Housing Delivery and Spending: First Quarter Reports by Provincial Housing

FINANCE SELECT COMMITTEE
12 September 2006
HOUSING DELIVERY AND SPENDING: FIRST QUARTER REPORTS BY PROVINCIAL HOUSING

Chairperson: Mr T Ralane (ANC)

Documents handed out:
North-West Department of Housing report
Limpopo Department of Housing report
Northern Cape Department of Housing report
Western Cape Department of Housing report
Gauteng Department of Housing report
Free State Department of Housing report
KwaZulu-Natal Department of Housing report
Eastern Cape Department of Housing report

SUMMARY
The committee was briefed by the provincial housing departments on their first quarter spending of conditional grants. Owing to the critical questions asked of the lowest performing provinces, the Eastern Cape, Limpopo, Northern Cape and Gauteng, the Chairperson ruled that the MECs of those provinces must respond in writing to all question, to enable the Committee to analyse each answer systematically, and prevent the same questions from being raised in the second quarter. 

The Western Cape presentation focused mainly on the housing backlog of 300 000 units, and stated that only about 15 000 units could be built with current grant funding. The Department had exceeded targets in the last year and aimed to spend fully in this year. In the first quarter it had already exceeded 33% of targets for servicing and building. Municipalities were monitored on a monthly basis. Questions by members focused on migrant workers, capacity to spend fully, accreditation of municipalities and the internal audit systems, which would be revisited.

The Eastern Cape noted that expenditure for the first quarter, against the total national allocation was R9.36%, but 43.9% against funds received. The budget allocated for 2006/07 financial year was R762 million. Municipalities lacked staff capacity, dedicated housing units, and focus and commitment. The Department had contracted in staff, although it had insufficient staff to monitor fully. It outlined the negative factors influencing spending but outlined the attempts to rectify problems. The questions, to be answered in writing, included questions on project-linked subsidies, backlogs, eradication of slums, and accreditation of municipalities.
 
Limpopo Province summarised the spending trends and reasons for underspending in August. Challenges included the shortfall of bricks, institutional capacity and contractors’ capacity to deliver at a reasonable scale. Interventions included new appointments, the establishment of a project management unit, restriction of non-performing contractors, improving housing subsidy scheme administration, a strategy to deal with blocked projects and setting up of material agreement facilities to assist emerging contractors. Questions, to be responded to in writing, dealt with the units built, sanitation, the involvement of specialists and the capacity problems.
  
The Free State tabled graphs showing the outputs for the first quarter and reported that so far expenditure had exceeded cash flow. Rollover amounts had been spent, a new project was started in December 2005 to increase expenditure, and current allocations included 1 000 subsidies for women contractors and 500 subsidies for youth contractors. Many of the challenges were centred around capacity. Questions were to be answered in writing by the MEC, and included the tendering process, the internal audit, youth training, completion of houses and the allocation of subsidies timeously. The MEC was to clarify why the Department’s and National Treasury’s figures differed.

Northwest Province had tabled several schedules and summaries. However, these reports contained conflicting figures to those provided by the National Treasury. The Head of Department was asked to return to Mafikeng, reconcile the figures and report back within the next two days. He should also report on the situation in Taung municipality, which was raised in questions by members.

The Northern Cape reported that the budgeted amount for the first quarter was R52, 8 million but the actual expenditure was R14, 020 million. The reasons for under-performance were tabled, together with proposed solutions. Challenges included a vacancy rate of 42% , a limited operational budget, lack of capacity within Municipalities, lack of skilled and technical staff in the province, and inability to engage contract management. The Department tabled its proposed solutions Eight municipalities had been targeted for accreditation at level one and the Department tabled the areas and budgets for informal settlement upgrades. The MEC was asked to respond in writing to questions on the involvement and monitoring of the homeless federation project, the poor quality of some projects and lack of capacity of contractors.

The Gauteng Department had revised its strategic plan document, and had now prioritized certain areas, which were tabled. A number of challenges were identified inside and outside the Department. The Department had underspent in the first quarter and explained the reasons for variance. A major factor was that processing of claims had been delayed. There was a need for greater integration and coordination of planning. The MEC was asked to respond in writing to questions on hostel upgrades, and the amounts owed to small contractors.

