The Departments of Communication (DoC) and Water Affairs (DWA) presented their expenditure to 30 September 2012. The DoC noted that its overall expenditure for the first six months was at 46% of budget. The figures were presented by programme and economic classification, and the virements were explained in detail. It was particularly noted that R123 million was to be transferred from the intended 112 Emergency Call Centre, and R100 million from the Broadband Project budget. The reasons for the delay in implementing both these projects was provided. Budgets were also transferred to the SABC for the funding of the Africa Cup of Nations activities, and it was noted that this was an unplanned event, having been transferred to South Africa when political conditions in the planned host country, Libya, deteriorated. Funding was also moved to the Digital Terrestrial Television awareness campaign, a Set Top Box Testing facility and other projects. The difficulties relating to the implementation of the Broadband project were also presented, including the need to work with a number of partners and departments in order to increase the budget, after a study tour had highlighted that it was way insufficient to realise the aims of the project.
Committee members expressed concern whether the DoC had the capability to effectively plan budgets and execute projects. Concerns were also raised in relation to the virements of approved budgets to entirely different projects, and the persistent rollover of project budgets between years. They requested whether the virements were in line with the Public Finance and Management Act (PFMA). They noted that although 46% of the budget was spent, it was not achieving the output targets, particularly since it was being shifted around. DoC noted that it had a turnaround strategy for improving output and budget performance, which it was requested to present to this Committee on 14 November 2012.
The Department of Water Affairs (DWA) had spent 31% of the 2012/13 annual budget to date, across all six programmes, which was more fully detailed. Only programme 1: Administration was on track with spending, but the reasons for underspend in five programmes was presented. Much of this related to non-invoicing, and more detail was given on the Nandoni dam project progress, and financial and contractor issues. The rollovers of R416 million were explained, whilst virements of R6.226 million from the Administration budget were detailed, and savings of R227 million were presented. The DWA also said that action plans that being developed to address the low level of expenditure.
Committee members asked questions on the backlog of water licences, sludge disposal and Acid Management Drainage. They questioned the shifting of capital expenditure budgets to other projects, and the poor achievement against output targets. Members were particularly concerned that there appeared to be a lack of alignment between budgets and outputs. The DWA responded to some of these concerns, but was asked to put the remaining responses in writing, by 13 November. It noted that a budget alignment plan would be available after the Minister had reviewed the second draft, and it was agreed that this Committee would approach the Portfolio Committee on Water and Environmental Affairs, to attend the workshop that was planned for January on the budgets and plans.
2012 Adjustments Appropriation Bill: Department of Communications (DoC) briefing
The Chairperson advised that the Minister had sent her apologies for not attending.
The Chairperson welcomed the Department of Communications (DoC), but expressed concern that the Director General had declined to attend when previously requested to do so, by this Committee. He noted that the Committee had wanted to meet with the DoC to discuss concerns of persistent underspend and outstanding projects. It was further concerned that budgets for DoC were often rolled over and that this might be in contravention of the Public Finance Management Act (PFMA). The Chairperson asked why the DoC Chief Financial Officer was not in attendance, despite the fact that the Committee had earlier been told that the post was vacant, that recruitment was under way and it would be filled by the end of the financial year.
Ms Rosey Sekese, Director General, Department of Communication, apologised for failing to attend earlier. She advised that this Department (DoC or the Department) had a total budget of R1.712 billion for 2012/13, which had been reduced, by an amount of R58 million savings returned to National Treasury, to R1.655 billion.
Dr Sam Vilakazi, Deputy Director General: Administration, DoC, advised that the DoC had spent 46% of the budget by 30 September 2012, which was an improvement on the spending of 28% for the same period in the previous financial year. The presentation detailed these budgets and expenditures by programme (slide 8), by quarter (slide 9) and by economic classification (slide 10). He explained that transfers and subsidies were mainly payments to Departmental state owned entities (SOE) and subsidiaries, and these were detailed on slide 12. Low transfer percentages to SOEs reflected scheduling of payments in quarter 3.
Dr Vilakazi advised that the 112 Emergency Call Centre (112 ECC) had a budget of R123 million for 2012/13 but that there had been delays in procuring the Transaction Advisors required to oversee the tender process for the public/private partnership to run the 112 ECC. Despite delays, the service provider would be appointed from 1 December 2012.
