Audit outcomes: AGSA briefing; DMR, DoE & MHSC 2018/19 Annual Reports, with Minister

Meeting report

Briefing by the Office of the Auditor-General of South Africa (AGSA)
Ms Lufuno Mmbadi, Senior Manager, AGSA, commended the Department of Mineral Resources (DMR) and Council for Geoscience (CGS) for obtaining clean audits. Material non-compliance with legislation was identified at the South African Diamond & Precious Metals Regulator (SADPMR), State Diamond Trader (SDT), Council for Mineral Technology (MINTEK) and the Mine Health Safety Council (MHSC). MINTEK regressed due to quality of financial statements submitted for audit, while MHSC regressed due to non-compliance with legislation.

It was also reported that NERSA and NRWDI achieved clean audits. Material non-compliance with legislation was identified at the Department of Energy (DoE), Central Energy Fund (CEF), National Nuclear Regulator (NNR) and the South African National Energy Development Institute (SANEDI). SANEDI regressed due to quality of financial statements submitted for audit and non-compliance with legislation. The DoE remained stagnant with a qualification due to non-disclosure of irregular expenditure amounting to R162m as at 31 March 2019.

Unauthorised expenditure was on an upward trend. 81% of unauthorized expenditure was not dealt with because there has been disregard for compliance with legislation; vacancies in key positions; and inconsistencies in leadership when tackling remedial action. Non-compliance was identified in five areas: quality of financial statements; management of procurement and contracts; prevention of irregular, fruitless and wasteful expenditure; consequence management; and strategic planning and performance management. The majority of the disclosed fruitless and wasteful expenditure for the current year was caused by storage costs for geyser units to various suppliers by DOE (R110 million).

A matter of concern for the AG was on revenue management. Inability to collect monies owed and resultant high impairment receivables for DMR was an indication of challenges in the collection of outstanding debt as they become due. This was exposing the Department to cash flow risk. Credit control policy and the effectiveness of its collection procedures should be reviewed and correctional procedures be put in place. It was noted the DoE has made progress with regard collecting long outstanding petroleum licence fees even though more effort was needed to decrease the debtor’s collection period.

Furthermore, the AG noted intervention was required on asset and liability management and cash management. CEF Group realised a deficit for the year which is mainly attributable to the financial performance of PetroSA. Measures should be implemented to ensure sustainable financial viability for PetroSA. Net cash from operating activities has significantly decreased since the prior year, which impacts PetroSA's financial and economic viability. The current business model may hamper the entity's ability to continue to operate optimally at the current capacity as a going concern.

PetroSA continued to make a loss in the current year. The entity has continued to make a loss in the current year. PetroSA at company level was technically insolvent as at 31 March 2019 with total liabilities exceeding total assets. This was mainly due to the devaluation of the rand which caused an increase in the rand value of the entity’s decommissioning liability. The group was technically solvent as at 31 March 2019. The company does not have sufficient cash reserves to fund the decommissioning liability according to the regulations issued in terms of National Environmental Management Act (NEMA). There is no clear indication as to how the group’s asset base would be sustainable to cover its liabilities in future.

In relation to the merger of the two departments, the AG recommended the executive authority and accounting officers should ensure that proper risk assessment is performed and action plans to address risks identified are developed and implemented. This risk assessment should include the merger of ICT infrastructure, record keeping, legal implications of existing contracts and the processes for the preparation of financial statements and the annual performance report. The AG further recommended that the Committee should request accounting officers/authorities and the Minister to provide feedback on the implementation and progress of action plans to ensure improvement in the audit outcomes of the portfolio. Lastly, the AG recommended there should be urgency by management in responding to its messages about addressing risks identified and improving internal controls; and that vacancies in key positions should be timeously filled.

Briefing by the Department of Mineral Resources
Ms Ntokozo Ngcwabe, DDG: Policy and Promotion, DMR, took the Committee through the highlights of the sector performance. The mineral resources and reserves that were still beneath the soil of the Republic were estimated at R2.5 trillion, making South Africa a highly prospective and critical mining jurisdiction. Mining investments in the country totalled over R45 billion, resulting in the creation of about 4 000 jobs.

Some of the investments made by the sector include R21.8 billion by Vedanta Resources in the Northern Cape, Sasol’s R14 billion mine replacement programme at Shondoni and Impumelelo in Mpumalanga, and Exxaro’s R3.3 billion mine investment in Belfast, Mpumalanga. The Department would continue to conduct the Karoo Deep Drilling and the Geo-environmental Baseline Programme in Beaufort West through its state-owned entities, the CGS and the Petroleum Agency of South Africa.  
30% reduction in the number of occupational diseases has been reported by the mining sector. 19% reduction in the number of fatalities has been recorded, while a 10% reduction in the number of injuries has been registered.

The Department continues to consult or engage with communities, stakeholders and the mining industry to ensure stability within the sector. For the year under review the Department has conducted a total of 527 consultation engagements and 12 Industry workshops. The Department issued 169 closure certificates during this financial year, where rehabilitation of the environment was completed according to the NEMA standards and approved environmental authorisations. In cases where non-compliance was identified, section 93 orders were issued.

