Provincial Progress Report by Minister of Housing

HOUSING PORTFOLIO COMMITTEE
6 November 2007
PROVINCIAL PROGRESS REPORT BY MINISTER OF HOUSING

Chairperson: Ms ZA Kota-Fredericks (ANC)

Documents handed out:
Department Housing: Progressive Transfers and expenditure: 1 Apr 07 to 30 Sep 07
Conditional Grant budget performance 2005/06 and 2006/07 financial years
The Herald Online news article: East Cape loses R500m of its housing budget (see Appendix)

SUMMARY
The Minister of Housing showed that only 35% of the provincial housing budget had been spent in the first half of 2007/08 and said that these expenditure patterns reflected a sad state of affairs and required emergency measures. A breakdown of the payment schedules projected by each province and then their respective expenditures showed significant gaps between projections and expenditure. A re-allocation of R543 million from the Eastern Cape to other provinces was one of the measures taken to relieve the situation. The spike in the spending towards the end of the year was not an acceptable way of dealing with the problem of under-spending. However, she believed the early warning system would go a long way in remedying the status quo. Also the new Housing Development Agency would make a substantial difference in the monitoring and delivery of their target of 50 000 houses per year.

The discrepancies between expenditure and budget, especially in certain provinces, were questioned by the Committee. Underperformance of emerging contractors and the non-availability of beneficiaries were some of the reasons discussed by the Committee. The Department was addressing the first by partnering emerging contractors with established contractors and de-linking the building of houses with the availability and identification of beneficiaries.

MINUTES
Mr Mziwonke Dlabantu, Department of Housing Deputy Director General of Strategic Support, presented a schedule indicating a projected total of R8 billion for 2007/08 spending of which a total of R2.9 billion had been spent in the first half of 2007/08. This translated to only 35% of the total budgeted. A total of 86 662 houses had either been completed or were in the process of completion. He took the Committee through each province’s spending pattern for the year to date and projected into the last quarter.

Reasons put forward for the slowdown in spending during July and August this year in Gauteng, were cited as being the challenges experienced with the BUS system. Previous annual expenditure trends for all the provinces indicated a spike in spending for the last quarter of the year. Among the provinces unable to spend their current allocation, Eastern Cape stood out with only 10% of its allocation having been spent. Limpopo had spent only 22% of total available and Free State 28%.

Reasons given for this trend in under-spending were underperformance of emerging contractors, municipal procurement delays, delays in approval process and non-availability of beneficiaries. Further challenges were posed by local authorities not providing serviced sites and system-related problems with the processing of payments.

Measures taken to deal with these challenges were a re-allocation of funds to other provinces. This entailed a decrease of the Eastern Cape total available by R543 million. These funds would be split up among Gauteng, Northern Cape, Western Cape and KwaZulu-Natal.

The Minister of Housing, Ms Lindiwe Sisulu, said that the expenditure patterns reflected a sad state of affairs and required emergency measures. She said the spike in spending towards the end of the year was completely unacceptable. She would be addressing the MEC’s over these spending patterns at the end of the month. This spike in spending was often referred to as dumping and was in disregard of what should be a far more equal distribution of spending over the year. Furthermore the builder’s holiday over December and January meant they would be hard put to spend the money. She said the percentage of spending at this stage of the year was unacceptable, with the exception of provinces like Western Cape, Northern Cape and Kwa Zulu Natal and Mpumalanga to some extent. The MECs of the various provinces had stated that some of the figures were not accurate, but this still did not account for the low figures. The Department had done inspection visits in Mpumalanga in an effort to assist them and offers of assistance had been made to North West and Eastern Cape provinces this year.

Ms Sisulu said the facts presented were cause for concern and she would address each one of them in turn:
Regarding the underperformance of emerging contractors, she said the lack of skill and administrative skills needed to be addressed. They had done this by partnering them with established contractors. The Department had also been saddled with a host of uncompleted projects dating back to 2003. Regarding municipal procurement delays, there was non alignment between systems as well as a problem with oversight. Procurement delays sometimes stemmed from delays in payment from government.

Delays caused by the non-availability of beneficiaries had been resolved by de-linking the building of houses from the identification of beneficiaries. These lists had been tightened up and delays in the approval process were also being addressed. The process whereby land was made available for development had been problematic. Streamlining and time frames had to be instituted.

The delay caused by lack of serviced sites being available was due to a non alignment between departments and only those local authorities that had available serviced sites should be allocated money for housing.
Ms Sisulu thanked the Committee for the work they had done in building two houses in Flagstaff and for making themselves aware of the problems on the ground.

Problems with the payment of emerging contractors had also been a problem which simply had to be addresses since contractors like this could not afford to wait for payment.

