Municipal Systems Amendment Bill: briefing

Meeting report

LOCAL GOVERNMENT AND ADMINISTRATION SELECT COMMITTEE
22 September 2003
MUNICIPAL SYSTEMS AMENDMENT BILL: BRIEFING

Chairperson: Mr B Mkhaliphi (ANC) [Mpumalanga]

Relevant documents
Municipal Systems Amendment Bill [B49-2003]
Presentation by Department of Provincial and Local Government - Overview
Presentation by Department of Provincial and Local Government - Amendments

SUMMARY
The Department outlined the background to the Bill, the rationale for the Bill, the nature of the amendments as well as an overview of the key amendments, the changed definitions, the additional functions and powers granted to municipalities, improved access to information, submission of annual reports by municipalities and the limitations placed on municipal entities.

During the discussion Members asked the reasons for limiting municipal entities to the three forms proposed by the Bill, whether the municipal representatives on the Board of the municipal entity had speaking rights, why the Bill provides a dispute resolution mechanism when penalties could be imposed for failure to perform in terms of the service delivery agreement and clarity was sought on the situation before the annual performance reporting requirements proposed by the Bill.

MINUTES
Introduction by Chairperson
The Chair apologised to the Department for the late start to the meeting.

Briefing by Department
Mr Elroy Africa, Department DDG: Governance and Development, presented the overview of the Bill (document attached) which outlined the background to the Bill, the rationale for the Bill, the nature of the amendments as well as an overview of the key amendments.

Ms Gabi Gumbi-Masilela, Department Chief Director: Infrastructure and Development Planning, presented that amendments proposed in the Bill (document attached) which outlined the changed definitions, the additional functions and powers granted to municipalities, improved access to information, submission of annual reports by municipalities and the limitations placed on municipal entities.

Discussion
The Chair informed the Department that this Committee was scheduled to debate on this Bill during the week of 7-11 November 2003.

Mr R Nyakane (UDM) [Limpopo] asked whether any conditions were attached to the requirements to being a member of the Board of the municipal entity.

Ms Gumbi-Masilela responded that the conditions were spelt out fully in the proposed Section 93(f)(c) of the Bill.

Mr P Maloyi (ANC) [North West] noted that the presentation indicated that a "councilor or official or both" could be a municipal entity representative, yet it also excluded "a councilor of any municipality" from holding a seat on the Board. He asked whether there was any difference between the two cases.

Ms Gumbi-Masilela replied that the municipality had to protect its interests in the Board's activities, and the Bill thus allowed the municipality to have representatives at Board meetings even though those representatives could not participate in the meeting. The aim was to ensure that the municipal entity functions in line with its mandate.

The Chair asked whether these representatives would have speaking rights at the meeting.

Dr P Bouwer, Department Director: Legal Services, responded that the proposed Sections 93C and D created a division between the representative from the municipality and those of a private company. The private company would hold shareholder meetings which had more active representatives and officers. Yet those of the municipality were non-participatory and thus had no speaking rights. The shareholder would however have active participation by representing the municipality, because he would be bearing the interests of the municipality at heart.

Ms N Kondlo (ANC) [Eastern Cape] sought clarity on the Department's experiences that resulted in the shift from the all-open approach to municipal entities, to the proposal in the Bill to limit it to just three forms.

Mr Maloyi stated that the presentation indicated that the transitional arrangements would retain the status quo, yet the Bill indicated that three forms of municipal entities would be introduced.

Ms Gumbi-Masilela responded to these two questions by stating that the Provincial and Local Government Portfolio Committee requested that the Department conduct a study on the forms of municipal entities currently being employed by municipalities, and to identify which municipal entities were being used by which municipalities. The Department found that only two or three municipalities had established Section 21 companies or private companies, as was the case in Johannesburg. She stated that municipalities also indicated that trusts would be used when a specific municipal service, but none of the municipal entities actually used trusts for service delivery. They also caused problems with the Public Finance Management Act.

She stated that the Department primarily looked at co-operatives, because this was the most sensible. Yet it could not find instances in which these were used by municipal entities, as people would not buy into these co-operative because it was not conducive to profit-making.

The mandate of municipal entities has now been broadened to perform other activities as well. Ms Gumbi-Masilela stated that there were problem areas in the governance structure of the use of trusts by municipal entities. The municipal entities would be required to perform certain functions in terms of the service delivery agreement, but the trust deed of the trust being employed would specify the purpose for which it was established. Should the municipality decide to dissolve the trust its assets would not revert to the municipality itself, but would instead devolve to the beneficiary identified in the trust deed. This created a problem because the municipality would then have no legal recourse. This was thus a legal loophole that failed to grant the municipality full control of the trust.

