REDISA liquidation; Waste Tyre Plan; Waste Bureau: briefing with Minister

Environmental Affairs

12 October 2017
Chairperson: Mr P Mapulane (ANC)
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Meeting Summary

The Minister of Environmental Affairs indicated that the Recycling and Economic Development Initiative of South Africa (REDISA) liquidation was currently in court.

DEA had applied for liquidation of REDISA based on the dissatisfaction with REDISA in terms of transparency, inadequate reporting on the plans, as well as suspicion around failure to meet set targets in the plan. REDISA had appointed a management company, Kusaga Taka, to handle all operational aspects of the integrated waste tyre management plan. Details of the court processes from ex parte applications to judgement, leave to appeal, grounds of appeal, and implications of the applications for leave to appeal to the Supreme Court of Appeal were highlighted.

DEA spoke about the establishment of the Waste Bureau. In the interim, the Bureau would supervise and control the management of waste tyres until a new industry waste tyre management plan was approved. An update was given on the logistics and operations undertaken Bureau during this interim period. The Bureau's structure and recruitment was outlined.

DEA gave a briefing on waste streams, the industry waste management plans; as well as the policy and legislative context on how the plans have evolved over time. Some of the factors to be considered in the forthcoming industry plans included the severity and extent of impact of the waste stream; and the availability of resources for regulation of the waste stream. The means by which Extended Producer Responsibility (EPR) models should be managed through pricing strategy was discussed as well as the functions of the Bureau. Draft notices have been published and extensive submissions made. The final Section 28 notice calling for these plans would be published for implementation within the current financial year.

In discussion, MPs raised questions on REDISA appointing Kusaga Taka and the relationship between the two companies; the reasons behind the delayed investigations on the financial irregularities and illegalities within REDISA; whether DEA conducted annual audits on REDISA; who was responsible for monitoring REDISA and the waste tyre management plan; the operation of the monitoring mechanism; the collection of levies on plastics and wastes; the alleged disappearance of funds within REDISA; whether analysis was carried out on the operators under REDISA to verify the viability of such operators; whether DEA had received an interim report from the liquidator; whether allocated funds from National Treasury were sufficient for DEA to implement the waste tyre programme; and appointments to the Waste Bureau. Further questions were raised about banning plastic packaging and whether DEA had the capacity to ensure that the production of plastics met the required standards.

Meeting report

Opening remarks by Minister
Minister of Environmental Affairs, Edna Molewa, thanked the Committee for shifting the meeting to the current date. She said the Recycling and Economic Development Initiative of South Africa (REDISA) was of utmost importance. The matter was currently in court and she had been signing affidavits for the purpose of clarifying matters where necessary. A progress report would be given on REDISA as well as the length of time it took to commence operations. There was a requirement for a waste tyre plan, which would flow from the current process being undertaken by the Department. The documents would explain the matter.

Litigation against REDISA and Kusaga Taka
Mr Ishaam Abader, Deputy Director General: Legal Authorisation, Compliance and Enforcement, provided background information on the litigation. The REDISA Integrated Industry Waste Tyre Management Plan (IIWTMP) was approved in November 2012. The plan was approved for five years which was to expire on 30 November 2017. The Department of Environmental Affairs (DEA) conducted a performance review in 2016 as part of the mid-term review. DEA appointed an external service provider to conduct the performance review, and this concluded with major findings, which were challenged by REDISA. The performance review report was then subjected to external verification by Ernst & Young, and this verified report was submitted to the Minister and accepted. The report was used as the basis for the court case.

The objective of the REDISA plan was to remediate waste tyres, develop this industry and market for recycled tyre products. A management company known as Kusaga Taka Consulting was appointed by REDISA to handle all operational aspects of the plan. The plan was intended to create employment, as well as develop small, medium and micro-sized enterprises (SMMEs).

The basis for the application for liquidation was essentially because DEA was dissatisfied with the lack of transparency, inadequate reporting in terms of the plan and the suspicion around failure to meet set out targets in the plan. DEA then appointed iSolveit Consulting as a service provider to conduct a performance review of the Plan. iSolveit’s performance review was finalized in February 2017 and was subsequently verified by Ernst & Young, after being disputed by REDISA. During these reviews, DEA also conducted an evaluation and analysis of the available information. The overall conclusions were:
1. Governance: There were clear conflicts of interest and poor governance controls within REDISA;
2. Performance: REDISA failed to meet any of its targets;
3. Deviations: There were serious deviations from the approved REDISA Plan including the exporting of waste tyres and substantial investment of REDISA capital in the Product Testing Institute;
4. Misuse of public funds: Purchase of immovable property, provision of security at the director’s private homes and other excessive and unwarranted expenditure; and
5. Non-alignment of the REDISA Plan to the new regulatory framework.

On 23 May 2017, REDISA made a presentation to the Waste Bureau and DEA which alerted them that the REDISA board had made decisions to place the 2018 growth business plan on hold until funding uncertainties were resolved; commence wind-down in the event that insufficient funding was allocated from 01 June 2017. REDISA stated that even if it should receive a “cash injection” of R 210 million in July 2017, that would only allow it to postpone wind-down commencement to 1 October 2017. REDISA indicated that their cash balance during May 2017 amounted to only R150 million. This was concerning because REDISA had previously informed the Department that on 31 January 2017, their cash balance was R426 million. This was a dramatic, inexplicable reduction in the cash balances of REDISA.

The Minister had to act to safeguard the public funds and brought an application to liquidate. Liquidation orders were granted against Redisa and Kusaga Taka. The directors of Kusaga Taka and the suspended executive directors of REDISA filed notices of application for leave to appeal.

