National Treasury, Eskom, Development Bank & DPLG Progress Report on Operation of Conditional Grants

Meeting report

FINANCE SELECT COMMITTEE
26 February 2007
NATIONAL TREASURY, ESKOM, DEVELOPMENT BANK AND DPLG PROGRESS REPORT ON OPERATION OF CONDITIONAL GRANTS

Chairperson: Mr T Ralane (ANC, Free State)

Documents handed out:
Department of Provincial and Local Government presentation on performance of Municipal Systems Improvement Grant.
Department of Provincial and Local Government presentation on performance of the Municipal Infrastructure Grant.
Eskom presentation
Development Bank of South Africa presentation
National Treasury Presentation
National Treasury Presentation on Neighbourhood Development Partnership Grant

Audio Recordings of the Meeting: [Extract 1] [Extract 2] [Extract 3]

SUMMARY
National Treasury briefed the Committee on the Finance Management Grant, the Restructuring Grant and the Neighbourhood Development Grant. The aims of each grant were outlined. The Finance Management Grant was intended for implementation of financial management reforms in the municipalities. The Restructuring Grant was implemented to support large municipalities with restructuring initiatives. The Neighbourhood Development Grant was intended to provide municipalities with assistance in developing appropriate project proposals for property developments in the townships. Members asked questions on challenges in the area of financial management, the phasing in of the Restructuring Grant, and the development of rural areas. Further questions addressed the possibility of under spending, the steps that could be taken to prevent it, monitoring, and progress in eThekwini and Mfuleni. Members called for a list of non-compliant municipalities.

The Department of Provincial and Local Government addressed the Committee on grants administered by it. R200 million Municipal Systems Improvement Grant allocations for the year 2006/07 had already been transferred to the municipalities, and activity plans for the allocated amounts had been received from all the municipalities. The Municipal Infrastructure Grant still remained a key part of governments overall drive to alleviate poverty. Municipalities had spent 99.5% of the total allocations. Members asked questions on lack of reporting and under expenditure, called for an assessment of how equitable the Municipal Infrastructure Grant was, asked for clarity on low performance in Eastern Cape and North West and for elaboration on training of the ward committees.
It was agreed that there was a need to monitor municipalities. A list of under performing municipalities was requested.

Development Bank of South Africa briefed the Committee on its progress over the last year. It was working closely with local governments, Treasury and the private sector, in order to uplift rural communities. It had built capacity and deployed managers to rural pilot projects. The challenges were outlined. Members asked why the Bank had greater focus on the urban areas, queried the steps taken to encourage communities to take ownership of projects, and questioned the Bank’s specific plans for the Eastern Cape and the progress of the presidential roads.

Eskom presented a file detailing progress, and gave a very short presentation outlining how electrification projects would need to be approved in Integrated Development Plans. Members told Eskom that it was expected to make a full presentation in future. They queried participation in the Integrated Planning process, training in the communities, and called for a list of municipalities that had signed service delivery agreements.


MINUTES
Progress of Finance Management Grant (FMG), Restructuring Grant (RG), and Neighborhood Development Grant (NDP): National Treasury Briefing
Mr T V Pillay ,Chief Director, Local Government: National Treasury,provided an overview on the progress of the FMG, RG, and the Municipal Finance Management Act (MFMA). He stated that the aim of the FMG was to implement financial management reforms in the municipalities, whereas the RG was implemented to support large municipalities with restructuring initiatives. Various training programmes had been implemented under the MFMA in the municipalities in order to raise the formal and regulated competency levels in financial management.

Ms Li Pernegger (Chief Director, Neighbourhood Development Programme: National Treasury) stated that the objective of the NDP was to provide municipalities with assistance in order to develop appropriate project proposals for property developments in the townships. In order for the grant to be successful, it had to achieve the key objectives of attracting private sector investment, providing private and institutional development capacity, and promoting knowledge, innovation and advocacy.

Statistics on the grants were tabled during the briefing.

Discussion
Mr E Sogoni  (ANC, Gauteng) said that National Treasury (NT) should elaborate on the progress regarding the implementation of the FMG. With regard to the RG and equitable share, there were still challenges in the area of financial management; therefore he suggested that NT should elaborate on the phasing in of the RG into the equitable share. With regard to the NDP, he would have liked NT to state why the programme was not focusing on the development of rural areas, and also state which stakeholders were involved in ensuring capacity in the municipalities.

