ATC151013 : Report of the Select Committee on Appropriations on the oversight visit to Municipal Infrastructure Grant Projects in KwaZulu-Natal Province, dated 13 October 2015

NCOP Appropriations

Report of the Select Committee on Appropriations on the oversight visit to Municipal Infrastructure Grant Projects in KwaZulu-Natal Province, dated 13 October 2015

 

1. Background

The Municipal Infrastructure Grant (MIG) is a conditional grant to municipalities and is administered by the Department of Cooperative Governance and Traditional Affairs (CoGTA). Its purpose is to provide specific capital finance for eradicating basic municipal infrastructure backlogs for poor households, micro enterprises and social institutions servicing poor communities. The MIG funds various basic services such as water and sanitation; municipal roads; solid waste disposal; sport and recreation facilities; street lighting and other public facilities such as community centres.

CoGTA conducted a policy review of MIG during 2014, focusing on its future direction, which will result in some proposals being introduced in the 2016 Budget. The 2015 Budget introduced a new condition allowing MIG funding to be used for refurbishment projects, subject to proof of the proper maintenance of assets, and clarifying that MIG funds can also be used to upgrade informal settlements.

 

1. Terms of Reference

The Committee was established in terms of section 4(3) of the Money Bills Amendment Procedure and Related Matters Act, No 9 of 2009. In terms of section 4(4) of this Act, the Committee has the powers and functions conferred to it by the Constitution, legislation, the standing rules or a resolution of a House, including considering and reporting on:

1. Spending issues;
2. Amendments to the Division of Revenue Bill, the Appropriation Bill, Supplementary Appropriations Bill and Adjustment Appropriations Bill;
3. Recommendations of the Financial and Fiscal Commission, including those referred to in the Intergovernmental Fiscal Relations Act, No. 97 of 1997;
4. Reports on actual expenditure published by the National Treasury; and
5. Any other related matter set out in this Act.

Furthermore, the mandate of the Committee encompasses the Committee’s functions to legislate, conduct oversight of the Executive; promote public participation, facilitate international agreements and review matters of public interest in relation to the National Treasury. 

1. Objectives

The objectives of the oversight visit were to:

1. Assess the appropriateness of the infrastructure built – if it is fit for purpose, functional and operational;
2. Assess whether the projects have met the objective of increased access and delivery of basic services to poor households;
3. Elicit whether the MIG funding was complemented by any other grant funding such as the Expanded Public Works Programme Integrated Grant for Municipalities. And if so, how many people from the community benefited from working on the infrastructure project; and  
4. Assess whether municipalities have maintenance plans in place for the infrastructure delivered to ensure that its lifespan is extended to its optimum.

 

1. Methodology

The Committee resolved to convene hearings on conditional grant expenditure reports, followed by oversight visits to identified projects. The first province that the Committee identified was KwaZulu-Natal. On 12 May 2015, the Committee received presentations on the financial and non-financial performance of the Municipal Infrastructure Grant in KwaZulu-Natal municipalities from the national and provincial departments of Cooperative Governance and Traditional Affairs; National Treasury and the South African Local Government Association (Salga) during a meeting at Parliament. Thereafter an oversight visit to identified projects was conducted between 17 and 21 August 2015.

 4.1 Hearings

During the initial hearing, the Committee received briefings from National Treasury and the national and provincial departments of Cooperative Governance and Traditional Affairs on the performance of the MIG in KwaZulu-Natal. The South African Local Government Association (Salga) was also invited to make an input.

1. Financial performance

According to National Treasury, the total transfer to municipalities for the second quarter ending 31 December 2014 was R1.9 billion against the allocation of R3.2 billion. Treasury further indicated that municipalities in KwaZulu-Natal reported aggregate expenditure of 51.3 per cent against the allocation.

The national Department of Cooperative Governance and Traditional Affairs (CoGTA) however, reported that by the end of the second quarter, total transfers amounted to R2.1 billion against the allocation of R3.2 billion. Of the R2.1 billion transferred about R1.5 billion, which is about 49.5 per cent, had been spent by the end of the second quarter. CoGTA further showed that by the end of the third quarter ending 31 March 2015, 100 per cent of the allocated funds were transferred to municipalities in the province and total expenditure amounted to R2.07 billion which is about 63.4 per cent.

