Division of Revenue Bill: Departments of Provincial and Local Government, Minerals and Energy and Water Affairs and Forestry

NCOP Finance

05 March 2008
Chairperson: Mr T Ralane (ANC, Free State)
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Meeting Summary

A report from the Department of Provincial and Local Government was given, focusing on work done to deal with under-spending in municipalities during the July to December 2007 period. Members commented that this was a short, but very concise report. They expressed concern around municipalities in very poor areas that had very low expenditure figures, and queried deployments. It was noted that the overall expenditure in municipalities had increased and  the Division of Revenue Act (DORA) was being implemented.

The Department of Water Affairs and Forestry focused on certain key issues. The presentation entailed a progress report per region and focus was given on the budget allocation and project statuses of the respective regions. The goal to eradicate the bucket system by 2006/07 was not accomplished, due to the projections being over zealous and much infrastructure was needed for this. The Committee expressed dissatisfaction, noting that large allocations had been made towards this already. They queried the low allocations towards management support, the basis on which allocations were made to provinces and municipalities, and the delays due to administrative changes. The delegation from the National Treasury also expressed surprise on the non-eradication of the bucket system in view of the allocations, and commented that no further allocations would be granted until such time as current projects were completed.
A brief presentation was given by SALGA as to their work in assisting municipalities with their finances. Members raised questions on the arbitration fees and the percentage, and what was done to assist municipalities in raising their revenue. A detailed report would be given in writing.
The committee was briefed by the delegation from the Department of Minerals and Energy on the Electrification Planning for 2008/09. The report contained the electrification program for individual local municipalities as well as the plan of Eskom in some local municipalities. The majority of funding was going into the development of bulk infrastructure. The Committee was informed of the difficulties that municipalities seemed to be having in the completion of the application forms. The delegation reported that under spending in municipalities was due to inefficient forecasting figures on the building of new houses. Committee members enquired as to the impact of the programme on the current energy shortage, and indicated that it would be monitoring progress in the next quarter.

The Committee expressed grave concern as to the substandard houses that had been built in provinces like Limpopo and Mpumalanga and asked the delegation from the National Homebuilders Registration Council (NHBRC) how this could happen. Great concern was expressed as to builders delivering substandard housing. Members enquired as to the capacity within the NHBRC and asked for the location of their offices. Concerns were also raised as to the absence of inspectors at some building sites. An explanation was given as to the scope and role of the Council, the matters that fell outside their jurisdiction, and the reasons for delays. No complaints about registered builders had been received. The Committee requested a report in writing on the issues raised.

The Chairperson expressed his disappointment at the absence of the Department of Housing as there were serious issues of under performance and under spending that needed to be raised with them.

Meeting report

Department of Provincial and Local Government (DPLG) and Development Bank of South Africa (DBSA) collaboration on Municipal under spending
Mr Khwathelaui Bologo, Senior Manager, DPLG, presented his report explaining that the DPLG and DBSA collaboration’s purpose was to deal with under spending in Municipalities during July to December 2007. Focus was placed on the background of the report, allocation of capacity in non-performing Municipalities, distribution of deployments per municipality, reasons for under spending and reporting, current support and interventions in place to improve grant expenditure.

Mr E Sogoni (ANC, Gauteng) commented that although the report was short it was a very important one that it was accurate and to the point. He wanted to know how the DPLG/DBSA decided on deployment as there seemed to be a lot of expertise in one Municipality while in others there was very little. In referring to page 4 of the presentation he wanted to know which municipalities were facing challenges seeing that the report was not specific about this.

Mr M Goeieman (ANC, Northern Cape) substantiated what Mr Sogoni asked and also posed the question as to whether there was a clear term of reference by which deployments were made to Municipalities. Referring to the Municipal Infrastructure Grant, and Municipal Systems Improvement Grant expenditure he commented that it seemed to be very little, and enquired as to the monetary processes. He also wanted to know what mechanisms were in place to assist municipalities facing difficulties.

