conjunction with municipalities, CoGTA and NT, and capacity building within municipalities (See presentation).

Discussion

Ms G Tseke (ANC) commented that the WSIG budget for FY 2018/19 was higher than the previous year, but fewer jobs had been created.

Ms N Sihlwayi (ANC) asked at which level the DWS funded projects.

There was no direct answer to this question, but there was an in-depth discussion on the grants, which most probably provided an explanation for the Member.

She also asked what the criteria were which disqualified municipalities from receiving funding.

Mr M Mashego (ANC) said the DWS transferred money only for legitimate projects. What were the factors determining whether a project was legitimate or illegitimate?

Mr Manus replied that to determine which municipality was fit to fall under schedule 5b or 6b, the DWS, in conjunction with NT, did an assessment of the municipality, based on its administrative and project implementation history. Continuous under-expenditure or non-compliance with the conditions of the grant would prompt the DWS to write a report to NT, resulting in a municipality being moved from 5b to 6b. If a municipality spent the funds as planned and remained compliant with the conditions of the grant, it was moved from 6b to 5b, or it remained under schedule 5b.

Ms Sihlwayi asked whether the DWS made an assessment of the challenges of municipalities which underspent by more than 50%, so that it did not allocate more funds to municipalities which could not spend their budgets.

Mr M Tseki (ANC) said that when municipalities failed to spend their budgets after the projects had been found ‘implementation ready’ by the DWS, it was then the DWS’s failure as well. Despite the DWS having the tools to monitor these projects and municipalities, it still failed. All the failures within the ambit of the Department were because of management capacity. It could not do the work.

Mr Masala Mulaudzi, Acting Chief Director (CD): RBIG, DWS, replied that most of the RBIG projects were multi-year. Umshwathi had spent over 75% of its budget, which to him was good. Municipalities had time to spend their budget by the end of the FY, which was June for municipalities. He had already seen that NT was starting to communicate formally with municipalities that had not spent 100% of their budgets. NT wanted reasons why budgets had not been spent and municipalities had already given reasons for underspending.

The Chairperson said Mr Mulaudzi should not say that it was good when a municipality had spent only 75% of its budget, because municipalities had to spend 100% of their budgets. By defending the under-expenditure, he was getting himself into trouble unnecessarily.

Mr Mulaudzi apologised for saying that underspending was good.

Under 5b, the DWS funded projects when it was ‘implementation ready’, but from the DWS side, when it talked about ‘implementation ready’ it meant that municipalities had submitted a procurement plan and that the business plan had already been approved. It was just unfortunate that when management allocated funding for ‘project ready’ municipalities, it transferred under 5b, which was a yearly transfer. It delayed them from finishing, because the transfer did not happen at the beginning of the FY for municipalities. However, the DWS had a plan to support all those municipalities which were underspending. It had noted with concern the under-expenditure and low spending under the WSIG, and was working with municipalities on this challenge.

Ms S Mokgotho (EFF) said that the Committee was continuously told that municipalities were not spending budgets due to a lack of capacity. As the ‘challenges and interventions’ section of the presentation had indicated, the DWS was aware that these municipalities did not have the capacity to implement the projects and spend the budgets. Was the DWS going to continue telling the Committee that it was going to capacitate these municipalities? This meant that the unspent budgets would be accrued. Did the DWS do this on purpose?

Mr X Ngwezi (IFP) referred to the underspending of municipalities, and asked it was possible for the DWS to provide a list of municipalities, broken down per province, to see whether the municipalities which underspent their budgets were the same municipalities where the protests over water were occurring. This would make it easier, at a political level, to get closer to these municipalities and to advise them. He would like to see changes on the ground during the term of the 6th Parliament.

Mr Tshangana replied on whether the DWS did not support municipalities to perform on purpose, which resulted in under-expenditure, which then resulted in accruals. He said the DWS did not do this. If a municipality did not spend the money, it lost the money. Under-expenditure did not reflect well on the municipalities or the DWS. He agreed that the DWS had not performed well, because during the previous financial year it had underspent by more than R400 million. The question was bigger than just water and sanitation. He had attended the Inter-ministerial Committee (IMC) on the district service delivery model earlier in the day, and the same matter had come up. Metros, which were highly capacitated, had underspent their budgets by R400 million. The question had been asked at the IMC, why had South Africa done so well during the FIFA World Cup period? The idea had been put forward that maybe the practice and system of transferring funds had to stop.

