Restructuring of Higher Education: briefing by Minister

Basic Education

18 March 2003
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Meeting Summary

A summary of this committee meeting is not yet available.

Meeting report


18 March 2003

Acting Chairperson: Mr R Van den Heever (ANC)

Documents handed out:
Briefing on Framework for Mergers and Incorporations
Model Memorandum of Agreement for Merging Institutions (Appendix 1)
Framework and Procedures for Financial Support for the Restructuring of the Higher Education System (Appendix 2)
Briefing by Minister (document is awaited)

The Minister of Education gave an overview of the progress and plans for the restructuring of higher education institutions. This included details of human and financial resources in place to assist the process. Discussion by Members focused on retaining and improving existing capacity, while ensuring that the institutions become more socio-politically relevant and culturally representative in a more equitable system.

Briefing by Minister
Minister Kader Asmal reported on the restructuring of higher education. The Minister said that there had been a significant shift in responses from higher education institutions and there was now general agreement with his Department's proposals to the Cabinet. Recent meetings with the university vice-chancellors' association (SAUVCA), the Committee of Technikon Principals (CTP) and other organisations had illustrated this. In addition, legal action by National Education, Health and Allied Workers Union (NEHAWU) and another organisation against the University of Durban-Westville had been withdrawn. There had been extensive consultation on the proposals before they were presented to Cabinet.

Mr BM Komphela (ANC) commented that the Interim Council (IC) could not be inclusive because students were not represented on it. He also stressed the need for the Department of Education to monitor the process in historically white institutions.

Minister Asmal said that institution staff would also not be on the Interim Council.

Ms MP Mentor (ANC) said that each institution was surrounded by an indigenous knowledge system (IKS). Was there a plan to retain this knowledge and ensure that no system could overwhelm any other system? She also asked for statistics on higher education institute's intake with respect to race and gender.

Minister Asmal said that each institution should carry its own traditions and that the process would have to be negotiated as opposed to enforced.

Mr LM Green (ACDP) asked whether the University of the North and Potchefstroom University for Christian Higher Education could retain a Christian culture if they both wanted that. He asked whether HEI's or the Department would drive language policy implementation.

The Minister said that the Department was working on setting up working groups for languages. He hoped that in 25 years time, one institution would be offering instruction in, for example, an Nguni language. He said it should be remembered that it took Afrikaans 30 years to develop. Some ambassadors were funding the teaching of French, German and so forth to Grade 10-12 learners.

In answer to the question of retaining Christianity, the Minister said that the institution could, if it was a negotiated agreement. One's own culture could be retained, as long as the validity of other cultures was also acknowledged.

Mr T Abrahams (UDM) asked how spending would be controlled if the Interim Council was to be independent.

Minister Asmal said that the Council would run for six months only and as it would not comprise staff of the institution, there would be no incentive to misspend, but the Department would make all decisions.

Prof SS Ripinga (ANC) asked whether students and workers were supportive of the merger process and whether the Merger Unit would deal with student and worker integration. He welcomed the re-capitalisation of University of Durban Westville, the University of Fort hare and the University of the Western Cape, saying that these institutions were more like high schools than universities. He also asked if there was a programme to develop local expertise to fill the places now filled by expatriates.

Minister Asmal said that contracts for workers would be transferred to the new employers and that the Department was negotiating towards a common framework. Less attention was paid to students, who were more transitory. He commented that some undercapitalised institutions were developed because of vainglory, incompetence or corruption; at one teacher education college, the old syllabus was still being taught. He acknowledged dependence on some foreign staff and said that South Africa's expertise should be developed carefully. Unitra, for instance, had 34 Cuban lecturers and technicians and would not be able to function without them.

Ms MA Olckers (NNP) asked how long the moratorium on appointing new staff would last, whether implementation would cost R3 billion over five or six years. She commented that it was petty of the Minister not to visit HF Verwoerd school because there was a bust of the architect of apartheid in the school foyer.

The Minister said that the country had come a long way in terms of reconciliation but it was still necessary to be sensitive to symbols. The moratorium on new staff appointments would be six months. The R3 billion budget was for immediate costs such as severance packages and so forth and the actual mergers would take place until 2004/5.

Mr LM Kgwele said that public participation in the renaming process should be commended; would it increase? He also hoped that the institutions' programmes would be geographically located.

Minister Asmal said that outreach programmes were minor and that more than 14% of the institution's budget should be for outreach work. There were no legal programmes for communities or assistance with school governing bodies, for instance, and this lack would be addressed.

