1. DEFINITIONS

• This Act applies to "all economic activity" within or having an effect within the Republic of South Africa and binds the State. The Act does not, however, apply to acts/ activities which are subject to or authorized by any national, provincial or local government legislation or subordinate legislation or any licence, tariff, directive or a similar authorisation issued by a regulatory authority. A "regulatory authority" is defined in the Act as an entity established in terms of national, provincial or local government legislation or subordinate legislation to regulate a particular industry or industry sector. (Section 3(1) of the Competition Act).

• It would be important therefore for the definition of an MBE to include the following words "within the area of jurisdiction of one or more municipalities" in paragraph (b) of the definition to ensure that the facility provided by Section 3 (1) of the Competition Act is availed to MBEs to ensure optimal utilisation of these structures.

• The argument is not to seek exemption for MBEs from the Competition Act as the other provisions will remain applicable, the proposed amendment is to ensure that the structural requirements exempting of the Act find application.

• The Bill clearly anticipates a right of MBEs to collect in Section 75 (2)(a)(vi) wherein it provides that the service delivery agreement may authorise a municipality to "assign to the service provider responsibility for …… the collection of service fees from users in accordance with its tariff policy and credit control measures". The use of the term "collection" creates an ambiguity as to whether "collection" includes collection on its own account" or simply means collection on behalf of the municipality.

• This is a matter that can be corrected in the definition of an MBE by making it clear that it could or should have the right to "collect" fees on its own account" otherwise we could be creating companies/ entities that could never have an income stream, thus affect their bankability. Such an effect, we believe, would be an unintended consequence.

1. PREFERENCES

• It is not clear if it is the intention of drafters to deny MBEs all the preferences enjoyed by Councils but if the intention is otherwise, clear legislative pronouncement is necessary.

1. DEFINITION OF SERVICE UTILITY

• The legal status of a "service utility" as a "juristic person", established and controlled through a by-law is ambiguous and it is not clear where financial (and otherwise) strength of such a structure will come from. It is also not clear what the purpose of establishing such a structure would be and therefore it is not clear if it is necessary. If the intention is to facilitate multiple district (jurisdiction) service delivery – then the Bill should stop at that.

1. TENDERING AND/OR PROCUREMENT PROVISIONS

• There appears to be an inconsistency in the provisions of the Bill that deal with the requirements for a competitive procurement process contained in Section 77 and those contained in Section 217 of the Constitution of RSA. Although it is logical that the Bill deals with the issue in the manner it does, it does not appear that the question of the Constitutionality of such a provision can be avoided.

1. MUNICIPAL SERVICES – CHAPTER 8

• In dealing with the responsibility of municipalities when providing services through services delivery agreements, the Bill provides in Section 75 (2) (d) that employees can be transferred or seconded "with the concurrence of the employees concerned"

• This provision, we believe is unnecessary as the Labour Relations Act takes care of such situations and is adequate.

• Secondly this provision is internally inconsistent as the very sentence where it is found starts with the words, "in accordance with applicable labour legislation". Applicable labour legislation regulates matters of employee consents and/ or concerns.

• What is even more worrying is that if this provision is not amended, it is possible for it to be interpreted as superceding the provisions of the LRA, the Systems Bill being possibly quasi-constitutional legislation. If this is the case, then the possibility of restructuring service delivery in local government ends here and now.

• Attached hereto as a schedule is a detailed technical submission on the Bill and should be regarded as part of this submission.

• The Bill still remains a detailed document which seeks to regulate a lot of detail. It would be preferable if it was less prescriptive in fact an argument could be made that it is perhaps unconstitutional in certain respects as it regulates matters that are of an "internal nature" that should be regulated by municipalities in their own right. However provisions relating to MBEs and IDPs are a headstart for restructuring and transformation to start in earnest in local government.

1 POTENTIAL PROBLEMS CONCERNING SERVICE DELIVERY AGREEMENTS AND PROCUREMENT

1.1 Section 217 of the Constitution of the Republic of South Africa Act, 1996, ("the Constitution") requires an organ of state such as GJMC, when it contracts for goods or services, to do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective. The Constitution is the country's supreme law.