Dr Vilakazi detailed the requested virements, explaining that the initial budgets could not be spent and so they were allocated to new priorities. R100 million had been transferred from the Broadband budget, to:
SABC, for African Cup of Nations (AFCON), in the sum of R65 million
R16m to Independent Communications Authority South Africa (ICASA) for AFCON
R10m to Telkom for transaction advisory services
R6m for an ICT (Information and Communications Technologies) colloquium - a policy review conference
R3m to ICT trade/partnerships
R123.4 million had been diverted from the 112 ECC budget, as follows:
R44.413m for a Digital Terrestrial Television (DTT) awareness campaign. DoC considered this critical to the successful migration from analogue to digital.
R20m for a Set Top Box testing facility at the South African Bureau of Standards (SABS)
R58m salary savings returned to National Treasury
Ms Sekese explained that the DoC had unsuccessfully sought additional funding for ICT requirements associated with hosting the AFCON from National Treasury during the adjustment estimates. Overall responsibility for hosting AFCOM lay with the Department of Sport and Recreation, but some of the costs had been reallocated from the budget for broadband implementation.
Ms Sekese assured the Committee that the DoC made every effort to spend the budgets, but that the projects were large and involved a complex arrangement of delivery partners (including Telkom, the State Information Technology Agency and the Department for Public Services and Administration), which made negotiations and project development difficult. The broadband project had been reviewed, in order to redefine the strategic and implementation plan to achieve 100% broadband coverage by 2020. Study tours to Australia and Malaysia had determined that R100 million would not be sufficient and so the budget needed to be reviewed.
Mr M Swart (DA) said it seemed that the DoC requested budgets for projects that it could not undertake and then reallocated them to new projects, rather than returning the funds to National Treasury as savings. He asked whether the PFMA allowed amounts earmarked for capital expenditure on broadband to be spent on revenue projects. He asked when the DTT transmission would happen.
Ms A Mfulo (ANC) asked whether Parliamentary approval should have been gained for transferring more than 51% of the budget from programme 5 to new projects. She asked whether the 112 ECC project was going ahead and whether, given the delays, it was necessary. She also expressed concern that money for ICT infrastructure, which would have created jobs, was redirected to a one-off event of AFCON, and asked how this was in line with the President’s request to promote the knowledge economy.
The Chairperson replied that the DoC was present to request Parliamentary approval for the transfers.
Ms Mfulo pointed out that it appeared that the budget transfers had already taken place.
Mr J Gelderblom (ANC) asked what would have happened to the funding reallocated to SABC for AFCON. He expressed concern that only 36% of the capital asset budget had been spent to date, and asked how the DoC intended to meet its targets.
Ms Mfulo asked how an underspend of R58 million could be claimed as a saving.
Ms Sekese advised that the R10 million transaction budget for Telkom was partly for determining the turnaround strategy for the broadband implementation, after study visits to Australia and Malaysia, which demonstrated that the R100 million budget would be insufficient. It was found that R2 billion would be more appropriate for the level of government investment required, for both the demand (such as provision in schools) and supply side (infrastructure). The DoC was working with National Treasury and a number of other government departments, looking at Market Investment Modelling, to determine how this could be realised.
Ms L Yengeni (ANC) asked when the first budgets for the broadband project were drawn. She was concerned that the project had been budgeted, over a number of years, but the money had always been spent on other programmes.
Ms Sekese did not recall when the Broadband Project had started, only that it had originally been a national wireless broadband network concept.
Ms Marissa Moore, Chief Director: Public Finance, National Treasury, confirmed that the first broadband budget of R500 million had been allocated in 2005/6.
Ms Yengeni expressed concern about the capacity of the DoC to effectively plan and budget, and asked for details of the planning process.
The Chairperson questioned whether the Committee could have confidence in the future DoC budgets. He also expressed concern that whilst the Department had spent 46% of the budget, the spending was not in line with the strategic plans, which would have implications on the outputs. He asked what the DoC planned to do to turn this situation around.
Ms Yengeni expressed concern that entities whose budgets had already been approved were now being given additional funds, such as the additional R65 million to SABC for AFCON.
