KwaZulu Natal Gambling Board status: KZN MEC for Finance briefing

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Trade and Industry

27 March 2015
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The MEC for Finance, KwaZulu Natal, with representatives also from the Department of Trade and Industry (dti), Provincial Treasury of KwaZulu Natal, and the Co-administrator of the National Gambling Board, gave input to the Committee on the matter of the KwaZulu Gambling Board, and briefly summarised the main issues in the pending case between the MEC and the former Board members, although the matter was noted as sub judice.  The MEC had taken office in May 2014, at a time when the Gambling Board then in place had about six to seven months still to run. The Board had held public hearings on Electronic Bingo Terminals (EBTs), and the Minister and community had expressed strong concerns about the unregulated springing up of such terminals. Provincial Cabinet had taken a decision that no further licences were to be issued until a task team had done an investigation and she had conveyed this clearly to the KZN Gambling Board in two letters, asking it not to issue any further bingo licences, including EBTs until the finalisation of the investigation. On the Board's last day in office, a Friday, it had, however, directly contrary to this request, issued 630 licences and informed the applicants, but had not informed the MEC. On the following Monday she, still unaware of this action, had extended their term of office until a new Board could be appointed (which had since been done; the members were shortly to be sworn in). However, on hearing of their actions, she had suspended the Board, and a court case was pending in which she, as applicant, was asking the Court to interdict any further action on, and to set aside the 630 licences. The Board members were disputing their suspension. The province did not seek to ban EBTs outright but it did want them to be regulated. She expressed concern that because of lack of regulatory guidance from the National Board, each province was going its own way, and she cited instances where she felt the National Lotteries Board had not done its job properly. Internet gambling was something else that should not be regulated at provincial level, although the Minister had some strong ideas on how it might be managed, if allowed. The dti confirmed that at the moment, it was still illegal but the policy was still to be put out for public hearing and changes would be required should those be in favour of legalisation.

Another issue that she raised was Open Bet, where she described how bookmakers were preying on and taking winnings of others. One solution might be to tax it highly. During the discussion, she also raised concerns about limited payout machines, and the fact that machines situated outside casinos were paying over less revenue to the province, and taking less action to protect the public, than casinos, although both were licensed.

Members were concerned that there was not sufficient interaction between the National Gambling Board and the provincial Gambling Boards, and suggested that legislation should craft a stronger involvement if possible. The dti responded that this was already being considered in the policy. Members asked for details on the report of the Public Protector on the KZN Board, and were told that the KZN government had also instituted its own forensic investigation whilst cooperating with the Public Protector. Members asked how many of the slot machines were outside casinos, and how many legal and illegal bingo machines there were,  and whether it was possible to transfer licences not used, which dti again confirmed was being addressed in the new draft policy. The dti confirmed Members' questions on regulation of EBTs, and also outlined how the online gambling would be covered in the draft policy, as well as horse-racing, bookmakers, limited payout machines and lottery. The MEC confirmed that she took directives from national level seriously and welcomed the Committee's offer that she make a submission as to how the Committee might help. The Chairperson confirmed that this Committee was not attempting to promote gambling, but to ensure that it was properly regulated for the protection of society.

The Committee considered, and adopted in principle its draft Strategic Plan, whilst noting that further amendments to it should be considered and put forward after the recess.
 

Meeting report

KwaZulu Natal Gambling Board: Status and update report: MEC for Finance, KZN briefing
The Chairperson noted the presence of Ms Zodwa Ntuli, Deputy Director General, Department of Trade and Industry and of Mr Tumelo Baleni, Co-Administrator, National Gambling Board. She also welcomed Ms Belinda Scott, MEC for Finance of KwaZulu Natal, and her team.

Ms Belinda Scott, MEC for Finance, KwaZulu Natal, informed the Committee that she was pleased to be before the Committee, in the spirit of cooperative governance. She would highlight the issues that had
happened in KwaZulu Natal (KZN) and about the aim of transforming horse racing industry. She informed the Committee that all the provinces were battling with the issue that there is no national policy regulating Electronic Betting Terminals (EBTs).

