## Local Government: Municipal Systems Amendment Act

Published: 2004-01-30

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Local Government: Municipal Systems Amendment Act [ No. 44 of 2003]

Government Gazette
REPUBLIC OF SOUTH AFRICA

Vol. 463 Cape Town 30 January 2004 No. 25960
THE PRESIDENCY No. 82 30 January 2004
It is hereby notified that the President has assented to the following Act, which is hereby published for general information:–
No. 44 of 2003: Local Government: Municipal Systems Amendment Act, 2003.

Act KO. 44. ‘003 I.OCAL. GOVERNMENT: hlUNICIPAL SYSTEMS AMENDMENT ACT. 7003
GENERAL EXPLANATORY NOTE:
[ ] Words in bold type in square b ackets indicate omissions from existing enactments.
Words underlined with a solid line indicate insertions in existing enactments.
ACT To amend the Local Government: Municipal Systems Act, 2000, so as to delete certain definitions and insert others; to make new provision regarding the assignment of functions or powers to municipalities; to provide for the submission of annual performance reports by municipalities; to provide for the establishment of municipal entities; and to provide for matters connected therewith.
B E IT ENACTED by the Parliament of the Republic of South Africa. as follo\~~s:- Amendment of section 1 of Act 32 of 2000, as amended by section 35 of Act 51 of 2002
1. Section 1 of the Local Government: Municipal Systems Act. 2000 (hereinafter 5 referred to as the principal Act), is hereby amended by-
( ( I ) the insertion after the definition of “basic municipal services“ of the
“ ‘board of directors’. in relation to a municipal entity. means the board of directors of the entity;“: 10
( h i the insertion after the definition of “district municipality“ of the following
‘* ‘effective control’, in relation to a private company. means the power which a shareholder in the private company may have-
directors of the private company; or
meeting of the private c o r n p i x ” ;
following definition:
definition:
(LI) to appoint or remove at least the majority of the board of 15
( h ) to control at least the ma.jority of the voting rights at a general
the insertion after the definition of ”executive authority” of the following definition: 20
*‘ ‘external service provider’ means an external mechanism referred to in section 76(b) which provides a municipal service for a municipality;”:
‘’ ‘multi-jurisdictional service utility’ means a body established in terms of section 87;”; 25
( e ) the substitution for the definition of “municipal entity” of the following
(d) the insertion after the definition of “Minister” of the following definition:
definition: ‘* ‘municipal entity’ means -
[a company, co-operative, trust, fund or any other corpo- rate entity established in terms of any applicable national o r provincial legislation and which operates under the ownership control of one or more municipalities, and includes, in the case of a company under such ownership 5 control, any subsidiary of that company] a private cornpan!’ referred to in section 86B( 1)irr); [or] a service utility; or -
, . , a multi-iurisdicti&l service utility:”; I f ) the insertion after the definition of “municipal entity” of the foIlouinf 1 0
definition: ’. ‘Municipal Finance Management Act’ means the Local Govern- ment: Municipal Finance Management Act, 2003, and any repulation5 made under that Act;”;
(x) the insertion after the definition of “nationt31 organ of state“ of the follouing 15 definition:
.. ‘National Treasury’ means the National Treasury established b! section 5 of the Public Finance Management Act, 1999 (Act No. 1 o f 1999):”: ~. .
( / I ) the insertion after the definition of “organ of state“ of the foliowinr 3 ) - ,. ,
definition: * * ’parent municipality’-
in relation to a municipal entity which is a private cornpan)’ in respect of which effective control vests in a single municipal- ity, means that municipality: in relation to a municipal enlity which is a private company in respect of which effective control vests in t w o or more municipalities collectively, means each of those municipali- ties: in relation to a municipal entity which is a senice utilit!.. means the municipality which established the entity: or in relation to a municipal entity which is a multi-jurisdictional service utility, means each municipality which is a part\’ t o thc
25
30
- - apreement establishing the service u t i l i t y : ” :
. -
( i ) the deletion of the definition of “ownership control“; 35 ( j ) the insertion after the definition of “prescribe“ of the following definition:
’* ‘private company’ means a company referred to in sections 19 and 20 of the Companies Act. 1973 (Act No. 61 of 1973);“: and
(X-) the substitution for the definition of “service utility” of the fo l lo~ ing definition: 40
‘ * ‘service utility’ means [a municipal entity established in terms of section 82(l)(c)] a body established in terms of section 86H:”.
Substitution of section 9 of Act 32 of 2000
2. The following section is hereby substituted for section 9 of the principal Act:
“Assignment of functions or powers to mu icipalities 45 generally by Acts of Parliament or provincial Acts
9. (1) A Cabinet member or Deputy Minister seekin, 0 to initiate the assignment of a function or power by way of an Act of Parliament to municipalities in general, or any category of municipalities. must within a j
Act No. 44. 2003 LOCAL GOVERNMENT: hlUNICIPAL SYSTEMS AMENDMENT ACT. 2007
reasonable time before the draft Act providing for the assignnlent i \ introduced in Parliament- ( ( I ) request the Financial and Fiscal Commission to ashe>\ the iinmclal
and fiscal implications of the legislation, after informing the Financial and Fiscal Commission of the possible impact of such ;lssiSnnlcnt on- (i) the future division of revenue between the sphere\ o f ~ "O\ ernmt'nt
( i i ) the fiscal power, fiscal capacitl and efficiency o f nl~~nicip;~lities
( i i i ) the transfer, if any, of employees, assets and liabilities: and ( 0 ) consult the Minister, the Minister of Finance and organi\ed local
government representing local government nationall! \I i t h regard
( i ) the assessment by the Financial and Fiscal Commission contell)- plated in paragraph (0):
( i i ) the policy goals to be achieved b y the assignment and the re:l\ons for utilising assignment as the preferred option:
( i i i ) the financial implications of the assignment projected o \ c ~ - at least three years;
( i v ) any possible financial 1iabilitit:s or risks after the thee-!ear period referred to in subparagraph ( i i i ) :
( v ) the manner in which additional expenditure b) municip;1litic\ ;I\ a result of the assignment will be funded:
(vi) the implications of the assignment for the capacit! o f nlunic~ip;lIi- ties:
(vii) the assistance and support that will be pro\,ided to municip;ditie\ i n respect of the assignment: and
(viii) any other matter that may be przscribed. ( 9 ) An MEC seeking to initiate the assignment of ;I function o r po\\ t~ h!