1.2 Chapter 8, and more particularly Part 2 thereof, being Sections 70 to 76 of the draft Local Government: Municipal Systems Bill ("the Systems Bill"), an explanatory memorandum in regard to which was published in Government Gazette No 21071 of 13 April 2000, envisages that a municipality may establish a body such as a service utility or municipal business enterprise of which it has ownership control (these terms being defined in the Systems Bill) and enter into a service delivery agreement direct with it, and without following a system as contemplated in Section 217 of the Constitution. To follow such a system would defeat the object of Part 2 of Chapter 8.

1.3 There is an apparent inconsistency between the provisions of the Systems Bill and the requirements of Section 217 of the Constitution. A service delivery agreement is a contract for the provision of services.

1.4 The only provision in the Systems Bill which requires a competitive bidding system to be followed is in Part 3 (Sections 77 and 78) of Chapter 8. This Part applies only when a municipality proposes to enter into a service delivery agreement with an institution other than a service utility, a municipal business enterprise, another municipality or a national or provincial organ of state.

1.5 The apparent inconsistency referred to in 1.3 above must be addressed in order to avoid possible legal arguments as to the validity of the relevant provisions of the Systems Bill, should they become law.

1.6 Section 10G(5)(a) of the Local Government Transition Act, No 209 of 1993, contains provisions applicable to municipalities which are similar to those in Section 217 of the Constitution. However, this Act will only survive until the next general municipal elections, when it will lapse. Its provisions are therefore unlikely to pose a problem if a service delivery agreement is entered into after those elections. With regard to agreements entered into before the elections, Section 10G(5)(a) of this Act merely serves to compound the problem referred to in paragraphs 1.3 and 1.5.

1.7 Chapter 6 of the (Gauteng) Rationalisation of Local Government Affairs Act, No 10 of 1998, also contains provisions which require municipalities to follow tender procedures when contracting for "prescribed goods or services". Such goods and services have not yet been "prescribed" by the relevant MEC. Section 56(2) of this Act ("the Rationalisation Act") authorises a municipality to contract with any public or private provider of goods or services to enable the municipality to perform its powers, functions and duties. The Rationalisation Act therefore tends to overlap the Systems Bill in relation to contractual powers, and if certain municipal services are "prescribed" in this Act, it could bring about problems of legal interpretation when applying the provisions of that Bill. Although this Act is Provincial legislation and would probably have to give way to national legislation with which it is in conflict regarding the provision of municipal services, it would nevertheless be advisable for the drafters of the Systems Bill to note the provisions of the Rationalisation Act and for Chapter 6 thereof to be made inapplicable in regard to services dealt with in that Bill.

1.8 Section 19(1)(b)(i) of the Water Services Act authorises a water services authority (ie a municipality) to contract with a water services provider for the provision of water services. However, it does not by-pass Section 217 of the Constitution, which the municipality would have to comply with if it acted under that Section. Furthermore, a water services provider for purposes of this Act need not necessarily be an entity specially established by the municipality.

1.9 IT IS RECOMMENDED

1.9.1 That the apparent inconsistency between Section 217 of the Constitution and Section 10G(5)(a) of the LGTA, on the one hand, and Part 2 of Chapter 8 of the draft Local Government: Municipal Systems Bill on the other, be drawn to the attention of the drafters of that Bill, for their consideration.

1.9.2 That the provisions of the Gauteng Rationalisation of Local Government Affairs Act, 1998 be drawn to the attention of the drafters of the Systems Bill with a view to any possible conflict with that Act being avoided.

2 CREDIT CONTROL AND DEBT COLLECTION

2.1 Chapter 9 of the Systems Bill (being Section 87 to 96 thereof) deals with credit control and debt collection. A municipality is required by Section 90 to enact by-laws to give effect to its credit control and debt collection policy, its implementation and enforcement. Section 96 gives the Minister the power to make Regulations, including Regulations on the action which may be taken by municipalities and service providers to secure payment of arrears, including the termination or restriction of services, and the disconnection and resumption of services.

