Viability of amalgamated municipalities in North West & Gauteng; with Deputy Minister

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Cooperative Governance and Traditional Affairs

02 December 2020
Chairperson: Ms Faith Muthambi (ANC)
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Meeting Summary

Video: PC COGTA 2 December 2020

The Committee was briefed virtually by North West on Tlokwe and Ventersdorp Municipalities amalgamation into the new JB Marks Local Municipality and by Gauteng on the Randfontein and Westonaria Municipalities merge into the new Rand West City Local Municipality.

Committee members observed poor support provided to amalgamated municipalities and was concerned that prior due diligence was not followed to assess potential negative consequences of a merger but only the positives. As a result many amalgamated municipalities have faced challenges threatening their viability. Members suggested more attention should be placed on assisting ailing municipalities, instead of using amalgamation as a tool to solve existing challenges.

North West CoGTA indicated that the residents of Ventersdorp had benefitted from the merger with Tlokwe as its Eskom debt and other debts had been settled. Whilst COGTA was satisfied with the amalgamation, both the Committee and JB Marks Council Acting Mayor felt the resources used to service the merger and historical debt could have been used to improve service delivery. They believed that the decision to amalgamate had not considered the concerns of the residents of both municipalities. It was suggested that this had been done for gerrymandering purposes. The Committee was not pleased by this and said political leadership should take into account the concerns of the communities affected.

Gauteng CoGTA admitted that the Rand West City Local Municipality (RWC) had been struggling since its amalgamation. The Department had invoked Section 154 support but this had not assisted RWC in overcoming its challenges. Officials from the municipality indicated that it had not been provided support from the provincial government after its amalgamation. The Committee agreed that RWC served as a lesson for future amalgamations.

The Committee agreed to have follow-up discussions in 2021 that would include National Treasury to find solutions for the challenges the amalgamated municipalities were now facing.

Meeting report

Opening remarks
The Chairperson said that during the course of numerous interactions with various municipalities, the Committee had observed instances of poor support provided to amalgamated municipalities. This contributed significantly to the financial and governance challenges encountered by those municipalities. Thus, the Committee deemed it necessary to have a discussion with all stakeholders to draw lessons on best practices, as well as minimising the common amalgamation pitfalls. There are several challenges that have emerged post-amalgamation, including deficiencies in the support provided to the merged institution. In addition, the allocated budget is often not tailored to the demands of the amalgamation. Certain matters also require buy-in from the unions before they are resolved – this was noted in the RWC presentation. Another challenge is that the division of revenue allocation does not sufficiently consider the effects of amalgamation on service delivery in the newly merged entity. RWC had to contend with disruptive labour unrest, until it compromised with the labour unions on migration and the placement of staff.

In the North West, the unauthorised, irregular, fruitless and wasteful (UIFW) expenditure in municipalities prior to their amalgamation posed challenges for the newly merged entity as it inherits this and becomes vulnerable to poor audit outcomes. No consequence management was taken to hold the implicated officials responsible. Financially distressed municipalities in a merger pose a difficulty for the newly merged municipality. Following the merger between Tlokwe and Ventersdorp to form JB Marks Municipality, Tlokwe regressed from an unqualified audit opinion in 2014/15 to a disclaimer in 2016/17.

Opening remarks by Deputy Minister
Deputy Minister, Mr Parks Tau, said that the Department had observed there were several challenges in the amalgamation process. One of these is the adequacy of the transition fund allocated to municipalities when they are amalgamated. This was a particular concern because the rates base of the newly formed municipality does not change, whilst the responsibility for the municipality to provide services remains. The second challenge is the amalgamation of two municipalities in distress and how that plunges the newly merged one into further distress. The third challenge is how to resolve labour related matters of parity. That matter does not fall under the auspices of the central bargaining council and instead is left to local labour forums. The decisions taken by these forums have had an impact on the viability of municipalities; thus, it is vital to provide greater support to forums.

