Treasury orders Makana Municipality to pay back R60.7m in unspent infrastructure grants

Residents from Makhanda in the Eastern Cape, building their own longdrop toilet as they became tired of waiting for the municipality. (Photo: Deon Ferreira)

By Estelle Ellis

27 Nov 2023

The Makana Municipality, with its base in the crumbling town of Makhanda – where some residents still use the bucket system, water is only available on alternate days and the potholes are huge – has been ordered to pay back 83% of its unspent conditional grants.

The Makana Municipality, based in Makhanda, has been ordered to repay the government R60.7-million – 83% of its infrastructure grant provided for the past two years – after failing to spend the money.

The Public Service Accountability Monitor called it “shameful”.

Makhanda is a town with no permanent water provision, crumbling roads and poor sanitation. Not everyone has access to electricity. The government’s infrastructure grant is meant to be spent on fixing these things.

The order by National Treasury has also thrown the finances of the municipality into even more disarray than usual, as they do not have the cash reserves to comply. This raises the likelihood of the money being taken from the municipality’s equitable share transfer, which will impact their ability to pay salaries.

The Public Service Accountability Monitor, based at Rhodes University in Makhanda, has slammed this latest development.

In 2020, Makhanda residents, led by the Unemployed People’s Movement, town businesses and the Residents’ Association, won a groundbreaking case in the high court after a judge found the provision of services was so bad or non-existent that it was unconstitutional.

Judge Irma Stretch ruled that the council should be dissolved. However, Eastern Cape Premier Oscar Mabuyane appealed against this ruling and a settlement was reached in the Supreme Court of Appeal (SCA) that a financial recovery plan for the municipality would be implemented.

At the time of the appeal, the Unemployed People’s Movement called Mabuyane’s move “defending the indefensible”.

Read more in Daily Maverick: Unemployed People’s Movement ready for a fight as Makana to appeal against service delivery ruling

As part of the SCA settlement, the MEC for Cooperative Governance and Traditional Affairs was ordered to report back to a high court judge every three months on progress made with the financial recovery plan. It is not clear if this ever happened. On Monday evening, Daily Maverick was awaiting comment from the MEC, Zolile Williams, on the success of the recovery plan and details of his reports to the court.

Read more in Daily Maverick: Makana judgment appeal: ‘They are using taxpayers’ money to defend the indefensible’

Some Makhanda residents still use the bucket system due to a lack of sanitation infrastructure, Eastern Cape. (Photo: Deon Ferreira)

In a letter dated 8 November 2023, the deputy director-general of intergovernmental relations at National Treasury issued instructions for Makana Municipality to return R60.7-million in unspent conditional grant funds for the 2021/22 and 2022/23 financial years.

According to the letter, of this amount, Makana failed to spend R21.7-million of its municipal infrastructure grant (MIG) in 2021/22 and a similar amount, R22.7-million, in 2022/23. This is 83% of its total grant allocation.

A statement from the Public Service Accountability Monitor (PSAM) read: “There is … no question that this underspending has had major and adverse impacts on progress towards addressing Makana’s rapidly deteriorating infrastructure. Conditional grant funds are especially vital for ensuring priority service delivery issues are targeted as these funds are strictly ‘ring-fenced’.

“Such funds may not be utilised for purposes other than the criteria set out in the relevant conditional framework. And, where grants are not spent by the end of the quarter of each financial year, the Municipal Finance Management Act dictates that these funds must be surrendered to the National Revenue Fund.”

Potholes in the streets of Makhanda, Eastern Cape. (Photo: Deon Ferreira)

Read more in Daily Maverick: The filth and the fury: Desperate Makhanda residents obtain court order forcing municipality to clean up the town

The statement emphasises that the municipal infrastructure grant is the largest transfer to municipalities from the national government and is particularly important as it is intended to expand service delivery and alleviate poverty.

According to the 2021/22 budget, this money was earmarked for the upgrading of certain streets, refurbishment of wastewater treatment works, upgrade of a gravity sewer, and the upgrading of sports facilities and street lights.

