Transport Conditional Grants performance: PBO briefing

Meeting report

The Chairperson expressed the hope that the new year will bring improved collaboration between the Committee and its stakeholders with the goal to improve the lives of South Africans. He noted the apologies tendered by Mr E Marais (DA), Ms E Peters (ANC), and Ms E Ntlangwini (EFF) who were unable to attend the meeting due to other commitments.

The delegations were noted from PBO: Dr Dumisani Jantjies (PBO Director), Dr Nelia Orlandi (Deputy Director: Finance), Dr Mmapula Sekatane (Policy Analyst) and National Treasury: Ms Ogalaletseng Gaarekwe (Chief Director: Provincial Budget Analysis), Mr Michael Rammabi (Director: Provincial Budget Analysis), Mr Bavesh Ravjee (Senior Budget Analyst), Mr Luyolo Ntlangula (Senior Budget Analyst) as well as Mr Andile Tetyana (Parliamentary Legal Advisor).

The Chairperson noted that the evaluation of the performance of the Transport Conditional Grants is of importance, as well as the desired impact of these grants. He requested that the delegation emphasise the objective of the grants and to outline what can be done better to ensure a meaningful impact. The Committee has previously noted that there were some challenges with the Transport Conditional Grants, including underspending and the return of money to National Treasury. It is important that the briefing focuses and addresses these concerns. The briefing is not just for the Committee, but also for the public and the citizens of South Africa.

Transport Conditional Grants 2020/21: Parliamentary Budget Office briefing
Dr Dumisani Jantjies, PBO Director, noted that the Parliamentary Budget Office assists Members with their oversight role, including the assessment of the efficiency and effectiveness of the expenditure of nationally-raised revenue. Due to the size and importance of this priority funding, the PBO started a series of assessments on the Transport Conditional Grants.

In 2020/21 four conditional grants were transferred to provinces and municipalities by the National Department of Transport. These were: Provincial Road Maintenance Grant, Public Transport Operations Grant, Public Transport Network Grant, and Rural Road Asset Management Systems Grant. The PBO Policy Brief of November 2021 had been updated with the audited data in the Department of Transport 2020/21 Annual Report to provide the Committee with the most recent information.

An analysis of the information on the conditional grants show underspending was accompanied by under- and over performance, the performance outputs were not well defined, there were poor or no reporting on non-financial information, no targets were set for outputs, and there was incomplete performance information in the Annual Report. The following findings were made:

Provincial Road Maintenance Grant — Of the R10.47bn transferred for this grant, R9.94bn was spent by provinces at the end of 2020/21. The underspending was a result of the reprioritisation and repackaging of old projects by the Limpopo Provincial Department of Public Works, Roads, and Infrastructure. Of the R630 million transferred for employment stimulus through this grant, only R182 million was spent. This underspending was as a result of the late tabling of the budget during the Medium-Term Budget in October 2020. Most of the provinces failed to comply with the criteria of the Presidential Employment Stimulus Package.

Public Transport Operations Grant — There was an 11% underspending by provinces on this grant which aims to provide supplementary funding to public transport services. The reduced spending emanated from the COVID-19 lockdown restrictions that affected the operation of various modes of public transport and the services provided.

Public Transport Network Grant — Municipalities spent R3.1bn of the R4.39bn leading to an underspending of R1.29bn. There was no reporting on the progress made with the provisioning of the Network Operations Component.

Rural Road Asset Management Systems Grant — Municipalities spent R40.8 million of the R108.4 million. The slow spending of 38% of the funds was due to the impact of the COVID-19 pandemic which delayed the procurement process and implementation of projects.

In conclusion, PBO stated that due to a lack of proper performance information on conditional grants in the Annual Reports of the Provincial Departments on Transport, it is difficult for Parliament to determine the effectiveness of expenditure and the impact of the outputs delivered by provincial departments on the Transport Conditional Grants.

Discussion
Mr O Mathafa (ANC) thanked the PBO for the work done as it will assist the oversight role of the Committee. It is important to determine if corrective measures have been implemented where challenges and anomalies have been noted by the PBO. On the subsidies, he noted that the minibus taxi industry was concerned that subsidies in the sector skew competition in favour of the subsidised services, creating a distortion in the market.

Mr Mathafa asked if the transport sector is involved in the planning as a major stakeholder, since most commuters prefer the minibus taxi as a mode of transport. One of the major challenges faced by the minibus taxi industry is the conflict in rules. Is the minibus taxi industry involved in the new developments that the government is planning to ensure that no further conflicts are caused?

