The Committee met virtually with the Western Cape Department of Local Government to receive a briefing on the roll out of the Sustainable Infrastructure Development and Finance Facility (SIDAFF) Programme, which would focus on infrastructural development in secondary cities within the Western Cape, in order to boost the economy of the province.
The Department had partnered with the French government on this initiative, and had ensured that the municipalities where the infrastructure would be developed met the international criteria, which mainly required a record of good governance and clean audits. The combined value of the identified municipalities or secondary cities where infrastructure projects would be developed amounted to R1.299 billion. Only a few municipalities were part of the first phase.
Members asked about the terms of the funding; the financing of maintenance costs for the infrastructure projects; the involvement of the Department of Human Settlements; short term plans for the towns that were in dire need of immediate infrastructural development; measures for holding the municipalities to account; local municipalities going off the Eskom electricity grid; whether the infrastructure development would cover areas on the outskirts of those municipalities; and the extent of the participation by the Western Cape's International Relations Office or the Department of International Relations and Cooperation (DIRCO) in facilitating the funding agreement with the French government.
Sustainable Infrastructure Development and Finance Facility
Mr Graham Paulse, Head of Department (HOD): Local Government, said that the Sustainable Infrastructure Development and Finance Facility (SIDAFF) programme was relevant to certain municipalities, but there was now an initiative to broaden this programme to the entire province.
Mr Marius Brandt, Director: Municipal Infrastructure, took the Members through the presentation and commenced with observations, stating that infrastructure development lagged behind urbanisation and existing spatial challenges, especially within secondary cities in the Western Cape. There was a general lack of support, skills and resources for project pipeline planning and implementation. National government’s fiscal policies and budgeting practices created a dependency on grant funding. Therefore, a new approach was required.
There had been extensive consultation on the new approach with regard to the bulk infrastructure plans and municipal long term financial plans. Following that was the selection of qualifying secondary cities to partake in the project and secure support. The criteria for selection were strong governance and a clean audit track record. Subsequently, the identification was undertaken of catalytic projects that would have a direct impact on unlocking economic and social development opportunities. The qualifying projects would be taken from feasibility to bankability.
The Department had secured the French government as a partner for this initiative. Why the French government? The Agence Française de Développement (AFD) led in supporting and accelerating the transition to a fairer and more sustainable world in support of the United Nation's Sustainable Development Goals.
The roles and responsibilities of the Department were:
-To provide provincial oversight and governance of the SIDAFF programme;
-To identify and facilitate municipal buy-in and participation;
-To create an enabling environment for effective planning and enhanced roll-out of catalytic and impactful infrastructure projects;
-To provide a gateway for communication and interaction between municipalities and affected national and provincial departments
-To guide the realisation of the deliverables as per the memorandum of understanding (MOU) signed with the AFD
The total combined value of the qualifying projects that met the international criteria was R1.299 billion.
Mr A Van der Westhuizen (DA) said that the province had done a study a while ago about towns that wanted to become cities, and it seemed this was based on that analysis. Could the Committee get an indication of the terms of these loans and funding? It was important that municipalities were assisted with energy consumption, but some municipalities may not be able to roll out these projects due to a lack of funding, so to what at extent could some of these projects be focused on assisting municipalities to save electricity?
The problem with a number of municipalities was that they were unable to maintain their infrastructure. What role was the ongoing maintenance costs playing in terms of the financial sustainability of these projects?
Ms M Maseko (DA) welcomed the initiative, and said it would be great for the identified towns. However, her concern was that most towns in the Western Cape were growing exponentially, particularly the informal settlements, to the extent that the sewerage systems could not cope with the demand of the people living in those places. Therefore, to what extent would the Department of Human Settlement (DHS) get involved?
Looking at all the towns that had been identified for these projects, she did not see towns like Grabouw that were growing exponentially, and eventually the infrastructure there would not cope with the demand. Were the identified towns those that were in dire need for the initiative to happen now, versus all the towns that had been identified, because there were no catalytic projects in them? What was the short term plan for the towns that were in dire need for now? There was a need to look into how one could go about ensuring that the towns had the infrastructure necessary to cope with the demand for sewerage.
A grant had been allocated to the Citrusdal municipality, but the monitoring for the implementation of a sewerage system had not happened in a way that would make a difference. The re-construction of the sewerage infrastructure was not happening at the required pace. How were they going to hold the municipality to account to ensure that it reacted to the needs of the community?