Mr Z Kolweni (ANC, North West) wanted to know what the comment on page 4 of the presentation meant when it said that “Finance experts only focusing on the preparation of AFS, Budgeting process and AG queries and not on grants related support”

Mr D Botha (ANC, Limpopo) said that in Municipalities such as Marblehall and Phalaborwa there was very low expenditure and this was particularly difficult seeing that these were very poor areas.

Mr Goeieman commented that situations where people were illegally removed from farm land, as recently reported by the media, needed to be seriously addressed. He also commented that the Departments for Local Government in the Eastern Cape had bought equipment with which to build houses but had failed to utilise it for the last three years.

The Chairperson commented that the delegation from the National Home Builders Registration Council (NHBRC) should be able to answer the question raised by Mr Goeieman. He also commented that the absence of the Department of Housing at the meeting was awkward.

Mr Bologo said that much was done to assist Municipalities with their difficulties and that some municipal managers had in the past been suspended. The focus was currently correct, but developments surrounding finance and infrastructure had to be taken into account and that the issue of compliance also needed to be enforced. The initial six month deployment to municipalities was never meant to be something to be cast in stone and would be revised. Many people had been deployed to some North West and Limpopo municipalities to assist but a part of the problem was that many of the top-management in some of these municipalities was not present. Municipalities like Marblehall and Bela-Bela always complained that allocations were to little but this was due to the fact that they tried to combine two financial years with each other. In some municipalities allocations had increased and were a sign that expenditure in the provinces had increased. In certain cases the Division of Revenue Act (DORA) had to be aggressively implemented. It was found that in 72% of municipalities expenditure had improved. In regards to deployment strategies, a needs analysis was done working with key individuals so as to compile a business plan, which was followed by the signing of several agreements. He concluded by saying that suggestions were welcomed to assist and fast-track the process. The Province, DWAF and National Treasury had been asked to identify municipalities in need of assistance. 

Department of Water Affairs and Forestry (DWAF) Presentation
Mr Onesmus Ayaya, Chief Financial Officer, DWAF, tabled the presentation to the Committee focusing on policies, other policy documents, Special DoRA Conditions, funding, purpose, overview of the programme governance, milestones to date, project management structure and project approval. He also explained the monitoring and implementation, tabled some strategic support feasibility studies and set out the business case for Internal Bulk. A progress report per region was also given, focusing on the budget allocation and project statuses of the respective regions. He commented that the allocation for bulk infrastructure, which was currently at 8.6%, was inadequate as it was based on the history of the Department but did not take account of the needs. The allocation for schools for 2009- 2011 would only be made available in future but the current allocation, considering the backlogs, seemed insufficient.

Mr Ayaya commented that the proposed deadline for the eradication of the bucket system was set for 2006/2007, but in reality this had not transpired and he argued that the goal was premature. In reality the bucket system was still being used in many parts of the country. The reason for the backlog was that the infrastructure support  was not in place. The goal was to install water-flushed toilets, and not chemically based ones, into communities. For this to be done there needed to be sufficient plumbing systems, which, in many communities, did not exist. Work that had already been done must be maintained and provision was made for this. Some agreements were signed later than originally intended. The decrease in subsidy would only start transpiring by 2011.

Ms L Makoena, Acting Chief Director, DWAF, said she would like to comment only on the issue of operating subsidies. It was thought that by 2009- 2010 the Department would be able to decrease subsidies to local governments, so that the 30% could be incorporated into the equitable share. This had not been realised. Agreements had to be re negotiated due time related issues. 

The Chairperson noted that even in situations where municipal managers were suspended or had resigned the municipalities should still be able to function and clear-cut plans were needed for this. Backlogs in water and sanitation, especially the eradication of the bucket system, were inconsistent as allocations were made for this purpose. Municipalities were complaining about an inconsistent communication from the Department.

Mr Botha wanted to know why budget allocations to management support in most provinces were low.

Mr Sogoni commented that the mandate of DWAF had was not very clear to him. He wanted to know why there was a decline in budget allocation for refurbishments. He commented that the fact that the target for the eradication of the bucket system by 2007/08 was not reached created a difficult situation in reporting to the constituencies. He wanted to know on what basis allocations were made and commented that it seemed as if they resulted from a “thumb suck”.

