The Committee was briefed by the Road Accident fund (RAF) and the South African National Roads Agency Limited (SANRAL) on their annual reports for 2015/16.
The Committee was disappointed to hear that the AG had reported that the RAF had regressed, because over the years the RAF had been the shining star amongst the parastatals. The regression had been explained by the AG as the billions of rands shortfall due to the RAF processing more claims while the fuel levy was fixed. Almost all of the R31 million in fruitless and wasteful expenditure was related to delays in the payment of claims. Unfortunately, in performing the writ and legal cost processes, there were instances where the RAF was not as fast as the process required, and the interest billed where they had not complied with the process accounted for the R31 million. It should be remembered that this was 0.09% of the RAF’s expenditure. There had been R10 billion worth of payments that the RAF had been unable to make. This had accrued interest of R150 million.
Committee Members were disappointed to hear that the CEO was not going to remain at the RAF when his term came to an end. Concern was expressed whether the RAF would be able to fund its future obligations, since it had accumulated a shortfall of R110 million. Its operation as a going concern was a problem, because expenses were far greater than income. Bogus funerals were raised as an issue that needed a fresh approach from the RAF. Members asked about the challenge of third party claims, with lawyers getting lawyers to defend themselves; whether one could plan for fruitless and wasteful expenditure in the budgeting process; predicting cash requirements; how far the RAF went with the rehabilitation of claimants; the worst and best experiences with its “RAF on the Road” programme; what the RAF felt it had to do to become more effective; if its marketing system for awareness was effective; the RAF’s approach to addressing skills shortages; and how it envisaged working with stakeholders.
The Committee was concerned about the lack of progress with the Road Accident Benefit Scheme Bill and was informed that it was still at the cluster level. A caution was issued that if this Bill came too late, it might not be passed. The somewhat tenuous relationship with the Department of Health was explained, as it wanted the RAF to pay them for services rendered, while nine times out of ten, the biggest impediment was the statutory medical report that the RAF could not get from them.
The SANRAL reported that it had received an unqualified audit report, with emphasis of matter, one of which was related to the cash flows from the Gauteng Freeway Improvement Project (GFIP), and this remained under stress. Concerns raised by the Auditor General (AG) that SANRAL’s benchmark process for awarding tenders had resulted in irregular expenditure, had led to a change to the whole system. However all Routine Road Maintenance (RRM) contracts ran for three years, so this would be the last year that irregular expenditure would be reported.
Members asked if measures had been put in place to improve on reliable performance reporting, which had been raised by the AG as problematic; why so much money was spent on advertising; for more information on the scholarships and bursaries and a breakdown on where they were allocated; clarity on the AG’s criticism that the SANRAL had been slow in responding; money restrictions from the fiscus; whether the SANRAL had a checklist regarding compliance requirements; where community projects were located and what criteria were used to identify communities; what happened to board members who failed to disclose their interests; transformation; Moody’s rating; and an update on the Winelands toll road judgment.
The Committee was concerned about the Gauteng Freeway Improvement Project (GFIP) and its the cash flow situation, which was raised as an issue by the AG. What was the SANRAL planning to do about the situation, in consultation with the Gauteng government? Another concern was the possible downgrade following the reduced ownership in the Electronic Toll Collection (ETC) company, with the withdrawal of Matemeku Investments from the consortium with Kapsch.
The South African Maritime Authority (SAMSA) did not attend the meeting, claiming it had not been informed timeously.
The Chairperson said that when the Auditor-General (AG) had said yesterday that the Road Accident Fund (RAF) had regressed, it brought a stabbing pain to her heart because all the years the RAF had been the shining star amongst the parastatals. However this should not deter the RAF, as when one has always been perfect, a little black spot on one's reputation should not detract from an overall good record.
The Chairperson of the RAF Board, Dr Ntuthuko Bhengu, introduced the RAF team and asked the Chief Executive Officer of the RAF, besides making the presentation, to also explain some more about the AG’s statement that the RAF had regressed.
Road Accident Fund: Annual Report
Dr Eugene Watson, Chief Executive Officer: Road Accident Fund Board, said the four points of the presentation were the business overview; the 2015/16 outcomes, challenges and conclusion.
He said there had been a shortfall of billions of rands, and the Treasury knew this was due to processing an increased number of claims when the fuel levy had been fixed. With fruitless and wasteful expenditure of R31 million, R28.5 million of it had been related to claims. The RAF Act said that a claim should be essentially paid immediately, but within 14 days of it being finalized, interest accrued. The Public Finance Management Act (PFMA) said that one had 30 days to pay. Court rules stated that payment had to happen immediately, or as per the court order. There were also rules around legal costs, which essentially said that payment was due immediately. Hence if one did not pay immediately, one ran up interest costs. There was R10 billion worth of payments that the RAF was unable to make. This amount accrued interest, which was the R150 million shown in the income statement. Because one did not pay, the Sheriff came with 15 000 warrants of execution. In real terms, this was 57 per day, because some creditors demanded payment.
