USAASA briefing; with Deputy Minister

Meeting report

USAASA briefing

Ms J Kilian (ANC) complained that the document given to her was not numbered, and did not include all the pages of the presentation.

Mr Lumko Mtimde, Chief Executive Officer (CEO), Universal Service and Access Agency of South Africa (USAASA) Universal Service and Access Agency of South Africa (USAASAsaid he would be addressing the issues raised at a previous meeting with the Committee. He spoke about the scope of the Broadcasting Digital Migration (BDM) project, and which entitles were responsible for various aspects. These entities included the Department of Communications (DoC), the Independent Communications Association of South Africa (ICASA), Sentech, USAASA, the South African Bureau of Standards (SABS), the South African Post Office (SAPO0 and TV broadcasters. He also referred to the implementation value chain. In 2012, Cabinet had approved a set-top box (STB) subsidy for 5.2m poor households. The Government’s current commitment was to provide 5.2m free STBs, including distribution and installation, but there was no funding committed.

USAASA’s role on BDM and its key deliverables was to enable and facilitate broadcasting digital migration, instal STBs into 5.2m needy households, and to create opportunities for local small, medium and micro enterprises (SMMEs) in the process. USAASA had to develop the qualifying criteria, appoint the manufacturers and installers, subsidise the STBs for the needy households, subsidise and monitor the installations, pay for the warehousing facilities and the transaction fees to SAPO for applications, and participate in awareness campaigns. Project governance was by the Department of Communications (DoC) and the project management office (PMO) and included the responsible entities.

He gave a breakdown of the allocated manufacturing and supply volumes as at August 2015 and described the household qualifying criteria. Installations had started in the Northern Cape, due to Square Kilometre Array (SKA) considerations, followed by the Free State in December 2016. Mpumalanga, Limpopo and the border areas of the North West, KwaZulu-Natal (KZN), and the Eastern Cape were slated to start in March 2017. 26 companies had been appointed, and orders placed with six to manufacture 1.5m STBs. A panel of 27 installer companies had been appointed. 84% of the allocated 298 049 installations had been completed in the Northern Cape, Free State, Limpopo, Mpumalanga, KwaZulu-Natal, Eastern Cape and North West as of 31 January 2018. Expanded Public Works Programme (EPWP) training of additional installers had commenced on 15 January 2018. As at 31 January 2018, equipment had been ordered from CZ-Electronics, Leratodima, Bua Africa, Temic Antennae, QEC Antennae and Ellies.

Mr Mtimde said the key challenges faced were that the tendering process for STB’s had been flawed, there was a shortage of accredited installers because it was a scarce skill, there was already a shortage of DTH boxes, there was a high court case with manufacturers where arbitration was still pending, the transmission network coverage plans remained inaccurate, the installation companies were not locally based, and community awareness and uptake was very low. Another issue was that of stock control, where STBs were leaving SAPO but were not being installed.

The high court hearing for 23 February 2018 had been rescheduled for a date before the end of the financial year, and USAASA was awaiting the Competition Commission’s investigation report and its findings. The Commission had interrogated all the parties implicated in the Auditor General of South Africa’s (AGSA’s) report.

He addressed the legal matters concerning CZ Electronics, Bua Africa, Leratodima and Temic, after which he spoke about the daily rollout scenarios to distribute the subsidised 5m STB kits simultaneously across all provinces to achieve analogue switch off by the due date which was not realistically feasible. Of the 1.5m digital terrestrial television (DTT) and direct to home (DTH) kits, 298 049 installations had been allocated and 254 664 installations had been completed. The central appointment of installation companies had resulted in no local installation companies in the SAPO database, and the issuing of equipment direct to applicants had been changed into bulk issuing to installers directly.

USAASA had achieved 58% of its performance targets as at the third quarter, and the Universal Service and Access Fund (USAF) had achieved 64%. The 2015/16 AGSA report on irregular expenditure findings had been addressed and consequence management had been actioned. Investigations and disciplinary processes were conducted, and an affected employee was found guilty and dismissed. The 2016/17 AGSA finding on irregular expenditure regarding travel management had been addressed and implemented immediately.

Strategic and priority vacancies had been filled, the SAP enterprise resource planning (ERP) system had gone live, and automated systems were in place and condonement was being sought regarding legacy irregularities. The non-achievement on the SAP/ ERP system during the second quarter was largely as a result of lack of system support and maintenance. SAP availability had been 85% instead 95%. Interim support for the system had been approved and extended to 31 May 2018. USAASA was in the process of procuring a service provider for the support and maintenance of the system for a year, due to limited funding. The contract would start on 1 June 2018.

