COVID-19 Meetings: Appropriations
In this virtual meeting, the Committee received a briefing from National Treasury on government expenditure in Quarter One of Financial Year 2020/21, expenditure by government in terms of the Covid-19 Relief package, and on the financial position of Eskom, Denel, ACSA, SAPO, the SABC and Land Bank.
Government departments had largely underspent in the first quarter when compared with the 2020 Budget Review plans. A significant amount of this underspend was due to the early payment of social grants in March 2020. Underspend was also down to reduced payments for goods and services and the suspension of expenditure on grants. Compensation of employees saw overspend in the Departments of Defence and Health. Treasury clarified that much of the underspend would be smoothed out in Q2 and when compared with the Special Adjustment Budget of June. Members’ questions focused on reasons for underspending and the financial impact thereof.
Government expenditure on Covid-19 relief had reached R18bn of the total R145bn. Treasury indicated that actual expenditure was likely higher, and that departments had difficulties properly reporting their Covid-19 relief expenditure. Treasury’s most recent Instruction Note had repealed previous notes allowing for automatic emergency procurement processes when procuring PPE. Treasury also required monthly reporting of Covid-19 expenditure every month from September onwards. Treasury was also preparing a new procurement bill for submission to the Committee. Members wanted to know why Departments had not submitted expenditure reports, as well as asking for further detail on the procurement bill. Members also interrogated how departments had executed Covid-19 relief spending, and asked for further breakdowns of spending by department.
Treasury submitted that the Covid-19 pandemic and lockdown had caused further financial distress to SOEs, and had reduced the revenue of Eskom, which had nevertheless committed to not ask government for further cash injections. ACSA, previously profitable, saw long-term losses as likely and had requested an R3.5bn government guarantee as well as an R3.5bn equity injection from shareholders. Denel had faced serious challenges in meeting its financial obligations due to low economic activity, and had requested relaxation of conditions on remaining government equity injections to it. It had struggled to implement its turnaround plan, and the departure of its CEO further complicated matters. SAPO was expecting a net loss of R1.2bn, and had requested a cash injection of R4.9bn from government. The SABC forecasted an R1.5bn gross revenue loss as an outcome of the Covid-19 pandemic, and requested R1.5bn in financial support from the government as it attempted to implement its turnaround plan, cutting costs in staff and attempting to claw back payment for content that had not been aired. Land Bank had received an R3bn appropriation in the Special Adjustment Budget, which had allowed it to resume interest payments to creditors, which had been suspended since 1st April. It was in negotiations with lenders around the structure and maturity of its debt, but Standard Chartered had already informed Land Bank of its intent to take legal action to secure debt repayment. This had meant that the pace of disbursement to farmers had slowed down.
Members were critical of the management of struggling SOEs, and the reasons for the lack of implementation or slow implementation of established turnaround plans. Members were worried that SAPO was being trusted with grant money when it had acting leadership and seemed unable to manage its financial resources. Members were concerned over staff cuts at SABC. Members took a particular interest in Denel and its structure, its turnaround plan, the reasons for its CEO’s departure in August and its non-payment of financial obligations. Members were curious as to the ownership of ACSA, and whether government saw a guarantee as a good means of ensuring its long-term sustainability. Members asked whether Eskom required further budgetary support and the progress in its renegotiation of coal contracts. Members noted their disappointment that Land Bank had diminished its payments to farmers, and wondered why a creditor involved in negotiations with it had decided to take legal action against the entity.
The Committee condemned the corrupt activities of those defrauding vulnerable South Africans of the much-needed support and called on law enforcement agencies to deal with those involved in a speedy and punitive manner.
National Treasury was requested to provide the committee with an opportunity to comment and deliberate on the Public Procurement Bill.
The Chairperson welcomed the Committee, and noted an apology from Ms M Dikgale (ANC).
The Chairperson ceded to the National Treasury for the presentation.
Briefing by National Treasury (NT)
Dr Mampho Modise, Deputy Director General: Public Finance, NT, began the presentation on the first quarter spending outcomes. This presentation was a comparison with the estimates in the 2020 Budget Review. This was done to clarify to members the underspending mainly caused by the lockdown, as well as due to the Special Budget only being passed after the report was complete.
