LEGISLATIVE OVERVIEW November 2003

LEGISLATIVE OVERVIEW November 2003
MUNICIPAL SYSTEMS ACT SECTION 78 ASSESSMENTS Implementing the Division of Powers and Functions for Water Services Notes for Presenters: As you will see, these notes are written so that suggestions to presenters are in italics, and key explanatory notes are in ordinary text, and are provided only as needed. Welcome the participants and facilitate a round of introductions. You should refer them to any supporting documentation provided, which should include a handout of this presentation and preferably include these notes. This is so that participants don’t need to be distracted by trying to capture the information on the slides. If you need to keep a record of issues and discussion, either appoint a note taker or be prepared to capture points made during discussion. All notes should be forwarded to the s78 Working Committee. You can say: This presentation was developed as a tool to orientate Water Services Authorities (WSAs) to service delivery assessments in terms of Section 78 of the Municipal Systems Act (32 of 2000). S78 assessments are triggered by the division of powers and functions for water services. The overview presentation was developed as part of the support role of the Joint DPLG, SALGA, DWAF and NT s78 Working Committee at national level. LEGISLATIVE OVERVIEW November 2003

Purpose of the Presentation
To facilitate a common understanding of the section 78 process through the following topics: S78 assessments in the context of powers and functions Introduction to S78 assessments S78 triggers Different types of service delivery mechanisms The S78 process step by step Criteria and decisions Important considerations Community participation Implementation (procurement & service delivery agreements) Over the next ……(indicate the time you think you will take for the presentation) I will be presenting the following information from a legislative perspective. There will be opportunities for discussion and interaction at various points throughout the presentation, but please stop me at any point if anything is unclear or you have any specific questions relating to this material. This presentation is divided into the sections outlined on the slide. The presenter can decide to use all the mini presentations, or select as appropriate to the group and purpose of the workshop. The first two sections contextualise S78 assessments and should always be presented. It is important that you make space for participants to contribute and ask questions, and that this material is presented in an interactive way. Legislative Overview: Version 1 November 2003

S78 ASSESSMENTS IN THE CONTEXT OF POWERS AND FUNCTIONS
This is a title slide that tells you what the next section will cover.

Powers and Functions... The division of powers and functions for water services became effective on 1 July 2003 Implementing powers and functions is linked to municipal establishment, budgets, IDP review, capacity building and so on S78 assessments are a critical milestone in measuring the success of the implementation of powers and functions Legislative Overview: Version 1 November 2003

Powers & Functions: The Trigger for S78 Assessments
S77(a)(iii) of MSA states that a municipality must review & decide on appropriate mechanism/s in the municipality, or part thereof, when the municipality is restructured or re-organised in terms of the Structures Act The division of powers and functions constitutes a restructuring or re-organisation in terms of the Structures Act and therefore triggers the need for S78 assessments In some cases, WSAs may not have commenced their s78 assessments because they were not aware that they needed to, i.e. they were not aware that the division of powers and functions in fact triggers the need for a review of service delivery mechanisms in nearly every case. This is national government’s position. Through the division of powers and functions, many municipalities have been authorised as WSAs for the first time and so water services is a new municipal service they are providing. Legislative Overview: Version 1 November 2003

Where services are provided through an internal mechanism by the “former WSA”, the “new WSA” must review and decide on appropriate mechanisms in municipality or part thereof Where services are provided through an external mechanism by “former WSA”, the “new WSA” will be the successor in title to the Service Delivery Agreement (SDA) A S78 assessment therefore does not have to be undertaken in areas covered by an external service delivery mechanism, but the division of powers and functions remains a legislative trigger There a more detailed explanation of the legislative triggers for S78 assessments in another part of this presentation. This material provides an overview only. Legislative Overview: Version 1 November 2003

Where a service is provided through an internal mechanism, the municipality must review & decide on appropriate mechanism/s in the whole or part of the municipal area The S78 assessment can therefore be undertaken for the “former WSA” area only Legislative Overview: Version 1 November 2003

Powers & Functions: The Scope of S78 Assessments
The scope and area covered by the S78 is in the discretion of the municipality Some considerations … Political implications Scale of expenditure Importance of service Potential for community & labour conflict Geography & demographics Urgency (time, levels of services, legislative non-compliance) Legislative Overview: Version 1 November 2003

Powers & Functions: The Scope of S78 Assessments
National Gov. recommends that S78 as a result of p&f be done for whole area (irrespective of internal or external mechanism in place) to ensure consideration of: Benefits of scale Efficiency Integration Where a service is provided through an external mechanism, any amendments to the contract informed by S78 must be done in accordance with the provisions of the contract It may be useful to facilitate a discussion on scoping issues, and the advantages and disadvantages of different options. This may be particularly useful if applied to the area of a WSA present. Discuss the consequences of various scoping options in a given municipal area. You could make reference to a diagrammatic map that depicts different settlements, mountain ranges, levels of service and affordability in a particular municipal area. Legislative Overview: Version 1 November 2003

INTRODUCTION TO S78 ASSESSMENTS

What is a Section 78 Assessment?
A section 78 assessment is a process required by the Municipal Systems Act to assess potential service delivery mechanisms for the provision of a municipal service Section 78 assessments are required under certain legislated circumstances (which are called “triggers”) Legislative Overview: Version 1 November 2003

