Municipal Systems Bill: hearings

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Cooperative Governance and Traditional Affairs

12 May 2000
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Meeting Summary

A summary of this committee meeting is not yet available.

Meeting report


12 May 2000

Relevant Submissions:
The Banking Council of South Africa
Municipal Infrastructure Investment Unit
Johannesburg Municipality
Port Elizabeth Municipality
Wakkerstroom Municipality
Commission On Restitution of Land Rights

The submissions focused on all aspects of the Bill. A number of concerns were raised, including the preferred creditor status of municipalities in terms of Section 110, the Minister’s ability to enact regulations limiting tariff increases, the failure to include restitution in Integrated Development Plans as one of the constitutional responsibilities for local government, the inability of municipalities to engage in effective debt collection, the lack of mention of or provision made for a transitional fund, no indication of cost implications for implementation of the Bill and the failure to focus on rural development.

Banking Council
Mr Lincoln Mali, General Manager for the Banking Council, and Prince Maluleke, a Senior Manager, presented the submission. It focused on the municipality’s preferential claim (in terms of Section 110 of the Bill) which it had in respect of arrear rates and municipal charges - entrenched in Section 89(1) of the Insolvency Act as well as in a number of Provincial Ordinances. The effect on banks was quite damaging in some cases because in the event of a default on mortgage loans, banks had to have the property sold in execution to recover its losses. Transfer of ownership could not pass to the new owner until all outstanding rates and services were paid to the municipality and thus the banks were forced to pay these debts which often amounted to thousands of rands. In fact in one case a house was valued at R25 000 whilst the outstanding rates and taxes amounted to R125 266! This was clearly a major problem exacerbated by the fact that there were inadequate Credit Control and Debt Collection procedures in respect of municipalities’ debtors.

It was thus proposed that municipalities had to keep a proper record of all municipal debtors and had to take immediate and appropriate action to recover all debts. There had to be prosecution of those not coming to arrangements with municipalities. Credit control mechanisms had to be enforced and regularly monitored. Furthermore the preferred creditor status of municipalities had to be done away with in the Insolvency Act. Alternatively the right of preference afforded to a local authority, should be for a period not exceeding two years and should be confined only to municipal rates and should not extend to basic service charges since the latter charges were not an incidence of ownership but were rather charges for consumable services arising out of a contractual relationship between the relevant owner and the municipal authority.

Municipal Infrastructure Investment Unit (MIIU)
Mr James Aiello said the Unit’s interest in the Bill stemmed from its mandate to assist municipalities in preparing public-private partnerships (PPPs) and engaging private investors to fund municipal services infrastructure. He addressed four aspects of the Bill:
(1)Provisions which have the affect of overturning the interpretation of Sections 10C(7),10D(3), read together with Section G (7)(a)(ii) of the Local Government Transition Act, to prohibit municipal councils from delegating the authority to collect revenues for tariffs that have been previously set by the Council;
(2) Authorising the Minister to enact regulations limiting tariff increases,
(3) Requiring that any transfer of employees to a third-party services provider be with the consent of the transferring employees, and
(4) Permitting non-competitive, directly negotiated third-party service agreements between a municipality and a public sector service provider.

Johannesburg Municipality
The third submission (attached) was done by Councillor Kenny Fihla from Johannesburg Municipality. Various issues were addressed such as critical shortcomings in the Bill which could impact on the Johannesburg process, financial viability, preferences on insolvency (a contrary view from that expressed by other presenters being hinted at) and on limitation of legal proceedings. The definition of "service utility", the constitutionality of tendering and /or procurement provisions as well as chapter 8 the provision of municipal services was also discussed.

Commission on Restitution of Land Rights
Mr Kwandiwe Kondlo focused on the right to restitution being one of the socio-economic rights protected by the new Constitution and said that Chapter 5 of the Bill on Integrated Development Planning had to therefore refer to restitution as one of the constitutional responsibilities for Local Government. Section 21 of the Bill had to make reference to the duty of municipalities to assist in the progressive realisation of rights contained in Sections 24, 25, 26, 27 and 29 of the Constitution. The right to restitution was provided for in Section 25(7). Municipalities had thus far not seen land reform in general and restitution of land rights in particular as part of their responsibilities and priorities. The Bill gave Local Government an opportunity to make IDPs which would assist it in discharging its constitutional obligation to deal with restitution.

