SAMSA & PRSA on their Annual Performance Plans

Meeting report

Briefing by Ports Regulator South Africa (PRSA)

Mr Mahesh Fakir, Chief Executive Officer (CEO) of PRSA, mentioned that the Regulator derives most of its alignment from Outcome 6 of the Medium Term Strategic Framework (MTSF) which in turn aligns with the infrastructure chapter of the National Development Plan. The entity received a clean audit report from AGSA for the 2014/15 as well as the 2015/16 financial years. However, there were a few audit findings by the AGSA that needed to be addressed. The AGSA identified that in some cases target was not achieved but was reported as achieved and the root cause of this was that there was no review of performance information report to ensure that reported performance is supported by evidence. The financial performance information report had been reviewed by management and audit committee before submission. The Annual Financial Statement that was submitted for audit did not comply with reporting standards. The AFS was reviewed by IA, AC and Regulator.

Mr Fakir pointed out that the Regulator managed to achieve 100% of the targets in the 2016/17 APP. The major indicators achieved was the delivery of the tariff assessment Record of Decision (ROD) 3 months before the deadline, publishing a new multi-year Tariff Methodology, and the asset valuation project that was initiated after 3 unsuccessful  processes. There are a number of challenges that had been faced in executing the mandate and these included:

• Budgetary constraints to expand mandate
• Additional baseline funding has been received but results in a R6 million drop between 2016/17 and 2017/18 and a slow ramp up to the outer year
• New funding model as per legislative amendments  is required to capacitate the Regulator  and implement programmes successfully and sustainably
• Capacity-19/27 organogram posts filled-too small for the enormity of the task, as compared to other SA Regulators
• Need to strengthen the Regulator’s power within the Act as well as enable a new self-funding model that reduces fiscal reliance

The new targets for Annual Performance Plan (APP) 2017/18 focused on the implementation of the new Tariff Methodology and monitor the implementation of the tariff strategy and develop a comprehensive training course on Economic Regulation within the ports sector. The Regulator is also planning to review Broad Black Based Economic Empowerment (B-BBEE) agreements and concessions to ensure compliance. The Regulator is also aiming to conclude Memorandum of Understandings (MoUs) with other regulators in the country. The National Ports Act of 2005 is the main legislation affecting operations of the Ports Regulator. There is a need for greater transformation in the ports sector focusing on the review of B-BBEE. The Ports Act amendments need to be passed with the ability to impose penalties. The Regulator submitted the proposed amendments and penalty clauses to the Minister and Department in the previous financial year. There are also presentations that have been completed on the proposed funding model, which had been sent to the Committee in the past. The Department is expected to finalise its position on the amendments to the Act, and take this through parliamentary process in the 2017/18 financial year.

In conclusion, Mr Fakir highlighted that the Regulator currently relies solely on transfers from the fiscus to finance its operations, as per the provisions of the National Ports Act. The strategic plan and the APP for 2017/18 has identified areas where the Regulator aims to improve efficiency of regulation. This however, requires additional funding to appoint more employees. The Regulator relies on human capital to perform its function since the operations are more analytical and administrative in nature. The funding model when it is approved, will present some relief to the fiscus in that the Regulator will be able to sustain itself similar to other regulators that charge regulatory fees. It is estimated that only 0.3% to 0.5% of the regulated entity’s revenue will be required as a regulatory fee in order for the regulator to be sustainable.

Discussion

Mr C Hunsinger (DA) requested more information on the tariff assessment review that was done as this was not explained in the presentation. The presentation only spoke about the delivery of the tariff assessment ROD 3 months before the deadline and the publishing a new multi-year Tariff Methodology.

Mr M Sibande (ANC) asked about job creation and whether there was a specific reference by the President on the role of the Regulator on job creation. It would be important for the Committee to get more information on the establishment of the STER and whether the Regulator was meeting the target. What are the concrete steps that had been taken to deal with the problem of insufficient capacity? It was unclear if all the vacant posts within the Regulator had been filled as the CEO complained about insufficient capacity. What was the proposed funding that would assist the Regulator to be self-reliant? It had been indicated that there are also presentations that have been completed on the proposed funding model to the Committee of the previous years. The Committee should be provided with the exact year in which this was presented to the Committee so as to know the specific Committee that was responsible.

