Division of Revenue Bill: input by Departments of Provincial & Local Government , Water Affairs & Forestry, Minerals & Energy, SALGA

NCOP Finance

24 February 2009
Chairperson: Mr T Ralane (ANC; Free State)
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Meeting Summary

The Department of Provincial and Local Government informed the Committee that the Department administered three types of grants to provinces and municipalities. These included, firstly, the Local Government Equitable Share, which was unconditional. This meant that that grant was intended to supplement municipal own-revenue to achieve universal access to free basic services to poor households and to improve governance and administrative systems.

Secondly, the Department also administered the Municipal Infrastructure Grant, which was a conditional grant. It provided basic municipal infrastructure for poor households, micro-enterprises and social institutions.

Thirdly, there was the Municipal Systems Improvement Grant, which was also a conditional grant. The grant was intended to assist municipalities in building in-house capacity to perform their functions and stabilise institutional and governance systems.

During the 2007/08 financial year 610 293 households and 399 662 households respectively benefited from the Municipal Infrastructure Grant. Support had also been provided to 96 municipalities on financial management aspects, including the compilation of Annual Financial Statements.

The Department of Water Affairs and Forestry informed the Committee that total expenditure estimates for 2009/10, 2010/11 and 2011/12 had been set at R7,893 billion, R8, 292 billion and R9,463 billion respectively. She said that R2,717 billion would be spent on water services management and R3,895 billion on water resources during the 2009/10 Medium Term Expenditure Framework period.

The Department of Water Affairs and Forestry administered Schedule 7 Grants that included the Regional Bulk Infrastructure Grant, the Backlogs in Water and Sanitation at Clinics and Schools Grant and the Operation Subsidy. Since the 2007/08 Medium Term Expenditure Framework cycle, the allocation to the Regional Bulk Infrastructure Grant had increased significantly. It had gone up from R300 million in 2007/08 to R611 million during the 2009/12 Medium Term Expenditure Framework period.

Members emphasised to the Departments of Provincial and Local Government as well as Water Affairs and Forestry, the importance of service delivery directives. They indicated to these two departments that they had to engage not only with each other but also with other relevant departments in the attainment of certain goals.

They noted that the misalignment of budgets and capacity constraints within poorer and weaker municipalities had seriously impacted on service delivery that emanated from these municipalities. They called on the Department of Water Affairs and Forestry to send senior officials to assist municipalities with their Infrastructure Development Programmes as municipalities had complained that junior officials, who had no real authority, had been deployed to assist them with their Infrastructure Development Programmes.

The South African Local Government Association did not approve of the Division of Revenue Bill proposals for the grants pertinent to local government. Generally a differentiated approach is therefore needed in dealing with of the challenges of different categories of municipalities within different geographic contexts.

They discussed their views on and proposals for the Municipal Infrastructure Grants in cities. The Extended Public Works Programme wage incentives, the eligibility conditions and employment creation targets were also discussed.

The National Treasury proposed a Schedule 7 grant to centralise infrastructure investment and implementation in underperforming municipalities. The South African Local Government Association highlighted the fact that the definition of underperforming municipalities and the problems associated with them were not clear.

There was a lack of clarity on the alignment of the Rural Transport Services and Infrastructure Grant with the MIG portion of the municipal service infrastructure.

The Electricity Demand-Side Management Grant should be used to support all municipalities (and not only licensed distributors of electricity). Concern about a lack of consultation with municipalities related to the backlogs in electricity, water and sanitation in schools and clinics.

The impact of Capacity Building Grants should be measured.

A third component was proposed to the Water Services Operating Subsidy Grant as a refurbishment allocation for operational maintenance to dilapidated infrastructure transferred to municipalities.

A need for renewable sources of energy (solar, wind) in response to climate change was noted in related to the Integrated National Electrification Programme Grant.

The South African Local Government Association was investigating a Local Business Tax as an alternative to the replacement of Regional Services Council levies. This was a response to the potential unintended consequences of the link to fuel sales in municipalities.

The South African Local Government Association proposed that further work on municipal financial allocations focus on the impact of unfunded mandates. They noted the finalisation of the Local Government review being undertaken by the Department of Local Government and recommended that Parliament set fix timelines for completion of this review.

Members queried the extent and inclusiveness of National Treasury’s consultations. They discussed the Extended Public Works Programme eligibility issue at length.

The Committee questioned the rationale of incentivising municipalities to create jobs and asked if the jobs created were evaluated for their sustainability. The lack of clarity around ring-fencing of funds for maintenance of transferred water schemes was discussed.

The Department of Minerals and Energy discussed their Medium Term Expenditure Framework allocations and the allocation criteria. They reported their capital expenditure municipal allocations for 2009/10 and planned household connections. The ESKOM programme comprised clinics, schools and households.

The Energy Efficiency and Demand Side Management Programme concentrated on areas where they could realise maximum savings in terms of megawatts. The ESKOM specific allocation was concentrated in Gauteng as a target for realising savings as Gauteng consumed the biggest chunk of electricity in the country.

