REPORT OF THE SELECT COMMITTEE ON FINANCE ON THE 2003 INTERGOVERNMENTAL FISCAL REVIEW (IGFR), dated 24 June 2003:
On 8 April 2003, the Minister of Finance tabled the fourth IGFR in the National Council of Provinces. In the course of April and May 2003, the Select Committee on Finance subsequently heard briefings on the IGFR by Treasury officials, and also on provincial and local government personnel and budget trends. Relevant NCOP committees concerned with specific sectors also heard briefings on a number of these.
The Committees wishes to express sincere appreciation to all participants for their submissions and contributions during the hearings. Notable contributors were the National Treasury, the Financial and Fiscal Commission, the Departments of Housing, Water and Forestry, Social Development, Provincial and Local Government, and Minerals and Energy. Particular thanks are also due to those provincial and municipal officials who contributed to and participated to the process.
1. SUMMARY: 2003 INTERGOVERNMENTAL FISCAL REVIEW This section of the report briefly summarises key elements of the IGFR’s structure and content.
1.1 Aim and content of the IGFR The central function of the IGFR is to provide consolidated information on 2003 provincial and 2002 local government budgets and trends, for the key purpose of providing information on service delivery. The 2003 IGFR was published earlier in the budget cycle to enable Parliament and provincial legislatures to take its information into account for the 2003/04 budget hearings.
Policymakers or private sector analysts, parliamentarians and the public may mine the IGFR for information to assess whether we as a country – or as a province, city or town – are on course to achieve the objectives we set ourselves. It sets benchmarks by which measurable objectives will be assessed. It demands to be used routinely, as an essential, commonly available handbook, to assess the effectiveness of programmes, structures and systems.
In addition to the 2003 provincial budgets, 2002 local government budgets and trends, the IGFR also covers four past and three projected budgets, and is designed to enable comparison between provinces or municipalities. In addition to eight crucial service delivery sectors, it covers personnel management issues, and provides annexures indispensable for assessing governance.
Specifically, the Minister noted the hope that the NCOP in particular "can be the portal through which the provincial and local spheres of government can participate more effectively in the budget allocation and accountability processes." The challenge is for portfolio and select committees to use the IGFR to strengthen their oversight capacity, and require increasing accountability of those who report to them.
Provincial budgets and trends Provincial budgets have been growing by 10-18% for the past three years, marking strong real growth in national transfers. Spending growth is also due to some provinces’ decision, after eliminating their debts, to use their remaining cash balances to fund once-off expenditures or ones with limited recurrent costs by tabling deficit budgets in the MTEF period.
In the intergovernmental system, the biggest budgets are at provincial level. Budgeted non-interest revenue of R280billion in 2003/04 is divided as follows:
National: R108,9 billion or 38,9 %
Provinces: R158,9 billion or 56,8 %
Local government: R12 billion or 4,3%
Provincial share grows to 57,6 per cent in 2005/06
Provinces have little own revenue: they allocate national transfers (96,9%) plus their own revenue (3,1%). National transfers are to grow to 97,1% of provincial budgets in 2005/06.
The 2003 Budget was consolidated and made comparable by function. The 2003 Budget totalled R165,2 billion (with national revenue of R160 billion)
The biggest provincial budget was KZN with R32,0 billion, the smallest Northern Cape (R3,9 billion)
Social services – health, education, social grants and welfare - made up 80,9% of provincial expenditure
Personnel expenditure was 49,1% of the total
Capital expenditure increases 11,3% to R18,6 billion, projected to rise to R22,1 billion in 2005/06
Non-personnel non-capex expenditure (NPNC – an indicator of expenditure on potentially pro-poor equity items such as medicines or schoolbooks) made up R65,2 billion or 39,5% of the total.
Non-social service spending incorporates housing, provincial roads, agriculture, economic affairs, tourism and other administrative functions. Capital expenditure has been rising as provinces develop the capacity to administer it. Some R40 billion is allocated for capital expenditure over the next three years, providing positive economic spin-offs for provinces as they improve the quality of provincial infrastructure, enable efficient delivery of other services and contribute to economic growth and job creation.
Public sector personnel There are 1,6 million personnel in the public sector:
Provinces have over 700 000 employees, with Education (426 913) and Health (216 092) making up the majority
Local government employs around 210 000
National government delivery employees are in safety and security (131 560), defense (75 290), justice (15 562), water (9843)
Approximately 150 000 are employed in public entities.
