Section 139 intervention: termination of intervention in Emfuleni Local Municipality

Meeting report

Close out report of the intervention in Emfuleni Local Municipality

The Committee was told that on 30 March 2022, the Executive Council of the Gauteng Provincial Government decided to end the intervention in Emfuleni Local Municipality specified in Section 139 (1)(b)(i) of the Constitution by 31 August 2022. The termination was carried out, and the appointed administrators concluded their roles on 1 September 2022. Consequently, starting from 1 September 2022, the municipality took on complete responsibility for all the obligations previously subject to the Section 139 intervention.

The Department said the intervention achieved some notable successes in the areas of financial and supply chain management and in infrastructure development and service delivery.

The Provincial Executive Council (Exco) acknowledged both challenges and achievements in the initial intervention. Despite progress, persistent issues led the Gauteng Department of Cooperative Government and Traditional Affairs (CoGTA) to recommend a six-month extension, which was granted. This extended intervention focused on addressing ongoing challenges in finance, supply chain management (SCM) and infrastructure. Exco approved a targeted approach, concentrating on key areas mentioned. A financial recovery plan (FRP) was developed, but its implementation had been challenging, with the municipality failing to report as required by legislation. Notwithstanding these challenges, the intervention achieved notable successes in various critical areas:

Finance

A Revenue Enhancement plan was created for the municipality.
Emfuleni Local Municipality (ELM) had an approved funded budget plan for the Medium Term Revenue and Expenditure Framework (MTREF) period, endorsed by the Council.
Various policies, including SCM and the audit plan and strategy, were reviewed and approved by the Council and the Audit Committee, respectively.

Supply chain management

Bid specification, bid evaluation and bid adjudication committees were established with support from the district municipality and province.
In the 2021/22 fiscal year, only 17 out of 163 projects outlined in the Annual Procurement Plan were advertised, constituting 12.5 percent.
A SCM turnaround strategy and action plan was developed and is currently being implemented.

Infrastructure and service delivery

Solid waste

The Gauteng Department of Agriculture and Rural Development (GDARD) procured and delivered various waste management vehicles to ELM, including two skip bins, nine tipper trucks, nine payload refuse trucks, six payload hook lift trucks, three 4X4 tractor-loader backhoes and three front-end loaders.
With the provincial intervention, the waste management service in ELM improved, increasing from 36 percent overall efficiency to 54 percent.

Distribution losses

There were a total of 5 000 pre-paid meters for water in both residential and business use.
Additionally, 12,500 electricity meters were installed and operational.
CoGTA had appointed a service provider for three years to assist the municipality.

MIG, Roads, and Transport:

An allocated adjustment budget of R50 953 000 was made for the Municipal Infrastructure Grant (MIG). Expenditure was R23,368,163, representing 40 percent of the budget.
Rehabilitation of 21 roads covering 49.58 km was completed, and discussions for Phase 2 were ongoing, based on budget availability.
There was resealing of 14.02 km of tarred municipal roads and streets.

After analysing achievements in critical areas of the refocused intervention, Exco recommended terminating the intervention to allow employed officials to resume their functions.

Key observations

Despite achieving progress in the initial intervention, the Council still faced challenges in fulfilling its executive obligations, notably with interruptions in electricity provision due to ageing infrastructure; metering issues affecting 85,000 homes in former black townships; increased sewer spillages impacting the Vaal River's environmental health; ageing infrastructure requiring high maintenance; a significant backlog in refuse removal; diminishing landfill airspace; withheld municipal grants due to low expenditure and non-submission of new projects; and the municipality's failure to implement effective tools for public participation.

Recognising these issues, the Department recommended refocusing the intervention to the Provincial Exco, which was subsequently granted.

A turnaround plan addressing credit control, debtors' collection, and payment of creditors was formulated. A revenue enhancement plan was developed. However, the municipality's ability to meet obligations under Eskom and Rand Water payment agreements was hampered by inadequate revenue generation capacity, leading to outstanding debts of R4 874527 763 and R789 632 383, respectively, with the total owed to creditors amounting to R5 988 640 552. 

SCM committees were established. They faced some difficulties in the previous fiscal year due to a lack of support from the district municipality and province. In the 2021/22 fiscal year, only 17 out of 163 projects on the Annual Procurement Plan were advertised, representing 12.5 percent. Despite interventions, infrastructure grant expenditure remained the lowest in the district, prompting further actions from the Municipal Infrastructure Support Agent (MISA).

Despite ongoing interventions such as cost of supply studies for electricity losses and water conservation demand management, electricity losses stood at 22 percent, equivalent to R368 332 737, and water losses at 41 percent, equivalent to R385 076 940.

