Speech Notes: Vote 7 – COGTA Annual & Half Year Financial Oversight Reports

Speech Notes: Vote 7 – COGTA Annual & Half Year Financial Oversight Reports

LOCAL GOVERNMENT IN THE EASTERN CAPE IS COLLAPSING

  • EC Municipalities financially unviable and on the brink of total collapse.
  • ESKOM debt has spiralled out of control and is bringing municipalities to its knees.

Honourable Speaker, Honourable Premier, Honourable members and guests, good afternoon.

Some of the key Constitutional mandates of COGTA is to support and strengthen the capacity of municipalities, regulate the performance of municipalities based on their functions, intervene in local government if there is non-fulfilment of legislative, executive or financial obligations and promote the development of local government.

It will, therefore, be prudent to evaluate the performance of this department in line with these mandates.

Local government is the bedrock of economy, when local government fails, everyone suffers, as the collapse of governance will inevitably translate into essential infrastructure failures, sewerage leaks, water leaks and availability problems, business will struggle to operate, healthcare services will be adversely affected and schools will struggle to operate effectively – livelihoods will be threatened – and it will affect everyone.

Honourable Speaker, we need to ask ourselves: What is the true state of local governance in the Eastern Cape? When we answer this question, we must do so honestly. The first step to recovery is admitting you have a problem.

Financial Unviability of Municipalities in the Eastern Cape

Taking into consideration factors such as the audit outcomes of the 2018/19 financial year, substantial debt to creditors such as ESKOM, dismal collection rates, severe financial mismanagement, fraud and corruption – local municipalities in the Eastern Cape are on the verge of total collapse.

Municipalities in Distress: The fact that National Government had to be approached by COGTA EC in 2020 for funds to bailout 14 of the unsustainable and bankrupt municipalities in the EC is an indictment on the state of ANC governance in the EC and reveals the true State of the Province.

The possibility of amalgamating these unsustainable and bankrupt municipalities is something that must be avoided at all costs. All the amalgamated municipalities are on the list of the 14 municipalities in distress in the Eastern Cape. Let us face it one and for all, the EC Municipal amalgamations were a complete and utter disaster.

If there is any inkling of amalgamating these unsustainable municipalities with better performing municipalities – learn from the past – amalgamation is not the answer and will only amount to more suffering and a complete failure to provide services to the people of the Eastern Cape.

Further to this, the 2020 findings of the Municipal Financial Sustainability Index (MFSI) report by Ratings Afrika indicated that the majority of local municipalities in South Africa are in financial distress, reflecting on the financial year ending in June 2019. Service delivery is deteriorating rapidly and the effects are disastrous for the quality of life of South Africans as well as for economic activity at local government level.

The Eastern Cape reflects a continuous regression of its financial sustainability score over the past 5 years, 2015 – 34/100, 2016 – 32/100, 2017 – 31/100, 2018 – 28/100 and 2019 – 29/100. The only provinces that performed worse than the EC is the Free State with 21/100 and the North West province 25/100, the National average standing at a mere 37/100.

The Democratic Alliance- run Western Cape is the top performer with 59/100 and is the only province that showed continuous improvement over the last 5 years, which is remarkable considering the crippling drought that they have been facing over the past years. The report states that the Western Cape is the only province where ‘governance practices are considered to be sound’. Not surprisingly, the top 3 performing municipalities are also in the Western Cape, namely, Mosselbay Municipality, Saldanah Municipality and Malemesbury Municipality (all 3 scoring above 70/100). In stark contrast, the highest-scoring municipality in the EC was Senqu Municipality – also the only municipality that achieved a clean audit – at 57/100, while the worst performing municipality in the EC was Amahlati Municipality with only 11/100.

A further indicator of financial viability looks at the collection rate of municipalities against the National Treasury benchmark of a 95% target. The Western Cape has an average collection rate of 94%, the Eastern Cape achieved an average of 84.5%. In the last quarter, the DA-Run municipality of Kouga had a collection rate of 92% – exactly what is expected of a capable state. This glaring difference between the performance of these two provinces is indicative of how governance varies in terms of the ideology of two different political parties, and the results speak for itself. Honourable Speaker, instead of looking upon our neighbours with contempt and jealously – let’s learn from them!

Audit Outcomes:

The Auditor General’s Report of 2020 on the audit outcomes for Local Government was especially damning for municipalities in the Eastern Cape as it showcases the deteriorating state of local government in the province.

As it stands the province has only identified 14 unsustainable and bankrupt municipalities, while the AG is of the opinion that 83% of municipalities are facing significant cash-flow restraints, 38% of municipalities’ expenses exceed their revenue and 24 municipalities are so severely cash-strapped that they are unable to pay their creditors within the legislated 30 day period. Out of the 39 municipalities in the Eastern Cape, only 1 municipality received a clean audit, 15 municipalities received unqualified audits findings, 13 received qualified audits with findings, a staggering 8 municipalities received disclaimers and the audits of 2 municipalities were incomplete.

