The Committee met with National Treasury to receive their responses to public comments on the Appropriation Bill and Eskom Debt Relief Bill. Members engaged in general discussion on some of the issues to come out of the responses such as classification of appropriations, appropriations for public prosecutions and the vast difference in appropriations for basic vs higher education. Members also asked for an update on the Universal Basic Income Grant (BIG). The issue of municipal debt was also discussed regarding the Eskom Debt Relief Bill.
The Chairperson welcomed the Committee to a meeting with National Treasury on responses to public submissions on the Appropriation Bill and Eskom Debt Relief Bill.
National Treasury Responses to Public Submissions on the Appropriations Bill
Dr Mampho Modise, Deputy Director-General: Public Finance, National Treasury, said that the Department noted the public submissions by stakeholders.
She presented a summary of the responses to the Committee. The recommendations from the public included national budget allocations and most of these, together with additional funding, would be incorporated in the budget process starting in the month of June. She stated that National Treasury would present the mentioned recommendations with other contributions from departments, and the Minister would present the outcome of the process in the month of October [during the mid term budget].
The presentation included a detailed table discussion on cross-cutting issues such as justice and protection services, education and related sectors, urban development and infrastructure, administrative services, health and social development, and economic services.
Please see the presentation attached for details
Mr S Du Toit (FF+, North West) asked about the criteria used to determine whether an appropriation will be classified as an expenditure in the accounting system or if it fell under Section 70 of the Public Finance Management Act (PFMA) payment. He mentioned that in the current year, an amount of R1.79 billion was appropriated to the National Treasury budget to provide for the recapitalisation of the Agricultural Development Bank of South Africa. He added that this was coupled with R278.3 million for the World Bank, and R638.9 million allocated to the African Development Bank. He highlighted that previous appropriations for transactions, assets, and liabilities were now reflected as being under Section 70 of the PFMA transactions in the estimate of national expenditure. He asked for clarity on the matter.
Mr S Aucamp (DA, Northern Cape) asked for clarity regarding the money available for private legal practitioners to assist the directorate of public prosecutions. He said that this was vital for empowering the directorate of public prosecutions to hire specialist prosecutors for matters where it was needed, such as the Zondo Commission.
Regarding the disparity in budgets for basic education and higher education, he said there were far more learners in schools than in universities. He highlighted that a significant challenge in the country was getting pupils in schools more funding. He stated that this would provide learners with better quality basic education and would result in more pupils qualifying at universities. He referred to the concerning statistics on Grade 4 pupils who are not capable of reading with meaning. He said that this was due to the insufficient funds allocated towards basic education, and that a short-term and long-term solution for this would have to be adopted to avoid a skewed education system and many school dropouts.
The Chairperson said that in the early 2000s, there was an issue of rationalising public services across the three spheres. This involved looking at general remuneration and moving people from one sphere to another, where needed. This was propelled by the need for skilled managers at local government levels to assist in service delivery. He asked Treasury whether there were any indications that reflected on any significant progress on the matter and when the process was to be completed. He acknowledged that this would mean implications with unions, collective bargaining, changes to legislation, and financial costs.
He stated that the reduction in remuneration for politicians and managers remuneration was not a new submission.
He mentioned that he was pleased with the recommendation concerning the R1 billion towards the Special Investigating Unit (SIU).
Responding to the earlier comment on basic education funds compared to tertiary education, he acknowledged that the students bring universities to a halt and some of these actions were completely unjustifiable. However, he understood the pressures on senior academics and the costs associated with hiring trained senior staff. He added that it was imperative that basic education be prioritised, as 29 years later, the system was deteriorating and the pandemic had also exacerbated the conditions. He felt that the solution was to improve the quality of the teachers, and their dedication to education and also to tackle the over politicisation of teaching. He said that the trade unions belonging to the Congress of South African Trade Unions (COSATU) fought for better conditions and played a developmental role according to COSATU’s policies. He highlighted that a more nuanced and balanced approach should be adopted as it was unfair for students studying for eight years to demand National Student Financial Aid Scheme (NSFAS) grants and retaliate by marching into buildings and threatening to burn them down. He indicated that this was unfair to other disadvantaged university students and that a bigger discussion had to be had on the matter across government with the relevant Committees in Parliament.
