Municipal Infrastructure Investment Unit and Municipal Demarcation Board: briefings

Meeting report

LOCAL GOVERNMENT AND ADMINISTRATION SELECT COMMITTEE
30 August 2005
MUNICIPAL INFRASTRUCTURE INVESTMENT UNIT AND MUNICIPAL DEMARCATION BOARD: BRIEFINGS

Chairperson: Mr S Shiceka (ANC)

Documents handed out:
Municipal Infrastructure Investment Unit PowerPoint presentation
Municipal Demarcation Board PowerPoint presentation
Municipal Demarcation Board Chairperson’s Report

SUMMARY
The Municipal Infrastructure Investment Unit (MIIU) briefed the Committee on their performance over the past year. The Cabinet mandate for the MIIU was to encourage and optimise private sector investment in local authority services in a sustainable manner. The officials listed completed projects. MIIU had developed an Exit Plan as the organisation was being closed in 2006.

Members raised concerns that some wealthier provinces and urban municipalities had benefited more than the poorer rural areas. MIIU explained that the organisation was demand-based and municipalities needed to approach them for assistance. The Committee expressed concern over the caretaker function once MIIU closed, and felt that the Department of Provincial and Local Government needed to resolve how MIIU’s work would be continued.

The Municipal Demarcation Board (MDB) then briefed the Committee on their Strategic Plan. The MDB had been responsible for the determination and re-determination of municipal boundaries and the delimitation of wards for local elections. The Board carried out the assessment of municipality capacity to perform their functions and advised provincial Members of the Executive Committee (MECs) in that regard for the adjustment of powers and functions between district and local municipalities. The MDB ensured that the collection, processing, analysis and implementation of information was properly managed. They were concerned with the ongoing under-funding of the organisation.

Members raised concerns about the definition of powers and functions relating to districts and municipalities, cross-boundary municipalities and district demarcations. They concluded that ongoing meetings needed to be held between the Chairpersons of the Select Committee and the MDB to discuss and strengthen their strategic relationship.

MINUTES
Due to confusion about the presentation time, the MDB arrived late as they were briefing the Portfolio Committee on Provincial and Local Government. The Committee suggested that the NCOP were not taken seriously and felt strongly that the Select Committee should not be confused with the Portfolio Committee. The MIIU presented first due to their early arrival.

Municipal Infrastructure Investment Unit briefing
Ms A Naidoo (MIIU Project Manager) briefed the Committee on their performance over the past year. They outlined their ‘Exit Plan’ as they moved towards closing the organisation in 2006. The Cabinet mandate for MIIU had been to encourage and optimise private sector investment in local authority services in a sustainable manner. It was created as a non-profit company in 1998 to run for five years. Cabinet extended that period for another five years. MIIU was government funded and received donor support and technical assistance from USAID and DFID. Grants and technical assistance were used to support local Municipal Service Partnerships (MSPs). MIIU was comprised of a Project Preparation Unit (PPU) governed by a Board of Directors which had ensured good governance and an unqualified audit.

Mr Naidoo listed a number of completed projects which included MSPs such as Uthungulu Water (KZN) and CPT drop-off solid waste (Western Cape); and revenue management in Mogale City (GA), Ugu District (KZN), Thembisile (MP) and Dr JS Moroka (MP). A loan guarantee project was recently completed, where MIIU refined the implementation methodology and tender document on which banks could bid. MIIU was demand driven and municipalities needed to approach them with projects. This had resulted in uneven project distribution in the country. Smaller less sophisticated municipalities were not in a position to become involved in MSPs.

The exit plan would be implemented through the closure of projects in the pipeline; archiving of project deliverables and packaging of institutional memory for the Department of Provincial and Local Government (DPLG) as the executive authority.

