Third Quarter Performance Reports 2010: Departments of Communications and Water Affairs

Standing Committee on Appropriations

21 March 2011
Chairperson: Mr E Sogoni (ANC)
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Meeting Summary

The Department of Communications (DOC) presented its Third Quarter 2010 Expenditure Report to the Committee. Members expressed concern at the outset that this department had spent only 45% of its allocated budget, despite the fact that the Committee had also expressed concerns about the second quarter spending. Despite this, the DOC had asked for a higher budget in the following year.
The Department attributed lack of spending to difficulties with major changes in leadership, and cited instances where the former Director General had put projects on hold, or placed a moratorium on senior appointments. A full schedule was presented of the underspending, reasons, and corrective measures in place, as well as reasons for underspending on transfers to the DOC’s entities. It was reported that by March, DOC had spent 63.9% of budget and hoped to reach 75.4% by the end of this financial year. Members asked for an organogram, questioned the delays in Digital Terrestrial Television standards, and asked what vacancies had been filled. They also enquired about the low projections for spending on the Call Centre, and why it was put on hold. They wanted to know about alignment of priorities and strategic plan and budget, enquired about the FIFA funds that had not been transferred and called for a full report on that. Members expressed their concern about the differences in figures presented by the Department and by National Treasury, and how the Department anticipated that it would be able to achieve more spending in the three months remaining than it had done in nine months. They also queried the delays in the institutional review, current status of the call centre, questioned why the Department had still requested money for this when it was surely aware that it would not proceed, the delays in SABC payments, and monitoring mechanisms. The Chairperson asked about the relevance and usefulness of the Medium Term Expenditure Framework, also putting this question to the Department of Water Affairs. National Treasury commented that the unit dealing with spending in all entities was weak.

The Department of Water Affairs (DWA) also showed significant underspending, which Members commented showed poor planning, particularly serious given its work. This Department ascribed many of its problems to similar leadership problems. The expenditure was outlined ting that DWA was allocated R8.2 billion, but, by end December 2010, had spent only 62%, although it claimed that the spending was now up to 89%, and would reach full spending by the end of the financial year. Three main categories of underspending, not all of which were within the Department’s control, were outlined, including slow environmental impact assessment processes and problems with local government, but some solutions and actions were outlined. A number of projects dealing with bulk water supply were described. Members commented that it was confusing that figures were shown to March, and commented that the inconsistency across departments in naming programmes also created confusion. Members asked for specific updates on named dams, asked for the reasons for under spending on the Regional Bulk Infrastructure, its effects on service delivery, and reasons for over spending in the Water Management Programme. They questioned a project being implemented with donor funds that was also showing delay, enquired whether vacancies were being filled as projected, why awards were apparently being made without checking progress, and why timelines were shifted. They called for reports on mines in Limpopo and Mpumalanga. They noted the problems with local government and asked why the legislation was not applied to address these challenges, and commented that a solution must be found. 


Meeting report

Third Quarter Performance and Expenditure 2010:
Department of Communications

The Chairperson said that the Committee was worried about the spending patterns of the Department of Communications (DOC or the Department) as it had spent only 45% of its allocated budget by the end of the third quarter of the 2010/11 financial year (31 December 2010).

He added that in the previous year, during the Medium Term Budget Policy Statement (MTBPS) process, the Committee had also raised concerns about the second quarter spending, which was then at only 26% of allocated budget. He noted that this Committee, together with the Portfolio Committee on Communications, needed to persuade Parliament to approve the Department’s budget for 2011/12 which was even higher, on the basis that it could spend.

The Chairperson also requested, although it was not initially on the agenda, that the Department should comment on the South African Broadcasting Corporation (SABC), who was supposed to support the upcoming Local Government (LG) elections, but had not budgeted for them. The Portfolio Committee on Communication specifically requested that this be brought up during this meeting, as it was concerned that this was being addressed too late.

