Division of Revenue Bill: briefing by Treasury & Financial & Fiscal Recommendations; Water Services & Transfer Subsidy; National

FINANCE SELECT COMMITTEE
28 February 2007
DIVISION OF REVENUE BILL: BRIEFING BY TREASURY & FINANCIAL & FISCAL RECOMMENDATIONS; WATER SERVICES AND TRANSFER SUBSIDY; NATIONAL ELECTRIFICATION PROGRAMME; PUBLIC TRANSPORT INFRASTRUCTURE GRANT: PROGRESS REPORTS

Chairperson: Mr T Ralane (ANC) [Free State]

Documents handed out:
National Treasury Powerpoint Presentation: Division of Revenue Bill 2007 [B3 –2007]
Financial and Fiscal Commission: Comments on the Division of Revenue Bill
Department of Minerals and Energy presentation
Department of Water Affairs and Forestry
Division of Revenue Bill [B3-2007]

SUMMARY
National Treasury and the Financial and Fiscal Commission provided the Committee with an overview of the key aspects of the Division of Revenue Bill, while the Departments of Minerals and Energy, Transport, and Water Affairs and Forestry gave progress reports on spending on the electrification programme, the Public Transport Infrastructure Grant and Water Services and Operating Transfer Subsidy respectively.

Members expressed concern over the delays in the completion of projects, the late approval of business plans, the fiscal capacity of municipalities to manage grant spending, the eradication of the bucket system, and the slow progress on electrification. Several questions were asked on transport infrastructure planning. A recurrent problem was monitoring of the quality of service provided, and Members stressed that they were worried that fiscal dumping was taking place, whereby the money was spent in the last quarters without proper checks and balances, and without assessing the value for money.

The Chairperson suggested that provincial departments should be obliged to account before the Select Committee on Finance. Presently, many asserted that the national departments and not provincial departments were required to meet with the Committee.

The Departments were requested to provide a list of poor performing municipalities. These municipalities could be called to account before the Committee. Subsequent to the proposal made by Kwazulu Natal MEC for Agriculture and Land Affairs, quarterly hearings on expenditure would be held in provinces. Members would then be able to visit sites and projects.

The Chairperson addressed the Committee on the forthcoming visits to the provinces and the procedures to be followed prior to the passing of the Division of Revenue Bill.

National Treasury (NT) Briefing on Division of Revenue Bill [B3-2007]
Mr Lungisa Fuzile, Deputy Director-General: Intergovernmental Relations, NT and Mr Kenneth Brown, Director: Provincial Budget Analysis, NT noted that the Division of Revenue Bill (DORB) aimed to strike two critical balances; one between executive authorities and administration and the other between executive authorities across spheres.

Clauses that dealt with revised provincial and municipal boundaries; responsibilities of the Auditor-general; municipal capacity building and risk management clauses had been deleted. Clauses dealing with the Gautrain Rapid Rail link had been amended to remove provisions no longer relevant. New clauses were also inserted which aimed to improve the management of new grants. These included the 2010 FIFA World Cup Stadiums Development Grant, and the Bulk Infrastructure Grant. Clauses were also refined to facilitate the project registration of the Municipal Infrastructure Grant. The exemption clause was also simplified.

The realignment of municipal and provincial boundaries necessitated the realignment of municipal allocations in March 2006. However, provincial allocations could only be realigned on 1 April 2007. The equitable share formula had been revised although the structure of the formula was unchanged. Statistical information needed to take account of the shifts in boundaries.

The future work on local government and provincial fiscal framework was outlined. This included the acceleration of the housing accreditation process, the review of certain conditional grants and the review of the local government fiscal framework, which would include the replacement of the RSC levy, the restructuring of the electricity distribution and constitutional powers and functions.

The key considerations that guided the drafting of the bill were outlined. The drafters were concerned to fill any gaps identified in the implementation of the Act, unintended consequences of certain clauses, and the necessity for new provisions or clauses due to changed contexts. It was important that the provisions of the Bill were consistent with other legislation. Issues that could better be covered by legislation and regulations should not be addressed in the Bill. Administrative issues were largely covered in the frameworks.

