Lotteries Amendment Bill [B21B-2013] Department of Trade & Industry briefing, adoption

NCOP Trade & Industry, Economic Development, Small Business, Tourism, Employment & Labour

06 November 2013
Chairperson: Mr D Gamede (ANC) (Kwazulu-Natal)
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Meeting Summary

The Committee met with the Department of Trade and Industry (dti) to go through and adopt the National Lotteries Amendment Bill. The Department took the Committee through a presentation on the Bill by providing a background to the Bill, a brief history of the National Lottery, some of the concerns that arose with the running of the lottery, and approval of applications and backlogs in around 2007, which led to a commission being appointed to review the system. The policy issues, and objectives of the Bill were outlined. The main purpose of the Bill was to rename the National Lotteries Board as the National Lotteries Commission, and to extend its powers so that it could also consider pro-active funding. Distributing Agencies would now serve full time. In the case where no suitable distributing agency who would fulfil the national priorities could be found the Minister would have the power to appoint an organ of state for a period of eight years. The accountability of the distributing agencies, elimination of overlapping functions and terminology in relation to the Board of directors and the Minister were explained. It was noted that the Reconstruction and Development Programme (RDP) was to be removed as a category entitled to be allocated money or funds. The use of conduits was to be disallowed, save in exceptional circumstances, as the whole process of application was to be simplified, but checks and balances to ensure accountability was introduced, and it was also noted that a monitoring and evaluation unit was built up. There was now provision for another internal committee that could hear appeals from dissatisfied applicants. The dti further explained some of the comments and criticisms raised during the public hearings process, particularly around the Ministerial powers, the ability to appoint an organ of state, and the internal review mechanism, and summarised the Department’s response and how it believed that the Bill now addressed the matters.

The Chairperson commented that many of the issues now discussed had been raised and discussed by Members on previous occasions, and the Members were pleased that the points of concern were being corrected. Members raised queries about the appointment of the distributing agencies, the responsibilities of the Board and Minister, whether there would be any conflict, the matters in which the Minister would be entitled to make interventions, and how beneficiaries would be monitored. They also questioned the situation with the present lottery operator, and whether it was correct that certain spaza shops were threatened with being cut off if they failed to pay over money timeously.

The Committee noted that there was some urgency to passing the Bill, to allow the dti to advertise for members of the distributing agents, and adopted the Bill, with no amendments.

Meeting report

Chairperson’s opening remarks
The Chairperson noted the Committee’s programme was tight and there were a number of issues to be disposed of before the term ended. The Chairperson welcomed a guest to the Committee from Ekurhuleni who had taken an interest in the Bill.

Lotteries Amendment Bill [B21 B-2013]: Department of Trade and Industry briefing
Ms Zodwa Ntuli, Deputy Director General, Department of Trade and Industry, noted that the subject of the lotteries had raised a number of concerns, particularly from NGOs in many communities who struggled to access funds and had continued to be excluded for many years. This, they felt, had frustrated the objectives of the National Lottery.

Ms Ntuli noted that the National Lotteries played a key role in arts and culture and sports and recreation, since government funding would never be sufficient to cover all the developmental needs of the country. Those that participated in the lottery by purchasing tickets contributed toward the achievement of developmental goals. A number of challenges arose during the period from inception of the National Lottery until now. The first was that funds collected were not distributed to an adequate level. The second concern was that even where funds were distributed, they did not seem to go to the people who really needed the funds. When looking into these concerns, the Department of Trade and Industry (dti or the Department) found that the requirements to access these funds were just too high for many organisations operating within communities, and it was found that only a few organisations who had learned to master the applications accessed the funds. Several organisations who desperately needed the funding did not meet the requirements such as having audited financial statements, something not usually found in a community-based organisation. There needed to be a balance between access to funds and the mitigation of risks.

