Department of Telecommunications and Postal Services, SENTECH; Broadband Infraco + USAASA and USAF on Quarter 1 & 2 performance

Meeting report

Opening remarks

The Chairperson welcomed the delegations and stated that the Committee was behind with the period in which it should be receiving the presentations for the quarter. Apologies from both the Minister and Deputy Minister were received, as well as the Director-General and the Chairperson of Sentech who was said to be out of the country.

He emphasised that Members did not want to hear about the compliance but where the department (and the entities) have failed, how it was addressing the failures and when can the Committee expect the conclusion on those failures.

The Chairperson asked that the briefings focus only on the challenges faced by the entities.

Briefing by Department of Telecommunications and Postal Services (DTPS)

Ms Thulisile Manzini, DDG, DTPS, said that, in the first quarter, 22 out of 26 targets had been achieved and in the second quarter, 20 out of 23 targets had been achieved.

Mr Farhad Osman, Chief Director: Strategic Planning and Monitoring, DTPS, said the four targets not achieved were the finalisation of its organisational structure, the revision of prioritised Bills, the broadband connectivity of 200 sites, and conducting a preliminary technical and regulatory studies in preparation for WRC- 19 and the development of a first draft report.

Mr Osman said that in the second quarter the DTPS did not achieve 3 of its 23 planned targets. The DTPS was not able to conduct job evaluations for the newly created posts and revised jobs as planned, however the analysis of employee qualifications and experience was conducted for all employees. While a draft business case was developed on SAPO as an e-commerce hub, there were delays in submitting the business case of SAPO for approval. DTPS had not connected an additional 800 broadband sites but had signed service level agreements with SITA and BBInfraco who would be the service providers to implement the rollout.

Ms Joy Masemola, Chief Financial Officer, DTPS, said the DTPS had spent 21% of its annual budget of R1.6b at the end of the first quarter and 45% by the end of the second quarter.

Discussion

The Chairperson stated that the DTPS has not helped the Committee but simply reiterated what was in the presentation, and not addressed why there was underperformance and what measures are being taken to correct the situation. In making a presentation, those are the things that should be presented. The DTPS was given 100% for the quarter but it has not utilised it, so the Committee was interested to hear about the reasons why the 100% allocated for the quarter was not achieved, the implications in terms of what needed to be done, the corrective measures that need to be put in place and at what stage those corrective measures are going to be implemented, and when would the plans be achieved.

He requested the DTPS to re-do the presentation bearing in mind what he had has just alluded to: basically the presentation must be drafted in the context of highlighting the issues, and how the Department plans to address those issues.

Ms J Kilian (ANC) stated that she partly agreed and disagreed with the Chairperson. She did not read it as though the Department was supposed to achieve 25% because it was the first quarter, and then 50% in the second quarter. She advised the Committee should look at the percentage spent in the last column, in the case of ICT international affairs it makes sense because of its membership to an international body which is payable in the second quarter.

However, she wanted to know why only 17% of the ICT Support budget had been spent as this was a major item accounting for 64% of the total budget. She asked for an explanation of this. If you look at the allocation in the second column (the percentage of budget), it is getting quite a significant portion, so what was the anticipation of the Department and what has given rise to only 17% spending there. When it comes to economic classification, she had a similar concern; it appears that the compensation of employees was on target (24%) but the reference to goods and services, what was the anticipation of the Department in this regard as well. Usually, there is a slow start at the beginning of the financial year, but the Committee does not want to see “hockey stick expenditure”.  In the same spirit, she wanted to know when the second component due for Sentech dual elimination is.  

Ms Kilian was concerned about areas of underperformance, asking why the organisational restructuring was taking so long and why it had failed to reach its connectivity targets. She said the DTPS needed to get effective governance of core issues such as SCM and HR management and asked how many officials had been disciplined for failing on their performance agreements and for irregular expenditure.

