SCOA Strategic Planning Session; with Deputy Ministers

Meeting report

The Chairperson opened the meeting and welcomed all attendees on the virtual platform. Minister in the Presidency, Mr Mondli Gungubele, had sent an apology, but both his deputies, Ms Thembi Siweya and Ms Pinky Kekana, were present. The Committee had received apologies from Mr A Shaik Emam (NFP), Mr Z Mlenzana (ANC), Ms N Ntlangwini (EFF) and Mr E Marais (DA).

The Chairperson laid out the agenda of the meeting and officially indicated that the presenters from the Department of Planning, Monitoring and Evaluation (DPME) may proceed with their presentation.

Deputy Minister’s overview

Ms Siweya, Deputy Minister in the Presidency: Planning, Monitoring and Evaluation (DPME), provided a brief overview on the content of the briefing.

The briefing would touch on the Department’s mandates, as well as its capacity to implement those mandates. It would outline the human resources, skills level and the required skills in the Department.

The medium term strategic framework (MTSF) was initially for the period of 2019-2024. Due to COVID-19, the Department had had to review the framework and make adjustments to its programmes as a result of budget reallocations.

The briefing also would be touching on the 25th review plan that was completed in 2019. She clarified that this review did not necessarily cover the content contained in the 2019-2024 MTSF. It was rather a holistic review that covered what the government had achieved since 1994.

The briefing would take Members through the Department’s monitoring system. The programme of action, as well as monitoring targets, were contained in its MTSF. Many of the targets were currently being reviewed, so the briefing would be reporting only on what the Department had done. The performance could not be measured against those targets.

Under the Department’s monitoring system, there was a Presidential hotline that had been revamped to expand accessibility. There was also front line monitoring to check and inspect service deliveries and shortfalls. Among others, there was also citizen-based monitoring that focused at the community level.

The DPME development programme was managed through the School of Governance to capacitate public servants in order for them to be more equipped to carry out their mandates. This also pointed to the seven priorities of this administration on building an effective and capable state.

The briefing would also touch on the various evaluations which the Department had done for the implementation of laws in various other government departments. The DMPE evaluates Acts and communicates with other departments to inform them of their assessments on the policy outcomes of a particular Act.

Briefing by DPME

Mr Robert Nkuna, Director-General, DPME, outlined the background and context of the DPME and its mandates in relation to the National Development Plan (NDP).

The organisational structure of DPME, as well as the operational processes, was explained to Members.

The impact-based value chain consisted of inputs, activities, outputs, outcomes and impacts.

He explained the binding and systemic constraining factors that deterred the reform agenda in the Department.

Dr Annette Griessel, Deputy Director-General: Planning and Coordination, took Members through the 2019-2024 MTSF. She outlined the focus areas of the Department. The background to the MTSF 2019-2024 and the seven APEX priority areas were described. The point of an inclusive economy remained the key central issue of this administration.

Strategic imperatives and 2022/23 priority areas were explained. Managing the pandemic was one of the top priorities for the Department.

Ms Mmakgomo Tshatsinde, Deputy Director-General: Sector monitoring, said the DPME had two branches for monitoring. The programmes which it monitored were provided to the Members. It used the integrated monitoring framework as an evaluative mechanism to compare actual results against the set targets. The key elements of the system were explained, and examples of the Department’s performance assessment and reporting were shown.

Bi-annually, the DPME engages with various government departments regarding performance, and it then evaluates progress and consolidates inputs, which are then sent to the President and the Joint Cabinet Committee.

Mr Henk Serfontein, Deputy Director-General: Frontline Monitoring, described the four components under the frontline monitoring. These included the Presidential Hotline, citizen-based monitoring, implementation, and systems and processes. The different types of frontline monitoring included citizen-based engagements, special projects, citizen complaints, as well as onsite monitoring. Onsite monitoring was the most commonly used type of monitoring in the Department.

Mr Godfrey Mashamba, Deputy Director-General: Evaluation, explained the National Evaluation Policy Framework. He also provided a list of some of the completed evaluations dating from 2017 to 2021. He outlined the ways that the Department could support the Standing Committee in its oversight role.

Deputy Minister Kekana emphasised the importance of the last slide on how the Committee could use the information provided by the DPME to make key budgetary decisions.

Discussion

Ms N Hlonyana (EFF) commented that there were huge gaps between planning, budgeting and the implementation stages of projects. South African people had suffered a lot from the beautiful plans written in beautiful paper and colours, and then had to face the consequence of dismal failure for what had been budgeted for in their implementation stage. Based on that, she wanted to know what the DPME thought that the country could do in order to translate those beautiful plans into service delivery that would benefit everyone in South Africa.

As the DMPE’s mandate was focused on monitoring and evaluation (M&E), she was of the impression that the latest scandals around personal protective equipment (PPE) still persisted, in spite of all the hotlines which the DPME had set up.  

Ms E Peters (ANC) highlighted the Department’s instrumental role in assisting Committee Members to track how resources had been appropriated and used by various departments. What was missing in the presentation was the issue of impact studies. Although she understood that the Department had a huge challenge having to do monitoring work for 14 national departments, as well as 90 provincial departments, she still wanted to know how it made its road to the local government level, as it was the closest to examining the outcome of service delivery.

