Budget Review; Traditional Leaders & Municipal Infrastructure Investment Unit Reports

Meeting report

PROVINCIAL AND LOCAL GOVERNMENT PORTFOLIO AND SELECT COMMITTEES: JOINT SITTING
15 May 2001
BUDGET REVIEW; TRADITIONAL LEADERS & MUNICIPAL INFRASTRUCTURE INVESTMENT UNIT REPORTS

Chairperson: Mr Y Carrim

Relevant documents:
Briefing document on transformation in local government
National House of Traditional Leaders: Annual Report 2000 - 2001
Municipal Infrastructure Investment Unit: Introduction and Overview
Municipal Infrastructure Investment Unit: Operations, Budget & Future Direction

SUMMARY
The Department briefed the committee on its efforts to transform local government. Members were keen to inquire about the municipality capacity building efforts of the Department, as it seemed to be the most pressing problem of municipalities at present.

The House of Traditional Leaders presented their annual report to the committee but members found it lacking in many respects such as information on expenditures. The House was clueless in regards to the specifics on their budget and laid the blame on the Department.

The Municipal Infrastructure Investment Unit presented a brief overview of their organisation, its operations and its budgetary process. A common concern of the committee was that efforts seemed to be concentrated on the more affluent areas and not in the poor rural areas where dire assistance is actually needed.

MINUTES
The Chairperson, Mr Y Carrim stated that the aim of the meeting was to raise certain concerns with the Department and the statutory bodies present. The presenters in turn would not be required to respond to all or in detail to the questions posed to them. A broad understanding on some of the issues was required. Detailed discussions would be undertaken in the future.

Department of Provincial and Local Government
Ms J Manchie, Deputy Director-General delivered a brief overview of the transformation process currently taking place in local government. The Department is spearheading reforms in various facets of local government. Institutional reforms include the administrative mergers of racially segregated municipalities and the re-demarcation of municipal boundaries aimed at reducing the number of municipalities. Systems reforms would be to focus on community participation, municipal partnerships and monitoring key performance areas as identified in the Integrated Development Plans (IDP's).

Ms Manchie stated that the Department is also supportive of exploring alternative service delivery mechanisms as the Municipal Infrastructure Investment Unit (MIIU). Post demarcation challenges include the amalgamation of existing municipalities and the setting up of new administrations where none had existed before. The Department is engaged in stabilising municipalities up until the year 2003. The aim is to assist municipalities in capacity building and local government finance. Ms Manchie stated that there is renewed focus on metros as they are the cornerstones of South Africa's national economy. Metros account for a significant percentage of the population and generate more than 60% of South Africa's Gross Domestic Product (GDP). In order to give effect to the transformation of municipalities, R100m has been disbursed to them in March 2001.

Discussion
Ms G Borman (DP) asked the following questions:
-Is the equitable share calculated according to a formula. If so, how is it allocated on an equal basis to municipalities in provinces?
-Of the 284 new municipalities, how many are financially viable?
-Where municipalities have acted irresponsibly, are they going to be funded irrespective of their transgressions? Are there ways to monitor the spending of municipalities?
- When municipalities are in difficulties, do they contact the Department? What is the procedure?

- Ms Manchie stated that the equitable share does go to the provinces. National Treasury allocates funds directly to municipalities.
- The determination of the financial viability of municipalities is highly complex. The Department is engaged in efforts to try to find ways of generating tax revenues.
- Funding provided to municipalities are in all instances accompanied by spending guidelines. The performance of municipalities is assessed on a quarterly basis.

Mr P Smith (IFP) asked the following questions:
- What is the status quo of small municipalities who have a small tax base? Are there measures to make them financially viable?
- What was the basis for coming up with the funding figures of R100m, R250m and R200m for the years 2001, 2002 and 2003 respectively?

- Ms Manchie stated that they had come up with the figures by looking at the previous year's expenditures of municipalities. The Department recommended that national government should not provide all the funding, local governments themselves should also make contributions.

The Chair asked if the figure of R100m is adequate given the magnitude of the transformation that is to take place. He also asked if it is true that the equitable share had increased from 3% to 3.1%.

Ms Manchie felt it too premature to decide whether the R100m is adequate or not.
She added that she was aware that the equitable share had increased but not whether it was as much as the Chair had stated.