Ms Manzini explained the representation of the columns: the Department expected that the expenditure at the end of the first quarter to be at 25%. As for international affairs, the Department makes payments when the exchange rates are favourable on the Rand. This time around, the Department took advantage in the first quarter of the financial year in order to take advantage of the exchange rate, hence the expenditure on international affairs (international body membership) was high. The Department has a saving in terms of the consultant expenditure because it utilised its internal function instead of utilising external consultant to plan the bill.

Under infrastructure support, nothing was spent on the broadband project by the end of first quarter; hence the 17% seemed very low.  The Department is currently looking for ways to spend the money but the appointment of the service providers is yet to be appointed that is why the figure is still low. On economic classification, the compensation of employees, the department unpacked the R1.6 billion, R240 million was allocated to the payment of salaries. By the end for the first quarter, 24% of the budget was spent. There were vacancies, but at the end of the quarter they were not filled.

On goods and services, the broadband project falls under the classification – 5% of the 36% budgeted allocation was spent. With regards to transfers and subsidizing, the department is sitting at 31% - the Sentech migration of digital signal, the department paid 100% of the allocation instead of breaking it down. Under payments for financial assets, this is not normally budgeted by the department.

On the international membership fees, as already alluded this was paid in the first quarter.

Ms D Tsotetsi (ANC) wanted the achievements of the DTPS also noted. She said the fact that travel expenses had not been budgeted for said something about the DTPS planning. She asked how the funds that had been shifted had impacted on the program from which it had been taken from. Regarding the matter where the DTPS did not use a service provider and did the work itself, she said that by implication the DTPS did not need service provider.

Ms M Shinn (DA) said it was disturbing that there was no word in SONA on SA Connect as it had been mentioned in all SONAs since 2015. Would the restructuring of the DTPS be robust enough to accommodate re-merging with the Department of Communications? She said it was disturbing that there was still a paper chase for R100m missing since 2010 and asked if that related to the Media Corner issue. What was the status of the three bills out for public comment and when would the bills go to Cabinet? Had the socio-economic impact assessment studies of the bills been done?

Mr C Mackenzie (DA) asked what a ‘brown bag’ and a ‘leadership and alignment’ session was. He asked if the DTPS had a hedging strategy for known foreign currency expenditure and were there any foreign exchange payment amounts outstanding.  

Ms N Ndongeni (ANC) wanted to know the time frames around broadband connectivity rollout and two infrastructure sites.

Ms Manzini said it was true that the restructuring had taken too long and that the issue had been the service delivery model which had finally been accepted by the DPSA. The DTPS had since developed a functional structure and appointed a company to assist with the development of the organogram. There was nothing official regarding a re-merging of departments. She said she took consequence management seriously and the CFO was dealing with R111 million issue arising from the time the DTPS and the Department of Communications were still one department. Unfortunately, most of the people involved were no longer in the department. Two people had not submitted their performance agreements and they were being brought to book.

With regards to the ‘brown bag’ session, this was when all employees were called together to discuss a particular topic around the culture and climate of the organisation. Leadership breakthrough alignment was an issue that had been raised and DGs and DDGs were called together on the issue of Culture and Climate because leadership had to be dealt with first, before trying to implement it in the organisation. The DTPS were currently dealing with a leadership charter. For 2017/18, 30 interventions had already been implemented.

Ms Mameetse Masemola, DDG: Policy, DTPS, addressed the question on the Postal Services Amendment Bill. The Department received 12 submissions last year from stakeholders ranging from the three associations such as the SA Parcel Association and private companies. The Department had a stakeholder workshop on 17 January. Normally after the bill has been gazetted for public consultation and inputs have been received the bill would be re-drafted, and stakeholders would then present their submissions in Parliament. The DG has been quite clear that the Department needs to have an engagement with the stakeholders on the written submissions submitted, so that the Department can determine whether there would be a meeting of the minds in terms re-drafting the bill. The same format is going to be applied to the electronic communications amendment bill, so far 43 submissions has been received for the electronic communications bill. The DTPS is currently analysing and reading the submissions, because it must form part of the CIS report that is required by DPME as part of the finalisation. On 6 and 7 March stakeholders who had submitted written inputs can engage with the DTPS. DTPS was working with DPME on a cost benefit analysis of the ECA bill.  The bills must also still be processed through government structures like the DG cluster forums and Cabinet and they expect to send the bills to Parliament in the third quarter.

