Department of Mineral Resources Annual Report 2009/10: briefing by Department of Mineral Resources

NCOP Economic and Business Development

25 October 2010
Chairperson: Mr F Adams (ANC; Western Cape)
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Meeting Summary

The Department of Mineral Resources Annual Report presented its Annual Report 2009/2010 looking at the success and challenges of each of its programmes. It reported that a qualified audit had been received for the first time in five years. The Department acknowledged that there were some problems that had to be addressed. However, it attributed many of the aspects that were raised as problematic by the Auditor-General, to changes in the requirements set by the National Treasury and the Auditor-General. It claimed that the Department did not necessarily do things differently in the relevant financial year than in previous years when unqualified audits had been received.

The Department briefing on the electronic on-line system of processing prospecting and mining applications, was cut short by the Director-General who requested that this presentation be postponed to a later date when the system was already implemented and the Department would be able to present a more comprehensive report.

The Departmentwas asked whether public participation was not compromised in the Department’s cost containment measures. Members raised their concern that the Department was attempting to cover up the problems identified in the Annual Report, instead of it being honest about these. Members enquired about the reasons for the slow pace of transformation cited as a challenge in various programmes. Questions were asked about the cost implications and course of action for many of the strategies developed by the Department. Members were also concerned about instances where the Auditor-General noted a lack of timeliness and effectiveness in the processes of the Department. Members asked about the many employees occupying acting positions, as well as the dramatic increase in expenditure on employees. Members also commented on the lack of transparency in the process of transforming Old Order Mining Rights to New Order Mining Rights and raised this as the cause of the Kumba Iron Ore/ArcelorMittal/Imperial Crown Trading court case.

Meeting report

The Chairperson opened the meeting by welcoming the Members and explaining that the briefing on the Geosciences Amendment Bill [B12-2010] (the Geosciences Bill) was being removed from the agenda of the meeting as a result of time constraints. He indicated that a meeting would be scheduled on 3 November 2010 in the afternoon for purposes of the briefing on the Geosciences Bill.

Department of Mineral Resources (DMR) Annual Report: Introduction
Advocate Sandile Nogxina, the Director General of the Department of Mineral Resources gave a brief overview of the presentation, highlighting the important points that would be raised.

DMR Annual Report: briefing
Mr Nthupheni Ragimana, DMR Chief Financial Officer, explained that a qualified audit opinion had been issued to the Department for the first time in five years. The basis for the qualified opinion was the completeness of receivables for department revenue could not be verified. Mr Ragimana referred to the lack of a comprehensive debtors system as well as significant skills gaps, as the root cause of the problem.

Analysing the Appropriation Statement for 2009/10, Mr Ragimana said that the total expenditure was R4 544,7 million, compared to a budget of R4682 million. This meant an under-expenditure of R137,3 million (2,9%). However, under spending had been consistently kept below 3% for the last three years. The increase in unspent funds for the year under review was attributable to firstly, R82 million non-grid electrification transfers that were not realised even though the contracts were already concluded, secondly the funds appropriated for Working for Energy project and lastly, the funds for the rehabilitation of ownerless and derelict mines. A roll-over application has been made to the National Treasury for these funds.

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.

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. The increase in net cash flow available from operating activities was attributable to the increase in unspent funds by 60%. The significant increase in net cash flow from investing activities was due to acquisition of furniture and servers for the new building as well as the improvements made to the new building.

Expenditure on contingent liabilities and contingent assets increased with 25% from the previous financial year. Accruals increased by 76% as a result of the amount of R20.4 due to the Department of Public works, of which the invoice was still awaited.

Receivables for Departmental Revenue had received the Auditor-General’s qualification. The reason for this was that the R25 million and R10 million disclosed was not a correct reflection of what was due to the Department. The Department has put processes in place to deal with this. The increase here had been 59%. Mr Ragimana attributed the increase due to the Department going back into its system and trying to clean it up. However, he noted that this process of cleaning up the system would only be completed at the end of the current financial year.

In the 2009/10 financial year, there had been irregular expenditure of R4 203 000. The big discrepancy between the current financial year and the previous one was attributed to the change in the approach of the Auditor-General. Previously compliance issues with “internal delegations” were not seen as irregular expenditure. Now disclosure of that figure was required. This explained the dramatic increase.

