The Chairperson opened the virtual meeting by detailing the fact that the meeting would be divided into three, with three Members taking lead in the questioning of the South African Broadcasting Authority (SABC) and the rest of the Members having time for follow up questions. The main areas of discussion were contracts of expansion, contracts of deviation and, in particular, the entity’s contract with Inala Technologies.
The meeting began with the public broadcaster acknowledging that its biggest overarching problem as an organisation was planning and for the remainder of the meeting it attempted to assure the Committee that a number of new systems had been put in place to deal with its shortcomings in terms of the new turnaround timeline. These included early warning systems for contracts which were due to expire which gave warning 12 months in advance and again nine, six and three months before expiry. Another focus was to increase of revenue through means like debt collection and the entity also flagged the intention to dispose of non-core assets, such as buildings in the future.
Members emphasised that it could not be the case that state-owned enterprises (SOEs) in South Africa continued to survive only because they were propped up with public money, which was ultimately the taxpayers’ money and was not sustainable.
The Committee posed several questions about the possibility of insourcing debt collection and whether it had been explored. Members queried he circumstances around the SAP contract, the JASCO contract, the Omneon Harmoni, the Mowana contract, the Telkom contract and the Inala contract. They were unsatisfied with the manner in which expansion and deviation procedures were conducted and frequently demanded to know who was responsible to ensure that mechanisms which were intended for emergencies did not become standard operating procedure.
In conclusion, the Chairperson suggested that the Auditor-General perform a special audit on all the SABC’s contracts which had been subject to expansion or deviation over the span of a 10-year period at the SABC. The Committee would then be able to refer to that report. It was clear that there was a level at which due process had not been followed. There was a willy-nilly approach in the hopes that things would go under the radar by citing sole providers. On the basis of the responses of lack thereof, the Committee could submit questions to Treasury.
Opening Remarks by the Chairperson
The Chairperson opened the virtual meeting by welcoming the Members, the delegates from the South African Broadcasting Authority (SABC) and other dignitaries in attendance. He then said that the SABC would be presenting their submission on expansions and deviations, which was a focus rea for the Committee. The Committee had noted before that expansions and deviations were an exception and not a norm. Therefore, time and time again, it would probe entities and departments on their utilisation on the provisions of expansion and deviation. Today, the Committee was meeting with the SABC.
The Chairperson of the SABC Board, Mr Bongumusa Makhathini, was present but reported his apology for the need to leave the meeting early, owing to a pressing family commitment which he was unable to change. The Minister of Communications and Telecommunications, Ms Stella Ndabeni-Abrahams, also sent her apologies as she was making a presentation to the Cabinet Committee. The Deputy Minister, Ms Pinky Kekana, was present and in the interest of cooperation – the Portfolio Committee on Communications was informed of this meeting.
Ms B Van Minnen (DA) would begin with expansions. Ms V Mente-Nqweniso (EFF) would speak to deviations and Mr B Hadebe (ANC) would conclude with the Impala. The lead Members were given 30 minutes per session and then the colleagues would respond to each section for 30 minutes, with each section having an hour. He noted that the files gave the Committee some trouble as they were rather large, but he thought that the Committee was sorted in the end. He continued to thank God that the Committee Members all remained safe and extended the Committee’s condolences to bereaved families and wished strength to those currently affected by COVID-19.
In conclusion, he asked that they all continue to observe social distancing and welcomed everyone to the virtual meeting, noting that the Committee had not met for a while. He then handed over to the Deputy Minister to make opening remarks, who would be followed by the Chairperson of the Board.
Deputy Minister’s opening remarks
Deputy Minister of Communications, Ms Pinky Kekana, began by noting that the Chairperson of the Board had alerted the Department of the pressing family matters, and assured the Committee that the rest of the team would remain in the meeting.
On behalf of the Department she agreed that expansions and deviations and deviations should not be a norm and hoped that the Chief Financial Officer (CFO) and the team would be able to explain what the pressing measures were. She highlighted that they were all aware that the SABC was bailed-out, which meant that it needed to be monitored carefully by all stakeholders, including parliamentary committees so that it was given the necessary support and it did not fall flat. This was the commitment it could make a shareholder because suggested that a failed business – one which could not raise revenue. Whatever it was able to give through government and the task team, it had to monitor very carefully.
She thanked the Committee and asked the Chairperson for guidance.
Chairperson Hlengwa asked the chairperson of the Board to speak.
Mr Makhathini thanked the Committee and began introducing the team from the SABC. Ms Jasmina Patel, Chairperson of the Audit and Risk Committee from the Board side; the Group Chief Executive Officer (CEO), Mr Madoda Mxakwe; the CFO, Ms Yolande van Biljon; the Chief Operations Officer (COO), Mr Ian Plaatjies; Ms Irene Marutla, General Manager: Strategic Sourcing, and the Senior Commissioning Editor, Ms Nirvana Singh.
He thanked the Committee for accepting his apology.
The Chairperson said that Ms Van Minnen’s time was cut into and said the Committee would not expropriate her time without compensation. He said that she had thirty minutes to deal with expropriations one on one and to probe as she saw fit. At the outset, the Committee expected due and proper financial management of on the part of the SABC and its compliance processes. National Treasury was here and the Committee would be able to field questions to them on questions of approval or non-approval of expansions and deviations as submitted by departments and entities.
He handed over to Ms Van Minnen.
The discussion was mostly structured a blow-by-blow format – with the delegates answering the questions right after they were asked.
Ms Van Minnen began by qualifying that as the Chairperson was speaking, she realised that she had focused on other issues, but she would deal with the expansions. Additionally, the large files that the Chairperson referred to did not reach her and that she got the impression that the email system did not reach her; she would be working under constraint as she did not receive the large files.
Material uncertainty to the going concern
Though not strictly an expansion issue, she considered it deeply concerning as an overarching issue. If the entity’s liabilities exceed its assets by R875 million, the Committee really needed to be asking why it was still continuing its work because it was clearly trading in insolvency. There were some massive issues of concern found by the Auditor-General (AG) regarding licence fees, impairments on trade and other receivables, non-financial information and material misstatements. She asked about the measures to address this, going forward. Additionally, non-compliance with legislation was flagged as she asked how proper audits could be conducted if documentation was not conducted properly; she also asked if there were no full ant proper record and contract management was not being conducted correctly. Are there effective steps not being taken to avoid irregular as well as fruitless and wasteful expenditure? Although expansions and deviations should not be the norm, with the SABC, it would appear that they were the norm. This was why applications were seen to be going in late, trying to force Treasury to accede; some were submitted after the contracts had expired. She asked that this be dealt with before expansions were dealt with.
Ms Yolande van Biljon introduced herself as the CEO and asked how the Chairperson of the Committee would like her to proceed.
The Chairperson said he was struggling with connectivity.
Mr A Lees (DA) clarified that the CFO was asking about the format of her response. He believed the format was that she would answer the questions as posed by Ms Van Minnen.
The Chairperson agreed that this would be the format until the 30 minutes were up.
Ms van Biljon thanked the Committee and Ms Van Minnen for her questions.
Material uncertainty to the going concern
This was, to a large extent, mitigated in September last year when the entity received confirmation that it would be receiving the support it applied for. The first amount was received in October, with the final amount received in March. Following the confirmation from the ministries, that support was imminent, the SABC was able to engage with the Office of the AG on the uncertainty of the going concern, which, to a large extent, had been duly addressed. This also resulted in massive area of qualification in the audit process being duly addressed. SABC was able to receive a qualified audit opinion for the financial year ending on 31 March 2019. It was an improvement on the preceding year.
Supply chain organisation
This area remained afflicted in a number of issues but it had made improvement over the previous 18 months. Best practice had attempted to be introduced more in order for business to better understand what was expected of it. As much as it was nowhere near where it would like to be, there were signs of progress, even as recently as with the interim audit in the past financial year. The audit report was issued about a week prior and it indicated that house-keeping frustrations were no-longer necessarily part of the challenges in supply chain.
The SABC put in place an extensive contract management system in the past 18 months. It was automated to a large extent and was designed to ensure early warning systems so the organisation knew when it needed to put in requests for renewals or tenders—as the case may be.
Irregular, fruitless and wasteful expenditure
In the past years, this amount had been reduced from over R537 million or so, two years prior, to the current amount of about R110 million. About 90% of this related to transgressions from about two or three years prior to this meeting. Overall, there had been systems put in place within the business to not only reduce but to eradicate instances of irregular, fruitless and wasteful expenditure entirely. By virtue of the reduced number of instances as well as the value thereof, she was optimistic that the entity was making progress in the right direction. It was, however, an organisation in transition. As such, it was undesirable for expansions and deviations to be the normal course of business. She was not of the view that expansions and deviations were, in fact, the normal course of business but she was keen to discuss it throughout the rest of the meeting. Looked at in the context of 220 active contracts per annum and an annual procurement plan of up to R2.5 billion, she hoped that the SABC could give the Committee comfort that the 30 instances in a year period which would be discussed in the meeting – many of which comprise of industry specific requirements – were not the ordinary way of business.