Discussion
Mr M Mzizi (IFP) asked MIIB to elaborate on their make up and function and use of consultants, as municipalities spent a great deal of money on consultants. Mr Naidoo responded that the Development Bank of South Africa (DBSA) provided certain functions, allowing MDB staff to be deployed in project work rather than administration. MIIB had a staff of eight. Project managers were both American and South African with more South Africans as time passed. The CEO was South African. Mr Naidoo explained that MIIB funded municipalities to contract consultants. The feasibility studies and procurement activities were specialised work and consultants were needed to assist municipalities in understanding Municipal Service Provider projects. MIIB was responsible for setting the viability of the projects, ensuring consultants were contracted and then guiding the projects.

Mr Mzizi asked who funded MIIB and why did donors not rather fund municipalities directly. Mr J Lesaoane (MIIB Project Administrator) responded that MIIB received funding from both provincial and local government. There was an arrangement between the South African and United States governments for provision of aid, which included technical assistance. Mr Naidoo elaborated that the South African Government had provided seed funding of R12 million with an annual allocation by the DPLG. Backlogs in many areas had made it impossible for the government to deliver services on its own. The private sector was needed to help create municipal infrastructure.

Mr Mzizi inquired why some provinces and disadvantaged municipalities had benefited far less than others had. Mr A Moseki (ANC) added that projects seemed biased towards self-sustaining municipalities rather than those in poorer provinces. Mr Naidoo responded that MIIB was not biased. The projects depended largely on the municipalities coming forward, as the organisation was demand driven. It was true that the municipalities most often involved in MSPs were metro based. Other municipalities did not approach MIIB for assistance because they either did not have the capacity for MSP projects, or did not understand or desire them. While MIIB marketed itself to municipalities, it could not force them to participate.

Mr Naidoo noted that some municipalities were reluctant to participate in MSPs as they thought it meant privatisation. Municipal services were not being privatised through these projects. While infrastructure might be created and operated by the private sector, the State remained the authority over the services. Mr Naidoo argued that even if poorer rural municipalities were willing to participate, there were far fewer service providers interested in operating in the rural areas. MIIB had been involved in attempting to bolster the supply of service providers but this had not always been possible in outlying areas.

Mr Naidoo explained that the deficit of R1.8 million had occurred because their grant commitment had exceeded retained equity. This was due to projects running for a longer period. Projects had to be cut, as MIIB could not close in deficit.

Mr D Worth (DA) queried why MIIB had been created as a short-term entity, given that there were many viable projects and MIIB had garnered much expertise and experience. Mr Naidoo thought that government had probably envisaged local government gaining experience over five years and being able to do Public Private Partnership (PPP) and MSP on there own. As municipal boundaries changed, the period was extended by five years in the hope that the new municipalities would be able to run the projects. That has not occurred in most cases, as MSP projects required highly specialised skills. In hindsight, MIIU should have been created permanently as had been done with similar entities overseas.

Mr A Moseki (ANC) asked whether MIIB had managed to achieve its mandated objectives as set out initially. Mr Naidoo replied that MIIB had facilitated the introduction of private sector capital into municipal infrastructure of some R7 billion. Though they had nothing with which to compare that figure, MIIB felt they had been successful.

Mr Moseki requested more information on the caretaker arrangements once MIIB had closed down. Mr Naidoo responded that the succession arrangement was for DPLG to take over ongoing projects until it chose another body to do so. The caretaker function differed as it included the liquidation and winding up of MIIB and the closing of the books and production of an annual report. Mr Lesaoane added that as all staff contracts ended in March 2006, someone would need to do that custodial work.

Mr K Mokoena (ANC) asked what would become of the staff currently employed by MIIB, noting that a great deal of skill and experience had been accumulated. Mr Lesaoane admitted that they had no idea what DPLG intended to do. The MIIB CEO was meeting with the Minister that day to discuss those very issues. The Exit Plan had been drawn up to show the urgency in making such decisions. It was possible that the DPLG would run projects differently. MIIB had always managed projects very carefully. There was no plan yet to house the skills that had been developed. One suggestion was the Municipal Desk within National Treasury’s Public Private Partnership (PPP) programme.

