PRESENTATION TO THE SELECT COMMITTEE ON
PUBLIC SERVICES
INDIVIDUAL RURAL HOUSING SUBSIDY VOUCHER
PROGRAMME
7 AUGUST 2012
BACKGROUND
Programme Rationale:
• Not many housing projects in rural areas
• Rural development is a priority for government
• Enable qualifying beneficiaries in rural areas to access
government subsidy funds to purchase building materials and
improve their housing conditions
• Reach households in rural areas who are not reached by
current subsidy programmes
OVERVIEW OF THE PROGRAMME
Key Features:
• Individual subsidy programme
• Subsidy issues in the form of a voucher in exchange for
building materials and services
• The self-help concept is the fundamental requirement—
leveraging local household capacity to build own houses
• RHLF to act as Implementing Agent
• RHLF to enter into service level agreement with Provinces
Land Rights
• Programme applies to persons with informal
land rights
• Land rights must be uncontested
• Traditional authority to confirm functional
tenure
• Programme does not apply where normal
individual subsidies or project linked subsidies
apply
Phased Implementation Process
- Discover what works
Pilot Phase
- Reduce operational risk
- Build organizational capacity
Implementation Process
Start
RHLF
Permanent
Formalized Process
Sign an Implementation
Agency Agreement
No
Submitted
plan?
Yes
PHD
NHD & RHLF
Receives funds to implement
housing needs in the province
Enter in to 3 year service level
agreement
Signed
service level
agreement
Risks associated with the programme and mitigating
factors
At the EMT meeting of the 28th of Sept 2009, RHLF was instructed to
investigate the risks associated with the Individual Rural Housing
Subsidy Voucher Programme, and to present any mitigating factors or
procedures.
Risks as identified by the Policy Directorate of the National Department
of Human Settlements and RHLF management team:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Possible funding misappropriation
Possible conflict between parties
Lack of service providers and subsidy administrators
Lack of material suppliers
Losses during transporting of materials
Possible incomplete dwellings and possible inferior workmanship
Geotechnical problems
Lack of capacity of RHLF
Funding
RISK:
1. Possible funding misappropriation:
Resulting from RHLF releasing funds in
advance to non-traditional lenders.
MITIGATION STRATEGIES:
• No funds would be paid to non-traditional
lenders, other than fees for services rendered
• RHLF will pay directly to building material
suppliers – based on POD
• All payments will be subject to current RHLF
internal controls and procedures
• Internal controls and procedures subject to
annual audit
RISK:
2. Possible conflict between parties:
Arising mainly from participation of range of
players.
MITIGATION STRATEGIES:
• Sound legal contracts – with an alternative dispute
resolution process
• Education of counterparties to the agreements parties must understand their rights, responsibilities
and obligations
• During pilot phase of the programme a forum should
be created where any disputes could be discussed
and resolved in a timely manner.
RISK:
2. Possible conflict between parties (continue):
Possibility of acknowledging materials not
actually received.
MITIGATION STRATEGIES:
• Using only reputable building material suppliers existing relationship with one of our current
intermediaries
• The intermediaries’ role would be to educate the
beneficiary beforehand
• Investigate the use of biometric fingerprint reader
and scanners in the POD process
• The certifier / intermediaries will play a role in
reporting any possible short deliveries
RISK:
3. Lack of service providers and subsidy administrators :
Would make the programme not feasible in all
areas of RSA
MITIGATION STRATEGIES:
• non traditional lenders not the only solution
• community based organisations (e.g. Co-operatives) –
RHLF’s strategy to find and develop
• A successful pilot would go a long way in convincing
other intermediaries about the financial viability of
the programme
RISK:
4. Lack of material suppliers:
This could result in the exclusion of qualifying
beneficiaries
MITIGATION STRATEGIES:
• Negotiate with closest suppliers already serving the
target market
• Rely on local knowledge - where they currently get
materials from even though transport costs may be
higher
• Consider appointing a suitable transport service
provider to deliver all materials in certain province /
area
RISK:
5. Losses during transporting of materials:
Non-delivery due to distance and
inaccessibility and therefore relying on
unsuitable own transport
MITIGATION STRATEGIES:
• Rely on local knowledge - where they currently get
materials from even though transport costs may be
higher
• Consider appointing a suitable transport service
provider to deliver all materials in certain province /
area
RISK:
6. Possible incomplete dwellings and possible inferior
workmanship:
Result of challenges pertaining to managing
progress and quality
MITIGATION STRATEGIES:
• RHLF experience – people achieved better quality
house when using own money
• With public funds, possibility of laxity exists
• Consumer education of all beneficiaries
• Long term strategy to work with CETA to offer training
• Role of Certifiers and possibly building inspectors
from the Province / Municipalities (where feasible).
