Performance Incentive Grant: Department of Public Works, National Treasury, SALGA and Department of Cooperative Governance reports

Public Works and Infrastructure

10 October 2011
Chairperson: Ms M Mabuza (ANC) and Mr E Sogoni (ANC)
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Meeting Summary

Concerns had been expressed in the past about the poor uptake of the Expanded Public Works Programme (EPWP) Incentive Grants, and the Committees on Public Works and Appropriations had asked that new models should be considered and debated, as the Grant had not had the desired impact at national, provincial or municipal government level. It had also asked that particular attention needed to be paid to low-capacity municipalities, that skills should be transferred and that they should be encouraged to access the grants.

The Department of Public Works (DPW) outlined the background to the EPWP, and the performance of the funding models. The numerous drawbacks to the EPWP Incentive Grants included the overly complex reporting procedures that simply did not warrant the amount of work required in return for a relatively small incentive, lack of planning capacity, and difficulties in implementing infrastructure programmes and reporting. It proposed that a revised incentive model must take cognisance of the smaller or rural municipalities, had to contribute to job creation, to incentivise use of labour-intensive methods, and to allow easier flow of funds. It suggested that the incentive be changed from a Schedule 9 to a Schedule 5 grant, to make funding more predictable, that bodies must submit business plans and that the second tranche of funding be submitted against reports. Technical support should be made available to municipalities. National Treasury (NT) agreed that the DPW proposal was one option, but suggested two others. The grants could be added to the existing Infrastructure Grant to Provinces and the Municipal Infrastructure Grant, focusing on the main areas of job creation in roads and transport, or, alternatively, could be maintained in their current form, while providing more support for spending and differential approaches for the slower-spending municipalities. However, it cautioned that more detailed work was required on these options. Although most provinces had spent the bulk of budgets in the last two years, they had not accessed the grants, and municipalities were not engaging in labour-intensive projects, especially maintenance of existing infrastructure assets, and had a poor understanding of the incentives.

The Department of Cooperative Governance (DCOG) and South African Local Government Association (SALGA) pointed out that their input had not been sought, although both were key stakeholders. DCOG highlighted that R9.7 billion worth of labour-intensive programmes were registered in 2010/11, but the Municipal Infrastructure Grant covered only about 80%, and municipalities had spent only about 86% of these grants, which then impacted on the uptake of the incentives. Greater planning by municipalities was required, but there was a major problem with accurate reporting. SALGA commented that the reporting requirements were too onerous and were often not understood, and the small incentives were simply not worth the investment of time required for full reporting. It was economically preferable to use non-labour intensive methods in rural areas.  SALGA proposed that any incentives should be linked to the New Growth Path, that EPWP should be considered as a Local Economic Development programme, should be simplified, with more emphasis on development than on compliance, and adopt differential approaches for different municipalities, with 100% registration and reporting. Other options were to make more funding available up front, to provide guarantees against which municipalities could borrow, and to reward better performance.

As the four presentations were not consolidated into a single, concrete proposal, the Members asked the four entities to consider control measures to be included in the grants, and for all four entities to meet and formulate concrete joint proposals for a more workable model.

Meeting report

Performance Incentive Grant: Department of Public Works, National Treasury, SALGA and Department of Cooperative Governance reports
Co-Chairperson Mr E Sogoni (ANC) welcomed the delegations from the Department of Public Works (DPW), National Treasury (NT), the Department of Cooperative Governance (DCOG) and the South African Local Government Association (SALGA). He noted that a new model had been proposed for the Expanded Public Works Programme (EPWP) incentive grant, due to the fact that this Grant had not had the intended impact at national, provincial or municipal government level. Particular attention needed to be paid to low-capacity municipalities to ensure that the programme worked effectively. The meeting had been arranged ahead of the Minister’s presentation of the Medium Term Budget Policy Statement (MTBPS), so that a model could be agreed upon before the next budget cycle. This was particularly important for the creation of new jobs in accordance with the President’s directives.

Co-Chairperson Ms M Mabuza (ANC) added that during the last joint meeting, it was agreed that the DPW and NT should look for a better model. It was also agreed that municipalities should be capacitated and should get the required systems in place, with the assistance of SALGA, that skills should be transferred to the municipalities, and that the Sector Education and Training Authority (SETA) should be involved as a training resource. She was expecting DPW and NT to report back on proposals for a revised model that would  encourage municipalities to access incentive grants.

Mr Sogoni agreed that the mandate had been for the role players to discuss the matter among themselves, and to report back with one document, not with four separate presentations. To this extent, the mandate given to them had not been followed.

Mr Sogoni then noted an apology from the Acting Director-General of the DPW “due to a prior commitment.”

Mr M Mbili (ANC) took issue with this explanation, asking what kind of commitment would prevent an Accounting Officer according Parliament the first priority.

