The Ports Regulator briefed the Committee on its establishment in 2007, and on the audit reports for 2007/08 and 2008/09. It set out at some length the provisions of the founding legislation, and what the Ports Regulator’s scope and function would be, in relation to the public and to the National Ports Authority.
Although there were no disclaimers or qualifications for the financial years 2007/08 and 2008/09, the Auditor-General had raised a number of matters of emphasis, which the Regulator described and explained in depth. There had been fruitless expenditure arising from late payment and therefore penalty interest being imposed on rental. There were material amendments, occasioned at the instance of the Auditor-General, to include audit fees in the correct financial year. There were not sufficient management and control systems in place, nor were the requirements of the audit committee fulfilled, and there was not a risk management plan and strategy, as well as several instances of non-compliance with the Public Finance Management Act or National Treasury Regulations. However, the reason for all of this was that although the Regulator had been established, it was not staffed and in the absence of its operative directives, it was not really functioning. For this reason, the financial side was being handled by the Department of Transport, and the financial functions were only to be handed over with effect from 1 November 2009. The audit committee had not had a Chairperson, but an independent Chair was now to be appointed, and the Committee had been split from the composite committee in which it used to function. The Auditor-General had been asked to audit each of the transactions. The employment equity ratios were based on a staff of only 3 people in 2007/09 and a few more, who were working on contract, for 2008/09. Staff would be hired incrementally as the Regulator took on more functions. It was budgeting for under spending in the 2009/10 financial year as only one matter had been referred to the Tribunal and it did not want to spend these funds on other functions.
Members asked for terminology to be explained and questioned at great length how the budget was estimated if there was no capacity to spend, and if there were no strategic plans. The staff component and employment equity were also questioned at length. More information was sought on the proposed corporatisation of the National Ports Authority. There was concern about the hearing and appeal processes, the chaos at ports, concerns about licences and the lease agreements at the harbour, which needed to be adjudicated and audited. The Regulator confirmed that it had already put in motion an investigation on some of the issues but was waiting for figures from the National Ports Authority. Members asked for explanations on the fruitless expenditure, the current composition of the audit committee, and why the financial statements were submitted late. They also asked who would be permitted to make submissions, what procedure would be followed to advertise the hearings, and what was the procedure in relation to appeals and complaints. The development of the strategic plan by the Department of Transport, the approval of past and present plans, and the need to investigate what was happening on the ground, were highlighted. Members also asked about the current budgets and what they comprised. The Committee noted that it would attempt to assist the Regulator but would also be playing a special role in ensuring that it could meet its mandate and functions.
Ports Regulator (PR) Annual Report presentations for 2007/08 and 2008/09
Chairperson’s opening remarks
The Chairperson said the Committee would be expecting the Ports Regulator of South Africa (PR) to explain how it had put its mandate into effect, how it implemented its targeted programmes and how it spent the financial resources allocated to those programmes, between 2007 and 2009. The Committee was interested in the challenges experienced in implementing the mandate and allocating resources. The Committee therefore asked the PR to explain the implementation processes and the effectiveness of the entity in executing its mandate. In addition, the Committee would like to hear about the role of the Board in governing the Ports Regulator (PR), governance of the entity and its compliance with government regulation. The Committee would be assessing, through questions and discussion, whether there were loopholes and whether the PR was achieving the desired results, as well as the relationship between the strategy implemented and how this related to government transport policies.
Briefing by the Ports Regulator of South Africa
Mr Riad Khan, Chief Executive Officer, PR, explained that the PR had a Board of Regulator members, of whom three members were present. The presentation would outline what the Regulator did and the focus was on the Auditor-General’s (AG’s) report, but would also deal with other specific matters in the Annual Report. If certain elements outlined by the Chairperson were not dealt with expansively in the presentation, they would be dealt with during the discussion.
The Annual Report cost R51.00 per unit and translated into R25.50 per year because it dealt with two years.
Mr Khan outlined that the National Ports Act was promulgated in 2006, and the first meeting of the Regulator was in March 2007. The offices of the Regulator were established in December 2007, the Chief Executive Officer (CEO) was appointed in July 2008, and a second round of the regulatory framework was developed. The directors and principals were approved and published in August 2009 and Regulator members were appointed on a part time basis. After the first meeting the members took great effort in defining issues in the Regulatory Policy, how the issues would be articulated while progressing to the Directives, and what the implications were for the Regulator.