National Treasury further reported that about R103.9 million transfers of MIG funds were stopped in 11 KwaZulu-Natal municipalities for slow spending while R153 million was re-allocated to faster-spending municipalities in the province.

1. Non-financial performance

The provincial Department of Cooperative Governance and Traditional Affairs reported that, of the 3 817 MIG projects registered, 1 145 still had active expenditure in the current financial year, while 1 857 projects reflected a complete status. Another 754 show a status as registered, but need to be updated in terms of progress.

With regard to funding per sector, water projects topped the list with allocated funds of R13 448 million for 130 projects, followed by R4 483 million allocated for 64 sanitation projects and R4 043 million allocated for 341 road and storm water projects. Other projects included street or community lighting; multi-purpose community halls; sport facilities and solid waste disposal sites.

 

1. Challenges

The challenges reported by the various presenters were as follows:

Provincial Department of Cooperative Governance and Traditional Affairs

• Project reprioritisation by Council;
• Supply Chain Management delays;
• Acting appointments, rotation and suspensions leading to no or slow decision making;
• Lack of communication between the municipal finance and technical staff;  and
• Late payments.

National Treasury

• Slow expenditure and non-reporting by municipalities led to the stoppage of funds;
• Delay in project implementation or late appointment of contractors;
• Change of scope of projects; and
• Supply Chain Management challenges.

National Department of Cooperative Governance and Traditional Affairs

• Inadequate planning in the context of integrated development planning;
• Lack of intergovernmental cooperation in the MIG project cycle (sector planning and implementation);
• Lack of capacity to manage MIG projects, including the reporting and monitoring (project management unit);
• Municipalities appointing service providers or contractors who cannot deliver;
• Late payment of service providers;
• Councils changing investment priorities annually;
• Council decisions on approval of projects and budgets taking too long;
• Delays in technical reports and environmental impact assessments by sector departments impacting negatively on project implementation; and
• Use of MIG funds for operational budget pressures and not for the intended purpose.

Salga

• Inability of low capacity municipalities to employ and retain employees with certain technical skills;
• Reprioritisation of projects due to social impact, disagreements or service delivery protests; and
• Delays in finalising environmental impact assessment processes.

  

1. Site visits

4.2.1 Mkhwanazi North Water Supply

The Committee visited the Mkhwanazi North Water Supply Project on 17 August 2015. This is a bulk water and reticulation project in wards 10, 11 and 30 of the eMhlathuze Local Municipality. The primary source of water in this area is Cubhu Lake and its sustainability is linked to the rainfall. During 2005 the City of Umhlathuze embarked upon the planning of a Rural Sanitation Programme to deal with the need for a sanitation solution for the extensive rural areas under its jurisdiction. All planning and later implementation of the programme was divided into phases in accordance with budget limitations as well as compliance with the norms and standards of the then Department of Water Affairs and Forestry and funding was accessed from the MIG programme.  The first phase of implementation commenced in 2006 and the programme is now in Phase 4 with either one or two more phases to follow depending on the Municipality’ s budget allocations.

The national Department of Cooperative Governance and Traditional Affairs is trying to negotiate with the Department of Water and Sanitation, who administers the Regional Bulk Infrastructure Grant (RBIG), to facilitate the consolidation of resources through integrated planning that cuts across municipal boundaries.

The status of the three current contracts is as follows:

1. Contract nr 8/2/1/491

The scope of work includes the supply and installation of all bulk pipelines (10km) and reservoir; connection of the bulk line to four reservoirs; construction of all required valve and metre chambers and the testing of the bulk distribution network.

This tender was awarded on 1 April 2014 and the original estimated completion date was 26 February 2015. However, the final handover is now being planned for 10 December 2015. The contractor is currently under penalties for failure to complete the project. Assistance has since been given to the contractor and he has been put on terms as per Treasury regulations. The delay in this project is delaying the connection of Tender 8/2/1/965A. The total contract amount, excluding VAT, is R22. 6 million, of which R14. 107 6 million has been spent to date.

1. Contract nr 8/2/1/965A

The scope of work includes the supply and installation of all reticulation pipelines (19km); connection to Reservoir L; construction of all required valve and metre chambers and the testing of the reticulation network.

