Municipal Infrastructure Grant (MIG) review rationale; Back to Basics programme & Bulk infrastructure and access to basic services: COGTA progress reports

Meeting report

Introduction: Minister of Cooperative Governance and Traditional Affairs

Mr Pravin Gordhan, Minister of Cooperative Governance and Traditional Affairs (CoGTA) requested that his Department be given more time with regard to the matter of bulk infrastructure. The most important context of the presentation was that over a period of time, as the need arose, different types of grants were put in place. The Department had developed a process, facilitated at the Treasury, to relook at the grants to see what was currently relevant. The Department knew that there were grants such as the Municipal Infrastructure Grants (MIGs) used by a number of smaller municipalities for good reasons, but sometimes not for good reasons, including operational expenses, paying staff and other expenses not intended by the conditionality of the grant. This resulted in defeating the purpose of exercise.

The second observation made by the Department over time had been that managing too many grants that were entering a municipality in parallel also created difficulties in managing finances, ring-fencing the money, etc. Thirdly, some of these grants should actually be packaged together so that when a project was being delivered, there was a project fund and not individual grants that each contributed a little to a particular project. These observations had led to a specific review of the MIG, but more generally to the conditional grants in the country.

Presentation:Department of Cooperative Governance and Traditional Affairs

Mr Werner Heydenreich, Senior Manager: Municipal Infrastructure Policy, Stakeholder and Sector Collaboration, Department of Cooperative Governance and Traditional Affairs (DCoG) briefed the meeting about the Municipal Infrastructure Grant, which was the largest local government infrastructure development funding programme in South Africa (R104 billion over 12 years). The programme had been introduced as part of major reforms implemented by the government to improve service delivery in a coordinated manner in line with the Constitution and the Municipal Systems Act, 2003. This Act stipulated that municipalities should be centres of development and should take control of services and infrastructure projects within their areas of jurisdiction after consultation with their communities through the Integrated Development Plan (IDP) public participation process. Moreover, integration of all the municipal infrastructure programmes had been a Cabinet decision (2003) to try to find a coordinated approach with regard to the municipal infrastructure delivery, and these included the following:

• Consolidated Municipal Infrastructure Programme,
• Local Economic Development Fund,
• Water Service Capital Grant,
• Community Based Public Works Programme,
• Building for Sports & Recreation Programme and
• Urban Transport Grant.

He said changes in priorities and delivery approaches over the past 12 years had necessitated a review of the MIG policy framework. These changes included bringing the policy up to date, retaining the successful elements of the 2004 framework, improving where elements had not worked well, and responding to issues emerging as priorities in 2014-15, such as Back to Basic (B2B) -- the sustainable delivery of services, and economic growth through infrastructure development. The Department also aimed to ensure alignment with the Conditional Grant Review process facilitated by National Treasury, solidifying the context of the Municipal Infrastructure Grant

With the methodology review, the DCoG had had consultation with national and provincial stakeholders via workshops and one-on-ones, municipal case studies of 27 municipalities and desktop analysis. The DCoG had also had a draft policy framework produced and workshopped with stakeholders in July 2014, with revised principles and objectives. The MIG had performed well in many respects, and had seen strong progress in providing access to basic services in some parts of the country. It had resulted in employment creation, as projects were subject to Expanded Public Works Programme (EPWP) guidelines on job creation, and enterprise development. Systems and structures across government were well entrenched, having been built up over a number of years.

Over the ten years in which it had been in place, the MIG had played a major part in service delivery in areas such as water, sanitation and waste, and figures comparing 2001 to 2011 had shown a significant increase within these sectors. The 2014/15 MIG expenditure had shown significant overall improvement over the last three years, particularly in  Gauteng (from 74% in 2012/13 to 95% in 2014/15), Limpopo (58% to 72%), Mpumalanga (57% to 86%), Northern Cape (73% to 85%) and North West (73% to 89%).

Cumulative key MIG performance outputs since the inception of the MIG programme include two billion households that benefit from water, and 1.5 million households that had benefited from sanitation. Over 4 000 kilometers of roads had also been funded from the MIG. The same was indicated in community lighting, where 603 114 households had benefited, and 699 sport and recreation facilities had been established. 