The appointment of a lead administrator with specialised teams for each area of focus proved to be an effective strategy in implementing the intervention. The involvement of political leadership, particularly the MEC’s office, played a crucial role in supporting initiatives through the intergovernmental relations (IGR) structure, covering fleet management services, the call centre, and finance. Future appointments should be linked to specific outputs incorporating clear reporting lines and intervals to enhance the management of administrators' work.

It was recommended that Section 139 intervention should only be considered when there was a clear demonstration that the Council was willing to accept and implement administrators' directives. Excluding corporate services from the intervention scope hindered the full realisation of interventions, as there was no concerted effort to implement recommendations from investigative reports.

Despite the preparation of a six-month exit plan with the intention of handing over, the municipality lacked ownership to ensure sustainable service delivery beyond the intervention. The lack of funding for the financial recovery plan significantly contributed to delays in improving the municipality's financial status, highlighting the ongoing challenge of generating revenue from its own tax base.

Support provided: Large users' billing data

Emfuleni Local Municipality had been equipped with the capacity to enrich data for large power and water users, and the implementation of this project was currently underway. Noteworthy achievements included the review of several policies to align with new legislation and court judgments impacting revenue generation. The tariff policy was undergoing scrutiny to incorporate a capital portion for future infrastructure upgrades and expansion.

In the credit control and debt collection policy, the management of deceased debt was identified as an area requiring attention. Credit control and debt collection by-laws presented no major issues. The cost containment policy lacked measures addressing service delivery-related expenditure, while the budget policy and the policy for recoverable debt and writing off irrecoverable debt raised no significant concerns. The 2022/23 tariff booklet has undergone review without major issues.

See presentation attached for further details

Emfuleni Local Municipality submission

Mr Sipho Radebe, Executive Mayor, ELM, said the people of Emfuleni appreciated the intervention from 2018 until 2022. Fortunately, some of the members of the administration lived around the townships in Emfuleni. These members knew of some of the issues experienced by the municipality. They appreciated that the new administration should be given a chance to prove itself and start working towards assisting the municipality.

Mr April Ntuli, Municipal Manager, ELM, said the municipality appreciated the support it received through the section 139 intervention and the work done. The report was detailed on the support received by the municipality. There were some improvements. The report also reflected some of its regressions.

Regarding the executive positions, there was a time when all the senior managers were appointed. However, there had been resignations. The municipality was working on this. All the executive directors’ posts were advertised, and interviews were conducted. The Council approved three which were submitted to the province. It would receive the feedback shortly. The others would go for assessments and then be taken to the Council.

Department of Cooperative Governance submission  

Mr Scelo Duma, Deputy Director-General (DDG): Local Government Operations and Support, Department of Cooperative Governance (DCOG)),  said the Department was fully involved in supporting the municipality. The report presented was one the Department was familiar with. The Department t supported the municipality through a procedure in the Division of Revenue Act (DORA) for converting a direct allocation to an indirect grant to deal with issues of water and sanitation that plagued Emfuleni. The province and the municipality supported this process. The Department was already convening a steering committee to commence with implementation. The Minister designated MISA as the implementing agent for that project in Emfuleni. MISA already started the work to assist Emfuleni in resolving some of its water and sanitation problems.

Discussion

Mr D Ryder (DA, Gauteng) thanked the Chairperson for accommodating him in the meeting. He said the presentation painted an interesting picture of what happened in Emfuleni. If this was a game of cricket, it would be like saying the Proteas scored 212 runs. While this might be a fantastic result, what might not be mentioned was the fact that the opponents scored 215 runs and beat them. Telling the Committee that 5 000 meters were installed in the municipality was good and well. However, one had to consider the fact that there were 297 000 households in the municipality. It was known that several households in this municipality did not have meters. Those that did have meters had ones that were 25 or more years old.

Telling the Committee that R159 million was paid to Eskom in a certain month meant nothing. This did not tell the Committee what was owed to Eskom and how much more was being incurred on a monthly basis. The municipality’s current state could be attributed to its long history. Part of that history was a representative of the Auditor-General (AG) being shot at a few years ago when they visited the municipality to try to hold the people there accountable and find out what was happening. The section 139 interventions were split in two. There was an intervention by MEC Mamobolo and an intervention by MEC Maile. When Mr Maile presented to the Committee, he admitted that the Mamobolo intervention did not have the desired outcome and promised much better results. 

