Local Government & Housing: 4th Quarter Spending: Eastern Cape, Free State, Mpumalanga, Northern Cape

NCOP Finance

20 May 2008
Chairperson: Mr T Ralane (ANC, Free State)
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Meeting Summary

National Treasury briefed the Committee on the expenditure as at 31 March 2008 of the Provincial Local Government and Housing Departments for the 2007/08 financial year. The total adjusted budget for housing amounted to R12.6 billion, of which R12 billion was spent as at 31 March 2008. Gauteng Province over-spent its allocation and significant under-spending was reported by the Eastern Cape and the Free State.

Delegates from the Departments of Local Government and Housing for the Free State, Eastern Cape, Mpumalanga and the Northern Cape made submissions to the Committee on the application of the Housing Conditional Grant and the Integrated Housing and Human Settlement Development Grant allocations. The Chairperson and CEO of the National Home Builders Registration Council provided input on each province’s submission on project and home enrollments with the NHBRC. Delegates from the Provincial and National Treasuries contributed comments and observations.

Members asked questions about the reasons for the under-performance in housing delivery by the provinces and requested details of corrective action taken and plans for addressing the challenges listed in the submissions. Issues raised included funds allocated for the purchase of land and properties, rectification projects, the shortage of engineering, inspection and project management skills, the registration of contractors with the NHBRC, the submission of projects to the NHBRC for approval, rural housing strategies, the transfer of funds to municipalities, the use of funds for purposes other than the provision of housing, the de-linking of beneficiaries from sites by the Free State and the need for geo-technical assessments on sites.

Meeting report

Briefing by National Treasury
Ms Nokolo Mbambo (Director, National Treasury) presented an overview of the Provincial Local Government and Housing Departments’ budgets and expenditure as at 31 March 2008 (see attached document).

The total adjusted budget was R12.6 billion, of which R12 billion (95.2%) was spent. An amount of R636.2 million was under-spent by eight provinces. The lowest rate of spending was reported by the Eastern Cape (85.8%) and the Free State (87.2%). The highest rate of spending was reported by the Northern Cape (99%), KwaZulu Natal (98%) and Gauteng (101%).

A breakdown of the budgets and expenditure on personnel, capital and non-personnel and non-capital expenditure was presented. Details of the Integrated Housing Grants and Human Settlement Development Grants for each province were provided and illustrated with graphs, showing the expenditures and projections on a monthly basis.

The Chairperson expressed concern over the under-spending by the Eastern Cape and Free State provinces on housing delivery.

He welcomed the delegates from the National Home Builders Registration Council (NHBRC) and asked the Chairperson for her comments.

Ms S Nene (Chairperson, NHBRC) was hopeful that the turnaround strategies of the provinces would bear fruit. She was concerned by the lack of capacity in engineering and inspection skills. Progress was being made with the registration of contractors by the NHBRC.

The Chairperson asked for suggestions on improving housing delivery in the Eastern Cape, Free State and North-West provinces in particular.

Ms D Robinson (DA, Western Cape) was pleased to hear that progress was being made and asked the NHBRC what the basis was for the hope expressed. She said that registration of contractors was one thing but monitoring progress and carrying out inspections were very important. Money was being collected by contractors but they were not delivering the desired results.

Ms Nene replied that the NHBRC was commissioning external inspectors and engineers to act as supervisors. Much energy was wasted on conduction the forensic investigations and the money could have been better utilised if it was applied to upgrading service delivery. She reported that the offices of the NHBRC were extended across the country. The NHBRC was considering importing engineers and inspectors from countries like India, Brazil and Cuba. Foreign professionals however needed to be trained in the South African context and applications. She said that Government was losing trained personnel to better-paid positions in the private sector and this issue needed to be addressed. She was proud of the results of the forensic investigations. She reported that the NHBRC worked closely with provinces and there was an improvement in relationships. The Eastern Cape was an example of a better understanding between the NHBRC and the provinces.

Ms Robinson asked if consideration was given to approach retired professionals and re-employing them on a contract basis.

Ms Nene replied that the NHBRC cooperated closely with the South African engineering societies and was allowed access to their databases. It was not against policy to make use of available skills on a contractual basis. She said that it was necessary to analyse the various needs and match them against proposed solutions.

