Eskom to get R59bn, but T&Cs are onerous

A Special Appropriation Bill was recently tabled in Parliament to provide Eskom with much-needed finance over the next two years. If approved, it will see the troubled utility get R26 Billion in the 2019/20 financial year and R33 Billion in the following.

This is not, however, a blank cheque.

National Treasury, in consultation with the Department of Public Enterprises (DPE) have released these conditions, which are not only onerous, but some may be near-on impossible to implement.

Eskom’s responsibilities

Provide daily updated liquidity positions, including underlying income, operational expenditure, working capital, capital expenditure and financing cash flows.
Submit and present monthly management reports (signed off by the group CEO). Reports to include IFRS standard profit and loss, cash flow and balance sheet update, including commentary addressing all deviations from the annual budget that individually exceed R100 Million during the month (for each division such as generation, transmission and distribution, as well as at group level).
Submit a quarterly board-approved schedule of redemptions and interest payments for the full duration of loan agreements within a week after the enactment of the bill.
Use the additional finance only to settle debt and interest payments.
Submit a monthly report on the amount and actions underway to recover all and any sums outstanding for electricity sales.
Provide monthly updates on the status of actions being taken to dispose of Eskom Finance Company. The target disposal date is prior to March 31, 2020.
Provide a justification for the continued use of the Eskom Insurance Captive for risk written outside the Eskom group, and an independent valuation of the insurance captive by December 31, 2019.
Submit a plan to manage the cash of the business within its available resources. Not more than a month from the enactment of the bill.
Submit a monthly report on the initiatives being implemented to reduce the primary energy costs.
Provide a detailed cost, timing and benefit plan for completion of Kusile and Medupi. Not more than a month from the enactment of the bill.
Provide a monthly statement of expected capex spend. Provide a report on the defects on the build programme and how they will be fixed by not more than a month from the enactment of the bill, and quarterly thereafter.
Provide monthly reports on the measures being implemented to improve the Energy Availability Factor (to 80%).
Provide a report on the initiatives being implemented to address the irregular expenditure not more than a month from the enactment of the bill and thereafter quarterly.
Submit a report on the measures that have been implemented to deal with all the individuals implicated in the irregular, fruitless and wasteful expenditure in regard to 2018/9, to be updated quarterly.
Produce separate financials for generation, distribution and transmission for March 2020.
Provide monthly updates on the progress of the restructuring of the business.

DPE’s responsibilities

Ensure that that board is strengthened by December 31, 2019.
Ensure (through the board), that Eskom’s executive management performance agreements are linked to the deliverables as contained in the shareholder compact and the conditions as set out by the Minister of Finance by December 31, 2019.
Publish a special paper on Eskom restructuring roadmap. Not more than a month from the enactment of the bill.
Provide quarterly reports to Parliament (Standing Committee on Appropriation and Select Standing Committee on Appropriation) on adherence to conditions.
Ensure appointment of the permanent group CEO. Not more than a month from the enactment of the bill.
Approve, with National Treasury, the capital plans.
No incentive bonuses will be paid to executives in the years where equity support is provided.
Treasury shoots own goal

In its eagerness to get the ball rolling on fixing Eskom, National Treasury has shot too far, and has lost sight of the ball.

Producing monthly management accounts compliant with IFRS is, quite frankly, nonsensical. Management accounts are drawn up on a different basis to IFRS financial statements, and IFRS adjustments are made annually (for example, mark to market, capitalised interest, etc.) An IFRS statement of profit and loss does not contain the details that management would require. Why not do as other CEO/CFOs do, and study the cash flow statement and schedule of loan commitments on a monthly basis, and study the management accounts on a quarterly basis? Oh, wait …

Eskom’s financial woes are not due to inadequate financial management.

To name just a few problems: state capture, bloated inefficient labour force, procurement problems, coal transport, quality of coal, coal contracts, badly maintained plant, and all sorts of problems in completing Medupi and Kusile.

Introducing some cash management and financial planning into Eskom is ideal, but overkill is not.

