Department of Transport and entities (ATNS, ACSA, CAA) Annual Report 2020/21 & Audit Ouctcomes; with Minister & Deputy Minister

Meeting report

The Chairperson accepted apologies from Mr P Mey (FF+) and Mr K Sithole (IFP). He invited Mr Fikile Mbalula, Minister of Transport, to make opening remarks.

Minister Mbalula said that the Department of Transport (DoT) was making progress in filling recently vacated top management posts including that of Director-General (DG). Deputy Directors-General (DDGs) of Maritime (Mr Mthunzi Madiya), Rail (Mr Ngwako Makaepea) and Integrated Transport Planning (ITP) had now been appointed. He observed that the COVID-19 had had a massive impact on the transport sector. The sector had made significant sacrifices and had had to become innovative to keep delivering on its mandate while mitigating the spread of the virus. It had had to contend with low demand, supply chain disruptions and the general economic slowdown. The Department had received a financially unqualified audit with findings on compliance that had been ongoing for the last four years. The Department was committed to addressing these findings. To this end it was trying to strengthen its internal controls. Compliance with supply chain management (SCM) prescripts, eliminating fruitless and wasteful expenditure and dealing with irregular expenditure were the Department’s top priorities. It was also committed to timely consequence management. He said that the Department was concerned about the findings of the Auditor-General of South Africa (AGSA) in some entities. He observed that the complete absence of irregular expenditure by the Department in 2020/21 was a milestone, and expressed satisfaction with the clean audit achieved by the Driving License Card Account (DLCA).

Briefing by the Auditor-General of South Africa

Mr Polani Sokombela, Business Executive, AGSA, observed that there had been an overall slight improvement in the audit outcomes of the Department and its entities. Five entities—the Cross-Border Road Transport Agency (C-BRTA), DLCA, the South African Civil Aviation Authority (SACAA), the Railway Safety Regulator (RSR) and the Ports Regulator (PR)—had obtained clean audits compared to four the year before, although the audits of the Passenger Rail Agency of South Africa (PRASA), the South African Maritime Safety Agency (SAMSA) and the Road Accident Fund (RAF) had not yet been finalised. In general the larger entities were still struggling. Most of AGSA’s findings related to the quality of financial reporting and compliance with SCM legislation. He observed that although the Road Traffic Infringement Agency (RTIA) had received a qualified audit, it had made significant improvements since its disclaimer in 2019/20. The management team had supplied much more credible information, officials had been disciplined and trust had been restored.

Ms Kumari Naicker, Senior Manager, AGSA, continued to give a broad overview of the audit outcomes of the Department and its entities. She unpacked the challenges under five themes: governance and stability, expenditure management, quality of submitted financial statements and annual performance reports, financial sustainability and consequence management. She said that RSR had managed to take action in response to AGSA’s findings in 2019/20, even without a chief executive officer (CEO). In general, however, while entities did develop action plans to address audit findings they struggled to implement and monitor them, leading to repeat findings. She said that the Department and its entities had incurred R1.3bn in irregular expenditure (down from R2.4bn in 2019/20), of which PRASA accounted for R742m, although it was possible that this number could change since PRASA’s financial statements had not yet been audited. Fruitless and wasteful expenditure amounted to R121m (down from R193m), of which ACSA accounted for R77m in interest and penalties paid to the South African Revenue Service (SARS). She provided an update on AGSA’s implementation of its extended mandate to investigate material irregularities in terms of the Public Audit Amendment Act, which was taking place at PRASA, the South African National Roads Agency Limited (SANRAL) and the Airports Company of South Africa (ACSA). She recommended that the Portfolio Committee monitor the implementation of action plans to address audit findings, monitor vacancies to ensure stable leadership, follow up all irregular, fruitless and wasteful expenditure and encourage a culture of consequence management in all the entities.

Discussion

Mr L Mangcu (ANC) said that the presentation gave a good picture of affairs in the DoT. He was however concerned that AGSA had not used its extended powers to investigate the nine material irregularities that had been identified at the PRASA. He recalled that PRASA had been identified as one of three entities that would be part of the initial phasing-in of AGSA’s extended powers. Why was it taking so long?

