1. PRESENTATION TO THE PORTFOLIO COMMITTEE 07 MAY 2013 PROGRESS WITH REGARD TO THE RECOVERY OF DEBT OWED TO MUNICIPALITIES BY PROVINCIAL AND NATIONAL GOVERNMENT DEPARTMENTS

2. OVERVIEW OF THE PRESENTATION 1. Purpose 2. Summary 3. Status of government debt 4. Challenges 5. Intervention by Minister 6. Responses emanating from the intervention 7. Some observation made 8. Further actions proposed to strengthen intervention 9. Recommendation 2

3. PURPOSE To provide the Portfolio Committee on the status of government debt owed by provincial and national government departments to municipalities To report on progress and challenges experienced in the settlement of the long outstanding amounts. 3

4. EXECUTIVE SUMMARY The total outstanding debt owed to municipalities by national and provincial departments for the quarter ending 31 December 2012 is R4.5bn As at the end of September 2012 the debt was at R4.7bn There was a net reduction of debt by R250m The debt as at the end of December 2011 was R3.5bn As at the end of September 2011 the debt was at R3.9bn There was a debt reduction of R405m for the quarter Comparing the two quarters there has been a reduction in the debt recovered during September December 2012 and the same period in 2011. 4

5. WHAT IS THE STATUS OF GOVERNMENT DEBT PER PROVINCE: SEPTEMBER AND DECEMBER 2012 5

6. PROGRESS ON PAYMENT OF INTERGOVERNMENTAL DEBT When comparing September and December 2012, government debt has been reduced by R250 million There has been progress reported in all other provinces in debt recovery except for KZN, FS and NC Gauteng departments recorded the highest level of debt decrease ( at R171 million) Payment of debt between 61 and 90 days has increased but concern on debt over 90 days (R3.4 billion of the total debt of R4.5m recorded in December) The debt over 90 days seem to communicate a story that municipalities continue to charge interest on disputed accounts 6

7. GOVERNMENT DEBT AGE ANALYSIS ( SEPT- DEC 2012) 7

8. Debtor age analysis Current debt (between 1-30 days) has increased by R90.5m The debt (between 31-60 days) has reduced by R88m The debt (between 61-90 days) has been reduced by R492m This shows that the payment of debt by government departments is highest during this period Payment of debt over 90 days is proving a challenge as the debt has increased by R239.5m This might be attributed to disputed accounts as mentioned earlier in the presentation 8

9. CHALLENGES Municipalities still having problems in billing the correct institution which includes inconsistent billing, incorrect addresses resulting in the institutions not receiving the bill Some municipalities charging interest on disputed accounts. Absence of standard approach to handle transfer process between the department of Human Settlement and municipalities over completed housing project Some municipalities’ not reporting or submitting quarterly reports which results in understatement of the municipal debt which then portrays an increase in the next reporting period. 9

10. THE INTERVENTION BY THE MINISTER The Minister has written letters to the following MEC’s and copied to the relevant National Ministries: EC MEC for Health, Education, Public Works and Transport, Social Development FS MEC for Health and Public Works GP MEC’s for Infrastructure Development, Roads and Transport, Housing and Local Government and Health and Social Development WC MEC for Human Settlement, Education, Health and Provincial Public Works The department is conducting sessions on Local governance forum with all provinces In these forums the municipalities will be confirming what they are being owed and this information will be compared with the information submitted through s71 reports 10

11. RESPONSES RECEIVED Responses have been received from the following MECs Western Cape Human Settlement Western Cape Department of Education Gauteng Department of Health Gauteng Department of Roads and Transport The responses received show a significant difference to the information that is in the s71 reports. For example the response from the MEC for Human settlement in the Western Cape provides that the department has paid R45m to all municipalities, while the s71 report showed the it owes R18m. The MEC for Health in Gauteng indicates payment made to municipalities in Gauteng as at the end of February 2013 at R501m instead of the R146m as in the s71 reports The MEC for Roads and Transport in Gauteng has committed to settle the debt outstanding in April 2013 11

12. OBSERVATION EMANTING FROM RESPONSES RECEIVED The responses received thus far still point to the challenges already alluded to in the slide under challenges above The other matter that has been brought to the fore through responses is the authenticity of the s71 reports submitted to the National Treasury which point to two issues: Municipalities are not providing correct information through their s71 reports The time lag of the publication of the s71 report which comes three months after the actual date. (For example the figures of December 2012 comes out in March and in between other institutions might have settled their debt already) 12

13. Further Actions recommended by MinMEC of the 19 April 2013 Added to the current intervention by the Minister as referred to above the MinMEC recommended the following actions: MECs of COGTAs to follow up with their provincial counterparts re-letters sent by Minister MECs to also request for the item to be a standing item in the Premier Coordinating Forum The Minister to approach the Minister of Finance to deduct monies owed to municipalities. (only invoices that are not disputed) 13

14. RECOMMENDATION The Portfolio Committee to: Note the report and the intervention by the Minister and those recommended by the MinMEC 14