Mr M Bhabha (Mpumalanga, ANC) raised the following:
-On the issue of the R100m funding, are there legislative reasons for funding assistance to the municipalities.
- In drawing up IDP's, municipalities use consultants to assist them with this highly technical process. The Department should come up with a means to assess the quality of consultants as they account for a great deal of municipalities' expenditures.
- The Department should also consider setting up a unit or a helpline that could provide assistance to municipalities on a provincial and national level on legal issues etc. It could mean saving funds spent on taking on the services of local lawyers.

The Chair supported the recommendation.

-The Department has provided municipalities with guidelines for the drawing up of IDP's. Ms Manchie stated that 20 PIMS Centres have been set up to assist municipalities in drawing up IDP's. She emphasised the fact that municipalities use their own discretion in contracting consultants.
The Chair suggested the possibility of a register of recommended consultants to be used as a practical option.
Ms Manchie stated that they would consider the recommendations of a register and a helpline.

Ms P Majodina (EC, ANC) asked the following questions:
- How is the backlog on the provision of basic services being dealt with?
- What are the efforts of the Department in poverty alleviation?
-To what extent does the Department train municipalities on the drafting of IDP's?

Ms C Lobe (ANC) had the following concerns:
-Where one municipality has been combined with another, how does the Department assist these municipalities with the greater workloads?
- As far as the division of powers and functions of municipalities are concerned is it going to be normal practice for certain categories of municipalities to perform functions of others.
- Relating to the funding of district councils and metros, which municipalities are going to receive priority funding?
- Municipalities spend large amounts of funds on consultants. Should municipalities not be provided with the capacity to perform these functions themselves?

Ms Manchie stated that they are addressing the issue of divisions of powers and functions. They also need to address issues on funding of district and larger councils.

Mr C Ackerman (WC, NNP) asked whether capacity-building efforts by the Department could not be construed as intervening in the work of the NCOP?

Local government support by the Department is done in co-operation with the provinces. The provinces point out the problems that a municipality experiences and the Department tries to assist them.

Mr Sithole (ANC) asked how the Department co-operates with other departments and spheres of government.

Ms Manchie agreed that co-operation is the key to success.

Ms R Southgate (ACDP) asked whether there would be a formula to be used in determining the financial assistance given to municipalities in terms of the Local Government Transition Fund.

The Department foresees that municipalities would experience problems with transformation for the next three years. It is for this reason why the Fund has only a lifespan of three years ending in 2003. After this period these funds would form part of the equitable share.

The Chair stated that many questions had been raised on capacity building. He asked if programmes are in place to build capacity in light of the provisions of the Municipal Systems Act.

Ms Manchie stated that capacity building work by the Department is complementary to the provisions in the Municipal Systems Act. She added that they have Key Performance Indicators (KPI) in place to keep track of the process.

Rev A Goosen (ANC) stated that local government support is to increase from R160m in 2001, to R20m in 2002 to R30m in 2003. He was concerned that if municipalities were going to be spoon-fed they would take longer to come into their own. Rev Goosen felt that the amounts should decrease over the next three years as more and more municipalities stand on their own feet. He asked what are some of the problems currently being experienced by municipalities.

National House of Traditional Leaders
Inkosi M B Mzimela chairperson to the House presented their annual report to the committee. Inkosi Mzimela stated that traditional leaders had suffered greatly under the previous Apartheid regime. What was disconcerting to traditional leaders was the fact that even though the reigns of power in South Africa is now in the hands of their own, the situation is pretty much the same.

The burning issue to traditional leaders is the immense powers and functions of municipalities in their traditional areas. They feel that they have been stripped of their traditional powers. It is their submission that there should be a balance of power between the two institutions. Traditional leaders are dissatisfied with the manner in which government has delayed the process of addressing the issue.

Inkosi Mzimela proceeded to read out excerpts from their report. It was evident from the excerpts that traditional leaders believe the Constitution to be the source of the problem itself. The Constitution apparently confers all the previously held powers and functions of traditional leaders in the local government sphere upon municipalities. They are therefore calling for a Constitutional amendment that would restore traditional leaders' powers and functions. The National House of Traditional Leaders is therefore trying to engage the Department to allow them to participate meaningfully in the legislative process. It seems that co-operation from the Department is not what it should be.

Discussion
Ms Borman (DP) referred to the report and asked why there been such huge increases in budget allocations for personnel from R387 000 in 2000/2001 to R2724 000 in 2001/2002.