Mr Sokombela replied that concerns about the use of AGSA’s extended powers were warranted. There had been a lot of instability in the top management of PRASA since the nine material irregularities had been identified in 2018, which had made it very challenging for AGSA to exercise its extended powers. With the current board, however, some progress was being made. He was optimistic that the current stability would lead to positive outcomes.

Mr C Hunsinger (DA) was concerned that PRASA, RAF and SAMSA had not submitted financial statements in time. What were the circumstances surrounding their non-submission?

Ms N Nolutshungu (EFF) asked whether the three entities that had failed to submit financial statements had given any reasons, and what were the consequences for late or non-submission?

Mr Sokombela explained that PRASA needed to do asset verification before it could submit financial statements. This was a mammoth task. AGSA was working with PRASA to ensure that the audit was finalised. SAMSA had also experienced governance challenges in the past. This year it had submitted statements late because of a cyber security issue. RAF was sorting out a technical accounting issue related to a change in how claims were reflected on the balance sheet.

Mr Hunsinger commended C-BRTA, DLCA, SACAA, RSR and PRSA for achieving clean audits. He asked if AGSA had considered redefining financial sustainability in response to the unprecedented financial effects of COVID-19. Traditionally it was related to improving financial standards but it was widely accepted that in the current conditions it should be sufficient just to maintain debt levels.

Mr Sokombela thought that the existing definition of financial sustainability was adequate. AGSA had engaged with the entities’ boards, and with ACSA in particular, and had been encouraged by the turnaround strategies that were in place to preserve their financial sustainability.

Mr Hunsinger asked whether AGSA believed that the improvements in audit outcomes reflected an actual improvement in management or just an improvement in reporting. What if anything was it doing to see that the alignment of Key Performance Indicators (KPIs) with service delivery objectives was improved?

Mr Sokombela said he was not aware of any developments in the alignment of KPIs with service delivery but believed that current KPIs were adequate. He did agree however that [inaudible] was something that might need to be looked into.

Mr T Mabhena (DA) observed that PRASA was very stubborn when it came to dealing with the long-standing material irregularities and complying with financial legislation. Many of the Auditor-General’s findings, such as the inadequacy of governance records and instability in key positions, were recurring. There did not seem to be any appetite to apply the principles of corporate governance.

Ms Nolutshungu was also concerned about repeat findings related to SCM by AGSA.

Mr Sokombela explained that AGSA was not in a position to comment on the financial position of PRASA as it had not yet completed its 2020/21 audit but he admitted that it was a concern, especially as it related to service delivery. He understood the Committee’s frustration with the situation at PRASA and observed that there were legacy issues that the current leadership was working on.

Mr Mabhena wondered whether the Committee could see to it that addressing recurring findings was incorporated into the performance contracts of the officials in charge of the offices where they occurred.

Mr Sokombela thought that this was a good idea but that the DoT would be better placed to comment on it.

Mr Mabhena asked how much progress had been made in the investigation of matters referred to the Special Investigations Unit (SIU).

Mr Sokombela replied that the SIU report had been completed and AGSA had received it. He suggested that the board of PRASA could take the Committee into its confidence when it presented its annual report.

Ms Nolutshungu said that the Committee should insist that action plans were submitted by the entities, closely monitor their implementation, and ensure that consequence management was enforced.

Mr Mabhena asked if any corrective measures had been taken to address the finding that 39% of managers at PRASA were not properly qualified for the positions they occupied.

Mr I Seitlholo (DA) said it was frustrating to read in the AGSA report that there were no people with the skills and experience to understand and implement legislative frameworks, particularly in SCM. This was something that the portfolio committee should monitor.

Mr Sokombela sympathised with frustrations about the lack of skills at PRASA.

Briefing by the Department of Transport (including the Driving License Card Account)

Mr Mthunzi Madiya, Acting DG, DoT, said that the Department was proud of the five entities that had achieved clean audits and took note of AGSA’s observations on the quality of the Department’s financial statements, particularly in the SCM environment. He explained that a senior staff member had retired earlier in the year and the Department had only recently replaced him. He expected that there would be improvement in the next year.