When transferring funds under schedule 5b, it was assumed there was capacity in that municipality to spend the budget. The council, the city manager and the chief financial officer (CFO) of the municipality, as well as Section 56 officials, should all be held accountable, not only the DWS. There had to be a review of the inter-governmental fiscal systems to effect this.

Ms Tseke referred to capacity building in municipalities. The presentation had said the DWS was continuously supporting the WSA’s in some municipalities. It had named a list of municipalities and then said these were only a few of the municipalities assisted in this way. She asked the DWS to identify all municipalities assisted in this way, so that their progress towards self-sufficiency could be monitored by the Committee.

Mr Mulaudzi replied that the list in the presentation had mentioned about eight municipalities. The DWS was supporting almost all municipalities, as well as metros. It did not fund the metros, but there were other support mechanisms as well.

Mr Mashego said the DWS had not indicated what it did in cases where municipalities were given funding and then did not deliver in terms of timelines, spending, completed work etc. These municipalities were found to be legitimate in terms of the DWS criteria, which meant that there was not supposed to be over- or underspending. The Department had mentioned in the presentation a process of changing its approach to project implementation. His deduction was that the DWS chad hanged its approach in reaction to these municipalities reneging on their agreements. If the DWS failed to hold municipalities accountable, it had failed.

Mr Manus replied that it was true that projects were reported to be ‘implementation ready’, yet after starting off, they showed poor progress and expenditure. This was not always due to the municipality not performing well. There could be problems with the contractor, for example. There were times when the municipality did not perform well, but there were cases where the poor performance of the project was due to the normal real-life challenges which go along with construction projects, like problematic contractors and labour problems. He added, however, that there was a need for the DWS to play a more pro-active role in monitoring projects.

Mr Tshangana added there was a wide range of factors which influenced the progress of a project. In KZN there were forums which would interfere with projects over labour issues, because they wanted local contractors to be appointed. There could be community involvement with stoppages. If a project was ‘implementation ready’, it did not mean that it would be completed within the projected time or budget limits, because of a number of interventions. In all the built environment projects, the DWS used the project readiness metrics to determine the state of readiness, because one knew, if the project was still in the planning stage, one was not going to disburse a lot of money, but if it was ‘implementation ready’ and the contractor was on site, the chances were that expenditure targets were going to go up. Things could go wrong at any stage. There could be a lot of interventions that could cause a project not to disburse.

Ms L Arries (EFF) asked why the grant allocation to the WC was so little, at 2%, and why Gauteng was only 6%.

Mr Manus replied that the water infrastructure backlogs had been the lowest in the WC and Gauteng, which received the smallest allocations. The big allocations went to the provinces where the backlogs were higher.

Mr Mulaudzi added that in the WC and Gauteng, the backlog in terms of water services infrastructure was not as big as in some provinces like the Eastern Cape (EC), Mpumalanga and Limpopo.

Ms N Mvana (ANC) asked about the list of projects earmarked for completion. What was the programme for the way ahead concerning these projects?

Mr Ngwezi asked where exactly these projects were located -- for example, the Jozini Bulk Water Supply Project -- and how many households were going to benefit from them. In those areas, there had been a lot of protests over water supply. People closed the roads and nothing could move. He was curious to see whether these projects were going to address the backlogs in those areas.

Mr M Mabika (DA) said when he went out in the field, there were crises and no progress. He asked where the mega projects which were earmarked for completion were geographically located. He asked whether the DWS had up-to-date information on the progress of all projects, including those earmarked for completion.

Mr Manus replied by giving an example. If one had R1 million and had to build a house worth R1 million, one could complete that house within a short period of time, because all the money was available. If one had to build 10 houses to the value of R1 million each, but had only R1 million, then it was going to take a lot longer to complete the full project of 10 houses. This was the case with all these projects, in light of the fact that the funding was always inadequate. When a phase was not completed, no progress could be seen on the ground. With no adequate funding, there was little progress and the longer it took to complete the project. The outcome and benefit was felt only at the completion of the project. It was true that communities were not benefiting from projects that were still in progress. The DWS and NT had noted that and would look into how it could improve that component.