The Chairperson asked for the status quo report and an indication on what has been done to deal with the transition from REDISA to the Waste Bureau.

Minister Molewa replied that the approval of the REDISA IIWTMP has been withdrawn. However, there were operators on the ground and further details would be given in the second presentation. In describing the dire situation, she referred to REDISA’s act of giving notice to wind down due to the remnant of about R150 million with which it could operate. This was strange as the money collected emanated from the tyre industry itself. This gave rise to the understanding for the need to close down, which meant a number of operators on the ground would have been in a difficult situation and this would also become a problem for DEA.
The REDISA application for leave to appeal was on all grounds including those in favour of government. It was therefore necessary to address the issues sensitively, since the judgement could not be determined yet.

The Chairperson said that DEA should focus on the waste tyre management plan.

Ms Nosipho Ngcaba, DEA Director General, said the details of the transition would be given in the second presentation. As part of the seamless transition, the Minister approved the waste tyre management plan in 2012. The setting up was done within the first two years, while the midterm review was conducted in the third and fourth year. However, since a Waste Management Act amendment had been processed by Parliament in 2014, DEA asked REDISA to comply with those transitional provisions. As part of the transition process, in February 2017, the Minister invited all the REDISA participants (suppliers, transporters, micro-collectors, processors) to register on the Waste Bureau database.

Subsequently, after the provisional liquidation was awarded in June 2017, the Minister wrote to the Minister of Finance and the Minister of Public Service and Administration indicating that DEA may have to step in with a transitional process in order to implement the waste tyre plan. DEA was given approval through a process of award to begin negotiating contracts. Although there were liabilities REDISA had incurred, DEA had to cover the legal basis for the type of contract that could be facilitated through the Waste Bureau. DEA also considered the possibility of opening up the process for other people who were not participants at the time. Overall, there would be a seamless transition in administration, particularly because DEA had begun to receive approvals from 1 October, and had also begun signing up some of the operators. The Minister had previously invited calls for waste tyre plans. In other words, DEA was adopting a dual approach for the transition to avoid having people in the sector being impacted negatively and even without sufficient merit, with some not meeting all requirements. However, for purposes of stability and consistency, DEA was allowed to sign contracts for between three months and a year, with the approval from National Treasury. During this period, DEA would be considering the process initiated in terms of Section 28 of the Act.

Waste Management Bureau (WMB) briefing
Mr Mark Gordon, DEA DDG: Chemicals and Waste, noted that the Bureau had to step in to assist in the interim to stabilise the existing waste tyre plan, as the Bureau was empowered to do so in terms of the regulations. The 2017 Waste Tyre Regulations provide for transitional arrangements in the event that a waste tyre management plan expires, is withdrawn or terminated without the existence of any other industry waste management plan in terms of Section 28 or 29 of the Act. The functions of the Waste Bureau are to supervise and control the management of waste tyres for the interim period until a new industry waste tyre management plan is approved.

The next plan for waste tyres has been advertised and DEA is in the process of publishing the notifications requiring the new plan to be approved.

On Waste Bureau progress, a National Environmental Management Laws (NEMLA) Bill was tabled on 24 May 2017. The Bill provides for some amendments dealing with the establishment of the Bureau as well as for the establishment of the board, its powers, governance structures and oversight of Bureau operations. The Bill is yet to be passed but in the interim, the DEA has obtained approval from DPSA to commence with filling of posts. Treasury has provided approval for the Bureau to enter into contractual agreements with the plan participants registered on the Waste Bureau database. Treasury has also indicated a readiness and willingness to list the Waste Bureau as a Schedule 3A public entity but only after the NEMLA Bill has been passed by Parliament.

The logistics and operations the Bureau had undertaken during this interim period covered the full value chain of how a waste tyre plan operated in the country with collections, transportation, storage in depots, micro-collections, and processing of waste tyres. After the waste tyre regulations were passed on 29 September 2017 for implementation on 1 October 2017, the Bureau undertook full operations. A summary of the details of the operation had been given to the Committee on 6 October 2017. It covered what the operations entailed in terms of the network of transporters, collectors, depot managers, processing, capacity across the country, and progress on the status of secondary transporters, which were fully operational.

The structure of the Waste Bureau was outlined and details of advertised posts with a closing date of 11 and 15 September 2017. Recruitment interviews were underway and it was expected that the rest of the interviews would be handled within this quarter.

Minister Molewa reiterated that the Waste Tyre Management Plan had been withdrawn. The implication of this was that REDISA could only handle infrastructure. The tyre plan previously allocated to REDISA was now non-existent, especially since notice had been given to the effect that the plan would come to an end in November 2017.

Discussion
Ms J Edwards (DA) said some aspects about REDISA remained unclear. She asked how REDISA appointed Kusaga Taka to acquire plans for the tyres which should have been managed by REDISA and Kusaga Taka ended up managing REDISA. She asked if DEA was aware of the arrangement where REDISA and Kusaga Taka had the same directors. Did the decision to have this arrangement go through DEA? Why did it take so long to pick up matters that the Committee had picked up last year? Did REDISA report to DEA often and how often was reporting done?
On the failure of REDISA to meet any of its targets, she asked if DEA conducted annual audits; and if REDISA met its targets in previous years. The DEA case was that REDISA was used as a vehicle to enrich its directors. She asked how DEA missed the fact that REDISA had been enriching its pockets since 2012. Why was this not addressed in previous years? Which body was responsible for monitoring REDISA or the waste tyre plan, and how did the monitoring tool work?