Opening remarks by North West CoGTA MEC
North West CoGTA MEC, Mr Mmoloki Cwaile, said in 2013, the Municipal Demarcation Board (MDB) finalised the boundaries of municipalities in preparation for the 2016 Local Government Elections and published 157 proposals for re-determined boundaries of municipalities which were confirmed. It was expected that provinces should amalgamate strong municipalities with weak ones. The North West provincial government requested that the MDB re-determine the boundaries of various municipalities. Ventersdorp, which had serious UIFW expenditure, poor capacity and only five wards was to merge with Tlokwe – which at the time was able to generate revenue. Prior to making the decision, the provincial government was concerned that Ventersdorp faced several challenges to its viability.

North West CoGTA on sustainability/viability of North West amalgamated municipalities
North West CoGTA Head of Department, Mr Phihadu Motoko, explained that the North West provincial government submitted four requests for amalgamation in 2014/15 to MDB. Of the four requests, two were rejected by MDB; the suggested amalgamation of Ventersdorp and Tlokwe was accepted by MDB and the other was rescinded by the MEC. For each request, the provincial government motivated why it thought the municipalities should be amalgamated. One reason cited was that amalgamation would ensure that municipalities with weak internal control and financial management systems would be able to improve together. Another reason was that since the municipalities had a weak revenue base thus placing a great reliance grants – once they were amalgamated, with a capacitated staff, it would be able to explore new revenue bases.

The presentation focused on the amalgamation of the Ventersdorp and Tlokwe Municipalities into JB Marks Municipality. Prior to amalgamation, Ventersdorp was seen as the weaker of the two, as it had a low revenue base, it had consecutive disclaimer audit opinions and it was unable to service its Eskom debt. Since amalgamation, JB Marks is able to service its Eskom debt; it is projected to close with a positive cash flow balance of R183 million at the end of the financial year. However, UIFW has increased and the MPAC is not functional to address this and there is no support from Executive and Management. JB Marks obtained qualified audits compared to Tlokwe's prior unqualified audits.

JB Marks Local Municipality input
Mr Kelvin Johnson, Acting Mayor, said that the presentation was comprehensive and that he appreciated the support received from the CoGTA provincial department and Treasury. The Council has also been assisted by the South African Local Government Association (SALGA).

The Council felt that the amalgamation grant of R17 million was not enough for the municipality. In addition to settlement of Eskom debt, Tlokwe municipality had settled an income loan of R20 million from the Ventersdorp municipality. Litigation amounting to R5 million had also been settled by the municipality. There was a dispute between Council and the Department of Water and Sanitation on the its R10 million debt to the municipality. It was subsequently agreed that DWS would pay the municipality R30 million. He felt that the money spent to service Ventersdorp debt could have been used to address other service delivery needs. JB Marks honours all of its third-party agreements and makes all of its payments each month. Presently, it does not owe Eskom money. In addition, all staff placement processes have been completed.

Another challenge was the distance between the two municipalities which meant long-distance travel between the two regions. This was difficult for many residents. Previously, Tlokwe municipality had an effective 95/5 principle to reduce the outstanding debt. However, that was difficult to implement in Ventersdorp and the municipality had since settled for a 60/40 policy in Ventersdorp. Another concern was some areas in Ventersdorp were supplied directly by Eskom, which took away much-needed revenue from JB Marks. Many of the ward committees in Ventersdorp are not functional and Council has had to address this.

Mr C Brink (DA) said that it was clear that JB Marks was a product of an amalgamation between a partly functional and a poorly functional municipality. This merger created a dysfunctional municipality. JB Marks Municipality has been placed under administration, it has an unfunded budget, it has an extremely high rate of irregular expenditure and it has crumbling infrastructure. JB Marks had reported that the amalgamation transition grant was too low to cover the Ventersdorp liabilities and the amalgamation costs. Money spent on the merger could have been spent on service delivery. There was widespread community unrest against the amalgamation, mainly by Ventersdorp communities. The burning down of a municipal building in Ventersdorp formed part of this protest. This indicated that there was a deficit of legitimacy to establish a new successful municipality. All of these facts were known beforehand.