Dr Harold Wesso, Acting Director General, Department of Communications, said that the Department had gone through difficult times, with major changes in leadership, including new Ministerial appointments and the departure of the former Director General. The presentation would deal with the historical expenditure pattern, reasons for low spending, current status and way forward.

Mr Sam Vilakazi, Chief Financial Officer, Department of Communications, tabled the spending patterns of the Department as at 31 December 2010. The different programmes in which the Department was underspending, the reasons, and corrective measures in place were also outlined (see attached presentation for full details). He also tabled the reasons for under spending on transfers to some of the DOC’s entities: namely, Universal Service Access Agency of South Africa  (USAASA), Universal Service Access Fund (USAF), SABC and Sentech. The Department was allocated a R2,1 billion budget. At the end of the third quarter it had managed to spend 45.1 % in total, but up to the present it had spent 63.9 % of budget. It projected that it would be able to spend R2.26 million, and should reach 75.4% of budgeted spending by the end of this financial year.

Dr Wesso said that he was appointed as Acting Director General at the end of July 2010, and had to familiarise himself with many aspects of the Department. He had had to go through about 800 backlog submissions for projects, which took some time to understand because of their nature. This had an big impact on the Department’s spending. The Department would be more focused in the new financial year, and was working on all the issues.

Discussion       
Mr J Gelderblom (ANC) asked if there was an organogram of the organisations for the end of September and December 2010.

Mr Gelderblom asked about the delay of the Digital Terrestrial Television (DTT) standards and who was responsible. He also requested the finalised document on the DTT standards.

Ms R Mashigo (ANC) wanted the list of vacancies that had been filled, and those that were not.

Ms Mashigo noted her concerns about projections of 1.9% spending on the Call Centre, and asked why this was put on hold by the former Director General.

Ms Mashigo asked if the Department’s priority projects were in line with their strategic plan, whether the Department could achieve its objectives and benefit the people, and, if so, how and when this would be achieved.

Ms Mashigo enquired what would happen to the non-transferred FIFA funds.

The Chairperson noted that the Telkom, the 2010 FIFA World Cup and South African Post Office (SAPO) subsidies were shown in this presentation as being in line with drawings, but he wanted to know what this meant, and when the rectifications were done.

The Chairperson noted that Heads of Departments (HODs) signed off a department’s reports to National Treasury (NT) for publication. However, what was being presented today by the DOC and NT were different. The HOD should have been here to explain this.

The Chairperson pointed to the fact that, for instance, on the Information and Communication Technologies (ICT) Infrastructure Development spending, the DOC figures showed 55.5% but according to NT it was at 17%. The Department had not been able to spend the allocated budget in nine months, and therefore he would like to know how it was planning to achieve spending over the next three months. He questioned if the Department was planning to move around funds to other programmes to make it seem that spending had occurred.

Dr Wesso replied that many of the Department’s spending problems were due to issues beyond their control. In response to the question on the organogram, he noted that the former Director General had put a moratorium on the appointment of senior staff members, to such an extent that a review was done, at which time he had arrived at the Department, and could not then get any appointments of senior staff. Currently, an approved organogram was in place, and research was done into how the new department could possibly look. Critical vacant positions were identified from the current organogram, and research organogram, and these were advertised at the beginning of 2011, and were being filled at present. The new organisational structure was with the Minister, and the new institutional arrangement would be sorted out in the next week or two.

The Chairperson asked when and why the former Director General had left.

Dr Wesso replied that it was at the end of July 2010.

The Chairperson asked if the institutional review had taken place nine months ago, and, if so, why it was only now with the Minister. He wondered how long the actual delivery would take.

Dr Wesso said the reasons for the delay with the institutional review were that it was sent through to the former Minister at about the time that he was being removed from that post, and then had to be resubmitted to the new Minister, who had still to go through it. That was done before December. The posts for a new Director General were then advertised in January 2011, along with 25 other critical positions, after the holiday season. The Department was caught up in processes beyond its control.  