On slide 21, the presentation focussed on irregular expenditure. This was reduced from R800 million in the 2017/2018 financial year to R200 million in the last financial year. Procurement was one of the key issues. The presentation did not mention that unauthorised expenditure during the period of the intervention increased from R1 billion to more than R8 billion. This was the reality. Of a budget of nearly R9 billion, nearly R8 billion was unauthorised expenditure. This municipality was not spending its money well. This happened under the supposedly watchful eye of the provincial administration. The unauthorised expenditure was out of control. There were documented instances where properties were being bought for R1 million and sold to the municipality a few days later for 40 times that amount with no explanation for these increases.

The intervention did not have the desired effect. It was now more than a year since the intervention was terminated and the report was now being presented to the National Council of Provinces (NCOP) committee. Much better things should be seen happening on the ground. The Section 71 report of the municipality for the current month reflected a collection rate of 15 to 17 percent. Electrical losses were 22 percent and water losses were at 64 percent. Any spaza shop owner could say that if they bought stock and lost 64 percent of it before selling it, the business would be running at a massive loss. There was a massive problem. He understood that there was a Section 73 intervention, but it did not have the desired effect because the water losses were not being reduced. Water losses were consistent at around 65 percent for the past six months or more. They were lower before, so the situation was getting worse.

The Section 71 report also highlighted that the monthly expenditure for July 2023 was 78 percent more than what was budgeted for the month. The only way the municipality managed to get a balanced budget presented to the National Treasury was by producing a budget that excluded most of the expenditure it incurred. When assessing the actual figures, the expenditure was 78 percent over the budget and revenue collections were six percent lower. The municipality owed debts to Rand Water and Eskom, to which there were no proper solutions. The National Treasury indicated that Emfuleni qualified for its debt to Eskom to be written off. This could only happen if it met 14 criteria. The municipality had absolutely no hope of meeting even half of those criteria. It was not a solution, it was a dream that would not be achieved. This municipality currently had its bank account attached by its creditors. This prevented it from doing service delivery.

The Constitution clearly stated that if a municipal council could not perform its constitutional duties because of financial reasons, an intervention was needed. There was no sense in uplifting this intervention. The reasons given for uplifting the intervention were not the real reasons. The real reason was political. For the sake of the people of Emfuleni, he urged members to get past the politics and get people who could run the municipality. The people working in the municipality could not run it; it was getting worse. All sorts of stakeholders tried to assist and it did not help. The province needed to step in strongly. Failing that, the national CoGTA Department needed to step in and appoint people to run the municipality.

Ms S Shaik (ANC, Limpopo) said implementing the municipality's financial recovery plan was a challenge in the first intervention. The recent information presented highlighted challenges with the collection rate. What was the status of the financial recovery plan?

Regarding a forensic investigation undertaken during that time, there were issues with the remedial action related to the investigation. Regarding filling vacancies, the document indicated that the province would provide assistance within six months. How far was that process and what was the timeframe? She also asked about litigation in which the municipality was involved.

The Chairperson highlighted what was missing in the presentation. The Committee was not told how many administrators were deployed between 2018 and 2022. The amount spent on the administrators’ work was not shared with the Committee.

He did not hear any mention that Eskom had attached the municipality’s bank account. The municipality owed Eskom R3 billion in 2018. This amount increased to R6.5 billion, and a long litigation process had to occur. This process led to the High Court's agreement that Eskom should attach the municipality’s bank account. This was a serious indictment.

The AG’s report on the municipality was bad. It included bad irregular, fruitless, wasteful, and unauthorised expenditures. All of these were bad. In his view, the situation had not improved in the way it was framed in the presentation. What was the current situation?

The national government, and the South African National Defence Force (SANDF) had to intervene in waste management and spillages. These were health hazards. The Department of Water and Sanitation intervened by invoking Section 63 of the Water Services Act and taking control of the situation.

When listening to the presentation, he asked himself, had the province succeeded? He reminded the province of when it invoked Section 139 It had to intervene because the situation was dire in 2018. Had it improved? What did they intend to do to resolve the situation?

Regarding the vacancy rate, 62 percent of the posts were filled. What was happening at Emfuleni? He was worried because the concerns being raised in the meeting were those shared by the majority of people in Emfuleni about governance and service delivery. Where were the results? It was said that the province worked with the municipality and the Department. However, the people of Emfuleni had to see tangible results and progress. This was a critical municipality in Gauteng, therefore it was not ordinary. Sometimes, he asked himself why it could not be turned into a metro. It was a big municipality that had to ensure good governance and improve service delivery. These questions had to be answered.

