24 JULY 2003



I wish to refer to the above Cabinet Memorandum that was discussed by the Cabinet Committee on Governance and Administration on 15 July 2003. I would have liked to have raised my concerns regarding the contents of the draft Bill with you earlier at the Local Government MINMEC meeting that was scheduled for 11 July 2003, but due to circumstances I could not attend that day. I was also unable to attend the Cabinet Committee meeting where the matter was discussed and arranged with our colleague Mr. T A Manuel, MP, Minister of Finance, to raise the concerns that the Department of Water Affairs and Forestry and I have on the above topic at the meeting. Minister Manuel was only provided with a brief summary of the concerns that my Department and I have, and I think it is necessary that the details be brought to your attention; hence this letter


In providing institutional support to municipalities on the selection and implementation of municipal service delivery mechanisms for the effective and efficient provision of water services, my Department have encountered a number of difficulties in respect of the application of the Municipal Systems Act, Act 32 of 2000. These difficulties would be further compounded by the proposed Municipal Systems Act Amendment Bill and draft Municipal Finance Management Bill

I will deal with my concerns relating to these two pieces of legislation separately hereunder.

The Municipal Systems Act, 2000 (Act 32 of 2000)
The difficulties experienced by my Department in respect of the above Act as it is currently on the statute books have been raised with the Department of Provincial and Local Government prior to the December 2002 amendment to that Act, however only a limited number my Department's proposals were accepted by your Department. The difficulties relate primarily to the processes, procedures and criteria municipalities must comply with in selecting alternative service delivery mechanisms (Municipal Service Partnerships), and are summarized as follows -The definition of municipal services as follows:
The definition of municipal services;
The circumstances under which the legislated process applies;
The vagueness of criteria for assessments; and
The exclusion of community-based organizations (OBOs) from acting as providers.

The draft Municipal Systems Act Amendment Bill

In addition to the issues previously raised with your Department, the proposed amendments have the following implications:

Municipal Entities

The wide range of institutional structures currently provided for in the Municipal Systems Act (such as Trusts, which is currently utilized by the City of Tshwane Metropolitan Municipality) will be limited to companies established in terms of the Companies Act and utilities established in terms of municipal bylaws.

In addition, municipalities will no longer be able to secure private equity investments in municipalities as only a municipality, municipalities and organs of State may have shareholding in municipal entities

Regulation of the participation of organs of state in Municipal

Although organs of State (such as water boards) are not subjected to competitive procurement, the Bill places additional and onerous requirements on these institutions where they are selected as the preferred service delivery mechanism of a municipality, such as undertaking detailed investigations and securing the approval of the Ministers for Provincial and Local Government, Finance and Water Affairs and Forestry.

Water boards are regulated in terms of the Water Services Act, 1998 (Act 108 of 1997) and the Public Finance Management Act, 1999 (Act 1 of 1999). My Department is the regulator of water services and specifically responsible for water boards, this provision encroaches on these functions.

Additional requirements for Municipal Service Partnership

The draft Bill places substantial additional requirements on municipalities in assessing potential external service delivery mechanisms for providing municipal services. These additional requirements seem to duplicate the criteria and considerations already specified. The Municipal Finance Management Bill further imposes additional requirements over and above those provided for in the Bill, relating to capital projects, contracts having budgetary implications, conditions and process for public-private partnerships and supply chain management

The additional requirements of the Bill read with the draft Municipal Finance Management Bill will, in our view, have a substantial detrimental effect on municipalities' ability to take decisions in respect of external service delivery mechanisms and therefore procure municipal service delivery through service delivery agreements with external partners (such as Water Boards and Community Based Organizations), as compliance with these additional provisions nave substantial time, cost and possible legal challenge implications for municipalities.


As the existing legislative framework relating to Municipal Service Partnerships (which includes water services) is already unclear and unduly onerous, the proposed amendments impedes, rather than strengthen, appropriate municipal decision-making. (Due to the announcement of Powers and Function, all Water Services Authorities are required to complete a proper process for selection of water services providers (In terms of section 78 of the Municipal Systems Act, 2000) and before the first round is completed, your Department is already making it even more onerous before the sector has come to understand the exact implications of existing legislation. It appears as if your Department and the National Treasury are trying to achieve good practice through legislating it step by step, which I believe is not the right way to achieve it, as I believe it only makes it more difficult for municipalities.


It is against this background that I had proposed that an assessment of all legislation and proposed legislation regulating Municipal Services Partnerships should be made, reviewed, consolidated and if possible simplified. A Task Team consisting of all affected National Departments and the South African Local Government Association (SALGA) should be established to undertake this task.

These are the issues I would have liked to have raised personally at the Local Government MINMEC on 11 July and the Cabinet Committee on I 5 July 2003, but which I could not, due to personal circumstances.

I therefore look forward to hearing from you, as I believe there really is a great need to simplify the issue for local government and all the other role players who are or will be affected by the legislation -both present and proposed. If necessary, we can discuss the matter at a meeting to be attended by officials of our respective Departments.

Signed by