ATC130910: Report of the Select Committee on Co-Operative Governance and Traditional Affairs on the Intervention in Matlosana Local Municipalty – dated 10 September 2013

REPORT OF THE SELECT COMMITTEE ON CO-OPERATIVE GOVERNANCE AND TRADITIONAL AFFAIRS ON THE INTERVENTION IN MATLOSANA LOCAL MUNICIPALTY – DATED 10 SEPTEMBER 2013

1. Background and Overview

1.1 The Select Committee on Co-operative Governance and Traditional Affairs, having considered the request by the National Council of Provinces (NCOP), to consider and report on the intervention notice in terms of section 139(1 )( b) of the Constitution in Matlosana Local Municipality, reports as follows:

1.2 In terms of section 139(1)(b) of the Constitution, when a municipality cannot or does not fulfil an executive obligation in terms of the Constitution or legislation, the relevant provincial executive may intervene by taking any appropriate steps to ensure the fulfilment of that obligation, including assuming responsibility for the relevant obligation in that municipality.

1.3 In terms of NCOP rule 101, the Office of the Chairperson of the NCOP referred the notice of intervention in the affairs of Matlosana Local Municipality by the Acting MEC for Local Government and Traditional Affairs, to the Committee for consideration and reporting. Subsequently the Committee took a decision during its meeting to conduct an oversight visit to the above-mentioned Municipality during the 21 August 2013.

2. Purpose and Objectives of the Oversight Visits

2.1 The main objectives of the oversight visit were to determine whether procedural requirements have been met, and also to verify whether the provincial executive has used its discretion appropriately before the Committee could recommend approval/disapproval of the intervention. Through the deliberations and interaction with internal and external stakeholders, the Committee wanted to determine how the PEC intends to restore the fulfilment of the relevant obligations and ensure fulfilment in the long-term. The aim being to ensure intergovernmental checks and balances aimed at guarding the integrity and efficiency of the intervention process.

3. Composition of the Delegation

3.1 The delegation of the Committee was composed of the following Members of Parliament and Officials: Hon MH Mokgobi , Limpopo (ANC); Hon AG Matila , Gauteng (ANC); Hon LPM Nzimande, KwaZulu-Natal (ANC); Hon B Nesi , Eastern Cape (ANC); Hon TMH Mofokeng , Free State (ANC); Hon MV Manzini , Mpumalanga (DA); Hon J Bekker, Western Cape (DA); Hon MW Makhubela, Limpopo (COPE); Hon JJ Gunda, Northern Cape (ID); Mr NA Mfuku , Content Adviser (Committee Section); Mr MT Manele , Committee Secretary (Committee Section); Mr BM Mahlangeni , Committee Researcher (Research Unit); Mr MC Mbebe , Procedural Officer (NCOP) and Mr N Mangweni , Administration Assistant (Committee Section).

4. Introduction

4.1 On the 19 ^th March 2013 the North West Provincial Executive Council (PEC) resolved to intervene in the affairs of Matlosana Local Municipality, in terms of section 139(1 )( b) of the Constitution. This intervention was intended to last for a minimum period of six months, with effect from the 1 ^st April 2013.

4.2 The main issues that were identified by the PEC in the Municipality were evident signs of poor administration and governance. This has affected the financial status of the Municipality and would ultimately affect service delivery. Equally, the current financial crisis in the Municipality has resulted in statutory obligations not being honoured. Further, the non-payment of the bulk electricity and bulk water accounts to ESKOM and Midvaal Water Board has resulted in notices of disconnection by ESKOM.

4.3 The Department has conducted a brief analysis of the financial status of the Municipality, and the outcome of the analysis revealed the following:

· the Municipality was not collecting what is due for services rendered to consumers, and the debtors book is standing at about R960 million.

· there was non-enforcement of debt collection and credit control policies as adopted by Council.

· the Municipality was using the revenue from the sale of electricity to subsidise other services that consumers are not paying.

· the Municipality has numerous contractual obligations with consultants for services such as debt collection, meter reading, and other services that could be done internally.

· there was a lack of management and leadership capacity in the Budget and Treasury Office, and this result in poor financial management and administration of the Municipality’s finances.

4.4 The PEC has then resolved on the basis of the poor financial state of the Municipality, to take over the financial management obligation of the Municipality. An Administrator and a team of financial management experts will be appointed to implement the intervention on behalf of the PEC.