way o fa provincial Act to municipalities. or any category of Inunicip;llitie\. in the province must. within a reasonable time before the dr~r f t pro\ inci;ll Act providing for the assignment is introduced in the r ek \ a n t p ro \ inc,i;ll legislature- ( a ) request the Financial and Fiscal Commission to ; ~ s s e \ ~ thc tinanc,ial
and tiscal implications of the legislation. after informing the Financial and Fiscal Commission of the possible impact of such assignment on- ( i ) the future division of revenue between the spheres o f = "o\'erlllllt'lll
(ii) the fiscal power, fiscal capacity and efficiency of municipalities
( i i i ) the transfer, if any, of employeelication\ o t '
( b ) disclosing any possible financial liabilities or riskc after the threz-!,car
( c , indicating how any additional expenditure by the municipalit\, \\ i l l bc
that function or power for the municipality: and
period; and
funded.".
"Assignment of functions or powers to specific municipalities by acts of 2 0 executive or by agreement I
!
Insertion of section IOA in Act 32 of 2000
4. The f o h v i n g section is hereby inserted in the principal Act after section 1 0 :
"Funding and capacity building js I
10A. The Cabinet member, MEC or other organ of state initiating ~111 assignment of a function or power to a municipality in t e r m o f section Y or IO . must take appropriate steps to ensure suffkient funding. and w c h capacity-building initiatives as may be needed. for the performance o f the assigned function or power by the municipality if - (ai the assignment of the function or power imposes a duty on the
municipality; ( 0 ) that duty falls outside the functional areas listed in Part B of Schedule
4 or Part B of Schedule 5 to the Constitution or is not incidental 10 an!' of those functional areas; and
municipality.". ( c ) the performance of that duty has financial implications f o r the 1
Act No. 44.2003 LOCAL GOVERNMEST, MUNICIPAL SYSTEMS A M E N D M D T .ACT. 2003
Insertion of sections 21A and 21B in Act 32 of 2000
5. The following sections are hereby inserted in the principal Act. attcr wction 2 I
21A. ( 1 1 All documents that must be made public b!. ;I municipalir! i n terms of a requirement of this Act. the Municipal Finance h lmlay l~en t Act or other applicable legislation, must be conveyed to the local communit)~ - ( r r l by displaying the documents at the municipalit!.'s head and satellite
offices and libraries; 0 7 ) by displaying the documents on the municipalit\~'s official website. i t '
the municipality has a website as en\;isaged by section 2 I B: and f c ) by notifying the local community. i n accordance \\.it11 section 2 I . o f '
the place, including the website address. where detailed particular\ concerning the documents can be obtained.
( 2 ) If appropriate. any notification in terms of subsection ( 1 ) ( ( ' I must invite the local community to submit written comments or representations to the municipality in respect of the relevmt documents.
Official website
21B. ( 1 ) Each municipality must- ( a ) establish its own official website if the municipalit!. decides t h a t i t 1s
affordable; and f b j place o n that oficial website information required t o be made public i n
terms of this Act and the Municipal 1-inance Mana, wllent Act. ( 2 ) If a municipality decides that i t is not aRordable for i t to establi\h i t \
own official website, it must provide the information i n terms o t ' legizlation referred t o in subsection (1)fh) for display on an orpnised local government website sponsored or facilitated by the National Treasury.
(3) The municipal manager must maintain and reyu la r l~ updatc the municipality's official website. if in existence. or pro\ ide the rele\allt information as required by subsection ( 2 ) . " .
Substitution of section 46 of Act 32 of 2000
6. The following section is hereby substituted for section 46 of the principal Act:
"Annual performance reports
46. ( 1 ) A municipality must prepare for each financial year ;I performance report reflecting - ( n j the performance of the municipality and of each external sen ice
provider during that financial year: (0) a comparison of the performances referred to i n paragraph f u j M it11
targets set for and performances in the previous tinancial !)ear: and ( c ) measures taken to improve performance.
( 2 ) An annual performance report must form part of the municipality'\ annual report in terms of Chapter 12 of the Municipal Finance Manqement Act.".
Amendment of section 55 of Act 32 of 2000
7. Section 55 of the principal Act is hereby amended by the substitution i n subsection
"(c.) proper and diligent compliance with [applicable municipal finance manage- ( 2 ) for paragraph (c) of the following paragraph:
ment legislation] the Municipal Finance Management Act.".
17 No. 25960 GOVERNMENT GXZFTlL. 3 1 1 \ \ l ?I:> ? ~ ' ~ ~ - j
Act No. 44,2003 !.OCAL GOVERNMENT: MUNICIPAL SYSTEMS AMENDMENT ACT. 7003
Amendment of section 57 of Act 32 of 2000
8. Section 57 of the principal Act is hereby amended by the insertion atter subsection
"(4A) The provisions of the Municipal Finance Mana,cement Act confrrriny responsibilities on the accounting officer of a municipality must be regarded a\ forming part of the performance agreement of a municipal manager.
(4B) Bonuses based on performance may be awarded to a municipal manager o r a manager directly accountable to the municipal manager after the end of thc financial year and only after an evaluation of performance and approval of wch evaluation by the municipal council concerned.".
