ATC151016: Report of the Select Committee on Finance on the Kwa-Zulu Natal oversight visit, dated 14 October 2015

NCOP Finance

REPORT OF THE SELECT COMMITTEE ON FINANCE ON THE KWA-ZULU NATAL OVERSIGHT VISIT, DATED 14 OCTOBER 2015

 

1.             Introduction

The Select Committee on Finance conducted an oversight visit to the KwaZulu-Natal Province from 19th to 20th   August 2015. The purpose of the oversight trip was to assess efficiency, effectiveness and value for money in services delivered by the KZN Province, in line with the fiscal oversight role of the Committee.

Conducting oversight forms part of the Committee’s strategic goal of ensuring effective oversight over government finances to ensure responsiveness to the needs of the people of South Africa. Two of the strategic objectives of the Committee aim at strengthening oversight over finances of provincial departments, their entities and municipalities over a five year period and influencing budget policy decisions through effective implementation of the Money Bills Act, particularly reporting on macroeconomic, fiscal policy position as well as tax and revenue issues.

On the 19th August 2015, the Committee had engagements and received presentations from the Umkhanyakude District Municipality; KZN Provincial Treasury and Provincial Department of Cooperative Government and Traditional Affairs (COGTA) officials. The Committee then visited the Jozini regional bulk water supply and KwaJobe community water supply projects.

On the 20th August 2015, the Committee conducted fiscal oversight over projects implemented by two public entities reporting to the Department of Economic Development, Tourism and Environmental Affairs. These are Richards Bay IDZ (RBIDZ) and the Dube Trade Port Corporation.  The Committee then visited the Cornubia Integrated Human Settlements Project site, implemented by the National and Provincial Departments of Human Settlements, eThekwini municipality and the private sector.

2.         Presentation by the Provincial Treasury

It was reported that, the Kwa-Zulu Natal Provincial Treasury Infrastructure support team has supported the Umkhanyakude District Municipality Water Services Authority from April 2013 to September 2014.  The resource water engineer was deployed on a semi-full time basis to support the municipality in fulfilling its responsibility.

The infrastructure support team was currently supporting the Mtubatuba Local Municipality since June 2012.  A number of different technical resources were deployed to the municipality over the period, including civil engineers, project managers and electrical engineers.   Some of these resources were deployed on a permanent basis for specific periods, whilst some were deployed on a part time basis for specific periods. 

The infrastructure support team also supported the Umhlosinga Development Agency, with a team of civil engineers and aviation infrastructure specialist on a part time basis from April 2013 to September 2014.  The support focused on the facilitation of technical specifications for the upgrade of the Mkuze airport amounting to R 20 million. The team provided the district municipality with strategic aviation related support including the development of an airport precinct plan and designs.

The infrastructure support team has not supported the Jozini and Hlabisa Local Municipalities in the past, however these municipalities will be supported from August 2015 to March 2016. Support will mainly focus at these municipalities will be for electrical and civil engineers to assist with infrastructure planning and oversight, particularly for water and road projects.

 

2.1 Interventions

Provincial Treasury was putting in place the following interventions to assist the District and it’s Local Municipalities:

 

2.1.1 Internal Control Enhancement

It was mentioned that, the intervention was a vehicle that concentrates on enhancing the controls relating to major financial processes and the Information Technology environment by introducing and instituting improvements in internal controls.

 

2.1.2 Cash Flow Management

The purpose of the support was to put in place a disciplined approach to the management of a municipality’s cash resources; identify and address any shortfalls that may be projected to arise; assisting the municipality in controlling the use of their cash resources and being aware of their cash position at all times.

 

2.1.3 Value Added Tax Review

Provincial Treasury planned to review the filing and calculations of VAT returns by municipalities, the processes associated with this function and capacitate municipalities in undertaking the compiling and filing of accurate returns using its own resources.

3.         Presentation by the National Department of Cooperative Governance and Traditional Affairs

The Department of Cooperative Governance and Traditional Affairs (COGTA) reported that, Umkhanyakude district municipality and all its local municipalities within the district were supported with R 5.6 million through the Municipal Systems Improvement Grant (MSIG), with an average of R 930 thousand per municipality.

All the municipalities were allocated the MSIG towards the following:

·         Improved systems to enable year-on-year  improvements in audit outcomes;

·         Information Systems that supports effective service delivery; and

·         Strengthening of the administration of ward participation systems.

 

It was reported that the MSIG was transferred on July 24, 2015 and municipalities had not reported expenditure yet.

 

It was mentioned that general back to basics support was provided to Umkhanyakude District Municipality, Mtubatuba, Jozini, Hlabisa, UMhlabuyalingana, and the Big Five False Bay Local Municipalities. Challenges were identified during the month of January 2015 and are being addressed on an ongoing basis.

