In a virtual meeting, National Treasury presented on the third quarter expenditure patterns for the 2020/21 financial year to account for various departments’ and entities’ expenditure patterns in accordance with their deliverable objectives and expenditure patterns, as specified by the Minister of Finance during his tabling and subsequent readjustment of the national budget in 2020. The presentation covered reports from various departments, that recorded significantly higher than projected expenditure and the departments that incurred the most significantly lower than projected expenditure. A report on the State Owned Companies (SOC) performance for Quarter 3, 2020/21, was also presented.
The Committee raised concerns about the audit situation of Land Bank, in view of the R3bn recapitalisation. It wanted to know whether the Land Bank was technically bankrupt and also raised concerns about the need to explore alternative funding for the Airports Company of South Africa (ACSA).
Questions were raised regarding recapitalisation for Eskom and the effect of these financial bailouts on other entities. More concerning was the fact that, despite the huge support, there were still problems of load shedding and the reserves could not provide sufficient power.
The restructuring process of the South African Broadcasting Corporation (SABC) was also raised and concerns were expressed about whether the SABC will be self-sustainable in the medium term. The Committee also asked about the total vacancy rate and its effect on service delivery. It also enquired about how these vacancies will be filled.
Questions about the Passenger Rail Agency of South Africa’s (PRASA) lower spending on capital projects and the continued vandalism of infrastructure were also raised. The Committee also questioned the relationship between the South African Post Office (SAPO) and Post Bank and the issues of over staffing in SAPO. Concerns were also raised about the capacity of SAPO to act as an agent to deliver government interventions to the poorest citizens.
Opening remarks by the Chairperson
The Chairperson welcomed everyone present and wished everyone a fruitful and prosperous year ahead. He pointed out that continued caution should be exercised, because the country is still faced with the Corona virus pandemic.
National Treasury: 2020/21 Quarter 3 Spending Outcomes
Mr Shaneel Ragoo, Budget Analyst, National Treasury, presented a summary of departments that recorded significantly higher than projected expenditure and departments that incurred the most significantly lower than projected expenditure.
Looking at a summary of spending, the preliminary data for the third quarter of 2020/21 shows spending of R730.9 billion, which is lower by R767.1 million, or 0.1 per cent, against the projected expenditure of R731.6 billion. Goods and services contributed to largest proportion of the lower than projected underspending (R4.3 billion). COVID-19 expenditure amounted to R24.5 billion at the end of the third quarter
The following departments recorded the most significant higher than projected expenditure for the third quarter of the 2020/21 financial year: Cooperative Governance, Public Enterprises, Social Development, National Treasury, and Science and Innovation.
The following departments incurred the most significant lower than projected expenditure for the third quarter of the 2020/21 financial year: Police, Transport, Defence, Human Settlements, Agriculture Land Reform and Rural Development, Basic Education, Justice and Constitutional Development, and Public Works and Infrastructure.
[see presentation attached for detailed expenditure analysis per department]
Quarterly Expenditure Reporting for Public Entities
Dr Mampho Modise, DDG: Public Finance, National Treasury, presented the quarterly expenditure report for the public entities. Challenges in reporting on public entities included:
-system for verification of data: data provided by public entities (either to their relevant executive authorities or NT) is not on the Basic Accounting System (BAS) and thus cannot be verified
-They do not have budget programme structures like a department that are approved by the relevant treasury and hence their ‘programmes’ are not necessarily linked to deliverable objectives
-their spending is only in economic classification terms
-Accounting standards: departments use a modified cash basis vs. accrual accounting for public entities. The main difference between accrual and cash basis accounting lies in the timing of when revenue and expenses are recognised. The cash method accounts for revenue only when the money is received and for expenses only when the money is paid out VS in accrual accounting where revenue/expenditure is recorded even if the cash has not yet been received/paid. In accrual accounting, when you purchase a long-lived asset, such as a vehicle, a building or a computer, you do not immediately write off the full cost as an expense. Rather, you spread the cost over the expected life of the asset, an accounting procedure known as depreciation. In relation to capital expenditure in public entities, only the portion of funds that will be spent is recognised as expenditure, the rest is accounted for on the balance sheet as deferred income
-Number and type of public entities do not enable a comparative analysis (Service delivery agencies, Regulators, Development Finance Institutions, Social Security Funds)
-Different financial years – e.g. water boards operate on the municipal financial year from July to June (not on the April to March financial year)
[see presentation attached for detailed expenditure analysis per entity]
State Owned Company (SOC) Performance
Mr Ravesh Rajlal, Chief Director: Sector Oversight, National Treasury, presented on the performance of SOCs. See the presentation attached for the detailed analysis of Denel, the SA Post Office (SAPO), SA Broadcasting Authority (SABC), Eskom, Airports Company of SA (ACSA) and the Land Bank
Mr A Sarupen (DA) expressed concern about the audit situation of the Land Bank, in view of the fact that the Committee and Parliament had agreed to a R3 billion recapitalisation for the bank in the previous year. He asked for clarity on the conditions that were applied by Treasury to the R3 billion in recapitalisation and if those conditions were met. He also wanted to know what steps had been taken to ensure that Land Bank “actually gets its act together”. He also observed that Land Bank had R4 billion Government guarantees, and that this situation can trigger a debt crisis.