The Objective of the National Ports Act was the development of an effective and productive ports industry for economic growth and development, and promotion and improvement of efficiency and performance in the management and operations of ports, as well as the development of an integrated regional production and distribution system in support of government policies. The PR focused on the creation of ports that delivered on developmental objectives in accordance with policy perspectives and the resources of the state. The PR dealt with the rights of subsistence fishermen and port facilities, as well as large South African entities and multi national companies.
The Act outlined the mandates and functions of the PR and National Ports Authority (NPA) but it had not been fully implemented as the NPA had not been corporatised. The PR was not yet fully operational in all the mandated areas. The Minister of Transport issued regulations and the PR issued the Directives. The Directives included how the PR operated its business and what considerations were taken into account when making decisions. The Regulations specifically dealt with setting the context for the industry and particularly the legal rules that governed the industry.
The functions of the PR were set out in the presentation (see attached document for details). Broadly speaking, the PR was to monitor the activities of the national ports, promote regulated competition, approve or reject the NPA tariffs, adjudicate complaints and appeals, promote equity of access to ports, and to exercise economic regulation of the port system. Economic regulation sought to promote competition between ports, competitive and affordable tariffs, protection of port users and promotion of investment. The port system had to be locally, regionally and globally competitive, provide access for Small, Medium and Micro Enterprises (SMMEs) and Broad Based Black Economic Empowerment (BBBEE) companies, improve international trade and promote the reliability of port services and facilities.
The main function of the NPA was to own, control, manage and administer the ports to ensure efficient and economic functioning. The NPA implemented these functions by entering into agreements with third parties to provide port services and facilities, and issued licences through competitive bidding for the provision of port facilities and services. The NPA was a monopoly, which needed to be regulated and monitored and port users had to have access to a choice of facilities and services. The Regulator had a role to play in the NPA agreements and licences, since PR monitored the issuing of licences and the concluding of agreements with third parties. It had the authority to ensure that SMMEs and BBBEE companies were provided access. Reporting on compliance would be done annually, with effect from 2010.
The framework for participation that would be issued by the Minister of Transport in 2010 would determine the port market structure. Employment creation and economic growth through the port system were key elements. Barriers to entry in the ports environment had to be addressed. The PR had to create an enabling environment for all operators.
As a port authority the•NPA was required to submit to the Regulator, and publish for comment all proposed NPA activities and tariffs, including the manner of calculation and model agreed upon. The NPA had to provide an indication of the impact, provide all financial information and articulate what reinvestment of profits and revenues there were within the ports system. The Regulator could approve or reject some or all of the tariff increases and hold hearings and invite submissions on the proposed increases. The purpose of NPA tariffs was to enable the NPA to recover its costs in maintaining, operating, controlling and administering ports, including its costs in providing port services and facilities, and to make a profit commensurate with the risk. The PR would ensure that the tariffs were reasonable, non-discriminatory and affordable, and were not being used to cross-subsidise, except if this was in the public interest.
All port service providers had to lodge a detailed and comprehensive list of prices charged for port services, within 6 months of the publication of the Directives on 6 August 2009. The Ports Act defined port services as stevedoring, cargo handling, terminal operations, storage of cargo within a port, tug services, floating crane services, berthing services, fire fighting, security, radio and radar services, waste disposal, vessel repairs and any other services provided within a port. These had both private and public sector components.
The duties and functions of the PR during tariff processing would include checking that value was not transferred from one balance sheet to another, the overall cost structures and their impact, and that sufficient pressure was exerted on the NPA to prevent the stripping of value and to allow for profit.
The Regulator’s current activities included maintaining the Regulator’s secretariat and systems, implementing a ports regulatory framework, an economic review of the participation in the ports system, implementing a tariff regulation framework, port compliance monitoring and the adjudication of appeals and complaints. A quasi tribunal was run for appeals and complaints and the Regulator adjudicated appeals from port users, and complaints from any person affected by the decisions and actions of the NPA. The Regulator could issue the appropriate orders to resolve the appeals and complaints.
Financial statements for 2007/08
Mr Khan outlined the financial statements for 2007/08, stating that there had been no disclaimers or qualifications for the financial years 2007/08 or 2008/09. There was fruitless expenditure of R13 000 related to interest on the late payment of rental for offices because of the dual compliance of the Regulator. The bills of the Regulator were submitted to the Department of Transport (DOT) for payment once internal processes were complied with and approved. However, at a stage, no dedicated person was responsible for processing payments. The late payment of rental occurred once, but not subsequently.
There were some material amendments to the accounts in 2007/08 and 2008/09 because the auditor’s fees were accounted for in the financial year assessed. A simple budget allocation was done and the auditor’s fees were then written into the correct annual financial statements, at the request of the Auditor-General. The DOT ran the payment function and made the allocations since the whole budget was not transferred to the Regulator. The Regulator’s policy was to prepare financial statements on the basis of accounting determined by the National Treasury, and the two changes were made because the basis of accounting was different.