Mr R Purdon (DA) asked if the moneys collected were still being collected, and where such money was directed to if collections were still ongoing. He asked if VAT had been factored into the debacle.

Mr S Makhubele (ANC) appreciated that the possibility of REDISA being a scam to squander money had been exposed and addressed. On the allegations of disappearance of resources, he asked if plans were underway to recover the disappeared funds. Can DEA confirm the alleged disappearance of funds? He asked if any analysis was carried out on the operators under REDISA to verify the viability of these operators or if they were registered automatically. He asked if DEA was responsible for the administration of the Waste Bureau during the transition period, since the board was yet to be fully established.

The Chairperson said the most fundamental question was the governance and accountability mechanisms between REDISA and DEA. He asked for details of the system put in place since the start to ensure regular performance monitoring of REDISA. The plan would reach the end of its natural lifespan of five years at the end of November 2017. Why was DEA putting a stop to the plan at this time? He asked if DEA had received an interim report from the liquidator, as the purpose of liquidation was to stop the REDISA and Kusaga Taka directors from further accessing the accounts.

He asked for the legal standing of the Waste Bureau. Priority should be given to the finalisation of the Bill. What was the current capacity of the Bureau and who were the people that made up the Bureau? He asked if the R210 million referred to in the presentation was the allocation made to DEA by Treasury, and if this amount was sufficient to implement the waste tyre programme as well as the establishment of the Bureau.

Minister Molewa replied the fundamental question to be answered was accountability and the mechanisms put in place to ensure this. It was important to understand the structure of REDISA. Although the company may exist, if the court rules in favour of REDISA, however, the company itself was a quasi-company established to work on behalf of government, as pronounced by the court. The company was a first of its kind under the Companies Act, and so was the application for liquidation. DEA was therefore learning from it due to the many firsts by which the company was characterised. As noted, the first year was used for setting up REDISA. It needed a board to assist with managing the entity. A board was then set up for this purpose in order to exempt DEA from the day-to-day running of the entity. However, it was expected that the board should have some sort of closeness to government but this did not happen. The implication of this was that DEA was not informed of the decisions of the board.

She expected the Committee to applaud DEA for identifying the challenges within REDISA before the end of the plan, despite being kept out of the loop by the REDISA board. REDISA was aware of the fact that there was no plan for its continued operation, regardless of whether the court ruled in its favour, yet it still continued with court proceedings. This indicated the nature of the company and its staff in contesting issues.

She recalled that the Chairperson was invited to the Standing Committee on Finance where the disappearance of funds was discussed and where DEA mentioned that the money bill requiring DEA to collect levies was no longer done directly by REDISA or any other company but by the state. This proposal was put forward to Treasury and it was accepted after a long period of consultation. During this consultation period, DEA had discovered the challenges within REDISA and was quietly dealing with them, while ensuring that there was a money bill for collection. REDISA attended that meeting and was ready to put up a fight against the collection by government. It was evident that REDISA was always ready to contest issues.

DEA had been requesting a report on the first and second financial year from REDISA but its requests had been met with several excuses aimed at delaying the production of these reports. DEA had to go through the procedures, hence, the seemingly delay in addressing the concerns within REDISA. It had to ensure that no stone was left unturned or any loophole left undone. It was particularly difficult to get inputs from REDISA on the iSolveit report. DEA had to verify the report after it was finalised. Although the REDISA board had always been existent, it was a board in favour of the company, and this was one of the lessons DEA learnt in this process.

DEA would continue to uncover more issues as time goes by. One of the things uncovered was the setting up of product testing. REDISA proposed that the hearing on product testing (which should be in November) should be postponed; a proposal that DEA knew was yet another delay tactic by REDISA. It was proposed that the hearing should be postponed and subject to REDISA’s post-appeal process on liquidation. DEA did not think this was necessary, and had sent an instruction through its senior counsel that the date set for hearing would not be postponed.

DEA has discovered that product testing was not only set up for waste tyre. REDISA was trying to use it for all waste streams. The implication was that REDISA had plans to broaden itself into other spaces to which it had not been allocated to carry out work.

On the collection levies of R2.30, it has been noted that the levies are now being collected by Treasury, despite much lobbying against this method. Levies would be collected by Treasury through SARS and the reallocation of such levies would be done together with other moneys that would be accounted for in the normal processes of government through Treasury. The R210 million referred to was already part of the funds that Treasury would allocate to DEA as money needed to execute plans as per the business plans.

On the possibility of REDISA being liquidated on the basis of it being a scam, Minister Molewa said that DEA has applied for the company’s liquidation but if the liquidation does not stand, DEA would adopt other means of recovering its money. As a matter of fact, DEA has undertaken processes to recover this money. However, it had high hopes that the application for liquidation would be successful, but in the event that the application is unsuccessful, DEA would exercise its liberty to blacklist the company through Treasury to avoid a future comeback. Security forces were following through on moneys to be recovered. DEA has been notified of some moneys offshore and was investigating this.

Minister Molewa pointed out that the Waste Bureau had two components. DEA was in charge of its administrative component while the Minister of Public Service and Administration gave authorisation on staffing. The Minister of Environmental Affairs was expected to authorise a structure and then ensure such structure was agreed to by the Minister of Minister of Public Service and Administration. At the moment, that Minister has agreed to the structure and this explained the filling of posts within the structure. The structure could only become a full-fledged Schedule 3 structure with a full board after the Committee has passed the Bill. All work has been done and the only thing left was for the legislation to be passed in order for the structure to be fully established.