Personnel management challenges include low-skilled excess staff in agriculture, and roads, mainly in provinces with former homelands. Meanwhile, local government personnel expenditure is rising in the non-wage, or higher-paid salaried, category. This increases costs without taking up lower paid employees who face retrenchment.
Provincial personnel trends indicate a real decline in personnel costs from 1996/97 to 2001/02, showing:
A decline in personnel numbers over the same period
Moderate increase in unit labour costs over the period, and
Moderate real growth in personnel spending is aimed at: increasing employment at the point of service delivery in health – as opposed to taking up further administrative weight – which makes provision for pay progression and performance-related pay.
Despite such promising factors, there are provincial personnel policy issues:
Poor provinces are still spending heavily on surplus staff outside social services, resulting in lower capex and poor staffing in education and health
There is a need to increase employment in health and welfare services, especially medical professionals, and social workers
A revised pay system is required, with appropriate performance-related pay systems
There is a need to decentralise personnel management to lower down the chain, giving hospital managers real powers, and increasing powers of school governing boards.
Major local government personnel issues are:
Rising personnel costs – local government employs some 210 000 people, and both numbers and upper pay scales are rising rapidly
Local authorities also face the costs of merging previously separate municipalities with different systems and scales
The structure of employee benefits includes excessively generous leave, retirement and medical aid benefits accounting for up to 40% of personnel costs, and dating to before 1994
Skills levels of staff, especially in smaller municipalities, are lacking
Restructuring of electricity and water sectors into municipal management has serious implications for staff transfer and remuneration.
1.4 Local government budgets and trends The IGFR covers the 2002-03 municipal budgets, since there is a different financial year for municipalities, starting 1 July. These total R74,5 billion, of which about R13,1 billion is capex.
Local government underwent three transformation phases since 1993, aimed at improving service delivery:
1993-1995: the mover from interim to transitional municipalities
To end 2000: reduction from 843 to 284 municipalities
From 1 July 2003, when new powers and functions take effect.
This structural change and transformation has involved movement of staff, income, expenditure, and assets and liabilities, impacting on service delivery. Major challenges, notably of staffing and amalgamation, abound, especially while restructuring is incomplete.
The local government sphere is classified into Category A: Metropolitan authorities – the six of which make up 62,7% of local government spending;
Category B: Local authorities; and Category C: District authorities.
Two-thirds of municipal budgets are self-funded from user charges for electricity, water and refuse removal. Other sources of revenue are property taxes, RSC levies and intergovernmental grants
The IGFR draws attention to disturbing trends, indicating questionable financial management capacity:
Over the past five budget years, capital expenditure has decreased from 25% relative to operating expenditure in 1998/99, to 18% in 2002/03.
Generally there is a rise in the share of local government personnel spending to 32% of operating expenditure (or 45% if bulk utilities are not counted).
Another chronic problem is non-collection of revenue and non-billed losses, or generally inadequate revenue strategies
Audit reports indicate that 384 financial statements for 2000/01 are qualified, disclaimed or outstanding, while 236 are outstanding for 2002/02.
Education Sector South Africa has 11.9 million learners, 364 000 teachers and 27 000 schools. R58 billion is allocated for education in the 2003/04 National Budget, making it the largest single component of provincial budgets, with a share averaging 35,6% of total budget - highest in Mpumalanga and Limpopo (40%), lowest in the Western cape, at 33%.
Some 59% of civil servants in provinces are education personnel, with a R58,9 billion combined budget.
Of this:
R46 billion is spent on personnel in 2002/03, over 80% of the education budget. Though education is a labour intensive environment, personnel growth before 1998 was unsustainable, and is now contained.
Capital expenditure rises to R3,1 billion in 2003/04 from R1,85 billion
Public ordinary schools receive R48,8 billion (83%)
Non-personnel Non-capital (NPNC) expenditure rises from R5,2 billion to R6,4 billion in 2003/04, enabling targeted pro-poor spending, such as on learner support materials (LSMs). These averaged R189 per child in 2002/03, and should increase.
Key sector development needs, which are being focused on, are:
Education management as a focus for transformation
The need to work actively to retain teachers
Developing the capacity to manage capital expenditure, and
Financial management development of provincial education.
Health Health expenditure makes up 22,3% of total budget. Provinces with central hospitals have a very high share of expenditure, compared to those without central hospitals.
