Financial recovery in Lekwa Local Municipality
National government was, for the first time in 12 April 2021, directed by the Northern Gauteng High Court to intervene in the financial affairs of a municipality. According to the Sowetan newspaper, the residents of Lekwa Local Municipality had to contend with regular sewage spills in the streets, uncollected refuse leading to rubbish strewn everywhere, water cuts and electricity cuts in Standerton beyond the Eskom loadshedding shedule . Not only residential areas, but businesses were badly affected. The Mpumalanga Provincial Executive Council had intervened in terms of Section 139(5)(a) into deeply dysfunctional municipality on 11 October 2018. A mandatory Financial Recovery Plan for the municipality was drawn up and approved by the Mpumalanga MEC for Finance in October 2019. This Financial Recovery Plan, however, failed to induce the desired improvements, largely due to political and administrative instability within the municipality and the Mpumalanga provincial government’s failure to ensure the effective implementation of the Financial Recovery Plan.
In May 2018, Astral Operations Limited (one of South Africa’s largest poultry producers) and others approached the High Court to compel the National Executive (i.e. Cabinet) to intervene in terms of section 139(7) of the constitution to stabilise Lekwa Local Municipality’s finances and restore service provision. Section 139(7) of the South African Constitution makes it incumbent on the National Executive to intervene in instances where the Provincial Executive is unable intervene or does not do so effectively.
The High Court ruled in favour of Astral Operations Limited and the other applicants, ordering the national government to intervene in Lekwa Local Municipality – in terms of section 139(7) of the Constitution of the Republic of South Africa, read with section 150(1)(b) of the Municipal Finance Management of 2003 (“MFMA”) – within fourteen days from the date of the order (i.e. 3 May 2021). The national government, together with the Minister of Finance, was further instructed to initiate the process of preparing a financial recovery plan in accordance with sections 141 and 142 of the MFMA, which must be approved in terms of section 141(4)(c) of the MFMA within six months from date of order. The order provides for Astral to approach the court for further relief if – in its view – the Financial Recovery Plan is not being implemented.
On 3 May 2021, a Presidential minute approved the national intervention, and the Minister of Finance was delegated the authority to lead this intervention in terms of section 238(a) of the Constitution, supported by the Ministry of Cooperative Governance and Traditional Affairs (COGTA). Cabinet dissolved the Lekwa Local Municipality Council on 12 May 2021 and an administrator (Mr Johan Mettler) was appointed on 28 May 2021 (Government Gazette No. 44634).
The Municipal Financial Recovery Service at the National Treasury, in consultation with the Intervention Technical Task Team headed by the administrator, coordinated a 3 month long process to develop a new Financial Recovery Plan, starting 1 July 2021, which would meet the requirements of section 142 of the MFMA (resource requirements, key performance indicators, and financial impact, etc.). This new Financial Recovery Plan was released on 12 October 2021. To read the full Financial Recovery plan, please click here.
In an address to the former municipal council of Lekwa Local Municipality on 7 June 2021, the Deputy Minister of Finance – Dr David Masondo – noted that the state of affairs in Lekwa Local Municipality was by no means an exception:
Regrettably, 25 years into a new local government dispensation, after the introduction of progressive and enabling municipal legislation, extensive capacity-building efforts and increased grant allocations, there are 39 other municipalities in a situation as critical as Lekwa. There are also 163 municipalities in financial distress and 108 municipalities that have passed an unfunded budget in 2020/21financial year.
He goes on to note the importance of political and administrative leadership in ensuring the financial viability of a municipality:
a financial and service delivery crisis starts with a crisis in management and leadership. It is also perpetuated by a failure to deal decisively with disruptive management and leadership issues. If we are serious about fixing a financial and service delivery crisis, we need to first fix the political and administrative leadership crisis.
He also articulates what should be national government’s response:
To deal with the envisaged scale and depth of this problem, it is vital that National Government sends a clear and unambiguous message that poor leadership undermines the proper functioning of our municipalities, be it at the political level or the administrative level, will no longer be tolerated nor condoned.
Whether this eventuates, or remains solely at the level of rhetoric, remains to be seen. After all, the Auditor-General has been raising issues around delinquent political and administrative leadership at municipalities for several successive years in the annual consolidated MFMA audit reports, to no avail. Furthermore, should the courts be more inclined to grant frustrated communities and businesses similar recourse, it raised the question whether National Treasury and its provincial counterparts have the capacity to comply, given the pervasive and systemic nature of dysfunction in the local government sphere.
In the local government elections on 1 November 2021, Lekwa Local Municipality emerged as a hung council with the African National Congress which had governed since 1994 being dislodged as the dominant party. The ANC attracted only 42.03% of the vote, followed by the Lekwa Community Forum (19.43%), the Economic Freedom Fighters (9.18%) and the Democratic Alliance (13.36%). The City Press newspaper has reported that mayorship and speaker positions went to the LCF and the Chief Whip position to the EFF. Clearly the municipality’s residents have exercised a degree of electoral sanction on the ANC for its faction in-fighting and poor performance in the municipality. A good working relationship between the governing coalition and the administrator will be crucial in implementing the Financial Recovery Plan and in restoring service delivery quality and continuity and Lekwa Local Municipality’s financial health.