Appropriation Bill: DPWI Briefing; with Minister and Deputy Minister

Standing Committee on Appropriations

17 May 2023
Chairperson: Mr S Buthelezi (ANC)
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Meeting Summary

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The Committee convened virtually to be briefed by the Department of Public Works and Infrastructure (DPWI) on its budget allocations for the 2023/2024 financial year and the progress the Department has made regarding its targets being met. The Minister and Deputy Minister were in attendance.

The Department reported that, as of the end of March in the 2022/2023 financial year, its budget allocation was R8.2 billion. The Department spent 97% of this on the programmes, with almost all of the programmes coming in under the expected expenditure. Most notably, the Compensation of Employees received a budget of R2.1 billion, but only R2 billion was spent by the end of March. The under-expenditure was because there were still approximately 500 vacancies due to the slow recruitment rate.

The Department also covered the lease of vacant land by government, along with the challenges that the Department faced regarding having to source external contractors to provide maintenance services to state-owned properties, and the lack of cooperation the Department received from its clients regarding payments.

The Department said the Public Works Bill would provide a framework for an equitable, effective, uniform system to regulate Public Works. It also explained that this Bill defines the Public Works function of the national, provincial and local spheres of government and the mandate of the Minister responsible for Public Works. It links the performance of public and private entities operating in the building and the construction environments to their performance plans. If passed, the Bill will provide an integrated approach to Public Works functions at the three spheres of government, which will be more organised than the current unstructured functions which fail to provide adequate responsive service delivery.

The Committee asked if the Department has done a cost benefit analysis of procuring its own buildings as opposed to leasing. It is worrying how many departments are leasing instead of owning the buildings. What measures has the Department employed to stop relying on service providers for its properties? What prevents the Department from employing its own people directly? Members also lamented that many pieces of land belong to Public Works National, some of which have been standing vacant for over 30 years. What was the original purpose of these pieces of land? Are these purposes still applicable now? What openness is there from Public Works National to sell these pieces of land to the municipality for housing and other uses?

The Chairperson what percentage of buildings occupied by government are leased, what percentage is owned and how much the Department pays for leasing per annum as well as maintenance of government-owned buildings.

Meeting report

Opening Remarks

The Chairperson welcomed everyone to the meeting and briefly went over the agenda. He acknowledged that Mr N Kwankwa (UDM) and the Acting DG for Public Works and Infrastructure (DPWI) were unable to attend the meeting. He thanked the Minister for taking time to interact with the Committee during this meeting.

Minister of Public Works and Infrastructure, Mr Sihle Zikalala, explained that the presentation would cover the allocation of funds as expected. He indicated they faced the challenge of presenting without the Acting DG, but Deputy Minister Swart would be in attendance. The presentation would be led by the Chief Financial Officer, Mr Mandla Sithole. Minister Zikalala requested permission to leave early as he needed to attend the meeting with [Portfolio Committee] Public Works afterwards. He said that the Department aims to be transparent with the use of the funds provided to it, to provide services to the Department and its client departments, and to uplift the socio-economic conditions of South Africa as a whole. They will remain accountable and provide value for money in terms of their services.

Briefing by the Department of Public Works and Infrastructure

Mr Mandla Sithole, CFO, DPWI, clarified that various people would present different parts of the presentation. The first presenter would be Mr Mazibuko, presenting on the DPWI budget, specifically the preliminary expenditure.

Mr Aaron Mazibuko, Chief Director: Finance, DPWI, said that, as of the end of March in the 2022/2023 financial year, the budget allocation was R8.2 billion. The Department spent 97% of this on the programmes, with almost all of the programmes coming in under the expected expenditure. Specifically, programme one only spent 90% of its expected expenditure, programme 2 having spent 80% of its expected expenditure; programme three spent the most out of all the programmes, coming in at 99% of its expected expenditure. Mr Mazibuko explained that 86% of the Department’s budget is allocated under Transfers and that those Transfers cover programmes three and four.

On the Economic Classification, which is also allocated a budget of R8.2 billion, he said that the Department spent 97% of that budget. R596 million of that budget was spent on the compensation of employees. The reason for the under expenditure of the compensation of employees is due to the delays in the filling of the positions that were confirmed as vacant. R479 million of the budget was allocated to goods and services, but only R428 million was spent. The reason for this is because of the delay in the appointment of service providers for the projects. Some service providers have also experienced a delay in issuing invoices, which has contributed to the under-expenditure. Mr Mazibuko explained that another reason for this under-expenditure is due to decreased travel expenses because many meetings are being held virtually and not in person.