Mr L Ramatlakane (ANC) also wanted to know the exact year where the proposed funding model was presented to the Committee as he was new to the Committee. There is clearly displeasure from the Committee about the delay in approving the proposed funding by the Department and this was something that the Committee should be provided more information. What was the progress that had been made so far on the funding model of the Regulator? What was the opinion of the Board on the funding model? The Committee should be provided with more information on whether the tariff increase was closely related to the shortfall in funding. The assumption is that Members would also be provided with the content of the amendment of the Act in order for this to be discussed with the Committee. 

Mr T Mulaudzi (EFF) firstly commended the Regulator for achieving a clean audit and then asked about the role of the internal audit committee in dealing with other issues that had been flagged by the AGSA. The Committee should also be briefed on whether the internal audit committee was effective in dealing with the audit findings that had been highlighted by the AGSA. It would be interesting to hear about the number of Board, special and sub-committee meetings that had been undertaken per annum and the cost involved in having those meetings. There are cases where the huge chunk of the Regulator’s budget is being used to pay for meetings. The Committee should be provided with more information about insufficient funding and whether this was something that could be dealt with in the upcoming Budget Vote of the Department. There is no strategy in place in the new APP about ways in which the Regulator was serious about establishing a new funding model. Why was this not on the plan as it looked like an important matter that could sustain the Regulator.

Mr M De Freitus (DA) asked about ways to overcome the problem of insufficient funding and capacity as the two are interrelated. It would be interesting to hear from the Regulator whether there was any legislative review that would be undertaken to enforce compliance.   

Mr Fakir responded that the Regulator identified problems like insufficient capacity and funding as potential risks and this did not mean these were problems that were currently being experienced by the Regulator. The Regulator was therefore not saying it had lost credibility as it was well respected but there is a potential risk of losing credibility. The Regulator did not have the funding to fill in all the vacancies in the organogram. The Regulator can only fill 19 out of 27 and this was primarily because of lack of adequate funding. The Regulator would like to propose a new organogram which is larger than the current one so as to be in line with other regulators like the Independent Communication Authority of South Africa (ICASA) which has far more people and is able to do more things. Ports Regulator is the Regulator of the National Ports Authority (NPA) and therefore it was the one that owned everything including port terminals and entrances and everything in the infrastructure. The Regulator was the one setting the prices for NPA as a monopoly in order to ensure that there is fairness to the prices that are being charged to customers. The tariffs did not go to the Regulator as PRSA is funded completely different from the tariffs. National Treasury is the one that allocates money to the Regulator through the Department in order to be able to operate effectively.

Mr Fakir clarified that the Regulator would not need to raise tariffs if the infrastructure is being used effectively. The amendment to the Act will be pushing for NPA to ensure that the port infrastructure was being used efficiently so that the Regulator will not need to raise tariffs so as to compensate for the loss of productivity. The Regulator appreciated the commandment in achieving a clean audit and there was a hope and optimism that the Regulator will get one again this year. It must be explained that although PRSA is treated as a Board it is in fact a Regulator and the Act is clear that the Regulator may have as many meetings as possible as long as required. In essence, there is no limit on the number of meetings. The Regulator does meet at least twice a year although sub-committees may meet more times than that. The number of meetings is usually published in the Annual Report and the Regulator was in a process of drawing out an Annual Report by the end of May and this would be send to the Department.

The Regulator was looking at the compliance of NPA on B-BBEE agreements and there was an individual who was responsible for that within the Regulator. It must also be highlighted that the Regulator had collected a sample of compliance certificate of all operators including Transnet, Ports Terminals and so forth.  This is to determine if these operators complied with B-BBEE. It must be pointed out that the Regulator complied with B-BBEE compliance requirements but the focus was now on whether the sector as a whole was moving in the right direction in this regard. The funding model was presented to the Committee and this was in 2014. The presentation was really to alert Members that this funding model would have to become part of the legislation to be addressed and there was nothing that the Committee was supposed to have done. The Act is clear at the moment that the Regulator did not have the power to levy a charge on the entity that was being regulated. The reason the funding model was not written in the APP was precisely because this would firstly require legislative change in order to be effected. The Regulator had already done enough work in proposing an amendment to the Act and therefore it was now up to Parliament to make the final decision.