The Importance of S78 Assessments
FOR MUNICIPALITIES - May have long term service delivery implications Has financial implications Decisions may be challenged FOR NATIONAL & PROVINCIAL GOV. – Appropriate, sustainable service delivery mechanisms Continued service delivery Improvement in service delivery Legislative Overview: Version 1 November 2003

Urgency for Completing S78’s
Administrative units & other arrangements are interim Interim arrangements pose difficulties in respect of – Effective management Political imperatives Certainty both in respect of staff and future service delivery mechanism Stability in the “new and former WSAs” Legislative Overview: Version 1 November 2003

National Government Timeline for Completion of S78 Assessments
Implementation of P&F for WS and MEC adjustments complete Announcement of adjustments of P&F by MECs Effective date of P&F for WS & MEC adjustments Announcement of P&F for WS Dec ‘03 Jan ‘03 1 July ‘03 1 July ‘04 Legislative Overview: Version 1 November 2003

THE ‘TRIGGERS’

Powers & Functions ‘Triggered’ the Need to Undertake S78 Assessments
A number of triggers are provided for in the Act There are different triggers where services are provided through internal and external mechanisms The division of powers and functions is a trigger It is however necessary to take note of other ‘triggers’.. It is important to note that the legislation provides different triggers for where the services are provided through an internal mechanism and where the services are provided through an external mechanism. It also provides for triggers that apply irrespective of how the service is provided. Legislative Overview: Version 1 November 2003

When Must a S78 Process Be Applied? The ‘Triggers’
A municipality must review and decide on appropriate mechanism/s to provide a municipal service in the municipality or a part of the municipality when – A review is required by an intervention in terms of the Constitution A new municipal service is to be provided Requested by the local community through mechanisms, process and procedures established in terms of the MS Act A review of its IDP requires a review of the delivery mechanism This slide sets out the triggers that apply irrespective of how the service is provided. The next few slides set out the triggers where the service is provided through an internal mechanism which is followed with slides setting out the triggers where the service is provided through an external mechanism. First bullet: Section 139 of the Constitution states that provincial government can intervene in the affairs of local government when LG is not performing their legislative obligations. Chapter 10 of the Municipal Systems Act also states that national government can intervene in the affairs of provincial government for the same purpose. Second bullet: Through the division of powers and functions, many municipalities have been authorised as WSAs for the first time and so water services is a new municipal service they are providing. Legislative Overview: Version 1 November 2003

What are the ‘Triggers’ when a Service is Provided through an Internal Mechanism?
An existing municipal service is to be significantly upgraded, extended or improved A performance evaluation in terms of the MS Act requires a review The municipality is restructured or reorganised in terms of the Municipal Structures Act First bullet: As a result of the division of powers and functions, many WSAs now have extended service areas, often into rural or peri-urban settlements where the water services provision issues, approaches and challenges are vastly different from urban water supply and sanitation. Second bullet: Performance management is addressed in Chapter 6 of the Municipal Systems Act. Last bullet: The division of powers and functions has meant a restructuring and re-organisation of municipalities. Legislative Overview: Version 1 November 2003

What Are the ‘Triggers’ When a Service Is Provided Through an External Mechanism?
A performance evaluation in terms of the MS Act requires a review The Service Delivery Agreement (SDA) is anticipated to expire or be terminated within the next 12 months An existing municipal service is to be significantly upgraded, extended or improved and this is not addressed in the SDA First bullet: The Service Delivery Agreement (SDA) with the external provider should make provision for performance evaluations. Legislative Overview: Version 1 November 2003

THE DIFFERENT TYPES OF SERVICE DELIVERY MECHANISMS

What are the Different Types of Mechanisms?
Internal mechanisms External mechanisms External mechanisms Internal mechanisms The legislation allows for two types of delivery mechanisms as follows. The next section of the presentation will unpack and give examples of what each of these mechanisms are. WSA Inside the municipality Entities outside the municipality Legislative Overview: Version 1 November 2003

What are Internal Mechanisms?
Department or Administrative Unit within the municipality's administration Business Unit Internal Municipal Service District First bullet: This is the most well known type of internal service delivery mechanism. Most municipalities have a water and sanitation departments. Internal mechanisms WSA Legislative Overview: Version 1 November 2003

What is a Department or Administrative Unit?
The Act does not define ‘department’ There is no clear legal or academic definition Traditionally, a ‘department’ is an institutional arrangement where the responsibility for the delivery of a particular service is carried by more than one unit Legislative Overview: Version 1 November 2003

What is a Department or Administrative Unit?
This is currently the most common mechanism used by municipalities to provide municipal services One department/ administrative unit usually takes responsibility for technical aspects while others take responsibility for aspects such as financial, legal, social and human resources... Legislative Overview: Version 1 November 2003

What is a Business Unit? A business unit -
operates within municipality’s administration, under council’s control and in accordance with operational & performance criteria of council There is no clear legal or academic definition The Act does not define a ‘business unit’ Legislative Overview: Version 1 November 2003

What is a Business Unit? Can be defined as a ring-fenced unit within the municipality, operating in a defined framework and fully accountable for all aspects of service delivery Is similar to a department/ administrative unit as it’s an integral part of the municipality and does not have a separate legal personality Is responsible for all aspects of a service and is ring-fenced in respect of income and expenditure Durban (Etukweni) Water and Waste in the Durban Metro is an example of a business unit. Cape Metro is also in the process of establishing a business unit for water services provision as a result of their S78 assessment process. Legislative Overview: Version 1 November 2003