Four cases of financial misconduct had been reported during the year. Two employees had been found guilty and one hearing was still in progress. The fourth employee had left the Department and follow up action was being undertaken.
A transfer of R1 million was made to the State Diamond Trader as a bail out during the recession.

Mr Ragimana then referred to the state of Financial Management Systems. In terms of efficiency savings and productivity gains, the split of the Department of Minerals and Energy into two separate departments was successfully executed.

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

The Department had developed a new integrated information management system that would enable online submissions and processing of applications for prospecting and mining rights, as well as online mechanisms to keep track of one’s application.

Mr Bethuel Nemagovhani, Acting Deputy Director-General: Corporate Services, reported on Programme 1: Corporate Services which provided strategic management and administrative support to the Department and its Ministry. He proceeded to list the successes of Programme 1, the first of which was the successful implementation of the President’s request to split the Department of Minerals and Energy into two separate departments: Department of Mineral Resources and the Department of Energy. Other successes included the completion of various programmes through the University of Witwatersrand and the continued addressing of transformation regarding vulnerable groups.

Mr Nemagovhani highlighted its challenges: change management issues arose due to the split of the departments, capacitating the new structure, lack of funding for the new approved structure and the implementation of the Communication Strategy. The following corrective measures would be adopted: the reprioritisation of priorities to ensure a successful split of the departments, a Climate Survey on DMR employees would be conducted to ensure that the Department understood the issues that the employees were experiencing as a result of the split of the departments, the preparation of requests for additional funding through a medium term expenditure framework (MTEF) process for the implementation of the approved organisational structure and lastly to obtain approval of the DMR Communication Strategy.

Programme 2 was presented by David Msiza, the Acting Chief Inspector of Mines. The purpose of this program was to safeguard the health and safety of mine employees and people affected by mining activities. Successes included improved stakeholder relationships, the addressing of health and safety risks, the review and development of guidelines and internal policies and procedures and human resource development. There was a 25% decrease in fatalities during the 2009/10 financial year However, he noted that despite this improvement, the Department was still gravely concerned about the number of fatalities that had occurred and this was being addressed. He included the phenomenon of falls-of-ground (FOG) accidents as one of the biggest challenges experienced in Programme 2 and noted that many corrective measures had been taken to address the challenge, including the establishment of a Specialist Task team to look into FOGs and enhanced rock engineering capacity of the Inspectorate in both Head Office and Regional Offices. Other challenges were capacity building, compliance levels and occupational health.

Programme 4: Mineral Policy and Promotion was presented by Mr Tseko Nell, Acting Deputy Director-General of Mineral Policy. Its purpose was to formulate mineral related policies and to promote the mining and minerals industry of South Africa, making it attractive to investors. Successes of the Programme included the Mining Summit held with all industry stakeholders, the adoption of a strategy on sustainable growth and meaningful transformation of mining industry by stakeholders and the approval by the Minister of a strategy for rehabilitation of derelict and ownerless mines.

The Programme faced the challenge of adopting a Beneficiation Strategy, which would be addressed by broadening the consultation within the government system and with stakeholders through the Mining Industry’s Growth, Development and Employment Task Team (MIGDETT).

The acid mine drainage (AMD) threat presented a big problem to the Programme. A comprehensive and pragmatic stakeholder forum was formed consisting of science councils of the Department, the Department of Water Affairs and Environment, Department of Science and Technology and academics from universities engaged in research on water resources. With reference to the problem of the slow pace of transformation, the revision of the Mining Charter and legislation was undertaken, as well as annual charter assessment.

Programme 3: Mineral Regulation was presented by Mr Joel Raphela, Acting Deputy Director-General of Mineral Regulation. Its purpose was to regulate the minerals and mining sectors to achieve transformation and sustainable development. Successes included the regulation of minerals and mining sector to achieve transformation and sustainability, in relation to which the target of granting rights to historically disadvantaged South Africans was exceeded. The targets for the monitoring and enforcement of compliance as well as the effective implementation of relevant legislation, were also exceeded. However, the slow pace of transformation, inadequate capacity to conduct compliance inspections and funding remained challenges.