Preliminary estimates were for national departments to spend R239bn, but they only spent R195.8bn, 43.6bn less than projected. Transfers and subsidies were R28bn under due to early payment of social grants (in the 19/20 financial year). Lower than projected expenditure was also evident in financial assets (R6.5bn), goods and services (R4.5bn) and compensation of employees (R2.1bn).
Social Development underspent by 27% due to the payment of social grants in an earlier financial year. The lower first quarter spending would be utilised in topping up the special grants in the second quarter
Public Enterprises underspent by 85,3% due to scheduled payments not being made to Eskom (which had sufficient cash to meet obligations in Q1) and Denel (whose debt was not due for payment during Q1).
Agriculture underspent due to delays in land restitution settlements, delayed quarterly transfers of conditional grants, delayed transfers to institutions and delayed implementation of land reform projects.
COGTA’s 46% underspend was due to delays in procurement of equipment for the Community Work Programme.
Health had a 4,5% underspend due to lower transfers and subsidies because the department did not transfer certain grants payments – this would likely be revised in the following quarter.
The Chairperson asked what NT was comparing the underspend to.
Dr Modise clarified that the comparison was with the projected expenditure in the initial 2020 Budget Review. This would be corrected in the next quarter, where spending would be compared to the Special Budget.
Dr Modise noted that some departments would be able to ramp up expenditure, but some might find it difficult to reach their spending targets.
Correctional Services underspending was due to outstanding invoices for municipal services which would be corrected in Q2.
Justice underspent due to lower compensation of employees and goods and services, while the Department of Environment, Forestry and Fisheries underspent due to the slow start-up of Expanded Public Works Programme projects.
Science and Innovation underspent due to delays in finalising agreements and late processing of payments due to restricted access to offices.
Tourism underspent R987m, or 75% of budget due to a reduction in transfer payments and allocations to South African Tourism, owing to the suspension of tourism activities due to the pandemic.
The Department of Trade, Industry and Competition underspent by 30.6% due to low disbursements of incentives due to the suspension of economic activity.
Water and Sanitation underspending was due to delays in payments of commitments in terms of both the Regional Bulk Infrastructure Grant and Water Services Infrastructure Grant, which would be resolved in Q2
Defence had overspent by 1.9%, mainly due to the callup of additional reserve force members as part of the Covid-19 lockdown.
Defence and Health both overspent on personnel during 20/21 Q1, showing the shifting of resources to align to needs. Health’s higher than projected expenditure could be attributed to high levels of overtime.
Some departments were unable to fill vacancies due to the lockdown and thus underspent on personnel.
Expenditure on the Covid-19 Response
Expenditure reports underestimated substantive portions of the allocated resources due to difficulties in reporting from departments that had not used the correct chartered account line. For instance, COGTA had not reported Covid-19 spending although it had definitely spent some money for this purpose.
Dr Modise ceded to Ms Estelle Setan, Acting Head of the Chief Procurement Office, NT, for further focus on procurement in the Covid-19 response. The Supplementary Budget had proposed R145bn for the Covid-19 response of which R122bn was already allocated. R18bn had already been spent by national and provincial departments. Expenditure reports were not entirely accurate given reporting challenges. For instance, social grants were not recorded against the appropriate line item in the system, as some of these grants were part of the Covid-19 expenditure. Police and Defence data lagged a month behind. Higher Education payments and entity support still had to be identified. Municipal funding relief also had to be isolated in the system.
Both national and provincial levels of government had spent roughly R9bn. The bulk of national spending had been on support to vulnerable households (R4.3bn) and other frontline services (R2.78bn). Provincial spending had focused on Health (R5.5bn), basic and higher education (R2bn) and other Covid interventions (R1.38bn).
Treasury had issued the PFMA instruction note 7 and MFMA circular 103 that dealt with Preventative Measures in response to the Covid-19 pandemic. These instructions were intended to guide Accounting Officers. There was a need to provide for emergencies and be responsive and flexible whilst ensuring value for money and minimising the risk of fraud, corruption, negligence, error and incapacity.
