Department of Transport Third Quarter 2011 Performance report

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28 February 2012
Chairperson: Ms N Bhengu (ANC)
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Meeting Summary

The Department of Transport (DoT) presented and took Members through the Third Quarter 2011 expenditure report. The background to the budget allocations and the breakdown per programme was outlined. It was noted that transfer payments made up the largest allocation of the budget, at 96%, and these included payments to the Passenger Rail Agency of South Africa (PRASA), the South African National Roads Agency (SANRAL), the Provincial Roads Maintenance grant, the Public Transport Infrastructure and Systems grant, the Public Transport Operations grant and the Taxi Recapitalisation 2020 plan. The DoT prepared weekly, monthly, quarterly and annual expenditure reports, to ensure that its financial database was kept up to date, and these reports were analysed and presented to relevant ministry and department officials and stakeholders for consideration and review.

When presenting the overview of expenditure, an indication was given of both over-and underexpenditure in each programme. There had been 6.4% underexpenditure for Compensation of Employees, due to a moratorium on staff appointments. There was also significant underexpenditure, of 28.7%, in the Goods and Services programme, largely because the DoT had been unable to spend the funds budgeted for upgrading of additional office accommodation until the present tenants, another government department, had moved out. There were delays in the rollout of the Rail Policy, Rail Act and Rail Economic Regulator. The programme S’Hamba Sonke had started late. There were outstanding claims from foreign offices and a delay in the establishment of the Aviation Safety Investigation Board. Late claims, as well as delays in implementation of other strategies, were also cited. In the conditional grants, there had been delayed payments of grants, because of attempts by the metros to pool the grant to develop a Road Asset Management System, which did not get approval from National Treasury. DoT was still in consultation with the City of Cape Town to determine the future of the grant. Other late payments to SANRAL resulted in large variations for April and May. By the end of December there was a cumulative underspend of about R4 million, with the largest variants being underspend in the Taxi Recapitalisation programme and overspend , on assistance to the Road Traffic Management Corporation (RTMC). Some of the variances grew from first to second quarters, but tended to correct by the third quarter. Where appropriate, unused funds would be shifted to specific purposes, which were described. Maritime Transport was expected to overspend, because the DoT had been forced to pay for a salvage operation for an uninsured ship that ran aground, whose owners were bankrupt.

Members asked about the funding allocation for the eNaTIS system, requested clarity on the differences between the public transport grants and asked if it was possible to have access to the DoT’s financial database. Members were concerned about the high levels of underexpenditure in the taxi recapitalisation plan, as well as delays in implementing the programme, and the financial implications of the Bus Rapid Transit (BRT) review. Several Members commented that the high levels of underexpenditure were indicative of lack of service delivery, and this was particularly apparent in respect of rural roads and infrastructure. They asked if the specific goals set out in the 2012 State of the Nation Address, in regard to infrastructure and rural development, had been taken into account. They asked for more clarity on the funding for the SANRAL road tolling projects and questioned whether the DoT had adequate control over the agencies to which it transferred funds. Members suggested that the DoT should realign its priorities to achieve the key outcomes defined by the National Executive. There was a suggestion that the role of the agencies needed to be redefined and the use of consultants curbed, particularly since there appeared to be no improvement in service delivery as a result of their employment. Members also felt that further discussion was needed on the rolling model, which seemed to add to the imbalance between highly developed roads and rural roads. The Committee noted that the DoT was due to appear before the Standing Committee on Public Accounts (SCOPA) on 6 March. It was suggested that a workshop was needed on 16 and 17 March.

Members adopted the Minutes of the previous meeting.

Meeting report

Chairperson’s opening remarks
Members agreed that the Committee should meet at 09:30 in future, and this proposal was to be taken to the Chief Whip by Mr L Suka (ANC).

Adoption of Minutes
The minutes of the previous meeting were adopted, without amendments.

Committee Programme
The Chairperson noted that the Committee would be debating the DoT budget vote on the 25 April 2012. She proposed a Strategic Plan and Budget workshop from Friday 16 to Saturday 17 March, before the scheduled Parliamentary break from 20 March to 16 April.