Article by Money Web

World Bank cuts South Africa’s growth forecast

The World Bank has cut its economic growth forecast for South Africa for 2019, through to 2021, citing low investor sentiment, and persisting policy uncertainty.

Growth in South Africa is now expected at 0.8% in 2019 (0.5 percentage point lower than the April forecast), the same as in 2018, the bank said in its October Africa’s Pulse report.

Growth is expected to rise to 1.0% in 2020 (0.7 percentage point lower than in April) and reach 1.3% in 2021 (0.5 percentage point lower than the April forecast).

“These large downward revisions reflect the sharp slowdown in real GDP growth in the first quarter of 2019, low investor sentiment, and persisting policy uncertainty, including whether a solution could be found for Eskom, fiscal slippages would be averted, and structural reforms would be undertaken,” it said.

Appetite for South African equities has been hurt by concerns about global growth, the prolonged trade war and a moribund local economy, Bloomberg reported. A forthcoming credit-rating review by Moody’s Investors Service, in November, has added to caution among non-resident investors.

Renaissance Capital, which has correctly predicted eight out of nine sovereign rating decisions in emerging Europe and the Middle East since May, is calling a downgrade to junk for South Africa next month.

Moody’s is the only major rating company still to assess South Africa’s debt at investment grade. S&P Global Ratings and Fitch Ratings cut their assessments to junk in 2017. Moody’s has South Africa on a stable outlook, meaning it’s unlikely to change the rating immediately.

Eskom continues to drag on the economy with debt exceeding R440 billion, while the power utility reported a loss for the year ended March 2019, of R21 billion.

Foreigners meanwhile, have offloaded South African stocks in recent weeks, as worries about the state of the global economy helped spur an exit from riskier assets.

The World Bank on Wednesday said that growth in Sub-Saharan Africa remained slow through 2019, hampered by persistent uncertainty in the global economy and the slow pace of domestic reforms.

The bank’s twice-yearly economic update for the region, suggested that overall growth in the region is projected to rise to 2.6% in 2019 from 2.5% in 2018, which is 0.2 percentage points lower than the April forecast.

Beyond Sub-Saharan Africa’s regional averages, the picture is mixed.

The recovery in Nigeria, South Africa, and Angola—the region’s three largest economies—has remained weak and is weighing on the region’s prospects. In Nigeria, growth in the non-oil sector has been sluggish, while in Angola the oil sector remained weak.

“In South Africa, low investment sentiment is weighing on economic activity,” the bank said.

Excluding Nigeria, South Africa, and Angola, growth in the rest of the subcontinent is expected to remain robust although slower in some countries.

“The average growth among non-resource-intensive countries is projected to edge down, reflecting the effects of tropical cyclones in Mozambique and Zimbabwe, political uncertainty in Sudan, weaker agricultural exports in Kenya, and fiscal consolidation in Senegal.

“Africa’s economies are not immune to what is happening in the rest of the world, and this is reflected in the subdued growth rates across the region,” said Albert Zeufack, chief economist for Africa at the World Bank.

“At the same time, evidence clearly links poor governance to poor growth performance, so efficient and transparent institutions should be on the priority list for African policy makers and citizens.”

The rand firmed against the dollar in afternoon trade on Wednesday:

Dollar/Rand: R15.17 (-0.69%)
Pound/Rand: R18.55 (-0.68%)
Euro/Rand: R16.66 (-0.45%)

Article by Business Tech

Eskom challenges latest power tariff decision in court

JOHANNESBURG – South Africa’s struggling power utility Eskom said on Friday it was challenging in court the regulator’s latest tariff decision, a move it said was necessary to avert financial disaster.

State-owned Eskom, which produces more than 90% of the country’s electricity, implemented some of most severe power cuts in several years this year and is reliant on government bailouts to survive.

In March, regulator Nersa granted Eskom tariff increases of 9.4%, 8.1% and 5.2% over the next three years, far below what the utility had sought. At the time Eskom said the tariff awards left it with a projected revenue shortfall of around 100 billion rand ($6.7 billion).

