1. Presentation to the Standing Committee on Appropriations on EPWP Revised Incentive Grant Model 14th February 2012 1

2. 2 Content of the Presentation Background on EPWP Phase II Background on the EPWP Incentives Recommendations from a review of the Schedule 8 Grant Summary of the new EPWP Conditional Grant Explaining the new EPWP Grant Model ─Eligibility criteria ─Determining the Grant Allocation  Cost of work to be created  Adjusting for potential and need  Special Considerations for poor, impoverished areas ─Mainstreaming EPWP in existing planning processes ─Disbursement ─Technical Support Programme ─Monitoring and Reporting Reflecting on the differences and advantages between the old and new grant

3. 3 Background on EPWP Phase II EPWP Phase I was successful in creating more than 1 million work opportunities over 5 years however the scale of unemployment and poverty being experienced by South Africa required a much more large scale response to the problem EPWP was seen as an opportunity to address the social welfare gap on a larger scale than before Key Issues that needed to change in order to scale up in Phase II: 1.Make the creation of paid work the primary objective of EPWP 2.Locate clear political and administrative accountability for EPWP job creation targets across all spheres of government 3.Provide fiscal incentives to accelerate the scaling up of EPWP (allow incentive to be performance/demand driven) 4.Mainstream EPWP criteria & outputs with the core mandates and programmes of implementing public bodies 5.Mobilise non-state capacity to deliver additional EPWP work opportunities 6.Technical Support to spheres, sectors and implementing bodies

4. 1. A wage subsidy2. Expansion Incentive3. Performance based incentive Provided to existing non- government organization who: ₋ already create work for poor communities ₋ have programmes that can be expanded in terms of size, reach and coverage ₋ are able to secure funding for all other programme related costs ₋ Involves the payment of a minimum daily wage ate for very day of work created Pays all wages (monthly) as work is created Applied to the non-state sector (NPO pilot & CWP) Provided to existing performing government programmes: ₋ that have a performance track record and have met a high performance criteria ₋ that have the potential to immediately expand due to demand ₋ that have the capacity to manage expansion ₋ that has capable implementers ₋ where all operational/management costs (funds small % of operations) Incentive is dedicated to expansion costs (funds small % of operations) Targets attached incentives efficiencies in job creation Applies to national E&C and SocSec government programmes Provided to provincial and municipal public bodies who participate in EPWP: Allocation is based on how many jobs can be created with funds already being received by prov depts/ munis through grants Provided in the form of a performance bonus ₋ performance is counted as the number of days of work created ₋ performance each quarter is assessed ₋ a quarterly reward is earned ₋ reward = min daily wage ₋ once the ‘reward’ is paid, it can be used for job creation in any programme/area Provided as an incentive to provincial and local government Background on EPWP Incentives Public Works set out to pilot a number of funding models:

5. 5 Experience in implementing all EPWP Incentives

6. 6 Recommendations for Improvement Recommendations for an improved, simplified EPWP grant included: Take special cognisance of small and rural municipalities and other public bodies with smaller MIG/IGP allocations or limited funding, but have the potential to contribute to job creation Attempt to directly incentivise/implement increased labour intensity Allow for an easier flow of funds to kick start job creation Provide more certainty in the allocation to ease appropriation difficulties Seek to have a greater oversight in the incentive being spent to further increase job creation Address the issue of public bodies not earning their allocations Enhance ‘packaged’ technical support to public bodies, particularly small and rural municipalities Suggested the need for special considerations for this category Suggested the need for a more structured Technical Support Programme Suggested the need for more structured planning & oversight in EPWP project selection Suggested changing how the appropriation works Suggested the need to link the grant to LI

7. 7 New EPWP Conditional Grant (1 of 10) The intention of the new EPWP Conditional Grant is: To provide EPWP funding to expand job creation efforts in specific focus areas, where labour intensive delivery methods can be maximised. This essentially means that: There is a stream of additional funding aimed at expanding or funding unfunded labour intensive projects EPWP Planning will be mainstreamed into existing planning process EPWP projects will be reviewed and identification where labour intensive design support will be done. Specific focus (service) areas where labour intensive delivery methods have proven to be successful will be targeted. Key focus areas can easily be identified in IDPs and funded. To be eligible for the EPWP Grant, the only criteria is that a public body must currently be participating in EPWP and reporting performance. To be eligible, a public body must have reported to Public Works past EPWP performance, i.e. performance of the prior year or the current year’s performance to date, by 22 October 2011. Public bodies can have reported EPWP performance in any sector to be eligible for an allocation. Indicative count is that 254 municipalities and 70 provincial departments have reported in at least one sector and will be eligible