 

The Department reported the following challenges, faced by the Umkhanyakude District Municipality:

·         Party political differences that appear to be consistent in council meetings;

·         There appeared to be interference in Supply Chain Management (SCM) processes hence forensic investigations were instituted;

·         Provincial Treasury has investigated a number of contracts but it seemed that they have either not being submitted to the Council for consideration or the municipality is not presenting them to full Council. An approximate amount of R 2.5 million was spent on development of Policy Framework which is under investigation. There were employees and councillors identified in the audit for trading with the municipality. Also, there is an investigation into overpriced projects;

·         Community protests are mainly due to the lack of water services. There is lack of cost recovery in water provision because 90 per cent of the population is indigent. The municipality fails to adequately provide water to the community;

·         Eskom debt, the inability to pay service creditors and poor collection rate. Few creditors approached the department to intervene for their payment;

·         The Municipality acknowledges that conditional grants are not backed by cash. They have continuous cash flow problems;

·         In 2013/14 the municipality received a qualified audit opinion, there has been wasteful and fruitless expenditure amounting to R 149 million noted in the 2013/14 annual financial statements;

·         Many employees lack appropriate knowledge and experience to undertake functions especially in the Budget and Treasury Office and there is a high number of temporary staff with no clear roles and responsibilities; and

·         There is a breakdown in the delivery of services.

 

It was mentioned that, the performance of the Umkhanyakude District Municipality could also be influencing the poor performance in some of its Local Municipalities, for example: at Mtubatuba and Hlabisa an amount of R 4 million was stopped, and at Jozini an amount of R 10 million was also stopped.

4.         Presentation by the Umkhanyakude District Municipality

It was reported that there were ten projects amounting to R 7.86 billion, which were undertaken by the Umkhanyakude District Municipality and its Local Municipalities. The projects are funded mostly by the MIG and Regional Bulk Infrastructure Grant (RBIG) but more funding was still required to the amount of R 5.91 billion.

 

The Umkhanyakude District Municipality reported that, when it comes to the Local Economic Development, there were capacity building and skills development projects that were being funded by various departments.

 

 

 

 

 

 

 

Table 1: Projects undertaken by the Umkhanyakude District Municipality

Department	Project Name	Funding	Beneficiaries
Department of Public Works	Capacity building and Skills Development	R 1. 2 million	95 unskilled labourers appointed on a 12 months fixed-term
Services  SETA	Capacity building and Skills Development	R 980 000.00	140 Graduates appointed on a two (2) fixed contract with a stipend of R 3 500.00 per month
Services  SETA	Capacity building and Skills Development	R 225 000.00	150 Graduates appointed on a two (2) fixed contract with a stipend of R 1 500.00 per month
National Department of Environmental Affairs	Capacity building and Skills Development	R 452 760.00	75 unskilled youth appointed on a 12 months fixed-term
Department of Cooperative Governance & Traditional Affairs	Mseleni Groundnut	R 2 million	75 temporary jobs created
National Department of Tourism	Muzi Pan Tourism Adventures and Lodge	R 10 million	60 temporary jobs created 15 permanent jobs to be created
National Department of Environmental Affairs	Hlathikhulu Camp Site	R 4 million	60 temporary jobs created 3 permanent jobs created
National Department of Environmental Affairs	Sontuli Tourism  and Environmental Kids Camp	R 8.5 million	100 temporary jobs created 5 permanent jobs created
National Department of Environmental Affairs	Amangwane Community Lodge	R 18 million	50 temporary jobs to be created 10 permanent jobs to be created
National Department of Environmental Affairs	Ezemvelo Ndumo-Tembe Project	R 16.5 million	The project is expected to create more than 50 temporary jobs and more than 10 permanent jobs
National Department of Environmental Affairs	KZN Funjwa/Mabaso Alien Invasive Clearing Project	R 4.8 million	204 temporary jobs were created for the duration of 6 months

 

Table 1 above shows a number of projects that national departments are supporting the municipality with capacity building and skills development, number of jobs created and those that are still to be created.

 

The District reported the following challenges:

• The municipality started experiencing cash flow problems mid 2014/15 financial year, which was still the case; as a result, the municipality had difficulty paying its creditors, ending up owing about R 110 million at the end of 2014/15 financial year;
• Cash flow projections for 2015/16 were showing negative balance in the last quarter, affecting service delivery ;
• Continued under spending on MIG projects has a negative effect on service delivery and on Equitable Share allocation;
• The debt book was at R 107.1 million with an average collection of about R 1.7 million monthly, about 90 per cent of that was owed by domestic consumers, largely indigent; and
• Stand pipes were not metered, resulting in water used reflected as water loss.

 

It was reported that the intervention plan was in place to address the above mentioned challenges.