Mr Bosa Ramantsi, Chief Director: Strategic Planning, Monitoring and Evaluation, DoT, said that the Department had achieved 43 out of 47 predetermined targets. He summarised the Department’s performance in each of its seven programmes: administration, integrated transport planning (ITP), rail transport, road transport, civil aviation, maritime transport and public transport. He also summarised the performance of conditional grants to provinces and district municipalities. He discussed the Department’s human resources initiatives and governance.

Mr Makoto Matlala, Chief Financial Officer (CFO), DoT, said that the Department had not received any dividends from its state-owned enterprises in 2020/21. He summarised expenditure and gave reasons for underspending in each of the Department’s seven programmes. He said that there had been no new cases of unauthorised expenditure, although the balance of R1.3bn incurred from 2013 to 2017, related to the operation and maintenance of the eNATIS system, was still outstanding. Fruitless and wasteful expenditure included 8 “no-shows” amounting to R30 000. There had been no new cases of irregular expenditure and outstanding cases from 2019/20 amounting to R119m were currently being processed.

Mr Sandiso Thutshini, Chief Audit Executive, DoT, provided an overview of DLCA’s financial performance, observing that revenue was down due to a COVID-19-related decrease in the number of license cards being produced. He shared information about DLCA’s performance, governance and human resources.

Discussion

Mr Hunsinger asked for clarity on the high-speed rail framework agreement that the Department had signed with the China Communications Construction Company (CCCC). When had it been signed? He noted that there seemed to be some remaining confusion about whether the structure that would be established by the Economic Regulation of Transport (ERT) Bill would be called the Single Transport Economic Regulator (STER) or the Economic Regulator of Transport (ERT). He requested reasons for the writing off of debts totalling R633 000 in the administration programme and for the R27m underspending on the Department’s Regional Corridor Strategy. He asked how much progress had been made on the rail policy white paper which had been in the pipeline for a very long time. What was the content, scope and outcome of the special investigation into eNATIS? What was the “correction factor” mentioned in relation to ACSA and Air Traffic Navigation Services (ATNS), and what was the status of the national aviation transformation strategy? What exactly were “no-shows,” which resulted in fruitless and wasteful expenditure, and how were repeat findings by AGSA being dealt with? He said that there seemed to be a disconnect between the high level of performance in terms of predetermined targets and the real experience of service delivery. What improvements to performance indicators were being considered? Finally, was the DLCA going to be ready to deal with a flood of driving license renewal applications when the extension expired in March 2022?

Mr Mangcu was encouraged by what had been presented. He understood that the high-speed rail agreement had lapsed. Could the Department confirm this? He observed that 1 679 taxis had been scrapped in 2020/21 and wondered whether the taxi recapitalisation programme (TRP) was really achieving its aims, given that 5 000 new taxis had probably been put on the roads. He noted that there was some confusion around the new driving license card. The Committee had heard that it had been approved by the South African Bureau of Standards (SABS), then that it was going to be approved by state security but then a computer was stolen, then that it was in the Minister’s office. Something was clearly not gelling. What was going on? He asked when the Department had taken over production of the license cards from Prodiba. Hadn’t it happened in a previous year? He appealed to the DG not to refer vaguely to matters being “in the Minister’s office.”

The Chairperson agreed but added that there should not be a situation where documents were sitting in the Minister’s office waiting for a signature.

Ms Nolutshungu asked how the Department had deduced that the reduction in road fatalities in 2020/21 was the result of road safety campaigns. Could it not have simply been a result of lower numbers of vehicles on the road? She observed that the impact of vacancies on service delivery was well known, yet the Department always had a large number of vacancies. She asked what the Department’s target for scrapped taxis had been and wondered whether the TRP was bringing value for money. She asked what had happened to the officials who had been involved in irregular expenditure. Had they been suspended? She commended DLCA on its achievements, but observed that it had achieved almost all of its targets with a vacancy rate of 45%. Did this imply that these positions were not necessary and the funds allocated to them should be redirected?

Mr L McDonald (ANC) asked if the R12m spent on personal protective equipment (PPE) in the public transport programme could be broken down by region. The Committee had not found any PPE during its oversight visits. He asked whether ACSA’s runway and building expansion plans were going to go ahead, or were they now on hold.

