Department of Public Works on its 2014/15 Annual Report, with Minister

Meeting report

Opening Remarks
The Chairperson recognised the presence of the Minister of Public Works, Mr Thulas Nxesi, and his 18 people delegation, as well as a representative from the Auditor General’s office. He expressed disappointment at the presence of only two committee members at the start of the meeting and after waiting for an additional five minutes, invited the Minister to lead the meeting.

Introduction by Minister of Public Works
The Minister, Thulas Nxesi, started with apologies from the Deputy Minister as well as the Director General. The Department has seen consistent and gradual success over the past few years and that, although there is still a lot to be done, improvements are being achieved. The Department has been in contact with Treasury and is consistently trying to make improved changes in updating leases and other related activities and to continue with the successes that have been seen in the Department. Successes include:
▪ Creation of six million Extended Public Work Programme work opportunities
▪ The operationalisation of the PMTE
▪ Operationalisation of the new governance risk and compliance grants
▪ Many policy reviews to commit into the Public Works Act
▪ The transformation of the building environment.

These are all linked to the nine outcomes of the Medium Term Strategic Framework (MTSF). The Department thinks that it is important that they carefully analyse what has changed since this time last year so they can see what needs to be different. The Minister is of the opinion that they now need to focus on the following:
▪ The new solar priorities and commitments
▪ The implications for where public works is expected to deliver
▪ Development of the business environment in which public works operates, particularly the construction and property sectors.
▪ The MTSF outcomes
▪ The fundamental implications to separate Property Management Trade Entity (PMTE) from the Department – which remains under the oversight of the Department.
 
It therefore is important that the Committee is aware of the changing environment and the policy priorities for the Department and PMTE. As a Department, they have moved from the Stabilization stage to a second stage that they refer to as Efficiency Enhancement. The Minister handed over to Mr Paul Serote [seconded from Kago Solutions and Advisory to head the PMTE].

Department of Public Works 2014/15 Annual Report: briefing
Mr Paul Serote, PMTE Head, started with an introduction of the 18 member DPW delegation. He said DPW has a constitutional mandate in Schedule 4 (Part A) to brief national parliament on its processes. The mission of the department is to provide quality accommodation and related services to their clients, efficiently and effectively managing the immovable assets in the department’s custodianship, actively contributing to the national goals of job creation and poverty alleviation, provide expert built-environment advice for stakeholders and strategic leadership to the South African construction and property industries.

The priorities of the Ministry are extensive. In 2012, a diagnostic report of the National Treasury revealed allegations of fraud and corruption, National Treasury approval for PMTE not implemented, lack of adequate service delivery to user departments due to slow delivery of accommodation and poorly maintained accommodation, incomplete immovable asset register, lack of stability in leadership positions, and negative audit outcomes. The Ministry developed plans and actions for realignment. The most highlighted of these was the seven-year turnaround plan which was guided by the Technical Assistance Unit (TAU) in National Treasury. They also developed a strategy to operationalise the PMTE separating the regulatory function of the Department from the implementation function of the PMTE. He outlined the steps they were going to take to implement this.

The Department does show improved audit outcomes since 2012. For the whole Department, in 2012 the audit outcomes were at a Disclaimer level, this moved up to Qualified in 2013 and this is now at the Unqualified level for the 2014/15 financial year. PMTE has also seen improvements – moving from Disclaimer to Qualified in that same timeframe. Improvement do still need to be made but success has been seen as the Minister said. Performance highlights are outlined in the presentation.

Not all targets were reached however. Information fields on the DPW Immovable Asset Register populated 32 677 properties out of the target of 56 871 (GRAP complaint), 180 projects out of 542 were completed within minimum prescribed variance, and 33 out 51 buildings were made accessible. However, all 51 Land Ports of Entry were maintained across the country. The Spatial Development Framework was approved as part of Inner City Regeneration to ensure integrated development planning across spheres of government. A total of 9 429 retrofitting installations for energy efficiency, 11 buildings retrofitted with water savings installations, 91 buildings were retrofitted with waste management systems, 180 Smart Meters have been installed in various buildings as a means to contribute to energy efficiency initiatives, a client survey index was developed to gauge the level of client satisfaction with the services delivered by DPW and 1 851 maintenance issues for Prestige accommodation were resolved within five days of logging a complaint. Many other performance highlights were outlined on the presentation.