The Regulator had materially under spent its budget by R7,3 million, which was attributable to the entity being in its infancy and not fully operational. Budgetary controls ensured that the funds were not wasted. As the Ports Regulator became more operational its financial performance would improve and expenditure would be within the approved budget.
The AG had commented that the accounting authority did not have effective, efficient and transparent systems of financial and risk management and internal controls in place, contrary to the Public Finance Management Act (PFMA). However, DOT procedures were followed since the policies and procedures of the Regulator had yet to be put in place.
The annual financial statements of 2007/08 were not submitted for auditing as per the legislated deadlines set out in the PFMA because there were no staff, but once the CEO was appointed the financial statements were drawn and submitted to the AG. The PR had no internal audit function in operation throughout the financial year since there was limited operation at the time, and the DOT performed de facto financial oversight for internal auditing purposes. No payments were being made at this stage by the PR. The audit committee would be fully functional once the Chairperson was appointed and the terms of reference approved. This accounted for the AG’s comment that the PR did not operate with an approved internal audit plan as set out in the Treasury Regulations.
The AG’s further comments were described in detail, including the lack of strategic plan, the lack of control processes and procedures, and lack of design and implementation of internal control systems. There had also not been risk assessments, nor was a risk management strategy and fraud prevention plan compiled. However, this also related to the fact that the PR had its first meeting only shortly before the 2007/08 financial year end. A limited regulatory operation was in place, and the DOT performed de facto financial oversight for internal auditing. Information systems were subsequently implanted. There was no functioning performance management system, and performance bonuses were only paid after proper assessment and approval, by those charged with governance. A performance management system was being developed for implementation.
In respect of the financial year for 2008/09, Mr Khan indicated that the PR had prepared its accounts in accordance with Generally Accepted Accounting Practice (GAAP). However, the AG had recommended that the PR should use Generally Recognised Accounting Practice (GRAP), which was then adopted and which changed the reporting structure of the accounts for 2008/09.
Contrary to the Public Finance Management Act (PFMA), payments in this year were made to one supplier after 30 days resulting in fruitless and wasteful expenditure in the amount of R13 000, being penalty interest arising from the late payment of the rental for the premises occupied by the PR. This delayed payment was due to multiple control systems by the DOT and the Regulator being applied to each payment. Implementation of the financial policy, procedure and systems at the Regulator were completed, and the entire financial function was in the process of shifting to the Regulator with effect from 01 November 2009.
The AG commented that the PR had materially under spent its budget. However, Mr Khan noted that the PR was not fully operational and that the expenditure was appropriate for the level of legal instruments in place at the time. Its financial performance would improve. Budgetary control would ensure that funds were not wasted on unused functions, and expenditure would remain within the approved budget.
The AG reported that the accounting authority did not have effective, efficient and transparent systems of financial and risk management and internal control in place, contrary to the PFMA. However, as indicated early, the DOT procedures were being followed.
Once again, the comment about the material amendments applied as a result of the AG’s request that auditors’ fees be accounted for in the year following assessment.
The finance, audit and risk management committee had functioned as a single committee. The combined committee did not operate in accordance with the AG’s requirements, but subsequently three separate audit committees were formed, each with its own terms of reference, to ensure compliance. Although the audit committee did not, strictly speaking, fulfil the normal responsibilities in 2008/09, there was multiple compliance with the DOT’s financial oversight, for the internal audit. Control measures were put in place that resulted in no deviations from Supply Chain Management (SCM) standards.
The AG was asked to audit all the transactions because of the issues that were raised, to ensure that these transactions were all in order. There was no deviation found in the internal audit, and no deviations from SCM standards. Financial and risk management was being performed on a high level, but was integrated into the operations of the PR and did not operate as a stand alone. The National Treasury’s Risk Management software was currently being acquired to comply with the formal requirement. DOT policies were utilised wherever the PR policies were in the process of being developed. Mr Khan stressed that there had been multiple compliance.
The appointment of staff was delayed until the regulatory instruments were in place. The risk system was currently being implemented and the information systems were also being developed and implemented. The information systems were not previously appropriate to facilitate the preparation of a performance report that was accurate and complete. A strategic plan was developed and submitted to the DOT for approval, but no performance agreement was concluded at that stage. Currently there was a performance management system being developed for implementation. The IT system was being developed and implemented but currently it was not automated.
