SA National Roads Agency (SANRAL) 2016/17 Annual Report; Transport BRRR

Meeting report

Welcome and apologies
The Chairperson opened the meeting by noting that the Chairperson of the Board of SANRAL was not present. The SANRAL delegation should convey to the Board that the absence was taken very serious. Usually, a drastic measure was taken in cases where the Board Chairperson did not attend a meeting. However, the Committee would hear the presentation.

Mr M Sibande (ANC) remarked that SANRAL should not be allowed to present as it was taking advantage. If the Chairperson of the Board was not present, they should be sent out. SANRAL was not respecting the work of the Board whereas the Committee was respecting SANRAL management. There were a lot of reasons Members decided to come and attend, to give SANRAL a proper hearing. But continuously the Chairperson of the Board did not respect the Committee. Presenting to the Committee was not a favour but it was part of accounting. Next time the Committee would chase them away.

Mr L Ramatlakane (ANC) said that SANRAL should be allowed to present because an apology was tendered that the Chairperson was sick. It was difficult to decide to send the delegation back. This situation was different with previous ones where the Chairperson did not tender apologies.

Mr M De Freitas (DA) remarked that he could not figure out what happened with SANRAL because the agency was doing well until the appointment of the incumbent Chairperson. In addition to the absence of Chairperson, the report was delayed.

The Chairperson noted. She said that SANRAL should respond to these concerns.

Briefing by SANRAL
Mr Skhumbuzo Macozoma, Chief Executive Officer, SANRAL, said that the Chairperson’s wife was hospitalised. She was ill. He thanked Members for their understanding. He said that they conveyed the message to the Board. He noted that he fully understood that SANRAL was a state-owned company which was fully accountable to Parliament.

Mr Macozoma took the Committee through the presentation, which focussed on annual performance and financial statements. Reporting on the manufacturing capital, he noted that length of the roads maintained was 22 197km and that 13% of roads was tolled. With regard to funding capital, R4.5 billion and R11.6 billion were spending on SANRAL toll roads and non-toll roads respectively. Expenditure on concessioned toll roads was reported as follows: R510 million was spent on Bakwena, R449 million was spent on N3TC and R950 million was spent on TRAC.

Mr Macozoma reported on intellectual capital and social and relationship capital. On the latter, he noted that the value of work performed by SMMEs was R4.6 billion, value of work by black-owned companies was R2.1 billion, work opportunities were provided to 39 809 individuals; 4 257 individuals were trained and R257 million was spent on community development projects. With regard to human capital, he noted that annual staff turnover was 2.5%. Interns placed were 304, whereas bursaries awarded for tertiary study was 185.

Mr Macozoma noted that 32 out of 36 targets were achieved, representing an 86% achievement of total targets. Total assets for 2015/16 and 2016/17 were R334.3 billion and R358.2 billion respectively. Total comprehensive income (or loss) for 2015/16 and 2016/17 fiscal year was R0.2 billion and R17.3 billion respectively. SANRAL received an unqualified opinion. However, an emphasis was made on matters regarding restatement of corresponding figures, material impairments and irregular, fruitless and wasteful expenditure. SANRAL reduced irregular, fruitless and wasteful expenditure from R1.1 billion to R0.4 billion.

Discussion
Mr C Hunsinger (DA) noted that he did his own analysis for the last five years, and compared to figures presented, he could find that the strategic financial management was of concern. Financial operations tended to lean to risk side. For example, operational costs from 2012 to 2017 increased by 154%. Repair and maintenance increased by 19% in the last five years. The employee costs increased by 129%. This would be acceptable if it matched the road work. However, apex increased by 20%.  Ratios were of concern because one could not have increases exceeding 100% in the face of 20% increase in terms of executing core mandate.

He asked what methodology was used to ascertain and re-evaluate assets. It became a norm for SANRAL to increase the value of assets and what was the minimal value that was prescribed in the prospectus. With regard to the redress programme, he referred to equity equalisation and stated that he was concerned with Black Economic Empowerment (BEE) companies that sold their shares to non-BEE companies whereby the latter companies held 100% shares in the former companies. This created a dilemma in social transformation.

Mr De Freitas raised a query on the late tabling of the report which breached the September 30 deadline. He also raised concerns over the status of the State-Owned Entities (SOE’s), which appeared to be on a downward spiral and commented that SANRAL seemed to be more and more in trouble. He further said that he wanted to understand what Mr Macozoma was implying when he said that there was a problem with the interpretation. How could basis information be misinterpreted? What could have gone wrong? If it was resolved, he wanted an elaboration on how the problem was resolved.  

He remarked that he was reading in the media that SANRAL was going to renew contracts and asked what the future entailed. Was it going to change its funding models? He further remarked that the resistance against e-toll continued. All communities in South Africa were united against the e-toll programme. The main problem was that there were no public consultations. What was the SANRAL’s plan in that regard? He further asked how the SANRAL moderated recruitment issues to make sure that diverse people with skills were employed.