Regarding ACSA, he noted that the state had committed to purchasing shares worth R3.3bn. He wanted to know if there was any consideration to sell shares to other minority shareholders, as a sort of equity deal, rather than relying on endless Government support. It is evident that alternative funding mechanisms were needed to deal with the situation.
Mr Sarupen thanked Treasury for the regular reports on Eskom, which show status reports and conditions for recapitalisation. He however wanted to know if these conditions were reapplied every year when cash was transferred, because the report showed R49 billion in the financial year of 2020, and R56 billion and R31.7 billion for 2021.This is evidently the biggest bailout annually every single year and citizens are being asked to pay electricity directly and again through their taxes. He also wanted to know if there are plans to reduce the amount of money allocated to bailouts to ESKOM, so that these funds can be spent on other areas such as health care, teachers, doctors and police officers. He observed that ESKOM is really a big drain on other areas where these resources were needed.
On the SABC, he wanted to know if Treasury is keeping a watch on its restructuring process and if Treasury is happy with the process. Is the SABC taking any advice from Treasury and are its revenue streams improving? Will the SABC be self-sustainable in the medium term?
Mr E Marais (DA) wanted to know if the Land Bank is technically bankrupt, because the reports show that if the Bank does not receive recapitalisation, it cannot survive. Secondly, ESKOM is the largest SOC in South Africa and every year support is received from Treasury for bailouts, but there are still problems with load shedding and the reserves do not provide sufficient power required in South Africa. What steps will be taken with respect to ESKOM to reduce State liability to it?
Mr O Mathafa (ANC) wanted clarity on the total vacancy rates, which showed an underspending of R2 billion. With the Covid challenges on person-to-person interaction and the new way of working, will the R2 billion be spent and is there a report or plan from the Departments affected, on how they intend to fill these vacancies.
On the issue of the funds withheld from provinces, he noted that the Northwest and Free State have had funds for the public transport initiative and human settlements being withheld. Can it be concluded that these particular provinces have challenges? Considering that Cabinet had set up a team to intervene in the North West, Mr Mathafa asked if there were extraordinary measures to consider for the Free State in order to assist the province and municipalities to spend their grants.
Mr Mathafa also enquired on the issue of PRASA, particularly on the R3.1 billion lower spending on capital projects. The report stated that there were lower purchases of rolling stock, but it has been observed that there are no cables nor tracks, so even if the rolling stock is acquired, it will have nothing to move on. He observed a R400 million reduction in revenue, as a result of a declining number of paying passengers. This was as a result of the damaged infrastructures that were removed from operation, and passengers forced to consider other means of transportation. He also asked if PRASA is putting in enough effort to ensure that this vandalism to infrastructure is addressed. Is the infrastructure, particularly the damages to tracks and cables, classified as maintenance or as capital investment? He pointed out that if it is capital, then he thinks the spending can be improved if attention is placed on those particular challenges of vandalism.
On Eskom, Mr Mathafa wanted to know if the allocation for the guaranteed debt is a one off, or if it will still turn to the National fiscal to assist with this particular guaranteed debt.
Lastly on SAPO, he noted with concern that the situation presented looks very dire and there is a need to check on the relationship between SAPO and Post Bank. Post Bank is fully owned by SAPO and Post Bank is in the process of applying for a banking licence. What are the guarantees that if Post Bank acquires a banking licence, it will make a successful bank going forward? Under the current COVID 19 circumstances, counter to counter parcel movement has become a money spinner. There are other independent courier companies who use counter to counter, and are making loads of profit, while SAPO is registering a reduction. Other means of revenue could be explored in this regard.
