Conditional Grant performance by municipalities: 4th quarter 2008: 3 Departmental briefings

NCOP Finance

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

The Departments of Provincial and Local Government, Water Affairs and Forestry and Minerals and Energy briefed the Committee on, respectively, the Municipal Infrastructure Grant performance, the Bulk Infrastructure programme and sanitation in schools and clinics, and the Integrated National Electrification Programme, for the fourth quarter of the year ending 30 June 2008. Each of the Departments reported under spending in at least some of the provinces. Most of the problems were related to lack of capacity, or difficulties in getting approvals. Full graphs of spending and comparisons across municipalities were tabled.

The Committee expressed their concern at the chronic under spending by provincial and local municipalities on key service delivery mandates. They noted that the grants were conditional, and that business plans should be submitted, and the municipalities should show that they had capacity to spend. Some departments had withheld funding where there had not been full spending. Concern was expressed in particular at the fact that R550 million remained underspent in respect of the bulk water infrastructure grants, while some municipalities were claiming that they desperately needed assistance with problems around flooding, including flooding of sewerage treatment works, and water quality. The Committee was also particularly critical of Department of Water Affairs, that had allocated a large amount to itself to deal with certain projects, and enquired whether it had followed proper procedures and whether a Business Plan had been submitted. That Department was ordered by the Committee to undertake visits to two municipalities to try to resolve their problems.

Similar concerns had been raised over Eskom procedures, as it was noted that in some areas Eskom had been accused of not following the municipality’s list of those who needed free basic services, or had failed to upgrade infrastructure, although here too it was noted that there was a difference between upgrading and a completely new structure. The Committee was vocal in their condemnation of poor service delivery and noted that Departments should withhold transfers, subsidies and conditional grants to provinces and municipalities if they did not practise precise and adequate financial management.

Meeting report

Municipal Infrastructure Grant (MIG) Performance: 4th quarter 2008: Department of Provincial and Local Government (DPLG) briefing
Mr William Ramphele, Senior Manager: DPLG, briefed the Committee on the fourth quarter performance of municipalities in dealing with the Municipal Infrastructure Grant (MIG) for the 2007/08 financial year.

It was noted that some municipalities, located in the Eastern and Northern Cape and Kwazulu Natal, were still spending funds that had been allocated to them during the 2006/2007 financial year. These municipalities included the Nkonkobe and Baviaans Municipalities in the Eastern Cape, the Nongoma Municipality in Kwazulu Natal and the Kamiesberg and Renosterberg Municipalities in the Northern Cape.

The Baviaans Municipality could not implement the SMIFF project that would see the establishment of the Steytlerville Bulk Water Supply network as they were still waiting on the Department of Environmental Affairs for the Record of Decision.R15 million had been approved for this project that would run through a heritage site.

The Nkonkobe Municipality indicated that they had a lack of technical expertise and that political interference by politicians into activities that had to be performed by municipal officials had serious consequences on the cash flow situation of the municipality.

In Nongoma the municipal manager was suspended and left a municipality that had serious internal problems.

The Kamiesberg Municipality could not report on the R410 000,00 that was spent as they had not yet registered their projects.

In Renosterberg the district municipality had intervened and assisted the Municipality as it had a lack of technical capacity.

During the 2007/2008 financial year, municipalities had been allocated R7, 548 billion, but was revised to R8,3 billion in November 2007 due to the approval of roll-overs and additional funding for bucket eradication. By the end of June 2008 the balance of unspent funds totalled R550 million.

A full graph giving comparisons of expenditure was tabled at the meeting (see attached document).

The Department then detailed the MIG Key Performance Indicators. In respect of the bucket system, it was noted that since 2005 the National Treasury had allocated R1,8 billion for the eradication of the bucket system. In 2005 it was noted that there were 252 254 such systems in informal settlements in 2005. After three years the figure now stood at 14 578 buckets.

The MIG had had a tremendous impact on job creation.  The employment of women and disabled persons accounted for 38% of the total employment figure, whilst 41% was youth employment. Since MIG was introduced in 2004 more then 3 million households had been serviced on completed MIG projects. Specific sector outputs were highlighted by way of a graph. It had also led to the development of local economies as municipalities made use of local contractors, labourers and suppliers in the implementation of MIG projects. However, some municipalities had experienced a shortage of skilled artisans as well as supplies.