Mr Pillay responded that with regards to implementation all municipalities were allocated an FMG without having to apply specifically for it. They merely needed to supply a plan for the implementation. With regards to the RG there were three different phase-in periods. During the phase-in all the supply chain systems still applied and all municipalities were required to supply financial reports.

Ms Pernegger added that in regard to NDP question, National Treasury tried to encourage the bigger and more active municipalities to get involved in NDP coordination, since there was a lack of urban development skills. It had also implemented systems in smaller municipalities that would help coordinate and assist the municipalities in the implementation of future projects. Various stakeholders were involved in ensuring capacity in municipalities, and NDP applications had been received by Integrated Development Planning (IDP) officers on behalf their councils.

Mr Z Kolweni (ANCNorth West) asked for comment on the chances of municipalities under spending the RG.

Mr Pillay responded that a number of measures had been taken in the monitoring of the grant. However in order to curb under expenditure, it was important that the municipalities appoint the competent people to monitor the grant.

Mr B Mkhalipi (ANC, Mpumalanga) asked why NT only monitored the FMG and the RGs of large municipalities, and why the audit outcomes of certain municipalities were not mentioned. He asked that NT should also provide details regarding the progress of the NDP funds in eThekwini.

Mr Pillay replied that the RG, in terms of the Division of Revenue Act (DORA) targeted large municipalities. The FMG was meant for all municipalities. The FMG was not demand driven but was supply driven, and municipalities needed simply to provide implementation plans.

Ms Pernegger responded that the private sector and the eThekwini Municipal Council were at an advanced stage in the coordination of the NDP funds.

Mr Kolweni said that that it was good to see that the numbers of municipalities not complying had been reduced. However he asked that NT should provide a list those non-compliant municipalities in order for the Committee to follow up on the issues, and take action. He also asked NT to provide reasons why there was no audit report in Mfuleni.

Mr Pillay replied that the list of non-compliant municipalities would be provided to the members shortly. National Treasury had not seen the audit outcomes for Mfuleni for the past few years, and that was a matter that needed to be followed up.

Progress of the Municipal Systems Improvement Grant (MSIG) and Municipal Infrastructure Grant (MIG) : Department of Provincial and Local Government (DPLG) Briefing
Ms Shiva Makotoko Deputy Director General: DPLG  and members of her team briefed the Committee on the progress of the MSIG and MIG grants. The 2006/07 MSIG allocations, totalling R200 million, had already been transferred to the municipalities, and activity plans for the allocated amounts had already been received from all the municipalities. DPLG was currently training ward committees in all the municipalities on good governance practices. A particular challenge faced by the MSIG was that certain planned projects were usually linked to other funding sources, resulting in the non-expenditure of the MSIG resources. DPLG, however, believed that the MSIG performance was satisfactory, and was improving on a monthly basis.

The MIG on the other hand remained a key part of government’s overall drive to alleviate poverty, and to create employment opportunities through labour intensive methods. The municipalities had spent 99.5% of the total allocations. The general challenges that were faced by the municipalities included lack of capacity to manage MIG projects, planning in the context of Integrated Development Planning (IDP), and lack of intergovernmental cooperation. It was important to note that the DPLG had taken action against non-performing municipalities. These actions included the withholding of the grant from non performing municipalities, and reallocation to those that did perform. The principles had already been implemented and would soon be finalized.

Discussion
Mr Sogoni stated that DPLG should provide clarity on why certain municipalities did not compile annual reports. It should also elaborate on the under expenditure of funds in the municipalities and comment on how equitable the MIG was.

Mr Khwathelaui Bologo, Senior Manager:, DPLG responded that it was important to note that the MSIG was a conditional grant. This would therefore stipulate that all municipalities must provide monthly reports on the performance of the grant. In terms of expenditure, DPLG was not necessarily happy with the expenditure on the grant, but did recognise the improvements made by certain municipalities.

Mr Chuenne Rampelle, Senior Manager, DPLG stated that the equitability of the MIG was based on a formula that was used to determine how many people did not have access to basic services.

Mr D Botha (ANC, Limpopo) asked the Department to provide a list of municipalities that were under performing.

Mr Rampelle confirmed that the Department could also forward this list of under performing municipalities to Members shortly.

The Chairperson asked DPLG also to clarify why it took up to 18 months to approve funding on the MIG.