On the Transport Conditional Grants and the Presidential Employment Stimulus Package, he noted that the underspending was a result of the late tabling of the budget during the Medium-Term Budget in October 2020, and that transfers were made only in February 2021. He asked if there were plans in place to ensure that the money allocated is actually spent on employment and within the Expanded Public Works Programme (EPWP). This is important for two reasons: firstly, one of the biggest focus points of government is on the economy and infrastructure, and secondly eradicating unemployment is an important goal as it affects the youth who are willing to work. These grants appear to be more convenient in addressing these particular issues.

He asked if the PBO observed any strong and ongoing monitoring mechanisms. This question related to the Belle Ombre project in Tshwane that has only been 8% completed. Is this in line with the amount allocated and the timeframes? How long has this project been underway? If the project has been running for years, then not much has been achieved. A situation will arise where the funds are either rolled over or returned to the National Revenue Fund. He asked which of the four grants are managed the most effectively. Lastly, he asked if there are any best practices with which to identify strengths and weaknesses in the implementation and administration of the grants that the Committee should note. This will help the Committee to see why some grants are not performing as well.

Mr A Shaik-Emam (NFP) thanked the PBO for the briefing. On the Presidential Employment Stimulus Package, he previously raised concerns about provinces that do not comply with the requirements. How can the quality of reporting on the Presidential Employment Stimulus Package be improved so the Committee and stakeholders can identify what needs to be improved? What corrective measures are being put in place? He asked if it is necessary to have these special grants or if it is a result of the weaknesses in the structure, these grants have to be put into place.

Re-routes is a problem that the sector is creating for itself, and shows that there is no application of the mind to such challenges. He asked the PBO to provide details if it has done research on the value for money for the funds spent on these projects, particularly involving a provincial comparison. If not, PBO should seriously consider undertaking this research.

The government is losing a lot of money because there is no value for money through the procurement system. What can be done to strengthen this to ensure there is a standardised pricing mechanism to compare and analyse the spending of the provinces? The condition of the roads of South Africa is unbelievable and deteriorating at a rapid pace. He asked if adequate resources are poured into maintaining and repairing the roads. The poor road condition increase insurance costs, and it is a high risk to drive on our roads on a rainy day because of potholes. He asked for details on what could be done to ensure adequate resources are spent on the roads to rectify this problem. The PBO has established that there has been a lot of underspending in various departments, including the Department of Transport. It is also a common occurrence that a lot of the funds are spent in the last quarter of the financial year. He asked if this classifies as ‘fiscal dumping’ where to comply with the reporting requirements, the funds are spent in the last quarter.

Ms M Dikgale (ANC) welcomed the presentation. She expressed concern about provinces and municipalities not following the directions given. There is a need for implementation of consequence management for those entities and officials not following the grant requirements. She congratulated the North West and Gauteng provinces for managing to comply with the requirements of the Presidential Employment Stimulus Package.

In the Limpopo province, it was reported that other employment stimulus projects are followed, instead of the Presidential Employment Stimulus Package. Ms Dikgale said more clarity is required on this new project that has been started. The roads in Limpopo are not in a good condition and are riddled with potholes. This shows the need to force provinces and municipalities to devise and follow a plan of action. Not even the Western Cape has complied with the requirements of the Presidential Employment Stimulus Package. On the Provincial Road Maintenance Grant, there is a need for the Committee to be provided with a provincial breakdown to evaluate each province.

Ms N Hlongyana (EFF) applauded the comprehensive nature of the PBO briefing, despite its depressing content. She noted that there are no poor provinces in the country, but instead there are provinces that are poorly run. On the unspent funds from the Presidential Employment Stimulus Package, she asked if it will be returned to National Treasury or rolled over. She asked what will happen to the interest accumulated on the unspent funds in each province.

Mr X Qayiso (ANC) thanked the PBO for the briefing. This Committee has extensively dealt with the challenges surrounding the Transport Conditional Grants in previous meetings. The performance of the transport sector is disappointing, especially with the poor road conditions in the country and the underperformance as the economy relies on South Africans being able to reach their destinations when using public transport. It is disturbing that most provinces failed to comply with the requirements set for the Presidential Employment Stimulus Package.