Mr D Douglas (DA, Western Cape) commented that delays because of changes in administrative processes were the cause of many problems and that those delays sometimes ran into years. There must be a continuum of negotiations processes.

The Chairperson said that discussions between DWAF and DPLG were clearly necessary.

Mr Ayaya responded by saying that a clear engagement with the different municipalities and sectors was made but acknowledged that there certainly were problems in some constituencies. According to studies, management support in terms of infrastructure was in place despite low allocation and role players were engaged.

Ms L Makoena commented that the projections were done, in terms of the funds needed for transfers, in 2002. Changes in municipalities affected the processes but not the progress, because service delivery was continuing. New management in some cases did not agree with yet unsigned agreements, which caused delays.

Mr Tolo raised the question as to who dealt with the issue of bulk infrastructure within DWAF. This was an important issue.

Mr Kenneth Brown, Director: Provincial Budget Analysis, National Treasury, commented that the decision was made to eradicate the bucket system completely and that more money than requested was given for this.  He expressed surprise that the problem still persisted in areas such as the Free State and Eastern Cape, but said that Treasury would take this up with DWAF during the course of the year to resolve the problem. Characteristic problems within DWAF arose, on the one hand, through dealing with districts and on the other hand through dealing with regions and local municipalities. Due to unfinished projects within the DWAF, more funds would not be given. The real issue was the allocation of funds already given to DWAF.

The Chairperson said that the picture with DWAF was not as bleak as it seemed. This was not the right platform to ask for more money, especially in context of the unfinished business of the department. There was clearly underperformance in the department and ways had to be found to resolve this. Some of the issues raised would only be addressed in the next meeting. A programme was currently in place to train municipal officials and councillors.

South African Local Government Association (SALGA) Presentation
Mr S Letsholo, Acting Head of Municipal Finances, SALGA, gave a brief presentation highlighting the allocations to local government, a review of the fiscal framework and gave his comments on certain clauses in the Bill (see attached presentation for full details).

The Chairperson commented that although the report was short it was to the point, well presented and accurate.

Mr Sogoni wanted to know if the poor municipalities mentioned in the report from SALGA also paid arbitration fees.

Mr S Letsholo answered that the poorer municipalities did pay arbitration fees but that he was not sure as to the percentage paid.

Mr Goeieman wanted to know how municipalities had been helped to raise their level of revenue.

The Chairperson said that the presentation was self explanatory.

Mr Botha wanted to know what SALGA was doing to assist the very poor municipalities.

The Chairperson requested that SALGA report in writing to questions raised by the Committee. The National Executive of SALGA should know what their mandate requires.

Mr S Letsholo said that much was done to develop the municipalities by looking at the dynamics within the municipality to best develop the area. There was currently a programme in place to evaluate municipalities and approve the systems and processes put into place. The mandate that was required of SALGA was actively being pursued and all efforts were made to assist municipalities. A report as to the extent of the assistance would be made available to the Committee.

Electrification Planning 2008/09: Department of Minerals and Energy (DME) Briefing
Mr M Masemka, Acting Manager: INEP, DME, presented the Committee with a briefing on electrification planning and provincial and municipal allocations. He commented that the report was in two parts, separating out the role of the municipality in electrification and the funding given for this, and the role of Eskom played in implementing electrification in the municipalities not authorised to provide it themselves. Most of the backlog in the housing electrification programme lay in Kwazulu Natal (KZN), Limpopo, Eastern Cape and informal settlements in Gauteng. Institutions like clinics and schools enjoyed priority in the programme.  He further focused on: the backlog, the allocation criteria, 2008/09 municipal allocations and 2008/09 approved allocation. An Eskom programme allocation for 2008/09 to 2010/11 for regions and municipalities was also presented to the Committee. The majority of funding was allocated to the development of the bulk infrastructure. The main problem currently experienced was the completion of application forms and submission of business plans. but municipality officials were being assisted with this. In municipalities where electrification projects had been completed the allocation was used for houses that were still to be built. Given the fact that municipalities could in many instances not determine how many houses would be completed there was under spending. Eskom was still finalizing the programme for this year, creating a problem in as far as implementation was concerned.