Despite those risks, the RAF had policies and procedures, which mandated and necessitated that staff checked what had to be paid, once finalised. They had checked 17 000 bills of cost, and on 16 741, they had found that the bill was inflated or not accurate. By performing this process -- which took some time – they had saved R1 billion. So the RAF had paid an extra R1 billion by reviewing the legal costs and saving that money. It was R400 million more than the year before, so the team had been more effective in identifying savings on legal bills and costs than in the year before. Unfortunately, in performing the writ and legal cost processes, there were instances where the team was not as fast as the process determined, and the interest that was billed where they had not complied with the process, was what informed the R31 million. So when one saw R31 million for fruitless and wasteful expenditure, it should be remembered that it was 0.09% of the RAF’s expenditure.
Two key challenges for 2015/16 -- besides the fact that the RAF was still R10 billion short -- were:
* Seriously insufficient cash resources -- writs, legal costs, interest payments, converted direct claims and disrupted operations were both frequent and significant; and
* A sharp growth in the net deficit – a direct indication of the unsustainability of the current dispensation and a clear marker of the extent to which the business would need additional cash resources as claim liabilities were monetised.
Dr Bhengu said that to drive the point home, the RAF shared the disappointment of the Committee that the RAF had regressed, but the Board understood that the performance of the RAF this past year was better than the previous year. In terms of the new classification regarding fruitless and wasteful expenditure, the RAF business model meant that the RAF would never qualify for a clean audit, and that was just the business model that it had, but if asked about saving the R1 billion, and not having a clean audit, what decision would it take? The RAF would support the decision the management made every time. He hoped the Committee would not be too disappointed with that.
This was Dr Watson's last presentation, as he had opted not to renew when his term expired in July next year. Dr Watson was thanked, and his efforts were appreciated. The RAF was one of the best performing parastatals out there. He left a new management team that was all women.
Mr M Sibande (ANC), after hearing that the CEO of the RAF was not going to extend his term, asked if there was leeway for the CEO to extend his term for another five years.
Dr Bhengu said that Dr Watson would qualify for another five years in terms of the Act, but it was entirely his decision. The Board would have loved to retain him. Regarding how it knew about the non-renewal of his contract at this point, the RAF took the issue of succession planning very seriously. It would be a loss, and he was pleased the Committee was trying to apply pressure on him. He had proved himself to be the right person, as he had proved himself. The board would do its best to continue his work.
Mr Sibande (ANC) said the AG's 2014/15 report had raised two crucial issues about the RAF. One was about the uncertainty around whether the entity would be able to fund its future obligations, since it had accumulated a shortfall of R110 million. The second was the financial reporting framework. These had been the two areas of emphasis mentioned by the AG. The issue of the shortfall of money had come up again. He asked what was in place to correct this.
Dr Watson replied that there was no easy solution. The going concern was a problem, because expenses were far greater than income. It would mean giving the RAF six or seven times more money than it currently had to fund the current dispensation. The alternative would be to reduce what the money was spent on, so the two of them matched. That was the answer to the going concern. The straight accounting solution would be to capitalise the business and provide R145 billion worth of assets, which would then earn interest and cover the organisation. This had not been done as far back as 1981, and this was why there was a deficit.
Mr Sibande said that it had been raised that funeral costs had dropped. The contributing factor could be that the new approach had managed to minimise bogus funerals.
Dr Watson said that there certainly were a lot of challenges with funerals at the moment. What the RAF had done a year and half ago, was to introduce a panel of funeral parlours for claimants who wanted the RAF’s help, or if there was a mass accident and an immediate response was necessary. Claimants still had the right to choose an undertaker of their choice, but if asked for assistance from the RAF, they would use the panel.
Mr Sibande said there had been a challenge of third party claims in the past, with lawyers getting other lawyers to defend themselves. He asked what the status of this was at the moment, and if it was still happening. He asked further for comment on groups opposing the RAF.
Dr Watson replied that this had been covered, as litigation was part of the RAF Act. Litigation was a real part of the RAF dispensation, and it was the largest defendant in the country. In every court, at least half of what was dealt with would be RAF matters, so trying to make it efficient was an important and on-going reality. On attorneys suing each other; this used to be popular, but it was not as prevalent as it used to be.
With regard to groups opposing the RAF, Dr Watson said that one could not stop stakeholders from opposing or supporting the RAF. The RAF's job was to implement the strategic plan and to attempt to meet the targets of the seven strategic objectives.
Ms S Xego (ANC) congratulated the team on the awards that they had received. She referred to the fruitless and wasteful expenditure of R31 million, and asked if the RAF could provide for this in the budgeting process, because over the years it had learnt that there were these types of costs. She asked if these could not be located somewhere so that this type of qualification would not be given at the end of the financial year.
Dr Watson said that one could not really budget for fruitless and wasteful expenditure, and the important point was that there was a policy and there was a procedure. The R31 million was where the RAF had not done the work within the process requirements, although the work had been done. This had to be worked on continuously, because it was something that would continue.
Dr Bhengu said referred to the uncertainty regarding future obligations and the huge liabilities, and said obviously the long-term solution was for the RAF to be regularly in touch with the Department of Transport for support in talking to the National Treasury.
Ms Xego said that since the RAF mandate was to compensate as a result of an accident, given the unpredictable nature of this, the RAF could not be 100% sure that it was going to have enough money or that there might be a shortfall. This required a plan, otherwise the situation would remain like this.