Mr X Qayiso (ANC) observed that the meeting did not commemorate Committee Members who had lost family members due to the Covid pandemic. He proceeded to ask for clarity on the issues affecting the taxi industry. Reference has always been made to the issue of low demand in terms of taxi recapitalisation and the industry has always complained about not being taken into consideration. He wanted to know what informed the low demand in recapitalisation.
He asked for an explanation regarding the lower spending by the National Health Laboratory Service (NSHL), considering that the NSHL played a very critical role during the Covid 19 pandemic. Some provinces were also reported to have failed to submit invoices and he asked for details of these provinces.
On the issue of State-Owned Enterprises (SOEs), Mr Qayiso said that it is important that these enterprises play a strong role in ensuring that a strong state is built. Denel is one of the entities facing a lot of problems, and every effort must be made to save these SOEs. He wanted to know the cause of the delay in implementing the turn-around strategy introduced around 2018, which could have saved the loss of R1.2 billion.
The Post Office is one entity that has been a highly contested, even by the unions, particularly on the issue of over staffing. He highlighted that in the Quagga post office for example, workers are subjected to very dangerous conditions and some of the workers do not want to continue working under such circumstances and as a result the post office now regards them as people who are redundant. Several posts have been lying vacant since 2016 without being delivered on because there are no proper tools of trade that workers can use to execute their work. A lot needs to be done to support the post office so that it can deliver on its mandate and become fully functional.
Ms N Ntlangwini (EFF) expressed her sincere condolences to the families of Members who were affected by the Covid19 pandemic. She pointed out that there seemed to be a deliberate attempt to ensure that the post office does not work and that the Committee should not accept this. The post office is one entity that serves the rural areas as people fetch their grants from it, so a mechanism should be found to make it work, employ those needed, and cut off those not needed. The Committee needs to assist the post office to become more viable, and she urged the Committee to see to it that this entity starts functioning during its tenure.
On Public Enterprises and the business recue practitioners at South African Airways (SAA), she wanted to know how much was paid to the business rescue practitioners and how much was paid to the normal staff of SAA. She argued that it was not acceptable for business rescue practitioners to walk away with large sums of money, while normal staff cannot even afford to pay the fees of their children, or provide food on their table.
On the issue of public works, Ms Ntlangwini asked why invoices and quotations were not submitted. She suggested that the Committee send letters to the Minister to explain some of these expenditure patterns. She explained that Covid cannot be used as an excuse for non-performance, because some of these Departments have had long standing underlining issues in terms of their spending patterns. She called on the Committee to find ways of helping Departments improve on their spending in the new year.
Ms M Dikgale (ANC) acknowledged that delays could have been experienced as a result of Covid19 restrictions. She noted however that delays in filling of vacant posts are not understandable, because people are in need of work.
She also asked for clarity on the issue of public works and infrastructural development. She noted that on social development, there has been no issues with the payment of social grants to the elderly people by the post offices and proposed that maybe the allocations that are not used by some departments, be taken to the poor and vulnerable people who are getting little and are unable to satisfy the needs of their families. She concluded by calling on the Committee to endeavour to assist the departments fulfil their mandates.
Ms D Peters (ANC) also conveyed her condolences to Members who lost their loved ones to the pandemic and prayed that 2021 would be a different year and that solutions would be found to the pandemic.
On the Road Accident Fund (RAF) contingent liability issue, she wanted to know if National Treasury had alternative ways of dealing with the challenges faced by RAF, other than the Road Accident Benefit Scheme Bill. There is so much resistance to the Bill, especially from the private legal and medical practitioners and because they are able to lobby Members of Parliament, the Bill keeps on getting delayed. She proposed that while waiting for the bill, there should be an opportunity for National Treasury and the Department of Transport, together with RAF, to look for an alternative way of dealing with this particular challenge faced by RAF.
Ms Peters raised concerns over the capacity of SAPO to act as the agent to deliver government interventions to the poorest citizens. She noted that with the Social Relief of Distress (SRD) grant, the conditions under which the poorest of the poor are being subjected to, like queuing over night at post offices and still being sent back because the money had not been deposited were concerning. The Post Office communicates with beneficiaries by cell phone, when most members of the poor community do not even have access to a cell phone. The cost of data to ensure that these people are able to receive messages is another problem.