The Department overachieved on its target of 120 rights and permits granted or issued to HDSA-controlled entities, granting 183 in the period under review due to proactive support given to these applicants in the acquisition of rights and permits while ensuring compliance to relevant legislation including NEMA. The Department further overachieved on its target for consultations/engagements and conflict management with communities and stakeholders in the mining industry. It conducted conducting 527 engagements against a target of 150. This was due to proactive conflict management and consultations on the changes to the Mining Charter.

Moreover, the Department overachieved on SLP inspections (251 against a target of 212) despite budget constraints. These were prioritised as they were important to ensure conditions on the social license to operate were adhered to.

On Mineral Policy and Promotion, Ms Gcwabe reported the branch attained an overall 91% on all performance indicators for the year under review. The Department did an assessment of the delays in reaching of planned targets by the implementing agent. As a form of corrective action, a decision was taken to appoint a new implementing agent who would roll out projects on a concurrent basis (delayed and current) during the upcoming financial year. The Mining Charter and the Mining Charter Implementation Guidelines were gazetted. The adoption of the Charter would, amongst other things, unlock implementation of the beneficiation strategy through the strengthened procurement element.

A reviewed Housing and Living Standard for the Mining Industry was gazetted for comments. It was done in partnership with the Department of Human Settlements. The Department has overachieved in the support to small scale miners because it communicated to communities the processes and benefits of legal small-scale mining. The Department has provided technical and compliance support to these SMMEs, and has identified communities and mineral deposits that were economically viable for small scale mining for the purpose of assisting to form cooperatives in mining, including the Tiger’s Eye in Prieska.

Regarding governance matters, the Department had an approved risk management policy and strategy in place, which was formulated using the Public-sector Risk Management Framework and the Management Performance Assessment Tool (MPAT) standards. The Senior Management Service (SMS) is required to disclose financial interests annually and employees are required to seek Director-General’s approval before embarking on any remunerative work outside employment. The fraud and corruption policy has been implemented through the Department’s Anti-fraud and Corruption Strategy. Reported allegations have been investigated internally and referred to the South African Police Services (SAPS) or the National Prosecuting Authority (NPA), or alternatively referred to a disciplinary committee. The Internal Control Unit compiled the annual financial statements, quarterly financial statements, and monthly compliance certificates. In addition, the Unit coordinated the activities of the Auditor-General and monitored the clearance of suspense accounts in order to ensure financial periods were closed properly and on time. The Department had in place an Internal Audit unit and an independent oversight body in a form of Audit and Risk Committee (ARC) which functioned throughout the financial year.

Ms Patricia Gamede, DDG: Corporate Services, DMR, said that during the 2018/19 financial year an assessment was done to determine the projected annual cost of filled posts in each financial year over the MTEF and the cost of vacant posts to be filled. The outcome of this assessment confirmed that not all posts could be funded by the available budget. Because of that, the Department embarked on a process of identifying critical vacant posts through inputs from programme managers. But not all posts could be catered for as it would have resulted in a deficit. Management then took a decision to only honour those critical posts that negatively affected compliance with laws and regulations. This resulted in a decline in the vacancy rate to below 10% for the 2018/19 financial year. The unresolved litigation on the Mining Charter by the Mineral Council of South Africa has continued to create a perception of legal uncertainty in the sector. The Mining Charter Implementation Guidelines were gazetted in December 2018 to assist in compliance with the requirements of the Mining Charter. The Guidelines outlined processes, procedures, forms and were templates to be used by mining rights holders. The Corporate services branch attained an overall 96% on all performance indicators for the year under review.

Adv Mmadikeledi Malebe, DDG: Mineral Regulation, DMR, briefed the Committee on the performance of the Mineral Regulation branch. The branch attained an overall 67% on all performance indicators for the year under review. 7000 jobs were created through mining against a target of 3 826. 425 inspections were conducted on Mine Work Programme (MWP)/ Prospecting Work Programme (PWP) against a target of 384. 124 SLPs development projects were completed against a target of 107. Due to the current economic situation, the creation of jobs has been affected in the mining industry. The Department has no control over job creation. A number of SLP development projects have been completed and the branch would be intensifying inspections in the coming financial year to ensure inspections that were deferred were completed.

The management noted the poor performance on complaints received against those inspected and controls have been put in place to ensure all complaints received were attended to within the 30-day turnaround time frame. The MPRDA Regulations and Mining Charter III were finalised during Quarter 4 of the financial year. The modalities were embedded in this regulations and the publishing would be complied with and enforced going into the future.  The branch would intensify inspections on Mine Work Programme/Prospecting Work Programme in the coming financial year to ensure inspections that were deferred were completed during the upcoming financial year.