Department of Transport Third Quarter 2011 Expenditure Report
Mr Dan Pretorius, Acting Chief Financial Officer, Department of Transport, presented the Third Quarter 2011 expenditure and performance report of the Department of Transport (DoT or the Department).

He noted the figures under each of the headings Compensation of Employees, Goods and Services, eNaTIS (allocated once a year on the adjusted budget to recover funds spent throughout the year, so that the expenditure always matched the budget), Machinery and Equipment and Transfer Payments.

He then compared the budget breakdown by programme. The largest allocation was for the programme: Road Transport, which included transfer payments to South African National Roads Agency Limited (SANRAL) and the Provincial Roads Maintenance Grant. The spending on Public Transport included the Public Transport Infrastructure and Systems Grant and the Public Transport Operations Grant, previously known as the bus subsidies. The payment for Rail Transport comprised, in the main, a transfer to Passenger Rail Agency of South Africa (PRASA).

Transfer payments made up over 96% of the budget, and he indicated the percentage amounts, as follows:  PRASA (27.47%), SANRAL (25.08%), Provincial Roads Maintenance (19.41%), Public Transport Infrastructure and Systems (13.92%), Public Transport Operations (12.04%), Taxi Recapitalisation (1.37%) and Other (0.71%).

Mr Pretorius noted that expenditure reports would be produced annually, quarterly (interim financial statements), monthly (to check Early Warning Systems and Expenditure Reports) and weekly (a regularly updated Financial Database). These reports were presented to relevant Ministry and Department of Transport officials and stakeholders, for consideration and review. The budgets were phased so as to measure them against the planned expenditure. Compensation of employees was phased on the basis of  expected increases. Goods and Services and Machinery and Equipment were phased in a linear fashion, over 12 months (excluding eNaTIS), as were transfers agencies. Conditional grants were phased according to payment schedules. Other transfers were phased over twelve months in a linear way.

Mr Pretorius then went into details of the overview of expenditure.

Compensation of employees showed underspending in the first four months (April – July) followed by an over expenditure in August and September, due to the paying out of incentives to employees. Between October and December there was underexpenditure, but this slowly decreased, due to the finalising of the DoT restructuring and the lifting of the moratorium on filling of posts. By the end of the 3rd quarter the DoT had underspent by 6.4% of the budget. The DoT expected the percentage of under expenditure to drop by the end of March, but there would still be savings.

In respect of goods and services, there were high levels of underexpenditure throughout the year, except for the months of October and December. The underspending reflected 28.7% of the budget by the end of December. The DoT believed that this level of underexpenditure would drop significantly before the end of the financial year.

The major reasons for this high level included underspending on office accommodation. The national Household Travel Survey was only committed in February 2012. There were delays in the establishment of the Rail Policy, the Rail Act and the Rail Economic Regulator. The programme S’Hamba Sonke had started late. There were outstanding claims from foreign offices and a delay in the establishment of the Aviation Safety Investigation Board. Late claims had been submitted for Oil Pollution and Watch Keeping Services contracts. There were also delays in the Taxi Recapitalisation 2020 Strategy, the upgrade of the National Land Transport System and the review of the Bus Rapid Transport (BRT) system.

For conditional grant transfers, Mr Pretorius noted that underspending in April resulted from a delayed payment of the Public Transport Operations Grant. The September underspend resulted from a delayed payment of the Rural Grant. The reason was that the various metros were trying to pool the grant to develop a Road Asset Management system, but National Treasury did not approve of this. Consultation between the City of Cape Town, the DoT and the National Treasury resulted in delayed payments of the Public Transport Infrastructure and Systems Grant in December. The funds were to be shifted over to Johannesburg. Johannesburg, however, obtained approval for a rollover and therefore no longer required the funds. The DoT was in consultation with the City of Cape Town to determine if the remaining grant should be stopped.