Mr I Vadi (ANC) said that after 1994, many Indian students went to the University of Natal instead of University of Durban Westville and 90% of UDW's students were black. This was not real transformation or a change of values. He asked whether other publicly funded institutions could be Islamic or Jewish.

The Minister agreed that this "group areas of the mind' was a serious problem from nursery school up and that the nation had a long way to go before it reached maturity.

The meeting was adjourned.

Appendix 1:

This Memorandum of Agreement has been developed as a model to guide institutions that are to be merged. It identifies the key issues that should form the core of a Memorandum of Agreement. However, institutions should develop Memorandum of Agreements to suit their particular contexts and needs.

1. Preamble

The Minister of Education announced in December 2002 his decision to establish a single higher education institution through the merger of the University of ----and the University of ---- in terms of section 23 of the Higher Education Act (Act No 101 of 1997, as amended).

This Memorandum of Agreement is entered into by the two institutions to provide a framework to facilitate the merger.

2. Declaration of Intent

The University of --- and the University of --- declare their unequivocal intent to fully co-operate in an open, transparent and collegial manner to give effect to the decision of the Minister of Education to establish a single higher education institution.

3. Parties to the Agreement

The Councils of the merging parties, represented by their respective Chairpersons.

4. Purpose of Agreement

To facilitate co-operation between the merging institutions in the period prior to the date of merger, as well as to ensure that operational decisions by the merging institutions in this period do not adversely impact on the operational and organisational integrity of the single higher education institution.

5. Guiding Principles

The parties to this agreement commit themselves to the following principles to guide the merger process:

Full disclosure of information: The full, transparent, proactive and timely disclosure of all material information relevant to facilitate the merger.

Joint decision-making: All matters that impact on the operational and organisational integrity of the single higher education institution to be established will be jointly decided and determined. At a minimum, the matters identified in this Memorandum of Agreement would be the subject of joint decision-making. This would not, however, preclude joint decision-making on matters that are not identified in this Memorandum of Agreement but which the parties agree mutually should be the subject of joint decision-making.

Equal Partners: The equality of partners and the full participation of all institutional constituencies will inform and underpin the merger process.

6. Areas of Co-operation and Joint Decision-Making

The parties agree that at a minimum co-operation and joint decision-making should cover the following matters:

    1. Operational Functionality: To ensure that the single higher education institution is operationally functional on the proclaimed date of establishment, the merging partners must agree on processes and time frames, including transitional arrangements, for moving expeditiously towards integrated operations.

6.2 Staff Appointments: A moratorium on all staff appointments, in particular, senior staff appointments, prior to the date of the merger, unless there is prior agreement between the parties of the need for such appointments.

6.3 Staff Promotions: A moratorium on all staff promotions prior to the date of the merger unless there is prior agreement between the parties that such promotions are necessary for operational purposes, in which case, the promotions must be determined jointly.

6.4 Staff Remuneration: A moratorium on all out-of-cycle remuneration adjustments and/or increases. The normal annual remuneration adjustments and/or increases will be subject to prior agreement between the parties. The parties will endeavour to ensure that such adjustments and/or increases are guided by the objective of standardising conditions of employment in the single higher education institution to be established.

6.5 Renewal of Contracts: There will be no renewal of any existing purchase or service contracts and no new purchase or service contracts entered into without prior agreement between the parties. In cases where there is agreement that renewal of purchase or service contracts is necessary to ensure the continued provision of the service, the contract will be renewed for a period to be determined jointly by the parties.

6.6 Capital Expenditure: A moratorium on all new capital projects and expenditure unless there is prior agreement between the parties and, where applicable, subject to approval by the Minister of Education.

7. Co-ordination/Steering of the Merger Process

A joint co-ordinating/steering committee will be established by the Councils of the merging partners to oversee the merger process, including giving effect to this Memorandum of Agreement. The joint co-ordinating/ steering committee will consist of an equal number of representatives from the merging partners and will be accountable to their respective Councils.

The joint co-ordinating/steering committee will in-turn establish a joint merger office, which will be responsible for developing and managing the detailed processes necessary to give effect to the merger.

8. Communication

The parties commit themselves to establishing open, transparent and effective channels of communication to ensure that all institutional constituencies are fully appraised of all the processes and detailed investigations related to the merger.