On the mechanism put in place by DEA to monitor REDISA accountability, Ms Ngcaba replied that financial statements were only received from REDISA from 2015, as the first two years were used for setting up. The company was reporting to DEA on a monthly basis. However, these monthly reports were not detailed on governance, financial reporting and performance objectives. The former acting DDG and the current DDG responsible for chemicals and waste have been with REDISA and receiving reports.

The memorandum of incorporation (MOI) outlined all provisions for the directors of the board, and the setting up of the management company. The issue however was the non-compliance of REDISA in the implementation of the provisions. DEA has been asking for the agreement between REDISA and Kusaga Taka but had yet to receive it until the provisional liquidation process commenced.

A meeting was held with executives of REDISA to explain the requirements, procedures for implementation, and how DEA could assist to ensure compliance. However, the request for documents that could assist DEA for the purpose of identifying loopholes, was denied. DEA could therefore not have known that the same directors were on the board of both REDISA and Kusaga Taka.

Since receiving the financial report in 2015, DEA had not been privy to full disclosure nor the full extent of the structure until the liquidation process commenced. However, the letter written to REDISA in August stipulated a 30-day period, for which the company requested an extension, and afterwards, said that the DG had no powers to make such stipulation as it was the Minister that approved the plans. The Minister wrote letters last year, but instead of responding to the letters, REDISA went to court in December 2016 to question the Minister’s power to suspend the plan.

DEA was aware of certain irregularities within the company but could not provide evidence to prove this due to lack of documentation. The auditors were denied full information during visits to REDISA’s facilities. Experts were disallowed from probing further. REDISA based these refusals and non-disclosure of information on the grounds that it was not a government entity and the extent of its compliance with Treasury regulations or PFMA was non-existent. It said REDISA was a non-profit organisation. It was classified in terms of SARS as a public benefit organisation. It was therefore, exempt from paying some of the taxes. However, SARS was dealing with the ownership and accountability issues. SARS was looking into REDISA’s level of compliance in terms of tax legislation. Similarly, the Department of Trade and Industry (DTI) was investigating all company law transgressions and BEE transgressions. On BEE, REDISA had some companies that were fronted as black owned but in actual fact those companies had the same directors as REDISA. The BEE Council would conduct further investigation on transgressions such as this.

On the amount of money that was discovered, Minister Molewa pointed out that the provisional liquidators, who took control of both REDISA and Kusaga Taka, were able to locate and freeze funds in all the bank accounts with an approximate value of about R180 million. There were some other moneys in other banks that could not be accessed legally because the companies listed were private companies and even though they have been listed in the findings, a separate application was still required for them. DEA could only hope that the moneys would still be in the account once it has received legal authority to freeze these accounts. However in the event that such moneys could not be accessed, DEA would need to embark on another recourse.

There was an undisclosed remuneration of about R152 million paid by REDISA to the executive directors through Kusaga Taka over a period. There were figures that indicated that the directors had earned more than what was in their initial agreement. One of the documents requested by DEA was the contracts of the executives showing how much the executives were earning. However, that document was not given to DEA until after the commencement of the liquidation process. On the other waste streams, there was an amount that was earned as salary, which had now increased. It was the inability to receive documents to prove the this information that delayed DEA in taking action.

On the Waste Bureau, it was pointed out that the Bureau was a legal entity established in terms of the Waste Act that operated under DEA. In the absence of the finalisation of the Amendment Bill, the Minister acted as the executing authority, while the DG as the accounting officer took accounting responsibilities in the interim until the establishment of a board after the Amendment Bill has been passed. Therefore, the listing was awaiting the legislative element with Treasury. It was generally not prudent for DEA to undertake two roles. The preferred option would be to have the legislation that would enable the listing in order to have a separate entity for accountability purposes.

The Chairperson asked if the employees of the Bureau were appointed based on public service regulations.

Ms Ngcaba confirmed this. She noted that SARS collected levies from 1 February based on the Money Bill passed by Parliament. The Bureau operated under DEA and all officials with other responsibilities were currently doing the work of the Bureau. The four resources that have been contracted in so far do not have certain powers. The DG signs and carries out certain responsibilities as does the Chief Operating Officer. Those in charge of supply chain within DEA were working on the administration of the contracts. All finance officers would be dealing with payments while those in the legal unit drafted and vetted the contracts. The officials in charge of chemicals and waste sorted out logistics. The governance team was looking into the governance measures of the Bureau. Currently, there were three in a contracted out capacity while the rest of the capacity of the Bureau was handled by DEA. The DG was therefore playing two roles both in DEA and in the Bureau, while the Minister was playing three roles, as she was a regulator.

Mr Gordon responded to the question on monitoring, controls, and management. He noted that REDISA only began operations after two years from 2013. The major part of 2013 going into the first part of 2014 was subject to a court challenge that REDISA faced, which led to the actual commencement of operations around June 2013. 2014 was characterised by the setting up of a massive network across the country. However, REDISA took a long time to set up its infrastructure, network and systems. The first annual report and full financials were only received by DEA in late 2015, after which DEA had begun figuring out the full extent of the financial operations of the company. The first audit was done by KPMG and at the time KPMG gave REDISA a clean audit. Nevertheless, it was important to note categorically that REDISA delayed in providing DEA with information. It obfuscated, failed to cooperate, and withheld crucial information from DEA. DEA had supporting evidence used as court documents in its correspondence with REDISA; written minutes of meetings; letters from the DDG and his staff, as well as from the Minister and DG; and numerous correspondences to REDISA obliging it to report on certain matters. Reports that were eventually submitted were vague, and whenever more information was requested, DEA never received this. The correspondences contained instructions to REDISA to either do certain things in terms of its mandate and limitations, or not to do a particular thing. DEA investigations commenced in late 2015. A full compliance and enforcement exercise of REDISA operations was conducted before the Carte Blanche exposé across the country. DEA announced at the time that its investigations would continue in December 2015 and the full performance review, which in fact was the midterm review of operations, commenced in February 2016. However, due to lack of cooperation, it took a long time for DEA to get the full report. In terms of the audit performance review, DEA had to provide numerous documents for that.