What Is an Internal Municipal Service District?
Established, regulated and managed in terms of a municipal policy framework that must reflect – A balance of development needs & priorities of the designated area against whole area The extent to which LED will be promoted in the whole municipal area The extent to which it will enhance social, economic and spatial integration It may not entrench or contribute to further disparities in service provision Unlike the business unit, an Internal Municipal Service District can be established in part of the municipal area. Legislative Overview: Version 1 November 2003

Established in a part of the municipality to facilitate the provision of a municipal service Must establish separate accounting and record-keeping systems May establish committee to act as a consultative and advisory forum The Tshwane Metro provides an example. Legislative Overview: Version 1 November 2003

The municipality must – Consult communities on boundaries, the nature of services, method of financing and mechanism for delivery Obtain the consent of the majority that will have to contribute Last bullet: Consent could be measured through a vote or referendum. Legislative Overview: Version 1 November 2003

What Are External Mechanisms?
Municipal Entity Another municipality Organ of state (including a traditional authority) CBO NGO Any other institution or entity legally competent to operate a business activity External mechanisms Service Delivery Agreements must be entered into Second bullet: In some cases where LMs have been providing water services to certain areas such as small towns and have the necessary systems, skills and contracts in place to continue doing so, DMs (WSAs) are considering them as a service provision mechanism in these areas, in the s78 assessment process. Third bullet: Water boards provide good examples of this mechanism – Rand Water is providing retail water services to the Maluti-a-Pufong LM and City of Tshwane Metropolitan Municipality. Fourth bullet: There are many Community Based Organisations (CBOs) that are currently providing water services (i.e. operating, communicating with consumers, undertaking minor repairs and so on) in rural areas. These CBOs can be seen as de facto Water Services Providers (WSPs) -- with the necessary capacity and support, CBOs can provide sustainable, effective and efficient, consumer-supported water services. Alfred Nzo DM is currently contracting CBO WSPs for rural areas. There are advantages and disadvantages to different WSPs in different areas. Competitive tendering Legislative Overview: Version 1 November 2003

What Are Municipal Entities?
Private Company Service Utility Multi- Jurisdictional Service Utility (MJSU) The Act no longer allows the following as municipal entities: Section 21 companies, trusts, etc.   Currently, the legislation allows for a wider range of entities than proposed by the Municipal Systems Act Amendment Bill, 2003, as described here. Second bullet: There are no current examples, but this entity could operate like Eskom, Telkom or Spoornet operated in the past. Legislative Overview: Version 1 November 2003

Establishment of Municipal Entities: General Information
When considering establishing or participating in a municipal entity, a municipality must first - determine precisely the service that such entity would perform on behalf of the municipality, and make an assessment of the impact of shifting that service to the entity on the municipality’s staff, assets and liabilities, including an assessment of… — Legislative Overview: Version 1 November 2003

Establishment of Municipal Entities: General Information (cont.)
the number of municipal staff to be transferred to the entity the number of municipal staff that would become redundant as a result of shifting the function or service the cost to the municipality of any staff retrenchments or the retention of redundant staff any assets of the municipality to be transferred to the entity any assets of the municipality that would become obsolete because of shifting the service any liabilities of the municipality to be ceded to the entity any debt of the municipality attributed to that service which the municipality would retain Legislative Overview: Version 1 November 2003

Establishment of Municipal Entities: General Information
A municipality may establish or participate in a municipal entity only if, prior to the council meeting to approve this, it has — made a public information statement setting out the municipality’s plans for the municipal entity, together with the assessment which the municipality must conduct, invited the local community and other interested persons to submit comments or representations in respect of the proposed entity.. Legislative Overview: Version 1 November 2003

Establishment of Municipal Entities: General Information (cont.)
solicited the views and recommendations of the National Treasury, DPLG and the MEC for LG in the Province, and taken into account— the impact assessment any comments or representations on the matter received from the local community, organised labour and other interested persons any written views and recommendations on the matter received from the NT, DPLG and the MEC Legislative Overview: Version 1 November 2003

Functioning of Entities: Municipal Finance Management Act (MFMA)
The functioning of municipal entities are regulated in terms of the MFMA in respect of - Financial governance Financial accountability Reports and reportable matters Legislative Overview: Version 1 November 2003

Functioning of Entities: Municipal Systems Act (MSA)
The functioning of municipal entities are regulated in terms of the MSA in respect of - Duties of municipalities Municipal representatives may be councilors or officials Governance Councilors, officials, members of National Assembly & representatives in NCOP may not be Directors Legislative Overview: Version 1 November 2003

What Are Private Companies?
Pty (Ltd) Companies are referred to in section 19 and 20 of the Companies Act No 61 of 1973 Established and subject to the Companies Act Juristic persons (separate legal entities) Johannesburg Water (Pty) Ltd is an example of a similar entity Must enter a Service Delivery Agreement (SDA) Legislative Overview: Version 1 November 2003

Who may hold interests in private companies?
A municipality may: establish or participate in establishing, or acquire or hold an interest in a private company either acquire or hold full ownership, or acquire or hold a lesser interest – minority shareholding is possible acquire or hold a lesser interest only if all the other interests are held by another municipality or municipalities or national or provincial organ/s of state Legislative Overview: Version 1 November 2003