RISK:
7. Geotechnical problems:
Soil problems may cause structural damage to
houses
MITIGATION STRATEGIES:
• Use Variation Manual which maps problematic areas
• Local knowledge will be critical as people will be
building where they currently reside
• The programme provides for Provinces to appoint
geotechnical engineers and land surveyors
RISK:
8. Lack of capacity of RHLF:
In its current form RHLF will not be able to
deliver the required service
MITIGATION STRATEGIES:
• RHLF will have to establish a new Division apart from
its lending business in line with mandate broadening
• First position that we will need to fill is that of a
programme manager – this could be a contract
position for the pilot only
• Propose that consultants / interns with built
environment qualifications be used where possible
during the pilot
• Pilot phase - allows RHLF to build capacity as it goes
along
RISK:
9. Funding:
The proposed fee of 5% might not be enough
MITIGATION STRATEGIES:
• For the pilot, RHLF will utilise part of the
Accompanying Measure form KfW, where possible
• First draft forecasts (based on 500 subsidies in pilot)
•
•
•
•
•
•
5% fee income
Cost to RHLF
Shortfall
= R1,5mil
= R9,5mil
= R8mil on pilot
Estimated total shortfall over 3 years = between R25m
and R30m.
Hence the application for R25mil additional funding
Cost is not 5% of subsidy but closer to 20%
Previous Key Decisions
MINMEC HELD ON 21 AUGUST 2009:
Decision:
• The meeting approved the Individual Rural Housing Subsidy Voucher Scheme subject
to rural areas in all provinces being recognized and;
MINMEC on 30 Oct 2009 - Presentation by Department:
•
RISKS & COSTS FOR THE RURAL HOUSING SUBSIDY VOUCHER PROGRAMME & ALTERNATIVE
MECHANISMS
•
Decision: The meeting deferred approval of the Document until the finalisation of the discussions
with National Treasury on the Development Finance Institutions (DFIs)
Portfolio Committee on Human Settlements:
• Advised DHS to proceed with the implementation of the pilot
How will the Process Work?
• RHLF negotiates funding reservation with MECs over the
MTEF periods
• Conclude agreements and Province makes advance payment
to RHLF to RHLF
• RHLF evaluates and appoint subsidy voucher intermediaries—
these were planned to be RHLF current intermediaries or
community based organisations
• VS
• DHS advising RHLF to appoint NURCHA as a voucher
intermediary (described below)
OPTION1: NURCHA AS VOUCHER INTERMEDIARY
DHS’s PREFERENCE FOR NURCHA:
• NURCHA has provincial infrastructure to act as
voucher intermediary
• This arrangement is a departure from original
approved strategy of using various RHLF
intermediaries
• NURCHA assumes sole role of being a voucher
intermediary, but at a higher cost than originally
envisaged
Pilot Phase Implementation Timeframes
(three municipalities in EC)
Months
1 2
MILESTONES
3 4 5 6 7 8 9 10 11 12 TOTAL
Technical preparation
Beneficiary application 80 90
170
Subsidy approvals
80 90
170
Transfer of subsidies
170
170
Consumer Education
40 40 40 50
170
Build & Supply Orders
40 40 40 50
170
Foundations
40 40 40 50
170
Wall Plates
40 40 40 50
170
Roof & Completion
40 40 40 50
170
Hand-over
40 40 40 50 170
Cost Implications for NURCHA Implementation
Model
NURCHA determined minimum house cost as follows:
Proposed Subsidy Amount Based on the Current Hosing
Subsidy Quantum (DHS)
Cost element
Cost
Water provision
R4 872,00
Sanitation
R5 663,00
House cost
R58 825,00
Total
R69 360,00
The Implementation Fee
• With NURCHA as voucher intermediary, implementation costs are as
follows:
•
•
•
R16 080 amounts to 23% of based on subsidy amount of R69 360
R1.8m RHLF management Fee
R6 240 000 covers NURCHA fees
Total Costs for Pilot Phase in NURCHA Model
Cost for 500 units
R34 680 000,00
Programme
implementation fees
R8 040 000,00
Total cost
R42 720 000,00
• Note is made that NURCHA model departs from MINMEC approved model
• With implementation fee rising from R3 468 to R16 080 per beneficiary
• R8m to facilitate construction of 500 units amount to cost of delivering 116
rural dwellings
Comments on RHLF/NURCHA Model
• One-Stop facility of NURCHA model:
– Ensures well co-ordinated drive for best possible
implementation
– Provides best option to address informal building
practices associated with rural areas
– But the model seems to be too costly for the
government fiscus (R16 080/beneficiary)
– Question is raised whether the Programme is in
fact feasible
Option 2: Explore cost – effective implementation
model?
• The cost of implementing the pilot through RHLF/NURCHA
model is not cheaper than the previous RHLF costing—which
indicated a shortfall of R8m p.a.—clearly 5% is unlikely to
cover costs if all risk issues are to be addressed
• Following concerns raised on implementation costs, RHLF
Board directed management to explore alternative
implementation model that is cost-effective
– Leverage the rural knowledge of building own houses
– Undertake risk mitigation measures that are cost effective to ensure
quality housing
Concluding Remarks
• Implementation of the Programme needs to be revisited
• Where the Province or participating municipalities can offer
services, they should in order to reduce cost of
implementation
• Programme has potential to expedite delivery of houses
provided beneficiaries are enabled to build their houses in the
manner they have built own houses for generations, while
• Human DFIs, Province and Municipalities provide support to
mitigate risks—role clarification and commitment is key
• Many positive spinoff's for rural development