PMTE Real Estate Management; DPW Small Harbours & Coastal Development lease management progress

Public Works and Infrastructure

28 August 2018
Chairperson: Mr H Mmemezi (ANC)
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Meeting Summary

The Small Harbour and State Coastal Property Development Unit (SH&SCPDU) of the Department of Public Works (DPW) briefed the Committee on the role of the Unit, the challenges faced and the plans it had for small harbours and coastal properties in the country.

Members were told that the Unit had 333 lease agreements in place at the moment. The leases generated annual revenue of R16.7 million and had created approximately 5 594 jobs. In order to address challenges with the current letting process, the DPW, in partnership with the National Treasury (NT), had structured a new letting framework. The framework had an empowerment strategy focusing on creating opportunities for women, persons with disabilities and youths, and employment potential for disadvantaged local communities.

The Unit had made a funding request for R163 million, part of which would go towards the convening of Operation Phakisa’s small harbours mini lab. The lab would provide a menu and identify the best suited place for a particular development. It would be convened in November 2018, and the DPW would have the results by February next year. It had a repair programme focusing on security, and the bulk of the funds would be directed to have the Hout Bay harbour secured. Certain steps had been taken to improve lease management and revenue generation, and there would no longer be nominal rents. The phasing out nominal rents would not kill businesses, but would require them to pay for rates, taxes and a 20% administration fee.

Committee members requested the DPW to provide the number of all its coastal properties, including the vacant ones, with information on their size and the beneficiaries of the leases. There was concern that of the 333 lease agreements, 269 were in the Western Cape, but there were none in the Eastern Cape. The DPW responded that it had a lot of properties along the coast that were not surveyed, and it was in the process of establishing an audit to identify the properties that belonged to it.

It was agreed that the DPW would revert back to the Committee on the questions asked, and that a day would be scheduled for the issues to be discussed further.

Meeting report

Small Harbours and State Coastal Properties Development Unit: Lease management

Mr Riyaadh Kara, Quantity Surveyor and Project Manager, Department of Public Works (DPW) began the presentation by taking the Committee through the three main functions of the Small Harbours and State Coastal Properties Development Unit (SH&SCPDU). These were:

  • Management and development (planning, construction and maintenance) of state-utilied infrastructure;
  • Coordination and integration of sector Department plans in Small Harbours (Operation Phakisa);
  • Revenue generation through letting out of state-owned properties.

The SH&SCPDU identified what it owned and what the deficit was. The work was integrated, and an efficient harbour required both government and private investors. If investors did not see any movement from government in terms of making the harbours better, the investors would not come.

The lease portfolio of the Unit was comprised of 333 state coastal letting out agreements. The bulk was within the Western Cape, since the bulk of the harbours were in Western Cape. The DPW generated an annual revenue of R 16 702 251.The total number of jobs created from the leases was 5 594.

In order to address the challenges of the current letting out process, the DPW -- in partnership with the National Treasury (NT) -- had structured a new letting out framework. The framework offered a more progressive method of collecting revenue and allowed the DPW to renegotiate leases. The new framework would have processes and systems, and governance and evaluation tool kits. It also had agency agreements with municipalities should the need arise. It was applicable to existing tenants, interested investors, entities which had previously applied to the DPW, and state-owned coastal properties managed by municipalities and estate agents. The letting out would be done in an open environment. Companies would have to meet mandatory requirements. The DPW had also taken a stand not to go into business with companies which had bad credit profiles.

Mr Kara said that most of the leases ended in June, and that the SH&SCPDU would renew them for one year before it renewed them for longer periods. The advertisements would be published in December 2018.

There were different tool kits for tenant classification. The DPW had made classifications based on annual turnover. Micro enterprises were those tenants with an annual turnover of less than R1 million. Very small enterprises were tenants with an annual turnover of more than R1 million, but less than R10 million. Proposals would be evaluated according to the size of the business, to ensure a fair and equitable process. There was also a focus on an empowerment strategy aimed at creating business opportunities for women, persons with disabilities, and youth, and employment potential for disadvantaged local communities. There would be specific concessions for informal businesses, non-profit organizations (NPOs), such as the National Sea Rescue Institute (NSRI), micro enterprises and cooperatives, where the rent to be charged would be limited to the basic rates and taxes levied on the property by the municipality, plus a 20 % administration fee.

He reminded Members that when an oversight trip to the Eastern Cape had taken place, the Unit’s funding challenge was briefly discussed. The total funding request had been for R163 million, and one of the reasons for the request had been to enable the convening of Operation Phakisa. There was also the challenge of a lack of a technical team. There had been no funding allocation for the appointment of technical advisory services. The SH&SCPDU had submitted an internal memorandum to the Property Management Trading Entity’s (PMTE’s) acting head of finance for R20 million. An additional request had been submitted on 20 August 2018, as the DPW was undertaking its annual budget relocation process.

