Municipal Asset Transfer Regulations: Treasury briefing

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Finance Standing Committee

16 January 2008
Chairperson: Mr N Nene (ANC)
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Meeting Summary

Members of the Finance, Minerals and Energy, and Local Government and Administration Portfolio Committees met with National Treasury in order to discuss the Municipal Finance Management Act (MFMA) asset transfer regulations. National Treasury stated that the MFMA had identified the need to provide a framework through regulations, for the transfer of capital assets to another municipal entity or a provincial organ of state. The regulation stipulated that all transfers needed to be transparent and the regulations applied to all municipal entities. It had been planed to conclude and finalise drafts during the month of February 2008, and Treasury was also targeting the month of February 2008 to issue final regulations. 

Members sought clarity on whether any comments had challenged the constitutionality of the legislation and whether there had been any consultations with South African Local Government Association. Some members felt that there was insufficient clarity on how the disposals were to be decided upon, and sought clarity on whether Municipalities had been adequately informed and whether there was an audit of the information process. Members felt that even though the objectives of the regulations might have been good, Treasury still needed ensure that everything was up to date in many municipalities, as some did not even have asset registers. Members also raised the issue of wasteful expenditure and stated that many municipalities made decisions without conducting proper research.

Meeting report

Municipal Finance Management Act (MFMA): Regulations for transfer of capital assets: National Treasury (NT) Briefing
Mr T V Pillay, Chief Director: Local Government, MFMA Implementation, National Treasury, stated that the MFMA contained a clause providing for the transfer of capital assets to another municipality, municipal entity or to a national or provincial organ of state, and specified that this would be done through a Regulatory framework. The Regulations had now been crafted to ensure that assets, in particular those needed in connection with the provision of minimum basic services, could only be transferred after due consideration and only after consulting the community. The regulation stipulated that all transfers needed to be transparent, fair and reasonable and the municipal Council needed to be accountable for their decisions.

The regulation would apply to
all municipalities and municipal entities, transfers and disposals of all municipal capital assets, as well as hiring out arrangements. The legislation would also provide clarity on the governing principles, the definition of assets, the issue surrounding functions and service, the transfer or disposal of non-exempt capital assets, and a listing of the capital assets that were not exempted. National Treasury (NT) was in the process of finalising consultation and all comments would be considered until the end of January 2008. It was planned to conclude and finalise drafts during the month of February 2008, and February 2008 was also the target date for NT to issue final regulations.

Discussion
Mr L Tsenoli (ANC) noted that the Committee felt strongly about the timing of the report. National Treasury worked with the Department of Provincial and Local Government (DPLG) on the General Laws Amendment Act and there was a clause that spoke about exemptions. He asked for clarity on the relationship between that clause, and the clause in the current asset transfer regulations. He further asked for an elaboration of the public comments, specifying who had, or had not, found the legislation appropriate.

Mr Pillay responded that National Treasury had alerted the Minerals and Energy Portfolio Committee on the need to process the material quite soon. The research and the timing for further consultation and engagements was coincidental, and was not intended to inconvenience Parliament. The process of drafting the legislation was done in order to ensure that nothing in the regulations could be challenged. There were a large number of comments that had been received during the festive season period. Most of the comments received were very supportive, and many of them came from Western Cape-based municipalities. There had been an extensive consultative process and National Treasury would look into and review all the comments. It was hoped that there were going to be further comments, and these were still being received at present.

Dr G Woods (NDC) stated that there was insufficient clarity from both the policy and process point of view of how the disposals would be decided on. He asked whether all Councils had been adequately informed and whether there was an audit of the information process. When it came to the valuation of assets, there was also great concern that the valuation process was too vague.

Mr Pillay responded that Councils and NT agreed on threshold levels. One of the provisions stated that where assets were believed to provide for basic services, then there would have to be a due process before they were disposed of. When a Council made a decision it could not go back and change the decision. The legislation was formulated in such a way as to give guidance to the Council in reaching a fully informed decision. When it came to supply chain policy, a lot of training was taking place in order to address some of the challenges that were faced. With regard to the valuation, when the Regulation was being formulated, the practitioners had asked for something that would guide the Council and encourage it to look at the preferable options.

Mr S Marais (DA) stated that the regulations and objectives might be very good, but the problem remained in many municipalities that the asset registers were not up to date. Clarity should be provided on how it could be ensured that everything was up to date.

Mr Pillay responded that there were reforms being put in place which addressed issues pertaining to asset related matters. National Treasury had implemented some projects to address the challenges around the asset disposal and it was hoped that the municipalities would come on board.

Mr P Smith (IFP) sought clarity on the definitions of higher and value assets and whether the distinction between a capital asset and subsidiary asset was perfectly clear. With regard to the issue of exempt and non-exempt assets, clarity should be provided on whether the regulations covered all areas of service delivery or whether it was merely a matter of private versus public.