Discussion on Eastern Cape Province
The Chairperson said that the Committee approved a budget of R1.2 billion for the Eastern Cape for 2007/08 and it would appear that the province will again fail to spend the amount allocated. The budget of R1 billion for the previous year was also under-spent. He said that the situation was now critical and he asked the representatives from the Eastern Cape to comment.

Mr Sjekula Mbanga (Acting Chief Director, Eastern Cape Provincial Department of Local Government and Housing) replied that discussions were being held with the MEC, the Minister and the Deputy Director-General on the implementation of a proposed strategic intervention. He advised that a presentation was made to MINMEC the previous week.

The Chairperson said that there appeared to be no movement and it was clear that the Eastern Cape was not ready to implement the plan presented.

Mr B Mkhaliphi (ANC, Mpumalanga) said that the lack of housing delivery in the Eastern Cape was a serious matter. This was not a new problem and the failure to deliver was unacceptable.

Ms Robinson asked what deadlines were set for the implementation of the plans.

Mr Z Kolweni (ANC, North-West) remarked that the amount of R1.2 billion allocated meant that the lack of delivery was not caused by a lack of available funds.

The Chairperson said that the involvement of the national Department needed to be determined as well. He remarked that housing delivery was clearly stalled in the Eastern Cape.

Mr M Phukuntsi (Chief Director, Free State Treasury) remarked that the availability of non-financial information from provinces was important to avoid the allocation of funds to provinces with no proven capacity for utilising the funding effectively.

The Chairperson reported on a recent visit to the Eastern Cape by a delegation of Members. Discussions were held with residents to determine what their needs were. The delegation observed that many households were accommodated in spacious, well-constructed traditional rondavel homes yet residents insisted on having a RDP house because they felt that they were entitled to one. He said that a rural housing strategy that included the necessary infrastructure to deliver services such as schools, water and sanitation was essential. He asked how the R1.2 billion was allocated by the Eastern Cape and how the rural housing issues were addressed.

The Chairperson requested comment from the NHBRC on the Eastern Cape projects.

Mr Awelani Malada (Manager: Strategic Planning and Research, NHBRC) explained the role played by the NHBRC in the approval of home and project enrollment proposals submitted. The NHBRC analysed and evaluated the proposals received from provinces, determined the capacity and ability of the developer and assessed the developer’s ability to apply the technical specifications for the project. Five project enrollment proposals were received, of which four were approved. Eleven home enrollment proposals were received, of which one was approved.

The Chairperson referred to the submission received from the Eastern Cape. He noted a target of three projects to provide 1000 units in rural areas. He requested comment on the provision of housing in rural areas, in the light of his earlier concerns about the allocation of houses in rural areas.

The Chairperson referred to the comments made by the Eastern Cape in its submission on the “slow start by the NHBRC on the rectification program, the inability of bidders to produce NHBRC certificates and the slow pace of NHBRC project and home enrollment”. He requested comment from the NHBRC.

Mr Phetola Makgathe (CEO, NHBRC) responded to the comments made in the submission made by the Eastern Cape. He was not sure what was expected from the NHBRC in respect of rectification projects. He said that it took seven days for a contractor to be registered as a NHBRC member. If a bidder failed to produce a registration certificate then he should not be appointed as a contractor. A registration certificate was issued to an individual or a company if it was proven that the entity was qualified, able to deliver the service and that the persons involved were considered to be fit and proper. Provisional certificates were issued to allow applicants to provide the necessary proof at a later date. Site inspections conducted by the NHBRC found that unregistered contractors were employed by municipalities and provinces. This was against the law and the regulations.

The Chairperson asked delegates from the Eastern Cape to clarify what was meant by the comments made on the NHBRC in their submission.

Ms Pheladi Kadiaka (Chief Director, Eastern Cape Provincial Department of Local Government and Housing) explained that the comment referred to rectification projects where the original contractor failed to deliver houses to the required standards.

Mr Makgathe said that there appeared to be a misunderstanding of the role of the NHBRC. He explained that when complaints were received about the standard of houses built by a contractor, the NHBRC appointed another contractor to carry out repairs. The NHBRC monitored rectification projects by visiting the sites and conducting inspections.

Ms Kadiaka reported that the Eastern Cape currently had twelve projects approved by the NHBRC under way.

The Chairperson requested that a list of the projects was provided to the Committee and that the list was verified by the NHBRC.