8. 8 New EPWP Conditional Grant (2 of 10) Basis for determining the EPWP Grant Allocation Past performance in terms of the work created and reported“About Performance” Achieved labour intensity (how much benefit goes to workers) What they are already doing in EPWP (whether they are implementing projects in more than one sector) The potential to create work with the budgets they already have“About Potential” The need for work in an area (factor to indicate levels of unemployment and/or poverty) “About Need” The need to identify and address the special needs of small poor rural municipalities The next few slides illustrate how the above basis is applied.

9. 9 New EPWP Conditional Grant (3 of 10) Methodology for determining the EPWP Grant Allocation Firstly, The model starts from the basis of past performance and estimates from the minimum cost of the jobs created by the public body in the past year This minimum cost represents the possible grant allocation But, the public body will not necessarily receive the exact cost of work created in the past year – they could receive more or less depending on their potential to create work and the imperative to inject funding into poorer areas. So secondly, The model works out how much of the “possible grant allocation” a public body can “earn” by applying an adjustment factor for potential, need and special considerations for poor areas. What does the adjustment factor consider? The level of unemployment or poverty in an area The potential number of jobs that can be created from existing budget allocations (only applied to those who have MIG/IGP/USDG etc and 30% of these are expected to be EPWP specific; the rest will likely focus on bulk infrastructure) Public bodies using a large portion of their project budgets for wages (high labour intensity) Cost of work created = Number of days of work created X minimum EPWP wage (R63.18 per person day of work) 1 1

10. 10 New EPWP Conditional Grant (4 of 10) Whether the municipality is implementing EPWP projects in more than one EPWP sector: There are specific focus areas where labour intensive delivery methods can be applied in both the infrastructure and environment and culture sector; and DPW wants to encourage municipalities to pursue and implement programmes/projects in these areas in both sectors. Whether the municipality is classified as part of the special dispensation created for poor, rural municipalities ─There are a number of sources being explored to identify this special category of municipalities, including ─Using the CRDP nodes ─Using the list of un/under-services areas from the Local Government Turn Around Strategy(LGTAS) ─Using the categorisation framework to be applied by DCoG’s MISA, that categorises municipalities by the following characteristics  socio-demographic conditions  service backlogs, infrastructure and maintenance needs  technical delivery capacity  economic status (low income base) ─The municipalities in this category will be mainly rural municipalities. This special category of municipalities will ─receive higher grant funding ─receive a capacity supplement ─be able to access a focussed technical programme for design, planning, implementation and reporting support Eg. If we used MISA’s categorisation framework, 85 municipalities that are eligible would be classified under this special dispensation

11. 11 New EPWP Conditional Grant (5 of 10) The minimum allocation will be R1,000,000. Any allocation below this, will be adjusted upwards. Once the EPWP Conditional Grant Allocation is determined, EPWP will set job creation targets for the grant amount. Adjustment Factor based on potential, need and special considerations for poor areas 2 2 FINAL GRANT ALLOCATION = MINIMUM FTE COST X ADJUSTMENT FACTOR 1 1 2 2

12. 12 New EPWP Conditional Grant (6 of 10) EPWP Planning Given that there are existing processes for development and infrastructure planning at provincial and municipal levels, DPW will provide support public bodies to mainstream job creation and EPWP principles. DPW will also actively support planning and simplify the planning requirement of a normal schedule 5/6 grant. Overall, DPW will communicate to stakeholders that any plan for projects identified as a labour intensive projects or part of the EPWP focus areas, should contain certain information (required by EPWP) ─This will provide clarity regarding what is a labour intensive project ─This will encourage public bodies to think about job creation in the planning phases ─This will get public bodies using existing plans to include job creation implications DPW will support the mainstreaming of EPWP ─DPW will negotiate with national departments (Roads, Education, Health, DCoG, Human Settlements, Agriculture) to include the required EPWP information fields in their normal grant plans ─The EPWP team will extract EPWP project information from the relevant databases to compile draft project lists for public bodies ─These project lists will be analysed by DPW to assess whether public bodies are able to meet their targets ─This pre-completed project list will be sent to public bodies for further detail where there are gaps; for the inclusion of new projects and signature.