Eskom said in a statement on Friday its board of directors had decided to challenge the tariff awards after reviewing the reasons for Nersa’s decision.

“We have put in an application for urgent interim relief, which is necessary to avoid financial disaster for Eskom. We are seeking an order to address this shortfall in a phased manner,” Eskom Chief Financial Officer Calib Cassim was quoted as saying.

In arriving at its decision, Nersa had offset a 23 billion rand a year bailout granted by government against Eskom’s allowable return on assets, Eskom said, arguing that approach ran counter to Nersa’s own methodology and defeated the whole point of the bailout.

Eskom’s finances are hobbled by its massive 450 billion rand debt burden, racked up partly to pay for two mammoth coal-fired power stations, Medupi and Kusile. But Eskom also argues its financial position has been severely damaged by years of low tariff awards which have not allowed it to recover its costs.

Article by IOL

SA spends R42m to fly undocumented migrants home in just over a year – Parliament hears

Home Affairs Minister Dr Aaron Motsoaledi confirmed that R8 956 713.41 has been spent on charter flights and/or airlines by his department to deport undocumented migrants for the period April 1 to August 31 this year.

The minister made the revelations in a parliamentary reply to a question asked by DA MP Joseph McGluwa.

McGluwa asked Motsoaledi about the details of the charter flights and airlines as well as the total amount paid in respect of the deportations in both the 2018/19 financial year and since the start of April this year.

For the 2018 to 2019 financial year, R33 070 629.90 was spent on flights for the deportation of undocumented migrants.

On October 3, President Cyril Ramaphosa hosted Nigerian President Muhammadu Buhari for an official state visit, which followed a number of violent attacks against foreign nationals in parts of the country last month.

At least 12 people were killed and hundreds of Nigerians were repatriated.

In a newsletter published on Monday morning, Ramaphosa said: “The recent public violence targeting foreign nationals has challenged our efforts to build stronger ties with other African countries. Fuelled by misinformation spread on social media, these attacks provoked much anger in different parts of the continent leading to threats against South African businesses and diplomatic missions.”

ANC secretary-general Ace Magashule, speaking on behalf of the party, said at the time of the incidents of public violence that while migration was a global phenomenon, action should be taken against undocumented foreigners and those who committed crime in South Africa should be deported, News24 reported.

“We must deal with undocumented foreigners. They must be documented and those who continue doing acts of crime, things not meant to be done in a country they don’t belong to, must actually be dealt with,” added Magashule.

DA MP Adrian Roos asked Motsoaledi whether he would engage with the executive mayors of metropolitan municipalities to conduct raids to combat illegal immigration.

To this, the minister replied that he “… has engaged with municipal structures on matters of migration and will do so on a continuous basis”.

“Joint and special operations to combat illegal migration are planned and conducted by law enforcement agencies at national, provincial and local level through inter-governmental security structures. All metro municipalities are represented in local security, provincial and national structures such as the provincial joint operational structures and the national structure,” Motsoaledi added.

Article by News 24

How Medupi and Kusile are sinking South Africa

South Africa’s economy was roaring along in 2007 on the back of the global commodities boom when power shortages struck, bringing mines and smelters to a halt.

Then-President Thabo Mbeki publicly apologised for prevaricating about adding generation capacity despite repeated warnings that supply was constrained, and state power utility Eskom swiftly opened the spending taps.

The botched implementation of the expansion plan has haunted the country ever since.

Eskom in 2007 alone approved 13 projects worth more than R200 billion that it said would boost electricity output 56% by 2017. The flagships were two mammoth coal-fired power stations, Medupi and Project Bravo, that were both expected to be finished by 2015 at a total cost of R163.2 billion.

Instead of resolving the energy shortfall in Africa’s most industrialized nation, the plants have been textbook studies on how not to execute large infrastructure projects. Medupi’s completion date has been pushed out until next year or 2021 and Kusile, as Bravo is now called, is scheduled for 2023. The delays have given South Africa months of rolling blackouts, an economy in deep trouble and a huge headache for its president, Cyril Ramaphosa.