As for transfers and subsidies, the budget was R7 billion, and the Department spent R6.9 billion. The R100 million saved is a result of the budget that was adjusted as per the approval of the National Treasury in November. Machinery and equipment had a budget of R19 million, but only R10 million was spent, which equates to 53% expenditure. The bulk of the allocated budget related to the office equipment and part of it was linked to the domestic, which is associated with the Prestige Policy. A delay in the equipment also affected this under expenditure. Lastly, the Financial Assets, which typically occur at the end of each financial year, received a budget of R1.6 million. The entire budget was spent in this Department.

Mr Mazibuko discussed the detailed report for the transfers and subsidies, explaining that all the transfers and subsidies (except for the Infrastructure Development Coordination) spent 100% of their budget. The Infrastructure Development Coordination spent 47% of its budget.

Ms Juanita Prinsloo, Chief Director: Financial Planning and Reporting, DPWI, presented the Project Management Trading Entity (PMTE) performance in terms of the money appropriated through the Department. The entity received a transfer amount of R3.9 billion from the DPWI. She explained that PMTE received a bigger budget, but that majority of the budget was on a recoverable basis or had to be generated through revenue initiatives. Of the appropriation, R596 million was allocated to DPWI Infrastructure, but only 98% of this amount was spent. The balance that was not spent towards the end of last year will be spent in the first quarter of this financial year. Refurbishment received R111 million, of which the entire budget was spent. The Property Budget, which relates to the leases and municipal services, received an amount of R596 million. Once again, the entire budget was spent. The Compensation of Employees received a budget of R2.1 billion, but only R2 billion was spent by the end of March. The problem was that there were approximately 500 vacancies due to the slow rate of recruitment. Internal promotions are underway, which may lead to the lack of numbers increasing. Goods and Services spent 97% of the allocated budget, linked to the compensation budget. Machinery and equipment received R53.7 million, which was entirely spent.

Ms Prinsloo said that the recruitment rate of vacancies needed to be improved. Corrective measures have also been put in place to ensure corrective expenditure of the budgets. The Budget Management Committee will continue to review the expenditure quarterly to identify areas where controls have been strengthened to ensure full spending.

Ms Karabo Sebati, Director: Strategic Planning, Performance Monitoring and Reporting, DPWI, greeted everyone in the meeting before proceeding with her presentation in response to how the Department will allocate the budget efficiently. She explained that the Department had developed an Annual Performance Plan that indicates how the plans will be implemented throughout the medium-term expenditure framework (MTEF). The 2023/24 APP considers the priorities in the National Development Plan and the Strategic Framework. There are seven priorities of government that the Department aligns and contributes to. Most importantly, Ms Sebati said that the app considers the Economic Recovery Construction Plan, the National Annual Strategic Plan, and the priorities from Cabinet. The focus was on job creation for the youth.

The Department has seven outcomes that align with the national priorities. These priorities included economic transformation and job creation, education, skills and health, consolidating the social wage through reliable and quality basic services, spatial integration, human settlements and local government, social cohesion and safe communities, building a capable, ethical and developmental state and a better Africa and the world. Ms Sebati discussed all seven outcomes, their priorities, the targets set for these outcomes over the next three financial years, and their APP indicators.

Mr Sithole presented the DPWI budget estimates. He said the bulk of the transfers lay with the Expanded Public Works Programme (EPWP) and the Property and Construction Industry Policy and Research Programme (programmes three and four, respectively). This trend remained the same during the 2023 MTEF period, but this budget increased in 2023/2024 by almost R530 million. Programme one decreased from R555 million to R554.8 million. Similarly, programme two decreased to R59 million from its’ original R62 million in the last financial year. Programme five also decreased from R71 million to R61 million. This decrease is mainly under goods and services for programmes one and two, and for programme five, the decrease falls under transfers and goods and services. R200 million was reserved from the Treasury for additional funding for project preparations. Besides project preparations, no additional funding was received. All in all, R600 million was received for project preparations, and the budget is allocated under goods and services.