She also noted that it is very worrisome when many community members complain that applications and even appeals have since been made, but nothing was received. Some community members even proved that they had been unemployed for over 10 to 15 years but have not benefited from the R350 grant. It is important that National Treasury, the South African Social Security Agency (SASSA) together with SAPO come together to deal with the challenges that the people are facing, because it will be an indictment even on Parliament where many people are not able to benefit, while there are still monies that are not spent.
Ms Peters also raised a pending issue from previous years, which was not included in the presentation. On the Expanded Public Works Programme (EPWP) and ECWP programmes under the Department of Public Works and Infrastructure (DPWI) and Department of Cooperative Governance and Traditional Affairs (COGTA), she wanted to know if it is appropriate to employ service providers to supervise or oversee the program remotely. She explained that a number of people are always seen roaming the streets in their uniforms, sitting under trees. They complain that their equipment is not working, or some parts are missing, and they do not know who to engage with. It is not fair on communities when they have to work remotely with people who are getting lots of money while they only get stipends. National Treasury should be able to look at how together with DPWI and COGTA, it can try and make it possible that the EDWP and ECWP programme can benefit the beneficiaries and communities where these people are working.
Mr A Shaik Emam (NFP) stated that National Treasury have once again been found wanting in the area of irregular expenditure, whereas it is supposed to be leading by example. If Treasury conducts itself in such a manner, how will the entities below it be expected to conduct themselves in a satisfactory manner?
He wanted to know what National Treasury has done about the integrated financial management system, how many people are now in prison as a result of all the corruption that took place in that system, and how far is it in terms of that system being completed?
He referred to the President’s announcement stating that there will be an extension of three months for the SRD grant and that National Treasury has been engaged to make these funds available. A lot also depends on the procurement processes in South Africa and he wanted to know what is being done to reduce corruption in this area. He asked about the role of Treasury in ensuring that entities that are currently performing poorly become more accountable and deliver better services.
Mr Shaik Emam wanted to hear Treasury’s view on political party funding and where the money will come from. He noted that following the President’s declaration that 700 000 more jobs are being created he became curious about where the monies come from.
The Chairperson thanked the team for its presentation. He stated that because National Treasury is the custodian of the national purse, it would have to always bear the responsibility for wrong happenings within the Departments. On the impact of fluctuation rate, he said that fluctuation rates are going to be there forever and wanted to know if there are any exchange rate risk management strategies in place.
The Chairperson expressed concern over the lower spending in the police, transport, human settlement and agriculture Departments and the inability to fill vacancies. It is important to note that money appropriated from the Committee should be used for the purpose for which it was allocated. He wanted to know the implication of these vacancies on service delivery.
He observed further that a bigger implication lies in the inability of government to spend. According to the Gross Domestic Product (GDP) equation, the gross supports government spending and spending must affect service delivery directly. The budget has also been identified as a way of stimulating the economy, and consequently impacts further on the ability to grow the economy, to collect revenue, and further impacts on the indirect employment ratio.
The Chairperson also observed that money was withheld, such as the public transport network grant because people are not compliant. He explained that, while these monies are withheld for good reasons, its impact on failure in service delivery must be understood. Withholding may therefore not be a good solution, so that people don’t become double victims of what civil servants are supposed to be doing.
He observed further that the report on government entities was indicated as quarter two, while reports on government showed quarter three. This is a lack of alignment, and that puts the Committee six months behind and any remedial action that the Committee may want to take will be about six months late, which is half of the year. What is therefore being done to correct the situation?
The Chairperson commended the compensation fund, which collected more than it budgeted for. However, the money is needed back in the economy.
On the inability of PRASA to spend money, he noted that R790 million was spent out of R90 billion initially budgeted. This is the mode of transport which the poor rely on and people rely on it to go to work. If money is not spent on infrastructure and there are no trains, with no lines available, and still PRASA is not spending money, it will have a huge impact. When money is not spent to fund small businesses, such as roads deteriorating due to movement of trucks, it would have a huge impact. Money is allocated to be spent, but when people are given money and they don’t use it, it puts the Committee in a very awkward position. He also noted that the Committee is always told about turn around plans, but they seem to not be implemented. The failure to implement these turn around plans end up impacting the Committee because National Treasury will then request from the Committee that there should be some recapitalisation.