Responses

Ms Sindisiwe Chikunga, Deputy Minister of Transport, said she noted the questions, particularly those relating to delays, such as the rail policy white paper. Measures were being put in place to ensure policy was developed in good time. She noted the issues raised and assured the Committee that there would never be delays in the Minister’s office without good reason.

Mr Madiya observed that the presentation had not raised an issue of delays within the Minister’s office and that the Committee members had merely been inquiring about processes. He explained that a “no-show” was when an official did not turn up for a travel booking. To improve its internal accounting controls, the Department was strengthening its systems and capacitating the relevant offices.

Mr Ngwako Makaepea, DDG: Rail, DoT, explained that the high-speed rail agreement had been signed in 2016 to explore possibilities related to the Moloto Rail Corridor. It had expired in 2017, after which a framework agreement had been signed in October 2020 and the Department was currently sorting out diplomatic issues related to the new agreement. He agreed that the rail policy white paper was long overdue. A draft had been prepared but it needed to be updated to bring it into line with recent events. He anticipated that it would be approved in the coming months.

Mr Matlala explained that a “no-show” was initially recorded as a debt, before the Department evaluated the reasons for it and decided whether to recover [the money from the official concerned] or write off the debt. He said that the officials involved in irregular expenditure were still employed in the Department. He admitted that disciplinary processes were slow but he committed to providing a detailed report on each and every case. He assured the Committee that there had been no irregular expenditure on PPE adding that there had been a special audit of the contracts. He agreed to provide a report with more detail.

Mr Ramantsi said that the Department was making an effort to ensure that its performance targets were directly linked to service delivery. One problem, which the DoT was discussing with the Department of Planning, Monitoring and Evaluation (DPME), was that the current framework restricted it to reporting on work linked to the budget being spent [by the Department itself], whereas much of the Department’s work was done via entities and provinces.

Ms Elizabeth Mpye, Chief Director: Air Transport Policy, DoT, explained the correction factor used to adjust the projected consumer price index (CPI) when updating ACSA and ATNS tariffs. These were reviewed only every three years.

Ms Tshitshi Phewa, member of the board, SACAA, explained that the Department had a draft national civil aviation transformation strategy which was due to be tabled to Cabinet. It had been held back by the previous Minister of Transport in order to align it with recent trends in the civil aviation space, such as the gender equality programme of the International Civil Aviation Organisation (ICAO), the apex priorities of the sixth administration and COVID-19-related developments. She expected that it would now be fast-tracked.

The Chairperson appealed to the Department to fill its vacancies.

After a short break, Mr Mangcu was elected as acting Chairperson. He invited Deputy Minister Chikunga to introduce the aviation-related entities whose briefings would follow.

Remarks by the Deputy Minister of Transport

Deputy Minister Chikunga observed that SACAA was one of the Department’s best run and most stable entities. She called on it to find a way of sharing its best practices with other entities. The Department was however concerned about the increase in fatal aviation accidents in 2020/21. Although SACAA had explained that human error accounted for most of the fatalities, the Department had been clear that measures to reduce the number of fatalities must be put in place, which SACAA was doing. She noted that ATNS was currently without a CEO but one would be appointed soon. It had suffered a serious loss of revenue as a result of COVID-19 travel restrictions, which had reduced passenger numbers and increased safety demands at the same time. In the five years prior to 2020/21, ACSA had recorded passenger number growth of 3.4% per year, but passenger numbers had obviously fallen in 2020/21. She asked the Committee to note ACSA’s withdrawal from joint ventures in Sao Paolo and Mumbai airports, in Brazil and India. The CEO had been asked to prepare a report on the lessons learned from these ventures.