He also informed the committee that certain steps had been taken to improve lease management and revenue generation, and that there would no longer be nominal rents. Operation Phakisa would show the potential of integration. The Phakisa lab was very critical, as state departments would create a one stop measure. The SH&SCPDU had made a submission to NT, and this had moved to the second phase. The request was for R6.5 billion for a period of 12 years. An official from NT had visited the sites and had been able to see the potential of the harbours.


Mr M Figg (DA) sought clarification on the 333 properties which had letting out agreements, asking the DPW to provide the total number of properties that could be leased out, including vacant properties. On the annual revenue of R16 million from the 333 properties, he calculated that the figures translated to R50 000 per property, and R 4 180 per month. He asked for an explanation of the figures, considering that Mr Riyaadh had stated that there would be no nominal rent. Regarding the new framework, he asked for information on the time that it would take to allocate property to an interested party. He also sought confirmation on whether the leases would be long or short term in cases where the leases were linked to fishing quarters. Would the Unit be able to implement the development plans when it had been given only a small percentage of the R163 million requested? Some tenants relied on nominal rents to maintain their jobs, so he wanted to know whether there had been an analysis on the loss of jobs should the rent be increased.

Mr D Ryder (DA) agreed with Mr Figg, and said that he too wanted information on how many properties were available. In the new letting out framework, he was not seeing any reference to the Government Immovable Asset Management Act (GIAMA), which should be informing the framework. GIAMA should guide on how to manage the assets. He observed that the DPW was asking for an investment of 10 times what it was recouping as revenue, and asked it to clarify whether after such a huge investment, the amount of revenue collected would remain the same.
Ms E Masehela (ANC) said that she wanted a breakdown per province of the 333 properties which had letting out agreements. She also had not heard any mention of issues to do with security from the presentation. She asked the SH&SCPDU to clarify the profiling of tenants, because the profiling could be used to marginalise those already marginalised. She asked what the longest lease period was under the present letting out framework.

Ms C Madlopha (ANC) agreed that the Committee required more clarity. What had been presented was what was leased out, but the Members wanted to know the total number of properties. She asked whether the rent on the leased properties was in line with market value. She gave an example where Committee Members had gone to Hout Bay and discovered that the tenants there were still paying nominal rents. She also asked the DPW to clarify what was wrong with the current disposal policy, since Mr Riyaadh had mentioned that the Unit could not work with it. Why had the DPW had discovered only towards the end of the Fifth Parliament that the policy could not work?

She asked what the Unit was using for new investors and tenants wishing to renew, since the new letting out framework was yet to be implemented. She pointed out that the majority of South Africans did not participate in the property business, and wanted to know whether the new framework reflected the need for transformation. The Committee wanted to see small harbour development taking place, and not just in theory.  Small harbour development was needed for job creation -- when would the DPW come and give a report on what was in place, and the implementation of the projects?
Ms D Mathebe (ANC) asked about the role of the different departments in respect of Operation Phakisa. How many people were employed at each harbour? Was it South Africans or other people who were controlling the harbours? She commented that the presentation had indicated that in Eastern Cape there were no small harbours, and wanted to know whether this was actually the case. The Department had indicated one of the challenges as bottlenecks and red tape, and asked to be specific and advise what the Committee could do to assist.

The Chairperson said that the Constitution spoke of transformation, yet those privileged under apartheid were still benefiting. This was reflected in the Eastern Cape, where there had been no attempt to reverse the imbalances of the past. Was there social justice in practical terms? Small harbours should be established where there had been nothing before, for example, in the Eastern Cape. This was not being done because there were no white people there -- only labourers were found in the Eastern Cape. He asked who the people owning properties at the harbours were, and what the size of those properties was. More than 61% of blacks, 40% of coloureds, more than 5% of Indians, and 1% of white people were still in poverty. What was being done to empower these people? He said that the small harbours could make a difference and that the DPW was missing an opportunity to reverse the imbalances of the past. He wanted to know what the plans for the Eastern Cape were. In the Western Cape, the number was 269. He asked for transparency on who was benefiting, and what the sizes of the properties in the Western Cape were.

DPW’s response

Mr Francois Gerber, Property Investment Manager: DPW, responded that the DPW would do everything to be transparent. He reminded the Committee that during its visit to the Eastern Cape, the SH&SCDPU had asked if it could make a presentation to the portfolio Committee on all that it was doing. He clarified that there was something happening in Eastern Cape, and that the Unit would brief the Committee on all that was happening. He confirmed that the DPW was removing sand and opening the harbours to make them economically viable.