Mr Kolweni asked DPLG to provide clarity into why the performance in the Eastern Cape and the North West were so low, and also to elaborate on how it planned to train the ward committees

Mr Bologo replied that the reason why performance in the Eastern Cape and the North West was so low was that the Department had not received sufficient progress material from the provinces. IN regard to the training of the ward committees, he confirmed that the Department would give projects to the municipalities. There were a number of challenges regarding the monitoring of the training, and the Department was currently trying to attend to this matter.

Ms Makotoko stated that there was a need for a broader discussion between the Department and members of the Committee on how the financial instruments were structured. She said that there needed to be a way in which municipal managers were made accountable for the under expenditure of funds

The Chairperson noted Ms Makotoko’s request, and agreed that there was a need for the monitoring of municipalities. However, withholding of funds from under performing municipalities was also an emotive issue since many communities suffered from such actions taken against their municipality. 

Progress Report: Development Bank of South Africa (DBSA) Briefing
Mr Gwede Mantashe, Executive Manager: Strategic Operations, Adamussu Tadesse, Executive Manager: Chief of Staff, and Mlulami Manjezi, Manager: Strategic Projects, DBSA briefed the Committee on the progress made over the last year by the Bank. The presentation highlighted that the DBSA was working closely with local governments, National Treasury and the private sector in order to uplift rural communities. In terms of project implementation, the DBSA had made progress in building capacity and the deployment and allocations of project managers to rural pilot projects. The challenges faced included the selection and segmentation of projects, assisting communities to understand and buy into certain projects, and the willingness of communities to learn, understand and apply the use of alternative technologies.

Discussion
Mr Sogoni asked why the DBSA had greater focus in the urban areas than in the rural areas.

Mr Mantashe replied that the reason why certain banks invested in urban areas was that there was sustainability. However, it was important to note that the bank had been deeply involved at the bottom end of municipalities. One the challenges faced was the incorporation of rural villages into the rural towns.

Ms A Mchunu (IFP, Kwazulu Natal) asked the DBSA to elaborate on how it planned to make members of the community take ownership of the projects, instead of forcing them to buy in.

Mr Mantashe responded that the social compact project did not involve DBSA forcing communities to buy into certain projects. The DBSA integrated its projects with the community projects, and usually assisted members of the community to develop a sense of ownership.

Mr Kolweni asked the DBSA to state how it planned on assisting the Eastern Cape in dealing with issues of under spending. He also asked DBSA to comment on the progress of the presidential roads.

Mr Mantashe replied that the withholding of grant money was a good idea, since certain municipalities seemed to ask for more funds despite the fact that they were constantly under spending. DBSA still needed to talk to the DPLG in order to determine the way forward on the presidential roads.

Progress report: Eskom briefing
Mr Isaac Sokopo, Stakeholder Manager: Eskom, Mr Mongezi Ntsokolo, Managing Director : Distribution, and Mr Prudence Pitsie, Parliamentary Relations Advisor: Eskom  presented a file to the Chairperson detailing the progress of Eskom’s matters. They gave a very brief presentation pointing out that the Department of Minerals and Energy (DME) ensured that Eskom’s implementation of the National Electrification programme within any municipality would fall in line with the IDP of that particular municipality. In terms of the IDPs, a list of projects would need to be approved in order for them to be added to the implementation agreements.

Discussion
The Chairperson said that he would go through the file submitted by Eskom systematically, but asked Eskom in the meantime to elaborate on their role in service delivery.

Mr Mkhalipi asked Eskom to state whether they participated in the IDP process by internalising and identifying municipal needs.

Mr Sokopo replied that Eskom was in constant discussions with National Treasury in order to enhance the service delivery agreements. In terms of the provision of services to municipalities, Eskom had gone out of its way to make sure it complied with the IDPs of the particular municipality, and was looking to provide free basic electricity.

Mr Sogoni and Mr Botha commented upon the file that Eskom had submitted. He stated that Eskom was expected to provide a proper report, in line with other Departments, not merely a file.

Mr Sokopo apologised for not providing a report, and stated that he would provide a detailed report in the future. He mentioned that the file was intended to provide proof that Eskom was complying with the rules of DORA.

Mr Botha asked whether it was possible for Eskom to provide a list of municipalities that had signed service delivery agreements with Eskom.

Mr Sokopo responded that this list would be provided at a future date.

Ms Mchunu stated that Eskom needed to get more involved in electricity training in the communities and at other training institutions.

Mr Sokopo replied that Eskom was involved in various community projects, and that new projects were launched all the time.

The meeting was adjourned.