During the 2007/08 financial year the PR’s budget was R11,144 million, of which R2,390 million was spent, with under expenditure of R8,754 million.
The budget for 2008/09 increased to R11,382 million and the expenditure increased to R5, 988 million, with under expenditure of R5,394 million.
The forecasted budget for 2009/10 was R12,945 million, and expenditure was forecasted to be R9,900 million with under expenditure at R3 million, which would result from delayed conclusions and publication by the directors, which resulted in certain operations commencing later than expected. In addition, there were expectations that more funds would be required for tribunal functions, but there were less than anticipated. The PR had decided that these funds should not be spent unless there was an obligation to do so, and therefore it had planned for the under-spend.
The financial performance for each programme was tabled. Administration in 2007/08 had cost R2.2 million and monitoring had cost R111 000. For 2008/09, there were some further functions and therefore the spending on administration rose to R3.7 million, spending on economic regulation and tariffs was R859 000, on monitoring was R843 000 and on tribunal and regulatory development R573 000. For 2009/10 the administration costs were anticipated to drop to R3.2 million, while economic regulations and tariffs would increase to R2.5 million, monitoring would increase to R923 000, but spending here would start only after April, and tribunal and regulatory development, although budgeted for R3.3 million, would likely not be spent. Detailed figures for the compensation of employees, goods and services, and depreciation, compared across the financial years 2007 to 2009 were tabled.
Mr Khan noted that the BBBEE targets in 2007/08 were not established and set, as it was the first year of operation. However, there had been 61.33% in this area. For 2009/10 the target was set for 50% but PR had reached 83.61%. In 2007/08 there was an all black male management team, with an all black female non-management staff component. In 2008/09, although all management were black males, the staff ratios were now 25% black males, 25% white males and 50% black females.
Mr J Maake (ANC) said that it was difficult to understand which port was competing against which. He asked for an explanation of stevedoring and berthing services as the Members did not understand all of the terms. He asked what the difference was between a “quasi tribunal” and a “tribunal”. He asked what had been in place for port regulation before the formation of the PR. He asked how the budget could be estimated if there was no capacity to spend.
Mr Khan responded that one of the primary elements of the Ports Act was to drive the establishment of competition and to ensure that there was competition between different port operators in the movement of cargo, which would happen if one facility was offering more efficient service than another, or better pricing. There were standardised rates in many of the ports, and the outputs of some ports such as East London could be reduced over time. To ensure that smaller ports still got traffic and were able to compete with larger ports with differential structures, differential support mechanisms and pricing were needed. This process was in the course of development and engagements were being held with the Minister of Transport. In 2010 the Minister would be issuing the framework participation, and the rules of competition and engagement would be set out between ports as well as within ports.
Mr Khan explained that stevedoring was mainly the labour function on the dockside, where people loaded and secured freight, and assisted with the moving of goods on and off the boats. A berth was a place where ships moored to be able to take cargo on and off. Berthing services comprised the NPA moving ships into a particular berth.
Mr Khan said that the term “quasi-tribunal” had been used because there was no separation of tribunals in the PR, and members of the PR also sat on the Tribunals. This was distinct from the situation where the Competition Commission and the Competition Tribunal both were in existence.
Mr Khan noted that prior to the 2007/08 financial year no entity had been established and there was no PR function. The first activities occurred in March 2007/08. In relation to t the budgets, he noted that spending was not linked to capacity, but to the ability to use money for a particular function, and to decide whether spending would be prudent at a certain time. Although the entity was established, the functions could not be performed until the directives were completed.
Ms P Ngwenya-Mabila (ANC) said that although the presentation stated that there was 100% black male management in 2007 and 2008, there was actually no black male manager representing the PR. She asked for explanation on the employment of white males, and also of white females, and also asked if there was a problem in capacitating or empowering females in the sector, since she noted none in management. She also asked about employment of the disabled, who should not be limited to 2%.
Mr Khan responded that the definition of employment equity in the country meant that Coloured and Indian employees were classed as black. The only staff members were himself and Mr Ebie Fakie, Board Secretary. The Board comprised Dr Brian Gowans, Ms Phumzike Langeni and Mr Andrew Pike, who served part-time. Contractors also performed certain functions. The figures were compiled from those used over time. There had not been any further staff hired. No white women had worked for PR. There were no people with disabilities but a staff member who broke both legs in an accident and could no longer fulfil her duties as the cleaner and caterer was shifted to reception duties and trained in this field.