Who may hold interests in private companies? (cont.)
A municipality may acquire or hold an interest in a private company in which an investor (other than another municipality or a national or provincial organ of state) has an interest, but only if: the municipality, or another municipality (or both municipalities) have effective control in the private company -- private shareholding is possible “Effective control” means the power a shareholder has to appoint or remove at least the majority of the Board of Directors, or to control at least the majority of the voting rights, at a general meeting. Legislative Overview: Version 1 November 2003

Are there conditions precedent for establishing private companies?
In the case of one municipality: A municipality may establish a private company or acquire an interest in such a company only - for the purpose of utilising the company as a mechanism to assist it in the performance of any of its functions or powers if the municipality can demonstrate that- there is a need to perform that function or power in accordance with business practices in order to achieve its strategic objectives more effectively the company would benefit the local community “Conditions precedent” means that the conditions that need to be met before establishment becomes possible. Legislative Overview: Version 1 November 2003

Are there conditions precedent for establishing private companies?
If two or more municipalities intend to establish a private company or to acquire interests in it, each of those municipalities must also - consider and reach agreement on proposals for shared control of the company, and consider cash flow projections of the company's proposed operations for at least three financial years Legislative Overview: Version 1 November 2003

Rules that apply to private companies
A private company which is a municipal entity - must restrict its activities to the purpose for which it is used by its ‘parent’ municipality has no competence to perform any activity which falls outside the functions and powers of its establishing municipality Legislative Overview: Version 1 November 2003

What Are Service Utilities?
Service utilities are: established by a bylaw juristic persons (separate legal entities) under the sole control of the establishing municipality Legislative Overview: Version 1 November 2003

Are there conditions precedent for establishing service utilities?
A municipality may establish a service utility only - as a mechanism to assist the municipality in the performance of its functions or powers, and if the municipality can demonstrate that - the function or power could be performed more efficiently by a separate structure in order to achieve the strategic objectives of the municipality the service utility would benefit the local community “Conditions precedent” means that the conditions that need to be met before establishment becomes possible. Legislative Overview: Version 1 November 2003

What Rules Apply to Service Utilities?
No by-law may confer any functions or powers falling outside the competence of the parent municipality on a service utility A service utility - must restrict its activities to the purpose for which it was established has no competence to perform any activity which falls outside its functions or powers in terms of the by-law Legislative Overview: Version 1 November 2003

What are Multi Jurisdictional Service Utilities (MJSUs)?
Established by a written agreement between two or more municipalities Minister may request establishment in consultation with Minister of DWAF The Act states what must be provided for in agreement Agreement is similar to a SDA Controlled by a governing body which is a juristic person (independent legal entity) Accountable to municipalities The Uthukela Water Partnership provides an example of a multi jurisdictional service district (MJSD). Legislative Overview: Version 1 November 2003

What rules apply to MJSUs?
The MJSU: must restrict its activities to the purpose for which it was established has no competence to perform any activity which falls outside its functions in terms of the agreement Any provision mechanism, including an MJSD, can perform most functions except the governance functions of the WSA. These functions cannot be contracted out. In the end, the WSA is responsible for regulating, planning and ensuring access to at least a basic level of water and sanitation services. Legislative Overview: Version 1 November 2003

Rules that apply to Other Municipalities
Where a municipality decides to enter into a SDA with another municipality, the other municipality must conduct a Feasibility Study (FS) The FS must be taken into account before the SDA is entered into Legislative Overview: Version 1 November 2003

Rules that apply to Other Municipalities
Feasibility Study must include an assessment of: the impact on its budget, assets, liabilities and staff expenditure, for each financial year that it intends to serve as an external service provider whether it will be necessary to increase the number of staff to enable it to be an external service provider, and whether it will be necessary to transfer or second any staff Its ability to absorb any commitments, liabilities or employees involved, if and when the appointment as external service provider ends Legislative Overview: Version 1 November 2003

What rules apply to Organs of State?
Example: Water boards Any organ of state is subject to the PFMA and must inform National Treasury in writing and obtain approval from Minister of DWAF Legislative Overview: Version 1 November 2003

What rules apply to CBOs, NGOs and the Private Sector?
Competitive procurement The Municipal Finance Management Act regulates Public Private Partnerships Competitive procurement: Currently CBOs and NGOs need to tender competitively against private companies for water services provision contracts. Clearly this places them at a disadvantage, especially in terms of providing capital. Legislative Overview: Version 1 November 2003

Public Private Partnerships (PPPs)
The term ‘PPP’ is not defined in the Act National Treasury regulations define PPPs in the context of national and provincial govt. NT regulations provide a useful definition in the municipal context Legislative Overview: Version 1 November 2003

Public Private Partnerships
In NT Treasury regulations, national & provincial PPPs are defined as commercial transactions between an institution and a private party, in terms of which – the private party either performs an institutional function on behalf of the institution for a specified or indefinite period, or acquires the use of state property for its own commercial purposes for a specified or indefinite period…; Legislative Overview: Version 1 November 2003

Public Private Partnerships (cont.)
In the NT Treasury regulations, the private party receives a benefit for performing the function or by utilising state property, either by way of: compensation from a revenue fund; charges or fees collected by the private party from users or customers of a service provided to them; or a combination of such compensation and such charges or fees Legislative Overview: Version 1 November 2003

Municipalities may enter into PPP agreements, but only if they can demonstrate that the agreement will - provide value for money to the municipality; be affordable for the municipality; and transfer appropriate technical, operational and financial risk to the private party Legislative Overview: Version 1 November 2003