Mr M Sibande (ANC) thanked the SANRAL delegation that came to present. He noted that the key fundamental of everything was compliance. He stated that issues of irregular, fruitless and wasteful expenditure were a result of non-compliance and poor or incompetent management. For example, R0.4 billion was incurred through non-compliance. On this issue, he asked how many houses for the poor could have been built from R0.4 billion. In order to avoid these issues, SANRAL should establish a proper monitoring and evaluation which was lacking in various respects. The question of monitoring and evaluation should be taken serious. With regard to human capital, he expressed unhappiness about information provided because there was no statistics provided per province. On the other hand, he was happy to hear about the employment of women. However, the presentation was lacking in terms of elaborating on levels of employment and he asked whether Mr Macozoma was referring to those women in cleaning positions only. He said that he wanted to ask a controversial question on SMMEs. He asked how many were black-owned SMMEs? How long would their contracts last? He said that some companies signed contracts of 50 years and others concluded endless contracts. Were there such companies? 

Mr L Ramatlakane (ANC) said that he had a concern about SMMEs. He asked what a range of amount in terms of contracts could be. He remarked that there was now a need for a breakdown in terms of contracts awarded to the SMMEs.

Mr T Mbanza (ANC) welcomed presentation. He expressed his concerns over black-owned companies and SMMEs. He noted that most of owners of these institutions were trained by SANRAL. He asked whether SANRAL made a follow up of trained blacks who established the said institutions. He said that land was provided to blacks and their farming was not successful because there were no follow-ups. Was SANRAL making sure that black-owned institutions were a success?

With regard to placement, he asked to be provided with details of how many individuals were employed in temporary and permanent positions and on contact basis. He further asked how consultant services were used. With regards social development, he asked how communities were identified to be engaged in SANRAL projects. On the issue of allocation of bursaries, he asked what criteria was being used to select recipients. Who were the beneficiaries of the secondary school scholarship programme? Which grades could qualify for a scholarship? He stressed that he was unhappy with the setting up of one target to be achieved in terms of leadership and governance. One target was not enough. At minimum, there should be at least five targets.

Ms S Xego (ANC) said that she was happy to see that suggestions and recommendations made by the Committee were responded to. It was taken into consideration. She asked what informed SANRAL planning. What was SANRAL planning to do to reduce the N2 congestion, especially, in Butterworth. She remarked that the traffic in Butterworth could be heavy mostly in the festive season. With regard to scholarship programmes, she asked whether students of the Technical Vocational Education and Training (TVET) colleges could be beneficiaries.

Mr G Radebe (ANC) welcomed the presentation. He remarked that there was maladministration highlighted in the AGSA report. The AGSA was raising serious alarms since 2012. What was SANRAL planning to do in order to respond to the AGSA’s concerns? On asset management, he asked how SANRAL was disposing its immovable property. How were the assets worth R2 million disposed of without receiving executive authority? He noted that there were private investments being exercised with a view to assisting in paving roads and asked who these private investors were. He wanted to know whether e-tolls were going to be expanded or be scrapped. Members of his constituency were complaining about the e-toll. He appreciated that the black-owned companies and SMMEs were being given contracts and asked whether these companies and SMMEs were growing stronger or whether they were regressing. On employment, he said that he never heard about the employment of disabled people and asked whether there was attention given to albinos.

The Chairperson said that she had a few questions. She asked which criteria was being used with regard to land planning. She asked SANRAL to provide the Committee with information on what it was doing in terms of research and developments. She finally remarked that difficult questions could be responded to in writing.

Mr Macozoma, referring to the significant increase in certain allocations, responded that the increase was on the repairs and maintenance of the roads. He assured Members that the budget was allocated with a view to further the main mandate of SANRAL. On the question of the evaluation of assets, he said that the re-evaluation methodology that was applied was tested and endorsed by the AGSA. The AGSA concluded that procedures taken for re-evaluation were satisfactory. On the question of misinterpretation, he responded that the misinterpretation was about the value of guaranteed instruments and how such guarantee could be determined. The main question was whether it was a minimal guarantee. The National Treasury affirmed that it was the minimal value guarantee.

He further said that the report was delayed because there was a process to finalise the interpretation of its guarantee. It was beyond SANRAL’s control that they could not submit a report at the end of September and requested to table it by the end of October. During the course of the year, there was a misinterpretation of the R31.9 billion guarantees from National Treasury. Investors on the JSE interpreted this to mean that the R31.9 billion would be exhausted as a nominal amount, plus the interest on it. Treasury had to reword the guarantee to show that the guarantee was limited to the nominal amount of R31.9 billion. This rewording was necessary to give investors’ confidence that SANRAL would be able to settle its outstanding amount. This process took a long time and could not be finished before the September 30 deadline.