Mr Omega Shelembe, DDG: ICT Oversight, DTPS, responded to the Inesi bill and said that the DTPS had submitted timelines the previous year and it would be presented to Parliament in 20 March. In terms of progress so far, the bill was published in November last year and the Department engaged with the stakeholders that made submissions. It had been sent to the DG cluster the previous week, and it was approved. The bill will then be sent to Cabinet early in March.

Mr Tinyiko Ngobeni, DDG: ICT Infrastructure Support, DTPS, responded on SA Connect question and said the DTPS had previously noted the many attempts to unlock the issue of the appointment of a service provider, Members would note that initially it was Telkom that went through SITA for a tender process until beginning of the year when the DTPS decided to use its own agencies. It had to engage on the intergovernmental framework and transfers after having decided to use government entities. It had had discussions with Treasury over the issue of transfers and has issued an order for SITA to start the roll out, it committed to complete some of the sites by the end of this financial year, and commence with the rest in the following financial year. Similarly, for BBInfraco, it would be issuing an order for BBInfraco to start its rollout in a week or two. However, Treasury indicated the Department can not abdicate its monitoring, compliance and performance responsibilities to Infraco. The Department has managed to develop a framework to facilitate that monitoring and it was sent to Treasury for review. Once the Department receives that it should be able to issue the order to Infraco, obviously that has affected the progress of the roll out but now the procurement has been sorted out, there should be momentum in the coming month. In terms of planning which should be informed by the budget and the capacity as raised by Ms Tsotetsi, the complexity around appointment affected the expenditure on the programme; hence, it started working with the SITA to start the process of appointment and resolve some of the issues. The proof of concept was concluded for two sites in the Eastern Cape. On why SA Connect was not mentioned in SONA, he said broadband was part of the nine-point plan of government to stimulate growth. DTPS was working with Treasury and development finance institutions to raise funds for phase two. Treasury has established an infrastructure funding facility, through that it should be able to address some of the funding constraints and challenges on the procurement. The Department can provide the list of the two sites in the EC that have connected as part of the proof of concept. In terms of the timelines, the department plans to finalise the issue of the order to BBI in the next week or two and they can start the roll out and possibly cross over to the next financial year.  

Ms Masemola said that sometimes the DTPS received requests for travel that were not planned for.

On the shifting of funds, she said it used funds where there was no movement occurring for example money saved from leases were used to fill in. On the Media Corner issue, the matter was still at the courts and there was another matter of R40 million relating to a travel agent who was also at court. The DTPS did have irregular expenditure in their register until the court processes were completed. Lastly, DTPS did not have a hedging strategy and that all international fees had been paid, and foreign payments were done through the Treasury.

Mr James Radebe (Chief Director: Internal Audit) responded that the DTPS was working on an integrated governance framework. A key area was SCM and the DTPS was working with branches to ensure that compliance was not seen as an afterthought.

Briefing by SENTECH

Mr Mlamli Booi, CEO, Sentech, said Sentech had achieved seven of the nine Key Performance Indicators for the first quarter. He said revenue was 4% below budget, informed by the challenges of sluggish economic growth and a weak Rand /dollar exchange rate.  This had led to the organisation putting the brakes on its spending because of cash flow pressure. He said SENTECH had been bullish on new products, but the markets had not responded as expected. He said the same challenges were present in Quarter two as in quarter one and revenue was down 6% below budget. The revenue target was missed mainly due to a deficit in the connectivity and DTH services. The target for the installation of 550 DTT national viewer sites was missed.