A PPP agreement must comply with any prescribed regulatory framework for PPPs If the PPP involves the provision of a municipal service, it must comply with Chapter 8 of the MSA Before a PPP is concluded, the municipality must conduct a Feasibility Study… Legislative Overview: Version 1 November 2003

The Feasibility Study (FS) must – explain the strategic and operational benefits of the PPP for the municipality in terms of its strategic objectives; take into account all relevant information; describe in specific terms - the nature of the private party’s role in the PPP the extent to which this role can be performed by a private party… Legislative Overview: Version 1 November 2003

describe in specific terms how the proposed agreement will – provide value for money to the municipality be affordable for the municipality transfer appropriate technical, operational and financial risk to the private party impact on the municipality’s revenue flows and its current and future budgets The FS must also motivate for the capacity of the municipality to effectively monitor, manage and enforce the agreement Legislative Overview: Version 1 November 2003

Before submitting the FS report and other relevant documents to Council for an in principle decision, the municipality must – make public the particulars of the proposed PPP including the FS report, invite the local community and other interested persons to submit comments or representations in respect of the proposed PPP, and solicit the views and recommendations of National Treasury, DPLG and DWAF if the PPP involves the provision of water Legislative Overview: Version 1 November 2003

THE S78 PROCESS ‘STEP BY STEP’

STEP 1: STATUS QUO ASSESSMENT
STEP 2: ASSESS INTERNAL SERVICE DELIVERY MECHANISMS STEP 3: DECIDE on appropriate internal service delivery mechanism to explore external service delivery mechanisms STEP 4: IMPLEMENT APPROPRIATE INTERNAL SERVICE DELIVERY MECHANISMS Allocate sufficient human, financial and other resources necessary for proper provisioning of the service STEP 5 A: ASSESS EXTERNAL SERVICE DELIVERY MECHANISMS B: CONDUCT FEASIBILITY STUDY This slide depicts the steps of the s78 process as set out in the MS Act. The process must be followed to ensure that the decisions taken are not open to legal challenge. STEP 6 GIVE NOTICE TO THE LOCAL COMMUNITY on internal mechanism on external mechanisms STEP 7: DECIDE Legislative Overview: Version 1 November 2003

CRITERIA AND DECISIONS IN EACH STEP

Step 1: Status Quo Assessment
The purpose of the status quo assessment is to identify water services challenges in the area and to have basis to evaluate the various mechanisms against these challenges This approach is called a gap analysis It is important that all WSAs apply their minds and evaluate service delivery mechanisms in their areas against existing challenges The division of powers and functions for water services requires WSAs to undertake step 1 in order to identify water services challenges in their areas and evaluate the various mechanisms against these challenges. This approach is called a gap analysis. It is important that all WSAs apply their minds and evaluate service delivery mechanisms in their areas. Legislative Overview: Version 1 November 2003

Step 2: Assess Internal Mechanisms
Criteria that apply The municipality must assess the following in respect of providing the municipal service through an internal mechanism – Direct & indirect costs and benefits including expected effect on environment, human health, well-being & safety Existing & future capacity to furnish skills, expertise and resources Now the presentation will unpack the criteria to be applied to each step. First sub bullet refers to the service itself. Second bullet refers to human resource issues. Legislative Overview: Version 1 November 2003

Internal Assessment Criteria (cont.)
Extent to which the re-organisation of its administration and the development of the human resource capacity could be utilised Likely impact on development, job creation, and employment patterns in the municipality Views of organised labour May take developing trends into account Most of these points pertain to human resource and labour issues. Note that addressing some of these criteria requires informed projections and assumptions. Legislative Overview: Version 1 November 2003

Assess external mechanisms
Step 3: Decide on appropriate internal mechanism or, before taking a decision, explore the possibility of external mechanisms OR Internal mechanism Step 3 involves a Council decision to provide services through an internal mechanism, or a decision to explore external mechanisms first. Assess external mechanisms WSA Legislative Overview: Version 1 November 2003

Step 4: Implement Internal Mechanism
When implementing an internal mechanism, the municipality must make the necessary: human, financial and other resources available, and transform the provision of services ..in accordance with the Municipal Systems Act Legislative Overview: Version 1 November 2003

Step 5a: Assess External Mechanisms
When municipality has decided to explore external mechanisms, it must give notice to the local community of its intention The municipality must assess the different service delivery options, taking into account – The direct & indirect costs and benefits incl. expected effect on environment, human health, well-being & safety The provider's existing & future capacity to furnish skills, expertise and resources Criteria that apply Legislative Overview: Version 1 November 2003

External Criteria (continued)
Views of local communities Views of organised labour Likely impact on development, job creation, and employment patterns in the municipality Processes for assessing the views of organised labour are spelt out in chapter 4 of the MSA (collective bargaining structures). Legislative Overview: Version 1 November 2003

Step 5b: Conduct a Feasibility Study
FS must be taken into account and must include: a clear identification of the municipal service for which the municipality intends to consider an external mechanism, an indication of the number of years for which the provision of the municipal service through an external mechanism might be considered, the projected outputs the provision of the municipal service through an external mechanism might be expected to produce, The criteria that apply to an external assessment also include a feasibility study (MSA Amendment Bill). Legislative Overview: Version 1 November 2003