Appendix 2:


The Department of Education is committed to providing financial support to the higher education institutions that will be established through the merger of two or more institutions, as well as to existing higher education institutions that are required to incorporate sub-divisions of other higher education institutions, as determined by the Minister of Education. The financial support provided will cover three distinct categories:

1)Funds provided to "re-capitalise" institutions that are "under-capitalised" and which have been identified for merger or incorporation. This will be done in terms of the formula outlined in Appendix A.

2)Reimbursement of expenditure incurred by institutions being merged or by the newly formed entity as a direct consequence of the merger, or by an existing institution required to incorporate the sub-division of another institution, and where such expenditure would not otherwise have been incurred.

3)Reimbursement of expenditure incurred to ensure that the merged institution or an institution involved in an incorporation will be operationally financially viable. Under no circumstances will recurrent operating expenditure be reimbursed.

4)Provision of funds for re-capitalisation and reimbursement of expenditures in terms of category (ii) and (iii) will be contingent on conditions and procedures specified by the Department, which is described below.


The term 'entity' used below refers both to higher education institutions that will be established through the merger of two or more institutions, as well as to existing higher education institutions that are required to incorporate sub-divisions of other higher education institutions.


All institutions involved in a merger/incorporation are required to produce an "institutional operating plan" for the entity. A summary of this plan must be submitted to the Department. It must contain details, including the effect of academic and institutional restructuring on academic and financial projections and on the operating and capital budgets for the first three years. Assumptions/bases on which the line items of income and expenditure have been estimated must be included.

As a general rule it will be necessary for the "institutional operating plan" for the entity to include operational budgets that demonstrate the achievement of at least a 'break even' position within eighteen months of the date of the merger or incorporation and is indicative that such financial viability is sustainable in the long term. The auditors of the new entity will be expected to comment on this aspect on the completion of their first audit.

Each such plan will require the approval of the Department.

The development of a satisfactory institutional operating plan is a pre-requisite for the provision of funds in respect of categories (i) and (iii) above, that is, funding for re-capitalisation of institutions and for reimbursement of expenditures incurred to ensure that the entity is operationally financially viable. The submission of an institutional operating plan is also a pre-requisite for reimbursements for any major extension/alteration to property, plant and equipment essential for the operational activities of the entity.

The Department recognises, however, that there would be direct merger costs that would be incurred by institutions prior to the development of an institutional operating plan, for which reimbursements would be required. For example, as part of the planning process institutions may require expert assistance from external parties to help with the formulation of decisions. There may also be costs involved in administrative re-organisation and harmonisation of policies and procedures, including the merging and aligning of information communication and technology systems and processes, etc. The following conditions apply in the case of reimbursements for these direct merger costs.

In each individual circumstance in which a liability is to be incurred for which reimbursement will be expected, the Department must be consulted and a project plan presented which details the nature of the expenditure and an estimate of the amount involved. Approval from the Department must be sought before any commitment is made. Once the expenditure has been incurred a claim must be submitted to the Department with supporting documentation certified by the institution's auditors including, where required, certificates from appointed architects or quantity surveyors.

In no circumstances will reimbursement be provided in respect of the financial effect of adjustments to personnel compensation or adjustments to tuition or residence fees. In addition, financial support will not be provided to upgrade the overall levels of functional services that have supported the managerial, administrative and technical facilities of the entities before being merged or the activities before incorporation, other than the upgrading of the levels of one to the agreed normal existing superior levels of operation and/or service of the other.

The categories for which financial support would be provided and the procedures for leveraging such support are elaborated upon in the sections below.


This will be calculated in terms of the formula outlined in Appendix A and based on audited data as at the date of the merger/incorporation.

The formula is intended to provide an assessment on the '"going concern status" of an entity in the short-to-medium term. The objective, in those cases where the resultant computation demonstrates that an institution is under-capitalised as a going concern, is to derive the quantum of funds necessary to bring the institution to a level of funding adequate for continued operations in the short-to-medium term.

The data that will be used to determine the capitalisation status of an entity will be based on audited financial statements as at the date of the merger/incorporation. If an audit is necessary out of the normal financial year cycle the cost of the audit will be included in the costs of the merger/incorporation as a direct merger cost. The calculation will be undertaken by the Department in consultation with the entity.

As indicated in section 2, funds provided to re-capitalise an institution is contingent on the development of a satisfactory institutional operating plan.


