FINANCE DIRECTORATE
SHAREHOLDING MANAGEMENT DEPARTMENT
MUNICIPAL ENTITY
QUARTERLY NEWSLETTER
Quarter 4 - 01 April to 30 June 2007
ISSUE NO. 01
This is the first of a series of newsletters to be developed by the Shareholding
Management Department, a unit within the Finance Directorate established to
monitor the municipal entities of the City of Cape Town.
As parent municipality to the municipal entities we aim to keep our municipal entity
boards of directors and staff abreast of all current news, legislation and policies
directly affecting the municipal entities. This will facilitate that directors are
continuously informed as well as to make certain that we meet the legislative
requirement as parent municipality to ensure that both the municipality and the
municipal entity comply with the Municipal Systems Act, the Local Government:
Municipal Finance Management Act and any other applicable legislation.
 Contents
The newsletter contains information relating to the Local Government: Municipal
Finance Management Act, Systems Act, Companies Act, Corporate Governance and
any information relevant to municipal entities.
 Newsletter frequency
The newsletter will be a quarterly publication and will be sent out as follows:
Quarter 1 01 JULY TO 30 SEPTEMBER - Issue 2
Quarter 2 01 OCTOBER TO 31 DECEMBER - Issue 3
Quarter 3 01 JANUARY TO 31 MARCH – Issue 4
TELL US WHAT YOU THINK!
Because this is our first issue we welcome any suggestions which will assist us in
producing a better and user friendly newsletter which keeps you informed of all the
latest news pertaining to your municipal entity.
Tell us what you think by sending us an e-mail to louise.muller@capetown.gov.za
and/or zenobia.heldsinger@capetown.gov.za
THE LOCAL GOVERNMENT LEGISLATION
THE MUNICIPAL FINANCE MANAGEMENT ACT:
Regulations, Gazettes & National Treasury Circulars

Exemptions from the MFMA sections 122 (2) and (3) - Gazette No 30013, 29
June 2007. The Exemptions relate specifically to the consolidation of the Annual
Financial Statements where all high capacity municipalities (including the City)
are exempted from complying with the provisions of section 122(2) of the MFMA
to prepare consolidated financial statements for the 2006/07 and 2007/08
financial years. Exemptions in respect of section 122(3) are to the extent they are
required and applicable to both the municipality and the municipal entities. For the
municipal entities the exemptions are applicable from 2006/07 to 2008/09
financial years and are subject to certain conditions fully outlined in the notice
which took effect on 30 June 2007.
However the City and the municipal entities have already complied with
these sections therefore the exemptions are not necessarily applicable.
See also the Preparation of Annual Financial Statements based on the
Exemption Gazette 30013 - MFMA Circular No 44 - 25 July 2007

Municipal Regulations on Debt Disclosure – Gazette No 29966, 15 June 2007
– These regulations provide the requirements when a municipality or municipal
entity intend to incur a debt. The regulations provide that when entering to
discussions with potential lenders disclosures by the municipal entity must be
made which include whether it intends long or short term debt, what the purpose
is for, certain documents must be submitted to the potential lender which include
audited financial statement for the preceding three years, its business plan,
annual budget etc. Regulations have also been included where the debt is
through municipal debt instruments. The regulations became effective on 01 July
2007.

Municipal Regulations on Minimum Competency Levels - Gazette No 29967,
15 June 2007 – The general and minimum competency levels of Accounting
Officers, Chief Financial Officers, senior management and other financial officials
(which includes supply chain management managers) of municipal entities have
been outlined in these regulations. Guidelines explaining the competency
regulations have also been provided.
Note: These regulations
1)
2)
3)
4)
include the
minimum competency levels for accounting officers
(CEO’s/MD’s);
require competency assessments;
require reporting on and monitoring of competency levels;
regulations 3, 5, 7, 9, 11 and 12 do not affect the continued employment and
conditions of employment of a financial official or supply chain management
official appointed by a municipal entity before the effective date, provided
that such official attains the required higher education qualification and the
required minimum competency level in the required unit standards for each
competency area within a maximum period of five years from 1 January
2008; and
2
5)
prohibits the employment of new financial and supply chain management
officials not meeting minimum competency levels as from 1 January 2013.