Mr Andrew Pike noted that there had been very few employees. He confirmed that the Board members were part time, and met monthly basis to reach decisions. The CEO managed the day-to-day operations. The Secretariat was being built at a pace commensurate with the development of the PR. For a long while there was only the CEO and Board Secretary. according to the development of the PR and for a long time there was only the CEO and Board Secretary.
Ms Ngwenya-Mabila noted that the Act referred to the restructuring and reforming of the ports and inclusion of previously disadvantaged groups in the economic activity of the port in the long term. However, the presentation did not reflect the amount of previously disadvantaged groups that were empowered, and she asked what this was.
Mr Khan responded that the PR was in the process of doing an economic review of the ports, and information was requested from the NPA. However, the NPA said that it had a problem with its information systems and could not provide the information to the extent required by the PR at present, although it was going to try and change the systems. The PR needed to know how many licenses were in the current port system, the numbers of terminal license agreements, who had the rights to operate those licences, and whether there was BEE and women empowerment. It was necessary to understand what was actually occurring in the ports environment so that the PR could monitor the change over time. Currently there were deemed rather than issued licences for activities other than stevedoring. To understand the competitive environment, it was important to know what conditions were attached to each of those licenses, in terms of traffic to be moved, or the square metre coverage.
Ms Ngwenya-Mabila noted that the Act also referred to the Port Consultative Committee, which had to consist of 10 members, and she asked whether that Committee was yet in place, and, if so, wanted further information on it. She also asked about the numbers of hearings and appeals that were conducted.
Mr Khan noted that a Ports Consultative Committee (PCC) was set up in every commercial port in the country with the exception of Port Nolloth. Nominations took place a long time ago, and people may have changed jobs and moved, and that process was being resolved. The National Ports Consultative Committee (NPCC) was not established as yet. The Minister of Transport was the convener and would convene the NPCCs at port level after each of the PCCs had nominated its representatives to the NPCC.
In respect of appeals and hearings, Mr Khan confirmed that the directives were published on 06 August 2009, and the PR was only empowered to have hearings and appeals after that date. Prior to that there were no hearings for either appeals or complaints. There was one appeal in process at the port of Durban, and currently documents were being passed between the PR, subsistence fishermen and the NPA. A group of 785 people was appealing that decision, claiming that access to fishing inside the port environment had been constrained by the NPA.
The PR had had approximately 30 formal engagements with ports organisations, and people had raised different matters but no documentation had been received. Two matters were submitted, but in the incorrect format, and it was unclear whether these were in fact complaints or appeals. The PR advised the complainants to examine the Directives and the Act and to decide where they wanted to slot the matters in, so that PR could respond.
Mr S Farrow (DA) congratulated the Regulator on getting the process going. He said the Green Paper spoke a lot about breaking up some of the monopolies that existed in the ports. However, during the public hearing deliberations, the CEO of Transnet had stepped in and stopped the process of assessing the proposed corporatisation of the NPA within three years, which the Committee had agreed to consider. The Committee then extended the three year period to accommodate Transnet. The PR would monitor the processes. He stressed that the Committee had to look at the Act to see whether certain matters were taking place in accordance with the Act and, if not, PR needed the necessary authority to deliver on its mandate. He asked what was required for the PR to effectively undertake what it was legislated to do.
Mr Khan responded that a clear role distinction existed in the Act. The PR had no power, role or mandate to enforce the corporatisation of the NPA. This was something that the Minister of Public Enterprises had to determine and manage. Certain elements would require the consensus of a range of Ministers.
Mr Farrow was concerned about the hearing and appeal process, and the fact that only one case was in the pipeline yet the ports were in chaos. At the Cape Town container harbour, the commercial and private sector struggled endlessly to get their goods in and out of the port. Someone – and he was not sure who – was clearly not doing the job properly. He suggested the Committee should visit the harbour to have a look at the situation. Trucks were being parked all over Paarden Eiland, with poor management of containers, and something was needed to streamline the process.
Mr Khan responded that interested parties had to submit their complaints and appeals to the Regulator, who would then deal with the matters submitted. The PR was mandated to check for compliance and implementation with the Act. From 2010, monitoring and compliance reporting and checking would begin. When the ports were in chaos the PR did not have the ability to deal with these issues alone, but had to wait for complaints to be raised by port users. In addition, the PR did not have jurisdiction over certain elements of port activities in which companies were involved. Its main engagement was in hearing matters where the NPA performed something it could not lawfully do. These matters would be brought to the attention of all parties, including the Committee, and would be part of the compliance and monitoring function, which should also hopefully highlight errors and problems in the system.
