Municipal Infrastructure & Systems Improvement Grants, National Electrification Programme: briefings

FINANCE SELECT COMMITTEE
8 August 2006
MUNICIPAL INFRASTRUCTURE & SYSTEMS IMPROVEMENT GRANTS, NATIONAL ELECTRIFICATION PROGRAMME: BRIEFINGS

Chairperson: Mr T Ralane (ANC)[Free State]

Documents handed out:
Department of Provincial and Local Government (DPLG) Presentation on Quarterly Municipal Systems Improvement Grant Performance
Eskom presentation on Compliance with section of the Division of Revenue Act
Department of Provincial and Local Government Presentation on Quarterly Municipal Infrastructure Grant Performance
Department of Minerals and Energy Presentation of the Performance of the Integrated National Electrification Programme

SUMMARY
The Committee was briefed by the Department of Provincial and Local Government on the performance of the Municipal Infrastructure Grant and the Municipal Systems Improvement Grant.

The Committee was concerned that municipalities often rushed to the Developmental Bank of Southern Africa for loans to fund their projects despite the fact that they were underspending on their grants. Municipalities should first exhaust what they had in their coffers before they could go and ask for loans.

The Committee was concerned by the way in which electrification projects were planned. It could not understand how Eskom could say that it had not complete its electrification projects due to the unavailability of houses. There was a huge number of houses that did not have electricity yet Eskom had some roll-overs. Eskom and municipalities should not worry about licence areas but be more concerned about delivering services to the people.

The Committee was also briefed by the Department of Minerals and Energy and Eskom. Municipalities that use their money for identified and approved electrification projects would be refunded by the Department provided that they had carried out the projects in their areas of licence.

It was clear that some municipalities did not know that they had a duty to report on their grant. This meant that accounting officers did not even bother to read the Public Finance Management Act. Some blamed the lack of reporting on the suspension or unavailability of the accounting officers. Some accounting officers seemingly did not know about the existence of the grant.

Members raised questions that included the following:
- How effective the DPLG was in relation to oversight on municipalities on a scale from one to ten;
- Whether the DPLG had the capacity to monitor municipalities;
- What were the criteria for allocating the Municipal Infrastructure Grant;
- Whether it was it acceptable that municipalities could not furnish reports simply because an official was absent - the reports should be easily accessible in computers;
- Why the DPLG had given money to municipalities despite the fact that they had not submitted business plans - One could not expect expenditure reports from a municipality that could not even compile a business plan;
- Whether DPLG had identified those municipalities that did not have the required capacity;
- How municipalities accessed the Municipal Infrastructure Grant and whether municipalities that had not asked for funding did not have infrastructure or systems backlogs;
- Whether the Department had data on capacity that existed in the municipalities;
- How municipalities accessed funds from Eskom and did Eskom wait for municipalities to ask for the money before it could transfer it to them;
- Whether Eskom was aware of the R100 million for electrification that was available in the Limpopo Province Premier’s Fund;
- How long it took Eskom to electrify an area once a project had been approved;
- Why Eskom’s tariffs where different from those in areas that were under municipal licences;
- Whether the Department of Minerals and Energy used the statistics from Statistics South Africa.

MINUTES
The Chairperson said that the purpose of the meeting was to look at the performance of the conditional grants transferred by the Department of Provincial and Local Government (DPLG) to municipalities. There had been some serious concerns about the performance of some of the municipalities, especially the poorest municipalities. This hearing had come at an appropriate time because the Committee had just come back from an oversight visit in the North West province. Some of the questions that Members of the Committee would raise would be informed by some of the disturbing things that they had seen or heard in the province.

He said that the Committee had convened a meeting of this nature for provincial treasuries and Local Government Departments in June 2006. One of the disturbing things that came out of that meeting was that whilst there was intense and continuous interaction amongst MECs in provinces, the opposite was happening at the administrative level. He was happy that the officials of DPLG were before the Committee that day and hoped that they would bring better news in the next quarter. Gauteng province had reported that their Treasury and Local Government officials had started to talk to each other a week before they appeared before the Committee. This meant that they had not been talking to each other for the previous 12 years. It was very important to have interaction and collaboration amongst officials.

Presentation by the Department of Provincial and Local Government
The following officials represented the Department: Mr M Sigaba (Acting CFO), Mr C Clerihew (Financial Consultant), Ms M Montwedi (Executive Manager), Mr L Twaku (Senior Manager- Cabinet and Parliamentary Support) and Mr W Ramphele (Senior Manager).

Mr Ramphele presented on the Municipal Systems Improvement Grant (MSIG). (See document attached). He focussed on the following issues: overall quarterly performance, corrective measures to address financial performance, overall challenges and response strategy for the future. It was clear that some of the municipalities did not know that they had a duty to report on the grant. This meant that accounting officers did not even bother to read the Public Finance Management Act. Some blamed the lack of reporting on the suspension or unavailability of the accounting officers. Some accounting officers apparently did not even know about the existence of the grant.

Discussion
The Chairperson said that there was an underspending of over 40%.

Mr M Robertson (ANC) [Eastern Cape] said that municipalities were the first line of delivery to the communities. The Committee had seen some horrific things in the North West province. It did not look like there was some control over the municipalities because they did whatever they liked. Local Economic Development (LED) offices were not doing their work. Members of the Committee would go to their provinces next week. He requested that they should get a breakdown of municipalities that had not submitted their reports before Friday so that they could take the issue with provinces. Services were not going to the people. The Committee had seen a township of six thousand houses that had no schools, clinics and water. He noted that the Department had visited municipalities with very low expenditure percentage. He asked what had been done to ensure that they improved their performance. It was time to take a hard line against some municipalities. He also asked how effective the Department was in relation to oversight on municipalities on a scale from one to ten.

Mr Ramphele replied that municipalities had to get their priorities in order, bearing in mind the challenges that they were facing. Some municipalities would be very honest and indicate that they had already received some support from the DBSA (Development Bank of South Africa) capacity building fund to do LED strategy.