She was happy to say that the complaints about the National Lottery not being accessed had dropped, because of systems put in place to address the issue. There were still some current concerns but there had been a huge improvement relating to the disbursement of funds. In around 2008/09, there was a huge backlog which had not been adjudicated on for a number of reasons. The main cause was either that the distributing agencies who were responsible for making decisions and distributing money either did not have a quorum to meet, or members were absent from meetings, which was exacerbated by their working on a part-time basis. There were also vacancy rates where a number of members resigned during the process and it became difficult to fill positions as they arose, which impacted on the processing of applications. She emphasised that there was currently no backlog in the National Lottery as the committees of the distributing agencies had worked tirelessly to ensure the backlog was cleared.  

Ms Ntuli also noted that there had been disruption during 2007 in the National Lottery, due to the transition between operators, which affected the revenue raised and public confidence to buy tickets. A lot of work was put into raising the confidence of the public consumers in the National Lottery. An increase in the sale of lottery tickets had been noted as a result of the intervention of the Department when there was an outcry about these problems. She was sure that if Members interacted with the National Lotteries board they would find it much more accessible, although previously it was not, and people had found it difficult to speak to people through the inaccessible call centres. This too had shown a huge improvement.

Ms Ntuli stated that the Lotteries Act came into effect in 1997. In 2007 a study was conducted on the performance and the challenges from a legislative standpoint. The challenges identified in this study were the problems of distribution and strained relations between the distributing agents (DAs) and the National Lotteries Board itself, which impeded service delivery to the ultimate beneficiaries. The study also indicated some structural challenges around the distribution of funds. In 2008 a number of public complaints were received, with calls for the Minister to institute an inquiry into the functioning of the National Lotteries Board (NLB), because the situation was becoming more hopeless on a daily basis.

In 2009 the Minister therefore commissioned a Gambling Review, to particularly look at the policy around the National Lottery. Although lotteries fell within gambling, they had been treated differently, from a policy perspective, from the casino-type gambling. The Gambling Review (the Review) found that this policy was relevant and these areas should be dealt with separately, but both needed to be controlled and vigorously regulated to ensure that consumers were protected from over stimulation and addiction.

In 2010 a Roundtable was conducted and chaired by the Minister, calling on his counterparts from Sports, Social Development and Arts and Culture, and here a number of issues were identified and proposals were made for the improvement of distributing of funds. A working group was also developed to work on the details, and a number of other interventions were then developed and implemented to improve the workings of the National Lotteries Board in the meantime, which had resulted in the improvements she had identified earlier. Another issue that come out of the Roundtable was a concern that the distribution of funds was not aligned to national priorities. In July 2010 the Minister issued regulations and a directive to provide guidance on the distribution of funds, so that they would, in particular, be in line with national priorities. In 2010 a regulatory impact assessment was conducted on policy proposals. In June 2011 the NLB was requested to have a stakeholder engagement on the issues pertaining to the distribution of funds. From there an indaba was organised, with over 1 000 organisations in one room, to work on proposals which were integrated. This process was presented to Cabinet for public consultation, where overwhelming support from communities and organisations was received. In July 2013, the draft policy and Bill was introduced in Parliament and it was adopted by the Portfolio Committee after amendments following the various public consultation processes.

Ms Ntuli then moved onto policy issues, noting that some of them were not found in the Bill but would be in the regulations for implementation processes. One issue was the accountability of distribution agencies. The members of the committees of the DAs were appointed by the Minister to ensure their independence in decision-making around adjudication. However, there was a challenge in where they must report back and account for operations on a daily basis. This area received attention, to ensure that there would in future be proper planning, oversight and operational monitoring. Another issue was around quorum and conflict of interest. Dti was also looking at the simplification of the process around applications and requirements, to counteract the gaps created by intermediaries and agents supplying the information, and what was now in the Bill was intended to simplify the application process so that any organisation would be able to meet the requirements. This was also linked to the categorisation of grants into large, medium and small grants, to assist in the regulations and separation of requirements in applications to mitigate risks. Another issue was the need to differentiate between the Board of directors, and the NLB as an institution, as the original Act was not clear and some redrafting needed to be done. Clarification was also needed in the legislation around the role of the Minister and the role of the Board, especially around the taking of decisions and consultation. There was also a need to look at proactive funding, as currently, funding could only be given after an applicant submitted an application, and the Board was unable to identify a need and fund it. Another issue was that of whether grants should be allowed through conduits, especially given the fact that the whole application process was to be simplified, and it was decided that only in exceptional cases would intermediaries and other people applying on behalf of organisations be allowed. The final issue was the internal review mechanism of decisions. It an applicant was dissatisfied with the decision of a DA committee, there should be a mechanism to allow another committee to look at the dissatisfaction before the applicant could be left with the option of going to court. This would serve as an intermediary step to attempt to resolve issues of applicants and avert the use of the organisation’s funding for court proceedings.

