The Select Committee conducted an oversight visit to the Municipality from 15-17 September 2004, in accordance with its support function to local government in terms of Section 154 of the Constitution, and to consider the application referred to it.

The Select Committee delegation comprised the following delegates:

Hon. S Shiceka, leader of the delegation. (Gauteng)

Hon. B Dlulane. (Eastern Cape)

Hon. P Hollander. (Northern Cape)

Hon. B Mkhaliphi. (Mpumalanga)

Hon. Kgoshi Mokoena. (Limpopo)

Hon. C Ntuli. (Kwazulu-Natal)

The Committee hereby reports on its findings:

KSD Municipality comprises the former transitional local councils of Umtata and Mqanduli. It is surrounded by a number of small rural towns and villages whose residents continue paying visits to the municipal area to acquire services that are not available in their own towns. While this provides the Municipality with a huge economic boost, it also puts considerable pressure on the infrastructure in the area. Furthermore, with the provincial government moving to Bisho, Umtata is no longer the Eastern Cape's administrative and commercial hub as it previously was.

The current situation in the KSD Municipality is such that it cannot fulfill its executive obligations in terms of service delivery and in the honouring of its financial obligations. This state of affairs has affected national and provincial programmes and priorities adversely.

It appears that the major contributory factors in this regard include the following:

• The inherited culture of non-payment of rates and service charges.
• The impact of the resignation of qualified key officials especially in the Finance Directorate.
• An unreliable and outdated billing and accounting system.
• A decline in staff morale due to non-payment of staff deductions and political interference of Councillors up to the end of the term of office of the Transitional Council.
• An economic decline in the region resulting in unemployment and a high crime rate.

These factors resulted in an inability by the Municipality to generate billing on a monthly basis, collect outstanding debts and properly account for income and expenditure. The Municipality is therefore in a weak financial state.

KSD failed to adopt its budget by 30 June 2004 as required. In terms of Section 26(1) of the Municipal Finance Management Act, No 56 of 2003, the Provincial Executive is required to intervene in terms of Section 139(4)(b) of the Constitution if a municipality has failed to approve its annual budget by 1 July.

The Provincial Executive invoked the provisions of Section 139(4)(b) and the intervention became effective on 30 July 2004.

The Select Committee acknowledges the support provided to the Municipality over an extended period of time.

As far back as 2001/02 the provincial Department noted that KSD was not performing well in managing its affairs. This was attributed to lack of capacity and low staff morale emanating from the lack of job security due to non-appointment of staff either on contract or in permanent positions.

Utilising Section 154 of the Constitution, the Department assisted the Municipality in the areas of ICT, administration, human resources and finance. The Municipality was offered R5 000 000; R750 000 and R250 000 for the three consecutive financial years, starting in 2001/2002, to address the identified weaknesses. For the same purposes the Department, through the Management Support Programme, is allocating a sum of R1 350 000 to KSD during the current financial year.

Funds transferred to KSD during the years mentioned above have not been fully utilised due to the incapacity of the Municipality. The impact of the Department’s capacity building programme has not been immediate. The Department acknowledged the need to exhaust all avenues before resorting to a Section 139 intervention.

In addition, the Department has a record of numerous reports on mal-administration by concerned citizens, whistleblowers, fact-finding reports by the Department, reports of the Auditor General and reports on meetings between the Department and the Municipality. These reports and those of the Auditor General, which are disclaimers from year to year, all pointed to maladministration, malpractices and alleged corruption within the Municipality, which necessitated investigations into the affairs of the Municipality.

The Municipality is challenged with considerable debts, which were in excess of R270 million by the end of July 2004. The Municipality is battling to service this debt from the revenue it raises by supplying electricity and water.

The Municipality’s main creditors are Eskom, the Department of Water Affairs and Forestry, the Public Investment Commission, the Receiver of Revenue and Workman’s Compensation and other staff deductions such as the pension and provident fund. The Municipality has had to hold back these payments in order to meet their monthly salary obligations.