In respect of other transfers, excluding the Conditional Grants, Mr Pretorius noted that late payment to SANRAL resulted in large variations for April and May. This late payment was due to late receipt of SANRAL’s quarterly report. By the end of December there was a cumulative underspend of about R4 million. The largest under expenditure was in the Taxi Recapitalisation programme, whilst the next largest variant was an overspend against the phased budget to the Road Traffic Management Corporation (RTMC), which was intended to assist the RTMC with its cash flow position.

Mr Pretorius then set out the expenditure by programme, noting that the phased variants grew from the first quarter to the second quarter. This was largely due to the lag in payments to Maritime Transport and a delay in projects for Public Transport. In the third quarter, most of the phased variants dropped, except for Integrated Transport Planning.

Mr Pretorius then explained that there would be some shifting of the unused funds, where applicable, and these would then be utilised for specific purposes. In the programme: Administration, the available funds would be used to upgrade the switchboard and cabling, for a financial model for the Information Technology Hub, the establishment of a Project management Unit and the cost of consultants. For Integrated Transport Planning, the funds would be committed to the National Household Travel Survey project, and other additional savings would also be shifted to this programme. Rollovers would be requested for the Rail Policy, Rail Act and the Rail Economic Regulator. No underexpenditure was expected in the Road Transport and Civil Aviation programmes. In Maritime Transport, there was expected over expenditure, due to unforeseen costs of a ship that ran aground. This ship was not insured, and the owners were bankrupt, so the DoT had to pay for the salvaging operation. DoT was in discussions with National Treasury, as well as the South African Maritime Safety Authority (SAMSA), to try to reclaim the R20 million costs from savings made by the SAMSA. In the programme: Public Transport, there was a likely underspend on taxi recapitalisation, but these funds would be committed to assist Polokwane to verify infrastructure and bus subsidy expenditure.

Mr I Ollis (DA) asked why money was being budgeted for the eNaTIS system, as his understanding was that the system would bring money into the DoT.

Mr Pretorius answered that the eNaTIS system was set up around 2007. The DoT, at that time, had allowed a budgetary allocation, with contributions also by the provinces. eNaTIS was conceived as a self-funding system, and a transaction charge was introduced. The driver’s licence testing centres collected the transaction fees and these were paid over to the provinces. The provinces then paid the transaction fees to the Road Traffic Management Corporation (RTMC), who paid them over in turn to DoT, and DoT paid the money into the National Revenue Fund. The DoT was responsible for paying for the costs of the system, so it would do the necessary debiting and spending of funds against the allocated budget. DoT was planning the establishment of a trading entity to ring-fence the eNaTIS revenue and expenditure, to make the system more transparent and manageable. This would also allow for further analysis into the effectiveness of the eNaTIS system.

Mr Ollis asked for clarification on the difference between the Public Transport Infrastructure and Systems Grant, and the Public Transport Operations Grant.

Mr Pretorius answered that the Public Transport Operations Grant related to the previous bus subsidies. This grant was paid over to provinces and the provinces subsidised bus services. The Public Transport Infrastructure Assistance Grant was initially set up for the building of transport infrastructure for the 2010 FIFA Soccer World Cup. The main thrust of the Public Transport Infrastructure and Systems Grant was to build BRT route systems and develop integrated rapid transport networks within the metros.

Mr Ollis asked if Committee members would also have access to the Financial Database.

Mr Pretorius answered that the Financial Database was accessible to anyone on the DoT network. It was a closed intranet system, as opposed to a web-based system. He suggested that the information could be made available to the Committee if requested.

Mr Ollis asked why the Taxi Recapitalisation plans always seemed to be behind budget.

Mr Pretorius answered that there had been over-estimates made of the rate of taxi scrapping under the Taxi Recapitalisation Programme. This was coupled with reluctance of taxi operators to scrap their taxis, in anticipation of an increase in the scrapping allowance. He added that this also meant taxi operators would have to reapply for new operating permits. He noted that the lowest level of yearly underexpenditure was around R5 million and that the current financial year would show an underspend of about R60 million.

Mr Ollis asked about the financial implications of the BRT review, in respect of expenditure by cities.