Feasibility Study to include..
an assessment of the extent to which the provision of the municipal service through an external mechanism will - provide value for money address the needs of the poor be affordable for the municipality and residents transfer appropriate technical, operational and financial risk the projected impact on the municipality's staff, assets and liabilities, Legislative Overview: Version 1 November 2003

Feasibility Study to include..
the projected impact on the municipality's Integrated Development Plan (IDP), the projected impact on the municipality's budgets for the period for which an external mechanism might be used, including impacts on revenue, expenditure, borrowing, debt and tariffs, and any other matter that may be prescribed. Legislative Overview: Version 1 November 2003

Step 6: Give Notice to the Local Community
The community: must be informed when the municipality considers external mechanisms must be consulted and informed of the contents of a service delivery agreement before the agreement is signed (see both MSA & MFMA) must be consulted and informed on the establishment of municipal entities and PPPs The community’s views on external service delivery mechanisms must be assessed Legislative Overview: Version 1 November 2003

Step 7: Make the Decision
Decide on and implement appropriate internal mechanism or external mechanisms Council resolution: Delivery mechanism  The final step in the s78 assessment process is a informed Council decision on appropriate mechanisms. Legislative Overview: Version 1 November 2003

IMPORTANT CONSIDERATIONS

Considerations when conducting S78 Assessments
Is the service a municipal service? Do you have a budget allocated to undertake the assessment/s? What should the scope and extent of the assessment/s be? What regional efficiencies & benefits of scale should be considered in the municipal area and in respect of neighboring municipalities? What are the requirements of sector legislation? What other processes are impacting on the assessments? Community participation The next section of the presentation addresses important considerations when conducting s78 assessments. Legislative Overview: Version 1 November 2003

What is a Municipal Service?
Municipal Systems Act definition: “a service that a municipality, in terms of its powers and functions, provides to or for the benefit of the community, irrespective of whether…” the service is provided or will be provided through an internal or external service delivery mechanism, or fees, charges or tariffs are levied in respect of the service or not Legislative Overview: Version 1 November 2003

What is a Municipal Service?
The powers & functions of municipalities are listed in the Constitution and the Municipal Structures Act Not all the matters listed in the Constitution and Municipal Structures Act are municipal services Legislative Overview: Version 1 November 2003

Funding Section 78 Assessments
Budget allocations for section 78 assessments must be informed by the scope and extent of assessment/s National government funding is available Legislative Overview: Version 1 November 2003

Funding Section 78 Assessments
DWAF: Provides direct support and oversight to municipalities on identified strategic focus areas Strategic focus areas are municipalities – receiving transfer of DWAF schemes with institutional complexities with regional schemes are affected by P&F Legislative Overview: Version 1 November 2003

DPLG FUNDING: MSIG to DMs to strengthen institutional capacity within DMs and LMs Key focus areas of funds: Establishment and governance IDP Performance Management System Establishment & Operation of PMMS Centres Implementation of P & F Use of flexible portion is at the discretion of municipalities - may be used for S78 Flexible Portion Legislative Overview: Version 1 November 2003

Factors that Influence the Scope of S78 Assessments
The scope and area covered by the S78 is in the discretion of the municipality Some considerations … Political implications Scale of expenditure Importance of service Potential for community & labour conflict Geography & demographics Urgency (time, levels of services, legislative non-compliance) Deciding on the scope of a s78 assessment is a political and strategic decision that has significant implications and consequences. One consequence could be affordability (i.e. achieving the benefits of economies of scale and equitable distribution) and another could be the relative acceptability of service provision mechanisms. First bullet: Bucket toilets provide a good example of urgency influenced by levels of service. Fourth bullet: Level of risk could include current pollution risks to the environment, or financial risks in terms of service provision. Last bullet: The accessibility of service providers to consumers is a significant factor in decision-making as it impacts on the acceptability, efficiency and affordability of the service. There are also geohydrological considerations. Legislative Overview: Version 1 November 2003

Regional Efficiencies and Benefits of Scale
How can regional efficiencies be achieved? How can benefits of scale be maximised? What are the potential benefits of partnering with a neighboring municipality? The next important consideration is linked to scoping. Does the scope of planned s78 assessments achieve regional efficiencies? You could facilitate a discussion on scoping issues, and the advantages and disadvantages of different options. This may be particularly useful if applied to the area of a WSA present. Discuss the consequences of various scoping options in a given municipal area. You could make reference to a map that depicts different settlements, mountain ranges, levels of service and affordability in a particular municipal area. Legislative Overview: Version 1 November 2003

Considerations in terms of the Water Services Act
Section 11: In ensuring access to water services, a WSA must take into account, among other factors: alternative ways of providing access to water services the need for regional efficiency the need to achieve benefit of scale the need for low costs the requirements of equity the availability of resources from neighboring WSAs WSAs need to consider all relevant legislation in their s78 assessments. Legislative Overview: Version 1 November 2003

Water Services Act and Contracts
Section 19: A WSA may only enter into a contract with a private sector water services provider after it has considered all known public sector water services providers which are willing and able to perform the relevant functions. SECTOR POLICY: The Strategic Framework for Water Services The Strategic Framework for Water Services supports Section 19 of the WS Act. Legislative Overview: Version 1 November 2003