The Auditor General’s Report painted Eastern Cape municipalities as being devoid of accountability and guilty of a widespread lack of financial controls and project monitoring – it further goes on to characterise the province as having a culture of a lack of accountability which resulted in the regression of the audit outcomes of 13 municipalities.

ESKOM debt:

In November 2019 the DA in the EC revealed that combined debt to ESKOM was over R 1.1 Billion and growing. Today, a little more than a year later, the collective debt is standing at a staggering R 2 157 653 166. The situation is potentially disastrous for affected municipalities that are already in distress and severely cash strapped – the impact on service delivery and the quality of life of the people is devastating.

Six out of 39 municipalities make up almost R 2 Billion of the total debt, with Enoch Mgijima Local Municipality alone making up nearly a quarter of the total debt. This rampant levels of debt to ESKOM is further adding to the financial woes of municipalities in the Eastern Cape, with Bulk Electricity Interruptions of up to 16 hours per day looming for many of these municipalities. In December of 2020 a number of Municipalities, including Raymond Mhlaba Municipality, Dr Beyers Naude Municipality and Sunday’s River Valley Municipality received notices from ESKOM to the effect that the electricity supplier intends on implementing Bulk Electricity Interruptions. Implementing bulk interruptions has the effect of punishing the residents of these municipalities for the failure of local authorities to pay money collected for electricity sales over to ESKOM.

The Provincial Department of Cooperative Governance and Traditional Affairs have illustrated that there is no clear plan in terms of assisting and supporting these municipalities and there is no intention to keep any officials responsible for the chaos as a lack of consequence management has persisted for years and in effect, these municipalities were allowed to run up their debt into the millions.

COGTA must firstly, arrange and urgent meeting with Provincial Treasury to discuss a plan of action regarding the escalating debt of municipalities to formulate a workable solution to eliminate debt to the power producer and to ensure that ESKOM debt stays under control. Money that must be paid to ESKOM must be ringfenced by municipalities, with the necessary planning and leadership it must be ensured that money is spent on items that it is earmarked for. In the medium and long term, COGTA must assist with the establishment of alternative and especially renewable methods of energy production. Unfortunately, the reality is that most of these municipalities have already gone over the fiscal cliff which means that Provincial Government will have no choice but to invoke section 139 (5) of the Constitution and implement urgent financial recovery plans.

The DA-run municipality of Kouga will start work on a Biomass Plant as well as a Solar Plant in March of this year with the vision of moving most of the Municipality off the Eskom grid. This use of renewable and green energy generation methods is forward -thinking and innovative and will soon free the people in Kouga from the constant Eskom bulk-electricity supply interruptions sword hanging over their heads – exactly what is expected of a capable state.

Fraud and Corruption: Throughout the Covid-19 Pandemic, the DA has warned that The Eastern Cape is not just becoming an epicentre of the virus itself but is fast becoming the epicentre of Covid19 corruption as it came to light that various municipalities in the province have been getting their hands dirty when it came to the expenditure of Covid19 funding. With all attention focussed on the devastating onslaught on the virus in the province, the opportunity was ripe for some municipalities to make questionable transactions related to Covid19 funding.

Corruption has become part of the fabric of local government in the Eastern Cape. Corruption, cadre deployment and maladministration have crippled governance in the Eastern Cape.

Taking into consideration the above-mentioned factors – in essence, this means that a number of councils of local municipalities have failed dismally in terms of their, governance responsibilities, it also indicates that the oversight responsibility of provincial governments are completely ineffective particularly with regards to assisting municipalities to improve their financial sustainability. The Democratic Alliance in the EC believes that these municipalities must either be placed under administration or be dissolved in terms of section 139 of the Constitution.

The Eastern Cape is regarded as the poorest province in South Africa in terms of GDP per capita. It is unacceptable that several municipalities were allowed to fall into such a state of financial unsustainability leaving people with no access to basic services in the poorest province in South. Access to basic services such as water and sanitation is enshrined in the Constitution and speaks to human dignity and basic human rights. Without access to these services many South Africans are suffering grave injustices to their rights and dignity.

The province requires a renewed focus on:

  • Well established financial policies with budgets based on sound-long-term strategies;
  • Improved revenue collection;
  • Strict compliance to Supply Management Processes;
  • A zero-tolerance approach to corruption and maladministration with severe consequence management processes at local government level.
  • Provincial Treasury must ensure viable financial recovery plans;
  • Ring-fence electricity payments;
  • Reduce the head-count – bring (cost of employment) COE within the norms. Municipalities must cut the fat and do so urgently if there is any chance of saving them.

The Democratic Alliance believes that the province must establish a special task team for the evaluation of distressed municipalities in the Eastern Cape with a specific focus on filling key vacancies to create stability, action audit outcomes and action plans and fostering a culture of zero-tolerance for non-compliance and transgression of legislative prescripts in the effort to address poor financial management in Eastern Cape municipalities.

A capable state ensures that the spending of public funds translates to value for money, with complete transparency and accountability and that the people of the province are always at the top of the list of responsibilities.

Thank you.