Ms Scott informed the Committee that she came into office in May 2014, at a time when the Gambling Board then in place had about six to seven months still to run. She did not think that the Board and industry had a particularly good relationship, and one thing had become very clear. The Board had held public hearings on EBTs and Minister of Trade and Industry, Dr Rob Davies, briefed the MEC. He was concerned about the unregulated roll-ups of EBTs and he wanted some collective thought on how the EBTs could be managed. Part of the outcome of the public hearings was that the community also did not want EBTs to be in public places. There was another issue raised about the similarities between the EBTs and slot machines.

Ms Scott had approached the Provincial Cabinet to find a resolution to stop the roll out of EBTs, and to try to regulate where these EBTs should be situated and what impact these EBTs would make in the society. She said she also wrote a letter to the Gambling Board requesting the board not to issue any bingo licences including EBTs, until the finalisation of the resolutions of the task team that had been set up.

On the last day on which the Board was in office, a Friday, it had held a meeting, which was attended by only six Board members. That meeting had gone directly contrary to the Cabinet and the MEC's letter, by approving 630 EBTs and sending out letters to them informing them of the approval. The minutes of the Gambling Board meeting stated that MEC was to be informed about this decision, but she had not been informed of it. On the following Monday, she, as MEC, had extended the previous Board's term of office until a new Board was appointed and in place. That new Board had since been approved by Cabinet and would be sworn in shortly.

She reiterated that she had, at that time, known nothing about the decision on the Friday.  but she knew nothing about the decision of the board. When she had heard what had happened, she, together with the executive and legal team, took the decision to put the whole Board on cautionary suspension. She had informed the Board, in two letters, that this Board should take no decisions of this nature in its last two months of office. The Board had clearly blatantly ignored the letters.

Ms Scott then filed for an interdict and also retracted her extension of term of office of the board. The current situation was not to do with the suspension of the Board, but its decision to issue the EBTs. Not only was this contrary to instructions, but there was also no technical report stating how the decision was made nor the criteria used to select 630 EBTs. She also clarified that the province did already have the definition of EBT and whilst the MEC did not want the EBTs to be banned outright, they must be regulated. At the moment, there was no regulatory guidance from the National Board and the provinces were "doing their own thing".

She reminded the Committee that the lottery as a whole was managed by the Lotteries Act. The National Lotteries Board was not doing its job. In Mpumalanga, there had been approval of something that was not a lottery, and no action was being taken. She herself had received many applications for extension of licences that also wanted to include lotteries, but she had refused them. She reiterated that guidance was needed from the National Gambling Board on the EBTs.

Ms Scott also told the Committee that internet gambling could not be regulated on a provincial level. The Minister of Trade and Industry had excellent ideas on managing internet gambling through the banking sector. The only reason the internet gambling was allowed in South Africa (SA) was that it was easy for it to happen although the country was not receiving the revenue, and owners of the internet gambling activities were from abroad, were not paying tax to South Africa and were taking South African money. South Africa did not have the same strict regulations as other countries.

Ms Scott also felt that the Open Bet was a contentious issue that should never been allowed in South Africa. She said that the book makers were acting as parasites on people who were supposed to get the total bet, so the one industry was preying on and feeding off another. Failing to protect the industry that paid the provincial revenues was serious. The provinces were asking the national level to take Open Bet out of legislation, and this, she asserted, was not only her own opinion but was shared by Phumelela Gaming and other horse race authorities.  She told the Committee that one way the Open Bet could be allowed was by imposing high taxation so that Open Bet could become less favourable, but she suggested that she did not want to take that route whilst Open Bet was still acknowledged at national level.

Discussion
Mr D Macpherson (DA) thanked the MEC for the short but detailed briefing. He agreed with Ms Scott that the provinces were being left to do their own thing, and said he thought that there was not enough interaction between the National Gambling Board and the provincial Gambling Boards, adding that it also seemed as if the provincial gambling boards did not like interference from the National Board. He stated that, from a legislative point of view, there must be a stronger involvement of the National Gambling Board on a provincial level. 

Mr Macpherson asked for the specifics on the Public Protector's report and also wanted clarity as to how the provinces were dealing with EBTs. He informed the Committee that in October 2014 he received a letter from the Minister that confirmed that no gambling framework existed, but this problem was resolved by the National Gambling Council which had then stated that no further EBTs would be rolled out until the framework was put in place. Mr Macpherson wanted to know if there was any communication between the Committee and the Minister regarding EBTs, as there were conflicting statements made by the both the Committee and the Minister on the moratorium and the issuing of EBTs.