Mr David Msiza, Chief Inspector of Mines, DMR, reported that the Mine Health and Safety branch attained an overall 81% on all performance indicators for the year under review. Management remained committed to the goal of Zero-harm, and noted that stakeholder collaboration was critical in addressing all the areas of underperformance. That was why the Mine Health and Safety Inspectorate, in collaboration with all key stakeholders in mining, hosted the Mine Health and Safety Summit in October 2018. During November 2018, the Department issued two directives to all mines. The first directive was to eliminate fire, heat and oxygen deficiency related accidents, especially when persons gain access into abandoned or old mined out areas underground at a mine. The second directive was to eliminate rock-burst and rock-fall related accidents. Furthermore, workshops with the Health and Safety Representatives to train and coach them in exercising their rights and powers as stipulated in the Mine Health and Safety Act would continue.

He also delved on some Quarter 3 highlights:

2018 Mine Occupational Health and Safety Summit

The Department, in partnership with the MHSC, hosted the Mine Occupational Health and Safety (OHS) Summit on 18 and 19 October 2018. The Summit was in line with Section 43 (e) of the Mine Health and Safety Act (MHSA), which stated that at least every two years a tripartite Summit should be arranged and coordinated to review the state of OHS at mines. The Summit was held under the theme of “Every mineworker returning from work unharmed every day”.

The 4th Occupational Health Dialogue  

In addressing the occupational health related matters and issues at mines, the Department, in partnership with the MHSC, hosted the 4th Occupational Health Dialogue over two days, from 07 to 08 March 2019.  The theme of the day was “Occupational Health Beyond Compliance”. The aim of the OH Dialogue was to provide a platform that solely focused on occupational health related matters and which created awareness in the South African Mining Industry.

Health and Safety Improvement 

As at quarter 4, the overall performance on health and safety of mineworkers improved compared to the same period in the previous year. Occupational Diseases (including TB) improved by 30% year on year versus the 13% improvement in the previous year. Also, the percentage reduction in occupational fatalities was 19% year on year compared to only 1% in the previous year.

Ms Ditsietsi Morabe, Acting CFO, DMR, stated that in the period under review the Department spent 99,4% of the allocated budget as compared 99,8% in 2017/18. The programmes that surrendered more funds to National Treasury was Administration and Mineral Policy and Promotion. Underspending on Compensation of Employees was attributed to delays in the recruitment process, the vetting of officials that were identified for appointment. Underspending on Payments for Capital Assets was attributed to delays in the delivery of IT and Security equipment.  The Department obtained an unqualified audit opinion with no findings (clean audit) during 2018/19. The expenditure management environment in the Department was reported to be healthy. There were challenges in the Department’s revenue management environment. Improvement plans were developed and were implemented in 2019/20 financial year. Arrears amounted to R13m were collected in the first quarter of the 2019/20 financial year.
(Tables and graphs were shown to illustrate budget expenditure)

Briefing by the Mine Health & Safety Council (MHSC)
Mr Thabo Dube, Chief Executive Officer, MHSC, reported that 6 strategic objectives were fully achieved. There was 98% overall achievement on strategic initiatives, and the entity scored 94% on the collection rate of levies. The entity had prepared advisory notes to the Minister which would be on the revised Thermal Stress Reporting Forms as per Regulation 9.2.(7); examination fees for certificates of competency; Guideline for Compilation of a Mandatory Code of Practice for the Management of Self- Contained Self-Rescuers in Mines; Mine Health and Safety Councils Regulatory Review Programme; and guidance note on Medicolegal investigations of mine deaths.

In its efforts to promote a culture of occupational health and safety, the MHSC has hosted a number of events which focused on women in mining, 2018 Mine Occupational Health and Safety Tripartite Summit, Occupational Health Dialogue, and HIV/Aids Awareness Event. The entity also participated in the Coal Safe Conference, TB Conference, and Mining Indaba. The MHSC was planning to host a Tripartite OHS Summit every two years to review the state of health and safety at mines. This would help review progress towards the achievement of Summit milestones set in 2014; reflect and engage on current year’s OHS performance; analyse recent disasters to further mitigate identified risks; and develop an action plan with interventions for addressing identified OHS challenges.

Concerning capacity building, the MHSC would proactively design and implement the integrated talent management, and develop a competency framework addressing a new set of required skills that address the 4th Industrial Revolution. It would further strengthen performance management and implement E-performance Management System; conduct annual climate survey; apply the pay philosophy in accordance with corporate governance best practices; and evaluate and realign organisational structure and leadership development.

Mr Dube indicated they have taken initiatives to curb rockbursts and rockfalls in the SAMI. In order to improve FOG related incidents, they agreed on the following:

-Analyses of previous data
-Improved information sharing and dissemination of previous research among stakeholders
-Training of unemployed graduates on rock engineering and seismology
-Review of roles and responsibilities of rock engineers on mines

He talked about the MHSC research projects. The entity was developing methodologies for the measurement of diesel exhaust emissions and diesel particulate matter. It was further developing the minimum standards for the management and monitoring of confined working spaces at mines. It was also carrying out a study to identify and develop fit-for-purpose tools for efficient and accurate rockmass condition assessment. Another project was determining whether medical surveillance chest radiography using the new digital technology gave similar results as the traditional analague chest radiography in the identification of silicosis and pulmonary tuberculosis in the SAMI.