Discussion
Ms Belinda Scott (Chairperson: Kwazulu Natal Portfolio Committee on Finance) noted that the new 2010 World Cup Soccer Stadiums Development Grant highlighted a relationship between national and municipal governments. She asked what role the provincial sphere would play in the preparation of the relevant infrastructure.

Mr Fuzile answered that the role of provinces in 2010 World Cup preparations could not be legislated. The host cities were very central to the provision of services and infrastructure, since many of these services and infrastructure belonged to the municipalities. It would therefore not have been sensible for the funds to be allocated to municipalities via provinces.

Ms Scott raised her concerns over the impact of the new demarcation process as far as the Eastern Cape was concerned. Under the old demarcation process there was funding per capita of children. She asked for explanation of the new process. Secondly she was concerned about the impact of the demarcation process specifically for the funding for KwaZulu Natal. The funding per capita for each child in KwaZulu Natal was much higher than that of Eastern Cape before the demarcation. However, it now received the same amount as the Eastern Cape.

Mr Fuzile responded that given the circumstances this differentiation needed to be accepted. The split in resources was not based on what provinces used to spend, and was equally allocated to ensure that every child across all provinces received the same amount. The higher per capita allocations in some provinces had resulted from choices made by the respective provinces. If a province wanted to provide a higher per capita allocation to its population it was welcome to do so.

Ms Scott wondered what kind of working relationship provinces could foster with NT to fast track approval to avoid continued rollovers. Late approval of business plans was also a cause of concern.

Mr Fuzile explained that when the conditional grant was introduced it was felt that the time taken for the submission of the business plans was too long. He cautioned that although there was a desire to speed things up, there should be no compromise to the quality of the work being done. The business plan was not required to set out an amount, but merely had to spell out the necessary mechanisms for the implementation of projects. These mechanisms could be set up prior to the allocation of funds, and this could also improve the level of service delivery. He commented that The Committee had a legitimate reason for requesting meetings with both the provincial departments and national departments responsible for the transfer of a specific function to ensure that the performance of functions such as feeding schemes was adequately planned. If the Committee felt the need for a deadline for business plans to be in the legislation, this could be done.

The Chairperson added that the credibility of business plans was highlighted as a cause of concern, as this was linked to the over- and under-estimation of costs as well as the under- and over-spending of funds. The National Department needed to dedicate capacity to ensure that business plans were submitted timeously and were credible. He agreed that the fast tracking of business plans should not compromise the quality and credibility of the business plans.

Mr D Botha (ANC,Limpopo) commented that the Office of the Premier managed the infrastructure development in the Limpopo province for the 2010 World Cup. He asked NT to comment on this since the funds for this infrastructure development were transferred to municipalities. He cautioned that the offices of Premiers would be overextended.

Mr Fuzile acknowledged that political authority lay with the Premier's office. This may mean that for a short term, the offices would be over-capacitated. Provinces had a very important role to play in provincial transport matters as well as in the provision of health services.

The Chairperson explained that the coordination and political oversight of projects were the responsibility of the Offices of Premiers. He said that NT would need to give clarity on the increase in size of the Premiers' offices.

Mr Z Kolweni (ANC, North West)asked for details of the distribution of the Bulk Infrastructure Grant (BIG) per province.

Mr Fuzile explained that the Bulk Infrastructure Grant was focused on local government. The infrastructure to be built with this grant would fall in the jurisdiction of local authorities. As this grant could straddle municipalities, it would not be an even amount for all municipalities. Municipalities would submit a list of projects that needed to be funded by such a grant.

Mr M Goeieman (ANC,Northern Cape) enquired why the growth of the population was not taken into account when allocations were made. NT needed to clarify how allocations to provinces and towns such as Klerksdorp were determined,  since these places could not rely on student enrolments as an indicator for the growth of the population.

Mr Fuzile clarified that the system of allocation, which currently was applied irrespective of the differing population growth rates, was not perfect. The problem with using population growth was that the coefficient used in such a measurement would always be historical. Use of projected population growth rates would lead to much  dispute. Current factors needed to be taken into account when finalising allocations.

