Housing Provincial Conditional Grants & CapEx: 2nd Quarter 2006/07 spending

FINANCE SELECT COMMITTEE
24 November 2006
PROVINCIAL BUDGET: PROVINCIAL HOUSING DEPARTMENT BRIEFINGS

Chairperson: Mr T S Ralane (Free State, ANC)

Documents handed out:
Northern Cape Department of Housing and Local Government
Western Cape: Housing Delivery Status
KwaZulu-Natal Department of Housing: Part1 & Part2
Eastern Cape Housing Delivery: Part1, Part2 & Part3
Limpopo Province: Public hearing on Housing Conditional Grant 2006/2007
Free State Department of Local Government and Housing
Gauteng Department of Housing

SUMMARY
The Provincial Housing departments from seven provinces (excluding North West and Mpumalanga) briefed the Committee on their performance from April to September, in particular focusing upon delivery against the budget. All provinces reported underspending, particularly on the conditional grants. All cited lack of capacity, both internal and at municipalities, as a problem, but said that they had plans in place to address it. The committee was concerned by the projections of under expenditure by a number of provinces that were likely to occur towards the end of the financial year. They expressed particular concern about the situation in Free State, Eastern Cape and Mpumalanga. Concerns were expressed that municipalities were delivering houses whilst they were not accredited, on the slow process of municipal accreditation, on the shortage of building materials, the PHP processes and what steps had been taken to ensure that there would be spending. The Committee asked what steps had been taken to protect beneficiaries when contractors had been fired, and what steps were put in place on procurement rosters. The Provinces were asked if some of the funding should not rather be transferred to other provinces if it could not be spent. .

MINUTES
Department of Local Government and Housing Northern Cape Briefing
Mr F Jacobus van Wyk, MEC Housing, Northern Cape and Ms Renita Soodeyal, Executive Manager Housing, Northern Cape Department of Local Government and Housing stated that the budget allocation for 2006/7 was R104.7 million. 40% of this had been spent by September 2006, although the spending for the quarter had exceeded the budget for the quarter, as there had been a sharp rise in actual expenditure in the last two months. Thubelisha Homes were expediting the implementation of projects, projects were being monitored and vacancies were being filled. Challenges included the fact that the operational budget in proportion to the Conditional Grant was limited, so that the few officials were over stretched. There was lack of capacity of Municipalities to deliver and a lack of skilled professional and technical staff in the Province. Some cross border projects with North West may not be completed. Additional funding had been sought, housing units were being established in municipalities and three project managers and five works inspectors had been appointed on a contract basis. Ms Soodeyal summarised the houses and services completed in the second quarter and said that monthly reports were now being called for from Municipalities in order to get the next tranche of payments.

Discussion
Mr E Sogoni (Gauteng, ANC) remarked that the biggest problem was that the provinces themselves did not have capacity but they were devolving functions to municipalities who also did not have capacity, thereby making the situation worse. His main worry was which department held the responsibility.

The Chairperson agreed with Mr Sogoni on the issue of accreditation. He concluded that by not accrediting municipalities properly provinces were leading them to failure.

Mr Sogoni added that all municipalities should be asked how they were delivering houses without being accredited.

The MEC for Local Government, Northern Cape replied that indeed municipalities were used as developers even though there were not accredited. The municipalities were involved in the building of houses and they did this by contracting local companies to build the houses. The Northern Cape was hoping to strengthen their own departmental capacity to accredit the municipalities.

Mr B Mkaliphi (Mpumlanga, ANC) wondered if municipalities were permitted to undertake housing before accreditation.

Mr Sogoni remarked that he was worried about the fact that the Northern Cape had pledged to raise their expenditure from their current 40% by the end of the financial year. He said that similar promises had been made before by other provinces and often it was found that there were no beneficiaries.

Mr B Mkaliphi (Mpumalanga, ANC) requested the Committee to look into the issue of cross boundary municipalities raised by the Northern Cape.

The chairperson asked the Northern Cape how they were going to deal with the possible under expenditure they had predicted.