He said that the Department should begin to exercise some of the powers that it had or else the problems would continue unabated. Another challenge was the fact that the Department did not receive the audit reports from the Auditor-General (AG) on time. The Department was not sure if the audits in the municipalities were picking anything up. The Department had tried to strengthen its monitoring capacity by dedicating a Unit to deal with monitoring. The Unit would not achieve much should the Department not begin to exercise some of its powers. The AG had indicated that the Department had failed to take action against municipalities that had failed to comply with the law.

The Chairperson said that the Committee was saying that municipalities should not approach the DBSA before they had exhausted funds that were available from national Departments. Municipalities had already approached the DBSA despite the underspending on the grant. One could understand why municipalities would approach the bank if there was overspending on the grant. They were incurring debts when they were not supposed to.

Mr D Botha (ANC) [Limpopo] was concerned that a lot of money had been transferred to municipalities and some of them were apparently not aware that they had money in their coffers. He asked how the Department had transferred money without the municipalities knowing of the transfers. There were 31 municipalities in Limpopo and most of them had received some money. Most of them were in rural areas and people were suffering yet municipalities were not spending the money. Only a few of them had reported on their expenditure.

Mr Ramphele replied that one could not even argue for the increase of the grant due to the lack of reports. This was the message that was being sent to municipalities. He acknowledged that the Department had not really used provisions like sections 18 and 19 of the Division of Revenue Act (DORA). This was perhaps one of the sources of the problems. It seemed that municipalities had a feeling that nothing would happen to them even if they had not provided the required reports.

He said that the practice was to write letters to municipal managers and CFOs informing them of transfers that would soon be made. Municipalities were expected to acknowledge receipt of the letters. The Department also faxed proof of payment to the municipalities and reminded them of the conditions attached to the grant. It was unacceptable for municipalities to say that they did not know of the transfers. The Department did not release money unless it had been given an activity plan.

Mr E Sogoni (ANC) [Gauteng] agreed with his colleagues. It was a pity that the Director- General had not attended the meeting. Mr Robertson had asked if the Department monitored the municipalities properly. One could supplement the question by asking if the Department had capacity to monitor the municipalities. Some municipalities did not have business plans but the Department still gave them money. One could not expect a report from a municipality that could not even compile a business plan. There were 198 municipalities that had received the grant and less than 50% had reported on the grant. This showed the extent of the problem.

He said that 11 municipalities had received the grant in Gauteng. The total number of municipalities in the country was 283. He asked why other municipalities had not received the money. What were the criteria for allocating the money? Was capacity part of the criteria? The budget of Johannesburg Metro was bigger than that of the Northern Cape but had still received part of the money. The expenditure in Gauteng was 70% probably because the capacity was better compared to other municipalities. Was it acceptable that municipalities could not furnish reports simply because an official was absent? The reports should be easily accessible in computers. Assuming that Alfred Nzo municipality did not have capacity to come up with a business plan, what kind of assistance was it given to?

Mr Sogoni noted that the Department wanted to strictly apply the Division of Revenue Act in relation to the withholding and stopping of funds in cases on material non-compliance. Section 18 of DORA was very clear in terms of what had to be done. One should not just move to withholding funds without having given some assistance to ensure improvement. The presentation covered the situation as at the end of June. The expenditure was at 58,4%. He asked what the Department had done to ensure that there was improvement because communities were in dire need of services. Some parts of North West had recently experienced some disasters. The Committee was told that in some areas most of the councillors worked part time and one could not expect them to have capacity.

Mr Botha said that the end of June 2006 was the end of the financial year for municipalities. He asked what would happen to the unspent money. Would the Department take it back or would it be rolled-over?

Mr Sogoni said that the Department had identified weaknesses around the issue of the Chief Financial Officer (CFO). He asked as to what the Municipal Finance Management Act (MFMA) provided in relation to CFOs. Was the problem at the local municipality or district municipality level?

Mr Ramphele replied that the absence of CFOs in some municipalities was not due to budget constraints. It was a question of processes that had to be followed before appointing another CFO. The Department was working on solutions to this problem. Business plans made it clear that the municipal manager was responsible for providing some of the required information.

The Chairperson wondered what the Department could do in relation to CFOs because it also had an acting CFO. He asked what would be done in relation to the underspending. The basis for getting the grant was the business plan and reports on the performance of the grant. He suspected that the problem was related to fiscal dumping. It seemed that the Department released the money to municipalities as quick as possible because it did not want to be seen as keeping the money. The problem was that the money was released to people who did not have the capacity to spend or implement their projects. It did not do any good to say that municipalities had spent the money but not reported on the expenditure. How would one be able see the outcomes of the expenditure if there were no reports.

He said that the majority of municipalities had asked for loans from the Development Bank of Southern Africa for LED and spatial development. The presentation had indicated that there was money for LED and spatial development. This was one case of duplication that the Committee had picked up in some of the municipalities it had visited. He asked if the Department had, in the last financial year, withheld any money for reasons of not complying with the DORA and how many municipalities were involved. What would the Department do in relation to non-compliance with the Act? Allowing municipalities to report late was a problem in itself because the law made it clear that reports had to be furnished within a certain period of time. He asked how the Department was dealing with this matter.

Mr Ramphele replied that the Department did not withhold any money. There could be some improvements should the Department begin to use some of the powers that it had in terms of the Act.
 
The Chairperson said that the money allocated to municipalities was assessed on the basis of business plans. Clearly, people who had made applications for the grant had to know that they had applied for the money. On the other side, the Department also wrote letters advising municipalities to expect the transfers. He felt that something ‘funny’ was going on. The Department should conduct an audit of the capacity constraints. It would be useful not to withhold money before the Department had done what it was expected to do in terms of capacitating municipalities. One could then withhold funds once it had been established that there was capacity and that people were negligent in not spending.