Mr Molefe Lephoto, CFO, MHSC, presented the finances. He said the entity has achieved 94% against the target of 90% in the collection of revenue. The new levy model has been approved by the Council and there were rewards for achievement of Zero Harm. The new levy model would be implemented on 1 April 2020. New revenue would be generated from royalties of commercialised research projects, independent sampling testing facilities, and Explosions Awareness Safety Training. Cost containment measures were in place with regard to travel and accommodation, appointment of consultants, and use of external meetings and conference venues. The entity has achieved an unqualified audit with findings. The findings were related to procurement, contract management, and accounting.

On governance and compliance, the entity established a social and ethic committee to focus on organization-wide training on ethics. The focus would also be on the improvement of procurement and contract management, and on continuous review and monitoring efforts. There would be a dedicated compliance office and appointment of compliance officer to review the compliance regulatory universe, and to provide continuous organizational compliance training.

(Graphs and tables were shown to illustrate budget expenditure)

Briefing by the Department of Energy (DoE)
Mr Thabane Zulu, Director-General, DoE, briefed the Committee on the performance highlights of the Department for the 2018/19 financial year. The final draft of schedule 3A SOE’s APPs, Corporate Plans and Shareholder compacts of Schedule 2 SOE’s has been submitted to the Minister for approval by 31 March 2019. NECSA and SANEDI requested Ministerial extension to submit Corporate Plan and APPs. 242,905 households have been connected to the electricity grid. Municipalities electrified 51 320 additional households and Eskom electrified 191 585 including rollovers. An additional 13,090 households received solar home systems due to geographical and other reasons that made connection to the grid impractical, or not cost effective. The achieved energy savings for 2018/19 were mainly from two projects, namely, the 12L Tax Incentive which amounted to 3.414 TWh, and the municipal EEDSM programme that saved 9,206 MWh (0.01 TWh) by the end of March 2019. This has resulted in a total of 3.424 TWh savings. These energy savings eased the pressure on the electricity grid and resulted in cost savings for consumers and stakeholders. 89.18% of licence applications that have been approved had a minimum of 50% HDSA ownership.

Mr Lucas Mulaudzi, Chief Director: Risk & Quality Assurance, DoE, informed the Committee about strategies to overcome areas of under-performance. The vacancy rate did not exceed the 10% threshold. There has been partial achievement in the filling of vacancies. Vacant and funded positions were planned to be filled at the conclusion of the NMOG project. The unqualified audit report by the AG that was achieved during the 2017/18 was not achieved. An effort was made to avoid material misstatement of financial statements and non-financial performance. The Gas Infrastructure Master Plan (including bulk transportation) was not achieved. The process of appointing a consultant to assist with the drafting of the Master Plan was still incomplete.

There was partial achievement on the proposal on new oil refinery implementation framework that has been developed. The implementation plan would be developed by CEF. The CEF had to provide progress report on pre-feasibility study. There were partial achievements on the publication of the audit report on B-BBEE in the Petroleum Retail Sector. The final draft Petroleum and Retail Audit Report was complete but not yet published. Non-compliance by auditees to submit quality audit data resulted in delays. Audit report was to be finalised during 2019/20.

There has been a partial achievement in the Decommissioning and Decontamination Policy that has been developed and produced. The Draft Decommissioning Policy was in place and consultation with stakeholders was still outstanding. Everything would be finalised during 2019/20 financial year. No achievement has been recorded on the submission of the National Nuclear Regulator Amendment Bill for Cabinet approval for public consultation. Further consultation would be done with relevant stakeholders as required by the DPME.

Nothing has been achieved on the Annual Compliance Report on the 3rd Environmental Management Plan Edition that has been developed and produced. The 2017/18 Annual Compliance Report on the 3rd Environmental Plan Edition would be submitted and presented to the EMPs or EIPs Sub-Committee in 2019/20 financial year.

Concerning service delivery environment on electricity and electrification, households were currently being electrified through grid and non-grid, medium voltage lines and new bulk substations per annum were being constructed to extend the services to deep rural areas including the 27 Priority Districts. Municipalities and Eskom which were implementing agencies for the Department’s electrification programme have made remarkable progress in increasing access to electricity in South Africa by connecting over 7,6 million households between 1994 to March 2019. Access to electricity was at 90% according to the 2016 community survey. R5.2 billion was appropriated in 2018/19 financial year for the electrification programme and has delivered over 255 995 connections, utilising both grid and non-grid technologies during the 2018/19 financial year. To date, INEP has achieved 255 995 connections and 15000 jobs have been created in the process.

The Department of Energy, in collaboration with oil companies since 2002, has established Integrated Energy Centres (IeCs) in poverty nodal areas around the country as part of its mandate to promote access to energy services such as petroleum products in rural areas where the volumes of sales were too low for a normal commercial operation to be established. These IeCs were owned and operated by local community cooperatives. There were 8 operating IeCs in the country and the Department was aiming to build many more. The government wanted to ensure that universal access was reached by 2025.

The Department continued to co-ordinate and monitor petroleum products supply to ensure energy security. South Africa, as a non-oil producing country, faced a number of oil price shocks arising out of geopolitical factors and volatility in international oil markets. Nevertheless, the DoE managed to absorb some price shocks by not raising petrol prices at the service station pumps to ease the burden on South African consumers.

