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DEFENCE PORTFOLIO COMMITTEE
16 September 2003
ADJUSTMENTS BUDGET REQUIREMENTS FOR FINANCIAL YEAR 03/04
Documents handed out
Adjustments Budget Requirements: Financial Year 03/04
Department of Defence (DoD) delegation: Mr Jack Grundling, Chief of Finance; Mr James April (Chief Director: Budgets), Mr Rautie Rautenbauch (Director: Budget Control), Mr A Visser (Chief Director Strategic Management), R Adm Rolf Hauter (Chief Director: Strategic Planning) and General Lusse (Deputy Chief: Joint Operations).
The first 'iteration' of the proposed Adjustments Budget Requirements for this financial year was presented. This will be given to the Treasury Committee in Cabinet in October 2003.
The Committee was concerned about the uncontrolled increase in personnel costs and the absence of a personnel exit mechanism in the SANDF. The Defence Department reported that the absence of an exit mechanism had cost it in excess of R5 billion since 1998. The mechanism of employer enforced redeployment packages is still being negotiated.
It was clarified that budgeting for anticipated foreign deployment may not appear in the normal budget but only in the adjustments budget. Regarding the Burundi deployment, it was noted that the UN will only get fully involved once there was cease-fire. The AU had undertaken to raise funds from the international community to meet the SA deployment costs for 2003 in Burundi. The budget is being finalised and then a pledging conference will be held to raise the funds.
Mr Grundling noted that the presentation document had been prepared by the Defence Programme Budget Evaluation Committee which had met in August 2003 to evaluate the execution of the 2003/4 Defence Budget and to investigate what supplementation was needed for unforeseeable and unavoidable expenditure. This would be submitted to the Treasury Committee of Cabinet who will meet in October to consider supplementing the current allocation. The DPBEC will use the opportunity to propose a mid-financial year adjustment to the Defence Budget and also to offer up, if any, savings effected by the Department to National Treasury.
Mr Rautenbauch presented the proposed Adjustments Budget Requirements for the Financial Year 03/04 (see document).
Mr H Schmidt (DA) indicated delight with the manner in which the Financial Department was working with its financial resources. He wished this kind of discipline upon the whole Department. He asked about the amount of R30m (transfer to Armscor) which differed from the R15m indicated on the slide. He agreed with most of the sentiments expressed in the presentation, in particular, the need to avoid the R802m being categorised as over expenditure. His party will out of necessity support the request for the adjustments because it was a situation forced upon the Department.
DoD Response: Armscor is currently receiving R209m this financial year as a transfer payment for the work they are currently doing for the Defence Force (SANDF). They indicated that they had a shortfall of R60m on their budget. The SANDF was never in a position to fund Armscor fully. There was a consideration that Armscor conduct additional business other than business conducted with the SANDF. With the profit they could cover half of the shortfall. The SANDF would look at the other R30m. The SANDF will within the adjustment budget framework, plan for providing that R30m for 2004. But because half the year has already past, they thought it reasonable to offer R15m. Hence the R15m indicated on the slide.
Mr Blaas (ACDP) asked the following:
- Could they confirm that the policy is that foreign deployment should not be budgeted for in the normal budget but instead be included as an expense in the supplementary budget?
- Participation in peacekeeping operations in Burundi was supposedly dependent on the conditions the UN would regard as favourable for their own troops to be deployed. How favourable will these conditions have to be and what implications could the takeover by the UN have for SA financially?
- Referring to the self-funding comments made during the presentation, was that over and above the existing budget or was it deducted from the supplementary budget?
- For the roll over claim, had the two projects mentioned, been finalised?
DoD Response: Referring to the deployment policy, the experience was as follows. Although they could anticipate that they would be deployed the following year, they may not budget for it since it was difficult to determine the location, the exact time of the year or the force level that would be required. If it happened during the course of the year, the adjustment budget would be the mechanism to compensate for it. Should the deployment be a carry-through activity, then the budget baseline will be adjusted to allow for this expenditure to be factored into the budget for the following year. Should the deployment be terminated during that year, that money will be given back to Treasury as a saving.
Regarding the Burundi deployment, it is important to understand that there are different kinds of UN endorsements. Firstly, a support mandate when they support an effort in a specific area and secondly, a sponsored mandate, like the one currently in the DRC The UN has specific requirements before sponsoring mandates. The UN is currently involved but will only get fully involved once there was more stability in the country. The implications for SA means a lesser deployment of force levels. Currently, the troops are not only protecting the returning VIP exiles, but also South African assets. Another advantage will be the suspension of costs because there will not be the need to supply aircraft or rent sites. The UN will, for example, reimburse accommodation costs.
In respect to self-funding, a budget was submitted. They only budget for the revenue they are sure can be realised that year. Lastly, with regards to the roll over claim, the projects were finalised.
Mr J Schippers (NNP) asked how the absence of an exit mechanism in the SANDF was affecting its budget.
DoD Response: The Transforming and Restructuring Process (TRP) was only applicable on the civilian side, not the military. The TRP was completed 12 September and they are now in a process where vacant posts can be applied for throughout the public service. Civilians in the military can also apply for these posts. He gave an example of a base that was closed in George where the civilians were unwilling to be transferred. There was and still is no mechanism in place to lay them off. The impact, overall, of not having an exit mechanism in place, has since cost the SANDF in excess of R5 billlion since 1998.
Mr Schmidt expressed concern about the SANDF's Force Structure and Design, having in mind the seemingly uncontrolled increase in personnel costs. He asked if a mechanism was in place to keep expenditure on personnel under control because somewhere they will have to cap it as a percentage of the budget.