The Department then listed the main interventions and challenges. It had been implementing the provisions of the Division of Revenue Act (DoRA)
regarding persistent under-spending by municipalities from 2005 to the current financial year. These included transfers being withheld and stopped to 38 municipalities that did not practise sound financial management.

Mr Ramphele added that the DPLG had also conducted meetings with municipalities to prepare them for the 2007/2008 financial year, where projects had been identified long before implementation. The major challenge that faced municipalities was a lack of comprehensive infrastructure planning, which included project identification, supply management and technical reports on environmental assessments. Many municipalities did not have the adequate capacity  to manage MIG projects  as there had been poor intergovernmental cooperation.

Discussion
The Chairperson said that it was a disappointment that certain government departments and municipalities had not attended this meeting, as certain issues had to be clarified. He thanked the DPLG for the allocation letter in respect of Polokwane, and added that Polokwane had indicated that it did have problems with the reconciliation of its budget.

Mr E Sogoni ( ANC, Gauteng) asked what the DPLG had done so far to assist the municipalities that had been under spending.

Mr Ramphele replied that the DPLG tried to engage municipalities on an individual basis to discuss the DoRA allocations and expenditure. A process was started in 2005 to try to stop transfers to some municipalities with huge balances, and on the converse, if municipalities performed well and had the capacity to spend the allocations, then they would receive additional funding.

He added that the DPLG had conducted several workshops on the challenges and that the main intervention was to develop a comprehensive plan to understand what a project life cycle was, and to deal with the effective maintenance of infrastructure.

The DPLG was also trying to align some of the grants such as Housing, MIG, and Electrification grants so that they could come to the municipality as one grant.

Mr Sogoni asked what the DPLG had learned out of the whole process, and what could  be done differently so that these programmes would have the desired impact. He noted that some municipalities did not respond to DPLG communications on MIG.

Mr Z Kolweni (ANC, North West) said that the Auditor-General's (AG) report had painted a poor picture of municipalities across the country. He asked whether there was a transfer of skills in these municipalities.

Mr Ramphele replied that in most municipalities the deployed officials worked by themselves, as people had to multi-task, making a direct transfer of skills problematic. He added that in future the DPLG would make sure that deployed officials were not employed in a vacuum, but rather in departments where they could make a difference. He said that the Auditor-General’s report was linked with the  lessons learned, as the DPLG realised that conditions become generic and this resulted in municipalities doing whatever they pleased.

The Chairperson noted that the meeting with provincial governments and National Treasury on 19 August would be fruitful, as they could answer some of the contentious questions He said that before the issue of quality and value for money could be addressed, the evil of under spending had to be addressed .

Mr Sogoni noted that the forthcoming meeting should also take the Committee forward in establishing the precise roles and functions of provinces in terms of the MIG. He thought that it was unfair that the DPLG be expected to stretch itself so thinly in trying to assist municipalities.

Mr Kolweni asked how many municipalities had experienced the same problems as the Nkonkobe District Municipality, where service delivery had been compromised due to capacity constraints and political interference for positions.

The Chairperson noted that this was a valid question. There were many examples  of councillors fighting over projects. These councillors seriously undermined the Integrated Development Planning (IDP) process as priorities kept on being redefined by “warring” factions.

Mr Sogoni said that, after reviewing the expenditure comparisons for provinces over the last two financial years, it seemed that municipalities had actually performed worse than they had the previous year. He was surprised to see that the Western Cape was one of the provinces that did not utilise the full MIG.

The Chairperson added that municipalities such as Kammiesberg and Renosterberg both had problems with capacity and service delivery, but yet there was still R550 million that would eventually be returned to the National Treasury. He also said it was worrying that municipalities were still spending their 2005/2006 budgets.

Mr Ramphele noted that each of the nine provinces had their own MIG Unit, which assisted the DPLG in coordinating and facilitating MIG meetings.

The Chairperson noted that these MIG Units seemed not to have done a good job, given the huge amount of money that would be returned to the National Treasury. He called on the municipalities to voice their concerns and ask for money, as R550 million was available to them.