Discussion on Northern Cape Province
The Chairperson said R100 million was approved for housing in the Northern Cape. The province indicated that the amount allocated was inadequate. When the Committee inspected housing delivery in the province, it was informed that the funds were transferred to accredited District Municipalities and that no houses were built by the provincial Department of Local Government and Housing. This action was not correct as District Municipalities did not serve as housing developers. Sol Plaatjie District Municipality was found to be the only accredited municipality that received funds. Further investigation revealed that an amount of R11 million was transferred to Sol Plaatjie District Municipality and was used for an unspecified infrastructure development instead of for the building of houses. He pointed out that the R100 million allocated to the province was for the purpose of providing houses and that the funds may not be used for any other purpose. The Committee reported the matter in a letter to the Minister of Finance and requested a thorough investigation.

Ms Renita Soodeyal (Northern Cape Department of Local Government and Housing) denied that housing funds were dumped onto municipalities. She explained that municipalities were utilised as developers by the province but funds were only allocated for housing projects that were ready to be implemented. A list of the municipalities with housing projects was provided to the Committee.

Ms Soodeyal explained that municipalities submitted business plans to the province for the housing projects. The provincial Department of Local Government and Housing entered into service level agreements with the municipalities and in some cases, with the contractor. Funds transferred to the municipality or directly to the contractor were based on the progress of work. Funding of internal infrastructure was part of housing but payment for bulk infrastructure projects was not made out of housing funds.

The Chairperson asked if the municipalities involved were accredited.

Ms Soodeyal replied that they were not. She said that the Housing Code made provision for municipalities to act as developers. She explained that the municipalities usually appointed local service providers and contractors to carry out the work. SMMEs may be used for procurement purposes. Many SMMEs were not registered with the NHBRC.

Ms Soodeyal said the province covered a vast area and the housing structure was very small. There were a limited number of engineering and inspection professionals available.

The Chairperson asked if the agreement to use municipalities was in writing.

Ms Soodeyal replied that it was not.

The Chairperson said that Sol Plaatjie District Municipality expressed displeasure with the manner in which the provincial department made decisions without consulting with the municipality. He advised that the Committee will engage with the municipalities on the list provided.

Mr Kolweni asked when a municipality was appointed as a developer for a project.

Ms Soodeyal replied that the appointment was made when the municipality was the successful bidder.

The Chairperson recalled an investigation into a case where building materials were found to have been unused for three years in the Northern Cape. A report was made on the matter but appeared to have been lost.

Mr Makgathe advised that no home enrollment projects were submitted to the NHBRC by the Northern Cape.

The Chairperson said that this was an important issue that needed to be followed up.

Ms Soodeyal replied that the registration of contractors was a problem as there was no NHBRC office in the province.

The Chairperson advised that the NHBRC office in Bloemfontein was responsible for the Northern Cape Province.

Discussion on Mpumalanga Province
The Chairperson requested clarity on the commitment to the acquisition of properties, the expenditure on goods and services, the reasons for the involvement of the Housing Department in the Delmas Municipality water purification plant, the projects in Msukaligwa, Lekwa and Govan Mbeki Municipalities and the problems with the organogram reported in the submission.

Mr Cyril Dlamini (Acting Head of Department, Mpumalanga Provincial Department of Local Government and Housing) extended the apologies of the MEC and introduced the delegates from Mpumalanga. He explained that senior officials were in acting positions due to the ongoing restructuring of the Department.

The Chairperson remarked that the number of acting positions were cause for concern as that promoted uncertainty. He suggested that the MEC attended to the issue as a matter of urgency.

Mr Dlamini said the total Housing Grant allocation to the province was R676 million for 2007/08. R150 million was earmarked for the acquisition of properties as the Province did not have enough land on which to build houses. The properties purchased were in the targeted areas of high economic growth and were close to the central business districts (CBD) of the towns. A list of the properties can be provided to the Committee. Not all the purchases were completed as there were problems with the ownership of the properties. An amount of R24 million was under-spent as a result of unfinalised transactions.

Mr Dlamini explained that the amount of R14 million under-spent on goods and services were not part of Housing Grant funds. Items listed included fencing around a landfill site at Msukaligwa, the appointment of a service provider to complete the capacity assessments at Lekwa and Govan Mbeki Municipalities, the reconstitution of the Traditional Councils and renovations to the Thusong Service Centres.

The Chairperson requested that a detailed written report was submitted to the Committee on the under-spending on goods and services and on compensation of employees.