Mr Fakir replied that the funding model was basically saying that the Regulator should not only rely on the fiscus in order to operate but should also rely on the entities that are being regulated. The Board came up with the amendment and then passed it on to the Minister of Transport for further action. The amendment to the Act will not only allow the Regulator to charge the regulated entities but it will also allow the Regulator to charge the operators for non-compliance. In essence, the amendment to the Act will greatly improve the powers of the Regulator. All the maritime branch of Transport is considered as stakeholders. The Regulator had already held road-shows and open meetings in four cities on the Tariff Methodology. The Regulator is not the one responsible for the creation of jobs but whatever plans in place for the operators should be in line with the objective of job creation and stimulation of economic growth as highlighted in the SONA 2017. The MTSF is the distillation of National Development Plan. The target for STER was in the MTSF. However, it must be explained that this was not the target for the Regulator but the responsibility of all the people who are listed on the delivery agreement of MTSF. The Regulator would like to appreciate Members for the kinds of questions that had been asked as it was good to hear the questions and concerns that had been flagged. 

Briefing by South African Maritime Safety Authority (SAMSA)

Mr Sobantu Tilayi, Acting CEO of SAMSA, indicated that the revenue of the entity increased from R321 million in April 2016 to R379 million in March 2017 – this improvement was due to the tariff adjustment. Over the same period, the expenditure declined from R354 million to R319 million and this was because of the austerity measures that were implemented. The total number of fixed term workers has been managed down by converting contract to permanent employees. The total number of employees decreased from 320 last year to 286 as from March 2017 although the entity will continue to grow in the technical areas. There were currently five ships on the Ship Register but one ship was deregistered and two were newly registered. There are about 3 302 seafarers on the Seafarer Register. The number of new seafarers was reduced from 283 in 2016 to 117 and this was due to lack of funding of Agulhas.

Mr Tilayi mentioned that SAMSA’s mandate was expanded in 2007 to include the regulation of marine activities on South Africa’s inland waters which covers the administration of inland small vessel regulations, which includes the activities of inland water vessels inspections, licensing, surveying, safety promotion and awareness, accident investigation, development of examination standards, certificates of competence and being the authority to award certificates of fitness. SAMSA has also been tasked with the responsibility for monitoring ships traversing South African waters and ensuring their safe navigation at a distance for purposes of securing the country and its territorial interests. The strategic goals of SAMS included to improve organisational resources and capabilities from 2016/17 baseline to level 5 by 2020, reduce the incidence of reportable marine casualties in South African waters over the years 2015 and 2020 and strengthen governance of South Africa’s Maritime transport  from a developing (2) level to a mature status (5) by 2020. SAMSA also aimed to maintain the low level of the incidence and impact of marine and air pollution by vessels in South African waters over 2015-2020.

Mr Tilayi stated that the AGSA had findings on the predetermined objectives, including the reported performance information for Maritime Safety, Environmental Protection and Maritime Sector Development Programmes. There was also a concern on issues of reliability on the reported performance information for Maritime Security Programme. SAMSA Corrective Actions Implemented to address the findings on PDO`s by designing an Audit Improvement Plan on Performance Information. All SAMSA 17 Indicator Technical Description Sheets were signed off. SAMSA updated its 2016-17 APP to address issues of Usefulness on the Programme Indicators.

The AGSA findings on finance identified a number of concerns included expenditure was incurred in excess of the approved budget in contravention of section 53(4) of the PFMA. It was also concerned that effective steps were not taken to prevent fruitless and wasteful expenditure amounting to R5 687 000 as required by section 51(b) (iii) of the Public Finance Management Act (PFMA). Goods and services of a transaction above R500 000 were procured without inviting competitive bids as required by Treasury Regulations 16A6.1. SAMSA Corrective Actions Implemented to address the findings on Finance and these included a tracking document for Fruitless and Wasteful expenditure has been developed. In addition, a submission for consequence management has been made to the Board for approval. The amounts were disclosed as irregular expenditure. A consequent management submission has been made to the Board for approval.