Mr B Mkhaliphi (ANC) [Mpumalanga] asked who the Department interacted with in the municipalities. Were the letters and any other correspondence directed only to the CFO and the municipal manager and not the political principals? Some of the correspondences, especially those critical of the municipalities, did not reach the offices of the Speaker or the Mayor. The political principals might not be aware of the picture that had just been painted and would always plead poverty.

The Chairperson said that there were also entities of municipalities. Service delivery in some municipalities was the responsibility of the entities. People had always pleaded but there was so much money sitting in their coffers. He suspected that there was no communication amongst officials. It seemed that the letters from the Department advising the municipalities about the imminent transfers were kept in some people's offices and not shared with other officials. This could be the reason why some officials were quick to approach the DBSA for funding.

Mr Botha wondered if the Department had identified those municipalities that did not have the required capacity. Some district municipalities did not use the money allocated and simply put it in a bank account so that it could earn interest. One could find that the local municipalities did not know that money had been transferred to the district municipality. The Schweizer Reineke municipality had no systems and had complained that it had no money.

The Chairperson said that the Committee would invite some of the identified municipalities so that they could answer some of the questions that Members had.

Mr Z Kolweni (ANC) [North West] asked if the Department had data on capacity that existed in the municipalities. The Chairperson said that this question would be answered in the meeting to be held on 22 August 2006.

Mr Robertson said that there was a municipality in the Eastern Cape that was rumoured to have an investment of R68 million. There should be no investments in municipalities when people are suffering. There were no houses and sewerage systems were not working. It was imperative to put municipalities on a timeframe to ensure that there was development.

Ms S Molokoane (Chairperson: Municipal Finance-SALGA) said that it was for the first time that she was hearing some of the things that the Department had just said. South African Local Government Association (SLAGA) had encouraged Mayors to establish budget and steering committees. This would ensure that Mayors had reports on everything that was happening in the municipalities. Reports were only expected to be submitted to the Department on quarterly basis. This was one reason why the Department was at some stages not aware of expenditure that had taken place but not yet reported.

The Chairperson said that the Moses Kotane municipality was very rural in nature but had won two Vuna Awards. There was a need to tighten up issues of co-ordination and to share best practices.

Presentation on Municipal Infrastructure Grant (MIG)
Ms Montwedi made the presentation. (See document attached). The Municipal Infrastructure Grant integrated various grants which were managed by different sector departments. The implementation of the grant was earmarked to kick start from the 2006/07 financial year but was brought forward by two years starting in 2004/05. The allocations were much more than were anticipated and had resulted in a lot of challenges for municipalities. There were no proper arrangements in place to phase-in municipalities in the new arrangement of infrastructure delivery.

The Chairperson said that a Manager in Madibeng municipality has said that he had spent 100%. It was important to have a closer look at the municipal breakdowns.

Mr Sogoni said that municipalities in the North West had only spent 27% of the allocation. The reporting periods of municipalities were not aligned with those of provinces and the national departments and this had caused some confusion. The Department had indicated that the supply chain management processes took a lot of time. This meant that people had to sit and wait for a long time before delivery could take. The question was what could be done to short circuit the process. It seemed that allocations were made without the submission of business plans. He asked how municipalities accessed the MIG. Many municipalities had budgeted for water and other services or borrowed money from the DBSA whilst there was the MIG. Did the Department wait for municipalities to apply for funds? The Department knew very well that there were backlogs in relation to infrastructure.

Ms Montwedi agreed that it was not advisable for municipalities to rush to the DBSA for funding whilst they had not exhausted their grants. Municipalities normally asked the Department to support their requests for loans from the DBSA and the answer had always been to refer them to money that they had in their coffers. There was no way that municipalities could get more money from Treasury if they were failing to spend the little that they had.

Mr Robertson said that municipalities knew how much they would get over the next three years. It seemed that that tendency was to wait until the last moment before they could embark on procurement process. Mpumalanga, North West and Northern Cape provinces had spent nothing during the first quarter and this showed that there was bad planning. The Greater Taung was one of the municipalities that had spent nothing in the first quarter. Klerksdorp had started spending right at the beginning of the year. Was the poor expenditure due to lack of capacity?

Mr Mkhaliphi said that there were no reports on some of the Mpumalanga municipalities. Did this mean that they had not asked for the funding? The municipalities include Steve Tshwete, Thaba Chweu, Msukaligwa, Albert Luthuli and Dipaliseng. Some of them had funny implementation strategies.

Ms Montwedi replied that MIG was in its third year. Allocations were made to only 88 municipalities when the programme started and the number was increased to about 187 municipalities in the second year. Allocations were made to all municipalities in the 2006/07 financial year. The existing picture reflected on 2005/06 and covered only 187 municipalities. The issue was about phasing-in of the grant based on the capacity of municipalities and as agreed with Treasury. One could find that the municipalities that were not reflected in the presentation had received funds through their districts.

The Chairperson said that the Department had indicated that the money was given to municipalities on the basis of backlogs. The question should be whether municipalities that had not applied for funding did not have backlogs. The Committee should deal with camouflaging by some of the spending provinces. He said that he had added all the transfers and subtracted the expenditures. The picture that had emerged after that was one of massive underspending in the Northern Cape. The North West and Mpumalanga also had big underspending. The Committee was told that Madibeng had spent 100% but this did not seem to be the case. Mamusa municipality had serious problems to the extent that it had gone to DBSA for funding. This was not understandable because it still had some unspent money. The Bophirima District Municipality had appealed for money yet it had not exhausted its allocation.

Ms Montwedi replied that the MIG came from the National Revenue Fund and its allocation was based on the provisions of the Constitution. The allocation should be done in an efficient, transparent and equitable manner. The criterion for allocation was informed by backlogs because the grant was intended to address backlogs and to benefit poor households. The grant was not the only source for infrastructure funding. Municipalities should also used their own funds and even consider borrowing in order to meet their infrastructure requirements. There was the problem of high rates of indigent people in some provinces and this made it difficult for municipalities to recover the costs of infrastructure.