Treasury had issued Instruction Note 11 on the 25th August, which repealed Instruction Note 5, and told institutions they had to revert to normal procurement procedures and PPE was no longer an automatic emergency procurement. The Note also prescribed maximum prices for identified PPE items to reflect market prices. Treasury also issued a reporting guideline and template for Covid-19 expenditure. Monthly reporting would be required from September. These inputs would be loaded into the Reporting System.
The spending reports of Departments, Provinces and Public Entities were available on the Treasury website. Treasury was also working with AGSA, SARS and various law enforcement agencies. SARS was profiling 307 cases with an estimated tax revenue loss of R300m. The SIU had initiated 29 investigations in various national and provincial departments, municipalities and public entities. AGSA was also conducting proactive audits.
AGSA and the Treasury would publish Preventative Control Guides in September to assist management in identifying the risks of misappropriation, fraud and corruption before transactions took place. A new Procurement Bill process was underway, and Treasury was also undertaking a review of the PFMA and MFMA. It was considering the modernising of procurement including automated public procurement systems. Participation of Politically Exposed Persons in public procurement would be subjected to a more stringent review. Treasury was also looking at hybrid models of national procurement with local distribution to benefit from economies of scale and increased anti-corruption measures.
Mr Ravesh Rajlal, Chief Director for Sector Oversight: State Owned Enterprises, NT, presented the Financial Update for SOCs in Q1 2020/21. Guidance had been issued to SOCs to allow them to revise corporate plans.
In terms of Eskom, support already provided in FY19/20 reached R49bn. R56bn had been budgeted in support for FY20/21. In Q1 there was not a huge demand for disbursements; there had only been R6bn disbursed so far. The three financial years until 21/22 saw the front-loading of appropriations to Eskom due to its debt profile. Eskom was unable to raise the financial resources to service debt on its own. The current Financial Year saw debt service costs of R95bn and Eskom surplus cash generation of R36bn. R69bn in appropriations was left over for Eskom in terms of the initial promise. This would be sufficient in the medium-term, but the pressure was on Eskom to become more financially sustainable.
Covid-19 had caused lower demand due to the lockdown which impacted revenue, and municipal non-payment increased due to Covid-19. There was no loadshedding due to lower demand, however, with the opening of the economy some loadshedding had resumed. Eskom was updating its financial projections in this regard. Eskom had achieved R16bn in savings compared to an R6bn target in FY19/20, and was targeting R14bn in FY20/21, of which it achieved R1bn in Q1. Eskom had to operate within allocated funding as no additional funds would be provided by government.
Challenges included liquidity challenges as a result of declining revenue, debt levels, the cost structure and increasing arrears debt due to municipal non-payment. Regulatory uncertainty was also an issue, for instance the tariff court case between NERSA and Eskom. Eskom’s operating mode was outdated, and its revenue increases were driven by tariff increases. Challenges were evident in delays, defects and cost overruns in the capital expenditure programme to do with the new build stations at Medupi and Kusile. Eskom’s year-to-date financial performance was worse than expected due to low economic activity during the Covid-19 lockdown
Airports Company South Africa (ACSA) had been a relatively well-performing SOE and was one of the few SOEs to pay dividends into the National Revenue Fund. ACSA had seen profits of R7.9bn between 2013/14 and 2018/19. Covid-19 had severely impacted ACSA, which had only generated R304m in June 2020 (83% less than the previous year). Loss of revenue resulted in losses of R492m in June 2020 (vs a profit of R380m in June 2019). Given that air traffic volume may decline by up to 50% in 2020/21, ACSA forecasted a cumulative net loss of R5bn over the MTEF (until end 2022/23), and R10.2bn by 2025/26. ACSA was reducing operational expenditure by R1.2bn per annum, including R300m in employee costs, and capital expenditure by at least R1.4bn in 2020/21 to alleviate pressure on liquidity. ACSA was 74.6% owned by government, 20% by the PIC and 5.4% by minority shareholders, which complicated shareholder equity injections.