Mr Mzimela stated that he would not be able to elaborate on it, as the Department is responsible for the budget.

Mr B Solo (ANC) referred to the budgetary proposal in their report and asked if they have business plans to accompany them.

The response from the House was once again that they are not involved in the budgeting process.

Mr J Ngubeni (ANC) asked what the relationship between the National House of Traditional Leaders and the Coalition of Traditional Leaders is. Are they separate from each other or is there a relationship between them?

Mr Mzimela stated that they are both statutory bodies that represent traditional leaders. He added that he is unsure about the status of the House even though all traditional leaders agreed for it to be their common voice in Parliament. The Coalition is therefore a body in their own right with its own members and its own budget.

Mr Ngubeni asked the following additional questions:
- If the House is asking for an amendment of the Constitution, have they proposed a draft amendment? Has proper research been done?
- What is currently the situation on the White Paper process regarding traditional leadership?

- Mr Mzimela stated that they have well researched proposals. Their work is ongoing.
- The Director-General, Mr Zam Titus stated that the legislative process on traditional leadership has been put on a backburner. At a meeting held in April 2001 it was agreed that they should proceed with a Green Paper. All those issues not covered in the previous Bill should be included in the Green Paper. The first draft would be the result of an all-inclusive process of all stakeholders.

Rev Goosen referred to their trip to New Zealand as is mentioned in the report and asked what lessons had been learnt from the trip.

A representative of the House stated that it was rather the New Zealanders who were taking lessons from them. The New Zealanders felt that the House of Traditional Leaders was contributing much more to the rights of traditional leaders than they are.
It was also added that a trip is to be undertaken to Ghana to assist the house in making more meaningful inputs in the legislative process.

Mr A Marais (FS, ANC) felt that a constitutional amendment is premature if other options have not as yet been explored.

Mr Mzimela stated that Chapter 12 of the Constitution is silent on the role of traditional leaders. It merely recognises the existence of traditional leaders but says nothing about their role. All the previously held powers and functions of traditional leaders is now listed in Chapter 7 as the powers and functions of municipalities. He felt that only a constitutional amendment would be able to restore the powers and functions of traditional leaders. Any other legislative amendment would not be good enough, as it would clash with the Constitution.

Mr Sithole (ANC) raised the following:
- The Department should assist traditional leaders in the drafting of their annual report in order for it to comply with the requirements of the Public Finance Management Act (PFMA).
- Why is the annual report quiet on what the powers and functions of traditional leaders should be?
- How far is the Department in empowering traditional leaders in the Municipal Systems Act?
- How does the Department respond to the allegation by the House that co-operation from the Department is not forthcoming.

An ANC member referred to the statement in the report that the House receives donations from Vodacom and BMW South Africa. How are these donations spent?

Mr Mzimela stated that donations are made directly to those organisations that need them. The House merely assists in obtaining funders. For example, BMW recently built schools in areas where they were needed.

Ms Lobe (ANC) referred to the report and asked why their budgetary needs are 50% more than what is to be allocated to them. Are there other sources of funding?

Mr Smith (IFP) asked if there is a financial relationship between the House and the Department.

Mr Zam Titus stated that it must be remembered that the Department does not play a part in the political life of South Africa. If the question relates to a relationship dealing with administrative issues then the Department confidently states that they have met with the House on a number of occasions.

Mr Titus stated that on the budget there are two issues, the first is who is to be the House's accounting officer and the second is on the formulation of the budget itself.
He personally felt that they should be in charge of their own budget but unfortunately there are guidelines that are to be followed in the PFMA. He added that the House must come up with concrete proposals but as yet he has not received anything in this regard.
The issue of a budget starts with a business plan. Mr Titus stated that when the Department had met with the House to discuss the issue of the budget they refused and preferred to discuss the issue of the powers and functions of traditional leaders. He however stated that it is never too late to discuss the budget and the formulation of a business plan.

The Chair emphasised that the committee needs to know how the House has spent the money that was allocated to them in the last financial year. He pointed out that the committee felt the report to be silent on how previously allocated monies had been spent and how future allocations are to be spent. Mr Carrim stated that the House is asking for increases in their budget allocations but gives no explanations to justify such increase.
He added that he does not expect a major response at present but that the matter would be pursued in the future.

