The Department of Defence (DoD) briefed the Committee on the Defence Laws Repeal and Amendment Bill, as well as on the second and third quarterly performance reports for the 2014/15 financial year.
The briefing of the Defence Laws Repeal and Amendment Act [B7- 2015] was introductory in nature. The main aim of the Bill was to ‘clean up’ the Act of 16 provisions which were considered to be redundant and thus served no purpose. The one amendment to be made was with regard to a provision of the Castle Management Act, 1993.
The overall financial and non-financial performance reports of the Department for the second and third quarters of the 2014/15 financial year indicated that targets had largely been achieved. However, the DoD listed several areas of concern. These included:
- Public opinion. Only 65% of the public had viewed the DoD favourably in March 2014, against a target of 77%;
- Internal auditing. The target was to hire 35 officers, and only 27 had been hired. The Department was on target to hire three chief directors by the end of the financial year;
- The late payment of invoices. For the third quarter, the Department had paid only 74% of its invoices within the 30 day period;
- Defence assets management. A policy for the management of intangible assets had been developed and implemented;
- Financial disclosures had not been made by senior managers deployed outside the country or who had been seconded to other departments;
- Litigation. A major challenge was posed by cases being brought against the Department. Last year, only 14% of cases had been won by the Department, resulting in the desired success rate of cases being only 50% for this financial period. Currently it looked as if this target would not be met, as only 35% of cases had been won so far.
A number of issues were raised by Members. Was the DoD concerned that those trainees who were not absorbed into the Defence Force might use their military skills to harm society? Was the Department doing enough to assist struggling military veterans? What were the reasons for the significant under-spending on infrastructure? Were the foreign policies of the DoD and the Department of International Relations and Cooperation in agreement? Why was there a surplus of R3.5 billion in the Special Defence Account? Why was the Department making use of the services of Cuban mechanics?
Mr D Gumede (ANC) said the mother of Mr M Motimele (ANC) had passed away and he was thus unable to attend and chair the meeting. Mr Gumede would therefore replace him as Chairperson for the meeting.
Mr D Maynier (DA) said he objected to the meeting. Firstly there was not sufficient time available to deal with both issues on the agenda -- the Defence Laws Repeal and Amendment Act and the performance report. Secondly, the presentation told the Members only little of what was considered necessary information. He therefore he requested from the Secretary of Defence the actual quarterly report of the Defence Secretariat, the report from the Chief of the South African National Defence Force (SANDF) and the quarterly report from the National Treasury. Only on these reports could there be a substantive discussion of quarterly reports, and the Committee must require the Secretariat to disclose those documents for future meetings.
The Chairperson replied that these documents would be requested in future and that more time may be allocated so it was sufficient time to deal with such substantive matters.
Department of Defence (DOD): Defence Laws Repeal and Amendment Act introductory briefing
Dr Sam Gulube, Secretary of Defence (SD), DOD, agreed that more time may be necessary in the future but that it was not such a great issue for the meeting at hand, as the first presentation dealt with just an introduction to the repeal of, and amendments to, the Bill. The main aim of the Defence Laws Repeal and Amendment Act was to clean up the legislation books by repealing 16 null provisions and amending one. The 16 pieces of legislation had been identified as redundant and thus without purpose and needed to be repealed. The provisions were not subject to a surviving clause and many were time specific, such as the Termination of Immigration Act, 2001. One amendment to be made to the Castle Management Act, 1993 had been identified. The Bill had been drafted with two schedules. The first schedule concerned repeals and the second schedule concerned amendments, namely to the Castle Management provision.
Mr Maynier requested two points of clarification. Firstly, why two of the acts recommended for repeal had been omitted from the list of 16 pieces of legislation to be repealed, namely the Moratorium Act and Act 2 of the 1976 Prohibited Transaction Act. Secondly, why were only four explanations provided for the repeal of the 16 pieces of legislation?
Dr Gulube responded that through a combined effort with the South African Law Commission, they had identified the 16 pieces of legislation necessary for repeal, but that they had selected only the most important provisions. The two pieces of legislation that had been omitted would be admitted if this was necessary.
The Chairperson stated that this was an introductory session, and that the Committee would debate on the Bill in meetings to come, at which there would be engagement on the sections, and it would get co-opinions.
