Trends in Intergovernmental Finances: Departments of Housing and Transport briefings

Meeting report

PUBLIC SERVICES SELECT COMMITTEE
5 October 2004
TRENDS IN INTERGOVERNMENTAL FINANCES: DEPARTMENTS OF HOUSING AND TRANSPORT BRIEFINGS

Chairperson: Mr R Tau (ANC)

Documents handed out:
Department of Housing presentation: Trends in Intergovernmental Finances
Eastern Cape housing presentation: Implementation, September 2004 to March 2005
Department of Transport presentation: Trends in Intergovernmental Finances: 2000/01-2006/07
Eastern Cape transport: Trends in Intergovernmental Finances and Roads and Railways (as per Committee Chairperson's request, 28 September 2004)

SUMMARY
The Department of Housing reported funding rollovers, delays and backlogs in housing projects. No municipality in the country was accredited to implement housing projects. Provincial representatives complained about the poor state of Reconstruction and Development Programme (RDP) houses in their provinces. The Department would be introducing a broad single subsidy to the value of R25 800 applicable to those earning below R3 500 a month, to replace the three-tier subsidy system. Earlier auditing reports of Public Entities had been problematic, with incorrect or irrelevant details and omissions of grant audits. Most of the provinces had been late handing in business plans to the Department. At present, no municipality was accredited to implement government housing projects. In certain municipal departments, there was lack of senior management.

The Department of Transport reported insufficient funds to comprehensively carry out its strategic objectives. This year R40 million had been cut from the budget of the Department of Public Works and Transport. There was confusion over the difference between public and private transport as it related to subsidy expenditures. 'Fronting' of Black Economic Empowerment Groups remained a problem for the Department. There were disagreements over the Department policy of nationalising roads for the National Road Network. The cost of toll roads was a serious burden on the travel of low-income earners. There was widespread disillusionment with the subsidy structure that had been ignoring rural areas since 1994.

MINUTES

Housing Department briefing
The Department delegation consisted of Mr M Dlabantu, Acting Deputy Director-General; J Wallis, Programme Management; and Mr D Von Broemsen, Policy Planning. The delegation briefed the Committee on Trends in Intergovernmental Finances.

Mr M Dlabantu noted that the report mostly reflected the objectives of the National Treasury. By and large, it had been drafted well before the President's State of the Nation Address, and so had not tackled some of the issues of that Address. Another Department report could be expected soon, which would deal predominantly with those issues.

There had confusion over the claim of the report that since 1994, some 1.6 million houses had been built and 2.4 million housing subsidies had been approved. In the early years after 1994, there had not been any presiding norms and standards for housing delivery, and quantity had been the principal theme. Contractors took advantage of this absence of regulations and delivered cheap, unsound products. Nowadays, the Department instituted minimum standards to govern the work of contractors

Discussion
The Chairperson asked why there was unregistered data for Limpopo for institutional housing subsidies, and Northern Cape, for rural and hostel redevelopment subsidies. He knew of several hostels in the Northern Cape that were in dire need of redevelopment. Why had they not been attended to? Did the Department fully understand the financial implications of delays and backlogs in housing? Many double-storey stands in Langa took up possible government housing space. These were well-constructed with attractive tenements. Was the Department planning on removing these? When it came to surveying township property markets, to what extent was there ground-level participation.

Mr Dlabantu replied that institutional subsidies were paid to social housing institutions. He did not know of such institutions in Limpopo. Generally the more urbanised provinces, such as Gauteng, contained social housing institutions that were appropriate for government subsidies. Housing projects were accounted on a cashflow basis. Planning was completed 'upfront' in advance of cashflows that depended on the skill and efficiency of the work of contractors. Delays and backlogs in cash flows occurred where planning had overshot progresses. Issues such as contractor disputes; bad weather patterns, or community resistance to projects has delayed many of the earlier projects of the mid-nineties. Revisiting incomplete projects, the Department had to factor inflated materials prices and contractor fees into its cashflow, which distorted expenditure figures.

Mr Wallis replied that the current housing policy did not encompass redevelopment of mining hostels, but the Department was presently submitting a proposed set of new standards and norms of hostel construction to MinMec. Hostel Redevelopment programmes were taking place in the Northern Cape. Funds for these programmes had been granted to municipalities, not directly to a beneficiary, which was why they were not registered in the report.