2.2 Section 52 of the Rationalisation Act also requires municipalities to make by-laws regulating credit control and provides, in Section 52(2), that the relevant MEC can prescribe requirements that must be incorporated in such by-laws. Section 52(3) provides that the by-laws must provide for, inter alia, the consequences of non-payment for services, including the discontinuance of any service.

2.3 Section 4 read with Section 21 of the Water Services Act, 1997, requires a municipality to make by-laws in relation to the conditions of supply of water services. These by-laws must contain conditions meeting certain requirements set out in Section 4 relating to the limitation or discontinuation of water services.

2.4 IT IS RECOMMENDED

That representations be made to the relevant government Departments for provisions relating to credit control to be contained in one single statute.

3 POTENTIAL INCONSISTENCIES BETWEEN THE WATER SERVICES ACT, 1997, AND THE SYSTEMS BILL

3.1 There is room for inconsistencies to be brought about between the Water Services Act and the Systems Bill. The following are illustrations:

3.1.1 (i) The Act provides, in Section 21, that a municipality must make by-laws pertaining to water services which must provide, inter alia, for the determination and structure of tariffs in accordance with the norms and standards set by the Minister under Section 10.

(ii) The Bill provides, in Section 69, that a municipality must make by-laws to implement its tariff policy on the levying of fees for services, whether those services are provided by the municipality or a service provider. That tariff policy must comply with criteria set out in Section 68(1), with the Bill's provisions and with any sectoral legislation (ie. the Water Services Act). Section 86(h) of the Bill provides for Regulations to establish mechanisms and procedures for the co-ordination and integration of sectoral requirements in terms of legislation with the provision of the relevant Chapter in the Bill, and how municipalities must comply with these. However, this is not going to assist if a blatant inconsistency should arise.

3.1.2 (i) Section 19(5) of the Water Services Act provides that the Minister may prescribe the matters to be regulated by a contract between a water services provider and a water services authority, including compulsory provisions to be included in such a contract. The Minister may also provide model contracts to act as a guide to municipalities. His powers would include the power to regulate matters pertaining to performance guarantees to be provided by a service provider.

(ii) Section 75(2) of the Bill sets out a list of matters which may be included in a service delivery agreement. Furthermore, Section 86 permits Regulations to be made prescribing standard draft service delivery contracts. Section 86(r) permits the Minister to make Regulations concerning performance guarantees.

(iii) Again there appears to be room for inconsistency between the two enactments.

3.1.3 (i) In terms of Section 10 of the Water Services Act the Minister has the power to set norms and standards for tariffs for water services. The matters which can be provided for in such norms and standards are extensive.

(ii) Section 86 of the Bill empowers the relevant Minister to make Regulations on a wide variety of matters and there appears to be an overlap in certain respects between the powers under Section 10 of the Act and Section 86 of the Bill. For example, both relate to a tariff policy (which is what the norms and standards under Section 10 of the Act constitute) and both relate to limitations on tariffs and money derived from those tariffs.

3.2 IT IS RECOMMENDED:

That the possibility of inconsistencies arising in the implementation of the laws concerned be drawn to the attention of the relevant Government Departments with a view to a provision being inserted in the Systems Bill that one of the laws must take precedence and its provisions must prevail in the event of an irreconcilable inconsistency between that law and any other law except the Constitution.

4 CLARIFICATION SOUGHT: SECTION 101(2) OF THE SYSTEMS BILL

4.1 Section 101(2) of the Systems Bill provides that a municipality may submit to arbitration any matter other than a matter involving a decision on its status, powers or duties or the validity of its acts or by-laws.

4.2 Clarity is sought as to the meaning of the word "acts". It cannot mean "Acts" as in the case of a law passed by Parliament, because a municipality can only pass by-laws. It therefore probably means "actions", and the question arises as to whether it is intended that an arbitrator should not have the power to consider the validity of an action by a municipality. Because this could become a vital point in any dispute between a municipality and a service provider, clarity should be obtained on this matter.

4.3 IT IS RECOMMENDED

That the drafters of the Systems Bill be requested to clarify the meaning of the word "acts" in Section 101(2).