She said that the Bophirima municipal manager had approached the Department for assistance. The Department had provided an engineer to the area and would reallocate the money should they continue to underspend. There were serious problems between the district and the local municipalities in relation to powers and functions.

Mr Botha said that Polokwane municipality had capacity and one could not understand how it had failed to spend its allocations. The Capricorn District municipality also had the capacity but was also not spending. Municipalities like Aganang and Modimolle were not reflected in the presentation despite the backlogs that they had.

Ms Montwedi replied that the Department was under the impression that Polokwane had capacity. Capacity was not something that sat and stayed in a municipality forever. It was sometimes dependent on the systems and how good people were in operating the systems. Polokwane had lately been going down and this was a course for concern as it had about 500 projects valued at over R200 thousand each. The question was what about the level of capacity in terms of numbers that was required to implement those projects. The Department had identified the municipality as one that had to be attended to especially in relation to the 2010 World Cup.

Mr Sogoni wondered if the West Rand District Municipality did not submit reports at all.

Mr C Johnson (Chairperson: Municipal Services- SALGA) said that the last column on the reporting cycle simply showed fiscal dumping from the provincial and the national governments. The municipal budget year ended in June and big amounts of money were transferred towards the end of the budget year. The national spatial development framework that was agreed to by the President's Co-ordinating Council would put the responsibility on municipalities to concentrate (in terms of infrastructure development) mostly in cities and developing municipalities. The planning would be around people and not places. The biggest number of poor people was currently concentrated in cities. Municipalities would have to take this into account when planning and requesting the MIG.

He said that it was important to look at the business plans that had been submitted and the delays in environmental impact assessment when interpreting the statistics. The 2010 FIFA World Cup would influence the planning by municipalities. It was a national project that would necessitate a look into infrastructure development in its entirety within the spatial development framework of government. The issue of capacity to ensure that municipalities delivered on MIG could not be solved through the DBSA Siyenza Manje project. One could not re-employ people who had failed municipalities as engineers. Such people had no developmental approach to local government.

Ms Montwedi was not aware of cases in which the Department had transferred money late to municipalities. The Department had always tried to transfer money from the 12^th to the 20^th of every month. It was aware that municipalities should be in a position to pay their service providers by the end of the month. It would seem that there was fiscal dumping. DORA provided that one should look at the contractual obligations of municipalities before withholding any money. Most of the municipalities had contractual obligations and this made it difficult for the Department to withhold money. There were instances wherein the Department had withheld money and this had yielded positive results in that municipalities had started to fast track service delivery and to capture invoices. There was a need to set examples by reallocating funds for the sake of expediting service delivery. There were about 5 200 registered municipal projects that the Department was managing and about 2000 of them were at an implementation stage. Most municipalities were of the view that they would complete the implementation with a certain period but could do so due to heavy rainfalls. The Department could as a result not withhold money for those projects.

Ms Molokoane said that the Department had given the impression that municipalities could not spend their grant due to the supply chain management policy. The supply chain management policy was recently introduced to municipalities following the enactment of the Municipal Finance Management Act and was just one of the causes of the problem. Municipalities had to acclimatise themselves to new concepts. Municipalities believed that once their Integrated Development Plans (IDPs) had been costed and approved and projects approved for a three-year period, there was no more need for them to register them again with the Department and await its approval. The approval by the Department was one of the causes of the delays in spending by municipalities. Municipalities could only start to issue tenders once the approval had been given. There would be a need to somehow shorten the process.

She said that the quarter arrangements and the interpretations by the national and provincial governments versus the interpretation by local government were matters of concern. The Department had only captured expenditure up until March (or the last quarter of national and provincial governments). Some municipalities might have been able to spend the remaining parts of the grant from March to June and this was not reflected in the presentation. The first quarter of the Department was the last quarter of the municipalities and this was causing some discrepancies in the reports

Ms Montwedi replied that the expenditure up to the end of June was captured as quarter 5 per province and not per municipality. The Department would send more information in relation to quarter 5. There was an underspending of only R185 million. She agreed that an amount of R1, 2 billion had been spent up to the end of June. The Department was negotiating with its Systems and Capacity Building Unit and National Treasury in relation to shortening the supply chain management process. The feeling was that one should revert to the old way of doing things in terms of appointing consultants and contractors. In the past municipalities used roosters to appoint consultants and were now required to go out on tender before appointing consultants. The old system had its own limitations in that there was a tendency of appointing one consultant time and again. The system also had its advantage in that a municipality could have an engineer who understood the requirements of the municipality very well. A process that was done in one period was now done in two phases with each having its timeframe. Projects had to be registered because the Department wanted to capture base line information for monitoring purposes.

She said that there was no other institution that should approve projects except the municipalities themselves. She agreed with SALGA that councils approved projects. The issue was the form in which the projects were approved. Had they gone through the technical designs and other processes? One could find that a municipality wanted to implement an infrastructure project but did not have the required support structures in place. A municipality could end up with an infrastructure that could not be used due to the absence of supporting structures. The Department had established a monitoring system and municipalities were expected to feed some information into the system. The system would, for instance, ask how many households were still without water in an area. A municipality would respond that 100 households were still without water. The system would then ask how many households would benefit from a water project. The municipality's answer would be 100 households. The system would proceed to ask how many households would remain without water after the implementation of the project and the answer would still be 100. The question was how could municipalities deal with technical issues if they could not address simple arithmetic questions. She agreed that municipalities knew how much they were going to get in the next three years. The problem had more to do with planning.

The Chairperson invited SALGA to make a written submission on the 22^nd August 2006 in light of the discussion that had taken place in this meeting. The submission should deal with the constraints or challenges that municipalities were facing. He said that people should start doing the basics right in preparation for 2010 and beyond. People should be careful not to threaten and undermine the Accelerated Shared Growth Initiative for South Africa (ASGISA). All the planning and implementation should be done accordingly. There had been some disaster this week and the question was how to deal with them and ensure that there was proper planning and sustainable infrastructure. One should ensure that people did not run to the DBSA and other lending institutions for loans whilst they were underspending on what they had. He said that there was a municipality in his constituency that wanted to borrow some money from the Provincial Infrastructure Grant (PIG). He said that he had told the municipalities that it would be wrong to do so because the PIG was for the provincial government. The municipality had its money in terms of the MIG and should exhaust it before thinking of borrowing from anyone.

