Departments of Public Works, Water Affairs, Provincial & Local Government Budget Allocations; Division of Revenue Bill: Negotiat

Meeting report

FINANCE SELECT COMMITTEE
8 March 2005
DEPARTMENTS OF PUBLIC WORKS, WATER AFFAIRS, PROVINCIAL AND LOCAL GOVERNMENT BUDGET ALLOCATIONS; DIVISION OF REVENUE BILL: NEGOTIATING MANDATES


Chairperson: Mr T Ralane (ANC)

Documents handed out:
Department of Public Works PowerPoint presentation on Expanded Public Works Programme
PowerPoint presentation from the Department of Water Affairs and Forestry
PowerPoint presentation by the Department of Provincial and Local Government
Explanatory memorandum to the Department of Provincial and Local Government (background document not presented)
Summaries of negotiating mandates of six provinces
Division of Revenue Bill [B8B-2005]

SUMMARY
Members of other Select Committees had been invited to attend the presentations, and different Members did attend from time to time.

The Department of Public Works (DPW) gave a presentation on the Expanded Public Works Programme (EPWP), which was operated by the Provinces, on funding provided by Treasury through the Equitable Share, on fulfilment of certain conditions. The role of the DPW was to ensure that EPWP tender and design guidelines were used on all relevant projects, to provide training programmes, to lobby bodies to participate, to provide support, and to monitor and evaluate. Special emphasis was placed on projects utilising labour-intensive methods. He stated that the total targeted expenditure on EPWP projects was R15bn, divided between provinces and municipalities, with expected job creation reaching 750 000. To date 130 000 jobs had so far been created and there should be acceleration, with a target of 300 000 jobs per year. Questions were asked on the effectiveness of the monitoring, and various problems were raised by the provinces and by the Department of Health. Enforcement of compliance was raised and the role of the national and provincial departments was clarified. Dr Phillips was asked to expand on the co-operation and integration between functions and he clarified which projects fell under the national DPW.

The Department of Water Affairs and Forestry (DWAF) saw the Division of Revenue Bill as a challenge for cooperative government and service delivery. They reported that an amount of R138.7 million had been budgeted for implementation of water services projects, which would complete efforts started under the Water Supply and Sanitation Programme. The Water Services Operating and Transfer Subsidy had been budgeted at R934.4 million. DWAF schemes were to be transferred to municipalities, and the current budget was intended for operation and refurbishment. The hand-over had been extended to 31 March 2005. Some 84 schemes, with a total value of R1 225 million (17%) had to date been transferred. From 2008/09 grants would be incorporated into the equitable share. Drought relief had received an allocation of R202.5 million, of which R149.8 million had been expended, and there would be a rollover. R200 million had been earmarked for bucket eradication in 2005,increasing in future years. Free basic water would be possible through the Equitable Share, which also provided incentives to municipalities providing improved access. The grant would be managed through the Department of Provincial and Local Government (DPLG), but DWAF would continue to monitor and support service provision, implementation and monitoring.

Questions were raised on specific problems of access and supply, which the Department undertook to investigate. It was queried whether the time was right to effect transfer, and DWAF and DPLG explained that they believed this was appropriate, while stressing the support mechanisms. Staff transfers by Municipalities were raised and clarified. The question of sanction for non-performance was discussed. Free basic water supply was raised and explained in this and the following presentation.

The Department of Provincial and Local Government (DPLG) gave a presentation on their current programmes. An amount of R48.8 billion had been added to the baseline allocations of provinces and municipalities. National transfers to Provinces would grow at 10.2% per year over the MTEF period and local government allocations would increase by 13.3%. The DPLG currently managed three main programmes – Local Government Equitable Share (LGES) - dealing with basic services, development needs, and institution support; The Municipal Systems Improvement Grant (MSIG) - a conditional grant, aimed at assisting municipalities and the Municipal Infrastructure Grant (MIG) - a conditional grant intended to eradicate municipal service backlogs and provide basic services, established through the merger of a number of programmes across sectors. The Division of Revenue Bill 2005 would assist DPLG in consolidating its success in local government transformation. DPLG was confident that some of the key challenges would be addressed through Project Consolidate, which would assist government to provide dedicated and appropriate support to municipalities.