ACSA had requested a 3-year R3.5bn guarantee. It also requested an equity injection from shareholders of R3.5bn for FY20/21. Government guarantees were an issue where entities were unlikely to be able to service the debt, as these effectively then constituted transfers to the entity. Guarantees had increased by over 100% since 2009/10.
Denel had been recapitalised by R1.8bn in 2019/20 and a further R576m was allocated for 2020/21 to reduce guaranteed debt. Denel had not requested additional financial support, but instead requested the relaxation of conditions of R504m to be used for working capital rather than repaying guaranteed debt.
Covid-19 had majorly impacted Denel’s ability to honour financial obligations as operations came to a standstill. NT had assisted Denel to release R72m to meet some obligations. Failure to meet obligations had resulted in labour unions taking the entity to court. Denel still faced the risk of being placed under business rescue.
The turnaround plan’s implementation had been slow, resulting in the delay in sale of non-core assets and property portfolio as well as the establishment of strategic equity partnerships.
The capital structure of the business remained overwhelmingly short-term, and Denel continued to report revenue losses and missed budget targets due to liquidity challenges. Denel’s forecasted loss at year-end March 2020 was R1.8bn. The departure of the CEO in August may be perceived as exacerbating risks in the implementation of the turnaround plan.
The South African Post Office (SAPO) had already received R2.95bn in the 2018 Adjustment Budget, and R1.5bn was allocated for the Universal Service Obligation developmental mandate. No government guarantees were currently in place.
SAPO had requested R4.9bn in support as part of the impact of Covid-19. This support request was broken down into R2.7bn for operations, R1.4bn in liabilities owed to Postbank, R300m for voluntary severance packages and R525m for other liabilities.
SAPO was at a critical juncture. If the shareholder did not act to restructure and repurpose the entity, it would collapse. The lack of a permanent management team and the new board did not help the issue. SAPO had not implemented its turnaround plans over the last 12 years. Had these plans been implemented, SAPO would have been better prepared for the impact of Covid-19. SAPO was expecting a net loss of R1.2bn.
SABC had received an R3.2bn recapitalisation in 2019/20 with no government guarantees in place. The entity had a balance of R1.7bn remaining from the recapitalisation.
The SABC anticipated a revenue loss of R1.5bn for 2020/21 as a result of Covid-19. The SABC had clarified that it was thus requesting R1.5bn in budget support. The entity had advised it would prioritise and fast track revenue enhancing initiatives which included restructuring sales teams, introduction of additional revenue lines, partnerships and a move to digital platforms for content distribution. SABC was attempting to claw back costs paid for sports events which did not occur due to the pandemic.
The SABC had reported a preliminary loss of R489m for FY19/20. The SABC would have to reduce its staff complement if it wanted to be sustainable. A revision of its mandate was in the pipeline. The SABC had seen poor Q1 results with losses exceeding what was budgeted for. Financial sustainability depended on future profitability given that financial metrics were currently met by the government bailout.
Ms Unathi Ngwenya, Chief Director for Sectoral Oversight, NT, gave an update on the Land Bank. On 24th June 2020 a R3bn appropriation for the Land Bank was approved. Land Bank interest payments to lenders resumed on 11th August 2020. The re-commencement of these payments was a step towards the Land Bank’s aim of meeting commitments to creditors. There would be arrears payments required due to non-payment of interest from April 1st.
Standard Chartered Bank had served an application out of court to recover certain debt from Land Bank on 18th August 2020. Land Bank was working with its advisers and would oppose the application. Treasury had been working on a repayment schedule with the Land Bank. The Land Bank needed to retain a certain cash balance due to operational and debt service requirements. The Land Bank had also continued to disburse to farmers at a reduced scale.
The long term solution for the Land Bank was focused on curing the existing events of defaults on the Land Bank’s funding instruments – this would be done by restructuring the funding obligations in a manner that would allow Land Bank to continue to service obligations according to a profile that better matched its lending book.