Mr O Dikgetsi, MEC, Northern Cape replied that the predicted under expenditure was carried from the first quarter, where the Province had only spent about 14%, and said he had enumerated why this had happened during the first quarter hearings. They were confident that expenditure was going to increase, and he indicated that already they had moved from 14% to 44%. Moreover their expenditure track record had been good over the past few years, with the exception of 2002.

The Chairperson asked the provinces the number of municipalities they had accredited so far and at what stage they were in the accreditation.

Mr Digketsi replied that Northern Cape had identified five district municipalities and all of them had relative capacity. For example Kimberley already had housing units that only needed strengthening and there was also a housing support centre that was involved in capturing data. He added that the biggest problem was 62 blocked projects but the Department had already taken action against five contractors who had contributed to the creation of the block.

The Chairperson asked that the list of municipalities that were developers be forwarded to the Committee as it was interested in finding out the difficulties faced.

Department of Local Government and Housing Western Cape briefing
Mr Andreas Fourie, Director: Professional and Project Management services, Western Cape Department of Local Government and Housing reported that the challenges to funding included a backlog of about 300 000 units, whereas only about 15 000 units could be built on the annual grant of R598 million. The Province was trying to accelerate delivery in the hope that more funding would be allocated. There needed to be a survey of the Provincial Housing Plan (PHP). Expenditure was projected to rise. In 2005/6 the Province had spent 96% of its budget allocation, and between April and September 2006 had achieved 60% spending. Statistics were tabled for the various municipalities and a comparison done between districts. It was projected that the full amount would be spent by December. The target was to build 16 000 houses and service 18 000 sites in 2006/7. Western Cape was the top performer of all the provinces.

Discussion
Mr Mkaliphi asked whether the national pilot project was ready to serve the nation, especially after most monies from the provinces was re-routed into the national pilot.

The Chairperson asked Western Cape whether they have considered withdrawing money from underperforming municipalities and allocating it to municipalities that have the capacity to spend.

In view of the shortage of time the questions did not appear to have been answered.

Department of Local Government and Housing KwaZulu- Natal Briefing
Mr Mike Mabuyakhulu, MEC Housing, Local Government and Traditional Affairs, KwaZulu-Natal, and Mr W Evans, Chief Financial Officer (CFO), Department of Local Government and Housing KwaZulu-Natal, briefed the Committee on the vision and mission of the Department, reporting that key focus areas were restructuring of the Department, eradicating slums, strengthening governance and service delivery, ensuing job creation, accelerating delivery and completing all blocked projects by 2007. Expenditure for the first and second quarters had fallen below budget, as a result of delays in drafting of municipal housing plans and the late start of the consumer education programme. There had also been delays in project management, and the Department had approved a plan to address the under expenditure trends. Property management was now being handled internally. A tripartite agreement had been introduced between the Department, the local municipalities and the contractors. The Department wanted to ensure quality spending, and also to ensure that fiscal dumping did not continue. The conditional grant expenditure was set out. Challenges included delays in getting expenditure claims from developers, internal capacity constraints, which had been addressed through fast tracking appointment of project monitors, who would start in December. Not all municipal integrated development plans (IDPs) included Housing Sector Plans. There was lack of dedicated housing capacity. The Department had intervened and developed a demand database as well. Monthly reports were now received from developers. The Department would enter contracts for each housing development, setting out timeframes and expectations.

Discussion
The Chairperson asked the provinces on the number of municipalities they had accredited so far and at what stage they were in the accreditation.

Mr Mabuyakhulu replied that on the issue of accreditation KwaZulu Natal firstly looked closely at the constitution that placed the responsibility for housing in national and provincial hands. However in the delivery of houses municipalities were involved and he argued that the relationship with the municipalities was vital. He further said that the Department had identified 51 municipalities, and stringently assessed their capacity, bearing in mind that there were three levels of accreditation. They had realised that housing was not being prioritised. The Department then made a decision to assist the municipalities to perform basic services. To ensure that the IDP created alignment on the issue of housing, the Department helped set up housing sector plans and would assist in building some capacity. Pursuant to this the Department had a partnership with the Flemish government, where 25 identified municipalities were being assisted with the basics before being accredited. He announced that one would be accredited with level one status.