Port Elizabeth Municipality
Mr Nceba Faku, the Mayor of Port Elizabeth, said that the single biggest problem of municipalities was the payment for services. The Bill did not highlight this as a problem of municipalities but simply said that Councils had to have efficient credit control and debt collection mechanisms, which currently are largely unsuccessful. Focus had to be placed on this. He proposed that local government, as a tier of government, had to be able to collect revenue at source in the same manner as national government.

Further the transitional phase, which would have to occur and which involved the amalgamation of various smaller municipalities into bigger structures, could have serious cost implications yet the Bill was silent on the possible cost implications of the transition. He submitted that there had to be a transitional fund set up for this purpose which should be included in the Bill.

Finally he pointed out that members of provincial legislatures and members of parliament were paid by national government. Yet municipal councillors were paid by the individual councils themselves even though South Africa was a unitary state. He wanted the Bill to provide for the payment of councillors by national government since municipalities were only a sphere of government in a unitary state.

Mr Oupa Bodipe addressed a broad range of issues including local government and development, Cosatu’s concerns with the process, municipal services, Local Public Administration and Human Resources, IDP, Performance Management, Public Participation, Municipal Powers and Duties, Credit Control and Debt Collection and others. Cosatu had problems with the lack of a definition for "basic municipal services", the definition of financial sustainability, and it proposed that a moratorium be placed on large scale restructuring (as had been done in Port Elizabeth and East Rand) which could pre-empt the demarcation process.

Mr Jack Feris focused on Co-operative Government, Public Participation, Municipal Powers and Duties, IDP, municipal services, and Credit Control and Debt Collection. SANCO noted the fundamental backlog with the provision of basic municipal services. It also said that the developmental needs of the community had to be identified by the community but the Bill was silent on the empowerment of communities to participate effectively. In respect of the IDP, there was no national guideline on who produced it. Given the weaknesses of many municipalities, success in implementing the Bill would be welcomed.

Wakkerstroom Municipality
Mr Yunus Cajee focused on Section 5 dealing with the rights and duties of the residents of the community, Section 8 dealing with public participation - where they felt that district councils should not be included in 8(1). It had to be ensured that current services and infrastructure had to be maintained since the temptation on municipal managers would be to neglect maintaining the current infrastructure and service levels in favour of concentrating on IDPs since their performance contracts would be linked to succes of the IDPs which were put into place. IDPs had to look more at future development projects.

Other sections addressed were Section 31 where they proposed the 30 day period be extended to 60 days, Section 43 on performance management, Section 56 and 57. In terms of Section 19, they proposed that the by-laws and legislation spoken of had to be kept in electronic form as well. In Section 87 dealing with service tariffs, rural circumstances had not been considered. Specific mention had to be made of rural development. Section 110 had to provide also that the municipality would have the right in certain circumstances to withhold services. In the making of regulations, there should be consultation by the Minister with organised local government – SALGA. Finally there had to be provision made, despite municipal managers being prohibited in Schedule One from having outside employment, for exceptions in the case of municipal managers being electoral officials.

South African Local Government Association
SALGA made an input in which it summed up its involvement in the process, Weclogo had helped them draw up their submission and their views had been incorporated into this submission.

One of the main questions which had been raised during the deliberations on the Bill was the issue of regulations and guidelines. The Bill made provision for the Minister to make further regulations on a number of issues (in Sections 12, 34, 46, 66, 86 and 96). SALGA felt that it should propose a number of principles that had to be considered to govern the powers of and the exercise of the powers by the Minister in making those regulations (see the SALGA submission).

Organised local government had to be empowered through the legislation to play a meaningful role in coordinating and filling in capacity gaps in municipalities. The Bill therefore had to strike the balance between being prescriptive and being enabling. The provisions relating to the drafting guidelines for implementation of IDPs, setting of key performance indicators, and setting minimum standards for service delivery were matters best placed within local government itself and SALGA felt that any capacity gaps had to filled by organised local government. Whilst there were provisions in the Bill which attempted to empower organised local government, there were too many restrictions. For example in Section 3 on cooperative governance, the limitation resulting from the phrase "to the extent necessary" could have a major impact on the objectives sought to be achieved. This phrase and others had to be looked at carefully.

