The Eastern Cape Provincial Treasury has asked the National Treasury to reconsider an order that the Makana Local Municipality must pay back R60.7-million, representing an unspent infrastructure grant.

Pheello Oliphant, the spokesperson for the Eastern Cape MEC for cooperative governance and traditional affairs, Zolile Williams, said Makhanda (formerly Grahamstown and part of the Makana Local Municipality) needed the money for service delivery.

“Potholes need to be closed, taps are dry in Grahamstown, the streets are dilapidated, and the town is damaged, so the residents cannot bear the brunt of the incapacity of the municipal council to use the Municipal Infrastructure Grant. The municipality needs support,” Oliphant said.

Read more in Daily Maverick: Treasury orders Makana Municipality to pay back R60.7m in unspent infrastructure grants

This comes days after Finance MEC Mlungisi Mvoko gave a dismal summary of the state of municipalities in the province. 

“We continue to give financial support to municipalities in dealing with the sustainability of their finances. Most municipalities are confronted with low levels of revenue collection, high operating expenditure with bloated organisational structures and arrears of Eskom and Water Board accounts.”

The Makana Local Municipality was among the province’s municipalities that had been put forward for debt relief for failing to pay their Eskom bill. 

Read more in Daily Maverick: ‘Spending exceeds revenue,’ says Eastern Cape MEC as conditional grants slashed

On 24 October, in an answer to the provincial legislature, Williams said the Makana Local Municipality had become financially unstable due to its lack of performance in four areas: financial health, governance, service delivery and institutional stability.

In the same answer, Williams said that Makana was one of five municipalities in the province where financial recovery plans had been implemented and one of two (Amatola being the other) where progress was being made.

The municipality’s collection rate is now around 87%, but its cost of employment, at 38%, is still higher than the Treasury’s standard of 35%. However, in comparison to other municipalities in the province, such as Intsika Yethu (Cradock), where this figure is 59%, it is one of the better performers.

The provincial government has opposed all efforts to have the municipal council dissolved because of its failure to provide services. The Public Service Accountability Monitor called the municipality’s failure to spend its infrastructure grant “shameful”. 

Makhanda has no permanent water provision, crumbling roads and poor sanitation. Not everyone has access to electricity and those who do are often plagued by unplanned electricity interruptions. The government’s infrastructure grant is meant to be spent on fixing these issues.

The National Treasury’s order has thrown the finances of the municipality into even more disarray as it does not have the cash reserves to comply with it. This raises the likelihood of the money being taken from the municipality’s equitable share allocation, which will affect its ability to pay salaries.

Disclaimed audit opinion

In its latest audit report on the municipality’s finances, the Auditor-General again gave Makana Local Municipality a disclaimed audit opinion because it struggled to prepare credible financial statements. The municipality achieved only 33% of its basic service delivery and infrastructure development targets, which contributed to the continued water shortages it has faced for several years.

The municipality spent only R8.7-million on repairing and maintaining its infrastructure — a mere 1.5% of the infrastructure’s value. This has severely affected the community, as inadequate maintenance leads to regular infrastructure breakdowns and further delays in service delivery. 

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.

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. Oliphant said this was done in conjunction with the Provincial Treasury.

In a letter dated 8 November 2023, the deputy director-general of intergovernmental relations at the National Treasury issued instructions for the Makana Municipality to return R60.7-million in unspent conditional grant funds for the 2021/22 and 2022/23 financial years. If the municipality failed to do so, the Treasury said, the amount would be taken from its equitable share that is to be distributed early next year.

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

The Makana Local Municipality has not yet responded to the latest development. It announced an auction of municipal assets including a “fire truck” on Tuesday.

The Democratic Alliance’s spokesperson on cooperative governance and traditional affairs, Vicky Knoetze, said what needed to be asked was how long the provincial government would allow this to go on before there was a meaningful intervention. 

“We are at the point where we need urgent intervention,” she said.

In a letter to Mabuyane, Knoetze wrote: “The municipality has been in financial distress for a number of years and remains unable to effectively deliver even the most basic of services to its residents. The dire financial position is evidenced by its continuous disclaimer audit opinions.

“The situation is further exacerbated by the fact that there is a complete lack of consequence management and that officials that are not competent or have been implicated are not being held to account.” DM