Department of Mineral Resources Annual Report 2010/11

Meeting report

Department of Mineral Resources Annual Report 2010/11 presentations

Mr Edson Ragimana, Acting Director-General (Acting DG), Department of Mineral Resources (DMR, the Department), prefaced his overview of the Department's  presentation by advising that he would be replaced by Dr Thibedi Ramontja as Director General, who would be joining the DMR in the near future.

The DMR was presenting its first annual report and audited financial statement since the split with the former Department of Minerals and Energy, and the fact that it had received a modified audit opinion was a source of concern.  An action plan aimed at addressing issues raised by the Auditor-General (A-G) in the previous year had resulted in acknowledged progress, and the Department would continue on the same path with a view to getting an unqualified report.

The Mining Growth Strategy had been introduced in order to improve the competitiveness of the South African mining industry and place it on a path for sustainable growth, through addressing constraints to growth, infrastructure and mineral regulatory issues.  The resultant streamlining of administrative processes had led to the development of a new Mineral Regulation and Administration System (SAMRAD).  The system focused on the need for transparency and demystifying the availability of resources; broader access to the application process; uniform and standard adjudication, resource allocation and accountability for decisions; and the planning of resource allocation in relation to other land use and conservation objectives.

The online application phase of the system had been officially implemented in April, since when over 2 000 applications for rights and permits had been successfully lodged, signalling both the confidence and potential it held for mining in South Africa.  The system would be further enhanced with new modules relating to enforcement, revenue management, performance reporting tools and overall organisational performance.  As part of the plan for refining the system, a moratorium had been placed on the lodgement of new prospecting rights in September 2010, which was uplifted in April this year, with the exception of Mpumalanga, which followed suit at the end of September.  A consequence of the moratorium, through diverting resources from adjudicating applications to compliance inspections, had led to delays in finalising some applications, but these would be eradicated before the end of the year.

The review of the Mining Charter had been finalised, and was a much improved version, including a scorecard for reporting and monitoring purposes.  Cabinet approval for the work aimed at setting up a State-owned mining company had also been obtained.

During 2010/11, the DMR recorded the lowest number of fatalities in the history of the South African (SA) mining industry, with 127 people losing their lives compared to 168 the previous year.  However, the Department remained concerned about the continued loss of lives, and would continue to take a hard stance against unsafe working conditions.

Turning to the DMR’s financial performance, Mr Ragimana said it had spent R994.7 million of its R995.8 million budget, which was well within the Treasury’s 3% underspend guidelines, and was due mainly to invoices not being processed before the year end, or services of goods being rendered but not yet invoiced.  However, there was a huge gap between the unspent amount and the accrual raised, and this would have constituted unauthorised expenditure had payment been made on time.  He later indicated that the accruals amounted to R37.7 million, compared to a R1.1 million underspend, which would have resulted in R36.6 million unauthorised expenditure.

There were major variances in the financial performance report for 2010/11 compared to the previous year, and these were mostly owing to the DMR’s split from the Department of Minerals and Energy. 

Royalties amounting to R51 million, which had been collected during the financial year, had had to be transferred to “payables” while the DMR was busy with the process of establishing the legal recipient, following the enactment of the Royalty Act in March 2010.

Referring to the audit report which reflected a modified opinion, Mr Ragimana said there were two key issues involved.  The first referred to revenue and receivables, as the A-G was unable to confirm the accuracy of the receivable balance, mainly due to a recalculation of the interest payable.  This was attributable to the fact that the DMR did not have a revenue management system, and the work had been done primarily on Excel spreadsheets.  The Department would finalise the development of a revenue management model in the new SAMRAD.  The second issue related to the DMR’s commitment to the rehabilitation of derelict and ownerless mines.  The cost of implementing this programme had been estimated at R30 billion, to give a sense of what the potential liability would be, but the method of arriving at this figure did not meet standard auditing requirements.  The Council for Geosciences would be appointed to finalise the quantification of priority sites, and the cost thereof.

Other proposed actions arising from the A-G’s report included revising the invoice payment system to ensure payment within 30 days, and beefing up systems to eliminate irregular expenditure.  Material losses of R5.8 million had been incurred during the period, but a large proportion had occurred during the relocation process.

The trend of a widening gap between accruals and unspent funds indicated that there were serious challenges in the allocation of budget for goods and services.  Unfortunately, the DMR was not project-driven, with its work revolving around people and their abilities, so it was difficult to secure funding, particularly in the current economic environment.  A request had been put forward for an additional R452 million to improve capacity, but only R10 million had been allocated.

In order to ensure the DMR’s contribution to the process of creating decent jobs and a sustainable livelihood for the people, there was a need for the Minister to speed up the process of completing the beneficiation and small scale mining strategies.  The implementation plans for the iron and steel and the energy commodities value chains were being finalised for presentation to Cabinet, and the remaining three value chains would be finalised early in 2012.

Discussion
Mr E Marais (DA) asked why the current system had been unable to meet the 30-day deadline for payment of invoices, most of which were for routine monthly expenses such as rent or vehicle leases.