Briefing by Air Traffic Navigation Services

Mr Simphiwe Thobela, board chairperson, ATNS, confirmed that COVID-19 had had an enormous impact on the entity. For the last 18 months it had been living of cash reserves accumulated over time, the impact of which the CFO would discuss. Irregular expenditure had been reduced from R121m to R21m. The remainder was well understood and he expected it to be accounted for by the end of the year. The low percentage of women in the board was an area of concern. [Please see the ATNS Annual Report as the slide presentation does not cover all issues referred to in the meeting]

Mr Dumisani Sangweni, delegated CEO, ATNS, gave an overview of ATNS’ areas of responsibility. COVID-19 air travel restrictions had resulted in a massive decline in air traffic movements, which he explained was ATNS’ main source of revenue. In response, ATNS had frozen recruitment, retrenched some staff and was looking at ways to restructure in consultation with unions. It was aiming to reduce its salary bill by R100m while minimising retrenchments. He outlined the entity’s response plan in some detail. It was currently in a “recovery phase” that would last for two years. ATNS had achieved 13 out of 21 performance targets, with financial targets being the hardest hit. The gender representation of the board was almost 50-50, and ATNS had maintained a broad-based black economic empowerment (B-BBEE) level of 2.

Mr Matome Moholola, CFO, ATNS, said that ATNS had received an unqualified audit opinion in 2020/21. There had been one material misstatement which would be addressed in the current year. Revenue in 2020/21 had declined by 67% from R1.7bn to R550m, and the entity had suffered a loss of R578m. Despite this, the balance sheet remained strong. Capital expenditure was R155m (target: R166m), and negotiations for a R500m loan from the Development Bank of South Africa (DBSA) for core safety-related capital expenditure were at an advanced stage. R109m of the R121m of irregular expenditure outstanding at the start of the year had been condoned by National Treasury (NT). Most of it related to contracts where there was no evidence about how the contract had been entered into.

Discussion

Mr M Chabangu (EFF) asked if the increase in accidents had occurred during private, unregulated flights or were they due to negligence by the authorities.

Mr Thobela replied that SACAA would be in a better position to answer this question.

Deputy Minister Chikunga commended the board of ATNS for leading the entity through a very difficult period.

Briefing by Airports Company of South Africa

Ms Nosizwe Nokwe-Macamo, representing the chairperson of the board, ACSA, reported that ACSA had received an unqualified audit opinion with no significant findings. She observed that ACSA’s revenue had dropped significantly in 2020/21 as a result of COVID-19 travel restrictions, from R7.1bn to R2.2bn, along with all air travel entities. In response, it had issued preference shares, monetised some assets, reduced capital and operational expenditure, divested from Brazil and India, and offered voluntary severance packages and early retirement. ACSA continued to implement its transformation strategy.

Ms Mpumi Mpofu, CEO, ACSA, reiterated the impact of COVID-19 travel restrictions on ACSA’s business. She presented some recovery scenarios for the passenger aviation sector, according to which passenger numbers were projected to return to 2019 levels by 2023, but noted that low vaccination rates in developing countries were damping recovery. Although ACSA had managed to reduce capital and operational expenditure successfully, passenger-dependent strategic objectives such as non-aeronautical revenue and increasing the black business share had not been achieved. She explained that ACSA had incurred R77m in fruitless and wasteful expenditure due to interest paid to SARS in 2017, but a legal process was under way to resolve this matter. Irregular expenditure in 2020/21 totalled R270m. A matter related to the procurement of a single building was the major contributor to this total and it was expected to be condoned imminently.

Mr Siphamandla Mthethwa, CFO, ACSA, said that ACSA was reporting a loss for only the second time in its 28-year history. Its profitability in previous years had cushioned it from the worst. He outlined the highlights of the entity’s financial performance, drawing attention to its asset base of R31.6bn and gearing ratio of 23%. He said that ACSA’s balance sheet remained strong, notwithstanding the significant losses it had sustained, and it had sufficient liquidity to continue operating for the foreseeable future. He outlined ACSA’s audit response plan.

Ms Mpofu discussed ACSA’s recover and sustain strategy, which involved capital expenditure for replacement and refurbishment until 2025 and thereafter focussing on strategic partnerships within growth sectors until 2030. It was also looking at development opportunities related to non-ACSA municipal and provincial airports.

Discussion

Mr Seitlholo asked whether Mafikeng Airport was run or owned by ACSA and if so what was the current status of the airport? If it was not run by ACSA, what was the relationship between them?

Ms Mpofu replied that Mafikeng Airport was not owned by ACSA. It had however been providing operational assistance before COVID-19 and it was open to resuscitating the relationship if the provincial leadership requested it.

Mr McDonald asked if the planned realignment of the runway at Cape Town International Airport was going ahead.