Mr S Pheko (PAC) referred to the Banking Council’s submission on credit control and debt collection and said that this should be implemented in a just way. He observed that one of the problems with outstanding payments was that residents were not sent demands for payment early on. The debt was allowed to accumulate (and the Banking Council in its submission admitted this) and only after people owed thousands of rands, demands for payment were sent out. At this point it became very difficult to pay. Another problem was that people were charged for services which had not been rendered by municipalities. He wanted to know from the Banking Council whether this matter would be adequately addressed by the Bill.

Mr Lincoln Mali said that the Banking Council accepted that there were problems with the management of municipalities in respect of debt collection and well as the delivery of services. In the Bill’s current form it could not deal with the management and efficiency of municipalities in the areas of credit contol and debt collection. To some extent the new Public Finance Management Act for local government would deal with penalties for municipalities which did not follow adequate debt collection procedures.

Mr P Smith (IFP) said that the Banking Council made reference to the Kempton Park v Kelder case.which seemed to give municipalities lots of discretion as to debt collection. He asked what the implications of that case was and whether it was in fact binding in a far broader sense.

Mr Mali said that the Kelder case was dealt with very narrowly on the facts of the case. There were two issues in dispute. The first one was whether a municipality had a discretion in its implementation of its debt control mechanism and the second was whether the municipality had a fiduciary duty towards its residents in the council This was what the case turned on and this was accepted. However he did not think that this case had much of a bearing on how the Bill should go and it did not prescribe any binding principles with regard to debt control. However the Banking Council was concerned that this could send negative signals to municipalities that they could simply at their own discretion deal with debt collection. There had to be firm policies in place to deal with this.

On debt collection, Mr Smith referred to the question of preferential creditor status for the municipalities in respect of rates and services. Where a municipality failed to collect these over a protracted period resulting in unpaid rates of for example R125 266 for a house of R25000, did the Banking Council have an opinion on whether that municipality could be sued for failing to adhere to its own obligations.

Mr Mali said that there were currently battles waging in court between municipalities and banks over this issue where the rates payable exceeded the value of the house. He said that at the end of the day it was an issue of public policy whether the preferences (however well intended they may have been) were now having unintended consequences. Thus the preference could end up being a disincentive to debt collection, resulting in the municipalities simply sitting back, since they knew that they had a preferential claim.

Mr Smith said to MIIU that the omission of the Local Government Transition Act from the schedule was probably an over-sight. He wanted to know from the Department why there was the insertion of the Minister regulating tariffs in the new version (unlike the earlier version). He asked what the relationship was between the Minister regulating tariffs and other regulatory authorities which regulated tariffs such as water or electricity. Would there not be a potential conflict between the two issuing different tariffs or even a conflict with the law itself as to whom had to do what)?

Mr Aiello expressed his concurrence with Mr Smith’s view with regard to the potential for conflict. He wanted to state the reason for MIIU’s particular problem: If a municipality entered into a third-party service delivery agreement for infrastructure construction, and the municipality could not otherwise pay for this, it necessitated them entering into a long-term loan. This agreement would require the municipality to assign the service-delivery provider the ability to collect revenue for its own account. It however had to have a steady stream of income over the term of the loan. This income came from tax. The tariff-setting process could only be done by the Municipality. The third-party service provider had no part in setting these tariffs. Sections in the Bill such as Section 68 was clear on how transparent, open and public the tariff setting policy was. However the problematic provision (which allowed a Minister to ignore such a contract and decide that the tariff increase provided for in the contract should not take place) could lead to banks not lending the money because of the uncertainty which was created and thus the infrastructure would not be built.

Areas of uncertainty had to be removed. He was not saying this in a vacuum. He had been involved in the process of the financing of the Nelspruit concession. The process started off with a room full of bankers who one by one peeled off because of a similar provision in the Water Services Act which allowed the Minister to establish norms and standards for profits and tariffs.

Ms Jackie Manche from the Department said that she wanted to place this issue in context. There were concerns that municipalities could also abuse their rights in relation to setting tariffs and it was felt that, to protect the rights of consumers, and ratepayers there may have to be a clause that gave the Minister the power to set a limit on the annual increases in tariffs. Similar provisions were in a number in other pieces of legislation. The Department was however prepared to revisit this clause. This was also in light of the fact that the Finance Minister had a say in the annual increases in the budget.