Discussion
Mr D Mabena (ANC) said that areas in the Eastern Cape were in desperate need of housing and that the Department should deploy people to go and investigate the situation.

Mr A Steyn (DA) expressed concern over the spike in spending towards the end of the year and asked on what basis money was transferred and whether money sat in provincial accounts gaining interest. Regarding the problems experienced in Gauteng with the BUS system, he wanted to know whether this impacted on the payment of emerging and other contractors. He could not understand the reason for non-availability of beneficiaries, since there was an obvious shortage of housing. This did not seem an acceptable reason for under-spending. He asked whether emerging contractors were monitored and rewarded for work.

Mr G Schneemann (ANC) welcomed the move to de-link the building of houses from the identification of beneficiaries, as this would enable a much faster roll out. He asked how an even greater allocation was going to be spent when the Department was already struggling to spend the existing budget. The re-allocation of funds from Eastern Cape, for example, did not address the problem and the question remained whether the province that received the re-allocation be able to spend it. It seemed very late in the year to be effecting these re-allocations and were there be projects in the pipeline for these funds. The instances where the lack of service sites were cited as reasons for under-spending should be addressed through inter-governmental planning.

Ms Sisulu said the Eastern Cape did not have the capacity to spend their budget and she had called a meeting to address this with the MEC for the Eastern Cape. Aspects of their turnaround strategy were related to the rectification of instances of shoddy workmanship and by instituting a Department of Housing in the local Department of Traditional Affairs. This restructuring would lead to greater spending. In the meantime they were planning to use emergency funding for emergency structures, in order to ride out the Christmas season, where inclement weather and fires would create increasingly stressful conditions. She said some problems were structural and that life did not necessarily follow logic, since they could not simply go about building houses anywhere. Society was dynamic and people flowed to where the work was and there had in fact been instances of houses being built in areas where they were now no longer needed and were left vacant. Despite these and other challenges she was convinced that the Department had the capacity to spend their allocations. Northern Cape had launched a pilot project where they were in fact building houses for the future, in partnership with ABSA. There was at present no backlog in this province.

Mr Dlabantu said the mechanism for transferring money from Treasury was a very stringent and structured one. Cash flow per project was calculated on the basis of planning, services and construction, although often the skills required to make these projections accurately were lacking. Previously the Division of Revenue had been quite rigid and did not change payment schedules easily and payment schedules had to be submitted by a certain date otherwise monies could be delayed or withheld. The money transferred to provinces was held in Division of Revenue Act (DORA) regulated accounts.

Ms Kota-Fredericks commented that serviced sites should not only consist of a sea of toilets and that this did not constitute progress.

A committee member asked the Minister that priority be given to emergency projects in the Eastern Cape, since it was imperative that promises made to the people there should be kept.

Mr M Khauoe (ANC) asked what was happening to houses of in situ developments. He was also concerned about the distribution of funds.

Mr Schneemann referred to the presentation, with regard to the deployment of project management teams for greater project delivery and asked whether Northern Cape had the skills capacity for this task. Similarly, would the quarterly monitoring through provincial visits be an integral part of establishing whether goals had been reached.

Mr Steyn agreed that it was vital to link outcomes with money spent. He pointed out that there was no correlation between monies spent by the provinces and the number of houses built. These amounts and numbers varied significantly and revealed major discrepancies. Whether this was partly due to the fact that the numbers did not separate for houses completed and houses still in the process of being built was not clear. For example, Gauteng had spent R842 million on over 9000 houses, while Western Cape had spent R435 million on 27000 houses. This simply did tally.

Ms Kota-Fredericks suggested that the schedule indicate the split between houses completed and those still under construction.

Ms Sisulu said that the monitoring work would track this correlation between money spent and delivery of a quality end product. She said that the servicing of sites referred mainly to the bulk infrastructure, which needed to be provided by local authorities before building began. She agreed that houses had to have their toilets on the inside. The issue of readiness of serviced sites had been addressed in the Inter-Ministerial Committee. She said the Housing Development Agency would also go a long way towards making sure that resources were used efficiently to create a consistent product. She assured the Committee that not the entire Eastern Cape budget had been removed and that there was still sufficient money left over to provide for temporary emergency structures and that the people in Flagstaff would have these structures by December this year. She said that despite the seemingly obvious shortage of housing en masse, the problem of actually identifying beneficiaries still posed a practical challenge.

Mr Steyn asked whether there would be any delays in the re-allocation of transfers.

Mr Dlabantu said there would be no delays and that in fact Gauteng would be receiving their re-allocation the next day.

Mr L Modisenyane (ANC) suggested that people who were renting houses from others should be listed as identified beneficiaries.