He added that the issue of unoccupied houses came about because there had been a concentration on quantity, hence in their report the needs of housing were being taken into account to avoid houses without occupiers, susceptible to vandalism. The question of beneficiaries came early as opposed to their previous policy.

Mr Sogoni complained that the presentation was hard to comprehend.

Mr Mabuyakhulu apologised, stating that the presentations would be made more user-friendly in future.

Mr Mabuyakhulu added that the Department had a tripartite relationship with the municipalities so that they were able to have greater participation, especially if they wanted to dismiss a contractor who did not deliver. No Department should not be hampered by the fact that the contractor had entered a relationship only with the municipality, which in the past tended to be in favour of the contactor.

Department of Local Government and Housing Eastern Cape Briefing
Mr Sindisile Maclean, Head of Department (HOD), and Mr Ngwadi Mzamo, General Manager,  Eastern Cape Department of Local Government and Housing, informed the committee that there was a projection of an under expenditure of about R103 million.

The Chairperson at this point asked the presenters not to continue with their report as it was clear that the Department was in trouble. He was also sceptical of their projected expenditure of 86% by the end of the final year because their expenditure had only reached 21.5% in the first six months. He further said that he was worried about the fact that some provinces were performing well whilst others were underperforming.

Discussion
The Chairperson informed the Eastern Cape that it had to convince the committee why its money should not be re-allocated to other provinces who were performing. He remarked that maybe the large amount was stifling them and they might be able to work efficiently with a lower figure that was more manageable.

Mr Mzamo replied that, without attempting to justify the possible under expenditure, the Eastern Cape was determined to spend the allocation. He told the Committee that the Department was assisting the municipalities by taking over their projects and implementing them, and it was now involved with established contractors so that they would respond to the challenge of speed. Although in the past three years the spending patterns were low in the early part of the year, the Department had nonetheless mostly managed to spend their allocation, and was determined to do so this year.

The Chairperson asked the number of municipalities accredited so far. 

Mr Mzamo replied that there were two municipalities in the province at level one, being Nelson Mandela Bay and Buffalo City Municipality. Both had housing units though Buffalo City indicated that it was still working on capacity.

Limpopo Department of Local Government and Housing Briefing
Mr Rampedi, Head of Department (HOD), Limpopo Department of Local Government and Housing, informed the committee that he would compare the current expenditure with the previous year’s expenditure. He tabled graphs showing the total spent on infrastructure housing, the housing grant and project management, indicating that expenditure was in line with initial projections, and was more or less on track for each month. He tabled statistics relating to houses completed, training projects, a public private partnership with Angloplat, and partnerships with suppliers and municipalities. 36 project managers were to be deployed to municipalities. Payment of contractors was taking place in short times, which assisted the emerging contractors. He compared targets with performance across all projects. He indicated that Polokwane Municipality was being accredited at level one. Challenges remained the shortage of bricks, the municipal elections delays, the loading of subsidy quantum, institutional capacity and the contractors’ capacity.

Discussion
Mr Z Kolweni (North West, ANC) noted that when contractors were fired beneficiaries suffered for a long period before the houses were delivered. He asked the Department how it would deal with such a situation.

Mr Rampedi replied that the Department was aware of this but in order not to slow the process down it had already acquired contractors to start on uncompleted housing projects as early as February. By starting in February the Department would deal with the issues of contactors and expenditure at the same time. The contractors were in place and would be paid from this year’s budget but if the project spilled to the following year then they would be paid from next year’s budget without breaking any rhythm.

Mr Sogoni asked Limpopo whether its housing target was not too ambitious especially considering that the highest achievement to date was 20 000 houses in 2000-2001.