She enquired about the ministerial performance agreements, wanting to know the tools in place to do performance appraisals and monitoring for ministers and deputy ministers. She believed that it was the one area where the government was still going through a learning curve. She asked how the DPME could support the President in ensuring performance at the ministerial level.

Ms Peters commented on the monitoring framework. If this framework was functional, why were there still so many service delivery challenges?

She drew the Department’s attention to the deplorable state in which the Post Office disburses COVID-19 relief funds. Queues were snaking around post offices in cold and windy weather. It reminded her of the apartheid system. She asked if the Post Office had a service delivery improvement plan on this matter, and called on the South African Social Security Agency (SASSA) and the Department of Social Development (DSD) to help as well.

She emphasised the importance of going back to the citizens in the Department’s citizen-based engagements. Community Development Workers (CDWs) themselves had many challenges. In many provinces, the people who were appointed as supervisors did not even exist. Given those challenges, for citizen-based engagement to be truly implemented, there needed to be an instrument in the Department to engage citizens themselves, to see whether the service delivery which the government provided had met their expectations.

Ms Peters referred to the "disempowered citizenry," as people were able to express their satisfaction or disapproval of government’s service delivery only during election times. She believed that it was a gap that the DPME could fill. She urged that methods other than hotlines be established to improve engagement between citizens and the government.

Mr X Qayiso (ANC) asked the Department what the impediments were for economic recovery and growth according to its expertise in monitoring and evaluation.

He noted the state of collapse at the local government level in the country, and said the feeling was also shared by the Auditor-General’s report. He wanted to know whether the Department, in their monitoring and evaluation (M&E) process, had picked up any warning signs that they could share with the relevant departments. He believed that the information that was used for M&E could be helpful in preventing certain issues getting worse.

The Chairperson emphasised that the ultimate objective which the Committee wanted to see was outcomes, regardless of the routes and different methods the government used to achieve those outcomes. The Committee assessed the government’s performance by looking at whether it was succeeding in achieving a reduction in national poverty and inequality, which were the two essential objectives in the NDP. His hypothesis was that the country was doing very poorly on those issues, if Members had to look at the indicator, so he wanted the Department to explain what the problems were and what the DPME was doing to solve those problems.

He asked the Department to share with the Committee its intervention to deal with the problems it had encountered which had prevented the country from achieving the seven apex priorities during the past ten years. Had it looked at legislation and ever identified any laws that were deemed as deterring the country from achieving those NDP objectives. Furthermore, had the Department recommended or introduced any legislation to enable the government to achieve those objectives?

The Chairperson noted that 33% of the country’s population were dependent on one form of grant or another. In the current financial year, R335.3 billion was budgeted for the Department of Social Development. He questioned whether this kind of situation was desirable, and how the budget would evolve in the coming years

He enquired about the Department’s evaluation work on the ocean economy. Since South Africa had a vast coastline, there was so much potential from the seas which had prompted the ocean economy project.

This Appropriation Committee had appropriated R2.02 trillion rand to the government so far, but various departments were still complaining about budgetary cuts. At the same time, those departments had money that had not been spent. The Chairperson wanted to know if the DPME had identified the problem, what had been done to correct it, what had been outcome of its interventions. He also sought clarity on how much of the R2.02 trillion had benefited black people, women, young people and township economies. He understood that neither Deputy Minister might have the answers with them now, but he requested the Department to provide well researched answers in writing. This was a key issue, as economic transformation was important to the government.

The Chairperson said that the mission of this Committee was to see whether it was getting value for the money that it had appropriated. On 15 August 2020, the President had announced the Economic Reconstruction and Recovery Plan. It was based on the understanding that the current fiscal issue was predicated on unemployment and the slow growth of the economy. He therefore asked the DPME how far the plan had been implemented, and whether it had identified any challenges.

Ms Peters asked the DPME if an evaluation had been done on the impact of the Early Childhood Development (ECD) programme on the education of children.

Mr Qayiso commented on the issue of gender-based violence (GBV). Had this issue had been picked up by the Department’s evaluation?. He wanted to know if there had been any progress on the empowerment of women, and whether those aspects fell within the scope of the DPME’s work.

The Chairperson wanted an update on the District Development Model (DDM), and how far the government had progressed with its implementation.

Deputy Ministers’ responses

Deputy Minister Siweya pointed out that the Department needed more power than it currently had overall. Referring to Members’ concerns and questions raised in this meeting, she pointed out that lawmakers needed to assist the DPME by amending legislation and expanding its mandates in order for it to have motives. She urged Parliament to review the Department’s mandates. For instance, it did not have the authority to intervene by law -- it only had the power to provide an advisory function, so it could not directly give people service delivery.

Commenting on the issue of PPE corruption and scandals, she said the President had established a commission that would look into and investigate the matter. To her knowledge, more funds had also been allocated to the Special Investigating Unit (SIU) to ensure that it had the capacity to complete the work. Members had to allow enforcement to do their work and return their findings to the executive, who then would report to Parliament. This was an area were the DPME could not interfere.