Mr Aiello welcomed this and would be prepared to provide input in this regard.

Mr Smith said that he found the Johannesburg submission very interesting in that point five of their submission stated that the municipality itself should be able to make loans to consumers for such items as the purchase of appliances. He could understand the desire to stimulate local economic development by selling fridges or stoves. However given the problem the municipalities had in their finances already, he asked whether it was desirable to start making them credit-lending institutions.

Councillor Fihla said that there was no intention to provide loans for the purchase of appliances. The intention was to say that there were situations where, as a result of the way the municipalities function, infrastructure was installed but that infrastructure was insufficient, it had to be extended to the boundaries of where individuals in perhaps destitute communities lived. Thus this was referring to helping to fund perhaps the erection of a tap in the yard of someone in a rural community. It had nothing to do with for example microwaves or stoves.

An ANC member wanted to know why there had been no reference in the Johannesburg submission to public participation. Was the reason perhaps that they were satisfied with the Bill in this regard?

Councillor Fihla said that the Bill as it stood, adequately addressed the principle of public participation. He felt that the Bill could not be more specific in this regard. The application of these sections would differ from municipality to municipality.

An ANC member referred to the MIIU submission on section 86. He asked what they felt an appropriate balance would be between the Minister being responsible for determining tariff increase limits and the possible tariff increase abuse by a municipality-private partnership.

To member asked Mr Kwandiwe Kondlo from the Commission on Restitution of Land Rights if they believed that restitution should form part of the IDP. He wanted to know exactly what Local Government was expected to do as restitution was in fact a function of the Commission.

Mr Kondlo agreed that restitution was a function of the Commission but that it did not become viable or sustainable without the cooperation of municipalities. This was especially so given that the emphasis of the Commission, when it came to the settlement of claims, was more group based and developmentally orientated. The involvement of municipalities became very critical, especially from a spatial planning point of view. They would like to see municipalities really preparing for the results of restitution in their IDPs.

An ANC member asked the Port Elizabeth Municipality whether the transitional fund should actually be in the Bill and felt that perhaps such a Fund should be in another piece of finance legislation such as the Municipal Finance Bill.

Mayor Faku said that it should not be "either or". The point was the principle. The Bill did not reflect the principle that there would be consequences in the transitional processes that had financial implications to municipalities. As to how one unpacked the detail of this, the Municipal Finance Bill could take this further. The Municipal Systems Bill had to make reference to the Fund however. Perhaps there had to be an identification of the necessary section within the Bill where this could be done.

Mr Sithole (ANC) enquired as to how best one could contribute towards assisting those councils, which were affected by land claims. It was evident that development and IDPs may be problematic in areas where councils were still affected by land claims. How best could it be ensured that the section dealing with IDPs did assist these councils, since the planning may be there but it may not be implementable.

Mr E Magashule (ANC) referred to the issue of fixed term emplyee contracts and the fact that one would be dealing with a completely new type of municipality. Whilst he had concerns about those who would be affected by the transition, he felt that in establishing a new structure it was necessary to have people with a particular mindset to drive this process. There would be several candidates for managers within the old structures and outside of them. It was unclear what the solution would be for selecting the new staff.

Mr Smith shared Cosatu’s concern that the definition of financial viability, if it referred to each service in turn having to produce a profit or a surplus, was problematic. This would preclude any cross subsidisation. He asked Cosatu whether they would object if the principle of financial sustainability would apply to a basket of services by municipalities, which would then provide for cross subsidisation. If one argued that one was against the principle of financial viability or sustainability, this was problematic.

Mr Oupa Bodibe was happy to note that their concern was shared. In terms of the approach of a basket of services, how it worked had to be seen first. There had to be a formulation, which addressed a particular basket of services in terms of which it was perhaps said that a specific service in the basket had to be profitable for example. Their concern was currently there was a blanket approach, which was creating a number of problems. It did recognise that there could be services provided by municipalities, which had to be run in a profitable way, for example the business enterprises. One would have to see in practice how this could be linked to a basket of services. He stressed that Cosatu was not opposed to financial viability, but it had to be noted that this was not a consideration for public provision of services.