Responses

Dr Darion Barclay, Head of Department: Roads and Transport, Gauteng Provincial Government, said the comments raised by Members were valid. When an intervention was implemented, its success was judged by the ability of the municipality to sustain the improvements as the intervention came to a close. This was the only way real progress could be achieved. At the time of reporting to the Executive Council, the municipality demonstrated some improvements. There was a loss of critical skills, especially in finance and infrastructure. This contributed to the fact that the municipality did not sustain its performance. There was an intervention to ensure the improvement of roads in the municipality. An agreement was signed with the municipality to do 40 inner roads and some of the provincial roads, which were subsequently done. Other interventions were being considered.

Regarding financial sustainability, at the time of the report to the Executive Committee (Exco), it was indicated that whilst the municipality was at a level of recovery, the financial recovery plan process with the provincial treasury should remain intact. The municipality reported to the provincial treasury monthly. Currently, the municipality still has an unfunded budget. The work done by both the provincial treasury and CoGTA was to ensure that the municipality was brought to a stage where revenue collection improved significantly. The issue of large power users was a critical intervention by the Department and should be sustained so those large power users could pay for services.

Over the past few months, the municipality conducted interviews for the executive directors at a rapid pace. It submitted three positions to the province for concurrence. These were submitted the previous week and feedback was given on the Friday requesting the municipality to submit additional documentation. This information was submitted.

Litigation on labour relations issues remained a serious problem. About three weeks previously, the Municipal Manager indicated that the municipality would need additional support for labour relations and legal matters. This showed that the matter was not fully under control. This remained a matter of great concern to the Department. If each case was not assessed according to merit and if the municipality was in the wrong, it should admit to this. Instead of taking matters to court, they should be settled because the costs of going to court could be massive. This was also a process that was underway.

In the current situation, there were pockets of improvement. Dr Barclay wished the municipality could sort out the number of senior managers and its capacity to improve its performance.

Regarding the infrastructure challenges, MISA got involved in some areas to provide support. It could spiral out of control if this is not fully addressed. The MEC had given a directive to commission further assessment so the provincial and national governments could be advised. The MEC had already written to the national government about where support was needed for infrastructure-related issues from a water and sanitation perspective. There were engagements with Eskom and Rand Water. The situation had partially improved. But if real change was to be seen, there needed to be an assurance that the commitments made would be sustained.

The Municipal Manager, Mr Ntuli, said the report correctly stated that the electricity losses were 22 percent. On the Eskom debt, the municipality applied for debt relief as per Circular 124, and it was approved, effective from 1 June 2023. Immediately after, there was a court judgment against the municipality. The court directed the municipality to appoint Eskom as an electricity agency. The municipality and Eskom drafted an agency agreement. This agreement ensured all electricity customers paid directly to Eskom. This was done in a way that assisted the municipality in the payment of its credit account. One of the conditions of the debt programme was not to default on the current account. The municipality welcomed that judgment. It was highlighted that the municipality had struggled to pay Eskom since 2018. However, when Eskom worked with the municipality, it could collect where there were customer defaults. It oversaw credit control. This programme had begun and the municipality had met with large businesses. It was still in the transition phase. It saw large power users paying. The National Treasury was in the process of ensuring the debt relief conditions were being fulfilled.

The municipality owed money to Rand Water, but came up with an alternative solution where it would resolve the problem together with the ministry. Following a Council resolution, the municipality and Rand Water were going to enter into a special purpose vehicle where an entity would be formed. Once formed, the entity would have its own body, people, and measures that would run the entity. The municipality was expected to submit a final due diligence report on 15 December 2023. In the end, the amount owed by the municipality would be the debt of the entity. This would resolve the debt the municipality owed to Rand Water.

There was an intervention from the CoGTA Department about the challenges of the municipality’s account being attached. Consequently, the municipality could not spend the Rand Water money. In the Division of Revenue Act, a section said the municipality could go through a Schedule 6(b) process where MISA and the municipality would be the implementing agent. The National Treasury would transfer funds to MISA and when the work was done, the service providers could get their money. Service providers were already appointed for certain projects. The previous day, there was a meeting about when contractors needed to begin their projects.

The municipality would be receiving feedback from the province about the vacancies. Interviews for other senior manager positions had been done and the individuals needed to go for assessments. Shortlisting for the Chief Financial Officer (CFO) post was done.

The municipality was about to complete the water and sanitation master plan, asset management plan, and water service development plan. The report was expected by the end of December 2023. The programme started the previous year, when assessments were done of the conditions on the ground and how much it would cost to replace the assets.