While Eskom’s current management and Ramaphosa’s government have sought to come to grips with the problems at Medupi and Kusile, there’s no guarantee the plants will ever perform optimally.

Ballooning price tag

“They needed to basically call a halt to the whole project and do a reset—to go back into the contracts and the design and engineering,” said Mike Rossouw, who was appointed as an independent consultant to Eskom in 2014 and advised it on how to address its construction challenges. “They never did that and haven’t at any stage and the consequences are there for all to see.”

Meanwhile, the anticipated price tag has ballooned to R451 billion, including the costs of interest during construction and fitting the plants with equipment needed to meet environmental standards. That equates to Eskom’s entire current debt, a burden that’s left it unsustainable and reliant on a three-year, R128-billion government bailout to remain solvent.

The utility now concedes multiple failings that led to cost overruns and delays, including inadequate planning and front-end engineering development, plus ineffective contracting strategy, execution and oversight. Contractors also performed poorly and incurred limited penalties, while strikes and demonstrations compounded the implementation woes. Turnover at the top—the company has had 11 permanent and acting chief executives since construction began—didn’t help.

Steve Lennon, Eskom’s former group executive for sustainability, recalled how Medupi’s construction went awry when the utility was ordered to fast-track the process.

“The project was under development and implementation at the same time, which is clearly a recipe for disaster in terms of any good practice for major project execution,” he said by email. “There was a shortage of contractor capacity given the worldwide demand for large-scale generation plant at the time. That meant that the main contractors could virtually name their price and conditions.”

Eskom also assumed much of the risk of developing Medupi and Kusile when it decided to coordinate the projects, rather than appointing an outsider to oversee engineering, procurement and construction—a common practice in plant development.

“The South African market at the time was not ready for a single contractor to handle the onerous risk of executing a project of this complexity and magnitude,” Eskom said in an emailed reply to questions. The company also wanted to develop skills and create jobs by bringing in small and medium-sized contractors, it said.

Medupi and Kusile, expected to be among the world’s biggest coal-fired stations, share the same configuration. The latter’s two towering smokestacks and six enormous boilers are visible from the main highway that runs between Johannesburg and the east coast.

Claims against Eskom

Speculation that the plants could be delayed first surfaced in 2008. While Eskom initially denied that the projects had gone off track, it was forced two years later to adjust the time lines and anticipated price.

Eskom Rotek Industries, a wholly owned Eskom subsidiary, was appointed to establish the Kusile site—a process that entailed digging drains, laying pipes and doing the earthworks and terracing. Its contract was terminated early on because it was unable to deliver. That created a bottleneck for other contractors, which filed for damages.

Eskom said it has paid out R14.8 billion to settle the claims, which totaled R252.9 billion, and it filed claims of its own worth R2.6 billion against companies that failed to meet their contracts.

The delays and design changes reverberated throughout the programme. While the manufacture of equipment continued as planned, it was left sitting in warehouses or on site with the clock ticking on warranties, according to Makgopa Tshehla, a professor at the University of South Africa and an expert on large construction project management.

Broken boilers

The biggest construction headaches were caused by the installation of deficient boilers supplied by Mitsubishi Hitachi Power Systems Africa, according to Eskom. Talks on how to resolve the problems are ongoing, according to Jan Oberholzer, the utility’s chief operating officer.

Mitsubishi Hitachi didn’t respond to questions about the defaults or the discussion of plans. In 2014, Hitachi Power Africa, an earlier iteration of the company, blamed local subcontractors for faulty welds on the Medupi boilers, but Eskom’s former finance director, Paul O’Flaherty, said the main contractors were at fault.

Tshehla says Eskom’s board should ultimately bear most of the blame for failing to properly assess the projects and the related risks, and for not holding management accountable for poor performance.

Oversight deficiencies were compounded by the repeated changes to Eskom’s top management and demands by politicians for them to get a move-on with the projects.

“Eskom was already under the whip for lack of capacity so they were chasing like mad dogs to get those power plants done,” Rossouw said. The management “took on responsibility and risk which I don’t think the board ever understood properly. They were hardly capable of conveying a concise, understandable picture to the board.”