Questions were asked on capacity, and on sanctions in case of irregular or wasteful expenditure. The Department was asked to clarify public entities, formulas used for LGES, the provision of free basic services to indigent people, and the stopping of the allocation provided for in the Bill. Future decreases in the allocations to Departments were queried, and explained by reference to parallel increases in allocations to municipalities. The position of poorer or weaker municipalities was discussed. Officials from all three Departments participated in answering questions.

The voting mandates from Provinces were discussed. Adv. J Ferreira from the National Treasury was asked to comment on the suggested amendments. No vote was taken. The final mandates would be negotiated on 11 March.

MINUTES

Department of Public Works briefing
Dr Sean Phillips (Chief Operations Officer) reported that the Expanded Public Works Programme (EPWP) was operated by the Provinces on funding provided by Treasury through the Equitable Share on fulfilment of certain conditions. The role of the DPW was to ensure that EPWP tender and design guidelines were used on all relevant projects to provide training programmes for workers, officials, contractors, engineers and supervisors, to lobby provinces, municipalities and other bodies to participate, to provide support, and to monitor and evaluate. Special emphasis was placed on projects utilising labour intensive methods. Quality and cost effectiveness were as important as the work being generated. Dr Philips summarised the funding and reporting chains and the significance of the EPWP Guidelines. The EPWP Guidelines provided guidance and contract conditions in tendering for EPWP projects, and made the use of labour intensive methods which was a contractual obligation. He described the labour intensive (LI) contractor learnership programme and reported that 30 provincial departments and municipalities were participating. The LI programme for Contractors aimed to develop 500 sustainable contractors and 1000 site supervisors, and as part of the learnership they would implement 1 500 projects to a value of R1.5bn, employing 100 000 people. The Department of Labour had given a commitment to provide funding and opportunities for those who had completed the LI programmes. The total targeted expenditure on EPWP projects was R15bn, divided between provinces and municipalities, with expected job creation reaching 750 000. To date 130 000 jobs had been created and there should be acceleration with a target of 300 000 jobs per year.

Discussion
Mr M Robertson (ANC) asked how effective the monitoring was. He stated that all reports heard by the Committee over the last two days had mentioned delays in DPW as one of their major difficulties. He asked whether provision of roads to projects was the responsibility of DPW or of the Department of Transport. He reported that equipment previously held by districts or municipalities in the former homelands now appeared to have been returned to the province, and maintenance was at a standstill.

Dr Phillips answered the question on roads by stating that the National DPW had no control over roads, but in some Provinces, roads were grouped together with the Provincial DPW. In these cases, the roads function would report to the National Department of Transport. He understood that no municipal structures had been established in the former homelands and therefore equipment had been taken over by the provincial governments as successors to the homelands.

The Department of Transport’s representative clarified that provision of roads fell under his Department. Problems had been identified and a road co-ordination body, comprising the National Department of Transport, all 9 provinces, and metros had been established. This would consider roads development and planning, including the road classification system, with a view to integrating the roads network and establishing which body was responsible for maintenance of every stretch of road. Overloading was a major issue and the plans hoped to achieve sustainability in construction and maintenance of all roads. Mechanisms were also now in place at provincial level to ensure better co-ordination and integration.

Mr E Sogoni (ANC Gauteng) asked whether the DPW had the capacity to do effective monitoring and whether projects could be specifically identified to the Committee. He identified problems in provision of police stations in Gauteng.

Dr Phillips was aware of problems of delays and quality and stated that the service delivery programme (which included better training) aimed to improve all systems by April 2005. He pointed out that the budget for SAPS had been fully spent. He stated that DPW did not have the capacity to monitor every project. However, it was DPW’s role to monitor the total programme, and the role of the provinces to monitor and report on the individual projects. Selected projects would also be evaluated by DPW on an annual basis. A decision had been taken that municipalities should report on their infrastructure grants only to DPLG. Copies were then made available to DPW.

The Chairperson wondered if the lack of monitoring of projects would not create further problems. Dr Phillips stressed that DPW looked to monitor whether the projects were labour-intensive, but the hands-on monitoring of the project itself remained with the province. Accounting Officers in the provinces would retain their accountability on the individual projects.