Mr E Shaik Emam (NFP) asked Treasury about the impact of Covid-19 underspending. He asked what Treasury believed the root cause of the state of SOCs was. Treasury was the custodian of funds: did Treasury not anticipate the large-scale corruption and manipulation of the procurement process under Covid-19? Why did it not put measures in place initially to stem corruption when it knew corruption was a significant problem? Mr Shaik Emam asked why Treasury had not allowed the Appropriations Committee to give meaningful input on the new Procurement Bill. He proposed that all actions taken were after the fact, rather than attempting to pre-emptively stop corruption. He asked why Treasury had not been prepared to take pre-emptive action in this regard.
Mr Z Mlenzana (ANC) queried about the Departments that had a misalignment of reporting of Covid-19 Expenditure. He asked for an understanding of the full supply chain cycle for Covid-19 procurement, noting a lack of consistency in expenditure for Covid procurement across departments. He brought up the example of procurement of water tanks by the DWS. He noted an allegation of mismanagement in the OR Tambo District Municipality. He asked how entities which were not service-delivery oriented in this Municipality had larger budgets than ones which were. He wanted to know who was monitoring this Municipality, noting that the Office of the Speaker had been allocated more money than the Infrastructure Development department.
Mr X Qayiso (ANC) noted the underspending by Social Development, and wanted to know what low economic activity had to do with this underspending. He noted that a meeting with Denel might be necessary for the Committee. One of the pillars of the democratic developmental state was the ability of state-owned companies to deliver on their mandates. He noted a serious concern over the Land Bank, asking why disbursements to farmers had been reduced. He asked why funds had not been forthcoming for SAPO, as it was a key entity. He thought it was improper to advise SABC to retrench workers.
Ms N Ntlangwini (EFF) wanted to know how far the process on the amendment of the Procurement Bill was, and when the Committee would be engaged on this bill. She wanted a timeframe in this regard. There was a need to put steps in place in this regard. She wanted Treasury to come back with a better understanding of the failure to pay grants in the Department of Agriculture. She requested a list of Departments that had not submitted information required as part of reporting on Covid-19 expenditure. She asked why DIRCO had overspent on compensation of employees. She requested clarification on why the Department of Health had not transferred grants, noting that cutting these grants would harm people in rural areas. She asked for a breakdown of GCIS’ Covid-19 expenditure. She requested detail on Land Bank’s loanbook. She argued that the Committee had to follow up on the entities mentioned by Mr Rajlal, especially SAPO. She proposed it was too easy to let SOEs fail so that strategic partners could access public assets, which should be guarded.
Mr O Mathafa (ANC) asked whether Treasury had contemplated communicating better to the country what was allocated and what had been spent as part of Covid-19 relief, given the false rumour that R500bn had been spent in 4 months. He requested further understanding of the restructuring of Land Bank’s debt. Was Standard Chartered involved in restructuring discussions, and if so, what prompted it to engage in legal action? He supported a longer engagement with Denel. He wondered if Denel’s business model was fit for purpose and whether it would be able to take Denel out of the quagmire in which it found itself. He was concerned that turnaround strategies were being accepted but not implemented. He noted the issue of salaries not being paid at Denel for 4 months, and asked whether these salaries had now been paid or not.
Mr A Sarupen (DA) asked whether Eskom had requested any further funding from government. He asked what Treasury’s thinking was on the provision of a guarantee to ACSA. He asked where the money would come from for any of the bailouts or cash injections asked for by other SOEs given the constrained fiscal space South Africa was in.
Ms D Peters (ANC) supported those calling for a meeting with Denel. She equally wanted a meeting with SAPO and the Department of Communications. SAPO was important as it had been given the mandate to protect the funds of the poorest and most vulnerable. These people could not be left in the hands of an agency with governance and leadership problems, and an acting executive team. She echoed Mr Sarupen’s point on the source of bailouts. She noted that ACSA’s request was understandable given how its business model was affected by the lockdown. She wanted to know from Treasury which entities were absolutely essential and had to be supported. She wanted to know how entities with minimal actual footprint on the ground like GCIS managed to have such high Covid-19 expenditure, given they were effectively only procuring masks, whose recommended price was under R10. She wanted the Department of Agriculture to account for slow progress on land reform and expenditure in this regard.