In 2012 Eskom invited then-President Jacob Zuma to attend a pressure test on Medupi’s first boiler to show that the project was running according to plan. Rossouw recounted that management ignored engineers’ advice that the plant wasn’t ready and, when steam was pumped into pipes connected to the boilers, tools and other debris were blown out.

Zuma gave no indication that he was aware anything was wrong. He said in a prepared speech that he was “delighted” with the progress being made on the project and congratulated his minister, Eskom and its workers “for a job well done.” Zuma returned to the plant in 2015 when it delivered its first power to the grid—two years later than anticipated at the time of his previous visit.

Article by Fin 24

South Africa’s big expat tax is coming – and financial emigration isn’t the quick fix you think it is

While financial emigration may be a viable option for a small minority of individuals who will be hit by South Africa’s coming ‘expat tax’, for the majority, it’s likely to be a costly exercise which won’t provide significant tax relief in the long-term.

This is according to Ettiene Retief of the South African Institute of Professional Accountants (SAIPA) who said that recent news reports have provided conflicting – and even wholly inaccurate – information around the implications for expats to the scheduled March 2020 change to the Income Tax Act.

“Financial emigration is the process whereby taxpayers change their status with the South African Reserve Bank (SARB) from resident to non-resident,” he said.

“It’s a process conducted purely for exchange control purposes, but which does not affect your citizenship status in any way.”

Emigration, on the other hand, is a very different process as it involves physically relocating from one country to another country either in the short or long term, said Retief.

Once emigration has become a permanent status, the process of financially emigrating – during which time the individual’s assets move from their old country of residence to their new country of residence – takes place, he said.

“The mistake many people are currently making is that they are expecting financial emigration to resolve their issues around paying tax in South Africa on income earned abroad, a so-called ‘expat tax’.

“The reality, however, is that financial emigration, for most individuals, won’t provide material tax savings,” he said.

Expat tax

Once the amendments to the Income Tax Act come into effect in March 2020, South African tax residents working abroad will only be exempt from paying tax on the first R1 million they earn abroad. Thereafter they will be required to pay tax on any foreign earnings.

The revised act does, however, make provision for expats working abroad who are registered for tax in those countries, said Retief.

In these instances, the act allows those individuals to apply for credits in South Africa which are offset against the tax they owe locally, with the tax rate starting at the lowest rate, he said.

“The reality, therefore, is that South Africans working abroad will in most instances not be significantly negatively impacted by the changed regulations and will still not be double taxed.

“The only individuals that will be detrimentally impacted are those earning very large amounts offshore and even in these instances, they will still only be paying the same amount of tax they would have been paying in South Africa in any event.”

What’s important to understand is that to all intents and purposes the law has not changed but has instead just corrected a loophole, said Retief.

“South African residents who work abroad permanently and spend the majority of their time living abroad would already be considered non-residents from a tax perspective. Remember that it is possible to change your tax residency without having to financially emigrate.”

Downsides

What recent news reports – those encouraging individuals to emigrate financially in order to avoid the expat tax – have failed to reveal is that financial emigration is an expensive exercise, said Retief.

He added that there is a huge tax implication involved in changing an individual’s tax residency.

“By financially emigrating an individual is deemed to have disposed of all their assets in South Africa, which means that capital gains tax starts applying. Should the individual decide at some future point to financially emigrate back to South Africa, the individual would not get that money back.

“To avoid South African taxation rules, an individual would need to first change their tax residency. Financial emigration is the very last step – and even then, it’s not an essential part of an amended tax residency given that it is only an exchange control provision.

“Emigration and financial emigration only comfortably overlap when a taxpayer is legitimately emigrating. The latter doesn’t work if the individual intends to continue residing in South Africa,” he said.

Article by Business Tech

Ramaphosa signs controversial new law – here’s what you need to know

President Cyril Ramaphosa has signed off a number of major new laws – including the controversial ‘internet censorship bill’.