The following types of expenditure will qualify for reimbursement of direct costs of mergers or incorporations

4.1 Facilitation of Mergers/Incorporations

Merger or incorporation facilitation will comprise any external assistance in the form of professional and related services that are considered essential in the formulation of decisions about the creation of the new entity. This could include replacement support for existing personnel where justified. The facilitation services that will qualify for reimbursement must have been agreed in advance with the Department in writing as being essential in promoting effectiveness and efficiency in achieving completion of the merger/incorporation into an effective entity. Thus, for example, if considered essential, the professional/expert services in analysing and interpreting the financial and other conditions of the institutions to be merged/incorporated at the date of merger/incorporation and in advising on the processes, procedures, structures and strategies (financial and operational) for the entity will be reimbursed.

Certified copies of the contracts of engagement with these professionals/experts and their statements of account and copies of their reports must be submitted as evidence of the amounts expended.

4.2 Due Diligence Studies

When two or more corporate entities in the private sector decide to merge it is essential, for the protection of the proprietors, employees and customers of each, that the respective assets, liabilities, other obligations, the effectiveness of systems and controls in place and the effectiveness and productivity of the operations of each entity are accurately and fairly stated to the other parities. The consequences of misrepresentation create risks to the future enterprise that cannot be contemplated. As a result it is normal practice to engage competent independent professionals to undertake an investigation in respect of each entities to ensure accuracy and fair representation of these facts. Such an investigation is known as a 'due diligence study'.

In view of the financial back-up being provided by the Department of Education and the inter-institutional relationships that exist between institutions within the higher education sector, the value obtained from a "due diligence" study undertaken by outside professionals is not likely, in normal circumstances, to be cost justified. The Department is of the view that recent audited statements, an audited register of liabilities and other obligations, access to the 'management letters' arising from the most recent audit and engagement with the auditors of each institution concerned could provide the Department and the institutions concerned with a realistic insight into the accuracy of the records, controls and processes of an institution.

However, where there are justifiable grounds for assumptions that the representation in the books and records are suspect an investigation may be necessary. Such an investigation must be based on a defined brief of its extent and area of concern. A full motivation for such a study in respect of any entity to a merger or involved in an incorporation must be submitted to the Department for written approval in advance of any decisions being made in this connection. Certified copies of the contracts of engagement with professionals/experts to undertake the investigation and their statements of account and copies of their reports must be submitted as evidence of the amounts expended.

4.3 Administrative Re-organisation and Harmonisation, including Information Technology

In the period prior to the actual date of a merger or incorporation, the structures created to determine and oversee the preparatory initiatives must document the various steps that need to be followed in bringing separate management/administrative/technical functions into single effective and efficient operational entities. The costs arising from the agreed steps will comprise:

  • Costs arising from the re-design and implementation of systems and procedures, both manual and technological including the preparation of relevant manuals.
  • Accommodation alteration, additional specialised furniture and equipment and additions to telephone and computer networking facilities.
  • Equipment, software and the respective 'systems' for Information Technology, including the co-ordination of financial and other operational information systems including administrative and management information systems.
  • Design and printing costs for ''signage" and stationery for the new entity.

The Department will not be prepared to fund enhancements, e.g. replacing used with new and additional functional capacity over and above existing levels as measured at the better provided institution in a merger or incorporation.

All requests for financial re-imbursement for these direct merger costs must provide detailed itemised invoices or other appropriate documentation. This includes final statements and invoices from the party providing the service. The auditors of the new or incorporating entity must certify all such documentation.

It is to be expected that much of the work involved in the process of reorganisation and harmonisation could and should be done by existing personnel of the entities involved in an incorporation or merger. The Department will, under no circumstances, reimburse expenditures to outside contractors for work that could and should have been done by employees of the entities involved.

4.4 Extension/Alteration to Property, Plant and Equipment Essential for Operational Activities

The programs for any "major" expenditure (the definition of which will be determined in individual cases by the Department) on substantial extensions of or additions to Property, Plant and Equipment, must be submitted to the Department in advance of acceptance of any tenders for the work. Where the project is for the erection of a substantial building the financial grant commitment from the Department cannot be expected to cover the full amount involved and the Department will assist in facilitating access to loan facilities. Any such loans will need to be serviced by the institution in the normal way.

All funds requested from the Department in terms of these expenditures must be accompanied by supporting quotations, invoices and certification of architects and/or quantity surveyors and must include a certificate from the appointed auditors of the new entity.