 

 

 

 

 

4.1        Jozini Regional Bulk Water Supply Project

The Jozini Regional Bulk Water Supply project consist of two schemes namely Jozini Ingwavuma Bulk Water Scheme and Jozini Regional Water Supply Scheme sharing the same source. The project is in the Jozini North and South, which will have 50 200 beneficiaries, for the communities of Jozini, UMhlabuyalingana and Big Five Local Municipalities.

The current approved budget for the Jozini North project is R 980 million for bulk services (Regional Bulk Infrastructure Grant) from the Department of Water and Sanitation and R 74 million for reticulation from the Department of COGTA. The expenditure to date is R 734 million, with the project still requiring an amount of R 1.02 billion for reticulation of Zone 6 to 12.

The current approved budget for the Jozini South project is R 256 million for Phase 1A. The expenditure to date is R 183 million, with the project still requiring an amount of R1 billion for Phase 1B to1D and Phase 2.

 

4.1.1     Achievements

Currently there are approximately 10 510 people who are benefiting from getting clean water, with 341 job opportunities created during the 2014/15 financial year.

 

4.1.2     Challenges

• Poor performance by some contractors, attributable to their underestimating the difficulties of the terrain;
• Delays in getting Environmental Impact Assessments (EIA) approvals; and
• Lack of adequate funding to cover the whole supply areas.

 

4.2        KwaJobe Community Water Supply Scheme Project

The KwaJobe Community Water Supply Scheme project started in August 2013. The scope of the project comprises of 308 kilometers of reticulation of pipeline supplying 569 standpipes. It will supply portable water to the four wards (ward 3, 4, 5 and 20) in Jozini Local Municipality, with 25 231 beneficiaries.

The current approved budget for the project is R 160.194 million with the expenditure to date being R 38.607 million. The Department of COGTA has donated a package treatment plant.

 

4.2.1     Achievements

The project has installed 64 kilometer of pipeline with 110 standpipes installed. Currently there are approximately 1 210 people who are benefiting from getting clean water, with 72 job opportunities being created.

 

4.2.2 Challenges

• Poor performance by some contractors resulting to the termination of service of previous contractors;
• Delays in getting electrical connections approved; and
• Limitation in funding affecting coverage of the whole scheme.

 

5.         Committee Observations

The Committee made the following observations:

5.1       There is poor budgeting and planning by the Umkhanyakude District Municipality and its local municipalities;

5.2       Umkhanyakude District Municipality and its local municipalities are unable to budget properly for the maintenance of their roads;

5.3       Noted that municipalities were unable to make payments to their creditors within the required time frames as per section 65(2) (e) of the Municipal Finance Management Act No. 56 of 2003;

5.4       Umkhanyakude District Municipality are having a programme with the Umgeni Water for the installation of the prepaid water meters;

5.5       There seems to be a challenge with contractors in terms of completing their projects awarded by the municipalities;

5.6       Umkhanyakude District Municipality KwaJobe Community Water Supply Scheme had bought pipes for the project in bulk in order to avoid price escalation;

5.7       Umkhanyakude District Municipality (Jozini Regional Bulk Water Supply) is making use of the Regional Bulk Infrastructure Grant (RBIG) funding and require over R 7 billion through the Municipal Infrastructure Grant (MIG) in order to be able to supply the whole of its community with water;

5.8       Noted an irregular expenditure of R 130 million and an amount of R 40 million being stopped due to non-commitment to projects by the municipality. This was cause by delays with the Hlabisa project at the termination of Mkhuze trademill plant due to poor performance of the contractors;

5.9       The organogram of the municipality appeared bloated, with a high number of temporary staff (interns) and a skills mismatch between the current pool of staff and the skills required by the municipality. The Committee noted that the Municipality has done a job analysis and was in the process of engaging the unions to address the problem;

5.10      There are serious capacity constraints in the municipality, a challenge that is time consuming. The Committee noted that the Revenue manager post has been vacant for a long time and this affected accurate billing, debt recovery and credit bills;

5.11      Noted that in January 2015, the Mtubatuba municipality was disbanded by the Provincial Executive Council due to political interference. This affected the functionality of the Council in terms of hiring and dismissal of Municipal Managers. The municipality has appointed the 5th Municipal Manager in one term of office;

5.12      The Provincial Treasury investigation Unit was conducting about 10 investigations but the reports were not provided to the municipality;

5.13      National Treasury has resolved to not approve roll-overs if the municipalities do not have a permanent CFO. UMkhanyakude municipality, has suspended its CFO, together with the HOD and SCM manager in July 2015. The Committee noted that the municipality won the case against the CFO;

5.14      KZN Province was experiencing a water crisis due to drought and this affected uMkhanyakude municipality. The Committee noted that the municipality has been allocated drought relief money amounting to R 90.5 million but only R 13 million was received from the National Department of Water Affairs;

5.15      The unit responsible for debt collection was not well staffed and most debt was owed by indigent households. The Committee noted that the billing systems were sometimes disputed by the households; 

5.16      The municipality’s Finance Department has been destroyed by fire, leading to paper trail problems. To date the municipality did not receive any report;

5.17      Noted that Jozini and Hlabisa local municipalities have challenges but doing well. Mtubatuba was the problematic municipality not doing well at all and the remaining two municipalities were functional and doing well; and

5.18      The municipality spent 45 per cent of the total R 265 million annual budget on salaries and R 107 million pays debt in a given financial year. The Committee noted high employee costs against the municipal budget and that the municipality needs R 7 billion to function effectively.