The context of service delivery had changed and the MIG had to adapt to respond to these changes. The Department also had to increase its acknowledgement of municipal differences in terms of spatial and performance realities. It was also working to meet challenges of infrastructure delivery relating to planning, implementation and maintenance, as well as to widen the view of expenditure needs in many municipalities.

In the Department’s engagement and consultation processes, a few policies had been developed and had been included in the draft policy document. These policies included:

• Making it more explicit that allowance of the use of the MIG for renewal must take place within a context of proper infrastructure management, including adequate maintenance;
• Allowing use of MIG for economic infrastructure also for infrastructure that unlocks economic growth or catalyses revenue generation;
• Ensuring sustainability of infrastructure -  infrastructure grants to be applied only where operations and maintenance (O&M) arrangements are in place;
• Allowing municipalities to spend up to 5% of their MIG allocation on repairs and maintenance, subject to a planned maintenance programme being in place;
• Introduce two MIG ‘streams’ -- the current MIG, and a MIG-2 with less conditionality and monitored based on an overall capital programme and achievement of agreed outputs, rather than on a project-by-project basis;
• Allow municipalities qualifying for N funding window in MIG (27 priority districts) to use up to their full N allocation for rural roads;
• Use the M window in the formula to offer incentives for strong performance;
• Introduce infrastructure investment plans as a condition for municipal allocations that will ensure that selected MIG projects from the Infrastructure Deployment Programme (IDP) fit within the sustainable capital expenditure envelope of municipality;
• Have a top-slice of MIG for ‘Regionally Strategic Municipal Infrastructure’ -- infrastructure that was regionally significant, of national priority or required to address an urgent situation;
• Improved coordination of MIG across spheres;
• Improved monitoring and reporting to identify obstacles to implementation activities happening at a local level.

Mr Heydenreich said that MIG review areas to be finalised by the end of August 2015 were a high level design of the MIG-2 stream, high level design on incentives, and conceptual proposals for implementing MIG in dysfunctional municipalities.

Discussion

Mr M Hlengwa (IFP) asked about the issue of funds being spent for their intended purpose. What was the actual proportion of the expenditure the Department presented for MIG that was spent for purpose intended? A greater emphasis needed to be made to ensure funds served the function they were intended for.

Mr E Mthethwa (ANC) asked if the Department could provide consolidated expenditure in order to get a bigger picture on trends and patterns of how the provinces were doing.

Mr N Masondo (ANC) stated that the projects would not be systematic unless it was said upfront where they would be in year 1, 2 and so on. A commitment was necessary that would assist in a meaningful way. Another issue that the government needed to explore was what was being done to leverage resources from the private sector.

Mr M Matlhoko (EFF) asked about the consequences for using MIG funds for unintended purposes by municipalities.

Mr A Mudau  (ANC) asked how the Minister could assist the IDP of the municipality to align with the national and provincial departments, because their budgeting processes were not the same at times -- for instance, municipalities sometimes budgeted when provincial departments had already budgeted.

Mr M Mapulane (ANC) said he was happy that the Department would make the MIG more flexible, particularly in operation and maintenance, because this had been one area with insufficient provision. In the final policy outcome, this element needed to be captured so that municipalities could sustain infrastructure. The cumulative key MIG performance outputs validated the statistics of Statistics South Africa (StatsSA) that the committee had interacted with in October 2014, where it had been empirically confirmed that there had been significant progress made over the past ten years.

The Minister said that if funds were spent on operations not intended, then that municipality was compromised on services, but the gross figures did not adequately show the quantum of money that really went to smaller municipalities. If he was not mistaken, some of them received from R5 million to R7 million a year, and these were small amounts of money. The Department, together with Treasury, had begun to look at how to bulk up the money, and the some work was going on in this area. One of the lessons learned by the Department was that if smaller municipalities were continuously given R5 to R7 million, they could not take on some of the bigger challenges that they faced. He said the Department could produce more data to show trends for longer periods and send them through to the Chairperson. Moreover, there was a pattern of improvement that was not insignificant, looking at the data presented over a period of three years. If a province passed the 85% mark on expenditure, it meant that it was getting close to spending its budget, but the question would be, what was the quality of the spending? The review would provide this information.

