Broadband Infraco Annual Report 2012/13

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Public Enterprises

26 February 2014
Chairperson: 26 February 2014
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Meeting Summary

Broadband Infraco briefed the Committee on its Annual Report for 2013.

Broadband Infraco (INFRACO) had undergone a period of transition but its mandate was now very clear. It had experienced a 40% decrease in revenue to R237.4m as it had only had Neotel as a client and needed to diversify its customer base. In this regard it was starting to collaborate with State Owned Enterprises to make government an anchor tenant. The decrease in revenue was also because of a 15% decrease in prices. The reduced revenue also meant that its target for the expansion of core Internet Protocol network points had not been achieved because of the limited availability of funds. An application for Medium Term Expenditure Forecast (MTEF) funding had till now not been processed because of a lack of a clear broadband policy, but Cabinet had approved the country’s broadband policy in December 2013 and it would be submitting an MTEF proposal. A funding plan and Private Public Partnership plans had not yet been approved by the Board. From a business operations point of view, it had policy frameworks and control processes in place and would be automating procurement in this financial year.

INFRACO had received an unqualified audit report but in a review of expenditure since the 2008/9 financial year, it had identified irregular expenditure of R130m incurred because of incorrect processes. People had been sent for training and controls had been increased to prevent a reoccurrence. The loss before taxation was R181m, due mainly to the loss of revenue. Capital expenditure was R109m. 73% of expenditure was to Broad Based Black Economic Empowerment companies.

The priorities for the coming year were to address the fundamental concern of funding the financial sustainability of INFRACO. Its Board had approved it applying for a Class Electronic Communication Services (ECS) license while awaiting the completion of processes which would allow it to apply for an Individual ECS license.

Members said that another member of the Board could have been present. Members asked for a copy of the Accountant General’s report. Members asked if INFRACO had applied for an injection of capital funding. Members said INFRACO's mandate was to provide services in underserviced areas, but that this was moving at a snail’s pace and was not being treated as a priority area. How fast was this roll out happening?
 

Meeting report

Briefing by Broadband Infraco (Infraco)
Ms Puleng Kwele, Broadband Infraco Chief Executive Officer, said the entity had undergone a period of transition but that its mandate was now very clear. In assessing their performance, she said INFRACO had only had Neotel as a client and needed to diversify its customer base. In this regard it was starting to collaborate with State Owned Enterprises to make government an anchor tenant. INFRACO’s revenue had decreased because of reduced services offered to Neotel and a decrease in prices in the year under review. This had led to it embarking on a diversification campaign. The reduced revenue also meant that its target for the expansion of core Internet Protocol network points had not been achieved because of the limited availability of funds. The reduced revenue also resulted in it not employing the targeted 10 interns. INFRACO was, however, training people internally and externally of the organisation. INFRACO was looking to have more than 10 interns at any one time and were sourcing funding from the Department of Science and Technology and from the Information Communications Technology Sector Education and Training Authority. She said revenue was below budget. An application for Medium Term Expenditure Forecast (MTEF) funding had till now not been processed because of a lack of a clear broadband policy, but Cabinet had approved the country’s broadband policy in December 2013 and it would be submitting an MTEF proposal. It was working with the African Development Bank which has provided them with a grant to apply to the Shareholder for guarantees.  It had not been able to assess debt funding for the company. A funding plan and Private Public Partnership plans had not yet been approved by the Board. From a business operations point of view, it had policy frameworks and control processes in place and would be automating procurement in this financial year.

Mr Iemrahn Hassen, INFRACO Chief Financial Officer, said revenue had decreased by 40% to R237.4m because Neotel’s right of use had come to an end and because of price decreases and the cost of sales had decreased because of the decrease in revenue. Operating costs had increased by R10m. INFRACO had received an unqualified audit report. It had reviewed expenditure since the 2008/9 financial year and identified irregular expenditure. The irregular expenditure of R130m was because of incorrect processes and people had been sent for training and controls had been increased to prevent a reoccurrence. The supply chain had been changed to include a vendor management system which meant suppliers could be vetted. INFRACO had designed and implemented a Policy Development Framework and a Policy Register this year. The loss before taxation was R181m, due mainly to the loss of revenue. Capital expenditure was R109m. 73% of expenditure was to Broad Based Black Economic Empowerment companies.

Ms Kwele said action had been taken against transgressing employees. An investigation had been completed. The report was with the lawyers and judgment was set to be done in the labour court.

She said the priorities for the following year were to address the fundamental concern of funding the financial sustainability of INFRACO. Now that broadband policy had been approved, it would apply for MTEF funding. It would diversify its revenue and prioritise income generating programs. It would target government as an anchor tenant. It would prioritise Limpopo, Mpumalanga , Eastern Cape and KwaZulu-Natal (KZN) provinces. It already had a Memorandum Of Understanding with Limpopo and were engaging with the KZN Heath and Economic departments and with Mpumalanga. It would be seeking Private Public Partnerships. In the Western Cape it was awaiting a tender response. It would share infrastructure ownership and do network capacity swops. It would renew rather than expand networks and would apply for MTEF funding. Its Board had approved it applying for a Class Electronic Communication Services (ECS) license while awaiting the completion of processes which would allow it to apply for an Individual ECS license.

Discussion
The Chairperson said he accepted the apology for the absence of the Chairperson of the INFRACO Board but said that another member of the Board could have been present. He asked for a copy of the Accountant General’s report.

Ms Kwele said a copy of the report would be sent.

Mr E Marais (DA) asked if INFRACO had applied for an injection of capital funding.

Ms Kwele said that broadband policy had not been finalised until December 2013 which had meant they could not approach Treasury until now. INFRACO had made a presentation to its Board to apply for funding and the Board had not finalised a decision yet.

Mr C Gololo (ANC) said INFRACO's mandate was to provide services in underserviced areas, but that this was moving at a snail’s pace. He said he did not see INFRACO treating this as a priority area. How fast was the roll out happening?

Ms Kwele said INFRACO had a socio-economic and a commercial mandate. Regarding its license obligations, areas had been identified where work had to be done and this had been achieved. It was now matching demand to where it was needed and in this regard it was holding discussions with provincial governments on their plans in the fields of health, universities and so forth so that all infrastructure plans were aligned. Where networks already exist, they were being utilised.

Mr Rendani Musetha, an official from the Department of Public Enterprises, said that the Ministers of Communications and of Public Enterprises had agreed on the matter of the ECS license but that it had not been implemented. The two Portfolio Committees of the departments probably needed to meet to push its implementation through.

The meeting was adjourned.
 

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