Department of Mineral Resources Annual Report 2009/10: briefing

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Mineral Resources and Energy

11 October 2010
Chairperson: Mr F Gona (ANC)
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Meeting Summary

The Chairperson asked the Department and members of the Committee to give consideration to a possible course of action arising from the legal challenges being mounted by Agri SA to the validity of the Mineral and Petroleum Resources Development Act, which he described as “very disturbing developments” in the mining industry. These posed a major stumbling block in the path of the transformation process aimed at redressing the imbalances of the past. This would be discussed as a matter of priority at the next meeting on 19 September 2010.

The Department presented the financial component of the annual report, and reported that a qualified audit had been received for the first time in five years. Measures had been implemented to prevent a recurrence.

An electronic on-line system of processing prospecting and mining applications was described in detail. The objective was to eliminate any suspicion of bias or corruption on the part of officials by introducing a process that was transparent, fair and logical.

Meeting report

The Chairperson said that the congested programme of committee meetings had resulted in several members being unable to attend. As there were only five present, and a quorum was eight, no decisions could be taken. However, because of the volume of information contained in the report, the presentation would be split into two sections, with the financial aspects covered in the current session, and the organisational performance aspects at the next meeting on 19 September 2010.

Ahead of the briefing presentation, the Chairperson said he wanted to raise what he described as “very disturbing developments” in the mining industry, which he hoped the Department would be able to address at the completion of their presentation. The most notable of these was the challenge to the validity of the Mineral and Petroleum Resources Development Act (MPRDA) by Agri SA. This organisation felt that the Act amounted to an expropriation of their mineral rights without compensation. The Department was currently defending the validity of the Act in a court of law. Two or three months ago the Department, together with the Department of Justice and other related departments, had to defend the same Act at the International Court of Justice in The Hague. This posed a major stumbling block in the path of the transformation process aimed at redressing the imbalances of the past. Media reports indicated that Agri SA was seeking a court order declaring the MPRDA unconstitutional, failing which compensation of about R99 billion should be paid.

This was a very serious matter, as it challenged the very existence of Parliament. It was therefore important for the Department to brief the Committee fully on what was taking place. The Department of Justice and Constitutional Development would have to advise what the impact of such challenges was to the constitution of the country. He suggested that this should be fully discussed at the next meeting, so that informed decisions could be taken.

DMR Annual Report: Introduction
The Director-General of the Department, Advocate Sandile Nogxina, introduced the presentation by pointing out that this was the last annual report of the erstwhile Department of Minerals and Energy, which had now been split into separate “mineral resources” and “energy” components. For the previous five years, there had been a clean audit report, but a qualified report had been issued for the past year. This was because the completeness of receivables for departmental revenue – an amount of R25 million – could not be verified. He assured members that measures had been put in place to prevent a recurrence, so that a “normal” clean audit would be received. These measures included the introduction of a new debtors’ system, monthly workshops at the regional offices, and the deployment of additional staff with financial qualifications. In addition, the regional offices had now been upgraded to Chief Director level, so that lower level directors could be brought in to overcome administrative weaknesses.

Mr Nogxina referred to the material under-spending of the budget, identified in the audit report. Although the amount of R137 million appeared significant, it represented only 2,9% of the total budget, and this was well below the 5% threshold set by National Treasury. The under-spending was primarily due to delays in finalising contracts for non-grid electrification services – contracts that were signed towards the end of the financial year – and approval had been granted for these funds to be rolled over into the 2010/11 financial year.

A review of the Department’s operations at branch level had indicated that so long as administration systems were largely dependent on the human element, problems would persist. The Department had to deal with issues that were highly controversial, in that applications were worth billions of rands. Many applicants were dissatisfied when decisions went against them, and a system therefore needed to be created to insulate officials from the unjustified criticism they often had to endure. Those applicants who lost out usually attributed their fate to corruption, or malpractice, on the part of the Department. For this reason, it was necessary to introduce the element of transparency to the process of dealing with all licence applications. A year ago, an electronic system had been introduced in the Department’s Mine Health and Safety component, which also conducted inspections which were subject to dispute, and it had worked very well. It had been decided to roll out this sytem on the mineral regulation side. People would be able to lodge their applications electronically, and they would be processed and filed electronically. The transparency of the process would shield officials from becoming victims of dissatisfied applicants. It would also create confidence locally and abroad in the integrity of the system. Part of the reason for imposing a moratorium on the processing of new applications from September, was to allow for the introduction of this system.