Transfer of National Water Services Works and S78 Assessments
S78 assessments run parallel with National Gov. programme for transfer of nationally owned water services works to municipalities S78 assessments to be completed by ‘04 Transfer agreements to be signed by ‘05 S78 & Transfers require decisions on appropriate service delivery mechanism/s Legislative Overview: Version 1 November 2003

Section 78 assessments should include areas served by National government water services works in section 78 assessments to avoid duplication of processes and appropriate decision-making in respect of whole area Legislative Overview: Version 1 November 2003

Example: significant extension of area Does it make sense to do S78 for P&F now and S78 for transfers later? Appropriate service delivery in WHOLE municipal area is important Municipal area of jurisdiction Area to which Municipality currently provides services Area where DWAF owns & operates WS works Legislative Overview: Version 1 November 2003

DECISION MAKING

Decision making Final decision is an administrative action
Administrative action is regulated by the Promotion of Administrative Justice Act 3 of 2000 Anyone that feels that their rights have been adversely affected may take decisions on review A number of grounds may give rise to review Important to undertake S78 assessments and decisions in a manner that will not give rise to a review It is important that s78’s are conducted in keeping with the process spelt out in the legislation as these decisions are open to legal challenge. Legislative Overview: Version 1 November 2003

COMMUNITY PARTICIPATION

Community Participation
The Municipal Systems Act emphasises and creates legislative obligations for municipalities The Act obliges municipalities to develop a culture of municipal governance that complements formal representative government with a system of participatory governance Municipalities must therefore encourage and create conditions for local communities to participate in the affairs of the municipality, including in strategic decisions relating to the provision of municipal services Legislative Overview: Version 1 November 2003

Who is the Local Community?
The Act defines the “local community” as that body of persons comprising - the residents or ratepayers of the municipality any civic organisations, NGOs, private sector or labour organisations involved in local affairs Others residing outside the municipal area who make use of services or facilities provided by the municipality and specifically includes the poor and other disadvantaged groups Legislative Overview: Version 1 November 2003

Community Participation & S78
Remember that the community: must be informed when the municipality considers external mechanisms must be consulted and informed of the contents of a service delivery agreement before the agreement is signed (see both MSA & MFMA) must be consulted and informed on the establishment of municipal entities and PPPs The community’s views on external service delivery mechanisms must be assessed Legislative Overview: Version 1 November 2003

What mechanisms for community participation?
Local communities must participate in the affairs of the municipality through - political structures (such as ward committees) the mechanisms, processes and procedures for participation in municipal governance established in terms of the MSA other appropriate mechanisms, processes and procedures established by the municipality councillors Legislative Overview: Version 1 November 2003

Mechanisms for community participation
A municipality must establish mechanisms and procedures to enable the local community to participate in its affairs, and provide for - receiving, processing and considering petitions and complaints notification and public comment procedures public meetings and hearings by the municipal council, political structures and office bearers consultative sessions with locally recognised community organisations and, where appropriate, traditional authorities report-back to the local community Legislative Overview: Version 1 November 2003

What mechanisms for community participation?
When establishing participation mechanisms, the municipality must take into account the special needs of people who cannot read or write, people with disabilities, women and other disadvantaged groups Legislative Overview: Version 1 November 2003

What information must be communicated?
Municipalities must: communicate any information concerning available participation mechanisms to encourage and facilitate community participation when communicating information, take language preferences and usage, and the special needs of people who cannot read or write, into account Legislative Overview: Version 1 November 2003

How does communication take place?
When the municipality needs to notify the community through the media in terms of this Act or any other applicable legislation, it must be done - in the local newspaper or newspapers in the area in a newspaper or newspapers circulating in its area and determined by the council as a newspaper of record; or by means of radio broadcasts covering the municipality’s area Legislative Overview: Version 1 November 2003

Any notification must be in the official languages determined by council with regard to language preferences and usage in the area A copy of each notice published in the Provincial Gazette, media or legislation must be displayed at the municipal offices When the local community is invited to submit written comments or representations, it must be stated in the invitation that assistance will be provided to transcribe comments or representations Legislative Overview: Version 1 November 2003

All documents that must be made public in terms of the MSA, the MFMA or other legislation, must be conveyed to the local community - by display at the municipality's head and satellite offices and libraries by display on the municipality's official website by notifying the local community where detailed particulars can be obtained If appropriate, any notification must invite the local community to submit written comments or representations Legislative Overview: Version 1 November 2003

IMPLEMENTING S78 DECISIONS

Implementing S78 Decisions
When implementing an internal mechanism: Must make the necessary human, financial and other resources available, and transform the provision of services in accordance with the Municipal Systems Act When implementing an external mechanism: Consider municipal responsibilities Consider procurement Service delivery agreements Legislative Overview: Version 1 November 2003

External Mechanism: Municipal Responsibilities
The municipality: remains responsible for ensuring that the service is provided to the local community must regulate the provision of the service must monitor and assess the implementation of SDA (including the performance of the service provider/s) Legislative Overview: Version 1 November 2003

The municipality must also: perform its functions and exercise its powers in terms of the IDP & performance management if the municipal service falls within IDP development priorities Control the setting and adjustment of tariffs within the tariff policy determined by the municipal council Legislative Overview: Version 1 November 2003

The municipality must exercise its authority to ensure uninterrupted service delivery The SDA must ensure continuity of the service if the service provider is unable to continue performing its functions The municipality must, where applicable, take over the municipal service, including all assets, when the service delivery agreement expires or is terminated Legislative Overview: Version 1 November 2003