Mr Brink said this Committee does not meddle in politics when dealing with matters before it and it has good cross-party cooperation. Political considerations were at the centre of decisions to merge certain municipalities. This practice is referred to as gerrymandering – where the incumbent political party loses control in one municipality and then chooses to collapse that municipality into another where the party is more dominant. Many in Tlokwe alleged that this was the motivation for the merger, as the governing party lost control of that municipality in 2013. It was difficult to prove this assertion, but one can look at other factors, such as the party's persistence in making that decision, even in the face of protests, to show there were political motivations. The Committee had to look at all motivating factors which includes an explanation on why against all these considerations, the incumbent party would push for a merger.

Mr K Ceza (EFF) said that North West Provincial Government (NWPG) should have prioritised building capacity in Ventersdorp instead of amalgamating it with Tlokwe without following due process. Tlokwe residents complained that they were not considered when the merger occurred. It had become a trend for the political leadership to ignore the will of the people when taking a decision to amalgamate municipalities. This left him with the suspicion that politics was at play when the merger was considered and implemented. Recently the North West Portfolio Committee on Local Government had instructed the JB Marks Council to institute an investigation into irregular expenditure of R45.5 million. He asked if JB Marks had instituted forensic investigations into the list of projects that had fraud, corruption and maladministration irregularities. If so, what had been found? It seemed that its Municipal Public Accounts Committee (MPAC) did not attend to the allegations of irregular projects. There were irregular appointment such as the human resource manager and the Council should attend to it. The amalgamation had not made a difference to the lives of the residents in both Tlokwe and Ventersdorp.

He asked if NWPG had looked at creating new economic activities in the newly merged municipalities when amalgamations were first considered. There had been complaints that it had not done so. NWPG should focus on reducing the unemployment rate in those areas and find solutions to reduce household debt.

The Chairperson asked if NWPG still stood by the reasons provided on slides 5 and 17 for the amalgamation of Tlokwe and Ventersdorp. Why had the listed assumptions considered only the potential benefits and not the negative aspects and potential costs?

The North West Executive had made a Section 139 intervention in JB Marks in August 2019. However, in last week's meeting, the province said that S139 was not effective. Consequently, it was planning to invoke the under utilised Section 154. She asked what the province would do about JB Marks 2018/19 UIFW expenditure and inconsistencies in its Covid-19 expenditure.

What had been the grounds for dismissing community concerns when taking the decision to merge the two municipalities?

North West MEC response
MEC Cwaile replied that there was no need from the beginning to have Ventersdorp no longer as a stand-alone municipality because it had only five wards and it is a rural area with predominantly indigent residents. There was no way that it would have been sustainable. He neither denied nor agreed with the assertion that the motivation to amalgamate relied on the political situation at the time.

All parties should agree that the municipality would have not been able to sustain itself as it did not have a strong revenue base due to a large indigent resident population. Most of the individuals who made their money in the area would take their money to Tlokwe. The Ventersdorp municipality had a lack of infrastructure and due to its weak revenue base, it did not have the necessary resources to attract skilled individuals to work in it. Even it were able to attract skilled staff, the municipality would still have had challenges. Thus, the decision to amalgamate Ventersdorp municipality with the stronger Tlokwe municipality was the right decision.

MEC Cwaile agreed that prior to the amalgamation, Tlokwe had faced its own challenges. There were serious irregularities which affected its audit outcome. However, despite these challenges, the municipality was still in a better financial position than Ventersdorp and NWPG felt that Tlokwe’s financial resources had to be shared with the residents of Ventersdorp. They could not keep the two municipalities segregated from each other. The protests did not begin when the amalgamation was initiated. There were protests in Ventersdorp prior to the amalgamation because the municipality could not sustain itself. He admitted that the protests did intensify when the decision to amalgamate was made. Nonetheless, NW COGTA recognised that people of Ventersdorp had benefitted from the amalgamation. There had been a move from disclaimer audit opinion to a qualified opinion, which illustrated that some of the interventions had made a difference.

MEC Cwaile said NW COGTA noted that the funding did not consider the challenge of developmental backlogs in municipalities. Much of the grant money is allocated to Tlokwe.