The success of the renewable energy sector in South Africa has also led the Southern African Development Community (SADC) energy sector to emulate and develop their renewable energy sectors. South Africa was finalising the Integrated Resource plan, and renewable energy was part of the energy mix. In light of the need to transition to cleaner energy, the SADC Energy Ministers approved in 2018 the development of the SADC Regional Gas Master Plan, covering evaluation of the available gas resources and existing markets, gas utilisation strategy, supply and demand analysis, infrastructure development plans, identification and linkages of value chains as well as institutional, regulatory and fiscal frameworks.

Southern Africa would be able to expand electricity generation through the use of gas given the huge potential and opportunity in this regard. Mozambique and Tanzania gas resources in particular were well positioned for cross-boundary development of gas pipeline infrastructure. It was important that gas demand in the region was serviced from regional gas resources, so as to increase the opportunity for intra-African trade and economic collaboration. The planned gas pipeline from Rovuma Basin in Mozambique through South Africa and possibly beyond the borders fits into this strategy. These were the major areas of focus for the region which also was presenting opportunities to investors who have an interest in gas development, renewable energy and energy efficiency in the region.

On organisational environment, Mr Mulaudzi reported that during the year under review the Department employed 565 individuals out of the approved 673 posts, inclusive of 50 additional employees to the organisational structure. An ongoing challenge for the Department was organisational restructuring. The review process could not be concluded for the past four financial years due to several changes to the executive and were further postponed until after the appointment of the 6th Administration.

In 2018/19, the Department participated in some training and development projects and learner-ship programmes. One of them was the in-service training programme funded by the Energy and Water Sector Education and Training Authority (EWSETA) for electrical engineers which was aimed at ensuring that opportunities were created and promoted for unemployed students who have N6 or N4 qualifications to gain practical experience in the workplace in order to obtain their qualifications. Others were projects and programmes funded by the Chemical Industries Sector Education and Training Authority (CHIETA) including a Project Management learnership programme; Public Administration; Internal Audit; Petroleum Engineering Programme; and skills programme.

During the reporting period, R1.62 million was received by the Department from affiliated energy sector education and training authorities (SETAs). This budget was utilised to implement learner and training programmes as per agreement with the relevant SETAs.

Concerning clean energy, no achievement was recorded on the carbon offsets registry for listing offsets credits linked to carbon offsets administration system that has to be developed and implemented. The procurement of service provider under Partnership for Market Readiness did not materialise. There were also no achievements on Solar Water Heater Programme Implementation. 19 beneficiary municipalities have entered into the framework with the Department. The implementation agreement and revised implementation plan between CEF and DoE has been approved by the DG.  The MoU between DoE, DoL, UIF and CEF on the training of installation procedures was at the final stage of approval.

There was a partial achievement on the Post 2015 National Energy Efficiency Strategy Submission that was approved in November 2018 but was not yet promulgated. There were no achievements on the Draft Renewable Energy Technology Roadmaps (RETRM) to be completed. The project has been put on hold.
 
With regard to nuclear energy, there has been partial achievement on the Draft Radioactive Waste Management Fund Bill to be sent to the Chief State Law Advisor. A Memorandum of Object on the Radioactive Waste Management Fund Bill has been submitted to DOE Legal Services for onward submission to the Chief State Law Advisor. Comments were received from Legal Services and needed to be resolved first before submitting to the Chief State Law Advisor. Nothing was achieved on the Draft National Nuclear Regulator Amendment Bill to be finalised for public consultation. The DPME during the review of SEIAS required the Department to conduct further consultation with relevant stakeholders. The DG’s submission was on route requesting the consolidated inputs from impacted stakeholders.
 
Pertaining to electrification and energy programme, four quarterly reports on building/upgrading of electrification infrastructure projects toward the 2018/19 targets as contracted with Eskom and municipalities were produced. Four quarterly Reports on additional households electrified with non-grid electrification towards the 2018/19 target of 20,000 in the National Electrification Plan have been produced. Four quarterly reports on additional households to be electrified with grid electrification toward the 2018/19 target of 200 000 in the National Electrification Plan were produced.

On petroleum and petroleum products regulations, there were partial achievements on the Publication of the Petroleum and Liquid Fuel Sector Code. The Final Draft Petroleum and Liquid Fuels Sector Codes was completed but not yet published.  The Department was awaiting the gazetting of section 9(5) of the B-BBEE Act, 2003 (Act No. 53 of 2003) as amended for public comment. There also partial achievements on the publication of the audit report on B-BBEE in the Petroleum Retail Sector. The Final Draft Petroleum and Retail Audit Report was completed. Approval for the Publication of Petroleum Retail Audit Report was pending.  
 
Ms Yvonne Chetty, Chief Financial Officer, DoE, reported that the Department has obtained a qualified audit opinion on the basis of irregular expenditure understated by R162,450 million. The qualified audit opinion was based on material misstatement of R98,382 million irregular expenditure for Nuclear New Build Program (NNBP) brought forward from 2016/17 financial year, which increased with additional payments of R64,068 million processed in the year under review. The understatement was a result of the Department’s disagreement with AGSA that the DoE’s participation in a contract of another organ of state was irregular.