There were other frustrating issues around security and leases. These were things which should have been dealt with proactively. Because of its transition state, it was also trying to put in place proper tender processes which were in line with the Constitution to refresh all of these activities. Unfortunately, some of these activities were very big activities, but this process was ongoing. There was a similar trend in both reduction of instances and value of fruitless and wasteful expenditure. Measures had been put in place to recover funds where possible. Because of the significant reduction thereof, the entity was hopeful that the theme which seemed to have been accepted practiced up until about three years ago would slowly but surely phase itself out of the organisation.
This was an ongoing conversation both in the organisation, with assurance providers and other interested parties. On irregular expenditure, especially the opening balance of about R5 billion on o1 April 2018, there was still a lot of work to be done. The SABC had submitted a number of requests to Treasury for its consideration and continued to work with it in what the SABC considered to be a very constructive manner in dealing with the amount. With the in-year activities of the past three years and measures which the SABC had put in place, the SABC hoped that it was not only able to give itself comfort that the topic had been dealt with, but also gave the AG comfort that it was able to prove the completeness of its reporting and follow through on consequence management.
The CFO handed back to Ms Van Minnen.
The Chairperson said that Ms Van Minnen could continue if she had follow-up questions.
Ms Van Minnen indicated that she had a follow-up question on the issue of the bailout. She said that one could not say that the issue had been resolved because there had been payments from the government. The point was that it should not have been trading in that position in the first place. It was a similar situation for a lesser amount at the end of 2018. She asked what assurances the Committee could obtain that in the financial year which has just ended it would not be seeing a similar occurrence. It could not be the case that state-owned enterprises (SOEs) in South Africa continued to survive only because they were propped up with public money, which was ultimately the taxpayers’ money and was not sustainable. She asked for comment on this.
The CFO said that the single biggest pillar in the SABCs turnaround strategy was a return to financial sustainability it had a few elements to it. Almost in order of importance, there was revenue generation; there were a number of ongoing activities which had been going on in spite of COVID-19 to ensure that the entity’s revenue increased. In the past, it had put in place a number of cost-optimisation activities and it had cut out a lot of unnecessary costs, particularly in the operating cost item; it was also addressing the way it contracted in its content environment to ensure that it paid competitive prices for the content it acquired. It had also recently performed extensive work on its facilities and studios to ensure that they were efficiently used. The initiatives on the big systems, which it was in the process of replacing, were the systems which kept the SABC on air. The systems monitor the entity’s advertising and were meant to bring further accuracy and efficiency over time. The whole digital journey was a journey towards efficiency and to cut out unnecessary costs. In the past two years, it had reduced operating costs by about R200 million. It was going to do it again in 2020. Unfortunately, the only two cost line items it had not been able to address despite its turnaround strategy were the single and distribution fee as well as the need to have a fit-for-purpose personnel corps. As such, it was attending to both of these concerns. It had also put in place more effective cash management processes to ensure that it had foresight and ability to plan and work with suppliers and service providers to weather the storms.
Up until the middle of last year, the SABC had developed a very strong relationship with the stakeholders in its environment to work together in a way that everybody survived. This organisation planned to never to have to ask for money again. It wished to be self-sustainable and had the means within it to be able to do that, and it was putting measures in place to ensure this. Over and above this, it had been addressing governance issues in the past two years, and as such, the bad behaviour, practices and associated costs linked to that behaviour was being eradicated. There was an absolute zero-tolerance attitude to this kind of activity within the organisation. The CFO expressed the SABC hoped that this bundle of actions would see it become financially sustainable as it had what it took to do so.
She concluded by thanking the Chairperson.
The Chairperson requested that the CEO or the Board answer the substantive questions as the hearing progressed, with the CFO entering to assist with the technical nuances, particularly as the discussion delved into the issues of the expansions and deviations. He asked the CEO to please avail himself and asked Ms Van Minnen if she would be happy with this.
Ms Van Minnen said she would be very grateful to hear from the CEO at this point.
Mr Mxakwe, SABC Group CEO, greeted the Committee before explaining that the turnaround plan was developed as a collaborative effort between the SABC, the shareholder as well as Treasury. It focused on key pillars aimed at turning around the SABC within the 36-month window it was given to ensure that it broke even within this time. He was pleased to inform the Committee that the entity was at 50%. This was attributed to combination of activities which had been done in the past months, since the strategy was implemented. The strategy was focusing on ensuring that SABC continued to focus on revenue generation; dealing with SABCs cost drivers – including 43% staff cost and 12% for the cost of signal distribution; the need to ensure governance and to deal with the systematic collapse of processes previously.
Under the component of generating revenue, it was focusing on classic advertising – the core base. About 83% of the SABCs revenue came from the airtime which it sold on the market. This amount was still solid and strong, but the entity wanted to do more to strengthen it. In doing this, it had had to review some internal policies, which were very rigid and did not give it the required agility. It was also ensuring that it was engaging with various clients and customising its deals to ensure that it customised its service to their particular needs.
One of the things which had changed was that the entity was no-longer simply selling to market radio or television. It was selling an integrated solution which incorporated television, radio as well as some of the digital platforms it had. It was evaluating its inventory and looking at different ways of pricing as it engaged with the industry. Another model being looked into was bulk trading and group deals so that when it engaged with various agencies, it could look at their total commitment, vis-à-vis budgets and what it could get out of that. It had also looked at radio since it had a 73% market share but it was not commensurate with the revenue it was generating. Accordingly, there were various strategies which it had developed per radio station to ensure that it could commercialise all of its engagement with its various clients. An event commercial strategy was developed to enable the pursuit of alternative revenue streams during the COVID-19 period. It had allowed the formation of sponsorship deals, which had been good for the business during this period. Revenue was always commensurate with audience ratings. The entity was working closely with its television colleagues to ensure that all of the television properties which were not performing were injected with the required marketing boost so that the audience ratings could be raised such that there was corresponding interest when it came to revenue.
The group deals, upon which a lot of emphasis had now been placed by the SABC, were really sponsorship deals that were being negotiated with its clients focusing on both entertainment as well as sports properties. A lot of progress had been made around sports rights acquisition. To give the Committee a sense, he indicated that deals had to be renegotiated – particularly the ones that were not commercially viable for the SABC. The entity used to pay about R1.5 billion for one property in five years and it had now renegotiated that property and was now only paying about R380 million. It wanted to ensure that these properties were commercially viable. In the case of another property, it renegotiated a R110 million deal over five years to about R25 million per year. The idea here was to ensure that value was brought back to its properties and that they were commercialised as it engaged in classic sponsorship and various advertising deals. In a nutshell, as the SABC had said in the past, and on which the COO would speak briefly if allowed, the entity was very confident that with the turnaround plan which had been implemented the SABC would become a sustainable organisation; it would not depend on the fiscus going forward. However, a lot of tough decisions needed to be made to ensure that this was done.
He thanked the Committee.
The Chairperson said that due to time constraints he would like to deal with the focus areas. He handed over to Ms Van Minnen to round up.
Ms Van Minnen said that moving on to expansions she had a number of questions. On the Systems, Applications, and Products in Data Processing (SAP-SA) expansion, she pointed out that the previous expansion was R5.1 million, up to R21.1 million. This extension was not granted and was an extension of over 15 %. Also, the extension was only applied for very late submissions – two or three months before the expiry date. She asked why that was and whether this was to force the expansion through.
Ms van Biljon said that with SAP, SABC received approval for six months, which came through in about November 2019. SAP renewal was typically for a year, and generally, payment was made for 12 months and could not be broken down to less. The SABC needed to ensure it understood what Treasury feedback meant, so that it could engage with them on a way forward without jeopardising its business. The SABC then submitted a new request for the 12-month period, but the entity was too late, as Ms Van Minnen had rightly said. The SABC had started to implement its guidance and as such the information on its enterprise resource planning (ERP) system was currently being discussed within the organisation.
She asked if her team wanted to add anything. The team was content, and she reverted back to Ms Van Minnen.
Ms Van Minnen raised Inala Broadcasting Technologies but the Chairperson said that Inala was a separate focus area which Mr Hadebe would deal with later in the meeting. She then asked for information about Agence France-Presse (AFP) which was not supported on appeal.
Ms van Biljon said that this was one of the requests in its news agencies. The project description of the SABC was ‘provision of international news’. What happened was that it started off as an expansion but as it progressed, it turned out that there were AG findings at some point in the past and Treasury rightly rejected the request. In subsequent engagement and consultation with Treasury, SABC then submitted another request for Agence France-Presse and the other four news agencies.
The Chairperson interjected to request that questions be answered substantively. If she said that there were issues raised by the AG, this did not say anything. He asked for specificity in her response as that was why the Committee was meeting and the response thus far was very generic.
Ms van Biljon thanked the Chairperson for his guidance and asked her colleague from supply chain to share the express detail.
Ms Irene Marutla thanked the Chairperson began to explain the supply chain perspective.
The Chairperson asked for the designation of the speaker.
Ms Marutla introduced herself as General Manager: Strategic Sourcing in Supply Chain, and then she said that SABC had taken a decision that every time it made an application to Treasury, it would disclose all of the information it was aware of so that when Treasury made a decision to support it or not, it had all of the information. Recently the SABC applied for a deviation, which was supported.