5 LOANS TO CONSUMERS

It is suggested that both a municipality and a service provider should have the power to make loans to consumers or potential consumers for the purpose of installing service infrastructure on their properties and for the purchase of appliances to be used in connection with the supply of the service. In this way it will be easier for consumers to obtain and use a service, while allowing at the same time for the extension of the consumer network. Provision for this should be made in the Systems Bill. At the same time, the provisions of Section 110 of the Bill, which prohibit the transfer of a property without a "clearance certificate" to the effect that amounts due for, inter alia, services for the preceding three years, should be extended to cover also the repayment of such loans.

That representations along these lines be made to the drafters of the systems Bill for provisions along these lines to be included in the Bill.

6 ACCESS TO PREMISES

7.1 Section 93 of the Systems Bill requires the occupier of premises to allow an authorised representative of a municipality access to the premises for the reading of meters, the inspection and repair of installations and the like.

7.2 This provision should be extended to provide for access by authorised representations of a service provider also.

7.3 IT IS RECOMMENDED

That representations be made accordingly to the drafters of the systems Bill.

8 LAND AND PROBLEMS ASSOCIATED THEREWITH

8.1 Attention is drawn to paragraphs 11.1 to 11.4 in the attached document marked "Annexure "A": GENERAL COMMENTS ON THE DRAFT LOCAL GOVERNMENT: MUNICIPAL FINANCE MANAGEMENT BILL DATED 8TH MARCH 2000".

8.2 It is of the utmost importance that provision be made in the law for the matters raised in those paragraphs, whether in the proposed Municipal Finance Management Act, the Proposed Municipal Systems Bill or some other Act of Parliament. Of particular concern is the fact that provision needs to be made for the leasing by a municipality to the utility concerned of all servitudes held by the municipality in regard to the provision of a service, irrespective of the nature of those servitudes. Attention is drawn to the fact that certain servitudes are vested in municipalities by operation of law as, for example, in terms of Section 63 of the Local Government Ordinance (Transvaal) No 17 of 1939. Section 77 of the Water Services Act, 1997, provides for the transfer of personal servitudes held by the Water Services institution (eg. a municipality) but this does not cover the leasing thereof.

9 TRANSFER OF ASSETS

Section 76(1)(d) of the Systems Bill contemplates that a municipality may transfer any of its assets to a service utility or municipal business enterprise which it has established.

A municipality may wish to transfer those assets by way of sale or lease or donation. If it wishes to sell or to lease, it may have to comply with tender procedures, eg. those contained in Section 35 of the Local Government Ordinance, No 17 of 1939 (Transvaal) which sets out tender procedures which must be followed when a municipality wishes to sell any goods (ie. movable assets) and Section 78(18) of that Ordinance which sets out procedures to be followed when it wishes to sell land. Furthermore, there appears to be no authority at all by virtue of which a municipality could donate to its utility or municipal business enterprise the movable and immovable property which would be needed to provide the municipal service concerned.

Furthermore, Chapter 6 of the Gauteng Rationalisation of Local Government Affairs Act, No 10 of 1998, relates entirely to tender procedures and although the MEC has not yet made any Regulations in regard thereto, this could happen at any time and possibly complicate further the transfer of assets between a municipality.

It is proposed that the Bill should provide for the transfer of the assets, whether movable or immovable, of a municipality, in relation to a municipal service which is to be undertaken for it by a utility or a municipal business enterprise, by way of a resolution of the municipality's Council and that no tender procedures should be required. The simpler the method by which the transfer can be effected, the better, bearing in mind that the municipal service will be transferred as a going concern and there is absolutely no point in requiring tenders to be invited. The municipality should be empowered to donate the assets to the utility or municipal business enterprise concerned, if it so decides.

Representations have already been made in relation to the proposed Local Government: Municipal Finance Management Act for a simplified and inexpensive way of transferring land and rights therein from a municipality to its service provider. It has been proposed that transfer should be effected by way of an endorsement made on the relevant deeds by the Registrar of Deeds and that no transfer duty or other taxes should be payable in regard thereto, otherwise transfer costs could be prohibitive.