Ms E Robinson (ANC,Western Cape) requested clarity on the hospital restructuring grants to tertiary academic institutions. Citing the recent public furore over the cuts in the allocations to Tygerberg and Groote Schuur hospitals, she requested NT to explain why these cuts were made, and why there was no funding for the completion of the hospitals in Khayelitsha and Mitchells Plain. She indicated that these projects received both provincial and national funding.

Mr Fuzile answered that once the Bill had been passed, provinces would table their own budgets. Provincial executives set differing priorities, and as a result certain projects, such as the revitalisation of certain hospitals, could be delayed for a certain time. The national contribution had been increased considerably, and the personnel component had been taken into account. NT was trying to accommodate the  Mitchells Plain and Khayelitsha hospitals in the second and third year of the MTEF cycle. This meant that certain provinces had to accommodate the projections. It had been impossible to accommodate these hospitals in the first year. I

The Chairperson commented that this was a provincial question, which should have been directed at the MEC for Health for the Western Cape during the recently held meetings with the MECs of Health.

Ms A Mchunu (IFP, Kwazulu Natal) said that although the bulk infrastructure grant was aimed at providing essential infrastructure to schools, clinics and hospitals, these needs were also apparent in the wider communities and households.

Mr Fuzile explained that the Municipal Infrastructure Grant (MIG) did provide for the backlogs in infrastructure for households. The particular earmarked funds sought to accelerate the connectivity of schools and clinics, which were not explicitly catered for in the funding arrangements.

The Chairperson said that the grant was for specific purposes, but DORA also made provision for the provision of such basic services to the wider communities.

The Chairperson wanted to know whether the NT considered the municipal capacity building clause as redundant. Municipal capacity was a very critical issue that needed to be addressed.

Ms Lee-Ann Ferreira (Legal Advisor:NT) answered that the capacity building clause had been removed as it called for a framework to be developed to coordinate across the different capacity grants. Although the grants were still there the coordination mechanisms were no longer required.

The Chairperson wanted to know why the risk management clause was deleted. He considered this had been  very useful, as national departments were not doing what they needed to do.

Ms Ferreira explained that the Public Audit Act (PAA) was now being implemented vigorously. This now included  matters initially included in DORA. The PAA obligated the AG to report on the compliance and legislative environments of all departments, so that the risk management clause had become redundant. As internal auditing committees and mechanisms were becoming stronger, the auditing role had been taken over by departments themselves. A specific risk management plan was therefore not needed in respect of a grant exceeding a specific amount.

The Chairperson requested clarification on the applications for emergency situations. He asked if the  contingency reserve would not kick in at a time of emergency.  Duplication of some of these specifications needed to be avoided. He further asked if response times were problematic and noted that some municipalities had disaster management structures in place.

Ms Ferreira answered that the emergency clause had been deleted since NT was not allocating funds for emergencies, nor was a contingency reserve provided for. Difficulties had arisen in making emergency allocations in terms of the Public Finance Management Act (PFMA), and there was a legal and technical irequirement to gazette the proposed payments before funds were paid over. An administrative mechanism was required to provide for tan emergency allocation without the administrative rules.

Mr Goeieman also asked further clarification on why those clauses dealing with municipal boundaries were deleted.

The Chairperson commented that in terms of the frameworks for national departments, the NT could add responsibilities to provincial departments. It was known that provincial departments needed to report to national departments, yet the framework specified that only national departments needed to submit reports to the Select Committee on Finance. Provincial departments had tended to use this technicality to argue against meeting with the Committee. The NT needed to consider this suggestion very carefully in order to compel relevant players to account before the Committee.

 Financial and Fiscal Commission (FFC): Briefing on recommendations on Division of Revenue Bill
Dr Betheul Setai, Chairperson and Chief Executive Officer, FFC noted that the bulk of the Commission’s recommendations focused on the various conditional grants.  It believed that conditional grants should only be used to deal with spillover effects and to address the funding of new national priorities that required institutionalisation in the provincial and local government budgeting process. The FFC had recommended national norms and standards in areas of concurrent responsibilities and the need to monitor service delivery to ensure compliance with the minimal standards of conditional grants.

