Municipal Infrastructure Investment Unit Annual Review; Ga Segonyana, Thembisile & Sekhukhune Municipalities & Mpumalanga Tradit

Meeting report

PROVINCIAL AND LOCAL GOVERNMENT PORTFOLIO COMMITTEE
16 August 2005
MUNICIPAL INFRASTRUCTURE INVESTMENT UNIT ANNUAL REVIEW; GA SEGONYANA, THEMBISILE AND SEKHUKHUNE MUNICIPALITIES AND MPUMALANGA TRADITIONAL LEADERS REPORTS: BRIEFINGS

Chairperson: Mr M Lekgoro (ANC)

Documents handed out:
Municipal Infrastructure Investment Unit Presentation
Department presentation and correspondence
Ga Segonyana Municipality presentation
Thembisile Municipality presentation
Sekhukhune Municipality presentation
Selected indicators: Total RSA (District Councils)
Selected indicators for the 13 Nodal Areas (District Councils)

SUMMARY
The Municipal Infrastructure Investment Unit (MIIU) presented an overview of its Annual Review. Detail was provided on the pending closure of the Unit and the current market appetite for private-public partnerships. Recent changes in government policy towards local government finance were elucidated. The role of private sector finance institutions in municipal development would be promoted in future. Capital and operating expenditure statistics were outlined and existing projects would be rationalised to accommodate the envisaged closure.

Members asked various questions covering the future of existing Unit projects, the role of the Department of Provincial and Local Government in addressing the vacuum, the current climate for municipal loans, the contribution of the Unit towards Project Consolidate, reasons for the decline in private-public partnerships, and whether the Unit linked to existing Integrated Development Plans (IDPs) within municipalities.

The Department, Ga Segonyana Local Municipality, Sekhukhune District Municipality, Thembisile Local Municipality and the Mpumalanga House of Traditional Leaders then provided detail on the levels of service provision within rural nodes. Statistics on recent surveys were presented and examples of achievements and challenges elucidated. Members asked questions on the success of IDP programmes, job creation within rural areas, the servicing of private sector loans, the presence of Local Economic Development (LED) plans, the impact of recent Presidential Imbizos, the provision of free basic services and the role of Traditional Houses in improving service delivery.

MINUTES

Municipal Infrastructure Investment Unit briefing
Ms D Magugumela (Chief Executive Officer) provided background information on the creation of the Unit and rationale for its existence. The Unit was created by the government in 1998 as a company designed to foster public-private partnerships in the interests of development for municipalities to improve service delivery. The Unit had achieved variable success over the past eight years.

Ms L Suryodipuro (Project Manager) provided a strategic overview of the Unit's operations within the existing legislative and institutional framework that governed its work. The Unit was scheduled to close down in March 2006 as per the instruction of Cabinet. The acceptance of new projects had therefore been affected by the pending closure. The market had experienced a diminished appetite for public-private partnerships at the local government level. The current emphasis was on the promotion of public-public links through enhanced government communication. The Municipal Finance Management Act had imposed a culture of cost-efficiency, affordability, risk aversion and resource-generation onto municipalities. The government sought to support less credit-worthy municipalities with loan guarantees to facilitate private sector loans.

External key performance areas were elucidated with four MSPs completed. The target in active guarantee projects and active revenue enhancement projects had been met. Banks would receive major projects in future to encourage private sector funding and increase levels of guarantees attained. The World Bank provided technical assistance to major projects including a monitoring and evaluation function Five customer survey projects were underway to determine the level of support for projects. Internal key performance areas included the production of case studies for future reference and institutional memory. A United Kingdom study tour had been conducted to enhance personal development plans and a market development seminar had been conducted with private lending institutions to discuss innovations and current practice. The list of four completed municipal service projects was provided and detail on revenue management projects explained. Loan guarantee methodology had recently been refined to assist banks in the tender process. The majority of projects had occurred in the Western Cape, KwaZulu-Natal and Eastern Cape with water and sanitation and solid waste projects in the majority.

Ms Magugumela provided detail on capital and operational expenditure highlighting the ratio between operating expenditure and total expenditure. The Unit might have a deficit in operating expenses on its closure. The project pipeline had been rationalised to separate well-advanced projects from seminal items. The former would be completed and the latter would be warehoused and possibly transferred to the Department of Provincial and Local Government on the Unit's closure. A Board of Directors ensured that the Unit adhered to corporate governance principles and various policy vehicles were in place to maintain compliance. Investment, fraud and procurement policies created checks and balances to oversee operations. A management information system was improved on an ongoing basis. Management would draft an exit plan that included the closure of pipeline projects, the archiving of project deliverables and the production of institutional memory for the Department.