Mr Abader replied that there was indeed a report from the liquidators. The DG briefly alluded to this report in referring to the discovery of the moneys in the bank accounts. The process of recovering the money was part of the entire process that has been kickstarted. The Product Testing Institute (PTI) application was for this exact purpose and once the liquidation process has been finalised, the liquidators will be obliged in terms of the liquidation order to look into the preceding transactions to recover as much money as possible.

On the small operators, Ms Ngcaba replied that some analysis have been carried out on other areas apart from the actual viability. This was partly because DEA had an opportunity to look into what option was working best with REDISA, as there were a few areas that were good in the operations of REDISA. It was therefore, necessary for DEA to enhance those good aspects, and improve on the areas where gaps have been identified. DEA was however contending with the question of what would be the basis of the DEA discussion with Treasury in excluding others that were currently operating in comparison with choosing some others, after receiving information from the liquidators in July/August about the operations of SMMEs, processors and transporters. In areas where there was a glaring clarity that a real gap existed, DEA was allowed to have a three-month contract to establish new grounds of agreement with the operators. Although operators were given another chance to participate, their performance was used as the base indicator. For instance, macro collectors were expected to deliver tyres to places they have been allocated to and at the level to which they were supposed to deliver. There was a set threshold to be met. Although DEA would continue to monitor the operators, a business development plan had been put in place to invest time in the consideration of areas that could be improved in order to achieve viability of businesses.

It was pointed out that REDISA was a beneficiary of an infrastructure development grant (IDG) and was therefore giving operators and micro-processors a certain amount, including exporters. DEA investigated this and it was discovered that cement kilns were the current main uptakers. However, due to the depots getting filled up, DEA would like to avoid the creation of another occupational health hazard. This was despite the fact that the continued capacity of depots was an advantage for the sector. Operators of cement kilns were paid the same IDG, since the operation was used as an energy source. DEA was however, looking into the establishment of the basis for the new negotiations to be undertaken. In depth analysis was being undertaken at different levels.

On whether the money allocated was sufficient, she said it was both sufficient and insufficient. It should be noted that the levies and taxes were collected by SARS without any of such levies ring-fenced for any department. The levies charged for plastic bags were not solely for DEA. DEA still had to go through a bidding process. However, the basis for the DEA business case was to analyse what REDISA has invested in the sector over the period of operation, especially since these were public funds. Even though it was possible for DEA to have received an average of R1 billion, it would not be able to justify it because it would first have to understand the current established factories versus what was still required. In the current situation, if DEA lost the case for whatever reason, REDISA would still have no access to the equipment, as there was a need for more investment of the same infrastructure as was done in the past. If DEA wins the case and there are liabilities, the assets of REDISA would be sold to defray the cost that creditors were entitled to. In both situations, however, there was a need to reinvest. DEA’s business case was therefore fluid around exactly how much it required. In essence, although DEA had money, the money was insufficient. The additional amount needed would be justified once the business case has been revised on the basis of real scenarios, and probably after the court processes. Currently, DEA would be able to run its operations till the end of the financial year.

The Chairperson asked if DEA could give an assurance on maintaining the status of 70% of tyres produced in the tyre programme for recycling rather than diverting them to landfill areas.

Mr Gordon replied that the percentage would be maintained and even improved. DEA was optimistic about submitting a better figure in its 2018 Annual Report. Tyres were not allowed on landfills in terms of the legislation.

Ms Ngcaba added that when the Minister published the amended tyre regulations, it was discovered that the Off-the-Road (OTR) tyres for big trucks were not being diverted, despite the fact that the levies had been collected previously by REDISA. DEA therefore had a backlog to deal with on this. It was important to distinguish between the different tyres before committing to reporting on the overall performance of all tyres, as performance varied.

Minister Molewa added that the diversion from the landfill areas was not the sole target. The additional target was to carry out recycling. It was the aspect of recycling that DEA was at loggerheads with REDISA, as those elements were yet to commence. In DEA’s attempt to get the work done, the Minister asked the DG to lead the team to inspect the depots for manufacturing processes. It was discovered that the processes were found wanting in some aspects. It could therefore be concluded that there would be a backlog on recycling. DEA had its reasons for advertising new plans, particularly when the law allows for the running of more than one plan and the Bureau itself. DEA was considering allowing other players in any value chain aspect of the operation in order to achieve improvement in such aspects. DEA held the view that exporting should be stopped.

Mr Purdon was concerned that Treasury was not ring-fencing the money, especially if the money would be allocated as per the DEA business plans. He asked if SARS would investigate the value added tax (VAT) alongside other tax issues. He noted that there has been much talk about equipment and plants but not much was said on land, when a greater part of the operations had to take place on land.

Ms Hanlie Schoeman, DEA Chief Director: Governance, replied that REDISA being a public benefit organisation, was exempt from tax but not from VAT. At the time of liquidation, DEA asked SARS to consider whether there was any outstanding VAT, and SARS was investigating this. SARS has indicated that a consideration of the structure of REDISA and Kusaga Taka led to both companies losing their public benefit organisation status, as they were no longer deemed as such. The implication of this was these companies might owe SARS a lot of money in terms of the Income Tax Act.