Members asked what DSM referred to and where this programme was targeted.

Members wondered who was responsible for administering the electrification of schools as the Department of Education had also presented information on this.

A possible change of mind was queried as to the electrification of mud schools in the Eastern Cape. The Committee thought it a pity that they were not dealing with the performance of money and the actual outcomes of spending. Concern about the lack of accurate data from the Eastern Cape was noted. The South African Local Government Association’s role as part of decision making on electrifying schools was discussed.

The Chairperson ruled that they should get the proper data on municipalities and follow up the issues before the elections.

 

Meeting report

 

Opening remarks by the Chairperson
Mr T S Ralane (ANC, Free State) said that the Committee was very concerned about the state of the Development Bank of South Africa (DBSA). He said it was clear that the Department of Provincial and Local Government (DPLG) had a bigger role to play in the management of the DBSA, thus the Committee would propose to the new Parliament that the DBSA Act be amended to grant the DPLG permanent status on the DBSA Board.

Department of Provincial and Local Government (DPLG)
Ms Lindiwe Msengana-Ndlela DPLG Director-General (DG), led the delegation by the DPLG. She informed the Committee that the DPLG administered three types of grants to provinces and municipalities. Firstly, there was the Local Government Equitable Share (LGES) which was unconditional. This meant that grant was intended to supplement municipal own-revenue to achieve universal access to free basic services to poor households and to improve governance and administrative systems.

The Municipal Infrastructure Grant (MIG) was a conditional grant that provided basic municipal infrastructure for poor households, micro-enterprises and social institutions.

The Municipal Systems Improvement Grant (MSIG) was also a conditional grant. The grant was intended to assist municipalities in building in-house capacity to perform their functions and stabilise institutional and governance systems.

During the 2007/08 financial year, 610 293 households and 399 662 households respectively benefited through MIG. Support had also been provided to 96 municipalities on financial management aspects, including the compilation of Annual Financial Statements.

During the 2008/09 financial year R25, 5 billion had been allocated the Local Government Equitable Share (LGES), R8, 6 billion for MIG and R200 million for the MSIG. During the 2009/10 financial year, R23, 8 billion had been allocated the LGES, R11 billion to the MIG and R200 million to he MSIG. The Committee was informed that the allocation to MSIG had been the same for the past few years.

Ms Msengana-Ndlela indicated that several municipalities had problems with capacity, resources and local leadership accountability. She said that uneven capacity, spatial rural-urban areas and the nature of development had all impacted on the poor financial and non-financial performance of smaller and poorer municipalities (Please refer to the document for further detail).

Discussion
Mr Ralane said that the challenges and concerns raised by the DPLG had to be addressed speedily by the new Parliament. It was important that National Treasury (NT) and the DPLG had to engage on pertinent issues that related to the concerns raised by the DPLG in relation to Vote 29. The proposed fuel levies would only benefit metros, and not smaller, weaker and rural municipalities. Many municipalities did not have the capacity to spend their conditional grant allocations such as MIG and thus had to be assisted in addressing the challenges at hand.

Mr E M Sogoni (ANC, Gauteng) said that the praise heaped on them was not justified as it could still have done more to address pertinent issues. He asked for more information on the Vote 29 issue.

He further asked whether the DPLG had engaged with NT on why the allocation towards the MSIG had not increased over time. He said that in terms of capacity, resources and local leadership accountability, the Committee found itself in a difficult position, as it could not interrogate the Report by the DPLG that had been tabled before Cabinet. He said that this seriously impeded on the oversight role that the Committee had to fulfil.

Mr Sogoni added that Infrastructure Development Programme (IDP) was one of the cornerstone policies of the ANC Government, but due to mismanagement and misalignment many municipalities suffered. He said that many municipalities had lambasted national departments for their lack of interest in local government issues by sending junior officials to key stakeholder meetings. He said that many municipalities had been unaware of the grants to which they were entitled and normally called funds from provincial structures “donations”. He said this was a very serious indictment that had to be rectified and that senior personnel had to be deployed for IDP purposes. He stated that the Department of Minerals and Energy (DME) was one of the worst performing departments when it came to assisting local government structures.

Ms Msengana-Ndlela replied that the DPLG administered the MIG and convened Municipal Infrastructure Task Team meetings. She said that the Department of Water Affairs and Forestry (DWAF), Department of Public Works (DPW), DME, Department of Transport (DoT), Department of Housing (DoH) and the Department of Sports and Recreation (DSR) all formed part of key departments that the DPLG partnered with.

On the issue of poor expenditure by municipalities, Ms Msengana-Ndlela said that the DPLG had committed itself to the improvement of service delivery to both provinces and municipalities. She said that she had noted the comments made by Members, but felt obliged to point out that many district municipalities did not have the capacity to spend grant allocations and that many local municipalities made themselves guilty of persistent under spending on the MIG. She said that it was time that actions be taken to rectify all of the challenges, instead of just highlighting them whenever the DPLG appeared before the Committee.