The appropriation statement of the department shows an underspending on goods and services, underspending on infrastructure projects, underspending on machinery and equipment (which will be used to offset high spending in Programme 1: Administration), underspending due to vacant positions that were not filled until the latter part of the financial year, underspending due to lower than projected expenditure on travel and subsistence and outsourced services. Explanation of the actual spending, can be found in the presentation.

The financial statement shows a R6 million increase in unauthorized expenditure due to the honoring of contractual commitments on projects. There were improvement on prepayments and advances compared to last year, decrease in staff debts, increased outstanding debt in the Construction and the Services SETAs from R7.7 million last year to R14.6 million this year, and increased South African Institute of Architects (SAIA) debt from R5.6 million to R8.1 million in the same timeframe. Reduction in the budget allocation and the balance unspent at the end of the financial year led to the reduced funds being surrendered. Also, refunds from PMTE as an outcome of reconciliations received in the month of March 2014, were surrendered later. No refund was received in 2014/15. There was a R61 million bank overdraft due to surrendered funds during the year.

Discussion
After noting that the large delegation was unnecessary, Ms P Adams (ANC) went on to congratulate the department on the improved audit outcomes of both the Department and PMTE. As PMTE receives 75% of the budget, it is DPW's responsibility as the father figure to see that audit outcomes of the PMTE get better as soon as possible. She showed some concerns about target setting, saying the Department needed to start setting more realistic targets. She referred to slides 20 and 5 to demonstrate that, in the past, the Department had made unachievable goals. The rest of her question was in Afrikaans which the Chairperson translated. She said that because of the scarcity of water and the electrical challenges in the country, DPW will need to expedite going green in appropriate buildings. She also referred to the DPW vacancy rate, saying that a number of people are employed in positions where they do not have the correct skills. This is a serious concern to address. She showed concern about the underspending and warned that if it is a regular feature, underspending invites lower funding from the Treasury. Finally, Ms Adams said that there are two provinces that did not fulfill certain requirements and she asked what the National Department was going to do to assist those provincial departments. She was also concerned about the linkage with regard to immovable property registers.

Ms A Dexter (DA) addressed the first two aims of DPW mission which are a) to provide quality accommodation to clients and b) to efficiently and effectively manage the immoveable assets. She referred to these as the heart of the Department. Now, PMTE must manage that. The restructuring is not really complete and she is concerned that this poses a huge risk to the implementation of these two mission goals. She asked for a response. Her second question was on leases. She conceded that the department had seen some successes with these but that there still seems to be irregularities as reported by AGSA earlier that day. What is the Department going to do about that? Third, she asked about the assets register. The Department has made great progress on this –the last report was that it is 90% complete. But it seems it is not quite so simple though. They have a list of the properties so they can say which properties they have and where they are. This is not good enough. They have to value the properties in order to comply which is not being done. When do they intend to finalize this? On the 1 582 vacancies, she said that this remains a concern. Most of these vacancies are in the immovable asset manager section and the technical departments. This needs to be addressed. Finally, she spoke about corruption and the consequences for this. There were a total of193 resignations in the last financial year. How many of these resignations are because of disciplinary hearings? She is concerned that individuals resign to avoid hearings and then pick up a different government position elsewhere. People who are found guilty, do not face any punishment – they should. Otherwise, government and Parliament are going to have a really hard time getting rid of corruption. She also asked to see SAIA 2014/15 annual report.

Mr K Sithole(IFP) commended the work done by the Department. He did, however, have concerns about the underspending where found in Administration, Immovable Asset Investment Management and the Expanded Public Works Programme. He said it was a crisis because people are looking at the work of Public Works which should benefit the country. He also said that they cannot just be okay with the overdraft either. The Committee had requested the Department to keep an eye on this in the past. Can the Department explain what happened? What went wrong? Transformation in the Council for the Built Environment (CBE) needs to happen, otherwise there is no real improvement. Also, what kind of disciplinary actions are being taken against corrupt officials? If none, that is a sign of no improvement as well. What mechanism strategies are being followed?