Much of Ventersdorp’s documentation had been damaged by the protests, which made it difficult for investigators to investigate UIFW. There are ways to work around that, one of which is to look at the financial transactions. It would look at explanatory notes that would assist with regenerating the portfolio of evidence required to validate the transactions reflected on the ledger account.

It is the responsibility of managers within the municipality – and not MPAC – to institute disciplinary charges. The public service disciplinary code provides that a manager of a municipality can investigate and close a matter. However, this had not occurred, as the managers chose not to institute disciplinary charges against implicated officials. To assist with dealing with UIFW, the provincial government will request managers establish a framework and clear protocols for irregularities and consequence management. This would be done in the next two weeks. NWPG will request the Auditor General to institute forensic investigations on what it red flagged in the municipality. Those who are found to have guilty of wrongdoing should be jailed. NWPG should assist municipalities with the challenges they face.

Criminal cases have been opened on corrupt Covid-19 tenders. The Hawks have given assurances they are looking into this matter.

NWPG had not ignored the concerns of the community during their protests. Instead, it recognised that the protests had been fuelled by individuals who sought to gain from them.

One of the economic development initiatives NWPG has instituted in JB Marks is the development of the N4 highway. There are initiatives by both the Provincial Departments of Agriculture and Local Economic Development. The planning of these initiatives had to improve. NWPG has to ensure that it improves the socio-economic livelihoods of the people.

Further comments
Mr Brink said that all present in the meeting should acknowledge that gerrymandering had been a motivation in the decision to amalgamate the municipalities and this should be guarded against.

Two defences offered by provincial governments to justify mergers. The first justification is that the municipality was not viable financially and that it is an agricultural town with many indigent residents. There are several other municipalities that resemble Ventersdorp and they have continued to be viable. It was a fallacy to say that Ventersdorp should not have been a municipality from the outset. Mis-governance and the waste of resources has over time depressed economic development and has led to the poor viability of municipalities.

The second justification is that a merger between a strong and weak municipality will allow for the sharing of resources. It was not clear that Tlokwe residents had been benefitting from the merger. In addition, it was not clear that JB Marks municipality would prove successful in the future. Money that could have been spent on better service delivery is being used to assist the merger.

The meeting objective was to look at the challenges faced by amalgamated municipalities to prevent problematic amalgamation in the future. The municipal amalgamation transition grant that National Treasury provided to amalgamated municipalities was not enough. More lobbying, greater preparation and other alternatives have to be pursued as mergers are complicated.

North West MEC response
MEC Cwaile replied that his views did not differ from Mr Brink's views. No study had been done to assess the success and draw lessons from the amalgamations. Until a study is commissioned on how amalgamations had fared so far, all views on their success or failure would be subjective. There has not been a single agricultural activity in Ventersdorp that has benefitted the residents in the area. Much of the money made in Ventersdorp by farmers went to Tlokwe as they resided in Tlokwe. He expressed hope that there would be a positive impact and impetus from the initiatives NWPG has initiated.

Gauteng COGTA on sustainability/viability of amalgamated municipalities
Ms Jacqueline Obando, Gauteng CoGTA Acting Chief Director: Intergovernmental Relations and Traditional Institutional Management, said that both the Randfontein and Westonaria Local Municipalities made representations to the Municipal Demarcation Board for their amalgamation. MDB subsequently agreed and they were amalgamated in 2016 to form Rand West City Local Municipality (RWC). Since its amalgamation, RWC has faced serious financial challenges, which had emanated from the separate municipalities. Due to its inability to generate a sustainable revenue base, the municipality has had to rely on National Treasury grants. Other challenges include different salary job grading systems, which led to salary and benefits disparities. Residents have complained about the poor state of service delivery in the municipality. As a result, Gauteng CoGTA and Provincial Treasury decided to develop a turnaround plan for it.

Mr Brink said that it has become clear that in most instances, the cost of a merger is always underestimated. A merger like the one in RWC, was meant to be a solution to the financial viability of both municipalities. However, the merger costs are sometimes so high so it negates any possible benefit in the short and medium term. One of the difficulties is the labour unrest due to the employment of employees and the difference in benefits and allowances between the municipalities. He asked department if government should review the criteria needed to fund a successful amalgamation because the tools and criteria seemed to be insufficient.

