Polokwane Local Municipality interventions: Municipality, National Treasury & Provincial Government reports

NCOP Finance

07 August 2008
Chairperson: Mr T Ralane (ANC, Free State)
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Meeting Summary

A delegation from the Polokwane Local Municipality addressed the Committee on the interventions made in addressing the financial and fiscal management at that Municipality. A detailed presentation was given that covered municipal services, road infrastructure, housing, the drivers of the local economy, the contribution of the municipality to provincial gross domestic product, at 13%, the unemployment figures, the profile of the inhabitants, and the budget figures. It was noted that it had consulted with a number of partners who were assisting to improve the municipality’s functioning. There had been compliance with the reporting requirements of the Municipal Finance Management Act, supply chain management policies had been approved, and the annual financial statement for 2006/7 had been submitted to the Auditor General, although the audit reports for 2005/6 and 2006/7 were not yet complete. The developmental challenges were indicated, but it was noted that there was also considerable developmental potential that could draw on its available land, the airport, diverse farming base, well developed transport and large labour force. The integrated development plans were aligned to the provincial development strategy.

Members remained concerned about the figure of R11 million that had gone missing. National Treasury said that although there had been some consultation, it was important that the municipality submit monthly financial reports and that the budget office must become operational. In this regard, Members and National Treasury took issue with a statement that consultants had been hired to fill the vacancies, pointing out that it was precisely this type of expenditure that needed to be curbed. National Treasury further enquired what effect capital spending was having on the budget and how the roll overs were to be addressed, said that there had not been good performance under the Municipal Finance Management Act, and that the municipality had not yet set up a 2010 website. They also commented that there should not be service delivery problems as there was a healthy investment portfolio, and that the presentation did not reveal the serious flaws. The municipality said that it had a budget of R2.2 billion, feared that it might not be able to spend it, and that the municipality might end up with capacity it did not need after the 2010 events.

Meeting report

Polokwane Local Municipality (PLM) : Report on interventions by National Treasury (NT), Department of Provincial and Local Government (DPLG), Limpopo Provincial Department of Local Government (LPDGH) and Housing (LPDGH)
A delegation led by Mr Thabo Makunyane, Executive Mayor, Mr Livhuwani
Nephawe, Acting Chief Financial Officer, and Mr Letsepe Thabakgale, Municipal Manager, all of the Polokwane Local Municipality, addressed the Committee on the interventions that had been made in addressing the financial and fiscal management in Polokwane Local Municipality (PLM).

Mr Nephawe, Acting Chief Financial Officer, said that the PLM covered 3 775 square kilometres of the entire province, and that it  was the economic, political and administrative centre of the Limpopo province with a  population of 561 770 people. He tabled a document setting out, in graph form, the average monthly income and level of education of the inhabitants, to give a broad picture of the municipality.

In relation to water service delivery in the municipality, he reported that delivery to households had increased from 19.25% in 2001 to 31.2% in 2007, with 97, 7 % of the water being at and above Reconstruction and Development Programme (RDP) levels, and 2.3% being below. Once again he tabled figures setting out the levels of sanitation across the municipality (see attached document)>

Insofar as electricity services were concerned, Mr Nephawe noted that the PLM had divided some of the poorer areas in the municipality  into 7 service areas for electricity distribution. 44 205 households still had no access to electricity., compared to 66 821 that did have access. He noted that R80 million per annum was required if the municipality was to meet their 2012 target. He noted the different energy sources for lighting being used in the municipality, and included a profile.

Mr Nephawe noted that the municipality had made giant strides in addressing the road infrastructure deficiency, as it had already tarred 567 km of streets with another 137km still to be tarred. The municipality had also constructed and sealed 8 kilometres of public transport routes with low volume seal. He noted that 800 km of roads still had to be upgraded.

In respect of housing, Mr Nephawe stated that the PLM currently had a housing backlog of 39 942, with the Seshego area still waiting on 27 947 houses to be built.

Mr Nephawe said that there were various different drivers of the local economy, and that these included finances and business services at 35 %, transport and communication at 15%, wholesale, retail trade, catering and accommodation at 20 % and manufacturing at 5,2 %. Others that he did not specify also were in existence.

The PLM contributed about 55 % annually towards the District gross domestic product (GDP), and the district in turn accounted for 24 % of the entire province’s GDP. On an individual basis, the PLM thus was contributing 13 % towards the province’s annual GDP. It had an unemployment rate of 46%. The PLM currently had an investment portfolio that totalled R350 million.

Mr Nephawe stressed the importance of section 152 (1) of the Constitution that dealt with local government. The Constitution stated that local government had to provide democratic and accountable government for local communities, promote social and economic development and had to ensure that services to communities were provided in a sustainable manner amongst others.

He then set out a diagram showing the revenue, budget and conditional grants.