He added that the delays with the DDT programme were also due to reasons beyond the Department’s control. This was put on hold by the former Director General, who implemented different standards.

Mr Vilakazi added that the issue around DTT standards was a Southern African Development Community (SADC) issue. Initially, the standard adopted was the European standard. The SADC Ministers later took a decision that a different developmental standard should be adopted, and the Japanese standard was proposed, but nothing was really done. This had simply resulted in further delays. The new Minister consulted with SADC Ministers, and it was now decided that the initially-agreed European standard would be adopted, as pronounced by the Minister at the beginning of this year. Those funds could therefore now be spent.

Mr Vilikazi noted that consultation was done on the 112 emergency call centres. This was going to be a Public/Private Partnership (PPP) project. However, the former Director General had then reviewed it, and had decided it was not effective, and that was why the project was then dropped.

The Chairperson asked about the current status of the call centre.

Mr Vilakazi replied that it was revived again by the current leadership of the Department. There was a service provider on board, and the call centre should be operational in the next financial year.

Mr G Snell (ANC) asked if the call centre project was still a PPP project at the time it was stopped, and if so, enquired what contractual commitments the Department had. He commented that he found it very strange that a HOD could change decisions that were taken in this House, especially when they were passed in relation to a budget.

Mr Vilakazi explained that at the time the call centre was being reviewed the service provider’s contract was coming to an end. Procurement processes were then under way for the award of new service providers’ contracts, but since they had not been finalised, there were no financial implications. There were arguments at the time, to the effect that the former Director General could not simply stop the processes because they were at an advanced stage, but she had done so, in her capacity as Accounting Officer of the Department.

Mr Vilikazi noted that the FIFA World Cup funds, which amounted to R150 million, were for the legacy projects, mainly connectivity projects to schools and clinics. The funds would be transferred to Telkom by the end of March 2011 for connectivity projects. However other things had to be done before this could happen.

Mr Vilakazi then reported on the SABC. He said that the SABC was given two funds: the SABC Public Broadcaster, and SABC Channel Africa. The only problem with the SABC was that its procuring processes were delayed because it was procuring from overseas. Because the Department of Communications could transfer funds only when SABC was ready, this could lead to delays. In regard to the elections, he noted that the SABC did not request additional funding, but the Department ha engaged with the entity about this issue and was satisfied that SABC would be able to cover the elections without problems.

Dr Wesso assured the Committee that the Department’s budget and programmes were in alignment with the strategic plan.

Mr Snell commented that it was strange that the call centre tender was stopped about one week into the financial year. Mr Snell said that, although he was not sure when the Department made its submissions for the budget last year, it seemed that it clearly knew that it was not going to continue with the call centre project, in which case he wanted to know why it had still requested the funds.

Dr Wesso said that the Department could provide the Committee with a full report on the call centre if it was required.

Ms Mashigo wanted the Department to give an example of the Telkom: 2010 FIFA World Cup project to get a better understanding of what it concerned.

Dr Wesso reported that the FIFA project reports were only finalised recently, and they were now available. 

The Chairperson asked the Department whether the Medium Term Expenditure Framework (MTEF) helped the Department, or whether it felt that it should be done away with. He commented that the MTEF was supposed to assist departments with planning but it did not always seem that it was having a positive effect.

Dr Wesso believed that the MTEF was a very important mechanism and the Department had already identified its key projects for the next financial year. In his capacity as Acting Director General, he had instructed managers on what they should be spending immediately, and stressed that they should not be waiting to spend only at a later stage. The strategic and business plans were in place, so that the DOC knew exactly which projects to support, and he emphasised again that the Department had done its planning and was ready for the next financial year.

The Chairperson told the Department that people who did not tell the full truth in Parliament could have action taken against them. He reiterated that the NT reports showed that the Department was in fact not spending by 31 December 2010, and he therefore called for an explanation.