DoD on its Second and third quarterly performance and expenditure reports for 2014/15
Dr Gulube said that the report included both financial and non-financial components. The colouring of the report was to highlight the performance against targets. Areas in which the DoD had achieved its targets were indicated by the colour green; where targets were in high risk of not being reached, they were indicated by the colour red; and where targets were proving difficult to achieve, they were indicated by the colour amber. The format used for the current presentation was the same used for the submission of the report to Parliament. This used to be submitted to the National Treasury, but now it was requested by the Presidency first and then delivered to the Cabinet. The report was divided into two sections. The first section dealt with the Defence Secretariat, which was responsible for International Relations (IR), legal services and policing. The second section dealt with the National Defence Force, focusing on various military operations. Attention was paid to the areas in which the DoD had not achieved and thus any section indicated by the colour green, where targets had been met, were not covered.
The first area of concern in which targets may not be reached, was with regard to public opinion. Every year, the department engaged with the Government Communication and Information System (GCIS) to measure public opinion. It was desired that 77% of the public would view the DoD favourably, but only 65% of the public had viewed the DoD favourably in March 2014. The Department was unlikely to achieve the target, as there had been delays with the survey due to the restructuring of the GCIS itself.
The second area of concern related to the DoD’s strategic research capability status. Certain documents from the Defence Review were awaiting approval and thus it may not be adopted, resulting in a high risk of the targets not being met.
The third area of concern was internal auditing. The target was that an office space for internal auditing be opened, hiring 35 officers. Only 27 officers had been hired. It was intended that three chief directors would be hired and the Department was on target to do so by the end of the financial year.
The fourth area involved the late payment of invoices. For the third quarter, the Department had paid only 74% of its invoices within the 30 day period. Currently the DoD was at 85%, and monitoring the situation. There were three areas which had caused the Department not to reach its target The first was due to the nature of the DoD, which had a large footprint in that there were various departments in areas such as from Simonstown all the way to the Nothern Cape, but there were only two payment centres -- one in Pretoria and one in Simonstown. Decentralization had been attempted but it had been stopped when it was realised that payments for invoices were being made for things which had not actually been delivered yet. Thus decentralization had not occurred in order to prevent corruption within the Department. The second area proving to be a challenge was the scattered and unsynchronized nature of the Information Management System. When integration was attempted with the Army and Air force Human Resources departments, it had not worked, and thus a “backbone” needed to be identified, and the Department was awaiting a response from the National Treasury. The third area of difficulty was the delays caused by the verification process of invoices, where once an invoice was received, the details of the supplier and the goods were verified. Once the invoice was verified, it was paid within seven days. Dr Gulube said that with regard to the issue of delays caused by verification, he would be happy to receive advice to improve on such an issue, as it was a priority. He assured the Committee that there was an accounting officer working very hard to ensure targets were met, despite the areas of difficulty.
The fifth area of concern was with regard to Defence assets management. A policy for the management of intangible assets had been developed and implemented, in which there was provision for registration of such assets. There was registration of 97 % of intangible assets and by the end of the month, there should 100% registration. Therefore this area of concern should not be amber, but should be considered as green.
The sixth area of concern related to the financial disclosures which had not been made by senior managers deployed outside the country or who had been seconded to other departments. Only 94 % of disclosures had been made for the period.
The seventh area of concern was litigation. A major challenge was posed by cases being brought against the Department. Last year, only 14% of cases had been won by the Department, resulting in the desired success rate of cases being only 50% for this financial period. Currently it looked as if this target would not be met, as only 35% of cases had been won so far.
Dr Gulube provided an overview of the core function of the army, navy, air force and military services, stating that the target of these services was to prepare the way for the Defence Force, and the extent to which they did so was how they were evaluated on their performance. Another major component of the Defence Force was general logistics, which acted as the support system.
Only four out of a planned nine military exercises had been conducted. The main reason behind this was that the partners to such exercises had cancelled their engagement, so the exercises could not be carried out. The army had trained only 2 900 personnel out of a planned 3 500 due to budget restrictions. The targets of 2014 were not met as cuts took place after targets had been set. The air force and maritime sections were able to meet training targets. The military had failed to meet its training targets due to lack of funds, as well as the training taking place in unserviceable vehicles.
The target of 100% on ammunition disposal had not been met. This had been resolved.