Mr M Mzizi (IFP; Gauteng) questioned the accreditation of municipalities for implementing housing projects. What were sufficient conditions for accreditation? What role did non-accredited municipalities carry in the Department's programme? He noted the poor quality of RDP houses in Gauteng, which were frequently blown to the ground by rough winds. The matter had been reported to the Department a long time ago and there had been no response. He expressed frustration at hearing about funding rollovers; expenditure and construction backlogs; and incidences of fraud and corruption. Would these recurrent problems never cease?

Mr Wallis responded that no municipality in the country was currently accredited. There was no constitutional obligation on municipalities to be accredited, and only one, Ethekwini, had requested accreditation, which could be granted by the province's MEC. As an accredited agency working for the government, a successfully accredited municipality would be entitled to an agency fee. The Department was devising a framework for accreditation. According to its plan, Ethekwini will be the first accredited municipality.

Mr J Thlagale (ANC; North West Province) asked the current value of a housing subsidy grant. The past government had issued property owners with a deed of grant, whereas today it issued a title deed. According to legislation, the former allowed for possession of the property in perpetuity. Was that entitlement still relevant today? What could holders of that document do to obtain a title deed?

Mr Wallis explained that there was currently a three-tier system of subsidies, dependent on household earnings. Lowest earners could acquire the maximum subsidy of R25 800. The Department would soon be implementing only one subsidy of R25 800 for persons earning below R3500 a month. The product value was approximately R28 000, subject to topographic and geotropic constraints, which could raise the value to R31 000.

Mr N Van Rooyen (ANC; Free State) asked if the Department had an 'early warning system' to ensure against distortions in fund expenditures. Had they calculated the 'opportunity cost' of rollover funds that were essentially in a state of disuse? Had public entities submitted business plans to the Department? Did the Department audit these entities according to the provisions of the Public Finances Management Act?

Mr Dlabantu replied that the longer a rollover fund existed, the greater the cost was to housing. Inflation, effecting prices of building materials and contractor fees, devalued rollover funds. He listed the opportunity costs of unspent funds: housing backlogs; interest rates; inflation; and lost houses on outdated contracts. The Department had commissioned seven public entities that reported quarterly, and which were each equipped with internal auditing functions. All had had three audits within this financial year and had submitted business plans. Earlier auditing reports had been problematic, with incorrect or irrelevant details and omissions of grant audits.

Mr Wallis reported that the Human Settlement Redevelopment Programme (HSRP) had nearly completed a business plan for 2005. The programme steering committee was meeting tomorrow to approve two business plans and was awaiting further plans from the provinces, many of which had been late to deliver. According to this trend, he expected that funds would be committed but probably not spent by year-end.

Mr D Botha (Limpopo) asked which provinces had been late with business plans and why. Mr Wallis could not say offhand which provinces were late, but he would give this information to the Committee. There had been 'continuity problems' with provincial contractors, with management changing hands several times in a year, and with contractors being fired and replaced. This had slowed implementation in the provinces. Also, municipalities had been unable or reluctant to implement the directives of the provinces.

Mr Botha was concerned about housing jobs left incomplete by contractors who had gone bankrupt or left their posts. Some of these unfinished jobs dated as far back as 1995-6. Poor materials had been used to construct houses, which were unfit for living in. He was worried that the Department had to wait sometimes three or four years to obtain title deeds for land to which it had already budgeted housing funds. In that time, the beneficiaries might have moved off, leaving the Department additional costs for tracking the beneficiaries or registering new ones.

Mr Dlabantu replied that the Department had examined the provincial account books monthly to observe rollover trends. Provinces and their treasuries were consulted to see what assistance the Department could offer, in particular regarding unblocking projects. Quarterly, the Department reviewed provinces and stakeholder spending trends. Many provinces had not found permanent solutions to underspending. However, he noted the good work of the Eastern Cape.

Ms B Dlulane (Eastern Cape) asked whether the spending trends listed by the report were motivated by quantity or quality of housing delivery. What was the agenda for upgrading informal settlements? Did it include provisions to supply electricity, drinking water and adequate sanitation and drainage facilities to the settlements?