(4) of the following subsections:
Repeal of section 58 of Act 32 of 2000
9. Section 58 of the principal Act is hereby repealed
Amendment of section 74 of Act 32 of 2000
10. Section 74 of the principal Act is hereby amended by the substitution t ' o r subsection (1) of the following subsection: 15
'*( 1 ) A municipal council must adopt and implement a t riff polic!. on the It,\ yiny of fees for municipal services provided by the municipality itself 01- h! \\.:I!' o f service delivery agreements, and which complies with the provisions o f t i l l 5 Act, the Municipal Finance Management Act and [with] any other applicable legislation.". 2 0
Amendment of section 78 of Act 32 of 2000
11. Section 78 of the principal Act is hereby amended- ( [ I ) by the substitution for subsection (3) of the following subsection:
"(3) If a municipality decides in t e r m of subsection ( ? ) ( / I , t o explort. the possibility of providing the municipal service throuyh an extcrnill 25 mechanism it must-
give notice to the local community of its intention t o t.\plorc the pro\ision of the municipal service through an e\tcrnal mechanism; [and] assess the different service delivery options i n terms o f section 3 0 76(b). taking into account-
the direct and indirect costs and benetits aswciatd with the project, including the expected effect of an!. service delivery mechanism on the environment and on human ealth. well-being and safety: 3s the capacity and potential future capacity of prospx- tive service providers to furnish the skills. exprrti\e and resources necessary for the pro\.ision of the service; the views of the local community: 40 the likely impact on development. job creation 2nd employment patterns in the municipality: and the views of organised labour: and
conduct or commission a feasibility study which must be taken into account and which must include-
(i) a clear identification of the municipal service for Lvhich the municipality intends to consider an external mech;!- nism;
(ii) an indication of the number of years for which the provision of the municipal service through an external mechanism might be considered;
45
the projected outputs rn hich the pro\ i\ion 01' t l w municipal service 1.hrough an external mcchani\n1 might be expected to produce: an assessment as to the extent to n.hich the pro\ i \ i o n 01' the municipal service through an external nwcll;lnisllI will- (aa) provide value for money: (bb) address the needs of the poor: (cc) be affordable for the municipalit! and re\ident\:
(dd) transfer appropriate technical. operational a n d
the projected impact on the municipalit! .\ \ t a f l ' . a\\c't\ and liabilities: the projected impact on the municipalit!,'\ intc~gratccl development plan: the projected impact on the municipalit! .s huciyzt. l o r the period for Lvhich an external mechanism might 1~ used. including impacts on revenue. expenditure. borrowing. debt and tariffs: and
and
financial risk:
- any other matter that may be prescribed.": a n d
( h i by the addition of the following subsection: "(6) The national government or rele\,ant pro\,incial go\ ernnlent ma!.
in accordance with an agreement. assist municipalities i n c;~rr\ i n ? o u t ;I feasibility study referred t o in subsection ( 3 ) ( ( , ) . or i n preparing \cl~n icc delivery agreements.".
Substitution of section 80 of Act 32 of 2000
12. The following section is hereby substituted for section X 0 o f the pt~incilxil Act:
"Provision of services through service deliver!. agreements \\ i t h external mechanisms
80. ( 1 ) If a municipality decides to pro\,ide a municipal s c ~ n I C C th rough a service deliwry agreement i n terms of section 7 h ( h ) with- f t r ) a municipal entity another municipalit!. [or A national or
provincial organ of state]. it may. xh iec t to suhsection i .3 ). nescxi:\tc and enter into such an agreement rn.ith the relevmt municip1I entit! municipality [or organ of state] J.vithout applyins Part i o t this Chapter; [or]
(([A) a national or provincial oryan of state. i t ma! enter into \uch ; I n ayreement with the relevant organ of state N,ithout appl\ ing F ' x t 3 o f ' this Chapter: or 4 )
( h ) any institution or entity, or any person, juristic 01- n:ttural. not mentioned in paragraph ( a ) or (C IA) . it must ;~ppl! Parr -3 o f t h i \ Chapter before entering into such an agreement \\ it11 :1n! such institution, entity or person.
-_
(2) Before a municipality enters into a service delivery agreement [for a 45 basic municipal service] with an external service pro\.ider i t mtlst establi\h a [mechanism and] programme for community consultation m J infbrma- tion dissemination regarding the appointment of the external s en ice provider and the contents of the service delivery agreement. The content\ o f ' a service delivery agreement must be communicated to the local conlmu- 30 nity through the media.
(3) ( a ) Where a municipality decides to enter into a s e n ice deli\ el.! agreement with another municipality as contemplated by section 7h(bl( i i ) . 1 that other municipality must conduct or commission a feasibilit! stud!. which it must take into account, before the service deliver!, agreement i \ entered into.
(b) The feasibility study referred to in paragraph ( L I J , nlust include- 1 ( i ) an assessment on the impact on the budget of that other municipality.
and on its assets, liabilities and staff expenditure. for each of the
financial years that it intends to serve as an external scr\ ice p r o \ icier. (ii) an assessment on whether i t will be necessar!' to incre;w the ntlmbcr ,
of staff to enable that other municipality to be an external x m . i c . c . provider, and whether it will be necessary to transfel GI- wcon~ ! an! ~ staff from the appointing municipality to that other rnunicipalit! : , 5
(iii) an assessment on the ability of that other municipulit~ l o absorb an! 1 commitments, liabilities or employees involwd. if and n.hen the appointment as external service proi'ider ends: and ~
(iv) any other relevant information as may be prescribed.".
Amendment of section 81 of Act 32 of 2000 I O
13. Section 81 of the principal Act is hereby amended- (a i by the substitution for subparagraph (v ) of paragraph it71 of xuhsection ( 2 1 o f
"(v) managing its own accounting, financial management. budgetins. investment and borrowing activities \\ithin ;I tl-amework o f 15 transparency, accountability, reporting and tinancial control determined by the municipality. subject to (applicable munici- pal finance management legislation] the L,lunicipal 1'1nanct. Management Act;": and
the following subparagraph:
( h i by the insertion after paragraph (0) of subsection ( 2 ) of the followiny 2 0 paragraph:
"(hA) must ensure that the agreement provides for ;1 diapt~te-resolution mechanism to settle disputes between the municipality all t l the service provider;".
Repeal of section 82 of Act 32 of 2000 _. 'i
14. Section 82 of the principal Act is hereby repealed.
Amendment of section 83 of Act 32 of 2000
15. Section 83 of the principal Act is hereby amended by the substitution i n aubwctio~l ( I ) for paragraph (a ) of the following paragraph:
"(0) [are competitive, fair, transparent, equitable and cost-effective] compl! 3 ) with Chapter 11 of the Municipal Finance hk~napement Act:".