Mr Yusuf Patel, DPLG Deputy Director General (DDG): Free Basic Services and Infrastructure, said that in terms of Section 9 (1) and (2) the DPLG had an arrangement with NT on a special infrastructure grant for cities and their unique needs. He noted that due to migration, the urbanisation of poverty and the appalling conditions of urban townships, the DPLG had agreed that special attention had to be focussed on these growing challenges,

He said that metros generally had adequate capacity in dealing with the MIG, whereas weaker, smaller poorer and rural municipalities had major capacity constraints and could thus not spend their MIG allocations. He said that the DPLG agreed with NT on the need to also equally focus on these municipalities.

He noted that the DPLG had expressed reservations over the draft Division of Revenue Bill, as there were many contradictions, especially where the infrastructure grants were concerned. He said that Section 9 and Section 15 (6) did not compliment each other, especially on the duties of the receiving officer in respect of Schedule 4 allocations.

Mr Tebogo Moloko, DPLG Senior Manager, agreed with Mr Patel on the contradictions in the Bill. He said that it was clear that Section 15 (6) would override all the other sections. He said that it would not be wise to pass a Bill that contradicted itself.

Mr Kenneth Brown, NT Chief Director: Inter-governmental Relations, replied that Section 11 (2) (b)(c) and Section 15 (5) clarified the concerns raised by the DPLG. He said that the DPLG was sufficiently covered in terms of financial and non-financial performance of municipalities and that NT would resolve this matter with the DPLG on what needed to be reported on.

Mr Sogoni asked what national transferring officer meant.

Mr Brown replied that the DG of the DPLG was the national transferring officer.

Mr Ralane noted that compliance was a very serious issue and called on the DPLG and NT to address this problem, as it was a matter of consistency.

Mr Brown said that Section 9 (1) (b) detailed that the national transferring officer was responsible for monitoring expenditure and said that it might be prudent to draft a reporting formula that would adequately address the concerns raised by the DPLG.

Ms Msengana-Ndlela said that the inconsistency in the Bill opened itself up to a myriad of problems, as it did not provide clarity. She said that she was aware that this might be a technocratic process, but it should not confuse municipalities. She noted that this was just another reason why sound inter-governmental relations were necessary to implement effective programmes and policies.

Mr Brown said that the notion that MIGs disadvantaged poor municipalities had to be dispelled as MIG allocations to poor municipalities had dramatically risen from under R200 000 to millions of rands. He said that metros had generally been in an advantageous position due to their large revenue bases and potential to attract large investments, but that this did not necessarily mean that poorer municipalities had been considered as being at a disadvantage.

Mr Ralane said that he did not understand why more funds had been allocated to metros for the Public Transport Infrastructure and Systems (PTIS), as all metros had under spent on this grant, especially via the differentiated approach. He said that the relevant departments had to find another way to encourage metros to spend their allocated grants. He noted that the new Parliament would focus on the matter and unlock the funding problems to adequately address the challenges that poorer and rural municipalities faced.

Mr Brown said that the differentiated approach did not necessarily mean that metros would be allocated more money then rural municipalities. He said that the current formula had been based on the demographics of the municipalities. He said that if the formula had to be updated more money could be allocated to provinces, that meant more money to municipalities.

Mr Ralane mandated both the DPLG and NT to dissect Sections 9, 11 and 15 of the Bill to iron out any problems and inconsistencies. He said that the Committee expected a report on this consultative process before 17 March, as provinces had been asked to submit their final mandates on that day.

He added that the DPLG should also address the issues raised by the Auditor-General (AG) as the Committee did not want a situation where the AG kept on raising the same issues.

He informed the DPLG and the NT that the Committee would like receive the relevant report on the issues highlighted by the DPLG with Vote 29.

Department of Water Affairs and Forestry (DWAF)
Ms Pamela Yako, DWAF Director-General (DG), led the delegation by DWAF. She informed the Committee that total expenditure estimates for 2009/10, 2010/11 and 2011/12 had been set at R7, 893 billion, R8, 292 billion and R9,463 billion respectively. She said that R2, 717 billion would be spent on water services management and R3,895 billion on water resources during the 2009/10 MTEF period.

She said that since 1994, DWAF had made giant strides in basic sanitation delivery, up from 48% in 1994 and 73% in 2008.The basic water supply delivery had also gone up from 59 % to 88 % of households now having access to water.

Ms Thandeka Mbassa, DWAF Deputy Director General (DDG), said that DWAF administered Schedule 7 Grants that included the Regional Bulk Infrastructure Grant (RBIG), the Backlogs in Water and Sanitation at Clinics and Schools Grant and the Operation Subsidy. Since the 2007/08 MTEF cycle, the allocation to the RBIG had increased significantly. It had gone up from R300 million in 2007/08 TO R611 million during the 2009/12 MTEF period.

DWAF faced many challenges to effective service delivery due to partial funding or higher tender estimates. The long procurement process and the lack of capacity within municipalities had also hampered significant progress.

