Human Settlements Development Grant 1st quarter 2013 spending: National Treasury & Department Human Settlements briefings

Meeting report

Human Settlements Development Grant expenditure for 1^st Quarter 2013/14
National Treasury briefing
Mr Edgar Sishi, Chief Director, National Treasury, noted the objectives of the Human Settlements Development Grant (HSDG), to facilitate the creation of sustainable human settlements that enabled an improved quality of household life. Its outputs included residential units delivered in each housing programme, serviced sites delivered in each housing programme, finance linked subsidies approved and disbursed, households in informal settlements provided with household access to services or upgraded services, hectares of well located land acquired and or released for residential development, and work opportunities created through related programmes.

Mr Sishi said that the 2013/14 HSDG grant allocation amounted to R16.98 billion, a 6.3% increase from the previous year. R1 billion of the total allocation was earmarked for eight priority projects in the five provinces, listed as:
-Eastern Cape's Duncan village - R109.8 million
Gauteng's Khutsong - R96 million,
Gauteng's Lufhereng -R182.9 million
Gauteng's Diepsloot - R91.5 million
Gauteng's Sweet Waters - R45.7 million
KwaZulu-Natal's Cornubia - R120.7 million
Limpopo's Lephalale - R291.6 million
Western Cape's Drommedaris - R62.7 million.

R299 million of the total allocation was earmarked for repair of infrastructure damaged by floods that occurred in January and February 2011. The funds were designated to eight provinces. The amount of R4.9 billion was identified to be allocated to these municipalities.

Mr Sishi summarised a table showing spending as at June 2013 (see attached presentation). This indicated the main budget, projected outcome, actual payment as at 30 June 2013, actual payments as a percentage of the adjusted budget, and percentages transferred to provinces. This table also indicated where there was overspending and under spending, as well as expenditure as 30 June 2013 and year-on-year growth. Another table was also given of spending as at 31 March 2013, and was summarised in similar categories. A table showing first quarter expenditure by programme was summarised, indicating funds allocated, actual expenditure, over and under spending and percentage spent. Those programmes included financial interventions, incremental housing programmes, social and rental housing, rural housing, priority projects and provincial specific programmes.

Mr Sishi said that Table 4 of the attached presentation indicated how the funding was allocated. He reminded the Committee of the various housing possibilities. Individual credit-linked housing subsidies were available to those earning R0-R3 500 per month. There were also individual housing subsidies that were non-credit linked for this income bracket. The Finance-Linked Individual Subsidy Programme (FLISP) was available for the gap market of those earning R3 501-R7 000. Also noted were amounts for the Enhanced Extended Discount Benefit Scheme (EEDBS), state asset maintenance programme, rectified RDP stock from 1994-2002, rectification of housing stock pre-1994), blocked projects, National Home Builders Registration Council (NHBRC) enrolment, which was related to the grant, and land parcels procured (HAHSD). Projected outputs, actual delivery and variance of each sub-programme were described.

Table 5 of the incremental housing performance was summarised. This showed the incremental housing programmes, such as project linked subsidies’ current commitments approved up to 31/03/07, and the integrated residential development programme, which comprised planning and services and informal settlements. There were also figures for  top structure construction on informal settlements, dwellings in the Peoples Housing Process (PHP), informal settlements upgrading, consolidation subsidies and emergency housing assistance. Projected outputs, actual delivery and variance of each programme were described (see the attached document).

Table 6 showed the rural housing performance. This indicated a number of programmes, such as farm workers housing assistance, rural housing and communal land rights. Projected outputs, actual delivery and variance of each programme were described (see the attached document). The graph showing the housing quality was summarised, which showed the percentage of weak walls and rooves assessed in the different provinces, as follows:
- Eastern Cape: 18.4% weak walls and 22.2% weak roof
- Western Cape: 25.1% weak walls and 24.8% weak roof,
- Northern Cape: 25.4% weak walls and 24.2% weak roof
- Free State: 19.2% weak walls and 16.6% weak roof
- KwaZulu Natal: 22.5% weak walls and 21.4% weak roof
- North West: 15.4% weak walls and 15.9% weak roof
- Gauteng: 7.9% weak walls and 7.9% weak roof
-  Mpumalanga: 12.1% weak walls and 13.7% weak roof
- Limpopo: 11.8% weak walls and 12.6% weak roof

Mr Sishi mentioned the challenges, which included poor beneficiary management, slow procurement processes, due largely to problems in cash flow management and non-availability of suitable land for Human Settlements developments. Poor workmanship showed that departments should supervise contractors and suitably manage contracts. There was a gap between the planned targets and actual delivery, indicative of planning deficiencies. Very little attention was given to priority projects and provincial specific programmes, with spending at 1.2% and 6.5% respectively.