A major challenge had been posed by the infrastructure improvement funds being under-spent. The DoD had wanted 100% of funds to be expended, but there was a dependence on the Department of Public Works (DPW) for implementation of refurbishment projects. Funds had been provided to the DPW, but they had not completed the work requested and so only 58% of the budget had been used.
Logistics services had not reached their target of 100%, as they had limited facilities, and due to a delay in the turnaround time for procurement services.
There were challenges with regard to compliance with various portfolios. Registration of Information Technology Systems (ITS) relied on the State Information Technology Agency (SITA). However, delays were due to both SITA and budget concerns. Most funds had been moved, as ITS was a preferred portfolio for budgetary cuts, rather than other equipment.
The military police had met their targets.
Turning to the financial report, Dr Gulube said it had been planned that by 31 December 2014, 70.5% (R30, 2 billion) of the budget would have been spent, and 69.3% (R29.7 billion) had been spent. This was a variation of 1. 2%, which was considered acceptable by the accountants. For the current quarter, it was expected that 98% of the budget expenditure should be achieved, so under-expenditure should not be a concern for the Department.
Mr B Bongo (ANC) said he had a question which arose from the meeting the previous week around the issue of the Defence Force Service Commission, which had highlighted that there were some young people who were trained but had not yet been absorbed by the Department and could thus use their skills to harm society. What measures were in place to prevent or mitigate this? Concern had been raised over the invoice payment delays, as this was a policy matter that regarded as important by President Zuma. Concern over litigation was raised with regard to what issues were causing the litigation upon which much money was being spent by the Department. What general strategies were in place to minimize such litigation? If legal services could see that only 50 % of cases would be won, then why litigate on the 50% that would not be won if they could foresee that there was no prospect of success?
Mr B Nesi (ANC) stated that the Department had not explained what it was doing with regard to the bottlenecks causing the delays in turnarounds and invoice payments. Furthermore, he was worried about what was being done to assist the military veterans who were vulnerable when the rains came in the Eastern Cape. His main worry, however, was with regard to the budget, stating that everything that constrained the DoD was due to the budget. The government was trying to make a better life for all by including those who had been previously excluded but what was currently occurring was that the Department was aligning its strategy with the budget instead of vice versa, which hampered the transformation of the Department at all levels.
Ms N Mnisi (ANC) congratulated the Department on all the green areas in which targets had been met. His first question was made in regard to administration, as there were some deviations. Spending on military had been 11% higher, what did this represent? The allocation of the budget for household spending for 2015 was R24.5 million, but R35 million had been spent. Why was this? The military health service had spent 95% of its allocation by the end of the third quarter, which would result in an over-expenditure by end of this financial year. How would they recover, and what was the amount claimed to date? The total budget for infrastructure was R1.26 billion, and only R22.39 million of this amount had been spent in the third quarter. During the oversight visit, infrastructure had stood out as a major concern in most military bases. What were the reasons for the slow spending on infrastructure? Why had it taken so long to audit?
Mr S Esau (DA) said that he did not want ‘semester’ reports, but rather for quarterly reports to be dealt with after each quarter, and not lumped together into what created a ‘semester’ report. Quarterly reports raised issues which could warn against issues for the next quarter, and this was missed when there ‘semester’ reports.
He referred to the dismal performance of the Department of Military Veterans (DMV), which had been born out of the idea of the Department of Defence. The former department was in a mess, and the DoD had the oversight and responsibility to monitor the former department. What services had been made available to the DMV, which had huge capacity issues. How people had been recruited to that department needed to be looked at.
Concerns had been raised over the issue of corruption surrounding the payment of invoices for services which had not yet been delivered. Why was there a need for the verification of invoices when there was a procurement system in place, with delivery notes attached to all deliveries which verified the delivery? This would mean that delivery notes were being defrauded, and this had an impact on asset management. Internal control was a serious problem and the system needed to be effective. One could not see how an internal control system was necessary if there was proper management.
To what extent did the foreign policy of the DoD agree with the foreign policy of the Department of International Relations and Cooperation (DIRCO), for which a document had not yet been established? How did this affect the DoD, which needed to act in alignment with DIRCO?