Mr Mulaudzi responded to the question on the RBIG projects earmarked for completion. The Jozini project in KZN had been completed in July. It was benefiting 33 000 households. The DWS had completed the bulk part of the project. It was now up to the municipality to provide the reticulation part. At this stage, reticulation was at 15%. There was a plan in place to build the reticulation infrastructure. Reticulation was highly prioritised and the municipality would use its MIG funds to effect the reticulation part of the water infrastructure roll-out.

The Chairperson asked whether Mr Mulaudzi could specify the geographical area where this project was located.

Mr Tshangana said that the situation described was a recurring pattern in the roll-out of projects. The DWS executed its primary mandate, which was the provision of bulk water infrastructure. People complained that they saw the water in their area, but were not benefiting from it. The DWS executed 100% of its mandate by completing bulk provision infrastructure. The municipalities were responsible for reticulation as their primary mandate, but were not overcoming their challenges. Only when 100% of the reticulation infrastructure had been completed would communities feel the benefit of the full project.

Mr Mashego said the DWS built the bulk infrastructure, while the municipalities had to build the reticulation infrastructure, but if the municipalities did not perform, the DWS was forced to go to the secondary mandate, which was reticulation.

The Chairperson replied to Mr Mashego that the DWS was right to say that their mandate was to provide bulk water infrastructure, and that the municipalities had to see to reticulation. The DWS had a footprint in most provinces, but in most instances the bulk water did not reach the people. What had to be done to rectify that situation? The Committee was where such issues had to be discussed, and the Committee had to look at ways to assist the DWS. This challenge had to be taken into account when dealing with the plans of the 6th Parliament.

Mr Mulaudzi referred to the listed projects earmarked for completion. In some cases, the presentation had mentioned that one phase out of two had been completed, while others mentioned only one. In these cases, it was unclear how far the project was, so that the Committee could not measure its successes and failures and propose corrective measures.

He said mega projects were, by their nature, complicated and difficult to manage. The DWS was working closely with the management of the municipality on the Jozini Bulk Water Supply project. It was also working closely with Emfuleni municipality with the management of Sebokeng Waste Water Treatment Works. During this FY, phases 1 of 2 would be completed. Umshwathi had been moving from phase 1 to phase 3. This FY, phase 3 would be completed as well as 25 other projects. No new projects would be started under schedule 5b. The DWS had moved from building entire projects to building functional phases. A functional phase could get water to communities while the rest of the project was being completed. By the end of this FY, it would have done better than in any FY before.

Mr L Basson (DA) asked whether the Madibeng Water Purification Project, which was also financed by RBIG, was a multi-year project. Could the DWS elaborate on that project as well?

Mr Mulaudzi replied that Madibeng was a project under the RBIG. The DWS was funding the project and was hoping to complete it by the next FY. There were challenges with this project, but the DWS had a plan to address the challenges.

Ms Mokgotho asked when municipalities would be capacitated. Was there a plan? Were there planned dates? Was there movement in terms of the capacitation?

Mr Mulaudzi replied that, in the long run, the aim was to get all municipalities under 5b. 6b was a temporary measure during periods when municipalities had challenges regarding the execution of a project. There were municipalities which were moving from 6b towards 5b status, which meant that capacity within some municipalities was improving. However, there were municipalities under 5b which were regressing, and municipalities under 6b which were not improving.

The Chairperson asked Mr Tshangana to consult with NT to find the best way to administer this grant. Many municipalities did not have the capacity to execute these mega projects. The municipalities which had the capacity and had projects that were ‘implementation ready’, received the grants and then did not spend them. From the DWS side, it built the bulk water storage and supply infrastructure, but the water did not get to the people. If there was no intervention, this would become a problem for the provinces, because if people tried to get to the water using their own makeshift pipes, there would be a crisis. The DWS had to start considering transferring some of its funds towards a budget for reticulation, so that it could see the whole process through and get water to the people. The need for waste water treatment plants had been discovered by the Committee a few days earlier. It knew about Sedibeng, but had no knowledge about whether any other plants existed to treat waste water. Could the DWS research this matter to determine the current situation and come up with information and a plan?

 

DWS response

The DG said the term ‘capacity building’ had been blown out of proportion. There were more than R6 billion worth of capacity building grants in SA, and capacity building had been implemented for the last 10 years. Would there be a point where it would stop? He thought ‘capacity building’ was used as an excuse to not hold people accountable for poor performance. If it was a 6b grant, the DWS was responsible for accounting for it. If it was a 5b grant, the municipality was responsible and had to account. It was the same with the Department of Human Settlements (DHS). The HS grants went to Members of Executive Councils (MECs) in the provinces, and they appointed contractors. If they did not spend the money, they had to be held to account. There was a full system of governance to see to accountability.