In a statement on Wednesday (2 October), the presidency said that the new laws include:

  • Overvaal Resorts Limited Repeal Bill;
  • The Property Practitioners Bill;
  • Electronic Deeds Registration Systems Bill;
  • Film and Publications Amendment Bill.

It was not clear at the time of writing whether the laws had been promulgated and had officially come into effect. In addition, some parts of the legislation may only come into effect at a later date.

Controversy

While most of the new laws will likely be welcomed, one of the new bills has courted controversy as it made its way through the law-making process.

The Film and Publications Amendment Bill – known as the ‘internet censorship bill’ by some of its opponents – aims to introduce a number of changes including harsher rules to protect children from disturbing and harmful content, and to regulate the online distribution of content such as films and games.

Some of the other notable changes include:

  • Revenge porn: Under the bill, any person who knowingly distributes private sexual photographs and films without prior consent and with intention to cause the said individual harm shall be guilty of an offence and liable upon conviction. This includes a possible fine not exceeding R150,000 or to imprisonment for a period not exceeding two years and/or to both a fine and imprisonment not exceeding two years. Where the individual is identified or identifiable in said photographs and films, this punishment rises to a R300,000 fine and/or imprisonment not exceeding four years;
  • Hate speech: The bill states that any person who knowingly distributes in any medium, including the internet and social media any film, game or publication which amounts to propaganda for war, incites imminent violence, or advocates hate speech, shall be guilty of an offence. This includes a possible fine not exceeding R150,000 and/or imprisonment for a period not exceeding two years;
  • ISP requirements: If an internet access provider has knowledge that its services are being used for the hosting or distribution of child pornography, propaganda for war, incitement of imminent violence or advocating hatred based on an identifiable group characteristic it shall immediately remove this content, or be subject to a fine.

Some of the above changes have previously come under scrutiny from members of industry and the public, over concerns that it would be used as a means of censorship for online content.

Speaking to BusinessTech in May 2019, Dominic Cull of specialised legal advice firm, Ellipsis, said that the bill is ‘extremely badly written’.

He added that the introduction of the bill means that there is definite potential for abuse in terms of infringement of free speech.

“One of my big objections here is that if I upload something which someone else finds objectionable, and they think it hate speech, they will be able to complain to the FPB,” he said.

“If the FPB thinks the complaint is valid, they can then lodge a takedown notice to have this material removed. ”

Cull said this was problematic as the FPB, which is appointed by government, should not be making decisions as to what is and isn’t allowed speech under the South African Constitution.

“When we can see that the courts struggle with these issues, there’s no place for politicians directly appointed by a minister to deal with them,” he said.

Article by Business Tech

Consumers get the short end of the private healthcare stick, commission finds

The Competition Commission has laid the blame for the rising cost of private healthcare at the feet of the national health department.

This was disclosed on Monday at the release of the commission’s health market inquiry report which found that the health department’s failure to hold regulators sufficiently accountable has led to uncompetitiveness and inefficiencies in the private healthcare sector.

The inquiry was initiated by the commission to investigate increasing prices of private health care, which only a minority of South Africans could afford. The release of the report comes ahead of an intended rollout of the National Health Insurance, expected to be fully operational in seven years.

In the health facilities market (everything from hospitals to the beds in them), the five-year long investigation found that the dominant service providers in private health care are anti-competitive, leading consumers to pay above-inflation prices for health.
The report found that the three large hospital groups — Netcare (33%) Mediclinic (28.6%) and Life (28.5%) — are able to secure “steady and significant profits year on year”, making it difficult for new entrants and smaller service providers to grow and compete on merit.

The dominance of these groups also lures the best medical specialists to their hospitals by enticing them with lucrative benefits which smaller entrants cannot afford.

The other private service providers are only able to access to 10% of the market due to the dominance of the three large hospital groups. This has led to little to no improvements in health services.

“Facilities operate without any scrutiny of the quality of their services and the clinical outcomes that they deliver because there are no standardised publicly shared measures of quality and healthcare outcomes to compare one against the other,” the report finds.