Dr Watson replied that on predicting cash requirements, the RAF actually did this reasonably accurately. Unfortunately, if productivity rose higher than expected, then the budget got thrown out. It was known how much money the fund needed. The R10.6 billion shortfall accounted for in the Annual Report was a little lower than the R11 billion forecasted two years before. The forecasting was reasonably accurate, but the issue was whether it got the extra money, and the RAF was not the determinant of that requirement.
Ms Xego asked about rehabilitation, and how far the RAF went. The pictures shown to the Committee gave hope that something was being done. This was under post-crash care. She asked how far the RAF went with a patient.
Dr Watson replied that this was a very good question, although attention in the RAF dispensation was to the pay out. Shortly after this, everyone would forget who the claimant had been. The RAF had a team of case managers in hospitals, and a team of case managers at home. On an annual basis, they did 8 000 home visits, assessed 3 000 new people -- a total of 11 000 visits. There were 167 000 people who had certificates of undertaking (with about 5 400 people who used it) and about 3.5% of those spent R375 million on rehabilitation care. One very sad reality about rehabilitation was that the RAF did not provide for all of it. Because the law focused on wrong doing and fault, the extent to which one was negligent would determine the extent to which the RAF paid. For example, 50% negligence yielded a 50% payout. It was found that once the pay-out money was finished, people did not have the money to pay their portion. The RAF also had hospital case managers, treatment plans and one or two provider networks where people were sent to get rehabilitation.
Ms Xego asked about the lessons learnt from the 'RAF on the Road' programme. Some of this had been explained, but she asked the RAF to share the worst and better incidents.
Dr Watson said the best was just reaching people, because one realised how difficult it was for people to afford to come to the RAF, and he thought the Committee knew this, as it was the case for all public entities. The best for him was just going to people. The second lesson was that people did not need to see you all the time -- one just had to go regularly and then the objective could be achieved.
Dr Watson said that the worst was seeing a lot of neglected people, seeing fraudsters and opportunists. With some unsavoury activities, the RAF often had to get intermediaries when people did not want the RAF in a town and issued threats, but the RAF remained undeterred. It had developed its own queue management system. This was another success for 'RAF on the Road.'
Ms Xego acknowledged that the RAF had reduced the backlog, but where the report referred to 35% of direct claims, did this mean that the rest were people who were represented?
Dr Watson replied that 35% of new claims were direct, which meant that attorneys represented 65%. The history of the RAF meant that people almost always believed that one could claim only through a lawyer, so five years ago, when 15% of claims were direct, it meant that 85% came through an attorney. Fewer than 1% of direct claims would be represented by an attorney.
Ms Xego asked what the RAF felt it had to do more of to become more effective.
Dr Watson replied that he did not think it was simply marketing. Access should be promoted, and people should be told what the RAF was about. People should be enabled to claim.
Ms Xego said that for 2011/2012, 15% had been shown as ‘Direct Claims Originated'. She asked if this meant more awareness had to be created for people to come directly to offices. She asked if the programme 'RAF on the Road' created enough awareness.
Dr Watson replied that the growth showed confidence in the institution. This was people making their own choice. When 35% of people chose you, it meant you were on the right track.
Mr G Radebe (ANC) said that Dr Watson had left a legacy at the RAF, and if were up to the Committee, then they would have asked him to re-consider his thinking and extend his term. He thanked him for his services to the country and hoped that he would still continue to do so. His question related to policy alignment, where it was stated that RAF payment had to comply with the PFMA requirement of making payments in 30 days. If the court gave instructions to make payment now, did the courts consider that the PFMA had to be complied with? The Department of Justice and Constitutional Development could be engaged with to consider this matter.
Dr Watson replied that the RAF Act was the base. It stated that interest accrued from day 14. The courts determined the payment due date. The courts and plaintiffs had actually responded to the 'RAF' reality. So there had been many plaintiff attorneys who had accepted a longer period before the cash was paid out. Some would reject it, and settle for a shorter period. Others would reject it and demand immediate payment. The RAF had heeded Treasury's call, and its administrative date for suppliers was less than 30 days.
Mr Radebe asked what ‘the provision of the claims incurred but not yet reported’ meant.
Dr Watson replied that this meant that the people had been involved in accidents, but had not yet lodged a claim.
Mr K Sithole (IFP) asked if the RAF’s awareness marketing system was effective, because lawyers made a lot of money. What system did the RAF have? In the report, it was stated that ten communities had been visited. He asked for the provincial breakdown.
Dr Watson replied that the RAF marketing system was not sophisticated -- it just tried to stick to the objective, and that was access. It was about telling people what the RAF was and to help them find it. The RAF had realised that mainstream media was very expensive, so it was using a lot more community media, which was cheaper and reached more people. People could then actually respond on a factual, purpose-driven basis. The RAF was always available, and this was the value of access. It went to areas where claimants were located to make sure it provided access, and located people.
There were victims of every intermediary in the RAF dispensation, and the RAF was always available, and this was the value of access. Many communities had been visited through 'RAF on the Road' -- even the poorest and far flung areas in all provinces. If the Committee knew of any place that the RAF had not been to, then the place names could be forwarded to the RAF, who would meet and decide how to arrange this. However, the RAF always looked at its data set first, as it did not go to areas where it did not have claimants.