The Municipality is faced with extensive historical arrears, which have accumulated to unmanageable levels. The total arrears amount to R 107 260 837, 00.

The Municipality itself is owed millions by several debtors. However, some of the debt goes back several years and the prospects of recovery appear to be remote.

Failure to collect revenue is one of the main factors contributing to the failure of the Municipality to render services to its communities as well in its inability to pay creditors.

The Municipality failed to adopt its budget for the 2004/05 financial year. In terms of the Municipal Finance Management Act (MFMA), expenditure incurred when the budget has not been adopted and approved is illegal. The Department has applied to the Provincial Executive Council and Provincial Treasury for a temporary budget as stipulated in Sections 26 (3) and 55 (a) of the MFMA.

The fact that the Municipality is unable to generate its own revenue, means that it operates on a budget deficit. This has delayed the application for a temporary budget because the Department has had to ensure that KSD explains the variance between expenditure incurred and projected and its available budget (actual expenditure versus income). KSD operates on a R14 million overdraft monthly, which is another concern for the Department. The operational plan developed by the Departmental team addresses this situation practically.

The timeframe for KSD to address the deficit cannot be established with certainty at this point since it depends, to a large degree, on the rate of payment for services provided and consumed. According to the Department’s projections, this will take not less than a year and the team will review progress after every quarter.

The Municipality also faces significant monthly expenditure having to cover the costs of the 64 Councillors.

Unnecessary litigation by the Mayoral Committee has further sapped already strained municipal resources.

Overall, institutional malfunctioning and political infighting has been manifesting itself in the low morale of personnel and consequent poor service delivery. Low morale is aggravated by the fact that the staff placement process has not yet begun.

It appears that there has been a failure to convene regular Council meetings, which has impeded service delivery.

The political leadership within KSD is poor. Administratively, KSD also faces serious capacity challenges.

KSD is currently a party to a number of court cases:

• Against the OR Tambo District Municipality, on the issue of the delivery of water services to Umtata and surrounding areas. In September 2003 the District Municipality announced it was taking over water supply from local municipalities. KSD was the only local municipality to contest the taking over of this function. (The District Municipality has seven local municipalities, six of which were always controlled by the ANC, now including KSD.)
• The Municipal Manager against the Executive Mayor.

Since 2000 KSD has experienced political instability and a lack of cooperation between political parties, which has led to the dysfunctionality of the Council. Council meetings were not held for some time due to political tensions between United Democratic Movement (UDM) and ANC Councillors. It was noted that it has not been easy for the MEC or the Department to intervene promptly where political parties and infighting is concerned.

On 31 July 2004, the ANC obtained a majority of 56 seats in the Council. As from 20 August 2004, there has been change of government within the Municipality.

At present the Council is constituted as follows:

ANC - 36

UDM - 25

PAC - 2

ACDP - 1

There appears to be a non-observance of cooperative government between the KSD Municipality and the OR Tambo District Municipality.

KSD is dissatisfied that the OR Tambo District Municipality has assumed the water services provision function. It was alleged that the District Municipality took over water and sanitation services as well as personnel without following the necessary procedures. However, by the time it informed the Department of its dissatisfaction, the matter was already in court.

Meetings were subsequently held between the two Municipalities, with their respective Executive Mayors, and the Department, led by the MEC. These meetings were convened in an effort to foster cooperation between the two Municipalities and to persuade KSD to settle the dispute out of court. These efforts failed.

KSD has been held this water function for years and believes that it has the capacity to continue doing so. The discontinuation of this function has also meant a loss of revenue for KSD.

It has been argued that the change confuses consumers, who now have to change from paying water at KSD, while still paying there for electricity, refuse removal etc. The fact that is no longer a common payment has resulted in irregular payments or in some cases no payment by consumers at all.

Various instances have been cited as examples of where the OR Tambo District has been uncooperative with KSD:

• The District Municipality withheld a grant of R5 million from the Provincial Government, until threatened with legal action.
• An amount of R10 000 for the clean-up campaign is still being withheld.