She explained the profound impact of the Department’s work as its team continued to interact with various departments and responded to their requests to perform M&E work for them. For instance, a government department may approach the DPME requesting it to review a particular Act, such as an evaluation on child birth registration and its effectiveness. The Department would then do its work and revert to the requesting department with an M&E report. In addition, it also played a role in assessing the performance of Directors-General. The assessment of Directors-General had gone beyond the traditional pen and paper compliance, and the Department now required tangible programmes to demonstrate their performance.

She said the Department could also send a team to look at the various aspects of Post Office branches and the local government sphere, to provide a monitoring and evaluation report. However, it could not go beyond producing a report, because it was constrained by legislation.

Deputy Minister Siweya addressed the issue on StatsSA data. She reminded Members that StatsSA, although funded by the public, was an independent body. Government allows it to do its own operation and does not intervene. The bottom line was that data which StatsSA produced cannot be compromised and that it must produce credible and genuine data.

Deputy Minister Siweya responded to Ms Peters that she was correct -- the Department had conducted an evaluation on the introduction of ECD and its role in children’s lives. She stressed that the Department’s evaluation remained correct and authentic.

She highlighted the importance of the DPME’s role in coordinating the work between the Presidency, various departments and local municipalities. With the implementation of the District Development Model, the DPME’s role had become more instrumental than ever to ensure that the country adopts a culture of understanding of this model, and not to allow governance structures to operate in silos.

She concurred with Members’ views on the ocean economy, and acknowledged the importance of solving the challenges, since it was one of the key elements in the government’s economic recovery plan. Currently, the economy was not doing well, and the ocean economy could create the much needed jobs that people need.

She acknowledged the importance of the Social Relief Grant programme. Although ideally everyone should be able to feed themselves, the R350 was a way for the government to assist people to progress towards economic freedom.

She said that Vision 2030 was part of the National Development Programme. As the government’s NDP had more than 200 targets, this administration had reduced them and would focus on the seven priority areas.

Deputy Minister Kekana appreciated the profound inputs that Members had made. She believed that those inputs would help the DPME to improve its work. From the comments that Members had made, the DPME had to focus on making sure that the seven apex priorities were met in order to respond to the major challenges, such as the poverty and inequality that people faced. She thanked the Committee for having appropriated R2.2 trillion, as the money gave hope to people and changed their lives for the better.

She highlighted two issues. One was the state’s capacity to deliver service, and the other was to instil a culture of accountability. She agreed with Members that the government needed to see value for the money that was spent. On the hiring of consultants, she said the Department needed to review all of those that had been appointed in order to see if the government was getting value for money.

She also highlighted the inevitable trend of digitisation in the daily operation of government affairs, and indicated her intention to accelerate this process. For instance, the annual performance plans (APPs) which were tabled in Parliament should be seen by just the click of a button. She emphasised the importance of digitising government and geo-locating all the projects. The DDM was very handy, because it could identify where the missing links in governance were.

Deputy Minister Kekana said that the Auditor-General’s reports must be translated into projects on the ground. She quoted the Minister’s words -- “even if an institution had a clean audit, so what!” People on the ground must be able to see the impact. She emphasised the importance of government-citizen engagements. Communities on the ground must be able to say they were happy to see projects coming to their area, which would motivate the government to do its work.  

DPME's response

Mr Nkuna provided his input on the state of performance in the country. Unfortunately, the 25th report on the assessment of the state of the nation could not be covered in this presentation due to time constraints, but he highlighted a few points contained in the report. It indicated that the country had made significant strides in quite a number of areas, but it still faced challenges of poverty, inequality and unemployment to a daunting degree. The report had also made recommendations on what needed to be done.

He said the findings in the report had been integrated into the Department’s medium term strategic framework (MTSF), which was currently in its second year of implementation. Since its adoption, the Department had been focused on monitoring government’s activities, rather than on the implementation of those activities. The reason for this was that the impact of a five-year plan could not be assessed in the first year, but the Department had found that progress had been made with the funds that had been appropriated by Parliament. He reminded Members that the Department’s mid-term assessment report would be focusing on the progress of those activities which would lead to visible impact on the ground.

Responding to the question on whether the Department had identified any problems that deterred development of the country. he said that problems were context-specific, and they differed from one project to another. There were issues related to administrative capacity, under budgeting, under planning, etc. He suggested having a structured discussion with the Committee on those various identified issues.

On Covid-19 grants, he said that the DPME always had the view that social grants were like sunset, whereas economic activities were seen as sunrise. It had therefore developed the approach of bringing both social and economic clusters together to work out a solution. The social cluster was more focused on grant disbursement, while the economic cluster was more focused on growth. It saw the social cluster as a means of emergency intervention, while the economic cluster was the one that could bring long term relief. The DPME had so far brought together ten departments to establish this interaction.

On the performance of the country’s economy, Mr Nkuna said the Department had just produced a report at the National Command Council’s request. However, he also pointed out that as the DPME only did independent assurance, it could not implement policy.

Referring to the District Development Model, he said that the Department still had to engage with the Minister of Cooperative Governance and Traditional Affairs (COGTA). He asked for the Chairperson’s permission to report back to the Committee after that engagement.

The Department also had an initiative called the Local Government Management Improvement Initiative. This initiative focused on identifying the challenges faced by local government. Two factors had been identified that deterred effective governance and service delivery on the ground. Number one was the lack of capacity, and number two was political interference. The Department had also found that political interference was more daunting at the local government level, and had recommended a wide range of interventions. The Auditor-General’s finding on political interference was consistent with the Department’s own findings. It was an issue that the Department needed to take up to the Cabinet.