MINUTES
Western Cape Presentation
Mr Richard Dyanti (MEC: Local Government and Housing, Western Cape) stated that one of the funding challenges faced by the department was the housing backlog of more than 300,000 units. Only about 15 000 units could be built with the annual grant of R598 million. However the Department was accelerating delivery to show capacity to absorb additional funding. In the past year the Department had exceeded targets and had spent R573 million, being the full amount of the grant, a rollover of R77 million and R40 million of provincial funds. In the first quarter of this year the Department had spent R 168 million of the R 598 million conditional grants, representing 28%, but projected to spend the full grant by December 2006. It had achieved 35% of annual target for servicing of sites and 33% of the annual target for building. Cash flows and delivery targets were set for each municipality and the Department planned to monitor expenditure and delivery monthly. It was working closely with Provincial Treasury in monitoring the performance of municipalities.

Discussion
The Chairperson raised the issue of migrant workers, stating that the Department had to make provision to accommodate workers from the Eastern and the Northern Cape to avoid a huge housing backlog. The chair also questioned what was being done in terms of the current housing backlog.

Mr Dyanti stated that the current housing backlog resulted from a number of reasons. Since the Western Cape had become attractive to migrants over the years, the Department had been forced to adopt various strategies to cope with the increase in migration. Due to the complex economic structure in the province, it was necessary to cater for people with different needs and abilities. The Department has done a study to understand the various migratory patterns. The findings would be tabled to the three MECs at their next meeting, and there would be a report back to the committee once the meeting had taken place.

Mr D Botha, (ANC, Limpopo) stated that the expenditure in the Cape Winelands, the Overberg and the central Karoo was very low. He queried if the department had the capacity to spend the full grant by December.

Mr Dyanti answered that the Department was very confident that the full grant would be spent by December 2006. The expenditure in the three areas was being monitored very closely.

The Chairperson then proposed that the Select Committee for Housing be requested to check whether the Western Cape had achieved its target in the 05/06 financial year. The Chairperson asked for details on what the Department was doing in terms of the accreditation of municipalities.

Mr Dyanti stated that the Department was busy with one project in the Western Cape; but there were issues in terms of accreditation. The accrediting of a municipality followed three levels. The City of Cape Town was currently on the first level. The Department welcomed the enquiry into last quarter’s spending.

The Chairperson then commented that if other provinces continued to under spend, it would be useful for these funds to be allocated where there was a capacity to deliver.

Mr M Goeieman (ANC, Northern Cape) asked the Department to elaborate on its internal audit system.

Mrs Shanaaz Majiet (Head of Department (HOD), Local Government and Housing) stated that there was an interrogation process by SCOPA regarding gaps in the internal audit structure. The Department, with support of provincial Treasury, was in the process of setting up emergency systems to bridge the gaps that would help move the Department to a level 4 auditing compliance by the end of the fourth quarter.

The Chairperson then stated that the internal auditing structure of Provinces is a key area that has to be revisited

Eastern Cape Presentation
Mr Sam Kwelita (MEC: Housing) and Mr Sipho Thina (HOD: Local Government and Housing) outlined the various capital programmes and allocations and noted that expenditure for the first quarter, against the total national allocation was R9.36%, but 43.9% against funds received. The budget allocated for 2006/07 financial year was R762 million.

The biggest challenge faced was in the role of Municipalities as developers. They lacked the necessary staff capacity, generally did not have dedicated housing units, were burdened by administrative inefficiency and had a general lack of focus and commitment. The Department’s response had been to contract in project managers and clerks of works, to involve ten Cuban professionals through a bilateral support programme, and to engage local government specialists. There were still insufficient staff to monitor fully. Several negative factors had influenced first quarter spending, including delays in municipal procurement processes and conveyancing, and construction management problems. There was, however, ongoing interaction with municipalities and Thubelisha were to assist in implementing some blocked projects. There was an attempt to attract established contractors back. A rectification programme would rectify defective units produced since 1994, and the National Homebuilders Registration council (NHBRC) would undertake a scoping exercise and accountability. The Department remained committed to achieving spending targets.

Discussion
Owing to the critical questions asked of the Eastern Cape the Chairperson ruled that the MEC must respond in writing to all questions.

Mr Goeieman asked why there was expenditure of 8% in the project-linked subsidies.
 
Mr M Robertson (ANC, Eastern Cape) questioned if the reports that Councillors were charging R1000 per house in certain municipalities were true. He asked that the Department elaborate on how the backlog of housing was to be rectified. He queried whether the shortage of cement would not be resolved in a matter of days rather than the 6 months reported. He commented that the issues put forward by the Department were not issues of capacity but of poor planning and management.