The Commission recommended the merging of the Hospital Revitalisation Grant (HRG) and the Provincial Infrastructure Grant (PIG). Government recognised the need to streamline all infrastructure transfers to the provinces and would report on this issue in the 2008 Budget. The FFC believed that the Land Care grants and Comprehensive Agricultural Support Programme (CASP) grants had a common objective and that these grants could also be merged, to ease the administrative burden. However, Government considered these grants to have distinct objectives and preferred the separation. The FFC had recommended that the conditions attached to the National School Nutrition Program Grant (NSNP) be reviewed and relaxed. Government would consider this recommendation as part of the currently running baseline study on these grants .

The FFC made two important general comments. It proposed a review of the application process of conditional grants to ensure that the credibility of the budget process was not eroded. Where departments failed to spend conditional grants, these funds should be reallocated to other departments or provinces. This necessitated the strengthening of the role of Treasuries and the Budget Council. The clause pertaining to the accreditation of municipalities needed to be retained. It stressed the streamlining of housing delivery process as well as the importance of accrediting capacitated municipalities. This principle was an important part of the Bill.

Discussion
The Chairperson asserted that all Members and departments must be thoroughly familiar with the legislation and guidelines governing their objectives and work.  The Division of Revenue Bill 2007 should be familiar to all. There were clear requirements on the municipal infrastructure grant and the explanations provided by NT. Conditional allocations to local government in respect of the financial year from the national government represented the share of revenue raised nationally. There was unfortunately a tendency, where these things had not been properly budgeted, to try to say that the budget was a conditional grant. Part of the ongoing engagement was to ensure that municipalities abided by their side of the bargain. Public hearings would be held in June.

The Chairperson indicated that the FFC always referred to Schedule a-j of the Constitution when defining its work. He wondered whether NT and FFC specifically considered the problem of fiscal capacity and efficiency of the municipalities and provinces when assessing the budgets and conditional grants. The Committee most frequently encountered challenges of capacity and efficiency  when interacting with these spheres of government. Thus although the points outlined under Schedule (a) to (j) were interrelated, (e) was very critical.

Mr Jaya Josie, Commissioner, FFC explained that the fiscal policy unit had been doing work on the issue of fiscal capacity, working in provinces and municipalities, so it was indeed was one of the key clauses the FFC took into account. In regard to local government, issues such as borrowing had been investigated. Most of the work focused on fiscal and not human capacity, which had a serious implication on the area of efficiency. The reason for this was that personnel costs at municipal level were outside the framework used by the FFC and more in the sphere of the public sector.

Mr Conrad van Gass, Programme Manager: Budget Analysis, FFC informed the Chairperson that a presentation on the spending of provinces and municipalities and a comparison with future spending had been prepared.

The Chairperson said that this would be relevant and should be presented when the provincial and local representatives were present, during the public hearings. FFC would be informed of the date.

Mr Fuzile said that FFC and NT had agreed to refine the definition of capacity that enabled the flow of funds from high revenue-raising municipalities to municipalities with a low revenue-raising capacity. Vertical division of revenue was very difficult to calculate using the previous formula. However, through a conscious effort to take capacity into account local government allocations had changed significantly . During the phase out of the formula, NT had met with provinces to ensure that this sphere of government had the necessary capacity. He noted that although the revenues of certain provinces had been cut, municipalities within these provinces received a bigger share of revenue.

Department of Minerals and Energy (DME) Briefing: Spending on the electrification programme
Mr Chris Van Zyl (Senior Manager: Capacity Programme: DME) outlined critical challenges to electricity provision and the spending on grants. He reported that DME had only managed to complete 29% of its targeted connections and acknowledged the dire situation.

Factors contributing to this poor performance were highlighted. Municipalities had not yet completed 2005/2006 projects. However, it was hoped that these projects would be finalised in due course. Problems of planning had been experienced, since houses had were not available for electrification. Moreover, due to the delays in council resolutions, the approval of projects had also been delayed. Municipalities tended to commit to projects, which were not carried through. Greater communication between Eskom and municipalities were also highlighted.