Mr Esau stated his disapproval of senior members deployed outside the country who failed to disclose their finances. It was not acceptable, and was a form of misconduct. There had been a number of grievance cases where the issue had been promotion and discrimination. What was the progress on such cases? What had been done with each and every issue? There should be a dashboard on how the DoD was progressing. What was the nature of the cases being raised, and were they repeating themselves? The courts were now stating that mediation first needed to take place in order to minimise costs. The Department did not have the money to litigate, so it should not dig its heels in and demand that it was right in all matters.
Mr Maynier said that the Defence Review was being waited upon, and certain policies were on hold as a result of this. The sharp end of the Defence Force was often forgotten about. With regard to Operation Chrono, was the 13 sub units a revised number, or had it been revised down to 13 sub units? The expenditure on Operation Chrono was worrying, as only R551 million had been spent out of the R1.07 billion budgeted for, so only 51% had been spent.
Mr Maynier’s second question revolved around the two tenders put out by the Armaments Corporation of South Africa (ARMSCOR) -- one for a hotel and a second for DIRCO. What progress has been made and what was the total budget for the two projects? In addition, no tender had been put out by ARMSCOR for transport aircraft, which was worrying, as this created the risk of a crash of one of the current planes. There seemed to be no progress, despite the urgency of the matter.
With regard to the R5.3 billion surplus in the Special Defence Account, what had been the amount at the end of the third quarter, and why did this surplus exist?
Most of the R836 million travel budget was absorbed by domestic travel. What measures were being taken to curb this? For instance, three delegates instead of 11 could have been sent to this Committee meeting.
Two further issues were raised by Mr Maynier. Firstly, had the DMV procurements been handed to the Auditor General for auditing purposes? Secondly, with regard to the employment of Cuban mechanics which had created a controversy, why were they necessary and how many had been employed? Furthermore, the intention of the Department was to train and employ Cuban doctors in the military health service, and this was something he found terrifying.
The Chairperson also why the expenditure on domestic travel was so high, and what its impacts were on the Department not meeting its targets. Furthermore, why litigate on the 50% of cases which were foreseen as unwinnable. Why defend unwinnable cases?
Mr M Mncwango (IFP) said that he did not want to waste time by repeating the questions already raised by other Members of the Committee.
Dr Gulube replied to the questions in the order that they were asked.
Regarding young people who had been trained and not been absorbed, thus becoming redundant and potentially posing a threat to society, a balanced view had to be taken. The majority of those who were trained would end up being better citizens by acquiring more discipline and better social skills. It did not necessarily make a citizen more dangerous, but could rather make a citizen more responsible. It was a concern that the DoD could not absorb all who were trained, but this was mitigated by the fact that the DoD put such trained individuals in the reserve force. There were plans to rejuvenate the force, using young trained people.
The challenge of litigation was because the DoD was the most sued department, after the Police and Health Departments. These cases were categorised by labour law issues. The commanders were made familiar with human resources policies and procedures, and had to adhere to them. Discrimination, or alleged discrimination cases were lodged with regard to promotions. The nature of the military was inherently hierarchical, and the intrinsic nature of the pyramid structure resulted in many unhappy people. The nature of the military was not being raised in order to act as an excuse as to why the DoD was expected to lose in court. A Grievance Board was part of the internal structure and cases were being tracked in order to determine how long it took to resolve a grievance coming in, and trying to resolve it within 60 days. This grievance management system was beginning to work. Courts were beginning to say that it was necessary to first exhaust the internal grievance system before coming to court. Medical malpractice cases were increasing, as if it was outsourced to the private sector; the first department to be challenged was the DOD. The action taken against negligent doctors may change as there may be a time that military doctors faced consequences for negligence. However, it was necessary to have experts within the Department itself to identify when it was negligence or not. Another area in which there was litigation was contractual management. Cases were brought when a contract was cancelled due to lack of money, or there was a change in priorities for the Department. The Department has started settling out of court, but there was an issue around the categorisation of such cases -- for instance, should they be considered as lost cases, or something else?
With regard to disaster management, the DoD would like the Committee to do an analysis to assist the Department, with the focus especially on the budget. The challenge was that when a disaster occurred, the National Treasury stated that this was within the competence of local government and not that of the DoD. It was strongly felt that if the DoD could have a system that established the Defence Force as a major role player, then budgeting could be allocated to the Department from the Treasury, in order for the department to deal with the rains in the Eastern Cape, or if Mozambique was in need of assistance. Advice from the Committee was needed.