Ms Montwedi said that there was a need for a differentiated approach when dealing with municipalities. It was not a case of one size fitting all. The fact that municipalities had different problems impacted on the kind of capacity that the sector departments had to possess. One could have a general programme but there should be a differentiated approach when it came to implementation. The approach should take all the technical, political and socio-economic issues of a municipality into account. There were controversies around spatial planning and the argument was that there was no need to allocate a grant to a municipality that was a city. It had been argued that cities had the potential to generate their own revenue. The AG had indicated that an amount of R19 billion was not recovered by municipalities possibly due to the number of indigent people in the municipalities. It was difficult for one sitting at the national government and designing programmes to appreciate some of the challenges that municipalities were facing.

The Chairperson said that there were certain issues that the Committee had picked up. He proposed that the Committee should invite some municipalities to appear before it together with the Department and SALGA to address such matters.

Briefing by Eskom on their compliance with section 23(2)(b)(c) of DORA and implementation challenges
Mr I Sokopo (Electrification Stakeholder Manager), Mr R Stephen (General Manager: Capital Programme) and Mr M Ntsokolo (Distribution Division) attended the meeting. Mr Ntsokolo made the presentation. (See document attached). He focussed on the compliance and reporting processes and how Eskom would comply with DORA in the current financial year.

Discussion
Mr Kolweni said that it appeared as if Eskom was ready and fully prepared to account to the Committee. He asked if it was only in the Eastern Cape where Eskom had earmarked projects.

Mr Ntsokolo replied that the Eastern Cape was used in the presentation just as an example.

Mr Sogoni said that the presentation had not covered the issues of how municipalities accessed funding provided by Eskom. Municipalities budgeted for electricity. He thought that Eskom had appropriated funds to deal with electrification projects. He asked if the entity waited for municipalities to approach it before it could give them money.

Mr Ntsokolo replied that Eskom was a non-taxpayer until 2001 and had funded the electrification programme out of its profits. A decision was taken that it would be a taxpayer as from 2001 and that electrification would be the responsibility of the government. Eskom's contribution to the electrification was part of the dividends and taxes it gave to government. The money went to the national pool and was then shared amongst institutions like municipalities and Eskom. A forum composed of various stakeholders made the allocations. The criteria used for determining which projects would be funded were based on previous performance of the municipality, existing infrastructure, backlogs and government priorities. There was always more projects than the budget. There was a process to address the funding especially in relation to 2010. Eskom normally presented its priorities to municipalities and municipalities in turn presented their IDPs and priorities. Decisions were then taken on which projects would be prioritised. Each municipality was represented in the forum in which projects were identified. There would always be disputes with people claiming that their projects were urgent than others.

Mr Botha said that the Limpopo province had an amount of R100 million in the Premier's Fund. He asked if Eskom was aware of such money and if there was any co-ordination between Eskom and the Premier's Fund. 

Mr Sokopo replied that that Eskom was aware of the R100 million that had been made available by the Premier for the electrification projects in various municipalities. Eskom participated in the programme through the Department of Minerals and Energy (DME). It was already working with the identified municipalities in respect of putting the projects together. The money was part of the national electrification fund and there were no strings attached to it.

Mr Robertson said that Mafikeng had complained that it had lost its electrification license. They had indicated that the municipality could generate some income if could regain the license.

Mr Ntsokolo replied that there was a time when there were problems of service delivery in the former TBVC states. The Minister of Minerals and Energy had approached Eskom so that it could intervene and normalise the areas and take over the supply of electricity. The infrastructure was none existent or dilapidated in some areas and Eskom had to install the infrastructure and put systems and people in place to ensure service delivery. This did not mean that there were no problems. Soweto was a case in point and Eskom was still facing some changes there.

Mr Ntsokolo replied that due to the imminent restructuring and the RED, Eskom was of the view that there was no point in discussing the selling of the assets to the new authorities. The appropriation of assets should be dealt with in line with restructuring of the industry and not piecemeal. This was one reason that areas like Mafikeng had approach Eskom with a view of taking back the supply of electricity. Eskom had made investments in the areas and it would not be a simple case of it moving out and them moving in. Some kind of transaction had to take place. There was a big restructuring process going it and it was not desirable to have piecemeal deals taking place on the side.

Mr Kolweni said that it had taken four to five years for a section Matlosana to be electrified. It was only now that it was being electrified. Eskom had always insisted that it was still busy with other projects. He asked how long it took to electrify an area once a project had been approved? Did it take up to three years? 

Mr Sokopo replied that a period of 18 months was required to dig holes and put poles in rural areas. This was largely because there were no drawings or mappings. One had to start from the scratch. Some projects could not be covered due to funding constraints.

Mr Robertson said that a lot of houses were built in Mountain View (Greater Taung) but there was no electricity in the area. There was electricity in a squatter camp just across the road.

The Chairperson said that Eskom had spoken about consultation forums. He asked if Eskom had started to align itself with the IDPs with a view to provide electricity. He asked what would happen to projects that were not in the IDPs but had a need for electricity. Mogwase was electrified because it was near Sun City. The main reason was to ensure that visitors of area did not become victims of crime. Mogwase had used its money for the electrification programme and the issue was whether Eskom would be able to compensate them. How practical was it to align IDPs in the context of the Regional Electricity Distributors (REDs). One of the problems was that Eskom would start an electrification programme and stop mid-way and claim that there were no sufficient funds to complete the project. Did this mean that Eskom did not budget appropriately for projects. Could it be said that the country was winning the war in relation to the delivery of free basic electricity in all municipalities? Moses Kotane municipality provided water to 63 000 households but could not provide electricity. It had often been said that Eskom had run out of funds yet it had huge profits.