Mr Nkuna explained the role of StatsSA. So far, the Department used the information provided by StatsSA to evaluate the actual impact made by the various government interventions. The Department also had its own data sources. He suggested that the Minister could assist the DPME and StatsSA to both generate their own reports so that the findings could complement each other.

On the Department’s involvement in evaluating ministerial performance, he highlighted two issues. The first was that ministers who managed departments were responsible for performance. The second issue was that ministers must make sure that outcomes and expectations were met. The Department’s engagement with SASSA and the Post Office could be provided to the Committee as examples to demonstrate how it evaluates ministerial performance.

Mr Nkuna commented on the DPME’s role in curbing corruption. He said the purpose of having this Department was for government to take a proactive approach in terms of developing policies. When the Public Audit Act was introduced, everyone thought it would reduce the level of corruption, which turned out not to be the case. People who wanted to steal public funds could beat the most robust system. The DPME was part of the International Marketing Council, which was chaired by the Deputy President, and was also involved in the Anti-Corruption Unit. It was thus heavily involved in the monitoring and evaluation of the PPE situation, and reported irregularities once an irregular pattern had been detected.

Mr Nkuna said that most questions which Members had asked were answered in the DPME report.

The Chairperson interjected and noted the time constraint. He requested that the remaining questions be submitted in writing. He also suggested the Committee should meet with the DPME on a quarterly basis.

Briefing by Asset and Liabilities Division of National Treasury

Mr Ravesh Rajlal, Chief Director: State-Owned Enterprises, National Treasury, outlined the support that the Treasury had provided to a number of state-owned entities (SOEs).

The briefing focused on three key issues:

• The current financial performance of a list of SOEs, such as the Land Bank, South African Airways, etc;
• A model for key government guarantee decisions;
• Eskom compliance to special appropriation conditions.

Details of the presentation can be found in the attached file.

Discussion

Mr O Mathafa (ANC) enquired about the development that was currently unfolding at South African Airways (SAA), and how the entity had complemented the recommendations in the business rescue report. He had noted in the media that there had been talks about certain unions not agreeing to certain offers that SAA had tabled before them. Given that the Ministry of Public Enterprises had announced that SAA would have a new equity partner, he wanted to know if details of the new equity partner were contained in the business rescue practitioners’ report. If not, he wanted to know the implications of this new partner on the recommendations of the report.

He highlighted the issues of labour, such as those involving the subsidiary companies like SA Express and Mango, and asked how those subsidiaries fitted into the new developments that were being considered at SAA, and their links to business rescue practitioners’ report.

He questioned whether the management team at Mango airline had put their finger on the pulse of the problems which the entity faced. Mango had been turning out good revenue streams for a very long time, but now flights had been grounded and routes were being cancelled. He wanted to know if the causal problems had been identified. If the answer was yes, he wanted to know more details around the extent of the financial challenges which the entity faced. He also noted that many Mango passengers had booked their flights, with their tickets unredeemed due to flights being grounded. He therefore asked what appropriate measures had been put in place to ensure that those customers were accommodated so that they would be happy to use Mango airline in future.

In the situation where the aircraft of SAA and its subsidiary Mango were being grounded, what would happen to their creditors’ book, and the relationship between the entity and its subsidiary to those that they had to service financially? He asked this question because he did not want to see a situation like the one at SAA Express, where a creditor had approached the bank and asked for its liquidation only to find out that the entity was being stripped and sold.

Mr Mathafa asked if the previous proposal of SAPO being a possible supplier for SASSA grant distribution remained the case, in spite of the post office closures in and around Gauteng. If it was, he wanted to know how much progress had been made for SAPO to distribute grants to SASSA recipients.

He also wanted to know how far the process had gone in separating the Post Office Bank from SAPO, as well as the progress with the relevant bank applications.

Mr A Sarupen (DA) asked whether the National Treasury had set up any sort of timeframes for the Land Bank to achieve the liquidity necessary to pay off its creditors. He wanted to know when the bank would no longer be considered as a defaulting entity, and if the Treasury had taken any measures to accelerate the process.

Had the Treasury taken any steps to prevent Mango airline from engaging in reckless trading that would lead to a violation of Company’s Act?

He enquired whether the staff members at SA Express had been paid their salaries. He noted that even staff members’ income tax payments to the South African Revenue Service (SARS) had been withheld, and were still outstanding at SARS the last time he checked, so he wanted to know if that had been paid as well.  

Mr Sarupen asked if the Treasury was considering tightening loan conditions for Eskom as he believed that the conditions were too soft, considering the huge amount that had been given to the entity. He recalled that when the Standing Committee first gave Eskom its bail-out funding, it was told that Eskom would default on its debt, and the debt would trigger sovereign debt across the board. That was one of the key rationales that had led to the Committee’s approval of the appropriation. However, he had also made enquiries on his own and had written to Treasury to get more details. The response from the Treasury was that the debt of each SOE stands on its own -- with guarantees on its own -- meaning that there would not be a triggering of sovereign debt across the board. He therefore wanted to know which response was the correct one, given that those two responses were completely the opposite. He just wanted to know if the default of one SOE would trigger a sovereign debt crisis on all debts owed by the state, or if it would be only that entity.