Transformation with regard to gender equity and having a democratic framework at all levels of the Defence Force was a big issue for the DoD when the strategy was aligned to the budget, and not vice versa. Once the Defence Review was approved, the Defence Force’s structure would be in line with the Review.
Accommodation and infrastructure were budgeted for, and the Department of Public Works was approached to do work for the DoD. However, many delays were faced with the DPW, leading to under-expenditure. R70 million had been set aside to be spent on refurbishment, but only R50 million had been spent. Under-expenditure was not a new thing to the Department in this regard, so the DoD had tried to take on their own refurbishment. However, Treasury had stated that this work had to be done by the DPW. The Treasury had granted permission to the DoD to take the money and do the refurbishments themselves for the year of 2015/16, however. This was the turnaround strategy of the Department. The allocation of household spending had been an over-expenditure, due to the exit packages and the retirement costs of moving those who had been deployed elsewhere, home. This was difficult to budget for, so all these costs had been bundled together as household costs. Proper planning was necessary to avoid variances.
The military health support paid by the Department for veterans was a figure which was not currently available to Dr Gulube. However, he would advise in writing how all expenditure was incurred by the DoD for health services to the Department of Military Veterans.
The reason it had taken so long for an internal audit unit to be established was due to the fact that when internal audit became an issue, it was at a time when the Inspector General was the internal auditor. The DoD wanted to be compliant with the Defence Act and Public Finance Management Act (PFMA). The latter was specific about functions, and the internal audit had to be done by the Inspector General. So when the internal audit was being established, the issue was raised of whether the DoD was duplicating the function, and as the Inspector General was a required function which could not migrate, a new unit was established. The Department now had an approved structure and had appointed people to the internal audit unit, with a number of reports having been produced.
Quarterly reports were usually presented at the invitation of the Committee, but somehow there had been a “skip” and the department had had to combine the two quarterly reports. The DoD was always guided by these Committee meetings and was happy to make sure that reports were done in such a way as to get guidance and be effectively monitored in its work.
The Department of Military Veterans would continue to be supported by the DoD, as it was a sister organisation which was part of the same industry. This engagement would be continued, as there were regular meetings between the two departments. The DoD realised there were difficulties of procurement facing the Department of Military Veterans, and they were assisting the DMV with policies and chain supply management.
More engagement was needed between the DoD and the various submissions received from the aerospace industry in order to ascertain how it could provide support for them, as its role was primarily coordination. Defence research was taking place all the time between ARMSCOR and the universities, who had very good academic professionals were doing excellent research. There was the Council of Scientific and Industrial Research (CSIR), and research was taking place through agricultural councils around the use of dogs and horses inthe military. The medical council was researching the area of HIV/Aids, and thus one could see that research around defence was related all across the board. The DoD would like to have a hub -- a virtual research centre -- to co-ordinate this research, which would give guidance as to what the DoD needed in terms of budget.
The DoD had a plan with regards to corruption within the Department, due to falsified delivery notes. Decentralisation could not occur, as previously desired, as if there were less control the Department would be less able to prevent corruption. The Dod had taken action when corruption had been discovered. Some people had been dismissed, while others had been taken to the police for criminal action. The Department received 7 000 invoices every month, to the value of R 275 million.
The Department’s management and control of tangible assets was one of the best management centres. The Department was working with ARMCSOR to improve its management of intangible assets.
The DoD worked closely with DIRCO and aligned its foreign policy with them. If any military section had to be deployed, the DoD first signs off then it goes to DIRCO, then to the Justice Department and then finally to the President to sign off. Whatever the DoD does has to be informed by the Presidency, and vested by DIRCO.
Dr Gulube agreed that there was no excuse for senior officers not disclosing their financial information. He wanted the financial disclosure rate to be 100%, and consideration had been given as to what to in the future to combat such issues. It had been suggested that if there was no financial disclosure made, then salaries would be withheld for the next month. However, the Department had been informed that this was illegal.
The Department would be happy to give more details of its progress with regard to the grievance board and implementation of the recommendation of the Defence Service Commission.
Dr Gulube said he thought that in order for the borders to be safe, 21 sub units were in fact needed, but unfortunately this number had had to be revised as the Department did not have the budget to deploy 21 sub units. In reality, that number needed to be tripled, as at any one time for every one sub unit deployed, one was required to be in training and one needed to be resting.