Mr Nephawe noted that PLM had several consultations with the Polokwane Housing Association (PHA), Eskom, Provincial Treasury (PT) and the Department of Provincial and Local Government (DPLG). These government units had been instrumental, as partners, in the Municipality’s drive to better the lives of their people. The PHA had been instrumental in the provision of rental housing, whilst PT had assisted the PLM with the assessment on the readiness to convert to the generally recognised accounting principles and generally accepted municipal accounting practice standards (GRAP/GAMAP),  as well as providing the plans for the implementation of these standards. DPLG had been instrumental in the implementation of the new property rates plan.

Mr Nephawe noted that there was compliance with the Municipal Finance Management Act (MFMA). He said that the Supply Chain Management (SCM) policy had been approved and the annual financial statement for 2006/2007 had been submitted to the Auditor-General on 31 August 2008. The PLM had also appointed budget interns with effect from 11 August 2008 to provide much needed capacity support.

The Section 71 report had also been submitted to NT, as well as the internal audit report to the Municipal Manager (MM) and the Audit Committee (AC). The Annual Financial Report had been submitted to the Council, although this was not in the form of an audited version, as the audited reports for 2005/2006 and 2006/2007 had not yet been completed.

Mr Nephawe tabled an organogram setting out the structure of his Office.

Mr Nephawe said that, similar to other municipalities in South Africa, the PLM had its fair share of developmental challenges. He cited rapid population growth, pressure on infrastructure, poverty and unemployment, globalisation, ageing fleet and equipment, water scarcity and unplanned site allocation by traditional authorities as some of the developmental challenges. However, he said that the PLM had several attributes that heightened its developmental potential. There was an abundance of industrial and commercial land, an accessible international airport, diverse farming base, and land in the Central Business District, well developed transport facilities, a massive labour force, various academic institutions and access to mineral resources.

Mr Nephawe then went on to describe the alignment of the Integrated Development Plans (IDP) to the Provincial Development Strategy. He set out the key performance areas upon which the Municipality would concentrate, which including airport upgrading, relocation of the legislature, making use of 2010 opportunities, a stable regulatory environment and safety and security considerations. A detailed budget analysis was also given.

Discussion
The Chairperson said that it was very important that the PLM did improve, and administered effective and precise financial control as it was both the biggest municipality and the capital city of Polokwane. He noted that it was imperative for both national and provincial government to assist the PLM with its financial management processes. He asked whether PLM had tracked down the R11 million that had been lost.

Mr Nephawe replied that the DPLG could give the answer to that question.

Mr B Mokgabodi, Director: NT,  said that he had been through a proper consultation process with the PLM. The Social Housing Association (SHA) had been an important step in the right direction. The implementation of the new property rates was an important policy directive that needed to be addressed as soon as possible. He added that it was important that the PLM submitted monthly financial reports, and that workshops had been conducted with the aim of assisting the PLM in submitting quality reports. He would like to know whether the Budget Office was operational.

Mr Thabakgale, Municipal Manager, PLM, replied that the Budget Office would formally be opened on Monday, 11 August 2008. The reason for the late opening was due to the decision to appoint the two interns who had been working in the Acting CFO’s office as full-time staff, but at the time there had not been any vacancies. It was decided to wait until the vacancies became open, so that these two interns could be appointed.
 
Mr Mokgabodi asked how many vacancies existed in the PLM, and when the CFO position was going to be permanently filled, as it had been vacant for two years already.

Cllr T Makunyane, Executive Mayor, PLM, replied that the advertisements for the post would appear in the newspapers during the week of 11 August 2008 and that the Office of the Mayor assumed responsibility for this process.

The Chairperson replied that this was unprecedented, as the Human Resources Department was normally the entity responsible for this process.

Cllr Makunyane replied that it was not a case of the Executive trying to take over the job of the administrators, as a recruitment company was sourced to perform this function.

The Chairperson asked whether this was a Council decision, and what the costs were of the outsourcing.

Cllr Makunyane replied that he was not sure what the cost would be.

The Chairperson noted that this was exactly the type of extravagant spending that the PLM had to curb. There should be a focus on “economical spending”. If there was a lack of capacity, then  DPLG and the National Treasury should have been asked for assistance.

Cllr Makunyane added that provisions had been made for outsourcing and that the recruitment company had been asked to identify key competent individuals, after the PLM’s own process had failed as no suitable candidates had been found. The matter was thus not about capacity, but rather about competency assessment.

Mr Mokgabodi said that the presentation did not specify what effect capital spending had on the budget. He also asked how the constant roll overs were going to be addressed.

Cllr Makunyane replied that the constant underspending and roll-overs had been a cause for concern and that a Bosberaad had been held where structural issues had been identified to try to address the situation. The problem had been that the PLM had planned its projects annually and not over a longer term, which ultimately resulted in these constant roll-overs. A decision was taken that the protocols and procedures pertaining to projects would now be over a three-year period, which culminated in the budgetary cycle being adjusted over a three year cycle.