Ms Mammope Makaepea, Director: Regulated Industry, Department of Trade and Industry, took the Committee through the Objectives of the Bill, which were to amend the Lotteries Act, Act No. 57 of 1997, to provide for the establishment of a National Lotteries Commission (the formerly-named institution of the National Lotteries Board), to provide for the extension of the powers of the Commission, to provide for the licensing of an Organ of State to conduct National Lottery, to provide for a clear accountability process for Distributing Agencies, to eliminate overlapping of functions between the Minister and the Board and to provide for the removal of the Reconstruction and Development Programme (RDP) as a category.

She noted that, in tightening up provisions to avoid conflicts of interest, the Bill had enhanced the provisions relating to staff members, Board Members and Distribution Agencies (DAs). The DAs would in future be appointed on a full-time basis and would be governed by the policies of the NLB, as found in the Amendment Bill.

She noted that in the original establishment of the National Lotteries, the principal Act had used the word “Board” interchangeably when referring to either the National Lotteries Board (as an institution) and the “Board” that had an oversight role. To address this issue, section 2 of the principal Act was now being amended and in future the NLB institution would be known as the National Lotteries Commission, and this was covered in clause 2 of the Amendment Bill. The Board would then refer to the board that exercised an oversight function. The NLB, in consultation with the Minister, must appoint a person with suitable qualifications and experience as Commissioner of the Commission to be appointed by the Minister. The Commissioner may appoint such staff members as may be necessary to efficiently and effectively perform the functions and duties of the Commission, on such terms and conditions determined by the Board and approved by the Minister, in consultation with the Minister of Finance. She pointed out the relevant portions of the amended section 2.

Ms Makaepea turned to the powers of the Commission, noting the Commission’s main functions were to ensure that the National Lottery and sports pools were conducted with all due priority and strictly according to the Constitution, this Act, all other applicable law and licence for the National Lottery together with an agreements pertaining to that licence as set out in the Amendment Bill. The interests of every participant in the National Lottery must be adequately protected. The Commission would also promote public knowledge and awareness about the lotteries and provision of this Act, and exercise any other function as delegated or directed by the Minister or Board.

She also noted the insertion of a new section 13A, which dealt with the licensing of an organ of state to conduct the National Lottery, in the event that the Minister decided, on justifiable grounds, not to issue a licence as contemplated in section 13A(1). If this happened, then the Minister may, after consultation with the Board, licence or authorise an organ of state to conduct the National Lottery for a period not exceeding eight years. In deciding whether ”justifiable grounds” as contemplated in sub-section (1) existed, the Minister may take into consideration national government plans or priorities which would not be achieved if a third party was appointed.

Ms Makaepea turned to the accountability process for the distributing agencies. She noted that the  DA would be appointed and dismissed by the Minister after consultation with the Board. The members of the distributing agency would be appointed for a period of five years, which may be renewed once, to serve on a full time basis. The distributing agency must adhere to policy directives and code of ethics approved by the Board and applicable within the public sector. The distributing agency would be responsible for receiving, evaluating, verifying and adjudicating applications for grants and distributing grants to good causes. The number of distributing agency members in each category was to be determined by the Minister, after consultation with the Board, in line with the size of the funds in such categories.