Mr P Marran (ANC) said that the presenter was saying that these particular projects were focused on smaller municipalities, because those municipalities needed budgets for maintenance and operations. If one looked at the municipalities, it looked as if it was the bigger municipality covered in the presentation that had the finance to deal with those issues. What were the criteria for those municipalities to qualify for funding of the infrastructure projects?
It was also mentioned that the success of this projects relied on the availability of electricity and the focus areas of Eskom. Not so long ago, they had received a report of municipalities in the Western Cape that were ready to go off the Eskom grid. He asked whether these municipalities were indeed ready yet, suggesting that the report was a half-truth.
Lastly, if these were the eight municipalities identified, did they include the areas on the outskirts of the municipalities where there was no development in terms of roads and basic services?
Ms N Nkondlo (ANC) said that as this project was done in partnership with France, to what extent had the International Relations Office or Department of International Relations and Cooperation (DIRCO) participated? This was because one would be interested to know about the dispute mechanism, given that it was part of a foreign relations initiative.
Regarding the municipalities that had been identified for this programme, to what extent was the Department responding to the challenges as far as municipal infrastructure was concerned? Was economic infrastructure part of the scope of this initiative?
The Chairperson said that there was an emphasis on the reliance on donor funding, and the projects that had been identified were in the bigger secondary city municipalities. There were a number of smaller municipalities that required some serious infrastructural development. If donor funding was not forthcoming and other financing options would be loans, the latter option would result in there not being a sufficient revenue base at the smaller municipalities to service or repay those loans.
Mr Brandt replied that the Department had looked at the study, which had informed it on the selection and the extended scope for the development and growing the economy of the province.
On the donor funding, it had grant funding coming from the French to appoint the service provider that was currently developing the programme, and was responsible for the roll-out of the programme. This was the one side of it – the grant funding. There was also funding coming from other donor financing institutions that had shown an interest in projects that complied with the sustainable development goals of the United Nations.
There was also a blended financing model, where municipalities would not only have access to commercial bank loan funding, but a combination of concessional funding that would allow a blended funding approach.
On Eskom, the Department was working with its partners in the Department of Economic Development, which had a programme called Municipal Energy Resilience, where a big component of these projects had already been identified. However, quite a number of the new ones would be taken up in phase two, and had been packaged to be ready to be put out into the international market. This would make the province more independent from Eskom, as part of the municipal energy resilience programme. There was also a product offered to assist the municipalities in structuring their electricity tariffs – the feed-in tariff was the amount that the municipality would be feeding back to the households supplying the additional energy that they had generated into the grid. The idea was for the communities, cities and the municipality to combine forces to build resilience into the environment. They were not foreseeing residents going off the grid, because they would always see the benefit of staying on the grid during peak hours. In days where there was no sufficient sun or energy, they would still be relying on Eskom.
Maintenance was a major concern, so they would be providing a lot of assistance to municipalities in terms of operations and maintenance plans that would guide them on how they prioritised their budgets.
In this specific programme, they were looking at the long term financial impact on municipalities, not just the current capital cost investment, but also the total cost of ownership – the total life cycle costing of the infrastructure. The full spectrum of operations and maintenance costs had also been included in the programme.
On secondary cities or smaller municipalities, for this specific programme, phase one was "testing the waters," and the secondary cities were areas where they had the biggest gap to fill in terms of financing infrastructure through new economic development and socio-economic growth. Some of the smaller municipalities were stronger in terms of finances, but these resources were currently used mainly to eradicate the backlog in order to assist the roll-out of the human settlement programmes. The link between this programme and human settlement programmes ensured that there was a balance on investment.
The construction of streets fell under other programme streams of funding. This project's focus was on catalyst projects that would grow the municipalities and the secondary cities as well as the economy of the whole province, which in turn benefited the smaller towns. There was no way that the Department was disregarding the smaller municipalities -- they were involved in various other programmes that were being rolled out. For example, in the Central Karoo, there were extensive programmes seeking to assist the municipality in drought-related programmes. Going forward, they would start looking at the smaller cities as the phases of this programme unfold.
In terms of support, the programme in the secondary cities was to bring in the new skills base that was required for municipalities to look at a new way to invest into infrastructure. In the smaller municipalities, the Department had various programmes such as the Joint District and Metro Approach (JDMA) and the Citrusdal waste water retreatment plant. This project would be prioritised, and funding would be sourced from different sources such as the Regional Bulk Infrastructure Grant ((RBIG), and the Department of Human Settlements had come on board to assist.