The final appropriation was R7,164 billion, with expenditure of R7,090 billion being 99 % of final appropriation, resulted in a net underspending of R73,293 million (1,0%) which was mainly in earmarked funding. The final appropriation for compensation of employees was R360,08 million and the expenditure was R346,73 million (96,3%), resulting in underspending of R13,34 million or 3,7% of the allocation. The underspending was attributable to delays in filling of vacancies.

The budget allocation for goods and services was R419,12 million with R331,43 million as actual expenditure (79,1%), resulting in an underspending of R87,86 million. The net underspending of 20,9% was mainly due to the following:

-Operating Payments of R46,77 million due to delays in the overall implementation of the SWHP -under Programme 6 – Clean Energy.
-Consultants: Business and advisory services underspent by R54.1 million in NNBP.
-Communication & Legal services as well as property payments overspent by R12.99 million due to insufficient budget and unforeseen expenditure.

The final appropriation for transfers and subsidies was R6,378 billion with R6,359 billion (99,7%) as actual expenditure. There was a net underspending of R18,71 million.

(Tables and graphs were shown to illustrate budget expenditure)

Discussion
Deliberations with AGSA

Mr M Mahlaule (ANC) wanted to understand what the AG meant when it stated PetroSA was technically insolvent as of 31 March 2019.

Mr Ignatius Fourie, Senior Manager, AGSA, explained that the PetroSA Group consists of other subsidiaries. The company itself was technically insolvent because its liabilities exceeded its assets.

Mr V Zungula (ATM) wanted to know if the political leadership or the Department was responsible for the stagnant audit outcomes of the Department of Energy in terms of irregular expenditure.

Mr Fourie stated that the responsibility for internal controls rests with the accounting officer and management to ensure credible information was presented to the AG.

Ms C Phillips (DA) asked if the Committee could be forwarded copies of projects awarded to the highest bidders in order to understand findings pointed out on supply chain management by AG.

Mr K Mileham (DA) enquired if PetroSA’s technical insolvency included de-commissioning.

Mr Fourie confirmed it included decommissioning at group level as well.

The Chairperson wanted to understand what the AGSA meant by irregular expenditure of R12.4m which represented non-compliance by entities. He further asked for clarity on irregular expenditure of R162m due to non-disclosure at the Department of Energy; and asked what the AGSA meant by “Portfolio Committee to request accounting officer”.

Ms Gumede explained that the irregular expenditure of R162m from the Department of Energy was not disclosed, but was identified during the 2016/17 period. It referred to a contract the DoE entered into in the previous years with Free State. The contract was then found to be irregular because the specifications were not the same. The R12.4m irregular expenditure incurred by Department of Minerals related to a procurement process that was not followed in the previous year. It was for procurement services during the 2017/18 financial year. She also pointed out that the R115m fruitless expenditure was a result of a contract the department entered into with manufacturers of geysers for storage because the geysers were to be dispatched to the municipalities.

Ms Gumede explained that the phrase “Portfolio Committee to request accounting officer” was the softest way of making a recommendation to the Committee because they have been advised not to dictate to the Committee what to do.

The Chairperson wanted to understand what made the AGSA satisfied in terms of material findings because it indicated it was not on a mission to find fraud, and what the minimum standard of compliance was to correct what was wrong. He further stated that the AGSA did not have to be polite when making recommendations to the Committee. There must be a sense of authority within the AGSA, so that it could do what it can within its powers.

Ms Gumede said there is consequence management for material irregularities. Where fraud has been identified, the AGSA needed to determine if the accounting officer has investigated the matter in order to recover the money. If not, the accounting officer or authority was held accountable for recovering the money.

Ms Phillips asked how many police cases related to DMR have been opened and concluded.

Ms Gumede indicated there were cases that have been opened, but details would be sent to the Committee.

The Chairperson wanted to find out the point at which the AGSA gets satisfied because there has been a recurrence of servicing an irregular expenditure by DMR.

Ms Gumede indicated irregular expenditure gets incurred if there is non-compliance with procurement policies. This has been reported in previous years. The accounting officer has to investigate the matter and request for condonation if there is no one responsible for it. But if irregular expenditure is disclosed yearly, then the AG would be satisfied.

Deliberations with MHSC and Department of Mineral Resources

Mr Gwede Mantashe, Minister of Minerals and Energy, briefly informed the Committee that the Department of Mineral Resources had achieved a clean audit as a result of a team effort. The Department was investing on continuous improvements. What was important, he said, was for every leader to listen and think thoroughly about what was deliberated in the Committee.

Mr M Wolmarans (ANC) pointed out that the disability figures were not pronounced on by the Department. He further asked if there were measures in place to ensure resources would always be available regarding the internal audit unit because it appeared there might constraints in terms of resources.

Mr Wolmarans asked which component of mining was responsible for the 100% increment in fatalities.

Ms Gamede informed the Committee that the disability figures were currently at 0.7% in the Department.