As the principal Act had been worded, there had been the impression, on a literal interpretation, that both the Board and Minister had equal powers in relation to varying conditions of the licence. The Act often referred to the Minister or the Board in various critical sections, and this should not be the case. All anomalies and possible overlaps of function, between the Minister and the Board were identified and clarified and the roles were now more clearly defined. She referred Members to the amended Sections 13A (c), and (b), sections 14(1) and (c), section 16, 17 and 18 (see attached presentation for full list of sections amended. This was something already alluded to by Ms Ntuli.

Ms Makaepea also noted that the Bill had removed the Reconstruction and Development Programme (RDP) as a category entitled to be allocated money from the NLB. This was done, under the revisions to section 23, as the RDP had been dormant.

In addition, the “miscellaneous” category now included the ability for the NLB to proactively fund, even where no application had been put in. As mentioned earlier, funding through conduits had been retained but was limited to exceptional circumstances.

Ms Makaepea concluded her section by looking at critical comments received from stakeholders. There was some concern about an organ of state being appointed to the run the Lottery, with the fear expressed that it might remove the industry expertise that came with a private sector operator, and could lead to poor management that was rife in state owned entities. The dti, however, felt the organ of state option should remain. This organ of state would be appointed only if the private appointees tendering failed to realise national objectives. There were concerns about the professionalisation of distributing agencies, as their independence could not be guaranteed against interference of the Board. The dti countered that the DAs would only account to the Board on administration issues, and not on their adjudication functions. Another issue raised by the stakeholders concerned the proposed internal review mechanisms, as it was felt that an independent tribunal or ombudsman should be appointed as the proposed internal review mechanism would not guarantee impartiality, as it effectively amounted to the Board reviewing its own decision. The dti said an independent tribunal would come at a high cost and the proposed internal review mechanism would ensure that there was not unnecessary recourse to the courts.

Ms Ntuli wrapped up by noting most of the policy issues had been catered for in the proposals of the Bill. She emphasised that these proposals made a clear distinction between the functions of the National Lotteries Commission, the National Lotteries Board of directors, and the DAs. She noted that the National Lotteries Commission was not a new institution, but was merely being renamed in the legislation and the Chief Executive Officer would be known in future as the Commissioner, to distinguish it from the board of directors. The proposals around appointment of an organ of state in defined circumstances was linked to issues of development, growth, skills transfer and local procurement. She wanted to point out that there were some state entities working very well, and at times they were judged unfairly, losing sight of their development and support. An example was South African Airways (SAA) and its obligatory routes that were not always about profiting but about providing connectivity. She stressed that the new Bill contained an enabling provision for the State to come in where the private sector model had failed. This proposal was not made in a vacuum but was informed by the experience of other countries.  

The Chairperson noted that most of the issues raised during the presentation were matters raised previously by the Committee, such as the conflict of interest, targeted beneficiaries, size and uniformity of the board and part-time as opposed to full-time positions. He was happy with the presentation, but noted the Committee wanted the Department to use the full terms and names and not just abbreviations. He noted this was one Bill the Committee wanted to dispose of as soon as possible.

Mr K Sinclair (COPE, Northern Cape) said a lot of time was spent in the presentation clarifying the roles of the Minister and the Board. He wanted Ms Ntuli’s opinion on the responsibility of the Minister and responsibility of the Board, as he thought too much emphasis was placed on the role of the Minister.

Ms Ntuli responded that that clarification was important to prevent confusion. She said no one could ever interfere with the governance role of a Board, although at times it could be found that when people did work, they unintentionally started bordering on doing work that was not within their mandate. The legislation had tried to make the functions of the different actors clear so that there was no such confusion. However, the independence of the Board and distributing agencies were entrenched in the proposals. The role of the Minister was also clarified. The Bill did not allow for the Minister to interfere in the operations of the Board. The Board could advise and consider issues, while the ultimate decision resided with the Minister, and this was something that the Bill made clear. These powers were, in particular, related to the license, the license agreement and the variation agreement to rest with the Minister. However, nothing was stopping the Minister from delegating powers to the Board. Other roles of the Minister were to issue regulations, and to issue directives from time to time where they were needed. The Minister also appointed the Board and distributing committees and could stop or withdraw grants if there was reason or information to believe that the grant would be used for unlawful purposes or would be mismanaged. Overall, the powers of the Minister were now made very clear.

