2019 Adjustments Appropriation Bill: DoH briefing; Engagement with delegation from Kenyan Parliament; with Deputy Minister

Standing Committee on Appropriations

26 November 2019
Chairperson: Mr S Buthelezi (ANC)
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Meeting Summary

The Committee engaged with the Standing Committee on Finance and Budget of the Parliament of the Republic of Kenya who were on a fact finding visit to learn about how South Africa implemented the Division of Revenue (DoR) and, in particular, the equitable share formula for provinces and local government, because it was currently under review in Kenya.

The Kenyan delegation gave a summary of the work of its committee and its mandate, and touched on some of the challenges it faced. It said the Kenyan DoR attempted to reverse the marginalisation of parts of the country which had not managed to receive equal development since independence. It asked questions concerning prudence in the use of resources and corruption, and how that challenge was tackled. How did the Committee deal with the tight timelines of the Money Bills Act? What was the National Council of Provinces’ (NCOP’s) role in the Money Bills Act? What was the role of the Financial and Fiscal Commission (FFC)? How was government debt dealt with?

Members provided frank answers to the delegations questions, and indicated that South Africa could also learn from the Kenyans’ experience.

The Department of Health’s (DoH’s) briefing focused on the challenges it faced due to the Treasury’s budget cuts. It had pointed out that the lack of funds would have an impact on service delivery, but Treasury’s response had been that the DoH would have to reprioritise its budget to source the funds itself. Key challenges up to the second quarter were medico-legal claims and challenges to the information system of the DoH, which had affected procurement. 

Members said the presentation reflected an incapacity of the DoH to spend. Could the Department give an account of the country’s actual state of readiness for the National Health Insurance (NHI) scheme? How would the NHI be implemented. Who would administer the funds? How would people access services? Would the DoH be ready for the NHI in terms of infrastructure, human resources (HR), and funding? Members said the security of health professionals at health facilities was worrying. What types of infrastructure spending would be held back because of the budget cuts? There needed to be a time line to fill the vacant posts so that the NHI could be rolled out. How far was the revamping of nursing colleges?

The Deputy Minister said front-line staff was a key pressure point for providing quality service, and a lot could be achieved by having well trained, motivated, front-line professionals. This was flagged as the main challenge by provinces, but budget pressures meant staff could not be employed. Porters and cleaning staff posts were also frozen, which meant nurses were having to do porters’ functions. The reality facing the DoH was that with the reduction of the budget allocation, the front-line service was at the provinces, and the pressure to sustain quality service was increasing.

Meeting report

Engagement with Kenyan delegation

The Chairperson welcomed the Standing Committee on Finance and Budget of the Parliament of the Republic of Kenya, and summarised the work of the Committee and its mandate -- that the budget must be spent according to national imperatives and be spent effectively and efficiently. The provincial governments received 90% of their funding from the national government, while local government received only 30% of their budget. He touched on some of the challenges the Committee faced, such as the overarching responsibility of the Committee.

Senator Dr Isaac Mwaura, leader of the Kenyan delegation, said the delegation was visiting to understand the Committee’s work and in particular the Local Government Equitable Share (LGES) revenue sharing formula, as Kenya had a national and county system, and was currently busy reviewing its formula. What were the parameters of the LGES, and was the LGES fixed?

Mr Mutula Kilonzo, MP, said Kenya followed what was happening in South Africa and followed a lot of its practices. There had been a dispute on the Division of Revenue (DoR) formula, and a proposal was made to follow the South African version. Kenya had also followed a lot of the framework on public participation. The Kenyan DoR attempted to reverse the marginalisation of parts of the country which had not managed to get equal development since independence. The formula was a people-driven formula, targeting services to the people. Counties were given an incentive when they met their targets. Key challenges were inequality, unemployment and poverty, and attempts to reverse them. The delegation was here to get a better DoR to favour counties so development could happen, whether within or outside of government.  The DoR protected the counties to ensure that injustices did not occur, for example, because they were not in the good books of government.

Dr Nyamunga Ogenda, MP, said that while attempting to equalise the DoR,  it was also about the prudent use of resources. How did the Committee know whether allocations were being used prudently?

Mr Boniface Kabaka, MP, asked what the Committee’s experience was with corruption, and how it was challenge tackled. Kenya also had challenges, and systems of government were being compromised. On the issue of National Health Insurance (NHI) cover, he said Kenya’s NHI Fund was collapsing through mismanagement. Kenya did not have a Money Bills Act and the Senate -- the Upper House -- was diluted and weak. How did the Committee tackle the tight timelines of the Money Bills Act?