Ms Lina Simboyia, Mayor: Nama Khoi Municipality, said that the DPLG should change the criteria used for the MIG as a province's special needs, and not a per capita count, should determine eligibility or the allocated amount. She added that many municipalities, Nama Khoi included, experienced severe difficulties in supplying deep rural areas with water, and that an additional R4 million was needed to build a reservoir.

Bulk Infrastructure, Schools and Clinics Water and Sanitation Programme: Department of Water Affairs (DWAF) report on fourth quarter spending
A delegation from DWAF, led by Mr W S Croukamp, Chief Director: Infrastructure Development,  Mr Cyprian Mazubane, Director,  and Mr M Matukane, Chief Director: Limpopo, briefed the Committee on the Bulk Infrastructure, Schools, Sanitation and Clinics water conditional grants as well as the Operating Subsidy for the 2008/2009 financial year.

Bulk Infrastructure
Mr Cyprian Mazubane, Director, DWAF,  indicated that for bulk infrastructure, R300 million had been allocated during the 2007/2008 financial year. For the 2008/2009 year there had been an allocation of R450 million for this programme, of which R10,8 million had been allocated to the DWAF Head Office.

During the 2007/2008 financial year, 77 projects were implemented and the entire allocation of R300 million was utilised. However, only R50,6 million had so far been spent of the R450 million allocated to the provinces. The Eastern Cape, Western Cape, Gauteng and Mpumalanga had not yet utilised their allocations. Limpopo had spent only about R3,6 million of their total allocation of R144 million.

One of the core reasons why there had been problems with Bulk Infrastructure development was that various local municipalities had little or no capacity to implement and manage programmes. The escalation in the cost of materials and the limited capacity of suppliers had also contributed to this situation.

Mr Matukane reported that in respect of water and sanitation there had been an allocation of R665 million over the 2007/2008 -2009/2010 Medium Term Expenditure Framework (MTEF) period, which was intended to address the water and sanitation backlogs in schools and clinics. R105 million was initially allocated during the 2007/2008 MTEF period. Of this, 80% had been allocated to address the backlogs at clinics, as government had decided to eradicate clinic backlogs by December 2007.

The programme had been making giant strides since its inception, as four provinces had indicated that they had begun with the construction of adequate water and sanitation facilities in clinics and schools. In Limpopo, nine schools were revamped with proper water and sanitation facilities. However, the programme did face many battles, as the unit costs had escalated and designs were revised to make them more cost effective.

Discussion
Mr Sogoni noted that allocations made to DWAF for Bulk Infrastructure development were meant to benefit the community, and not the DWAF. It was thus unacceptable that the DWAF had allocated R10, 8 million to itself, especially since provinces like Limpopo had gone out of their way to redirect their equitable share for water delivery and infrastructure development following DWAF’s failure to respond to their pleas. 

The Chairperson noted that the Bulk Infrastructure Grant for water was a conditional grant, and that normal processes would demand that a Business Plan to be submitted and approved before the grant was paid. He asked whether the DWAF Head Office had submitted a Business Plan. 

Ms D Robinson (DA, Western Cape) asked where the DWAF Head Office was located.

Mr Mazubane replied that the allocations for the Bulk Infrastructure Grant had been done in accordance with the needs of the provinces, but that they were still not enough to cover all the projects intended by the provinces.

Mr Mazubane added that the allocation made to the Head Office was for a specific purpose. It would not be wasted; it was intended specifically to enable DWAF to manage its programmes, as well as to provide assistance to municipalities in conducting assessments and feasibility reports.

Mr Sogoni noted that it was very important that DWAF attended the meeting on 19 August, as the Department had a lot to answer for. He still felt it was inconceivable that DWAF could allocate millions to itself whilst a province like the North West had major problems with water infrastructure that ultimately affected service delivery in that province.

The Committee supported Mr Sogoni’s remarks.

The Chairperson asked the municipalities that attended the meeting to voice their concerns with the DWAF team.

Ms Simboyia said that the Nama Khoi municipality had been facing an uphill battle with water service delivery. To address these issues, the Minister of Water Affairs had appointed a service provider after a section 78 investigation had been conducted that identified key loopholes.

