Department of Transport on 1st Quarter Expenditure Performance, with Deputy Minister

Standing Committee on Appropriations

09 September 2014
Chairperson: Mr P Mashatile (ANC)
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Meeting Summary

The Select Committee on Appropriations was briefed by the Department of Transport (DOT) on its first quarter expenditure patterns for the 2014/15 financial year.  Details were given of the expenditure, broken down by programme and by economic classification. The Department had a total budget for the year of R48.727 billion, and during the quarter it spent R14.414 billion, or 30% of the allocated budget. 

Under-spending on the compensation of employees and goods and services was mainly due to the prioritization of the establishment of the Project Implementation Management Office (PIMO) between the DOT and the Passenger Rail Agency of South Africa (PRASA) for the feasibility study on the Moloto Rail Corridor, the Rail Policy Act and branch-line strategy.  Over-spending on machinery and equipment was mainly due to office furniture that had been purchased during the renovation of the building for the year. On transfers and subsidies, a total of R7.693 billion had been paid to PRASA, which constituted 51% of the total budget of PRASA for the year.  Goods and services were over-spent by an amount of R162 million, due to the cost of the e-Natis traffic information system maintenance and operations.

The Department listed the main features of the cost containment measures the National Treasury had instructed should be implemented from the beginning of 2014.  These were:
- Engagement of consultants was subject various conditions, including confirmation that the Department did not need the requisite skills and resources in full time employ; 
- Restrictions on the cost of hotel accommodation, air travel and claims for kilometres travelled; and
- All contracts should include penalty clauses for poor performance.
 
The Minister said that the road network was in a very bad condition.  Only 10% of the roads were in good condition, and those roads were under SANRAL. 30% of the roads were in good and fair condition, and those were under provinces and some districts. 60% of the roads were in a fair to very poor condition, which was the challenge they were faced with.  The DOT had backlogs of about R149bn, which she believed should be the subject of a presentation to the Committee. 

Members of the Committee interrogated the report with regard to the 339% over-expenditure on goods and services, and called on the Department to take urgent steps to fill outstanding vacancies.  It was said that railway stations were in a state of disarray, not having been maintained for many years. The country’s rolling stock was up to 50 years old, and infrastructure dated back a century.  Apart from the Gautrain, there had been little investment in new infrastructure.  Members also sought clarity on the e-Natis situation.

The Committee considered and adopted the Minutes of 03 September 2014.

 

Meeting report

Chairperson’s opening remarks
The Chairperson welcomed all present at the meeting. The purpose of the meeting was to be briefed by the Department of Transport (DOT) on its first quarter expenditure patterns for the 2014/15 financial year. The Minister of Transport had tendered her apology for not been part of the meeting but if time allowed, she will join them later.

Minutes of 3 September 2014
Ms Manana (ANC) moved the adoption of minutes. Ms R Nyalungu (ANC) seconded the move.

The Committee adopted the minutes.

The Chairperson read apologies from Mr N Kwankwa (UDM) and Mr G Gardee (EFF).

Department of Transport: First Quarter Expenditure 2014/15
Ms Lydia Chikunga, Deputy Minister of Transport, introduced her delegation, and said the Acting Director-General would go through the presentation.

Mr Mawethu Vilana, Acting Director-General, said that for Programme 1, Administration, 27% of the R382m had been spent.  For Integrated Transport Planning, 14% of the R81m budget had been spent. On Rail Transport, 52% of the R15bn allocation had been spent the budget. The figure for Road Transport was 24% of R21bn, for Civil Aviation 22% of R 148m, for Marine Transport 18% of R110m, and for Public Transport, 11% of R11bn. The Department had a total budget of R48.727 billion. During the first quarter, the Department had spent R14.414 billion, or 30% of the allocated budget.

The total budget allocated for compensation of employees was R383m, where 22% had been spent.  The figure for goods and services was 49% of R584m, while 29% of the R47bn budget for transfers and subsidies had been spent.  For machinery and equipment, the allocation had been R4m, with 19% spent. Compensation of employees had been under-spent as a result of vacant posts.  Overspending on goods and services had been due to e-Natis.

Mr Collins Letsoalo, Chief Financial Officer (CFO) said the under-spending on transfers and subsidies was due to a second tranche payment of R363 million for  the Provincial Road Maintenance Grant (PRMG) in North West  Province and Gauteng being withheld due to non-compliance on submitting the Grant Evaluation Report for 2013/14, and an updated Infrastructure Report Management return for May and July 2014. Under-spending on machinery and equipment was due to the renovation of the building. The first quarterly payment to higher education institutions had not yet been paid due to delays in receiving invoices. Under-spending on goods and services was due to the delays in the following projects: National Transport Planning databank projects, the development of National Freight Logistics Strategy, the Multi Modal Transport Planning and Co-ordination Act, and the Regional Corridor Strategy.

