Conditional Grants Progress briefings: National Treasury, Department of Provincial & Local Government, Department of Transport &

Meeting report

FINANCE SELECT COMMITTEE
10 October 2007
CONDITIONAL GRANTS PROGRESS BRIEFINGS: NATIONAL TREASURY, DEPARTMENT OF PROVINCIAL AND LOCAL GOVERNMENT, DEPARTMENT OF TRANSPORT AND DEPARTMENT OF WATER AFFAIRS AND FORESTRY

Chairperson: Mr T Ralane (ANC, Free State)

Documents handed out:
National Treasury presentation:Division of Revenue Act 2007 Conditional Grants to Municipalities
National Treasury presentation on Restructuring Grant and Financial Management Grant
National Treasury presentation on Neighbourhood Development Partnership Grant (NDPG)
Department of Water and Forestry presentation on Water Services Operations Subsidy
DPLG presentation on Municipal Systems Improvement Grant
DPLG presentation on Quarterly Performance of MIG-2005/ 06, 2006/07 and 2007/08
Department of Transport presentation on Public Transport Infrastructure and Systems Grant (PTIS)

Audio recording of meeting

SUMMARY
The Committee was briefed by National Treasury on the Division of Revenue Act 2007 conditional grants to municipalities. The Division of Revenue requirements were set out and a spending analysis was conducted, with a note of the challenges facing Treasury in this regard.

Treasury then briefed the Committee on the Restructuring Grant, whose aim was to support large municipalities with restructuring initiatives. The Financial Management Grant was also discussed and its conditions and outcomes were outlined. The Neighbourhood Development Partnerships Grant objectives were set out, with a note of its focus areas and a discussion on township and property development.

The Department of Water Affairs and Forestry gave a briefing on the Water Services Operations Subsidy. Members agreed that they would focus on Limpopo Province, which was an area of concern.

The Department of Provincial and Local Government presented on the Municipal Systems Improvement Grant (MSIG). The briefing included the background, and confirmed that this was a conditional grant to support municipalities in building in-house capacity so that they could perform their functions, leading to stabilisation of institutional and governance systems. This Department also briefed the Committee on Quarterly Performance of the Municipal Infrastructure Grant. The financial performance was discussed, with presenters making comparisons between the previous and current financial reports. Following this, a Grant key performance indicator report was presented, focusing on progress regarding the eradication of the bucket sanitation system and the overall impact of the grants.

The Department of Transport presented its report on Public Transport Infrastructure and Systems. The grant was established to improve public transport infrastructure and systems in South Africa. Presenters focused on the 2010 FIFA world Cup related projects and noted that public transport would be a priority, which would also lead to satisfaction on long term mobility.

The Committee noted the need for further engagement on the problems relating to spending and noted that it would be desirable to look at spending across various sectors.

MINUTES
Division of Revenue Act 2007 Conditional Grants to Municipalities, and Restructuring Grant: National Treasury (NT) Briefing
Mr Sello Mashaba, Deputy Director, National Treasury, noted the requirements for the Division of Revenue Act (DoRA), which included monthly reporting by national departments to National Treasury (NT) on spending patterns as well as explanations of variances that occurred with the transfers made in payment schedules.

Mr Mashaba also commented on the monitoring done by the NT. He analysed the spending of grants by certain departments, looking specifically at the amounts of grants allocated to departments, how much of the grants had been transferred to date and how much of the transferred grant had been spent by the departments so far.

Mr Mashaba outlined the challenges, pointing out that some Municipalities did not want the money now as a result of their lack of readiness, and that they would accept payments at a later stage.