Dr Mwaura asked if there was a law on who collected what taxes. What were the parameters of the equitable share? In Kenya, there was a discussion about who the MPs represented -- the people or the land. How were matters of difference between the ANC as government and the ANC as a party, for example, dealt with? How was tension between what the executive proposed and what was finally approved, dealt with? What was the National Council of Provinces’ (NCOP’s) role on the Money Bills Act? Why were stakeholders important to the Committee? What was the role of the Financial and Fiscal Commission (FFC)? Why was the Human Sciences Research Council (HSRC) important for the Committee? How had corruption cases been dealt with in the past, because people budgeted to steal?

A member of the delegation asked how government debt was dealt with, because Kenya’s debt had hit the roof.

Mr A Shaik-Emam (NFP) asked what Kenya’s debt service costs were.

A member of the delegation said the budget was $3.1 trillion, and the debt to GDP ratio was 50%. Kenya had switched to commercial loans and was now borrowing to repay loans, which had made the country go broke, and this had affected the revenue sharing formula, because the first thing to be repaid was debt. At the same time, the cost of government had increased tenfold.

Mr Musa Zamisa, Committee Researcher, said the FFC was very important to the Committee, because it could not pass the DoR without taking into account the findings of the FFC.  The Commission was also involved in the Equitable Share (ES) processes. Both provincial and local government were hotly contested areas. The role of the Committee was to mediate amongst the different stakeholders, such as the South African Local Government Association (SALGA). It was within the power of the Committee to ask Treasury to review the equitable share formula. The NCOP Select Committee on Appropriations was the key committee dealing with the DoR to provinces and local government.

Dr Dumisani Jantjies, Senior Finance Analyst: Parliamentary Budget Office (PBO), said the PBO was established by the Money Bills Act, and its role was to advise Parliament on key issues before decisions were taken. The PBO presented a pre-budget analysis on the status of public finance, and after the budget, it highlighted important points in the budget that needed to be taken into account. The same process was done for the Medium Term Budget Policy Statement (MTBPS). The PBO also took specific research requests on finance from finance and appropriations committees.

Mr Z Mlenzana (ANC) referred to the contestation of appropriations, and said the Committee relied on the Auditor General’s (AG) report and on the department’s capacity to spend.

Mr A Sarupen (DA) said the DoR was pro-poor.

Mr Shaik-Emam said that while the allocation in Kenya was in terms of a strategic plan received from counties, in South Africa direct and indirect grants were used for the allocation. He said it was time that Africa as a whole dealt with corruption.

Mr N Kwankwa (UDM) said South Africa did not have a credible tracking system on the social impact of allocations and on policy decisions, as the focus was mainly on governance issues. There needed to be more discussion on fiscal rules with Kenya. South Africa could also learn from Kenya. He proposed that written responses be provided.

Mr X Qayiso (ANC) said state institutions like the Hawks, the Special Investigating Unit (SIU), National Prosecuting Authority (NPA) and the Zondo Commission of Inquiry were used to deal with corruption. He asked for clarity on the working for the land/working for people concept.

Dr Mwaura said in South Africa people voted for a party. In Kenya, people were elected based on constituencies called counties. There was also representation of special interest groups through party lists. In the counties, money allocation was based on how much people were in the county. However, account also had to be taken of the land mass of the counties to allow for infrastructure to be built, and this was where the contestation was -- the question of what percentage the ratio of people to land should be.

Mr Sifiso Magagula, Committee Content Advisor, said that the South African Revenue Service (SARS) collected revenue, and local municipalities also collected local revenue. He said South Africa did not have a debt ceiling -- it used a debt to gross domestic product (GDP) ratio. and borrowings were determined by the fiscal framework.

The Chairperson said that South Africa continued to be a victim of profit shifting, and had failed to deal with this. Corruption was ubiquitous and perennial, and needed to be dealt with on an ongoing basis.

Department of Health on 2019 Adjustments Appropriation Bill

The Chairperson said he was concerned that the Department of Health (DoH) had asked for money for the NHI, but now that money had been moved to other areas.

Dr Joe Phaahla, Deputy Minister of Health, introduced the Acting Director General (DG), as the previous DG had left a month ago and the post was being advertised.

Ms D Peters (ANC) commented that the composition of the delegation was all male.

Deputy Minister Dr Phaahla said the previous DG had been a women. In the area of finance, there was a problem getting women, but overall women accounted for more than 50% of senior management.