The Chairperson commended the RAF on its report and said that it was a sad day for the Committee as it was just saying that the RAF was one of the best in terms of the parastatals and it was losing its CEO. The RAF had spoken about developing its skills. She asked for the outcomes in the RAF in terms of what skills it had and what was it looking for -- was there an oversupply or undersupply of certain skills?
Dr Watson said there were almost 1 000 legal graduates who worked for the RAF. The organisation was a litigious structure, so the bulk of staff members were from the legal fraternity. It also had a lot of corporate disciplines for post-crash care and rehabilitation - nurses, physiotherapists, and even a doctor. There were a few other disciplines also coming through. The RAF did not have an over supply of skills, but at this stage the legal base was at its maximum. The RAF did need a lot more administrative staff.
With regard to the RAF's approach to scarce skills, it did have a policy approved by the Board. It had a few policies which addressed areas like remuneration, retention plans, career pathing and succession management, but the its approach to scarce skills was that it had a retention allowance. It did have salary scales and a guideline on how to apply them based on the skills and the market attractiveness of an individual employee. It was also working on a salary progression policy with the SA Transport and Allied Workers Union (SATAWU).
The Chairperson commented on the provision of wheelchairs, which assisted a lot of people with disabilities. The Department of Social Development did this too. There was now talk that the RAF was occupying their space -- that the RAF could send some people to Social Development to be registered to get their benefits there, and make sure they got wheelchairs and medical assistance.
Dr Watson said on post crash supplies, this had been answered by the Chairperson, but one often had people who dipped more than once. One often found someone who had a set of crutches from the RAF, Department of Health, national and provincial, the municipal clinic -- plus the social worker from the Department of Social Development. The laws at the moment did not prohibit the RAF from doing that. There were court cases where one could not factor in the grant support for families. This was definitely a homogenous environment. The policy work on comprehensive social security was becoming more and more urgent to prevent this, as one actually lost a lot of money through people playing the system.
Dr Bhengu said that with reference to the Chairperson's question about disabilities and the charges of encroachment on other areas, the issue here was that the RAF was doing what it was supposed to do in terms of its mandate, but it was certainly mindful that there was scope to co-operate with other departments. For example, when doing 'RAF on the Road', there was attendance by the South African Social Security Agency (SASSA), the Department of Home Affairs, the SA Police Service (SAPS) and the Department of Health.
The Chairperson asked how the RAF envisaged working with stakeholders that they could complement. There should be a co-operative relationship.
Dr Watson said that recently - two weeks ago - the RAF had had a meeting with the Unemployment Insurance Fund (UIF), the Department of Social Development, and the Compensation Commissioner, to discuss exactly that. The RAF interacted with them nationally, provincially and at local government level, and were at each other’s events, hence they did meet and interact. The Department of Health was looking at how to pay for medical expert reports, to expedite the process. The Department of Health wanted the RAF to pay them for services rendered, so that the relationship would be more tangible. To add some credence to his input, the RAF had established a stakeholder relations team that had managers to look at social security, to formalise those relationships. Overall, the RAF had 41 agreements with stakeholders – memorandums of understanding and agreement (MOUs and MOAs) -- to basically describe how to interact with each other on a formal basis.
Ms Xego said she was concerned about the working relationship with the Department of Health, because this was where the victims suffered most. The frustration was that doctors sometimes took a long time to fill in the forms. Claims were often delayed because of the Department of Health, so the RAF could play a mediating role between the two.
Dr Watson replied that claimants had huge problems with the Department of Health on statutory medical reports, and there was continuous engagement with the Department about it. Ironically, it wanted the RAF to pay them for services rendered, and nine times out of ten, the biggest impediment was the statutory medical report that the RAF could not get from them. The RAF had introduced measures to pay for them, as some hospitals charged for the form itself to retrieve the records. The RAF was intervening, but ultimately the solution would be to actually hire and pay supplier healthcare providers to just go and do it for the benefit of the claimant.
Mr Sibande asked if there was a programme to fast track satellite offices in hospitals. He asked further if there was any data to consider vast populations.
Dr Watson said the RAF had assessed satellite offices in hospitals. There were between 4 000 and 5 000 hospitals in South Africa, and the RAF was never going to have an agent at every hospital. It also needed the buy-in of the facility and the hospital CEO, to give the RAF space. One of the unfortunate realities of being a public entity was the compliance burden. It would be nice to go ahead and speak to the hospital CEO and establish a hospital office, but then the compliance team would say: what about Occupational Health and Safety (OHS) requirements? This created an on-going struggle that the RAF frequently encountered. The RAF was looking now for the location, rather than the number. To fast track it, the RAF was looking at choosing an office in the best facility where one saw a lot of accident victims.
Mr Mathabatha Mokonyama, Acting Director-General (ADG): Department of Transport, said he wanted to deal with issue of the going concern in terms of accounting and auditing. What was coming out very clearly – because the Department was definitely talking to the Treasury – was that bodies like Parliament, which had the responsibility to appropriate funds, had just indicated that this deficit was not decreasing, it was increasing, and these were matters that had to be taken care of carefully during budgeting. The reality was that close to eight times the current of revenue was flowing to the RAF to try and not only clear the backlog, but also to try to breakeven. There was an RAF benefit scheme that the Department was proposing, in which there were curbs and standard payments. There was a very important need to solicit Parliament through the Portfolio Committee, to look into this very seriously and support the Department. The RAF deficit continued to grow, and this had gone beyond the Executive. Hence the Department was in Parliament now, because this matter had to be taken very seriously. There was a need to have another meeting with the Auditor-General (AG) to understand what happened.