On land, Ms Ngcaba replied the reports showed that there were one or two sites under REDISA’s records. The facilities were part of the court case. However, the depots were leased while the owners of the land were different. DEA had to contract and lease out areas where operations were running. REDISA had a 30-year lease for the Product Testing Institute (PTI).

On the ring-fenced money, Minister Molewa replied there was no other way of addressing this as the PFMA allowed collections by only Ttreasury. Once Treasury collects money, the moneys are allocated as was previously submitted. This allocation was in accordance with the provision of the law, and it could only be changed to ensure direct allocation to DEA if and when the legislation is amended. On the land, she added that DEA found some inconsistencies in the leases as the rates differed from person to person, depending on the relationship of REDISA with such individuals. The documents brought by DEA contained more information on this.

The Chairperson said one concern he picked up from the briefing was the existence of risk and the possibility that the tyre programme, which was one of the most successful waste stream programmes, could collapse. He was however, encouraged by the assurances given by DEA of the possibility of a seamless transition with the Waste Bureau taking over from REDISA and Kusaga Taka. He was encouraged by the report on the capacity within the Bureau. The Committee had to prioritise the Marine Spatial Planning Bill, which involved a lot of work for MPs, but as soon as that Bill was finalised, it would consider the proposed Bill for the full establishment of the Waste Bureau.

Lessons have been learnt from the engagement, one of which was to ensure that stringent measures of accountability were put in place for whatever plan is approved going forward. DEA should ensure that action was taken in the event of poor performance of the plan. It was important to continually encourage DEA in its efforts to ensure the prudent management of the finances of the public. The money collected from government to carry out specific work should be used for same. He expressed further concern on the receipt of R600 million by REDISA while Treasury allocated only R210 million. DEA was asked to evaluate the purposes for which such funds were used.

Waste streams (paper and packaging, e-waste and lighting) briefing
Mr Gordon provided a background to industry plans; giving policy and legislative context and how the plans evolved over the years to what is now referred to as Section 28 Industry Waste Management Plans.

Industry plans provide for the full value chain, known as the holistic management of a waste stream. The waste stream and the full value chain can include aspects around waste generation, collection, transportation, storage of waste, recycling. An industry plan can include programmes for awareness, capacity building, research development, innovation. The plan had to stipulate the extent to which diversion would be promoted; recycling of wastes; job creation targets, and contribution to economic development.

The criteria and factors to be considered in the forthcoming industry plans would include the severity and extent of potential impact of a specific activity on the environment from this particular waste stream; availability of resources for regulation of the waste stream; and the level of maturity of the sector (as there were different levels of maturity in the four tiers of waste streams in the country). Plastic waste was more mature due to the existence of some voluntary programmes. The same goes for electronic waste and some others. The Minister has however prioritised three waste streams.

Other factors to be considered in industry plans were the level of organisation of waste streams in terms of industry associations and networks; the level of cooperation and track record of a particular sector; existing management measures and control within specific waste streams; as well as existing recycling measures.

The tools used in the waste sector related to the cradle-to-cradle holistic management of waste streams, as noted in DEA’s presentation at the colloquium around the circle economy and how the extended producer responsibility worked within a circle economy. An extended producer responsibility (ERP) referred to post-consumer wastes where companies were held responsible for both production and the full value chain after the product has been used by consumers. This refers mostly to the packaging aspect. However, all products produced by manufacturers and producers should be fully accounted for in the total value chain.

Part 7 of the Waste Act provided details on how industry waste management plans were provided for. This included description of how the plans should be submitted; preparation of plans; as well as the compliance and enforcement aspects. This was provided for in Sections 28, 29, 30 and 31 of the Waste Act. The waste management strategy provided for sound waste management, which was a full waste hierarchy of reduce, reuse, recycle and recover. It provided for the empowerment of previously disadvantaged individuals; job creation; SMME development; information management; and reporting statistics.

Mr Gordon discussed policy and the country had evolved over the years to its current state in terms of the polluter pays principle, and mainstreaming this principle into the formal economy of the country. It started as far back as 1998 when the National Environmental Act was introduced. The Integrated Pollution and Waste Management Policy was introduced in 2000. In 2003, the Plastic Bag Regulations came into force, while in 2004, Treasury announced the plastic bag levy. In 2008, the Waste Act came into force, and DEA provided various standards for basic refuse removal and domestic waste collection. The waste management strategy came into place in 2012 and DEA at the time discussed in detail the first industry waste management plan for tyres. In 2014, the Waste Management Act was passed and it introduced the establishment of a waste management bureau. The Act included an economic provision by way of a pricing strategy, as well as other regulations.

The pricing strategy provided for the basis on which a polluter waste principle is mainstreamed through the waste management plan. DEA therefore had two guiding principles namely a precautionary principle that covered some of the environmental protection aspects; and the polluter pays principle that covers economic instruments that either incentivise or disincentivise behaviour of polluters and consumers. The aim of the pricing strategy was to provide a framework for implementation of economic instruments, mainstreaming the polluter pays principle and using these incentives to reduce generation of waste; increase diversion of waste away from landfill sites towards reusing, recycling and recovery; as well as support economic growth in the region through a secondary resource economy of the beneficiation of waste.

The underlying principles were based on a set of waste management charges aimed at disincentivising landfilling, while bringing in valuables into the value chain and in effect, incur more social benefits, environmental and economic benefits. The principles considered how externalities would be internalised in order to hold producers and consumers responsible for managing the waste streams.