Ms Van Minnen asked if she could raise two further issues.
The Chairperson permitted it and asked that she be mindful of time.
Ms Van Minnen agreed and continued to ask about the DC contract which was only allowed by Treasury to be extended for three months on the condition that a new tender was finalised for Tshwane. She asked whether this new tender had been finalised and if the tender could have been extended for three months. Why did the SABC not go this route before the tender expired?
Ms Marutla thanked Ms Van Minnen. She responded that the new tender had been finalised as the SABC appointed a new service provider through the tender process. The reason it approached Treasury for an expansion was because the service provider was appointed as a stop-gap following the previous service provider who went into liquidation. Accordingly, there was a need change abruptly from a service provider appointed for the long-term because of that occurrence. The stop-gap tender came to an end before the new one came into effect. Therefore, the SABC requested an extension from Treasury.
Ms Van Minnen asked about 21st Century Ltd. The initial contract was in 2014 and continued to be extended. The current extension was due to expire in April 2019, but the application was only made in December – which was seven or eight months later. Why was it done so late? How much was paid to 21St Century after April 2019 to date? How were they paid without an extension and without a contract in place?
Ms van Biljon said that regarding 21st Century, Treasury initially understood that the contract date to end in April, but the SABC’s motivation to Treasury was specific in saying that the contract only ended in April 2020. When it received Treasury’s feedback, it went back to Treasury to clarify the misunderstanding, after which, it supported the SABC’s request.
Ms Van Minnen asked if it was a mistake in thinking that it was April 2019 instead of April 2020
Ms van Biljon confirmed this.
Ms Van Minnen said it did not make sense and asked how payment even took place and how the misunderstanding occurred.
Ms van Biljon said that there were no activities in that period as the SABC had one outstanding activity. She thought it was a budget issue, which was why the SABC requests, whilst the contract was still valid, to be allowed to finalise one activity. She added that the supply chain team may be better able to clarify.
Ms Marutla said that when the SABC submitted its request for the expansion of a contract to Treasury, the end date of the contract was interpreted to be in the past. However, when it was brought to Treasury’s attention that the contract was still valid and active; the SABC did not have enough funds to complete the process, their submission was reconsidered and the expansion was approved. The reason why the process was prolonged was because it involved organised labour. She was informed that many meetings were cancelled and the process was prolonged. When the service provider arrived and the meetings were cancelled, the entity incurred some of the costs and this resulted in the need to expand the contract.
Ms Van Minnen said that that was the end of her questions for now.
Mr A Lees (DA) greeted the Committee and SABC and said that he was pleased that the current picture in front of him was clear. In jest, he said that most of the SABC presenters were in darkness, where they presented, which was not a good image for SABC TV coverage.
He noted that the CEO was empathic that the advertising revenue was solid and strong. He asked if there were figures to support this and asked if it had improved. The Committee was aware that during the Motsoeneng era, advertisers ran away from the SABC. What is the revenue now as compared to that era?
One of the huge issues during that cloudy era was interference amongst editorial staff. Is interference still happening from a ministerial level? As an aside he greeted his good friend, Minister Pinky Kekana, and said that it was lovely to see her face again as it had been a long time since they had chatted.
The CEO, Mr Mxakwe, offered to move to be in better view.
Mr Lees clarified that it was said in jest and there was no need to move.
Mr Mxakwe said that looking at year-on-year figures for the past few years would show that the SABC had experienced a dip in revenue, precisely because of some of the issues which Mr Lees had mentioned. Revenue and other income was R6.6 billion in 2017/18 and for 2019/20 it was about R5.687 billion. For many reasons, the SABC had seen a lot of contraction in the industry. There had been a lot off withdrawal of budget for marketing and advertising as in an uncertain economy, people tended to spend less on them. There had also been lack of investment for sufficient content which had affected it quite significantly as advertisers always looked at the audience ratings before they invested. If audience ratings were low, investment tended to be low. This was why the SABC had put plans together to address the radio, TV and the over-the-top media service (OTT) space to resuscitate and drive revenue growth.
Interference in the newsroom
The CEO assured the Committee that it did not interfere with the news. Since it had started advertising itself as independent and impartial, the team had worked to ensure that the SABC team was able to do its work without fear or favour. In terms of the value set, management aimed to support them to make the institution what it was.
Ms Mente-Nqweniso said that she had a sense that the SABC was extending almost every contract it had and this was concerning. One area of interest referred to a contract where National Treasury only supported for six months due to the fact that their payment term did not permit anything smaller than 12 months. What happens if after 3 months, you are unhappy with the service being given, yet you are bound to a payment term that unable to be broken down? She felt that this was dangerous. How far is SABC in having its own software and broadcasting skills? Is there a list of which services are outsourced and why?
Ms van Biljon said that as she indicated earlier in her introduction, the SABC had 220 active contracts in its organisation. In the past 12 months, there had only been 30 expansions and deviations. Of these expansions and deviations, 16 of them were industry specific. These referred to the unique software which Ms Mente-Nqweniso was referring to, which was inherent to the broadcasting industry. As far as skills training was concerned, part of the concern was that skills were transferred to relevant functionaries within the organisation so that the first line of defence was always the organisation. In this respect, there were training programmes dealing with this and the entity was trying to set up a training academy. The goal was to ensure that broadcasting skills in South Africa were nourished and grown.
The contract mentioned by Ms Mente-Nqweniso was the SAP contract for maintenance and support. In principle, she agreed with the frustrations expressed. In this specific case, for maintenance and support, the service provider was SAP directly. It did not allow payments for less than 12 months. As a result, the entity was now in the process of exploring other options in terms of its ERP system, going forward. The process had started in terms of its strategic roadmap and would ensure that other big systems in the organisation were connected – from the scheduling systems in commercial enterprises to the news and TV broadcasting systems. The work was ongoing, but the processes were in place should support be needed from SAP beyond 31 December 2020; there were tenders being prepared for the support needed for that software.
The Chairperson asked the CFO to back to her initial response about the SAP contract. She spoke about planning and why it was done late and he asked why planning was deficient and whether he heard her correctly.
The CFO said that planning was not as mature as it should be.
The Chairperson asked why this was the case as at the heart of good financial management was good planning; “failing to plan is planning to fail”.
The CFO agreed and clarified that her comment about planning referred to the whole organisation and not financial management only – specifically with respect to supply chain and business – which still had some growing to do.
The Chairperson asked where the deficiencies were. The Committee had raised this issue with the SABC before. The issue was that if contracts were allowed to lapse, or come close to lapsing, a crisis would ensue for Treasury, compelling them to approve expansions and deviations because if they did not, the organisation would collapse. Therefore, the failure to plan would be a calculated outlook to get what the entity wanted. It also created a culture normalising evergreen contracts. The conversation could not always be discussing planning and contract management as the causes which, time and time, again led them into a problem of expansions and deviations which were ordinarily not emergencies and could have been dealt with properly so as to not become emergencies. Where are the deficiencies and since the entity mentioned that it needs to grow in certain areas?
The CFO acknowledged that the SABC did have a number of evergreen contracts. It provided a list from July 2020, and said that it had been making an effort to systematically move away from them and transitioned them to contracts with expiry periods. An inherent problem in business was that it was never required to plan. It also did not have an understanding of how supply chain worked nor understood the consequences of not following supply chain processes. This had changes in the last 18 months.
Through putting systems in place, looking at contract management specifically, using an early warning system which sent out notifications at 12 months, nine months, six months and three months before expiry had been implemented, would help remind business owners. An annual procurement plan was put in place two years ago and it was the first that was ever put together in the organisation. This forced business to reflect on its roles and responsibilities. This was not where it should be. When these occurrences resulted in irregular expenditure, it was actively focusing on consequence management. As much as there still needed to be a lot of work done, business was starting to understand that there were consequences for its actions. As such, the entity’s understanding of its part in the value chain had grown. There were a number of training activities and Treasury had spoken to cost chain and business process owners in order to help them understand why processes existed and what their responsibility was in terms of the processes.
The Chairperson asked what the value was for the SAP contract. He said he was trying to use this as an example of the problem besetting the Committee as far as expansions and deviations were concerned at SABC. He asked for an age analysis of when the entity entered into a contract in this regard, what the initial value and how many times has it been extended.
The CFO handed over to her supply chain colleague.
Ms Marutla referred to Annexure B Q3 on expansion. The SABC’s appeal letter to Treasury had indicated the entity’s financial implication, starting from 2007 until when it submitted. The total value was about R97.4 million.
The Chairperson said that this was a 13-year contract.
Ms Marutla confirmed that it was the accumulated value from 2007.
The Chairperson asked what the initial time frame was from 2007.
Ms Marutla replied that the financial implication from 2007 to December 2016 amounted to a total value of about R59.4 million.
The Chairperson asked what the time span was for the contract when it was signed in 2007.
Ms Marutla said she did not have the information with her and it was something the entity could provide later.
The Chairperson said that this was something which should be in front of SABC when dealing with expansions and deviations.