The Chairperson said that she thought the ADG was going to tell the Committee how far the Department had progressed in terms of the Road Accident Benefit Scheme Bill that Dr Watson had indicated the National Economic Development and Labour Council (NEDLAC) had processed, and which Parliament was eagerly awaiting. There had been several people who wanted to engage with the Bill. She asked for an indication as to what was happening with the Bill.
Mr Mokonyama said that the Bill was coming. It was now at the cluster level. Once it was handled there, it would go to Cabinet, and this was the last leg. The Department had broad agreements at NEDLAC and other areas, but there were powerful people who would fight it all the way. However, the Department was ready to meet them at the battleground. Those were the professionals that the doctor had spoken about. One could see how much they were taking out of the system. That was what they declared, these were the ones who kept the money for the victim and got interest from the money.
The Chairperson cautioned that the Chairperson of the National Council of Provinces (NCOP) had already indicated that it became a very problematic situation when a Section 76 Bill arrived towards the tail end of every session. This was the Fifth Session of Parliament, so there had been an indication from the NCOP that if it came in the middle of next year, there was a possibility that the NCOP would not process it because they still had to go into the community to do the public hearings properly. The courts had already turned down several bills because there had been no proper and sufficient engagement with communities. She was pleading with the Department to bring the Bill so that it could be dealt with, and then the NCOP would have ample time to deal with it. She said this was homework for the Acting DG.
Ms Yolande van Biljon, Chief Financial Officer: RAF, referred to the issue of the entity as a going concern, and said the process of securing longer-term solutions to fruitless and wasteful was very difficult. The RAF did the best it could to manage the in-year situation. This meant extensive reporting and disclosure. The RAF also engaged with the Treasury, the AG, the Department of Health, and even the Department of Monitoring and Evaluation, on a consistent basis to manage the situation.
The RAF implemented plans on a daily, monthly and weekly basis. It did forecasts and had extensive plans in dealing with various stakeholders to keep them aware of what the RAF was doing, so it was really about visibility and accountability that accompanied the money it had, and transparency and fair treatment thereof.
The RAF’s governing mandate was the RAF Act, so the RAF was not governed in terms of the Companies Act. The RAF Act spoke to its inability to pay, and what happened then. This was typically dealt with in Section 21 of the Act. However, it brought its plight to the awareness of Treasury - whether it was through regular or special submissions - that indicated the RAF's status and latest requirements.
The Chairperson thanked the RAF, as it assisted strugglers and showed that it was possible to have a good state-owned enterprise. The RAF was passionate and committed, and their work was appreciated.
South African National Roads Agency: Annual Report
Mr Koos Smit, Acting CEO: South African National Roads Agency (SANRAL) said that the SANRAL had received an unqualified audit report with emphasis of matter. The issues under emphasis of matter were related to the going concern matter that was mainly due to the cash flows from the Gauteng Freeway Improvement Project (GFIP), and this remained under stress. Cash reserves were sufficient to sustain the entity for more than12 months. The AG did take this into account when they evaluated the going concern. The other issue the AG highlighted was that the SANRAL did not recognise the alternate tariff as revenue. The SANRAL recognised the standard tariff. The AG said that the SANRAL made a judgment call to say that it did not recognise the difference.
Ms Inge Mulder, CFO: SANRAL, said that under procurement in the audit report, there had been a few small housekeeping issues identified by the AG. All of these had been addressed and details had been provided in the annual report of each of the items, and what they involved. It was critical to understand that there was no fraud involved in any of them. The Treasury regulations changed on a weekly basis, and housekeeping issues were extremely difficult if things changed so often. The SANRAL ran 300 different projects at any given time, and it was difficult to change one's whole system at short notice.
There was one employee who had not disclosed an investment in a property company, and this had been addressed.
On irregular expenditure, in the past the SANRAL used a benchmark process where there was a statistical sample to determine what the lowest acceptable price should be, and then the tenders with the price that was closest to the lowest acceptable price would receive the highest points. The AG regarded this as irregular expenditure, so the whole system had been changed. However, all routine road maintenance (RRM) contracts ran for three years, so this would be the last year that irregular expenditure would be reported.
Mr Smit said that contracts in SANRAL were all competitively procured and the cost of contracts awarded on non-toll roads was R11 billion.
Ms Alice Mathew, Company Secretary: SANRAL, referred to the comments from the AG regarding objectives not achieved. She said that the first key performance area (KPA) not achieved was under the first strategic objective: managing the national roads effectively and efficiently. Out of the 11 targets achieved, the one not achieved was capital expenditure (CAPEX) on the strengthening of roads, because of the new regulatory approval requirements. Those projects were on-going now -- it had been in March that they were delayed.
The other KPA not achieved was under strategic objective number 3: government targeted programmes. It had created 15 721 jobs, which was three-quarters of what the SANRAL had wanted to achieve. This was because the toll project programme could not go according to plan because of the poor collection on the Gauteng Freeway Improvement Project (GFIP).