Mr Wallis replied that, by April 2005, the Department should redirect HSRP funds to access lands that had been too expensive or untenable for development within the current budget. The Department would assist municipalities with drafting Housing Sector Plans, and social facilities would be upgraded in existing and new RDP sector and informal sector plans. More funding was needed to build amenities to create a nucleus for clustering houses, for example, a taxi rank, a community hall, a crèche or a clinic. By training community members in labour-intensive construction, the Department could contract housing jobs to the communities themselves. Houses should be built with a top structure to replace shacks. Approval to release land for development would have to come from the Department of Land Affairs.

Reverend P Moatshe (North West) was angered by the persistence of corruption and fraud in process of delivering houses. The Department needed to look more closely and more critically at what it had failed to do and why.

Mr Dlabantu replied that action against corruption and fraud was a lengthy and elaborate process. The Department reported cases to investigators who drew up a charge on the basis of their evidences which was then handed over to a law enforcement agency for prosecution. Many cases had been processed incorrectly after they had left the hands of the Department.

Mr Wallis added that since April 2002, the National Home Builders Registration Council (NHBRC) had acted as a watchdog over housing operations. The many incomplete projects that dated before April 2002, remained problematic as the budget and time constrained future progress. Three months ago, the Department had begau investigating the possibility of separating old projects for redevelopment from new housing projects. However, more funds were required to institute such programmes.

Mr M Goeieman (Northern Cape) wanted clarification on the claim inthe report that since 1994, 1.6 million houses had been built, and 2.4 million housing subsidies had been approved. How could such a discrepancy exist? Were the conditional grants of the 2003 financial year languishing in this gap?

Mr Dlabantu said that the Department assessed project performance per province and monitored their conditional housing grants. Each province submitted a monthly report, which the Department interrogated for shortfalls and grey areas of spending. There was 'ground level monitoring' but not every single project could be visited. Some provinces are engaging over 400 projects.

Mr N Mzamo (Department; Eastern Cape) said that an Auditor-General was doing performance auditing of the provinces. He was concerned with present incapacities of municipalities. High labour turnover was distorting outcomes. In certain municipal departments, there was a conspicuous lack of senior management. Some had attached housing directives to corporate services. He outlined the Turnaround Housing Strategy in the Eastern Cape, which looked at improving capability models of the provincial departments and facilitating co-operative and integrative relations between local government and local municipal councils. The Eastern Cape had committed 473 housing projects since 1994.

Mr X Kolwe (North West) asked if the Department had a mandate to keep a provincial population register, to monitor trans-provincial migration. It was unfair for legitimate beneficiaries to lose out to a person just arrived from another province.

Mr Wallis said that the Department was trying to implement its projects with community participation. Provinces and municipalities should identifiy the communities to whom they provided services. In practice, this has not been successful. Government policy was that an RDP house could not be built until its beneficiary had been registered and screened. Therefore there should be no unallocated RDP houses.

Ms H Matlanyane (ANC; Limpopo) asked how the Department liased with the Department of Land to requisition land for housing. Frequently, RDP houses were evacuated by the titleholders and rented out. This was a violation of government service - how could this be prevented? Did contractors who disappeared on the job run off with full payment for the incomplete product?

Mr Wallis replied that it was not possible to monitor tenure of RDP houses. Since 1997-98, there had been a 'pre-emptive clause' in legislation that prevented the sale of an RDP house by its owner unless to the provincial department. The Department would amend the clause to ensure that within a 2-5 year period, a person who had moved out of an RDP house was not eligible for another RDP house. Contractors were paid only for the work they had completed. Contractors had to be registered with the NHBRC to work for government. Therefore, if they had behaved unethically, they were struck from the NHBRC register.

Mr N Kaliphi (Select Committee on Finance) was disgruntled at the lack of provincial representation at today's hearing. He was confused by the 800 000 housing units between theb 1.6 million completed houses and 2.4 million approved houses. How long would these 800 000 units take to complete. According to the report, 193 615 houses had been completed this financial year. Did this mean there would be a housing backlog for four years? How did construction methods in the Department lend itself to the Expanded Public Works Programme?

Mr Wallis replied that the 800 000 units had been approved for projects running up to the year 2008. This 'gap' did not represent a backlog but rather an advance. It would soon be compulsory for housing developers to adhere to EPWP guidelines.

