OR TAMBO DISTRICT MUNICIPALITY ORTDM MIG 201617 BRIEFING
OR TAMBO DISTRICT MUNICIPALITY (ORTDM) MIG 2016/17 BRIEFING REPORT TO THE SELECT COMMITTE ON APPROPRIATION Presentation by Executive Mayor
CONTENTS 1. Introduction 2. Background 3. Municipal Infrastructure Grant (MIG) 2016/17 4. Summary of MIG Expenditure to date 5. Conclusion 2
Introduction • This document is prepared for the session between the O. R Tambo District Municipality Executive Mayor and the Parliamentary Select Committee on Appropriation. • It serves to brief the Committee about the challenges faced by the ORTDM on the reallocation of the MIG 2016/2017 funds to the amount of R 90 million. • It provides the brief background of the municipality, highlighting service delivery challenges that need to be addressed. • It reflects on the MIG 2016/2017 allocation and the processes the municipality undertook to ensure its utilization. • It outlines the challenges encountered with the transferring department; sequencing the activities undertaken as well as interventions taken by the leadership in order to address the matter. • The document concludes by giving the picture of the municipality grant expenditure and the impact of the funds reallocation to service delivery. • As part of the report there are portfolios of evidence in the form of annexures. 3
Background • • OR Tambo District Municipality is one of the six district municipalities in the Eastern Cape, constituted by: • King Sabata Dalindyebo, • Mhlontlo, • Nyandeni, • Port St Johns and • Ingquza Hill. The district is classified as a Category C 2 Municipality which means an area with a largely rural character. 80% of the district was part of the former Transkei homeland approximately 93% of the population resides in dispersed homesteads and small villages. All the Local Municipalities in the district, with the exception of King Sabata Dalindyebo Local Municipality (KSDLM), are classified as Category B 4 -Municipalities, signifying a rural but mainly subsistence economy. • • • Settlements in these municipalities are generally scattered, highly impoverished and depend on social grants. There is high unemployment rate 34%) and the major source of employment is government service. Organizationally, the Local Municipalities have low own-income and property tax bases and limited technical, financial and managerial capacity. The KSDLM is classified as a Category B 2 Municipality, which means a large core town with considerable market and business activities and opportunities, surrounded by a reasonably productive agricultural area. 4
Background 5
Background • • • According to SSA Community Survey 2016, Eastern Cape is estimated at 6, 996 976 people, which is the third largest in the country, following Gauteng and Kwa. Zulu Natal. The OR Tambo district accounts for 1, 457 382 people, the highest in the entire Eastern Cape. Overall the district houses 2. 7% of the total South African population. Between 2011 and 2016, the population grew by 6. 7%, approximately the same as the provincial growth rate of 6. 6% in the same period. Ingquza Hill Local Municipality (IHLM) and KSD recorded the largest population growth rates of 8. 9% and 8. 1% respectively, between 2011 and 2016. 6
Background • • The District Municipality was declared a Water Services Authority in 2003; and as such it conducted a feasibility study in line with Section 78 of the MSA and a decision was taken to be an internal provider. The municipality inherited dilapidated infrastructure from then Department of Water Affairs, leading to unreliable and unsustainable water provisioning. In 2012 the municipality took a decision to migrate from the standalone schemes to Regional and Sub-Regional Schemes. Since this approach was taken, the municipality is focusing on implementing primary bulk infrastructure which will supply all towns and villages of the municipality. Over R 3 Billion has been spent on the primary bulk infrastructure for both water and sanitation. The municipality is also busy upgrading the water borne sewer system in all towns of the district. A master plan for water and sanitation services has been developed and it indicates the funding requirements for backlogs eradication as R 22 billion. Sources of water Pipe water = 121, 949 Other sources = 191, 940 7
Background • • • In terms of the IDP, the target period for backlogs eradication is 2022. The funding sources for the infrastructure is MIG, RBIG, WSIG, Equitable share and own revenue, which are not sufficient. The municipality also inherited standalone schemes, springs and boreholes with inadequate water sources. These sources dry out during winter season and drought periods. As much as strides have been made over years to improve water access to the district communities, the 2016 Community Survey reflects that households access to water in the district has deteriorated between 2011 and 2016. The proportion of households with access to piped water in their dwellings, in the district, decreased from 49. 3% to 38. 9%. This has been due to the unreliable water sources which mostly dry up. The LM with the largest percentage of households without access to pipe water is Ingquza Hill at 81. 7% in 2016 and the LM with the highest percentage of households with access to water is KSD LM at 57. 2% for the same period. Sources of water Pipe water = 121, 949 Other sources = 191, 940 8