Mr Raphela continued by highlighting the topical issues that were raised by communities. The communities complained of non-compliance by mining companies on Service Location Protocol (SLP) commitments, environmental management issues, employment opportunities and community participation in projects. The following corrective measures would be undertaken: the imposition of a moratorium on the lodging of the new prospecting rights, to allow a thorough audit of all rights granted since implementation of the Minerals and Petroleum Resources Development Act of 2002 (MPRDA) the development of a new electronic system for the lodging and administration of mining and prospecting applications, strengthening the capacity of Regional Offices, community engagement road shows and development of guidelines on various issues (including community engagement).

Mr Raphela then started with an additional presentation regarding the development of a new system for lodging and administration of prospecting and mineral rights. However, he was cut short by Mr Nogxina who requested, in view of the fact that the system is still in the process of development, that this presentation only be given after the process had been completed so that the Committee can be informed about the complete picture.

Mr D Gamede (ANC; Kwazulu Natal) asked numerous questions.

Firstly, he wanted to know whether the Auditor-General expected of the Department to report on matters that the Department could not yet have been aware of.

Secondly, he asked the Department to comment on the issue that had been mentioned regarding the invoices of the Department of Public Works that, if it had been paid, would have meant overspending of the budget. Mr Gamede said that this created the impression that the Department was not aligned with the budget. Furthermore, he wanted to know what the turnaround time for payment of invoices was.

Mr Ragimana replied that there was no misalignment with the budget, but that it was an accepted practice of the Accounting Officer to approve that a percentage of money be moved to other programmes where it can be put to better use. The Department’s average turnaround time for invoices was indeed 30 days, but Mr Ragimana qualified that by saying that sometimes the process was completed within ten days and other times in a bit more than 30 days.

Thirdly, Mr Gamede asked whether public participation was not compromised in the process of saving money on advertisements by not advertising in local newspapers.

Mr Ragimana answered that public participation was not compromised as the only time that jobs would not be advertised in the local newspapers too, were when people who would apply would normally come from a government agency.

Fourthly, Mr Gamede wanted the Department to clarify and separate the issues of operating leases as opposed to buildings and assets, as well as machinery and other assets as mentioned in the Statement of Financial Performance.

Mr Gamede’s fifth concern was how the online applications would benefit rural communities.

His sixth question related to how placing and matching of employees was done in Programme 1.

Furthermore, how would the Department address the transformation of vulnerable people?

His next comment was about the fact that the safety performance statistics did not reflect the true position as it included information from January, which was not part of the relevant financial year.

Mr Gamede then asked what punitive or corrective measures were in place for companies that did not comply with mining laws, regulations and guidelines or that have not converted?

Mr Ragimana replied that there was a report on the details of non-compliance that could be presented to the Committee at a later stage.

Mr Gamede’s tenth question was about the slow pace of transformation as mentioned by two presenters. He requested them to identify a culprit in this regard.

He also asked for percentages relating to the rights that were granted –how many worked and how many did not work?

His twelfth question was about the challenge of community workshops and he wanted to know what was being done about complaints of communities.

Lastly he wanted to know how the issues that arose from the fact that different departments were issuing different licences, were being dealt with.

Mr A Nyambi (ANC; Mpumalanga) then proceeded to ask his questions. He started by emphasising the importance of acknowledging and being honest about the challenges that the Department was facing and said that from looking at the report it was clear that there was a problem. He noted that Mr Ragimana has spent a meaningful percentage of his time in analysing the Auditor-General’s report instead of presenting a report on what the Department is doing about the problems. He referred to a paragraph on p150 in the Annual Report, which stated that “the accounting officer did not, in all instances, pay creditors within 30 days from the date of receipt of invoice”. He emphasised the phrase “all instances” and offered it as an example of the fact that the Department was faced with big problems.

Mr Ragimana explained that the paragraph referred to by Mr Nyambi purported to express the fact that in some instances payment was not made within 30 days after receipt of an invoice.

Mr Nogxina replied that the Department was not attempting to cover up the problems that it was experiencing and that the Committee should not think that that was what they were doing. Furthermore, he was not proud of the fact that the Department had received a qualified report, but that it has to be kept in mind that things were not done differently in the relevant financial year, but that Auditor-General has changed many of its rules. However, the Department accepted that the Auditor-General was right and accordingly the Department would take all the necessary steps to align itself with the rules of the Auditor-General.