Mr Sokopo replied that some of the municipalities had spent their own money on electrification projects. Some of them did not have the capacity to maintain the projects. The issue of compensation was discussed with DME before projects were undertaken. It had been agreed that where municipalities had used their money on projects that had been identified and approved as part of the national electrification programme for that year and could not maintain the projects, municipalities would remain owners of the infrastructure. Eskom would then lease the assets from municipalities. There were a number of projects that Eskom would manage following agreements with the DME.

With regard to the alignment of the IDPs, he said that Eskom had run with this for some years. When the White Paper was published in 1998, it imposed certain obligations on Eskom. Certain pieces of legislation had since been passed requiring Eskom to do certain issues and one of them was the integrated development plans of municipalities.

Mr Sogoni said people had complained that Eskom's tariffs' were different from those of municipalities. He asked what were the reasons for this.

Mr Sokopo replied that tariffs were determined by the National Electricity Regulator. Eskom tariffs were national tariffs and were published. Municipalities decided on their own tariffs. The electricity business was regulated and one could not conduct such business in the absence of licenses. Only Eskom and some municipalities that had the capacity to distribute electricity had the licenses. One of the drivers of the restructuring was the fact that there were about 2000 tariffs in the country. One could have more than one tariff in one town.

Ms Molokoane said that the Albert Luthuli and Nkomazi local municipalities had a 50/50-shareholding company with Eskom. The company was liquidated and the municipalities had been robbed of their shares in terms of the assets. Eskom had taken over everything. She asked what had happened to the 50/50 sharing of the assets. She also asked if Eskom was doing anything about the quality of the electricity. Rural areas always faced blackouts every time there was any amount of wind blowing. She also asked why there were always problems despite the fact that municipalities wanted to help. Eskom's plans were not yet aligned to municipal plans. One would find that Eskom had target to electrify a village within the next ten years whilst the municipality had planned to electrify the same village within a year. The Madibeng municipality had negotiated with Eskom with a view of electrifying certain areas despite the fact that the areas concerned where within the Eskom license area. She also asked what Eskom and the Department of Minerals and Energy were doing to ensure that every household could have electricity.

Mr Ntsokolo replied that the company in question went insolvent and owed the DBSA in the region of R80 million. The company also owed Eskom some money. It became impossible to run the business and a decision was taken by Eskom and the municipalities to do away with the company. The assets had to be sold and Eskom submitted its bid for them as it was already involved in the company. Some municipalities also submitted their bids for the assets. Eskom won the right to purchase the assets and the assets were integrated into the Eskom in that province. There was no question of ripping them off since a legal process was followed.

With regard to the quality of electricity, he said that the fact of the matter was that in the early 1990s when Eskom started with the electrification, the electrification programme was driven as a social intervention programme. The intention was to improve the standard of living of the majority of the people. There was more focus on lights and numbers of people who had access to electricity and not on economic development. The new direction emphasised the designing of networks that would support economic growth with the view that there would be no need to upgrade the infrastructure should a little manufacturing company want to open in a village. The system should be able to handle the new demand. The load in terms of after diversity maximum demand/load per household was probably around 0.5 Kpa. The new design would ensure that Eskom would not have to go back and upgrade or double transformers should there be growth. Eskom had taken note of some of the problematic areas and would go back to them. The plan during the old design was to bring in electricity or lights as the first phase and then double the transformers or size of the conductors as soon as people had started buying appliances. Eskom did not want to have too much infrastructure without knowing what kind of growth would take place and for how long. It was true that in some areas the load was too much for the network to handle.

Mr Johnson said that the presentation was silent on the electricity restructuring that was currently taking place and how it would affect municipal investment frameworks and Eskom's long term planning. Eskom's current plan was based on a three to four percent growth rate whilst there was a target of 6% requiring an additional 1 200 mega watts every year. Major investment should take place to ensure the certainty of the supply. Local government did not feel the impact of Eskom's free basic electricity especially in farming communities where it was virtually absent. SALGA had prepared a number of resolutions in relation to the electricity industry and it was important to discuss them.

Mr Ntsokolo replied that Eskom's studies had shown that there was no direct correlation between gross domestic product (GDP) and electricity. Some of the GDP generating business were not necessarily electricity intensive. A 6% GDP reflected a 4, 4% electricity growth. However, Eskom was planning of a 6% electricity growth. The issue of free basic electricity would be addressed in the next meeting. There was around six municipalities in the Eskom areas of supply that did not have free basic electricity supply contracts. These would include municipalities that claimed to have no budgets or preferred to use other sources of energy.

The Chairperson said that Eskom was silent of certain issue because they were requested to focus on compliance with section 23 of DORA. They would respond to other issues in their next appearance before the Committee.

Briefing by the Department of Minerals and Energy on the National Electrification Programme
Mr C van Zyl (Senior Manager: Capital Programme), Mr E Tinto (Regional Energy Manager: Western Cape) and Mr M Nketsi (Manager: Non-grid Electrification Planning) attended the meeting. Mr van Zyl made the presentation. (See document attached). To date 75% of the revised household connections had been achieved. Eskom had an overspending of R95 million due to projects committed in 2005/06 and the pressure to accelerate the electrification in preparation of elections.

Discussion
The Chairperson said that in the last quarter the Department had given a breakdown of its performance per province and per municipality. Such a breakdown was not given in this presentation. The Committee should be furnished with such a breakdown. The Department had once said that it did not have reliable data on schools and clinics that did not have electricity. The Committee would ask the Minister of Education if there was no reliable data on schools that had no electricity.

Mr van Zyl replied that the report was on the 2005/06 expenditure. The allocation was R313 million and R297 was transferred to municipalities. Municipalities had to report on the funds transferred to them. Municipalities had provided reports on the number of connections that they had done. They had achieved 44 000 connections for the 2005 financial year and they had reported an additional 33 000 connections as at the end of June 2006. The Department had technical auditors who verified the reported connections and checked if they were done according to the required standards. The Department would provide the requested information as per municipalities at a later stage.