Discussion
Mr P Smith (IFP) asked if the existing work of the Unit would be completed by other entities upon disbandment. Clarity was sought on the future role of the Department and whether capacity-building projects were being implemented within the Department to facilitate the continuation of uncompleted work and new initiatives. The production of institutional memory documentation was a sound idea but such knowledge had to be transferred to the relevant officials to ensure a high level of practical implementation. The high number of current projects and clear demand for further activity necessitated a meaningful response. He asked for detail on the monetary value of completed projects and the proposed plan to complete existing projects.

Mr W Doman (DA) sought clarity on the low loan guarantee target and possible reasons for the poor performance. He asked whether the Unit was satisfied with the role played by the Development Bank of Southern Africa (DBSA) in securing finance for municipal development projects and whether the acquisition of loans in general for local government remained problematic.

Mr S Mashudulu (ANC) asked whether the initial rationale to create the Unit such as low capacity and the desire to promote public-private partnerships remained. A technical unit within the municipality sector was needed to alleviate flaws and promote development. Recent Committee meetings had displayed a strong commitment from Members for the continuation of the Unit. Further evidence of intervention within municipalities would strengthen the case for continuation of the MIIU. He asked whether the Unit had contributed towards Project Consolidate and which arms of government would be able to meet the ensuing vacuum caused by closure. An increase in rural municipal development was paramount to address inequalities and reduce the current urban bias. He asked whether the Department would provide additional funds to continue existing projects in place of present international donor and other sources upon closure. Clarity was sought on the level of BEE within the Unit and in terms of work completed. The MIIU should not be wound up as the pool of technical expertise was invaluable to the municipal sector.

The Chairperson referred to the decline in public-private partnerships and sought reasons for this. The role of private sector lending institutions was crucial for development and he asked for detail on the involvement of such entities.

Ms Magugumela responded that the management exit plan was in draft form and would be presented to the Board on 26 August 2005. Various strategies were under consideration to manage the transfer process. The local government sector displayed a strong demand for technical assistance that was likely to continue. The Department had recently appointed a new Chief Director focused on Municipal Service Projects that sought to inculcate best practice models into operation. An arrangement of open dialogue between MIIU and the Department existed that involved lesson sharing, joint site visits and sharing of standards. National Treasury now played a role within the structure and a PPP Unit had been created within Treasury. Partnerships between municipalities and private finance institutions were encouraged and feasibility studies accompanied such endeavors. The exit plan would adopt a holistic view incorporating various role-players. MIIU had currently invested R43 million in 77 projects exclusive of donor funding. 50 active projects continued and DBSA was an active player in a certain number of these. The Department had applied for additional funds to ensure continuation of projects.

Ms Suryodipuro added that municipalities continued to experience problems in securing private finance. Recent government policies had discouraged active borrowing by municipalities in contrast to previous arrangements. However, renewed vigor by municipalities to secure finance for projects had prompted a change in policy and the Financial Service Charter encouraged private institutions to participate. Despite these developments, obstacles to private-public partnerships persisted. Lack of capacity within municipalities to formulate adequate project and business plans was a handicap coupled with a dependency on Municipal Infrastructure Grants that inhibited alternative approaches. Large banks had to be involved to ensure adequate finance.

Mr Smith reiterated a sense of disquiet when contemplating the Unit's closure as no alternative plans had presently been formulated to continue important work and meet demand. He asked whether a process was underway at the executive level to review the closure decision and possibly secure an extension. The Department should provide reasons why the Unit should be closed at this juncture.

Ms Magugumela responded that the MIIU participated in the Project Consolidate national advisory board that included key private sector finance companies. Workshops had been conducted with the Department and municipalities to facilitate knowledge and skills transfer. Rural development remained a major challenge due to a low revenue base. However, private institutions had been encouraged to create appropriate vehicles to meet rural demand. The procurement of consultants was governed by BEE policy and financial statements adhered to PFMA stipulations. The PFMA necessitated additional costs such as the need for specialist review personnel. The Department had indicated that R15 million could be procured from Treasury to continue existing projects. An inadequate revenue base and poor collection capacity impacted negatively on the expansion of development and service projects.