COO, Mr Plaatjies, asked if he may respond.
The Chairperson permitted him to speak and asked him to indicate his designation.
Mr Plaatjies identified himself as the COO and said that the lifespan of an ERP system was normally between seven and 10 years. However, if there were no problems, the systems could last for up to 15 years, if not longer. The issue here was not the lifetime of the software.
The Chairperson said that Mr Plaatjies was speaking very generically and not responding directly to his question about a very specific contract with SAP from 2007. He wanted to know what the contract’s life span was. If Mr Plaatjies did not have the specific details, he should enter the Committee into an academic exercise.
Mr Plaatjies said that he understood this and he was coming to that point. The system was implemented and was a strategic system which existed as long as needed. The contract entered into was a yearly maintenance agreement with SAP. Treasury was saying that previously the agreement was only made with SAP and that it should allow this contract to be on a request-for-bid (RFB) basis and allow people to respond to a contract for the maintenance of the system. At present, the entity had no plans to replace the system.
To the comment about outsourcing software, Mr Plaatjies clarified that broadcasting software was not something which any broadcaster developed in-house. Although the SABC had in-house capability around software development, that would not be for broadcast software. When the entity bought broadcast software, it looked on the RFB. Because there were not that many broadcasters within the country, most of the software was best of breed in the world and no broadcaster would have the internal capability to develop broadcast-specific software.
Chairperson Hlengwa said that he would like an age analysis to be pulled out by the end of the meeting because he found the responses to be inadequate. The only conclusion was to say that it was year-on-year. Before moving on, he noted that the AG raised the issue that the approval of the 21st Century contract was not done at the required level. He asked why this was the case and what the consequence management was around that.
The CFO asked for clarification on whether the Chairperson was referring to the news agencies one.
The Chairperson said it was on the issue of the 21st Century. He clarified that when he asked about the issues raised by the AG responses were that approval was not done at the required level. Hence, he asked what the consequence of the approval not being done at that level was.
The CFO confirmed that this was related to the news agencies and referred to her supply chain colleagues to share the details.
Ms Marutla thanked the Chairperson and said that the SABC had a delegation of authority framework, which guided which levels may approve contracts and up to how much. This particular one was approved at the correct level, according to the business level. However, when the AG looked at it, the Office raised the issue saying that it was meant to be approved at a higher level. The business unit had since taken action on this issue. Unfortunately, the team did not prepare the details of the actions which it had taken for this particular meeting but it was something which, if needed, could be submitted later.
The Chairperson asked if the SABC was in agreement with what the AG was saying.
The CFO said that she believed the SABC was in agreement with the AG. The finding stemmed from the 2017/18 audit. A total value of about R109 million for the agencies should have been approved by the board back then, but it was not. She asked for forgiveness as she did not have that audit report before her but she assumed that the SABC accepted the finding back then.
The Chairperson asked why it was not done when it was supposed to have been done and if it was supposed to be done at Board level; who was meant to have been responsible and what the consequences for that person were.
The CFO said that the Chairperson was very correct, but since she was not there, she was not in a position to respond as to what went wrong and why. As far as she knew, it was declared as irregular expenditure and made up part of the R5 billion which it was still in the process of conducting consequence management for. His point was well made and as an organisation, the SABC was trying to ensure that this did not happen again.
The Chairperson asked for responses on this matter by Friday, 31 July 2020. The matter on R109 million was substantive and it was not sufficient to say that she was not there.
He proceeded to ask Ms Mente-Nqweniso to speak to deviations.
Ms Mente-Nqweniso said she was glad that two accounting officers were present in the meeting – the SABC Board as well as the Deputy Minister.
On deviations, she requested straight answers regarding names and consequences instead of responses which tended to say that things were in process. The CEO proudly said that there was no accountability practice undertaken by the previous executives but there had never been a mention of a name or a consequence as the Committee was always told that something was in process.
To the Committee, she pointed out that it had access to the Special Investigating Unit (SIU) and the Hawks, who could conduct investigations should it detect corruption. She observed that SA Express was being liquidated because of similar practices – such as inflated prices becoming the order of the day, irregular contracts being awarded to people who did not deliver and state entities paying huge amounts of money for outsourced services where they could save a lot of money by conducting the service internally.
Beginning with SAP, she said that it had been an evergreen contract and the person who was supposed to oversee the process of renewal of that contract and the maintenance of the system did not do anything. Accordingly, she asked for the name of the person whose diary was not working or whose PA was being paid but was not reminding someone that a contract was about to expire. Finally, what happened to the office what happened to the office was meant to ensure that evergreen contracts were not maintained.
The CFO said that the first request was submitted in the middle of 2019, well in time for the imminent expiry. It then received feedback from Treasury indicating lack of support. It then worked to align with them on the challenges, which only took place on November 2019 but it subsequently received approval for 12 months. It was now in the process of implementing the good practices expected of it.
Ms Mente-Nqweniso reiterated that in the past two years, the SABC had ensured that all the evergreen contracts were duly addressed in terms of open, proper and cost-effective supply chain processes. Contracts with expiry dates were put in place and she did not think there were any remaining evergreen contracts.
Ms Mente-Nqweniso raised a point of order saying that she did not expect the CFO to narrate the same story she had already narrated as she was supposed to indicate who was meant to kick-start the process prior to the request for extension. The extension was influenced by there not being a process in place. Who is the one sitting with a diary not working or a PA not working? Who was responsible and what had happened to them?
The CFO said the first request took place in time and from its perspective there were no issues on that point.
The Chairperson made an intervention by asking Treasury to assist since it was present. He had initially asked for an age analysis of the contract. Although the Committee now knew it was from 2007, he asked for comment on how many times Treasury had dealt with the contract. What it was coming up with now suggested that this was the first time that Treasury had engaged on the matter and he asked for clarity on this.
National Treasury's Chief Director of supply chain management (SCM), Ms Basani Duiker, said that from the information which Treasury submitted and on what she thought was page 299 in the large file it submitted, the entity addressed this issue. She asked if the Committee could see it.
The Chairperson said that the Members had not received it uniformly and asked her to summarise the page.
Ms Duiker began by explaining that the instructional note which it put in place requesting institutions to submit requests to Treasury for contract modification above the 15% and R15 million threshold came into effect from May 2016/17. From this information, it should be visible that the contract for maintenance and support came into effect from January 2017 for three years, up until December 2019. When that contract was coming to an end, this was when it came to Treasury to extend the length of the contract for a further three-year period, running from 01 January 2020 to December 2022. This indicated to Treasury that its initial contract for said implementation was then from 2007 until December 2016 and effectively about 10 years. What was not clear was that within those 10 years, whether the original lifecycle of the contract was for 10 years or whether it was extended during the 10 years. Mr Plaatjies’ contribution in clarifying the issue of the ERP, as well as its maintenance and support, suggested to Treasury that it would seem that the two contracts were separated between implementation and to the contract of maintenance and support. She concluded by asking if the directors dealing directly with SABC if they would be allowed to add.
The Chairperson conceded and asked the directors to speak.
The Chairperson said that he hoped this explanation in one way or the other began to answer Ms Mente-Nqweniso’s question and clear the woods.
Ms Mente-Nqweniso said that her comments thus far had been on expansions and she had not yet breached deviations. The law was very clear on what should happen with contracts when they expired. Therefore, either a year before a contract expired, a process should be put in place to take it to a clear bidding process or work towards getting a supplier or be working towards capacitating their own entity. She did not get the answer she required from the SABC as to why the process was not followed. The fact that it was the first one did not justify the fact that there was no process to change the SAP contract as it was ending.
The Chairperson asked her to proceed to deviations.
Ms Mente-Nqweniso said it was observable that Treasury supported certain deviations. During the Chairperson’s introduction he noted that the SABC was manipulating the process because it would hinder broadcasting services if certain services providers’ services were terminated. Therefore, Treasury would allow a deviation to ensure that the services of the broadcaster were not interrupted by whatever process which needed to be undertaken.
First, she asked about the transactional capital recoveries for the Van de Venter Mojapelo (VVM) and new-debt management contract which expired in January 2019. When this contract was about to expire, from June 2018 to December 2018, to give sufficient time for the bidding processes to take place, who was supposed to renew the contract but did not renew it?
The CFO said that the process to appoint new debt collection agencies started in 2018; it was a lengthy one and if the entity saw that the process would take some time, it applied for an extension. The extensions were not approved, and it accepted that. For the majority of the past financial year, it did not have debt collection services to support it with TV license collections. The award was concluded to the new debt collection agencies in October last year. These were entirely new entities and as such, their integration in November 2019 to assume responsibility in May 2020 and would have taken up the take earlier were it not for COVID-19. As of the beginning of May they were now on board and were functioning well. Regarding the specific request being made for extension, the SABC thought that because it anticipated the implementation and getting the new agencies up to speed would take a bit of time and noting that it was desperate for treasury, it submitted the request to Treasury. The request was not approved and the SABC accepted that.