Discussion
Ms Scott requested further clarification in the assessment of the total connections made by Eskom in the 2006/2007 financial year. She asked why the allocations had been reduced and asked whether there was a revised connection.

Mr Van Zyl responded that since eThekweni municipality had indicated their inability to complete a certain amount of connections, DME had recalled the funds. At the end of the day there was however an increase in connections made by eThekweni as they had managed to source additional funding.  Municipalities were also requested to provide a report of the viability of planned projects, and had indicated that additional connections could not be done prior to the establishing of the bulk infrastructure. The progress report on the provision of bulk infrastructure could be made available to the Committee. The bulk needs had to be addressed before the planned connections could be done, and this had not been quite clear from the presentation.

Mr B Mkhaliphi (ANC, Mpumalanga) wondered whether the Departments worked on,  and allocations were aligned with the integrated development plans.

Mr Kolweni noted that the North West had spent only 83% of transfers made and therefore a roll over of funds could be expected. The level of communication and visibility between DME and municipalities needed to be assessed. Although Limpopo’s revised numbers of connections were estimated at 3734, there had not yet been actual connections completed. He asked why this was so, and how often DME would receive reports on these connections. This issue needed to be further explored by members when doing constituency work. The late project approval as explanation for the lack of progress was not adequate.

A representative of DME explained that spending was mainly focused on the provision of infrastructure, rather than on connections. Therefore the spending looked higher than the actual completed connections made.

Ms Scott raised her concerns that the output of municipalities did not match the planned connections. The limited connections made were a cause of concern. She enquired if the request for funding by municipalities was properly assessed.

Mr Martin Masemola (Senior Manager: Electrification and Planning, DME) agreed that the assessment process was problematic. The total project life-cycle also needed to be considered. Only 10% of the total allocation for the electrification of a household would be spent on actual connections. 90% of the allocation would be spent on the provision of infrastructure. The figures for connections would only be reported between April to June. The figures represented the DME outputs, and also represented the last stages of the projects.

The Chairperson commented that although the infrastructure was in place, the ability to access this infrastructure was still limited. The delivery of the service took place at the point where a person had the ability to buy electricity, rather than having a connection only.

Mr Masemola replied that these difficulties were mainly experienced in rural areas and designated Eskom areas. This was one of the key challenges that increased the cost of electricity for poorer households. Eskom was currently developing a strategy, which could include the ability to recharge prepaid meters via cell phones.

Mr Kolweni wanted clarity on how many farm workers’ houses had been electrified.

Mr van Zyl answered that Klerksdorp in the Northwest was an Eskom area of supply. He was not sure why the total cost was not covered in the projections. The electrification of fifteen farm workers’ houses was planned, but it could only complete one connection. Money allocated could have been spent on the provision of further infrastructure. A connection could only be made if the electricity meter had been established in households, once the infrastructure was completed.

The Chairperson requested the DME to provide the committee with a list of all those municipalities that were still busy with 2005/2006 projects. Members would make follow-ups on these projects during April, as part of their constituency work. Secondly, the DME had explained that houses were not available for completing connections. It was clear that money was not being properly spent. Members would consult with provincial departments of housing to understand why housing had not been provided. DME also needed to compile a list of those municipalities who received late project approval, or who committed to projects that were not undertaken.  These municipalities may be required to meet with the Committee. Further information about the prolonging of processes of proclaiming areas should also be provided.

Mr M Robertson (ANC, Eastern Cape) wanted to know why only 29% of the projected municipal connections had been completed by January 2007. He asked when DME expected the completion of these connections.

Mr Van Zyl said that the DME made use of clerks of works who were responsible for assessing the quality of work once a project was completed. Independent consultants and engineers were also contracted to verify the standard of connections. Due to budgetary constraints, not all completed installations could be assessed.

The Chairperson interjected that the inefficiencies should not be blamed on budgetary constraints. The quality of spending by the DME is questionable and this indicated the low standards in the work of the Department. Municipalities were borrowing money for providing electrification that DME was supposed to provide. This was extremely problematic.