Substitution of heading to Part 4 of Chapter 8 of Act 32 of 2000
16. The following heading is hereby substituted for the heading to Part 1 of Chapter 8 of the principal Act:
"Part 4: Internal municipal service districts". .> .1 7 -
insertion of Part 4A in Chapter 8 of Act 32 of 2000
17. The following Part is hereby inserted in the principal Act after section 86:
*'Part 4A: Regulations and guidelines regarding municipal services
Regulations a d guidelines r garding municipal services 1 40
86A. (1) The Minister may for purposes of this Chapter make regulations or issue guidelines in accordance with section 120 to provide for or regulate the following matters: ( a ) The preparation, adoption and implementation of a municipal tariff
16) the subsidisation of tariffs for poor households through- (i) cross-subsidisation within and between services;
(ii) equitable share allocations to municipalities: and (iii) national and provincial grants to municipalities;
policy;
(c) limits on tariff increases;
111 I 1 1 1 i
LOCAL GOVERNMEST: hlUNlCIPAL SYSTEMS AMENDMEXT ACT. 200.1
criteria to be taken into account by municipalitie\ \\hen i r n p o \ ~ n ~ surcharges on tariffs for services and determining t h t d u r ; l t i o n thtrtol': incentives and penalties to encourage -
( i ) the economical, efficient and effective use o f re\ot~rce\ \\ l1cn
( i i ) the recycling of waste: and ( i i i ) other environmental objectives:
providing services;
criteria to be taken into account by municipalitie\ \\ hen a\\t\\ln: options for the provision of a municipal service: measures against malpractice in selecting and appointing \en icc providers, including measures against the stripping o f ' nlullicilxll assets: mechanisms and procedures for the co-ordination and intt'gration o i sectoral requirements in terms ofleg~slation with t h i \ Chapter. and tllc manner in which municipalities must comply uith these: standard draft service delivery agreements: the minimum content and management of service dcli\.er!, ~12rec- ments: additional matters that must be included i n a feasibilit! \ t t d ! i n terms of section 78(3)(c), which may include-
( i ) the strategic and operational costs and benetits o f ' ;in t \ t t r n ; l l mechanism in terms of the municipality's strattgic ot?,jc'cti\ e s :
( i i ) an assessment of the municipality's capacit! to c'ft'tcti\ti! monitor the provision of the municipal senice through ;m external mechanism and t o enforce the wn ice clcii\tr! agreement;
performance guarantees by service pro\,iders: and any other matter that would facilitattt -
( i ) the effective and efficient provision of municipal s en ices:
( i i ) the amlication of this Chanter. or
( 2 ) The Minister may only make rtgulations and issue guideline\ contemplated in subsection ( I ) ( ( / ) to ( e ) after consulting u i t h the blinistcr 1 of Finance and any other Cabinet membt~r whose portfoilo i \ atfccted h! such regulations and guidelines.
( 3 ) When making regulations or issuing guidelines i n t t m \ o f ' wction 120 to provide for or regulate the matters mentioned in substction ( I 1. t he Minister must- ((/) take into account the capacity of municipalities to compl! \\ i t h wc11
( b ) differentiate between different kind\ of municipalitie\ according t o
. .
regulations and guidelines: and
their respective capacities.".
Insertion of heading and sections 86B, 86C, 86D, 86E, 86F, 86G, 86H. 861. X6J and 86K in Act 32 of 2000
18. The following headings and sections are hereby inserted i n the principal Act after 45 hsction 86A:
"CHAPTER SA I
MUNICIPAL ENTITIES
Part I : General provisiom 5 0
Kinds of municipal entities
86B. ( I ) There are the following kinds of municipal entities: (0) a private company-
20 No. 25960 GOVERN:vIENT(;.-\ZFTT~. 7 0 I \\i \ I < ) Z O O -
Act No. 44,2003 LOCAL GOVERNMENT: MLJNICIPAL SYSTEMS AMENDMENT .-\CT. 2003
(i) established by one or more municipalities in term\ of Part 2: or (ii) in which one or more municipalities ha\.? acquired o r hold an
(b ) a service utility established by a municipality in term\ o f Part i: and ( c ) a multi-jurisdictional service utility established b!, two or m r e
( 2 ) No municipality may establish, or participate in the establishment of. or acquire or hold an interest in. a corporate body. including a trust. except where such corporate body is- (a) a private company, service utility or multi-jurisdictional scr\,ice ut i l i t !
(bj a fund for the benefit of its employees in terms of a law replatiny
(3) Subsection (2) does not apply to the acquisition by a municipality for investment purposes of securities in a company listed on the Johanne\burg Securities Exchange in accordance with the investment frame\vorl\ envisaged in section 13 of the Municipal Finance Management Act.
interest in terms of Part 2;
municipalities in terms of Part 4.
referred to in subsection (1); or
pensions or medical aid schemes.
Part 2: Private companies
Establishment and acquisition of private companies
86C. ( I ) A municipality may, subject to subsection ( 2 ) - (a) establish or participate in the establishment of a priwte cornpan! i n
( h ) acquire or hold an interest in a private company i n accordance \\ i t h the
( 2 ) (a) A municipality may in terms of subsection ( I ) ( ( ) ) or ( h i either acquire or hold full ownership of a private company. or acquire or hold ;I lesser interest in a private company.
(b ) A municipality may acquire or hold such a lesser interest i n ;I p i \ ate‘ company only if all the other interests are held by-
accordance with the Companies Act. 1973 (Act No. 6 I o f 1973): o r
Companies Act. 1973 (Act No. 61 of 1973).
(i) another municipality or municipalities; ( i i ) a national or provincial organ of state or organs ot state: o r
(iii) any combination of institution:, referred to in subparagraph\ ( i
( c ) A municipality may. despite paragraph IhJ. acquire o r hold an interest in a private company in which an investor other than another municipalit! or a national or provincial organ of state has an interest. but only ifefft.cti\ c control in the private company vests in-
and (ii).
(i) that municipality; (ii) another municipality; or
(iii) that municipality and another municipality collectivel>,. (3) If a municipality establishes a privar company or acquire5 or hold\
an interest in such a company, it must comply with the Companies Act. 1973 (Act No. 61 of 1973), and any other law regulating companies. but i t any conflict arises between that Act or such law and a provision of this Act. this Act prevails.