5. Oversight Visit to Matlosana Local Municipality

5.1 On the 21 August 2013, the delegation of the Committee had interactive and robust engagements with all stakeholders of the Municipality. The main thrust of the discussions centred around procedures followed by the intervening Province, which is alleged to have omitted section 139(1)(a) directive as stipulated in the Constitution, to the extent the Municipality was not afforded the opportunity to converse with the PEC on the matter to relay its state of affairs.

6. Presentation by the MEC for Local Government and Traditional Affairs

6.1 The MEC stated that the Municipality has been experiencing serious financial problems for the past two years, to the extent that it failed to honour its statutory financial obligations. Equally, it incurred a long standing debt with ESKOM and Midvaal Water Board, which resulted in the two bulk services accounts in arrears in excess of R100 million. In March 2013, the ESKOM arrears were standing at about R68 million.

6.2 The former MEC convened a meeting with the Council and stakeholders on the 21 February 2013, to discuss the matter and seek solutions. Subsequent to the meeting with Council and stakeholders, a report was tabled to the PEC on the 19 March 2013, and a decision to place the Municipality under section 139(1 )( b) of the Constitution was taken. The decision was to take over only the financial administration of the Municipality, given the severity of the financial status and the impact it would have on service delivery.

6.3 The Municipality was informed of the PEC decision on the 22 ^nd March 2013, and was requested by the then Acting MEC to convene a meeting of councillors to communicate the decision of the PEC. Subsequently a letter from the Office of the Mayor was written to the MEC, raising objections to the interventions. The MEC met with Troika of the Municipality, and confirmed that the intervention would proceed. The name of the Administrator was announced.

6.4 The intervention team has never been to the Municipality and there have been numerous letters from the Municipality objecting to the intervention, and even threatening legal action against the Provincial Government. Five months since the intervention began, no progress has been registered in the Municipality.

7. Structure of the Report

7.1 The Committee delegation had interactive engagements with the internal and external stakeholders of the Matlosana Local Municipality. The main internal stakeholders the delegation interacted with at the Municipality included the Speaker, Mayor, Chief-Whip, the Administrator and representatives of Organised Labour. The main external stakeholders the Delegation interacted with included representatives from the South African Local Government Association (SALGA), the business and community forums and non-governmental organizations.

7.2 For the purpose of this report, the submissions made by stakeholders are structured in terms of Governance and Leadership; Clean Audit Plan; Financial Management and Revenue Enhancement and Creditors Management.

(A). Governance and Leadership

7.3 Chief Financial Officer: The Municipal Manager and CFO were appointed in 2012. Previously these positions were occupied by acting officials for more than two years. Only one Director position was vacant until the recent passing away of the Director responsible for Electrical and Mechanical, however, both positions have been advertised.

7.4 The Municipal Council was fully functional and its committees, the Municipal Public Accounts Committee (MPAC) and both the Performance Audit Committee (PAC) and the Audit Committee (AC). Both the PAC and AC reports regularly to the Council. Furthermore, t here is a sound relationship that exists with the Local Labour Forum.

7.5 SALGA: The Association remarked that the implementation and application of section 139(1 )( b) of the Constitution in the Municipality, and how SALGA in the Province was not consulted by the MEC. SALGA raised constitutional compliance with the intervention in its PEC sitting. However, they were not opposed to an intervention that will effect service delivery in Matlosana .

7.6 SAMWU: The South African Municipal Workers Union submitted that workers were working abnormal working hours in the Municipality, because of the unavailability of trucks. It was also reported that contract workers were still unpaid.

7.7 IMATU: The Independent Municipal and Allied Trade Union raised concerns about the irregular appointment of people who were not suitable qualified. Further, there was appointment of service providers in the Municipality, without the necessary knowledge, e.g. meter reading.

7.8 Matlosana Business Chamber: The Chamber stated that there was a memorandum of understanding on local economic development with all stakeholders. It was mainly concern about meter reading, lack of service delivery as well as corruption in the Municipality. Despite the challenges, it was willing to work with any delegated official from the MEC with regard to the intervention that will bring tangible outcomes for service delivery.

7.9 West Vaal Chamber: It was made known that without water or electricity, no business will ever thrive in Matlosana . The Chamber was also concern about the potholes around town.

(B). Clean Audit

7.10 Chief Financial Officer: It was reported that the audit action plan was developed and approved by the Council, with inputs of the Performance and the Audit Committee. The plan was discussed and accepted by the Auditor-General. The 2012/13 financial statements and audit file will be compiled in-house.