Madibeng had been perpetually under administration. This municipality had been under Section 139 for a long time. Something had to give! It meant that every department was in Madibeng, but what was it that was not being done right? There were not only water grants, but also MIG grants. He thought the Committee should have an opportunity to call CoGTA to come and do a presentation on the MIG. The MIG was not doing well, and it was the grant responsible for reticulation. In the case of the Jozini project, the MIG was going directly to the uMkanyakhude district municipality. Could this municipality be held accountable for the lack of performance? The Committee could invite the municipality to come and do a presentation on what they were not doing right.

When it came to capacity building, it was assumed that the national Departments of Water and Sanitation or Human Settlements had all the capacity in the world, while the national departments had their own capacity challenges. It was becoming more difficult to close the gap, because the compensation of employees (COE) budget was being reduced. A different model was needed to deal with capacity issues.

Mr Tshangana said that when raising these issues, it could appear as if the DWS was looking for scapegoats to blame for its under-performance. This was not the case. It wanted to account for the things it was not doing well, but felt that all responsible officials had to be held accountable.

 

Establishment of Human Settlements Development Bank

This presentation was about the merging of three Development Finance Institutions (DFI’s) -- the National Housing Finance Corporation (NHFC), the National Urban Reconstruction Housing Agency (NURCHA) and the Rural Housing Loan Fund (RHLF) -- to form the Human Settlements Development Bank (HSDB). The presenters were Mr Samson Moraba, CEO, NHFC, Ms Nomsa Ntshingila, Executive Manager: Human Resources (HR), NHFC, and Mr Bruce Gordon, CFO: NHFC.

The presenters described the processes which were necessary to consolidate the three entities and establish the HSDB. Stage one was setting up the consolidated structure and drawing up a draft policy, as well as consolidating the financials of the three DFIs. Stage two had to do with establishing the HSDB, involving the business case and draft legislation, the promulgation of the HSDB Act and securing approvals from the ministry and joint evaluation panel. Stage 3 had to do with making the bank fully operational. The consolidation process involved administrative processes like arranging tax exemption for the NHFC, legal and financial processes like complying with Public Finance Management Act (PFMA) requirements, securing funders and having them approved, and practical processes like staff migrations to the NHFC offices by the staff from the other two entities.

The processes undertaken to address critical milestones were outlined.

The boards of NURCHA and RHLF had passed the required resolutions to enable the donation of assets and liabilities to the NHFC. The shareholder of the NHFC had passed a resolution at the annual general meeting (agm) on 24 November 2016 approving the merger. The NHFC had to effect the transaction to merge the RHLF and NURCHA, which were non-profit companies (NPCs), to the NHFC, which was a for profit company. This was because the "NPC restrictions" contained in item 1(4) of Schedule 1 to the Companies Act No 71 of 2008 state that non-profit companies, such as NURCHA and RHLF, were required, upon their winding-up or dissolution, to transfer their assets only to other non-profit entities – meaning that NHFC, as a profit company, would not be permitted to take transfer of the NURCHA and RHLF assets in terms of the proposed consolidation of RHLF and NURCHA into NHFC (the "Consolidation"), unless at fair value.

The recommended solution to this administrative obstacle was an application to the Companies Tribunal for an Administrative Order for a special exemption from the Companies Act, in order to effect the transaction. The presentation did not say it explicitly, but this exemption must have been granted, because the merger could go ahead. The resulting implementation approach was that NURCHA and RHLF would be assimilated into the NHFC. The NHFC would become the HSDB, and the HSDB would be activated.

A process of change management had to be embarked upon in order to orientate the staff from the different entities. The new company and situation had been explained to staff. Workshops were held for leadership to develop leadership cohesion behaviours. Change agents and champions were appointed to spearhead the change in the company. For employees, a “meet and greet” was organised to introduce them to their new managers and colleagues.

Organograms depicting the organisational and functional structures of the HSDB, and an analysis of the demographics of the staff complement of 116, were shown to the Committee.

The NHFC had won the award for the “Employer of Choice, Public Sector” for 2019.