Mr Masemola explained that there was a professional electrical engineer assigned to each project to oversee and assess security issues and material that were being used. The use of poor quality material or poor service delivery should be picked up. The professional engineer employed by either DME or municipalities was responsible for conducting quality assessments of projects. This included occupational health and safety issues. On the completion of the project, the Department conducted a technical audit. DME would follow up on the specific incident mentioned by the Member.

The Chairperson said that this problem was recurrent. This implied that the professionals employed by the Department were not doing their work and that the DME was also not performing satisfactorily. A list of all professional engineers of each project needed to be compiled, and there needed to be honest reporting of the situation on the ground that affected the people living in these places.

Mr Mkhaliphi answered that that comparisons between percentage spent and transfers rather than total allocations would provide a better picture of the actual situation.

Mr Van Zyl said that reallocations were done annually in October. Funds would be taken from poor performing municipalities and re-transferred to other municipalities. Prior to making allocations, the DME needed to be confident that municipalities had the relevant capacity to start and complete projects.

Ms D Robinson (DA, Western Cape) expressed her horror at the low number of connections made. She asked if DME could provide more clarification on this matter, particularly as it related to the lack of connection in Botrivier in the Western Cape. She had visited an area in the Western cape where electric cables were everywhere, although houses had not been electrified, and people had the safety risk of having to use paraffin and candles.  She asked if in this situation DME would have procedures in place to act against those people responsible for the disarray.

The Chairperson commented that the examples cited by the member highlighted the quality of the service provided. He reiterated that he wished to know if DME provided quality checks on connections and projects, and what processes were followed to ensure that inadequacies were properly dealt with.

Ms Mchunu commented that the electric cables above the shacks in informal settlements were a cause of concern. She also raised concern over the lack of skilled people to do the connections and lack of efficient personnel to follow up.

The Chairperson said that in terms of section 23 of the Constitution DME and Eskom were responsible for aligning their work with the IDPs. Eskom had confirmed alignment with these plans, but a visit to KwaZulu Natal and discussions with municipalities showed the opposite. This raised the question whether Eskom had complied with DORA. DME was responsible to ensure that Eskom was aligned.

Department of Water Affairs and Forestry(DWAF) Briefing on Water Services and Transfer Subsidy
Mr Trevor Balzer (Deputy Director-general, CFO Office, DWAF) provided an expenditure report on the Water Services and Transfer Subsidy.  He noted that the non-compliance of municipalities with DORA reporting requirements had delayed the transfer of the last quarterly payments to the respective Water Services (WS) authorities due in January 2007. Refurbishment programme management guidelines had been approved in June 2006 to improve compliance monitoring and application of the grant. The delays experienced in the execution of the refurbishment programme in the beginning of the 2006/07 financial year had been overcome with the implementation of the programme. The full refurbishment grant would be expended by the end of the financial year and would be based on more clearly defined and committed refurbishment projects.

Spending on this subsidy was on track. By January 2007, R766 million of the R990 million of the WS Operating and Transfer Subsidy had been expended, 82 % of the operating subsidy had also been spent, and 40% of the Transfer subsidy was spent. However further transfers made in February 2007 increased this expenditure to 79%.

Discussion
The Chairperson wanted to know the implications for those municipalities that lacked Rapid Planning Processes (RPP), and asked if anything was being done to ensure that the processes were developed.

Mr Mazusi (Eastern Cape Provincial Legislature) asked what programmes there were around the eradication of the bucket system. It was shocking that there had been some suggestions that this system was not on track.

Mr Balzer answered that an extensive hearing on the eradication of the bucket system was hosted with the Select Committee on Agriculture and Land Affairs. He was not part of the delegation to this hearing, and would have to refer to his colleagues in the Department.

Ms Mchunu asked why no expenditure figures for the Water Services Operating and Transfers subsidy were reflected for Umhlabatuze and Sisonke.

The Chairperson noted that the estimates provided by the Department were misleading, since it faced the challenge of under spending, despite high recorded aggregated expenditures. It was not clear what the huge spending by provinces related to, given the slow improvement in service delivery.

Mr Robertson noted that the residents of Senkwe in the Eastern Cape were still suffering from lack of proper sanitation and water services and asked what was being done to improve this. 

Mr Balzer requested permission to provide responses to this and other questions at a later stage, as these related to other programmes of DWAF.