Ms B Abrahams (DA, Gauteng) thought the simplification of applications was something that was long overdue. She asked if the monitoring and evaluation of beneficiaries was taking place, to ensure that the same beneficiaries were not benefitting numerous times. She also agreed with the interventions against conduits and was happy it would be sorted out.  

Ms Ntuli replied that there was now a monitoring and evaluation unit to follow up on beneficiaries, by doing inspections and to ensure the funding was used for the intended purposes. She noted that sometimes, organisations allegedly applying for funding in fact did not even exist. The monitoring and evaluation unit would now verify this point before the grant was released. The follow-up process was also important for reporting on the impacts of grants. Funding should not happen without monitoring and evaluation. Many beneficiaries thought they were entitled to re-funding once they had initially received a grant, with some even going to court on the matter, and this sense of entitlement needed to be addressed and the equitable distribution needed to be explained. The number of applications received from the Northern Cape, North West, Mpumalanga and Limpopo in particular had remained low, and funding for these provinces was below 5% for quite some time, but this was now significantly improved, as illustrated in the Annual Report. The NLB outreach programme also addressed this matter to inform people that they could access funds. Interestingly, most of the applications done by conduits came from these provinces and when a pre-inspection was done it was often found the organisations did not exist. Such cases were immediately reported to the police.

Mr F Adams (ANC, Western Cape) was worried about the foreign owned spaza shops in his constituency, which had not paid over the money timeously to the lottery operator, and were now being threatened with being cut off also because foreign owned shops were allegedly not on the register – he asked if this was correct.

Ms Ntuli pointed out that this was an issue of contract and terms of contract with the present lottery operator, Gidani, but if the shops were not meeting certain obligations Gidani was in its rights to deal with it in terms of the contractual arrangement. The collection of money not paid over was a problem and was seen also in online paying of the lottery. Gidani needed to be vigilant around this issue as the player suffered at the end of day. This was a matter Gidani would be best placed to deal with, but the Department was adequately monitoring this institution.

Ms M Dikgale (ANC, Limpopo) said the National Lottery was providing assistance to many projects. When she came to Parliament in 2009 her constituency did not receive anything, but now projects were being funded. She encouraged the Department to keep the good work going and congratulated it on what had been done.

The Chairperson that reiterated most the issues in the presentation had been raised by the Committee previously.

Mr Sinclair had a follow up question. He was concerned with the response in terms of the role of the Minister. He thought it was very dangerous, in terms of his understanding of corporate governance, that the Minister had the exclusive right to intervene in the independence of the Board. This was why he referred to the role of the Minister as “Big Brother” and thought there should be a need to follow certain processes. He thought the legal advisors might need to look at the issue and advise on it.    

The Chairperson said the programme was tight and people had other meetings to attend. He asked the State law advisor present at the meeting if he had any comment.

The State Law Advisor did not have any specific comment. He said the Bill was dealt with in depth in the National Assembly and he had checked all the proceedings there and thought there were no controversial legal issues with the Bill. The role of the Minister was a policy issue which the Committee would have to take on, if it was inclined to do so. There were many different aspects on the issue of independence to be considered, in order to determine if an entity was truly independent, or the level of independence.

Ms Ntuli clarified that the Member might have a different understanding of the role of the Minister. There was no interference with the decisions of the Board by the Minister, as stated in the Bill, as the Bill made it clear that the role of the Minister was limited to the license agreement, regulations, directives and appointment of the Board and distributing agencies. The decision by the Minister to withdraw grants would only happen in the case of fraudulent activity. She mentioned that members of the dti were not permitted to play the lottery.

The Chairperson said the sooner the Bill was passed the better, as soon the Department would be making calls for appointment of members of the distributing agencies.

Mr Adams suggested the entire Bill be passed as it stood.

The Chairperson checked with the Procedural Officer that this would be in order, and Members adopted the Bill, with no amendments.

The meeting was adjourned.


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