Ms Gumbi-Masilela stated that the limitation of the number of municipal entities was thus aimed at providing the legal framework that would grant the municipality control security in order to have such legal recourse.

Mr Africa added that the Department had conducted an audit study on the kinds of municipal entities that were being used to provide a municipal service. The study concluded that Section 21 companies were not making a substantial contribution to service delivery. The Department also looked at co-operatives, and concluded that these did not play a role in municipal service delivery either. He clarified that the Department was thus not saying that municipality could not use co-operatives, but was merely stating that the study indicated that municipalities were not using co-operatives in practice to enhance service delivery. He stated that the study also indicated that trusts were not playing a major part in effecting municipal service delivery.

Of greater importance was the second study conducted by the Department which re-examined the current legislation and regulatory regime governing the use of Section 21 companies, trusts and co-operatives. The study concluded that it was very difficult for municipalities to exercise an effective governance and oversight role over these entities, and the decision was thus taken to prohibit the use of trusts, Section 21 companies and co-operatives. He stated that the Bill thus did to things: firstly, it strengthened both the governance and oversight relationship between the municipality and the municipal entity and, secondly, it strengthened the service delivery relationship between the municipality and municipal entity by requiring a feasibility study to be conducted.

Ms Kondlo asked why the Bill made provision for a dispute settlement mechanism, when service delivery agreements were entered into by the municipality and an external mechanism. She suggested that penalties could surely be imposed for failure to deliver in terms of that agreement. Ms Kondlo asked what the role of the dispute resolution mechanism would be, as well as its effect on the service delivery programme.

Ms Gumbi-Masilela replied that the service delivery agreement did clearly spell out the outputs and objectives of the external mechanism. She stated that should the municipality and municipal entity not agree on these, should these not be achieved or should the municipality decide to no longer continue with the service delivery agreement, such a dispute resolution mechanism would be necessary to dissolve the relationship in an amicable but formal manner.

Adv Kholong, Department: Local Government Institutional and Administrative Systems, added that the principle here was to provide both a speedy and cost effective mechanism of dispute resolution.

The Chair asked why the municipal entity would be responsible to the mayor and not to the municipal council.

Dr Bouwer responded that the mayor held a specific office and referred to a specific person, whereas the spirit of the proposed Section 93D was of more general a nature.

The Chair requested the Department to indicate whether those municipal entities that currently exist fell within the scope of the proposed amendments, or whether provisions in the Bill had to be created specifically to accommodate them.

Dr Bouwer replied that it was realised that it might be a good practice to retain those currently in existence. The Bill now provided that those municipal entities currently in existence would continue as such until they were disestablished or liquidated, but it also stated that they must be regarded as municipal entities as far as is applicable. He stated that the Bill only provided for the conversion of Section 21 companies, because these institutions never really die out. Dr Bouwer stated that Section 21 companies were instead simply converted into existing institutions upon their dissolution.

Mr Maloyi sought clarity on the situation before the annual performance reports introduced by the Bill. He asked whether these were the only early-warning signals in place before a municipality could intervene in terms of Section 139 of the Constitution.

Ms Gumbi-Masilela responded that the amendments spelt out very clearly what the municipality would have to do: it would have to conduct an assessment and review of its own performance and that of its external mechanisms, and would also have to compile an official performance report. The purpose of that requirement was to allow the municipality to identify areas in which the use of either internal or external mechanisms enhanced service delivery. She stated that it required the municipality to conduct a comparison to prove that performance had been enhanced by using these mechanisms, and also that it had looked at the financial implications to the municipality by using either the internal or external mechanisms. These provisions strengthened the municipal council's ability to assess and appraise performance of the municipal entities, as part of the annual report.

Mr Africa added that all municipalities had to establish a performance management system, and these institutions had to be monitored on a monthly or quarterly basis. This requirement was included in the Bill.

Mr Maloyi stated that the presentation indicated that the Department was currently engaged in the consolidation phase, and asked whether it was confident that the targets were being met.

Mr Africa replied that the Department was currently in its consolidation phase to strengthen the current systems. The Department concedes that many systems in some municipalities have not yet been fully established, nor are they fully operational. He stated that there were also some municipalities that were still caught in phase 1, but this did not detract from the overall result that South Africa was definitely in the consolidation phase.

The meeting was adjourned.