Referring to e-toll, he responded that the decision to discontinue e-toll lied with the Executive Authority. It was not a merely policy matter, but also a political matter. There was a chance of scrapping the e-toll programme. Not all targets related to the e-toll project were implemented due to the anti-tolls sentiment in the public. These targets had to be pushed beyond the medium term, which meant that fewer jobs were created. He further noted that the Minister was engaging with the Premier of Gauteng and Vice President in that respect.

On questions relating to skills and development, he said that SANRAL complied with the employment equity plan. SANRAL had a plan of training a high number of engineers. It was not training for itself. Rather it was training for the nation. It would retain some of those trained and release others for similar institutions. It was encouraging other institutions to send young engineers for training. Referring to land use and planning, he said that SANRAL had to engage with various stakeholders, including traditional leaders. He noted that there was an instance he was forced to pack up his equipment on the sole reason that there was no adequate consultation. On the question of social transformation, he responded that SANRAL was, in principle, compelled to contract black-owned companies and SMMEs.

On the questions asked about the financial statements, Mr Macozoma responded that SANRAL’s internal auditing was reliant on the outsourced services and it intended to have its own internal audit. On irregular expenditure, he said that SANRAL would continue to engage with the National Treasury because it believed that it applied the right formula. Certain expenditure was not worth to be classified as irregular or fruitless. With regard to contracting SMMEs as well as its worth, he remarked that he would be responding in writing and that the question would be elaborated on in terms of a briefing on social transformation. On the question related to women employment, he responded that women were not restricted to cleaners as they were recruited in various levels of employments.

Mr Macozoma said that in identifying communities in which social projects would be conducted, there were two mechanisms that were utilised to identify these communities. In terms of consultation services, he said that SANRAL operated on the basis of a tripartite agreement with other engineering institutions. He stressed that this approach was viable in the sustenance of national roads industry. These institutions would bring the skills that SANRAL would need. However, SANRAL was working hard to ensure that it had in-house skills.

With regards to bursaries, he responded that bursaries and scholarships were allocated first to internal staff and secondly to external staff as well as students. Bursaries and scholarships were advertised through media, universities and other institutions partnering with them. They tried to balance the bursary or scholarship given to university and college students. In secondary schools, the scholarship/bursaries were granted to Grade 12 learners. On the future plan of N2 road in Butterworth, he noted that there was a plan to improve the road to ensure that there was no traffic congestion.

Mr Macozoma said that the Gauteng Freeway Improvement Project had to be resolved as it would ensure SANRAL’s future going concern and possibly enable it to achieve a clean audit. He reiterated that it received an unqualified opinion, as it had in the past. He did not think SANRAL was the worst entity. If the e-toll problem was resolved, then SANRAL would not be lumped together with the other problematic SOEs. A lot of debt was related to e-tolls, as there was an impairment of R3.6 billion so far. The impairment of debt in e-tolls was a serious concern for them. He added that the AGSA was satisfied with its valuation and the logic of its methodology applied. Irregular, fruitless and wasteful expenditure reduced from R1.16 billion to R425 million, over the period. He finally remarked that there was value to private finance and SANRAL would continue to find opportunities to get private investment to develop roads.

The Chairperson said that they have listened and heard SANRAL and they were better equipped than they were in the morning.

Consideration of First Draft of the Budgetary Review and Recommendation Report (BRRR): Formulating of Committee Observations and Recommendations
Advocate Alma Nel, Parliamentary Legal Advisor, took the Committee through the first draft report page by page. She could not read the report word by word because Members were aware of the content of the report. She referred Members to page 31 and pointed out the annual targets. By reviewing words used by various entities in terms of conveying a message that targets were achieved, the report did not use the same words. Technical words to be used were recommended. Overall, financial performances of entities and departments were improved. There was a problem of complying with legislation. She asked Members to go through the observations and recommendations to see whether they reflected their inputs made in the meetings as well as recommendations made by the AGSA.

Mr Ramatlakane said that recommendation 7.4.8 should be revised to state that monitoring activities should be reported to the Committee. The Committee should track and engage with entities on monitoring because it had to undertake oversight in that regard.

Mr Sibande partially agreed. He noted that it should not be a request because the suggestion should imply that the Committee should account to entities.

Mr Radebe said that oversight was necessary to ensure that there was progress as well as improvement.

Mr Ramatlakane said that the SMART principle should be emphasised.  Further, he noted that applicable legislation should be applied, for example, the Companies Act.

Adv Nel noted that the report would be updated and shared with Members for approval. Their further proposals and inputs should be submitted to the legal team.

The Chairperson noted and reminded Members that the report would be adopted on the following day.

Meeting was adjourned.