PROCUREMENT, NEGOTIATION AND CONCLUDING SERVICE DELIVERY AGREEMENTS

Type of Procurement Where a municipal entity, another municipality, or an organ of state is selected: No competitive procurement is required The municipality may negotiate and enter into a SDA The SDA must include matters provided for in S81 of MSA and regulations made under S19 of Water Services Act Legislative Overview: Version 1 November 2003

Type of Procurement Before entering into an agreement:
Municipal entity: may be established after assessment and consultation requirements are met Another municipality: a feasibility study must be conducted Organ of state: inform National Treasury and obtain DWAF approval The community must be consulted and informed on the contents and implications of agreements Legislative Overview: Version 1 November 2003

Type of Procurement Where any other entity (private sector, NGO or CBO) is selected: MFMA PPP requirements to be met (feasibility study and consultation requirements) prior to procurement Competitive procurement required prior to negotiation of SDA MSA S83 applies MFMA supply chain management provisions apply Legislative Overview: Version 1 November 2003

Competitive Procurement: S83 of the MSA
Selection processes must – comply with MFMA supply chain management allow all prospective service providers to have equal and simultaneous access to information relevant to the bidding process minimise the possibility of fraud and corruption make the municipality accountable to the local community on progress with selecting service provider and the reasons for any decisions take into account the need to promote the empowerment of small and emerging enterprises Legislative Overview: Version 1 November 2003

A municipality may determine a preference for categories of service providers to advance the interest of persons disadvantaged by unfair discrimination in accordance with the Preferential Procurement Policy Framework Act Such preference may not compromise or limit the quality, coverage, cost and developmental impact of the services Legislative Overview: Version 1 November 2003

The selection process must be fair, equitable, transparent, cost-effective and competitive, and as provided for in other applicable national legislation In selecting a service provider, the criteria listed in section 78 as well as any preference for categories of service providers, must be applied Legislative Overview: Version 1 November 2003

MFMA: Supply Chain Management
Applies to the selection of external mechanisms (other than another organ of state) for the provision of municipal services Must be read with sections of the Act on the disposal of capital assets Municipality and each municipal entity must have and implement a supply chain management policy which gives effect to the provisions of the Act Legislative Overview: Version 1 November 2003

MFMA: Supply Chain Management
The supply chain management policy of a municipality or municipal entity must be fair, equitable, transparent, competitive and cost effective, comply with a prescribed regulatory framework and provide for specified matters Councillors may not be members of tender committees Legislative Overview: Version 1 November 2003

Negotiating the SDA with the Preferred Bidder/s
After selecting a prospective service provider, the municipality must negotiate the final SDA on the basis of the bidding documents, any addenda, amendments or variations provided to all the bidders The community to be consulted and informed on contents of the agreement Must enter into such an agreement on terms and conditions specified in the bidding documents, as modified or supplemented in the negotiations (modifications may not compromise the integrity of the bidding process) Legislative Overview: Version 1 November 2003

Negotiating the SDA with Preferred Bidder/s
The SDA must include matters provided for in S81 of MSA and regulations made under S19 of Water Services Act If municipality and selected service provider fail to reach agreement within a reasonable time, the municipality may negotiate with the next-ranked service provider Legislative Overview: Version 1 November 2003

Negotiating the SDA with Preferred Bidder/s
On concluding the SDA, the municipality must: make copies of the agreement available at its offices for public inspection give notice in the media of: particulars of service that will be provided under the agreement the name of the selected service provider; and the place and the period for which copies of the SDA are available for public inspection Legislative Overview: Version 1 November 2003

Contracts having future budgetary implications (more than 2 years)
A municipality may enter into a contract which will impose financial obligations on the municipality beyond a budget year If this is the case, it may only do so if, prior to the meeting of the council at which the contract is to be approved, it has… Legislative Overview: Version 1 November 2003

Contracts having future budgetary implications (cont.)
made the draft contract and information statement summarising the municipality’s obligations public invited the local community and other interested persons to submit comments or representations in respect of the proposed contract solicited the views and recommendations of the National Treasury, DPLG and DWAF if the contract involves the provision of water Legislative Overview: Version 1 November 2003

and taken into account— the municipality’s projected financial obligations in terms of the proposed contract for each financial year covered by the contract; the impact of those financial obligations on the municipality’s future municipal tariffs and revenue; any comments or representations on the proposed contract received from the local community and other interested persons; and any written views and recommendations on the proposed contract by the NT, DPLG and DWAF Legislative Overview: Version 1 November 2003

and has adopted a resolution in which — it determines that the municipality will secure a significant capital investment or will derive a significant financial economic or financial benefit from the contract; it approves the entire contract exactly as it is to be executed; and it authorises the municipal manager to sign the contract on behalf of the municipality Legislative Overview: Version 1 November 2003

Contracts having future budgetary implications
The process does not apply to - contracts for long-term debt regulated elsewhere in MFMB employment contracts contracts for categories of goods as may be prescribed Legislative Overview: Version 1 November 2003

Contracts having future budgetary implications
The process also does not apply to - Contracts in terms of which the financial obligation on the municipality is below - a prescribed value; or a prescribed percentage of the municipality’s approved budget for the year in which the contract is concluded Legislative Overview: Version 1 November 2003

Thank You

LEGISLATIVE OVERVIEW November 2003

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LEGISLATIVE OVERVIEW November 2003

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