Many of the questions raised would have been addressed by the Property Management Trading Entity (PMTE) real estate management services, who were not present. Most properties were in the 12 proclaimed official harbours, which had very limited properties. The SH&SCPDU was responsible for all coastal properties, and there were a lot of properties along the coast that had not been surveyed. The Department was in the process of establishing an audit to identify the properties that belonged to it. The numbers given were just leases, and were not an indication of all the properties the DPW had.

Ms Madlopha commented that the presenters were saying that the report presented was not complete. She confirmed that the Committee had visited the proclaimed harbours and seen the people who were benefiting. She also noted that the proposals had not been costed, a situation which was not assisting Members.

Mr Riyaadh confirmed that the 333 were the properties leased out, and asked to be allowed to provide a list of all the properties at a later date. On the revenue received, the DPW had some properties with nominal leases, especially in KwaZulu-Natal (KZN). The properties with nominal leases offset a lot of the bigger ones.

On the turnaround time for investors, he said that the DPW was planning on a turnaround time of three months. On why it was taking long, he said the DPW was currently not signing new leases, as it was waiting for implementation of the new framework. He confirmed that the leases were linked to fishing quarters, which included both long term and short term leases.

On the funding request, he directed Members to the presentation which provided a breakdown. R18 million would go to the Operation Phakisa lab, and R60 million was for basic marine infrastructure funds. The priority was to convene the Phakisa lab, and the DPW would be using the bulk of the budget to implement it. The challenge, however, was the lack of technical advisory services, in excess of R1 million. He confirmed that the DPW would implement the framework, regardless of the limited funds.

On the question of whether the nominal rents would affect people’s jobs, he responded that the framework would not kill businesses. Businesses were paying too little, and the DPW had to receive the minimum that at least covered the rates, taxes and 20% administration fee.

He confirmed that the new letting framework had looked at GIAMA, the disposal policy and debtor’s policy. The DPW had tried to see how it could refine all these policies in order to have a better framework.

The Phakisa lab had been prioritised for this financial year. It would allow integration, and the DPW would spend at least four weeks doing the costing. The lab would provide a menu and identify the best suited place for a particular development. He added that the Director General (DG) and the Minister were happy to have the lab convened. The lab would be convened in November, and the DPW would have the results as from February next year.

On the question of security, he responded that the repair programme was based on security. and that the bulk of the funds would be directed to have Hout Bay secured. The DPW had had success in removing sunken vessels which had created jobs, and in the process the DPW had established a good engagement with the community.

Ms Madlopha asked whether the Public Finance Management Act (PFMA) was not enough to guide the DPW to review the leases and have the properties charged at the market rate.
Mr Gerber responded that the PFMA served as a guideline. The SH&SCPDU had made a categorisation of four types of companies. It evaluated the historical background of companies and their ability to get funding. In order to move forward, the DPW required a valuation by the State Valuer, who would advise on the minimum amount it could charge.

Mr Riyaadh added that the letting out framework prescribed that companies must use the communities in the local area, and this would allow for a lot of jobs to be created. The Phakisa lab would give all the outputs and once the process was completed, the DPW would have more accurate figures on the gross domestic product (GDP) contribution and job creation. He would want a day to be given for him to report back to the Committee on the results of Phakisa.

On the roles of the different departments under operation Phakisa, a governance structure would be established. There would be a small harbour secretariat, chaired by the Deputy Director General (DDG), which would report to the small harbour steering committee headed by the Minister. This steering committee would then report to the inter-ministerial committee of Operation Phakisa. The Departments would include Agriculture and Fisheries, Environment Affairs, NT, Transport, Labour, Small Business Development and Tourism.

He added that the DPW would provide more details on 5 594 jobs that had been created from DPW leases.

The Chairperson agreed that the issue should be discussed further at a later date. It was an important issue, because people were fighting over jobs and the economy. Developing the easiest small harbour was not developmental -- development must seek to open opportunities where there had been none. He urged that decentralisation should take place and opportunities opened elsewhere. He insisted that the DPW should work to secure existing harbours, giving the example of Hout Bay, where people were using guns to take over.

German study tour
The Chairperson informed Members that the German study tour had been approved, but the number of Members had been reduced from 12 to seven. The ANC had been given four, and three would be given to other parties -- the IFP, UDM and DA. This was a recommendation, and he asked to hear from the DA.

Mr Figg responded that it was difficult, because the smaller parties were in other committees and were included in other study tours.

The Chairperson said that another consideration would be to select based on participation, and have Mr Filthane and Mr.Sithole.

Mr Figg said that that proposal seemed more acceptable, but he would have to discuss it with other party members and revert back to the Chair. He confirmed he would do that as soon as possible, since the trip was set for 8 to15 September.

The meeting was adjourned.


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