7.11 The Council approved the reinforcement of the Finance Department, to ensure effective implementation of the audit action plan and day to day operations. Currently, skills audit in the Finance Department were being performed to address skills level raised by the Auditor-General. Further, training was provided to the Finance staff on the use of the system and accounting standards. In addition, staff including councillors were attending financial and management development programmes.

(C). Financial Management

7.12 Chief Financial Officer: It was stated that internal controls on all financial areas were reviewed for weaknesses. An additional reviewers and approvers were introduced on changes to consumer balances and details. Bank reconciliation were brought and done on monthly basis, as opposed to the past. Cashiers’ reconciliations were done daily. In addition, creditor’s bulk accounts and major suppliers’ accounts were now being reconciled monthly.

7.13 A Financial Management Improvement Project managed by National Treasury is currently being implemented in the Municipality, and this project plan was adopted by the Council. The project has a detailed project plan which was being monitored by a full time Advisor from National Treasury and a steering committee made up of the Executive Mayor, Member of the Mayoral Committee of Finance, Municipal Manager, CFO and the National Treasury Advisor.

(D). Revenue Enhancement

7.14 Chief Financial Officer: The revenue collection rate of the Municipality during June 2013 stood at 90%, 93.5% in May 2013 and 88.7% in April 2013. However, there were delays on payments by provincial departments, and the outstanding balance was R38.6 million as at 31 July 2013.

(E). Revenue Enhancement

7.15 Chief Financial Officer: It was reported that ESKOM bulk account was a challenge in the past. The difference between the ESKOM tariff was materially high, compared to the tariff the Municipality was selling to its consumers. However, the tariffs adjustments made in the 2013/14 financial year will be able to address this to a great extent.

7.16 The ESKOM account used to be R190 million in arrears in November 2012, however, arrears now stood at zero and only the current account was being serviced. The Midvaal Water Board account was up to date, in line with payment agreement made with the Municipality. The remaining arrear balance of R18 million will be paid by November 2013.

8. Committee Observations and Opinion

8.1 The first step in terms of an intervention would be the issuing of a directive. A directive must first be issued by the Provincial Executive before it can assume responsibility in terms of the section 139(1 )( b). This injunction can be based on the Constitutional Court’s reasoning when it evaluated section 100 (the equivalent of section 139 in the context of the relationship between national government and the provinces). The Court resolved that the assumption of responsibility is not possible without first issuing a directive. [1] Consequently, after the directive has been issued, its content and the steps identified therein continue to determine the scope of the section 139(1 )( b) intervention.

8.2 The principle of respect for local government’s autonomy, which is critical to the design of a developmental local government, instructs the Provincial Executive to inform the Municipality of its intention to use section 139. The Municipality must be allowed to make representations prior to a Province’s decision to issue a directive [2] or assume a responsibility. Otherwise, the circumstances’ underlying the intervention exposes the Provincial Executive to a procedural attack.

8.3 The Provincial Executive decision to invoke section 139(1 )( b) of the Constitution rest solely on the financial crisis in the Municipality, which was observed as a result of the non-payment of the bulk electricity and water accounts to ESKOM and Midvaal Water Board. However, it should be pointed out that since the intervention was of a financial nature, section 136(2) of the MFMA should have been invoked which provides for a less intrusive measures to be taken, and in light of the constitutional imperative that the functional integrity of the Municipality must be respected. Such measures should first be implemented in this case before the more drastic step of section 139(1 )( b) of the Constitution.

8.4 There seems to be political stability in the institution and the Local Labour Forum was functional and effectively utilised, due to the cooperation between organised labour, councillors and senior management.

8.5 The Committee wish to emphasize that all the spheres of government are tasked to observe the principle of co-operative government and must conduct their activities within the parameters of Chapter 3 of the Constitution. In the case of Matlosana , section 155 (6)(b) of the Constitution places a duty on the North West Provincial Government to support the Municipality and further to promote its developmental capacity so as to enable it to perform its functions and duties.

9. Recommendations

9.1 The Select Committee on Co-operative Governance and Traditional Affairs recommends as follows :

9.1.1 Since the intervention team has never been to the Municipality and f ive months has passed since the intervention began, and no progress has been registered in the Municipality. The NCOP should disapprove the intervention in Matlosana Local Municipality as issued by the North West Provincial Executive Council in terms of section 139(1 )( b) of the Constitution.

9.1.2 The National Minister for Cooperative Governance and Traditional Affairs, together with the MEC for Local Government and Traditional Affairs in the North West Province, should review the intervention and taking into account the procedural requirements of section 139(1 )( b).

Report to be considered.