Background • • • The OR Tambo district is the recipient of grant funds for its infrastructural development, specifically Water Services, with the main grant being the Municipal Infrastructure Grant (MIG) and Regional Bulk Infrastructure Grants (RBIG) and these are utilized to provide sustainable water services to the communities. It needs to be noted that since the introduction of the MIG the district has been challenged with underspending of its allocations resulting to roll overs and sometimes funds being returned to national fiscals. However, over the past four consistent financial years the municipality managed to turnaround the situation and fully spent its municipal infrastructure grant allocations. 9
Municipal Infrastructure Grant (MIG) 2016/17 • • Over the financial year 2016/2017 the OR Tambo District municipality was allocated R 609 098 998 million for the MIG. The project implementation plan was compiled and submitted to the transferring department outlining the payment schedule for the grant to the municipality primary bank account, as follows: TRANSFER CATEGORY • AMOUNT AS PER THE PIP First transfer R 185 432 323 Second transfer R 281 492 084 Third transfer R 142 174 591 Total R 609 098 998 The project implementation plan consists of projects that were part of the municipal 3 Year Infrastructure Plan, the Integrated Development Plan and were registered in the MIG MIS system. 10
Municipal Infrastructure Grant (MIG) 2016/17 • • • It needs to be noted that the municipal Project Implementation Plan was submitted late due to capacity constraints in the municipality that include vacancy rate in the Project Management Unit and the broader infrastructure services department. However, the transferring department never raised any concerns regarding the content and quality of the PIP. Subsequent to the submission of the PIP, the transferring department (National COGTA) transferred the first amount as per the payment schedule to the value of R 189 883 000. As MIG projects were being implemented from the month of July to Oct the municipality received correspondence from the national transferring department on the 11 th November 2016, raising concerns of non-compliance and nonreporting and the Provincial COGTA was included in the mail. The Provincial COGTA responded via email to the concerns raised in the communication to the District and it became clear that there was lack of communication between the province and national. 11
Municipal Infrastructure Grant (MIG) 2016/17 • • • The municipality responded on the 22 nd Nov 2016 and further requested engagement to resolve the areas of misunderstanding. A meeting was held between Mr. Matomela and Mr. Gabone on the 30 th Nov 2016 to discussed information gap and derive mechanisms to address those. Emerging from the meeting the two parties agreed to have a working session to look on the reports and proof of payments from Jul 2016 to Nov 2016 and the session was scheduled for the 05 th Dec 2016, which was later rescheduled for the 12 th Dec 2016 On the day of the meeting the municipality handed to Mr. Gabone the municipal MIG reports for the month of Jul to Nov 2016 with the proof of payments. The team went through the proofs of payment for Jul to Oct 2016 to confirm whether the municipality had met the DORA requirements of spending 60% of the first transfer tranche. According to the COGTA representative (Mr. Gabone) the process was to necessitate the transfer of the second tranche, which was to be executed by 22 Dec 2016. Indeed, the analysis confirmed that the ORTDM had spent 80% of its transferred funds with proof of payments provided. 12
Municipal Infrastructure Grant (MIG) 2016/17 • • • The confirmation was noted, however the department derecognized expenditure for the PMU operations (salaries) and some of the expenditure of the projects that were not in the Project Implementation Plan though the projects were part of the three year infrastructure plan and registered in the MIG MIS. COGTA representative (Mr. Gabone) took upon himself to confirm the registration status of the projects and to check their existence in the three year infrastructure plan in order to recognize the expenditure. The municipality was requested to re-assess its implementation plan and review it in line with the Do. RA requirements. This demonstrated that recognition of the expenditure would results to more expenditure for the amount transferred. It should be noted that the November 2016 report, its expenditure and proof of payments were not analyzed in the session as COGTA indicated that the first four months expenditure should necessitate second transfer. As means to facilitate the second transfer COGTA requested the municipality to officially confirm that the detailed analysis was conducted and it confirmed compliance to the requirements, as such the letter was sent on the 16 th Dec 2016. 13
Municipal Infrastructure Grant (MIG) 2016/17 • • • Whilst the outcomes of the meeting concurred that the second tranche transfer be implemented in line with the municipality compliance to Do. RA requirements, the municipal funds were short transferred on the 22 nd Dec 2016 by an amount of R 90 million and there were no reasons provided in that regard. The municipality continued to implement its projects as per contractual obligations and paid the service providers from its coffers. On the other hand, the Chief Financial Officer constantly communicated with COGTA and National Treasury officials to understand the reasons for the short transfer with no clear response or clarity. To mention some of the engagements of enquiring about the short transfer they include the teleconference between CFO and Ms. V. Mabitsi on the 08 th January 2017 as well as in the budget midyear engagement with National Treasury on the 25 th &26 th January 2017. Although reasons were not provided for the short transfer of the second tranche COGTA subsequently issued another correspondence to the municipality inviting it to the meeting of the 19 th January 2017 to discuss the intention to stop payment of the MIG funds. 14