Mr Pretorius answered that the City of Cape Town had held back payments, following a discussion between it and the City of Johannesburg. City of Johannesburg had an earlier payment deadline, but it finally transpired that it did not need the additional funds, and these would be returned to National Treasury if City of Cape Town could not spend this money.

Ms D Dlakude (ANC) noted her concerns about the high levels of underspending for the programmes and projects of the Department, as well as the delays of the programmes on the Aviation Safety Investigation Board and the taxi recapitalisation.

Mr Pretorius agreed that there was a general trend of underspending within the DoT, due largely to the DoT restructuring process. The executive committee had reworked the budget to fit the strategic plan of the Department. He noted that most of the money was committed, and that this would limit the general under spending of the Department. He highlighted the expected overspending on Maritime Transport, and the expected underspending for Rail Transport and employee compensation. Larger underspending would by minimised by transferring of funds to newer projects, like the Polokwane project.

Ms Dlakude expressed frustration that there was under expenditure in the rural transport services and infrastructure.

Mr Pretorius noted that the rural grant at R35 million was too small to address the rural infrastructure needs, since this gave each municipality about R1.6 million a year. The framework for the grant was also too wide, since it included maintenance of the road asset system, and assessing of priority roads within municipalities. Despite this, many municipalities still failed to spend all of their funds.

Ms N Ngele (ANC) asked under which programme the SANRAL tolling projects fell.

Mr Pretorius answered that the funding for SANRAL was split into two streams; the first being government funding for the maintenance and rehabilitation of national roads, and the second being the building and rehabilitation of new roads through tolling. Government did not cross-subsidise toll roads. Toll roads were funded with capital market loans by SANRAL, after being settled through concession agreements based on unique funding models. The toll roads paid for the maintenance and initial cost of the road, and once that had been done, it normally became a national road.

Mr P Mbhele (COPE) asked for more details on the expected drop in the 28.7% under expenditure in Goods and Services.

Mr Pretorius answered that the total budgeted amount had not yet been spent in a number of projects. As many of these projects were fixed term projects, the expectations were that most funds would be spent up to year end. Once again, he highlighted the likely overspend in Maritime Transport, and the general figure of about R5 million to R7 million underspending overall.

Mr Pretorius also noted that there was not enough office and parking space at the current DoT offices in Gauteng and that the building itself was not in good condition. Additional funding was made available for the DoT to take over full occupancy of this building but the current co-tenants of the building, the South African Police Services (SAPS), had yet to move out. This situation resulted in a major underspend, as the planned upgrades to the building could not commence until SAPS had left.

Mr Mbhele asked for details on the cost of the late claims for Oil Pollution and Watch Keeping contracts.

Ms Ngele expressed frustration at the low amount allocated for rural infrastructure grants, saying that this indicated that not all citizens were treated equally.

Mr Pretorius answered that the rural infrastructure grant was only in its second year. This grant was established by National Treasury at the request of DoT, and was based on savings from the DoT. When the budget allocations were provided, the DoT had the opportunity to reprioritise. However, there was difficulty in actually doing so, because the Division of Revenue Act had been passed, and this limited the DoT to making additional funds available only by transferring funds from the Transfer payment budgets.

Ms Mdaka expressed disappointment at the amount of underspending highlighted in the report.

Mr Suka asked whether the report took into account the recent State of the Nation Address and the key areas identified by the National Government.

Mr Pretorius answered that the priorities of the Government were incorporated into the agreements and frameworks of the various programmes of the DoT. The DoT monitored the relevant grants and transfer payment agreements and frameworks, to ensure that government priorities were being pursued and reports were given.

Mr Suka asked whether the DoT had enough control over the agencies. He noted that about R34 billion of the budgeted R35 billion was transferred to these agencies.

Mr Pretorius answered that the biggest amounts transferred were to PRASA and SANRAL, and payments were only made after analysing their quarterly reports, which provided the Ministry with the necessary overview. The Provincial Roads Maintenance grant, Public Transport Infrastructure and Systems grant and the Public Transport Operations grant were all conditional grants, paid on a pre-determined payment schedule.