Legal status of private companies established by municipalities or in which municipalities hold interests
86D. ( 1 ) A private company referred to in section 86C( 1)- ( a ) is a municipal entity if a municipality, or two or more municipalitieh
collectively, have effective control of the private company: or
Art No. 44.2003 LOCAL GOVERNMENT. MUNICIPAL SYSTEMS AMENDhlEXT ACT, 200.2
( h ) is a public entity to which the Public, Finance hlanagclnent h . 1 . I ()()() (Act NO. 1 of 1999), applies if ownership control i n the compn!. within the meaning of that Act, is held b!, a national 01' p r o \ 1nc1a1 organ of state.
( 2 ) A private company which is a municipal entit!- ( a ) must restrict its activities to the purpose for \\hich i r i \ used h! i t \
parent municipality in term5 of section 86E( I ) ( ( / I : and (19) has no competence to perform any activity nhich t ; l l l \ out\itle tht'
functions and powers of its parenr. municipalit! contcn1pl;lrcd h! section 8.
Conditions precedent for establishing or acquiring interests in pri\ate I companies I !
86E. ( 1 ) A municipality may establish ;I private cornpan! o r xquirc a n 1 interest in such a company only- ( a ) for the purpose of utilising the company ;IS ;I mech;lni\m t o a s s i s t i t 111 ~ 15 ~
the performance of any of its functions or pou ers referred l o i n \cc.tion ~ 8:
( h ) if the municipality can demonstrate that- ( i ) there is a need to perform that function o r pouer i n accord;mL,c I
with business practices i n order to achie\c the strategic ' 2 0 objectives of the municipalit!, more ef fect i i el! : mtl
( i i ) the company would benetit the local cornmunit! : and ( c i if any other conditions that may be prescribed h a \ e h.en con~pliL~d
i
with. ( 3 ) I f n municipality establishes a primtt. compan! o r :1cquirL\\ ; I n tn1el.c\[ 3
i n such a company for the purpose of using that cornpan! ;I\ ;I n v x h a n i \ n l 1 to provide ;I municipal service, Chapter 8 applies. I
Conditions precedent for co-owning of private companies ~
86F. If two or more municipalities intend to establish ;I pr i \ are cornpan! or to acquire interests in the same private cornpan!. C;Ich o l tho\c municipalities must- ( L I J comply with section 86E: ( h i consider and reach agreement on proposals tor shared control o f ' the
(c) consider cash flow projections of the cornpan! .s proposcd operation\ company: and
for at least three financial years.
Disposal of companies and equity interests in companies 1 i 86G. A municipality may transfer ownership or other\\ ise dispow of-
((0 a wholly owned private company. subject to the hlunicipal Finance
( h ) an interest in a private company - Management Act: or
( i ) subject to section 14 of the Municipal Financt. Management Act: and
(ii) if that transfer or disposal would not result i n a n infringement of section 86C(2) by another municipality which holds an interest in the company.
Part 3: Service utilities
Establishment
86H. ( 1 ) A municipality may pass a by-law establishing a service ut i l i t ! . i o
Act No. 44.2003 LOCAL GOVERNMENT: MUNICIPAL SYSTEMS AMENDMI3NT ACT. 200.2
(2) A by-law establishing a service utility must- ( a ) state the purpose for which the service utility is established: (h) confer the powers and impose the duties on the senice utilit!, which
(c) provide for- >
I
are necessary for the attainment of such purpose:
(i) a board of directors to manage the service ut i l i ty: (ii) the number of directors to be appointed:
( i i i ) the appointment of directors. the tilling of \acancies and t h e I replacement and recall of directors by the parent municipallt! : 1
( i v ) the terms and conditions of appointment of directors: ~ 1 0 (v ) the appointment of a chairperson;
(vi) the operating procedures of the board of directors: ~
i (vii) ' the delegation of powers and duties to the hoard of directors: i
(viii) any other matter necessary for the proper functioning of rhc !
(ix) the acquisition of infrastructure. goods. services. supplieh o r
i
i board of directors: ~ I5
equipment by the service utility. or the transfer of infrustru- ' ture. goods. services, supplies or equipment to the ser\.ic~t> I utility;
(x) the appointment of staff by the service utility. o r the tran\ter 01. I 2 0 secondment of staff to the service utility in accordance wit11 I applicable labour legislation:
(xi) the terms and conditions on which an) acquisition. tran+r'. : i appointment or secondment is made; I
(xii) the governance of the service utility: and (xiii) any other matter necessary for the proper functioniny of the
service utility: and ~ li (d) determine budgetary and funding arrangements for implementatiol~ ot !
the by-law. I (4) No by-law may confer on a service utility any functions o r powtw ~ 30
i
falling outside the competence of the parent municipality contemplatrcl b! section 8. 1 I Legal status of service utilities
861. ( 1 ) A service utility is a juristic person and a municipal entity under
( 2 ) A service utility- the sole control of the municipality which established it.
(a ) must restrict its activities to the purpose for which it was established:
(b) has no competence to perform any activity which falls outside i f \ and
functions or powers in terms of a by law of the municipality.
Conditions precedent for establishing service utilities 1
865. (1) A municipality may establish a service utility only- ( a ) for the purpose of utilising the service utility as a mechanism to assist
the municipality in the performance of any of its functions or powers referred to in section 8;
(6) if the municipality can demonstrate-. (i) that that function or power could be performed more efficiently
by a separate structure in order to achie\,e the strategic objectives of the municipality, and
(ii) that the service utility would benefit the local community; and ( c ) if all other conditions that may be prescribed have been complied with.
-1s
5 0
Act so. 44. 2003 LOCAL GOVERNMENT: hll~NICIPAL SYSTEMS AMENDMENT ACT. 2003
( 9 ) If a municipality establishes a service ut i l i ty for the purpose of using that service utility as a mechanism to provide a municipal ser\,ice. Chapter 8 applies.
Disestablishment of service utilities I
86K. ( I ) A municipality may pass a by-law disestablishing ;I sen ice
( 7 ) I f a service utility is disestablished-. utility which it has established.
I C / ) all assets. liabilities. rights and obligations of the service utility \'est i n
( 1 7 ) staff of the service utility must be lrtealt with in accordance with the municipality: and
applicable labour legislation.
Part 4: Multi-jurisdictiorlal service utilities"
Substitution of section 87 of Act 32 of 2000
19. The follou,ing section is hereby substituted for section 87 of the principal Act:
"Establishment of multi-jurisdictional service utilities I5
87. Two or more municipalities. by Lvritten ayreement. ma! e\tablish ;I I1llllti-.jurisdictional service utility to pet form any function o r pcner- envisayed by section 8 in their municipal arras or in any dehignated parts o f their municipal areas.".