Mr Qayiso did not understand the logic behind Eskom’s inability to implement condition 14.

He asked the Treasury to what extent the situation at Denel had affected arms procurement for the defence industry. He questioned whether it was time for Denel to appoint new board members.

He emphasised the importance of certain SOEs, such as the SAPO and its links to affordable service delivery to the poorest citizens in the country. Entities such as the post office could not be left to fail without any assistance from the Treasury, as a large section of South Africa’s population relied on its service. He urged the government to come up with mechanisms to solve the challenges faced by SOEs. He found the closure of a number of post office branches extremely concerning, and urged Treasury to play its role to assist and support the post office to get back on its feet.

Mr Qayiso found the deferred or non-payment of salaries to workers unacceptable, as workers had their own families to support. In some egregious cases, workers had not been paid salaries since last year. It had become a concerning pattern that the first group of victims were always workers when SOEs were facing deep financial difficulties. He urged the Treasury to look at mechanisms to protect workers’ interests in events such as these.

He added that he had not seen any explanation in the presentation that explained why the Department of Public Enterprises had not submitted its application for a guarantee.

Ms Peters enquired about the current situation at the Presidential State-Owned Enterprises Council, and wanted to know when it would be operational.

She highlighted the importance of detecting problems at SOEs so that the government could prevent problems being escalated to a bigger scale. She wanted to know which other SOEs had also started to exhibit issues of concern, and specifically asked about Air Traffic Navigation Services (ATNS), and if Treasury had picked up similar concerning patterns as those that had happened at Denel.

Ms Peters asserted that the Post Office was taking South Africa back to apartheid. She did not understand that when government distributed grants to white, coloured and Indian South Africans, such issues never existed, but issues now emerged as grants had to be distributed to the entire population. She believed that there were preventable issues that were deliberately not being prevented. She attributed the challenge of the Post Office to its incapacity to be an agent of the government to deliver its interventions and support to the poorest of the poor. With the recent social relief, she observed that some managers at post offices would tell grant beneficiaries that their offices had not ordered the money, in spite of those recipients being approved and having received SMSs which directed them to collect their grants at the post office.

The Chairperson noted that in the presentation, 17% of the Land Bank’s loan was categorised as developmental funding. He sought clarity on the meaning of developmental funding, and asked if the recipients of the funding were specifically black farmers, emerging farmers, female farmers, etc. He sought clarity on the R472 million, and asked about the source of that payment -- whether it came from traditional farmers or emerging farmers. He also sought clarity on the R7 billon allocation which was earmarked to purchase Land Bank, which had not been explained very clearly in the presentation.

He asked why SAA still was not operational after so much recapitalisation. How much market share had it lost to other private airlines in its absence? He expressed his deep concern that the entity still was unable to produce its annual financial statement after so much recapitalisation. With no financial statement, the entity could not account to Treasury for the funds which the Committee had appropriated to the entity. He wanted to know how long this situation would continue to persist.

He referred to the Auditor-General’s report on SOEs, and mentioned the disclaimer which Denel had received. He emphasised that SOEs were assets of the state, and asked what had been done about the problem.

The Chairperson noted that the presentation attributed the decrease in Eskom revenue to the low price of electricity. He did not think this was a valid argument, because there was always load shedding, which meant there was an over-demand for electricity. He enquired about the financial implications arising from the explosion at Eskom, and what exactly had happened at the Medupi power station.

He asked the Treasury what the total amount of guarantees to SOEs were, and how much of those guarantees the government would be expected to pay.

Treasury's response

Mr P Rasivhetshele, Sectoral Oversight Division, National Treasury, provided the Committee with an update on the recent developments at SAA. He said that the business rescue process had not provided for a strategic equity partner (SEP) to come into place. However, the Department of Public Enterprises (DPE) thought that it was prudent for an SEP to step in to shoulder some of the financial requirements of the airline. The National Treasury was not privy to many of the discussions between the DPE and the SEP, so he believed that Members’ questions around this issue should be directed to the DPE.

He explained that SAA management had decided ground the airline in order to preserve its cash flow and prevent the entity from being constrained by COVID-19. Recently, the Treasury was informed that SAA was working on a corporate plan which contained the routes that were to be opened and the types of aircraft to be brought in. Once the information was available, Treasury would then be able to provide feedback on the corporate plan. A lot of those discussions were still happening with the DPE.

Mango, unlike SAA, had resumed its operations from 15 June 2020. Its debt, however, had increased from R1.8 billion last year to R2.8 billion now. The un-flown tickets were R300 million last year, and the figure had been reduced to R194 million. When an airline was grounded, there were variable and fixed costs, with the latter including the cost of servicing aircrafts, employees’ compensation, etc. There were certain costs incurred whilst Mango was being grounded, and it had not been able to generate revenue during this period.

On the question about reckless trading by Mango Airline, Mr Rasivhetshele suggested the Committee should get a more informed response from the DPE. What the Treasury knew was that as Mango Airline was facing liquidity constraints, the board and management had decided to place the entity under business rescue. Being under business rescue meant that it would allow the entity to put on hold certain amounts that were due to creditors so that the entity could restructure. Creditors would be able to get a percentage of the amount that owed at the time the entity was placed under business rescue.