Mr Vilana said that under-spending on the compensation of employees and goods and services was mainly due to the prioritization of the establishment of the Project Implementation Management Office (PIMO) between the DOT and the Passenger Rail Agency of South Africa (PRASA) for the feasibility study on the Moloto Rail Corridor, the Rail Policy Act and branch-line strategy.  Over-spending on machinery and equipment was mainly due to office furniture that had been purchased during the renovation of the building for the year. On transfers and subsidies, a total of R7.693 billion had been paid to PRASA, which constituted 51% of the total budget of PRASA for the year.  Goods and services were over-spent by an amount of R162 million, due to the cost of e-Natis maintenance and operations.

Conditional grants to municipalities were paid in the second quarter, on 1 July, in line with the municipal financial year. The total budget for the Railway Safety Regulator was transferred as per the payment schedule, as they received their permit fees from July onwards. The transfer payments to the South African Civil Aviation Authority and the Marine Rescue Coordination Centre were delayed due to late invoicing and receipt of compliance certificates. Taxi scrapping expenditure would be reflected in the next report after the journal had been processed. The first quarterly payment to higher education institutions had not yet been paid due to delays in receiving invoices. The membership fees to the International Maritime Organization and the Indian Ocean Memorandum of Understanding had been invoiced and paid earlier than had been projected.

Mr Vilana said that in terms of Plans to Spend Additional Allocations for Rail Transport the DOT created capacity in the Rail Transport Branch by employing qualified personnel to manage transfer payments and exercised oversight on both PRASA and the RSR; PRASA has adopted through its approved Corporate Plan, a five (5) point plan to accelerate delivery of infrastructure programmes; A detailed presentation on the various plans put in place by PRASA in consultation with the Department were contained in the attached presentation done on 2 September 2014 to the Portfolio Committee on Transport; The plan covered a five (5) year signalling upgrade programme in Gauteng, KZN and Western Cape Provinces, The accelerated rolling stock programme, infrastructure modernisation and strategy for the deployment of new rolling stock. The plan also covered: asset life cycle management models, five year contracts with rolling stock contractors and the refurbishments of 500 coaches for both commuter and long distances services.

Mr Vilana listed the main features of the cost containment measures the National Treasury had instructed should be implemented from the beginning of 2014.  These were:
- Engagement of consultants was subject various conditions, including confirmation that the Department did not need the requisite skills and resources in full time employ; 
- Restrictions on the cost of hotel accommodation, air travel and claims for kilometres travelled (disbursement fees);
- All contracts should include penalty clauses for poor performance.
 
Discussion
Ms C Madlopha (ANC) asked what the Department’s expenditure projections were.  For the first quarter, it was supposed to be 25%, but it would be easier if Members knew what the actual projection was.  She asked why budgeted posts had not been filled.  She appreciated the plan to contain the use of consultancies. How much did the Department spend on consultants, and did that expenditure include any skills transfer to the staff of the Department?  Why had the Department of Higher Education experienced delays in receiving invoices?  Why was there an over-expenditure of 339% on goods and services?
She did not agree with the indication from the Acting DG that because of the elections, there had to be a halt to the implementation of the policy priorities of the ruling party.  The National Development Plan (NDP) was already there, and after elections the new administration would continue implementing it. 
She was concerned about the slow pace of transfers in the rural areas, where the issue of roads was not prioritised, as this could lead to service delivery protests.

The Chairperson welcomed Ms Dipuo Peters, Minister of Transport, to the meeting.

Mr A McLouglin (DA) said there were plans to improve the rail road infrastructure, with which he fully agreed. Railway stations had not been maintained for a number of years.  They were in a total state of disarray and were dangerous because of the electric cables, which made people feel it was unsafe to use trains. He asked if there were plans under way to boost the rail infrastructure and where the funding was coming from, because there had been a lot of over-spending in the first quarter.  He knew there were reasons for this, but if the DOT kept on spending at that rate, where was the money going to come from?

Mr J Figg (DA) said that there were many acting personnel in the Department, was a concern for the Committee. The Deputy Minister had indicated that the presentation was in line with the priorities of the ruling party, rather than those of Government, and clarity was needed in that regard.

He queried the 11% expenditure on public transport.  Another concern in public transport was that transfers were slow, specifically in respect of the BRT system in the Port Elizabeth area, which had been going on for about 20 years.  Why was it taking so long?

Mr M Shaik Emam (NFP) asked how far the DOT had gone in implementing the first quarter plan, taking into account what had already been spent.  Did the E-Natis traffic information system belong to the Government, or it was an outsourced programme from private organisations, because his understanding was that it was managed by a private consultant.  He was concerned about the high over-expenditure in some areas in the first quarter, which could leave them short later.  He pointed out that 197% had been spent on leave pay and donations, which was very concerning considering there were another three quarters to go.  He asked to what extent they would need money for leave and donations.  What were the Department’s plans to fill the various vacancies?  What plans or mechanisms were in place to ensure that payments were made in time, for instance, to the Department of Higher Education?