 

Discussion

Mr Tseki said the Committee needed to get a presentation on the Human Settlements Development Bank bill. He asked for the bill to be sent to the Committee for the researchers to work on. What did the private banks say about this?

Ms Sihlwayi said the bank was a consolidated product of three entities. She did not see a unit which would be a link to communities. Her experience with entities taught her that entities like this would need infrastructure to deal with community issues.

Mr Moraba (NHFC) replied that the underpinning rationale for establishing this bank was meeting evolving household needs towards a quality living environment, which were affordability and access. Whether through intermediaries or other partner banks, the main interest of the entity would be the answer to the question: “How does it impact on the household?”. He took on board the comment and suggestion that it should be reflected in the bank’s structure, that communities should be looked after in their totality.

The Chairperson asked how this DFI would differ from commercial banks.

Mr Tshangana replied that the difference between this DFI and a commercial bank was that most commercial banks would not go into high-risk areas. This bank would take on those markets. There was a time around 1998 when commercial banks did not want to do business with Johannesburg. Johannesburg was a high-risk client, but the first entity that supported it was the Development Bank of Southern Africa (DBSA). However, immediately after the DBSA had stabilised the city, all the other banks started coming in to do business. All government banks do is to go into areas where other banks are not willing to go, and that was why they were called the banks of last resort.

He thought the starting point would be to give the Committee both the draft bill and the business case, because the two together best explained the attributes of the new bank. The bill would be used to establish the bank formally, and the business case would explain the different products and services that this bank was going to be selling.

This bank was completely different from a commercial bank. Some might argue that there were similarities between this bank and the DBSA, the only difference being the market. The DBSA was an infrastructure bank, while this would be a human settlements bank focussing on housing. If one looked at the previous DFI’s, NURCHA was operating in urban areas, the RHLF was operating in rural areas and the NHFC was operating in both worlds. NHFC was servicing different customers using intermediaries. However, the idea was to move away from the old ways of doing things by creating this new human settlements DFI.

Ms Mohlala understood that it was a bank for human settlements. Before the merger, who were the funders funding the different entities? Who were currently the funders, or funding entities? Were they French or European?

Mr Moraba replied that one of the mandates of the institution was to go and raise funds in the capital markets other than that of government to augment the government’s capacity. The bank had been capitalised initially, but it was not sufficient to deliver on the scale which the bank envisaged, and that was why there were other multi-lateral agencies, like the European Investment Bank, the French Development Bank, the DBSA, which was backing the German KFW development bank, and the Public Investment Corporation (PIC). Those were the current funders who would be funding the bank because the HSDB would be taking over the loans and re-capitalisation from government.

The Chairperson said it was important to know who funded the bank, because it did not want to be surprised to discover that the bank was being funded by Israel.

 

Emergency Housing Grants (EHG)

Ms Funani Matlatsi , Chief Financial Officer, DHS, told the Committee that South Africa had in the past and recently been affected by a number of disasters. The recent fire in the Knysna Local Municipality had affected about 534 people who had to be placed in temporary shelters and halls in and around Knysna. About 4 000 people had been displaced. A further incident had been a fire in Imizamo Yethu in Hout Bay, Cape Town, where approximately 2 000 shacks and 15 000 households had been affected.

The municipal and provincial Human Settlements Departments had experienced disasters and emergencies in recent years, and found it difficult to mobilise resources to provide an immediate and appropriate response, given that funding from the Human Settlements Development Grant (HSDG) was often committed to existing projects.

The proposal was to source funding from the existing Human Settlements conditional grants, the Urban Settlements Development Grant and the HSDG.

Permission had been granted, under Schedule 7A and 7B grants, for the Human Settlements Emergency Infrastructure and Services Grant to be created, and would popularly be known as the Emergency Housing Grant (EHG).

The EHG’s purpose was to provide funding to provinces/municipalities for the provision of temporary shelter and assistance to households affected by disasters or a housing emergency. It would also provide funding to provinces/municipalities to repair the damage to housing for low income households following a disaster or housing emergency, if the costs of the repairs were less than the cost of relocation and the provision of temporary shelter.

Ms Matlatsi   said outputs of this grant were emergency and short term assistance to households affected and impacted by disasters through the provision of temporary shelter, temporary relocation of households to safer accommodation and repairs to damaged houses following a disaster.