Mr Farrow was also concerned about the Lease Agreement processes at the harbour, which he thought must be audited, since people with old leases were still paying R3 per month for properties with prime dockside access. That was an unfair hangover from previous regimes and must be brought up to market related standards, and he queried whether any processes were in place to audit the current agreements. This related to the competitiveness aspects of the Act, and may need to be brought to the attention of the Competition Board to ensure a levelling of the playing fields.
Mr Khan noted that there was provision in the Act that the NPA could begin to change and re-negotiate the old contracts that had been guaranteed prior to 1994. These could not continue at the expense of the port efficiency, nor if they blocked new entrants into the industry. The PR was waiting for the NPA to forward all the information and this would be made available in the compliance report. PR had already requested the audit of the current leases and licences, the licence holders, the amounts paid per annum and the restrictions on transfer.
Mr Farrow asked Mr Khan and the Board members what the Committee could do to give the PR the powers to implement what it had to do in terms of the Act.
Ms Ngwenya-Mabila asked the PR what the problem had been regarding the fruitless expenditure of R13 000. She enquired whether the audit committee was now established in line with the guidelines of the PFMA. She wanted reasons for the late submission of the financial statements, given the timelines stated in the PFMA. She asked how many offices were procured, what the size and costs were, and whether there was an approved organogram because it had to be strategically planned with an allocated budget. She also enquired whether the PR now had a fraud prevention plan that could be forwarded to the Committee and if performance management had been finalised. She asked for reasons for under spending.
Mr Khan responded that there was only one office of 770 square metres for the total complement of the Regulator, that it was based in Durban and the rental was R59 000 per month. He reiterated that only a part of the organogram was populated because the PR outlined what it could currently afford, and the entire organogram was submitted to the DOT for the financial year. The PR may be able to afford to appoint more staff in the 2009/10 financial year but probably not in the 2010 to 2012 years.
Mr Khan confirmed that the limited operation of the PR had been audited. It had not made sense to transfer the whole financial function to PR, because of only one the key element. The procurement and the payment had to be separated, and at one stage there were not enough levels in the organisation to implement this separation, as there were only two employees to make decisions. There was a conscious decision to leave the financial matters in the hands of the DOT until 01 November 2009 when the PR would take effective transfer, and there would be sufficient operations that could be separated. The performance process would be managed according to what was signed off by the DOT, tasks would be cut down into smaller levels and into mutual tasks for the various staff, and would be managed. There would be a report back to the DOT on the performance measures, which were articulated in the performance agreement for 2009/10.
Ms Thuli Letsoalo, Director: Public Entity Oversight, DOT, said the reason for the fruitless expenditure was that Mr E Fakie, the person responsible for processing payments to the PR, was himself appointed as the Board Secretary of the PR. His position had then been vacant and no one had been attending to the payments. That had now been rectified. This was still an interim arrangement until the PR had enough capacity to process its own finances.
The Chairperson asked if the DOT incurred fruitless expenditure just because one person was shifted from a desk where payments were processed. The Department could have surely have substituted that function. This had led to a loss of money for the country.
Ms Ngwenya-Mabila asked when Mr Fakie was transferred to the PR and how long it took for the Department to replace him after his transfer, as she agreed that it was unacceptable to have fruitless expenditure of this amount of public funds.
Mr Jacob Mmekoa, DOT representative, emphasised that the Department had completely sorted the matter out now, and systems were in place to ensure that it would not recur. Mr Fakie was seconded to the PR in 2007, to initiate administrative processes. It had taken some time to recruit another person to deal with the transfer of money to the public entities. Although the PFMA was clear that the payments should be made within 30 days, the Department needed to do checks and balances, which had occupied more than 30 days. It was not that the payment was being ignored.
Ms Ngwenya-Mabila said that she still wished to hear who was responsible for the work being continued when Mr Fakie was transferred. There should have been a plan in place. The fruitless expenditure of R13 000 could not be taken lightly, and she would like to hear of it being repaid.
The Chairperson stressed that, as much as the Committee was dealing with fruitless expenditure, it was also encountering an attitude that less fuss would be made when an official, rather than a Parliamentarian, erred. It seemed that this would have led to soured relationships between the creditor and government department, as there was clearly a perception created that government did not care. The creditor also incurred more cost, and would have suffered cash flow problems.
Mr P Poho (COPE) asked whether the Chairperson of the Audit Committee was already appointed, or when that person would be appointed.
Mr Khan responded that there was an audit committee, with an Audit Chair, who was one of the members. The AG had advised PR that it was more appropriate to have an independent person and not a member of the audit committee as the Chair. The PR was in the process of appointing an audit Chair outside of the organisation to have oversight over the audit process of the regulator.
