Department of Rural Development and Land Reform briefing on challenges relating to the restitution budget

Standing Committee on Appropriations

27 June 2011
Chairperson: Mr E Sogoni (ANC)
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Meeting Summary

The joint meeting started off with extreme dissatisfaction expressed by the Chairperson about absence without apology on the part of the Portfolio Committee, and the failure of the National Treasury to send a senior representative to the meeting. An apology from the Portfolio Committee whip was accepted, but the Chairperson raised the matter of the inadequate representation of the Treasury with the Minister. As the meeting progressed, it became clear why he had been so concerned. The meeting should rightly have given the two committees the opportunity to interrogate the Treasury about reasons why it had not granted additional funding for land restitution to the Department of Rural Development and Land Reform (DRDLR). The Chairperson insisted that the Treasury should have sent a senior delegate who would be capable of making decisions.

The DRDLR briefing placed central emphasis on the fact that land restitution had originally been expected to be resolved by 2008. In fact there had still been a continuing proliferation of claims since that date. The implications for funding had been profound. Because the post 2008 situation had been unanticipated, funds had to be moved over from the land reform programme. Matters came to a head with Treasury when the DRDLR presented bids during the 2010 MTEF to reprioritise R391,495,000 to new programmes, restitution grants and additional funding of R3.75 billion on restitution over the MTEF.

The reprioritisation was not approved. The Department argued that it consequently was unable to honour a commitment of R5.4 billion. To make matters worse, the commitment did not include gazetted land and authorised offers not yet accepted by land owners. The Department was convinced that in terms of government and policy priorities, continued reprioritisation from Land Reform would not assist it to resolve the land restitution budget deficit.

In discussion, the Treasury could not come up with convincing answers as to why
It had not approved the bid for additional funding. It was stated quite bluntly that there had been underspending on land reform, and that the Treasury was not disposed to giving more money to a Department that could not spend what it had.

The Department countered that it had in fact been forced to overspend on restitution when money was moved from land reform. It complained that Treasury was reluctant to approve rollovers when money had not been spent. When dealing with land claims, spending could at times be delayed. Once money had gone back to Treasury, it was hard to recover. The budget structure was inflexible.

Members expressed disappointment that the DRDLR and the Treasury were talking past each other. Yet the feeling was unanimous that the two committees would not consent to mediate between the two departments. There were emphatic statements to the effect that they had to face each other to resolve issues. Members proceeded to advise the DRDLR about budgeting. Structural deficiencies and lack of capacity to estimate were alluded to. Members agreed with a DRDLR delegate who said that restitution was a moving target, especially with the looming possibility of a reopening of claims. However, members advised that the Department strengthen its capacity to estimate, and offered suggestions toward that end. The Chairperson opined that the DRDLR had to work at making its intentions known in a budget. There was agreement that it was crucial for the Department to quantify the extent of restitution requirements over the following 3 years.

The Chairperson remarked that the shifting around of money indicated unrealistic budgeting. He cautioned against reprioritisation of restitution at the expense of land reform.

There were questions and remarks about extravagant legal costs, the power of commissioners, and the budget cycle.

The two departments were instructed to engage, and to return with a report back in August.

Meeting report

Introduction by Chairperson
The Chairperson expressed his disappointment at the fact that the Rural Development and Land Reform Portfolio Committee had sent only one member to a joint meeting with the Appropriations Standing Committee. The National Treasury was likewise underrepresented. The Director General and senior officials of the Department of Rural Development and Land Reform (DRDLR) were also absent. There was a lack of formal apologies.

Ms H Matlanyane (ANC) of the Rural Development and Land Reform Portfolio Committee replied that the Chairperson of that committee had to attend a workshop in Gauteng. Other members were attending other committees.

The Chairperson responded that he had no choice but to accept an apology from the whip of that committee, but he was still disappointed.

Mr Protes Phili, Chief Financial Officer, Department of Rural Development and Land Reform (DLRD), noted that the Director General had been subpoenaed to appear before the Public Service Commission.