DWAF also highlighted issues for debate on the Division of Revenue Bill, as it limited direct control by sector departments on how funds had to be spent, essential planning was not mandated in the Bill nor had the adjusted allocations been adjusted in accordance with the delivery performance of municipalities (Please see the document for further detail).


Discussion
Mr Ralane said that the backlogs in basic water supply had been exacerbated due to the theft of copper taps. He noted that there was a dire need for ongoing water availability on a sustainable basis.

Mr Sogoni said that the Committee appreciated the concessions made by DWAF on the decision by Limpopo to cut a slice of its budget for water and water related services. He said that Limpopo had felt that DWAF was ineffective in providing water and water services to communities in that province.

In light of this Mr Sogoni asked what had been done to address the backlogs in water and water services delivery. He also called on DWAF to deploy their most senior officials to engage with municipalities on the IDP processes, instead of deploying junior officials who had no decision making powers. In many cases reports by these junior officials never reached the office of the DG.

He added that it was essential to align and integrate coordination with the relevant departments on health, education and housing issues. One of the main reasons for the challenges that DWAF faced was a lack of proper planning and integration.

He also asked why R2, 717 billion had been allocated to management and only R485, 6 million to water services programmes.

The DDG replied that the allocation did not indicate that it was meant for management, but rather water services management.

Ms Pamela Yako (DG, DWAF) said that the full details were in the Estimated National Expenditure (ENE) on the specific projects that had been completed and that was still underway in Limpopo. She said that DWAF would ensure that the people living in these areas would have access to water.

She added that at the moment neither DWAF nor NT had enough funds to address the backlogs. DWAF had welcomed initiatives by provinces to address their backlogs. She noted that Limpopo had indicated that it needed about R48 billion to address its backlogs, but that this figure was way too astronomical.

She noted that it was time that other departments also fulfilled their mandates in terms of addressing the backlogs, instead of DWAF being blamed all the time. She said that she was not passing the buck, but merely stating facts. She admitted to the Committee that at the moment the challenges was just to big for DWAF and that a debate was needed around the MIG its relationship with other grants. She indicated that particular phrases and section in the Bill that dealt with reporting had to be adequately assessed.

On the deployment issue, she added that DWAF had a Water Services Development Plan that provided guidance on water and water services and that DWAF would ensure that more senior officials would be employed to municipalities to work on the IDPs.

She further stated that planning processes also had to be addressed to assign the various mandates to relevant government departments to prevent blame shifting. She noted that DWAF had the capacity to assist both the DoE and DoH in water provision. The role and actions of municipalities should also be placed under the spotlight as they were the authorities responsible to grant licenses and approval of all infrastructure development.

Mr Helgard Muller, DWAF Chief Director, added that the real questions that had to be asked was , how much of the money allocated for water and water services would actually be spent on water. He said that DWAF faced serious challenges with provinces and municipalities not spending their funds on what it had initially been allocated for.

He said that DWAF had also ring fenced R700 000 for sanitation services, which was quite a substantial; amount.


Mr Sogoni said that the Constitution contained certain provisions that pertained to service delivery. He said that these provisions rightfully compelled Government to address the basic needs of South Africans that did not have access to them. He said that in many instances provinces and municipalities spent their funds on other projects, instead on what it had been earmarked for.

He indicated that more clarity was needed on the consultative processes of all service delivery directives, and not only on the IDPs.


Mr Ralane said that National Treasury and DWAF had to consult on issues raised by DWAF on slide 21 that pertained to sector conditions that had to be incorporated into the Bill.

Mr Brown replied that that there had been several talks, but no reporting on the matter. He said that reporting by municipalities in general had to be regulated to streamline information requirements. He said that the NT did not have any idea why sector conditions had to be included in the Bill as it was not relevant.

Mr Ralane noted that NT should look at the recommendations by DWAF on the Bill, as detailed on slide 24 and 25of the presentation. The recommendations on slide 24 dealt with Section 11.2 (c), 18 and 24 (b)(1) of the Bill, whereas slide 25 detailed recommendations on the adjustment of the MIG framework, the conditions and framework of the Bill that had to be revised and the role of cities by giving them the flexibility to deliver in their areas.

Mr Brown only commented on Section 11.2 (b). He said that there had been a lag between non-financial and financial performance reporting.

Mr Ralane urged both DWAF and NT to speedily address the issues raised and to involve their legal teams if so required. He said that service delivery directives to provinces and municipalities had to be maintained and improved at all costs.

Cllr Clarence Johnson, South African Local Government Association (SALGA) National Executive Council Member, reported the apologies of Executive Mayor Amos Masondo, Executive Mayor Sophie Molekwane Matshika.

The Chairperson queried the absence of Mayor Masondo, stating that this was the fifth year, the Mayor, as the Chairperson of SALGA was not in attendance at the Division of Revenue Bill hearings.