Mr Smith said that Cosatu also supported the exclusion of national and provincial organs of state in the competitive bidding processes which were obligatory for the private sector. He agreed, as was argued by others, that Section 217 of the Constitution would preclude this.

Mr Oupa Bodibe said that Cosatu would have to look at this.

Mr Smith said that in relation to the issue of fixed term contracts, greater flexibility was needed. He wanted to know whether anyone had done a costing to compare the two approaches.

Mr Oupa Bodibe said that Cosatu was not opposed in principle to the notion of fixed term contracts. He felt that there were practical issues which had not been given sufficient consideration. These including costing and possible transitional mechanisms.

The issue of the possible damage caused by constructive dismissal cases in this regard was raised by Mr Morgan also from Cosatu. This could lead to the payment of huge payouts which could not be afforded.

Mr Smith referred to SALGA’s point on Section 3 and said that he felt the obligation of a municipality to abide by decisions reached by organised local government was unconstitutional. He argued that each organ of state had to respect the integrity of the others and could not infringe upon their functional integrity. How could an individual municipality be compelled to abide by a decision reached by SALGA? How did this accord with Chapters 3 and 7 in terms of which councils had certain powers and functions.

The representative from SALGA said that he was addressing more the principle that there were three spheres of government rather than the technicalities. There was also a constitutional obligation on the national and provincial sphere to capacitate the local sphere. There had to be ways to ensure that this obligation was implemented.

A committee member referred to the issue raised by Sanco and others around the need for an IDP committee. She said that what came to mind in this regard was the local development forums. In her opinion the local development forums were responsible for identifying development needs in communities. She wanted to know what the relationship would be between the IDP committees Sanco was proposing (or the IDP forums Nadel was proposing) and the existing structure of the local development forum. If the two structures ran parallel to each other, she was concerned that too many structures would be created which would not be able to be managed.

Mr Carrim asked Cosatu, to what extent the Bill’s provisions in terms of municipal services were inconsistent with the framework agreement of December 1998, bearing in mind that there was a white paper process which was being finalised.

Mr Oupa Bodibe emphasised that the relationship between the December 1998 framework agreement and the Bill was not a matter of inconsistency but rather a matter of gaps. Secondly there had to be a clear delimiting of what the process was since the Bill said that the municipality could provide services in certain listed ways. However the shortcoming was that there was no articulated process regarding under what conditions or circumstances the municipality could for implement these.

Mr Carrim asked Wakkerstroom to elaborate on their statement that the way the IDP was structured in the Bill, would make municipal managers focus less on current services and infrastructure.

The Wakkerstroom representative, Mr Cajee, said that what would happen was that if municipal managers were to be judged in relation to the IDPs, they would pay less attention to current services and infrastructure, and would concentrate more on using the finances available to fulfil the goals of the IDPs. This was evident since at the end of their contracts they would be judged on the implementation of the IDPs.

Mr Carrim asked Cosatu what was the practical meaning of their stating that there had to be a moratorium on restructuring until after the local government elections. Given the facilitation committees working at present, it had to be appreciated that one could not stop everything and wait until after the elections in November and then start the process. He nevertheless said that nothing could be done now since there would be a new crop of councillors and a new system implemented. IDPs had to be introduced after the elections, so there had to be some sort of balance.

Mr Oupa Bodibe explained that municipalities would have to be married to the Bill once it was enacted. Secondly there was major restructuring as far as the demarcation process was concerned. Thus one had the situation where municipal services were restructured in the form of the change of ownership and the changes in which there was delivery.

In conclusion, Mr Carrim said that no national organisation worth its salt would make any representation, without taking account of the diversity of South Africa. He felt that many of the submissions made by those who had presented earlier in the day, had not taken account of the context people were in. He pointed out that the debate and parliamentary process had only begun. He said that there had been communication with the Director General, the Minister and the powers that be in Parliament and there was consensus that the Bill would not be rushed, notwithstanding the needs. If it were passed by mid-September, this would be in good time for the Local Government transformation and elections. It was hoped that stakeholders could be brought together in a workshop type situation in July, thus most of those who had made submissions would be invited again. Thus MPs and stakeholders should not be frustrated since the process would continue.


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