This is a serious indictment, especially with such a high unemployment rate. The Presidential Employment Stimulus Package is meant to intervene in the dire situation of South Africans, and yet provinces have failed to comply. The employment stimulus is a part of the country’s economic recovery plan with the goal to provide a means to respond to the country’s deteriorating economic situation. He asked the reasons for not giving a report on the Network Operations Component. He requested that the Committee be provided with a performance breakdown and report on each province to determine what the specific challenges are.

Mr A Sarupen (DA) noted that the Provincial Road Maintenance Grant underspending was as a result of the late tabling of the budget during the Medium-Term Budget in October 2020 as the transfers were made only in February 2021. This means that effectively there was not enough time for the provinces and local government to spend these grants. He asked if this is a recurring problem in terms of the timing and the allocation grants. When does this become a situation where the National Treasury effectively creates the conditions for fiscal dumping and poor performance through the late announcement and transfer of funds at the end of the financial year? If National Treasury is the repeat offender, he asked for clarity on what corrective measures are in place to ensure that this cycle does not continue in the future.

Mr Z Mlenzana (ANC) noted that he had a session with young constituents and their question was if National Treasury can assist these provinces that are left behind, especially given the high levels of underspending. He agreed that the Committee should be provided with a breakdown and a report on all provinces to determine what the challenges are, and to give details on the performance of each province. This would allow the Committee to engage with the affected provinces to find solutions to the challenges faced.

The Chairperson welcomed the work that the PBO has been done. He acknowledged that the PBO relies on government departments for information, and the Committee support staff work with it to identify the areas that should be raised with departments, including the Department of Transport and National Treasury. He asked if the delivery method for the Transport Conditional Grants is the most efficient method and asked for more details on the bottlenecks in the process. The PBO makes the point that Provincial Transport Authorities should be established, but this was not elaborated on in the briefing. After this analysis, would the PBO say there is value for money and return on investments for this budget allocated to the transport sector?

All of us become evaluators when we see the conditions of roads in our towns and cities, and there does not seem to be an impact for the money that is spent. This questions if the performance indicators used are appropriate to gauge if South Africa gets value for the money that is spent. There is a crisis in the country given the COVID-19 pandemic, and when funds like that of the Presidential Employment Stimulus Package are not used, it leaves a lot to be desired. It is not so much about the money spent, but rather if the money is used in an effective way for the biggest impact possible on the problems faced by our country and its people. Are the performance indicators appropriate to provide a proper evaluation of the budget spent?

PBO response
Dr Nelia Orlandi, PBO Deputy Director of Finance, replied that corrective measures are usually supplied in the Annual Reports, but that was not added to the briefing. The Annual Report indicates the corrective measures for the department. On the EPWP, in the Special Appropriations Budget it was indicated that the various departments did not spend the EPWP funds previously allocated, so funds were added on top of that. She was not sure if National Treasury will roll over the funds or if they will be surrendered if unspent at the end of the financial year. Municipalities still have a few months than the provincial governments until the end of their financial year to spend the allocated funds. There is a long description of the monitoring mechanisms for the implementation of the Transport Conditional Grants, and the Department of Transport bears the biggest responsibility to ensure that the grants are implemented appropriately.

The PBO does not have access to monitor the transfer of these funds, as the responsibility is that of the Department of Transport. It is difficult to determine which grant performs the best as it links to the whole mechanism of how the PBO reports on the Transport Conditional Grants. The PBO has seen that there is not a proper quarterly reporting system in place for these grants. PBO has requested the information for the Quarter 2 to be able to report back to the Committee on the current situation. There are different reporting mechanisms for the different kinds of conditional grants. She confirmed it is possible to provide a provincial breakdown to the Committee but PBO has the information only for Quarter 1 and not the Annual Results. At this stage, PBO is still waiting for the Department of Transport Annual Report to get the information on the performance requested by the Committee. When this project started, PBO only had access to the 2019/20 Annual Report, which had incomplete information.

On whether it is necessary to implement special grants, Dr Orlandi replied that it is exceedingly difficult to monitor the outputs of these grants as they are not a part of the normal system. The PBO is currently trying to determine if there is value for money, but it is not always possible to compare amounts with performance, and it is necessary to have a few years’ worth of information.

For the Provincial Transport Operations Grant, PBO suggested that an outcome indicator be developed to determine the cost per kilometre which can then be compared between the different provinces. It is necessary for the Department of Transport to report on its own monitoring system to the Committee, especially on whether the provinces are complying with the criteria in the Division of Revenue Act (DORA). When funds were allocated in the Special Adjustments Budget as a roll-over, the money was already appropriated to the provinces and in the bank account of the province, so there is no problem in being able to spend it immediately.