The municipality had advertised to compile a road and stormwater master plan. It submitted a MIG business plan, which was approved. Once the tender closed, it would be an issue of evaluation and education and then a service provider could be appointed.

The municipality was still struggling with labour litigation and had requested the province’s assistance on legal issues. They did settle some matters but there were other matters where more expertise was needed to resolve the issues.

Mr Mpfareleni Maseanoka, Acting Chief Financial Officer, ELM, agreed there were challenges. Large power users were paying directly to Eskom, hence the 57 percent loss. In the first three months, there were challenges with getting information on time to update the direct payments to Eskom. This issue was resolved. The municipality would now be receiving information from Eskom to ensure its report was accurate.

Unauthorised expenditure was the biggest challenge because of the high water losses. The municipality worked with Rand Water to begin reducing the water losses. Then it would be able to afford the bill for Rand Water.

Measures to reduce irregular expenditure by appointing panels and ensuring that bid committees sat on time about extending contracts were having an effect. There was a reduction in deviations and the extension of contracts. Going forward, he believed there would be a reduction in irregular and unauthorised expenditure, especially if the municipality managed to obtain debt relief and sustain the programme. Of the R7 billion owed, almost R6 billion would be written off if there was compliance. However, the municipality had to deal with two factors. The first was the High Court ruling; the second was debt relief. It worked with the National Treasury on how to deal with areas where debt relief was not in line with the court order. This was to avoid losing the debt relief.

The Chairperson asked what the municipality was doing about the issues raised by the AG and about its post-audit action plan. 

The CFO said an audit action plan was developed. One of the big issues that led to the qualification was the submission of invoices. There was a situation where some departments were not submitting invoices on time and only did so at the end of the year. The municipality improved this by ensuring that it informed all the departments of invoices that were not submitted on a monthly basis.

It implemented measures to try to avoid qualification. It ensured all the matters raised by internal audit were followed up throughout the year. The executive management team followed up on all the outstanding items in the findings. This helped the municipality deal with matters that were possibly not in the previous audit opinion but were now emerging. It dealt with these matters before the AG conducted the next audit. The municipality worked very hard to ensure it implemented consequence management for those who did not follow procurement standards. Doing this took time. The attachment of the bank account impacted the progress that was made, especially on projects. With the attachment, a lot of projects could not be paid for.

 A DCG official told the Committee that the Deputy Director General was having connectivity problems and had asked that she indicate to the Committee that the Department would be supportive of the municipality. The Department was part of its processes in the Eskom and water issues, specifically through the Schedule 6(b) intervention. This resulted from a Cabinet decision to intervene when a municipality was struggling. Part of the reason that the President came to Emfuleni was to see what progress was being made. He released a statement acknowledging the improvements and that the municipality and the province were trying to address particular issues, especially sewerage. Tangible progress should be seen by March 2024. The Department had a holistic approach to assisting Emfuleni and was confident about the interventions made in the past year. She asked the members to look at an app called Lethabo, which enabled community members to report water-related issues. This was an example of the municipality trying to address water-related issues. MISA was also on the ground, assisting the municipality. The Department was pleased with the work that was happening in Emfuleni.

Closing remarks

The Chairperson said the Committee took a keen interest in the developments at Emfuleni. It was concerned about the service delivery challenges there. It had had several engagements with the successive administrations in Emfuleni, along with the provincial government. The people of Emfuleni did not deserve what they had experienced in the past. They needed to see their lives improved. He thanked the three spheres of government for working together to improve the situation. The Committee wanted to see tangible results. It wanted to see a municipality that could function independently. The people of Emfuleni elected public representatives expected to serve them and their interests.

The issues of unauthorised, irregular, fruitless and wasteful expenditure raised by the AG pertained to infrastructure collapse and the non-provision of water. The Committee wanted to see the Eskom debt issue resolved. It wanted to ensure that the preconditions set by National Treasury were addressed. It wanted to see a stable municipality that worked to improve its communities. It would continue monitoring the situation and requesting reports. It would objectively assess those reports and make certain recommendations. The Committee would present its report on what was happening at Emfuleni to Parliament.

He asked for written responses to unanswered questions, especially about administrators and how much was spent on them. He thanked the MEC for honouring the Committee’s invitation. It had been worried about his unavailability whenever the Committee wanted to engage with issues on Emfuleni. He appreciated the close-out report and thanked the Department for providing a better understanding of the situation. He thanked the national government and wanted it to ensure it supported the municipality in more practical ways. Emfuleni was a big municipality. It was a strategic municipality and needed to do what was expected to ensure that it succeeded.

The meeting was adjourned.