The AG had raised one issue that it may have also discussed with the Committee. This had been on the second strategic objective of providing safe roads. There had been no problem with the actual reporting of the KPA or the target achieved, but it was in the description of the KPA -- where the SANRAL had to identify, investigate and provide remedial measures on road safety -- where the definition of how the SANRAL identified road safety projects, was not clear in a supporting document. This was why the AG had said that that KPA was not useful, yet it was reliable, so 33% of that strategic objective had not been useful. Out of 37 KPAs, the SANRAL had achieved 35.
Mr C Hunsinger (DA) commended SANRAL for having achieved 35 out of 37 KPAs. However, the AG had mentioned it as one of the entities where there had been a regression in the area of reliable performance reporting, particularly in the areas of not being specific in terms of being time bound and verifiable. He asked what measures had been considered to improve the situation, since it had been presented as a consecutive regression.
Ms Mathew replied that in the performance report of last year, on the third strategic objective of ‘Transformation of Reporting: How the SANRAL did in terms of the award of contracts to empowerment companies’; the SANRAL had made a mistake. When the AG found that mistake, they had reported it as a material error. That had been the only finding for 2014/15. This year, all the reports had been correct, but there had been one mistake in the way the targets were defined on page 111; ‘number of hazardous locations for pedestrians identified and investigated, for which remedial measures were proposed.' The finding had been that the SANRAL did not have in its supporting documents exactly how it identified the projects for road safety improvements. The SANRAL had explained to the AG that it was a road safety cluster with experts who based it on the numbers received from the police, etcetera, as to where there were hot spots. That was how those projects had been undertaken. The AG said that the performance targets should be specific and clearly identify the nature and required level of performance, and a total of 33% of the targets were not specific. It was just one out of the 37 KPAs that the AG had said was not specifically defined.
Mr Hunsinger said that the Committee had just had a presentation from an entity that was in a desperate situation in terms of cash flow, and observed that in the field of expense budgets, SANRAL’s advertisements accounted for 65% of the whole Department of Transport’s budget for advertisements. The DOT's budget was R280 million, and SANRAL had budgeted R175 million for advertisements. He asked why the SANRAL found it necessary to advertise to that extent. He did not think it was necessary to advertise to that extent.
Mr Smit said that all tendering that went out was advertised, as it was compelled by regulation to do so. There was no other way to fight misinformation, except by doing just that.
Mr Hunsinger asked the SANRAL to react on the big concern on ownership and companies being dealt with. He alluded to the Kapsch TrafficCom contract. It was good that there was a foreign company that had the expertise and engaged with a black economic empowerment (BEE) company, Traffic Management Technologies (TMT) Services and Supplies. Matemeku Investments owned TMT, and had a 51% share in the Electronic Toll Collection (ETC) Company. At some stage, Kapsch had mentioned that €50 million would be part of the benefit of this compilation of companies that incorporated ownership from South Africa. Sadly, the South African component of this venture had decided to pull out. He asked if this meant that millions of SA rands had gone to Europe or Kapsch. Did this mean the control and ownership was fully foreign? He asked further how this decision would affect the fear of a ratings downgrade.
Mr Smit said that there was no difference between the operations contract done by Kapsch and any other contract. It had gone out on a competitive tender. There had been line items in it, and they had been paid according to the line items for people appointed by Electronic Toll Collection (ETC) in South Africa. The payment that went from SAMRAL to the ETC, or Kapsch, had been based on a tender with line items that had a rate at which it was tendered.
Ms Mulder said that Kapsch was in the ETC consortium, and ETC was still a South African-registered company. There were only two foreigners out of the approximately 100 people who worked there. When one spoke about income going to Austria, the only thing that could go to Austria was Kapsch's share of dividends that came out of ETC. ETC South Africa's income may consist only of their services rendered to SANRAL.
The bill of quantity -- as Mr Smit had explained – was where there was a tariff for everything that they did. So their own income was only as a result of the services they provided and the only portion that could leave the country was the shareholders dividends. She said in terms of Moody's rating, they did not consider it a risk at all.
Mr Smit said that the N17 had to do with the maintenance of roads going through towns. There were maintenance agreements in most cases, and the SANRAL did the maintenance of national roads going through to a town.
Ms Mulder said that ETC was a service provider to SANRAL. For example, whether it bought computers from Siemans internationally, it had the same impact. If it was a service provider to SANRAL, its risk was based on whether that entity could sustain their business within SANRAL and the contract made provision for this.
Mr Sibande said one of the matters of emphasis raised by the AG was the issue of compliance. He was unsure of this, but there might have been an instance where an independent consulting firm had been appointed by the Accounting Authority to perform an investigation into an allegation of possible misappropriation of entity assets.
Ms Mulder said that with regard to the case of the misappropriation of funds and the appointment of an independent consulting firm, she was not aware of this and asked for more details from Mr Sibande.
Mr Sibande asked for more information regarding scholarships and bursaries, and for a breakdown as to where they had been allocated.
Ms Mathew said the SANRAL had a scholarship team and worked with the Department of Education. It targetted rural areas and went round the country with a road show. There was a form on the SANRAL website for anyone to use. The road show with the Department of Education served as a guide in terms of awarding scholarships. Right across the country, one would find students from very rural communities doing scholarships with the SANRAL. It had very good examples of students who had received scholarships and were now working within the organisation. The Committee would be provided with a list of areas from which the students had come.