Provinces/municipalities must submit an application to the NDHS within 14 days of the agreement by the MEC for Human Settlements or the Mayor that a housing emergency existed in terms of section 2.3.1 (a) and (b) of the Emergency Housing Programme. The presentation went on to describe what in legal terms constituted housing or accommodation emergencies. (See presentation).

The emergency procurement system, as guided by the PFMA, MFMA and Treasury regulations, should be invoked to ensure immediate assistance to the affected communities. The DHS encouraged metros and provinces to appoint a panel of service providers well in advance to avoid long procurement processes when emergencies occurred. This would prevent red tape from delaying assistance to disaster victims.

Responsibilities of the DHS included requesting National Treasury’s approval for the disbursement of funds within 10 days of receipt of an application, and transferring the funds with a clear stipulation of their purpose.

The responsibilities of provinces and municipalities included providing the first response in the immediate aftermath of a housing emergency, conducting initial assessments of disaster impacts to verify the applications for funding within five days following the occurrence of a reported incident that qualified as a disaster, and ensuring that contingency plans were in place to facilitate the provision of emergency shelter in the immediate aftermath of a housing emergency.

About R500 million had been budgeted per year over the next three FYs to go towards the EHG. Only Mpumalanga and the WC had made use of the EHG during 2018/19, and Mpumalanga had spent R67.5 million out of an allocated R121 million. The WC had been allocated R83.8 million, which had been unspent by 31 March 2019.

The provincial EHG allocations for 2019/20 showed that the WC had received R3.4 million and spent it all, while KwaZulu-Natal had received R69 million in December 2018 and R82.3 million in April this year, but had spent nothing.

The presentation included pictures taken at sites where the EHG had been deployed. In some cases there were ‘before’ and ‘after’ pictures. The geographical locations of the sites were provided. (See presentation).

Discussion

Mr Tseki asked whether the EHG assisted people if their houses have been struck by lightning.

The Chairperson replied that an emergency was an emergency, and that people who lost their homes qualified for emergency assistance.

Ms Mokgotho asked what kind of disaster had struck the Jozini area that had cost R4 million. There had been another reference to temporary structures -- what type of disaster had been involved?

Ms Mohlala said Jozini had been given R10 million and had spent R4 million. Did the EHG monitor whether the amount spent correlated with the work done on the ground? The presentation had talked about structures at Kwamashu, but she was from that area and she did not know about any emergency structures at Kwamashu.

Ms Matlatsi replied that there were mud houses at Jozini and when there were hail storms, the storms would flush away the mud houses. The emergency fund could not replace the damaged mud houses with mud houses. The emergency fund had provided temporary shelters for the families who lost their mud houses. There was no ‘before’ picture, because the mud houses had been swept away by the hail storm.

Mr Mashego said he understood the fund to be for emergencies when people became homeless, but the presentation had shown a mudhouse which. by its own nature. was an emergency whether there was a disaster or not. He feared that between the mudhouses of the EC and KZN, this budget would be depleted. This was a national budget which had to be applied where it was needed. Other provinces would never benefit because of the nature of housing and the severity of the storms in these provinces.

Mr Ngwezi said he wanted to appreciate the availability of funds to address emergencies. He felt that the weather patterns were known nationally and that, for example, December-January was the rainy season in KZN, which meant that flooding disasters could be expected in that area. He wanted the emergency apparatus of government to prepare for a state of readiness before the disaster happened, in order to cut the response time when it happened. This applied to all areas in the country. He wanted to see a structured plan by government around this shortening of the response time to react to emergencies.

Mr Mashego referred to the effects of a tornado and asbestos emergencies in certain locations where nothing had been done.  

The Chairperson replied that the grant had to be applied for by the province or the metro municipalities. She instructed him to go to Ethekwini and Ekurhuleni and ask whether they had applied for emergency funding.

Ms Matlatsi replied that the areas that were largely affected were KZN and EC, where the most mud houses were, and the WC. When there were emergencies, applications had to be made by the province and by the metro. The emergency fund did not just release funds because it saw an emergency happening. It would respond from a national perspective by addressing the issue itself, but when it arrived at the emergency situation, it did not just issue funds. It allowed the province or metro to follow the process of application. The emergency fund made its own assessment of the disaster to determine whether it actually needed emergency attention. Some disasters were declared by the province for them to be funded by the Disaster Management Fund at a national level. This particular emergency fund responded with the aim of providing temporary shelters when needed. The unfortunate tornado situation could have been addressed if the emergency fund was available. The situation with asbestos was receiving attention from the provincial Department of Human Settlements.