Mr D Joseph (DA) argued that the extended lockdown was placing pressure on the economy and government. He asked whether there would be further strain on Supplementary Budget predictions from departments that had not submitted reports yet. He wanted to know what the financial impact would be of the cases being followed by SARS and SIU, and when a report on those cases could be expected. He wanted to understand the relevance of the Procurement Bill to Covid-19 expenditure, given it had not been passed. He asked for clarification on the remaining money to be appropriated to Eskom. He expressed his sympathy for ACSA’s financial difficulties. He noted that problems at SAPO, Land Bank, Denel were long outstanding and had to be dealt with. He asked where Land Bank would find the money to fight a legal battle with Standard Chartered was it to go to court.
Mr Qayiso reiterated his question regarding small disbursements by the Land Bank to farmers.
Ms Ntlangiwni asked for an understanding of the outstanding invoices to be paid by the Department of Correctional Services.
Mr Joseph noted the R1.5bn requested by SABC and the other parties requesting funding – he enquired whether these were urgent requests or part of the normal budget process.
Mr Shaik Emam noted that he was seeking a more detailed report on Covid-19 procurement with a comparison of what was paid for individual goods and the market rates, as well as details on who the companies and their directors involved were. He asked whether there was a process to blacklist those involved in corrupt dealings with the state. He also asked what the impact of stopping international tourism would be.
The Chairperson thanked the presenters. He commended the good work done by frontline workers and the government at all levels to mitigate the health and economic impacts of the Covid-19 pandemic. He noted South Africa’s recovery rate of 86% was amongst the highest in the world. He condemned in the strongest possible terms the corrupt activities of some in the fight against Covid-19. The law enforcement agencies should do their work in this regard.
The Chairperson asked whether there was a possibility of Treasury rejecting the reasoning of Departments for over or underspending, and if so, what the process followed was after this. He noted the large underspending in the Department of Tourism, and asked whether these funds could be reappropriated to the sector which was particularly hard hit. He sought clarity on whether only R18bn of the R145bn relief package had been spent. He noted the urban legend that the government had spent R500bn since March, and argued that National Treasury had to communicate better in this regard. He also noted that the DG would have to come and interact with Committee on the Procurement Bill.
The Chairperson wanted to know if Eskom had underperformed on its projections, and whether the budget appropriations for it had to be brought forward. He also asked whether decreased revenue had not come with a concomitant decrease in costs. He asked about the re-negotiation progress between coal suppliers and Eskom. He noted the 5.4% non-public ownership in ACSA and asked who owned these shares. He also asked whether ACSA’s debt had been downgraded. He enquired as to why Denel’s turnaround plans had been slowly implemented. He also wanted to know why the CEO of Denel resigned and when he had joined the company. He agreed with members that SAPO had to appear before the Committee with the DSD and Department of Communications. What had been the impact of social grant distribution through the Post Office? He noted the R1.5bn SABC loss and requested a further clarification. He asked whether the R3bn Denel appropriation was paid at once or in tranches.
Mr Dondo Mogajane, DG, NT, noted the frustration of members about the way Treasury came across at times. It was very difficult for Treasury to know what was going on in every department and entity. It was assumed that, if the systems in place worked properly and other agencies of government were functioning properly, Treasury’s role should be fairly minimal. Treasury came in after crises had been revealed generally, and was then asked why it had not been able to prevent issues. He understood concerns about Treasury’s performance sometimes, but he noted that, where the system functioned properly, the role of Treasury should be fairly minimal in this regard.
Mr Rajjal responded to Mr Shaik-Emam’s question on the bad state of SOEs. Plans for entities in trouble had not been implemented. Since 2001, R187bn had been provided for recapitalisation of SOCs, and exposure of government guarantees had increased by 100% since 2009 – these interventions had been made to turn around entities.
Regarding Mr Qayiso’s questions, since 2006, R2.6bn had been provided for the Universal Services Obligations (USO) to SAPO and R7.5bn for the recapitalisation of SAPO.
In terms of why Treasury was supporting initiatives to limit staff costs at SABC, Mr Rajjal noted that staff costs were roughly 52% of costs at SABC. This prompted the board to implement restructuring of the entity which included cost containment by cutting staff.