Mr B Mkhalipi (ANC) referred to the statement that if municipalities and provinces did not use the guidelines the EPWP targets would not be reached. He asked if there was agreement how to enforce compliance.

Dr Phillips replied that there had been a lack of understanding as to how the EPWP should be implemented as it differed substantially from former projects that used normal budgets to carry out programmes. However, DPW had put together a team to make presentations, attend meetings and assist provinces and municipalities to understand the programme, and targeted municipal officials to receive training. On the compliance issue, he stated that there was no formal agreement on compliance but the tender guidelines did contain an explanation how the guidelines should be implemented, how training should be accessed and what Municipalities should do to implement the projects. There was ongoing training and discussion with provincial Departments and municipalities, and the Government Communications and Information Service and the Business Trust would also be involved in media briefings to increase awareness.

Mr M Mzizi (IFP Gauteng –Public Services Select Committee) asked whether the training programme extended only to supervisory level, and the expected length of employment. He asked whether these programmes had led to job displacement.

Dr Phillips replied that the duration of employment differed from project to project. Road maintenance on a stretch of road would be ongoing, but some construction would have a definite start and end date. Those who attended a two-year learnership would move on to employment in that field. The length of training would also differ but all courses were integrated with the National Qualifications Framework (NQF), all qualifications were transferable and links would be developed with a variety of other programmes. The building industry had undertaken to try to recruit learners from the programmes and would also provide information on how to access them.

Dr Phillips stated that DPW was aware of the possibility of job displacement when designing the EPWP. However, the infrastructure sector had been identified as a growing area over the next 10 years and therefore a conscious decision had been taken to target that sector. In this way fewer machine-intensive contractors were likely to be displaced. Emphasis on the EPWP did not mean that attention was being diverted away from other major programmes.

Dr Sibeko (Department of Health) reported that the previous day’s hearings had revealed problems with DPW’s progress on hospital building. He had discovered that in KwaZulu-Natal contract management problems had created delays of 10 months, and in Limpopo there were a tender that had closed in August 2004 but no contracts had yet been awarded. He was able to give further instances if required.

The Chairperson asked if DPW was aware of these problems and what was being done to address them. He asked if there was sufficient integration and interaction between national and provincial departments.

Dr Phillips replied that provincial infrastructure projects would not necessarily fall under DPW if they were outside the EPWP. Provincial DPWs were independent of the National Department because they were the responsibility of provinces. However, DPW had been working with Treasury on this complex issue to try to develop infrastructure programmes to address problems that had arisen through planning and budgetary constraints and through client problems. The Infrastructure Delivery Improvement Projects, piloted in 13 provincial departments, aimed to improve systems and develop capacity to plan and develop infrastructure projects

The Chairperson stated that he was not happy with this explanation. He believed that it was not sufficient to "pass the buck" as such problems should be resolved at MinMEC. Dr Phillips clarified that the National Department was participating in an infrastructure improvement programme that was attempting to address these problems.

Mr D Botha (ANC, Limpopo) asked what projects the National DPW handled, as he believed one of the purposes of the National Treasury Grant was to ensure that quarterly reports on progress were received. He queried what real co-ordination there was between national and provincial departments.

Dr Phillips replied that the National Department was not tasked with delivery on education, roads, health and agriculture, and that allocations were only given to it in respect of buildings or works for the SAPS, Defence Force, Correctional Services and Justice. All others were the responsibility of provinces, because of the functional divisions set out in the Constitution.

Ms A Nkanunu (IFP) said that there was a focus on youth training programmes but space was a constraint. She asked whether the DPW would be able to provide physical training facilities by upgrading buildings that had fallen into disuse. She believed the building of toilets and septic tanks was a priority issue.

Rev. P Moatshe (ANC, North West, Select Committee on Public Services) asked for clarification on the difference between a programme and projects, and whether data was available on the location and progress of projects. He asked whether there was good co-ordination among stakeholders.

Dr Phillips was aware of under-utilised buildings and stated that DPW would try to get them functional through the EPWP. The DPW would not specifically plan for building of training facilities, but would act as a facilitator in bringing together funders and the relevant SETA. There would be little point in building premises if there were no funding for training. He noted the comments on building of toilets.