Municipal Infrastructure Grant (MIG) 2016/17 • • It must be noted that, although there was a scheduled meeting to discuss intention to stop the funds allocation, the tranche was already short transferred by R 90 m. The municipality CFO and PMU Manager attended the meeting and in their arrival they felt being ridiculed and undermined by the departmental officials. The department did not provide guidance to the municipality on what it should prepare and present in the session whilst other municipalities were provided with the guidelines. Seeing that OR Tambo team did not have the presentation as per COGTA guide, the team was released and given the slot for the following day (20 January 2017). Overnight the team prepared the required report as per the format provided by the officials. Although the team used the presentation guide from COGTA again on the 20 th January 2017 the municipal officials were lambasted that they did not do what was required. Apart from the municipal officials being lambasted, the session further failed to give reasons on why the R 90 million was short transferred. 15
Municipal Infrastructure Grant (MIG) 2016/17 • • • On the 14 th of Feb 2017 the municipality team was informed by reliable sources that there were high level discussions for withholding R 90 million of the municipal MIG funds. The CFO, Director OMM, PMU Manager and Project Finance Manager followed up via a teleconference with Mr. Gabone the MIG Manager to understand what was going on. The Manager indicated that he has not information regarding the decision to withhold funds and he also indicated that second tranche transfer was fully met with no outstanding issues. He took upon himself to enquire the second tranche short transfer. To the surprise of the municipality, on the 15 th February 2017 a letter was issued to the Accounting Officer intending to withhold R 90 million of MIG funds, the letter requested representation within seven days. In response to the letter the municipality requested engagement with COGTA on the 21 st of Feb and with National Treasury on the 22 nd of Feb 2017. COGTA agreed to meet the municipality whilst the National Treasury indicated that there was no need for engagement as the representation letter will be adequate. 16
• • • Municipal Infrastructure Grant (MIG) 2016/17 The meeting between COGTA and the Municipality was convened as agreed on the 21 st of Feb 2017. From the meeting it emerged for the first time that the intention to withhold its funds to the amount of R 90 million had been based on the fact that the municipality had spent 21 % of its total MIG allocation as at end of Dec 2016 instead of 40% threshold. Also there was a view that the municipality is spending on projects that were not registered in the MIS system. The misunderstandings on these matters were addressed and the province was brought in, through teleconference, as it coordinates project registration and reporting. The provincial MIG manager responsible to support OR Tambo confirmed that all projects of the municipality were registered in the MIG MIS system. She also confirmed that as per consolidated information the municipality expenditure as at end of Dec 2016 was above threshold of 40% that is 46% of total allocation. The chairperson of the meeting (Mr. Vimba) requested a written email confirmation from the Eastern Cape MIG Manager. Based on the information the meeting resolved that OR Tambo District Municipality should write a letter of representation to National Treasury and this was to be supported by confirmation from COGTA that in deed the municipality met the expenditure requirement of 40% of the total budget as at end of Dec 2016. Please note that by end Dec OR Tambo registered 46% expenditure of the total allocation and 77% of the transferred amount. 17
Municipal Infrastructure Grant (MIG) 2016/17 • • • As per the requirements indeed the municipality submitted the representation letter to both National Treasury and COGTA for consideration with all the necessary attachments as agreed. Subsequent to the processes the municipality was shocked to see a gazette reallocating R 90 million of its funds though it had met all the necessary requirements. In receipt of the gazette the municipality requested urgent engagement and intervention from the relevant parties that include the Minister of COGTA, the Portfolio Committee, the Premier and the Directors General of COGTA, National Treasury as well as provincial counterparts. On the 27 th March 2017 the municipality met the Minister of COGTA with his management team led by Acting Director General. Key in the meeting was to present the state of the MIG expenditure and raising the unfairness in the reallocation of the funds. 18