However, health budgets allocate substantial funding increases to four previously disadvantaged provinces. R500 million rising to R1 billion is provided to fund a new system of rural incentives and a scarce-skills strategy for the sector. The hospital revitalisation programme also receives large increases.
Overall:
the personnel share of expenditure is 57,6% (on 216 092 staff)
Capital share is 8,2%. Capex has tripled from R1 billion to R3 billion
Non-personnel non-capex share of expenditure, reflecting delivery, rises to 28,4%
Primary health care receives R6 billion of the total.
1.7 Social Development The IGFR finds this "One of great achievements of government’. Social development’s mandate is expanding from social grants and welfare services to include poverty and food relief.
The social safety net has expanded:
2,4 million beneficiaries in April 1997 rise to 5,6 million in March 2003
The Child Support Grant (CSG) implementation has been highly successful, with 2.5 million beneficiaries by March 2003.
A rapidly rising share of budget goes to social development, from 18,9% in 2000/01 to 21,6% in 2002/02, it rises to 22,9 % in 2003/04, and 25,8% in 2005/06
Eastern Cape has highest share at 26,7%, lowest is Gauteng at 17,0 %
Share of total social development budget is 87,2% in 2002/03.
Agriculture and Land Agriculture accounts for 1,9 percent of provincial budgets, though provinces that incorporated former homelands spend between 2,4% and 3,8% on agriculture. Personnel makes up 75% of agriculture budgets, with key programmes being extension/farmer support, veterinary services and agricultural research.
Total land transferred through restitution and redistribution is approximately 2 million hectares, with I,5 million hectares transferred to 129,093 households under the restitution programme.
There is a strong growth in Land reform grants in the Land Affairs Budget. This:
Increases by an annual average of 0,8 billion in 2002/03 to R1,6 billion in 2005/06.
Restitution accounts for the strong growth, with R2,9 billion spent between 2003/04 and 2005/06 on restitution, increasing the pace of claims settlement in the medium term.
1.9 Roads and Transport All spheres have some responsibility for these, which include:
Roads (Local government share is R1,8 billion)
Public transport
Traffic management and safety
Commuter rail is a national responsibility.
Proclaimed road network is 532 000km, of which 63 631km or 16,2 % paved.
Provincial roads amount to some 348,527km (more than 80% not paved)
Roads account for 3,1% of provincial budgets, while National Transport provides for transport subsidies, which take 60% of its budget. Provinces expect to spend R851m on traffic management – rising to about R1 billion in 2005/06.
1.10 Housing 1,5 million houses have been built since 1994, with over 1 million houses transferred to beneficiaries, for expenditure of R19 billion since 1994. The housing budget rises to R4,2 billion in 2003/04, and the number of subsidies paid per year over is 220 000, with a total of just under 1.8 million subsidies approved.
Housing budgets:
Provide for bulk infrastructure: water, electricity, sanitation and roads, on which R5 billion has been spent since 1994, with a further R8 billion provided for over the coming 3 years
Will be incorporated into the municipal infrastructure grant, which will be phased in the coming 3 years, enabling the budget to expand beyond bulk infrastructure provision to upgrade former black townships and upgrade community infrastructure.
The main challenge to low cost housing development is the non-availability of land, with distant peripheral sites imposing added costs on the low income consumer. A further problem is the limited role played by municipalities, which should be key players. Private sector finance for low-income housing is low or non-existent.
Solutions involve:
Improving households’ access to private sector finance
Ensuring the quality of houses delivered
Increasing the role of local government, and
Getting access to suitable land
Physical planning needs improved coordination and integration into financial planning which develops measurable objectives for the sector.
Water The respective roles of the Department of Water affairs and Forestry (DWAF), water boards and municipalities are changing.
Their respective budgets are
DWAF (R3,1 billion),
water boards (R4 billion) and
municipalities (R11 billion)
At present personnel distribution reflects this, with DWAF (9900), water boards (6800) and municipalities (12 000), with some 8100 staff to be transferred from national to municipal level.
Free basic services are available, with some 76% of municipalities providing the first 6 kilolitres free. Volumes are not standardised between local authorities, and range between 1.2 kl to 12 kl. The price setting process needs to be standardised also, and repairs undertaken to cut water losses.
1.12 Electricity Again, each of the 3 spheres of government has a role. National government sets policy and legislation, the National Electricity Regulator licenses distributors, oversees standards and regulates tariffs. Eskom owns generation and transmission capacity, but reticulation has shifted to municipalities, in order to promote equity.