Mr Sibande for clarity about the AG’s criticism of the SANRAL, that it had been slow in responding.
Ms Mulder replied that a meeting had been held with the AG, where they had asked what was meant by a 'slow response,' because one had only three days to respond to any finding, and those deadlines had been met consistently. The AG had indicated to the SANRAL that if there was a repeat finding, they would say the leadership was slow in responding to address that finding.
Mr Sibande asked for clarity about money restrictions by the fiscus.
Mr Smit replied that the SANRAL had two sources of funds, and one was allocations from the fiscus. SANRAL was working on a three-year rolling programme called the MTEF (Medium Term Expenditure Framework), and this was on a motivational basis. Over the years, the SANRAL had been aligned to close the gap through the “user pay” Principle. The SANRAL had been fairly successful in funding that sort of shortfall of 15% through this principle. Over the years, a backlog had built up, and SANRAL did not have the money to eat into it. It would need another R16 billion added to its current funding levels over a period of ten years. That was why SANRAL had listed large projects that could be tolled.
Mr Sibande asked if the SANRAL had a checklist regarding compliance requirements.
Ms Mulder assured the Committee that the SANRAL had very comprehensive checklists and checked for compliance against all regulations with its internal auditors. There were rare occasions when minutes of a meeting were not signed by everyone, and then those things were brought to the fore. There were investigations to ensure that there was no fraud, and whoever had been responsible for any slip-ups went through a disciplinary hearing.
Mr G Radebe (ANC) asked how far the infrastructure programme had progressed, and how the entity was affected by benchmark crude oil price trends.
Ms Mulder said that whatever was spent in South Africa had no effect on that price. Whether the SANRAL spent more or less was purely based on the price of crude oil. It had no control over that price, but was hugely affected by it.
Mr Radebe asked about SANRAL’s community projects, and where they were located. What criteria were used to identify communities?
Ms Mulder referred Members to slide 23, which showed the total of 80 projects, and promised to provide a full list of where those projects were located. One of the performance targets was to identify 12 new projects every year. The SANRAL had community projects right across the country, and the regions represented were indicated on the slide. The list would be provided to the Committee.
Mr Christopher Hlabisa, DDG: Roads Transport: DoT, said that the management of SANRAL had been instructed to show the Committee the previously disadvantaged people who were engaged in their projects, because when one looked at contracts that were being awarded, this was not evident. The Department had started engaging with contractors directly, wanting to know why they were shying away from tendering for SANRAL projects. One of the things they had said was that the documents were very complicated, and the Department had then instructed management to work with the contractors to make sure that it was easy to access work at SANRAL. This process was continuing. This was mentioned because this was quite a transformatory agenda and was being closely monitored. This involved not only the maintenance contracts, but even the construction contracts.
Mr Radebe asked for clarity about the Moody’s credit ratings, and asked if they were similar to the World Bank’s.
Ms Mulder replied that when an investor wanted to invest in any company, it did its own due diligence of that company, and decided on how much it would pay for a share, or they would rely on a credit rating. There were international credit agencies, and one was Moody's. They were independent credit analysts. When there was a downgrade, it indicated to an investor that the risk of this company had changed, so there was now a bigger risk. Those levels were predefined for them, so if one went beyond a certain level it was regarded as a sub-investment grade, meaning that one should not invest in this area. This did not mean that no one would invest. Some investors were speculators, but the issue here was about the price. The bigger the risk, the higher the price was. If SANRAL was ever downgraded, its cost of borrowing increased tremendously.
Mr Radebe asked for clarity about the ratings.
Ms Mulder replied that SANRAL reported in their financials in terms of the International Financial Reporting Standards (IFRS). The IFRS determined one's financial policy. It determined the way one measured. The cost model was in terms of IFRS – which meant what one paid for it as opposed to fair value, which was market value.
Mr Radebe asked what was happening in terms of the Winelands judgment regarding the tolling of the N1 and N2 highways..
Mr Smit replied that the high court judgment was on appeal and had gone to Bloemfontein. The judgment had gone against SANRAL, and the board was currently considering the way forward. The next step was to go to the Constitutional Court and defend the matter there.
Mr Hlabisa said that with regard to the Winelands issue, the 180 days had come and there had been no response from the City of Cape Town. After three years, it had complained about the same project. In terms of the legislation, it was clear that a complaint had to be lodged with an objection to the project in 180 days. This had never happened. The Department had had a very good meeting with the legal team on this project yesterday, and the Department was convinced that it needed to pursue the matter in the Constitutional Court. If this were not done, it would mean that most of its roads across the country would be compromised. The fiscal framework did not have the money to fix all the roads, let alone address the maintenance backlog. How else was it going to expand the network if these kinds of issues were raised without being challenged? The Department would challenge this in the Constitutional Court, and it would win the case hands down. Many people would not like this, but this was the way the Department, together with SANRAL, was going to deal with the situation.
Mr Sithole asked about transformation.