Mr Dlamini advised that an agreement was signed with the NHBRC for the province to submit project and home enrollments. The province was engaging with the NHBRC to resolve the challenges with the home enrollments, e.g. the practicality of conducting soil tests on each stand. Service level agreements on inspections were signed. In general, the province had a good relationship with the NHBRC.

Mr Makgathe explained the requirement for complete geo-technical assessments (GTA). The NHBRC found that bad engineering solutions accounted for many structural failures in houses. The NHBRC was concerned that rural components were not enrolling housing projects.

Mr Mkhaliphi asked for clarity on the practicality of conducting GTAs on every stand. He said that Mpumalanga decided against a rectification program and asked what the province planned to do about the poor quality of existing houses. He requested further details of the acquisition of land.

Mr Makgathe explained that test pits were sufficient to obtain samples in some areas. In others, a more detailed GTA was necessary.

The Chairperson requested details on the amounts spent and location of purchased properties. He understood an amount of R36 million was paid for a property in Hazyview. He asked for details of the severe staff shortages, the non-availability of land for integrated human settlements and the slow delivery resulting from the capacity problems of contractors mentioned in the submission.

Mr Dlamini replied that the province did have a rectification program. Service providers were appointed to do assessments on the poor quality houses built in the past. It was planned to roll out repairs to 1900 units during the current year. The properties purchased were in Nelspruit, Secunda and White River.

The Chairperson asked if the properties were intended for low-cost housing.

Mr Dlamini replied that the developments will be mixed and include some rental stock as part of the integrated development plan. The intention was to provide housing as close as possible to the areas where people worked.

Mr Dlamini said the province lacked capacity in the areas of project management and inspections. Inspections were in the process of being decentralised to the municipal level. The capacity of appointed contractors was assessed during 2007. Some contracts were cancelled due to non-performance and other contractors were appointed by open bidding process.

The Chairperson requested an explanation of the variances in the quarterly expenditure.

Mr Dlamini explained that the increase in the last quarter was mainly as a result of spending R85 million on land acquisition.

The Chairperson suggested that National Treasury looked into the issue of buying property instead of building houses. He asked who the province used as housing developers.

Mr Dlamini replied that contractors were appointed by the open bidding process.

Mr Mkhaliphi requested that details of the rectification programs, where they were located and at what stage they were, were provided in writing to the Committee.

Discussion on Free State Province
The Chairperson noted that the Free State had only spent 87% of its budget and asked for an explanation. An amount of R100 million was withheld as a result of the province’s inability to spend its allocation. He was concerned by the continued underperformance of the province in spite of previous interventions by the Committee.

Ms S Dlamini (CFO, Free State Provincial Department of Local Government and Housing) explained that a major cause for the under-spending was a lack of planning. A new planning regime was implemented and an implementation committee was formed.

Land Availability Agreements were signed with municipalities to ensure that adequate and suitable land was available for the planned building projects. Service providers were appointed to complete the GTA reports for the projects. Municipal fees for building plans were paid directly to the municipality instead of to the contractor. R17 million was spent on acquiring land. There were currently 71 housing projects (23500 housing units) in progress, of which 68 had signed Land Availability Agreements.

Ms Dlamini reported that the province decided to de-link beneficiaries from sites. The province therefore built the houses before allocating the beneficiaries.

The Chairperson strongly disapproved of this policy. He recalled that 500 houses were built with no consultation and with no pre-determined beneficiaries in a rural area of the Eastern Cape. The result was that the houses remained unoccupied. He said that such a policy was extremely wasteful and problematic. He said that in terms of the Division of Revenue Bill, all housing projects must be in accordance with the local authority’s Integrated Development Plan (IDP).

Mr Makgathe reported that the NHBRC had met with the MEC and emphasised the need to enroll housing projects with the NHBRC. He indicated that will be done with effect from the current financial year. He said if an IDP was properly developed, the number of residents in an area will be apparent. Aligning housing projects with a badly-developed IDP or no IDP will not work.

The Chairperson said that it was unacceptable that projects were not enrolled with the NHRDP.

Mr Makgathe said that the deadline for enrollment was 1 April 2008. To date, no projects were received from the Free State.

Ms Dlamini advised that the Free State had three projects ready for enrollment.
Wanted to set the record straight – had 3 projects for enrollment

Mr Phukuntsi stressed the need for long term financial planning. Housing differed from other infrastructure development projects. He pointed out that if land was acquired in the current year, it was unlikely that houses will be built on it in the same year. Proper planning allowed for the appropriate allocation of funds at the right time.