The Chairperson stated that although informality was desirable, there had to be action within the law. He wished to convey the general message that apologies were part of that. The DG had to apologise, even if it only meant making a phone call. The meeting had been scheduled to discuss matters pertaining to the responsible use of government funds. Departments knew very well who had to present at such a meeting. People were taking advantage. The Standing Committee could get tough on that if it so wished. National Treasury was underrepresented also. There had to be senior officials who could take decisions. The Chief Directors (CDs) who worked with the DRDLR, had chosen not to come. That made the work of the Standing Committee difficult. No explanations had been given. He asked members to advise him.

Mr N Singh (IFP) agreed that the situation was unacceptable. Members had travelled and made sacrifices to be there, and there were not sufficient representatives of departments to provide answers. He remarked that the DRDLR and the National Treasury together were waiting to implode. The land issue was a sensitive one. There were implications for the economy, and international attention was focused on the ways in which the country addressed it. If the Standing Committee was not given the chance to assist with the land issue through the Treasury, the land issue would linger on. There would be no resolution of constitutional imperatives.

Dr P Rabie (DA) agreed that the proper officials had to be present. There could be no parliamentary oversight without responsible delegations.

Ms R Mashigo (ANC) said that that the DRDLR at least had a CFO that could address the Committee on behalf of the Director General. But the National Treasury needed to provide a written notice that delegates were sufficiently qualified to represent it. It was a serious meeting with implications for the future of South Africa. Generations to come would challenge the present one for inability to resolve land issues. Those issues were many. There were service delivery challenges. The same issues kept cropping up; the only thing that changed was the terminology.

Mr Singh suggested that the meeting proceed as planned, to see if any progress could be made. But political functionaries were required. There were questions about government priorities. The Rural Development and Land Reform Portfolio Committee was integral to that. The Money Bills Amendment Act gave the Portfolio Committee the power to say that it was unhappy with the budget.

The Chairperson agreed that the meeting should proceed as planned, but a phone call had to be made to ask the Director General of the Treasury on what grounds it had been decided to send Mr Mangondo to represent it. The question was what he had been sent to do. National Treasury officials had been present at a follow up meeting to the discussion of the DRDLR third quarterly report. The question was why those officials were absent from the current meeting. People were taking advantage. He agreed with Mr Singh that a way forward with the budget was needed. It was unacceptable to have meetings for the sake of having meetings. The role of the National Treasury was crucial. The Standing Committee was being forced to compromise.

Department of Rural Development and Land Reform briefing on challenges relating to the the restitution budget
Mr Phili sketched the background to restitution background challenges.

The Department had anticipated restitution claims to be settled by 2008. National Treasury then adjusted the budget in anticipation of the closure of the Commission. Due to the complexity of rural claims, the target was not met. The Department presented revised policy priorities during the 2009 MTEF and requested additional funding of R5.4 billion. Out of the requested R5.4 billion, no additional funding was received except inflation adjusted increases.

According to targets set in the 2008/09 strategic plan, the land reform programme had to redistribute 1.5 million hectares of white-owned agricultural land. A bid for an additional amount of R3.8 billion was requested, which was partly funded from restitution savings. Concurrently there was a shift from redistribution through grants to a Pro-active Land Acquisition approach (PLAS). That resulted in savings under grants, utilised to fund the PLAS programme.

During the 2010 MTEF the Department presented bids to reprioritise R391, 495,000 to newly created programmes, restitution grants and additional funding of R3.75 billion on restitution over the MTEF.

The reprioritisation was not approved, but allocated to the restitution programme for grants over the MTEF.

The effect of the non approval of additional funding was that the Department did not have adequate funding to honour the commitment of R5.4 billion. That commitment still excluded gazetted land and authorised offers not yet accepted by land owners. Acceptance by land owners could result in increased commitments.

Concerning the way forward, Mr Phili stated that given government and policy priorities of the Department tabled to Parliament, continued reprioritisation from Land Reform would not assist the Department to resolve the Land Restitution budget deficit. National Treasury would have to consider new bids to be presented by the Department during the MTEF.