Mr Robertson said that there was a R70 million roll-over. It was indicated that electrification projects could not be completed due to the unavailability of houses. There were a lot of houses that had no electricity in Mountain View, Greater Taung.

Mr Nketsi replied that the rollovers might be on Eskom’s side but one could not use the money to connect households that were on municipal licence areas. The whole electrification programme could be destabilised if this was allowed to happen. It was true that there could be unelectrified households and rollovers at the same time. This could be explained on the basis that the money belonged to Eskom and the households were not in its licence area. One could also not simply transfer the money to municipalities because this had caused problems in the past.

Mr Robertson said that it seemed like Eskom wanted a monopoly over the licences. He still could not understand how households remained without electricity whilst money was available somewhere. It did not matter whether the money belonged to Eskom or municipalities. The basic point was that people were suffering and needed electricity. He asked if Eskom wanted a monopoly over licences.

Mr Nketsi replied that Eskom did not want a monopoly. The fact was that the electrification programme had a lot of history in it. The history was related to the complications around the operation and maintenance of infrastructure. The operation and maintenance of infrastructure by different people had always caused problems. The REDs would harmonise the situation. There would be no more talks about Eskom or municipal areas since both areas would be under one licence.

The Chairperson said that in the last quarter the Department had planned targets and outputs in relation to those targets. Such information was missing in this presentation.

Mr Sogoni said that the Committee had heard that DME and Eskom were doing very well. The N2 in the Eastern Cape was beautifully electrified but villages in the same province had no electricity. He asked how Eskom went about electrifying areas. Did it wait for municipalities to approach it? Statistics South Africa had a breakdown of houses that had no electricity across the country. Did Eskom use such information?

Mr Nketsi replied that there were problems in the Eastern Cape and other former homelands. Some of the problems had to do with the licence issue. There were lots of backlogs due to infrastructure and the terrain of the provinces. There was a serious shortage of bulk supply in the Eastern Cape and a number of bulk supply projects had been planned. The Department was fast tracking bulk supply in the coming electrification programme. There would be a lot of money going to bulk supply and there would be less connections than those reflected in the presentation. It was important to first deal with the issue of bulk supply before dealing with connections. The Department was running the Rural Electrification programme in the Eastern Cape to deal with deep rural areas. One of the problems was thermal energy. The system could not supply thermal energy. The Department had embarked on a process of coupling the solar home systems with thermal parts in order to supply the total energy needs of households.

He said that the Department used data from Statistics South Africa as a baseline and had its own reliable data. The data was collected by Eskom and municipalities and was used for planning purposes. The problem was that there were households that were on un-proclaimed areas.

Mr van Zyl replied that the first part of the presentation dealt with municipalities and the second with Eskom. He had a feeling that Members were confusing the expenditure of municipalities with the connections by Eskom. Municipalities had achieved about 80% connections and this was good. Eskom was expected to do even better.

Mr Botha said that in some areas Eskom electrified two or three villages and skipped one village and electrify another one. One could find the skipped village in Eskom’s programme in the next two or three years. He did not believe that that Eskom could not complete its projects due to the unavailability of houses.

Mr Johnson said that at the moment planning was done on the basis of outdated statistics from 2001. Statistics South Africa would conduct a 10% survey this year and this meant that one was dealing with a moving target. When talking about the eradication of backlogs, it was important to understand whether one was talking about the 2001 targets or something else. There were new connections and backlog connections in terms of backlogs. Municipalities were using their own money to fund backlogs in terms of schools and clinics. Municipalities were allowed to use some of their money on renewable energy sources in remote areas that had no electricity grids. It was important to have a report on this.

Mr van Zyl replied that the Department had its own programme on renewable energy. It had a non-grid programme and had three concessionaires that did solar home systems in the Eastern Cape, Limpopo and KwaZulu-Natal provinces.

Mr Sokopo replied that planning was guided by the availability of bulk supply. One could not plan to supply water to households in the absence of dams. Electricity was no different because there had to be bulk infrastructure. This informed the determination of areas that would be electrified in the particular municipalities. Municipalities that had households in the pipelines normally requested funding so that the houses could be delivered with electricity. In most cases the very first problem was that the houses were not delivered or delivered late. One could not simply take the funds to another area that had houses. A certain process had to be followed in order to transfer the funds. For instance, one had to find a similar project with the same number of households and similar costs before the money could be transferred. There was a need to harmonise electrification and housing programmes.

Mr Tinto replied that it was not true that municipalities in the Western Cape were using their own money for electrification processes. All funds that were used came from the Department.

The Chairperson said that the Committee had evidence in respect of municipalities that had budgeted for electricity in their own equitable share. The Committee had always asked why municipalities were compromising their equitable share whilst money was available at the national Department and Eskom.

Mr Sogoni said that the Limpopo province had allocated an amount of R100 million to electrification.

Mr Nketsi said that the Department appreciated the fact that municipalities were using their own money to fund electrification programmes.

The Chairperson said that the Department should not appreciate a wrong practice. The Committee was saying that municipalities should first exhaust the resources that were available at the national Department. The DPLG had indicated that there was underspending on the MSIG yet municipalities were saying that they did not have systems and were rushing to the DBSA for loans to fund systems.

Mr Nketsi replied that the Department refunded municipalities that had used their money for electrification.

After hearing a lot of murmuring from Members, the Chairperson said that the Committee should not the statement by Mr Nketsi. The Committee would call some municipalities to come and confirm or dispute some of the statements made during this meeting.

Mr Nketsi said that municipalities would be refunded provided they had done the electrification in their own licence areas. They could not go and electrify on an Eskom area of supply, breaking the rules and then expect compensation.

The Chairperson said that housing was a provincial competence. Municipalities had not yet been accredited to deliver houses and therefore housing was not in the IDPs. This was one disjuncture that should be addressed. The Committee had been militantly advocating for the accreditation of municipalities. All municipalities were not accredited but 15 had been identified. There was still some capacity building that still had to taken place in those 15 municipalities.