Certain legislation such as water regulations tended to undermine public-private partnerships as continued public provision prevented private sector interest. New onerous financial regulations within the PFMA discouraged municipal management from commitment to major development projects involving private capital. Labour opposition at certain levels could also hinder project implementation. The Board would meet with the Department on 26 August 2005 to reach a final decision on closure. The National Treasury would play a role in the decision process. The Unit was adamant that existing projects should continue and detail on the agreed plan would be communicated in due course.

Ms L Mashiane (ANC) asked for clarity on the size of the Board and whether funds were disbursed in a staggered manner. She asked whether policies and procedures for financial reporting were adequate and sought a progress report on training initiatives. Detail on the decline of public relations activities was requested. She asked whether the Unit linked with existing IDP projects in municipalities or adopted an independent strategy and implementation plan.

Mr M Nonkonyana (ANC) asked whether closure was a certainty and referred to the Unit's previous Annual Report where the Minister expressed support for the continuation of the Unit.

Ms Magugumela responded that the Minister's comments in the Annual Report were compiled by the Unit and should not be regarded as the official position. The Department had not committed to the closure as yet but clarity would be attained at the scheduled meeting. The position of shareholders would also have to be considered.

Mr Nonkonyana asked whether countries other than the United Kingdom had been visited for study purposes. Developing world influences would be appropriate and relevant. Detail was sought on the financial statement and compliance issues.

Mr M Swathe (DA) asked how the lost revenue for municipalities would be supplemented and whether the private sector would play an increased role.

Ms Magugumela replied that the Board consisted of ten members and no MIIU staff was currently seconded to municipalities due to a small staff component. The disbursement of funds was linked to predetermined IDP plans and tended to be staggered. Council approval was obtained before release of funds. The Unit reacted to requests for assistance from municipalities and marketing of services had been scaled down. The Unit referred to IDP plans in the feasibility study phase but found many IDPs to be weak in content. Assistance was rendered in certain instances to municipalities in the preparation of IDPs.

The Unit conducted the monitoring and evaluation of completed projects and imposed practice standards on uncompleted work. A case study of five completed projects would be compiled and a corresponding tool kit assembled for knowledge dissemination. Treasury regulations had established a procedural framework to govern financial statements. The UK study tour cost R314 000 and consisted of five staff members. Public relations activity remained important as the public-private concept required much awareness within the local government sector but cost pressures curtailed such a communication campaign. The Unit's surplus had been robust in the early years but would be gradually scaled down. The Unit did not have access to the Minister. Regular meetings were held with the Director-General although executive approval had to be obtained for project activity. The Board should have direct contact with the Minister. Examples of successful projects had to be captured for future development and housed within the Department. The revenue management model should be extended to poorer municipalities to enhance revenue collection and promote sustainability. The model would encourage the community to pay for services. Research showed a willingness on the part of the indigent to pay and consultation with community members was necessary to facilitate compliance. The government would assist municipalities to devise relevant credit control policies.

Ms Suryodipuro added that the UK was chosen as a study tour destination as the South African regulatory regime had been shaped by the UK model. The MIIU equivalent in the UK was visited and new information acquired.

Mr Smith asked why the Unit's administration costs had tripled despite no staff appointments.

Ms Magugumela replied that a contractual agreement existed with DBSA for various administration services such as recruitment, travel expenses and office rentals and the fee had recently increased.

Department briefing
Ms M Molapo (Deputy Director-General: Urban and Rural Development) stated that the presentation would focus on 13 rural nodes established in 2001. The nodes were classified as District Municipalities. A situational analysis had been compiled from 2000 to 2004 based on Stats South Africa's Household Surveys.

Ms B Mdaka (Chief Director: Monitoring and Evaluation) stated that the study's findings could not be generalised to all rural municipalities although variable service level increases had been recorded in all regions. The study was based on basic household needs Figures were provided on selected indicators such as types of dwellings, water and electricity and telephone access. Certain nodes had inherited backlogs that had hampered service delivery. A 21% increase in informal dwellings had been recorded overall and a 7% increase in access to water in dwellings and on site. The provision of toilets varied between nodes and access to electricity for lighting enjoyed a 9.7% increase. Households with telephones registered a 31% decrease due to the impact of cell phones and high Telkom costs. Cellular phone usage increased in all nodes. The number of households rose in all nodes and access to services increased.

Discussion
Mr M Nonkonyana asked for reasons for the decrease in telephone lines within rural areas and suggested that theft might be a contributing factor. He asked whether people were forced to purchase cell phones as a substitute. Rural nodes had received extensive attention in terms of strategy and plans but implementation had to improve.