Health practitioners have also been found guilty of over-servicing or using higher levels of care than required. This practice, the report found, may lead to a waste of resources and may also negatively impact of the patient’s health. The costs of this practice is carried wholly by the consumer who is often uninformed and may not be aware of the anti-competitive behaviour of the practitioner.

“It pushes up the cost of care and, if it is high enough, it will make it unaffordable and threaten the sustainability of the healthcare market.”

With regards to funders, the commission found that Discovery Health had sustained high profits, way above those of its main competitors. These profits, earned by the company because it assumes limited risk compares to consumers or providers of private healthcare, result from the high barriers to entry to the medical aid scheme market.

“The existing administrators do not seem to impose a significant competitive constraint on Discovery Health. Additionally, the lack of transparency on prices has meant that patients live in a world of price uncertainty. And, absent from an ability for funders to negotiate meaningfully with numerous practitioners, the default payment mechanism of fee-for-service continues to dominate the market.”

The commission has recommended various sweeping systemic changes that should be implemented to move it towards a more pro-competitive market. The commission recommends that a supply side regulator for healthcare be established in order to effectively regulate the suppliers of healthcare.

To promote a more competitive market in the sector, the commission recommends that a new standardised payment option must be made available by all medical aid schemes. The new base fee will enable consumers to effectively compare prices and would reward schemes that are able to innovate and create better health packages for consumers.

To reduce the dominance of one or more companies in the sector, the commission recommends that it reviews possible mergers that may contribute to an anti-competitive market. This would also ensure that practitioners are also guided on about what constitutes pro-competitive conduct.

Article by Thando Maeko and Mail & Guardien

Parks Tau: New service delivery model will empower municipalities

Districts will be empowered and even emboldened to initiate and enter into partnerships – to advance effective service delivery – with civil society, the private sector, and engineering association or accounting councils, writes Parks Tau.

For the first time in democratic South Africa, local government becomes the nucleus of, and for, societal development. A strategic mechanism mobilised for this purpose is the district-based model. All the three spheres of government, working in cooperative unison, will now effectively coalesce, in their operations and functions at the country’s 44 districts and eight metropolitan areas.

What does this district-based model to development actually entail and mean in practice? How is it indicative, in the 6th administration led by President Matamela Ramaphosa, of a zeitgeist moment and process towards rebuilding and renewal of the country?

The district model is a response to two structural challenges. First, the inefficient silo and disjointed functions between national, provincial and local government. This has resulted, among other factors, in inadequate responses to service delivery challenges, slow reactions to environmental emergencies (like drought, floods) and collapse, in some areas, of basic municipal infrastructure services.

Second, it is a consciously calculated intervention to close the growing social distance between citizens and communities and their public institutions and civil service. The outcomes of this distance, between public representatives and communities, is evident in increasing service delivery protests that sometimes result, or mushroom, in wanton infrastructure destruction.

As various evidence-based studies attest, like those from Municipal IQ, these community protests or civil actions incidents, emerge largely from three interrelated issues: contentious municipal demarcation, selection of compromised municipal accounting officers, plus evictions and land invasions in areas unsuitable for human habitation.

These two structural challenges take place in a context of increasing service delivery demands, from citizens and residents, and diminishing government revenue streams. Hence the inclusion, in the district model, of alternative revenue-raising options in local government such as, municipal pooled financing, municipal bonds and partnerships with local industry.

The principles of the district model, or the eponymous “Khawuleza” service delivery model, endorsed by the President’s Coordinating Council (PCC), will customise service delivery according to local specificity of, for example, Metsimaholo, iLembe, Mbizana, Maluti-a-Phofong municipalities.

Service delivery will be guided by community needs instead of adopting a blanket national and provincial mandates.

Of course, these mandates will be guided overall by the National Development Plan (NDP) blueprint, in its emphasis for instance, that all citizens and communities shall have access to basic services and amenities. This fits together with the constitutional injunction, in Chapter 2 of the Bill of Rights, for government to deliver socioeconomic services that enhances, “the right to dignity and the right to equality” of all citizens, residents, economic migrants and political refugees.