Mr Rampedi agreed that indeed the units were very ambitious but they should realize that the 29 000 mentioned also included about 17 000 units from the previous year. For the current year the Department was aiming for 24 000 units, and out of these 6 000 units had already been committed to contactors. About five contractors should finish their projects by November or December.

Mr Rampedi reported that the Department was standing at 37% as opposed to the 33% given by the national treasury. He said that as part of the adjustment budget it was given R30 million in addition to the conditional grants and that the money was used for planning and other various projects. The Department had also revised its payment level from the previous 30 days to the current 7 days.

The Chairperson acknowledged that the current figure was indeed 37%, but he was still concerned that this was still not good enough. He further added that one of the issues they had not discussed was the scarcity of materials.

The Chairperson also asked for the number of municipalities accredited so far. 

Mr Rampedi replied that municipalities still performed roles despite the accreditation process. They identified land for housing and beneficiaries for housing and the Department’s main mission was to accredit Polokwane. Moreover it intended to spend the whole budget by March.

Free State Department of Local Government and Housing Briefing
The Chairperson asked the presenters to concentrate on the housing grant expenditure, the capacity constraints and the issue of slum dwellings.

Mr K Ralikontsane, HOD, Department of Local Government and Housing, Free State, informed the committee that spending in the first two quarters had only reached 41.5% of budget, which was a source of worry. Their expenditure for the last three months had been fluctuating but the Department had mechanisms to investigate and support it. The main worry was the People Housing Process, where the Department had allocated money to 14 support organisations. He reported that there were capacity constraints, but six new Cubans had been appointed on a contract basis. In some cases contractors were not able to deliver within timeframes and this had now been taken into account with 16 000 new subsidies allocated. The national Minister’s Programme had pledged 1000 subsidies to slum dwellers and the criteria for determining beneficiaries was in the process of being drawn up.

Discussion
Mr Z Kolweni (North West, ANC) noted that when contractors were fired beneficiaries suffered for a long period before the houses were delivered. He asked the Department how it would deal with such a situation.

Mr Ralikontsane replied that they were also dealing with the unfinished houses programme which was a different programme that was financed by the provincial fund. In this programme surveyors were to check each house at the cost of R600.

The Chairperson asked the provinces their projections on expenditure, and what measures were in place to deal with the projections.

Mr Ralikontsane replied that the Department had felt the pinch the previous year when R150million from its budget was re-allocated to other provinces. He was happy to inform the committee that they had a fully fledged tender system which was finalised in September and people were busy at work. The major problem was that the Department would have to scale up expenditure in February and March, and this was unavoidable. However they had every intention of utilizing 100% of their funds and they did not foresee any over or under expenditure.

The chairperson informed the committee that they had to monitor Limpopo, but also watch Free State which could fall into difficulty at the end of the financial year.  

Mr Mkaliphi asked the Free State to clarify the figures on the additional allocations.

Mr Sogoni noted that in the Free State there were projects such as rural subsidies and emergency houses that were not budgeted for, but had been allocated funding, although this had not been utilised.

Mr Ralikontsane replied that the emergency housing fund was a business idea to set aside money so the Department could be able to intervene when disaster strikes. If not utilised the money unfortunately became part of the whole budget. He gave examples of where the funding had been used. It was also the intention to pilot an emergency housing project where people who lived in areas with unhealthy conditions could be prioritised, but this was still under discussion with the local municipality.

He added that the hostel redevelopment expenditure had been gradual but the process was running and the Department was confident that it could use all the money. The rural subsidies were given to pilot the off-farm projects

Mr Sogoni reminded the Free State Department that it had previously informed the committee that it was withdrawing the delivery of houses by the municipality. He wanted to know how far this had gone.

Mr Ralikontsane replied that the Department was in the process of accrediting Mangahu municipality with level one. The province had also identified six priority municipalities. Mangahu would be the pilot project.

The Chairperson asked about the status of the PHP housing.

Mr Ralikontsane replied that in terms of the PHP programme the beneficiaries were actually involved in the building of 55-60 square metre houses and these groups had gradually developed into contractors. As a result the Department felt that there should be skills transfer, which was the reason for allocating 14 credible support organisations which were assisting.