He stressed that this programme did not allocate funds to specific projects but rather tried to influence municipal and provincial spending so that it resulted in job creation and training. The Accounting Officers of those provinces were responsible for the actual allocation and spending of funds.

The Chairperson stated that previous presentations had pointed to capacity problems within municipalities and he queried whether the National DPW had budgeted for sufficient capacity at a local government level to ensure delivery. He asked that representatives of SALGA and Treasury also comment.

Dr Phillips reported that the National DPW were ready to deliver on the projects and that training programmes had trained municipal officials in proper development and implementation.

Mr P Rhedani (Director of Municipal Finance, SALGA) asked for clarification on the training programmes. Dr Phillips said that detailed information was available on the DPW website.

Mr Rhedani also mentioned that the 2004 Division of Revenue Act had made provision for the maintenance of infrastructure but he saw no provision for this in the new Bill, and believed that it should be included.

Adv J Ferreira (Director Legal Services, Treasury) replied that this was not addressed in DORA but had been included in the Municipal Finance Management Act.

Department of Water Affairs and Forestry briefing
Mr M Muller (Director General, DWAF) stated that the vision of the Department was "to work together, ensuring some (water), for all, forever". The Department saw DORA as a challenge for co-operative government and service delivery

Mr J Sindane (Deputy Director General, DWAF) reported that an amount of R138.7 million had been budgeted for implementation of water services projects, which would complete efforts started under the Water Supply and Sanitation Programme. The Water Services Operating and Transfer Subsidy had been budgeted at R934.4 million. DWAF schemes were to be transferred to municipalities, and the current budget was intended for operation and refurbishment. The hand-over had been extended to 31 March 2005. 84 schemes, with a total value of R1 225m (17%) had to date been transferred. The receiving institution, in order to receive transfer, should have the necessary capacity for implementation of the conditional grant. Special arrangements had been needed for Municipalities with weak administrative and technical capacity. From 2008/09 grants would be incorporated into the equitable share. Drought relief had received an allocation of R202, 5m, of which R149,8m had been expended, and there would be a rollover.

Mr Muller reported that free basic water would be possible through the Equitable Share in rural areas, and cross subsidies in metro municipalities. The equitable share provided incentives of more funding if municipalities had provided better access. The grant would be managed through the Department of Provincial and Local Government (DPLG), but DWAF would continue to monitor and support service provision, and assist with standards. The Municipal Infrastructure Grant (MIG) replaced the DWAF capital programme, and water and sanitation accounted for 72% of this grant in 2005, and 53% in the future. R200m had been earmarked for bucket eradication in 2005, increasing in future years, and DWAF would support municipalities in planning, implementation and monitoring.

Mr Muller gave details of the bucket eradication programme, and the Special Municipal Infrastructure Fund (SMIF), which was currently capped at 2.3% instead of the required 4%. DWAF still needed to engage with National Treasury and DPLG regarding allocations. He summarised DWAF’s role in developmental regulation, in engagement with the municipal processes, and enforcing compliance through requests, public and financial pressure, intervention, or finally legal action. He summarised the provisions of DORA, pointing specifically to Clause 9, regulating the funding where public entities, such as water boards, provided services, the requirement for formal agreements, and their framework. There still needed to be clarity on the roles of sector departments. DWAF welcomed the Bill and was prepared for its challenges.

Adv. J Ferreira (Treasury) clarified that the intention of Clause 9 was to force Municipalities and public entities to reach agreement since public entities provided retail services and municipalities could not control tariffs and service levels.

Discussion
Mr D Botha (ANC, Limpopo) referred to the figures for drought relief and expressed concern that the rollover had extended over two financial years, instead of being applied directly to community efforts. Mr M Goeieman asked for clarity on the Water Board agreement in the Northern Cape. He pointed specifically to drought problems in the Northern Cape and asked why the rollover could not be utilised to assist farmers in that area. He also asked for clarity on why only 48% of agreements had been signed and staff transferred.

Mr J Sindane (DWAF) stated that the Northern Cape farmers fell under the jurisdiction of the Department of Agriculture but this issue could probably be raised at MinMEC.