In 2015, then Tshwane Mayor threatened national government with litigation as the Tshwane merger with Metsweding District Municipality, Kungwini and Nokeng Tsa Taemane Local Municipalities in 2011 had cost Tshwane R1 billion. He asked if Gauteng COGTA agreed about the R1 billion debt from the merger.

Mr Ceza said that municipalities should be treated as the centre of service delivery to residents. He recommended that the Committee organise a debate on the division of revenue formula. Whenever municipalities faced financial challenges, government rushed to amalgamation, without following due process. Instead, to resolve lack of financial viability, government should look at changing the division of revenue formula. Poor functionality of municipalities usually indicates that a municipality is incapable of providing services to the people.

There are eleven municipalities in the province that have high vacancy rates, with most vacancies in senior manager positions. Four municipalities have reported that they do not have municipal managers. RWC has reported a 33% vacancy rate. He asked for Gauteng COGTA’s views on this high vacancy rate and to what it attributed the challenges. In addition, were these challenges pointing to a lack of strategic direction, financial prudence and visionary leadership?

Mr B Luthuli (IFP) asked for the estimated funding required to support the RWC post-amalgamation process.

Mr B Hadebe (ANC) said that the presentation painted a bleak picture. The re-determination process started in July 2011 and ended in August 2016. He asked if during those five years Gauteng COGTA had been unable to pick up all the challenges the municipalities faced or had it not planned accordingly to intervene and alleviate some of the challenges.

The Gauteng COGTA presentation stated that the Section 154 support did not yield positive results. It appeared that RWC was dependent on grants for its survival. He asked if the municipality was sustainable. Had the seven-point turnaround plan to ensure the municipality is sustainable in the long run been implemented?

Mr Hadebe noted RWC said that it had inherited large liabilities from creditors. Had Gauteng COGTA not noticed this when it was preparing for the amalgamation process between 2011 and 2016? What did the pre-merger process entail if some of the existing challenges in the municipalities would only be identified at a later stage. This brought unnecessary problems to the newly merged entity. He asked for the indicators used to determine if municipalities were ready for a merger.

Mr Hadebe asked why the division of revenue had not taken into account the service delivery challenges in the amalgamated municipalities. He asked for clarity on the different salary grading and job evaluation.

The Chairperson said that the amalgamation was an executive decision that was not well-thought out. There has been no instance where the Committee has felt that an amalgamation has yielded benefits for the newly formed municipality. She asked if a study was conducted before amalgamation which assessed the financial implications of the process.

Many of the labour matters remain unresolved. Some workers have taken municipalities to court. Other municipalities have not been able to solve their staffing issues. She asked how municipalities could be assisted to take decisions that diverge from the province’s decision.

In all the mergers, the radius between the municipalities has increased and this has increased the allowances for ward managers. All this money is spent on funding the amalgamation and not on service delivery. She asked if the department had conducted post-amalgamation stakeholder engagements with the residents, to hear their views on the amalgamation and to assess the level of service delivery.

Gauteng COGTA response
Ms Obando replied that it was difficult to indicate the estimated value of a merger as it depended on the type of municipalities being merged. Based on the experience of the City of Tshwane merger, the department recognised that before it commenced a merger, it needed to do due diligence and that would include looking at the assets and existing liabilities. Kungwini had been successful before the merger but it also had certain challenges – such as the ratepayers association withholding money from the municipality. That only emerged after the municipalities had been amalgamated. The division of revenue formula needs to be re-looked at as the R17 million provided by Treasury was not enough for RWC. Gauteng recognised this soon after the amalgamation.

July 2011 was the first time that the department made representations to the MDB. After MDB reviewed all the representations and conducted its own internal assessments, it made the decision in December 2013 to merge Randfontein and Westonaria Local Municipalities and the announcement was made. The province was aware that the municipalities were not in the best of health and that the residents had struggled to pay their bills to the municipality. There were indicators in place that showed that the municipalities were not in a good state. As the situation did not improve after the merge, GPG initiated a Section 154 to provide support to RWC and this was only done in 2017, one year after the elections.