The Minister said that the Department wanted to have two types of planning: monthly planning for a project pipeline with individual incremental approaches; and district level planning, so that the bulk and the articulation elements connected to one another. Then there should be integration planning within the district and municipal level. It was very important how these three were synchronised going forward, to provide a better and complete plan. There was absolutely no doubt that the Department needed to do more and in some instances some municipalities were doing it.  In some bigger metros, they raised money and borrowed from banks, and to this extent the private sector was involved. There had also been an expression of interest from several sources in the private sector to make a larger contribution in this process. Thus, if the private sector contributed to bulking up the resources and the municipality paid back their contribution, then it was a legitimate financial process. There were other areas where initiatives were in place, like mining companies, where there was no doubt that in some areas they were already making proactive contributions and in some could make better contributions, particularly where new licences had been issued.

If the Department planning was done right, then the issue of the budget cycle should not be a problem. However, there was a disjuncture because the provincial and national departments had their budget cycle from April to March, while municipalities had it from July to June. There was thus a three month gap that had to be carefully planned for.

Regarding operations and maintenance, there were two approaches -- the traditional and the correct approach. Grants were for capital investments, and once a grant was given, the investment took over and it was the municipalities’ responsibility, from the revenue collected, to make sure that maintenance took place and patched things up when things went wrong. Another approach, articulated by the Committee, was the need for more money to actually do this.

Mr Heydenreich said for maintenance and operations, it had to be remembered that many of the grants actually went to poor municipalities with no income base to generate any surpluses to maintain and operate infrastructure. He agreed with Members that there were signs that the equitable share allocations for this were not enough. National Treasury was looking for data to support this, and they maintained that the investment should rather be in maintenance and the operational practices in place within these municipalities. Thus maintenance operations might be a solution, but the Department wanted to link it also with additional capacity, and this was a matter of urgency now.

Municipalities that spent the MIG for purposes not intended would fail to account for this money. What had been clear was that withholding this money from that municipality did not address the plight of those communities that were supposed to be served by the municipality. Part of what the Department had been looking into with the Municipal Infrastructure Support Agent (MISA) and other role players was to see whether there was a way in which to withhold the money, and for MISA to ensure that the money was actually spent on behalf of the municipality in the right way.  MIG 1 had been dealing with infrastructure backlogs, and MIG 2 was looking at a new dimension, because it focused on developing a mixture of both economic and social infrastructure that helped the municipality to plan for better development and economies.

Mr Mathloko referred to the structures for small business that the Minister had mentioned, and asked if the Department had tested the need for such structures.

The Minister said municipalities were enforcing the bylaws to prevent an unruly and disorganised situation. The reason that municipalities had these bylaws was to retain an element of order, and political leaders at the municipal level had to have the political will to ensure that these bylaws were given effect to and that there were consequences if people operated outside them. This was a task that the Department needed to take on.

CoGTA on Back to Basics: Progress and next phase

Mr Themba Fosi: Deputy Director General, CoGTA,  said the Department had done a comprehensive analysis of the state of local government in 2014 and categorised municipalities as:  “Doing well,  Potential to do well and  Dysfunctional”. Since this launch, government, premiers and MEC’s were now reporting regularly and Basic to Basics (B2B) was a standard agenda item at all meetings held. There had been varied B2B support plans implemented by provincial Cooperative Governance and Traditional Affairs (Cogta) departments. An average of 180 municipalities were consistently reporting every month on their performance against set indicators in the B2B programme, and 236 municipalities had reported at least once in the past six months.

The Department had received private sector support to achieve the B2B objectives and this included support from Telkom for IT systems, Old Mutual for support of the B2B Pillar, and FNB for project management. The Department had introduced the B2B monthly information system which had been functioning since October 2014, and its purpose was to detect significant trends and impacts. Some movement could be detected in certain areas, such as municipalities owing Eskom, or dedicated programmes for municipalities receiving disclaimers, etc. B2B action plans aligned to IDPs and budgets, and further adopted by councils for implementation, were under way.