Mr Moseki asked if the highly specialised skills had been imparted to municipalities during the projects. Mr Naidoo responded that it depended on the number of projects and people involved in the municipalities. In cases where the municipality had appointed a dedicated Project Manager, skill transfer between the MIIB project manager and the municipal project manager was high. When MIIB met only with a municipal committee that was less viable. Mr Lesaoane added that skills were not easily retained within municipalities. As soon as municipal managers became highly skilled in those areas, they began to look for ‘greener pastures’.

Mr Lesaoane resolved to keep the Committee appraised on future developments adding that it would be useful for the Committee to lobby government for the continuation of the MIIB. The Annual Report was being tabled the following day in Parliament and copies would be sent to the Members. Mr Mokoena raised the possibility of the Committee inviting the Ministers to discuss the future of MIIB.

Municipal Demarcation Board briefing
Dr V Mlokoti (MDB Chairperson) and Mr R Monare (MDB Manager) briefed the Committee on their Strategic Plan for 1 April 2005 to 31 March 2008. The MDB’s mandate derived from the Constitution, the Municipal Demarcation Act and the Municipal Structures Act. The MDB has been responsible for the determination and re-determination of municipal boundaries and the delimitation of wards for local elections. The Board engaged in the assessment of municipal capacity to perform their functions and advised MECs on the adjustment of powers and functions between district and local municipalities. MDB ensured that the collection, processing, analysis and implementation of information was properly managed.

The Strategic Plan had emerged in response to a number of significant developments and challenges which needed to be addressed at national, provincial and local levels of government. These included the disposal of cross boundary municipalities; municipal capacity assessments; the adjustment of municipal powers and functions; and the facilitation of the municipal boundary re-determination process.

Resource allocation for 2005/06 would be inadequate for the MDB’s work in this financial year. The total budget allocated was R23.9 million with an additional R9.1 million allocated in the last part of the financial year. Draft budgets for 2006/07 and 2007/08 of R5.1 million and R5.8 million respectively, indicated there would be a shortfall. There had been capital investment in a new motor vehicle, computers and GIS equipment necessary to enhance the MDB’s effectiveness. There had been unsatisfactory Audit Reports for the years 2002/03 and 2003/04 and the management strategy adopted by the MDB in 2004 had been to ensure a substantial improvement in the management of financial assets and liabilities. Questions had often been raised about the MDB’s use of consultants. The use of consultants optimised the MDB’s financial resources and empowered the employees. The MDB aimed to develop meaningful relationships with important stakeholders, including the Select Committee on Local Government and Administration.

Discussion
The Chairperson raised the importance of ongoing discussions about the strategic plan that underpinned the MDB’s work. Of particular concern was the issue of powers and functions. For example, in areas where water provision had been transferred from municipality to district level, were the districts able to provide water to all households? Dr Mlokoti responded that in their assessment of powers and functions, municipalities did not always understand the scope of their responsibilities. MECs needed to adjust powers and functions as water, health, sanitation and electricity were outside the Board’s scope of authority. In cases where municipalities had handed over water provision to districts, the districts often assumed that the function became inherently theirs. The district however could engage the municipalities or private sector as providers. When the local municipality and district were in different political hands, the district wanted to retain all power over functions such as water.

Dr Mlokoti acknowledged that powers and functions legislation required review. Over the past ten years, many lessons about the capacity of municipalities had been learned. The form, content and structure of government must be reviewed. There had been a vision to create a unitary rather than federal state after the 1994 negotiations. Now it seemed that some ‘federal colours’ had emerged. A decision needed to be taken to return to a unitary model, or perhaps a combination of both models.

The Chairperson asked the MDB to elaborate on their extensive use of consultants. Dr Mlokoti explained that the MDB only had a staff of 25 with no provincial offices. It was more cost effective to keep the organisation small and use consultants where necessary. In addition, the MDB work was seasonal and most of the work had been completed until the next election. MDB used many affirmative action consultants and did not use the same consultants perpetually.