The Chairperson asked whether, seeing that municipalities were under spending by not forecasting correctly, the grants should be lowered or if the DME would suggest they stay the same.

Mr Masemka asked that the allocation should stay the same, or, if possible, be increased.

Mr Botha wanted to know what the effect the housing electrification programme would have on the current energy shortage.

Mr Masemka said that the impact was negligible and that rural communities were by nature energy efficient. Projects such as golf estates were far more likely to have a negative impact on consumption. Application forms were explained to municipalities in workshops.

The Chairperson said that the performance of the Department would be monitored carefully during the third quarter.

The Chairperson voiced his concern at the absence of the Department of Housing, as there was serious underperformance in that department.

The Chairperson also commented, with reference to a report on under performance in the Eastern Cape, that this related directly to the NHBRC.  These issues showed inability to produce, slow acquisition of NHBRC certificates, and the slow start of NHBRC on the electrification project.

Mr Sogoni commented that the NHBRC seemed to be unable to merge projects and raised his concern as to capacity problems within it.

Mr Goeieman said that quality of many of the houses built in the Northern Cape was clearly not up to standard and some were totally uninhabitable, yet the companies that built them were registered with the NHBRC. Many of the houses still were not finalised despite numerous complaints. It seemed that the NHBRC was simply not doing its job and not much had changed for the good in the industry. Many of the materials used by contractors were substandard, for which the NHBRC must be held accountable.

Mr Botha said that 30% to 60% of houses in Limpopo could not be inhabited due to substandard building by companies registered with the NHBRC. There seemed to be no difference between builders and contractors registered with the NHBRC and those that were not. Of great concern were issues such as cement that was not being mixed properly. This was clearly something that should be monitored inspectors, yet these were nowhere to be seen. He wanted to know whether there were NHBRC guidelines for all stages of building. 

Mr Sogoni enquired as to where the NHBRC offices were situated. He asked the NHBRC, in the light of what had been mentioned here, to justify its continued existence.

Mr Phetola Makgathe, CEO, NHBRC, commented that many of the complaints made were not within the jurisdiction of the NHBRC. In areas like Sandton the NHBRC had had enormous successes. He brought to the Committee’s attention the fact that the NHBRC only started operating in the subsidy sector of the market after 2003, when it was appointed to do so. Any house built before 2003 in that sector did not fall under the legislation of the NHBRC. The NHBRC did not appoint contractors but its function lay in advising on homebuilding. The registration fee of the NHBRC was only R 600 per month. In the subsidy sector municipalities were to submit geo-tech reports, which were often not done, delaying the processes. The mix of the cement was derived from the geographic support, which would ensure that it was done correctly. The challenges experienced in the Eastern Cape region were due to the use of non registered builders, which was outside the control of the NHBRC. Mr Makgathe continued by explaining that the KZN and the Free State had, for the current quarter, not submitted even one project. The NHBRC did not have any capacity problems itself,  as its role was to monitor and certify. He further commented that it was the wish of the NHBRC to protect the people, and that those contractors who were NHBRC-registered and who might not comply with the requirements could be reported. None had been reported so far. He concluded that the NHBRC had offices in provinces and satellite campuses in some municipal areas.

Adv P Mabunda, Administrative Assistant: CEO’s Office, NHBRC, concurred that housing was a sensitive issue. She asked for the co operation of the Committee to resolve the problems. Many people in government had a distorted picture of how the NHBRC operated and the mandate afforded to it. One of the key challenges for the NHBRC was the shortage of engineers, leading to outsourcing at times. She reiterated that every homebuilder that was registered with the NHBRC was tested and trained for free.

The Chairperson requested that he would like all the issues that the NHBRC had raised to be sent through in writing. He expressed his thanks to the NHBRC that it had raised the issue of municipalities using non-registered builders and said that this would be taken up with the specific municipalities.

Mr Brown commented that the one very important issue to be raised was the role that the municipalities played in ensuring quality building

The meeting was adjourned.

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