Ms Mfulo referred to page 263 of the Adjusted Estimates of National Expenditure 2012, and asked for confirmation of how the outputs would be achieved, given that 46% of the budget had already been spent, but that it was not directed towards achieving the targets. She cited some of the mid-year performance data. SABC had intended 17 322 ICT jobs to be created, but only 150 were achieved. It had said it would create two ICT SME hubs, but none had been achieved. Sixty e-co-ops were to be created, but none were yet achieved.
Ms Sekese recognised that the DoC needed to improve planning and project execution and advised that a turn-around strategy was being developed, to set out how these targets would be achieved.
Ms Yengeni asked for detail on the composition of the DoC Budgeting Committee, and asked for confirmation that it would address the planning problems.
The Chairperson asked the Committee to consider inviting the DoC back to present the turn-around strategy, in order to satisfy the Committee that the budget was credible.
Ms Yengeni agreed, if a date would be confirmed immediately.
Ms A Mfulo advised that, in terms of Public Service Regulation 5B, senior posts could not remain vacant for more than six months. She noted that the Chief Financial Officer post therefore had to be filled.
The Chairperson advised that the Committee had to approve the Mid-Term Budget Policy Statement (MTBPS) on 20 November 2012, and therefore asked the DoC to present the turn-around strategy on 14 November 2012.
Ms Sekese agreed to attend, provided that she would be able to get permission to change the date for appearing before the Select Committee, which fell on the same date.
The Chairperson advised the Committee that AFCON was a special case, since Libya was to have hosted the event, but the political situation forced a transfer to South Africa. Therefore, it was understandable that the expenditure was not planned in advance.
Ms R Mashigo (ANC) suggested that, in view of this, a broad overview of all departmental AFCON expenditure would be required, to understand the impact it had had on the budgets.
2012 Adjustments Appropriation Bill: Department of Water Affairs (DWA) briefing
The Chairperson advised that the Director General of the Department of Water Affairs (DWA or the Department) had sent apologies for being unable to attend the meeting.
Mr Trevor Balzer, Chief Operating Officer, DWA, advised that his Department was responding to concerns raised by the Committee on the expenditure to date, which was, as at 30 September 2012, at 31% of budget for the 2012/13 financial year.
He noted that the Department of Water Affairs management had met on 26 October 2012 to prepare a plan for tackling the low expenditure, which would be presented to the Minister at the end of November, and to the Portfolio Committee in early January. Two committees had been established within the DWA, to improve oversight. These were the Budget Planning Committee, which was chaired by the DWA Chief Financial Officer, and a Capital Expenditure (CAPEX) Committee. The DWA was currently recruiting to fill a number of vacant positions.
Mr Balzer presented the details of expenditure on the six departmental programmes (slides 4 and 5) and by economic classification (slides 5 and 7). He explained that the virements, rollovers and savings had all been reflected in the Adjustments Appropriation Bill. He presented reasons for the current half-year expenditure level for each programme, along with the remedial actions planned:
Programme 1: Administration showed 50% expenditure, which was acceptable.
Programme 2: Water Sector Management, showed 48% spending. The strict requirements for Occupation Specific Dispensation (OSD) for a number of vacant posts had delayed recruitment. A number of posts therefore remained unfilled. The Minister had agreed that a parallel action could be undertaken to recruit technical staff who did not necessarily meet OSD requirements. The National Water Resource Strategy was currently out for 90-day consultation process. Fund transfers to Inkomati and Breede-Overberg Catchment Management Agencies were scheduled for the second half of the financial year.
Programme 3: Water Infrastructure Management showed 35% expenditure, but it was not mentioned in the presentation.
Programme 4: Regional Implementation and Support, had 24% spending. Mr Balzer noted that funding for Acid Mine Drainage (AMD) had not been spent, as authorisation for a short-term intervention had only been approved in October 2012. Interventions in the Western Basin had commenced and contracts for the Central and Eastern basins had now been awarded. For the Central Basin, there was an outstanding exemption required from the Department of Environmental Affairs, through the National Environmental Management Act (NEMA). A National Water Act Section 110 notice had been issued, and was currently subject to the 14-day consultation period with the Minister. Once all the necessary exemptions and permissions were in place, the budget for the financial year would be spent.