The number of board meetings had been ten in the first quarter, and nine in the second.

Regarding capacity and over commitment, the symposium and digital summits had been value-added interventions by USAASA, in partnership with strategic partners like the National Electronic Media Institute of SA (NEMISA)/Ikamva National e-Skills Institute (INeSi), to stimulate end user demand and avoid having the USAASA rollout become a white elephant, with no usage and impact of the Digital Development Fund (DDF) Bill. It was impossible to receive additional resources and capacity in the light of the economic climate and the impending dissolution and replacement of USAASA by the DDF.

Discussion

Ms M Shinn (DA) wanted to know what the correct figure for the STBs was -- 5.2m, as quoted by USAASA, or the official figure of 5m. Why had the amount of money for STBs been cut, and where had that money gone to? Would the 37% escalation in STB prices be cut out? Were Ernst and Young also being investigated? The Price Waterhouse Coopers report had said there was absolute corruption, and she was astonished that STBs were continuing to be procured from Bua Electronics, despite the corruption claims and the inflated prices being charged. Her view was that the Department of Public Works (DPW) did not have the training to, install STBs. Would the money to use the DPW for installations be coming from the DPW budget? She said only QEC and Tellumat were part of the order process and Ltech had not got an order, so what corruption had occurred regarding Ltech. She said Leratodima was a marketing company and was a front, so would its share of the rollout of STBs be cut?

Mr C Mackenzie (DA) said he assumed that the Post Office had asked for TV licences when STBs were delivered. Why were there no installations in the Western Cape? Was it correct that only one employee had been charged and dismissed? Had this senior manager been put on a list so that other government departments did not hire him, and was the money being recovered?

Ms D Tsotetsi (ANC) said she was concerned about the non-existence of contact centres for the BDM project. The shortfall in using SMEs worrisome, as SMEs had been prioritised by the government for job creation and economic growth, but this was not being implemented in the programme. In future, the SMEs should be prioritised. She wanted information regarding the time frames for implementation of the BDM project. How long did the training of EPWP installers take? She said there was a criterion to follow regarding the advertising of tenders, so what had informed USAASA’s planning, because it had advertised a tender before it had the capacity or resources.

She wanted clarity on when to talk about collusion and corruption. What was the distinction between the two? She wanted confirmation that installer training that was supposed to start on January 15 had indeed commenced.

Ms J Kilian (ANC) expressed her concern over consequence management. The 2016/17 annual report had referred to written warnings, but not final warnings. The cases had to result in criminal charges, so why was this not done? She wanted clarity on USAASA taking advice from the South African Social Security Agency (SASSA) case, where a service provider had been found wanting. Was it correct to have such a process in a contract? Why had USAASA been compelled to go to arbitration?  Was there a standard contract that was used? Had USAASA learnt when to pay who? She said it would be difficult for USAASA to achieve a reasonable installation target. If suppliers did not deliver STBs according to contract, they should be liable for any foreign exchange fluctuations. She wanted to know if heads would roil when the court case came to an end. SOEs needed to get effective management accountability and clean governance.

Ms N Ndongeni (ANC) wanted a list of municipalities where installations had been completed. How many installers were there in each municipality? She wanted a detailed report on the board meetings in the first two quarters.

Ms Shinn said that the June 2019 deadline was not an International Telecommunication Union (ITU) deadline, so where had that deadline come from? She asked what actual numbers USAASA was working to, because 5.2m, and 5.7m had been mentioned in the presentation.

Ms Kilian asked if there were guidelines on board fees and the amount of board meetings. Was there success in recovering STB money via Makahla Attorneys, and who were the service providers involved?

Ms Tsotetsi asked what the criteria were for appointing board members. Were they already members of other boards? After how many absences from board meetings would a person be automatically removed from the board?

The Chairperson indicated his concern at the documents being presented without page numbers. He said boards usually sat for three to four meetings a year. If a board was sitting a lot, it was micro management. This should end, and the Department’s DDG should take responsibility. He asked what risks there were if USAASA did not meet the deadline, and who was responsible if the deadline was not met? Why were installations linked to events like the programme of Ministers? How did this speak to the annual performance plan (APP)? Procurement delays should not happen just because of Cabinet reshuffles. If senior management officials were guilty of a criminal offence, it should be reported to the police.

Ms Tsotetsi asked for a list of names of board members and their remuneration.

Ms Kilian asked why there was an increase in board meetings from 11 in the whole of the previous year, to 19 in the first two quarters. How were capacity shortages being managed by USAASA?

