1. DCOG’s Comments regarding underperformance of Rural Household Infrastructure Grant Standing Committee on Appropriations Friday, 17 August 2012

2. Outline of the presentation Introduction Current Grants by sector Challenges of multiple grants administered by individual sectors Principles to guide the grant system Comparison of the water and sanitation grant between 2001 and 2007 vs impact made Proposals

3. Introduction Over the period 2004 to date there are various sector grants that have been introduced most of which have a bearing in the municipal space Some of these grants have been seen to have the same purpose but very fragmented in their application The table below illustrate some of the grants administered in different sectors is

4. Grants per sector Name of subsidy scheme Sector and type of finance PurposeResponsible department Municipal Infrastructure Grant (MIG) Conditional transfer to local government for capital works required to provide basic infrastructure to the poor. It is used for water supply, sanitation, roads, landfill sites, municipal public services and, to a limited extent, for infrastructure for business properties. COGTA Public Transport Infrastructure and Systems Grant A new, conditional grant intended for capital works associated with public transport infrastructure and systems. Local government and provinces? Funds transferred based on application by municipalities for specific projects. Department of Transport Integrated housing and human settlement development subsidy Conditional grant to provinces for housing, intended to cover capital cost of providing housing. Subsidy intended for land, internal infrastructure associated with housing developments, and ‘top structure’. Human Settlement

5. Grants per sector Rail subsidy Amount paid annually to SARCC to cover large proportion of costs of the national commuter rail system. Subsidy paid to SARCC which uses part of it to cover capital expenditure on infrastructure and rolling stock. Department of Transport Integrated National Electrification Programme (INEP) Municipal Conditional grant to municipalities To implement the NEP by providing capital subsidies to municipalities to address electrification backlogs.of Department of Energy National Electrification Programme (NEP) Eskom Conditional grant to municipalities via ESKOM To implement the NEP by providing capital subsidies to Eskom to address electrification backlogs Department of Energy Neighborhood Development Grant Allocated to municipalities directly or indirectly Creation of viable and sustainable neighborhood National Treasury

6. Grants per sector EPWP incentive grant Allocated to municipalities that perform in creating job opportunities Incentivize municipalities to meet targets regarding creation of job opportunities Public works Regional Bulk Infrastructure Allocated to municipalities that meet the criteria Creation of regional bulk water infrastructure to support reticulation of water infrastructure Water Affairs Rural households infrastructure Grant It is allocated to HS to focus on sanitation to houses built in rural areas Human Settlement

7. Rationale for RHIG while there is MIG not clear The introduction of new grants that are administered by Sector Departments and with similar roles negate collaborative efforts This includes grants such as RBIG, neighborhood, rural sanitation, rural transport, incentive grants, etc. New sector administered grants cause sectors to concentrate on the grants they are managing, Sector department’s role in local government cannot be limited to the administration of grants. Sector departments determines sector policies and perform regulatory functions. This will includes setting of norms and standards Municipalities should be strengthened and supported to deal with their mandate The support should include resourcing this sphere so that it delivers services. Disintegrating funding resources does not assist the sector to realize its mandate

8. Challenges Multiple grants requires multiple reporting system and municipalities suffer the most There is disjuncture on coordination regarding the roles of national transferring officers Each grant will have the different norms and standards thus further confusing municipalities Some of these not coordinated with municipal planning

9. Principles that should guide changing the grant system What were the reforms that have happened over the last 10 years? Challenges that have been identified fully understood by all (The common understanding amongst stakeholders should initially be found to avoid different interpretations) The time taken to adapt to the new system Lessons learned from other grants systems, both positive and negative Have sectors fully performed their monitoring role regarding their norms and standards The introduction of grant(s) should be done with care and should consider systems that need to be introduced to implement same

10. Introduction of RHIG Rural households infrastructure Grant was introduced on assumption that rural infrastructure is not adequately funded- this is true, the problem is what must be done for the grant to perform optimally? For example MIG was introduced as funding biased towards rural households to address RDP service level standards Furthermore, the grant was introduced on assumption that municipalities have not been progressing regarding rural backlog eradication However, comparing Census 2001 and 2007 community survey, it is clear that municipalities have addressed 48 percent of water backlogs while they have addressed 71 percent of sanitation backlogs. The following table provides comparison of census 2001 and 2007 community household survey

11. Comparison of Census 2001 and 2007 Community Survey – Rural Municipalities Name of Municipality Water 2001 Backlog Water 2007 Backlog Backlog Impact Sanitation 2001 Backlog 2007 Backlog Backlog Impact Amatole 194,871 108,683 86,188 238,836 119,231 119,605 Chris Hani 102,041 49,745 52,296 130,035 73,297 56,738 Ukhahlanba 49,993 32,150 17,843 66,490 25,015 41,475 OR Tambo 284,161 229,318 54,843 291,481 146,707 144,774 Ugu 101,583 48,821 52,762 98,064 13,797 84,267 Zululand 89,209 73,109 16,100 100,790 39,438 61,352 Umkhanyakube 76,885 48,288 28,597 79,412 45,989 33,423 uThungulu 95,032 46,126 48,906 109,570 41,144 68,426 Ilembe 71,760 38,104 33,656 76,804 15,067 61,737 Ehlanzeni 133,195 38,344 94,851 218,431 49,576 168,855 Mopani 100,829 31,569 69,260 183,819 59,690 124,129 Vhembe 110,016 22,975 87,041 213,258 42,791 170,467 Capricorn 114,424 48,260 66,164 189,602 24,844 164,758 Waterberg 50,946 19,447 31,499 88,135 8,036 80,099 Bojanla Platinum 106,786 40,720 66,066 203,772 16,788 186,984 Central Distric 70,217 33,562 36,655 104,912 18,340 86,572 Sekhukhune 126,776 76,878 49,898 165,724 14,767 150,957 Total 1,878,722 986,099 892,623 2,559,134 754,517 1,804,617

12. NEW GRANTS ARE COSTLY DUE TO TIME IT TAKES BEFORE THE GRANT CAN PERFORM RHIG was introduced at the time when MIG was maturing- was the timing right? This is a very important principle, particularly when considering changes to infrastructure programmes such as MIG. The MIG programme was implemented gradually to municipalities depending on various capacities. It was fully given to all municipalities in the 2007/08 financial year by incorporating all the low capacity municipalities New infrastructure programmes may take a minimum of three-years before they perform. Government needs a lot of financial resources to service delivery activities. Changes that may need further capacity funding e.g. programme management funding for the new implementation system should be avoided with all costs.

13. WAYFORWARD REGARDING THE RHIG The 2014/15 baseline allocation for RHIG is incorporated within the MIG This is the appropriate solution since MIG has matured systems for the funds to be spent However, consideration may need to be made not to allocate the rural infrastructure through the MIG formula The funds should be allocated separately and be added to those municipalities that are experiencing huge backlogs RHIG should therefore be prioritised for the 21 district municipalities that are Water Services Authorities outside the MIG formula. This initiative is proposed as part of the differentiated approach in financing rural municipalities. MISA (introduced as a government component) will offer best solution as it has taken over from Siyenza manje from DBSA without introducing new systems