An official from International Relations Office said that the Office worked closely with other departments in the province when it came to these types of agreements. Normally, where these agreements involved development assistance, the processes were clearly defined and the IR Office engaged extensively with DIRCO and National Treasury regarding the official development assistance (ODA) processes. The processes were well developed, and the relations were strengthened continuously.
The agreement was very specific in making provisions for dispute resolutions. Going forward, it was going to be interesting for the province to explore agreements of this nature, especially when it came to catalytic projects. They were looking forward to working closely with departments in developing an official development assistance strategy for the province that would govern and manage the funding for these catalytic projects.
Mr Paulse added that part of the challenges relating to infrastructure development was around the resources and the skills, and a number of other issues that municipalities had challenges with in general. When the Department was approached by the French government with the SIDAFF, one of the reasons they chose the Western Cape was the level of governance in certain municipalities and their performance.
The reason there was a focus on secondary cities was the need to consider the subsequent financial arrangements, like looking at the time it took to register a bond in the market and the financial sustainability in some of the bigger municipalities, which were a contributing factors.
Two weeks ago, some municipalities had raised issues around infrastructure development and Eskom. Eskom had taken a decision to not replace street lights in the Eskom supplied areas of the Western Cape. This was now the responsibility of the municipalities.
The Department had collaborated with academia to conduct in-depth research into the financial sustainability of municipalities, and how Covid-19 had impacted on their financial sustainability, and hopefully this would soon be presented to the Committee.
The Department had assisted the smaller municipalities in developing and putting together the infrastructure master plans to ascertain the impact and pressure of the infrastructure, looking into the future as to what was required and the sustainability of the infrastructure.
Lastly, on skills and capabilities, they intended to make a bursary available to potential candidates that wanted to study engineering for about three to four years. These engineering candidates would then be deployed to assist local municipalities, because the skills and personnel required were decreasing.
Mr Marran commented on the areas on the outskirts, and said that these areas were equally important, especially regarding infrastructure such as roads. When they spoke about infrastructure, it did not usually cover those areas.
Mr Van der Westhuizen asked why the towns such as Drakenstein and Stellenbosch, which had been identified as high growth areas with the current urbanisation, were they not included in the plans. Secondly, these were really exciting facts shared -- what was the timeline for the implementation of this programme?
Mr Brandt said that the Drakenstein and Stellenbosch municipalities were part of the programme, but at this point they were not ready as far as other municipalities that had provided projects that had been developed up to the feasibility level. In order to include the projects into the programme, the municipality needed to have projects that were at the feasibility level. In phase two, these municipalities would be brought on board.
Mr Paulse added that the Department was aware of the requirement for roads in some municipalities, and he called on the Department of Transport and Public Works (DTPW) to provide assistance in a few municipalities. There were municipal and provincial roads, and the municipalities were increasingly asking the Department to assist with municipal roads, and the Department was having to navigate its way around this, given the governance requirements. There had been conversations with the DTPW) to see how they could assist municipalities with the maintenance and upgrading of the roads within the province. The DTPW was coming on board to assist the municipalities. On the other hand, the Department was aware of the concerns that the farmers had raised regarding gravel roads. Some of their products got damaged when transporting them, so there were number of initiatives that were being proposed with the DTPW.
The Chairperson said that the Committee had recognised that there had been a huge influx of people into the Western Cape and Gauteng. It had also noticed how infrastructure in many other provinces was collapsing for various reasons. Today had seen a proactive move presented by the Department to prevent infrastructure decay in the province. This initiative would benefit the province greatly in the medium and long-term.
He also welcomed the suggestion of scholarships and bursaries that could be made available to develop the engineering skills needed by municipalities.
Consideration and adoption of minutes
The Chairperson submitted the outstanding minutes of 4, 5 and 21 May 2021 to the Members for consideration and adoption.
They were considered and adopted without any amendments.
Consideration and adoption of fourth quarterly report
The report was considered and adopted without any changes.
Consideration and adoption of annual activity report
The report was considered and adopted without any amendments.
Members resolved to leave the deliberation of the Committee programme to the Chairperson and the Procedural Officer privately. It would then be submitted to the Members at a later stage when completed.
Ms Maseko said that she would appreciate an update on progress with the implementation of the infrastructure programme. The progress report could be submitted to the Committee on a quarterly basis.
Mr Van der Westhuizen concurred with the proposal, and expressed his gratitude to the officials for the SIDAFF programme. He proposed that more international funding should be sought rigorously. He also suggested that the team should work on alternate models for the financial sustainability of municipalities.
The Chairperson concluded by saying that the Department should compile a report on the findings of its study into the financial sustainability of Western Cape municipalities.
The meeting was adjourned.
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