Finally he reported that funding was withheld from Limpopo and Mpumalanga, due to procurement irregularities and poor business plans.

Discussion
Ms T Memela (ANC, KZN) noted that in some places the foundations and walls of houses were not of quality and there was no monitoring in place. She asked if there were now measures in place to ensure that the quality of houses was better.

Mr B Mashile (ANC, Mpumalanga) noted that the amount of money allocated to provinces was equal, but the number of houses built was not the same. He asked what sort of processes unfolded if provinces did not comply. He also wanted clarity on the housing situation in Mpumalanga and North West.

Mr A Lee (DA, KZN) wanted clarity about quality of houses. 
 
Mr D Joseph (DA, Western Cape) asked how departments responded to the National Treasury’s intervention, and asked what recommendations were made by National Treasury in terms of housing quality
 
Mr Sishi replied that it was the responsibility of local councils to make sure that houses were of good quality. There were institutional arrangements that were supposed to ensure that quality housing was provided. Mpumalanga and North West should respond for themselves about their situations. The National Treasury had identified that provinces had management failures and that led to non-completion of certain projects and irregular expenditures. Provinces received money to carry out their projects, but at the end there was sporadic or no work completed. In terms of the Public Finance Management Act (PFMA), the National Treasury's responsibility was to ensure that financial resources were protected. The National Treasury had done investigations to check whether money was used properly, and it had found that provinces like Limpopo did not spend the money properly, which was the reason for withholding the funds.

Department of Human Settlements briefing
Mr Thabane Zulu, Director General, National Department of Human Settlements, said that his presentation would include a statement of the Medium Term Expenditure Framework (MTEF) allocations, the HSDG allocations, the performance on this grant to 30 June 2013 and the challenges identified. He would also give an update on the performance up to end August 2013. A trends analysis for the years 211 to 2013 was included, as well as the monthly compliance, monitoring and evaluation and business plans.

He firstly summarised the table showing HSDG MTEF allocation per province (see attached presentation), which indicated the 2013/14 total allocations and 2014/15 and 2015/16 indicative allocations. The table showing HSDG allocation with a 80/20 split per province was summarised, indicating 2013/14 total allocations, normal project allocation, Government Outcome 8 allocations and disaster relief.
 
Ms Funani Matlatsi, Chief Financial Officer, National Department of Human Settlements, summarised the table showing HSDG 20% breakdown per province. She outlined the 2013/14 numbers for upgrading of informal settlements, rental and social housing, land and national priority programmes. A further table showed National Priority Programme performance, and the towns in each province where the programmes were operating.  She further took Members through the table showing HSDG expenditure by provinces as at30 June 2013, which outlined the amount of voted funds,  transferred funds, amount spent by provinces, variances against transferred and voted funds, and the percentage of unspent funds.

Ms Matlatsi summarised some of the performance trends for the National Priority Projects. In Duncan village, performance information indicated non-spending due to contractors that had left the site, non-availability of approved beneficiaries, as well as cash flow challenges. The report from Gauteng province indicated that there was no spending on the priority projects. The performance information for Cornubia in KwaZulu Natal for the quarter ending June 2013 was not submitted. The performance information for Lephalale in Limpopo in respect of bulk infrastructure for the month of June 2013, reflected a budget of R112.1 million, but no spending had occurred and the conditional grant was withheld. The Western Cape province did not submit any information about priority projects.
 