Minister Mantashe replied that money for resources was never sufficient. There was a need to push for more efficiency. He stated that the internal audit unit was doing well not because it had money, but also because it had the right tools and people. It was just a question of re-allocating the right people to do the work.

Mr Msiza said the fatalities had increased because there was a disaster in a copper mine in Phalaborwa. The fatalities were not common in the gold and platinum mines.

Mr D Mthenjane (EFF) pointed out it was not true to say the Department was doing things for the community. In Mpumalanga, the Department was doing as it wishes. There were no consultations with communities around the mines. The mineral beneath the SA soil must benefit the people of this country. That was why people said you had to do something for them when mining in their area. He added that there were mines that were operating with fake licences they got from the Department.

Ms Ngcwabe asked Mr Mthenjane to forward the Department the details of the fake permits, so that they could be dealt with because it had a fraud prevention policy. She stated that community consultations were done. The mines were expected to do consultations when they apply for mining rights. The Department had a duty to monitor these community consultations. But sometimes, the Department would discover there was minimum consultation done. Communities were being made aware of the mining charter.

Mr Mileham remarked he was not sure if there was due diligence in terms of processing the invoices because creditors were paid within 5 work days while the debtor collection period was 809 days. He further suggested that targets should be adjusted to suit the budget. He wanted to establish if beneficiation was the responsibility of the Department and wondered if it could not be better handled by the DTI. Lastly, he wanted to find out if this was not the time to open up mines to enable them to build renewable energy.

Ms Gamede replied that the collected revenue was deposited in the National Revenue Fund. The Department had a dedicated unit dealing with invoices. Due diligence was done because if the invoice was disputed, it was sent back for clarity and would be re-submitted once the dispute was resolved. The Department was working with the DTI in developing a strategy for beneficiation. The Mining Charter was also talking of beneficiation. The Department was busy discussing core-generation: harvesting of energy. Nothing was stopping a mine from producing energy. The Department was engaging many stakeholders on this matter.

Minister Mantashe replied that there was no flood of mining companies applying for renewable energy. It was only newspaper reports. Renewables is a technology that must grow and drive the economy. Companies must apply for licences and each case will be dealt with on merit. Concerning beneficiation, it was not the sole responsibility of the DTI. There must be integration in the work that was done in government.

Ms Phillips requested the details of the contract that resulted in a finding. This should be forwarded to the Committee so that it could understand its value and the company it was awarded to.

Mr S Kula (ANC) asked for more details on support given to small-scale miners. In addition, he wanted to know how inspections were going to be intensified when there was not enough budget. He also enquired how much improvement has been done in the collection of revenue.

Ms Ngcwabe replied that the Department exceeded the set targets. Details would be forwarded to the Committee in writing. She further indicated there would be critical posts that have to be filled in order to get money to augment what the Department already received.

Ms Gamede informed the Committee the Department has collected R30m in the first quarter from the four year old debt of R130m.

Mr Mahlaule remarked there has been a regression in the audit outcome compared to previous years. Even though that was the case, all the branches did well, but the Department has indicated the budget was not enough. There was a need to realign the budget to suit the targets. He commended the Department for the shale gas work it was doing in Beaufort West. He also stated there was a room for improvement with regard to the issuing of mining rights.

The Chairperson, concerning unmet targets, stated it was important to understand what was given to the Department in terms of budget so that it could operate at an optimal level in order to meet its targets. There was a need to understand between the ideal situation and real situation.

Mr Mileham was concerned about the financials of the MHSC and what it was spending its money on. He pointed out increased personnel and travelling costs, while research had gone down.

Mr Lephoto explained the personnel costs had gone up because they were trying to bring in more researchers on board. Most of their work involved research. He admitted their research output had gone down because they want to ensure information was reaching its intended beneficiaries, and they wanted to ensure they were attracting the right personnel to do the research. He further pointed out corporate governance costs have increased because they have got many committees in place. They had many challenges with regard to governance matters.

Mr Msiza added they have also established a centre of excellence to move into the future and improve skills development.

Mr Mthenjane enquired what was being done with the mine dumps in Johannesburg; and what the plan was to prevent the dust problem in Witbank which was the cause of many lung diseases.

Mr Msiza said there were companies that have been contracted to remove the dumps. Work was continuing. The Minister had met with some mining companies and affected communities on the matter.

Minister Mantashe added that some of the reports the Department was getting were not reflecting reality. The Department had conducted inspections on blasting, for example, that was said to be causing cracks on walls of houses in a certain community. But upon inspecting the walls of those houses, they discovered the cracks were a result of shoddy work done.

Mr Kula wanted to find out if there were plans in place to increase the number of unemployed graduates in rock engineering.

Mr Dube replied that students had started on the programme last year.  The Department would be doing an assessment of challenges related to the project this year. So far the project was going well.

Deliberations with the Department of Energy

Mr Zungula wanted to establish if there has been any study undertaken by the Department to determine the desirable energy mix was realiseable.

Minister Mantashe explained there was nothing cheap in energy. What was important in the IRP was the security of energy. The Department had built security for gas and renewable energy. It would allow the renewables to grow and get into the economy. The gas is a new grid in the energy mix. The Department was developing a framework for biofuel; and it was paying more than R240m for storage of solar geysers and the plan was to reduce what was in storage. Nuclear would be part of the energy mix.