The figures of the acquisition programme, which involved a hotel and DIRCO, were not available to the Secretariat at the time, as he had not come prepared to answer such a question, but a letter could be written to the Chairperson. A tender had been issued and should be closing in the next month, and the other tender was in need of an extension. There was a desire to have them built here in South Africa, despite the international interest, as this would be cheaper in the long run, as maintenance could be carried out from within South Africa itself. Thus, even though it may be more expensive initially, it was desireable that local industry took on such projects.
Once a budget was drawn, the Department may approach ARMSCOR with a request for a heavy-lift air transport for the Air Force. This budget plan first needed to come from the Air Force before any request was made. What was interesting was that a few years ago, a Cabinet decision had led to the proposed acquisition of a 400M Airbus, which had been budgeted for by the Treasury. However in the middle of the acquisition process, the Minister had ended the programme and the funds had been returned to the Treasury. Thus there have been delays due to talks with the Treasury and the Air Force. Once the talks had finished, then an appropriate budget could be drawn up.
The Special Defence Account allowed for the acquisition of vehicles, or such things necessary to be developed by industry, rather than bought off the shelf. It allowed for the movement of money from slow projects to faster developing projects which the Special Defence Account had highlighted as necessary. This, however, was a discussion which should take place in a closed Committee session, as a public session would lead to the enemy knowing what the Department was developing. The Special Defence Account allowed an opportunity to roll over the funds to the next year. The DoD currently had R3.5 billion to roll over, but all the money had been committed to the next project and so it was not considered as surplus.
The high expenditure provided for local transport was due to the nature of the deployment of the South African National Defence Force. For instance, when the opening of Parliament took place, the ceremonial guards were brought in from different parts of the country in order to fulfil this function. There were various activities, such as the one mentioned, which required traveling by various individuals as part of the responsibility of the Department. Furthermore, those who were trained were deployed to a place and then rotated, thus leaving the DoD with a big footprint requiring high travel costs. The figure may appear high at first, but once the nature of the Department’s work was understood, it was not as high as first perceived. As to the current Committee meeting, the number had been reduced from the previous visits. However, the DoD wanted to be sure it was effective in its presentation and kept the quality up to standard.
The use of Cuban mechanics had become necessary due to the actions of local commercial companies who were the previous source, but who had been ‘ripping off’ the Department. For instance, a truck would be repaired for R35 000 and break down upon return to its base. At times, the brakes of vehicles would need changing, but in fact they would only be painted and thus companies were committing ‘high way robbery’. The Cubans therefore had been brought in to train soldiers to become mechanics, so that level one and two services could be carried out within the Department, and out-sourcing being necessary only for level 3 and 4 servicing. The contracts with the Cubans were well structured, with a beginning date and a firm end date. This had saved the DoD money down the line. There was no intention of employing Cuban doctors, but the Department was sending staff to Cuba to be trained there.
Mr Siphiwe Sokhela, Chief Financial Officer (CFO), DOD, said that the turnaround strategy consisted of not only one element when it came to payment of invoices. The first was the old system, which was in use, and was down for two weeks in the third quarter. This had had an effect on the closing of the books, as well as on the invoice payment system. If the system went down, the Department could not comply with the law, and so the Department did not wait till it went down. The second element of the problem was that the invoices, orders and payments were not coming to the finance department. A task force needed to be formed to reconcile both the finance aspect and procurement aspect, as the two were not talking to each other. A balance needed to be struck and implemented in terms of a strategy. One should not be able to go on leave if there were still invoices to be dealt with, and this had occurred during the month of December.
The suppliers needed to be educated about the procurement process, such as which documents were required by the Department. Though the system was not going as fast as desired to pay within the 30 day period, the DoD was seeing results nonetheless. If the Department did not pay on time, it was contravening the law, so it had to be ready with corrective measures to ensure that sufficient communication was being made. Training was being provided in Durban and Cape Town so that the implications of late payments were understood. Right now, the Department was sitting with an 82-85 % performance level, and it would take some time for progress to be made. The integration system presented another problem, as the procurement system did not talk to the financial system, and sometimes the delivery note did not talk to the invoice. Mr Sokhela said he was at a loss on how to resolve this.
The meeting was adjourned.
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