Question NW1434 to the Minister of Finance

Reply:

1. This is an annual practice which has been institutionalized over the last 10 years, to maximise spending and effectiveness of conditional grants. Such withholding and reallocation of grants is published in Government Gazette No. 48327 of 29 March 2023.

On 17 February 2023 National Treasury initiated the process of stopping and re-allocating the 2022/23 conditional grant allocations in terms of section 18 of the Division of Revenue Act (Act No. 5 of 2022) (DoRA), as amended by the Division of Revenue Amendment Act (Act No. 15 of 2022) (DoRAA). NT issued 171 letters to all under-performing municipalities on 17 February 2023 covering about 11 conditional grants that were reflecting under-performance against the 2022/23 conditional grant allocations. This process was done in consultation with the transferring national accounting officers/ departments that are responsible for the administration of the conditional grants.

The 2022/23 mid-year expenditure reports in terms of section 10 of the 2022 DoRA as amended and section 71 and 72 of the Municipal Finance Management Act, 2003 (Act No. 56 of 2003) (MFMA) were utilized to determine if the municipalities are under-performing against their allocations as they report to both National Treasury and to the transferring officers.

In terms of section 18 of DoRA and section 38 (2)(a) of the MFMA the affected municipalities were afforded an opportunity to make a written presentation to National Treasury, by providing a motivation on why the grants should not be stopped. The municipalities were required to submit the motivation to the National Treasury within seven days after the receipt of the letters regarding expenditure against their allocations and project progress on the ground.

In total an amount of R7.4 billion was proposed to be stopped from municipalities in terms of section 18 of the Division of Revenue Act, 2022 (Act No. 5 of 2022) for various conditional grants due to their poor performance or slow spending as proposed by either the Transferring Officer (national department) administering the conditional grant or National Treasury. An amount of R2.7 billion was ultimately not transferred from the initial proposed amount of R7.4 billion. The details of the proposed non-transferred amounts per conditional grant per province are in the tables as per of Annexure A.

2. The stopping and non-transfer of the conditional grants against underperforming municipalities is to assist municipalities to address any issue hindering the spending of their conditional grant allocation in that year i.e. late approval of projects, late procurement, litigation etc., and re-allocate to municipalities that are ready to spend and have shovel ready projects. This is because the funds would not in any case be spent by the municipalities’ funds are proposed to be stopped from, therefore minimizing underperformance of the overall programme. Once these municipalities have addressed their challenges and they are ready, it will be able to spend its future annual allocations which are not normally affected by in year spending.

Therefore, the stopping of the allocation is to ensure efficiency in spending and protecting against possible misuse and usage of the conditional grants for operational purposes while the municipality is being supported to resolve its challenges.

3. With respect to infrastructure conditional grants, specific support includes technical support and assistance provided by DCoG’s Municipal Infrastructure Support Agent (MISA) for infrastructure delivery. Further, the municipalities that are affected by the stopping / suspension process due to governance and financial challenges will continue receiving support from NT, DCoG and the relevant stakeholders under the MIG cost reimbursement and invoice verification which has been a continuous process over the years. This is a process of safeguarding the cash in the interim before stopping of allocations is considered. In this case municipalities only have their funds transferred once an invoice against work done has been verified by MISA, provincial government, and national government.

The National Treasury has also made funds available in various forms of capacity support in ensuring municipalities and provinces have the capacity to implement infrastructure projects. For example, five per cent of the Municipal Infrastructure Grant and Integrated Urban Development Grant may be used for project management units in municipalities and 3 per cent of the Urban Settlements Development Grant can be used for capacity in metropolitan municipalities, and continuous financial management support and guidance by both National and Provincial treasuries on the usage and reporting of conditional grants is provided to municipalities in this regard.

Various other conditional grants provide for the option to convert part of the capital infrastructure grants for technical support to capacitate municipalities to spend more effectively. This could be in the form of engaging district municipalities to implement stalled projects on behalf of struggling municipalities, utilization of both national entities and municipal entities to assist municipalities (either through a service level agreement (SLA) or agency vs. principal option) to roll out struggling projects. National Treasury further utilizes the services of the provincial treasuries to assist struggling municipalities in terms of the system of “delegated municipalities” while National Treasury focusses on the non-delegated ones. A host of experts are also available to these municipalities through the support of the Municipal Finance Improvement Programme (MFIP) from National Treasury.

The National Treasury and relevant department administering the grants (Transferring Officers) with the support of the respective provinces have fulfilled their obligations in supporting the municipalities. On a quarterly basis, the national transferring officers conduct quarterly meetings across the country with the municipalities that receive their grants to assess performance of the previous quarter and advise municipalities on how to mitigate the challenges causing them to underperform. In addition, the national transferring officers conduct site visits to confirm the performance reported by municipalities align, where National Treasury is sometimes also invited.

Further CoGTA holds under-performance meetings with targeted municipalities to get to the root causes of underperformance. MISA also plays a crucial part in that it provides technical support to municipalities that experience challenges in the implementation of their infrastructure programmes.

Despite all the interventions in place, some municipalities still underspend. It is ultimately the responsibility of municipalities to take up the support provided and make their own decisions but still be accountable.