Mr Suka asked for additional information as to what constituted the approximately R552 million allocation for Goods and Services.

Mr Pretorius answered that about half was allocated for discretionary spending, and the remainder was committed to projects.

Mr Suka asked if the rail projects mentioned in the SONA were included in the budgets presented.

Mr Suka suggested that the DoT should inform National Treasury about its needs, particularly relating to the rural road infrastructure. He maintained that although there was frequent mention of the state of rural roads, and often a budget, in fact they were not adequately maintained.

Mr Pretorius answered that rural road maintenance and rehabilitation was budgeted at national, provincial or municipal level, but the actual maintenance was effected at municipal level. The DoT could influence priority spending on certain roads, but could not enforce the spending itself.

Mr Suka raised concern that funds allocated to provincial governments could be “dumped” at the tail end of the financial year. This could have a negative effect on service delivery.

Mr Pretorius reiterated that provincial grants were paid on a pre-determined payment schedule. If a municipality or province was found to be underspending, the DoT could then delay the payment by a maximum of 30 days. The province or municipality then had seven days to provide reasons why the DoT should continue the payment. If the matter was not resolved within this time frame, the payment would either be continued or stopped, through a process that included National Treasury approval.

The Chairperson thanked Mr Pretorius. She noted that the Committee appreciated that when the DoT presented an expenditure report, this did not simply set out the budget in isolation, but was directly linked in to the programmes planned by the DoT. Spending of the budget was important, because underexpenditure on a budget also implied underperformance by the DoT of its obligations. This presentation highlighted that the DoT was a department responsible for coordination rather than implementation. The questions raised by Members suggested that at times there was not value for money being achieved. There was a need to respond to the uneven levels of development within South Africa, and allocate resources accordingly. The DoT had a responsibility to examine the inequalities in transport across the country, and must design policies to reduce that inequality. Some of the current policies that did not meet the requirements that transport should be a facilitator of economic development in under-developed areas.

The Chairperson was particularly concerned about the underexpenditure and delays in the development of policy, given that the DoT was a policy-making department. This lack of progress meant that there was no redirection of resources to where they were most needed. This presentation would be very important in preparing the Committee for the Budgetary Review and Report and helping Members to scrutinise areas where there were bottlenecks within the DoT.

The Chairperson questioned the role of the agencies of the DoT, stating that they seemed to perform a largely administrative function instead of an implementing function. She cited the example of China, whose state owned agencies implemented projects, thus contributing directly to the development of skills in the government and state owned entities. One provincial Department of Transport had employed around 110 consultants, but its roads were still not of high quality, and instead of being correctly staffed, mostly with engineers, this department was highly dependent on engineering consultants. This meant that it was consultants who ended up driving the development agenda.

The Chairperson noted that government resources were limited. In order for governments to remain financially viable, they needed to be strategic and creative in their use of limited resources. She suggested that government should own the buildings that it used, to ensure that limited resources were kept within government to allow it to remain sustainable.

The Chairperson suggested that the Committee needed to set aside a day to deal with the tolling of roads. Both the funding model and initiation of these programmes needed to be discussed. The existence of toll roads added still further to the imbalance between highly developed national roads and under-developed municipal road infrastructure. Although the Gauteng toll road project was a provincial initiative, the responsibility had been shifted to a national DoT agency. This resulted in a highly developed road infrastructure for Gauteng, at the expense of other provinces. The whole process needed to be investigated by the Committee, to prevent it from happening again in the future. The Committee wanted to deal with the root cause of the problem rather than the problem indicators.

She indicated that she was not expecting answers from Mr Pretorius, as these questions spoke to issues that were the responsibility of the Director-General. They addressed the broader issues of poverty alleviation, job creation and uneven levels of development.

The Chairperson finally noted that the DoT was expected to appear in front of the Standing Committee on Public Accounts (SCOPA) on 6 March. Although the Committee had scheduled a meeting on Scholar Transport on that day, she suggested that this be deferred, so that Members could attend the SCOPA meeting, to assist Members to put issues into perspective and focus on critical areas identified by the Auditor-General.

The meeting was adjourned.


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