Ms Mente-Nqweniso said that once again there was no name attached ant this was a practice which she was not going to accept. At the moment when the SABC realised that the process was going to take longer in order to go through a proper, lawful process for the debt collectors to be put in place, who was supposed to have kick-started the process and did not do it? It was well and good that they realised it; she asked who was supposed to have done it before it was late such that the entity needed to ask for a deviation.
The CFO said that the applications for deviations were not late. It knew that the process was going to take long and submitted the applications timeously. From where it stood, the SABC was not of the view that anyone erred or acted negligently in any way.
The Chairperson tried to put it differently by asking what the reason for the request for deviation was.
The CFO said that tender processes in organisations like this could take up to one year to 18 months. Therefore, when it anticipated the finalisation date and having become aware of the complexity of the matter it then submitted the request for deviation.
The Chairperson said that this was the nub of what Ms Mente-Nqweniso was saying. Since the entity was aware that this was a lengthy process, the processes should have been started within the parameters of that length. She asked who was responsible to kick-start this as the need to approach Treasury arose because it would not have been able to meet its timelines. He said that he was subject to correction by Ms Mente-Nqweniso, but he thought this was what she was saying.
Ms Mente-Nqweniso said that that was exactly right, because the request or deviations happened when the SABC realised that it would not be within its timelines, but someone was responsible to have done the right thing and start the process so that it would fall within the prescripts of its timelines as deviations should not be used willy-nilly. This was law and deviations from law were why SA Express was now in liquidation.
Mr Plaatjies asked if he could contribute. He said this concern was a very unique one. Previously, when renewing contracts for these vendors, the ones who were responding were the ones who had done business with the SABC previously and the successful ones. There was a three-month process of implementing integration between the SABC and the debt collectors if they were new. For the first time, the SABC realised that the ones who were successful were all new. That additional three months was not built into the timelines, which was why the deviation had to be applied for.
The CEO wanted to respond to his comments on consequence management. The recommendations from various investigations and internal audit reports had resulted in about 222 disciplinary cases from April 2018 to date, some of which were being presented today. Where there were issues, he confirmed that the SABC took the consequence management route.
Ms Mente-Nqweniso said that Mr Plaatjies was speaking to a process which was undertaken after Treasury gave the three months and on the new people who were appointed. Management was not satisfied with the new people and was aware that it would take three months to induct new contractors.
The application for a deviation and the fact that the entity was not able to include the induction within its timeframes meant that it had failed. Someone was meant to have understood that the process would take three months to get the new people abreast with the SABC systems of debt collection. She asked who this person was.
The CFO reiterated that for the whole of 2019, the SABC had no debt collection services. When the entity awarded, it understood that it would take time to get the new team on but it had no qualms with the new teams. It was simply a matter of getting the IT systems to speak to each other. The entity endeavoured to have discussion with Treasury in order to see if it would be possible to start generating revenue earlier. It was not as if anyone was late because there were no debt-collecting agencies in 2019.
Ms Mente-Nqweniso asked, now that the new team was on board, what had happened to the team the entity had wanted to deviate for – who had been paid R60.1 million. How much money did the entity collect because of the new process?
The CFO said that because the entity did not proceed with the initiative; nothing was paid.
Ms Mente-Nqweniso responded that that was great; she was now speaking to the CFO’s letter on pagination 19 of Annexure C, on page five of the letter on the projected revenue, which could have been collected. This was given as a motivation to Treasury for these companies. SABC was going to pay R60.1 million. She asked if that was correct.
The CFO said this was not correct; the delegation would have corrected the R394 million. The SABC lose at what would have been earned typically and then made a projection based on that. Debt collection agencies would typically get a percentage of what they collected.
Ms Mente-Nqweniso asked whether the entity was going to collect R394 million.
The CFO said that this would have been together with the new debt-collecting agencies. From the old debt collection agencies, it would have been R305 million, of which they would get a percentage of what they collected.
Ms Mente-Nqweniso asked if they combined the R89 million with the R309 million.
The CFO confirmed this as it was trying to illustrate the revenue-generating capacity of debt collectors.
The Chairperson asked Ms Mente-Nqweniso to round up.
Insourcing of debt collection
Ms Mente-Nqweniso said that if she was sitting at Treasury looking at its projections, working towards a target of R419 million; this was its budget, if she was not mistaken. Out of that amount, it intended to take R60 million out of that. SABC did not have its own debt collection unit. If she was at Treasury, she did not know why the three-month period was granted at all as it may have lost the R60 million. She asked whether the SABC had a debt collection unit before outsourcing the service to other companies.
The CFO confirmed that the entity had its own debt collecting unit but it focused mainly on current accounts. Debt collectors typically took over from 90 days and above.
Ms Mente-Nqweniso asked why this was and why they were not dealing with all of the debt. Why does the old debt requiring the SABC to outsource at R60 million?
The CFO said that the older the debt got, the more effort was needed in trying to recover it. These agencies were typically set up with the kind of infrastructure to focus specifically on that. They would get a percentage of what they collected. She thought that the new agencies retained about 15-20% of what they collected. Percentages were usually market-related.
The CEO said that this was the model the entity had selected because it could not only rely on one source when it came to TV licences. Year-on-year increase in revenue was not just attributable to the people who were within but also to the debt collection agencies, which were key in driving growth from TV license collection.
Ms Mente-Nqweniso said that she understood but felt that the Deputy Minister would have to deal with the matter herself and speak to the capacitation of the SABC in debt collection. Another issue with debt collection was that on its own it was not operational. It would not have hindered SABC operations if it was operational. She was asking this in order to try and prevent the SABC from spending money unnecessarily. If the unit collected debt in a 12-month span, how much is paid compared to the outsourced debt collectors?
She noted that National Treasury deemed the SABC’s request for deviating from the normal procurement process in appointing the Jasco ICT Solutions as unjustifiable. She then read out the timeline of the application process for the deviation, as stipulated on page 49 of Annexure C Q4 on Deviations(Ref: 43/1/2/5/1) – a letter from Treasury, addressed to the SABC’s Group Chief Executive Officer. She asked for the SABC to take the Committee through the details of the deviation application.
The CFO handed over to her supply team.
Ms Marutla said that the request was for three years, but it was only supported for 12 months so that the SABC could go out and test the market; the entity was currently in the process of doing so.
Ms Mente-Nqweniso said that she was glad that Ms Marutla was the one to answer as her signature was present on both contracts that were raised. She thought it might be necessary to address the failure of the offices that were meant to kick-start the process of testing the market and prove that it had tested the market. This was a law which all of them knew of but did not comply with. The entity was only now testing the market. She asked why it was not done before Treasury indicated such a glaring point.
The CFO expressed that she was in full agreement. She added that it was a classic case of bad planning and lack of business understanding of how supply chain worked. The entity had, however, learnt its lesson and this was why it was currently refreshing its systems as the same principle applied to the SAP system as it had not been replaced for ten years or more and it was in the process of dealing with this.
The Chairperson said to the CFO that it could not be so.
He noted the Members’ hands but first allowed Ms Mente-Nqweniso to wrap up.
Ms Mente-Nqweniso wanted to read from Treasury’s letter of response on the JASCO contract. Before this she felt that it was important to flag that in the letters seeking deviation, although they had signatures, they did not have the names of people who had failed to follow the law. The then Acting Head of Supply Chain, Ms Marutla, Ms van Biljon and Mr Mxakwe all signed to ask for deviation, but none of them seemed to know who was meant to have addressed the issue before the deviation were requested. Deviations were requested because processes were not done or could not be done, but someone was responsible for doing it. She asked who this person was or whether the Committee should tell the Deputy Minister that the three of them were the people who failed to find the people responsible to undertake the processes of bidding and sourcing new service providers. The three signatures indicated that the parties understood what was going on inside SABC and why requests extending evergreen contracts were being made, and yet they did not seem to know who was responsible. She would not accept the answer of a classic example. Management knew that before allocating a service provider it had to test the market and it needed to be able to prove beyond reasonable doubt that the market did not match its requirements. The motivation was not justifiable. Treasury said that the system of procurement needed to follow a system which was fair, equitable and justifiable. She said that the Committee would not let the delegation go before it told the Members who did not test the market and if it was one of them, they should speak up; if it was Ms Marutla as head of supply, they should indicate this. There was another issue of a building in the Eastern Cape.
The Chairperson asked her to wrap up. He knew it was frustrating because the responses were not satisfactory. He asked for responses to Ms Mente-Nqweniso’s comments as they were important for the issue at hand. Ultimately the question was whether the SABC tested the market before it went to Treasury.
The CFO indicated that the entity did not test the market and it should have. It was trying to change these things. It started with business and supply chain who must advise. Although it had made progress, engagement on supply chain processes whilst it was transitioning was just not there yet.
The Chairperson asked what the basis was for not testing the market.
Ms Marutla clarified that in this specific instance the request was for the support of the existing Avid Isis system, by JASCO. The original manufacturer of the system had been engaged and it had indicated that in South Africa, its authorised distributor was JASCO, which was why the SABC went with them. This was the case for most of the systems which had already been implemented at the SABC.
The Chairperson asked if she was then disputing what Treasury was saying.
