Adjustments Appropriation Bill: COGTA briefing; with Minister

Meeting report

The Chairperson officially opened the meeting and explained that the purpose of the briefing was to follow up on the Medium Term Budget Policy Statement (MTBPS) made by the Finance Minister, wherein the Adjustment Appropriation Bill was one of the bills presented. He mentioned that the Department of Cooperative Governance and Traditional Affairs (COGTA) was one of the departments affected by this bill and was therefore invited to interact with the Committee.

Apologies noted were from the Deputy Minister, who would depart early, and the Director-General of COGTA. Committee Members absent with apology were also noted.

The Chairperson welcomed the Department and its delegates and welcomed their presentation.

Minister’s opening remarks

Ms Thembi Nkadimeng, Minister of Cooperative Governance and Traditional Affair, clarified that the briefing was a continuation of the MTBPS that the Minister of Finance delivered, and that in the absence of the Director-General, Ms Funani Matlatsi, Chief Financial Officer, COGTA, would lead the presentation.

The presentation addressed how the adjustment, which came from a broad perspective, affected local government expenditure, equitable share, municipal infrastructure grants, and municipal support intervention plans. All of the mentioned are attached to the financial assistance the Department and its provincial sub-departments offer to local municipalities.

The Department also addressed the issue surrounding disaster expenditure, especially regarding the response rate and the pace at which municipalities disbursed climatic change grants to the public. This was particularly highlighted by the floods that occurred in KwaZulu Natal, the Eastern Cape’s Nelson Mandela Bay, Port St Johns and surrounding areas.

It was indicated to the Committee how the Department intends to overcome challenges and further capacitate municipalities concerning the status quo.

COGTA Briefing to the Standing Committee on Appropriations on the Adjustments Appropriation Bill

It was indicated that COGTA’s baseline budget would be reduced by an amount of R1.523 billion to address the current fiscal challenges faced by overnment. The budget reduction was in terms of Section 30(2)(a) of the Public Finance Management Act (PFMA). The budget cuts were rooted in a directive from the National Treasury issued formally on 31 August 2023.

Cabinet approved reductions of R1.523 billion to the Department’s baseline, of which:

• R1.173 billion was in Municipal Infrastructure Grant in Programme 2: Intergovernmental Support
• R350 million was in Programme 5: Community Work Programme.
• Programme 4: National Disaster Management Centre.

• An additional R1.184 billion was allocated to reconstruct and rehabilitate municipal infrastructure damaged by floods in Eastern Cape, KwaZulu-Natal, and Mpumalanga in February 2023.
• An additional R372 million is allocated to replenish the municipal disaster response grant.

Other adjustments amounted to R1.357 billion and are broken down as follows:

• Declared unspent funds.

• Programme 3: Intergovernmental Policy and Governance: R1.357 billion in unspent funds have been declared on the local government equitable share due to lower-than-projected bulk electricity costs.
• MIG 6B Conversion: Further, the Department's request to convert allocations to Emfuleni (R20 million) and Thukela (R10 million) local municipalities for the Municipal Infrastructure Grant into an indirect grant has been approved.

The estimated increase for bulk electricity cost was at 20.7% and the actual increase was then 18.7% which was lower than what was estimated/projected. R1.35 billion was then the balance between what was projected and the actual increase in bulk electricity cost and it remained unallocated.

COGTA provided inputs to the Local Government Equitable Share (LGES) Task Team (Financial and Fiscal Commission (FFC), South African Local Government Association (SALGA), Department of Cooperative Governance (DCoG), and National Treasury on how the unallocated funds can be reprioritised.

The inputs were that funds be utilised to increase allocations for electricity equitably based on the number of households. Despite the absence of quantifiable data, the cost of maintenance and security of the electricity infrastructure due to loadshedding remains a huge financial burden for municipalities. The R1.35 billion was therefore not unspent but rather unallocated.

Overall socioeconomic and service delivery implications to communities including those who still did not have access to electricity were as follows:

• The cost of maintenance and security of the electricity infrastructure due to loadshedding would remain a huge financial burden for municipalities.
• The fact that the Basic Services Component of the LGES which accounts for about 80% of the total LGES allocation had not yet achieved the total coverage of indigent households meant that a reduction in the LGES would create more service delivery problems in terms of provision of free basic services to the indigent households.
• The fact that there was still a sizable number of municipalities passing unfunded budgets meant that municipalities were not able to generate sufficient own revenue to perform all their allocated functions.
• The fact that some municipalities used conditional grants for operational expenditure resulting in off-sets being invoked against the LGES, pointed to municipalities not having sufficient own revenues to meet their financial obligations.

Measures to mitigate the stopping of municipal grants were presented. [See presentation]

Other matters discussed included:

• Strengthening institutional capacity
• Overview of the Bill:

• Except for a reduction of R1.2 billion in the Municipal Infrastructure Grant (MIG) and doing away with the initially unallocated R1,357 billion for the Local Government Equitable Share (LGES), in the main, the Adjustment Bill did not change the initial funding allocations of municipalities.
• In as much as the national government, through, SARS was facing challenges to collect revenue due to the prevailing economic situation, municipalities faced challenges in collecting revenue as consumers or ratepayers were hit hard by the prevailing economic environment.