Cllr Johnson responded that all the members of the National Executive Council were equal and he had been duly mandated to make the presentation. The presentation took into account engagements with National Treasury and discussions at the Budget Forum in October 2008.
He remarked on their proposal for a provincial Budget Forum to better align bids for funds and eventual allocations from the National Treasury. This could also be useful to look at the matter of provincial planning.

SALGA generally welcomed the Bill and their comments covered general and conditional grants
He remarked particularly that municipalities in predominantly rural areas, for example, may face significant limitations in revenue due to the small size of their tax base with low levels of economic activity. A grading system should be developed to produce exact results on the financial viability of our municipalities. A differentiated approach was therefore needed in dealing with the challenges of different categories of municipalities within different geographic contexts.

With regard to the Municipal Infrastructure Grants (MIG) in cities, concern was noted about the timeline for finalisation of metros’ performance targets (1 April 2009), due to clashes with the municipal budget and Integrated Development Planning (IDP) process. SALGA highlighted the principle of the differentiated approach concerning how to manage MIG allocations, taking into account the different capacities of municipalities.

They proposed that detailed project submissions requirements for metros be removed, while allocating the same amounts as per the MIG formula. A Schedule 7 grant was proposed by the National Treasury to centralise infrastructure investment and implementation in underperforming municipalities, within the Department of Provincial and Local Government (DPLG). It was SALGA’s view that the definition of underperforming municipalities and the problems associated with them were not clear. The proposal of a Schedule 7 grant went against the progress of the last 15 years towards decentralising service delivery to the sphere of government closest to the communities (local government). An alternative approach should be developed in conjunction with National Treasury and DPLG to best support underperforming municipalities.

SALGA had raised the following issues with the National Treasury and the Department of Public Works (DPW) with regards to the nature of the Extended Public Works Programme (EPWP) wage incentives, the eligibility conditions and employment creation targets. The current phasing in of this included a minimum threshold target based on 2008/9 achievements. These targets were retrospectively applied and some districts and municipalities had been disqualified from eligibility for the incentives. This retrospective adjudication meant that municipalities would not be able to deliver on the EPWP immediately.

There was a willingness to launch labour intensive job creation projects, with an emphasis on green projects. After discussions with National Treasury and DPW, SALGA recommended the following: to allow all municipalities who have reported on EPWP to be deemed eligible, to participate in the wage incentive and to encourage incremental performance from a baseline determined by the incentive formula for 2009/10.

On the Rural Transport Services and Infrastructure Grant, there was a lack of clarity on the alignment of this grant with the MIG portion of municipal service infrastructure.  There was also a question about how the specific projects would be prioritised in future. SALGA emphasised the need to consider rural infrastructure development in a holistic and integrated way, beyond transportation and alignment to a clear rural development strategy.

The focus of the Electricity Demand-Side Management Grant (EEDSM) should be to support all municipalities (and not only licensed electricity distributors) to initiate demand side management measures. SALGA proposed that an additional allocation criterion be included in the ESKOM element of the grant.

On the backlogs in Electricity, Water and Sanitation in schools and clinics, SALGA endorsed the views of previous presenters, regarding the lack of consultation with municipalities on this issue. It was proposed that this grant be allocated to distributors of electricity i.e. ESKOM or municipalities where they were licensed distributors.

SALGA proposed that there be a third component to the Water Services Operating Subsidy Grant in addition to the personnel allocation and the operating allocation. A refurbishment allocation was essential for refurbishment of dilapidated infrastructure that was transferred to municipalities.
The water services schemes received from the Department of Water Affairs and Forestry (DWAF) had design faults and this resulted in unreasonably high operating costs. The total life cycle costs of the schemes were not adequately taken into account during the design stages of the schemes. It was proposed that the subsidy decrease must be ring-fenced for the schemes transferred and not be allocated as part of the general equitable share to local government. This was critical as lack of access to water was a key indicator of poverty and should enjoy high priority.

On the Integrated National Electrification Programme Grant, the need for renewable sources of energy (solar, wind) in response to climate change was noted. SALGA proposed that a greater portion of the grant be channeled towards municipalities with investment in renewable energy sources attached as a condition. ESKOM’s allocation should be accompanied by a condition that it be mostly utilised towards getting the grid ready for receiving feed-in energy from renewable energy sources.

SALGA proposed that an assessment be undertaken to measure the impact of capacity building grants at a local level. The impacts needed to be weighed against the outcomes.

SALGA was investigating a Local Business Tax as an alternative to the replacement of Regional Services Council (RSC) levies. The link to fuel sales in municipality was noted. This could have unintended consequences. Municipalities could promote the use of private motor vehicles as opposed to promoting public transport.

The problem with the duties of Provincial Treasury was that of timelines. It was therefore proposed that provinces should disclose their draft budget allocations to municipalities at an earlier date.