USAASA’s response

Mr Mawethu Cawe, Chairperson: USAASA, concurred fully with the Chairperson’s remarks regarding board meetings, which he acknowledged had a protocol. He said it should be noted that the list contained board sub-committee meetings. USAASA would provide more details and include details of meetings held with the two departments, the Department of Telecommunications and Postal Services (DTPS) and the Department of Communications (DoC). When new ministers were appointed, they requested meetings. The details of board meetings needed to be refined so that they were more detailed, and USAASA would do so.

Mr Xola Stock, Board member: USAASA, said that there had in fact been only two board meetings in the second quarter. The resignation of the company secretary in December had had an impact and he was disappointed that USAASA had come to the meeting with incomplete information. The more detailed board meetings report would include the agendas of each board meeting.

On the senior manager that had been dismissed and his possible collusion with suppliers, Mr Cawe said that it was not just that one member -- another senior manager of operations had resigned regarding a R22m double payment. The service provider involved had made repayment through an inventory offset, and that was how the matter had been closed.

The Chairperson said serious irregularities should never be accepted. If someone resigned while undergoing disciplinary procedures, that resignation request should not be accepted. Then when the person left, they would lose pension benefits. The rule of law must prevail. It was not an acceptable explanation to say that a resignation had to be accepted.

Mr Cawe said that the person involved did not have signing powers, but had initiated the matter. The chief financial officer (CFO) and the CEO had signed off on the matter, making the issue complicated. At one point, the Special Investigating Unit (SIU) had investigated the matter, but they had come forward and blamed USAASA’s control systems. USAASA said that they had initially wanted to fire three people.

The Chairperson said the rot had to be cleaned out of the system.

Mr Cawe said the matter had been spoken about at board level, and had been emphasised more than once to executives and that financial controls were to be strengthened.

He said the delays in the procurement of STBs were due to the Cabinet reshuffles. New ministers wanted to do things differently. When ex-Minister Kubayi was appointed, she had a different view on the procurement of STBs. She felt it had to be watertight and looked at holistically, but then she had left the post.

On why installation was linked to the programme of Ministers, he said that it was because of wanting to raise awareness of BDM. The Project Management Office (PMO) was responsible for driving the project and there was an interdependency between the different entities involved, so the PMO had made the decision to link to a Minister’s programme, and each party would have a certain role at the imbizos.

The Chairperson said he did not support that arrangement. If USAASA was following where the Minister went, then it was losing focus.

Mr Cawe said he took note that the PMO should run its own programme independent of the Minister’s engagements, and the CEO would endeavour to convey this.

The Chairperson said he could not understand that there was not a planned program that had been agreed upon by all the entities involved in the PMO, so that they would not be susceptible to diversions.

Mr Cawe said that there was interdependence, because there were 12 institutions involved in the PMO and there was a Minister who had done things haphazardly. Going forward, USAASA must take a leadership role and implement its programme, and advise the Minister accordingly. In the past, USAASA got direction from the Minister.

Mr Mtimde said that the reason it had followed the Minister’s engagements was because of trying to increase public awareness and public awareness, which was not USAASA role -- it was the DoC’s role, so USAASA could not take leadership for that aspect. What was recorded was a legacy challenge. It had already been discussed that the rollout would be done on a province by province basis in a planned and coordinated approach. USAASA would not follow the imbizo approach. That approach had been used because at that time, the biggest challenge had been that there was no budget, and so USAASA had piggy-backed on the imbizos.

Mr Cawe said that the criteria for board members and the number of absences of board members and board members fees would be sent in a document to the Committee, together with the list of municipalities.

The current contracts had already been signed when he had become involved with USAASA. They were bad contracts and USAASA was trying to work around them. Lessons had been learnt and the second round of contracts would be watertight.

There was still involvement with Bua Africa because when USAASA had cancelled the contract, Bua Africa had invoked the arbitration clause in the contract. He did not think that Bua would succeed because they had failed to meet the requirements in the contract.

The contact centre issue was the responsibility of the DoC. Because it would impact on USAASA, USAASA would be meeting with the new Minister on the funding for a contact centre.

He said the shortfall on involving SMEs was worrisome, because concerns had been raised that the installers were from the big companies. The installers were from smaller companies, and there was an MOU with Ellies, who had to train installers. This was being followed up by management, which was why there was the connection with the EPWP, which was another complementary programme. Local companies and people were sensitive to locals not being used.

On the question of TV licences, he said that ex-Minister Muthambi and the SABC had decided to delink the two. They had said that TV licences would not be a requirement, because USAASA had had a problem deploying STBs because people did not have TV licences.

Ms Shinn said this should have been done via a regulation.