 

6.         Recommendations

The Committee made the following recommendations:

6.1       The Provincial Treasury should provide financial and budgeting training for the finance units of the Umkhanyakude District Municipality and its local municipalities;

6.2       The Provincial Department of roads should assist the Umkhanyakude District Municipality and its local municipalities in providing funding in order for them to be able to address the issue of the roads maintenance;

6.3       Municipalities should prioritise payment of creditors within the stipulated time frames as per section 65(2) (e) of the Municipal Finance Management Act No. 56 of 2003;

6.4       Deep rural municipalities should be provided with some form of an incentive to enable retention of skilled personnel;

6.5       The Kwa-Zulu Natal Provincial Legislature should strengthen its oversight role over municipalities;

6.6       Umkhanyakude District Municipality should for future purposes tag their projects purchases instead of doing the whole 65 kilometre (KwaJobe Community Water Supply Scheme);

6.7       The Umkhanyakude District Municipality should consider using a labour intensive programme, Expanded Public Works Programme (EPWP) to fit the pipes that they had already purchased for the KwaJobe Community Water Supply Scheme;

6.8       The municipality should take action against the officials not fully complying with the legislation to ensure that tax payer’s money is effectively utilised. The municipality must develop capacity to monitor implementation of projects;

6.9       The municipality should develop a recruitment strategy that prioritises appointment of much needed suitably qualified staff with appropriate skills as the current organogram cannot be financially sustained;

6.10      The critical Revenue manager post, which has been vacant for a long time should be filled as a matter of urgency to enable the municipality to address some of its revenue challenges and recover debt;

6.11      The municipality should  apply section 117 of the MFMA, which provides for exclusion of political office bearers in Supply Chain Management processes as there seemed to be political interference in the functioning of uMkhanyakude municipality;

6.12      Provincial Treasury should work with the municipality to fast track investigations and ensure that there are consequences for those implicated; 

6.13      Provincial Treasury should consider increasing the time frame for the intervention from 6 months to 12 months as the current time frame is not sufficient. COGTA should follow up on the planned summit aimed at facilitating regular attendance of CFO meetings to address municipality challenges;

6.14      The KZN Provincial Legislature should assist the municipality to get the outstanding drought relief money from the National Department of Water and Sanitation;

6.15      The municipality should develop a debt management and collection strategy to create much needed fiscal space. Given that much debt is owed by indigent households, the municipality must shift its focus to recovering debt from businesses and utilise the Umgeni programme to ensure that there are meter readers in all households; and

6.16      The Municipalities should prioritise payment of creditors within the stipulated time frames as per section 65(2) (e) of the Municipal Finance Management Act No. 56 of 2003, work towards achieving clean audits and address backlogs.

 

7.         Richards Bay Industrial Development Zone

7.1        Background

On 19 August 2015, the Committee conducted an oversight visit at the Richards Bay Industrial Development Zone (RBIDZ), received a presentation, engaged its management and visited the projects currently underway.

The RB IDZ is a public entity reporting to the Department of Economic Development Tourism and Environmental Affairs (DEDTEA). It forms part of the catalytic public sector projects identified by the KZN Province in recognising it as a Special Economic Zone (SEZ). An IDZ is regarded as a key instrument in pursuing foreign direct investment, encouraging employment, unlocking exports and economic growth potential as well as improving the transfer of technology and acquisition of skills.

The strategic goals of the RBIDZ aim to attract new sustainable investments; develop a fully serviced compliant industrial estate; secure adequate financial resources to ensure sustainability of the IDZ; contribute towards job creation and empowerment and pursue best practice by ensuring good governance.

The RB IDZ services industrial land within the customs control area, facilitates one stop shop business, provides technical assistance support, support critical infrastructure and provides comprehensive support to potential and existing investors.

The RBIDZ has evolved from being a Spatial Development Initiative (SDI) in 1995, to an IDZ in 2000, focusing on a seaport, industrial park, beneficiation and export activities and an SEZ in 2014.  The economic competitive advantages of the RBIDZ include ICT techno parks innovation hub, metals beneficiation, agro-processing, renewable and clean energy and port optimisation.