Distribution is thus currently divided between Eskom and municipalities, with standardisation issues arising, and the impact of restructuring electricity distribution being of major financial and capacity significance to local government.
There has been considerable success in extending electrification, though 22,8% of urban homes are still not electrified, nor 50,9% of rural households. Free basic electricity is supported by a R300 million subsidy, and provides 50kWh per month to households on the grid. Rollout to 300 000 households is planned by 2007.
2. PROVINCIAL AND LOCAL GOVERNMENT BUDGET TRENDS AND PERSONNEL ISSUES (IGFR Ch 2,3&10) The Select Committee on Finance focused specifically on provincial and local government budget trends and personnel issues, which are discussed in chapters 2 and 3 of the IGFR. These deal with budget trends in provincial and local government, while chapter 10 deals with personnel management in those spheres.
In addition to the full spectrum of briefings by the National Treasury, the Select Committee on Finance heard submissions from the Department of Provincial and Local government (DPLG), the Financial and Fiscal Commission (FFC), the department of Public service and administration and Amatole Municipalities.
2.1 The Department of Provincial and Local Government The Department of Provincial and Local Government’s DDG of Institutional Reform and Support briefed the Committee on the Department’s response to the IGFR.
Welcome trends in Provincial budgets were the focus on pro-poor programmes, social services expenditure growth over the MTEF, and steady decline in personnel expenditure.
Challenges the DPLG sees:
Integrated intergovernmental planning and alignment between provincial and national departments, which also informs budgeting
Developing a system whereby national departments monitor provinces for financial non-performance, as provinces should monitor municipalities’ performance, particularly for rollout of free basic services.
On local government trends, the Treasury’s major concerns are:
Finalising the transformation and restructuring process
Expanding capacity to provide services, especially free basic services
Stability during the restructuring of electricity distribution
Modernising delivery, budgeting and financial management systems
Improving debt management, and
Improving debt collection.
The DPLG saw additional challenges:
Clarity on whether municipal revenues are sufficient to meet expenditure needs, especially in those with a weak economic and tax base
Need for a clear fiscal framework for local government, as anticipated in the Municipal Finance management Bill
Linking integrated development planning to budgeting to planning
How to reduce service delivery backlogs
Ensure grants are being used for intended purposes.
The DPLG’s response to IGFR Chapter 10 on Personnel Management is broadly that provinces are ahead of local Government here, as municipal final demarcation took place only in 2000, with other restructuring still under way.
In both provincial and local government, effective personnel management demands that performance management be improved, performance-based remuneration and reward systems be developed, and more flexible personnel frameworks adopted.
In municipalities, the high level of municipal staff turnover must be combated, vacant managerial posts filled and more management expertise attracted. The transfer of DWAF staff to municipalities as water schemes are taken over needs careful management. Improved co-ordination between SALGA, the sector SETA, the DPLG and Treasury with respect to training and capacity building are essential to accelerating skills development in local government.
Finally, the President’s Co-ordinating Council (PCC) has set the following areas of strategic focus and intervention over the MTEF period:
Intergovernmental relations between spheres
Integration in planning, budgeting, implementation and monitoring
Targeted support programmes for provinces
Municipal viability and debt management
Capacity Building and leadership development
Infrastructure investment and local economic development; and
Free basic services.
2.2 The Financial and Fiscal Commission The Financial and Fiscal Commission presented a submission to the Committee.
It noted that in contrast to the previous 5 years, during which real growth in provincial and especially social spending was minuscule or negative, the projections for the 2003 MTEF suggest real growth of all provincial services, but most notably the welfare and health functions, in response to the age extension of the child support grant, and the HIV/AIDS pandemic.
The number of Social grant beneficiaries has increased from 2.5 million in 1997 to 5.6 million in March 3002. Beneficiary growth rates have been rising because of faster growth of the elderly populations, worsening income distribution and strong marketing of grants by departments.
2.3 The Amatole District Municipality The Amatole District Municipality presented its report, It was a pilot site for finance and budget reforms, and has successfully managed the transfer of staff and assets as well as budgets via the Transitional Facilitation Committee.
2.4 The Department of Public Service and Administration This department pointed to text corrections it had proposed for the IGFR noted the policy developments since 1994 which are leading to a united public service and the rightsizing this involved, as well as service improvements. Rising labour costs and improvements to benefits, such as by introduction of a single medical aid scheme, were discussed.