He explained that as SA Express had been placed under business rescue, the salaries of employees had become part of the concurrent creditors under the business rescue plan. Due to a lack of information, he did not know if unpaid salaries had been catered for.

Mr Rasivhetshele said that since its Air Operation Certificate (AOC) had been renewed, SAA technically could commence its operations. Although Treasury did not want to speak on behalf of SAA or the DPE, it would be prudent not to commence operations at this stage given the challenges which the aviation industry faced. It was also difficult to determine the market share lost to private airlines in the absence of SAA, because the country had not returned to its pre-COVID normal situation. Once the normality had begun to return, then Treasury would be able to juxtapose market shares of SAA pre-COVID and post-COVID.

He said that SAA would have produced its financial statement under the "going concern" assumption basis -- that it was going to operate in the near future, and that it would be able to service its debt. Since the significant liquidity challenges the airline faced, more losses had been incurred and SAA could not produce its financial statement under the going concern assumption basis. Even if a financial statement had been produced, the Auditor-General would have given it a disclaimer, because the entity was uncertain whether it would be able to operate for 12 months after the end of that financial year. Treasury was monitoring SAA through its monthly management accounts as part of the guarantee conditions. He added that SAA had informed Treasury that it would begin to produce its financial statements in the third quarter for the outstanding years.

Mr Jeffrey Quvane, Senior Analyst, National Treasury, responded to the Chairperson’s questions about Eskom. He said that the COVID lockdown, as well as the fact that some customers had defected from the Eskom grid to do self-generation, had both contributed to the decrease in Eskom's revenues. If electricity demand was to increase, Eskom would not be able to supply the demand due to its aging fleet, which was why there was sometimes load shedding in the country. At the end of the last financial year, Eskom’s energy factor was below 65, which was still below the target of 70. This explained why Eskom had been unable to increase its revenues.

He responded to Mr Qayiso on Eskom’s inability to implement condition 14. Eskom had its own internal governance processes, and by the time COVID-19 hit the country, it had received only one offer, while none of the other bidders could submit an offer due to COVID-19. This offer was considered by Eskom, and had been approved by the board. However, in order for it to implement the decision, it would need the approval from the Minister of Public Enterprises in accordance with the Public Finance Management Act (PMFA). Upon receiving the offer, the Minister had considered the value of the offer, which was 50 percent of the envisaged value of the book, so it was deferred to a later stage for business reasons. It was anticipated that when the market gradually opened up, there would be more bidders. This was why Eskom could not implement condition 14 -- because of the PMFA approval. He assured Members that Eskom had done what it needed to do.

Mr Quvane responded to Mr Sarupen that the Treasury was considering tightening conditions on loans to Eskom. One condition which was currently being tightened was on procurement. Treasury realised that it was an area of great concern, so it required Eskom to clear up all the concerns that had previously been raised in order for its loan applications to be considered. The other aspect which the Treasury had tightened was on the monitoring of payments made to Eskom from various municipalities. There had also been the establishment of an Eskom political task team, which was chaired by the Deputy President and feeds into those processes. The Treasury was also regularly meeting with senior management of Eskom in order to get an update on the financial situation of the entity so that Treasury could intervene quickly if the entity experienced any challenges.

The Treasury was also closely monitoring the restructuring of the entity. There was a plan that was agreed among the Directors-General of the Departments of Mineral Resources and Public Enterprises, as well as the Eskom Group CEO, with the target set in December that transmission would become a subsidiary of Eskom, and the other two -- generation and distribution -- coming in in December 2022.

Mr Quvane told Mr Sarupen that the Eskom guarantees were for the entity only. Cross default would happen only if Eskom was unable to meet its obligations. He pointed out that the bigger risk was if Eskom defaulted on a huge amount, it would result in other lenders to other SOEs to trigger their defaults because of the huge amount.

A National Treasury official said that some branches of the Post Office had been closed due to their continuous business losses, which had made those branches financially unsustainable. However, it was made sure that for every closed post office, there would be another post office within a radius of 5km.

Regarding grant payments, there were mobile pay points or post offices in malls that were being used for disbursement.

He confirmed that the SASSA contract was still in place, and the payments were taking place.

He said 90 percent of the Post Bank application had been completed and the remaining part was to pull the funding. After the separation, the financial situation of SAPO would be left in a much more negative position than what it was now. The Post Bank was receiving bids now, and it should be seeing one of them come through.

Treasury did not have the latest update on the licensing for the Post Bank, but it would provide the Committee with responses as soon as it received an update.

Ms Larissa van der Westhuizen, Deputy Director: Sector Oversight over SOEs, National Treasury, agreed that the ailing situation of Denel certainly was having a negative impact on arms procurement, most particularly affecting Armscor. Although she could not provide any quantified data on the negative impact, she agreed that the defence industry as a whole needed to consider the future role of Denel. This needed to be addressed with urgency, and alignment needed to be found across relevant departments for the future of the defence industry.

National Treasury could not comment on the appointment of the Denel board, as it was the prerogative of the entity’s shareholder, which was the Department of Public Enterprises. However, it agreed that the appointment of the Denel board would change and strengthen some of the governance and reputational issues.