Within the current budget allocation, the department would continue to prioritise land settlements, and reduce commitments related to court orders and financial compensation.

Discussion
Mr Singh referred to the last paragraph on page 6 of the presentation. He asked if the DRDLR had quantified how much would be needed over the following three to four years to satisfy land claims. He referred to the fact that the R5.4 billion figure excluded land gazetted, and authorised offers not yet accepted by landowners. The Minister had said that land claims might be reopened. The financial impact of that had to be considered. There had to be a total ballpark figure that might have to be added to the R5.4 billion.

Dr Rabie referred to the previous meeting with the Rural Development and Land Reform Portfolio Committee. Legal costs incurred had been extravagant. The inability to honour the R5.4 billion commitment, had been due in part to initial costs incurred by the department, and legal costs.

The Chairperson noted that it was not the intention of the meeting to do a rerun of budget forums. Members of Parliament were familiar with budget issues discussed at that level. The purpose of the meeting was to gain understanding, which was why he was so frustrated at the lack of a National Treasury presence. He continued that a shortfall caused resources to go towards legal costs. The previous cost for litigation had been R700 million.

The Chairperson continued that it had to be clarified why the budget allocation for land reform had increased, whereas that for restitution had decreased. Although it had been anticipated that restitution claims would have been finalised by 2008, the request to Treasury for 2011/12 had made mention of 346 outstanding claims. The question was why the DRDLR request to Treasury had been declined.

Mr Plaatjie from the National Treasury had in the meantime joined the meeting. The Chairperson told him that he had left the meeting without explaining why Mr Madongo had been chosen to represent the Treasury.

Mr Plaatjie responded that he had left before questions about Mr Madongo had been raised. He said that Mr Madongo was capable of performing the task facing him. However, he still wished to apologise that the Treasury CD Divan Naidoo was not there. Normally the delegate would have been at the level of CD. CDs would be there the following day to deal with the third quarter report, and expenditure report.

The Chairperson replied that it was not enough to send people who could merely cope with the day’s task. There had to be people who could take decisions. He had raised the matter with the Minister. He asked Mr Magondo to comment.

Mr K Magondo, Senior Budget Analyst (Rural Development) for National Treasury, said that the briefing was a true reflection of the state of affairs. The Treasury worked on the principle of evaluating the total expenditure of a department, and the performance of the various programmes. The rest of the budget was picking up, but land reform and restitution were underperforming as programmes. It had been decided not to cut the land reform budget, but to move funds from restitution. The National Treasury could not see why more money had to be granted if the DRDLR failed to spend what they had.

Mr Phili responded with regard to restitution, that the underspending of the previous year and the current R136 million were due to court orders. Treasury had been asked to shift funds to land reform as a rollover for court orders. The budget structure presented a challenge. In the current year, money was not under restitution, but under administration. The Department would have to apply for a rollover, with money to be added in November. He remarked that the budget structure was inflexible. There had been a moratorium on the filling of posts. If posts could not be filled, the money would be unavailable. The Department had spent the entire budget for restitution, and money had to be shifted there.

Mr Mangondo replied that reprioritisation was possible. The DRDLR could apply for viraments. It was easy to shift money around.

The Chairperson drew attention to the fact that the DRDLR had applied for a waiving of 8%. The Department wanted R500 million, and it had been granted late. The Standing Committee needed to be advised by someone with direct experience. The question was how to assist the Treasury and the DRDLR. If it was indeed easy to shift funds between programmes, there was the Public Finance Act to guide that.

Mr Mangondo added that money had not been earmarked for restitution and land reform. There had been underspending during the MTEF, and costly reforms. Reprioritisation had to bring funds to important programmes.

Mr Singh remarked that the DRDLR and the Treasury were talking past each other. There was one government and one Constitution. The Standing Committee and Portfolio Committee were not there to mediate between the two departments. They had to work things out among themselves. Treasury had to advise. It was not only a question of figures and statistics. The DRDLR had structural deficiencies. There was a lack of capacity. Money had not been spent on time and rollovers had been requested. There were claims that had remained unattended to for protracted periods. Land owners and claimants were blamed. Claimants wanted quick results. Farmers were reluctant to improve farms. Some commissioners had left, and others were fired. Departmental capacity was questionable.