Mr T V Pillay Chief Director, Local Government: NT, then presented on the Restructuring Grant, stating that the aim was to support large municipalities with restructuring initiatives. He looked very briefly at the conditions for the grant. He informed the committee of some withholding issues, stating that the NT had various issues that needed to be addressed with regard to the City of Cape Town, City of Tshwane and Nelson Mandela Bay Municipality. He also noted that certain issues had arisen from the evaluation of the quarterly spending, but that grant conditions and compliance had improved. He warned members that lower level expenditures occurred as contractual obligations flowed over to the next quarter but that plans were put in place to remedy the problem. Mr Pillay added that improvements in commitment and ownership were of great importance.

Discussion
The Chairperson asked whether National Treasury had a good handle on all the issues.

Mr Pillay replied that the NT had met with various municipalities and that the Committee was welcome to look at them and intervene if it was necessary.

Mr E Sogoni (ANC Gauteng) commented that municipalities know how much they would get and therefore must have a plan. He wanted to know why the NT continued to have problems with regard to expenditure and what exactly the problem was. Sogoni stated that there were problems that the Committee would need to investigate, but suggested that Members should wait for the September report.

The Chairperson agreed that they would wait for the report and then immediately act.

Mr Pillay responded that during meetings with municipalities, it was discovered that the problems may be internal and that some offices were not set up well. He stated that there were multiple challenges and that issues should be raised. On the question of delays, he said that individuals were assigned with responsibility for the budget and if these individuals were away then the whole process stopped. He also reasoned that there were factual challenges that occurred, such as a change in strategic objectives from time to time. He announced that one big reform would be to instituted procurement over a medium term but that some municipalities still wanted to act in the “old” way. He stated that change was needed.

The Chairperson stated that the City of Cape Town would be problematic. He pointed out to members that in Cape Town, even with elections, the city was destabilised and that discussions about it were critical.

Financial Management Grant and the Neighbourhood Development Partnership Grant: National Treasury Briefing
Mr T V Pillay briefed the committee on the Financial Management Grant, indicating its nature and the expected outcomes (see attached presentation). He noted that the Department needed to gear up strongly. He also noted one of the challenges initially was that people were being appointed to positions despite the fact that they were not qualified for or equipped to handle the responsibilities, but that NT had started to receive input from municipalities that had been forced to review their plans.

Another outcome was that all municipalities were receiving their funds. Mr Pillay stated that transfers would be made in July, September, November and March but that some grants were withheld due to inconsistent reporting. He also noted that there was a plan in place for municipalities that had not been paid.

Mr Pillay said that it continued to be a challenge that municipalities were not taking ownership as they should be. He also noted that there were a few municipalities that were not complying with some of the conditions set out for the Financial Management Grant, but that these municipalities received letters requesting the reasons for their inconsistencies.

Mr Pillay said that medium to low municipalities have now realised that they needed skills in many different areas and had therefore set aside funds for projects like capacity building, skills development, asset valuations and intern salaries.

Ms Li Pernegger, Chief Director, NDPG Unit: NT, noted that the Neighbourhood Development Partnership Grant (NDPG) was intended to provide municipalities with assistance to develop project proposals and property, specifically in townships and new neighbourhoods, and to attract private sector funding.

Ms Pernegger stated that they were focusing on stimulating property markets by trying to retain buying power within the communities so as to ensure that funds did not flow outward. She also noted that there was a critical issue with compliance. She stated that this grant was trying to
stimulate township regeneration and that a critical strategy was being put in place to align with the municipalities. The NDP had developed the concept of the “Funding Envelope”, which was to be used for funds that would be kept aside for municipalities, to be used at a later stage in the event that funding did not come through. This would be a process to stimulate the development of projects. She also wanted to send out the message to municipalities that it costs money to get money.

Discussion
Mr Sogoni commented on the statement that all municipalities had received funds, but said that members did not know who was and who was not reporting. He said that some municipalities wanted to direct their money to other issues and asked to what extent this was a problem. He also questioned financial systems, saying that there was difficulty in monitoring the spending of municipalities and therefore wanted to know if there was a guide in place for such spending.

The Chairperson commented that it had to do with performance issues and work ethic, and that people should be held accountable.