Mr R Tau (ANC, Northern Cape) stated that during his last visit to Kenya the delegation was asked to elaborate whether there were slums in South Africa, because one of the host delegates had been to an Eastern Cape slum dwelling. He noted that there was no clear plan in place to deal with the eradication of slums.

Mr E Sogoni (ANC, Gauteng) believed that provinces should not allow municipalities to attempt to deliver where there was no capacity. The Department had to make important decisions when dealing with accreditation and make absolutely sure that the municipalities could deliver before they were accredited. It was also important that the committee look at the issue of planning, and report back on developments.

Mr Robertson commented that the Department built houses in the municipality of Rossouw, a town where there were very few resources in terms of employment or leisure.

Limpopo Presentation
Ms Maite Nkoana-Mashabane (MEC: Local Government and Housing) and Mr Leshabi Rampedi (HOD: Department of Local Government and Housing) outlined the key objectives and achievements of the Department, which included the completion of 5 293 houses in the first quarter, establishment of a project management unit, improved payment systems, four housing programmes, training of 100 youth in Bela-Bela, and awarding of 32% of the Departmental contracts to women contractors. The spending trends were summarised, together with reasons for underspending in August. 5012 houses of the targeted 29 240 had been completed in rural and urban Housing, and 281 of the targeted 3 922 in the People Housing Process. Rental housing was in progress. Polokwane Municipality was being accredited at level one, there was development on the multi-year housing plan, establishment of a consumer line and public hearings were continuing on the Limpopo Housing Development Bill. 3718 of the targeted 4770 had been profiled for housing transfer and 71 deeds of grant had been handed to beneficiaries already. Challenges included the shortfall of 3.5 million bricks per month, institutional capacity and contractors’ capacity to deliver at a reasonable scale. Interventions included new appointments, the establishment of a project management unit, restriction of non-performing contractors, improving housing subsidy scheme administration, a strategy to deal with blocked projects and setting up of material agreement facilities to assist emerging contractors.

Discussion
Owing to the critical questions asked of Limpopo, the Chairperson ruled that the MEC must respond in writing to all questions.
Mr Goeieman asked if there was proper sanitation in the 5 293 houses.

Mrs A Mchunu (IFP, Kwazulu Natal) questioned the number of rooms per house and if there were any units with more than one room.

Mr Robertson stated that the capacity of municipalities was well known and there should be no need to involve specialists. Most provinces seemed to run late with planning, which was a problem as they were already aware of their allocated budgets.

Rev P Moatshe (ANC,North West) stated that he was worried that most problems experienced by the provinces were due to a lack of capacity and argued that this should not exist.

Free State Presentation
Mr Joel Mafereka (MEC: Local Government and Housing) tabled a summary of allocations and amounts actually expended. He also tabled graphs showing the outputs for the first quarter and a comparison showing that so far the expenditure had exceeded cash flow. However, the rollover amounts had been spent, a new project was started in December 2005 to increase expenditure, and in the 2006/07 financial year the Department’s allocations included 1 000 subsidies for women contractors and 500 subsidies for youth contractors. Many of the challenges faced by his Department were due to capacity constraints. Some contractors had not been able to deliver within timeframes, and there was a shortage of technical personnel. There had been a restructuring process in the Department, which identified new vacancies that were shortly to be filled. 10 000 new subsidies had however been allocated.

Discussion
Mr Robertson questioned the tendering process in the Free State, and asked the department to elaborate on the matter.

Mr Mafereka argued that there was a very long and complicated tendering process.

Mr Z. Kolweni (ANC, North West) asked who was involved in training the youth in construction. He also asked for elaboration on the internal audit.

Mr Mafereka said that the programme for the youth was aimed at empowering young and unemployed youth to provide them with a brighter future. They were trained in skills such as plumbing, electrical and structural engineering.

Mr C Van Rooyen (ANC, Free State] questioned on how many of the 10 000 houses were completed in the first quarter. He commented that the process of accreditation seemed to be taking a long time, with no clear completion date in sight. Finally he noted that the province’s financial expenditure was higher than the cash flow, which could lead to the province overspending drastically. 