Mr Pillay replied that there needed to be ethical practices put in place and there may be a need for a guide that would provide details of the intention of splitting up higher and value assets, and improve the practice. With regard to the issue of exemption, NT had tried to define it on the basis of the organ of state, the aspects of the organisation, and NT was also looking into closing gaps where found.

Mr M Johnson (ANC) stated that National Treasury was acting as if it was “business as usual” despite the fact that it was late in tabling the legislation. There was still an issue that white people still had the most wealth, and if NT was following the route of having to have everything based on market value, it would continue to discriminate against the poor. National Treasury should comment on the audit of municipal assets, as it had become clear, as the audits were performed, that some municipal assets were wrongly disposed of. He considered also that other Departments such as Public Works and Land Affairs should have been present at the meeting, as they were also affected by the issue of land disposal.

Mr Pillay replied that National Treasury took the lead from the MFMA and wherever there was a difference, NT would take specific comments. When it came to deracialising the challenges of ownership, there was a provision in Section 14 that attempted to address the challenges, and this provision considered whether market value was the most appropriate, or what could be put in place for poor communities and whether their interests would be better served in other ways. There was also a review of all assets done prior to 1994, and how it would affect government policy. This led to a provision in the MFMA that called for the constant review of long-term contracts. When it came to the wrongful disposal of assets, there needed to be proper training for Council officials, and the matter still remained a serious challenge that needed to be addressed. In regard to the comment on other Departments, he noted that they would at a stage have to present their financial statements and strategic plan before the Committee, therefore some of the issues could be raised with the relevant Departments at this time.

Ms L Mashiane (ANC) asked whether the legislation was working properly as there were some assets in various municipalities that were not correctly captured. She commented that National Treasury should also take the communities into account while they formulated legislation, and should also be finding ways to transfer under utilised buildings to non-government organizations (NGOs).

Mr Pillay replied that if an asset was under utilised and the NGOs were interested, a contractual arrangement between the NGO and the municipality could be made. It should also be noted that not all the assets belonged to the municipalities, and it would be very difficult to regulate on their disposal.

Mr N Swathe (ANC) asked the Department to comment whether there were any constitutional challenges raised by the municipalities or SALGA during the public hearings. He asked that clarity should be provided on whether it was the municipalities or the MECs who decided on asset preservation. He also asked whether NT had considered regulating how much would be charged for the transfer of subsidiary assets.

Mr Pillay responded that there were comments which had challenged the constitutionality of the legislation. However it should be noted that the regulation was governed by the constitution and the MFMA. There had been extensive consultations with SALGA and with people who had previously worked with SALGA. In terms of asset preservation, the roles and responsibilities lay with the municipal councils and not with the MEC. In regard to the setting of conditions on how much would be charged for municipal assets, he noted that municipalities had the option of setting those conditions and determining the best possible ways of benefiting from those conditions.

Mr M Mbili (ANC) stated that the issue of wasteful expenditure in municipalities was still of great concern. Many municipalities would make decisions without conducting proper research. Once a project had been undertaken the Auditor General would often conclude that the municipalities did not have enough capacity to take on the project, whereafter it would be declared as wasteful expenditure and the asset should be disposed be. He questioned Slide 7 of the presentation, which stated that there needed to be continuity of service in regard to that expenditure which had been declared wasteful.

Mr Pillay replied that the Regulations supported the view that a feasibility study needed to be taken before a matter was brought to Council. When Council made a decision it would be important for them to have full information at their disposal otherwise they would not be making an informed decision. Where there were gaps, National Treasury would look into filling those gaps by strengthening the regulation.

Mr Singh stated that he was concerned that the state of the functionality of many municipalities left a lot to be desired, and he was concerned that NT had given municipalities rights to dispose of their assets. Treasury should also comment on the issue of sale by private treaty, and whether there was a anything in the regulations which prevented such a sale. He also asked whether there was a right of appeal against the disposal of assets.

Mr Pillay responded that the electoral process governed what the municipalities could and could not do. The MFMA did allow for individuals to report to the SAPS instances where they suspected criminal activities. When it came to the right to appeal, the regulations that had been put in place, particularly when it came to mismanagement, appeared to be the best regulations. He was not sure whether that the asset transfer regulation could deal with all the issues that had been raised but what was important was that the provision of basic services was protected.

Mr Tsenoli stated that the process was open to public participation, and people had the right to raise objections. However having heard the presentations, Members would go back and reflect on the issues, then report back to NT through their respective committees.

Mr E Mthethwa (ANC) stated that one needed to appreciate the process, and the issue of disposal of assets had always been in the legislation. The regulations would answer some of the questions that had most recently come to light, especially with the distribution of electricity and the Committee appreciated the efforts that had been made by NT.

The Chairperson noted that there were various concerns with the timing of the tabling, but that there was no point in delaying the tabling of the regulations. If there were any urgent issues that needed to be raised, then members should consult the respective Committee secretaries.

The meeting was adjourned.

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