Mr Ragimana explained that all the previous years, the Department prepared its annual financial statements on a modified cash basis, but that the National Treasury recently started requiring that annual financial statements be done on an accrual basis. This required disclosure of amounts due from customers, which was not required the past. Accordingly, a lot of the problems outlined in the report are the results of such changes and not the fact that the Department has been doing things differently.

Mr Nyambi referred to a paragraph on p151 of the Annual Report, which stated that the reliability of 40% of the targets could not be verified, since the information had not been received in time for the audit process. He said that this was very worrying and asked what was going to be done about effectiveness.

His second question was about the bursaries that were awarded to four provinces and he asked the Department to identify the criteria that had been used in selecting the four provinces.

Thirdly, Mr Nyambi asked the Department to provide information on the cost implications of the Climate Survey that would be conducted under the employees of the Department. Furthermore, would this survey be done in house or would it be outsourced?

Furthermore, Mr Nyambi wanted to know how the Communications Strategy would be dealt with.

He then referred to the supplementary information that was not subjected to the opinion of the Auditor-General, because it had not been submitted in time and asked the Department to offer some clarification regarding that information.

In response, Mr Ragimana explained that the supplementary information consisted of annexures to the annual financial statements and did not form part thereof. It was merely there to provide additional information and did not have to be subjected to the audit.

Mr Nyambi proceeded to comment on the fatalities that were reported and highlighted the under spending of more than R100 million in terms of Programme 7.

He also referred to the comment of the Auditor-General in the Annual Report saying that the accounting officer of the Department did not ensure that full records of receivables were kept as prescribed by norms and standards. Mr Nyambi asked of the Department to explain this.

Lastly, Mr Nyambi again emphasised the importance of being honest about the challenges facing the Department, instead of covering it up.

Thereafter Mr R Lees (DA; Kwazulu Natal) posed several questions to the Department. He asked for more details about the cases of irregular expenditure that resulted from non-compliance of internal controls that were all condoned during the course of the year by the Accounting Officer. He requested an analysis of what the reference to over- or under expenditure exceeding savings meant exactly. He asked if the Audit Committee members were remunerated, if so, how much and what their qualifications were. Also how long were their meetings?

Mr Ragimana answered that there is a lot of information available in relation to this question and that it can be submitted in the form of a report to the Committee at a later stage.

Mr Lees mentioned the R2.5 million loss for rehabilitation and stated it was a crisis at that moment. It was horrific to see the increase in employee costs and that that was the place where real savings should have occurred.

Mr Ragimana explained that the Department required large-scale investment in intellectual capacity and that the Department would have to continuously increase its budget for appointing employees.

According to Mr Lees, the drastic increase in buildings at the time of a recession surprised him greatly. He was not of the opinion that it was correct to claim that the contingent liabilities were merely a question of employee leave not taken and accruing, given that the increased number of employees probably contributed significantly.

Mr Ragimana explained that the contingent liability notes and the employee notes were not necessarily related and that contingent liabilities referred to issues of claims against the Department etc.

Mr Lees asked about the bail out for the State Diamond Trader. He wanted details of the circumstances and what was done with the money as well as action taken by the Department to prevent further bailouts.

Mr Ragimana answered that the State Diamond Trader was not able to meet its short-term obligations and that the Department consequently issued funding in the form of a bailout. The Department was looking into the issue of preventing bailouts.

Mr Lees asked if the Department was making sure that the prosecutor proceeded with the cases of the employees charged with misconduct.

According to Mr Ragimana, the cases against the employees were opened and the financial misconduct cases were still in the process of being dealt with. He also noted that such cases tended to be lengthy.

Mr Lees asked if the Department was involved in the tunnelling programme at Eskom’s Ingula pumped storage scheme at Ladysmith outside Kwazulu Natal. If so, he wanted the Department to comment on its involvement with the two fatalities. He wanted to know what was being done about the illegal mining sector and specifically at Osisweni.