On Eskom, R49 billion was budgeted in the financial year 2020, R56 billion in the 2021 financial year, and R37 billion rand budgeted for the 2022 financial year. With all the capital injection to Eskom, what is the return on investment made to it and what has been achieved with the taxpayer’s money?
The Chairperson asked National Treasury if it had a financial module which showed what type of benefits will accrue from the separation of the three business units of Eskom. He noted further that another institution which was badly affected by the pandemic is ACSA. The institution was doing very well before the pandemic and even declaring a dividend. The Committee will need to be open minded to such institutions that were impacted and provide help to them and Coronavirus should not be used as an excuse for people not to act.
Ms Unathi Ngwenya, Chief Director: Sectoral Oversight, NT, explained that in respect of the Land Bank, the conditions for the R3 billion were in terms of the liquidity of the Land Bank and that it could only be used to repay interest and capital for the Land Bank. The announcement about the R3 billion was made around June when it was still collecting from its own clients over time. The two cash inflow, that is equity itself and Land Bank cash repayments, were able to start repaying crude interest, which had not been paid previously. It was able to catch up from August 2020, and has been able to service interest on an ongoing basis. During the month of February 2021, it also committed to repay 10% of the capital, which is the repayment of R4 billion of the R40 billion indicated on one of the slides.
On what steps are being taken by the Land Bank to recover; first is the response to debts and default positions. Second is the liability solution, which is the one major plan which aims at renegotiating with lenders to ensure that the default of the Land Bank is cleared, so that this issue would no longer contribute to the going concern in the audit. Another step is highlighting a remedial plan in response to the audit outcome, which includes the overall enhancement of internal control, and focusing on the management of expected credit losses and management of collateral. Further, it must be ensured that the appropriate skills in institutional knowledge are maintained in the areas that are most affected by the audit outcome, such as risk management function expertise. The Bank will also need to focus on key controls and deficiencies identified in respect to service level agreements it has with intermediary partners, particularly because these intermediaries are one of the distribution partners that the bank uses to generate loans.
On the question whether the Land Bank is technically bankrupt, results for 31 March 2020, indicated that the Land Bank is not technically insolvent, as it was solvent at that point in time, and had a net asset value of about R2.5bn. In the interim result of 30 September 2020, because of the transfer of the R3 billion recap, that position essentially improved to a net asset value of more than R5 billion. However, there is still a risk of insolvency due to the continued losses seen in the 2020 financials, and the non-performing loans.
The risks in terms of liquidity, is also an issue which is being focused on.
Mr Rajlal said that in terms of ACSA, there is currently no initiative being considered to sell shares to other shareholders. However, if the need arises, the shareholder, which is the Department of Transport, would advise accordingly. Consideration is also being given to how the private sector can assist and provide necessary support, instead of companies.
On Eskom, he explained that the conditions for 2021 have been amended and that the major amendment was around the procurement road map. Significant changes and improvement were made around procurement from the entity itself, and when time permits, Treasury will present on the compliance to the 2021 conditions. He stated that all transfers have been done to date, i.e. the R49 billion and the conditions have been met. The one condition around the disposal of the Eskom finance company is still work in progress. There are significant developments in that respect and the Committee will be briefed when given the opportunity.
At present, Eskom is still not in the position to generate sufficient cash to pay off all its debts. This is why the support package of R230 billion outlined in the 29 October MTBPS, is required to help the entity pay up its debts. No other support is provided to Eskom except the support from the recapitalisation. Efforts are being made to ensure that Eskom is more competitive, saves cost, and reduces its reliance on further government support.
On the relationship between the Post Office and Post Bank, he explained that the Post Bank needs to be in a financially sustainable position in order to be a holding company for the Post Bank. Evidently, the Post Office as a group company is not financially sustainable, and so there is a lot of work that needs to be done to restructure it. There is a project that the Deputy Minister of Finance is in charge of, which is exploring how the Post Office can be in a financially sustainable position.
On the turnaround plan for DENEL, he said that the plan has been in effect since 2018 and efforts are being made on it. There is a broader discussion that also needs to happen with the defence force, with arms core, and with other stakeholders in terms of how to ensure that DENEL returns to its financial viability.
