Thank you, Mr Mothapo

Good morning to my fellow chairpersons, the members of the media, and our stakeholders here.

Firstly, let me express my appreciation for this platform of engagement as another way of proactively communicating through the media on the work of Parliament as carried out by the different committees. The PC on COGTA focuses on issues of governance and inter-governmental relations, municipalities and traditional leaders, issues of Khoi and San and the Cultural, Religious and Linguistic Rights Commission.

We had a fruitful conference recently convened by Minister of COGTA, Velenkosini Hlabisa where issues of the Khoi and San leadership were deliberated. It was a very interesting meeting with a lot of learning. I hope that from here, government and the various departments will give attention to the myriad of issues relating to the recognition of the Khoi and San leaders.

As you know, several committees just returned from oversight visits last week. The Portfolio Committee on COGTA just returned from an oversight visit to the Free State where we visited the Mangaung Metro and Maluti-a-Phofung Local municipalities. Since the start of the 7th Parliament, the committee has conducted oversight visits to municipalities in KwaZulu-Natal, Gauteng, and the Eastern Cape, with our latest visit last week to the Free State.

These oversight visits often paint a concerning picture of municipal governance and finances; the municipalities we visited in the Free State are no exception. The Mangaung Metro, for example, along with the City of Tshwane, is one of the only two metros in a group of 74 municipalities whose audited financial position was found to be so dire that they had to disclose significant doubt about their ability to continue operating fully. The Mangaung Metro has been in this position for over five years and has been placed under national intervention in terms of Section 139(7) of the Constitution in April 2022. In the AG’s last audit report on municipalities, no municipality in the Free State received a clean audit.

Last week, in Maluti-a-Phofung the committee heard that the municipality is bankrupt, operating at a deficit of R1.5 billion and will take an estimated 20 years to balance its books.
The challenges underlying municipal finances are pervasive across most municipalities.

Let’s look at some of them.

Annual Financial Statements

Recently, the AG in a letter to the Speaker flagged outstanding audits for the 2023/24 financial year. Nine municipalities have outstanding audits with six of the affected municipalities in the Free State, one in the Northern Cape, one in KwaZulu-Natal and one in the North West. This late submission or failure to submit annual financial statements is concerning, but so is the quality of these statements when they are submitted, and this compounds the already dire financial situation at these municipalities.

These audit reports are important as they are linked to the functionality of municipalities. Over the years, the number of negative audit outcomes in our municipalities has been a good indicator of compromised service delivery. It often suggests that there might be something wrong in the governance of that municipality.

Municipal governance challenges often lead to negative outcomes, primarily due to poor planning, lack of fiscal discipline, and failure to follow legal prescripts. Good municipal governance requires proper planning – without proper planning, implementation suffers, leading to inefficient spending and poor service delivery.

In Maluti-a-Phofung this week, we found that the long-term instability plaguing the municipality was due to political instability that ultimately affected the administration, causing breakdowns of various governance systems. The committee believed this had been demonstrated in various disclaimers by the Auditor-General. This municipality, for example, has had five disclaimers over the last couple of years, which caused dissatisfaction over service delivery among communities.

Revenue Collection and Municipal Debt

The dynamic between the debt owed by municipalities to bulk suppliers and revenue collections is complicated. Last week, the Standing Committee on Public Accounts noted that municipalities have an Eskom debt of R94 billion, which is overdue. A municipality like Maluti-a-Phofung, for example, has debt owed to Eskom to the tune of R9 billion. This understandably is a big concern for the sustainability of the utility.

Additionally, in many municipalities, there has been a sizeable year-on-year percentage increase in average outstanding debt owed to Eskom, the Department of Water and Sanitation, Water Boards, and other suppliers of goods and services. This shows that the majority of municipalities are not honouring payment arrangements with the suppliers of bulk services and that virtually no progress has been made to reduce the debt owed to the suppliers of bulk services.

One element to this is poor revenue collection systems in many of our municipalities. We find that revenue collection systems are often weak, with indigent registers not being updated regularly and poor infrastructure maintenance leading to non-revenue water and electricity losses. Conditional grants also are often not optimised to help with repairs and maintenance of infrastructure. Then there is the number of government departments and households owing municipalities hundreds of millions for services rendered. In Mangaung, for example, the committee heard that almost R40 billion is owed to municipalities, with households constituting 73% of that debt. In turn, municipalities in the Free State owe Eskom and the water boards billions, with several municipalities defaulting on the debt relief programme. This arrangement was to help struggling municipalities with their Eskom debt, but many of them are defaulting. This is linked to municipalities’ inability to raise their own revenue. The committee also heard that most of the province’s municipalities cannot pay their financial obligations, and most of the proposed budgets are unfunded, meaning there is no money to implement the budget projects. And there are a number of municipalities with budgets that are not properly funded and run at a deficit.

This pattern of increasing debt and weak collection systems threatens municipalities' financial viability and ability to deliver basic services, and this is an issue across municipalities – not just in the Free State.

There are many ways to dissect these challenges and what drives them.

These, as said before, include political and administrative instability, conflicts between leadership and administration, and a lack of appropriately skilled personnel, among others. For instance, financial managers need financial expertise, while infrastructure managers must have relevant technical knowledge. So, when we do oversight visits, we ask for an inventory of skills of senior officials and top managers, their qualifications, level of experience and how many years they have been in their positions. Because then we can understand performance. Sometimes, it is difficult to understand until you get to the level where you see people who are not qualified or don’t have experience. So, to turn it around, we must start by auditing these skills. If you don’t solve that, it has implications for service delivery.

The Committee’s role in Oversight and Accountability

Parliament, specifically this committee – the PC on COGTA – plays a crucial role in ensuring government accountability. When the AG or we identify issues through our oversight, we can investigate and demand explanations from departments and officials. This includes calling on ministers and municipal leadership to take corrective action. If problems persist, they must be escalated to higher levels, with consequences for those responsible. And, where there has been wrongdoing, the criminal justice system must get involved, and investigative reports from bodies like the SIU and the Hawks must be followed up to ensure accountability. We also press for disciplinary actions against those who fail to perform their duties.

The committee recently received a briefing from the national COGTA department on efforts to support struggling municipalities. During oversight visits we also heard from the South African Local Government Association (SALGA), MISA, and provincial treasuries, among others about support they provide to municipalities to improve financial and governance performance. As the Portfolio Committee we will monitor these support efforts and implementation.

The minister indicated to us that they are supporting top-ten worst performing municipalities as this is what we as a committee has been concerned about – what direct support is given to these municipalities – does the department have adequate capacity to support these municipalities in such a way that it will turn things around because we cannot have interventions with no improvement in governance and administration. As a committee we will continue holding municipalities accountable while ensuring that interventions translate into actual governance and service delivery improvements.