Mr Pillay responded that it related to costs of administration. He announced that NT was multitasking and that they were dedicated. Pillay stated that they had issued documents to interns as well as hosted workshops. NT wanted the entire scope to be covered by workshops so that the interns could actually apply for and fill certain positions. The internships have been successful as many of the interns had been hired. He warned that there was often a gap between the willingness of the mentor to lead the intern, and the intern expecting things to be handed to them.

Mr Pillay also informed the Committee that NT was trying to target the big cities first but that they would be moving towards medium and small cities and towns in the longer term. He stated that this was a structural issue and that they would be working closely with the Department of Provincial and Local Government (DPLG) Mr Pillay also assured the Committee that NT had looked at the reporting format and therefore knew how to address the amendments of systems.

Mr D Botha (ANC Limpopo) stated that he was not satisfied with the progress that the NDP had made. He was concerned that the Department had been working for over a year but there was no real business that had been done. He did not understand exactly what the problem was. He said this was the first time that a business plan was presented, but that he wanted to know what the money was spent on.

Mr Sogoni agreed with Mr Botha. He said that the presentation did not clearly set out the objectives and what last year’s budget was spent on. He noted that many municipalities were making applications but failing, and he questioned why this was so. He asked what the programme was trying to achieve, and wondered whether NT should have been working with other institutions.

The Chairperson agreed that there were some problematic areas. He informed the NDP Unit that it should prepare a full presentation and that a workshop should be set up to inform and assist Members, as well as to be able to advise municipalities.

The Chairperson also noted that the issue was about current and past performance. He said that this Unit must find a way to ensure that the programme directly addressed sustainable communities. He felt that the NDP should look at certain areas in the provinces and should approve that the funds were given.

Ms Pernegger admitted that the allocations and expenditures did not always line up. She also said that the objectives of DoRA were clear. She informed members that NDP tried to improve the quality of life and that NT had tried to attract private sector investment. She warned members, however, that the two objectives did not always work together.

In regard to the failure rate on applications, Ms Pernegger said that the department had worked very hard to reach municipalities and help them. There was a website that municipalities could look at, and the Department had also gone directly to municipalities. She noted that there was an obligation to try to ensure that projects actually happened and that the NDP Unit could give a further presentation where it could elaborate further on their business plan.

Mr Sogoni wished to adopt the proposal made by the Chairperson for a workshop on the NDPG.

Water Services Operations Subsidy: Department of Water Affairs and Forestry (DWAF) Briefing
Dr Moshibudi Rampedi, Acting Director General: DWAF, announced to Members that the Department expected certain outputs, and that one of these expectations was that water services schemes would improve their revenue collection.

Dr Rampedi also informed members that over the past financial year, the largest amounts were given to Limpopo and Mpumalanga for operation and maintenance, HR and refurbishment, but that these provinces showed the lowest levels of expenditure due to problems experienced in transfers. She stated that serious funding was required for refurbishment. She noted that the Department required monthly reports and data. She stated that progress within the Department had been satisfactory.

Discussion
The Chairperson stated that Limpopo Province was an issue that should be discussed.

Mr Botha questioned what the money in the Department was spent on. He wanted to know if the money was for upgrading water schemes, and what areas had not been covered. He also enquired who was responsible for spending the money in the Department.

Mr Sogoni expressed the need for clarification. He questioned the water scheme projects in the Limpopo as people were still not able to access clean water. He enquired if there was a monitoring process put in place to ensure that people had access to water. He also questioned the transferal of schemes. He noted that part of the resistance was due to uncertainty. According to him, the reality of the matter was that some water schemes were not viable. He urged Members to find a way to reassure people.

The Chairperson enquired what the Department was intending to do on this issue.

Dr Rampedi stated that in Limpopo the expenditure level had been just below 50% and that the money was not spent on building dams, as that would be placed under infrastructure. Most of the money was put towards payments of materials for the eight schemes.