The transfers and subsidies received a budget of R7.5 billion. Provinces and municipalities receive a budget of R1.6 billion, allocated to the integrated grants for the social sector, municipalities and provinces. Under departmental agencies, the budget increased from R4.2 billion to R4.6 billion, mainly for the Project Management Trading Entity (PMTE). Mr Sithole also briefly discussed the projects that the Department will be implementing.

In the next slide, Mr Sithole presented the breakdown for transfers for the 2023/2024 financial year. The PMTE received an MTEF allocation of R4.4 billion; the Construction Industry Development Board (CIBD) received R80.3 million; the Council for Built Environment (CBE) received R54.7 million; the Commonwealth War Graves Commission received R29 million; the Parliamentary Villages Management Board received R6 million; the Construction Education Training Authority received R571 000, Agrément South Africa received R34 million, and the Industrial Development Corporation (IDC) received R110 million. The EPWP programmes and the household programmes took up the remainder of the R7.49 billion budget.

In Ms Prinsloo’s presentation, she explained that the PMTE for the 2023/24 financial year had an estimated revenue budget of R23.8 billion, most of which comes from Accommodation Charges and Municipal Services. The bulk of the budget is allocated to Real Estate Management Services, where the leases and municipal services are spent. Following the Construction Management Services and Facilities Management Services: the current payments amount to R17.8 billion, which are the recoverable municipal services and the operating leases. If the recoverable portions are removed, compensation then becomes the biggest budget item, with R2.1 billion. Transfer payments, such as property rates, receive a budget of R1.9 billion. For Capital Works, there is a budget of R4.1 billion, of which refurbishments is R1.3 billion. This budget increases until the third year, when municipal services fall away. The client departments fund the biggest portion of the budget. Only the transfer that is received from DPWI, which is appropriated, is a fixed amount.

Ms Thembi Hlatshwayo, Chief Director: HR Management, DPWI, presented the vacant positions in the Department. Currently, there are 5 857 positions in the Department, and of this, 5 183 positions are filled, and 674 positions are vacant. This means the Department has a 12% vacancy rate. The reason for this is the slow recruitment process. DPWI has 810 positions in total that are budgeted for, 667 of these positions are filled, and only 113 of these positions are vacant. All these vacancies are advertised and are in the process of being filled. The closing date for these vacancies is 24 May. PMTE has 5 047 positions, 4 516 of these positions being filled, and 531 of them are vacant. Many of these vacancies lie in levels two and three, making it easy to reduce the vacancy rate. When positions are advertised within the Department, people from the Department apply and are recommended based on their skills and knowledge. This ultimately affects the vacancy rate because the employees move from one position to another. Levels two and three draw applications from people who are typically unemployed, making filling the positions easier. Ms Hlatshwayo explained that 331 vacancies in the Department are in various stages of the recruitment process. When these positions are filled, the Department can deliver on its mandate. She hoped that once these positions are filled, the Department will be below 10% as DBSA requires.

Mr I Tlhasedi requested to skip to the summary of his report in the interest of time. He presented the report on DPWI’s contribution to BBBEE and localisation of goods and services. About 98% of the awards were awarded to Contractor HDIs that were black-majority-owned, and youth-majority-owned received 24% of the awards. Women-majority-owned contractors received 25% of the awards. The EME, which constituted 183 awards, received 76% of the budget and the QSE at 31 awards, equating to 13% of the budget.

An official from Infrastructure South Africa (ISA) briefly presented the DPWI Contribution to the South African Economic Reconstruction and Recovery Plan. She discussed the long-term and short-term relationships between employment GDP and investment growth. The gross fixed capital during 2022 increased by 14.5%, which is an improvement since the last report. NDP’s target for 2030 is 30%. There is a long-term trend that has declined, but the last two quarters of 2023 have seen some sort of recovery. However, they are well below the 30% target. Machinery is the biggest contributor to the gross fixed capital, followed by Construction Works. She explained that, to reach the economic growth targets set out in the report, the Department would need to ensure it refrains from underspending as it has for the last few years. She noted a low public sector investment compared to the NDP’s target of 10% by 2030 for public infrastructure spending.