Ms M Manana (ANC) asked whether the over-spending on the E-Natis system came from the budget of the current 2014/15 financial year, or had it accrued from the budget of the previous 2013/14 financial year. Regarding the transfers to the provinces, did provinces use the money from their equitable share and, if so, where exactly was the money coming from for over-spending -- or had it accrued from the previous year?

Mr N Gcwabaza (ANC) asked whether the vacancies that existed in the Department were funded vacancies, or vacancies awaiting approval.  Linked to that, was the Department funding programmes in higher learning institutions in order to attract relevant skills to the DOT so as to fill those vacancies?  The University of Stellenbosch, for example, had a programme on transport.  He asked what the source of the delays in transport projects was, and what the Department was doing to address them in order to spend accordingly, so that by the end of the financial year it would be able to say it had overcome the problem.
He asked how they were planning to deal with delays in the road infrastructure policy, because without that policy they would suffer in terms of their spending -- and spending was about implementing policy.
In the next presentation, the Committee they would like to see the figures attached to the cost cutting measures so as to determine the extent the DOT was saving in the targeted areas.

Ms S Shope-Sithole (ANC) said the President had called for radical change, and she was not convinced that they would achieve that change if they had 18 people in the department, and hoped that by the next meeting, every post in the department will be filled.  They were living in an era where there was slow economic growth in the country.  Conditions were unfavourable, and people should be alive to the fact that they were facing the challenges as a country. People should not be using the ruling party as an excuse for not implementing their programmes.  She hoped it was the last time that elections were used as a way of halting implementation.

Ms Nyalungu asked how many students were funded by the DOT at the Stellenbosch University.  How was over-expenditure on Programme 4 in the first quarter going to affect spending in the second quarter?

The Chairperson said that it would be important to note that commuter rail was one of the backbones of public transport. Therefore, in terms of planning for the future, other than upgrading existing stations, it was good news that money had been transferred to sort out signalling problems. It was important that they should look at the public transport system holistically.  Particular attention should be paid to commuter rail and new settlements, such as the Moloto Corridor, and whether there were other new areas which they should discuss with Passenger Rail Agency of South Africa (PRASA).

The Chairperson said the last time rail infrastructure had been built was 30 years ago -- excluding the Gautrain -- and in Gauteng alone not a single rail track had been built.  They had to come back to that issue, because while they were going to upgrade already existing stations, they had to consider Cosmocity, Diepsloot, and all the new areas that had recently sprung up. They should be included in the plans although it would require more money, but people needed to be reached by commuter rail so as to alleviate the problems of road congestion and road damage.  That was a comment that the Committee might take forward when they engaged with PRASA over plans unfolding in new settlement patterns.

Mr Gcwabaza said that the old existing railway lines that were no longer functioning, especially those that ran through rural areas, should be used for goods transport, as well as commuter rail transport that would transport people from the rural areas to towns.

The Minister of Transport said the context of her late arrival spoke to what one of the Members of the Committee had mentioned about the transport challenges faced by South Africa.  One of the biggest challenges, of which the Committee was aware, was where children had not been able to go to school for four months because communities in the Northern Cape were demanding roads.  Even parents were saying that their children should not go to school because when they went to school, they died on the roads because the roads were not in good condition.

The Minister said that the Chairperson had spoken at length about how rail could be the catalyst to improve public transport, particularly in freight. The freight industry players had complained about the length of time it took to put their goods on trains, which was why they had relied on road. The Chairperson was correct that the rolling stock and rail network was more than 50 years old -- in fact, the rail network was more than 100 years old and the coaches they used were more than 50 years old. The Deputy Minister and officials should have spoken to the point that they had not managed to pass policies and legislation through Parliament and Cabinet that related to rail in particular, and other policies like scholar transport.  They had definitely had to wait, with the policy and legislative areas, for the post election period.  There were a quite a number of policies that needed to pass through Cabinet.  Some of them had gone through to Cabinet, but due to some amendments and inputs from Cabinet Members, they had been sent back to be reworked.

The Minister said that the other main instrument for the DOT was the National Transport Master Plan, which was one of the policies and planning instruments that had been referred to the Presidential Infrastructure Coordinating Council (PICC). These were some of the things that would have made it impossible to do some of the work that they would have anticipated to have done in the first quarter.