The Department had been looking at working with the provinces using scientific instruments in assessing the level of municipalities’ performance. These instruments included a graduation model and standardised reporting templates, monthly reporting and legislated performance reports, as well as monitoring and reporting and integration systems. For policy review, the Department’s approach was to strengthen the role of the district, and had commenced work on spatial integration and implementation. The Department had supported a number of municipalities, including Mogalakwena, Nelson Mandela Bay Metro, Buffalo City, Oudtshoorn and Makana. The Department’s support and good governance packages were forensic investigations, financial management, infrastructure delivery and service improvement, council structures, functional improvement plans and citizens’ engagement improvement plans. There was also “hotspot monitoring” where there was continued monitoring, diagnostic assessments and support packages, national and provincial support and intervention measures applied, as well as B2B programme and project coordination capability.

Mr Fosi said there were numerous areas of concern. The first was putting people first. In this area, the Department had found that processes and systems for citizen engagement were generally weak in municipalities categorised as dysfunctional, and were at risk. This was mainly due to a lack of public participation policies that would guide engagements. Improvement in the functionality of ward committees was needed. Few municipalities had conducted Citizen Satisfaction Surveys - most municipalities regarded the IDP engagement as reflective of the community’s concerns. Another key concern was services and infrastructure. This existed where there was ageing infrastructure across provinces, leading to service failures, municipalities with agenerally weak technical capacity in planning, project management, designing and procuring of infrastructure, the lack of capacity of water services authorities to respond to water challenges and, in some instances, to perform disaster management functions, and quantifying, costing and addressing unaccounted for water and electricity losses.

Political instability and weaknesses in governance were two of the primary causes of poor service delivery at the municipal level. Other factors were weak, or lack of, enforcement of bylaws by municipalities, the correlation between senior management vacancy rates and lack of functionality of municipalities, harmonisation of the relationship between traditional leaders and municipalities; availability of land for development, as well as limited attendance of national and provincial sector departments and SOEs to IDP engagements. For financial management, the Department’s concern included servicing of debt owed to bulk suppliers, tariffs that were not cost reflective, the collection rate, problems of billing systems, debt owed to municipalities by clients (government departments in particular), culture of payment and audit outcomes. The Department also had concerns in building institutional capabilities. Municipalities with weaknesses in governance and corporate management functions, such as financial management, human resource management and supply chain management, also tended to experience difficulties in service delivery.  Legal capacity was non-existent in most municipalities, resulting in numerous instances of litigation and escalating legal costs.  Other concerns were middle management not being adequately skilled, a limited capacity for forward planning and implementation capability, and the inability by some municipalities to attract critical skills.

He said on the next phase of B2B, the focus would be to;

• Support the outcomes of the municipal amalgamation after announcement by the MDB;
• Accelerate integrated planning and delivery of basic services;
• Establish programmes to address generic systemic problems – e.g. weaknesses in human resource management, supply chain management, infrastructure procurement and financial management;
• Strengthen community participation and local government accountability to citizens -- mechanisms for enabling citizen complaints and engagements between citizens and municipalities not effective; 
• Ensuring accelerated delivery of basic services regarding water, sanitation, electricity, roads and storm-water and waste removal; 
• Tackling corruption;
• Tackling “dysfunctional” municipalities, moving “at risk” municipalities to “doing well” and preventing any municipalities from regressing. 
• Mobilise multi-departmental teams (national and provincial resources) to tackle dysfunctional municipalities;
• Improved support and interventions to address weaknesses in support programmes and interventions being designed and implemented.
• Evaluation of provincial CoGTA departments

Discussion

Mr M Hlengwa, IFP, said a lot had been done with B2B to ensure that the municipalities and institutions were capacitated. This showed that the Department was really focused on ensuring that the administrative part of municipalities was functional. However this was incomplete in the absence of capable councillors, and this also spoke to political parties in terms of the people they were deploying to make sure they had the ability and knowledge to deal with what governance was all about. He asked what challenges there were in the harmonisation of the relationships between traditional leaders and municipalities, and the promises that had been made. He asked which the dysfunctional municipalities were, so that the Portfolio Committee could refocus its oversight on those municipalities and also get an understanding of what it was that characterised a dysfunctional municipality, to assist the oversight process.