Ms Marutla said that she was not disputing what Treasury said and was merely providing clarity as to why the entity did not test the market. It was dealing with an original equipment manufacturer (OEM) and it was not replacing the system, but was maintaining the system which already existed. Treasury’s response was requesting for the SABC to look into the replacing the system as well because when the market was tested, it meant the system must be uprooted and bring in a new system.
The Chairperson repeated himself, asking why then the entity was testing the market because it had already come to the conclusion that there was no need to test the market, as the entity did not intend on uprooting whole the system. It therefore was in dispute with Treasury.
Ms Marutla countered that this was not necessarily the case as the SABC appreciated Treasury’s guidance on this matter and was following it.
The Chairperson said that what the SABC had said to Treasury was inadequate and it did not do what it was supposed to do. This was a 2009 evergreen contract.
Ms Van Minnen was reminded of a question by the one realised earlier, about the R60 million for debt collection. On expansions, the extension amount was R35 million but it referred to TV licences. She asked what the specific entry referred to and where the money went.
The Chairperson called for a response to that question.
The CFO said that that specific item spoke to pay-points. The SABC collected TV licences from the listed places, or rather, the pay-point locations collected on SABC’s behalf and SABC then collected from them. The pay-points included the Post Office, EasyPay, Makro, Incredible Connection, etc.; they were part of the collection infrastructure that was accessible to TV licence holders.
Ms B Swarts (ANC) commented on debt collecting agencies, noting that the last time SABC appeared before the Committee, she had asked why it had external people collecting and why so many of them. For example, if the collectors were collecting the R30 million, SABC got a particular percentage. In the last meeting, the Committee asked the SABC to indicate the specific percentage it retained. At that meeting the Committee asked for the figure to be given in Rands and cents, and it was clear that SABC ran at a loss with these collecting agencies. SABC could not keep telling the Committee that from R305 million it was collecting a percentage without saying how much that was. When she asked this question in the last meeting, the delegation was very arrogant in their response and they acted very clever since she used the example of someone going to pay for their car license and said they tended to go themselves. There was no one collecting money from anyone to renew their car licence. Now the SABC was saying that the new collecting agencies started collecting in May 2020, despite having had the discussion about outsourcing prior to May 2020. This meant that when the entity responded, it responded only to brush off the Committee and then went on to start its own processes. She asked then why the entity did not have a fully-fledged unit for debt collection within its premises instead of learning from agencies and then start its own. Mention of GAME and Pep and other collection agencies were meant to confuse the Committee; she asked how much money the entity collected.
The CEO said on average, the SABC collected around a R1 billion from TV licenses. About 55% of that was from internal, 38% from debt collection agencies and 12% was from retailers. The agencies collected about 15%, on average.
The Chairperson alerted Members about time constraints and wanted to mention something whilst Mr Hadebe prepared himself: the JASCO Solutions.
To the CEO, he asked on the issue of planning, the finance division and staff turnover. He asked the CEO how long the CFO had been with SABC.
The CFO said she had been in office for two years and one month.
The Chairperson asked how long Ms Marutla had been in her role.
Ms Marutla said she had been in her current position for seven years but before that she was a category manager; so in total she had been with SABC for 12 years.
The Chairperson asked what the status was of its internal audit.
The CFO asked for clarity on what he meant.
The Chairperson asked who head of internal audit was.
The CFO said it was Mr Thami Zikode and she thought he had been here since January 2018.
The Chairperson asked that since planning was the issue, how there was a problem since these people had been with the SABC for some time.
The CEO said that the organisation was not uniform and the problem of planning was at a business level.
The Chairperson asked how long the head of SCM had been in the position.
The CFO said that this had been an acting position for the last two weeks.
The Chairperson asked who was currently acting.
The CFO said that Ms Nirvana Singh took over this position a week before the meeting.
The Chairperson asked who was acting before this.
The CFO said Ms Marutla had been acting for two years prior.
The Chairperson asked if she was moved a week ago.
The CFO said it was common practice to rotate these positions and she required the rotation two weeks ago.
The Chairperson commented that this was after two years and ahead of this meeting.
The CFO chuckled and said if only they knew now, what they did then. However, the whole of senior supply chain management was active up until December 2019, at which point Ms Nirvana Singh joined as permanent General Manager: Governance, while another gentleman joined as General Manager: Operations. Because there were now three General Managers, it was prudent and it would be best practice to rotate the roles between them. This was how the organisation did it.
The Chairperson said that was fine and asked if Mr Hadebe was ready and connected.
Ms Mente-Nqweniso asked if she could add before Mr Hadebe spoke. She wanted to establish one more fact based on an instruction sent by National Treasury on the Mowana Properties. These properties were accommodating the SABC in Mthatha, Eastern Cape.
The Chairperson asked if this was the R5.6million contract.
Ms Mente-Nqweniso confirmed this. National Treasury had supported the deviation on the basis that the building was conducive for SABC. First, she asked when SABC was going to buy its own building and stop renting.
She recounted that Treasury had instructed that the rental terms had to be based on market-related pricing per square meter, and then she asked whether the SABC proved that the building in the Eastern Cape was priced according to the market. She raised this because there was a mentality that if Treasury supported it then it was well and good, and things should continue. There was then no innovation from the entity to rid itself of outsourcing. This related to the debt collectors not being necessary as SABC could constitute its own team for cheaper. The creation of tenders created a space for business, which the SABC could render on its own and pay less. The fact that SABC was running on a bailout meant that it could not run on its own and therefore monitoring must be close. She asked for a monthly update on what had been collected by debt collectors and also asked the entity to conduct a comparison between what it collected and the internal collection unit to see if it was worth it.
The Chairperson asked if Mr Hadebe was ready to continue where he left off and asked for the SABC to respond in the meantime.
The CFO said that she would start and hand over to Ms Marutla as soon as she had the market information.
The CFO indicated that the SABC did own a number of buildings throughout the country and had had them audited in terms of core versus non-core assets, and it was implementing those initiatives. Because of the digital era and as exacerbated by COVID-19, it was assessing whether bricks and mortar was what one needed as news reporting and broadcasting was not necessarily in buildings anymore. Where appropriate, however, the entity owned buildings.
She asked to Ms Marutla to share the market information.
Ms Marutla said market assessment was done and it looked into seven properties in the Mthatha area. Of the seven properties it looked at, it noted that the average rent per square metre was R158 whilst SABC was previously paying R172. It therefore entered into negotiations with the landlord, the outcome of which was a price per square metre of R115 and additional cost of R25 per square metre for the operating costs, with the final average price per square metre being R135.
The CEO assured the Committee that everything the team did was in the best interest of the SABC. On the issue of SABC owning its own building, the CEO indicated that the entity was currently in the process of looking at all of its non-core assets. Most of its buildings had been identified as non-core and it was in the process of disposing of these.
On whether or not debt collection agencies were needed, he felt that there was a business risk to that since 38% of revenue came from there, in so far as TV licences were concerned. From a monitoring point of view, there had been a monthly meeting with Treasury and the shareholder Department on the monitoring of the bailout as well as the monitoring of progress on the turnaround plan.
The Chairperson said that the CFO mentioned brick and mortar, the fourth industrial revolution (4IR) and the prevailing realities of COVID-19. He asked if staff was largely working from home and whether the entity had made provision for the infrastructure regarding this.
The CFO confirmed that although it was with great difficulty, the entity was able to supply its staff with the tools of trade so that that most staff could work from home. However, some people, by their jobs, were unable to work from home.
The Chairperson asked Mr Hadebe if he was present. He noted the hands of Members who wanted to ask questions and asked them to speak at the end so that Mr Hadebe could present his questions on Inala.
Inala Broadcasting Technologies
Mr Hadebe noted that Inala Broadcasting Services said the focus was on Inala Broadcasting Technologies as it related to SABC’s deviations. He stressed the issue raised by Ms Mente-Nqweniso on the constitutional principles relating to the procurement of goods and services such that it was done in a way that was transparent, fair, equitable and, most importantly, cost-effective.
The Committee was cognisant of the fact that not all contracts would be awarded in this manner, hence the deviation existed. Although deviations were sometimes necessary, they did not meet the constitutional standard of fairness. They therefore ought to be done only under exceptional, emergency or unforeseen circumstances. He wanted everyone present to accept this point moving forward.
In some cases of contracts spanning 10 years or more, the deviations sometimes exceeded the original value such that they were now 100% more than the contracts were originally awarded for. This was an abuse of the system. When deviations were used as a replacement of proper planning, it must be made clear that poor planning and mismanagement did not constitute an emergency that warranted deviation. This could not be accepted.
Omneon Harmonic Play-out server equipment maintenance and support contract
This contract had been around for the previous 10 years. It was originally only awarded for three years. Since then there had been extensions and deviations. At some point in March 2014, the contract came to an end. The next time there was mention of this contract again was back in June 2014. He asked for correction if he was wrong, but his understanding was that once a contract came to an end it ceased to exist. As such, one could not be in a position to renew or extend it but it could only be extended before it expired. He asked what happened in March 2014. Page 77 of the Annexure C, Q4 document on deviations, which was labelled page 68 in marker pen, gave a historic breakdown of the contract. There was no explanation of what happened between March 2014 and June 2014 and yet the contract was still in existence. He asked what happened during that period.