Transport Department briefing
During the afternoon Committee meeting, the delegation of the Department of Transport consisted of Mr J Makokoane, Chief Operating Officer; Mr S Moncozoma, Senior Manager in Charge of Infrastructure; Ms W Watson, Senior Manager in Charge of Road Traffic; and Mr L Montana of the Public Transport Authorities. Mr T Manyate from the Western Cape Department of Transport acted in the capacity of a Department delegation member.

Mr T Mhlahlo (MEC for Transport: Safety Liaison; Eastern Cape Provincial government) expressed disappointment at the poor provincial representation at these hearings. He felt the proceedings were disorganised. The Eastern Cape, largely a rural province, was suffering from the incapacities of its municipalities. There was not enough funding from the Department to address deficient road and transport services in rural areas, unaccounted by the National Road Network. The process of handing roads over to the National Road Agency was unfair. Why couldn't the Provincial Departments see to the upgrading of their roads? Commuters relied almost solely on taxis for transport in the Eastern Cape. The taxi recapitalisation strategy was critical, and the speedier its implementation the better. The transport subsidy system appeared to be inconsistent. Why had the prioritisation of these subsidies not changed since 1994? He requested funding from the Department to upgrade a railway line running from East London, a major South African port, to Johannesburg.

Mr Mwazi (Head of Department; Kwazulu-Natal) was concerned about the lack of funding and financial resources in the provinces. The National Road Network serviced advantaged communities, but what service did it provide to disadvantaged communities? The largest setback facing KZN was lack of funding. There was perhaps a misperception in the Department that the province obtained finances from its traffic fines. The revenues went to the Receiver of Revenue, which redirected them to various causes. Only a fraction of the revenue was returned to the provincial Department. Safety had been a major problem, particularly in the rural areas of KZN. There had been many accidents involving children travelling in open-top bakkies and trucks.

Ms N 'O Brien (Acting CEO for Public Works and Transport) regretted the failures of the Department to decentralise the Road Traffic Management Corporation. The Department was not satisfied with the data it had received from IT companies, which informed critical decisions. The Department felt more accountability of the provinces was necessary with implementing national directives. Many roads that were reported for upgrading had been deteriorating for so long that the upgrading process was excessively expensive. If roads were reported earlier, the Department could save more money on upgrading. This year the Department's budget has been cut by R40 million. Like the provincial departments, they were also suffering funding shortages.

Mr Colin Setjaba (MEC) said the key setback for the Department was a lack of funds and resources to manage roads. He felt the proportion of national roads to provincial roads had been exaggerated in the report - they only made up a small fragment of the total network of roads. So why was the required funding for managing national roads so large, at over R1 billion? The provinces seemed to be losing out on this funding - the formula for allocating subsidies was surely distorted?

He suggested the Department procure a conditional grant from the Treasury, based on funds determined by the infrastructure of roads in each province. The Department should incorporate more roads into its National Road Network. This should be done without increasing the number of toll-roads. The cost of toll-roads was a serious burden on the travel plans of people from rural areas. The Department should create a road classification system to integrate provincial, municipal and Department knowledge of road networks.

Discussion
The Chairperson asked what kind of deadlines the Department was adhering to. Did they have a formula for allocating subsidies to the provinces? Did these formulas take into account the size of provinces or their degree of urbanisation and number of roads? He was particularly interested in subsidy allocation to Limpopo and the Eastern Cape. What assistance was the National Department giving to provinces?

Mr Makokoane assured Members that subsidy allocation had been prioritised at provincial and not national level. Provinces should be able to design their road strategy independently of the national strategy. However, he was not certain whether government issued subsidies that covered the entire national road network. Gauteng and Kwazulu-Natal required the largest amount of funding, as they had the largest surface area of roads and railways.

Mr Manyate said the Public Transport Authorities (PTA), under the provision of the National Land Transport Transitional Act, comprised a decision-making group of appointed councillors. The Department was now proposing that business stakeholders and civil society representatives also sit on the PTA councils. This would require amending the provisions of the Act.

Mr M Mzizi (IFP; Gauteng) noted that the report encouraged public transport over private transport use. He knew of privately owned taxis that had sub-contracted government subsidies. According to what criteria did buses and taxis obtain these subsidies? Did the Department have a mechanism for encouraging lift clubs? He was concerned about the misuse of Black Economic Empowerment (BEE) Charters. The validity of these was questionable where ineligible applicants made use of fronts to secure deals.