Amendment of section 88 of Act 32 of 2000 2 0
20. Section 88 of the principal Act is hereby amended by- / ( I ) the substitution for the heading of the following heading:
"Minister requesting [the] establishment of multi-jurisdictional [mu- nicipal service districts] service utilities": and
((7) the substitution for subsection ( I ) of the following subsection: 'i "( 1 ) The Minister may. in the national interest and i n consultation with
the [national Minister] Cabinet member responsible for thc functional area i n question. request two or more municipalities t o establish Idesig- nated] a mLllti-jurisciictional [municipal senice districts] ser\.ice u t i l i t \ , to conform to the requirements of national le$slation applicable to the 3 0 prolision of a specitic municipal service.". -. Substitution of section 89 of Act 32 of 2000 21. The following section is hereby substituted for section 89 of the principal Act: "Contents of agreements establishing multi-.jurisdictional [municipal service district ] service utilities .I 3 - - 89. [(l)] An agreement establishing a multi-jurisdictional [municipal service district] service utility must describe the rights. obligations and responsibilities of the [participating] p a r e n t municipalities. and ml~st- ( r r ) determine the boundaries of the rdistrict] area for Lvhich the (b ) identify the municipal service or other function to be provided in [(c) determine the mechanism that will provide the service in the Id) determine budgetary and funding [and scheduling] arranyements I S ( e ) provide for- multi-jurisdictional service utility is established: 40 terms of the agreement; district;] for implementation ofthe agreement; 28 No. 25960 GOVERNMENT GAZETTE. 70 I.-\XL'.\Rl' 2004 Act No. 44,2003 LOCAL GOVERNMENT. MUNICIPAL SYSTEMS AMENDMENT' ACT. 2003 [the establishment of a governing body] a hoard of directors for the multi-jurisdictional [municipal service district] service utility; the appointment of [representatives of the] directors b\, the respective [participating] parent municipalities [to the governing body], the filling of vacancies and the replace- ment and recall of [representatives] directors: the number of [representatives] directors appointed [for] b~ each [participating] parent municipality[. subject to subsection (2)]; the terms and conditions of appointment of [those repre- sentatives] directors; the appointment of a chairperson: the operating procedures of the [governing body] board of directors; the delegation of powers and duties to the [governing body consistent with section 921 board of directors; and any other matter relating to the proper functioning of the [governing body] board of directors; (fl provide for- (i) the acquisition of infrastructure, goods. services. supplies o r equipment by the [governing body] multi-jurisdictional service utility, or the transfer of infrastructure. goods. services, supplies or equipment to the [governing body] multi-.jurisdictional service utility: (ii) the appointment of staff by the [governing body] multi- jurisdictional service utility, or the transfer or secondment of staff to the [governing body] multi-jurisdictional service utility in accordance with applicable labour legislation: & (iii) the terms and conditions on which any acquisition, transfer. appointment or secondment is made: [and] (8) determine the conditions for, and consequences of, the withdrawal from the agreement of a [participating] parent municipality: ( h ) determine the conditions for, and consequences of, the termination of the agreement, including- (i) the method and schedule for winding-up the operations of (ii) the distribution of the proceeds: and (iii) the allocation among the [participating] parent municipali- ties of any assets and liabilities; and the [district] multi-jurisdictional service utility: (i) provide for- (i) the governing of the multi-jurisdictional service utility: (ii) compulsory written reports regarding the activities and performance of the multi-jurisdictional service utility to a parent municipality: (iii) information that may be requested from the multi-jurisdic- tional service utility by a parent municipality: (iv) the amendment of the agreement; and (v) any other matter necessary for the Droper functionine of the - multi-jurisdictional service utility. - - [(2) A governing body must consist of between three and fifteen Substitution of section 90 of Act 32 of 2000 5 1 0 IS 22. The following section is hereby substituted for section 90 of the principal Act: .\rt No. 44,2003 LOC.4L GOVERNMEST': MUNICIPAL SYSTEMS AMENDMENT .ACT. 200.; "Legal status of [governing bodies] multi-jurisdictional s e n ice utilities 90. (1) [The governing body of a] A n~ulti-jL~risdlctiollal [municipal service district] service utility is a juristic person. and a municip;ll entit! under the shared control of the parent municipalities. ( 2 ) A multi-iurisdictional service utility-.. \ i o ) must restrict its activities to the ob.ject for which i t \\;I\ c\tahli~hed: and (1,) hasno competence to perform any activity \vhich f :~ l l \ out\icltl i t \ functions in terms of the agreement referred t o i n src1ion S7." . Repeal of section 91 of Act 32 of 2000 io 23. Section 91 of the principal Act is hereby repealed Substitution of section 92 of Act 32 of 2000 21. The following section is hereby substituted for section 92 of the principll :Zct: "Control of [governing bodies of] multi-jurisdictional [municipal service districts] service utilities I5 92. I ) [The governing body of a] A - n~ulti-jurisdiction;~l [municipal I N ) is accountable to the [participating] parent mLlnicipalitit.~: and ( h ) must comply with [any legislation applicable to the financial service district] service utility- management of municipalities and municipal entities] 2 0 Municipal Finance Management Act. ( 2 ) A [participating] parent municipal it!^-- lrrl is entitled to receive such regular written repom fro111 the [governing body of a district] multi-jurisdictiolal \ en ice u t i l i t ! with respect to its activities and performance. a\ ma!. he h e t O L I I i n 25 the agreement establishins the [governing body] ~ll~~lti-jt~ri\~lic- tional service utility; l b i may request the [governing body] multi-jurisdictional \ cn ice utilitv to furnish it with such information regarding i t \ acti\ i t i t . \ ;I\ the [participating] parent municipality may reasonahl! Iqtlirtl: ?O and ( L ' ) may appoint a nominee to inspect, at any time dtlrlns 11orm;d business hours. the books, records. operations and tacilitie\ o t ' t h c [governing body] multi-jurisdictional service utilit!. and [of1 those of its contractors relating t o the [provision of the n~unicipal 35 service] performance of the function or power f o r \\.hich the [district] multi-jurisdictional senice. u t i l i t y is estahllshrtl.". Substitution of section 93 of Act 32 of 2000 25. The following section is hereby substituted for section 93 of the principal Act: "Termination of multi-jurisdictional [municipal service districts] 40 service utilities 93. A multi-jurisdictional [municipal service district] h e n ice u t i l i t y ( t i l automatically. when there is only one remaining [Participating] I h l by written agreement among all of the [participating] parent terminates- parent municipality; 45 municipalities; or 32 N o . 