Supply Chain Management: Restriction of Suppliers - MFMA Circular No 43 25 May 2007 – A municipality or municipal entity may restrict a contractor from
doing business with the public sector should the contractor have obtained
preferences fraudulently or outside the limits of the Preferential Procurement
Regulations. The Circular provides guidance on taking action against the
contractor, following the Preferential Procurement Regulations and verifying the
database of contractors prohibited from doing business with the public sector.
General conditions of contract have also been included in the circular.

Funding a Municipal Budget – MFMA Circular No 42 - 30 March 2007 gives
guidance to both municipalities and municipal entities on funding a budget and
clarified certain other budget provisions contained in the MFMA. The medium
terms budget for 2007/08 of the municipality and the municipal entity should
comply with these guidelines as far as possible.
All the above regulations, gazettes and circulars are available on the National
Treasury website at http://www.treasury.gov.za/mfma/default.htm.
LOCAL GOVERNMENT LAWS AMENDMENT BILL
Amongst others, the Local Government Laws Amendment Bill seeks to amend the
Municipal Structures Act, Property Rates Act and the Systems Act. In terms of the
Systems Act amendments, the Minister (acting in concurrence with the Minister of
Finance and in consultation with DPLG) may by notice exempt any municipality or
municipal entity from specific provisions of chapters 8 and 8A of the Systems Act for
a period not more than four years and on conditions determined in the notice to
facilitate institutional restructuring. The Bill was formally introduced into Parliament
on 31 July 2007. The full Bill can be obtained at the following link:
http://www.pmg.org.za/bills/070731localgovbill.pdf
THE COMPANIES ACT
THE CORPORATE LAWS AMENDMENT ACT: News
The Corporate Laws Amendment Act which seeks to amend the Companies Act has
been signed by the State President, but its provisions will only come into effect by
proclamation. Briefly, it provides for new types of companies replacing the private
companies (or (Pty) Ltds) and public companies for ‘widely held’ and/or limited
interest companies. The Act allows the Board to authorise the company to make
loans to acquire shares where this is currently prohibited by the Companies Act. The
functions of the audit committee have been outlined and non-executive director vis a
vis an independent director has been described.
The Act goes into much more detail and a copy is obtainable in the following link:
http://www.info.gov.za/gazette/acts/2006/a24-06.pdf
3

The new Companies Bill will have an impact on municipal entities. The
Department of Trade and Industry has announced revised timeframes for the
Corporate Law Reform process:
.
o Finalisation of the updated Companies Bill, 2007, following public comments:
August 31, 2007;
o Submission of the Bill to the State Law Advisors for certification: September
10 , 2007;
o Submission of the Companies Bill to Cabinet for approval to introduce the Bill
into Parliament: October 31, 2007;
o Introduction of the Bill in Parliament: February, 2008;
o Enactment of the Bill: July, 2008;
o Promulgation of the Bill: November/December 2008;
o Implementation of the New Companies Act: January 1, 2010.
OTHER NEWS

In terms of the new Childrens Act, the minimum age of majority, 21 has been
reduced entitling a person of the age of 18 to be a director of a company.
Further, parental or guardian consent is no longer essential to enter into a
contract with a person aged between 18 and 21 years. The previous right of
an 18 year old, who had entered into a contract without the assistance of their
parent or guardian (after declaring that they were unaware of the
consequences of the contract) to have the contract declared void, will no
longer apply to the 18 to 21 age group.

In the case of Minister of Water Affairs and Forestry v Stilfontein Gold Mining
Co Ltd 2006 (5) SA 333 (w), the Court found that the directors of a
company, who all resigned simultaneously, in order to avoid taking certain
action, acted in bad faith to the company and were liable for the
consequences of not discharging their duties.

The Shareholding Management Department has developed a municipal
entity calendar which outlines all the MFMA and other reporting requirements
for the entity to City, Auditor General and National Treasury. The calendar is
in the format of the 2007/08 financial year and is due to be printed in the very
near future. A copy will be delivered to you as soon as it is finalised. For ease
of reference, the relevant dates and MFMA sections for the month of August
are as follows:
o
o
o

10 August – Section 87(11) Monthly Reports to be submitted to the City;
29 August – Section 21(1)(b) IDP and Budget to be tabled in Council
31 August – Section 126(2) Municipal entities to submit Annual Financial
Statements to the City and to the Auditor General for auditing.
There is lots of news on the City’s website. This is monthly newsletter
posted on the City’s website. We encourage you to visit our website and see
what’s new with water saving matters, renaming street names in Cape Town
and 2010, visit the site at http://www.capetown.gov.za
4