On the components of the economic instruments, they could be viewed upstream by way of taxing materials and import taxes; product taxes; advanced recycling fees; deposit refund schemes which obtained in the past; EPR fees; volume metric fees which were currently being investigated; and the current work around landfill disposal taxes. He highlighted how taxes, fees, and charges were used to incentivise recycling.

On the management of EPR through the pricing strategy, the pricing strategy provided two mechanisms, one of which was the basis on which the voluntary programmes were organised. Under this first mechanism, DEA advocated for a role for itself and the Bureau through monitoring controls and management of targets. However, the fee was managed in the industry. The second mechanism was an EPR tax model which was implemented in industry management plans. The legislation passed on 1 February stipulated that the tyre levy would be collected by SARS and would be disposed directly through Treasury and the Bureau to product responsibility organisations or industry organisations that have submitted such plans for approval.

The basis for this within the national waste management strategy provided for eight goals. Goal 3 specifically provided for growth from the waste sector as a contribution to the green economy.

On progress to date, Section 28 of the Waste Act provided details of how industry waste management plans should be prepared and submitted to the Minister for approval. These notices have been advertised in 2016 and the beginning of 2017. One had to follow an administrative justice process in terms of notification, consultation, preparation, and submission. Timeframes have been provided for each procedure.

The means by which the EPR model should be managed were noted. DEA has engaged extensively with Treasury and industry associations to give explanation on this. DEA had to ensure that industries were aligning themselves to the vision of the government on these industry plans. DEA had to obtain concurrence from the Minister of Finance on the pricing strategy. It had received approval on the modalities for funding mechanisms and collection of levies.

The functions of the waste management bureau are detailed in the Waste Act. The functions were around conducting oversight of industry plans; disbursement of funding and the monitoring of implementation of approved plans.

The draft notices have been published, and extensive submissions had been made. DEA would go through those submissions carefully and provide comments to the various industry role players, stakeholders and affected parties that made submissions. Subsequent amendments have been made to the notices and DEA was in the process of publishing the final notices calling for those plans. Extensive consultations were held with various industries and sectors; and DEA had to address concerns raised during the consultation processes. Several workshops have been organised to address these concerns.

These industry plans and the provision of these plans have been discussed extensively during the Phakisa workshop in July and August. There were two specific laboratories that dealt with industry plans: waste minimisation work stream, and the municipal work stream. These laboratories worked to bring out ideas and three-fit plans for the industry initiatives now known as Phakisa initiatives:
- Grow the secondary economy through creation of enabling regulatory environment
- Generate opportunities from chemical and waste resources for the creation of jobs/opportunities
- Invest in R&D innovation and infrastructure to enhance utilisation of local waste resources for new products
- Reduce waste to landfill by 75% of industrial waste and 50% of municipal waste through education.

The final Section 28 notice calling for these plans, with the prioritised plans being packaging, electronic waste and lighting waste, would be published for implementation within the current financial year. In terms of these notices, industries were required to prepare and submit plans for approval. DEA would review, evaluate and assess the plans and make a submission to the Minister for approval of such plans. The work that would be running parallel to this was the different schedules required to be published by SARS for the relevant industry plans in the same way SARS published schedules for the tyre plan.

Discussion
Mr Makhubele asked if the two scenarios alluded to in slide 11 would exist at the same time or there would be a preferred option; and if the latter was the case, which of the scenarios was the preferred one.

Ms Edwards asked what the new plans do differently from the old industry plans. She asked how the plastic taxes would work, since 55.7% of paper and packaging were already voluntarily being collected by industry for recycling. On the Waste Bureau and waste management plan, she asked if DEA would consider a dual system where the plan or the Bureau monitors while industry delivers. She asked DEA about the lessons learnt from REDISA and what it would do differently in future?

The Chairperson noted that Treasury had been expected to make a presentation on levies during the waste management colloquium, but did not show up. The Committee would follow up with Treasury on this.
He was concerned about plastic littering and asked if plastic packaging can be gotten rid of totally and alternative methods of packaging be developed. Plastic was a major concern for the ocean space.

Mr T Hadebe (DA) agreed with the Chairperson’s point on banning plastics. He had read that some of the producers of plastics included calcium carbonate as a filler in plastic production, thus making the plastic non- biodegradable. Was there capacity to ensure that plastics produced met DEA standards?

Mr Gordon replied that the two models could coexist. What DEA was currently promoting was the industry waste management plan through taxes that would be passed through laws, and afterwards levied. The three prioritised waste streams would adopt the model on the right hand side while the voluntary programmes would continue until such time other waste streams are prioritised.

On what would be done differently, it was important to consider the objectives of the industry plans to ensure the full hierarchy of the waste stream was properly addressed. Things that would be done differently include the empowerment of previously disadvantaged individuals, the transformation of the sector, full job creation and SMME development. In most cases, the industry was not fully inclusive. The dignity, protection and organisation of waste pickers should be better addressed. There were almost 400 000 waste pickers in the country that worked under very difficult conditions and the industry should find a way to include them in the plans, not only as waste pickers but eventually to become owners or to organise them as coops for SMMEs. Also the black industrialist programme has to come in where the scale up on recycling was more inclusive.
There was a notion of free riders. In the industry, there were companies that complied and other companies that did not comply but rode on the back of compliant companies. Industry has inquired about the free riders from DEA, and this was the reason many companies supported the notion of a government controlled plan where members of their association are obliged to belong to the plan. This was exactly what the new plan called for – that every producer and participant in the sector belong to the plan, and to submit reports.