2.5 Key issues raised by the Committee in discussion Most of these focused on local government where the majority of challenging issues was defined.
Personnel costs versus delivery: The Committee felt that Treasury’s emphasis on controlling personnel expenditure while emphasising quality of delivery could penalise labour intensive undertakings. However, it recognised the tension when instances of numerous low-skilled supernumeraries facing job loss in the same system where a grossly overpaid senior executives effectively plunder resources. Such problems could be addressed by policy coherence between government at national and provincial levels.
The DPLG felt that local government salaries were not a serious issue, but this was disputed by Treasury, who said that its calculations show a 45% increase in these over the past three years.
Financial management capacity challenges: Problems with forecasting own revenue, unrealistic budgeting and underestimation of revenue, both provincial and local, was raised. A Treasury study indicated capacity problems with forecasting of revenue and particular difficulty where gambling income was concerned. However, Treasury also pointed to instances where capacity problems would be advanced as an excuse for non-delivery, for example in cases where municipal managers received payment in excess of the President.
Municipal credit: Treasury wishes to work closely with municipalities to create plans to enable long-term borrowing capability through municipal bonds and the like. Treasury is also striving to get a credit rating for the metros.
Service delivery expenditure support for local governments where revenue is very low: this issue was raised several times, since delivering basic services would require expenditure in excess of revenue in poor municipalities.
Personnel policies within and between municipalities thus need to become consistent and disparities need to be addressed as the new municipal system settles down.
Skills migration from sectors, and from local governments were raised as an ongoing impediment to institutional sustainability and improved service delivery
Alignment of local and provincial housing strategies was called for, as a specific instance where lack of alignment between provincial and local spheres caused strife.
Free basic services versus independent suppliers. Some municipal areas do not receive free basic services since they are served by independent suppliers such as Eskom. Consistency in this regard, where municipal and independent supplier are cheek by jowl, is needed. Exploration of charging mechanisms is needed to lead in the medium to long term to sustainability in water accounts.
DWAF-owned programmes which are being transferred to municipalities will be funded by a new scheme for the first three years, and thereafter by grants making up part of the equitable share, according the DPLG.
3. SECTOR HEARINGS BY SELECT COMMITTEES
3.1 Social Development (IGFR Ch 6) The Select Committee on Social Services heard submissions by the Western Cape Ministry of Social Services and Poverty Alleviation, the Eastern Cape Social Development Department, and those departments concerned with social development in North West, Limpopo and Mpumalanga.
The National Treasury representative first reviewed IGFR Chapter 6 on social development, noting that:
In the interest of more efficient administration of social grants, a separate national entity, a National Social Security Agency, will be established, following a decision by Cabinet that this function should be moved from provincial to national level
The mandate for the Department of Social Development has expanded to include poverty and food relief as well as social grants and welfare services, accommodating increasing numbers of beneficiaries, especially of child support grants and those infected or affected by HIV/AIDS.
Budget trends for the MTEF show and annual growth rate of 17,9%.
In discussion, a National Social Security Agency was welcomed. In response to a question, the Treasury official said it is expected to be launched in 2004.
Uptake of social grants: Asked whether all those entitled to social grants do receive them, Treasury replied that efficient management and administration of social grants at provincial level does present numerous challenges, and the new nationally managed system should address fragmentation and differential access to social grants across provinces.
The Western Cape representative reviewed the new provincial government’s planned strategy for addressing social service needs.
Responses to questions:
The CSG was not yet reaching all who qualified, and public education was needed
Despite meetings with the Department of Home Affairs to arrange assistance in targeting beneficiaries, no practical steps had been taken
Time taken to process grant applications had improved "significantly" due to training.
Service delivery partners would be more closely monitored to determine appropriateness and impact of products and services
Food security will be undertaken together with developmental institutions, grant making agencies and faith-based organisations
A communication campaign is planned to encourage staff and beneficiaries to report any fraud or corruption.
The North West Province representative said that significantly more needed to be done, and new trainees in HIV/AIDS home-based care would help to maximise existing programmes.
Issues discussed included possible stipends for such volunteers, and concern about lack of funeral arrangements by old age homes for indigent elderly.
The Limpopo Province representative felt that the Public finance3 management Act tended to emphasise accountability at the expense of delivery. He felt that allocation of equitable share on the basis of demographics could easily be distorted.