The Chairperson remarked that the information provided on the expenditure in the housing program illustrated the non-delivery of housing by the Free State. The allocations were under-spent in every category. He said that the reasons given for the poor service delivery was not persuasive and asked for further details on the service delivery challenges listed in the submission. He asked if adequate consultation was taking place with the municipalities. He asked what the difference was between the old and the new approach and why it took so long to develop a new approach. He mentioned the unoccupied and vandalised houses observed in Klerksdorp and wanted to know how this problem was going to be dealt with.

Ms Dlamini replied that detailed plans were presented the previous week and can be made available to the Committee. She explained that the implementation committee was formed to address the issue of under-spending of the Housing Grant. She said that a lack of planning and communication contributed to the ineffectiveness of the province to apply its allocation. She said that the municipalities provided incorrect information on the land available for houses. She said that the problems with contract management were internal and the Department’s structure was reviewed to address this challenge. The new approach differed from the previous one in the establishment of the committee, improved communication with other stakeholders and the Department of Local Government and Housing and the decision to purchase land on which to build houses.

The Chairperson asked what happened about the agency that was going to be utilised by the Free State. This was reported at a briefing to the Committee in 2007.

Ms Dlamini had no knowledge of such an agency.

Mr Thembekile (Papiki) Ngesi (Chief Director, Free State Provincial Department of Local Government and Housing) summarised the challenges faced by the Free State. He listed project management, weaknesses in planning, poor decision-making, non-payment of contractors, illiteracy of contractors, rapid staff turn-over at municipalities, new appointments in senior positions without any experience, the lack of delegation of powers to housing officials, the lack of capacity, the influence of ward councilors in the allocation of funds, the need for legal services to deal with contracts, the lack of qualified personnel, the lack of ability of personnel, inconsistent policies and the risk of occupants of sites who did not qualify for a house yet had acquired rights to the site.

Mr Mkhaliphi remarked that only three provinces out of the nine were performing adequately on housing delivery.

The Chairperson asked for an explanation of the sharp increase in the fourth quarter shown in the cash flow graph.

Ms Dlamini explained that the province did not spend any funds on maintenance during the financial year. Funds were budgeted for unblocking blocked projects but the assessments were not completed on time. The lack of planning resulted in funds that were not allocated on the basis of factual information. A project to provide farm worker housing at Viljoenskroon was delayed. In certain areas, there was a need to provide bulk infrastructure and services before houses can be built. The development in White City, Bloemfontein included rental units. She explained that the sharp increase in fourth-quarter expenditure was caused by the lack of planning.

The Chairperson asked if contractors were paid in advance.

Ms Dlamini acknowledged that some contractors were paid before completing the project. She understood that the practice was not allowed under the Public Finance Management Act (PFMA) but said that it was allowed under the Housing Act.

The Chairperson disagreed and said that National Treasury was in the process of reviewing the PFMA.

Ms Dlamini confirmed that an amount of R17 million was paid for land purchased from Transnet.

Ms Nene thanked the Committee for the opportunity to participate in the meeting. She said that the NHBRC underwent a learning curve, made many mistakes and learnt many lessons. The lack of capacity was a serious concern and the NHBRC encouraged the development of rural children, the development of a high school model of learning and the practical application of mathematics and science knowledge in schools. The NHRBC could only function effectively with the co-operation of all parties.

The Chairperson considered the NHRBC to be a valuable partner and requested that presentations on the issues under discussion were prepared for future meetings. He said that the Committee wanted to reduce funding to under-performing provinces in the past but were persuaded by National Treasury to allocate funding on the basis of showing commitment to housing delivery instead. He said that the Committee intended to monitor progress in the Eastern Cape, Free State, North-West, Limpopo and Mpumalanga provinces very closely. He warned that over-spending by Gauteng, KwaZulu Natal and the Northern Cape was risky as no funds were available to bail them out. Housing delivery involved availability, quality, value for money, the impact on beneficiaries, the dignity of beneficiaries and the creation of sustainable communities. Issues such as migration, reliable data and up-to-date information were important. The new community surveys and a review of the equitable share distribution of funds were expected to provide more accurate information on which to base housing delivery plans. He deplored the fact that provinces failed to utilise the housing grants to alleviate the dire living conditions of the people.

The meeting was adjourned.


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