Ms Sisulu agreed that there were instances where houses had been badly constructed and where not always the developers could be blamed but the municipalities for services not provided. They had provided houses in Ugie in the Eastern Cape and had found people either renting out their houses or selling them for as little as R10 000, when these houses were worth about R150 000. People needed to be educated in this regard, as transactions as these posed a continual drain on the fiscus. She asked the Committee what they thought of the trend of using houses for the purposes of shebeens. Ms Sisulu concluded that despite the concerns that had been raised in the presentation, the overall picture of the Department indicated that progress had been good and that early warning signals had ensured that action could be taken in good time.
Figures indicated that in the last three years between 98% and 100% of the budget had been spent.

Ms Kota-Fredericks said that since the allocations to the Department were increasing every year it was imperative that they had the capacity to spend these monies. She said the Committee should do their part in keeping people in their constituencies informed of the situation and the challenges facing the Department.

Ms Sisulu thanked the Committee for their continuing support on the ground. She was certain that the Department had the capacity to absorb and utilize the ever-increasing allocations, since the backlog in housing testified to a massive need in the country and people were becoming increasingly restive and impatient with the situation. The allocation from the government was limiting to the extent that it translated directly into the subsidy available for building houses. She believed the new Agency would make a substantial difference in the monitoring and delivery of their target of 50 000 houses per year. The Committee was invited to come and help build two houses the next day.

The meeting was adjourned.

Appendix:

The Herald Online: R500m grant reclaim over lack of staff

THE drastic decision by national government to reclaim R500-million in conditional grants – money ring-fenced for building homes for the poor in the Eastern Cape – comes after over a decade of failure by the provincial housing department to hire the necessary engineers, managers, town planners and building inspectors to build houses for the masses.

So says Public Service Accountability Monitor (PSAM) housing researcher Chantelle de Nobrega after the unit‘s latest research showed the department has almost no engineers, town planners and skilled staff to build the 800 000 homes needed in one of the poorest provinces.

In 13 years of democratic rule, the PSAM says just over 260 000 government homes have been built in the Eastern Cape at a wildly varying rate of between 10 000 and 60 000 a year.

The figure, which is declining, includes homes stalled mid-construction after 2000. This means the province is barely a quarter of the way to finishing the job. But, no-one is quite sure exactly how many houses are needed.

De Nobrega believes the department‘s inability to fill a massive 80 per cent shortfall of critical staff, and 65% (2 429) shortage of general staff, has led to a scepticism from both national and provincial treasuries and a reluctance to release money.

While the researcher pointed out a string of provincial housing errors of judgment, financial mismanagement, maintaining a silence amid chaos or stagnation, and housing subsidy fraud, she says the expenditure of the budget for existing personnel has improved tremendously from underspending of up to 50% prior to 2003, to 14%, 4%, and 1% and 13% in the years since.

De Nobrega said by March 31 this year, the department had only nine chief and deputy- chief engineers and needed another 46, and needed 106 town planners to join only two currently in the department. It had only 19 control technicians (building inspectors) but needed 60 more.

There was also a shortage of executive, general and senior managers, as well as chief industrial technicians. This was according to the 2006/7 annual report released in October. “How do you service a budget of over R1-billion if you don‘t have the staff?” she said.

She says the chief directorate of housing development, headed by general manager Ngwadi Mzamo, is proposing to appoint senior managers to the province‘s district municipalities. “These district-based managers will start hiring people with technical expertise, who will be based at district-level, but will work in the municipalities under them.”

She wondered if the department‘s so-called “turn-around strategy” would be put on hold if the department lost a third of its budget.

The department has already set up its first-ever project management and quality assurance directorate, which will comprise mainly technical staff, engineers, project managers, town planners and inspectors.

The department also received a qualified audit last year, compared to the previous four years when the Auditor General issued audit disclaimers stating financial records were so poor no opinion could be rendered as to whether the money was spent as intended. He particularly noted that the department was not monitoring payments to municipalities and developers and therefore he had no way of establishing the extent of “fruitless and wasteful expenditure” on sub-standard housing. De Nobrega said the Pillay Commission had also heard evidence that between 1994 and 2004 583 Eastern Cape civil servants received state housing subsidies – even though they were not entitled to them.

The commission also heard the ideal ratio in the housing department was one manager to five housing projects, but in the Eastern Cape it is one manager to 30 projects. However, there has been a change of leadership in the department, with Nandi Sishuba head of department since May.

De Nobrega said National Housing Minister Lindiwe Sisulu could not only blame municipalities and the provincial housing departments for poor performance. “The Housing Act makes it a national responsibility for the housing department to intervene if a province is unable to fulfil its mandate or task, and the Eastern Cape is clearly struggling.”