Mr J Cloete, Head, Technical Services: Nama Khoi Municipality, added that an assessment was done on the municipality’s water infrastructure and the Assessment Report indicated that R52, 5 million was needed to refurbish the infrastructure. Matters were exacerbated when the water service provider announced that it would close its doors within three months. He added that the municipality did not have the capacity to act as a water service provider and that DWAF would have to intervene and address this issue. He said that it was important for DWAF to incorporate population estimates and growth into their Assessment Reports.

Mr Sogoni noted that Section 20 of the DoRA was very clear on the fact that municipalities had to be consulted and form part of any feasibility studies.

Mr Matome Mosega, Mayor of Lepelle-Nkumpi Municipality, said that his municipality had major problems with storm water, especially during the winter months when there was major flooding in informal settlements. He asked that the DWAF assist the municipality in redirecting the water coming from the mountains, as the municipality’s budget was too small to adequately address this problem.

Mr Mosega noted that his municipality had also experienced problems with the quality of the water, as well as the flooding and pollution of water plants.

Mr Mazubane replied that the DWAF had asked for tenders in late 2007 for the construction of a new water plant. The initial budget allocation for this project was R120 million, but this was not enough to finance the project as the lowest tender received had quoted an amount of R218 million. The DWAF could thus not award this contract, as extra funding was still required.

Mr Mazubane added that water quality was influenced by the seasons, making it a very difficult problem to address. However, DWAF had appointed skilled individuals to utilise new technology that ensured the water quality was of a high standard.

He noted that that DWAF could not assume responsibility for the problem experienced with storm water, as people erected new informal settlements that ignored the natural flow of rivers. An intergovernmental approach was needed to address this problem.

The Chairperson said that the DWAF must send a delegation to both the Nama Khoi and Lepelle-Nkumpi municipalities to discuss the issues. The Chairperson noted again that the meetings would take place on Monday 19 August 2008.

He added that the Committee was worried that such a lot of money had not been utilised, given the fact that the budget adjustment period was fast approaching.

Performance of Integrated National Electrification Programme (INEP) as at 30 June 2008: Department of Minerals and Energy (DME) briefing
A delegation by the DME, led by Mr Martin Masemola, Executive Manager: INEP, DME, and Mr Chris van Zyl, Senior Manager: Capital Management, DME,  briefed the Committee on the performance of the Integrated National Electrification Programme (INEP) as at 30 June 2008.

The capital expenditure per province and municipality was tabled (see attached document). It was reported that during the 2007/2008 financial year, Eskom had connected 484 schools and clinics to the national electricity grid. Kwazulu Natal (206) and Limpopo (146) recorded the most connections, with an added 120 133 households also being connected.

Mr Masemola noted that municipalities faced several challenges, including a lack of capacity to execute the projects, a shortage of materials for construction, housing densities and the dependencies on bulk infrastructure by provinces, especially in Mpumalanga, Kwazulu Natal and the Eastern Cape.

The Department recommended that municipalities had to focus on the completion of the 2007/2008 programme, maximise the number of schools to be electrified in 2008/2009, and had to concentrate on infrastructure development for electrification.

He noted that the attached document contained more detailed information on the Eskom programmes.

Mr van Zyl noted that as at 30 June 2008, the Gauteng province was still busy with projects dating far back as 2005 and that this trend was the main reason why municipalities were underspending.

Discussion
Mr Sogoni said the situation reported on in Gauteng was dire and called for immediate intervention. He failed to understand how municipalities could still deal with 2005/2006 budgets in 2008.

The Chairperson said that both the municipalities and Eskom were to blame for the problems.

Mr Mosega said that government's ambitious plan to electrify all South African households by 2012 might backfire, due to a lack of funding. Many small municipalities did not have the budgets, competencies or licenses to distribute electricity, and relied on the DME for this service. He said that municipalities had to wait up to six months for licenses to be approved. His own municipality was still waiting to hear from the DME about an application they had already submitted in 2006.

Mr Masemola replied that when the electricity crisis started the DME issued a statement that electrification of new households would not be affected.

Ms Simboyia noted that one of the biggest problems that her municipality faced was its alignment or integration into the Western Cape grid. The municipality had submitted to Eskom a list of names of people that had to receive free electricity. Eskom refused to work according to this, and the end result was that many wealthy people had ended up receiving free electricity.