Mr Hadley Nevhutalu, Chief Director: Provincial Financial Support, DOH, addressed the financial aspects of the DoH, with emphasis on the NHI. He gave some background at first, saying that in September 2018 a stimulus package was announced containing two projects relating to the DoH. One was the procurement of beds and linen for hospitals, and the other was the filling of statutory and critical posts to improve the quality of health care. No extra funding was received, and Treasury had said the DoH had to re-prioritise its spending and its budget to cover these costs. The DoH had done this and come up with R500m, which was split into two grants of R150m for beds and linen, and R350m for human resources (HR). The R350m was meant for the appointment of specialists and other critical posts for the last quarter of the year.  The target had been the employment of 2 200 people, but the provinces had employed 3 139.

The DoH had also engaged with Treasury on the following year’s budget because they would have a budget deficit in the following year. They were told to engage during the budget adjustment period, as they were too late for the budget, and therefore the DoH had started 2019/20 with a budget deficit of R780m. Treasury told them they would not receive additional funding for the deficit, so the 2019/20 budget had been re-prioritised and this would inform the rest of the presentation. The re-prioritisation had ‘found’ R839m, with R819m allocated to the deficit and R20m for the establishment of the NHI office.

Dr Anban Pillay, Acting Director General (DG), spoke to non- financial aspects of the performance of all programmes up to the second quarter. He addressed the challenges of medico-legal claims and challenges to the information system of the DoH, which affected procurement and the corrective actions the Department had taken.

Deputy Minister Dr Phaahla said that on the financial side, the key issue in all the provinces was front-line human resources, like nurses and doctors. The difficulty now was further budgeting for these new front-line human resources. R160m from the NHI funds had been identified to be used for these front-line services. Treasury’s response was that if this money was unspent at this stage, then all of it would not be transferred, so some of the funds would be taken back by Treasury.  Approximately R500m had been taken back by Treasury. This had had an impact and currently only statutory posts, like medical interns, were being filled. The R350m was used to ensure that all the interns were allocated, but the money could not support the filling of critical posts.


Mr Sarupen asked how the DoH was dealing with provincial departments’ contingent liabilities. Was it a strain on health budgets across the country? How were provincial health accruals being managed?

Mr Mlenzana said the presentation reflected incapacity of the DoH to spend. One programme spent only 3% of its capital expenditure allocation, which was worrisome. Could the DoH give an account of the actual state of readiness of the NHI in terms of advocacy, and was there money available? He had visited two clinics, one of which was starting to become dilapidated because there was a facility but no doctors or nurses etc.  At the other, he had asked how people from a number of villages were transported by ambulance to the clinic. Other issues were a lack of personnel and the promised construction of a new clinic. 

Mr Shaikh-Emam asked how the NHI would be implemented. How would people access services? He said the DoH had been underspending on its HR capacity grant. What would it do about its lack of capacity to spend? Would the DoH be ready for the NHI in terms of infrastructure, HR, and funding? Who would administer the funds? He hoped it would not be monopoly capital companies, like Medscheme.  He said SA was losing the war on HIV, because there were 1 200 new infections.  He said 80% of diseases were because of what one ate, and the DoH was doing little about the food people were eating. What was being done on the prevention side, as in the Cuban model? He said the Health Professionals Council was a mess. Clinical associates were not being accommodated, even though millions had been spent on training them.

Ms Peters said the security of health professionals at health facilities was worrying. There was a radio debate where a doctor had commented that youths were not using the barrier methods of sexual protection from HIV. Was this because of the focus on treatment? She was concerned at the DoH’s inability to spend on the NHI, even though it wanted to implement the NHI. The DoH had to ensure that the money that was given, was spent. It had to pay the Department of Public Works what was not queried, and not pay what was queried.

Ms R Komane (EFF) questioned the capacity of the DoH, given its underspending, as Treasury had said R346m was unspent. How would the DoH improve the situation and have an impact on service delivery? The R20m unspent on the compensation of employees (CoE) for vacant posts was a cause for concern. How many of these posts would be filled, and what was the time frame for doing this? She asked if any of the medico-legal claims cases had been won. What types of infrastructure spending would be held back because of the budget cuts?

Mr Qayiso asked what the procurement problems were in not being able to pay invoices within 30 days. He said non-spending on violence against women exposed women to attack. What was the problem in medical-legal committees that were non-functional? There needed to be a time line to fill the vacant posts so that the NHI could be rolled out. He said there was no budget related to in-sourcing. How far was the DoH on this matter? What progress had been made with the revamping of nursing colleges?