“But with the bulk of the municipal infrastructure grant funding now having to be returned, it’s clear that most of what was planned has not materialised,” the PSAM statement continues.

In Makana’s 2022/23 draft budget, the municipality planned to spend the infrastructure grant on street upgrading, creating an infrastructure asset management plan, replacing pipes, purchasing a waste compactor and upgrading facilities in the Oval Stadium and Makana Way Phase 1.

“Again, with the need to refund the bulk of this grant, what was planned has not been nearly adequately achieved. It’s understandable then that communities become dismayed and express distrust towards elected representatives and public servants,” the PSAM statement continues.

“In the PSAM’s view, the National Treasury’s call for the repayment of R60-million in unspent conditional grant funding is the result of poor planning, reporting and consequence management at both the senior management and councillor level across Makana Municipality.

“Duty bearers and oversight actors alike have failed to adequately perform their responsibilities and support social and economic development. The PSAM has for instance considered Makana Council minutes where the Mayor raises concerns with, amongst others, outdated reports and frequent meeting delays.”

The Makana Local Municipality has not yet responded to the latest development, but in the previous financial year, they appealed the instruction that they must return the municipal infrastructure grant, claiming there was a “mistake” in their financial statements. They were given time to correct it but failed to do so.

Philip Machanick, the outgoing chairperson of the Makana Residents’ Association, said the underspending of the municipal infrastructure grants was “an absolute disgrace” and ongoing vigilance from residents was the only defence left to them.

He said where roads are being fixed in the town it is either being done through the President’s Social Employment Fund or by the national government – not by the municipality.

“They have a whole roads department and I can remember exactly two occasions where I saw them fixing potholes,” he said.

“The question that comes to my mind, though, is if they are sending back the grants, what other financial mismanagement is taking place?”

He said if one looked at the municipal audit, it appeared that the outgoing municipal manager at the time was trying to set a new record for how many points one could accumulate in a disclaimer.

Machanick said a financial recovery plan would only make sense if it was actively monitored, and while the residents’ association was a party to the application where the court order was made, they have not been informed of any updates or reports.

“I do think the grants, however, are only a small piece of the puzzle. Things are not very much under control here,” he said.

He said there was a mechanism where the Auditor-General could issue a certificate of debt to public officials for fruitless, wasteful expenditure, and added that this should be done in Makana.

“The last time I checked, the number of these certificates that were issued was exactly zero,” he added.

Read more in Daily Maverick: R400m later, Makhanda is still facing a catastrophic water crisis

Residents from Makhanda in the Eastern Cape build their own long-drop toilet as they give up on the municipality to deliver services. (Photo: Deon Ferreira)

The Democratic Alliance’s Frontier constituency leader, Kevin Mileham, and the party’s spokesperson for Cooperative Governance and Traditional Affairs, Dr Vicky Knoetze, said in a joint statement that the Makana Municipal Council must be dissolved.

“The correspondence [from National Treasury] makes it clear that it was sheer incompetence that led to the requirement from Treasury that the municipality repay the grants: it simply did not meet the time frame in which it was required to request the rollover.

“This, however, is typical of Makana, which is well known for its years of disclaimer audits and failure to report. Exacerbating the situation is the fact that the municipality does not have the financial reserves to be able to comply with this directive.

“The DA has repeatedly called for this municipality to be placed under administration and for forensic audits to be conducted to determine the root causes of its financial distress. These calls have largely fallen on deaf ears within the ANC.

“Most recently, a financial recovery plan was imposed on the municipality, but we have seen no evidence of its implementation, nor reports of what has been accomplished in terms thereof,” said Mileham and Knoetze.

Read more in Daily Maverick: Residents fetch water from drain as Makhanda taps run dry

They added that as a financial recovery plan has been proposed, the Constitution requires the province to dissolve the council as it cannot approve a budget that gives effect to the plan.

“We have written to the premier of the Eastern Cape to express these concerns and will closely monitor the provincial response. A failure by the province to take decisive action will lead to this matter being escalated to the National Minister of Cooperative Governance and Traditional Affairs.

“Makana cannot afford another three years of incompetence and maladministration,” said the DA members. DM

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