He raised the following issues:
Low levels of impact despite increased budgetary allocations
Inefficiency and corruption continued to present obstacles to effective delivery
Increasing numbers of illegal immigrants from Zimbabwe, Mozambique and elsewhere had negative social implications.
Foster care needed review, since the African extended family often needed financial assistance in caring for orphaned relatives.
Discussion about the PFMA elicited assurance from the Treasury representative that criteria for allocating equitable shares to the provinces were being revisited. However, the aim of the PFMA was accountability via careful strategic planning with measurable objectives.
Legislation on foster care currently does not make specific provision for a member of the extended family providing such care, and this needs to be addressed.
The Eastern Cape Representative noted that the major challenges were poverty eradication, programme sustainability, human resources, and transforming the welfare services, given a focus on children and home based care of people affected by HIV/AIDS. Further:
Grants were allocated to Presidential nodal points where specific programmes were being developed to meet identified needs
The province’s HIV/AIDS pilot programmes will need to be extended beyond the piloting phase to the 12 poorer districts. Th unit managing these is being strengthened, and will soon be a full directorate
Social grant turnaround time aim at reduction from 90 to 30 days.
Fraud and corruption are to be addressed through improved management and administration
The "Services on Wheels" programme aims to take a range of social services to the deep rural areas.
In discussion, the difficulty of determining whether high levels of poverty among children meant that large numbers were not reached by the system was raised. The presenter agreed that the majority of deserving cases was not yet accessing grants.
Project management skills are being developed via a grant from national government. The "Services on Wheels’ project is in a specially funded pilot stage in three districts.
The Mpumalanga Representative expressed concern lest the province’s increasing number of social grant beneficiaries might affect its capacity to deliver other social services. Examples given were ablution facilities, visible security and standby nurses at social grant pay points, which drained the budget. Lack of skilled personnel was having an effect on service delivery.
The Department of Home Affairs was progressing in identifying and registering qualified beneficiaries.
Discussion concerned measures taken to address fraudulent social grants claims.
3.2 Land, Agriculture and Water Affairs (IGFR Ch 7 and 11) The Select Committee on Land and Environmental Affairs investigated and reported on issues covered in Chapters 7 and 11 of the IGFR.
3.2.1 Land and Agriculture The Select Committee on Land and Environmental Affairs was briefed by the Director General: Land Affairs and a number of colleagues, on land reform an agricultural support for it. .
The Department of Land Affairs said that Treasury was correct in saying that the Department has fallen far short of the required rate of delivery to redistribute 30% of agricultural land in 15 years. TheDLA’s response is that the problem lies in a particular understanding of land reform. Land reform has been indicated as a key priority, but Treasury has not responded with additional funds.
The Department of Agriculture complained of receiving insufficient funding:
To combat foot-and-mouth disease
To retrain supernumeraries for redeployment, and
To play a meaningful role in post-settlement support for the LRAD programme, as Treasury only allocated funds to the DLA for this programme, although resettled persons needed agricultural services and support in order to make a living.
The Department of Agriculture also claimed that Treasury adopted a divide-and-rule policy with respect to national and provincial departments of Agriculture. This was evidenced by the fact that they tried to ascribe national functions to the provinces and vice-versa.
3.2.2 Water and Sanitation
The Select Committee on Land and Environmental Affairs and the Portfolio Committee on Water Affairs and Forestry held a joint hearing on Chapter 11 of the 2003 Intergovernmental Fiscal Review (IGFR) on 19 May 2003. The aim of the hearing was to consider submissions from relevant role-players on the IGFR of the water and sanitation sector. (See Draft Report: Hearings on the 2003 Intergovernmental Fiscal Review – Chapter 11: Water and Sanitation)
The Joint Committee heard submissions from Treasury, DWAF and SALGA. Its
The Committee’s discussion of the submissions on the IGFR for the water and sanitation sector highlighted the following:
The transformation of the water services sector requires formal systems of oversight. Oversight of the numerous municipalities and water user associations present a significant challenge. The IGFR does not refer to the co-ordination that is required between the different departments and authorities.
Funds for capacity building must accompany the funding provided for the transfer of services. It requires the involvement of DPLG, which is responsible for overseeing the capacity building within local government. It is anticipated that capacity building efforts would be more effective after 1 July 2003, as tasks are now clearly defined in terms of the division of powers and functions.