Mr D Joseph (DA) commented on provinces not submitting information on time, and said that these provinces should be acted upon. The presentation had spoken of 2 200 posts being budgeted for, but 3 039 posts had been created. This meant that 939 posts had been created without approval, and the Committee could not support this.

Mr O Mathafa (ANC) asked what measures were going to be put in place regarding the shortfall in human resources, which was mainly in rural Eastern Cape and KwaZulu-Natal (KZN). Were there timelines for getting the medico-legal claims committee functional? What measures were being put in place for legitimate medico-legal claims to reduce the number of further negligence claims? On the reduction of the human papilloma virus (HPV) grant, he asked if there was a way for the youth age group to be tested, to prevent them becoming future cancer victims. On the delay in the communication campaign for NHI, he asked how the delay would impact on the timeline for the ‘go live’ data.

Ms Peters asked if pap smears were done for people over 30.

Ms M Dikgale (ANC) asked what the medico-oncology committee was. She said the rollover of R89.3m by Treasury would promote laziness among DoH staff, because it would continue under-spending. The money should have been re-allocated to other bodies. If rollovers were done, then there would be rollovers for bigger amounts than the R89.3m in future.

The Chairperson asked how rollover funds were discovered. He wanted the DoH to comment on breast cancer for men. What were the two biggest risks the DoH faced? He said only 10% of black people had access to private medical aid. The interaction with public hospitals was not a good experience, and he wanted to know what turnaround strategy the DoH had. He was worried that in the presentation, the DoH had thought R14m was a small amount. How big was the problem of medicine leakages, and what was being done about it? Was the DoH concerned about its impact on the country, on the transformation of the economy, on youth and women’s empowerment? Were indicators on these matters available, because the Committee looked at more than just the budget -- it looked at the impact a department made on the country. The issue of underspending by the DoH spoke to a lack of planning, to project management, to management and to a number of other issues.

Department’s response

Deputy Minister Dr Phaahla said front-line staff was a key pressure point on providing quality service, and a lot could be achieved by having well trained, motivated, front-line professionals. This was flagged as the main challenge by provinces, but budget pressures meant staff could not be employed. In the past five years there had been almost no growth in the allocation. Limpopo, for example, spent 74% of its budget on employee compensation.  Porters and cleaning staff posts were also frozen, which meant nurses did porters’ work, for example, so re-prioritization included porters and cleaning staff to free up nurses for front-line duties. However, Treasury said no new money would be given -- the DoH would have to find the money. Money was taken from HIV/ AIDS/ TB allocations, and money targeted for the hiring of private doctors would be spent on employing doctors. Money was taken from children's support programmes, like providing glasses or hearing aids, to hire doctors and nurses.  

Ms Peters asked if money had been taken away from children correction-related programmes for re-prioritisation.

Deputy Minister Dr Phaahla said these were not existing services -- they were deficiencies in the existing services. It was budgeted for, but a decision had been made to delay the implementation of it. This exercise, in delaying programs, was interpreted by Treasury as not being able to spend the money on the programme.

The Chairperson said Treasury should be engaged from the beginning. House building programmes, for example, could be stopped, but not health programmes.

Dr Pillay talked on the concept of savings versus unspent money. Money was not spent so that it could deliver front-line priority services in hospitals and clinics. The DoH had written to Treasury, but had not yet received a response. Treasury was describing the re-prioritised money as savings.

Mr Mlenzana said the response was not convincing, because there were regulatory reports that had to be submitted. He asked if there had been any indication given in its monthly interactions. He asked what the problem was, because if the DoH could not spend now, how was it going to implement spending on the NHI.

The Chairperson said the DoH had to budget for the things it wanted to do, not for other things. He said matters could even have been taken up at Cabinet level.

Dr Pillay said the NHI would purchase services from the public and private sectors. The NHI would not be privatised.

Mr Shaik-Emam asked if the private sector would be compelled to provide services to anyone. Would private facilities be able to refuse to provide service? What would the impact on the private sector be, and would they be able to handle all the cases, because they also had capacity constraints?

Dr Pillay said the NHI was structured around a referral system, and the private sector would contact the NHI and the NHI would reimburse the facility. The private sector would contract in to the NHI.

On the readiness to implement the NHI, he said the office of standards, which provides norms and standards and determined when a facility was ready, would provide a certificate, and only then could the NHI contract the facility in.

On the effect of eating unhealthy foods, he said the DoH was busy with food labelling which currently was largely chemical based and not related to health. This would change to labelling indicating whether the food was good for a person. The DoH was writing this up, and it would be published for comment.

There were a number of lawyers trying to lay medico-legal claims against the DoH. Some were legitimate and some were not. The DoH wanted a system to evaluate all claims and settle cases through arbitration, instead of going to court.