Mr Mzimela conceded that the report is lacking on what the Chair has said. He did make the point that the budget is beyond his control and that he does not have knowledge on the reasons for the increases asked for in the report.

The Chair suggested that they meet on the 26 and 27 of June to discuss the issues in detail. He stressed the importance of dealing with the various outstanding issues.

Mr Mzimela agreed.

Municipal Infrastructure Investment Unit (MIIU)
Ms Marlene Hesketh, Chairperson of the MIIU board and Ms Gugu Moloi, CEO of the MIIU made presentations. Ms Hesketh proceeded with a brief overview of the Unit and its functions. The MIIU was set up as a non profit private company in 1998 in order to envisage and optimise private sector investment in poorer environments.

The role of the MIIU is to find investors and to link them up with municipalities who require funding of municipal projects. The MIIU has set up a Project Preparation Unit that administers a Project Preparation Fund which is funded by contributions from both government (R20m) and grant funding from donors with USAID (R7.8m). Ms Hesketh stated that they are annually audited and the figures show that their performance is better than what was expected. USAID also offered to fund the MIIU for an additional three years, as they are one of the most successful donor projects in the world.

Ms Gugu Moloi continued with a brief overview of their operations and budget. She explained that the process starts off with applications being made by municipalities to the MIIU. The MIIU evaluates the application and assesses the chances of success of the project. If the application is successful, a formal grant agreement is signed. Some of the direct benefits of successful projects are for example the provision of water to 14222 households in Harrismith.

Ms Moloi reiterated what Ms Hesketh had said on how the MIIU is funded. The MIIU pays for its operational costs from the interest that is earned on the Project Preparation Fund. In order to keep administrative costs to a minimum the MIIU Board only meets four times a year. Ms Moloi confidently stated that most of the money expended is on projects. The aim of the MIIU for the budget period 2001-2004 is to amongst others accelerate disbursements and to find new donor funding. Ms Moloi also added that it is hoped that some of the revenue from successful projects by municipalities would be reinvested in the MIIU.

Discussion
Mr Smith (IFP) asked what the current figure of infra-structural backlogs of municipalities is. He also asked what process is in place to check that projects are completed.

In answer to the first question, she stated that the Department has revised figures on this.

Mr Sithole asked the following questions:
- Is it correct that the MIIU deals primarily with municipalities who struggle to deliver. What influences the drafting of MIIU's budget? Are previous year's figures taken into account or does the MIIU look at demand?
- What financial impact discontinued projects have on the MIIU? What would the reasons be?

-Ms Moloi stated that they take the budget speech and the directions of the President into consideration. She added that the budget is worked out in the context of reconstructing local government.
-Ms Moloi pointed out that municipalities sometimes cancel projects because they choose a different route for financing ie bank loans
In many instances projects are also no longer viable.

Mr Ngubeni (ANC) raised the following:
- In doing its work, do the MIIU take disadvantaged people into account? Is local contractors used on projects?
- In the presentation it seems that larger municipalities are benefiting. What is being done about municipalities in rural areas?

-Ms Hesketh stated empowerment is allowed on their projects.
- Ms Hesketh emphasised that it is important to remember what the funds are used for. The funds are not used to fund actual projects but to allow municipalities to obtain the best advice. The reason why bigger municipalities receive much attention is because private sector investment is more forthcoming in these areas because return on investment is better than in rural areas. She wished to make the point that rural investment is definately on their agenda.


Ms Borman (DP) asked whether the service delivery chapter of the Municipal Structures Act facilitates the MIIU's efforts or whether it is an obstacle to their work.

Ms Moloi stated that they are looking at the Act and if they find obstacles they would have to find ways to get around them.

The Chair asked the following questions:
-The MIIU's primary role seems to be to be to optimise private sector engagement in municipal services. Is the MIIU also considering partnerships with the public sector?
-In the presentation reference was made to a possible partnership with the National Treasury. Is this likely to happen?

-Ms Moloi stated that partnerships with the public sector are definately worthwhile considering.


Rev Goosen (ANC) was concerned that poor rural areas would not benefit from the projects.

Ms Moloi stated that they do have successful projects in rural areas such as Tsaneen.

Certain questions remained unanswered.

The Chair stated that many of the issues would still have to be discussed in detail but that it would have to be done some time in the future.

The meeting was adjourned.