She could not comment on the disclaimer audit opinion which Denel received, as it was also the responsibility of the Department of Public Enterprises, but Treasury agreed that the DPE and the whole defence industry needed to reconsider the role of Denel in the defence industry in future.

Ms Unathi Ngwenya, Chief Director: Governance and Financial Analysis, National Treasury, responded that the Land Bank would no longer be in default as soon as the bank agrees with its new payment terms, to swap out its default position to a five-year payment instrument.

Treasury had provided financial assistance to the Lank Bank, and also provided support during its negotiation with lenders to find a solution to the issue. R3 billion had been injected, as provided by the 2020 supplementary budget, and was transferred in September 2020. A further R7 billion was announced in the 2021 budget. In total, the Treasury had provided R10 billion to the Land Bank.

She explained that the 17 percent was for emerging farmers, as well as for previously disadvantaged farmers who had bought stakes in larger enterprises.

The R7 billion was to ensure that the position of default was secured and then to make sure the development and transformation goal of the Land Bank was established. When an entity was in default, lenders could sell all the assets in the entity, so the R7 billion was to prevent that from happening.

Mr Mpume Maseko, Enterprise Risk Analyst, National Treasury, said that as at 31 March 2021, total government guarantees amounted to R581 billion. R382 billion had been used. Of the R581 billion, R100 billion had been issued to the Reserve Bank for its loan guarantee scheme, and R12.5 billion of that R100 billion had been used.

He told Ms Peters that the Minister had approved of the minimum criteria for government guarantees in December 2020. Treasury realised that in most cases, guarantees were not the optimal solution when entities in distress approached Treasury. Treasury discouraged entities from applying for guarantees and usually encouraged them to take the other route, which was appropriation. Treasury provided guarantees only in instances of a deferred appropriation, which would lead to entities unable to service their debt and resulting in situation like Denel.

Ms Brenda Mathekga, Financial Analyst, National Treasury, responded to the question of when the Presidential SOE Council would become operational. She said the process was being run by the DPE and the terms of references were currently being finalised.

Ms Tshepiso Moahloli, Deputy Director General: Asset and Liability Management, said that the big challenge with Eskom was not a cross-default, but it defaulting on its over R300 billion debt which the state might immediately be required to deal with. If it could not pay the debt, then the state would default on Eskom's guaranteed debt, which would lead to all guaranteed debt becoming payable. However, for each entity, the default within a single entity did not cause a cross default.

She assured Mr Qayiso and other Committee Members that National Treasury provide a "pros and cons" evaluation in business cases to entities once it received default applications. Unfortunately, insufficient money was always the problem for those entities. They needed a proper diagnosis to find out the root causes, which could usually be attributed to poor governance and mismanagement. Once a proper diagnosis and investigation had been done, Treasury then presented the available information to the Ministers' committee on budget and the Cabinet. Although Treasury had the information and had presented cases to Cabinet, it did have resource constraints.

Ms Moahloli explained why the DPE did not apply for guarantees. She used the example of Denel, and said that Treasury would consider issuing guarantees only if the entity could not service its debt. However, for the past few years, struggling entities could not pay guarantees, which had led to the state having to pay for them. Treasury had therefore tightened its guarantee conditions and would issue a guarantee only if the entity’s only avenue was self-help, such as selling its assets or touching on staff salaries.

The Chairperson agreed that the issues raised in this discussion were deep and could not be solved by one single department, but he appreciated the valuable information. He commented that many of the issues needed to be referred to the Portfolio Committee on Public Enterprises.

Briefing by Office of the Chief Procurement Officer (OCPO)

The Chairperson said he had an engagement that he had to attend, so he appointed Mr Qayiso as the Acting Chairperson in his absence.

Ms Estelle Setan, Acting Chief Procurement Officer, OCPO, informed Members of the current problems in the public procurement sphere, and highlighted the urgent need for reform. She made recommendations in order to address several problematic issues in the procurement process. Those recommendations included:

• A single statute that coheres and provides for reform of the public procurement legal landscape and system, and to incorporate and provide for the repeal of all other statutes that deal with public procurement.
• A single regulatory authority with jurisdiction over the whole public procurement system, including all organs of state currently under the Public Finance Management Act and the Municipal Finance Management Act.
• Data and transparency.
• Capacitating and professionalising public procurement.
• A strategic and differentiated approach to procurement.
• Enhanced compliance and enforcement mechanisms.

Ms Basani Duiker, Chief Director: Supply Chain Management, OCPO, described the guidelines and regulations on departures from procurement processes. The instances of deviation and expansion in procurement were outlined to Members.

Ms Balekile Ngalo, Acting Chief Director: Strategic Procurement, OCPO, explained the concept of strategic procurement in the procurement process.

Discussion

Ms Peters enquired about the effectiveness of National Treasury’s practice notes of 2007 and 2008, and whether the new procurement policy would nullify those practice notes that were currently being used.

She asked whether the utilisation of Treasury’s regulations for emergency procurement during the level-5 lockdown had resulted in rampant mismanagement and violation of procurement protocols in the procurement of PPE.

Ms Peters was aware that the National Treasury provided an advisory function and support to supply chain management. If the support was there, who should be the key guardian against corruption and malpractice in the supply chain, and why was rampant corruption still happening in the supply chain area?