13. 13 New EPWP Conditional Grant (7 of 10) Guiding EPWP Planning To guide funding, DPW has identified focus areas for the grant where labour intensive delivery methods work best DPW will provide a Project Selection Criteria to assist public bodies to identify EPWP projects to be funded through the grant: Compliance with the Ministerial Determination and EPWP Guidelines on Labour Intensive Construction Projects to pay a minimum wage of R63.18 per person day of work to the EPWP target group For both sectors, projects must create a minimum of 6.6 full time equivalent jobs (or 1610 person days of work) for every Rand million of the project budget. SectorFocus Area Infrastructure Sector  Road maintenance and the maintenance of buildings  low traffic volume roads and rural roads  basic services infrastructure, including water and sewer reticulation, sanitation, pipelines and dams (excluding bulk infrastructure)  other economic and social infrastructure Environment and Culture Sector  tourism and cultural industries  waste management  parks and beautification  sustainable land based livelihoods.

14. 14 New EPWP Conditional Grant (8 of 10) Technical Support Programme The National Department of Public Works will provide technical support in the following areas as required or agreed with Public bodies: Planning support ─assisting public bodies to identify suitable EPWP projects and programmes ─assisting public bodies to develop plans to meet targets Project design support ─assisting public bodies in the design of projects and programmes ─advising on contract documentation details and the alignment of procurement processes to facilitate EPWP implementation Implementation support ─reviewing the progress of public bodies, including reviewing site visit reports and performance information ─identifying and understanding blockages to implementation and developing innovative methodologies for resolving them ─identification of training needs for projects selected and the facilitation of procuring such training. Reporting support ─this focuses on supporting public bodies to develop effective management information systems and processes ─assistance in ensuring that reporting is done on EPWP projects implemented. General support usually deals with creating enabling conditions for the implementation of EPWP projects.

15. 15 New EPWP Conditional Grant (9 of 10) Technical Support Programme The National Department Public Works will do the following: Develop and implement a structured Technical Support Programme Focus technical support, with small rural municipalities being the priority Focus on replicating and supporting the implementation of labour intensive projects in specific areas Either mainstream reporting support or re-think the manner in which this support is currently being provided wherein it absorbs a significant amount of resources. Type of Support to be provided to different categories of public bodies Category of SupportPublic bodies who will receive the support Provincial E&C Departments Provincial Infrastructure Departments MetrosSmall Rural Municipalities Other Municipalities Planning supportYes Project design supportYes Implementation supportYes Reporting supportYes Other general supportWhen applicable or requested

16. 16 New EPWP Conditional Grant (10 of 10) Monitoring and Reporting Reporting will continue to occur via EPWP's reporting system. This will be enhanced to distinctly report, ─progress on implementing projects and creating work with existing budget allocations, and ─progress in utilising the incentive (whether this is used in supplementing, complementing or leveraging existing projects or implementing new ones) to create work towards its Grant FTE Target. In addition, there will be validation of financial data, in particular expenditure and wage data, with existing reports EPWP will make efforts to simplify the reporting process by ─Negotiating with other partners involved in implementation and expenditure monitoring to include EPWP information fields in existing reports - eg. Negotiating with Treasury to include in their IYM a distinct reporting line item for expenditure on the grant; and simplifying the quarterly reporting on the grant with National Treasury to occur solely through the existing EPWP reporting system and not duplicating reporting ─Investigating the possibility of linking to existing systems or uploading certain data from existing systems to relieve the burden on public bodies of re-capturing this information. Disbursement of the EPWP allocation will now take place in the manner that normal schedule 5/6 grants do. It is anticipated that: 50% of the allocation will be disbursed at the beginning of the financial year upon the approval of the public body's EPWP business plan by Public Works A further 1-2 payments will take place, provided the public body is implementing its EPWP projects and spending its initial 50% towards its job creation targets.