Mr van Zyl replied that the crux of the matter was planning. Nothing could be done in the absence of proper planning. The Department was also governed by DORA.

The Chairperson said that the Department could have planned its process but the real issue was the level at which the planning took place. Was it done at a national, provincial or local level?

Mr van Zyl said that perhaps the Department should work closely with the Department of Housing. He reiterated that the Department was governed by DORA. It was not allowed to change allocations it had already made to municipalities. Any transfers could be made during the reallocation process in October. The Department did not have the flexibility to move funds and electrify houses that had already been built.

The Chairperson said that it was a good thing that the Department did not have such flexibility because it could have resulted in chaos.

The Chairperson asked how municipal and Eskom’s electrification processes were related to each other. Were there no duplications?

Mr Nketsi replied that there were Eskom and municipal areas of supply. Municipalities that had licences were funded to do their own electrification in their areas. Eskom did the electrification in its licence areas.

The Chairperson asked if it was not the responsibility of municipalities to provide free basic services like electricity and water.

Mr Nketsi replied that free basic services had to components: infrastructure and operations. In terms of electrification the licence holder was expected to operate and maintain the infrastructure and collect revenue unless there was an agreement to the contrary between Eskom and municipalities.

The Chairperson said that the Department of Water Affairs and Forestry was transferring all water schemes to municipalities. He asked why DME was not doing the same in relation to electricity.

Mr Nketsi replied that the REDs system was all about the integration of municipalities and Eskom distribution areas.

Mr van Zyl replied that the process was that municipalities would compile a list of projects and forward it to the Department. Then Department would then evaluate the list on the basis of backlogs, capacity and the availability of houses that had no electricity. It would then allocate funds to municipalities that had met the criteria. The backlogs were based on the 2001 statistics. There was a backlog of about 3, 2 million households plus an annual growth of 2%.

Mr Johnson wondered if there was any integration at national level if municipalities were required to work in an integrated manner in terms of aligning their budgets with parastatals, State-owned enterprises and national departments. An agreement was reached to the effect that planning would be undertaken for the entire delivery at a district level. This was the congruence of all government planning within a specific area. One could not plan at a local level because such planning could perpetuate apartheid planning. There would be areas of wealth within a sea of poverty. Municipalities could not abdicate their responsibility in relation to housing. What was the definition of a house? Was it the simple structure without roads, electricity and other services or the whole suite of services? This was also linked to ASGISA. He suggested that sustainability should be added to ASGISA. All government Departments should work together to ensure a seamless service delivery. Municipalities would be accredited to deliver houses and already had responsibilities on housing.  They had to approve rezoning, building plans and related issues. Mayors should be cognisance of Eskom's IDP. Eskom had the habit of not turning up for meetings. He said that he knew nothing about Eskom's plans for a district. He had to rely on his personal experience in order to know what was happening.

Mr Baloyi said that there were three spheres of governance. There had been reference to Eskom license areas but such areas did not form part of the governance structure. There were municipal areas and planning should be done in line with municipalities. Planning on the basis of the boundaries of licence holders would lead to some bias.

Mr Sogoni said that the Committee had heard that municipalities that had taken money from their equitable share and used it for electrification projects would be reimbursed. He asked what would happen to provincial governments that had allocated money to electrification projects.

Mr Robertson said that Mr Nketsi had indicated that municipalities that had used their money for electrification would be refunded if they had a licence. He asked who issued the licence. He was of the view that it was Eskom. Mr Sokopo had indicated that there were backlogs and that Eskom had to electrify houses as they were built. The Greater Taung had houses that did not have electricity since 2001. Who would look after those people? There would be fights between communities because communities that had recently submitted their applications were receiving service whilst those that had applied a long time ago where still waiting for services. The President would not be impressed with this. Eskom's main power lines in Taung did not run far from the area that was not electrified in Taung. One should not talk about inaccessible areas. The area was even flatter that the Free State.

Mr van Zyl replied that the Department was not responsible for the issuing of licences. This could be one of the reasons why there were Eskom areas and municipal areas. Municipalities could not distribute electricity in an Eskom area of supply. Section 14 of the MFMA provided that funds allocated by the Department to a municipality could not be used for something else other than the purpose for which they were allocated. An asset created from the funds could not go to another entity but had to stay with the municipality. Municipalities should do their electrification projects and then enter into a lease agreement that would see Eskom maintaining the infrastructure.

Mr Sokopo said that he would look at the Taung issue and then give specific answers to the question.

The Chairperson said that there were some demonstrations in some villages in Mafikeng as a result of Eskom's promises. Eskom had stopped projects mid-way. The country was run on the basis of intergovernmental relations. Every jurisdiction was municipal, provincial or national. The Committee was told that there were areas wherein municipalities could not do certain things because they were Eskom's areas. The Committee was not interested in the discussion on the different areas but on how to effectively ensure that there was delivery.

Mr Sokopo replied that he would appreciate if the Chairperson could give him the names of the villages so that he could better respond to the question.

Mr Nketsi said that there was a legacy issue in terms of everything that had happened in the electricity industry.

The Chairperson said that the Department should not talk about the legacy but about the present. The Committee was saying that there had been some legacies but the real issue was what the Department had done to undo the legacies. One should appreciate legacies as challenges. Legacy was one of the reasons why the country had embarked on a transformation process. The Committee had gone to the North West to conduct oversight on DBSA funded projects. The DBSA itself was a legacy structure established in 1983. It had made significant strides in terms of responding to the current challenges. Everybody understood the legacy issue but it was time to address them.

Mr Nketsi replied that the REDs would address the legacy issue. It would integrate the distribution industry and ensure that the current problems were eliminated.

The Chairperson asked if DME had the capacity to monitor the harmonizsation process.

Mr Nketsi replied that the Department had nine regional energisation managers. It would appoint technical staff that would monitor the implementation of the project.

The Chairperson said that Eskom and SALGA should prepare for the meeting on the 22^nd of August.

The meeting was adjourned.