Mr Christopher Makgoba, Legal Advisor, DPWI, said that DPWI had 57 pieces of legislation that gave effect to its mandate, but there is some legislation that needs to be amended. The South African Law Reform Commission drafted a report in 2011 of the mandates in line with the country’s agenda. The Department has now made provision for an outcome in the 2023/2024 financial year as the drafting of the Public Works General Laws Amendment and Repeal Bill, which deals with the technical response in line with the Constitution.

The policy branch of the Department assists with developing the policies within the ambit of the Department’s mandate. Mr Makgoba explained that the Department recently had an engagement that made an input on the draft National Employment Policy. The Expropriation Bill that is intended to be passed aims to accelerate restitution of land reform. It will also address the shortfalls within the process by introducing expropriation powers. Currently, the old Expropriation Act is being used to reform land. The National Assembly has currently adopted the Bill and it is before the NCOP.

The Public Works Bill aims to provide a framework for an equitable, effective, uniform system to regulate Public Works. Mr Makgoba also explained that this Bill defines the Public Works function of the national, provincial and local spheres of government and defines the Minister's mandate responsible for Public Works. This Bill links the performance of public and private entities operating in the building and the construction environments to their performance plans.

Ms Makgoba explained that if the Bill is passed, it will provide an integrated approach to Public Works functions at the three spheres of government, which will be more organised than the current unstructured functions which fail to provide adequate responsive service delivery. Furthermore, the Bill will promote the standard of acquisitions, management and disposal of immovable assets and ensure an integrated asset register system – which will help identify assets. Mr Makgoba pointed out this is a key strategic government service delivery programme. The Bill will also empower the Minister to monitor, evaluate and strengthen the performance of Public Works functions by organs of state.

The Amendment of the Construction Industry Development Board Act aims to improve transformation, sustainability and growth. The objective is to allow the CIDB to achieve the transformation objectives while promoting the performance of public and private sector clients. The Bill sets out to achieve all these targets by driving transformation in the Private Sector, providing access to emerging contractors, and transforming the Professional Sector of Provides in both the public and private sectors. Lastly, the Bill aims to improve the performance of client departments towards adequate infrastructure delivery.

Mr Makgoba explained that introducing a register of professional service providers (ROPSP) will facilitate the transformation of the built environment in the professional sector. He estimated that the Amendment Bill would be introduced to Parliament in this financial year after Cabinet has adopted it.

Discussion

The Chairperson thanked DPWI for their presentation. He then opened the floor to anyone with any questions or issues regarding the presentation.

Mr Z Mlenzana (ANC) apologised if his connection dropped, as he was driving around in Kokstad to find proper reception. He commended DPWI for the clear presentation.

On the relationship with the Department and its clients, particularly with the Department of Home Affairs, he said that the Department needs to prioritise sitting down with the leadership and discussing the offices which has been a longstanding issue. The second client would be the Department of Health. He also criticised using consultants that liaise with the TVET colleges to find architects and engineers, as Public Works had previously done. The consultants tend to escalate situations, especially now with the electricity crisis South Africa is currently facing. He also questioned how the money flowed between the Department and its clients, referring to the Department’s earlier statement that some clients take longer to submit invoices and pay the Department.

Ms T Tobias (ANC) expressed her hope that Public Works would undergo change with the new leader. Next year will mark 20 years since the Expropriation Act took effect, and yet today, the Expropriation Act has not been finalised. She said that she hoped, in the next presentation, what was set out to be achieved by the Expropriation Act 20 years ago would have been achieved. She was shocked that not much had been done to transform the CIDB.

Mr H Mmemezi (ANC) questioned how many bridges had been completed as part of the programme in the previous financial year. He also asked how many bridges will be built in the rural areas in the 2023/2024 financial year. Where will they be located? How would the Department use its Independent Development Trust entity to implement the development infrastructure project? How much was allocated to this entity to enable them to act as an agent for implementing social infrastructure projects?

He also asked if the Department has done a cost benefit analysis of procuring its own buildings as opposed to leasing. It is worrying how many departments are leasing instead of owning the buildings. What measures has the Department employed to stop relying on service providers for its properties? What prevents the Department from employing its own people directly?

Mr E Marais (DA) indicated that many pieces of land belong to Public Works National, some of which have been standing vacant for over 30 years. What was the original purpose of these pieces of land? Are these purposes still applicable now? What openness is there from Public Works National to sell these pieces of land to the municipality for housing and other uses?