The Chairperson said that the inability of the Department to respond to questions indicated their failure to anticipate the Committee’s concerns about issues of delivery.

Department of Transport (DoT) Briefing on Public Transport and Infrastructure Systems Fund (PTIF) grant
Mr Mthabatha Makonyama (Chief Director: Integrated Transport Planning, DoT) highlighted key aspects of the spending on the Public Transport and Infrastructure Systems Fund (PTIF) grant. The grant was established to improve the public transport infrastructure and systems in South Africa, and priority had been given to World Cup related projects. A transport action plan for 2010 had been developed to guide preparations for this event. Host cities, municipalities and provinces had developed priority statements and allocations were approved based on the recommended project proposals. A monitoring and management contract for PTISF was in place.

The PTIF budget increased from R241,7 million in the 2005/2006 financial year to a projected R3 billion in 2009/2010 financial year. Funds were allocated for public transport infrastructure, Intelligent Transport Systems and non-motorised transport.

Mr Makonyama stressed the need for an improved monitoring and evaluation system to ensure the sustainability of projects. The new monitoring and evaluation contract would include project management, technical support and paring. Challenges related to spending and non-spending needed to be resolved. 

Discussion
A Member commented that the allocations for the FIFA World Cup were part of the DORB, and could therefore not be separated from the conditions attached to DORB allocations. The Department’s remarks regarding the reporting processes and accountability did not make sense.

Mr Mokonyama said the allocations and grants focused on the FIFA World Cup were part of DORB, and national departments needed to hold municipalities accountable for the spending on these transfers. Such accountability exercises were done regularly, as required by DORA. The Act stipulated the withholding of funds, if conditions were not adhered to. The Department had experienced difficulties in meeting the requirements of DORA as well as adhering to the signed guaranties with FIFA. DoT was currently developing intervention measures that would assist in improving projects rather than resorting to merely withholding funds. It would therefore lend direct technical assistance to those municipalities that were struggling.

The Chairperson acknowledged the point made by DoT. However, given the international character, as well as the magnitude of the 2010 World Cup, this event needed to succeed. It was critical to ensure that all parties involved referred to a common set of rules and principles.

The Chairperson said that DoT must explain its third quarter spending patterns against he level of funding. A meeting held with the DoT the previous year revealed the difficulties in spending funds. In particular, the DoT needed to explain why R241 million and R519 million allocated the previous year were not yet spent.
Although Mr Mokonyama had responded that the spending information was available, the Chairperson commented that the DoT still needed to address the quality and impact of spending, especially as it related to the preparations for the 2010 World Cup. This was a responsibility shared by both DoT and the relevant parliamentary committees. He stressed that the ‘fiscal dumping’ detected in the pattern of spending in the last two quarters indicated that money was merely transferred to municipalities without assessing their capacity to manage these funds. The changes and delays to project plans highlighted in the presentation was also a cause of concern.

Mr Mokonyama explained that the presentation provided a progress report, not merely the financial support, for each project. This information could be made available to the Committee. The changes in the plans of municipalities were made to resolve key challenges and delays in providing public transport services. Smaller municipalities such as Rustenburg and Polokwane had submitted their business plans for consideration, and had received R2 to R4 million for this purpose. These municipalities would receive funds for the actual projects subsequent to the approval of business plans.

The Chairperson agreed that the financial reports for these projects would be useful to the Committee. Given the particular nature of the 2010 projects, the FFC stressed the importance of benchmarking.

Mr Mazusi noted that the presentation merely focused on the preparation for the 2010 World Cup. Critical transport issues plagued the Eastern Cape, yet other infrastructure transport programmes were not discussed.

The Chairperson explained that the meeting would focus on the PTIF grant, since the budget allocations for this had drastically increased. The improvements had long-term value and the great emphasis would be placed on the preparations for the 2010 World Cup so questions were being directed to this particular area.

Mr Mkhaliphi asked if the concerns raised by the Department at a previous meeting over the lack of Integrated Transport Plans by the majority of municipalities had been addressed.