Additionally, the district model will be distinguished by regularised monitoring and evaluation (M&E) mechanisms to gauge service delivery made. Such monitoring is targetted at identifying, and fixing, bottlenecks. Deliberate project management, of turning policies into action plans, is to be tracked through professionalised personnel who will assess delivery impact, capacity building, and opportunities for shared resourcing.

The Department of Cooperative Governance (Cogta) will be the implementing national institution, working in concert with the provinces and the PCC. An objective of working primarily from the combined 52 impact districts, is to ensure localised complementarity in delivery of national commitments to the NDP, continental obligations to the Agenda 2063 and pledges to implement the Sustainable Development Goals or the Paris Climate Accord.

To effect the district model and realise the aspirations of participatory government, sector-specific social compacts will be important. Districts will be empowered and even emboldened to initiate and enter into partnerships – to advance effective service delivery – with civil society, the private sector, and engineering association or accounting councils.

Social compacts, which are implicit agreements between various stakeholders, are singled out to encourage citizens and communities to honour their municipal services. As the Cogta minister, Dr Nkosazana Dlamini-Zuma, indicated at the 2019 Budget Vote, it is unsustainable that municipalities are owed R139bn in rendered public services (water, sanitation and electricity), coupled with, in turn, the R21.1bn owed by municipalities to Eskom.

Therefore, social compacts, based on making concessions to reach shared consensus, are a central instrument for all partners to work in unison to realise meritocratic democracy, advance Batho Pele principles, consequence management, and entrench a responsive citizen-centric government and governance framework.

The district model is an opportunity for all South Africans across geographic, racial, economic and ideological boundaries to build bridges towards practical, measurable and non-partisan service delivery. A district model offers a ready platform to address the systemic challenges flagged annually, for one, by the auditor general on municipal underperformance and to recapacitate the 40 municipalities under administration.

The Khawuleza district model deserves the support from all stakeholders, to address the triumvirate developmental challenges (of poverty, unemployment and inequality) so that local government can stabilise its systems, reinforce its governance structures and be sustainable in M&E in the short- to long-term.

In short, the district-based model of development provides a strategic instrument to bring back to life the civil service, realign it to its normative proximity to people, reinstill trust and confidence in state institutions and an esprit de corps where citizens and communities value public institutions.

– Parks Tau is Deputy Minister of the Department of Cooperative Governance (CoGTA).

ANALYSIS: Ramaphosa puts worker ownership of companies on the table

President Cyril Ramaphosa upped the game when he put worker ownership of companies on the table at the congress of the SA Clothing and Textile Workers Union last week.

Ramaphosa told members of Sactwu that securing co-ownership was important to give workers a say in industries, and to prevent the increasing conflict that has sparked a wave of strikes.

Banking union Sasbo was on Thursday interdicted from proceeding with what would have been the biggest banking strike in 99 years, and which would have taken labour action decisively into the services industry. The idea of workers as owners is gaining currency as the model of twenty-first-century capitalism comes under increasing scrutiny.

Piketty recently said worker ownership would allow “new social groups to become owners and shareholders”.

While employee share ownership schemes are touted in black empowerment laws as a more legitimate form of black economic empowerment than the crony deals that characterised the first era of BEE, they have not been successful. Journalist Carol Paton, writing in Business Day about mining sector deals, noted that workers had not made significant gains.

It is a method favoured by both the ruling African National Congress and the official opposition the Democratic Alliance.

In its election manifesto ahead of the May 2019 national election, the ANC promised to “introduce legislation for the extension of company ownership to a broad base of workers through an employee ownership scheme and similar arrange arrangements to supplement workers’ incomes and build greater partnerships between workers and owners to build these businesses,” according to its manifesto.

“Social partners (government, labour and business) will put together the minimum thresholds and conditionalities to govern the establishment of worker-ownership funds, paving the way to empower millions of workers across the economy.”

The ANC said in its manifesto that the government would provide public assistance (which means state funding) to help workers buy shares.

With a depleted fiscus, the assistance is unlikely in the short term, but the idea is now on the table.