Mr Anthony Moonsamy, Gauteng COGTA Chief Director: Municipal Governance and Support, made two points about the RWC vacancy rate. One was the filling of posts at senior management level was successful. However, in positions lower than senior manager level, there were problems with the placement of staff and the staff that remained in the placement strategy pool. A moratorium was placed on the filling of posts and on the finalisation of the whole placement strategy – and the affordability of doing so.

Rand West City Local Municipality (RWC) response
Mr Themba Goba, RWC Municipal Manager, replied that the amalgamation did not address governance effectively. Several of the challenges found in both municipalities remained in RWC. These related to job descriptions, organogram structure and the placement of employees. If all these concerns are not addressed, employees cannot be placed. One of the labour unions took the municipality to the bargaining council to avoid the correct process being followed for placement.

There were two aspects to the financial consequences brought by the merger. One is the challenge of salary equalisation. The Provincial Treasury allocated R21 million to assist with this. The problem; however, was this was a once-off allocation; and as the municipality salary bill increased, the municipality had to bear the cost on its own. This had an effect on service delivery and the finances of the municipality going forward. Nothing was done to assist the municipality, despite this being a consequence of the merger. The second item is the debts that the newly formed municipalities inherits from the defunct municipalities. During the amalgamation process, one of the advisors provided by Treasury to the municipality, indicated that the merger would only create further challenges for the new municipality – and he was correct.

Due diligence that ensures there will be sustainable governance and finances in the municipality going forward, is not done. In many instances, after the local government elections, it was just presumed that the municipalities could work on their own to achieve sustainability. Other than money issued for pre-merger items, barely any assistance is provided to municipalities post-amalgamation. Newly merged municipalities require at least three years of assistance. RWC inherited a dispute between Randfontein and some mines on money owed to the municipality. These mines owe the municipality not less than R700 million and the disputes are still ongoing. The Department of Mineral Resources and COGTA have not assisted the municipality with this dispute, and without their support, the municipality cannot make the mines pay their debt. The municipality was concerned that this dispute could drag on for 10 years.

The Chairperson asked if the municipality had alleged that the mines had owed Randfontein municipality and due to the amalgamation, the mine owners argued that they did not have to pay the newly merged municipality.

Mr Goba replied that this was correct. The dispute runs from 2014 and is still ongoing. The mine owners are even disposing of some of the properties not part of the initial evaluation, to ensure that they are not on their books; therefore, they will not be forfeited. The mines are supposed to pay the municipality retrospectively from when the dispute started. The mine owners are currently trying to ensure that when the time comes, they pay less than they would originally have.

The Chairperson asked if the municipality was a water service authority.

Mr Goba replied that they are a water service authority, however in terms of the arrangement in the country, mines in the country are supplied directly by Rand Water.

The Chairperson asked if it was possible for the municipality to cut services to the mines, to force them to pay. What services had the municipality provided to the mines?

Mr Goba replied that the mines paid only rates and taxes to the municipality; thus, it had no other authority to impose over them.

National COGTA response
Mr Kevin Naidoo, Executive Manager: COGTA, made four points. First it was important to understand the origin of amalgamation. The decision to amalgamate municipalities was informed by the Back to Basics programme government adopted. As part of that programme, CoGTA had requested all provinces to identify municipalities in their area of jurisdiction, that needed consideration for amalgamation and to make those submissions to the department. Eight of the nine provinces submitted requests. Of the 34 requests received and submitted to DMB, only 13 were processed. The rest were rejected.

In its 2015 submission, North West made four requests for amalgamation. The Ventersdorp and Tlokwe submission also included the City of Matlosana but this was rejected by MDB. When MDB considers requests, it needs to look at optimising the financial viability of these municipalities. Section 25 of the Municipal Demarcation Act states that when looking at the alignment of the request, certain factors need to be taken into account and 12 criteria are listed. The one criterion mentions that MDB needs to look at both the financial viability and administrative capacity of amalgamating municipalities. MDB needs to look at rationalising the total number of municipalities. It needs to achieve the objectives of effective and sustainable service delivery, financial viability and macro-economic stability. Having utilised those provisions, MDB decided to reject two of the North West’s request, whilst the other one was rescinded by the MEC. This indicated that MDB had applied the test required in Section 25. The same rationale applied to all requests and those that did not withstand the Section 25 criteria, were rejected.