Ms Mashego remarked that the Standing Committee was hearing for the first time that the budget structure was inflexible. She agreed with Mr Singh that it was not the task of the committees to mediate. The DRDLR and the Treasury had to be honest about what they did. The use of money had not been planned properly. The APP had not been referred to. The DRDLR and the Treasury had to face each other. The question was what power commissioners had. The DRDLR could not shift responsibilities to others. It was responsible for implementation, and had to account for how resources were used.

The Chairperson asked how the budget was formulated. He remarked that the sheer quantity of land claims impacted severely on the budget. Section 43 could give guidance to shift money around. But there were limits to shifting money around. If difficult circumstances demanded that, the Standing Committee would like to assist. The amounts required was a matter between the DRDLR and the Treasury. The Committee had to look at how money was spent. The DRDLR was not spending. Parliament approved the budget, but when there was a deadlock with the Treasury, the Committee had to be told. There had been deadlocks around expenditure. Parliament had not been notified. Parliament had to know, it could break deadlocks. He agreed with Mr Magondo about the DRDLR capacity to spend.

Mr Phili replied that the Commission had to be restructured in response to challenges. The DG and the Minister agreed that the commission had to be restructured in order to be accountable to the Department. He said that the appointment of new commissioners was a challenge. The Department accepted that it was necessary to appear before the Committee about deadlocks and to explain challenges. Money that went back to Treasury was hard to recover. With regard to restitution claims, he noted that some prospective sellers had rejected offers toward year end. Concerning underspending, he said that the question was whether to negotiate or to push the process into the following year. It would be better if the Department was challenged, for money to be rolled over into the next year, than for it to go back to the Treasury. He said that was the main challenge facing the department.

The Chairperson advised that the costing of outstanding claims be taken to the Treasury, so that Treasury could advise how financing had to proceed over the MTEF.

Mr Sinjay Singh, Acting RLA for the DRDLR, said that it was hard to establish the quantity of claims. The Department would need till August the following year to attain certainty. Restitution was a moving target. More money had been spent on it than allocated. The assumption that restitution claims would be settled by 2008, blocked restitution financing.

Mr L Ramatlakane (COPE), Standing Committee, referred to the R3.7 billion DRDLR bid for restitution over the MTEF, and the R5.4 billion commitment. He asked if that meant R5.4 billion stretched over 3 years, or a commitment to be honoured, whether it was a matter to be cleared up or one still in process. He referred to the complexities of quantification. The Committee had been promised that the Department would have quantities ready for the middle of that year. An estimate of outstanding figures had to be formed for the budget. There was a failure to do estimates. Billions were being knocked around, which could cause a crisis to the state in years to come. The Department had to bear in mind that budget cycles proceeded according to the sequence of estimation, allocation and adjustment. No official could say that money came in too late. There was a planning problem. Expenditure had to be planned in terms of a one year cycle. Cost calculation had to be evidence based. Estimates could be made on the basis of costs of land to be acquired. It could be calculated per hectare of land. There was as yet nothing of the kind on the table, everybody was shooting in the dark. He asked if capacity could be bought to help. External capacity could be brought in to calculate. The amount of hectares was known to the department. The Treasury was not helping. The two figures had to be explained.

Ms Thami Mdlalose, Acting Deputy, Land Claims Commission, responded that the R3.7 billion mentioned oin Slide 6, had been added to the current baseline. That covered the commitment of R5.4 billion. The Treasury refused additional funding for the current year. The 5.4 billion could only be covered over three years. Landowners took the department to court if there was stalling. There would not be reallocation from land reform in the new MTEF. Service providers would help cost outstanding claims. Digitalisation of outstanding claims was considered.

The Chairperson remarked that it was awkward to demand from Treasury why it refused bids, when the Department was underspending. The Department argued that it had capacity to spend, because it had overspent in places. The Treasury did not accept that argument. It had to be discussed.