Ms Marutla agreed that a contract which had expired could not be extended. That was the reason why this particular motivation, when submitted, was not an extension of a contract but was a deviation from normal processes. The request was made for the support and maintenance of an existing system.
Mr Hadebe clarified that he was talking about a contract in 2014, which was originally awarded in 2010. The contract had been in existence for 10 years. He asked if in 2014, the contract was renewed or whether it came to an end with a new contract coming into force in June 2014 and subsequently ending in July 2022.
The Chairperson said that Mr Hadebe should allow the CFO to speak as he got the sense that she was delegated to speak to the issue.
Mr Hadebe said that since Ms Marutla had been there for seven years in SCM; she should be able to speak to the 2014 contract.
The CFO said that the delegation did not have the information on hand and respectfully asked for a more complete response to be given by Friday, July 31.
Mr Hadebe said that when she compiled the report, she should have raised an eyebrow asking what happened in this instance.
The Chairperson agreed and said it was not acceptable that SABC did not have information before it when dealing with the discussion points of the meeting – when the information appeared in its own submission.
Ms Marutla asked if she could explain the table referred to on the historic spend of the contract. Where there was a gap, there was no contract in place, indicating the issue of lack of planning referenced earlier by the CFO where business only approached supply chain when the contract had expired. It was not possible to reinstate a contract that had expired. For the sake of transparency, however, the entity had to indicate the historic spend on this particular system, to Treasury, so that it could take into consideration that the system was being used and that it was important for the functioning of the SABC and needed support.
The Chairperson asked if the SABC ceased to use the system when the contract expired.
Ms Marutla said that it continued to use the system but any error or issue would be a risk to the correct functioning of the organisation.
The Chairperson asked if it aid for it once it expired.
Ms Marutla said there was no payment when there was no contract in place, which was why the historic expenditure indicated the gaps.
The Chairperson asked if manufacturers allowed them to use their system without paying.
Ms Marutla explained that support and maintenance was a risk which was carried by the SABC. The system was already a part of the SABC and had been procured but in the same way that a car needs to be serviced, the system needed to be maintained and the SABC bore the risk of not doing so. This was why it needed the support.
The Chairperson asked if she realised what a double-edged sword that response was, as its own lack of planning put the organisation at risk. None of this sounded good at all.
Ms Marutla agreed and said that these were the issues which the entity was now dealing with holistically, as the CFO indicated earlier.
The Chairperson permitted Mr Hadebe to proceed.
Mr Hadebe said that he did not know if the SABC did not think the Committee could read the documents before it. He did not take kindly to hearing reports which did not speak to the authenticity of the reports provided. He questioned where the information provided was coming from. From 2014 it was a renewal and extension; he asked at what stage the new contract was obtained. What was being renewed if there was no contract? This spoke to a delay in the renewal, and yet a contract which had expired could not be renewed. There was no mention in the document of a new contract as it said that there was a delay in the renewal of the expired contract.
The Chairperson said that the SABC delegation was now just fooling the Committee.
Mr Hadebe read an excerpt which said: “the delays in renewing the expiring contract imposed requirements for an addendum to be made for the previous maintenance and support contract.” He then said that the SABC took a risk of not supporting maintenance in April and May of 2014 until it renewed the contract in June 2014 to June in the following year. There was no new contract here and the problem was that in law, one could not extent something that had expired. Once the contract expired it ceased to exist.
Deputy Minister Pinky Kekana apologised for interrupting the programme and said that there was an inter-departmental meeting at 15:00, which she needed to excuse herself to attend. She committed to follow up on some of these issues and the Department would have to meet with Treasury. Other members of oversight would remain.
The Chairperson heard her, but asked that either the Deputy Minister or the Minister would make it a point in the future be present for the duration for the meeting. He thanked her for the apology but endeavouring to have representation for the duration of the meeting was only right.
He then asked Mr Hadebe to continue.
Mr Hadebe wanted to get a sense whether SABC still insisted that it was a new contract, when it was written otherwise. He also asked for proof for when this new contract was advertised, how many bidders there were. Miraculously, the same provider who was providing the service before was awarded again. Additionally, he asked why the new contract was only for 12 months when the previous contract was for three years. At the heart of this was the desire to maintain the constitutional principles, maintaining that deviations were not abused and that things were done in a transparent, fair and cost-effective manner.
The Chairperson asked for responses.
Ms Marutla said that the current contract started in April this year. The words ‘renewal’ and ‘new’ were used interchangeably. The dates indicated when the contracts started and ended with the gaps indicating when the SABC did not have a contract in place. When a contract was put into place, it was not backdated but came into effect from when it was signed.
Mr Hadebe said that when the contract expired on 31 March 2014, the SABC was saying that on 10 June 2014 it was a new contract. The question was when this contract was advertised, leading to the previous service provider being appointed.
The Chairperson asked for responses on the service provider. He asked who they were and what they were doing.
The CFO said that the SABC remained unable to answer satisfactorily and respectfully requested the opportunity to gather the information and provide it at a later time. It was not acceptable from their side; however, the entity would not be able to answer in a way that met the Committee’s expectations.
Mr Hadebe said it was fine and that he would continue. He said that there were four divisions in one company which amounted to billions of Rands. In the same division currently being dealt with, he noted the support from Treasury was on condition that the reasonableness of the price would be assessed. When the entity approached Treasury, there was clearly no evidence which suggested that an assessment was done on the reasonableness of the price. The report on his desk did not indicate when last the market was tested since 2010. The argument also advanced was that Inala was the sole provider. He asked whether between 2010 and today, this still the case.
He acknowledged the letter from the international companies. Over and above SABC running on bailouts it seemed to also be managed by international companies. He wanted to gain an understanding of when last the market was tested and whether the reasonableness of its price had been tested as per the condition and the information forwarded to Treasury. He asked for a response from Treasury.
Treasury’s response on Inala
Ms Duiker responded on the Inala matter, saying that Treasury moved on the basis of the information provided to it by the SABC. In this case it moved on the basis of the letters provided from the OEM which said that the only accredited agent for providing maintenance of their system, which was the backbone of the SABC, was Inala Technologies. Treasury had always raised concern about the dependency on the manner in which procurement was done through evergreen contracts. The dependency on Inala Technologies was purely on the basis that OEM was an international company which only had one accredited service provider in South Africa.
As Ms Marutla mentioned, without that service provider, the SABC would run the risk that it would not get help to resolve its issues as they arose. Treasury had not received the assessment of the price as a process which did not go through an open and competitive process stood a risk of being taken advantage of and prices becoming inflated because a dependency had been created. Without that assessment, Treasury’s approval would be reserved
The Chairperson said that this provides clarity and asked SABC to respond.
Ms Marutla said, on the Omneon Harmonic contract, the SABC compared the price previously being paid for the support and the increase on the price was 3.12% only. Internally, the entity had tried to compare the system and had found it difficult to compare the systems which had already been implemented. It did not, however, conduct an open tender for this contract.
Mr Hadebe then asked what the status of the deviation. Treasury’s support was conditional. When there was a condition, the assistance was subject to it. If the condition imposed had not been met the support was not there from Treasury. The request was made on 18 October 2019 and only received by Treasury in January 2020. He asked what the status of the deviation was if the research was not done, but this was a rhetorical question because ordinarily this meant that it was not supported.
The Chairperson said that he thought the discussion was going to hit a brick wall and due to time, the Members and the delegations would end up in an entanglement of some sort.
Mr Hadebe chuckled and at the Chairperson’s use of the word ‘entanglement’.
The Chairperson asked Mr Hadebe if the Committee could park this part as they would have to reschedule for the most part.
Mr Hadebe said that he still had three further questions. Since the entity was unable to answer the first two questions, it made him reluctant to proceed with the remaining questions. He was struggling with the idea of an international company providing for one single provider in South Africa. When the specification of the bid process was drafted, it used the EVS server systems which cost for R85 million and date back to nine years ago. When the system was tested in 2013/2014, he did not think that it was transparent to specify in its bid document that an EVS server system, whilst knowing that only Inala had the sole authority to provide that system. It went without saying that the other two companies would not be responsive. The other two companies would then not be able to bid on the contract. He asked Treasury how it could approve this, given the constitutional principle of fairness, the bid requirements for EVS servers, and that EVS was a company from Belgium. His understanding was that when you wanted a specific product, you would not specify the brand. Products could be sourced from other sources if they had the same functionality and responsiveness per your requirements. He said that this was the same as being told that in order to lose weight you must only use Herbal Life – that other companies who provide products for weight-loss would not meet your specifications because you had already told them that you want Herbal Life.
He thanked the Chairperson and said the example was meant to lighten the mood.
Responses from the SABC
The CFO began and said her supply chain colleagues would supplement.