Dr Wesso said the Department would provide the Committee with further information on its spending, including that taking place in the fourth quarter.

The Chairperson asked how the entities were monitored.

Dr Wesso replied that the Minister had been meeting with the different boards of these entities and there were also joint meetings. The monitoring mechanisms included monthly reports, compliance testings, regular provision of schedules on the entities, to ensure these entities were in alignment with government strategies. There would be a special unit in the Department, following the institutional review, that would be dealing with the entities.

National Treasury briefing
Mr M Matyi, Director responsible for Departments of Water Affairs and Communications, National Treasury, noted that National Treasury (NT) assessment of the spending patterns had concluded that the unit responsible for spending in all entities was weak. NT had engaged with the Department of Communications, and informed it of this finding. NT the suggested that the unit dealing with the entities needed to understand their issues, and must think strategically, in order to assist and guide those entities. NT had also responded to the budget review submitted to Parliament on the election issues.  

Dr Wesso said that the DOC had now strengthened that component with specialists. The Department had also dedicated a council of experts from outside government to advise the Minister on these entities, as part of the planning for the new financial year.

The Chairperson asked whether the new organogram would be available by month end.

Dr Wesso replied that it would. From the Minister, it would pass to the Department of Public Service and Administration (DSPA) for approval, and would then be ready.

The Chairperson said that the Committee would wait for written responses on those questions that were not responded to.

Department of Water Affairs (DWA): Third Quarter 2010 Expenditure Report:
The Chairperson said the spending patterns of the Department of Water Affairs (DWA or the Department) showed that it had been under-spending. The Committee would try to assist by working together with the Department to improve on its spending. He commented that the planning of departments was not up to standard. He posed the same question around the relevance and usefulness of the MTEF to departments. He asked what could be done to improve departments’ planning strategies. He pointed out that this department, in particular, played an essential role, in ensuring that water was delivered to the people. Unfortunately, there were challenges with the Department’s strategic programmes, and he called on the DWA to inform the Committee what it was doing to address those challenges.

Ms Thandeka Mbassa, Deputy Director General: Regions, Department of Water Affairs, apologised that the Acting Director General could not be present as he had needed to visit the doctor.

Ms Mbassa noted that she would like to share with Members that the DWA faced similar issues to the Department of Communications in relation to management. The former Director General was suspended, then the Acting Director General was suspended in November, and a new Minister had also been appointed. These changes had obviously had an impact on the running of the Department.

Ms Nthabiseng Fundakubi, Acting Chief Financial Officer, Department of Water Affairs, tabled and explained the expenditure of the DWA for the Third quarter, ended 31 December 2010, the reasons for the under-spending and slow spending. This Department was allocated an R8,2 billion budget. By 31 December 2010 it had only spent 62% of the total budget, and by 18 March 2011 had reached 89% total expenditure.(See attached document for full details). She noted that the Committee probably did not know about the Masibambane project that was also listed as one of the programmes on which the Department was under spending, and she explained that this was a donor-funded project.

Ms Mbassa divided the challenges that caused the slow spending into categories. She said that they fell into challenges that were part and parcel of project management, other challenges fell outside the control of her Department, for instance where this Department was hindered by lack of action from other departments or municipalities, and the third set were organisational challenges.

Ms Lerato Mokoena, Acting Programme Manager: Regional Bulk Infrastructure Grant: Department of Water Affairs, said that the two major causes of delays lay with the Environmental Impact Assessments (EIAs) which took substantial time, but without them projects could not continue. Secondly, the Water Services Authority (WSA) was reluctant to continue with projects if the required funding was higher than estimated.

Ms Mokoena briefed the Committee on a number of project dealing with bulk water supply, where challenges were experienced, in Limpopo, Mpumalanga, North West and Free State. One of the main causes of delays under the Regional Bulk Infrastructure Grants (RBIG) was that the Department could transfer money to municipalities only when the work had been done, and this had to be checked as well.