There was a recommendation from the Department of Transport to create Provincial Transport Authorities. It is difficult to see progress because the PBO does not have the baseline data available, and the money allocated for the audit of provincial roads has not been spent for the last two financial years. It will be easier for PBO to make an observation on progress when this information becomes available, or when the required targets are set. The only targets that have been seen by PBO are in the quarterly performance reports and the information from the business plans that the various departments compile.

Dr Mmapula Sekatane, PBO Policy Analyst, confirmed that it is possible to provide the Committee with a provincial breakdown as requested. On what to do to ensure provinces do what they are supposed to do, she responded that the Committee could engage with the Department of Transport to implement consequence management, as it handles the transfer of funds, especially the Presidential Employment Stimulus Package. On the non-reporting on the Network Operations Component, there was no reason and no indication given in the Annual Reports for the non-reporting on this. On the concerns raised on fiscal dumping, she pointed out that the municipalities do not observe the same financial year as the national financial year.

Dr Dumisani Jantjies, PBO Director, stated that the Competition Commission recognised that the minibus taxi industry plays a significant role in the transport industry. It often requires more involvement of government in the provincial and local government to ensure that these stakeholders are heard when policy decisions are made. PBO has seen an initial lack of capacity in local government in dealing with researching and involving the participation of the minibus taxi industry in the planning of the transportation system. There is a strong indication that this must be strengthened.

On value for money, Dr Jantjies stated that it is important to determine how much a product or service would have cost if procured from elsewhere. There is a need to have a sense whether the parties procuring or providing the service are getting benefit out of it. A lot of spending on infrastructure is standardised and it should be easy to determine if the entities got value for money. On the Transport Conditional Grants delivery method, it should conceptually be a highly effective way of delivering the grants to ensure that public expenses are managed efficiently. However, in practice there is a capacity challenge in implementation.

Further discussion
The Chairperson remarked that he asked about the delivery method because for the conditional grant the National Treasury and the National Department of Transport is involved if it is an unconditional grant. If it is a provincial grant then the province itself is involved. Why does the money not go straight to the level of government where it is intended to be used? He asked if it is possible for the Committee to get a helicopter view or breakdown of the conditional grants to see where it helps with education and agriculture in each province. It is important that the Committee see the levels of expenditure and the type of impact desired when these grants were conceptualised.

Mr Qayiso stated that the COVID-19 pandemic has been used as an excuse time and time again. The excuse has been either lack of availability from manufacturers or general unavailability. He asked how PBO picks up whether the reasons furnished are the reality or if it is used as an excuse by departments.

PBO response
On whether the Transport Conditional Grants should be directly transferred to the provinces by the Department of Transport, Dr Jantjies replied that it is a question that speaks to the transport structure. There are so many performance indicators done at the local government level, and the question comes back to the importance of oversight mechanisms reaching the controlling entities of the transfers. Perhaps the money should be allocated at the local government level as opposed to the Department of Transport. The PBO also looks at the General Household Survey to determine if the development indicators are improving. However, more work is required to determine how effective the Transport Conditional Grants and current delivery method are. He asked that the PBO provide proper responses in writing to the remaining questions.

Dr Orlandi replied that the PBO has conducted analysis on education, health, agriculture, and housing, and it can provide the Committee with a summary of its findings on all its briefs. However, it will be based on the 2019/20 Annual Reports, but the 2020/21 information can also be sourced.

On the question if the money should be directly transferred to the provinces, she she agreed with the Chairperson’s view since most of the grants are top-ups of other programmes that are underway in province. This will then aid the provinces in developing a standard set of indicators that all provinces need to report on each quarter. This could help in easing the whole complicated process. She confirmed that the PBO did get entities using the COVID-19 pandemic as an excuse for non-performance, but that it pertained mostly to infrastructure projects.

The Chairperson thanked the PBO for the responses. The Committee will be following up on how the challenges raised can be addressed and how the transfer of Transport Conditional Grants can be improved. It would be helpful if the PBO has access to the latest information to share with the Committee. The engagement has been a fruitful start to the year and the Committee’s goal to improve service delivery in the transport sector.

Committee programme
Mr Darrin Arends, Committee Secretary, presented the Committee’s draft programme for the first term of 2022 and informed Members of the changes made.

The Committee adopted the programme.

The Committee adopted the minutes for the Committee’s meeting of 8 December 2021.

The meeting was adjourned.