The Chairperson agreed with the AG, and said that the PFMA was clear on how the audit committee should be established.
Ms Ngwenya-Mabila also made this point, and asked if the audit committee was compliant, and why the financial statements were sent late.
Mr Khan said that the PR had taken into consideration what the AG had indicated and followed the AG’s specific advice to correct whatever was wrong. The reasons for the late submission had been that the board members were not responsible for the day to day running and operation of the organisation. Mr Fakie was the Board Secretary, not part of the PR secretariat. Although members had an obligation to ensure performance, they did not have applications on the State money. There were 200 transactions in 2007/08. The PR sent out adverts and terms of reference for the drafting of the financial results. The prices quoted had ranged from R500 000 to R600 000 just to draw up a set of financial statements, which was about R5 000 per line item, or, put another way, a purchase of a pen for R25 would have cost R5 000 to write up. This delayed the process, because obviously it would have been ridiculous to sign a contract on these terms. When the CEO came on board in July 2008 a process was initiated and an accountant did the work and the statements were submitted.
Mr Poho enquired whether special interest groups or members of the public would make submissions on proposed tariff increases and which medium and tools would be used for advertising.
Mr Khan clarified that hearings and submissions were for everybody and did not just deal with special interest groups. The directives guided the PR, and an advert in two languages, English and the most common language spoken in that area, would be submitted to the local paper of the area where anybody could be affected by the tariffs giving the date and venue for submissions from any member of the public, including written and oral submissions. Hearings were open to the general public. A subject of special interest would be limitations, which might have the effect of excluding certain interest groups.
The Chairperson asked about the relevance of the programme and the strategic plan, the problems that the strategic plan aimed to address, and the development achieved as a result of the plan. She commented that if there was less expenditure, then there had also been less work done. She wondered how the allocations were made without proper strategic plans. Money would normally only be allocated to the budget if there was a related programme based on an activity, the human resources and time required to implement it. She also sought further explanation on the staff complement.
In regard to employment equity, Mr Khan repeated that in 2007/08 there were only two employees, both of whom were black males, himself and Mr Fakie in management, and one staff member who was also black. In the following year more had been employed, and the weighting was given on that basis. Contractors would work on specific tasks for three or six months.
Mr Khan noted that in the 2007/08 year there was no strategic plan in place. PR members held their first meeting in March 2007.The DOT acted as a de facto secretariat of the Regulator, and an official of the Departments Public Entity Oversight Unit developed a preliminary budget with a predicted three year spending cycle, which included budgets and programmes for the Regulator to put into place and implement. DOT had oversight of the budget and the strategic control of expenditure took place within the DOT. At the end of the 2007/08 financial year the Regulator developed a corporate plan for submission to the DOT setting out the strategy, what it wanted to spend the money on, and requested an initial amount of R21 million. A budget of R11, 382 million was provided. There was no performance agreement and the DOT did not sign off the budget in 2008/09. For the financial year 2009/10 there was a performance agreement in place and the Regulator estimated its own expenditure for the programmes, based upon what it had planned to do and what was submitted to DOT. It was hoped that PR could describe its activities to the Committee before the start of the next financial year.
Mr Pike added that some of the members of the PR were only acting part-time, and their inability to make themselves available also slowed down the processes. The directives were the Regulator’s handbook of procedures, which it relied upon in order to act. The DOT put out the draft set of directives to tender. When PR members were appointed, they were told to pursue that draft. However, the draft had been inadequate and members had spent a huge amount of time, on a part time basis, trying to get the directives into acceptable standards. During that time the CEO was appointed and then the document had gone out for comment. Sensible comments were received from some stakeholders in the industry. NPA’s comments were lengthier than the entire directives and put the whole process into disarray. The draft was then put out to tender again, to deal with the objections from the NPA. Some of the objections were frivolous, some were acceptable, and most related to minimising the numbers of regulations. The whole process had taken a very long time. The directives were published in August 2009. Until their approval, there was no point in making any further appointments, and this was the context in which the under spending must be seen. The PR was now well on track with the directives and expenditure would increase in the current financial year.
The Chairperson stressed that since the Government established the PR, and the DOT was charged with the responsibility, the Department should have developed the strategic plan, the overall objectives, the specific objectives, the operational objectives, the human resources required, the time frames and the financial implications. The PR had to continue with those plans. In that process, PR had to reflect on whether the initial (DOT) strategic plan matched what was happening on the ground. She asked again how R21 million could be allocated without a strategic plan related to the founding statement and objectives of the PR.