Briefing by Broadband Infraco (BBI)

Mr Ian Van Niekerk CFO, BBI, presented the second quarter report as the same issues were found in the first quarter. He said BBI had not achieved its revenue target mainly due to the delayed sales billing cycle. Management had added capacity to the sales team and this had borne fruit in the form of new sales. By the end of quarter one it had generated R70m new sales and by end quarter two R114m. Cost of sales had been renegotiated to effect savings.  It had not achieved its target of putting in place cybersecurity at Sheshigo High School.  He said the company was trading positively, from an operational point of view, for the first time in ten years and that costs were under control. It had approached the DBSA and the IDC to fund the deployment of infrastructure for specific projects. Of the audit findings, ten had been resolved with only two outstanding, the first was the issue of BBI as a going concern and the second was that BBI’s memorandum of incorporation was still outstanding.

He said the operational loss of R127m was due to lower revenue. The billing to revenue cycle was getting longer

Briefing by Universal Service and Access Agency of South Africa  (USAASA)

Mr Mawethu Cawe, Chairperson of the Board, USAF, said USAASA had had three Ministers and each Minister had had his own views on the Project Management Office.

Mr Lumko Mtimde, CEO, USAASA, said the targets not achieved in the first quarter were: not developing the conceptual framework and business case on Digital Development Fund Bill; and not developing the Smart Communities Masterplan as well as the approach to be followed. In quarter two, it had not achieved the targets for PFMA compliance in that invoices were not paid within 30 days and cell phone payments above entitlements had not been recovered; it only achieved 86% implementation of the AG’s  audit action plan; there was a lack of sufficient controls to stop irregular expenditure; the lack of support and maintenance to the SAP/ERP system affected business processes and systems; the implementation of the annual training program; the annual industry symposium was not hosted because of a lack of stakeholders available on the target date; lack of compliance with performance information standards; questions on the reliability and usefulness of reported information. He said many senior management vacancies had been filled.

Mr Mahomed Chowan, CFO, USAASA, said there was a deficit at the end of the second quarter mainly because of general expenses totalling R70.9m and this was made up of BDM warehousing and logistics which accounted for R54.2m and legal fees incurred in defence of the BDM project brought by suppliers which totalled R11.3m. USAASA wanted to go the arbitration route to settle the matter and had applied to the Treasury to roll over funds.

Discussion

Ms Shinn asked for details on business opportunities in Africa, she noted the Central African Republic. She asked if Sentech’s agreement with Intelsat for rural access had been done through a public tender.

Mr Booi said Sentech’s strategy was to expand into Africa and the target had been the Central African Republic where it had signed an agreement to provide short wave broadcast services, but the expansion is an on-going process. It had not started implementation as yet and in other countries, developments were still at the proposal stage and business development. In addition, it was approaching the sister companies to team up with them should those opportunities arise.

With regards to Intelsat venture, it had been an Intelsat initiative to make a contribution to bring about ‘internet access for all’ project in rural areas and therefore there had not been a public tender, but a response to an offer on enterprise development by Interlsat. Intelsat provided the satellite capacity and Sentech had to provide the ground terminals. The venture came at no cost to the organisation; however, only on the terminals as part of enterprise development and CSI.

Mr Mackenzie asked what the position of BBI, as a going concern, would be in the following two quarters.

Ms Tsotetsi asked about the duration of the internships and whether there was follow up after training to ascertain whether the interns have received any employment. She said the Western Cape was always in the forefront when it came to connectivity and that there needed to be a balance between the provinces.

Ms Kilian said that BBI was not meeting its revenue targets and asked if its systems had been improved.

Ms Shinn asked if BBI had received any funds for SA Connect in the past few months from the DTPS, would funding be part of the new budget to be revealed the following day. Secondly, she wanted to know whether SA Connect model had changed.