Mr Ngwezi referred to the amount of R69 000 which was unspent in KZN, and asked whether the monitoring tools of the EHG were effective enough to hold provinces to account for unspent emergency funds. Why was money sitting unspent in provincial accounts while the need on the ground was high?

The CFO replied that the fund had a structure in place to monitor funds after they had been allocated to provinces or metros. For this purpose, a ‘war room’ had been created, comprising of the monitoring and evaluation team, the project management team ans the team responsible for emergencies in the Department, to follow the money through the correct structures.

There were instances like KZN requesting money while all of its previous budget had not been spent. The emergency fund was working with NT to apply measures in KZN to stop this practice. It was unfair, because if a disaster happened in another province, the emergency fund would not be able to respond because the money was lying in KZN. There were structures in place to monitor the movement of money.

Ms Mohlala referred to pictures of a prefabricated house in the presentation, and asked whether this picture represented an emergency. According to her understanding, the municipality had had to identify this family long ago, and should have built a house for them. This grant had been called an Emergency Housing Grant. The aim was not to give money to municipalities for housing.

Ms Matlatsi said that it was a new grant, with new conditions and new outputs. There was a picture of a burnt house in the presentation which was similar to the house referred to by the Member. In this yard, there were two brick houses. These were rural areas, so people built houses for themselves. The one house had burnt down and both the families had been squashed into one one-roomed house. The burnt house had had to be re-constructed. The EHG had been used to provide a temporary shelter for that family. It was an emergency.

Ms Sihlwayi referred to Nelson Mandela Bay Metro, and wanted clarity on whether the  house depicted had been built by the owner. It was a strong shack. Was that an emergency? Communities built houses according to their state. What made it an emergency? Was it built on clay or privately-owned land? If it was an emergency, who declared it an emergency -- the owner or the municipality, because he was occupying land that did not belong to him? She also appreciated the detail of the presentation, as it pointed out the exact areas which were assisted during disasters.

Mr Tshangana replied that, from his own experience, because the DWS/DHS had been present in Nelson Mandela municipality for some time, in all of these areas there were housing projects being built by the DHS. A shack would be demolished and a transitional unit would be built, using the Emergency Housing Programme (EHP) programme. The EHP was different from the EHG which was being presented today. The DHS sometimes used it as a ‘conveyor belt’ when developing. As proper houses became available, people were moved from these transitional units to the proper houses.

The Chairperson thought it was a good system, as it was used by the Department of Education as well. Temporary classrooms were used while a school was being built.

The DG said that it worked well as long as people did not go from the transitional units back to shacks. They had to move to fully completed houses. This was what was happening in the Nelson Mandela Metro and other areas.

The Chairperson asked, if people have been warned not to erect housing on the floodplain of a river but still went ahead and did it, whether they were still assisted by this emergency fund. Politicians sometimes encouraged land invasions.

Mr Tshangana replied that the occupation of flood plains was a symptom of a bigger problem -- the failure to enforce by-laws. Where land was invaded, people had to be evicted for their own good, to protect lives. With the increasing urbanisation, the ability of municipalities to enforce by-laws was challenged, but there was no other alternative. They had to be moved.

The DG added that the DHS could come and do a presentation on the Upgrading of Informal Settlements Programme. All informal settlements were categorised in one of three categories. The first category could stay, and be upgraded. The second category had to be moved, but there were challenges with this category.

An example was Tswetla in Alexandra Township in Gauteng, along the Jukskei River. The illegal occupiers of the land had been moved several times, but people always moved back. Some people used it as a queue-jumping exercise. They hoped to be moved to a place where they would have security of tenure. There was an element of desperation and an element of criminality and other reasons why people always re-occupied this piece of land. This issue was addressed through the EHP. Did the DHS treat them as an emergency case? Not necessarily. All informal settlements were earmarked for upgrading.

The DHS worked with municipalities. It was struggling to get municipalities to adopt plans for people to be moved to other pieces of land. There was a challenge, but the bigger problem was massive urbanisation and SA was not alone. India and Brazil were facing the same problem, but it was not insurmountable. In some settlements, there were foreign nationals. The DHS called them non-qualifiers, because while they would qualify for emergency housing, they would not qualify for permanent structures.

The meeting was adjourned.

 

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