The Minister said that the road network was in a very bad condition, and what they were doing was to take two steps forward and one step backwards. 10% of the roads were in good condition, and those roads were under SANRAL. 30% of the roads were in good and fair condition, and these were under provinces and some districts. 60% of the roads were in a fair to very poor condition, which was the challenge they were faced with.  The DOT had backlogs of about R149bn, which she believed should be the subject of a presentation to the Committee.  How was the DOT going to deal with that backlog in the next five years, if the rate at which SANRAL allocations were funded by the fiscus came in at 86%, and there was a belief that 14% should be a user fare? Then there was the Provincial Road Maintenance Grant which, at R9.6bn per annum, was also indicative of the fact that it was grossly inadequate.

The Minister said that those who were involved in the rail transport industry would know the challenges that were there -- where people were often late for work because trains were late, or waited long for goods or freight -- and the conditions were just not good enough.  In the Western Cape in particular, when PRASA had increased the tariffs, there had been an outcry because of the poor conditions which existed, and it had been suggested that they would rather wait till the services were improved before they would pay the higher tariffs. Therefore, the DOT as per mandate of the Government was finalising the Transport Plan, because the strategy was in place.

The Minister said that with regard to new rail networks, excluding the Gautrain, there was the Short Kilometre Coal line and the Bridge City Network in KwaZulu-Natal, but this was a drop in the ocean if one considered the network that was needed for passenger transport. The challenge that PRASA was currently facing was that with the proceeds from Metrorail they were expected to cross-subsidise shosholoza meyl. They had gradually closed down branch lines instead of investing over the years on a long distance rail network.  Members would know that those branch lines did not exist any more because of the fact that they did not have the resources, but it was also historic that for more than 50 years there had been no investment. There was a strategy that they were working on in terms of the branch lines, and the DOT was talking to the private sector to participate in these branch lines – for instance, where mines were being developed in remote areas, yet the points of beneficiating the ore was somewhere else.  There was a need to invest in those areas, and the mining companies had made an appeal to say they could be partners in this particular initiative.

The Minister said that with regard to new developments, be it for road or rail, it was important to allow transport to participate.  She had made a particular request to the Department that they needed to participate in the land use forums for municipalities as well as provinces, to ensure that when developments took place they factored in a Cosmo City-related type of development.

The Minister said that the Department had advertised the post of Director General, which had closed for applications last week.  They were still busy with the process so that when interviews took place they did not have comebacks from the Department of Public Service and Administration (DPSA).

In terms of the issue of job creation, everything the DOT did had a requirement for localisation. For the PRASA rolling stock, the local content was about 69%, but the target was 75%.  The Provincial Road Maintenance Grant which was one of the initiatives where they were using labour intensive methods to build roads in provinces, and this created many jobs.

The issue of e-Natis that was a nightmare, which needed another meeting because there were ongoing court cases between the Department and the contractor. 

The Minister said that without taking away time for the officials to respond, she needed to raise two points about public transport.  These were the plan that they would be finalising, and the need for them to make sure they did not just focus on the 13 municipalities for the Integrated Public Transport System, which they called the BRT.

The Minister said a Member had referred to a delay of more than 20 years in implementing the BRT, but she did not know BRT had been under consideration that long. However, that would also be one of the areas they would want to deeply engage in, because they needed to have the Committee as their partners to be able to deliver an efficient, reliable, sustainable and affordable public transport network for South Africa.

The Deputy Minister said that what was happening in the rail transport industry was that history had dictated that the government was no longer investing in rail, and that decision had come from the De Villiers Commission. Before 1986, the government was budgeting R2 billion for rail, but after that it was cut down to R600 million.  Disinvestment, together with the decision made by the De Villiers Commission, including the deregulation of road transport goods, had resulted in the current situation.  People thought it was the current Government that had caused the rail transport problems.  As the Minister had indicated, the DOT had taken over a system that had not been invested in for over 50 years, which was why they were in this situation, but the current Government was doing its best to correct that history.

Mr Vilana said that it should be stated for the record that he had never said the DOT did not do anything while waiting for the elections, but had rather said they were aligning election priorities with the programmes of Government.  It was the responsibility of the ruling party to express its programmes in its manifesto. If the programmes of the manifesto were not expressed in year 1, they would not find expression, because the MTEF was a five year programme, which forced them to carry out five year planning.

In terms of transfers and subsidies on invoices to institutions of higher learning, the DOT had signed a memorandum of agreement with them last month.  It was correct they could have not been invoiced and therefore invoices could not be received, because they were waiting to finalise the memorandum of agreement, so in quarter 2, the expenditure on all the centres of development would be reflected.

There had a huge drop from the Department’s side in the use of consultants, from 2013/14 financial year, and there was also a drop in the area of skills transfer.

The Chairperson thanked the Minister, Deputy Minister and the delegation from the Department for the presentation and responses.  Because of time constraints, Members would write down questions they still needed to ask and forward them to the Minister and the Department for responses.

The meeting was adjourned.
 

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