On the issues of over staffing at the Post Office, Mr Rajlal explained that the total expenditure at the end of quarter three was R4.7 billion, and R2.8 billion with relation to its wager bill. There are concerns on the wage increase and in the current position of the Post Office, it cannot accommodate the current wage increase.
On SAA, the Business Rescue Practitioners (BRPs), and the R200 million paid to them, Mr Rajlal said that Treasury has not had signed off this amount being paid to the BRPs, but steps will be taken to engage with the Department of Public Enterprises around that. He stated further that in terms of the R10.5 billion, provided to SAA for the business rescue plan, R2.8 billion of that amount has been dispersed for employee cost.
On the capacity of the Post Office to deliver to the poorest of the poor, he said that it is not able to meet the demands of its clients and this is part of the restructuring process underway.
On the turnaround time, it seems that while the implementation and turn around plans had been developed, challenges are still experienced around implementation, change in management, which then creates the need for further funds for bail outs. It is hoped that the management will be stable enough to ensure that further plans are implemented without the need for further bailout from government.
In terms of what has been gained from the support provided to Eskom over the past few years, he explained that Eskom would have been unable to pay off its debts without the support, and may have gone into a business rescue mode, or may have been liquidated.
On the financial module and benefit of the separation of the three entities, work is still meant to be finalised and executed, and due diligence report awaited from Eskom, which will help with the actual financial model.
Regarding the SABC, meetings are being held with them on a monthly basis and there are some concerns around implementation of some of the plans around capital expenditure. The entity would however not be coming back for support in the current financial year or the next, but a lot depends on them implementing the turnaround plans, which is monitored on a monthly basis. A lot of improvement has been registered, but more work needs to be done in respect of costing the public service mandate, and understanding what SABC is meant to do in terms of public service, and where assistance can be given.
Ms Ulrike Britton, Chief Director: Urban Development Infrastructure, National Treasury, explained the difference between withholding of allocations and stopping of allocations. In the withholding of allocations, what the Divisional Revenue Act requires is for the transferring officer, to notify the receiving officer of the intention to withhold when he sees that there is a breach of the Act and give the withholding officer the opportunity to provide reasons why funds is actually withheld before it is withheld. This withholding is usually not for a period exceeding 30 days. A separate process applies when it is longer than 30 days, before the stopping occurs. The aim of the process is to ensure that municipalities and provinces adhere to the conditions that are set out, thereby adequately measuring value for money. There are other extraordinary measures that can be taken where conditions are not met, but are last resorts.
On PRASA, she explained that part of the problem is understanding how to get the entire modernisation programme running. It is an ongoing ten years programme. What is relatively new is the vandalism of the rail infrastructure and PRASA is coming to terms with understanding the problems it has with the vandalism of its overhead cables. PRASA is working with the Department of Transport and other agencies to get some of the lines running again. It is also working with the Provincial Department of Human Settlements, and the municipalities, to clear the lines.
The extent of the vandalism suggests that the infrastructures need to be built from scratch and this is therefore not maintenance, but capital, and should be seen on the capital budget.
On the taxi industry and low demand on the recapitalisation, Ms Britton explained that the programme is designed in such a way that taxi operators have to apply. More marketing is needed on the part of the Department of Transport to ensure that applications are received from taxi operators. If no operator applies, then the money does not get spent, and currently, the Department of Transport is waiting to receive applications.
Speaking about RAF and its alternatives, long term changed would include the implementation of policy and policy alternatives. Consideration must be given to the short term, which includes dealing with the affordability of the system, and making levies more affordable to road users.
In relation to the Community Work Programme (CWP), a report will be given to the Department of Cooperative Governance. She noted that the CWP has definitely been facing many governance issues and procurement problems, and there is currently a court case dealing with the matter, while the department is also working to resolve it.
Dr Rendani Randela, Chief Director: Public Finance, National Treasury, responded to the question on the vacancy rates, stating that there is probably no department at full employment. This is mainly because people are resigning and others joining the departments. He stated specifically in relation to the labour-intensive departments, like police defence, and correctional services, that recruitment is done regularly on a large basis, and training provided in colleges. Due to the covid pandemic and lockdown restrictions, the training programmes had to be stopped and this accounts for the underspending in this regard.