Mr Smith sought clarity on the provision of water and asked whether the statistics included communal standpipes. Access to water outside of a dwelling was important for rural communities. Extensive swings in percentages of residents within certain nodes should be explained.

Mr Mshudulu stated that such studies had to be applicable to IDP processes and budgets in order to evaluate progress in service delivery. Certain factors could affect standards of delivery and had to be elucidated to substantiate the study. For example, the provision of electricity could be adversely affected by confusion around the identity of service providers. Eskom and municipalities could both provide the service. Further clarification was needed on the type of delivery provided as a lack of infrastructure could hinder progress. He asked whether the Department had corrected incorrect statistics inherited from the former TBVC states. The Department had to assist rural municipalities in generating competency to formulate effective IDPs. Members had to acquire a sense of levels of improvement of peoples' lives from the Department's study.

The Chairperson asked where increases in formal and informal dwellings had occurred.

Ms Mdaka responded that the high tariffs charged by Telkom for land lines had contributed to the cell phone increase. Cell phones also allowed users to receive free incoming calls that reduced costs and allowed them to communicate with relatives in urban areas. Telkom was reconsidering its business strategy and seemed reluctant to install additional infrastructure in rural nodes due to the low profit margins. The study did not refer to communal water provision. However, bulk water supply projects were common in rural nodes and alternative models were being considered to expand distribution. The study findings would be applied to the IDP process to reconsider approaches to service delivery and develop suitable interventions. Decreases and minimal increases would be identified and incorporated within Project Consolidate to enhance delivery. The reduction of telephone lines would adversely affect access to Information Technology and reduce computer literacy and communication initiatives. The placement of computers in schools would be considered in consultation with the Department of Communication. New statistics from former TBVC states would be compared to the Stats South Africa baseline to verify authenticity. Urban areas within rural nodes tended to attract migrants seeking employment and increased informal dwellings were concomitant developments.

Mr Mshudulu sought detail on the level of job creation within the rural nodes.

Mr Swathe asked where the increase in provision of sanitation had occurred and referred to recent demonstrations in certain municipalities against the bucket system. The Department should actively strive to eliminate this system.

Ms Mdaka stated that flush toilets were provided in the urban components of rural nodes and less sophisticated types existed in deeper rural areas. The Expanded Public Works Programme was creating jobs in rural nodes and statistical evidence to corroborate the increase was available. Enhanced access to social grants also contributed to improved living standards.

Ga-Segonyana Local Municipality briefing
Mr O Kgopodithate (Executive Mayor) provided background on the history of the municipality, demographics and its location. The managerial focus and strategic process were elucidated. An approved IDP had been submitted to the provincial government and community consultation had been achieved. A draft Local Economic Development plan had been circulated for discussion. Nine Ward Committees were in operation. Water provision was a priority and all households had access to basic water. Detail on other basic services was provided. An approved debt collection and credit control policy was in place. Challenges and constraints hindering progress were outlined.

Discussion
Mr M Phadagi (ANC) sought detail on the areas of excellence that resulted in a Vuna Award. He asked why managers were resigning and not being replaced.

Ms Mashiane asked whether Ward Committee members received financial support from the municipality to attend meetings. She expressed dismay at the high increase in debtors and asked how the municipality intended to service the recently acquired DBSA loan.

Mr Nonkonyana stated that the excessive use of consultants to mitigate capacity constraints proved costly and drained resources from vital development needs. Clarity was sought on the municipality's position in this regard. He asked whether a sound working relationship existed between traditional authority structures and the Council and where recent community halls had been constructed. The lack of a LED plan was problematic as effective economic development required a strategy.

Mr Doman asked that presenters focus on the key issue of service delivery and avoid a general overview of their respective municipality's activities. Members were interested in the level of service delivery within rural nodes.

Mr Kgopodithate stated that the Vuna Award had been received for IDP performance management and the institutional arrangement. General transformation dynamics contributed to the resignation of managers. Managers also sought higher salaries in alternative employment opportunities. Ward Committee members received stipends from the municipality for attendance of scheduled meetings. The municipality had to address the increase in debtors to improve financial stability. Staff financial capacity would have to be strengthened to facilitate debt collection and encourage better payment levels. The revenue base only consisted of 20% of the total geographical area. Recent expansion of basic services to outlying areas would contribute to increased revenue collection. Dependency on consultants would be decreased as skills transfer was inadequate. The Council consulted with two Paramount Chiefs on a regular basis and traditional authorities had participated in the planning of community halls. An LED plan would be ratified in due course.