Ms Matlatsi then moved to describing the figures and performance for the HSDG. The total allocation in respect of the Human Settlements Development Grant for the 2013/14 financial year was R16.9 billion, which included R299 million for the disaster relief allocation. The total amount transferred to provinces as at June 2013 was R2.941 billion, which represented 17% of the total allocation. It was reported that provinces spent R2.384 billion, or 14% of the total yearly allocation and 86% of the projected spending figures. The variance of R556 million was carried over to the next month. The money actually remained in the primary banking account of the province and was only accessible when requests were made, with proof that these aligned to the goods and services payable.

In relation to the provincial spending figures, Ms Matlatsi said that the North West province spent the highest at 90.6% of its allocation. It had spent R275.6 million, and delivered a total of 2 666 units consisting of 71 serviced sites and 2 595 top structures. This must be seen against the annual target of 20 283. Kwazulu Natal spent 88% and delivered 6 306 units consisting of 692 serviced sites and 5 614 top structures, against its annual target of 36 700. The Northern Cape spent 83% and delivered 481 units consisting of 90 serviced sites and 391 top structures against its annual target of 11 660. The lowest spending province was Free State, which had managed only 39% spending. It had cited the reason for under performance as delays in procurement processes and cash flow management. Mpumalanga province's business plan was approved on 26 June 2013 and funds were transferred at the beginning of July 2013, but the actual expenditure was R77.8 million. The Mpumalanga province delivered a total of 1 583 top units consisting of no serviced sites and 1 583 top structures from an annual target set at 15 287 units.

Ms Matlatsi said that the Limpopo province's allocation for the 2013/14 financial year was R1.3 billion, which included R35.6 million for disaster relief. Although the Limpopo province's business plan was approved, no funds were transferred to the Limpopo province, in line with the National Treasury’s instruction issued on 19 April 2013. However, the Limpopo province reported spending of R97.9 million and managed to deliver a total of 1 452 units, consisting of 85 serviced sites and 1 367 top structures, compared to its annual target of 22 453 units. The expenditure was made by way of the province's equitable share. According to the 2013/14 approved payment schedule, R224.9 million was supposed to have been transferred to Limpopo province between April 2013 and June 2013.

Ms Matlatsi summarised the delivery performance table as at June 2013, outlining annual delivery targets, delivery performance, variance delivery sites, variance delivery top structures and the total variance delivery (see attached document for more details). The table showing performance for the first quarter milestones (financial intervention) was summarised indicating delivery milestones, funds allocated and 2013/14 expenditure.

She reported that the Financed Linked Individual Housing Subsidy Programme (FLISP) was applicable to households in the income category of R3 501 to R15 000 per month who did not qualify for a subsidised house and were also unable to obtain mortgage finance. Those households may apply for the allocation of serviced stands developed under the Integrated Residential Development Programme as they qualified for the once-off subsidy.

Ms Matlatsi said that the actual spending of R3 million was only incurred by Limpopo Province. Eastern Cape spent 126% on rectification programme while Western Cape was at 41%. The Operational Capital Budget Programme (OPSCAP) allowed provinces to augment their capacity required for housing delivery.  Only 5% was allowed as a maximum allocation, and OPSCAP achieved a spending rate of 55%.  She noted that “blocked projects” were incomplete projects that had stalled for various reasons. Funds were provided to unblock those projects, and provinces had spent 10% of their allocation in the first quarter. Suitable land was identified for human development and provinces allocated funds for the acquisition of land through the Housing Development Agency (HDA). Of the R78 million allocated to provinces, only R4 million was used for the procurement of land.

Ms Matlatsi summarised the challenges. In the provinces, there were slow procurement processes, poor cash flow management, non-availability of suitable land for human settlements developments. The Department of Human Settlements (DHS) had also observed a lack of credible pipeline of projects, poor planning, and the fact that performance reporting was not always in line with the business plans, which suggested that plans were being drawn merely for the sake of compliance.

 Ms Matlatsi then summarised the Human Settlements Development Grant updated expenditure table as at 31 August 2013, which showed voted funds, spending by provinces, variances against transferred and voted funding and unspent amounts. Further tables showing HSDG allocation trends for the financial years 2011, 2012 and 2013 were summarised, per province, as well as the expenditure on HSDG in the previous financial year. She also described the expenditure on the disaster relief grant for 2011/12. Finally, the compliance table showing submission of monthly conditional grant reports was summarised (see attached document for more information).
 