She added that there were issues with delays. She noted that the negotiations process was being delayed. She explained that transfers of personnel had been made but that it was discovered that municipalities did not have financial structures enabling them to accept the transferred people and to pay their salaries. She stated however, that the DWAF would continue to support municipalities until 2012.

Dr Rampedi noted that people within the department were expected to monitor the water schemes, but there were challenges in monitoring. She said that it was the responsibility of the municipality to ensure that those places with the infrastructure were able to receive water.

Ms Lerato Mokoena, Director: DWAF, showed members that there were very few agreements outstanding and said that some were outstanding because of renegotiations. She reassured the Committee that staff had been working hard to have everything transferred, but warned that the Department would have to check the municipalities’ systems first before they could make the transfers.

The Chairperson asked what the specific problem was in Limpopo.

Ms Mokoena replied that the unions did not want to accept the agreement. She stated that the DWAF had helped the municipalities to put refurbishment plans in place but that other funding was needed to implement a better system.

The Chairperson noted that it would be more convenient to have a breakdown of all the expenditure.

Dr Rampedi agreed that the concerns were valid and that the Department would comply with the request for the breakdown of the expenditure. She informed Members that the DWAF would also prepare a list of all the water schemes, water services and a list of which water service the schemes went to as, it was found that some schemes were being absorbed into the water services.

Dr Rampedi added that the Department could simply provide water to people but that it became an issue when people were unemployed and could not afford it. It was therefore important to provide services and jobs to the community.

The Chairperson warned that a water services discussion should be initiated.

Municipal Systems Improvement Grant (MSIG): Department of Provincial and Local Government (DPLG) Briefing
Mr William Ramphele, Senior Manager: DPLG, gave a background to the Municipal Systems Improvement Grant (MSIG), stating that it focused on local and economic development, financial viability, institutional development and good governance.

He also informed members that the grant would be maintained at R200 million per annum until 2009/10 and that the number of municipalities that received funds had increased from 211 to 254.

Mr Ramphele told members that some funding had been withheld from provinces because they did not consistently report back to the Department. He also pointed out that the Department had experienced some achievements, such as improvements in financial management and viability, institutional transformation and good governance and local economic development. Challenges facing the Department consisted of late submission of plans by municipalities, which resulted in delays in the process and late or non-submission of MSIG expenditure reports. Members were reassured that steps would be undertaken to address non-compliance.

Discussion
The Chairperson commented that he failed to understand why MSIG under-performed. He believed that more investigation was needed in order to find reasons for the under-performance, and said that the Committee should engage in serious discussions. He asked DPLG to identify the main problem so that the issue could be discussed seriously in the next quarter.

Quarterly Performance of the Municipal Infrastructure Grant (MIG): DPLG Briefing
Mr Phanuel Bologo, Senior Manager: DPLG, commented on the financial performance of the Municipal Infrastructure Grant (MIG), using financial reports from 2005/06, 2006/07 and 2007/08. These financial reports showed that the allocation of funds to municipalities had increased steadily over the past years. He stated that municipality expenditure increased and had improved since MIG was instituted, but he warned that there were a lot of challenges facing municipalities and that they needed to plan in advance.

He informed members that the Department was still working on the eradication of the bucket sanitation system. Mr Bologo showed that MIG had created employment opportunities and had thus contributed toward poverty alleviation. More households per sector had also been serviced and there was an increase in economic development at the local level.

MIG was allowing for water to be supplied to poor communities in the rural areas. Most MIG projects were water services projects and most of the funds would go toward water services backlogs. Other MIG funds had also gone towards basic residential infrastructure, public municipal service infrastructures, social institutions and micro-enterprise infrastructure.

Mr Bologo spoke of plans for interventions to support municipalities. These included provisions to stop under spending, planning sessions to prepare municipalities for the new financial year and workshops. He identified certain challenges facing municipalities, which included a lack of comprehensive infrastructure planning, poor intergovernmental cooperation and lack of capacity.