Mr Ragimana said there was no problem in handling invoices from other state institutions.  However, the method of dealing with service providers, involving the certification of the value of work performed, had slowed the process down and had needed to be revised.

Mr M Sonto (ANC) asked how centralising the invoice payment process would be beneficial.

Mr Ragimana said all invoices would now be routed to the Supply Chain Manager, so that the payment process could be tracked and delays at the programme manager level could be avoided.

Mr C Gololo (ANC) referred to theft and material losses identified in the A-G’s report, and asked who had been involved, and whether any remedial action had been taken.

Mr Ragimana said while some of the losses could be attributed to individuals, others were the result of the move to new premises, or simply due to the duplicated recording of assets, and it was a challenge to establish who should be held responsible.  The systems in place had been robust enough to ensure there had been no major losses and, in the circumstances, it had been recommended not to take disciplinary action against officials.

Mr Gololo asked why the DMR was transferring R23 million to the Industrial Development Corporation (IDC) for small scale mining.

Mr Ragimana said that when the programme started, the Department was giving technical support to small scale miners.  This was intended to legalise them, rather than to stop them mining.  The process had been transferred to the IDC, but there had been shortcomings in its implementation, so a new approach and strategy was currently being finalised.

The Chairperson asked if the IDC’s role was to develop a small scale mining strategy, or to provide financial assistance in the form of seed capital.

Mr Ragimana said technical and financial support used to be provided for projects involving beneficiation.  The IDC’s role now was to provide loans after an application had received DMR approval.  This approach had created unintended consequences as the DMR was not a financial institution, which was why the programme was being reworked.

Mr Sonto described the variance in the DMR’s request for R452 million additional funding, and the allocation of R10 million, as “absurd”, and asked if National Treasury had given an explanation.  He also wanted to know whether this had contributed to a flight of skills.

Mr Ragimana said he would appreciate the Committee engaging with the Treasury to establish why funds had not been allocated, although he suspected the main issue was the economic environment and the need to reduce expenditure as a percentage of gross domestic product.  As far as the flight of skills was concerned, a case in point was the compliance inspection unit, which existed in the structure but could not be filled with “warm bodies” as there was insufficient funding.

Ms F Bikani (ANC) asked if the DMR anticipated any future complications arising from the split from the old DME.

Mr Ragimana conceded that this was possible, taking into account that some services were still being provided to the Department of Energy, and delays in payments might arise.

Ms Bikani was interested to learn whether the DMR had any plans in place to use the R51 million collected in royalties to provide immediate relief to relevant communities.

Mr Ragimana said the old system, where royalties were either paid directly to the DMR, or mining companies were allowed to allocate them directly to communities, no longer existed.  All royalties were now paid into the revenue fund, and could not be used to benefit a particular section of the community.  It would be allocated on the same basis as any other tax.

The Chairperson said it was important for the Committee to consider inviting the National Treasury to discuss the funding of the DMR, so that the basis for making allocations could be clearly understood.  He said it was pertinent that during a radio interview that morning, when the DMR’s capacity had been questioned, the Minister had given a public commitment that a compliance unit was in existence.  The interview had also raised the question of benefits which should be accruing to communities and the country as a whole, currently going to conglomerates and “BEE individuals.”

Department of Mineral Resources Annual Report 2010/11 presentations continued
Members of the DMR delegation then gave very brief presentations covering different aspects of the Department’s annual report.

Ms Irene Tshifura, Acting Chief Financial Officer, presenting the non-financial performance information, highlighted successes in the area of transformation and cost savings.

Ms Pat Gamede, Deputy DG: Corporate Services, said that of 1 713 funded and unfunded posts in the Department, 672 were vacant.  The challenge was to secure funding for vacant positions and to fast track the filling of vacancies.

Mr David Msiza, Chief Inspector of Mines, said mine fatalities had dropped by 24%, from 168 in 2009 to 127 in 2010.  An rise in fatalities in the first quarter of 2011 was alarming, but could have been the result of the big increase in production which accompanied a rise in the gold price during this period.  Most of the occupational diseases occurred in the gold and platinum mining sectors, and were often the result of poor living conditions.  The DMR’s drive was to take employees out of single sex hostels, as this would impact on both health and safety.

Mr Joel Raphele, Deputy DG: Mineral Regulation, said economic development through mining had increased, and of the 625 mining rights issued since 2004, 435 were already used for mining.  However, the DMR was facing severe capacity constraints, which made its ability to evaluate applications and enforce compliance at appropriate levels physically impossible.

Mr Tseko Nell, Acting Deputy DG, listed the Cabinet’s approval of the usage of African Exploration Mining and Finance Corporation as the nucleus for the establishment of a state-owned mining company, as one of the DMR’s successes during the review period.  A number of interventions had been put in place to promote the short and long-term creation of jobs in the mining sector, and mineral beneficiation had been promoted, although targets had been only partially achieved owing to the effect of the recession on beneficiation projects.

The Chairperson reminded members that the programme directors would be returning to the Committee individually with their respective annual reports.

The meeting was adjourned.