This is a targeted intervention where the MEC has authorised the Head of the Department to fulfill the said role without appointing an external person.

In referring to a "targeted intervention" the Department is focusing on two functional areas, namely, Finance and Corporate services (HR and Administration).

The MEC has already had a public meeting where he addressed communities, the Council, labour and municipal employees on the reasons, terms of reference and expectations of the intervention.

A team has been set up, comprising the Department, KSD and OR Tambo District Municipality, with officials performing finance, administration and human resources functions. Three working groups for the above functional areas were established. They report to a Steering Committee (comprising management from the three institutions) on a fortnightly basis.

The three working groups have submitted a consolidated report to the Steering Committee providing a situational analysis highlighting the following:

• Reasons for the current problems.
• Results emanating from such problems.
• Principles of the provincial intervention.
• Proposals to address the current problems and challenges.

The priority areas for addressing the situation were identified. This culminated in an operational plan that was developed with, and adopted by, the Steering Committee.

The team has started implementing some operations, which include the following:

• An application for a temporary budget has been made to the Provincial Executive Council.
• Development of an organogram for the Municipality.
• Budget processing for the 2004/05 financial year.
• A date has been set to workshop role players on various critical management issues (political and administrative).

Based on the progress reports submitted to the NCOP by the MEC, the NCOP will continue to monitor the impact of the turnaround strategy instituted by the provincial department. It is recommended that the intervention be executed for a period of three months; whereafter the extent of the progress made should be reviewed. The intervention should end when the Municipality is able to effectively deliver services to its constituency at acceptable levels. In this regard, a consultative process should be followed before the ending of the intervention.

The recommendations of the Committee are based on the following observations:

• The Committee has requested the Department to present the Terms of Reference for the intervention. However, these are still being awaited.
• The lack of economic development of the Umtata region has impacted negatively on severe lack of infrastructure and service delivery in that area. The drafting of a growth and development strategy, identifying revenue raising measures for KSD and surrounding areas, must be initiated by the province.
• There is no adherence to post 1995 laws by the Municipality. The provincial government must assist in training and capacitating Councillors on the current legislative framework.
• The capacity of the provincial Department of Local Government needs to be critically assessed.
• The Municipality should continue its efforts to limit its reliance on consultants.
• Consumers must be persuaded to pay for services provided and consumed.

The Committee resolves to recommend to the House as follows:

In terms of Section 139(6)(b), the MEC is required to submit a written notice on the intervention to the NCOP. The Committee, having received the notice and having considered the inputs from the administration of the Municipality and the relevant stakeholders, resolves to recommend to the NCOP to support the intervention by the Eastern Cape provincial government, in terms of Section 139(4), until a temporary budget is finalised.

Furthermore, that the provincial government thereafter continues the intervention in terms of Section 139(1)(a) and (b). The Committee strongly recommends that an Administrator or an administrative team be appointed in the KSD, which may or may not include the Municipal Manager and/or the Chief Financial Officer of KSD.

Further, that, in order to enable the NCOP to exercise its oversight over the intervention regularly, the MEC must submit a report to the NCOP every month after receipt of this report. These reports should focus on the terms of reference for the intervention and areas of concern raised in this report. The Ministry of Local Government should also play a role in monitoring the progress of the intervention.

The Committee recommends further:

1. That a discussion be convened between the Department, the MEC, the Provincial Standing Committee and SALGA on the state of municipalities in the province in early November 2004 to formulate a proactive approach to providing support.
2. That a programme for the capacitation of Councillors and officials of KSD be developed as a matter of priority.
3. That the present Council be encouraged to reconsider legal cases against individuals in all cases being paid for by the Municipality, in view of its financial status.
4. That ward committees be strengthened as a matter of urgency.
5. That the Mayor and the Speaker regularly brief ward committees on progress being made with the intervention process.
6. That, following the next local government elections, serious consideration should be given to the introduction of an Executive Mayoral system at KSD.

Report to be considered.