The third point is financial support which was provided to municipalities based in the main on the Financial and Fiscal Commission (FFC) recommendations. These were largely informed by the merger in Tshwane. FFC had costed each and every transition-related item. The rationalisation and harmonisation of policy regimes; Integrated Development Planning (IDP) and by-laws was R30 million. The rationalisation of tariffs would require R58 million. Rationalisation and harmonisation of valuation rolls was R140 million. Even though COGTA arrived at a figure of R1 billion, amalgamated municipalities were allocated only R470 million. This was a conditional grant provided by the Division of Revenue Act (DORA) and it would be a once-off allocation extended over three years. FFC indicated that financial resources were needed the year before the redetermination, the year of redetermination and post-redetermination.

With the Beyers Naude Local Municipality merger, non-related costs included Eskom debt. Treasury said that, regardless of the amalgamation, that debt would have to be paid by someone. However, in the case of amalgamation, the newly merged municipality has to take over the debt.

The final point is the equalisation of salaries. When the three municipalities in the Beyers Naude municipality were amalgamated, they no longer had three municipal managers. Of the three, the municipality chose the most qualified and skilled one. Where there used to be 15 senior managers in the three municipalities, there are only five in the new municipality. The rationale is that the municipality would be reducing salary costs, as it no longer had a bloated top structure. As the amalgamated municipality would be a new entity, a job evaluation exercise would have to be conducted for the entire structure. If the job came to a specific salary level and the person working in that position was earning more than the job, that salary would be maintained. The person earning less than the salary level identified by the job evaluation would be placed on that salary level but not at the higher salary level paid to the incumbent in the post.

Mr Brink noted Gauteng COGTA had declined to answer his question on Tshwane and the Chairperson said it cannot do so and requested it answer the question.

Ms Obando replied that it was difficult to assess the accuracy of the former Mayor’s assertion that the cost of the merger for the City Tshwane was R1 billion. Prior to the start of the merger, the City of Tshwane and Kungwini had assets and liabilities that were not factored in at that time. Before a merger, this due diligence needs to occur – and it should inform the process.

Mr Brink said that there was a hole in Tshwane’s financial coffers and there was no reason for that. This merger was not properly thought out, and it should stand as a warning to other municipalities of the costs and implications of amalgamation. When deciding on amalgamation, provincial governments should use the 12 legislated factors that are used to consider amalgamation.

Gauteng COGTA should shy away from arguing that since Westonaria was not viable from the beginning, it had to be amalgamated for it to become viable. It needs to be careful not to argue that Westonaria would never have been viable on its own and that the only answer for it to be viable was amalgamation. This should not be used as an argument for amalgamation in the future. Rather, government should find ways to deal with the challenges that the municipality is facing.

Deputy Minister closing remarks
Deputy Minister Tau said that based on the presentations, it was evident that the issues were quite complex. The Municipal Demarcation Board should be commended for declining to look at mergers prior to the 2021 Local Government Elections. This decision would allow government to look at all the issues surrounding mergers, such as governance. It would also allow the Department to engage Treasury on increased financial support to municipalities. This effort would require all stakeholders to work together.

Chairperson closing remarks
The Chairperson thanked everyone. This engagement would assist the Committee when it compiled its final reports. This exercise formed part of testing the effectiveness of the policies and the decisions made by government – and to address why officials fail to conduct scoping assessments prior to implementing policies. It was clear that amalgamation has destabilised municipalities, with the residents suffering most. The Committee would look to pursue this in 2021. The Committee recommended that Treasury should form part of its discussions with COGTA on support to newly merged municipalities.

She requested that all Members browse the Supplementary Budget Review and Recommendation Report so it could be adopted the next day.

The meeting was adjourned.

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