July 20, 2007
By Emily Visser
THE state of municipal finances was under the spotlight at a summit at the Sandton Convention Centre yesterday.
Representatives from 14 municipalities in Gauteng, and from other financial institutions, attended the local government finance summit, initiated by the provincial department of local government and the Gauteng treasury on Thursday, 19 July.
The MEC for local government, Dorothy Mahlangu, said the department and the treasury had undertaken a detailed study into the state of local government finances in the province, "in response to collective public and private concern".
The summit came about as a result of work undertaken in the province since 1994, looking at "what we can do, what lasting mechanisms can be put in place" to bring about financial sustainability in local governments. "The beauty of the summit is we are looking for solutions."
State of municipal finances
It is based on the work of the advisory committee appointed in 2005 to investigate the state of municipal finances. "Municipal debt [in the province] has grown from R2-billion in 1997 to R20-billion in 2007."
The committee focussed on five areas within municipal financial management and drafted reports identifying concerns and proposed solutions; the five reports dealt with revenue collection, management and finance mobilisation; budgeting and planning; financial reporting; governance of municipal finances; and capacity building.
"Numerous challenges were identified, ranging from high vacancy rates to skills levels, fiscal capacity and maintenance of state assets."
Key discussions focused on ways of improving overall performance in all municipalities in the province and on ways of constructing a common agenda of action that would strengthen sustainable financial management.
Municipal billing systems were still a problem, but Mahlangu said she had the sense that "it is not as acute as [it was] three years ago". The installation of pre-paid meters for electricity and water should be initiated across the board.
Part of the strategy to get billing and debt collection to a level standard was to undertake "data cleanups" and to focus on skills development, especially back-office manpower. A system of skills transfers, learnerships and mentorships would be initiated in municipalities. "Time frames will be set out so that critical posts are filled by December [this year]."
Regional Electricity Distribution Services
The proposed transfer of electricity supply to Regional Electricity Distribution Services (Reds) was a concern of local municipalities, and debate centred on the financial implications this would have on balance sheets.
Under the Reds system, electricity supply and its assets will be transferred to the Electricity Distribution Industry (EDI). There will be three Reds in Gauteng. The EDI will combine the distribution function of Eskom with that of 187 municipalities across the country that distribute electricity.
Reds will be made up of power utility Eskom and local authorities, which will buy electricity from power generators at wholesale prices determined by the National Energy Regulator. The Gauteng treasury indicated that for now "no compensation framework [for loss of assets] is in place".
Mahlangu said the EDI and the province were working together on this. "It has been agreed that municipalities should go ahead and ringfence all assets." The EDI would assist municipalities that had no funds with this ringfencing.
"The EDI has guaranteed that municipalities will not be worse off," she said.
Clean audits
Turning to municipal financial reports, Mahlangu confirmed that the auditor-general consistently raised the same issues in terms of public accounts and financial reporting. These included setting in place measures for more accountability, streamlined revenue collection, debt management and better service provision, among others.
The mayor of Westonaria, Maserame Khumalo, said the summit would bring recommendations and plans towards "achieving clean audit reports across Gauteng". Westonaria is one of only a handful of Gauteng municipalities that has received a clean audit report. She attributed this to the municipality's debt collecting strategy which identified those who could afford to pay for services.
Busi Modisakeng, the mayor of Lesedi, another municipality with a clean audit report, said challenges were collective and the summit would assist other municipalities. "We want to make sure all Gauteng municipalities have clean audits by 2009."
Mahlangu admitted that municipalities were still struggling to deal with the additional requirements of the Municipal Finance Management Act (MFMA), which came into effect in July 2004 to bring about financial stability and accountability to local government.
Nomfundo Tshabalala, from the treasury, said the new legislation had brought many new challenges and her department would like to assist municipalities where possible.
"We want to ensure that we support local municipalities by making sure they have systems in place and have the necessary capacity to comply with legislation."
The summit forms part of the intergovernmental interaction principles that were adopted at the global city region summit in April this year. That summit looked at avenues for sharing skills, knowledge and best practice in local, provincial and national government in the province.
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