Discussion
Mr Botha commented that he noticed a big improvement in all provinces. He reasoned that departmental intervention was the reason for the improvement and that more could be done to improve things even further.

The Chairperson expressed the need to discuss this matter further. He said that there was a very serious need for water although he noticed that the formula seemed biased toward water provision. He then requested a list of municipalities that had not signed the MIG agreement, so that those communities could be made aware of the reasons why the project was not implemented.

Mr Sogoni noted that there were 38 municipalities where transfers were stopped because of under-spending. He wanted to know how the Department would intervene to find out if there was capacity within these municipalities. He also wanted to know if there was an alternative plan to reduce the backlog of bucket eradication.

Mr Bologo responded that the Department was making sure that sector problems were also a priority for municipalities. He noted that they would have to engage in discussions with Gauteng municipalities as their expenditure was a cause for concern. Mr Bologo also stated that the Department would need to assist municipalities with capacity building and that they already had graduates that were being mentored. There was a need for sustainable capacity.

Public Transport Infrastructure and Systems Grant (PTIS): Department of Transport (DoT) Briefing
Mr Mathabatha Mokonyama, Acting Deputy Director-General: DoT, noted that improvements in public transport had been a priority. It is important for these improvements to be implemented ahead of the 2010 FIFA World Cup and therefore World-Cup related projects had been given priority. He informed members that a specific amount of money has been set aside for capacity building. He noted that Johannesburg has been the major beneficiary of the grant as their planning had been more advanced than other cities.

He stated that there were municipalities that had not signed off on projects and had delayed the process. Different PTIS projects were operating in Ethekwini, Mangaung, Nelson Mandela Bay, Johannesburg, Mbombela, Tshwane, Cape Town and Polokwane. He highlighted challenges facing these cities, which ranged across institutional, human and planning concerns. Mr Mokonyama added that the Department had formulated strategies to overcome the challenges.

He stated that projects that prioritised public transport should also satisfy long term mobility and should cater to specific mobility requirements.

Mr Mokonyama informed committee members that most beneficiaries had finalised planning and were ready. He also stated that the DoT would provide a report on the readiness and the state of transport, which would cover compliance issues, capacity challenges and implications.

Discussion
The Chairperson stated that the comprehensive report would be useful as it would inform members how to move forward. He noted that departments needed to coordinate activities and engage as to how to improve communication between themselves and the NT.

Mr Sogoni agreed with the Chairperson. He also agreed that the 2010 project was a priority, and could not be postponed as FIFA was checking on the progress.

Mr Sogoni noted that the welfare of workers would impact on the whole project and its limited time frames. He noted that they would need to be better informed and that the Department would need to find a way to address these challenges and use its money productively.

Mr Mokonyama announced that the report was a little outdated, and that a new report would be available the following week. He noted that with regard to challenges and strategies, the Division of Revenue legislation was helpful in relation to executing functions, and that it was a learning experience which would enable them to make meaningful contributions.

Mr Mokonyama added that his department had engaged with the Departments of Sports and Recreation and Public Service and Administration, and these would be signing a contract with the DoT. There was focus on 2010 because they needed to implement transport guarantees. Mr Mokonyama said that the DoT would be doing improvements all over the country for the overall benefit of public transport. There would also be improvements stemming from that part of the budget being allocated to capacity building.

The Chairperson announced that he was happy with the use of money within the DoT. He realized that there would be many business opportunities due to an allocation of the budget going toward the promotion of different types of transport.

Mr Sogoni warned that members would have to look at the expenditure of some of the municipalities. They would also need to focus on those areas where municipalities were not spending.

The Chairperson agreed, noting that in dealing with this problem, the Committee would need to look at a multitude of sector portfolios. He stated that all departments and committees would have to be present in one venue so full responses could be given to questions.

The meeting was adjourned.