25960 GOVERNRll_NI'G,~ZETTE. 10 J A \ I ' . . \ K ) ? ( I O - ; Act No. 44,2003 LOCAL GOVERNMENT: - MUNICIPAL SYSTEMS AMENDMENT .ACT. 200.1 ( c ) upon the termination date or the fulfilment of any condition for termination contained in the agreement establishing the [district I multi-jurisdictional service utility.". Insertion of parts 5 , 6 and 7 in Chapter 8A of Act 32 of 2000 26. Thc following Parts are hereby inserted in Chapter 8A of the principal .4cl after section 93: "Part 5: Duties and responsibilities of parent municipalities Duties of parent municipalities with respect to municipal entities 93A. The parent municipality of a municipal entity- fa) must exercise any shareholder, statutory. contractual or other right5 and powers it may have in respect of rhe municipal entit!. t o ensure that- (i) both the municipality and the municipal entity comply with this Act, the Municipal Finance Management Act and an!' other applicable legislation: and (ii) the municipal entity is managed responsibly and trunsparentl!. and meets its statutory, contractual and other obligations: (6) must allow the board of directors and chief executive officer o f the (c) must establish and maintain clear channels of communication between municipal entity to fulfil their responsibilities; and the municipality and the municipal entity. Parent municipalities having sole control 93B. A parent municipality which has sole control of a municipal cntit!. or effective control in the case of a municipal entity which is :I pri\.ate company- (a ) must ensure that annual performance objectives and indicator5 fo r t h c ' municipal entity are established by agreement with the municipal entity and included in the municipal entity's multi-year hu\inez\ plan in accordance with section 87(5)(d) of the Municipal Finance Management Act; (b) must monitor and annually review. as part of the municipal entit!'s annual budget process as set out in section 87 of the Municipal Finance Management Act, the performance of the municipal entit! against the agreed performance objecti\.es and indicators: and (c) may liquidate and disestablish the municipal entity - (i) following an annual performance review. if the performance ot' the municipal entity is unsatisfactory; (ii) if the municipality does not impose a financial recovery plan i n terms of the Municipal Finance Management Act and the municipal entity continues to experience serious or persistent financial problems; or (iii) if the municipality has terminated the service deli\.ery agrer- ment or other agreement it had with the municipal entity. Parent municipalities having shared control 93C. Parent municipalities that have shared control of a municipal entity- ( a ) must enter into a mutual agreement determining and regulating- (i) their mutual relationships in relation to the municipal entity; LOCAL GOVERNMENT: hlUNICIPAL SYSTEMS AMENDMEN'T ACT. 100.~ the exercise of any shareholder. contractual o r other righ[\ : 1 n d powers they may have in respect of the municipal entit!,: the exercise of their powers and f'unctions i n t e r m o f t h i \ Act ;und the Municipal Finance Management Act \\ ith respecr t o the municipal entity; measures to ensure that annwl performance objecti\ es and indicators for the municipal entity are established h!, agreemcnt with the municipal entity and included i n the municipal cntit! ' \ multi-year business plan in accordance ~ v i t h section 87(5)1r/ , o f the Municipal Finance Management Act: the monitoring and annual re\,ieu,. a s p u t of the municip;ll entity's annual budget process as set out i n section Xi 01' 1111' Municipal Finance Managemen1 Act, of the performance o f the municipal entity against the established performance ol?jt.cti\ e< and indicators; the payment of any monies by the municipalities to the municip;ll entity or by the municipal entity to the municipnlities: procedures for the resolution of dihputes betneen thosc n1uniL.i- palities: procedures governing conditions for and consequellces o f \\ i t h - drawal from the municipal entit!, by a municipalit\ : procedures for terminating the appointment and utilisation o f the municipal entity as a mechanism for the perfornwnce 01. J municipal function: the disestablishment of the municipal entit!,. the di\ i\ion. tran\ter or liquidation of its assets and the detrrminntion o f ' t11r responsibility for its liabilities: and ( x i ) any other matter that may be prescribed: and ( h i may liquidate and disestablish the municipal entit! - ( i ) following an annual performance review. if the performance o f the municipal entity is unsatisfactory: ( i i ) if the municipality does not impose ;I financial reco\er! plan i n terms of the Municipal Finance hlanagement Act and t11c municipal entity continues to elperiencr serious o r pcr\i\tent financial problems: or ( i i i ) if the municipality has terminated the sen ice deli\ er! :lgreenlLwt or other agreement it had with the municipal entit!. Municipal representatives 93D. ( 1 ) The council of a parent municipality must dehignate a councillor or an official of the parent municipality. or both. ;I\ thc represent:tti\e o r representatives of the parent municipality-- ( u j to represent the parent municipality as a non-participatin~ o h s e n w a t meetings of the board of directors of the municipal entit! concerned: and ( h ) to attend shareholder meetings and to exercise the parent municipali- ty's rights and responsibilities as a shareholder. together uith such other councillors or officials that the council ma! designate ;IS representatives. (2) (a ) The official lines of communications between ;I municipal entit! and the parent municipality exist between Ihe chairperson of the board o f directors of the municipal entity and the mayor or executi\y mayor. a s the case may be, of the parent municipality. (b) The mayor or executive mayor. as the case may be. of a parent municipality may at any time call or converle any meeting of shareholder\ or other general meeting comprising the board of directors o f the municipal 1 . I . Act No. 44, 2003 LOCAL G VERNMENT: MUNICIPAL SYSTEMS AMENDMENT ACT. 7003 entity concerned and the representatives of the parent municipalit>. i n orc1c1- for the board of directors to give account fhr actions taken b! i t . (c) The council of a parent municipality may detertninr the reporting