• Steps to settle Eskom debt
• Support and interventions to improve resource mobilisation.
• Disaster Expenditure by Municipalities
• Addressing issues/challenges in expediting disbursements and capacitating municipalities
• Progress of professionalisation
• Recommendations

[See presentation attached for further details]

Discussion

Mr A Shaik Emam (NFP) stated that the failure of municipalities to deliver standard service was due to corrupt government officials’ need for power and control of resources for self-enrichment, which led to the collapse of coalitions. He asked for the monthly records for tenders advertised and procured, along with their amounts. He inquired whether tenders were awarded on favour and not merit and stated that transparency was the only solution to corruption.

He asked if the Department would be able to account for the tenders procured in certain municipalities since the 2021 elections, upon request.

Mr X Qayiso (ANC) asked for clarity regarding the criteria used to decide which municipalities were deserving of governmental intervention, seeing as Thabo Mofutsanyana District Municipality, Mangaung and Matjhabeng Local Municipality had been neglected despite their undeniable need for assistance. He asked what the underspending meant, and if the money had been spent or redirected to other expenditure.

Mr H Mmemezi (ANC) asked what the consequences for failure to adhere to the budget were for municipalities, and what the Department was doing to ensure that municipalities complied with the guidelines set by the Auditor-General.

The Chairperson asked for a progress report on municipalities generating their own electricity since solar energy was considered too expensive, and what the new resolution was.

He inquired about what was being done about the resistance to metered prepaid electricity, as the National Treasury identified the installation of prepaid meters as a possible solution to combat debt to ESKOM.

He asked what the role of COGTA and municipalities was in implementing the Economic Reconstruction and Recovery Plan (ERRP) and job creation, and what the reason for the R1.357 billion underspending was.

He inquired about the debt stock of municipalities that had gone out to raise debt within their capacity and if any measures were in place to monitor and mitigate the risk of these municipalities defaulting on payments.

He highlighted that an amount of R3 billion had been allocated to municipal grants, however, only R400 million had been used, and he asked why this was.

He asked if the difference in fiscal years between the national and local governments negatively affects municipal planning.

Responses

Minister Nkadimeng responded to the question regarding departmental intervention in municipalities and said that the municipalities displayed were only a portion of the Department’s intervention. Over 323 programs existed across all nine provinces with the intention of creating youth employment opportunities. She stated that the presentation was not a direct representation of the work done by the Department, but rather highlighted only highly dysfunctional or weak municipalities. She added that a full breakdown of departmental intervention could be accessed in the Municipal Support Improvement Plans (MSIP).

Referring to the issue of instability, she mentioned that it did not exist only in coalition municipalities but also in municipalities that single parties headed and it remained despite the election of a coalition council in 2022.

She highlighted that the lack of service delivery could be attributed to the vacancy of major positions and discrepancies in supply chain management. The delay in grants was attributed to lengthy assessments by municipalities and the National Treasury taking time to disburse funds due to administrative processes. An example was the Ethekwini Municipality which only received R1.5 billion eight months after the floods occurred, which was towards the end of the National fiscal year. She stated that CoGTA contested such, and added that money was reallocated to cater to relief and recovery plans. CoGTA formed a coalition with other departments such as the Department of Transport, to fast-track recovery.

The Minister indicated that COGTA had also taken charge of executing certain municipal projects for the benefit of communities.

Ms Matlatsi said that the underspent amounts had a negative impact on municipalities that did not have the capacity to generate their own revenues for service delivery. She added that electricity infrastructure was affected negatively and the need for alternative power sources was rampant.

Mr Elias Sithole, Head of Disaster Management Centre, COGTA, stated that delays in municipal grants were a result of slow supply chain processes and inadequate technical capacity.

Ms Mapatane Kgomo, Acting Chief Executive Officer, Municipal Infrastructure Support Agent (MISA), mentioned the various ways in which MISA assisted municipalities. These were as follows:

• It conducted feasibility studies to establish environmentally and economically sustainable power alternatives. This was still being piloted in a few municipalities and would expand over time.
• Assisted in the registration and prioritisation of projects.
• Ensured procurement of reputable service providers.
• Monitored the progress of projects.
• Ensured efficiency of municipal projects.

Mr A llanZimbwa, Deputy Director-General: Technical Support, MISA, stated that MISA adhered to municipality support requirements, which was evident in a 2021 local government report submitted to the Cabinet.

Mr Mzilikazi Manyike, Deputy Director-General: Governance and Intergovernmental Relations, CoGTA, answered the question surrounding tender procurement accountability and advertising and stated that such questions could be answered by the National Treasury as issues surrounding supply chain management were regulated in terms of PFMA.

He mentioned that there was no unit dedicated to assessing the risk of municipalities defaulting on their debt repayments. It was assumably better to have compatible fiscal years between local and national governments, however, no tangible evidence had been gathered to support this claim.

He said that colleagues who specialised in issues regarding infrastructure were not present in the meeting, and so the present delegates could not give detailed responses in that regard.

The Chairperson thanked the Department for their diligent presentation and responses and indicated that the adoption of minutes from previous meetings would be considered in another meeting.

[The meeting was adjourned.]