Mr Lees’ next question was about FOGs. He commented on the desperate shortages of rock engineers and asked what the Department was doing to make sure that new rock engineers were attracted to the profession. With reference to the moratorium on mining assets being disposed of, Mr Lees wanted to know what assets were disposed of before that moratorium, what these assets where and the value thereof. Lastly, enquired about the meeting that was held in Utrecht. With whom was the meeting and what was on its agenda?

Mr K Sinclair (COPE; Northern Cape) asked why so many of the Department’s representatives were occupying acting positions. He commented on the absence of any female representation in the Department.

Mr Nogxina explained that since the split of the departments, the Department had to ally the organisational structure with the new mandate and this process took long. However, interviews had been conducted the previous week and the vacant posts would therefore soon be filled.

Mr Sinclair then asked whether there were still any chance of the State Diamond Trader relocating to Kimberley. He noted that he has been getting different messages on the threat of AMD and asked the Department to clarify if there was a risk of Gauteng’s rivers being flooded with acid mining water.

Mr Nogxina replied that although there was no immediate threat, a long-term threat did exist and for this reason a task team had been appointed to come up with possible solutions.

Mr Sinclair stated that the Government and the Department were not doing enough about beneficiation and then asked whether the Department was involved in a project in Kimberley with Italian business men in a beneficiary project with diamonds and/or jewellery. If so, what was the status of the project?

Mr Nogxina answered that the Government was indeed committed to beneficiations, but that the Department unfortunately needed to get the buy in of all the stakeholders in development of the Beneficiation Strategy and that the consultation process thus took longer. Furthermore, the Department had to deal with every mineral in this regard. Mr Nogxina emphasised the need to develop a workable strategy and explained that the Department was currently in the process of combining the input of all the stakeholders. The strategy would be submitted to Cabinet before the end of the current financial year.

Mr Sinclair referred to the matter that was in court at that stage regarding the transferring of Old Order Mining Rights to New Order Mining Rights and asked what exactly transpired at the regional office of the Department in Kimberley with the Kumba Iron Ore/ArcelorMittal/Imperial Crown Trading matter and asked the Director General whether he was happy with what happened there. He emphasised that the problem was that there was no transparent process in place in terms of which the rights were transformed and that the credibility of the process was consequently in question.

Mr Nogxina replied that the MPRDA was a new act and that no jurisprudence has yet developed to aid in the interpretation thereof. Furthermore, the MPRDA dealt with an issue that was highly contested, namely the ownership of mining rights. Accordingly, the Act was attracting many different interpretations, which the independent judiciary would have to look at and choose between. What happened in the regional office at Kimberley was thus a dispute between all the parties. Mr Nogxina said that he could not go into details as the matter was sub judice, but that the response of the parties to the summons must be awaited before conclusions about the matter were reached. He stated that the Kimberley office applied the law as they understood it to be and therefore he was happy with their decision. However, in order to avoid such decisions that create disputes, in future, a new system of administration that was more transparent, must be put in place.

Mr Sinclair referred to the reason why the Director-General stopped the presentation on the new system of applications (due to the fact that a more comprehensive and complete presentation could be provided when the system has been implemented) and said that the Minister of the Department of Mineral Resources said at another meeting that the process was running already.

Mr Nogxina answered that the Minister referred to the National Mining Promotion System (NMPS) system that was already running. The NMPS system related to mineral rights management. The system that was referred to earlier in the current meeting was an integrated electronic system, which would enable applications to be lodged electronically.

Ms M Dikgale (ANC; Limpopo) asked the Department to unpack the reference to “buildings and other fixed structures” under the analysis of the Statement of Financial Performance.

Mr Ragimana answered that expenditure on capital assets was twofold: namely with regard to movable- and immovable assets. The buildings were used for administrative purposed and expenditure was used for changes made to meet the requirements that the buildings must meet in order to fulfil the purpose thereof.

Ms Dikgale asked when the community engagement road shows would be going to Limpopo. She asked how the Department would deal with a retired miner who got ill and needed money for an operation.

The Chairperson suggested that, in order to do justice to all the answers and questions, the answering of the posed questions must resume on 3 November 2010, at the same meeting where the Geosciences Bill would be presented. The Members consented. However, Mr Sinclair requested that written replies be provided on that day in order to deal adequately with the questions that had been asked. This was consented to.

The meeting was adjourned.

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