Sekhukhune District Municipality briefing
Mr N Masemolo (Mayor) provided a service delivery overview focused on key factors. Job creation was a priority as high unemployment characterised the node. Water and sanitation provision had increased and free basic water was offered in line with an indigent policy. Challenges remained to provide effective and efficient services. The backlog in water provision would be addressed. The proposed construction of a dam would alleviate water demand. Continued lack of electricity infrastructure hindered further expansion in electricity provision. Steps would be taken to improve the indigent database. Additional resources were required to meet road and storm-water maintenance needs. A recent R161 million grant would help agricultural development including irrigation schemes and land care. The establishment of a Local Economic Agency would trigger development and job creation. Alternative revenue sources had to be generated to promote sustainability.

Discussion
Mr Mshudulu asked whether the recent Presidential visit had been fruitful and whether progress had flowed from the implementation of the Property Rates Act.

Mr Doman asked whether the equitable share was adequate and what percentage contributed to the provision of free basic services. Clarity was sought on the acquisition of MIG finances and whether the municipality had the capacity to source such funds independently of the District Municipality.

Ms Mashiane asked whether the installation of electricity meter boxes in individual dwellings had been coerced or the result of a community-based agreement. The potential impact on free basic electricity provision had to be considered.

Mr Masemolo replied that the recent Presidential visit had stimulated the announcement of important community development projects by the provincial government. The revenue collection of two poor municipalities would be improved by the Property Rates Act. Traditional Authority approval would be needed to tax government property on communal land. National grants as part of the equitable share were used for capital and operational purposes. The District Municipality authorised and implemented all water projects as the designated water service authority. However, certain functions such as road maintenance were transferred to local municipalities. A new electricity distribution system was required to address weaknesses and a relevant strategy involving stakeholders would be devised.

Thembisile Local Municipality briefing
Mr V Nkosi (Mayor) provided detail on the municipality's Integrated Development Plan highlighting the core focus areas. Community participation was an important component based on an IDP Forum and Ward Committees. Quarterly monitoring meetings ensured evaluation of implementation. Total costs of completed projects were presented in various focus sectors. Achievements over the past five years were outlined including the Moloto Development Corridor, RDP housing and the provision of free basic electricity to approximately 21 000 households. The municipality would receive MIG allocations directly from the Department in April 2006 and an improvement in service charges had been recorded. Backlogs in water and sanitation provision remained challenges and targets would not be met. High unemployment and indigence negated prospects and internal capacity building was vital. National and provincial department support in planning and implementation was crucial to achieve advances.

Discussion
Mr Smith asked why free water provision had only been implemented in July 2005 and whether the equitable share was used for free basic services.

Mr Doman sought clarity on the type of infrastructure services provided to communities as a component of Project Consolidate.

Mr Nkosi stated that the provision of free basic electricity was gaining momentum and free water had been provided before July but would now be indicated in financial accounts. Previously no record of free water provision had been maintained. The municipality was responsible for refuse removal and new equipment was needed to meet the demand.

Mpumalanga House of Traditional Leaders briefing
Ms A Mohlala (HOTL Representative) stated that steps to improve the working relationship with the Thembisile Municipality had been taken. The provincial Department of Local Government and Housing had detail on completed and ongoing projects within the House's jurisdiction. The provincial government had developed a Performance Management Tool to enhance municipalities' ability to deliver services in an effective manner. The HOTL welcomed the initiative. A Forum had been established incorporating the Amakhosi and the municipal mayors to promote dialogue and improve IDPs. The House had certain proposals to further improve the working relationship between traditional leaders and the municipalities. For example, tribal offices should be used as pension pay points. The traditional leaders had agreed in principle to support the municipalities in improving service delivery.

Mr Mshudulu noted the weak point of inadequate community participation within the rural nodes and advocated a training programme across rural and urban municipalities to facilitate an improvement.

Mr Nonkonyana asked whether the House was satisfied with the level of service delivery to rural areas and asked what role it could play in further development. He asked whether an adequate traditional leader structure existed to interact with local government.

Mr Makhosonke (HOTL Representative) replied that water provision remained a critical problem and efforts were being made to alleviate the crisis. The House encouraged the entrenchment of water conservation principles amongst community members. Traditional officers should be used to render services and educate communities. The House would continue to build sound relationships with local government structures.

The meeting was adjourned.