Annexure A

details of the proposed stopping amounts per conditional grant per province

Municipal Infrastructure Grant (MIG)

Integrated National Electrification Programme (INEP) Grant

Regional Bulk Infrastructure Grant (RBIG)

Water Services Infrastructure Grant (WSIG)

Energy Efficiency Demand Side Management (EEDSM) Grant

Neighbourhood Development Partnership Grant (NDPG)

Informal Settlements Upgrading Partnership Grant (ISUPG)

Public Transport Network Grant (PTNG)

Urban Settlements Development Grant (USDG)

Rural Roads Asset Management Systems (RRAMS) Grant

Annexure B

The following 171 municipalities received letters of intention to stop a portion of their conditional grants:

Eastern Cape (22 letters)

• Buffalo City;
• NMA Nelson Mandela Bay;
• Amatole District Municipality (DM);
• Joe Gqabi DM;
• O.R. Tambo DM;
• Alfred Nzo DM;
• Dr Beyers Naude Local Municipality (LM);
• Makana LM;
• Ndlambe LM;
• Kou-Kamma LM;
• Mbhashe LM;
• Great Kei LM;
• Emalahleni LM;
• Dr AB Xuma LM;
• Enoch Mgijima LM;
• Elundini LM;
• Senqu LM;
• Walter Sisulu LM;
• Ngquza Hill LM;
• Port St Johns LM;
• Matatiele LM; and
• Winnie Madikizela-Mandela LM.

Free State (17 letters)

• Mangaung;
• Fezile Dabi DM;
• Letsemeng LM;
• Kopanong LM;
• Mohokare LM;
• Masilonyana LM;
• Tokologo LM;
• Matjhabeng LM;
• Nala LM;
• Setsoto LM;
• Dihlabeng LM;
• Nketoana LM;
• Phumelela LM;
• Mantsopa LM;
• Ngwathe LM;
• Metsimaholo LM; and
• Mafube LM.

Gauteng (9 letters)

• City of Ekurhuleni;
• City of Johannesburg;
• City of Tshwane;
• Emfuleni LM;
• Midvaal LM;
• Lesedi LM;
• Mogale City LM;
• Merafong City LM; and
• Rand West City LM.

KwaZulu-Natal (34 letters)

• EThekwini;
• UThukela DM;
• UMzinyathi DM;
• Amajuba DM;
• Zululand DM;
• UMkhanyakude DM;
• King Cetshwayo DM;
• Harry Gwala;
• UMzumbe LM;
• UMuziwabantu LM;
• Ray Nkonyeni LM;
• UMshwathiLM;
• UMngeni LM;
• Msunduzi LM;
• iNkosi Langalibalele LM;
• Alfred Duma LM;
• eNdumeni LM;
• Nquthu LM;
• UMvoti LM;
• Newcastle LM;
• Dannhauser LM;
• eDumbe LM;
• uPhongolo LM;
• Ulundi LM;
• Jozini LM;
• Big Five Hlabisa LM;
• UMhlathuze LM;
• Mthonjaneni LM;
• Nkandla LM;
• KwaDukuza LM;
• Maphumulo LM;
• Greater Kokstad LM;
• UMzimkhulu LM; and
• Dr Nkosazana Dlamini Zuma LM.

Limpopo (20 letters)

• Mopani DM;
• Vhembe DM;
• Capricorn DM;
• Sekhukhune DM;
• Greater Giyani LM;
• Greater Letaba LM;
• Greater Tzaneen LM;
• Musina LM;
• Thulamela LM;
• Makhado LM;
• Blouberg LM;
• Polokwane LM;
• Lepelle-Nkumpi LM;
• Thabazimbi LM;
• Lephalale LM;
• Bela-Bela LM;
• Mogalakwena LM;
• Modimolle-Mookgophong LM;
• Elias Motsoaledi LM; and
• Makhuduthamaga LM.

Mpumalanga (14 letters)

• Chief Albert Luthuli LM;
• Msukaligwa LM;
• Mkhondo LM;
• Dr Pixley ka Isaka Seme LM;
• Lekwa LM
• Dipaleseng LM;
• Emalahleni LM;
• Steve Tshwete LM;
• Emakhazeni LM
• Thembisile Hani LM;
• Thaba Chweu LM;
• Nkomazi LM;
• Bushbuckridge LM; and
• City of Mbombela LM.

Northern Cape (23 letters)

• Richtersveld LM;
• Nama Khoi LM;
• Kamiesberg LM;
• Hantam LM:
• Karoo Hoogland LM;
• Khâi-Ma LM;
• Ubuntu LM;
• Umsobomvu LM;
• Emthanjeni LM;
• Kareeberg LM;
• Renosterberg LM;
• Thembelihle LM
• Siyathemba LM;
• Siyancuma LM;
• !Kai !Garib LM;
• !Kheis LM;
• Tsantsabane LM;
• Dawid Kruiper LM;
• Sol Plaatjie LM;
• Dikgatlong LM;
• Joe Morolong LM;
• Ga-Segonyana LM; and
• Gamagara LM.

North West (13 letters)

• Dr Ruth Segomotsi Mompati DM;
• Moretele LM;
• Madibeng LM;
• Rustenburg LM;
• Moses Kotane LM;
• Ratlou LM;
• Ditsobotla LM;
• Ramotshere Moiloa LM;
• Naledi LM;
• Mamusa LM;
• Lekwa-Teemane LM;
• City of Matlosana LM; and
• JB Marks LM.

Western Cape (19 letters)

• City of Cape Town;
• Cape Winelands DM;
• Matzikama LM;
• Cederberg LM;
• Saldanha Bay LM;
• Swartland LM;
• Witzenberg LM;
• Stellenbosch LM;
• Breede Valley LM;
• Langeberg LM;
• Overstrand LM;
• Cape Agulhas LM;
• Kannaland LM;
• Mossel Bay LM;
• George LM;
• Bitou LM;
• Knysna LM;
• Prince Albert LM; and
• Beaufort West LM.

NB!! Details of the amounts stopped per province, per municipality and per conditional grant are attached as an annexure (Government Gazette No. 48327 of 29 March 2023).