In conclusion SALGA proposed that the further work on municipal financial allocations consider the impact of unfunded mandates on municipalities. Unfunded mandates were created because functions that were not local government functions (in terms of the Constitution) were assigned to local government by way of sectoral legislation. These were not catered for in the equitable share or other grants. There was no clarity as to how the costs associated with providing services related to these functions should be funded. The resolution of this matter would be directly linked to the finalisation of the Local Government review being undertaken by DPLG.  SALGA recommended that Parliament set fix timelines for completion of this review.

Discussion
Mr Sogoni queried the extent and inclusiveness of the consultations the National Treasury had with departments and local government.

Ms M Ngqaleni, NT Chief Director, responded that there had been extensive consultations. Clearly, there were big issues they had to deal with. These consultations were progressive and continuous.

Mr Sogoni responded that perhaps there was a need to engage in these processes earlier.

The Chairperson responded that as SALGA was part of the Budget Forum, they were part of the consultation process.

Ms Ngqaleni responded that consultation went beyond national level. It included cities and they were also able to bring in Provincial Treasuries in the consultation sessions. This was based on previous experience of grants being introduced, that were contrary to realities on provincial or local government level.

Mr Kenneth Brown, NT Acting Deputy Director: Inter-Governmental Relations, responded that it was clear that they were boosting their policy unit in the detailed policy work. However, only a few points related to the Division of Revenue Bill. The new issues which came in through the electrification grant could still be finalised and they could attend to many of the issues in the frameworks that supported the grants. They needed to set an agenda for local government in April. This would highlight the policy issues they needed to investigate in the next year. Many of the issues raise were long term in nature. Specifically on the issue of fuel levies: the National Treasury was investigating alternatives as well. It was a question of combining the work of the National Treasury and SALGA to mitigate the potential negative impact on municipalities. Although many of the issues were pertinent, he did not think they would have a direct bearing on the Division of Revenue Bill.

The Chairperson referred to the comments on targets being retrospectively applied and asked what was meant by this. He also referred to the Public Transport Infrastructure System (PTIS) grant. This was also an issue as it was going to municipalities, post-2010. The alignment between this and the proposals on the Rural Transport Services and Infrastructure grant must be very clear.

The Chairperson noted that eligibility was an issue when it came to the EPWP. He referred specifically to district municipalities who were disqualified from eligibility and those due to report in terms of the EPWP.

Cllr Johnson replied that to his knowledge there were currently a total of 46 of the 283 municipalities eligible. With a view toward increasing the number of participating municipalities it was critical to consider the restrictiveness of applying criteria retrospectively. The criteria meant that only municipalities with job creation projects currently under way could immediately benefit. He suggested that they look a framework that allows most municipalities to access the EPWP with labour intensive projects.

Ms Wendy Fanoe, NT Director: Local Government and Finance Policy replied that the EPWP framework could be found on pages 152, 153 and allocation schedules in the Bill. The National Treasury (NT) had met with the DPLG and had agreed to amend frameworks in line with the provincial requirements.The criteria for a minimum EPWP allocation required a municipality to report on their EPWP projects to the Department of Public Works. The bigger allocation required a municipality to meet a minimum threshold which was historically determined. This was an incentive grant aimed at getting municipalities to extend their targets. She did not understand what the problem was. They would look at the business implementation date and this should not be a problem.

Mr Brown replied that they should be careful not to lump all the municipalities together. There were 283 municipalities. The Treasury had resorted to a threat in the form of getting all Section 71 reporting aligned. Some municipalities could not provide information to the National Treasury on the output side. The point was valid. The outcome would be that the municipalities who got a head start would stay ahead. The grant sought to augment Phase 1 of the EPWP. If municipalities provided information that they had created jobs, they would get the minimum allocation. He suggested that SALGA should be present when the Department of Public Works came to present to the Committee on the Division of Revenue Bill 2009/10.

The Chairperson asked why they were incentivising a fish for swimming. Municipalities were supposed to create jobs, so why did they have to be incentivised. He asked if the jobs created were evaluated for their sustainability.

The Chairperson raised the issue of only some municipalities benefiting from the larger EPWP allocation and commented that some rural and poor municipalities also performed very well and they must surely benefit. In his view such municipalities must be the immediate targets for EPWP. There was also a need to inject skills into performing municipalities as well as a focus on where one really needed to create jobs.

Mr Brown responded that the suggested approach of starting with rural municipalities in order to give them a head start, was something the National Treasury would consider. They could then require the bigger municipalities to demonstrate their progress so that they could sequence in those allocations.

Mr Majur Maganual, SALGA Executive Director: Economic Development and Planning, responded that the EPWP targets were related to municipalities that already received MIG. Whoever received MIG had to report on how many jobs they had created. The problem was that there were many municipalities that did not receive MIG and there was a need to encourage municipalities to report on job creation even though they did not receive MIG.

Cllr Johnson stated that direct transfers to municipalities worked for them. When they looked at how other grants were administrated, there was an alignment issue concerning money allocated that municipalities did not ask for. This was also important to make the provincial treasuries accountable so that money was directed to the correct infrastructure spending.

Mr Sogoni remarked that although important points were made, they should perhaps confine themselves to discussion at hand. There was a need to come back to these issues in the next Parliament, especially that of unfunded mandates.