In respect of building alterations, for each particular contract, documents need to be provided on the specifications issued in request for tenders from at least three contractors and the subsequent detailed quotations submitted, including the documented decision agreeing to accept a particular tender.

For any individual alteration in excess of R250 000, an architect and/or quantity surveyor's certificate approving the work done in terms of the documented specifications will be required.

4.5 Deferred Maintenance

During the preliminary investigations into the merger/incorporation, it may be apparent that there is a significant backlog of deferred maintenance of Property, Plant and Equipment in one or more of the institutions involved.

In accordance with the requirements of the Draft Regulations for Annual Reporting by Higher Education Institutions, the amount involved in eliminating such backlogs must be provided for as "additional depreciation" in the financial statements of any higher education institution. The formula for "re-capitalisation" takes into account the quantum of accumulated depreciation.

4.6 Application of Taxation Legislation

Any taxation legislation that is applicable to merged institutions or existing institutions that had incorporated the subdivision of another institution relating to VAT and Capital Gains Tax will need to be assessed and possibly, where the direct consequences of the merger/incorporation will attract taxation that would not otherwise have been incurred, relief will have to be provided. This aspect will have to be referred to the Department at the time when the initial aspects of the merger/incorporated are being considered as part of the institutional operational plan.


The following types of expenditure will be considered:

5.1 Retrenchment/Voluntary Severance of Staff

The decision by an institution to retrench staff or to offer voluntary severance packages may arise either from the restructuring/harmonisation processes and/or when one or other of the entities entering a merger or involved in an incorporation is in a financial deficit condition caused wholly or partially by, in its opinion, excessive personnel resources relative to its income. As a consequence, its management might conclude that the re-aligning of the staff establishment is an essential urgent action if it is not to be financially burdened with the consequential risk to its financial stability.

The retrenchment or voluntary severance processes and conditions must, to the extent that financial support is expected, be negotiated with the Department. It should be noted that the Department will reserve the right of input in the terms of the retrenchment/voluntary severance packages, subject to legal obligations as well as previously negotiated terms and conditions. Reimbursement of the costs thereof will be limited to not more than two weeks salary per year of service.

Any contribution to the "top-up" to any "defined benefit" retirement fund or to accumulated leave will be assessed in relation to the disclosure, as required in the financial statements, of these liabilities and the effect thereof on the computation of the "re-capitalisation amount".

The state contribution in this regard could, depending on circumstances, comprise an outright grant or a grant in instalments over a period of time.

5.2 Other cost saving measures

Any other measures designed to reduce costs to make an institution financially viable must be referred to the Department before implementation and the basis of reimbursement of expenditure arising there-from, agreed upon.


The payment of amounts due to institutions will be dependent on the "roll out" of funds by the Treasury. If funds are not available when amounts are due to institutions, the Department will endeavour to assist institutions in obtaining access to short to medium term borrowing (of the particular amount). The interest on such loans will be refundable by the Department.





Current Liabilities* - General X 1,6

- Current portion - non-current X 1,0

- Extra-Ordinary X ,05 - 1,0

- State Guaranteed X 1


Less Current Assets X 1 Sub-Total

Plus Non-Current Liabilities **

State Guaranteed X ,015

Extra-Ordinary X ,05

Other X ,125


Less Non-Current Investments

Marketable at realisable value X ,75

Public Investment Commissioners X ,015


Depreciation provisions

Aggregate depreciation provisions X ,05

Equity Funds

Trust & Endowment Funds X ,75

Plus Restricted Funds X ,5

Capitalisation Measure R +/- ________

Institution undercapitalised (+) Institution adequately capitalised (-)


Current Liabilities*:

    1. Extra-ordinary items, i.e. amounts included for previously unrecorded liabilities such as 'accumulated leave' or 'post retirement benefits, will be included, but the level of weighting will not exceed 1 and, depending on circumstances, may be as low as ,05
    2. The reasoning for including such amounts in 'Current Liabilities' will have to be justified in each case
    3. The current portion of non-current liabilities will be not be weighted
    4. Any amount included for 'Deferred Income' will be excluded from the calculation
    5. Creditors arising from transactions that qualify for reimbursement, as above, will be excluded from Current Liabilities
    6. The balance of 'normal/trade' current liabilities will be weighted 1,6
    7. Audited detailed schedules of this item will have to be provided

Non-Current Liabilities**:

Non-Current Liabilities that are designated as 'extra-ordinary', for the same reasons as indicated above, will be weighted at 5% instead of 12,5%


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