The Presidential Health Compact had identified accruals as a key issue, and said that provinces needed to phase accruals out, which meant they had to budget appropriately on key areas of service delivery.  

Regarding young people not using barrier methods during sex, he said the DoH had intervention programmes targeting different groups, including the youth. The programmes had not resulted in a significant change. The key was to understand what method would change behaviour.

Commenting on how the DoH could improve its expenditure on NHI, he said there were only four people in the Department dealing with the NHI that Treasury had funded. The DoH had been given a goods and services budget, but not the people to spend that budget.

The Chairperson said that on this point, it was important that the Department, the Portfolio Committee on Health and Treasury meet early in the following year.

Dr Pillay said there had been problems with procurement, which was related to the line to the State Information Technology Agency (SITA). The DoH had had to move staff to do its procurement from SITA offices, but the matter had since been fixed.

On the timelines for the filling of posts, he said posts had been filled but the budgets had been cut, so the question was how the DoH was going to pay for the posts in the following years. To mitigate the shortfall, certain projects were being delayed.

Mr Qayiso asked if there was a budget for in-sourcing.

Mr Pillay said there was no budget -- Treasury had not given any funds for in-sourcing. It would tell the DoH to find it within the existing budget, meaning it had to re prioritise. 

Deputy Minister Dr Phaahla said that the existing budget contained funds to pay for catering, security, and cleaning. Instead of paying service providers for these services, they were now hiring these people, but the implementation varied from province to province. It was policy, but in instances where one added other benefits like pensions, then it became more expensive.

Mr Shaik-Emam said the DoH appeared very underfunded. If this was the case, it should say so, so that the matter could be addressed, otherwise the NHI would be messed up.

The Chairperson said in-sourcing should be positive. He knew of instances of outsourcing security, where money was paid for security at R12 000 per person, but the security officials received only R3 000.

Mr Kwankwa said that he had been employed by Coin Security in1999, and that while they had claimed R7 800 per person, he had been paid R1 030. He also questioned whether service providers actually rendered the services they were paid for.

On medicine leakages, Dr Pillay said there was information tracking of purchasing and expenditure, and the DoH used this to match the burden of diseases at a facility. If, for example, one bought HIV drugs, there should be HIV patients.

The Chairperson asked if someone could get HIV drugs from two different facilities.

Dr Pillay said it could occur, if false information was given. If the same information was used, it would be picked up by the system. There was no demand to produce ID documents, because people might not have the documents on hand at the time, and they did not want people not to get the medicine. The DoH saw the solution to this as being the use of biometrics.

Mr Shaik-Emam asked if one could get antiretroviral (ARV) medicine if one was not on the system.

Mr Kwankwa said what was needed was a comprehensive list of all the challenges facing the DoH.

On transformation issues, Dr Pillay said the DoH reported on indicators on a quarterly basis, and they were in alignment.

Mr Nevhutalu said that if provinces were not able to absorb front-line medical staff, they were allowed to hire porters and cleaning staff, but at the end of the year they never spent more than what was allocated.

The DoH had an accrual strategy. For the last two financial years, it had reduced accruals but with the proposed budget cuts, the DoH was concerned that accruals might increase.

He apologised for his comments about the R14m figure. What he was trying to convey was that the figure was manageable.

A DoH official said that R50m worth of linen was procured and delivered, and beds to the value of R100m were bought. The purchases were done through four companies.

Mr Shaik-Emam asked what the DoH did with the beds that were replaced. Did it get money for the disposal of those beds?

A senior budget analyst from National Treasury referred to the rollover process, and the process to take away money. The rollover process was done in terms of section 32G of the Public Finance Management Act (PFMA) and Treasury Regulation 6.4, and was based on requests from departments indicating the reasons why funds were not spent and how the money would be spent if the rollover was granted. Treasury also looked at the capacity to spend and the state of readiness of the project. Non-personnel budget rollovers were limited to 5%.

On Treasury taking away money, she said that all cuts Treasury made were based on spending to date of a project, and the capacity of a department to spend.

Deputy Minister Dr Phaahla said that the reality facing DoH was that with the reduction of the budget allocation, the front-line service was at the provinces, and the pressure to sustain quality service was increasing. Provinces looked to national government for funding assistance, because there was a continual demand for services. Treasury’s response was to ask the DoH to re-prioritise.

Draft Eskom Report

 The Chairperson said the draft Eskom report would not be discussed, and would be held over to the next meeting.

The meeting was adjourned 

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