The Chairperson responded that the Municipal Finance Management Act (MFMA) was clear on unfunded mandates. Everybody had to pay their dues. If a municipal manager reported this to the National Treasury, it had to be dealt with immediately. National Treasury and provincial treasuries should work to help municipalities receive all their funding. Another issue was that the interest on that money that was, as yet, not paid to municipalities.

A Department of Water Affairs and Forestry (DWAF) official responded that very little had been said about the ongoing maintenance of services.  He reported on a recent discussion between DWAF, DPLG, the National Treasury and members of civil society, and complaints about the non-delivery of free basic services. The possibilities were: either funds allocated to free basic services were too little or that the funds were adequate but inappropriately spent. About R 200 was allocated per household, per month for water and sanitation. In his opinion, that was a substantial amount. The National Treasury, DPLG and SALGA had to look at this.
On not involving SALGA in providing water for schools and clinics, he undertook to refer that to the relevant officials for consideration.

Ms Lerato Mokoena, DWAF Acting Chief Director, responded that the funds allocated to municipalities for refurbishment under the Water Services Operating Subsidy Grant was one of three components. The other two components were for operational personnel purposes. The total allocation was reported in the Division of Revenue Act. DWAF then wrote to municipalities to specify their allocations in those three components. She agreed that the additional funds arising out of the decrease in the subsidy needed to be ring-fenced. They had found that the practice of not ring-fencing funds for operations and maintenance meant that these functions suffered.

Mr Yusuf Patel, DPLG Deputy Director-General: Free Basic Services, commented that the issue around the IDP and planning was a serious issue the DPLG had noted. Using comprehensive infrastructure plans, they were beginning to get better alignment between the different departments. They could cut right across issues like bulk provision to the actual connections. Greater focus would be needed in implementation.

The actual funding available did present a challenge. In certain instances funding was inadequate in the bigger scheme of things. They had to look at the role of the Development Bank of South Africa and the private sector to close the funding gap.

It was necessary to define the issue of bulk services much better to create clarity on what would constitute ‘bulk’ that was in the realm of provinces and municipalities to deal with.

The DPLG was in discussions with the Department of Housing on sustainable human settlements and the related infrastructure investments. It was clear that a grant framework was necessary to encompass all the other grants – a macro-framework for all the individual grants. There was currently nothing to compel alignment between the grants at a macro level and relate those grants to funding actual settlement plans, rather than ad hoc projects.

He referred to the proposal on Schedule 7 grants, he asked SALGA to appreciate that there were capacity constraints and government had to meet targets on infrastructure development and reducing backlogs. A wider discussion was needed.

Mr Chuene W Ramphele, DPLG Senior Manager, referred to ring-fencing and asked if the ring-fencing was going to change the attitude toward utilising the money correctly. He did not think there was a clear policy on what they meant by ring-fencing

Mr Mthombeli Kolisa, SALGA Executive Director: Municipal Infrastructure Services, responded that the comment referred to the schemes transferred to municipalities by national government. These schemes were not independently financially sustainable. They would always require subsidisation and the reason was often that the life cycle costs were not properly calculated.
If those funds were not ring-fenced for the maintenance of these schemes, they would be a burden on municipalities. This was to ensure that municipalities could afford to operate the schemes.

The Chairperson replied that the DPLG and SALGA had to resolve what was meant by the terminology “ring-fence”, so that everyone could be clear on what they were talking about.

Department of Minerals and Energy (DME) submission
Mr Martin Masemola, DME Executive Manager, reported the Medium Term Expenditure Framework (MTEF) allocations and the allocation criteria. The latter covered a focus on backlogs, rural bias, past performance, project type, licensed authority capacity (municipalities and Eskom) and government priorities.

The capital expenditure municipal allocations for 2009/10 showed that the Eastern Cape, Kwazulu-Natal and Limpopo had significantly higher allocations as this was where most of the backlogs were. Gauteng also had a bigger allocation due to the work on bulk infrastructure in that province. Gauteng was noted in the planned household connections for 2009/10. Its relatively small number of connections (compared to its capital expenditure allocation) was due to constraints created by limited sub-stations. They had plans to build more sub-stations to support the electricity needs of new low cost housing developments.

The ESKOM programme comprised clinics, schools and households. There was also a special allocation for schools and clinics. They would be spending about R 300 million on bulk infrastructure. ESKOM was doing minimal work in provinces like Limpopo because mines were building bulk infrastructure making it easy to tap into that. In the Eastern Cape and Kwazulu-Natal, they had to incentivise the building of sub-transmission networks in order to improve access for rural areas. With the amount available, they could achieve 90 000 households connections and 70 000 connections on the municipal side.  

In the Free State, Gauteng, Northern Cape and Western Cape they no longer had schools to be electrified. The major backlog was now the remaining schools in the North West, Mpumalanga, Limpopo and large portions of the Kwazulu-Natal area.