On the question of rollover, Mr J Sindane commented that the financial years in National and Provincial sectors differed, and that Municipalities’ financial years ended in July. Funds had been transferred only in December, and although there would be a rollover the proportional level of spending, by month, was correct. He also pointed out that emergency funding was reactive in nature and may only be finalised long after the event. Project Consolidate was trying to identify areas in need and address them through co-operation of all departments. DWAF was confident that it would be meeting its targets.

Ms D Robinson (DA, Western Cape) asked how it was planned to eradicate the bucket system where there was little water.

Mr Muller (DWAF) stated that eradication of the bucket system would be undertaken wherever possible and where water-borne sewerage could be introduced, and would be a priority in urban areas.

Mr M Robertson (ANC, Eastern Cape) highlighted a school in Lady Frere where sewerage systems were provided in 1997, but no connection had been made, resulting in serious health risks. He also indicated that land had been allocated for a development in Herschel, where there was no water. He asked who was responsible for water from the Orange River.

Mr J Sindane replied that sanitation in schools fell under the Department of Education, and that DWAF had already advised schools that it would be able to provide expertise and fix systems. He undertook to investigate the position. Mr Muller (DWAF) stated that the Herschel problem highlighted the need for coherent planning at municipal level. DWAF tried to promote this, but he conceded that in many areas the infrastructure was badly managed and better emphasis must be placed on metering and billing. He undertook to check the current position.

Mr M Robertson queried whether it was really viable to effect a hand-over to Municipalities at this stage. Mr Nduli (Member of another Select Committee) and Mr B Mkhalipi (ANC) asked about the transfer of staff to Municipalities, and particularly for details on any agreements between the Department and the Municipality in regard to performance. Rev. P Moatshe (ANC North West, Select Committee on Public Services) asked how quickly training was progressing.

Mr Muller (DWAF) responded that funding followed functions. Because water management fell in the equitable share, all water-related functions did indeed need to be transferred to Municipalities. There were challenges with seconded staff, but these were being addressed, and it was hoped that the process would be completed quickly. DWAF believed that all staff should be transferred with the function but some Municipalities had tried to reduce the staff component, and in such cases DWAF would negotiate for proper assurances and a prohibition on additional staff within a certain time.

On the question whether it was viable to hand over to Municipalities, DWAF believed that the handover could be successfully completed by March 2006. DWAF would remain part of the process after transfer by assisting with takeover and giving support, and Municipalities would still be answerable to DWAF. Mr E Afrika (DPLG) added that since 1994 it had been recognised that there was a need to build local government. Two years ago DPLG had discussed the readiness and capacity of Municipalities, and issued authorisations leading to the distribution of functions and powers. It had also undertaken an analysis of levels of capacity, and where this was insufficient, DWAF and DPLG had a rollout initiative aimed at support. DPLG therefore agreed that this was an appropriate time to effect the takeover, but recognised that appropriate and concrete support would be given. Proper consideration had been given to the assignment process, by provision of necessary legislation, allocation of resources and continuous improvement of infrastructures.

Mr B Mkhalipi (ANC) asked whether it was really appropriate to "name and shame" municipalities who did not comply with norms and standards. Mr Goeieman asked what would be done about Municipalities who did not use funding for the purpose intended.

Mr Muller (DWAF) stated that the Departments were aware of the dangers of adverse publicity, but felt that if water supplies were unsafe, residents should be notified. There was an improved process to ensure compliance, which involved a series of steps, and a number of stakeholders would be notified of problems in the hope that this would result in increased pressure, co-operation from the municipalities, and a quicker resolution of problems.

Other Members raised problems with specific areas and developments and asked if DWAF could comment on those areas. They also asked for clarity as to what municipalities could do in cases where municipal water charges had not been paid or illegal connections had been made, as it seemed that some municipalities were stopping supplies altogether.

Mr J Sindane (DWAF) replied that each municipality had its own policy on payment and connections, but that it was not acceptable for a municipality to stop water supplies to an entire community. In some areas there had been lack of communication between water boards and municipalities as to who was responsible for setting tariffs. He conceded that there were areas where pipes had been provided but no water connected. Municipalities who installed meters and therefore were able to monitor use would receive preferential connections as only in this way could use be measured and necessary steps taken to eliminate wastage. He asked Members to provide his Department with details of specific problems so that he could investigate further.