Dr Modise responded to the two questions about the NHLS. She noted that the issue of overspending was on PPEs for pathologists, and lab technicians, and the test kits. The underspending refers to where some money was saved because the salary increases and bonuses were not implemented. This was a small saving. The overall expenditure for the quarter however, shows overspending. There was an overall projected spending of R4.1 billion, but at the end of the quarter the spending was R5.8 billion. The underspending referred to the underspending on the compensation of employees. The provinces which delay invoices to these entities include KZN with invoices amounting to R2 billion, and Gauteng R1 billion, and the Eastern Cape R500 000.
Dr Modise said that Treasury specific questions should be dealt with by the Director-General (DG) of Treasury, because the team does not deal with IFMS nor procurement, but only with departments and public entities. Questions on the SRD grant, the presidential announcement, will be dealt with by the Minister of Finance during the budget review in the coming week.
Frequent meetings are held with departments and the announcement will be made by the Minister, when the budget is still finalised.
On the political party funding, Dr Modise said that the process includes getting the Bill enacted and it is expected that the fund will be sufficient to run itself. It is not envisaged that there will be a significant increase in the budgeted funds for political party funding.
In terms of the exchange rate, usually the macro economic forecast, published by Treasury is used. Where there is a significant decline in the exchange rate, additional funding would have to be sourced. Departments are also advised to do their own risk assessment to determine when to pay the subscriptions. Where the difference in exchange rate is so severe, departments can request for additional funding. But if the exchange rate appreciates and the costs of what it has to pay for is lesser in Rand value, then the excess money is returned, and the appreciation and depreciation of the exchange rate is then balanced.
In terms of quarter two and quarter three of the public entities, entities submit 30 days after quarter end to their Executive Departments. Because they do not report the same as government, the verification process of the numbers gotten, take much longer. When the numbers are received 30 days after the quarter ends, the number have to be verified, and this process may take much longer. The reason why the verification process takes long is because of the way in which public entities report. Most of the entities do not have detailed programmes that can be used for verification, and the reporting systems are different. Entities are also very different, so they cannot be put together and a comparison conducted. Also, the financial years of the entities are also different from each other, and confirmation of all this information takes a lot of time.
The Chairperson stated that there was no response to the issue of withholding of funds, for example the public transport network grant. Are better ways of managing this type of problem being considered? The question of PRASA that was raised was only addressed with respect to vandalism, which was a recent problem of the lockdown, whereas the question of underspending has been ongoing for some time.
Dr Modise, in response, stated that the challenge with infrastructure spending is the fact that it is one of the most discretionary item in terms of budgeting. The establishment of the team at the Presidency will however assist with dealing with underspending in infrastructure, together with DPWI. There is also a recent proposal that the office of the presidency look into diversifying the funding for infrastructure project.
Ms Britton also explained in her response that withholding of conditional grant, like the public transport network grant, is a temporary measure that is only done for 30 days. The municipality or any receiving officer will have to explain to the national department before money is withheld and explain why it should not be withheld. It is a short-term measure to get the municipality to do the right thing. The withholding process is usually only for 30 days, but it can be extended to 120 days if the Department is not satisfied that the necessary remedial action has been taken by that municipality. The stopping of money is the dangerous one where money does not flow at all.
Public transport on the other hand provides access to jobs, other economic opportunities, access to social services, and also provides mobility. Efforts must be made to ensure that the institution works and that a service is provided that is safe, and reliable. She noted that the efficiency of public transport has an effect not only on the economy, but also on general household welfare. It is therefore important to ascertain if the institutional framework for public transport is fit for purpose, whether functions and responsibilities are assigned properly, and if there is a subsidy policy that is equitable. The Department of Transport is working on all these measures and there is an amendment to the National Transport Act. This includes a review of the public transport strategy, and the development of a public transport subsidy policy which will provide greater security in transportation.
The Chairperson requested that the issues raised by the Committee be forwarded to the respective departments for necessary explanations and answers.
The Committee proceeded to consider its first term programme for 2021.
The programme was adopted.
Committee minutes dated 1 December 2020
The minutes were adopted.
The Chairperson sent words of condolences to everyone who lost their loved ones, and he called on South Africans to focus on stopping the devastation in the country.
Meeting was adjourned.
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- National Treasury: 2020/21 Quarter 3 Spending Outcomes
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- National Treasury: SOC performance
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