Discussion
The Chairperson said that, in order to avoid confusion in the figures, the Department should not have included spending past 31 December 2010. This presentation had included spending up to 18 March 2011.

The Chairperson asked the Department whether it anticipated that it would be under- or over-spending by the end of the 2010/11 financial year.

Ms Fundakubi replied to the questions around the specific figures. She noted that the budgeting for the interest and rent on land was a misallocation, as this Department did not budget for this. She also noted incorrect figures in relation to theft and losses. She commented that the Department might have been showing 62% spending at the end of December 2010, but was currently at 89% spending. The Department was currently also processing a number of invoices, and she anticipated that the Department would not finally be under-spending by the end of the financial year. The Department had engaged with NT and DPSA about loans, and if they were approved, then the spending patterns should be on track by the end of the financial year.

Mr Mbili said this was a case of bad management.

Ms Mbassa told the Committee that there were mechanisms in place to ensure the Department could fast track its spending patterns. In cases where the Department was working through, or with, municipalities, and there were disputes on the technical approach, the political heads had been asked to intervene. In cases where problems arose through inaccurate invoices, the financial managers had sat down with the service providers to correct them. In some cases, Regional Managers had to physically go to municipalities and made sure that invoices were produced. This had been done during the past month, to sort matters out, so this would definitely have positive effects on the Department’s spending by the end of the financial year. The Department had been working overtime to deal with these invoices, to ensure they were all paid before the end of this financial year.

Mr M Mbili (ANC) said that bad management was the main issue. The problem was that funds were allocated, but half way through the year the departments realise that they did not have the necessary capacity to spend these funds, and therefore re-allocated them.

Dr P Rabie (DA) asked for an update on the Ndoni damn in Limpopo, asking if it was still on schedule.

The Chairperson said the Committee would like a response in writing on the Ndoni dam in Limpopo.

Mr Botha, Chief Director: Finance, commented that the National Treasury had given the Department funding for the Ndoni dam, and would submit a detailed report to the Committee containing further details.

Mr Gelderblom asked for the reasons for under spending on the Regional Bulk Infrastructure, in the third quarter, and wanted to know also how this had affected service delivery. He also enquired about the reasons for over spending in the Water Management Programme.

Ms Mbassa explained that the RBIG programme was initiated by the Department when it had acknowledged the need for a special grant to focus on bulk infrastructure, in order to deliver water to municipalities. The Department had told NT that it would take responsibility for this programme because municipalities already had enough struggles of their own with capacity, in their current projects. Under this grant, the Department would not transfer funds if the municipality did not have capacity. However, there were still a number of challenges that caused delays, such as when municipalities wanted to procure service providers themselves, if these service providers then produced poor quality projects. The Department was responsible for making transfers on a quarterly basis and accounting for expenditure. There were also some management issues.

Mr Mantyi added that NT had been working very closely with DWA and was looking at reviewing the implementation model of the RBIG programme. The next meeting would be some time in the current week, and it would look at how the programme was operating and how it could be improved.

Ms Mashigo wanted further clarity on the Masibambane project, and asked what was causing delays in the distribution of this project’s funds. She pointed out that it was a donor project.

Ms Mbassa explained that the Masibambane project was a donor fund, which meant that any funds allocated should be spent only on this specific programme. However, there were some disputes around this with the former Director of Corporate Services, which had resulted in delayed spending. She would provide a detailed report on the Masibambane project by 31 March 2011.

Ms Mashigo said the Department must tell the Committee how the Masibambane funds were being used in writing for better understanding.

Mr Mantyi said the Masibambane project did not only have donor funds, but fiscal funds as well.

A Member of the Portfolio Committee on Water Affairs, asked how many vacant posts there were. He asked whether the Department was still on track to meet their deadline for that, which was May 2011.

The Member noted that funds were moved from the Mametja Sekororo Bulk Water Supply project, and asked how that project was doing now.