Mr Makgabodi said that it was very important that the PLM had regular meetings with the community to ascertain what their needs were. He asked that these comments and suggestions be published so that the NT could be updated on the PLM’s performance.

Cllr Makunyane replied that regular meetings had been conducted, but that the Municipality had previously been ineffective as it was not properly administered. Subsequently, the Speaker of the Council assumed the role of convener. He added that regular meetings had been conducted with civil society and relevant stakeholders on key issues and that in many cases the opposition did attend these meetings.

Mr T Pillay, Chief Director: NT, said that the NT focussed on the mandate it received to implement key legislation. He noted that the PLM had not been performing well in terms of the MFMA. He said that NT had been working with the PLM for three years, during which time Treasury had  imparted key skills to the municipality that they hoped would be utilised when NT  eventually withdrew from the PLM. Mr Pillay said that it was worrying the PLM had not yet set up an official 2010 website.

Cllr Makunyane replied that Polokwane had not yet adopted the 2010 Plan as it was not satisfied with some of the provisions. He said it was sent back for further review and would be adopted if key criteria were met.

Mr W Ramphule, Senior Manager: DPLG, said that it was unacceptable that there were still roll-overs as there was a proper supply chain management system in place for the PLM.

Mr E Sogoni (ANC, Gauteng) and Mr Ramphule both noted that it was unacceptable that the Municipality still had service delivery problems, as it boasted a very healthy investment portfolio. They asked what the law said about such investment portfolios.

Mr Ramphule asked how the PLM was going to improve the main electricity feed in light of the problems being experienced with Eskom.

Cllr Makunyane noted that in the past Eskom drafted its own list of priorities without consulting the PLM, but that this had changed, with Eskom now following the municipality’s priority list. A problem had also occurred around the ownership of infrastructure, but it was subsequently resolved.

Mr Sogoni said that the Municipal Manager was ultimately the accounting authority and that he had been very quiet during the whole proceedings. He said that the manner in which the PLM presented its briefing was meant to hide the serious flaws that still existed, and that it was unacceptable that the PLM continuously had roll-overs.

He added that the PLM had to provide clarity on how many entities it currently had, and which processes had been put in place to monitor these entities.

Mr Thabakgale said that the municipality only had one entity, which was the Housing Association. This Association was established as a Section 21 company and not in terms of the MFMA. The PLM was then instructed to reclassify the Association as it dealt with public finance. It was subsequently rescheduled as an entity, governed by the MFMA.

Mr B Mkhaliphi (ANC, Mpumalanga) asked what importance was attached to the Section 71 report in the Council.

Mr Thabakgale replied that the municipality and Council deemed the section 71 report as very important, and that this report was faxed to National Treasury on a monthly basis.

The Chairperson asked what the quality of the section 71 report was.

Mr Sindi Mabaso, Deputy Director: NT, replied that the reports had not been of good quality.

Mr Thabakgale noted that this was not a “train smash” as the annual reports that had been submitted had been done without financial statements. The Oversight Committee had looked at the report and decided not present this to the Council as the financial statements were not included.

Mr Thabakgale made some further comments. He said that the new property rates system was due to be implemented in 2009, and that a policy was tabled in terms of the law to deal with this.

Cllr Makunyane noted that with the assistance of the NT the PLM had managed to deal with the water issue, with the City now being divided into different water scheme areas to effectively administer water service delivery.

He added that in relation to waste management the problem lay not only with ageing equipment, but also with the demographics of the PLM. He said that it was very expensive to service low density rural areas as these were hindered by low density population as well inaccessible road infrastructure that made waste or rubbish removal more difficult.

Cllr Makunyane added that the PLM’s budget for 2008 had been at its highest ever, at R2.2. billion. This was due to the allocation made by NT for 2010 projects. The Mayor said that the danger the PLM now faced was that it might end up with capacity that it did not need after that date. He stressed that the 2010 stadium was progressing positively and that the transport system was also being addressed through various projects and partnerships. However, there was a danger that the entire allocation for 2010 could not be spent before the World Cup officially opened.

Closing Remarks
The Chairperson said that he would like to see expanded capital spending and that the PLM had to make sure that it met its financial commitments, especially to the Auditor–General. He added that it was very important that Polokwane ensured that it had sound financial systems in place, as it was the “heartbeat” of the Limpopo Province. He added that the Committee would discuss the matter of electrification with Eskom, so that the PLM was not faced with a scenario where no electricity was fed to it.

The Mayor thanked the SC and the relevant government departments for their insight and help and said that the municipality would do its best in ensuring effective financial management and service delivery.

The meeting was adjourned.

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