The annual budget for Water Services Projects was R620 million, including a rollover of R176 million, of which only R60 million spent to 30 September 2012. However further expenditure of R228 million, managed by the Water Trading Entity, would be invoiced to DWA in the second half year. The Water Trading Entity had forecast total project expenditure at R827 million, and it would potentially be able to absorb any underspend from other projects or infrastructure programmes.
Programme 4 accounted for 50% of the DWA budget. A large proportion of this related to the Regional Bulk Infrastructure Grant and Accelerated Community Infrastructure Programme, and transfers to municipalities. Low expenditure in this area was due to delays in municipal procurement processes, financial instability of some contractors, which had led to the cancellation of some contracts, and other contractual issues, as well as a lack of project management expertise in implementation agencies. To counter this, the Minister had approved the pull back of projects from municipalities, if they were not moving forward appropriately. Project management capacity from Water Boards would be used to support agencies.
Programme 5: Water Sector Regulations showed 39% spending. The annual Programme 5 budget, at R114 million, was only a small fraction of the R8.9 billion DWA budget. Underspending in the first half-year was due to a number of unfilled posts and later-than-scheduled invoicing for Compulsory Licensing, Frameworks for Monitoring and Auditing and the Water Research Commission. However, the DWA expected to achieve full spending by the end of the year.
Programme 6: International Water Co-operation, spent 40%. The annual budget for this project was only R25.8 million. Underspend to date would be made up in the Third Quarter, from a number of outstanding invoices, including newly recruited staff, a Japan International Cooperation Agency (JICA) donor round table seminar, and reimbursement from the Department of International Relations and Cooperation for conference travel expenses. Additional plans for expenditure included a forthcoming strategy session, training, and IT software procurement. The DWA was also waiting invoices for various membership fees, including African Ministers Committee on Water, World Water Council, Organisation for Economic Co-operation and Development, and International Water Association.
Mr Balzer then presented the requested (R443 million) and approved (R416 million) rollovers, as detailed in slides 18 and 19. These were all committed projects that had started late, and full details were provided on slides 20 to 22. There was not time to go into detail during the presentation.
Mr Balzer then detailed the virements. An amount of R6.266 million had been vired from the administration budget. From this, R2.5 million was transferred to Regional Implementation and Support, for the 2012 Women in Water Programme, where expenditure took place in the regions. An amount of R3.766 million was transferred to International Water Co-operation, for posts in the new structure, and procurement of computers and furniture for new staff.
The savings had amounted to R227 million. They were detailed by programme on slide 25, and by economic classification on slide 26. These included savings on salaries that were due to delays in filling the vacancies dependent on OSD, as well as on catering, consulting, venues, facilities and travel expenses, all achieved through reducing delegation sizes for international conferences. Savings in infrastructure projects totalling R22 million arose through delays due to industrial action (De Hoop Dam), slow delivery of pipelines due to land access issues, late appointment of professional service providers for the Dam Safety Rehabilitation Programme, and cost optimisation measures in the Water Trading Entity. Machinery and equipment savings related to office equipment for unfilled posts and delayed procurement.
Mr Balzer presented the outcome of the capital expenditure to date on the infrastructure development programme, which was at 80% of budget. The Nandoni Water Treatment Works, distribution and pipes project was running at only 32% expenditure against the revised budget, which included a shortfall of R101 million (see slide 32). Mr Balzer explained that part of the underspend was due to the fact that expenditure was measured on a straight-line, rather than monthly cash flow, basis. Other underspend had been detailed in the savings section of the presentation. A budgeted payment of R87 million, which was a 25% social contribution from the Water Trading Entity to the Mokolo Crocodile Water Augmentation Project (MCWAP) was actually paid in 2011/12. R65 million had now been transferred to other projects and R22 million was returned to National Treasury as a saving.
Mr Balzer advised that detailed action plans to address underspend for each project activity had been developed. He detailed the highlights, as follows:
-A recovery plan was drafted to tackle lost time on the De Hoop Dam.