Mr Khan responded that he had not seen the strategic plan for the 2007/08 financial year, when he joined the PR in July 2008, although he expected to find one. The Board effectively had to build the PR from scratch. DOT would be able to tell the Committee more about the 2007/08 plan. A plan was submitted to DOT in 2008/09 on the basis of what the Regulator presumed would occur, and although the DOT said it had certain concerns, these had never been articulated. The plan for 2009/10 included a strategy and expenditure priorities, articulated in line with national priorities and job creation. The work in 2009 would include decisions on what had to be done.
The Chairperson emphasised that a problem had been identified, and the choice was to establish the PR to deal with the problem. The founding organisation had to spell out the purpose, roles and responsibilities, and in order to execute the mandate there had to be financial resources, material resources and human resources. Parliament must measure whether it was the correct decision. After the evaluation, changes and a new strategic plan would be made, in line with the realities identified by the PR. She emphasised that the lack of a plan resulted in funds being allocated without clear indications of which activities were to be undertaken with the funds. The fruitless expenditure probably arose not through lack of capacity, but lack of planning.
Mr Khan agreed that for 2007/08 there was no plan and no key outputs, but there was a generalised identification of the mandate. The members were given the responsibility to implement the general mandate. The objectives were not clearly defined. In effect, since the plan for 2008/09 was not finalised, there was not a completed plan for this year either, so it was likely that there would be over or under spending. PR had taken a very cautious approach and done what it could safely do – such as acquiring office space. The plan for 2009/10 had not been formally accepted. PR reckoned that to do everything it would require R21 million, but the Department had notified it that only R11.3 million was available.
The Chairperson stressed that the financial resources were not informed by the plan, but by what was available.
Mr Khan said the Chairperson was correct. He repeated the figures tabled for expenditure in 2009 to 2012.
The Chairperson noted that if the financial allocation and the plans did not match, then PR would be left trying to see how much it could do for the money it had available.
Ms Letsoalo responded that it was not the way PT was expected to function. There had be a list of programmes to be undertaken to address the mandate of the PR, and those programmes had to be in line with the budget that was available. For the current financial year there was a strategic plan, and the financial allocations were in line with the strategic plan and the programmes that would be undertaken by the PR. There was also a performance agreement in place approved by the Minister. The PR would be monitored on a constant basis to assess its performance. There had to be quality activities and the Department would support the programmes and the functions of the Regulator.
Mr Maake asked how the Regulator budgeted for adjudication and appeals, since it had no idea how many it would have, and how the process of complaints and appeals functioned.
Mr Khan responded that the PR could not predict the complaints and appeals. The directives were approved and published on 06 August 2009. The availability of members informed and predicted the budget, which also took into account what it would cost to move the members to one place to have a hearing, costs of flights, and costs of advisors for 35 days to help members with advanced legal interpretation issues. It had budgeted for between 15 and 35 matters, on the basis that there were only certain days on which members would be able to make themselves available. The PR had projected an under expenditure of R3 million because it had only received one complaint to date.
Mr Khan explained that there were two different classifications of matters. The PR would hear complaints by people about matters that were not necessarily inside the ports, but that were affecting them. An appeal would be lodged if a person had requested permission to do something that the NPA had then, in writing, refused. The PR would sit on the appeal and have appeal jurisdiction. Any appeals from the PR would have to be heard by the courts.
Ms Phumzile Langeni, Board Member, PR, stressed that members should be appraised on the establishment of the PR, as everything had been done in a certain way then, but had subsequently changed. When the members were appointed it was on the understanding that they would be independent non-executive directors of the entity. That changed, and at the end of 2008, DOT had addressed them indicating that they were not regarded as independent directors. However, she disputed that the Board was part of the entity. The Board had an oversight role and there must be a separation between the Board and day-to-day management. She did not understand the requirement of an independent chair for the audit Committee, unless it was suggested that the members themselves were not independent. Members were playing an active role within the structure of the PR in line with the requirements of the Act, and specifically the tribunal.
The Chairperson thanked the presenters, and appreciated the input on the challenges. The Committee had a bigger role than merely holding the PR accountable, as it had to ensure that all the entities that fell under Department of Transport became part of the solution. It would need to find ways in which the Regulator could do its job, and execute its mandate more efficiently. She assured the PR of the full commitment of the Portfolio Committee, if an intervention was required. For its part, the Committee expected the PR to identify problems during the course of the establishment of the Regulator, and interaction was an ongoing process. She hoped that the Department would be able to deal with its own challenges related to the performance of the entities that were accountable to it.
Mr Khan thanked the Committee for its support, leadership and direction, and said the PR would take into consideration what had been said.
The meeting was adjourned.
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