Mr Mudau congratulated the Department and the Minister for the B2B initiative, because it had created a lot of improvement in local municipalities.

Ms N Mthembu (ANC) said that B2B did more than address the issues of dysfunctional municipalities, but was also in place to deal with the challenges of the apartheid legacy. The Department was doing a marvelous job, as improvement was really showing in oversights done by the Committee. However asked if the Western Cape was part of this, because of some of the things reflected in newspapers like an article in the Mail and Guardian which referred to about 800 people being removed from the areas where they had been residing, to about 35 km outside Cape Town.

Mr M Mapulane (ANC) said that the approach of the B2B was beginning to gain traction in both the municipal and other sectors. It was a concept that had captured the imagination of many progressives in the country. A complete turnaround could not be expected in the space of 12 months, so there was a lot of work that still needed to be done. He asked if mechanisms had been introduced especially to deal with the issue of debt owed to government departments, because this was something that could be easily resolved. Had the Department arrived at a solution to address the issue of capacity? Cooperative governance was understood to entail not only municipalities, but all three spheres, so to what extent were provincial and government departments going to be looked at?

Mr C Matsepe (DA) asked if the B2B concept should be focusing on the training of municipal management and middle managers. This was because they were the ones who had to make things happen, not necessarily politicians, because politicians were there to deal with oversight.

Mr Mthethwa asked how deep the challenges were in service delivery, caused by glitches between  traditional leaders, farmers and the Department.

The Chairperson asked if the Department could improve its technology, particularly a system at the national level that would allow an overview of what was happening in the country and the shortcomings experienced. He said that sometimes some of the reports from local authorities were somewhat incorrect, and included a lot of exaggeration.

Mr Vusi Madonsela, Director General, CoGTA, said that the Department had made reference in its presentation to the support that it was receiving from Telkom, and it was helping to put together the capability of a national overview. There were also data sets that were sitting in the Department and other various places, trying to be combined. Technology was very expensive and at the time, the Department had been in a bad financial state. The Department had put in place task teams and in the revised organisational structure there had been provision for skilled staff that would be doing hands-on monitoring at the municipal level. Where such skills were lacking, the Department had committed to training people to make sure that they were able to collate the information needed.,

Mr Fosi said the Department was currently using social media platforms to communicate with communities, and there was an SMS system in place as well to serve this purpose. He said there was an accountability relationship with the provincial CoGTA, which needed to be managed by the national CoGTA, as there was a concurrent function. The issue of training managers should be looked at, because by law municipalities must employ people with the right skills, qualifications and competencies in these positions. The list of dysfunctional municipalities had been previously presented to the Portfolio Committee, so the current presentation had not included it, but the Department could update it and submit it to the Chairperson.

Dr Sean Phillips, Chief Executive Officer, CoGTA, said traditionally the Municipal Infrastructure Support Agent (MISA) had been focused on providing municipalities with technical engineers and town planners, recruiting trainees and paying them stipends. Currently there were approximately 50 engineers in town planning, providing support to about 120 different municipalities across the country. Undoubtedly in many instances these engineers and town planners were providing a valuable service in these municipalities. There were concerns, however, around the aspects of support provided by the Department, and it was looking at changing its support in some ways. Often it seemed that a dependency was created in municipalities where some of the MISA’s engineers have been for more than three years, and there had not been any progress from the municipalities in hiring their own staff.

The Minister said the issue of overcoming the apartheid legacy was still a big issue in South Africa, and there needed to be more talk about it to understand more about it. One of the projects the Department wanted to launch was to take a selection of municipalities and look at the relationship between special development plans and the actual plan of development. The grants that the Department offered did not have sufficient conditionality to change behaviour, because incentives were supposed to be designed to influence behaviour. Thus many observers would say there was a replication of the apartheid legacy, and the time had come to understand this phenomenon and stop it.

The meeting was adjourned.