Chief Financial Officers,
Ladies and Gentlemen,
Goeie More, Good Morning, Sanibonani, Molweni, Dumelang,
Thank you for the opportunity to address you today.
Firstly, let me apologise for not being there in person.
Unfortunately, I have another pressing engagement that prevents me from being in Cape Town this morning, but rather requires me to be in Johannesburg.
So despite our technological advances, we haven’t quite mastered being in two places at once.
Nevertheless I thought it important to address you, as you have an important role to play in society.
Your role in the local government space cannot be understated or underestimated.
As keepers of the purse, your roles have a direct impact on whether we have service delivery protests or not, whether our citizens feel they are getting the service they deserve, whether the lights go on at night in our streets, townships and suburbs.
So let me acknowledge the role you play and thank you for striving to be the best you can, in often difficult circumstances as you navigate the municipal space.
Ladies and Gentlemen,
I also take this opportunity to remind you that this is Women’s Month.
Let me reiterate that this government is firmly against Gender-Based Violence.
I do hope that you utilise your positions to further empower women in your municipalities.
I’ve been asked to speak on a few issues and do hope that my explanation will address your concerns.
Financial and economic sustainability of local government institutions is a growing problem, which may have already reached critical proportions in many municipalities in South Africa. The revenue operational cycle is one of the main challenges faced by municipalities with the supply side costs increasing on a continuous basis. This is specifically evident in the water and electricity cycles. Municipal revenue is further consistently under pressure, with customers struggling to make the payments coupled with both the technical and non-technical losses.
National Treasury identified municipalities in financial distress as those characterised by poor cash-flow management and an increase in outstanding debtors and creditors. As of 30 June 2017, 64 municipalities had negative cash balances. The number of municipalities with cash coverage of less than one month of operational expenditure increased from 116 in 2015/16 to 137 in 2016/17. The total number of municipalities that overspent on their operational budgets decreased from 163 in 2015/16 to 33 in 2016/17. In addition, the Auditor-General (AG) in his general report highlighted the fact that recorded water and electricity losses remain high.
The following as some of the common challenges facing municipalities in this regard:
- Widespread “culture’’ of non-payment by consumers results in the liquidity challenges and the inability to effect municipal budget commitments.
- Ageing infrastructure, which results in high electricity and water losses and creates opportunities for illegal connections. This causes the water and electricity revenue businesses to be unprofitable and often to run at a loss.
- Unfunded budgets where most municipalities operating expenditure is greater than revenue.
- Municipalities do not collect all the revenues due to them because of high indigence rates and ineffective implementation of credit control and debt collection measures.
- Ineffective governance structures such as Audit committees, Municipal Public Accounts Committees (MPACS) and section 79 committees.
- High vacancies and / or a lack of qualified and competent personnel.
An integrated approach is therefore required to address operational inefficiencies within the municipal environment and collaboration among stakeholders to ensure meaningful and effective municipal support initiatives. This entails a number of activities, which each contribute to what we term the revenue cycle.
These activities include the following, as aligned to the five pillars of our Back to Basics Programme:
Under Pillar 1: Putting people and their concerns first, municipalities need to ensure that there is proper Indigent management and Customer care.
Under Pillar 2: Supporting the delivery of quality services, municipalities need to ensure that there are seamless interphases with the service departments because if people are to pay for these services, they need to be of quality standard and those who receive the service must all form part of the revenue pot of the municipality.
Under Pillars 3 and 5: Good Governance and Building institutional resilience and administrative capacity – there must be clearly defined legal & institutional arrangements. These include the structures of Council, the human resource capacity, the reporting ability, the internal controls, the Internal Audit and decision-making.
Under Pillar 4: Sound financial management, it is vital that a sound policy environment, which includes properly constituted by-laws is maintained.
Ladies and Gentlemen,
It is important to specifically develop policies and design processes that counter non-technical revenue losses. In this regard, DCoG is providing support to the 42 prioritised municipalities from April 2018 on the simplified revenue plan. The objective of the revenue plan is to improve revenue management, reduce municipal consumer debt, and the protection and enhancement of the municipalities’ revenue collection potential by minimizing revenue losses and focusing on making electricity and water business more efficient and self-funding with full cost recovery.
Some of the processes that we look at in this regard, include meter installations, meter management and meter readings; data management – property data, meters and consumer data; accurate and timely billing; payment and receipt management; credit control, debt management and collection; cash and liquidity management.
In addition, the use of modern technology in revenue protection is also an important element that cannot be ignored. Advanced Metering and Management Systems (“AMAMs”) are a possible solution for strengthening Municipal finances through improved revenue collection and loss reduction.
These basics contribute towards revenue protection and revenue management. However, In order to fully appreciate municipal revenue protection, it is important to understand that municipality’s functional responsibility extends beyond the responsibilities of the municipal revenue management department. It is reliant on the functional responsibilities of other departments within the municipality. The infrastructure leg of the value chain cannot be ignored if we are to fully benefit from the results. We also need to ensure that there is improved efficiency in the electricity transmission and water service networks and interconnections as well as improved safety and security of energy infrastructure.
As some of you will be aware, the Inter-Ministerial task Team (IMTT) on Service Delivery is in place, chaired by the Minister of CoGTA. It stems from Government’s realisation that municipalities experiencing service delivery challenges which include a lack of capacity to plan, deliver, operate and maintain infrastructure; Infrastructure and service delivery backlogs; Poor quality of infrastructure; Poor infrastructure carrying capacity; Aged infrastructure; Poor infrastructure operations and maintenance and Low services reliability index.
The IMTT has initiated a process to ensure that all government expenditure on service delivery is properly integrated and aligned. Integration requires that all sectors and spheres of government are aware of all planned initiatives, and where necessary different sectors or spheres of government align their plans with others. These initiatives must also be included in municipal IDPs.
This has included assessing, at a local governmental level, what initiatives have been undertaken by government to address infrastructure and services related to water, sanitation, electricity, roads, etc. The intention in this exercise was to re-allocate existing resources to ensure that areas of greatest need would benefit directly and such re-allocation must be visible over the next six months.
57 Municipalities where the above-mentioned challenges are most prevalent have been identified for immediate integrated support. These municipalities include all eight (8) metropolitan municipalities, 43 local and six (6) priority districts. The IMTT on Service Delivery is the focal point for Macro Co-ordination and will receive monthly reports on implementation from the Technical Team.
A Programme Management Office (PMO) located at MISA, comprising a MISA technical team and representatives of sector departments has been established to coordinate and drive this implementation.
The PMO contains a number of built environment professionals and it will draw directly on the MISA technical team of over 50 professional engineers and planners, as well as professionals from national and provincial sector departments.
The PMO is ensuring a short (up until March 2019), medium (2019-2022) and long-term (2022-2030) approach to service delivery for reporting to the IMTT, and onwards to Cabinet.
The Technical IMTT ensures ongoing collaboration, monitoring and planning between sectors and spheres.
This includes a process to:
Ensure gathering of project data, spatial mapping, greater coordination and integration of delivery plans;
ensure that the PMO of the IMTT is a specifically dedicated resource; and
develop the Implementation Protocol to ensure effective intergovernmental collaboration and that all such projects are part of municipal IDPs.
Ladies and Gentlemen,
Earlier this month we sent off District Support Teams to the various targeted municipalities. We expect great things from them and that they will turn around the situation in municipalities that are failing. We do expect you to provide them with the necessary support.
Thank you once again for the opportunity to address you.
I wish you well over your deliberations and hope that we can work together to deliver better services to our citizens.
I thank you.