Ms A Nkanunu (IFP, KwaZulu-Natal) asked if provision had been made to draw water from dams. She also asked if DWAF were involved in programmes of re-forestation to try to improve resources, and if the Department of Agriculture was involved in any deep-trench gardening.

Mr J Sindane stated that these topics would be addressed in an intergovernmental forum discussion with the Departments of Agriculture and Environmental Affairs. DWAF would also participate with Provincial Governments to ensure that plans made use of all available resources.

The Chairperson asked whether the budget made special provision for areas with poor rainfall, or poor access to rivers and dams.

Mr J Sindane replied that municipalities in these areas were supported by DWAF in their planning, and helped to decide if other interventions – such as diverting water or building dams – were needed.

Mr K Mokoena (Select Committee on Public Services, ANC, Limpopo) asked whether there was a process to ensure that service providers utilised funds correctly. He asked whether any provision was made for assistance in deforested areas. He was concerned that Municipalities would be expected to maintain resources and machinery taken over. These questions were addressed in broad terms during the presentation and answers in the next presentation.

Mr E Sogoni asked whether anything was being done about rising water levels where mining had been abandoned. Mr J Sindane (DWAF) stated that there was a problem in settling liability, for pollution in particular, between the Departments of Minerals and Energy and DWAF and the mining companies. He did not deal specifically with rising water levels.

Mr M Goeieman asked how people could be assured of benefiting from the free basic water supply.
Mr J Sindane (DWAF) stated that municipalities were encouraged to install monitoring so that water supply could be assured.

Department of Provincial and Local Government briefing
Ms L Msengana-Ndlela (Director General, DPLG) reported that an amount of R48.8 billion had been added to the baseline allocations of provinces and municipalities. National transfers to Provinces would grow at 10,2% per year over the MTEF period and local government allocations would increase by 13.3%.

The Local Government Equitable Share (LGES) required consideration of basic services, development needs, institution support, the ability of Municipalities to raise revenue and a guarantee of allocations published in 2004(a stabilisation component). This would be phased in over three years, and work on it would be ongoing. Ms Msengana-Ndlela explained the expenditure trends and noted that some Municipalities who did not provide basic services would receive lower allocations.

The Municipal Systems Improvement Grant (MSIG) was a conditional grant aimed at assisting municipalities in developing in-house capacity to build integrated systems to perform their functions. A district-wide capacity building development plan would need to be prepared in consultation with local municipalities. The total grant allocation over the period 2005-2008 was R600m and the grant would be reviewed in 2007. This grant had been challenged by late submission of business plans, poor spending, rollovers, non-compliance with DORA and poor consultation between districts and municipalities. The Department was able to report on progress in the previous year. A programme of support had been developed and was being implemented through Project Consolidate.

The Municipal Infrastructure Grant (MIG) was a conditional grant intended to eradicate municipal service backlogs and provide basic services, which was established through the merger of a number of programmes across sectors. An amount of R21.19 billion had been allocated over the 2005-2008 period. Key conditions, and roles and responsibilities were highlighted. DPLG administered the MIG and convened Municipal Infrastructure Task Team meetings, involving several other Departments, who retained their policy making and regulatory functions while providing oversight and monitoring. A summary of transfers and expenditure, by Province, was given. Challenges faced were similar to those of MSIG, but various interventions had been made.

The Division of Revenue Bill, 2005 would assist DPLG in consolidating its success in local government transformation. DPLG was confident that some of the key challenges would be addressed through Project Consolidate, which would assist government to provide dedicated and appropriate support to municipalities.

Discussion
Mr E Sogoni asked whether the public entities referred to in Clause 9 of the Bill could be identified, and whether they were self-sufficient.

Mr J Sindane (DWAF) stated that the "public entities" for water were the water boards, which were self-sufficient and thus would not receive funding. DPLG was busy with SALGA in a process of institutional reform and in future it may be that the Boards would be dissolved. Other public entities would include bodies such as Eskom and Telkom.

Mr E Sogoni asked DPLG to clarify what R3bn set aside for "community investment programmes" would comprise.

Mr E Afrika (Deputy Director General, DPLG) replied that the amounts allocated had resulted from successful collections by SARS, and the funding would essentially be used for infrastructure development through the MIG.