Several other Members agreed with this comment, noting their unhappiness with government officials who were undermining the authority of Parliament by failing to participate in the oversight role of the committees.  

Mr Sogoni said that the views expressed by the Members should send a strong message to every Director-General. However, in this instance, he noted that the Acting Director General had provided a written delegation of authority to the Deputy Director-General, and, in order to avoid fruitless expenditure, the presentations should proceed.

Department of Public Works presentation
Mr Stanley Henderson, Deputy Director-General: EPWP, Department of Public Works, outlined the background to the EPWP incentives. An Integrated Incentive Grant was introduced, premised on the assumption that offering a financial reward would serve to motivate provinces and municipalities to create more EPWP work, primarily by shifting towards more labour-intensive methods of construction. Three funding models had been piloted. These were, firstly, a wage subsidy that was provided to existing non-government organisations who were already creating work for poor communities, secondly, an expansion incentive provided to existing national government programmes that were performing well, and thirdly, a performance-based incentive for provincial and local governments, to encourage job creation.

Mr Ignatius Ariyo, Chief Director: EPWP Infrastructure, Department of Public Works, traced the performance of these funding models over the past two years. The wage subsidy and expansion subsidy models had generally worked well, although the reporting and payment procedures had often proved complicated to manage. The performance-based incentive had attracted more municipal and provincial participation in the EPWP, but there were numerous drawbacks. These included insufficient grant funding for small, rural municipalities to participate, the fact that the incentives were not sufficiently large to encourage a switch to labour-intensive projects, a lack of planning capacity, and the fact that the incentives were not used correctly. Overall, an evaluation of the incentive revealed that public bodies were still struggling to implement their infrastructure programmes, to design and implement these programmes more labour-intensively, and to properly report their performance in the required detail.

In 2010-11, measures had been put in place to improve the drawing-down of the incentive, such as stronger DPW technical support to public bodies and local government, partnership with the Development Bank of Southern Africa (DBSA) to support municipalities, and training through the Construction SETA for municipal officials and “Vukupile”, in respect of the small contractor development programme.

It was proposed that the revised incentive model should take special cognisance of small and rural municipalities and other public bodies with limited funding. It should offer potential to contribute to job creation. There should also be an attempt to directly incentivise and implement increased labour intensity. There should be an easier flow of funds to “kick start” job creation.

Mr Ariyo set out a summary of the proposed review to the incentive. A key aspect was to change the incentive from a Schedule 8 to a Schedule 5 grant, as this would help with predictability of funding to public bodies. However, the eligibility of public bodies for the incentive grant, and the allocation itself, would still be dependent  on whether they had reported to the DPW in a prior financial year. Half of the allocation would be made at the beginning of the financial year, and the remaining half would allocated against sufficient reporting. Public bodies would have to submit their business plans in line with their incentive allocation. Technical support would be made to municipalities, especially those in rural areas, to implement the EPWP.

National Treasury Presentation
Ms Julia de Bruyn, Chief Director: Education and Related Services, National Treasury, said that the National Treasury (NT) had considered what possible grant funding options could be considered. As it appeared that the EPWP grants focused largely on roads and transport, one option might be to add these grants to existing infrastructure grants to provinces (through the Provincial Road Maintenance Grant) and municipalities (through the Municipal Infrastructure Grant), and then require the Departments of Transport and of Cooperative Government to provide the support required. A second alternative was to maintain the grants, with minor changes, such as revising the eligibility criteria and targets, and provide more support to provinces and municipalities to spend on infrastructure in general, with different approaches adopted for slower spending provinces and municipalities. The third option was to change the grants from a Schedule 8 to Schedule 5, as explained by the DPW.

Ms de Bruyn warned that more detailed work needed to be done on all the options, such as identifying the advantages and disadvantages of each option, before a final decision could be taken. Two factors could determine whether the grant model would work – which would be design, or implementation – but she also cautioned that what might appear most beneficial from a NT point of view might not be workable for the other stakeholders.

Mr Edgar Sishi, Director: Provincial Budgets, NT, outlined the spending trends of provinces in the fields of roads, education, health and maintenance, and said that since most provinces had spent the bulk of their budgets during the past two years, there was some question as to why they had not accessed the performance incentives.  He also pointed out that the scope for EPWP job creation was greatest when the maintenance budgets were used. Despite the total expenditure of R5,5 billion in 2010-11, the incentive grants had still not been accessed by provinces.

A similar picture emerged for municipalities, where labour-intensive methods were not used in construction projects, and there was insufficient investment in the “right” type of infrastructure activities, which would include the maintenance of existing infrastructure assets. At local government level, there was poor reporting of job creation data on the EPWP system, and a lack of understanding of how the performance incentive worked.

Ms De Bruyn said the total infrastructure budgets totalled R623 million, and it might be that the effort required to access the relatively small amount of R52 billion via the incentive grant was simply not considered worthwhile.