Mr O Mathafa (ANC) congratulated Minister Zikalala and DM Swart on their appointment. He requested clarity on the vacant positions for salary banks eight and 12, regarding the underspending of R8.2 million. What measures are going to be put in place to ensure this does not occur again? He also questioned what these vacant roles were, and what impact their vacancy had on the Department.

His second question was for the benefit of the Committee where he asked for a comment on the underspending from the DPWI Head Office. He also asked what the state was of the Department’s critical analysis, referring to how many of the invoices fell into the value of 30, 60, 90 and 120 days.

His last question pertained to the Department’s response to the BEE ruling by the court. What percentage is shared by the economic youth according to the Department, particularly those aged between 35 and below? He also enquired how women are considered in the economic space and what measures are put in place to improve these figures.

Mr Mathafa predicted the difficulties the Department may experience when attempting to reach that 10% expenditure threshold. He asked the Department if they thought they would be able to achieve those targets that were set out.

Mr Mmemezi noted that the Artisan Programme was a good programme, but he asked how many young people had been trained in this programme. He also wished to know what the target was to train skilled individuals in this programme in the 2023/2024 financial year, and how much the Department was allocating for this specific skills programme.

The Chairperson asked the respondents to indicate who they were addressing their responses to when doing so. His first question related to the Prestige Policy, specifically that the name may send the wrong message to the public. Secondly, he wished to know what percentage of buildings occupied by government are leased, what percentage is owned and how much the Department pays for leasing per annum as well as maintenance of government-owned buildings. Thirdly, he noted that 80% of the budget is transfers to different institutions, but this does not speak to the impact of the ultimate beneficiaries, nor does it speak to how much has been spent. He also asked how far the process of the dissolution of the SANDF is, as discussed last year. He also asked if it was optimal that Public Works was a landlord for DIRCO.

Responses

Deputy Minister of Public Works and Infrastructure, Ms Bernice Swarts, informed the Committee that the Minister had to leave to attend another meeting. Hence, she would be taking the questions now along with the input from the other officials. She addressed the question of the maintenance of buildings, especially the use of outside consultants. Public Works has not attempted to build internal capacity, which is now being encouraged to start. She explained that many graduates from the Artisans Programme find employment outside of the Department before the Department can employ them. She hopes there will be a workshop for internal employees that can do all the maintenance for the Department. As for the land that belongs to Public Works National but is not being used, the land can be leased by Public Works on a government-to-government agreement for up to 30 years. This land cannot be sold since it was meant previously to be used by the municipality.

On Mr Mathafa’s question about the youth, she said that the graduates from this programme needed to be absorbed into Public Works. She said there are no women contractors but reached out to 500 women contractors around various provinces to establish how many women are on grades five to nine. She said that some women contractors have been on grade seven for over 20 years, and they are given an opportunity to run projects. She hoped that the Department would allocate a category purely for women contractors where they could participate and compete among one another in the economy.

She said that artisans need to be skilled, but Public Works cannot just skill artisans and let them go. They need to be absorbed internally because this ensures the Department has skilled artisans in place. The number of buildings leased is approximately 2 500 to 2 700, and the government owns 88 000 state buildings. The amount for Unscheduled Maintenance Budget as R1.67 billion and the Scheduled Maintenance Repairs was R1.7 billion for the financial year.

Mr Sithole said that the money flowing between clients and DPWI was not going well because clients owed about R9.6 billion at the end of April, making it difficult for the Department to deliver their service. He said that the clients complain about the conditions of the buildings, but the Department is unable to attend to this because clients are not paying. He said interventions involving the Treasury are being put into place where clients are not paying. As for Treasury’s approval of the R100 million roll-over, he said it is difficult to say if the Treasury will approve this roll-over, but some indicators give him hope that this will take place. This money was given late in the year, and it was impossible for the Department to implement the programme. The expectations that were created were not feasible.

As for the state of invoices that are not yet paid, PMTE has 94% of the invoices that were paid within 30 days of issuing as of April. DPWI is sitting at 98% invoices that were paid within 30 days. He indicated that even the DM is intervening in this area. Every Friday, the DM meets with officials to ensure that the Department improves in this area. The Department is paying R6 billion for leases but the Department also paying R1.9 billion for rates and taxes. If one were to compare the private sector which leases 2 500 properties, the Department pays R6 billion. This poses a maintenance challenge because the Department’s properties are not of the same standard as the properties in the private sector. He noted that this is a universal problem for all departments.