responsibilities of a municipal representative referred to i n wh~cct lo i l ( I ) ( a ) or fb) . (3) (a) A municipal representative referred to in subsection ( I ) t h i . m u \ ( represent the parent municipality faithfully at shareholder meeting>. without consideration of personal interest or gain, and mttq keep the council informed of- (i) how voting rights were exercised: and (ii) all relevant actions taken on behalf of the municipalit!. by the (b) A municipal representative referred to in subsection ( 1 or ( / I ) - (i) must act in accordance with the instructions of the council: and (ii) may be reimbursed for expenses in connection lvith hi4 o r her duties as a municipal representative, but may not receix an\ additional compensation or salary for such duties. representative. Part 6: Governance of municipal entities Appointment of directors 93E. (1) The board of directors of a municipal entity- ( a ) must have the requisite range of expertise to effectivel!, manage and (b) must consist of at least a third non-exocutive directors: and (c) must have a non-executive chairperson. nominating or appointing a director, establish a process through Lvhich- ( a ) applications for nomination or appointment are widely solicited: ( 6 ) a list of all applicants and any prescribed particulars concerning (c) the municipal council makes the appointment or nomination froln guide the activities of the municipal entity; ( 2 ) The parent municipality of a municipal entit! must. before applicants is compiled; and such list. Disqualifications 93F. ( 1 ) A person is not eligible to be a director of a municipal entit!, if he or she - (a) holds office as a councillor of any municipality; (b) is a member of the National Assembly or a provincial legislature: (c) is a permanent delegate to the National Council of Provinces: id) is an official of the parent municipalit] of that municipal entit) : ( e ) was convicted of any offence and sentenced to imprisonment \vithout the option of a fine, and a period of five years since completion of the sentence has not lapsed; (f, has been declared by a court to be of unsound mind; or ( g ) is an unrehabilitated insolvent. (2) If a director of a municipal entity during that person's term of office becomes disqualified on a ground mentioned in subsection ( 1 ). such person ceases to be a director from the date of becoming disqualified. Removal or recall of directors 93G. The parent municipality of a municipal entity may remove or recall a director appointed or nominated by that municipality- ( a ) if the performance of the director is unsatisfactory; (b) if the director, either through illness or for any other reason. is unable to perform the functions of office effectively; or (c) if the director, whilst holding office- ( i ) is convicted of fraud or theft or any ott'ence i n \ o I \ ins fraudulent conduct; or ( i i ) has failed to comply with or breached an! Icgi\latiot1 regulating the conduct of directors. including an!. applicahlc code of conduct. Duties of directors 93H. ( 1) The board of directors of a municipal entit!, must- f r r ) provide effective, transparent. accountable and cohel-ent c ~ ~ r p o r ; ~ c governance and conduct effective oversight of the affair\ o i the ~ I O municipal entity; legislation and agreements; municipal entity: and ~ I5 (D) ensure that i t and the municipal entity comply with all applicahlr. ~ I fc) communicate openly and promptly with the parent municipalit! o f the ~ l d ) deal with the parent municipality of the municipal entit!' i n y o d l.aitl1. ~ N J disclose to the board of directors. and to the represrntati\c ot the ( 2 ) A director must- parent municipality, any direct or indirect personal or bu\ines\ inrerc\t I that the director or his or her spouse or partner may ha \e i n an! I m t t t ~ l - ' 2 0 before the board, and must withdraw from the proceeding\ o t tllc board when that matter is considered. unless the board decides that tlw ~ director's direct or indirect interest in the matter is tri\,ial o r irrelr.\ a n t : ~ and ~ referred to in section 93L. I (1)) at all times act in accordance with the Code of Conduct t o r dirr.ctol.\ ' 25 RIeetings of board of directors ~ 931. ( 1 ) Meetings of the board of director5 of a municipal entit! m u \ t hc open to the municipal representatives referred to i n section 03D( I ) ( t r i . ( 2 ) Municipal representatives referred t o in section 93D( I ) ( ( / i h a \ c non-participating observer status in a meeting of the board o f dtl-ector\ o f ;I municipal entity. ;2ppointment of chief executive officer 935. ( 1 ) The board of directors of a tnunic~pal entity must appoint ;I chief' ( 2 ) The chief executive officer of a municipal entity is accountable t o the executive officer of the municipal entity. board of directors for the management of the municipal entit!. Part 7: General Establishment of and acquisition of interests in corporate bodies disallowed 93K. ( 1 ) A municipal entity may not- corporate body, including a trust: or including a trust. ( a ) establish or participate in the establishment of a compan! o r an\ othcr ( 1 7 ) acquire or hold an interest in a company or any other corporate hod!,. ( 2 ) Subsection ( 1 ) does not apply to- ( a ) the acquisition by a municipal entity of securities i n a company listed on the Johannesburg Securities Exchange for investment purposes. subject to any applicable provisions of the Municipal Finance Management Act; or 40 No. 25960 < i O V E R N ~ l E S T G . ~ Z F _ T T L .$ 1 1 I \ \ I . \Kj 2OI l i
Act No. 44,2003 LOCAL GOVERNMENT: -
MUNICIPAL SYSTEMS AMENDMENT XCT. 200.;
(b) a fund for the benefit of employees of ;L municipal entit! 111 term5 of ;I law regulating pensions or medical aid .schemes.".
Code of Conduct for directors and members of taff of nwnicipal entit?
93L. (1) (a) The Code of Conduct for councillors contained i n Schedule
( 6 ) In the application of item 14 of Schedule 1 to directors o f a municipal 1 applies. with the necessary changes, to directors of a municipal entit!,.
entity, that item must be regarded as providing as follows:
'Breaches of Code
14. (1) The board of directors of a municipal entity ma!' - ( a ) investigate and make a finding on any alleged breach of ;I
(6) establish a special committee - provision of this Code by a director; or
(i) to investigate and make a finding on any alleged breach ot
(ii) to make appropriate recommendations to the board o f
(2) If the board of directors or special committee finds that ;I director
a provision of this Code by a director: or
directors.
has breached a provision of this Code. the board o f directors mal- (a) issue a formal warning to the director: (b) reprimand the director; ( c ) fine the director; or (dl recommend to the parent municipality that the dircctol- hc
(3) The board of directors of a municipal entity must inform