One of the major issues at Denel was the slow pace of the sale of non-core assets. Recapitalisation was intended to be done through strategic equity partnerships, but this had also been slow. Since the beginning of lockdown, management at Denel had taken salary cuts in the order of R335m. Denel had requested a relaxation of the conditions on the remaining R504m due to it in FY20/21.
In reply to Mr Sarupen’s question, he noted that there had been no further requests from Eskom for extra funding. There had been a commitment from Eskom that no further support would be requested. Regarding the risks of guarantees, Treasury expected entities to repay debt secured against a guarantee. Treasury sought to understand whether entities could service debt, and if not whether a guarantee was the best mechanism or not. The question on where money would come from, funds would have to be found within the existing fiscal framework. Treasury could not go out and raise additional funds for bailouts.
In reply to Ms Peters’ question on which entities were absolutely essential, Mr Rajlal noted that this was beyond his competency, although Treasury was involved in the reform and restructuring of the SOE environment.
In reply to Mr Joseph, Mr Rajlal indicated that the total promised value to Eskom was R230bn, of which R69bn remained after FY21/22. Denel’s request for funding would go through the MTEF process. Budget allocations had been fast tracked until the end of FY21/22 given Eskom was not in a position to service debt and interest on its own. Treasury was engaging with the Eskom team about coal contract renegotiation. There would be a report from the Eskom team in the coming weeks, which would be shared through the Eskom Task Team.
The SABC, ACSA and SAPO had requested injections which would go through the normal Adjustment Budget process.
Minority shares in ACSA were held by 5 shareholders, including Oppressed ACSA Minority 1, Pybus Thirty Four Investments, G10 Investments, Telle Investments and Upfront Investments.
ACSA’s debt ratings at Moody’s were downgraded and the outlook was given as negative.
The slowness of the Denel Turnaround hinged on slow sale of noncore assets and finding equity partners, although this was more a question for the shareholder department. The former Denel CEO had been hired in January 2019 and resigned in August 2020 without a reason provided.
The SABC loss was its gross revenue loss.
Ms Ngwenya responded to questions on the Land Bank, noting that its funds for disbursements to farmers came from debt raised on capital markets and loans from banks. The debt default in April meant that collections from farmers were the last source of funding. Given the constraints on funding at the Land Bank, a balance had to be struck in continuing to lend to farmers and servicing debt.
Regarding the Standard Chartered issue, the lenders had organised to negotiate with the Land Bank – these negotiations remained intact. The lenders retained their right to claim their debt back from the Land Bank nevertheless.
Regarding the possibility of a costly court case, the Land Bank had indicated its intention to oppose the court application, which would require seeking legal services. Some funds for operational expenditure were available at the Land Bank, but these funds had to be stretched. The appropriation of the R3bn injection to the Land Bank was intended to augment cash availability, and Treasury was discussing how to stagger the disbursement of funds to the Land Bank to relieve pressure points. No confirmed dates were available yet.
Director-General Mogajane noted a long-standing engagement with Standard Chartered’s regional office in Dubai. South African lenders had understood the issues at the Land Bank and the process being undertaken to keep the Land Bank afloat. Standard Chartered had exercised their right, but this action seemed counterproductive. He did not want to scare away international banks, but that a better understanding of structural challenges was necessary. Treasury would continue to engage with Standard Chartered. The business structure at Land Bank would clearly have to change.
Ms Setan stated that the Public Procurement Bill would be submitted to Parliament in 2020. A number of workshops had yet to be held before the Bill was ready to be submitted to the Committee. Covid-19 had taught Treasury a number of lessons, especially when it came to emergency procurement.
R18bn of the R145bn allocated for Covid relief had been spent until end-August, whereas R15bn had been spent until the end of Q1. R18bn may have been an underestimate given difficulties in reporting lines for Covid-19 spending. Treasury’s public statistics office was working with departments to correct this.