The Member asked why the Department seemed to make awards without seeing projects first. The contractor in one project was supposed to be on site by February 2011, but now the Department was saying that this would happen in April 2011. He asked who was in control, and what was in the contract between the Department and the contractors, and furthermore, what were the consequences.

The Member noted that in the Madibeng Water Treatment Works, the contractor’s work was poor, so he enquired what the way forward would be, and what were the financial implications.

Ms Mokoena explained that the Madibeng Water Treatment designs were really bad, and the consultant had essentially just placed his initials on the old designs. As a result, he was not paid.

Mr Snell said that the last time the Department met with the Committee, it had discussed the mines in the Limpopo and Mpumalanga areas that backed down on the water programme. He wanted to know the current status of this, noting that the presentation does not address the cost pressures caused by this situation.

The Chairperson said there was no consistency as to how the sector departments named their programmes, and these should be better aligned, to make for better understanding.

Mr Mantyi noted that NT had also identified this problem and, before the 2011 budget, had circulated a standard budget structure to departments, asking them to apply it for consistency.

The Chairperson asked why the Department was not budgeting for certain areas where it knew that there would have to be spending.

The Chairperson acknowledged that the Committee was aware of the challenges around the length of time taken for EIAs. However, he commented that legislation could be used to set time frames to fast track matters; he enquired whether the legislation that was already in place was not sufficient to cover all the issues.  

The Chairperson noted that the Department had transferred some staff, and wondered if this had assisted in fast tracking service delivery.

The Chairperson questioned the figures for Mpumalanga, which was apparently going to contribute 27%. However, he enquired what this represented, noting that water services did not fall under a provincial government component.

Ms Mbassa said when the Mpumalanga bulk pipeline was discussed in a meeting between the Mpumalanga provincial government and the Department, it was indicated that the DWA could only fund the social component of the project, whilst the economic component had to be funded by the municipalities. However, because this particular municipality was very small, the provincial government had stepped in. The DWA was doing its best to make sure that the funds were spent by the end of the financial year, but would come and account to Parliament if it could not do so.

Dr Rabie noted that there was really not time to “fight over turf” with municipalities, because people on the ground were suffering. The Department must use the laws available to force municipalities to deliver water on the ground.
 
Ms Mashigo asked why the Department was not using the Water Services Act to address the challenges in bulk infrastructure services in municipalities.

Ms Mbassa said, in relation to local government issues, that there was legislation in place, and it did assist to a point, but the problem was that in general, local government tended to have serious issues. The Minister had therefore said that if the challenges were related to water, then the DWA must adopt a pro-active approach to solving the problem, rather than merely attempting to enforce the legislation.  The Department was working very hard to fill the vacant posts by the end of May 2011, and was confident that it would be able to meet the deadline.

Ms Mbassa added that the DWA was working very closely with the Department of Co-operative Governance and Traditional Affairs (COGTA) on the turnaround strategy and special purpose vehicle to address the issues in local government. That Department had its own approach, which would be presented to MinMEC, to assist local government with capacity building. The Department was building programme management capacity to improve on its own planning.

Ms Mbassa assured Members that the dams that the Committee had visited were on schedule.

Ms Mbassa noted that the information on the mines would be made available; unfortunately the representatives did not have this information with them at the meeting.

Mr Mantyi added, in relation to dams, that the Acornhoek damn technicalities were picked up so now NT and the Department was looking at how they could be improved. There were changes in the funding model and a report will be submitted by the team that was working on the project by next month to decide on the way forward.

The Chairperson concluded that a number of issues had not been responded to. However, he appreciated the work done by the Departments.

He commented that the DWA would have to look at its relationship with local government

The Chairperson noted that the Committee would now be debating its reports in full, rather than simply sending them to the House, as had happened in the past. It was important for the departments to respond to the unanswered questions. The Department had progressed, but there was still room for improvement.

The meeting was adjourned

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