DMR Annual Report: Financial Performance
Analysing the Appropriation Statement for 2009/10, Mr Nthupheni Ragimana, DMR Chief Financial Officer, said total expenditure was R4 544,7 million, compared with a budget of R4 682 million. This meant an under-expenditure of R137,3 million (2,9%). The main reason for under-spending was the delay in finalising contracts for the non-grid electrification programme.

A 25% increase in basic salaries and pensions had been identified in the Statement of Financial Performance, which was due to an increase in the number of staff from 1 169 to 1 272.

The Department was proud of its record of cost containment. Overseas travel had been closely monitored, with fewer trips being undertaken, or fewer delegates authorised to attend functions, resulting in a saving of nearly R12 million. Advertising had been reduced by R13 million, while nearly R6 million had been saved by cutting down on catering and convening meetings in low-cost, or free, venues. Tangible capital assets had increased significantly through the purchase of furniture and equipment for the Department’s new building.

Mr Ragimana said the statement of the Department’s financial position as at 31 March 2010, represented the basis for the split of budget allocations between the newly established Department of Mineral Resources and the Department of Energy. The formal transfer of assets and liabilities would take place soon.

The Department’s net cash flow of R113,5 million available from operating activities showed the health of the organisation, and demonstrated it could meet its current cash obligations.

Four cases of financial misconduct had been reported during the year. Two employees had been found guilty, one hearing was still in progress, while the fourth employee had left the Department, and follow-up action was being undertaken.

The Supply Chain Management (SCM) component had been fullly restructured and aligned with the SCM Framework requirements. Departmental internal control systems were in place and were able to pick up irregular expenditure effectively.

Business Processes – On-Line Applications
Mr Vinesh Devchander, Deputy Director in the Office of the Deputy Director-General, described in detail the electronic system previously outlined by Mr Nogxina. He described it as a process aimed at providing logical steps for individuals to follow when dealing with applications for prospecting or mining rights.

He said the current manual system left room for aggrieved individuals to level accusations against individuals within the Department. The electronic system, however, removed the possibility of individuals to influence the outcome of applications.

Mr Nogxina said the Department was trying to attract investors to South Africa by creating credibility in the system. At the same time, however, it was important not ro remove the element of competitiveness. As this was the edifice on which private business was established, a balanced approach was needed.

He said there was one qualification in the Auditor-General’s report which referred to the Department’s inability to project and quantify all moneys that should be received from holders of mining and prospecting licences. This would be obviated in the new system, which addressed the problem automatically.

The Chairperson asked how the system was able to deal with suspensive conditions, such as the question of Black Economic Empowerment (BEE) compliance. How did one verify the information supplied by applicants in support of their applications? Did applicants have to back up the information they supplied with documentary evidence?

Mr Devchander said this information was fed to the relevant region for verification. If it was found to be inadequate or incorrect, applicants were notified. Documents verifying information, such as share certificates, had to be submitted.

Mr E Lucas (IFP) said he was worried about international fraudsters.

Mr Devchander replied that serious consideration had been given to the possibility of on-line fraud, and various levels of security had been built into the system. He was supported by Mr Nogxina, who said security used globally had been incorporated into the system, but the Department was still not bold enough to say it was 100% foolproof.

Mr Lucas questioned whether historically disadvantaged people could be part of the new scheme.

Mr Nogxina said this had been discussed with officials, and it was agreed that the requirements of the Act made it impossible for “disadvantaged people” to be involved in mining. By law, one was required to demonstrate financial and technical capabilities. The “poorest of the poor” could become involved by making arrangements with those who had the financial and technical capabilities. They would be assisted in this regard by centres at the Department’s regional offices.

Mr Devchander said the Department had imposed a tight timeframe for the implementation of the system, and it was intended to go on-line internationally on 2 January, 2011.

Mr Nogxina said an important factor in the current moratorium on licence approvals was the opportunity to ensure that all applicants were compliant with the law, and could then be moved on to the new system’s data base. It also meant that the Department could start to deal with those that were exposed as not being compliant.

He said the system had been based on the work the Department had been doing all along. Complaints had been received from the general public, where a number of allegations had been made without any concrete evidence of corruption. He appealed to members of the Committee, when visiting their constituencies, to try to find any information which might help in cleaning up the system.

He said staff had become demoralised through the spreading of unfounded allegations by people who had not done all the work necessary to secure approval of their applications. The new system would help to protect the integrity of the country’s regulatory environment.

The Chairperson said he was impressed by the system, and complimented the Department on meeting the challenge with which it had been confronted.

The annual presentation briefing, and discussion on challenges to the MRPDA, would continue next Tuesday 19 September 2010.

The meeting was adjourned.


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