Generally, the DME had prepared for the implementation of the 2009/10 programme. They would concentrate on bulk infrastructure development for electrification and maximize the number of schools to be electrified in 2009/10 to eradicate the backlog.

The Energy Efficiency and Demand Side Management Programme concentrated on areas where they could realise maximum savings in terms of megawatts. This was covered in the MTEF allocations and allocation criteria.

On the allocations per province and the municipal allocations, the DME was doing work in the Eastern Cape. Gauteng and the Western Cape had the largest portions of that allocation as the ESKOM specific allocation was concentrated in Gauteng as a target for realising megawatt savings.

Discussion
The Chairperson asked to what DSM referred.
 
Ms N Magubane, DME Deputy Director-General; Electricity, Nuclear and Clean Energy, responded that DSM stood for Demand Side Management and was an initiative targeted at ensuring energy savings. The various programmes included roll-out of efficient lighting and roll-out of solar water heaters where possible. South Africa was experiencing an electricity supply shortage that would be with us for the next seven to ten years. This allocation sought to alleviate supply problems by reducing demand.

The Chairperson asked where the programme was targeted.

Ms Magubane replied that the DME targeted the cities that consumed a lot of energy. For smaller municipalities, they would target efficiency more. Gauteng consumed the biggest chunk of electricity in the country.

Mr Sogoni asked who was responsible for administering the electrification of schools. Was it the DME or a different department?

Ms Magubane responded that there was a chance that DWAF did something on this, as far as their service provision was concerned. This was linked to the provision of water and sanitation. DME was responsible for access to electricity.

Mr Masemola added that the DME and DWAF had a committee to align their activities. The numbers presented by DWAF were aligned with those of the DME.

The Chairperson clarified that electricity was necessary to power the pumps that allowed water to flow through the pipes. They did not want to see schools connected to water and sanitation networks with no electricity to allow that to operate.

Mr Sogoni agreed with DME’s proposals. He referred to the hearings in 2008, where the DME had stated that they could not electrify the mud schools in the Eastern Cape. He asked if there had been a change of mind.

Ms Magubane replied that they did not have an updated database for schools. This presented a challenge with keeping track of which schools had been electrified. For example, they may get a report of a school that was not electrified and upon investigation, the Department could find that the school had been electrified but had subsequently been vandalised. The DME preferred not to electrify mud schools, in light of the Department of Education plan to upgrade those schools.

The Chairperson asked if mud schools were included in this budget for the electrification of schools in the Eastern Cape.

Ms Magubane replied that they were not.  The allocation dealt with brick and mortar schools.

The Chairperson remarked that this meant that mud schools remained a challenge and there would still be backlogs in mud schools. It was a pity that the Committee was not dealing with the performance of money. Additional money had been allocated for the eradication of mud schools. The Committee would like to know what had been achieved with the money.

Ms Ngqaleni responded that part of the problem with mud schools was how people reported on it. The education budget for this year was R 5 billion and of that R 400 million was allocated to mud schools. This concerned prioritisation at provincial as well as at national level. There was a need to shift focus from the rands and cents to look at what the money was actually buying. They were not able to get the reporting required to make these assessments.

Mr Sogoni noted concern about the lack of accurate data from the Eastern Cape.

The Chairperson recalled the People’s Assembly and a site visit where one could not see the construction when they were standing on the project site. Another visit to a dam revealed only the foundation of the dam even though money had already been spent. These issues related to reporting and accountability. They could not say where the project was, yet money was spent on the project.

Mr Masemola responded that the data the DME received was outdated. They had gotten this data from the Department of Education. They now had to go out to verify the data to ensure that when they sent people out to do installation, it was appropriated for them to electrify the school.

Mr Kolisa commented that SALGA had raised two points on the electrification of schools. The first point was that it was their interpretation that the allocation would be spent by ESKOM, even in areas where municipalities were licensed distributors of electricity. They were not sure about the reason why municipalities could not connect schools in their own areas. The second point was in relation to participation of municipalities in decision making on where the publicly funded projects would go, in terms of the municipal areas.

The Chairperson asked if they wanted to part of decision making on electrifying schools.

Mr Kolisa responded that local government did want to be part of that in the context of the municipal plan and IDP of the whole area.  They could then stimulate public sector investment in targeted areas.

Mr Masemola replied that the majority of remaining schools were in an ESKOM area of supply, making it automatic that ESKOM would do that electrification. Most of the schools under municipal suppliers were electrified. ESKOM was the major long line distributor in rural areas and this was where the implementation plan was focused. The municipalities were involved in terms of the IDP – which schools needed to be electrified.

The Chairperson responded that they should get the proper data on those municipalities to be followed up before the elections.

Ms Magubane replied that they had to recall why schools and clinics had been targeted. These buildings were hubs where communities met. They were used as halls, churches and also as voting stations. They had intended for this to be completed by 2010 as it had been seen as urgent. If that mindset had to change the DME could talk with SALGA to see how they could make it work.

The meeting was adjourned.

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