 

7.2        Project progress report

The IDZ has a total of 172 hectares (ha) existing land portfolio, where Phase 1A covers 62 ha, Phase 1F 110 ha and Phase 1D accounts for 65 ha. The bulk infrastructure development currently underway in Phase 1A is expected to be completed in 2015. This includes Medway road upgrade; Richards Bay energy, solar water technohub, Prostar coatings plant and agro-processing areas.

In terms of Phase 1F, construction of bulk infrastructure is expected to commence in 2015. The IDZ has signed agreements with Nyanza Light metals titanium dioxide plant for R4.5 billion; Tata steel for R850 million and Energuys Biomass power plant for R 2 billion.

 In 2015, RBIDZ has approved investors with a total investment value of R 9.41 billion taking up 148 hectares of land. The types of investment ranges from manufacturing of ferrochrome and titanium dioxide to aluminium beneficiation, renewable energy plants and energy storage systems. These investors are expected to create a total of 1 303 direct jobs and 1 665 construction jobs.

KZN Provincial Cabinet has approved the expansion area of the IDZ into Phase 2, covering 1 200 ha. The proposed expansion area include Bayside aluminium site covering 157 ha, comprising of office accommodation (one stop shop for South African Revenue Service (SARS) and Customs, DEDTEA and Industrial Development Corporation), gas to power infrastructure and a possible pelleting plant. These new developments are expected to create 600 direct jobs and 10 000 indirect and induced jobs.

Operation Phakisa is expected to focus on marine containers given its capacity to handle generation vessels and oil, gas power plants and marine manufacture and repair.  The National Department of Trade and Industry (DTI) policy for ship building and repair will be incorporated into the RBIDZ. There are plans to extend SEZ benefits to Transnet owned land.

The challenges for the RBIDZ include funding for the proposed expansion areas and Bayside aluminium site amounting to a total of R7 billion. The water use licences are causing delays with spending on Phase 1F construction of Medway road and have delayed RBM Zulti South by a year. The subdivision of Agricultural Land Act (Act No. 70/1970) and the municipal bulk contributions payable up front (over R 200 million for Phase 1A and 1F) are also posing challenges for the development of the area. Key incentives are currently not available (15 per cent tax rate and depreciation awaiting SEZ Act).

The RBIDZ is currently funded by the provincial DEDTEA and the DTI (Special Economic Zone Fund) but has started receiving rental income from 2015. The RBIDZ is not yet self-sustainable but working on reducing reliance on government for funding.

The IDZ’s co-existence with Transnet is likely to pose challenges in future. There is a possibility of purchasing back the land at less than the market value. The IDZ needs a bigger proportion of land to function effectively. It collaborates with Ubuntu municipalities’ Small Micro and Medium Enterprises (SMMEs). Financial, administrative and legislative processes need to be streamlined to enable the IDZ to realise its full potential in terms of it being a hub for development.

 

7.3        Observations  

7.3.1     The Committee noted the following issues:

• Acknowledged the fact that the RBIDZ has received a clean audit in the past three financial years;
• Noted that the RBIDZ has established good relations with the District municipality, having developed structured monthly meetings to address issues such as incentives at provincial and local level and given input into the SDIBP and integration of the master plan in the Integrated Development Plans (IDPs) of municipalities;

·         RBIDZ had good relations with the surrounding Universities and Colleges in terms of producing relevant skills that are required by the RBIDZ; and

·         Noted that the land assembly in the area of Richards Bay is too expensive to be acquired by the RBIDZ.

7.3.2     The RBIDZ and SARS relationship is underpinned by investors brought in and starting operations and getting returns. The RBIDZ would then become an agent of SARS;

7.3.3     The RBIDZ needs security of tenure and the legal status of the Special Economic Zone because it is only after the SEZ Act comes into effect that the incentives (15 per cent tax rate and depreciation) would become effective. Enterprises within and outside the RBIDZ need all the administrative processes to be addressed, regulations into law in order to unleash the incentives;

7.3.4     Environmental Impact Assessment (EIA’s) studies remain a challenge for the RBIDZ as they can take up to 18 months or more to complete;

7.3.5     The RBIDZ experiences problems with the water use licenses administered by the National Department of Water and Sanitation. These are delaying spending on Phase 1F, construction of the Medway road and have delayed the RBM Zulti South by a year;

7.3.6     The annual targets for youth training and SMME development were not fully achieved during the financial year 2014/15. These targets are linked to various environmental authorisations and statutory approvals;

7.3.7     The RBIDZ’s master plan incorporated the expansion of the Bayside aluminium smelter. There exists an aluminium smelter in the Eastern Cape, at the Coega IDZ; and

7.3.9     The IDZs 50 year plan is aligned with the National Development Plan, Provincial Growth and Development Strategy, district and local municipality plans and has received buy in from the stakeholders.