Mr Mtimde said the numbers for households had differed for BDM between 2013 and 2015. The allocation was for 5m at first, but 1.5m had been dealt with so there had been a new funding request for the rest. Whether it would be for 5m or 8m still had to be decided. Because there were legal and other challenges, Treasury had reallocated the unused funds, but submissions had been made to get the money back from Treasury.

On the Ernst and Young issue, he asked that the legal processes be allowed to conclude, and then to follow up with appropriate action after a judgment had been made. One employee involved in the matter, who had been dismissed, had gone to the Commission for Conciliation, Mediation and Arbitration (CCMA), and USAASA wanted to conclude those processes also, but did not see this person winning his case. Criminal cases had been started against two other employees.

On the issue of inflated prices for STBs, he said the USAASA application to the high court had dealt with that matter and they were awaiting that ruling.

The EPWP installers were trained, and had been funded by the DPW.

On the Competition Commission questions, he suggested that the Commission’s findings be awaited to get the full facts. To date, the Commission had found that 11 companies were non-compliant with the Competition Act.

On installations in the Western Cape, he said this was tied in with ministerial policy directive decisions -- for example, starting the BDM rollout in the SKA area and the border regions.

The absence of a contact centre was because it was not funded. Funding submissions had been made to Treasury for a contact centre.

The question on what collusion or corruption was, was a question for the courts or the Competition Commission to decide.

On criminal charges being laid, he said that every case was dealt with on its own merits. There were internal disciplinary processes, after which a decision could be made to take further action against employees.

Regarding the reference to SASSA, he had been referring to the Constitutional Court ruling on the SASSA matter, which had suspended a decision on the spending of public funds in the public interest.

USAASA was committed to cleaning up its act, and had improved its internal controls.

On the question of the ITU deadline, he said that Region One’s deadline was June 2020. It was the DoC which had given the 2019 deadline.  USAASA would establish from the DoC what had informed the 2019 deadline. The risk of not meeting the deadline would be the lack of protection from interference. This was a huge risk which the regulator and broadcasters would have to preside over.

On the Competition Commission matter that was under consideration, Altech was also part of that collusion and it was a complicated matter which was supposed to have been cleared up by Ernst and Young.

Mr Omega Shelembe, DDG: ICT Oversight, DTPS, said that the funding cuts to the USAASA budget had resulted from cuts to the DTPS budget, which had affected the BDM budget. The budget cuts stemmed from attempts to reduce fiscal framework pressures on the government budget -- it was not that the funds had been re-allocated.

The DTPS did not have standardised contract templates. Each contract was unique, and the DTPS did not have the capacity to vet all contracts by entities.

The DTPS was seeking to standardise board remuneration across its portfolio. The remuneration was determined with the Minister and the Minister of Finance. The Department of Public Service and Administration (DPSA) was doing a study on board remuneration, and the DTPS was awaiting the finalisation of this report.

Mr Shelembe said that the DTPS worked on a basis of four board meetings per annum and this was part of the governance agreement. If a board held more than seven per annum, then a report needed to be submitted to the Minister explaining this. Board member non-attendance was a matter that needed to be dealt with by the board, and there were consequences for not attending meetings.

Deputy Minister’s comments

Ms Stella Ndabeni-Abrahams, Deputy Minister of Posts and Telecommunications, referred to the appointment of new ministers, and said that the Portfolio Committee should say that this was what the Department had done, and what it had committed to do and be held accountable for. If Ministers changed things, then they should brief the Committee on the changes to the plan.

On TV licences as a requirement, she said that the majority of STB recipients could not afford to pay the TV licence arrears. The former Minister had said that they could not afford to deprive people of a programme that government had introduced.

Part of the problem with awareness campaigns regarding BDM was that the work was split between two departments -- the entity was based in one department, while policy-making took place in another. USAASA was just the project manager, while the responsibility for awareness lay with the DoC.

On the frequency of board meetings, she said there were challenges in USAASA that the ministry was trying to address, and it respected the separation of powers. The ministry recommended courses of action to the board, but if nothing happened then interventions were necessary. USAASA was an entity that had been delegated to her by Minister Cwele. People had to take responsibility if things were not happening. She was giving notification that, in consultation with the Minister and after consultation, the Ministry would inform the Committee on steps it would be taking on matters they were not happy about relating to the work of USAASA.

The Chairperson said that if the USAASA APP was interfered with, then it would get an audit qualification. USAASA should attach an addendum, signed by the Minister, to say the deviation from the APP was approved.

He said that extra board meetings should not be tolerated, and that the expenses should be deducted from the responsible official. This had occurred in the case of the SABC.

The meeting was adjourned.