The DPSA, DHS and DWS had not reported Covid-19 expenditure as of the meeting. A large number of public entities had also not reported. Government did not have an integrated procurement system and had 719 procurement systems operating in different manners. VAS gave accurate expenditure estimates but only at a high level: it thus did not have item-level transactional information. This was why Treasury had issued Instruction Note 11 with reporting requirements to give transactional data to Treasury so it could be analysed. 21 September was the first deadline in this regard. The weakness in procurement was in the lack of an integrated system and the lack of transactional data.
During all the iterations of the Instruction Notes for PPE procurement, Treasury provided maximum prices for items with a 10% variance to make up for geographical differences.
Ms Lebogang Madiba, Chief Director: Public Finance, NT, stated that Agriculture underspending was due to the lack of economic activity and the inability to carry out community work, which was an essential element of the land reform and restitution process. The closure of the Deeds Office during the lockdown also made it impossible to transfer land. The Department of Agriculture also had to trace beneficiaries of land reform and restitution payments, and the spending in this regard should pick up in later quarters.
Mr Mark Blecher, Chief Director, Health and Social Development, NT, noted the Health underspending, and argued that Q1 was a difficult quarter to predict spending trends from. Covid-19 had also disrupted this and slowed down vaccination programmes, the Hospital Revitalisation Programme and others. Decreasing vaccination rates were a significant problem. Some of the changes in spending had been reprioritised as part of the Special Adjustments Budget and would be smoothed out in Q2. The NHI Grant had been severely underspent by the Department of Health since its inception 4-5 years ago. With a new Minister and DG, he hoped this would change. The Department had not moved at all to contract GPs, and all the money had been shifted away from this and into Covid-19 expenditure. Mental Health and Cancer Services had also seen massive underspending due to inadequate planning from the national department. The indirect component of the NHI Grant had also seen slow spending. Mr Blecher proposed that the Department of Health needed to significantly improve its performance in this grant.
Ms Julia De Bruyn, Chief Director: Education and Related Departments, NT, responded to the Chairperson on reasoning for underspending. The PFMA and Treasury regulations gave accounting officers responsibility for planning and executing expenditure. Treasury received monthly reports from Departments, analysed these and returned to Departments. If Treasury was unhappy with reasoning, it met with the accounting officers. Sometimes underspending was a result of bad planning. It was not that Treasury rejected explanations, but it did delve deeper into the reasons. Treasury officials had met with Departments to ask why they were underspending. Given this money was often borrowed; it was extremely wasteful when it was not spent. She brought to the Chairperson’s attention the section “Issues for the Committee to Note” in the Treasury Presentation.
The Chairperson thanked Ms De Bruyn and noted the need for follow up on engagement on reasons for underspending.
Dr Modise answered the question on the cost implications of delays for Departmental spending, noting that delays in paying municipal services or invoices had little cost implication, whereas infrastructure delays led to cost overruns. For certain areas, Departments not complying with the guidelines were included in the report submitted to the Committee the previous week. DSD underspending was not due to lower economic activity, but rather due to the earlier payment of grants. DIRCO had underspent on compensation, not overspent, due to unfilled vacancies. The report on GCIS contracts had been submitted to the Committee. DCS underspending was due to unpaid invoices, and would be rectified in Q2.
The Chairperson asked if the DG agreed that one only noticed Treasury’s actions when there was a problem, and it did not communicate its good news better.
The DG agreed with this, noting that Treasury sometimes needed to be more open with information and promote its good and positive actions. He welcomed engagements with the Standing Committee, and noted the value of the Committee.
The Chairperson proposed that failure to implement plans was gross dereliction of duty at best, and he would much rather have a situation where a plan was implemented but failed than where it was not implemented at all. He requested Dr Modise to share the Covid-19 Expenditure with the Committee when it was consolidated. He requested an understanding of the financial implications of underspending by Departments. He also wanted a presentation from the Treasury on the Public Procurement Bill. He noted his special interest in how this Bill would help transform the economy.
The Chairperson proposed interacting with other agenda items in the next meeting.
Mr Joseph highlighted the issue of underspending in the NHI and requested further engagement on this matter.
The Chairperson agreed and noted this should be done before the MTBPS.
The meeting was adjourned.
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