MFM BILL Chapters 10 and 11 External Mechanisms & Municipal Entities

Items for discussion Chapters 10 and 11: External mechanisms and Municipal Entities Specific clauses –s31 on LT contracts –s39A on project viability monitoring –s39 on increases by bulk suppliers Chapters 14, 15 and 16 Constitutional amendment process

Recent process with NT, DPLG, SALGA Three meetings over holiday period: –2 December –13 December –8 January Legal memorandum by Ashira consultants Agreement that not all forms of entity permitted by Systems Act are useful or wise

Process for final approval of MFM Bill Complete discussions this week on new clauses stated in previous slide Legal refinement and edit by Gerrit Grove Submission of legal final draft on 28 Jan Final consideration and approval 13 March Constitutional amendment Harmonisation of Systems and MFM Bill

Review of Service Delivery Mechanisms Internal Mechanisms –Departments, –business units, –Other External Mechanisms –See next slide Internal Service Districts Multi-Jurisdictional Service Districts

External Mechanisms for Service Delivery Municipal entity –See next slide Other municipality Organ of state CBO or NGO Other institution, entity, or person

Review of Municipal Entities Companies –Private companies –Public companies –Section 21 companies Co-operatives Trusts Funds Other corporate entity –Close corporations –Other national or provincial legislation Service utilities

Public Private Partnerships & Municipal Systems Act MSA: external mechanisms can only be used via “service delivery agreement” This would therefore include: –Management agreements –Franchises –Concessions –Leases –Build-operate-transfer schemes All of these can all be done without sharing ownership of an entity.

Municipal/Corporate entities Are we not making a BIG deal? THREE key issues to sort out 1. What purpose? Do we want municipalities to embark on business ventures (for non-municipal services)? Why is a separate juristic entity needed? 2. What vehicles do we allow for? Companies, trusts, co-operatives, service utilities etc 3. What ownership structure? Sole ownership or joint private or public (munis only or other organs of state)

Ownership of Entity No shared ownership with private sector –Municipality cannot be a minority shareholder when private sector is majority shareholder Hoops for shared ownership with other organs of state –Organs in national and provincial sphere –Pre-feasibility and Feasibility by municipality –Budget approval by both muni and organ of state –Approval by NT to ensure all budget approvals secured Few or no hoops on wholly-owned entities –Municipality can dissolve these, if need be

Types of municipal entities Common viewpoint of DPLG and NT Trusts, co-operatives, other corporate entities are not appropriate Companies - section 21 and public companies not appropriate, but private companies are Service utility –is a service utility not akin to internal mechanism? –Do we need a “Companies Act” for public entities?

Approach All current structures allowed for a reasonable time (max 5 years) [s 86(2)] Major review of Chap. 10 &11 in 2006 In the meantime, if a corporate entity is required and –it is not solely owned (inc if private sector has share); or –it is not of the allowed type; or –it is not for a municipal service Then NT can allow, subject to a prescribed framework

Promoting Accountability in Establishment Council must approve –Use of external mechanism [s 80 & 80A] –Service delivery agreement with mechanism [s 81] –Multi-year business plan of a muni entity [s 118B] Entity must annually prepare –Budget [s 117A] –Multi-year business plan [s 118, 118B]

Promoting Accountability in Operations Role of municipality [ss 92-93] –Requires balance between control and independence, requires clear channels of communication [s 92(f)] Role of entity and Board [s 96] –majority of Bd must be independent Entity financial management [s 102 et seq.] Twice yearly performance review for all external mechanisms [s 81(2)(e)] Annual financial statements of entity [s 126] –Council and auditor review [s 126, 127] –Approved w/ muni financial statements [ s 129]

Other issues Role of CEO as AO, and board as accounting authority?

Promoting Accountability in special situations Approval by council for capital asset disposal [s 94] and for debts Impending financial problems [ s111] Irregular, fruitless and wasteful expenditure [s 112] Interventions [s 92A(1)(d),(2) or s 93(1)(c),(2)]

Form of Entity - Issues Private companies –“private” in terms of Companies Act means shares are not available to general public –may be most appropriate of the existing ‘juristic persons’, but –are inherently imperfect because structured for commercial trade –Even with wholly owned entities, there are conflicts between director and municipality –With shared ownership, systemic conflicts are unavoidable

Form of Entity – issues cont’d Cooperatives –primarily for agriculture Business trusts –used for same purposes as companies, but –with fewer governance rules Funds –for pensions and medical aid schemes OK –in terms of existing legislation “Other corporate entities” –close corporations, which are inappropriate, or –New creatures of national or provincial legislation

Form of Entity – issues cont’d Public companies –“public” means that anyone can own shares –harder to retain ownership control –Widely distributed share ownership is undesirable Section 21 companies –Often used for non-profit municipal activities and/or economic development –Sometimes ‘members’ have been appointed individually –No real ‘owners’ –Winding-down problem with assets –Powers similar to those a municipality already has

Use of Entities - Issues MFM Bill prohibits: –municipalities creating entities which are not ‘municipal entities’ in terms of the definition –Municipal entities only for municipal services Systems Act: –Authorises many forms of ‘municipal entities’ –Need to amend if any of these forms are deemed inappropriate Rules do not vary if the entity is intended to be ‘profitable’ vs. being subsidised

A bespoke municipal entity? “Service utilities” –may ultimately be the best form, where a municipality wants a separate legal entity; –The term is a blank slate - can be custom crafted for municipal purposes, but –careful consideration should be given to governance, transparency and accountability rules –creditors or investors will not deal with unknown legal entity

Other issues Mid-year estimates and reports