Mr Mileham maintained the Department has failed dismally. It had achieved the lowest performance in the last 5 years. There was a lack of training for installers and that was why there have been delays in installation projects. It appeared the tail was wagging the dog because it was unacceptable for the Department to be dictated to by Eskom. Eskom should instead follow the policy of the Department on electricity. Furthermore, he said what came out of the oversight that was done on entities was an overlap on roles and challenges facing the entities. The Committee was hearing the same things every year. He hoped the next 2020 report would not touch on the same challenges.

Minister Mantashe informed the Committee that the two departments, that had a total of 15 entities, have been merged. Now they were trying to reduce the number of the entities. Some would be collapsed. Even the 13 branches of the departments would be reduced to 7.

Mr Mahlaule did not think the set target for the storage of geysers would be met. He also indicated a solution was needed for the dispute between the Department and AG because the Department was disputing the opinion of the AG. Further, he doubted if CEF would be able to train installers because whenever CEF appeared before the Committee, it would speak of challenges. He wondered if it was wise to give some projects to CEF when it was clear the work would never be done. That was why delays would continue in the installation of the geysers.

Minister Mantashe made it clear to the Committee he had a discussion with the DG of the Department concerning the dispute with the AG. He had advised the DG to stop arguing with the AG because it has been now given extra powers by Parliament. The Department would attend to the issues raised by the AG instead of wasting money on arbitration. The Department should rather ask the AG for a roadmap on recommendations. Moreover, he maintained CEF had 5 entities which were not performing in the same way. For instance, SFF was doing relatively well and making money. The only problem in the portfolio was PetroSA. He highlighted the mistake that was committed in the past was the killing of the Soekor part which was dealing with exploration, while maintaining Mossgas. The CEF group was not a dead duck. He was of the view that what happened was to kill the value in order to sell the entities. As a result, they have received unsolicited bids. The Department was working on establish a new board for Necsa. The existing board was not quorating and governance has collapsed, as a result. The Department was now busy correcting governance and working on the weaknesses of the entity.

The Chairperson could not understand why the Department of Energy put the blame of the vacancy rate on the rationalisation because the Department of Mineral Resources had filled the vacancies already even though it was emerging with the Energy department. The vacancies existed during 2018. He could not figure out how the Department knew there were going to be vacancies before 31 March 2019. In addition, he did not understand why the Department was waiting for a consultant in order to achieve on the Gas Infrastructure Master Plan. He stated it looked like the Department was waiting for the approval of a consultant.

Mr Zulu told the Committee the Department of Public Service and Administration had developed a guide for the vacancies, but there were qualifications that were stated in order not to delay service delivery. Details would be sent to the Committee.

Minister Mantashe noted that the consultant should be seen as a tool. The Department could delegate the task, but not the responsibility.

Ms Phillips wanted to know when the Draft Decommissioning Policy start because decommissioning had been around since 2004. She also remarked there were people who were in need of hot water, but due to ineptitude or human element within the Department the geysers could not reach the intended beneficiaries.

Ms Modise said the 2004 policy had a focus that was on past strategic matters whereas the current policy was focused on a model for things to be addressed immediately. The solar water issue was a monster programme they were dealing with. Phase 1 was implemented under Eskom, but there were things that were not addressed like localization. Some things that were installed were now dysfunctional. That was why Phase 2 had not been implemented. In the past financial years, the Department procured 87 units. The Department should have entered into a framework agreement with municipalities. According to the plan now, installation would commence during the 4th Quarter. Progress would be reported during the month of November 2019. Many strides have taken place, and there were recommendations the Department was considering.

Mr Mileham observed that making use of an auditing firm was wasteful expenditure because the firm would tell you what you want to hear, unlike the AG who would tell you what you do not want to hear. It was important for the Department to submit what the AG wants and report honestly in a format the AG wants. There should be a feedback meeting, maybe early next year, to see if the concerns of the AG have been addressed.

Minister Mantashe suggested the review meeting should be held end of November 2019.

Director-General Zulu made it clear to the Committee the audit report of the Department was not influenced by the office of the accounting officer, but it was the recommendation of the auditing committee.

The Chairperson asked for clarity on the budget for payment of capital assets because it was not clear to him why the allocated budget was R6.14m yet the expenditure was a staggering R52m for the Nuclear New Build Programme

Ms Chetty explained the actual expenditure was for the software. The expenditure was realigned. It was moved between two categories. There was overspending.

Mr Mileham wanted to establish if the Department got value for money for the R216m spent on consultants.

Minister Mantashe stated if you pay consultants for the work they produced and not use their product, you do not get value for money.

The Chairperson stated that as the Department was preparing for the integration process, the Committee should get a briefing on integration and progress on outstanding matters and concerns raised by the AG. This would assist the Committee for the 2020/21 APPs.

Minister Mantashe maintained they would continue to cooperate with the Committee and work with it in a cordial way. He thanked the Committee for raising its concerns as that would help the Department to do its work better.

The meeting was adjourned.