The tender was awarded on 1 November 2014 with the estimated completion date of 31 August 2015. The project is currently 97 per cent complete and the final handover is being planned for 16 September 2015. Apart from the delays mentioned above affecting this project, the delivery of smart metres is also delaying the completion of the project. The decision had been made to install smart metres to ensure accurate billing after an outcry from the community about the challenges with billing. The total contract amount, excluding VAT, is R29. 1 million of which R15. 7 million has been spent to date.

1. Contract nr 8/2/1/965B

The scope of work includes the supply and installation of all reticulation pipelines (23km); connection to Reservoir Q; construction of all required valve and metre chambers and the testing of the reticulation network.

The tender was awarded on 1 November 2014 with the estimated completion of 31 August 2015. The final handover is now being planned for 18 September 2015, with the project being 97 per cent complete. Apart from the delivery of smart metres delaying the project, the local community had stopped the work in order to demand that the contractor employ more people on site. A total of 75 people were then employed on site.

 

1. Vulindlela D2069 Road Project

The Committee visited the Vulindelela D2069 (Mthalane Road) Project on 18 August 2015. The upgrading of the 3.5km stretch of road within the Msunduzi Local Municipality was approved for MIG funding amounting to R28. 5 million in 2013. The road is very narrow and contains some very steep sections. It serves as a main taxi route and is an integral part of the road network system. The scope of work includes upgrading the gravel road to all-weather black top surface, storm water drainage, improvement of geometric alignment for public safety, and connection to the existing national road. The beneficiaries of this project would be the 1 160 households of the Vulindlela D2069 Village.

According to the Municipality this was a very challenging project because of the steep topography, narrow road reserve, encroaching properties and unsuitable clayey subgrade materials, which all contributed to high construction cost. The banks needed to be stabilised with gabions; storm water pipes needed to be installed and guard rails had to be put in.

The project is being undertaken in two phases – Phase 1 involving 1.8km of road and Phase 2 the remaining 1.7km. The project was initially started in June 2013, but during the course of the project the appointed contractor experienced financial difficulties and eventually abandoned the project. The Municipality then appointed another contractor and Phase 1 was practically completed in April 2015 at a cost of R15.4 million, or approximately R8.55 per kilometre. In addition to the failure of the initial contractor, the following challenges delayed the construction of Phase 1:

• As a result of a change in legislation, a Water Use License Application (WULA) and Environmental Approval had to be applied for, and took 14 months to obtain.
• Stormy weather had damaged the road, leading to a further delay of two weeks.
• Additional variation orders had been needed to install the gabions, which further slowed down the work.

The balance of the approved MIG funding is R13. 1 million which equates to R7.76 per kilometre. Funding allocations for Phase 2 will depend on the actual tenders received for this phase and there will probably be an additional funding application to complete the project in the following financial year. Although the Environmental Approval has been granted for the whole project, the WULA for Phase 2 is still outstanding. According to the Municipality, it takes between 12 and 18 months to obtain this approval from the Department of Water and Sanitation and the WULA approval is expected by February 2016, when the final phase can commence with the appointment of a suitable contractor.

 

1. Findings and observations
   1. Financial performance
      1. The delay in spending, reprioritisation of projects and delays in project implementation, are indications that receiving officers in most municipalities do not comply with planning requirements prior to projects.
      2. The report on the number of projects as well as the amount of funding allocated to them are indications that municipalities prioritise basic residential infrastructure projects.
      3. The stoppage of MIG funds to certain municipalities is an indication of non-compliance with spending and reporting requirements.
      4. Delays in the environmental impact assessment process might be an indication of non-compliance with certain sector norms and standards or legislative requirements.
      5. The use of MIG funds for operational budget pressures instead of the intended purpose is a breach of the conditions of the Grant.

 

1. Non-financial performance
   1. The majority of the MIG projects being undertaken in KwaZulu-Natal are water projects, followed by sanitation and road and storm water projects.

 

5.3 Site visits

1. Mkhwanazi North Water Supply Project
   1. This project is experiencing delays due to a contractor that is not able to deliver within the agreed time frames, implying that there are weaknesses in the supply chain management processes, specifically the screening of suitable service providers.
   2. Ideal pipes for the project is 350 in diameter but currently 200 diameter pipes are used in order to cover a larger area.
   3. The project cuts across various municipal boundaries and municipal ward boundaries with tribal areas falling in different wards or municipalities. This situation at times triggers community protests because people see their neighbours receiving services they are not getting.
   4. The revenue collection challenges pose a threat for the sustainability of the project.
   5. Vandalism of the water networks outside the secured area is also a challenge.