Mr E Sogoni asked the DPLG to clarify whether the Division of Revenue Bill addressed the problem of capacity, and whether Clause 42 of the Bill would assist in cases of dispute. He also asked what would happen in the case of wasteful or irregular expenditure, which had been the responsibility of provinces to date.

Mr E Afrika (DPLG) stated that the Bill did make provision, in clause 18, for capacity building. DPLG and Treasury would settle conditions. In the current financial year R182 million had been set aside to assist municipalities in a range of different areas, listed in the report. It was too early to provide a comprehensive report in respect of the current year, but 90% of the funds had been allocated and transferred. 136 municipalities had been identified where additional support was required, and 37% of municipalities currently had capacity to prepare and implement the IDP. Tangible and measurable targets were set over the next two years, covering all key performance areas. This was not solely an initiative of DPLG but a government-wide attempt to harness all resources.

On the question of wasteful expenditure, DPLG’s Chief Financial Officer stated that financial conduct was dealt with in the Municipal Finance Management Act, which provided for disciplinary proceedings.

Mr M Goeieman (ANC, Northern Cape) asked for clarity on the formula used for LGES. He was also concerned about the under-spending and asked what process had been put in place to assist implementation.

Mr P Flusk (Deputy Director General, DPLG) stated that MIG was only nine months old, and he stressed that although the transfers had taken place, the Municipalities were only obliged to complete their spending in July. So far the municipalities were on track in their spending although the difference in financial year-ends had distorted the percentages.

Ms Msengana-Ndlela (DPLG) explained that the new formula took into account a cross subsidisation, and added in a stabilisation component. The old formula had disregarded a number of municipalities intended to benefit, whereas the new formula incorporated incentives based on revenue raising.

Mr Nduli (Public Services) asked for clarity on the indigent policy in KwaZulu-Natal, which had thus far not been well managed.

Mr P Flusk (DPLG) stated that municipalities had administered these policies differently. Some local governments had stated that there would be free access to services to all. DPLG had inherited a list of households who did not have basic services. Last year DPLG had submitted a national standard policy to the social cluster of Education, Health and Water, and had developed guidelines to assist municipalities in implementation. Different provinces had decided to administer either according to a register of indigent people, or through a broader "service to all" which could account for the differences. The means test was largely used as a basis.

The Chairperson asked how DPLG would view the stopping of allocations provided for in Clause 35 of the Bill.

Adv J Ferreira (Treasury) reported that the Minister would proceed in terms of the Municipal Finance Management Act and that DPLG would be consulted. A full process was provided for and opportunities would be given to the province to explain itself before a decision to withhold payment was made.

Mr E Afrika (DPLG) said that this clause had been discussed with Treasury. It was felt that this clause was necessary so that funding could be reallocated. DWAF argued that in the past they had found DORA to be inflexible because it had not made provision for cases of persistent and material non-compliance. He agreed that it was vital to ensure that support mechanisms were in place. Project Consolidate would be used to attempt to avoid the situation but this clause could be invoked as a last resort.

The Chairperson asked what formula was used for the Municipal Infrastructure Grant of R5bn, and how it would be disbursed. He referred to decreases in allocations set out in Schedule 3 and in Schedule 6 and asked if Departments were consulted when allocations were made.

Ms AS Makotoko (Director, IGFR programme, DPLG) replied that the formula had a number of components, including provision of basic services. Municipalities providing basic services and additional resources would gain from the equitable share. Treasury determined allocations, and the administration of the grant was handled by DPLG, with both signing off the allocations.

Mr E Afrika (DPLG) stated that funds would be disbursed in different ways according to the size of the scheme and that although it appeared that funding for DWAF had decreased, there had been a concomitant increase in the municipal allocation, as funding would in future fall within the equitable share and not the conditional grant. There was a similar effect in Schedule 6.

The Chairperson asked if the formula for MIG did not disadvantage the weaker or poorer municipalities, and whether this might not result in migration to municipalities that could provide better services. He suggested that DPLG should arrange a workshop on the formula for the information of the Committee.