Ms Mpofu replied that the runway realignment had been intended to accommodate large aircraft, and in general capital expenditure projects such as this would be driven by the recovery of passenger numbers.

Mr McDonald reported that the parking booms at certain airports were sometimes left open, which would presumably result in lost revenue. Was there a problem with the machines, or the contracted company?

Ms Mpofu was not certain about the reason for this but suggested that it could be the result of a software upgrade.

Mr McDonald reported that Bram Fischer Airport was currently only admitting people with boarding passes into the terminal, which was having a negative impact on retail businesses in the terminal. Even though there were no regulations prohibiting eating and drinking in airports.

Ms Mpofu was not sure about the specific reasons for the situation at Bram Fischer Airport but noted that the Airports Council International set very strict health protocols. She said she would double check on the reason this was happening in this particular case.

The acting Chairperson reported with concern that there were increasing numbers of people loitering in the parking garages at OR Tambo International Airport. Could this be looked into?

Ms Mpofu agreed that there had been a surge of desperate people coming into the airport looking for opportunities. ACSA was close to signing a service level agreement with the South African Police Service to ensure that airport grounds were secure.

Deputy Minister Chikunga thanked the Committee for its questions and thanked the ACSA management for their dedication during a difficult year for the aviation sector.

Briefing by SA Civil Aviation Authority

Ms Poppy Khoza, Director of Civil Aviation, SACAA, observed that SACAA had received a clean audit with no material findings for the eighth time in the last nine years. There had been no fatal accidents in the scheduled airline sector. Along with the entire aviation sector SACAA had been heavily impacted by COVID-19 but thanks to its resilience and prudence, it had managed to keep going for ten months before requiring assistance from the national fiscus.

Mr Asruf Seedat, CFO, SACAA, observed that revenue was down 41.3% from R785.4m in 2019/20 to R460.9m in 2020/21. However, this was still 5.5% higher than the revised budgeted revenue collection of R436.9m. This was due to slightly higher passenger numbers in the last two months of 2020/21, increased fuel levy revenue and a higher number of cargo and charter flights. Financial support from the DoT amounted to R155.5m. The only finding of the AGSA, which related to minor inconsistencies in the contract register, had been resolved.

Ms Khoza explained that SACAA was periodically audited by ICAO. The last one had taken place in 2017 and there had been a follow-up audit in October 2020. SACAA had resolved most of the findings of the follow-up audit. The next full ICAO audit was expected to be done in 2022.

Mr Simon Segwale, Executive: Aviation Safety Operations, SACAA, compared fatal aviation accident numbers over the last three years. He provided a breakdown of accidents according to province and cause, and discussed interventions being taken to prevent them.

Ms Nivashnee Naraindath, Company Secretary, SACAA, explained that SACAA had placed a moratorium on filling vacancies as a COVID-19 cost containment measure. Out of 589 approved positions, 520 were currently filled. 88% of employees were black and 50% were women.

Ms Khoza outlined SACAA’s transformation and outreach activities and looked forward to the imminent assessment of South Africa’s capability to perform civil aviation safety oversight by the US Federal Aviation Administration (US-FAA). It would take place from 15-19 November 2021 and a positive outcome was anticipated. Outstanding organisational challenges included: the establishment of an independent accident and incident investigation division, replacing the calibration aircraft that had crashed in 2020, implementing transformation policies and recovering from the financial impact of COVID-19.

Discussion

Mr McDonald wanted clarity on the accident involving the calibration aircraft. When would the final investigation report be made available to the public, and when would the aircraft be replaced? Had it been budgeted for?

Ms Khoza recalled that the Minister of Transport had delegated the investigation of the accident to the Ethiopian aviation authorities. She believed that the investigation was at an advanced stage but could not say exactly when it would be completed. The purchase of a replacement calibration aircraft had been delayed by COVID-19 but it would go ahead as soon as finances allowed.

Deputy Minister Chikunga added that the Department was eagerly looking forward to the US-FAA assessment, which would have far-reaching consequences. The Department would be visiting SACAA to assess its readiness. She expressed satisfaction with the performance of the Department’s entities in the aviation sector and SACAA in particular.

The meeting was adjourned.