 

7.4        Recommendations

7.4.1     NCOP should assist the RBIDZ in unlocking the investment and revenue potential by fast tracking the financial, administrative and legislative processes at national level to enable the RBIDZs to realise their full potential;

7.4.2     The National Department of Trade and Industry should fast track its processes and put measures in place to recognise the RBIDZ as an SEZ. Key incentives such as 15 per cent tax rate and depreciation are currently not available, awaiting implementation of the SEZ Act;

7.4.3     The RBIDZ should address the EIAs at its disposal, fast track the land acquisition process and engage with the KZN provincial legislature. The National and Provincial Departments of Environmental Affairs should clear its EIA backlogs; reduce the waiting period after the submission of the EIAs and develop capacity at both levels. The Environmental review committee formed to address some of the challenges should assist;

7.4.4     The National Department of Water and Sanitation should assist the RBIDZ with timely provision of water use licenses to enable it to roll-out Phase 2 infrastructure. The Department should develop sufficient capacity, clear backlogs and develop a functional system and database of monitoring and the water use licenses;

7.4.5     The RBIDZ should liaise with Coega IDZ to determine whether there is a need for another aluminium plant at the Bayside. The time and costs required to acquire an aluminium smelter should also be determined; and

7.4.6     The IDZ should define the milestones in terms of implementing the 50 year plan, develop clear targets and time frames for implementation of Phase 2.

 

8.         Dube Trade Port 

8.1        Background

The Dube Trade Port (DTP) Corporation is a public entity of the DEDTEA, fully owned and funded by the KZN provincial government. The DTI provides funding particularly for recognising and supporting the expansion of the area to be included in the SEZ. The entity has been mandated by the KZN government to develop the DTP by investing in projects that enables and drives the development of logistics out of King Shaka International Airport as well as stimulating economic development, job creation, export diversification and increasing foreign investment in the region. These projects are the Dube cargo terminal, Tradezone, Dube City and Agrizone.

In the three financial years ending 2014/15, the DTP has achieved, on average 80 per cent of its Annual Performance Plan (APP) targets; created 741 permanent and 612 temporary jobs; committed public sector investment for economic development amounting to R 763.9 million and produced 18 983 volume of produce at the Agrizone.

During the financial year 2014/15, the Corporation successfully completed phase one of the development as part of the 50 year master plan; received an operator permit for DTP IDZ; registered its first IDZ enterprise (Samsung electronics); completed the construction of the international trade avenue and got a provincial cabinet approval to implement the Integrated Aerotropolis Strategy.

The DTP has invested R 3.5 million on its Social Corporate Investment (SCI), which includes bursary scheme, internship programme, solar power systems; school uniform programme; science and laboratory kits for schools; small farmer’s development project and Ohlange high school project. The SCI strategy focuses on education and skills development; environmental sustainability and socio-economic development.

Over the medium term period ending 2017/18, the DTP plans to create 1 520 permanent and 2 440 temporary jobs; generate revenue of R 221 million; rehabilitate 300 ha of land and commit public and private sector investment of R795 million and R 1.1 billion, respectively. The DTP IDZ is expected to commence the transition to an SEZ.

A range of benefits are offered to business enterprises operating within an IDZ, including fiscal and customs incentives designed to promote business growth; generate revenue; create employment and the attract foreign and local investment. These incentives are geared for agricultural and manufacturing enterprises located within Dube Agrizone and Dube Tradezone. This represents the first phase of DTP Corporation’s roll-out and will cover some 300 hectares of agricultural and industrial activities, growing to more than 700 hectares into the future.

The DTPC collects property rental income, tissue culture facilities, Agrizone income; ICT services; cargo operations; billboards advertising; interest, dividends and rent on land and VAT returns totalling R 626 million in 2014/15.

The Dube Tradezone has now been incorporated into DTP’s IDZ. It is a 26 hectare site which occupies prime, fully-serviced airside real estate ideal for new-generation warehousing, manufacturing, assembling, air-related cargo distribution, electronics, pharmaceuticals, high-tech aerospace services, automotive industries, clothing, textiles and cold storage activities.

 The Dube Agrizone is about 16 hectares of greenhouses and it hosts Africa’s largest climate-controlled growing area under glass. It focuses on the production of short shelf-life vegetables and cut flowers requiring immediate post-harvesting airlifting, thereby creating an integrated perishables supply chain. The Agrizone is a potential catalyst for the development of a perishables sector in the Province which serves to boost air cargo exports and contributes to the development of a more efficient supply chain for perishables.

The 90-hectare phase two of Dube Agrizone is also set for development, although initially only one third of this area will be utilised. The project focuses on local economic development of surrounding farmers, a need for an export and employment creation. 

 

8.2        The Dube Agrizone and Tradezone projects progress 

The Committee visited the two projects related to the DTP IDZ, namely, the Dube Agrizone and the Tradezone.

During the financial year 2014/15, the Dube Tradezone uptake by private developers reached 20 ha, which resulted in occupancy of 100 per cent. Construction was completed on three key projects and commenced on four projects.