Negotiating Mandates: Division of Revenue Bill
The Chair asked the Provinces if they had received their mandates, and asked Adv J Ferreira (Director of Legal Services, National Treasury) to comment on the submissions. Issues raised were as follows:

Mpumulanga – no mandate received

Limpopo – no mandate received

Western Cape:
- Technical amendments were proposed to Clauses 5.5 and 11(2), as well as 15(2)(b) and 15(2)(c). Adv J Ferreira (Treasury) gave reasons for the present wording.
- Clause 15(5) should be removed in its entirety from the Bill, as it was felt undesirable that the Provincial Revenue Fund should fund expenditure attributable to non-compliance. Adv J Ferreira clarified that the Provincial Revenue Fund was a revenue account and there would not be a burden on provinces. This was intended to be a "fall-back" position and was introduced in the context and history of the social grants to ensure that provinces addressed issues of delivery, corruption and so forth. She did not agree that it should be removed.
- Clause 15(8) was considered undesirable, as amendments to the legislature should be approved by the legislature. Adv J Ferreira agreed this was a harsh provision, but should be seen as a transition measure in view of the history of the social grants.
- Technical amendments to wording were proposed to Clause 16(1). Adv J Ferreira confirmed that a consultative process would be followed, although National Treasury was responsible for implementation.
- Clause 17 was regarded as unconstitutional and should be removed if all interested parties had not been given the opportunity to comment on the Bill. Adv J Ferreira disagreed that it was unconstitutional as the assignment happened in terms of the Housing Act. The clause was designed to put pressure on local government to facilitate the procedures for assignment.
- Clause 17(5) should be removed as it appeared to disregard Sections 9 and 10 of the Municipal Systems Act. Adv J Ferreira did not agree, stating that if the process of accreditation were carried out, Sections 9 and 10 would not apply. She assured Members that Treasury checked all Bills for constitutionality before tabling them in Parliament.
- Clause 25.1 should be removed, as National Treasury did not seem to have informed Provincial Treasury what was expected of them. Adv J Ferreira stated that this process had been followed.
- Clause 35(2) should be added to make it incumbent upon National Treasury to address issues leading to under expenditure in provinces or municipalities. Adv Ferreira did not feel that it was necessary to include this in the Bill although clearly the process would be followed.

The Chairperson asked for Adv Ferreira’s comments on Clause 35 as this had been raised during earlier questions. She clarified that DPLG already had authority to act under the Municipal Finance Management Act but Treasury would consult with DPLG if it were of the opinion that funds should be stopped. She confirmed that DPLG seemed to have accepted the position when it was discussed before. North West had raised a question during discussions, and she confirmed that no stopping of funds would be made before calling for explanations.

Northern Cape – The Bill was supported, although concerns were expressed that the reduced allocation for Housing might result in over-expenditure, and that the reduction for Roads would have a negative impact. It was felt that the EPWP should be listed as a conditional grant. Adv J Ferreira asked for some clarity on these comments, before she replied.

Gauteng: The Bill was supported in general, although it was asked that reservations expressed on the need to conduct oversight on spending, the recommendations to Treasury, and comments on obligations imposed by the Bill be noted and negotiated at the final meeting.

Free State: The Bill would be supported, subject to the following:
- Technical amendments were suggested to Clause 1 ("bank account" and "receiving officer"; to Clause 2(d); to Clause 6(3); and to Clause 24(2)(b); 28(1)(a). Spelling errors were pointed out and should be rectified. Adv J Ferreira explained why the wording had been put in the Bill, and agreed that technical oversight in Clause 1 would be amended.
- The reference to 45% in Clauses 3(3), 7(3) and 8(4) was measured against future allocations, whereas the 45% in Section 29 of the PFMA was measured against previous annual budgets. . Adv Ferreira said the difference was deliberate, to provide a "fall-back" position.
- It was suggested that "Municipal Systems Act" be fully cited in various clauses. Adv J Ferreira said that the definitions section had already cited the Act in full by reference.
- Clause 15(2)(c) and (9) should use the word "assistance" instead of "security", in line with other amendments elsewhere. Adv Ferreira agreed and said it would be amended.

North West: The Bill would be supported.

KwaZulu-Natal: The Bill would be supported, although some problems remained to be addressed by the Departments.

The Chair requested that Treasury’s response should be submitted in writing by the following day and that Members should get feedback from their provinces in order that the mandate be finalised on Friday.

The meeting was adjourned.