Mr Smit replied that the SANRAL had a transformation policy in procurement, which had been approved by the board. It was not a once-off document, but a living document. As it moved along, it made adjustments to see how it could maximise the participation of black players in this market. If one thought about it, R14 billion per annum was a lot of money to spend, and in law the SANRAL was compelled to follow the Preferential Procurement Policy Framework Act (PPPFA), where generally the price would count for 90% in the bracket that it was operating in, as it was working on the 90:10 principle, with preference points which were based on a particular company on the scorecard. This determined the preference points at the end. The difficulty was that one could not set aside work for smaller companies. The solution for the SANRAL was to unbundle the projects, and put out smaller projects for the smaller players to work on. Unfortunately, a big company would then come and take it just because the SANRAL could not set it aside, so it tried to do other things to try to create the market for smaller players to grow into bigger contractors by doing joint ventures.
Mr Smit said the SANRAL did management contracts, and community development was one of those where one would get a management contractor, or a contract manager who was the main contractor, and there was a sub-structure where small, medium or micro enterprises (SMMEs) would do the other work. They would also go through a tendering process to learn how to do it. If one looked at the gradings of the Construction Industry Development Board (CIDB) from one to nine, what the SANRAL really wanted to achieve was to split its work up in such portions that it could actually grow the smaller players, and also give enough sustenance to the bigger players to stay in the market. The important thing was to apportion the work so as not to create gaps.
Ms Mulder said the Committee had asked for clarity about the transformation levels. These were split between management and the rest, and would be provided to the Committee.
Mr Sithole asked what happened to the disabled at SANRAL.
Ms Mathew replied that in the SANRAL's equity plan, it had a target for disabled employees. Right across all its offices it had employed disabled people. In the next report, the number of disabled people would be included.
Mr Sithole asked about targets and actual completion times for roads.
Ms Mulder said that the SANRAL did have targets, and roads were built according to projects that had a start date and an end date. Projects were normally completed within three years.
Mr Sithole asked what had been put in place to deal with board members who failed to disclose all their interests.
Ms Mathew said that all the board members had to disclose their interests once a year in writing. Before every board and committee meeting, they had to disclose their interest if such an interest existed in relation to the agenda. Similarly, all SANRAL employees -- management and those involved in any shape or form with procurement -- had to provide disclosure annually, and at every procurement-related meeting, they also had to disclose any interest.
Mr Hunsinger referred to the annual report page 144, and asked what ‘property plant equipment under concession’ meant.
Ms Mulder said that Purchasing Power Parity (PPP) under concession was a standard that was issued by the International Reporting Standard which said, for example, that if one had an asset that was under concession, there was a way to report it, and it had to be reported separately. There was no difference between property-planting equipment – which was roads – under concession, and roads that SANRAL owned because SANRAL owned all 29 046 roads. But in terms of International Financial Reporting Standards (IFRS) this asset was under concession. The value that was reported there was the re-valued value. What happened from one year to the next, for example, was that the road itself had been improved and therefore the value increased, or the road had deteriorated and therefore its value had decreased. The value measured with the re-valuation of market conditions determined whether the land was worth more or less, and for this financial year the market valuation of the land itself had changed tremendously. So property-planting equipment was the roads and this was split between the three concessions, and the SANRAL had the rest.
The Chairperson asked about the Gauteng Freeway Improvement Project (GFIP) and what the SANRAL was thinking about doing in this situation, given all challenges on this model. What was SANRAL thinking about doing, in consultation with the Gauteng government? What were the critical things that should be taken cognisance of as legislators with regard to the GFIP?
Mr Hlabisa replied that the GFIP was a matter between the government of Gauteng, the National Department of Transport and SANRAL. This project had been initiated by Gauteng Province some time back, so the Department had been very surprised when they were on their own when this matter reached this kind of discussion. The Department would continue to work with the National Treasury, the Department of Transport and SANRAL, to fund and contribute towards promoting the campaign for people to come back and pay, at the same time making sure that the government of Gauteng also joined. They were signatories to the new dispensation of 60%, so he did not know why now there had been a change of heart all of a sudden. This matter was being pursued at government level, so it was hoped that all parties would be 'singing from the same hymn book' and would honour the obligation that was on the table.
Mr Mokonyama, Acting DG, said that the Department was not appealing for the sake of appealing. It had weighed the options and was taking legal advice. Where the legal advice said ‘appeal’, this would be done. As a shareholding department, one should always have an interest in legal matters affecting state owned enterprises (SOEs). All players were working together and weighing the options.
Ms Xego said that the Committee should speak with the AG after this meeting so that they could communicate their experience with the entity, and discuss the answers to their questions. She complained about the expenses incurred in producing the Annual Report.
Ms Mulder said that because SANRAL had local investors investing in their bonds, it used the Annual Report as its prospectus. It did have expensive reporting requirements, but the biggest cost was the 500 copies it had to send to Parliament.
The Chairperson thanked the SANRAL, and said the Committee’s concern was about service delivery to the people of South Africa, and to make sure that economic and social issues were addressed. The roads were an important part of this process. She said she had thought that Members would comment on the fact that the Moloto Road was finally under construction.
Non-attendance of South African Maritime Authority (SAMSA)
Mr Mokonyama said it was unfortunate that it looked as if the South African Maritime Authority (SAMSA) was nowhere to be found. He had contacted the SAMSA, who had said that they had received the invitation late. All the information about this meeting had been sent to the Acting CEO and the Personal Assistant. The Acting CEO was out of the country. The Company Secretary had said they had got to know about this meeting only yesterday. The Acting DG said the Department would find out who was responsible for this and deal with the issue. He apologised on behalf of the Department.
The meeting was adjourned.
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