Municipal Infrastructure Grant (MIG) 2016/17 • • • The Departmental official retaliated that the municipality did not meet compliance in terms of expenditure as well as did not report properly. After the detailed presentation of the facts by the municipality the Minister requested an urgent letter with proof of evidence in order to present the matter to his counterparts. As such the municipality submitted the information over night to the Minister as per the agreement. Pursuant to the information submitted to the Minister on the 27 th of Mar 2017, the Chief Director for MIG requested further information on the 28 th of Mar 2017 indicating that they will be presenting to the Minister of Finance. All the necessary information was presented as required. 19
Municipal Infrastructure Grant (MIG) 2016/17 • • Following the submissions that were made as per the engagement with the Minister, there has been constant communication with the Acting CEO of MISA who continuously tracked the municipal expenditure. On numerous occasions he assessed whether the municipality would be able to fully spend its allocation. On the other hand, the municipality continued to accelerate its projects as per original budget and plans. During the month of Apr 2017 the ORTDM recognized that it is at the verge of exhausting the transferred amount. Correspondence was sent to both COGTA and National Treasury informing them that the municipality is running out of funds as well as requesting confirmation for the reallocation of the R 90 million As the municipality has been waiting for response from the parties, it was shocked to see emails circulating amongst COGTA officials discussing an amendment or withdrawal of the expenditure confirmation that was done in Feb 2017. Observing this conduct an official letter was sent to the Accounting Officers of the two institutions condemning the conduct of the affected officials. 20
Summary of MIG Expenditure to date • As per the monthly reports submitted to the transferring department with proof of payments, the district municipality MIG monthly expenditure is reflected in the table below. Month • • Expenditure Month Expenditure July R 33 016 005, 76 January R 10 264 035, 97 August R 28 325 740, 82 February R 51 916 474, 75 September R 58 430 672, 52 March R 46 331 924, 68 October R 28 413 517, 23 April R 113 504 249 November R 71 246 666, 61 May R 43 000 December R 58 132 463, 38 June R 00000 As per the current expenditure the municipality has spent R 542 million out of R 519 million transferred funds. This means that there is a deficit of about R 23 million. In addition to the current deficit, contractors are on site and will submit invoices during the month of Jun 2017. The projected expenditure for the month of Jun 2017 is R 67 Million. 21
Conclusion • • It needs to be brought to the attention of the committee that the origination of the R 90 million in discussions is as a result of the short transfer that was implemented in Dec 2016 without any official correspondence and reasons. Furthermore, the municipality spent its 46% of the total MIG allocation by end Dec 2016 in line with the DORA requirements. It is also worth noting that the second tranche was effected on the 22 nd of Dec 2016 when the municipality offices were closed. Initially it was highlighted as projects not registered in the MIG MIS; secondly it was the projects that are not in the PIP and lastly, the municipality did not meet the threshold of 40% by December 2016. However, all the requirements as per the DORA have been met as per Section 12 and 18(c). The DORA prescribes that PIP may be revised as long as it captures projects that are registered in the MIG MIS and are part of the three year municipal infrastructure plan. The municipality wishes to further note that the transferring department had the opportunity to consider the municipal representation during the seven days in February as all the documents were presented. The current expenditure of the municipality is in course to fully spend its original allocation. The reallocation or withholding of the MIG funds will have far reaching implication to the institution at the level of both service delivery and payment of creditors. 22
• • Conclusion (Cont. . ) The municipality had committed an implementation of projects on the ground where communities had already expectations. If the funds are not disbursed OR Tambo will not be able to pay its creditors that are currently on site This will lead to litigations and project costs will escalate. This will lead to an unauthorized, wasteful and fruitless expenditure in the form of interests. We wish the committee to further note that OR Tambo District is one of the seventeen (17) non-delegated municipalities; of which is the only district amongst secondary cities and metros monitored by National Treasury. Based on the results of the benchmark exercise the municipal IDP and Budget for 2017/2018 have been confirmed follows: o 2017/2018 to 2019/2020 MTREF is credible o The IDP is aligned with the budget o Budget is sustainable o There is sufficient cash coverage as far as the norm is concerned (1 to 3 month) o The budget is cash funded for the MTREF; namely 2017/18 to 2019/2020. Honourable Chair and Honourable Members, the select committee is requested to intervene and save the fate of the people of OR Tambo District Municipality in order to enjoy the services entitled to them as per the Constitution of the Republic of South Africa and in honour of O. R. Tambo whose centenary is celebrated this year, 2017. Furthermore, Honourable Chair and Members, O. R. Tambo District Municipality declared year 2017 to be, “The year of heightened service delivery in honour of President O. R. Tambo” 23
Thank you very much for the opportunity afforded to the municipality, it is highly appreciated. Enkosi 24
- Slides: 24