Mr Nkosana Kubeka, DDG: Small Harbours, Coastal Properties Development and Special Projects, DPWI, explained that, for the financial year of 2022/2023, 24 rural bridges were in the planning of being built in KZN. Two of these were withdrawn because the province went out on a tender and they were not in the rural areas. This leaves 22, of which four have been completed and six are above 90% of completion. The rest are at various phases of completion. He estimated that they would all be completed by August 2023. The adjustment budget allocated the planning of 24 bridges, 19 in the Eastern Cape and five in Limpopo, for the 2023/2024 financial year. These will be completed by August 2023. The BFI budget allocated 17 bridges in the Eastern Cape, 17 in Limpopo, 17 in KZN, 17 in Mpumalanga, 14 in the Free State and 14 in the North West. This equates to 96, which will all be started in various phases. These bridges are estimated to be completed in April, the next financial year. On 01 April, the other 96 bridges will start their building process for the next financial year.

Mr Hlatshwayo said that the high number of vacancies at Head Office (233 vacancies) is due to the fact that Head Office only deals with policies and monitoring. However, 189 positions have been advertised since the beginning of the year. She hopes that the pitch will be entirely different when the follow-up meeting takes place.

Infrastructure South Africa explained that the statistics used for this presentation were that of the Bureau of Economic Research, but this information is subjective. The entity said that it was important to remember that the future is uncertain and loadshedding significantly impacts the economy. 

The Chairperson recalled that the CFO would respond to the outstanding questions in writing. He thanked DPWI for the response regarding the bridges but requested that the Department send the Members a detailed email of where each bridge would be built and the timeframe for each bridge. This would assist the Members when they are questioned about these events. He also asked about the working relationship with the President. 

Deputy Minister Swarts explained that ISA is an entity under the DPWI and reports to the Department, even though it is housed in the Presidency. This role assists in maintaining a relationship with the President.

Mr Mlenzana said that he expects the responses to his answers to be in writing as they are of a legal nature.

Ms Tobias said that this would be the same for her questions as her questions were of a political nature.

Mr Marais followed up on his previous questions. He requested that the Department provide the Committee with the name and number of the person they could contact to request the lease agreement for a piece of land. He used the example of a piece of vacant land being bought from the government to turn it into a parking bay. The municipality is bound by legislation and thus cannot budget for the use of land if it does not benefit the municipality itself. He asked why the municipality could not buy a piece of land that had been vacant for 30 years from the government.

The Chairperson suggested that the particular municipality should be given the contact details to conduct this with the respective officials.

Mr Mathafa asked how government could revive abandoned buildings, such as schools, to make them useful and even profitable to the municipalities.

The Chairperson pressed the relevance of this question as it was posed by the public.

Deputy Minister Swarts said that the official that does the “out-leasing” of the properties would be made relevant. She explained that when the municipality applies for a lease of land from the government, they need to provide government with a business plan detailing how they intend to make use of the land and intend to generate revenue. There are no abandoned schools in South Africa, unless they were part of a previous project. There is a Beautification of Schools programme that intends to revive old school buildings and properties. She also said that if land has been vacant for as long as 30 years, it is not because the government has failed to make use of it, but more so that nobody has approached the government about using the land.

Mr Sithole noted that the abandoned schools do not fall within the spheres of this Department. He said that the Department of Basic Education will have a better understanding of such matters.

Ms Sasa Subban, DDG: Real Estate and Investment Services, DPWI, said that the devolution to defence that has not been finalised requires concurrence from the Minister of Defence, Minister of DPWI, Minister of Finance and the Minister of DPSA, which has not yet taken place. She said that historically there had been requests for total devolution, and these discussions started to transpire with [former] Minister DeLille, but they were not finalised. There are engagements in the works that will take place with the Deputy Minister and the Minister of DPWI with the Department of Defence.

The Chairperson thanked the Committee for attending this meeting. He also appreciated the guest delegates, as led by the Minister and Deputy Minister. He said that the question of devolution should not be postponed and left open-ended. He said the Committee would request an updated report on this.

The meeting was concluded. 

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