Ms Matlatsi briefly described the capacity at the national DHS for monitoring, in the 2013/14 financial year. There was a Chief Directorate for Monitoring and Evaluation, which was responsible for monitoring and assessing the implementation, performance and impact of National Human Settlements policies, programmes, and projects. There were four sub-directorates for programme monitoring, research and evaluation (applied research), programme impact assessment and data management, verification and analysis. The National DHS also had a monitoring, evaluation and impact assessment policy and implementation framework for the human settlements sector, which applied to all the departments dealing with human settlements at national, provincial and municipal levels, as well as to the institutions, in order to facilitate the human settlements delivery process.
 
DHS would visit provinces on a quarterly basis to do follow-ups to verify and validate Human Settlements delivery. It would provide systems that included housing subsidy and monitoring and evaluation impact assessments, to support the administration of the Human Settlement delivery process. DHS would provide continuous training to provinces on housing subsidy systems and monitoring and evaluation impact assessment. It aimed to facilitate regular interaction between national, provincial departments of Human Settlements and municipalities, through structured quarterly performance review meetings, which assessed the relevance, performance and success of the Human settlements programmes. It was evaluating the outcomes and impacts of the Departmental programmes, and produced reports based on the recommendations and lessons learned when conducting evaluations and assessments.
 
Mr Cyril Monyela, Deputy Director General, Department of Human Settlements, summarised the HSDG Revised Business Plan. A table showing outcomes and programmes such as informal settlements upgrading, affordable rental, affordable housing and land was presented. A further table showed programmes, sites, units, budget and allocated percentages. Other tables showing slum upgrading, affordable rental housing, acquisition of land, rectification, rural housing, priority projects, emergency housing, people's housing process, NHBRC enrolment,  and other programme allocations  per province indicating sites, units, budget and % allocation were summarised (see attached presentation for all tables).
 
The Chairperson asked MECs for human settlements of the provinces to respond to the presentations.
 
Mr Bonginkosi Madikizela, MEC, Western Cape Province, noted that the slide on quality of housing was a bit misleading because there was no technical assessment report information that showed where those houses were built. He therefore agreed with some of the information presented.
           
Mr Nono Maloyi, MEC, North West Province, agreed that what was presented was clearly the true reflection of what was happening in North West. He said the North West province was going to experience overspending, because there was huge development that would take place.

Mr M I Kgetjepai, MEC, Limpopo Province, noted that the presentation had covered all the challenges the province was facing, and the province had engaged with different stakeholders to unlock those challenges.
 
Mr Mzikayifani Gumede, MEC, Mpumalanga province, noted that the presentation was factual, and the province would try its best to move out of the crisis, and it would strengthen the oversight.
 
Thoza Qwanyashe, Director Strategic Planning, Eastern Cape, noted that the presentation was a true reflection of the situation in the Eastern Cape. However, the houses that the provincial Department of Human Settlements built in Eastern Cape were of good quality.
 
Bongi More, Acting Head of the Department, Gauteng, noted that the presentation was correct, but the Committee had to take into consideration the situations in which the Gauteng Department of Human Settlements operated in. 
 
Discussion 
Mr B Mashile (ANC, Mpumalanga) noted that each province knew that it had a problem of planning. He asked why planning was such a huge problem.
 
Mr A Lee (DA, KZN) wanted clarity on land acquisition, and quality versus quantity.

Mr W Makhubela (COPE, Limpopo) noted that Free State, Gauteng and Western Cape provinces did not say much about their signed report, but they had mentioned challenges and lack of capacity.
 
Mr Zulu replied that it was true that planning had always been the major challenge, but said that the national DHS had taken some steps to deal with it, since it recognised that lack of good planning was one of the serious problems leading to poor performance. The Department of Human Settlement had established a unit, and it was trying to bring more capacity to it.  The Committee should understand that the DHS operated in the built environment and it was not easy to attract good capacity. Transfer of money was now being done on a monthly basis. The Department of Human Settlements had also decided to use its buying power to attract good engineers, town planners and other expertise.
 
The Chairperson thanked all the provinces for coming through to the meeting and suggested that provinces should work extra hard to try to change things around, so that set targets were achieved in time.
 
The meeting was adjourned