Mr Sogoni stated that the figures provided by the National Treasury differed from those provided by the department. He asked the Department to reconcile its figures and report back within the next two days

Mr Botha stated that allocations regarding the 10 000 subsidies had not been made and that it was important that all projects were completed in time.

Mr Mafereka believed that the subsidies would be allocated in time

Mr Robertson commented that Mr Mafereka had spoken about many issues but had failed to answer most of the critical questions. Therefore he proposed that the MEC should respond in writing.

The Chairperson agreed and asked the MEC to give a written answer to the key questions posed.

North West Presentation
Mr Iqbal Motala (HOD: Local Government and Housing) had tabled an extensive report to the Committee, containing an overview of the delivery, a summary of the status of projects and the delivery statistics. However the Chairperson indicated that the reports contained conflicting information to that provided by the national treasury. The Chairperson therefore asked Mr Motala to return to Mafikeng, reconcile the figures and report back to the Committee within the next two days. He was also to provide written answers to questions asked by members.

Discussion
Mr Robertson questioned the situation in the Taung municipality, and called for an investigation into the housing developments.

Mr Goeieman asked for the reports to be delivered before the end of the week, as the Taung municipality issue is a very important issue that urgently needs to be addressed.

The Chairperson agreed that this was a vital issue, and that the reconciliation of figures should happen as soon as possible.

Northern Cape Presentation.
Mr J (Boeboe) van Wyk (MEC: Local Government and Housing) said that the budgeted amount for the first quarter was R52, 8 million but the actual expenditure was R14, 020 million. The reasons for under-performance included the fact that correct cash-flow predictions were not made, problems with non-performing contractors, and incorrect calculation of formulas that did not take geographical spread into account. Solutions were proposed to all problems. Challenges generally included a vacancy rate of 42% in the Department and lack of finality on the job evaluations, a limited operational budget, lack of capacity within Municipalities to deliver quality houses, lack of skilled and technical staff in the province, and inability to engage contract management. The Department’s proposed solutions included terminating non performing contracts, the establishment of housing units within Municipalities, and the availability of funding from Provincial / National Treasury in order to assist the Province in providing adequate services. The MEC summarised the number of houses completed, the MTEF allocations, and the cross-boundary schemes with North West. He reported that eight municipalities had been targeted for accreditation at level one and tabled the areas and budgets for informal settlement upgrades.

Discussion
Owing to critical questions asked the Chairperson ruled that the MEC should respond in writing.

Mr Goeieman asked the MEC to comment on the Department’s involvement in and monitoring of the homeless federation project. He commented that the quality of the Soul City Projects was very poor and nothing had been done to improve them. He asked why one contractor seemed to be getting projects despite the apparent lack of capacity.

Gauteng Presentation
Ms Benedicta Monama (HOD: Local Government and Housing) stated that the Department had revised its strategic plan document, and had now prioritized eradication and formalisation of informal settlements, regeneration of townships, rental accommodation and urban regeneration. Solutions to achieve the aims were tabled. Major challenges included the affordability of housing, the wage gap, 60% poverty and the large numbers of destitute people. Critical challenges included the housing backlog, access to land, inadequate funding, the capacity of the private sector, lack of co ordination, illegal land invasions, outdated planning and HIV. External challenges included the capacity of municipalities, the payment process, the work culture and ethics, project management and information technology. The Department tabled the trends in allocations and the total budgets and indicated that it had underspent in the first quarter. The reasons for variance were tabled and explained. A major factor was that processing of claims had been delayed. Other challenges included local municipalities in cross-boundary positions, and shortcomings in the Integrated Development Plans. There was a need for greater integration and coordination of planning. A Monitoring and Evaluation team had been established to evaluate progress in the implementation of the various strategies against the targets that were set.

Discussion
The Chairperson ruled that, due to the critical questions asked, the MEC should respond to the questions in writing.
Mr Sogoni asked for an elaboration into the reason why there was no expenditure noted for hostel upgrading. He commented that some of the business plans had been approved late and this should not happen.

Mr C Van Rooyen (ANC, Free State) stated that if Gauteng continued to under spend it would have its allocations reduced. It was of concern to him that Gauteng owed small contractors an amount of R40 million, which hampered small businesses and could lead to negative consequences.

Mr Kolweni commented favourably on Gauteng’s appointment of professional service providers, which had enabled it to avoid the issue of lack of capacity that most provinces had been experiencing.

The meeting was adjoined