The Chairperson asked the MDB to comment on the issue of cross border municipalities. Dr Mlokoti replied that cross boundary municipalities were being disestablished. Districts would be re-established with new borders. Six District Management Areas (DMAs) had been disestablished and reabsorbed into local municipalities. The MDB had only been involved in conducting analysis and making proposals. The new boundaries had been gazetted on August 19 and the MECs would be responsible for establishing the new districts and facilitating all the work that needed to be done in that regard. The Board would be involved in testing the feasibility of the new boundaries. The Chairperson requested detailed maps from the MDB including an outline of all processes that needed to be undertaken by provinces and the dates by which those needed to be finalised.

Mr Moseki enquired how the financial shortfall between now and 2008/09 was going to impact negatively on MDB work. Dr Mlokoti admitted that MDB had received a smaller budget than requested and had to subsequently trim down projects. Mr Mokoena asked how a shortfall occurred when budgeting was for a three-year period. Dr Mlokoti responded that the MDB had considered that, but National Treasury did not understand the Board’s mandate once the boundary projects had been completed.

Mr Mokoena wondered if the MDB timeframes were an indication of the possible election date. Dr Mlokoti replied that it was not, and meetings with the Independent Electoral Commission (IEC) had suggested that the elections would not be held in December.

Mr Moseki asked the Board to elaborate on the alteration of provincial borders. Dr Mlokoti acknowledged that a discussion on disestablishment of provinces was needed. A critical reflection of South Africa’s history and an assessment of performance were required to determine the way forward. "Turf" attachments had to be forgotten in order to create a country that performed well.

Mr Moseki noted that there had been many complaints about district demarcations not having addressed existing problems, and in some instances creating more problems. He asked if there was an opportunity for changes to be made.

Mr K Mokoena (ANC) added that wards had been crossed with the new boundaries and asked if there was a window in which to rectify those cases. Dr Mlokoti replied that wards had been handed over on May 12, after an eighteen-month consultation process, and the matter was unfortunately closed. Only in certain areas of Limpopo and Mpumalanga, where provincial borders were being reviewed, would MDB be recalculating and resetting the number of wards and counsellors. The Chairperson concluded that in future, the Committee needed to be more proactive around the issue of ward demarcations and had learned from this mistake.

Mr Mzizi asked how widely the Board had consulted during the process and with which communities. Members had received many queries from communities concerning districts dividing tribal authorities. Dr Mlokoti responded that Tribal Authority boundaries had been considered, but municipalities could not be created accordingly. Tribal Authorities were of many different sizes. Municipal governance was not the same as tribal governance and a chief would remain a chief after the elections.

Dr Mlokoti explained that the MDB had decided on boundaries after receiving many submissions, engaging in a great deal of consultation and investigating boundary problems. He understood that it was not possible to satisfy every one of South Africa’s 45 million citizens. The MDB could only comply with legislation, follow the appropriate criteria and consult as widely as possible. Wards changed every five years, depending on voter increases or decreases and migrations. Communities often complained about changes, as they were comfortable with existing wards. They did not understand that the changes had to be made legally.

Mr Worth (DA) noted that the apartheid government had created municipalities where they should not have been. While ward demarcation was a political issue, municipalities were entities that required infrastructure in order to function. In cases where one municipality covered nine towns, there was no money for infrastructure, as government had to pump money into a large number of salaries. Dr Mlokoti agreed that where municipalities were not viable, different ones needed to be created. At this stage, the MDB was waiting until 2009 to see if any improvements had occurred. If not, those municipalities would be removed.

The Chairperson concluded that ongoing meetings would be arranged between the Chairpersons of the Select Committee and the MDB to discuss and strengthen the strategic relationship between them. He added that the Committee would take up the issue of MDB under funding in Parliament. Dr Mlokoti responded that the Board had been established constitutionally with a mandate that went beyond the Ward Delimitation project and municipal boundary determinations and should be funded accordingly.

The meeting was adjourned.