Mr W Bowers, Head of Finance: Nama Khoi Municipality, added that the municipality tried to set up a meeting with Eskom to discuss the problems, but was rebuffed. The Municipality was subsequently told that it would not be allowed to utilise Eskom's infrastructure and systems.

Mr Masemola noted that electrification fell under Eskom's area of supply and that applications for licences were channelled via Schedule 7. The rationale behind the Nkumpi Municipality having waited since 2006 for a licence was due to the fact that the Framework on Integration and Networks had not yet been implemented. The Municipal Manager of the Nkumpi Municipality had been informed of this, and had been urged to lodge another application.

Mr Peter Sebola, General Manager: Western Cape, Eskom,  replied that the only time that there could have been confusion was during that time when Eskom had placed a moratorium. However, now connections would continue as normal. He was unaware of the problems that Nama Khoi was experiencing, as there was a clear process that the municipalities had to follow where the indigent list was concerned. A team of retired Eskom engineers would be sent to Nama Khoi again to engage with the municipality on Thursday 21 August 2008.

Mr Masemola added that a technical team that consisted of retired Eskom engineers had visited the Nama Khoi municipality and had discovered that the electricity infrastructure was in a very bad state, posed a safety risk and could thus not be refurbished, as the allocation for electrification could not be utilised for the rehabilitation of existing infrastructure.

The Chairperson asked what then could be done to help the Nama Khoi municipality.

Mr Masemola replied that National Treasury had been approached for funding, and that the DME was still waiting on a response from them.

Mr Ramphele noted that Limpopo had voiced similar concerns as the Nama Khoi Municipality, relating to Eskom not following procedure. He added that the critical issue was that provincial and local governments spent most of their grants on infrastructure, and that this severely compromised service delivery.

Mr P Papu, Portfolio Manager, Eskom, noted that most of the electricity infrastructure in Nama Khoi had been provided by the Oukiep Copper Mine, and that Eskom clients had to buy electricity from them in some instances. He confirmed that the existing infrastructure could not be refurbished as it posed a safety risk, and that new infrastructure had to be built. He noted that if people did not pay for the services, then municipalities expected of Eskom that it would disconnect these houses from the main grid. However, this was not the case with pre-paid households as they switched themselves off and on.

Mr Ramphele replied that Limpopo was unique, as Eskom had no say in how they allocated their funds, due to a forum that the Limpopo government had set up to deal with allocations. It was up to municipalities to lobby for more funding within the framework provided by the forum.

The Chairperson noted that this forum did not have the right to decide who would receive what. Conditional Grants had been allocated for specific programmes, and a Business Plan was needed before these funds could be approved. He asked whether this forum had submitted a Business Plan for Conditional Grants.

Mr Masemola replied that these allocations were done in accordance with the IDP and municipalities faced several challenges with the allocation process.

The Chairperson noted that in terms of the DoRA transfers, subsidies and conditional grants could be withheld from those municipalities that consistently under-spent. Each municipality submitted a Business Plan on the needs of that municipality, and the conditions attached to the grant specified that the municipality had to have the capacity to spend the funds.

Mr Sogoni noted that the forum in question did not have the constitutional mandate to allocate conditional grants as that function was allocated to the DoRA.

The Chairperson added that it seemed as if the DME was shifting the goal posts to the forum in Limpopo. The prime reason for the problems municipalities had been facing was the lack of  adequate and consistent financial management.

The Chairperson said that the issues raised had to be addressed by the relevant government departments in a speedy fashion, as it was unacceptable that so many problems existed with effective service delivery.

Mr Sogoni noted that there were many points that Eskom had not informed the Committee about, and it was important that the DME ensured that households were electrified.

Mr Masemola stated that the DME had met with the National Energy Regulator of South Africa (Nersa) and that an Assessment Report had been submitted that detailed the problems raised. Nersa had indicated that it would fund certain projects, but had to wait for the adjusted budget allocations so that the retired engineers could go back to the Nama Khoi municipality and provide assistance.

The Chairperson said that the findings on the Nama Khoi and Lepelle-Nkumpi Municipalities should be used as guidelines to tackle the problems in those municipalities that had not attended this meeting. He also asked for progress reports on these municipalities, as well as a breakdown of the municipalities that had been allocated funds for the 2008/2009 financial year.

The meeting was adjourned.

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