She wanted to know about the transversal contracts, and asked when Treasury would relax its regulations for community initiative projects whose beneficiaries were women and youth, such as making uniforms for hospitals and linen etc. She noted that those were the industries that the Expanded Public Works Programme (EPWP) used to tap into in order to create jobs for people.

She commented on the information communication technology (ICT) interventions at public facilities that greatly boosted productivity. For instance, a patient would no longer need to walk up and down between a pathologist and a doctor after getting their X-ray report. She encouraged more ICT intervention in the public sector to increase productivity.

On infrastructure procurement, she referred to the recent contract hijacking in the construction sector in some provinces. Some people were demanding 30 percent from the companies in the construction sector. This had a negative bearing on the delivery of schools and houses. She wanted to know what the procurement office and Treasury could do to minimise this type of practice.

The Acting Chairperson sought clarity on the context of the lack of transformation in the textile sector, to which the presenter had made reference.

He also shared his concern on the pattern of contract hijacking, or demanding contracts in the construction sector. He urged the Office to come up with a way to deal with this practice, which emanated from the government’s poor planning that had permitted people to politically take advantage for their own benefit. If this situation was not managed carefully, it would create a lot of problems which would lead to rampant corruption.

He expressed his concern on the exorbitant expenses that state departments had paid to consultants. He did not understand how state departments did not have the required capacity, because the government had interviewed some of the candidates, and the panels and had received assurances from those candidates that they had the ability to do their jobs. 

OCPO's response

Ms Setan acknowledged that the procurement environment was in a state of limbo, as it was currently sitting with all these fragmented pieces of legislation, making it quite difficult to process and institute the Procurement Bill. She had noted all the issues which Ms Peters had raised, and guaranteed that they would be encapsulated in the bill and its subordinate bills. The development of the bill was currently under way. Once it was drafted, it would enter into stakeholder engagements, as well as undergo a socio-economic impact assessment. It would also get certification from the State Law Advisor. The Office intended to submit the bill to Cabinet in November. If Cabinet approved the bill, it would be sent to Parliament in December.

She assured Members that in the new bill, all the fragmented pieces of legislation would be taken care of or be accommodated in subordinate legislation, so there would not be any conflicting notes regulating the procurement environment.

She acknowledged that it was a fact that emergency procurement procedures had been allowed to be used by accounting officers in the procurement of PPE during the level 5 lockdown last year, and it seemed like those accounting officers had let the country down. It was a clear indication that departments and institutions were not ready to be left alone. The role of oversight and monitoring in terms of compliance to procurement was still instrumental. She clarified that the accounting officer’s responsibility to ensure prudent financial management still stood, even with emergency procurement.

Regarding OCPO's role to provide support and be an advisory body, the main issue was the state departments’ capacity. Many departments did not have properly skilled people working in the supply chain unit. In the Office’s annual performance plan, it had identified certain institutions at which OCPO had provided support on supply chain issues, such as Eskom, Transnet, SANRAL, etc. However, the Office was also constrained by its own capacity constraints, having to deal with all the national departments, as well as public entities. What it could do was to provide ad hoc advice once it received a request from institutions. It was guaranteed that the Office would continue to support Eskom and Transnet on supply chain capacity into next year.

Ms Setan said that the current legislation did not allow for terms to be set aside for those populations mentioned by Members, but this point would be addressed and included in the bill which was currently being developed. This new bill would include specific persons and industries in certain geographical areas. The current practice was that the Office would invoke regulations 4 and 9 of the Preferential Public Procurement Act on sub-contracting. The sub-contracting provision could be utilised to benefit certain categories of persons, such as women, small businesses, veterans, etc.

Mr Molefe explained to Members of the lack of transformation in the textile industry. For instance, sometimes the Office needed to procure blankets that if blankets were torched they would not catch fire, or if inmates hang themselves with those blankets, they would disintegrate. The Office had suppliers to produce those types of materials but it was capital intensive and requires specialised type of production line. Many of the designated suppliers unfortunately do not make inroads into that specialised area.

Mr Molefe Fani, Chief Director, Transversal Contracting, also indicated the challenges that the Office faced in the procurement of uniforms for the South African Police Service (SAPS) and the Defence Force. Both required specific types of production lines. He recommended more engagements with the Department of Trade and Industry so that those types of production lines would get more attention in the country.

Ms Mpho Nxumalo, Director, Policy, Norms and Standards, OCPO, said that construction contract hijacking emanated from the 30 percent provision which the Office had set aside, using a provision regulation of Public Procurement Act to small, medium and micro enterprises (SMMEs). Businesses and people in surrounding areas then wanted contracts to be given to them, and for money to be paid upfront without any work done, without considering their capacity to take on the work. From the National Treasury’s point of view, there was absolutely nothing it could do in this case, because it was a criminal act, forcing an open process. It was up to institutions to procure and to indicate how to utilise sub-contractors. The issue was that many main contractors in those areas did not want to hire sub-contractors.

Ms Setan added that her Office was working in collaboration with National Treasury’s intergovernmental relations unit, and was engaging with the construction industry through the Council for the Built Environment as well as other industry bodies on initiatives that it could take to solve the issue of criminality in the construction sector. There would be an engagement in the following week to talk about the issue.

The meeting was adjourned.