 

1. Vulindlela D2069 Road Project

5.3.2.1 The failure of the initial contractor implies that there are weaknesses in supply chain management processes, especially the screening of suitable service providers.

1. The obtaining of the Environmental Approval and Water Use Licence Application has caused and is still causing huge delays in this project.
2. The initial amount of MIG funding approved for this project will not be enough to complete the final phase and additional funding will have to be applied for. The current project amount is R24 million for a distance of 3.5 km but R15 million has already been spent on a distance 1.8 km.
3. The road under construction is reportedly cutting across municipal boundaries which calls for integrated planning or funding that is not bound by municipal boundaries. There is therefore a need for a detailed costs breakdown and its implications for the two municipalities.

 

1. Recommendations

6.1 Financial performance

6.1.1 Qualified project managers should be appointed in order to strengthen planning and project management of Municipal Infrastructure Grant projects and engineers should be on site during projects.

 

6.2 Non-financial performance

6.2.1  Both the KwaZulu-Natal Department of Cooperative Governance and Traditional Affairs and the Provincial Treasury need to effectively monitor and support municipalities with regard to the planning and spending on their Municipal Infrastructure Grant projects. Both the KwaZulu-Natal Department of Cooperative Governance and Traditional Affairs and Provincial Treasury should, within three months after the adoption of this Report by the House, report to the Committee on measures and systems they have set in place to monitor and support municipalities in this regard.

6.2.2  The national Department of Cooperative Governance and Traditional Affairs and National Treasury should, within three months after the adoption this Report by the House, report to the Committee on any further developments in addressing all the challenges referred to under 4.1.3 above.

6.2.3  National Treasury should, within three months after the adoption of this Report by the House, provide the Committee with full details of municipalities where Municipal Infrastructure Grant funds are being used for operational activities.

 

1. Site visits

 

1. Mkhwanazi North Water Supply Project
   1. Through its interaction with the Department of Water and Sanitation, the national Department of Cooperative Governance and Traditional Affairs should make every effort to facilitate integrated planning with regard to projects of the Regional Bulk Infrastructure Grant and the Municipal Infrastructure Grant.
   2. The National Treasury and the Department of Water and Sanitation, together with the Department of Cooperative Governance and Traditional Affairs, should look into the feasibility of the Municipal Infrastructure Grant funding for the projects that cut across municipal boundaries.
   3. The Department of Planning, Monitoring and Evaluation in the Presidency should coordinate and facilitate integrated planning of the Municipal Infrastructure Grant projects that cut across municipal boundaries. The Department should, within three months after the adoption of this Report by the House, report to the Committee on any developments.
   4. In order to avert unnecessary community protests the Umhlathuze Local Municipality should strengthen its community interaction strategies so that communities are kept abreast of all developments that is taking place within their area.
   5. KwaZulu-Natal Provincial Treasury and the provincial Department of Cooperative Governance and Traditional Affairs should monitor and support Umhlathuze Local Municipality in developing a credible billing system as well as effective revenue collection for the water supplied to the residents.
   6. Umhlathuze Local Municipality should effectively utilise community structures and Indunas within the area to protect the water supply networks that are being vandalised outside the secured areas.

 

1. Vulindlela D2069 Road Project
   1. There is a need to strengthen oversight over Municipal Infrastructure Grant projects in the province. This includes the relevant portfolio committee of the provincial legislature, Provincial Treasury as well as the provincial Department of Cooperative Governance and Traditional Affairs.
   2. The Msunduzi Local Municipality should, within three months after the adoption of this Report by the House, report to the Committee on the detailed breakdown of the costs for the project as well as its implication for the municipalities concerned.
   3. The Department of Planning, Monitoring and Evaluation in the Presidency should coordinate and facilitate integrated planning of the Municipal Infrastructure Grant projects that cut across municipal boundaries. The Department should, within three months after the adoption of this Report by the House, report to the Committee on any developments.
   4. The National Treasury together with the Department of Cooperative Governance and Traditional Affairs should look into the feasibility of the Municipal Infrastructure Grant funding for projects that cut across municipal boundaries.

Report to be considered.