Mr Mokonyama answered that the 2010 projects needed to be part of ITPs and IDPS, and this would ensure the long-term sustainability of projects. The completion of IDPs varied from poor to good, but DoT did give assistance in the development of these plans. The National Transport Act had been amended to simplify the transport regime.

Mr Robertson asked whether the Department was on track with the targets set for the 2010 World Cup.

The Chairperson ruled that questions should be specific to the grant, since serious under spending was apparent.

A member wanted to know whether improvements were planned for the King Shaka and Dube Airports. The presentation made reference to improvements at one airport.

The Chairperson said that since the Committee would be engaging with municipalities soon, the financial status, spending and monitoring at municipal level was important. He noted the outstanding reports on projects planned for Cape Town, and cautioned that a rush to complete projects would compromise the quality of infrastructure. Given the difficulties experienced by municipalities, further highlighted by the Auditor-General’s report, there needed to be more regular interrogation of spending in grants. Complacency would not be tolerated, as issues of zoning and rezoning had to be adequately addressed.

Mr Mokonyama pledged that a financial status report on municipalities would be made available to the Department. Spending on grants was low and was partially attributed to the delays in council resolutions.

Ms Robinson raised her concerns that transport infrastructure projects for Cape Town merely focused on the inner city. More exit points were needed from suburbs. She asked whether the N1 national road would be improved.

Mr Mokonyama responded that Cape Town had made progress with its tendering process. There was a comprehensive programme in place for the upgrade of national roads as well as a ten-year programme for managing congestion on national roads. This information could also be provided to the Committee.

The Chairperson urged the Department to immediately inform the Committee of any challenges experienced. The Committee would, if possible, intervene to hold entities to account. Members must raising critical transport issues with provinces.

National Treasury Concluding remarks
Mr Mahesh Fakir (Director: Public Finance, NT), noted that the DoT had established a team that performed monthly verification and monitoring of projects. These reports should be made available to both NT and the Committee, especially as they related to the progress made with 2010 World Cup projects. He observed that standards of reporting needed to be established, which should relate to the status of projects against the actual budget allocated and include a comparison between the expected and actual output. This measurement needed to become part of the monthly reporting on projects. The monthly payment certificates issued by each engineer of a project could be used as a source of information for progress of projects, as they were fully auditable.

Mr Fakir expressed his confusion that the presentation noted allocations to the Cross Border Roads Agency. Such allocations were not part of the requirements of DORB, and he requested clarity why such money had been allocated to the agency.

He added that National Treasury would not grant rollovers to municipalities if the local authorities’ spending capacity was not improved. The Chairperson supported this stance.

The Committee was reminded that the grant would in future be called the Public Transport Infrastructure and Systems Grant (PTISG).

FFC Concluding Remarks
Mr Khumalo commented on the concerns that DoT raised about transport being a concurrent function. The framework of the grant allowed the National Department to intervene to ensure that the spending on projects were in line with the requirements of the grant. This would also ensure the successful completion of projects for 2010 World Cup. Principles needed to be applied in the strictest sense.

Committee business:  Briefing of provinces by members of the NCOP:
The Chairperson responded to Ms Mchunu’s request for further clarification about the forthcoming briefing to the provincial legislatures. Permanent members of the NCOP had a responsibility to brief provincial legislatures on DORB as it related to provinces. Comprehensive public hearings on DORB needed to be held to ensure compliance with the constitutional requirement. It was expected that the Bill would be debated and passed on 29 March, and the negotiating mandates needed to be finalised by 20 March.

Public hearings and meetings with provincial legislatures needed to be held before this time and the Committee should also brief municipalities. 

Dr Siyabonga Cwele, MEC for Agriculture and Land Affairs, Kwazulu Natal proposed that quarterly hearings be held in provinces. In this way, members would also have an opportunity to visit some of the projects. The relevant parties had accepted this proposal, providing it did not interfere with plenaries. The Committee would visit the Eastern Cape on 20-23 March, and would identify those municipalities with whom they wished to hold discussions, including those mentioned by DME and DWAF. Important issues were the backlogs in the provision of electricity, sanitation, and health services.

The Chairperson explained that the dates would be made available to members in due course.
 
The meeting was adjourned.