17. Differences between the old and new grant Model Element Old Schedule 8 Incentive ModelNew Improved, Simplified Schedule 5/6 Grant Incentive Allocation Method of Allocation: ─Incentive Allocation is regarded as indicative only ─Schedule 8 incentive is still to be earned in-year Method of Allocation: ─Incentive Allocation is regarded as certain ─Similar to a Schedule 5/6 allocation EPWP Planning Planning ─Public bodies plan in their normal planning processes the number of jobs to be created from existing budget allocations to earn the incentive Planning ─Planning for job creation to be mainstreamed within existing planning processes ─DPW to implement “assisted, simplified EPWP planning” ─DPW to provide active support to determine EPWP project lists ─DPW to guide planning by setting out:  Focus areas  Project selection criteria  EPWP Guidelines ─Project lists will generally include:  Nature of the project  Its service delivery outputs and job creation outputs planned  Project budget Red writing shows differences in the two models.

18. Differences between the old and new grant Model ElementOld Schedule 8 Incentive ModelNew Improved, Simplified Schedule 5/6 Grant Determining Job Creation Targets Determined by: ─Applying a Threshold FTE factor to MIG/IGP to get a threshold (floor) ─Applying a Performance FTE factor to MIG/IGP to get a ceiling target ─Adjusting the ceiling target depending on performance of the previous year Performance against the final FTE target is assessed quarterly to determine the incentive amount earned and paid out Set a FTE target for the grant, based on ─Wage rate assumed at EPWP minimum ─Performance against the grant target will be assessed to inform further disbursements to ensure the public body is implementing its project list or business plan Performance against the baseline target + grant target will be assessed annually to inform the following year's grant allocation Basis of Disbursement Paid based on quarterly performance (number of jobs created above the threshold) FTE Reward = R60 per day of work created 40% paid at the beginning of the year on approval of the public body's EPWP business plan A further 1-2 payments will take place, provided the public body is implementing its EPWP projects and spending its initial 40% towards its job creation targets. ReportingReported EPWP performance determines the incentive earned and paid out EPWP performance is counted against the FTE Target (based on MIG & past performance)  Reporting via the EPWP MIS supported by DPW Reporting via the EPWP MIS supported by DPW Implementation progress, actual work created and spending will be monitored quarterly Red writing shows differences in the two models.

19. Differences between the old and new grant Schedule 8Schedule 5/6 Tries to make the most of current funding To get in (eligible) - just report Amount disbursed has a clear basis Public bodies get more as they perform higher Requires reporting (easy for DPW) Current reporting systems are easily applied Planning is simple Will ensure maximum potential for small poor municipalities to participate Allows DPW oversight to plan what the allocation is used for - with a concentration on labour intensive work Makes appropriation simpler for treasuries Funds are allocated and received consistently during the year Allows for reporting through treasuries (greater transparency regarding EPWP)

20. 20 Summary of the new EPWP Conditional Grant The new EPWP Conditional Grant will operate similarly to a normal schedule 5/6 grant. The intention of the new EPWP Conditional Grant is: To provide EPWP funding to expand job creation efforts in specific focus areas, where labour intensive delivery methods can be maximised. The EPWP Grant Allocation will be determined by taking into consideration: past performance, the potential to create work, and the need to inject employment opportunities and funding into poor rural areas. Public bodies will need to mainstream EPWP into their existing planning processes; and plan to use the grant in line with the criteria set by DPW to maximise job creation. There will be a special focus on supporting poor, rural municipalities. A structured Technical Support Programme will identify, structure and agree support with public bodies, but will aim to prioritise support to those municipalities part of the special dispensation. Reporting will continue as it does now, with enhancements to the report to ensure DPW reports on baseline performance and grant performance and spending. The disbursement of the EPWP Grant may occur in 2-3 payments: 5 0% of the allocation will be disbursed at the beginning of the financial year (22 May for provinces and 22 Aug for municipalities) the remaining 50% will be made in 1-2 payments during the year provided public bodies are implementing projects as planned.

21. 21 I THANK YOU