-The Water Trading Entity was drawing a database of professional service providers to source immediate engineering skills whilst posts were filled
-The DWA had prioritised pipe acquisition and power supply, for which an estimated R600 million would be paid in the 3rd quarter
- DWA noted that payment for a contracted upgrade to the Enterprise Resource Planning System would be made in the 4th quarter.
-DWA had expedited procurement processes, within the rules of the PMFA.
-DWA was following up on invoicing, to reduce the time lag between works completed and payments made by the Chief Financial Officer, supported by the CAPEX Committee.
Ms Zandile Mathe, Acting Deputy Director General: National Water Resources Infrastructure, DWA, explained that the underspend on the Nandoni project was due to shortcomings by one partner in a joint venture contracted to deliver on the Valdezia pipeline. Although one of the partners was delivering and had invoiced at 86%, the other had to provide a revised project plan, owing to severe delays and underperformance. This was due by 14 December 2012. If it was not received, a new partner would be contracted instead. Full budget expenditure within the financial year was dependent on the ability to make up for lost time. The total Nandoni dam project was at 95% expenditure.
Mr Balzer advised that the municipality was also seeking additional funding for part of the project that was due to be implemented once the pipeline reached the dam. The tender responses for the work were much higher than budgeted, and so a proposal for additional funding was being drawn.
Mr Swart asked for details of the backlog on the issuing of water licences was.
Ms Thandeka Mbassa, Deputy Director General: Regions, DWA, replied that the licencing backlog in 2010 was around 3 000 and now stood at about 300, although she did not have exact figures with her. In order to address this backlog, the Department was focussing on the four worst performing provinces, of Gauteng, Mpumalanga, Northern Cape and Western Cape, and a Programme Manager was being recruited to a permanent unit that would emerge out of the current restructure. In addition, 200 interim contactors had been used, whilst skills were being recruited.
Mr Swart asked what the time and cost impact would be of changing the contractor on Nandoni pipeline.
Mr Swart wanted to know if transfer of budget from capital expenditure to employee payments was permissible under the PFMA.
Ms Mfulo asked whether the vacancies for which the Department had been able to shift budget from were not important posts. She thought that section 43 of the PFMA did not allow for the shifting of capital expenditure to household expenditure.
Mr Gelderblom asked for further detail on the co-disposal of sludge agreements, as detailed in slide 11. He also wanted details of how much needed to be reimbursed by Department of International Relations and Cooperation, as detailed on slide 15.
Mr Gelderblom wanted a list of contractors and a progress update on the rainwater harvesting tanks programme.
Ms Mbassa explained that the DWA did not have sufficient budget to meet the rainwater harvesting tanks target, but was considering shifting funds to plug the shortfall. Underspend from other areas would also be required to support the resource poor farmers target.
Mr Gelderblom asked if those posts that were difficult to fill were also advertised to foreign applicants.
Ms Mfulo asked when DWA would achieve the remaining 70% of expenditure. She also referred to page 375 of the Adjusted Estimates of National Expenditure 2012 report and asked when the Department expected to achieve the outputs detailed, since achievements to date were very low.
The Chairperson asked what value the Medium Term Expenditure Framework offered, if it proved a poor predictor of expenditure.
Ms Olga Fundakubi, Chief Financial Officer, DWA, explained that the Department had now started to plan so that the budgets and annual performance plan were aligned. This alignment was previously lacking.
Ms Mfulo advised that the budget should be accompanied by a plan and an implementation plan with timescales. She asked whether all stakeholders were involved in budgeting.
The Chairperson wanted the original budget for the Nandoni Dam Project, to compare with what had been spent to date.
The Chairperson asked for the budget for Acid Management Drainage, in order to determine the impact of the current underspend on the budget.
Mr Gelderblom asked if the problems in agreeing water prices for the mines, as set out in slide 11, had been solved.
The Chairperson proposed a Committee session to review the aligned plan from the Department.
Mr Balzer advised that this was not yet complete, but was last reviewed on 26 October 2012. The second draft would be presented to the Minister at the end of November.
Ms Mbassa advised that the Portfolio Committee were planning a workshop on the plan in early January.
The Chairperson suggested that the Committee approach the Portfolio Committee to discuss attending the workshop in early January. He requested that written responses to all outstanding Committee questions should be delivered to the Committee by Tuesday 13 November 2012.
The meeting was adjourned.
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