Mr Niekerk responded that that there were no major changes between quarter two and quarter three, but the situation had not worsened because BBI had managed to generate new revenue. The decrease in revenue was caused by the decrease in revenue from SITA.

Mr Matseke added that the intention and objective was to absorb all the interns once they had completed their internship development program, this was achieved. In addition, there have been a few instances where some of the interns have gone to find jobs somewhere else, but the organisation always aims to achieve the full complement of absorbing the interns. The training duration was two years. With regards to the Western Cape being compared to other provinces, there is a legacy of the national footprint of the fibre network form Infranco. This has changed and it will continue to change depending where the customers are but SA Connect would influence the areas that could be covered.  

On BBI’s systems and its capability to meet its mandate, the BBI needed to focus on improving its sales and revenue. This was the main focus of the organisation. He expected BBI to start meeting its revenue targets by the end of the following year and BBI would be aware that it should not use the SA Connect funds as a subsidy. BBI had been in discussions with the Treasury and DBSA over their funding which was a constraint. The costs were being managed and there was an established system put in place to deliver operationally on the mandate, one of the constraints that have been faced in last couple of years was funding. However, the BBI engaged with the department and Treasury to sort out the ability to fund further expansion, including expansion that is not directly linked to SA Connect.

An Official stated that the fact that there were only 12 audit findings, the BBI was able to roll out the SITA NGN network worth about R200 billion and be able to provide services on a monthly basis. That talks to the ability of the company, even though it is a small company – it is able to deliver on large projects as well.

Mr Matlole Mampshika, Acting DDG, DTPS, said the issue with BBI was due to moving from services funding to infrastructure funding because there was a need for significant infrastructure for phase two.  BBI would look for this funding but would still carry on its services basis.

Ms Kilian proposed that a proper session be held with USAASA because it drove digital migration. She believed USAASA did not have effective systems and controls in place. She asked how USAASA could perform if its SAP ERP system was not in place. She wanted to know more about the STB program. Was there a plan to roll out STBs? What was the position of companies which were supposed to roll out STBs? How much of Broadcast Digital Migration monies had been spent and what was still available?

 

Mr Mackenzie was concerned about the lack of controls to prevent irregular expenditure and that this matter should have been attended to already. He asked whether the stock count was still valid regarding STBs. Why was the DTPS ordering more aerials than STBs? He said comments such as work was “in progress” was not informative and wanted more detail.

Ms Tsotetsi seconded the call for a special engagement with USAASA. She asked for comment on the fact that payments were not done within 30 days. She asked whether the candidates who were filling in the vacant posts were actually qualified for those posts. Lastly, she wanted to know the number of meetings that board members attended.

Ms Shinn believed that USAAASA had too much work to do. She said USAASA was hosting a symposium and questioned whether this was not wasting time that could be better used. She said the SAP system was a very expensive system because its services and support costs were very high. She hoped that criminal charges would emerge from the digital migration program and wanted a two-day public participation program on the BDM program. Because she did not believe the current model worked.

In reply to Ms Killian, Ms Shinn and Mr Mckenzie, Mr Mtimde said that the workload of USAASA had increased but not the capacity of USAASA.

He said the symposium needed to be held to stimulate end user demand otherwise the initiative would be a white elephant. Secondly, the order for antenna was the same as for STBs. He was also surprised to discover, when he started, that SAP came without support and maintenance.

Mr Chowan responded that with regards to the controls to stop irregular expenditure, the irregular expenditure related to the BDM process was the single biggest item and management had actioned the AGs findings and disciplinary processes had been followed and an official had been dismissed.

Mr Cawe responded that the USAASA contracts had been signed by previous boards. Some of the contracts allowed for the companies to decide how much antennas to supply. Some of the companies did not have content certification. USAASA needed to sort all these issues around the contracts out. On the SAP issue, he said it was correct and the CEO was dealing with the matter and that consequence management was taking place.

The meeting was adjourned.