Ms D Mathebe (ANC) also commended the Department for a job well done. She did need a few things clarified though. Programme 3 shows an underspend of 21 million. South Africa has a lot of unemployment and government cannot afford to underspend. It is not right for government to have R19.1million for vacant posts. She is concerned about the green building policy, specifically energy and water. South Africa is facing a huge challenge now because of load shedding and the country does not have water as a commodity and there is a German company helping with that. Is not there a South African company that can help with energy renewal? On page 19 of the presentation, the Department shows an improvement in payments to suppliers within 30 days. Yet, there are still some clients who are complaining about late payments. She complained that the Committee does not have a complete register of assets. She needed clarity on why that was. She has been asking for three years for a list of all the properties that DPW owns inside and outside the country. So far, there has been no delivery on that from the DPW.

The Chairperson asked about Ernst & Young who were employed to work on the asset register. Ernst & Young is a private company and he conceded immediate concern because the company has to be trusted with very sensitive government information. There must have been some kind of non disclosure contract. How was it done? Who did it? What was in it? What is the non disclosure period? Also the report says that this financial year, about 124 people retired, what is the Department doing to replace them? What is the Department doing to ensure that when people leave, the Department is not left at a disadvantage? Are there any kind mentoring lessons given to the people remaining in the Department before this retirement? Regarding contingent liabilities, there is an item in the presentation relating to labor relations with an amount of R219 000. What labor relations issues are there and what is being done about them?

Minister Nxesi responded to Ms Adams about the delegation being too big. He explained that the Department needs to be able to answer all questions – that is why they bring all the deputies. He agrees that PMTE audit outcomes have to improve. But, there has been a lot of progress, as outlined in the presentation. Depending on what happens with the property rates, the Department might never get a clean audit. It is not just up to the Department but also up to the billing system of the municipalities. Some municipalities do not even have the capabilities for proper billing. However, it is not the responsibility of the Department to provide them with those capabilities and they cannot fix the issues if the municipalities do not.

On the Greening Programme, the Minister said that it is mostly with the Department of Energy. It is an expensive programme and the Department of Energy has the funds to handle it. The Department of Energy is at a stage where they are putting a programme together and trying to work with DPW in that process. Regarding Ernst & Young, there has been a quest to give jobs to small companies, but it is never anything substantial and technology is constantly changing. Companies like Ernest & Young are not running the programme, they are just helping until there is a proper national policy. Regarding Ms Dexter’s comment about taking the heart out of the body, he said that it is really just water under the bridge at this point. They have looked into a mode of running it. They need highly professional individuals here because the Department has been forced to put it aside so that they can recruit the proper skills. The problem with filling vacancies is because they have to get it approved with the cabinet and the committee. Also, most of them are technical. Sometimes the Department is competing with the private sector. The young people they train are out looking for more money as soon as they are skilled and trained. The private sector definitely pays more. The public sector cannot compete with that. They can offer some incentives but that is hardly enough to make the difference. They are running the PMTE as a different division, not necessarily outside the Department altogether.

Mr Serote commented that with respect to immoveable assets, it has been a huge project to get it to the position it currently is at. The target is still 31 March 2016 for having the process completely compliant. They are in the process of attaching municipal values to these properties - they are at 60% currently and have attached municipal values totalling about R78.1 billion. Regarding the verification process, they have gone through different phases of this. The first phase was to go into the records and find out which immoveable assets belong to government and the second phase is to physically verify them. They have made good progress.

Regarding the question about foreign properties, the foreign properties are on the asset register of the Department of International Relations and Cooperation and will be on its schedules. On managing sensitivities about using an external consultant, there are specific security protocols required and they do the best they can to include those in the contract. Regarding greening, GIZ is a German government company funding the Department of Energy process referred to by the Minister earlier and it is assisting with the pilot identification and finalization of the frameworks and policies. But also to develop clear plans on how to implement and accelerate the greening process. The Minister also mentioned that there is work that they are doing but there is a specific plan responding to the issues of urgency that the MPs addressed.

The Chairperson concluded there are still lots of questions and said this should not just be an annual event – it should happen more often. He said these questions should be kept at bay until the next meeting.