From the SABC’s understanding, the servers were used on big productions and were procured for the SABC vans initially. The motivation to deviate relied on the tried and tested nature of the technology. She had no reason to believe that it was a predestined arrangement. The entity tried to put checks and balances in place to avoid exactly the kind of behaviour described. The request was not supported by Treasury and would proceed with testing the market, but the principles were no different to those from Omneon Harmonic and the example before that. These were service providers who had been in the organisation for too long and they needed to be refreshed.
She asked Ms Marutla if she had anything to add.
Ms Marutla said that subsequent to Treasury not supporting the SABC’s request, it engaged with them in bringing in its technical team for further guidance on how EVS works. For EVS, a major concern was compatibility because what was on the outside broadcasting vans and what was in the physical studio had to talk to each other. SABC had invested a lot of infrastructure on EVS and therefore when something was replaced it had to be the same as what it was replacing. Hence, replacing the servers meant replacing the infrastructure already in existence.
Mr Hadebe said that EVS had made it clear in its letter that the only company it had allowed to use its equipment was Inala. This meant that the Committee needed to be comfortable that for the next 10 years, the contract would be given to Inala as EVS in Belgium had only given Inala permission to use its technology. He said that he did research which indicated that there were other competitors, except that this did not seem to matter since Inala was the only one who could maintain the EVS system. He did not think this was in line with the constitutional principle of fairness.
The Chairperson said that situations like these were how the problems of evergreen took place. They were damned if they did and damned if they did not.
The Chairperson noted that the Committee had permission to remain on the line until 15:30 to conclude the meeting.
Mr Hadebe said that he would refrain from asking his remaining questions in order to allow the other Members to speak.
The Chairperson said he could conclude at the end of the discussion.
Ms Mente-Nqweniso said that the Inala contract was not different to her concern about SAP or JASCO and the debt collection issue. The Committee was always going to hit a brick wall for as long as no one had done anything wrong. The Inala contract was not renewed, yet someone was responsible to renew it. As a result, the technical team wanted Inala to come back because there was no one else and SABC did not test the market. Treasury then needed to point out the need to test the market and, at the same time, it became lenient in offering three or six months until SABC sorted out its house, but the house remained messy and no one sorted out anything. On Inala, just like JASCO and SAP, she asked Treasury what its understanding of a deviation is. On what basis are deviations of the SABC supported?
Responses from Treasury
Ms Duiker said that the first thing considered when the entity received a deviation, short of a sole supplier or a case of emergency, it looked for what made the case exceptional and what made something impractical to go out into the market.
On Inala, she said that there was a dependency which had already been created of a system implemented by the SABC; it was a core system for the SABC to deliver on its services and was already in place since the 2007 and 2010 period. The key question now was that the current system was at risk of everything going wrong because there was no maintenance contract.
The Committee was correct in assuming that the contract should have been extended when the SABC realised the services of Inala would be needed to continue, but this was not done. The SABC then applied for a deviation and Treasury raised all the issues with them to do with poor contract management and poor planning. The matter of the fact remained that the system was still exposed to the risk and a contract needed to be put in place to ensure the protection and maintenance of the system, and the only service provider that could do it for them was and still was Inala. The key issue for Treasury was that the SABC had to be deliberate in how it put its systems in place, because when it puts systems which created a dependency, it puts itself in a position that it would always be dependent on the related service provider. Technology evolved and as and when it upgraded, it asked the SABC if it should be considered different systems or a system which the SABC could own and determine the maintenance of. The entity considered the legal issues around the matter and the issues of service delivery by the institution.
Ms Mente-Nqweniso said that Treasury had put it clearly. There was a lack of contract management at SABC and it was agreeing with the Committee’s position and angle in asking who failed. Someone failed to renew a contract to force the hand of Treasury because if it did not support the deviation the whole operation of the SABC would be disrupted.
In Treasury embracing the country’s laws and Constitution, it was looking at ways to ensure that South Africans had their broadcaster. This did not absolve the person who did not do what they were meant to do.
The Chairperson said that this spoke to what he wanted to say in his proposal. First, he asked SABC what contract it currently had with Telkom.
Mr Hadebe asked the executive authority who was available on the ministerial side as some of the issues needed to be followed up with by the ministry.
The Chairperson said none.
Mr Hadebe said that since they were not there, he did not know how it would remain abreast with the issues raised in the meeting.
The Chairperson said that the Committee would inform the ministry and that this was why he had said it was incorrect for the Deputy Minister to leave before the end of the meeting.
He asked what contract the SABC currently had with Telkom.
The CFO said there was a request for Ethernet line in general it engaged with Telkom for broadcasting.
The Chairperson asked what the request of R7.6 million had to do with the Metro Ethernet infrastructure was about.
Ms Marutla said that Metro Ethernet contract deviation was applied for whilst concluding the tender process but the deviation was not supported by Treasury. To replace the contract, it followed a tender process up to evaluation, but it did not yield any successful bidders. The tender was then re-issued onto the market whilst finalising the evaluations; it requested a deviation for continuity until a new service provider was selected but it was not supported.
The Chairperson asked if Telkom was continued to be paid.
Ms Marutla said that the entity had agreed that it would declare the services which it continued to acquire from Telkom in that regard as irregular expenditure.
The Chairperson asked if it was paying Telkom in the absence of a contract.
The CFO said in this case it had no choice and it would be declared irregular.
The Chairperson said that the understood the consequence; he simply wanted the response on record as to whether it was paying Telkom in the absence of a contract.
The CFO confirmed that it was.
Mr Hadebe said that he was very concerned about the manner with which deviations were used at SABC. Prior to this meeting, his research yielded that there was more than one competitor to what SABC preferred. The question was then why SABC would insist on one international service providers when there were other competitors. It would have been nice if the Director-General (DG) or Deputy Director General (DDG) were in the meeting as they would be able to give them a sense since there was something which the Committee did not know, so that people were not crucified over things which were beyond their control. He concluded by taking issue with the matter of deviations and contracts lasting over 10 years. In this case, the company was Inala, which happened to have more than five contracts, which were close to R500 million combined.
The Chairperson reckoned that clearly, the extent of expansions and deviations had been misunderstood. They existed as special exceptions for emergencies and when they gravitated towards becoming regularised as a norm and as a standard operating procedure, they entrenched a culture which perpetuated corruption, incompetence – which closed opportunities for other emerging players in that business environment. This was unsustainable, unviable nor correct. What was of even more grave concern was that the contracts were going on for the longest of times and when they expired or came to an end, it seemed as if it was well to work them back into the system. There had been an AG finding on Inala before, and yet it was returned to the system. This was the kind of mischief being dealt with. These deviations should not be the modus operandi. He suggested that this be put in the form of a resolution.
Mr Hadebe interjected to say that he was informed that the DDG was present on the meeting and would like to say something, he had asked but no one responded.
The Chairperson said that he would make his concluding remarks and then ask the delegation to respond. He suggested that the AG perform a special audit on all the contracts which had been subject to expansion or deviation over the span of a ten-year period at the SABC. The Committee would then be able to refer to that report. It was clear that there was a level at which due process had not been followed. There were submissions to Treasury citing sole providers when the market had not been tested. There was a willy-nilly approach in the hopes that things would go under the radar by citing sole providers. On the basis of the responses of lack thereof, the Committee could submit questions to Treasury.
There was no response on the SAP contract. There was only mention of the Nashua, JASCO and Telkom contracts. Clearly it was okay to create a breeding ground for irregular expenditure. SABC must have understanding that the matter would remain on the Committee’s purview as a gross violation and abuse of expansions and deviations and by their own admission, an inadequacy of planning. As the CFO said, the entity would grow from it but as things stood now, they did not sit well. If an expansion or deviation was applied for, it must be able to be accounted for in all material respects so that the Committee could understand that it was being done legitimately. The moment the SABC was unable to respond, it raised suspicion, which was exactly what had happened in the current meeting. It would accordingly have to reschedule and as the Committee, it would have to ask for a special audit from the AG insofar as expansions and deviations were concerned so that it could compel the SABC to shape up. He asked the DDG to speak.
Ms Reneilwe Langa, Department of Communications, apologised for her network reception issues, as there was load shedding in her area. The DM had to leave and apologised for her absence but she noted that the Department had noted all of the concerns raised here very carefully. Some of the issues which the Committee had raised had already been flagged by the Department. It was looking into planning concern and the Department would be looking into better oversight as currently deviations were going directly to Treasury and it did not have sight of them.
Closing remarks by the Chairperson
The Chairperson said that at some point the Committee needed to speak strongly with the shareholder representative, the Department of Communications, because it needed to jack up its own operations.
Finally, he requested that the President announce a special dispensation for the investigation for financial practices and the corruption which had characterised the state of disaster. The Committee had previously and would continue to raise its concerns about the spending and corruption. He felt it was only appropriate to receive a briefing from the Presidency or the SIU or those who had been delegated in order to gain an understanding of the process. He did not think this would encroach on any space or step on any toes, as it would mirror the work being done by the Committee.
He noted that the Committee was going into recess. However, if that application was successful, he may call on the Members to sit on that point. He thanked the presenters and said that it must be clear to SABC and to any other entities that the Committee would not support a laissez-faire approach.
He thanked everyone for attending and contributing to the meeting
The meeting was adjourned.
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