Mr Tilayi highlighted that there were number of key strategic challenges that had been identified and these included:

• Maritime Enforcement Resources - The entire capacity to respond to incidents was outside the control of SAMSA, which includes the emergency tug, pollution control vessels and helicopter capabilities, remain a huge constraint on the effectiveness of the maritime safety and pollution capacity of SAMSA.
• Underfunding of Sea Watch and Response operations (MRCC) since 2009
• Lack of technical skills capacity -This impacts both the industry and SAMSA as they are both reliant on the seafarer pipeline for technical skills
• Outdated and slow ratification of legislation - There has been very slow progress in processing some of the conventions, protocols, bills and subsidiary instruments
• The communication infrastructure (Sea Watch & Response) is obsolete. This exposes the country to risks
• Support and better cooperation by other Government Departments and Governmental Agencies to support Industry Development

Discussion

Mr Sibande commended the presentation as it was detailed but expressed concern about the problem of unfilled vacancies. It was concerning to see that Mr Tilayi had been in an acting position for so long now. The Committee previously indicated the need to popularise the maritime industry as this was something that was critical important. What was being done by SAMSA to popularise the maritime industry especially focusing on provinces outside coastal regions. It was deeply worrying that the Regulator was still operating under old Acts that are going as far back as 1950s. What is the relevance of these old Acts to the current operation of the Regulator?

Mr Mulaudzi also appreciated the presentation that had been made by SAMSA as it was detailed and covered a number of issues. The Deputy Minister had previously indicated that the Regulator would have a programme of training young people in 2015. What was the progress that had been made on this programme so far? The Committee should be provided with information about the number of black companies that own ships as a way of promoting transformation within the sector. What was the new system that was being used by the Regulator so as to operate efficiently and optimally? What was the strategy in place to deal with people who were still using boats on our oceans without any license or permit? He wanted to know about what had happened to the old ships that were in the shores of South Africa during the apartheid era.

Mr Ramatlakane also asked about the process in place for the filling in of the position of the permanent CEO as Mr Tilayi had been acting for a very long. It would be important to know about the problem of irregular and wasteful expenditure and how it was inherently linked to not having the tariff increase. It was unclear if there was enough capacity within the financial sector of the Regulator as this was not mentioned in the presentation. It would be important to know about the consequence management in place and whether this was effective. What are the plans in place to deal with challenges in communication infrastructure as this proved to pose a major risk?

Mr de Freitus wanted to know about the barriers in place that had been identified as preventing the country from not having enough merchants. It would also be helpful to hear about why there had not been any tariff increase in the past five years.

The Chairperson enquired if there were any plans in place to deal with the problem of lack of technical skills within the sector. It would be helpful for the entity to work together with the Department of Higher Education and Training (DHET) so as to attract necessary skills from young people in tertiary institutions. There should be collaboration between government departments to deal with a number of issues like climate change. The entity could respond in writing to some of the questions posed by Members in order to save time.

Mr Tilayi responded that the Committee will also be provided with more information on how the entity will deal with climate change by 2020. The entity was working together with the Department of Environmental Affairs (DEA) on how to deal with environmental problems. The issue of skills shortage was a major problem as the country was not producing enough skills within the maritime industry. The entity was also working together with Transnet for skills development and this was under Operation Phakisa. There are 24 people that were taken to the World Maritime University but the South Africa Qualification Authority (SAQA) did not recognise those qualifications. There are other individuals that will be trained and capacitated at the University of Austria. The Minister approved the tariff increase but the entity was still waiting on the Minister of Finance. The issue of tariff increase was a budgetary issue and not related to irregular and wasteful expenditure. SAMSA had begun to take disciplinary steps to particular individuals but then these individuals resigned.

Mr Tilayi replied that the old ships that were in the shores of the country were traded in Singapore and United States of America under the apartheid government since there was no legislation in place to prevent the movement of ships. There is now legislation in place that is meant to prevent the movement of ships. The entity was working together with the Department of Transport to repeal or amend old Acts. There is a contract that had already been awarded to someone to start reviewing the 1951 Merchant Shipping Act. The Maritime International Organisation requires the entity to avoid any casualties or pollution. SAMSA was working with those who are retired in order to still source the required skills.

Mr Sibande asked about the timeframe in which the position of the permanent CEO will be filled as this question was not responded to.

The Chairperson responded that the Board was the one to still respond to the issue of the filling in of the permanent position of the CEO. However, it was concerning to notice that the Board of SAMSA hardly attended the meetings and this showed the complete disregard of the work of the Committee. It would be difficult for the Committee to approve the budget to be allocated to SAMSA considering the Board’s disregard of the work of the Committee.

The meeting was adjourned.