The Agrizone rehabilitated 122 ha of land; produced 2 139 tons of fresh produce, processed over 12 500 tons through value adding and distribution centres; generated 21 per cent of its own electricity demand from renewable energy sources and completed a new specialised greenhouse and hardening facility in the Dube Agrilab.

The DTP is preparing for the launch of the Tradezone in 2016 while planning and development of Dube Agrizone 2 is due to commence. There will be design and construction of guardhouses and tradezone 1 road alignment. Accelerated implementation of the tradezone 2 and 3 will bring on an additional 135 ha within the DTP IDZ. The Corporation will conduct EIAs for the planned expansion in the Dube trade and agrizones.

 

 

8.3        Observations

The Committee made the following observations:

8.3.1     The Environmental Impact Assessments for the DTP IDZ, are all at an early stage, but noted that the studies are being done. The entity has completed the public participation processes and has received feedback but need to finalise the ERIs;

8.3.2     The eThekwini municipality was not involved with the development of the approved integrated aerotropolis strategy run by the provincial government. The municipality has made provision for the deliverables of this strategy in its Integrated Development Plans;

8.3.3     The Committee noted the DTPs Social Corporate Investment programme, which focuses on education and skills development; environmental sustainability and socio-economic development. This included the effort made by the DTP’s bursary scheme to students undertaking engineering studies;

8.3.4     Noted that the small farmer’s development project which provides farmers with an opportunity to sell their produce to staff from different companies located within the DTP precinct;

8.3.5     The DTPC planned to obtain land-use right acquisitions and environmental authorisations for one land parcel, but this was not achieved since the DTPC is awaiting environmental authorisations to be issued. This delayed the completion of the delineation process; and

8.3.6     Noted that there was lack of available industrial land but the DTPC could not provide the details of the Land Tenure guarantee to the Committee.

 

8.4        Recommendations

8.4.1     The DTP and the DEDTEA must prioritise the finalisation of the second phases of the Dube Tradezone and Dube Agrizone Environmental Impact Assessments to enable timely implementation of planned infrastructure projects;

8.4.2     The DTP should improve its working relationship with eThekwini municipality to ensure that their IDP plans are realised and that the municipality benefits from the implementation of the integrated aerotropolis strategy; 

8.4.3     The DTP Social Corporate Investment programme should take into consideration youth and women employment;

8.4.4     The DTP should strengthen its collaboration with the Provincial Department of Agriculture to provide comprehensive assistance to small scale farmers, to ensure that the majority of farmers become successful business enterprises and benefit in real terms; and

8.4.5     The DTP and the National Department of Environmental Affairs (DEA) should finalise its processes of land-use rights acquisitions and environmental authorisations, to enable completion of the delineation of the conservation area.

 

           

9.         Cornubia Integrated Human Settlement Development

9.1        Background

The Cornubia integrated Human Settlements project is a joint venture between the national and provincial departments of Human Settlements Housing settlements, eThekwini municipality and Tongaat Hulett Development.

The project is being developed along the principles of breaking new ground and promoting the achievement of non-racial, integrated society through the development of a sustainable, integrated human settlement with associated economic opportunities for the citizens of eThekwini municipality.

The project covers land area of 1 200 ha and is expected to produce 28 000 units, of which 15 600 would be subsidised. It is projected to be completed in three phases over more than 10 years, ending 2020. The land was purchased and paid for by the department of Human Settlements (R 336.2 million) and is currently under the name of the developer, eThekwini municipality.

The development will include provision of subsidised or low income houses; provision for schools, clinics, amenities and public transport infrastructure; creation of at least 43 000 permanent jobs and additional 387 000 job opportunities during the construction phase; creation of jobs and generation of tax revenue.

 

9.2        Project progress made

The total development cost of the project is R 25.8 billion, funded by government (R 10.4 billion), of which R 1.4 billion is meant for subsidy housing and private sector (R 15.4 billion).

The project was first approved for Phase 1 A on 22nd May 2010, for funding to undertake the planning, civil work and top structure construction for 482 sites. The project value for Phase 1A is R 44.8 million. To date, all 482 in Phase 1A houses have been constructed.

 Phase 1A construction of all 482 top structures are complete and 439 allocations are completed. The retail facility designs are being finalised; the temporary school is finalised and accommodated in Phase 1A, scheduled for opening in the third term of 2015. Phase 2 of the project will produce 13 000 units, with expected expenditure of R 3.9 billion including housing, internal and bulk infrastructure, excluding interchanges and BRT routes.