Mr Manyate said BEE fronting was a serious issue in his Department. They were permanently reviewing BEE companies and registered suppliers and service providers. Mr Makokoane noted it was difficult to verify BEE companies in the taxi industry, which was almost wholly 'black-owned'. The Department was not categorically subsidising privately-owned taxi companies. The Department was undecided about instituting a lift club policy.

Mr Makokoane explained that there remained many challenges from the 1999-2004 strategies. In 1995, the government had found that busdrivers were in possession of life-long transport permits, obtained from the old government. The new government had cancelled these to 'open up the public transport industry.' They had instituted the White Paper in 1996, which devised a policy framework responsive to commuters needs. A competitive tendering process had been introduced for registering public transport businesses, and government had proceeded with a five-year plan to phase out bus permits. The tender had assessed 'road based needs'. Small roads were suitable for taxis rather than buses, for example. Both the bus and taxi industries were aware and co-operative about these changes.

Mr Manyate noted that, due to backlogs, provinces should work with the Department with prioritising roads for restructuring, according to socio-economic opportunities provided by the use of the road. The toll-road concept was under increasing pressure from the provinces, but there was no immediate solution. His department was investigating a possible licensing fee system for taxis and busses, to replace revenues from toll-roads.

Ms P Majodina said the taxi re-capitalisation project needed to be more realistic. She found the National Road Agencies aloof and unco-operative with the provinces. How were these agencies monitored? She felt that provincial road agencies were far more approachable, which made it easier to assess the work they were doing. On what basis were provincial roads transformed into national roads?

Mr T Manyate expressed the reluctance of his department to hand provincial roads over to the National Road Agency. He suggested that provinces determine the level of funding required for managing their segments of road. The calculations should be forwarded to the Department, which could direct funds to the province instead of redirecting the entire matter to the National Road Agency.

Mr Manyate continued that the issuing of subsidies was a complex issue. The subsidy structure had not been changed since 1994, and it was geared toward servicing areas of high population density. Settlements grew naturally around economic and commercial centres. Hence subsidies were allocated to improve the accessibility of labour to economic nodal points. This was why rural areas lost out. Due to low-cost recovery of transport businesses in rural areas, where commuter patterns were inconsistent, subsidies had not been an attractive option. He suggested that the Department create a separate subsidy model for rural sectors. Provinces such as Limpopo and KwaZulu-Natal, with large rural sectors, should contribute ideas to this model.

Reverend P Moatshe (ANC; North West) noted the expense of human lives lost on roads. What were the achievements of the Departments road safety campaigns? What was happening to railways that were lying idle around the country? Certain statements in the report alluded to the Department having sufficient financial resources, and yet in other instances they are asking for more funds. What was the financial status of the Department?

Mr Makokoane responded that the Department had had no intention of misleading the Committee. They needed more funds to complete jobs on roads and border posts. For example, 23 of the 52 border posts around South Africa had been upgraded. There had been insufficient funds to upgrade all 52 border posts.

The Chairperson noted that in the Ministers budget speech, he mentioned a 'road to rail' strategy launched in the Department. What was the present status of this strategy? The issuing of public transport subsidies appeared flawed, because the bulk of these subsidies were not flowing into the taxi industry. However, the report claimed that the industry constituted 60% of South African public transport.

Mr Montana replied that Spoornet had closed many of its lines because they had not been profitable. The Department was looking into re-opening certain national lines and upgrading stations along those lines. However, many of the lines extended into remote rural areas had been scarcely commuted when operational, and so it would be a waste of money to have trains running there again. Companies travelling long distances across the country often complained about the unreliability of Spoornet services, so they preferred to use roads.

Mr Makokoane said that re-capitalising the taxi industry meant approaching the ground-level needs of commuters and taxi drivers. Mr Manyate felt that the 'economics of the taxi industry' should first be approached and better understood before allocating massive re-capitalisations. If, years down the road, the taxi industry was still as badly managed as it was today, the Department would have to revisit re-capitalisation strategies when taxis are again over-used and under-serviced.

The meeting was adjourned.