Ms Scott noted that, having received the report from the Public Protector, she had instituted her own forensic investigations on all allegations raised. With all due respect, she had cooperated with the Public Protector. She had a meeting set up with the Regional Head of the Public Protector's office, to inform the Public Protector about progress on her own forensic investigation.

Mr Ndumiso Nkomo, Senior Legal Advisor, Provincial Treasury, KwaZulu Natal, advised the Committee that there were two main issues arising from the report of the Public Protector. The first was the financial disclosure by the Gambling Board, to avoid any conflict of interest, and the second had to do with allegations that members of the Board had interests in bingo operations. The forensic investigation was being done by Internal Audit. To date, Ms Scott had cooperated with the Public Protector. A meeting would be held with the Public Protector in the second week of April.

Mr Barry Wilkinson, Deputy Manager: Gaming and Betting, KwaZulu Natal Provincial Government, advised that he believed that there was some interaction between the National and Provincial gambling boards, as the Gambling Review Council's report had shown the difference in the regulation of gambling at national and provincial level. The provinces harnessed gambling to get benefits like profit, investments, tourism among many. He also stated that all provincial board were represented on the national level.

Ms Zodwa Ntuli,Deputy Director General, Department of Trade and Industry, informed the Committee that the draft policy, which had already been tabled before the Portfolio Committee and the Select Committee, stated that it would be important to strengthen coordination between Parliaments at national and provincial level. This policy had been submitted for Cabinet approval and, if adopted, would have to then go to public consultation.

Mr N Koornhof (ANC) said that there were 4  500 slot machines in KZN. He asked how many of those slot machines were situated outside the casino areas. He also stated that in the Western Cape there was a movement saying that outside-metro casinos were not profitable, and questioned if there had been similar claims in KZN, and asked for the view of the MEC on this point. He also sought clarity on the current case, its applicant, and the claims.

Ms Scott said that she did not know how many machines were outside casino areas. She also said that Limited Payout Machines (LPMs) were found in liquor stores and bars, and slot machines in casinos, rather than being found in the community. When she had entered office, there had been 22 bingo operators in KZN, but since then, unbeknown to her, over the last few months a lot more had become functional, through LPMs, and not through EBTs. The case essentially sought to make the EBT approvals that were issued on the Friday mentioned earlier invalid, but she could not say more, as the case was sub judice.

Mr Nkomo agreed that no substantive details could be given. The MEC was the applicant, applying to the High Court for an order about the decision taken by the KZN Gambling Board in issuing the 630 EBT licences. The MEC was asking that the decision of the Board be set aside. The Board Members were challenging their suspension by the MEC, despite the fact of the written communications between the MEC, Premier and Board warning the Board not to make important decisions in their last two months of office. 

Ms Ntuli told the Committee that there was a need to ensure that electronic bingos were not in the catchment areas and that they did not affect the casinos.

The Chairperson thanked the MEC for the information. She asked how  many casinos there were in KZN. She also wanted to know the number of the legal Bingo machines and EBTs in KZN and what the MEC's estimation was on the numbers of illegal machines is.

Ms Scott told the Committee that KZN had five casinos; two in eThekwini, one in Empangeni, another one in Newcastle and the last one in Pietermaritzburg.  She also informed the Committee that 40 casino licences were issued at the national level for all nine provinces. KwaZulu had used all five that it was allocated, although other provinces had not done this; this was something that perhaps the Committee could look into.  and KZN received five and has utilised all five licences but some of the provinces has not used all of their licences and said that the Committee could look at this factor. KZN was given 2000 LPMs licences, and had used all of these.

Mr  Wilkinson informed the Committee that he did not have statistics of legal gambling machines currently as although the casinos had a certain number of machines listed on the licence, that number increased regularly. EBTs fall in a vacuum as they did not have limitation on their winnings. He informed the Committee that KZN did not have the same problem as Western Cape on outside-metro casinos not making profit.

Ms Ntuli confirmed that 40 casino licence were indeed issued for all the provinces, and now North West needed one but the national body was unable to take back unused licences from other provinces as there was no regulation on this matter. One of the recommendations of the Gambling Review Commission had been that if a licence was issued but not used within a certain period, it could be taken back from that province. She also informed the Committee that the national body allocated a number of licences to the provinces but did not determine if those licences were utilised, or how, and when they must be utilised. She also informed the Committee of the Minister's draft policy on gambling, which focused on the existing modes of gambling, and on how these modes could be strengthened and regulated. 