Department of Cooperative Governance (DCOG) Presentation
Mr Ricardo Hansby, Deputy Director-General: Infrastructure and Economic Development, Department of Cooperative Governance, said it was unfortunate that DCOG had not been invited to participate in the discussions with NT and DPW, as it was a key stakeholder in the incentive grant programme.

From the DCOG viewpoint, he noted that it was necessary to highlight certain critical points, such as the effect of the Municipal Infrastructure Grant (MIG) on the EPWP programme. All labour intensive projects (which were defined as those having a minimum labour component of 30%) that were registered for 2010/11, totalled R9,7 billion. The MIG contributed about R7,8 billion. The municipalities then funded the 20% balance from their own resources. As the MIG and EPWP incentive grants were linked, the fact that municipalities spent only 86% of the MIG was a cause for concern, as it had an effect on the uptake of the incentive grants. In other words, the performance of municipalities with regard to the MIG was key to the performance on the EPWP incentive grant and its impact on the infrastructure sector.

He said that municipalities needed to play a greater role in the planning of infrastructure projects, so that the labour-intensity of projects could be determined at an early stage. Unfortunately, reporting was not always accurate, and this was an essential requirement before NT would allow the funds to be accessed. The statistics showed that the larger municipalities had no problem in accessing grants, while the smaller local bodies struggled through lack of capacity.

South African Local Government Association (SALGA) Presentation
Mr Douglas Cohen, Specialist, Economic Development & ICT, SALGA, said that the Association had also not participated in the discussions between NT and DPW.

He gave a brief review of municipal EPWP performance over the past three years. He then focused on the factors that SALGA felt had influenced the performance. He said that reporting took up a great deal of time, and rendered the programme overly-complex, making it difficult to explain and motivate to new councillors. The question must also be asked whether the smaller municipalities had enough of an allocation to accelerate job creation in a meaningful manner, and if it was, from an economic perspective, worth their while to invest in rural areas through such a complicated programme, instead of using something simpler and more manageable. The concentration of focus would rather be on areas where the prospects for job-creation were greater. It seemed that the debate on EWPW had shifted away from its impact on poverty, decent work and differentiated solutions, in favour of issues around reporting, compliance and performance.

Although SALGA was included in various EPWP forums, such as the Public Works Inter-governmental Forum, the EPWP National Coordinating Committee and the ad hoc District EPWP Forum, its attempts to form a more formal partnership with DPW around the EPWP had been unsuccessful. SALGA believed that, with the necessary political and technical support, capacity and institutional arrangements, it would be possible to create a joint EPWP Unit and SALGA partnership that could play a meaningful role in the municipal sphere.

SALGA proposed that the incentive model should be aligned to the New Growth Path. The EPWP should be repositioned as a strategic local economic development (LED) programme, and made part of local government. It should also be simplified, with a shift towards development rather than compliance and reporting. The programme also needed to take account of the differences between large and small municipalities. There needed to be 100% registration and reporting, otherwise attention would be directed only at those participating in the programme.

Mr Cohen listed several options which could be considered with regard to the incentive grant, such as making more funds available up front, which he noted would be a major attraction for small municipalities with limited resources. Eligible municipalities could be provided with guarantees that would enable them to borrow against the incentive, in order to leverage additional resources. Rewards for over-performance could be enhanced. The  fiscal incentives could be fast-tracked to encourage municipalities to register and report for the first time.

Discussion
Ms N November (ANC) suggested that SALGA should visit Mier Local Municipality to see the conditions of hunger and poverty which existed there. Infrastructure development had only just begun in this municipality.

Ms C Madlopha (ANC) said it was clear that it was not possible to discuss the incentive grant without also considering the MIG. The greatest challenge with the MIG was that municipalities had to pay out of their own resources up front, and then claim the money back. This placed a strain on their resources. The MIG was intended to be used for infrastructure projects, but not for maintenance that had good job-creation potential. It took too long for approvals of MIG business plans, resulting in delays in service delivery, and contributing to the “fiscal dumping” at the end of the financial year. She agreed that the EPWP criteria were too complicated for smaller municipalities.

Mr M Swart (DA) said the Committee needed to receive recommendations on how to simplify the process, yet these had not been provided. He suggested that all the parties involved, including COGTA and SALGA, who had not participated in the earlier deliberations, should meet again, and return with firm proposals.

His proposal was supported by several other Members.

Co-Chairperson Mabuza drew the attention of the presenters to the need for control measures to be included in the incentive grant model, as recent site visits had shown that so-called EPWP projects simply did not exist, and this was wasting millions of rands. She urged them to come back with a concrete proposal.

Co-Chairperson Sogoni said a workable model was required, and agreed that it was important for SALGA and COGTA to be involved in the discussions.

The meeting was adjourned.      

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