Mr Gordon said DEA was putting more pressure on industries that use plastic packaging. The extended producer responsibility made such producers accountable to recycle plastics back into the value chain.

On how the Bureau functions would be synced with some of the functions of the industry plans, he reiterated that the Bureau’s role was oversight and monitoring the implementation of the plans; while actual implementation would be done by the industry. The chapter on Waste Bureau functions was very detailed.

As for putting the lessons learnt to use, DEA would be asking for a detailed strategy for implementation; detailed budgeted business plans; clear timelines, targets and deliverables; clear definition of such targets, times and processes; exclusions and inclusions, memorandum of incorporation (MOI); compliance with Companies Act and Competition Act; declaration of conflict of interest upfront; management and governance controls of the board; directorships; details of bank accounts; property details; composition of the board; ensure reporting, auditing controls, performance management, performance reports; detailed monthly reports; and aspects relating to review and amendment of the plan.

On the banning of plastics, Mr Gordon replied different sectors of society were asking for different things in support of the ban on plastics. People asked if the ban would be on plastic bags or some other form of plastics. Companies dealing with plastics argued that there was a role for plastics in society. DEA has been considering some studies overseas on countries that tried to ban plastics but failed. DEA was busy with another study in the current year and was considering all kinds of policy options on the future of plastic bags. The noncompliance of some retailers in using illegal chemicals that made some plastics less recyclable was a problem that would be addressed. The enforcement of this should have been undertaken by the National Regulator for Compulsory Specifications (NRCS) and the DTI. DEA was busy with extensive discussions with NRCS and DTI in ensuring better enforcement of plastic bag compliance. NRCS was paid by DEA annually for managing compliance and enforcement. NRCS and DTI inspectors were responsible for visiting the manufacturers that produced these plastic bags. Some enforcement measures have been taken against noncompliant manufacturers but more work was being done to ensure better compliance.

On capacity, Ms Ngcaba replied that the state would always have measures in place to improve capacity, particularly as the standard bodies set up have the responsibility to ensure that regulations in the industry were adhered to. The composition of plastics was the reason some plastics were non-recyclable and in effect, had no economic value. The Minister was navigating through the role of a regulator for DEA versus the role of the DTI as regulator. In the study noted by Mr Gordon, it was pointed out that the chief director of the relevant branch had carried out assessment on the plastic bags. In previous times, the plastic bags in the country were totally non-recyclable until the transition on the thickness of plastic was introduced to enable recyclability. However, with all the regulations in place and the funds utilised in ensuring compliance and enforcement, it seemed value for money was not materialising. This was an area that DEA did not have full control over as the compliance function was undertaken by another department, until DEA decides to partly act as a regulator.

On levies, it was pointed out that DEA had reconciled the amount of levy that was placed on plastics per annum. There were figures on the amount DEA received as an allocation from these levies. The figures can be obtained from Treasury and submitted to the Committee.

On the possible ban of plastic bags, Minister Molewa replied that Rwanda had succeeded in this. Although Rwanda has not banned the production of plastics, it has been able to manage its use. The littering of plastics was more of a habit. In SA after people began to be charged for the use of plastics, it reduced. However, people became used to paying for plastics to the extent that they opt for paying for plastics in shops when asked whether or not they want it. The use of plastic was therefore a societal issue. In Rwanda, people are asked to leave plastics off their suitcases. DEA needs to introduce a societal behaviour change. The industry has complained about the littering of plastics. However, it has been argued that manufacturers would lose jobs if plastics were banned, Managing the use of plastics should be done meticulously to the extent of inspecting the chemicals used for production. She noted that a company known as Mpact was launching a third factory and it was complying with the regulations in terms of collections. Mpact was using the micro-collectors as a voluntary company. However, the extent to which the micro-collectors were being utilised in a better way was a different issue entirely. It was for this reason that DEA suggested that guidelines should be provided on how to deal with micro-collectors at a municipal level. Regulating the use of plastic required educating society, plus strengthening the system and addressing cultural behaviours. DEA has been engaging with the Department of Basic Education to commence education on the use of plastics with the young learners.

Ms Ngcaba said that a part of the levies on plastic bags was allocated to the industry to limit the extent of job losses in the industry, as well as ameliorate the investments made by the industry to change the production system. Changing the production system however, required a review of the processes used in making the product. The analysis should therefore, not be done from one side of government, especially since industry was making money and there was a high probability that the initial cost of investment would have been covered. It was therefore, necessary to consider a review process.

Minister Molewa informed the Committee that the Marine Week had commenced. There were visitors in South Africa from the Indian Ocean Rim Association (IORA). South Africa would be taking over the chairpersonship of IORA. As DEA was part of the team of IORA, its contribution to the IORA chapter of South Africa was to avail the vessel. This was because there has not been an expedition to the Indian Ocean since 1961 to acquire more knowledge about the ocean. The expedition team would consist of scientists from South Africa and the continent at large. The vessel of Miriam Makeba SA Agulhas II would be filled with South African scientists, and would depart on 14 October 2017. DEA requested MPs who could make the time, to come and bid the team farewell. The team would arrive in Durban on Monday evening. Another activity would take place on Tuesday, where members of the IORA chapter, as well as the provincial and national officials would be bidding the team farewell. It was at Durban that other teams from the continent would join the South African team on the expedition. The expedition would last for three weeks, in order to allow for more information gathering and data collection around the ocean space.

The Chairperson urged MPs who could attend to bid the team farewell.

The meeting was adjourned.

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