1. EPWP INFRASTRUCTURE PERFORMANCE INCENTIVE GRANTS TO PROVINCES AND MUNICIPALITIES Standing Committee on Appropriations and Portfolio Committee on Public Works National Assembly 11 OCTOBER 2011 Presented by: National Treasury

2. Contents How the incentive works Provincial performance incentive Provincial overall infrastructure budgets and spending Municipal performance incentive Municipal overall infrastructure budgets and spending National Treasury support wrt to infrastructure delivery Options for revising the 2 performance incentive grants

3. How the performance incentive works 3 The actual amount of the incentive is quite small wrt to the total upfront budgets in the public bodies for infrastructure (see later slides) The allocation in the DORA is indicative and is only accessed after the public body has created the target number of jobs and reported on them

4. EPWP Performance Incentive grants to Provinces – 2010/11 4 In the table for 2010/11, KZN & LMP have performed well, and then MP & EC Although the disbursement percentage (55.1%) is lower than in 2009/10 (69.4%), it must be noted that 7 provinces accessed the grant, improving on only 2 (EC & KZN) in 2009/10. Currently, as at 31 August 2011, only 4 provinces (EC, KZN, LIM & MP) have accessed the incentive.

5. Provincial Roads Infrastructure Spending Trends: Year/Year 5 Total Expenditure in 2010/11: R14,1 billion Most provinces spent their budgets (over 70%) in both 2009/10 and 2010/11 The question is then - Why don’t they access the performance incentive?

6. Provincial Education Infrastructure Spending Trends: Year/Year 6 Total expenditure in 2010/11: R5.9 billion Most provinces spend close to 100% of their budgets in 2009/10 In 2010/11, only EC and GT spend less than 70% of their budgets The question is then - why don’t they access the performance incentive?

7. Provincial Health Infrastructure Spending Trends: Year/Year 7 Total expenditure in 2010/11: R6.4 billion Most provinces spend over 70% their budgets in 2009/10, except FS In 2010/11, only EC, FS and GT spend less than 70% of their budgets The question is then - why don’t they access the performance incentive?

8. Maintenance expenditure & budgeting trends (1) 8 The scope for EPWP job creation is greatest using maintenance budgets So with total exp in 2010/11 of R5.5b – why do they not access the performance incentive grant

9. 9 Maintenance expenditure & budgeting trends (2)

10. 10 Maintenance expenditure & budgeting trends (3)

11. Provincial issues There are several issues that appear to affect the accessing of the performance incentive: –Not using labour intensive methods in construction –Not sufficient investment in the “right type” of infrastructure activities, in particular maintenance of existing infrastructure assets (which is more labour-intensive by nature); –Reporting of job creation data on the EPWP system –Correct understanding of how the performance incentive works –Possibility that the effort to access the small amount in the incentive grant relative to total infrastructure budgets (R331 million vs. R34 billion) is not an incentive at all Not all provinces have an institutionalised programme for EPWP within each province like the Zibambele programme in KZN in their roads sector The potential of infrastructure maintenance activities in other departments like Education and Health is also not being exploited. 11

12. EPWP Incentive to municipalities – 2010/11 12 Muni’s in GT accessing 79% of their indicative allocation (driven by JHB metro), followed by muni’s in NW, LMP,EC and KZN As with provinces more muni’s accessed the incentive grant in 2010/11 than in 2009/10

13. MUNICIPALITIES Over / under spending of adjusted capital budgets – 2010/11 13 Best performing : Municipalities in Gauteng, KZN and Western Cape Worst performing : Municipalities in North West and Limpopo

14. BROAD OBSERVATIONS ‘June Spike’ in municipal capital spending Reflects poor planning and slow implementation 2010/11 spending generally lower than 2009/10

15. Municipal Infrastructure Grant 15 Total Expenditure in 2010/11: R7.7 billion Most muni’s in provinces spent their budgets (over 70%) except in KZN & MP The question is then - Why don’t they access the performance incentive?

16. Local Government issues Similar to that of provinces –Not using labour intensive methods in construction –Not sufficient investment in the “right type” of infrastructure activities, in particular maintenance of existing infrastructure assets (which is more labour-intensive by nature); –Reporting of job creation data on the EPWP system –Correct understanding of how the performance incentive works –Possibility that the effort to access the small in the incentive grant relative to total infrastructure budgets (R623 million vs. R52 billion) is not an incentive at all Providing support for better planning may improve the performance in the LG sector especially in rural municipalities As stated at the tabling of the 2011 DoRB conditional grant allocations to local government are being re-configured to increase differentiation between rural and urban municipalities. This presents a major opportunity in respect of the EPWP programme (for instance, the Rural Transport Infrastructure & Systems Grant will pay for the development or purchase of data systems in rural municipalities that can be used to accurately plan maintenance and upgrading activities that are labour intensive) 16

17. Support provided by NT to provinces and municipalities wrt to improving infrastructure delivery PROVINCES: –Rollout of phase 3 of IDIP. This includes an HR strategy that will deal with competency issues for infrastructure practitioners. –Deployment of TAs to every province and the national departments of Health and Education –The Provincial Roads Maintenance grant has created opportunities for further job creation through an emphasis on maintenance and the refurbishment/ building of access roads to rural hospitals, clinics and schools MUNICIPALITIES –Restructuring of the Siyenza Manje Programme –Differentiation of funding between large cities/towns and rural municipalities –Opportunities presented by the Rural Transport Infrastructure grant –Other technical support initiatives provided by the IDC and the DBSA

18. Possible options for revising these incentive grants Based on the performance of these grants, the following options could be considered: 1.Add these grants to existing infrastructure grants to provinces (Provincial Road Maintenance Grant on the Transport vote) and to municipalities (Municipal Infrastructure Grant on the DCoG vote) and have these depts provide the support required 2.Maintain the grants with minor changes (revise eligibility criteria & targets) and provide more support to provinces and municipalities to spend on infrastructure in general with different approaches for slower spending provinces and municipalities 3.Change the grants from schedule 8 to schedule 5 with allocation based on past performance etc. More detailed work needs to be done on all the options (as is required by the DORA) such as identifying the advantages and disadvantages of each option before a final decision should be taken.