Gauteng Department of Local Government and Housing Briefing
The Chairperson asked the presenters to focus on certain areas only so that the full presentation was not given. 

Ms M B Monama, HOD, Gauteng Department of Local government and Housing, informed the Committee that it should take into account that Gauteng had three metros, which had their own financial muscle and had a tendency not to submit claims and reports on delivery, which skewed the performance reports of the Department. The Department was also concerned about the inspectorates, which the Department was trying to streamline to ensure that the delivery of housing was not held up by the duplication of inspection, which constantly led to delays. The Department was looking at accreditation of the three metros and the question of whether municipalities were accredited should be understood in the light of the fact that municipalities would always have functions to perform.

On the spending she reported that there was currently on track, with the total spending to the end of the second quarter being R535,7 million. The conditional grant spending was slightly under target.

She mentioned that the Department had piloted one alternative technology and they hoped to showcase the outcome at the end of the next year.

Mr A Green, CFO, Department of Housing tabled the expenditure profile in more detail, and gave the service delivery statistics. He said that the reasons for variance in comparison to the allocation were that certified claims for work completed prior to 30 September had not been paid in this month but only in October. Similarly an amount of R30 million paid in the second quarter had actually related to first quarter spending. He reported that the Department had revised its organizational structure, but there were still constraints hampering delivery. This included submission of insufficient information to allow payments to be made, the need to improve contract management processes and housing inspections. Quality and service delivery to target needed to be addressed. There was slow delivery by emerging developers. Illegal land and building invasions compounded the problems and municipalities could not implement by laws to deal with illegal structures in newly built subsidised houses. The interventions made by the Department were tabled and explained. A draft monitoring and evaluation framework had been established to evaluate progress. The processes were starting to given results. There was better coordination and improved leadership from the Department.

Discussion
The Chairperson asked why there was no movement in Alexandra and indicated that it the Department was not using the funds it would be more profitable to donate them to another province.

Ms Monama replied that the Department had not planned to utilise the Alexandra fund in the first and second quarter. This was generally because this time was allocated for land negotiations. She assured the Committee that the Department would spend the funds and hoped that next year it could request an even larger amount so as to secure more land.

Mr Kolweni commended the fact that Gauteng had six units completed by women.

Mr Kolweni asked how the Department could convince the Committee that it would spend the money considering that there were rollovers from last year. He also asked how the urban renewal programme was progressing.

Ms Monama assured the Committee again that all the money would be spent, including the Alexandra fund. She added that in the urban renewal programme the spending was slow in the beginning but steps had been taken to intervene, particularly in Everton. The Department had dismissed the non-performing contractors and had appointed new contactors who were monitored on a monthly basis.

Mr Kolweni asked for clarification of the procurement roster.

Ms Monama replied that the procurement roster was a list developed of contractors and developers accredited, so that the Department did not have to go through the three-month cycle of procurement every time there was a project that needed implementation. This roster was reviewed on an annual basis and currently offers had already been made available for next year.

General questions
The Chairperson asked the provinces for their projections on expenditure, whether there would be over or under expenditure and what measures were in place to deal with the projections. 

Mr Green replied that Gauteng was mostly likely to overspend by R170million.

Ms Monama said that in the first quarter the Department had notified the Committee that it was having problems with payment, but she then made a promise to the Chairperson to turn this around. She was glad to advise that the Department was now paying in less time than the prescribed period. It was looking into the claims as a priority.

The Chairperson asked about the scarcity of materials.

Ms Monama said that building materials did not affect Limpopo, as the country was only able to meet about half the demand for materials.

The Chairperson asked about the status of the PHP housing.

Ms Monama replied that in PHP there currently was slow delivery and the Department had scaled it down considerably in some areas, even phasing it out. In Johannesburg the Department was investigating the PHP organizations that were successful, with a view to empowering them and turning them into operatives so that they would not lose the skills they had already acquired.
 
The meeting was adjourned.