He linked two follow-up questions to the above concern when he asked about the amount requested in the budget adjustment proposal and secondly, if the Special Pensions Act brought any relief for the Department.
DoD Response: The best way to understand the situation, was to be aware of the existence of the SANDF White Paper Review that posed financial implications, and on the other hand the medium term budget (MTB) allocation. Evidently there is a big monetary gap between the two, which has caused severe breakdown in the SANDF`s functioning in terms of capacity and performance. Due to erosion that has taken place over the last number of years, the SANDF has a certain amount of catch-up to do with, for example, training and maintenance. It was only the Minister who could intervene, with the assistance of the Cabinet, to ensure a budget that will address the financial needs of the SANDF.
They regarded 2% as a norm but the objective of this exercise seemed to have been proactive action to strengthen the Minister's position for the Ministers Committee, beginning November. They are aiming at closing the gap between the White Paper Review and the MTB. They further assured the Committee that they were in control of the size and shape of the organisation. A problem is the fact that the SANDF budget did not increase proportionally with the inflation rate.
Two other factors seem to impact on the rising cost of personnel. Firstly, the salaries that are determined in the Bargaining Council and secondly, allowances that are being paid to retain people with special skills such as pilots.
Mr N Middleton (IFP) asked what percentage of the unavoidable/unforeseeable budget was recouped. Referring to the sale of obsolete equipment, he asked for information of the buyer countries if it could be divulged.
DoD Response: It is important for the members to understand how the UN funds operations. Funds that come in do not necessarily come in steady flow but can come in over a number years such as in the DRC experience. In the first year of involvement in the DRC in a UN mandated operation, they received 27% of their expended amount. In the second year, they received 66% and this year 37%. At the moment the Department was not receiving that reimbursement because it goes to the State coffers. They are funded from the National Revenue Fund (NRF). Because the African mission in Burundi is not a UN mandated mission, there is no UN reimbursement. SA became involved with the operation in Burundi in 2001. During that year they received back 83% of the expended amount that is, R121m/R145m. In 2002 they received back 13% and this year (2003) not a single cent has been received.
The AU has undertaken to fund the African mission in Burundi through donor funding. The AU had some difficulty in working with the troop-contributing countries (SA, Mozambique and Ethiopia) in terms of a budget acceptable to the international community. SA has done pioneering work in this regard and has repeatedly engaged the AU at mutual request to agree on what the budget should look like. It is reputed that some discussion has taken place in the international community on the budget that stood at D120m. A technical committee has met to reassess how this budget can be refined to make it more palatable to the international community. Currently the figures stood at D71m (R518m) for SA, D10m for Mozambique and Ethiopia`s was not yet submitted. The technical committee will try to consolidate the budget this week. It is intended to have a pledging conference to pledge donations. Although the British has provided some money, no money has been paid into a trust fund yet. It seemed difficult to suppose what kind of money can be recovered.
With regards to the sale of equipment, he explained that the SANDF was under pressure to liquidate obsolete stock. Armscor is being used to market the sale of SANDF stock. A specific procedure is in place to govern the selling process. They could provide information on sales to date and sales currently in progress. However, they prefer to remain confidential about who the buyer countries were.
Ms P Daniels (ANC) remained concerned about the lack of an exit mechanism. She asked if there was nothing in place that would allow for inter-departmental transfer of personnel because so much money was wasted because of this omission.
DoD Response: There are three possible ways of effecting exit. The first mechanism is the voluntary severance package. The initiation was with the member who makes the approach. Secondly, the SANDF initiates the exit but the member has the right to refuse, such as the George case. Thirdly, the redeployment packages where the SANDF can insist that the member accept the move. This mechanism is still being negotiated. Called the Employer Enforced Package (EEP), it looks at efficiency and economic considerations. There was an intention to retrench aging people and to redeploy other members to other Departments. The Police Force was only prepared to take 24 members when more members with the right profile could have been recruited from the SANDF.
Mr Dlali asked about newspaper reports that SA is participating in operations in Liberia. He aslo referred to the problem of criminality and losses in the SANDF. He reminded the meeting that a budget was set aside to deal with the issue, yet it still comes back to this Committee as a challenge for the SANDF. A further concern for him was, how the down- and rightsizing policy of the SANDF will impact on Points 10 and 16 of the document.
DoD Response: Some 22 Members have been deployed in Monrovia, Liberia to protect and safeguard the President. The UN approached SA and other member countries to provide professional personnel for their headquarters. Some countries volunteered but SA will not consider the deployment of ground forces at this stage. However, contingency planning is being done.
The SANDF distinguished between authorised and unauthorised losses. In the broader sense, losses and forms of criminality experienced in the SANDF was no worse than that reflected in society. It could range at worst from murder right down to insubordination and/or damaging state property. The value and the causes of losses were reported annually. This year the losses stood at R128m compared with R120m last year. Included in the losses this year, was the loss of an aircraft at a cost of R112m. A closed session was suggested to further discuss this worsening problem and told of a safe which contained R14 000 in cash that was recently burgled with an angle grinder.
With respect to Points 10 and 16, military strategy is motivated by the need for defence against aggression and secondly the promotion of security. The concentration, however, seems to be on the prevention of conflict. With down- and rightsizing, the SANDF tries to establish a balance, also keeping in mind the new expectations in terms of the Nepad commitments.
Mr Dlali expressed thanks and adjourned the meeting.
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