Ms Leona Archary, Acting Deputy Director General for the DRDLR, said that the Department had overspent on some programmes and compromised on others.

The Chairperson quipped that the Treasury did not listen to the budget vote of the DRDLR when it made allocations. It listened to the ANC Youth League.

Mr Mangondo replied that the Treasury looked at the overall budget. Excess money in the Department was shifted to deficit programmes.

The Chairperson remarked that the DRDLR budget failed to reflect its intentions. The question was why the R2 billion had been shifted. The budget did not reflect the R2 billion needed to go forward. R3 billion had been spent, that had not been budgeted for. For the Standing Committee and The Portfolio Committee, the question remained why the Treasury had rejected the bid for the R2 billion.

Ms Archary responded that restitution court orders had to be settled. Land reform was still a government priority. The Treasury only allowed the Department to work within a certain framework. The Treasury wanted money moved from land reform. But the Department was still playing with the same money, as she phrased it. The additional bid for R3 billion had as yet not been received.

Ms Mdlalose added that administration costs could not possibly be increased for the MTEF. If Treasury thought that there was a better way to present bids, it had to say so.

Mr Singh opined that the DRDLR and the Treasury had to be given a chance. The session had turned out to be useful. The two Departments had to talk to each other. There were 14000 lodged land claims not yet resolved. There was the possibility that more pre-1998 claims would be lodged. The Department lacked the capacity to estimate. It had to talk to the Standing Committee. There had to be estimates of costs to the state in three year’s time. Huge claims could bankrupt the state. Forward planning was essential. The DRDLR and the Treasury had to be given a chance to engage with each other, to box without a referee, as he put it.

Mr Ramatlakane agreed that the two departments had to engage and work things out among themselves. The Treasury had the necessary information about DRDLR objectives. It was not the first time that the two departments contradicted each other.

The Chairperson asked Ms Matlanyane, representing the Rural Development and Land Reform Portfolio Committee, if she was satisfied.

Ms Matlanyane replied that she was not. She had at least expected Treasury and the DRDLR to speak as one. When it came to action taken to help people with land, one would expect Treasury to do what it could to help. The DRDLR had to enact its mandate. It had to deal with court cases and make the land more productive. Treasury had to oversee the Department in that. The two departments had to talk, and they had to indicate their shortcomings.

The Chairperson remarked that land restitution was important, and that commitments had to be honoured. But so was land reform. R2 billion had been shifted from land reform to restitution. He did not agree with the Treasury that shifting funds was easy. Budgets drawn up had to be realistic. If money had to be shifted about, it meant that the budget was not realistic. Land reform took rural development forward, but restitution claims had to be settled. Such claims could hold the DRDLR to ransom. Mr Ramatlakane and Mr Singh were correct in stating that it was not the first time the two departments were in contention. The Standing Committee was not going to grant the departments an open mandate. They had to report to the Standing Committee and the Portfolio Committee. He granted the DRDLR and the Treasury until August to resolve their differences and report to the Committee.

The Chairperson insisted that budgets be clear about intention. He advised the DRDLR not to underbudget on restitution. Budgets were informed by policy directives. Section 43 regulated that. Likewise, it was not advisable to budget billions for land reform that could not be spent. Shifts had best occur only when truly necessary. Capacity for implementation had to be borne in mind when drawing up a proper budget. The Department had to ask how litigation costs could be avoided, and find ways to settle out of court. The R2 billion moved to restitution was a matter between the DRDLR and the Treasury. The question was how balance could be found.

Mr Phili said that advice given was appreciated. The Department would engage with the Treasury.

The Chairperson good humouredly said to Mr Plaatjie of the Treasury that there was no need to fight with each other. But the Treasury had to furnish an explanation as to why Mr Naidoo had not been present. The Standing Committee had never had problems with the Treasury in the past. The Standing Committee would await a report back in August. He urged the Treasury to help the DRDLR.

The Chairperson adjourned the meeting.

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