 

9.3        Challenges

• During phase 1A, the total number of proposed sites was reduced from 486 to 482 due to challenges with topography. The same challenge occurred during phase 1B;
• Delays in approvals and allocations of 481 beneficiaries, as they were not registered and not willing to move to Cornubia. Some of the beneficiaries identified did not have IDs and it was a long process to obtained IDs from Home Affairs;
• 43 units were invaded by the Military Veterans. The municipality’s legal department had to obtain a court order to evict them;
• Completion dates of the projects were extended due to various problems including strikes, work stoppages due to local residents requiring employment; tender and procurement processes taking long; constructor delays;
• Some disabled beneficiaries refused to be allocated double storey houses and some beneficiaries are excess earners and owned property, while others refused to leave informal settlements;
• Phase 2 of the project has not been approved as yet, the EIA study is taking long but the public participation process has been completed; and
• eThekwini need to get the rest of the money from the Province.

 

9.4        Observations

The Committee made the following observations:

9.4.1     The KZN Provincial Government has earmarked the Cornubia Housing Project for as a residential place for commonwealth games, to host 6 000 athletes for the duration of six months;

9.4.2     The City of eThekwini has purchased the 40 per cent of the project land from Tongaat at cost value. This gives the beneficiaries of the land ownership upon occupation. However, the piece of land purchased is not suitable for development and it is costing government more money to develop. The land is being prepared to build houses and it increases the cost, pressure on the budget;

9.4.3     The time frame planned by the eThekwini municipality for completion of the Cornubia project, which is between 7 to 10 years is too long given an increased demand for housing;

9.4.4     The Military Veterans have invaded all 43 vacant houses owned by the municipality in Cornubia Phase 1A because they have been waiting for houses for 20 years; living under bad conditions;

9.4.5     The KZN local media has reported about the poor quality of some houses in Cornubia Phase 1A project. Some of the completed housed reportedly had some cracks;

9.4.6     The waiting list for placing beneficiaries in completed houses did not exist anymore. The municipality prioritised high impact informal settlements and transit camps impeding developments as well as households living under bad conditions, guided by an allocation policy approved by the Council and consistent with the provincial housing policy;

9.4.7     The municipality has incurred an irregular expenditure of R 3.2 billion in the last financial year. Part of this expenditure is a deficit by the provincial department of Human Settlements dating back to the 1990s.  R 2.4 billion is historical debt incurred by the municipality;

9.4.8     Currently, there are no formal agreements or memorandum of understanding between the provincial department of Human Settlements and the eThekwini municipality. The municipality continued with the housing development in Cornubia but now finding it difficult to recoup the money from the Department;

9.4.9     It appeared that the previously disadvantaged individuals are labourers and not benefitting in real terms from the housing development project. The Committee has noted that the project currently employs 40 per cent of local subcontractors, creating construction jobs;

9.4.10   Some disabled beneficiaries were not satisfied with the double storey houses and have refused the allocation; and

7.4.11   The demand for housing is more pronounced for people living under bad conditions, but the municipality appeared to be prioritising the middle income households, its revenue target market.

 

9.5        Recommendations

9.5.1     The City of eThekwini should develop Environmental impact Assessment (EIA) studies prior to development of Phase 2 to ensure that the project is delivered on time, within budget and without poor geology adding to civil structures;

9.5.2     The eThekwini municipality should utilise the experiences learnt during Phase 1A and B, to address an increased demand for housing relatively faster than initially planned for Phase 2 and 3. Sustainable water supply, electricity, solar energy creation and other basic services must be taken into consideration in future planning;

9.5.3     The municipality should prioritise the pilot programme for Military Veterans’ land and housing provision since funding is being provided for. The City should engage with relevant departments in the Province to assist the Military Veterans;

9.5.4     The municipality should ensure that there are adequate number of engineers on site from the relevant departments to monitor implementation of the project and ensure houses of good quality are delivered. The municipality should report on allegations of poor workmanship of some houses and action taken thereof;

9.5.5     The municipality should fast track its liaison with the Department of Home Affairs to ensure that the houses are allocated to the deserving beneficiaries with the necessary Identity Documents. In absence of the waiting list, the City should review and improve its allocation criteria and process to address beneficiaries who have passed on; those who refuse to move and those that owned property already;

9.5.6     During the next budgeting cycle, the Provincial Department of Human Settlements and the municipality should, in a phased manner, address its irregular expenditure, in order to clear the deficit and historical debt incurred;

9.5.7     The Provincial Department of Human Settlements and the municipality should resolve the funding problems between them, to enable a timely and successful completion of the Cornubia integrated human settlements development. Going forward, the municipality should develop a memorandum of understanding with the Department, prior to spending;

9.5.8     The municipality should protect the subsidised emerging contractors and ensure that the previously disadvantaged individuals benefit in real terms and not only from the temporary construction jobs. The municipality should consider putting a protection fee when awarding contracts for the emerging contractors;

9.5.9     The municipality should ensure that planning and design of the next phases of the project, should take the disabled beneficiaries into consideration; and

9.5.10   The municipality should consider providing the middle income households with a serviced plot and prioritise the available budget to build houses for the poor.

 

Report to be considered.