The Chairperson asked what the national legislation said about EBTs.

Ms Ntuli informed the Committee that  there was a case in KZN that was decided on this matter, which stated that the EBTs have "a feel of a slot machine" and therefore they must not be allowed to be set up until there was a change in the gambling policy. The policy of the country envisaged traditional bingos, since the National Gambling Council had imposed a moratorium so that if a slot machine took the form of an EBT, it must not be recognised until a framework had been formulated to recognise it as slot machine. Even despite that moratorium, some provinces still went ahead and amended their provincial legislation, contrary to the national policy.

Ms Scott noted a correction; that case had been decided in Gauteng, not KZN. She further added that the EBTs and slot machines had unlimited winnings. However, the casinos were paying 13% revenue to the province on each of their slot machines and set-up costs. The casinos also paid towards community development, and paid an exclusive right, which was 10% of KZN's economy, which meant that casinos were effectively a part of government's frame work. EBTs did not pay set up costs and only paid 3% revenue.

The Chairperson wanted to know if there was any incentive for a Gambling Board, when it issued gambling licences extensively, and whether the revenues would go directly to the province.

Mr A Williams (ANC) welcomed the input on the MEC's response and he suggested that she needed to write officially to the Committee suggesting how the Committee could help her.

Mr Macpherson wanted to know how the Committee could take Open Bet out of legislation, seeing that the Constitutional Court had ruled in favour of it, in 2006, in the Phumelela case. He disagreed with Ms Scott on the issue of online gambling. It was a reality in the country, and he believed it should be allowed and be regulated; it would take place whether or not the country liked it. He agreed with Ms Scott that indeed the EBTs were robbing the provinces of revenue, as the casinos were paying four times what the EBTs were paying in revenue, and effectively the provinces were shooting themselves in the foot if they allowed EBTs without regulations. He was not saying that government must be the protectionist of the casinos.

The Chairperson noted that online gambling was currently illegal in South Africa. She asked Ms Scott for suggestions as to how the Committee could help the provinces on the issue of EBTs.

Ms Ntuli added that online gambling would be covered in the draft policy. This suggested that it should remain illegal - however, this would be subject to the public comment process. If it were to become legal, then there would have to have processes in place on how to regulate it. National policy and legislation currently recognised four forms of gambling: casinos, traditional bingos, limited payout machines, and horse racing and any betting and gambling outside these four forms was illegal. In order to police this, there would have to be coherent, harmonised and strengthened structures, between national and provincial gambling boards. That was where the Minister and the MECs would make decisions, by allowing some of the gambling forms to become legal, but within the policy frame work. She stated that where a province legalised gambling through its own provincial legislation whilst it remained illegal elsewhere, there was nothing, according to the national policy, that could be done at national level.

She added that the draft policy was also recommending that some forms of horse-racing gambling be included in the National policy. There were also recommendations on bookmakers, limited payout machines and lottery in this draft policy.

Ms Scott informed the Committee that she took very seriously the directives from the National level. She also said that she would take up the Committee's offer of assistance and would be setting out in writing the issues that were most problematic. She was looking forward to working with the Committee. After the court case was concluded, she would report back, and hoped it would be a positive report.

The Chairperson said that  government had to find a way to tackle and regulate internet gambling as it was still in its infancy. The Committee was not here to promote gambling, but it did want to regulate it, and to try to get the best out of it, so that it would cause less harm.

Committee's Draft Strategic Plan: Consideration
The draft Strategic Plan was tabled and the Chairperson stressed that this was the Strategic Plan of the Committee, not the Department. Parliament had a template to be used by committees. Some of what was in this draft did not need to be changed and would not need much consideration; other minor changes included changes to wording or phrasing, or change of order of paragraphs.

 She reminded Members to look at it again over the recess, and the Content Advisor, Ms Margot Sheldon, would also work on it. Members who had suggestions or comments should convey them via the Chairperson and the Committee Secretary, who would pass them on to the Content Advisor.

Members considered and adopted the draft Strategic Plan, noting that it may be subject to further amendment after more consideration.

The meeting was adjourned.

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