The feasibility of the target dates for the transfer of water services to municipalities is a concern, as municipalities lack sufficient funds for capital investment and have capacity problems. In addition, many water schemes must still be refurbished before being transferred. Although DWAF will be flexible with regard to the time frames, it believes that the time frames are feasible because it was carefully negotiated. Funds have also been provided to refurbish water schemes, and the process is on track.
The Joint Committee found that local government needs partners for service delivery of water and sanitation. In this regard, DWAF is a key partner.
The Committees was concerned about the following:
Funding allocated for water services in terms of the equitable share is not spent on what it was intended for due to the prioritisation of other services by municipalities. However, in terms of the Division of Revenue Act (Act 7 of 2003), there are some conditions attached and if municipalities do not report on it, their equitable share can be withheld.
Municipalities are not in all cases able to cross-subsidise the provision of basic services, which means that the equitable share allocation is insufficient.
The sanitation backlog targets for 2010 would appear to be unrealistic, which is largely due to the outdated subsidy provided to build toilets. The budget to achieve the 2010 sanitation backlog targets is based on this outdated subsidy, which means that the target would not be achieved.
The Committee recommended even closer cooperation between the different role-players in the water and sanitation sector. DWAF, DPLG, SALGA and Treasury need to liase closely as a water sector leadership group, which should also be reflected in increased and more effective cooperation at local level.
Electricity (IGFR Ch 12) The Select Committee on Economics heard a presentation by the Department of Minerals and Energy Affairs.
South Africa’s electricity generation, supply and distribution industries are being restructured:
234 municipalities which are licensed to distribute electricity are supplying 60% of consumers, and Eskom the balance
However, sales volumes indicated that due to Eskom supplying large industrie3s, it is in fact supplying 6)% of units sold.
The large metropolitan areas account for 75% of municipal electricity sales, which has serious implications for supplying equitable services to consumers across the country
Inadequate maintenance of infrastructure networks and significant disparities in tariffs also make effective restructuring difficult.
The ministry’s vision is to consolidate South Africa’s electricity distribution industry into six financially independent Regional Electricity Distributors (REDs), which will operate under the holding company. Electricity Distribution Industry (EDI) Holdings. The aim is competitive tariffs within a rationalized tariff structure across the country. Prices to poor households would be capped, and special arrangements for large industry would continue to be honoured.
In discussion, the role of Black Economic Empowerment in the restructuring process was raised. Municipalities themselves would determine their outsourcing policy.
The municipal levy was explained as a mechanism whereby municipalities charged more than the cost of the electricity to generate revenue for other costs.
4. COMMITTEE CONCERNS AND CONCLUSIONS
Concerns: The NCOP Committees’ hearings and discussions highlighted several issues of concern in their scrutiny of the encouraging developments in provincial and local government service provision and development.
Their common theme was concern to promote access by the poorest to the benefits and services they are entitled to.
Instances raised were: Enquiry into access to social grants by entitled beneficiaries. What specific factors or impediments prevented provinces signing up those entitled to the range of grants: incapacity, distance, lack of funds, time, or motivation?
Concern and awareness about the impact of corruption, whether financial or otherwise. The rising need for HIV/AIDS home care systems.
Focus on quality of delivery of services – education, health, pensions – or tangible items like quality of housing.
Recommendations:
The Committee recommended even closer cooperation between the different role-players in the water and sanitation sector. DWAF, DPLG, SALGA and Treasury need to liase closely as a water sector leadership group, which should also be reflected in increased and more effective cooperation at local level.
A comprehensive study of the implications of the new distribution system, especially the REDS, is required.
Development of billing systems, including administration of water and sanitation, are critical to quality service delivery in local government.
Any consideration of increasing water or other tariffs must take into account not merely cost factors, but the need to remain within the inflation targets set by government.
An integrated housing delivery approach needs to be developed, in keeping with the existing policy of addressing housing backlogs while ensuring that quality is maintained.
The Committees welcome Cabinet’s decision to establish a national social security agency, note the complexities and challenges facing the contemplated body, and call on the provinces to provide the experience and grasp of local conditions which only they can offer, to further enhance delivery of social security to the people via all spheres of government.
Conclusion:
The NCOP Committees conclude by emphatically reasserting our appreciation and support for the IGFR, which we grasp as an indispensable tool for governance, effective planning, monitoring, transparency and accountability. . Without these, our primary concern – our people’s attainment of the benefits they are entitled to – cannot be realised. We intend to keep the IGFR as a tool for us to do our oversight work, not just as a once-off activity, but as an ongoing mechanism.