He asked for progress on the Universal Basic Income Grant (BIG) as he did not have details and there was a strong argument that it had worsened. He stated that a social explosion was looming and it would have more financial consequences.
National Treasury Responses
Dr Mark Belcher, Director: Social Services, National Treasury, regarding the BIG, said that there was a difference between basic income grant and basic income support. He explained that in South Africa, where a grant does not have a means test, if it goes to 36 million people, it could cost up to R360 billion annually. He highlighted that this was a rare grant established, which occurred only in two countries and would be completely unaffordable. He compared this with a permanent means tested grant which could go to 16 – 17 million people. Based on the current grant, he said that if it was brought to 73% of the food poverty line, it would cost roughly R130 billion by 2030. The Social Relief Distress (SRD) grant recipients would increase from 8.6 million to about 16 million over the next seven years and the value of the grant would also increase from R350 to R700 by 2030. He added that the permanent SRD grant would require substantial tax increases, and Finance Committees would have to consider whether such increases are required to fund a permanent SRD grant. He said National Treasury would bring proposals to the Committee by the Medium-Term Budget Policy Statement (MTBPS).
The Chairperson said that at one stage, government argued that the entire social grant system had to be reviewed, and asked about the progress on the matter.
Mr Matthew Parks, Parliamentary Coordinator, COSATU, said there were positive discussions with the Department of Social Development (DSD) and that the matter had been paused for the time being and the DSD was to revert to COSATU. He said that around September 2022, the DSD came up with a White Paper, which had many provisions unforeseen by the National Economic Development and Labour Council (NEDLAC). This placed COSATU in a difficult position as this mentioned drastic taxation proposals. The DSD then mentioned that it would approach the NEDLAC with a new White Paper, though no communication has happened since then.
He said there should be an engagement with DSD and National Treasury. He agreed with the Chairperson that there must be a comprehensive discussion considering all the different social grant elements.
He expressed that the COVID-19 Relief Grant laid a solid foundation for a basic income grant and that it should be considered how this success could be built upon. He agreed that it must be an affordable approach that would not negatively impact the fiscus while providing support for those who need it.
Ms Busi Motlabedi, Senior Policy Analyst, National Treasury, addressing Section 70 and payments of financial assets, said there is a reference guide to the economic classification and that the Appropriation Bill also had a section detailing definitions of all relevant classifications. She explained that Section 70 governs the allocation of funds directly from national revenue, as opposed to voted funds that go to departmental allocations. She said that, ultimately, all of the direct charges go through the spending and are captured as transactions in assets and liabilities because they are matters of recapitalisation. She added that there are direct charges against the National Revenue Fund (NRF).
Dr Rendani Randela, Chief Director: Justice and Protection Services Unit, National Treasury, regarding Section 38 MP appointments, said that the amount was R750 million.
National Treasury Responses to Public Submissions on the Eskom Debt Relief Bill
Mr Ravesh Rajlal, Chief Director: Assets and Liabilities, National Treasury, took the Committee through the responses to public comments on the Eskom Debt Relief Bill. The responses concerned general comments, features on the new approach, clarity on conditions, and clarity on debt takeover and municipal debt.
Please see the presentation attached for details
The Chairperson asked whether any stakeholders had responded to the presentation.
Mr Parks said that COSATU appreciated the responses to the Eskom Debt Relief Bill. He disagreed with National Treasury that Eskom should not invest in new generation capacity as part of the debt relief for the time being. He added that the current crisis was due to aged infrastructure which required lots of capital to maintain. He acknowledged Eskom’s application to the National Energy Regulator of South Africa (NERSA) for a gas generation capacity of 3,000 Megawatts, however, he said that they would have to look at how this could be done via the backdoor due to the debt conditions.
He noted the 18.65% tariff increase in 2023 with a 12% increase the following year and expressed that this was the first time there were such exorbitant price hikes. He highlighted that double-digit tariff hikes had been in talks since 2006, and 17 years later, the same discussions were still ongoing.
Mr Parks stated that the cost-reflective argument from Eskom was disingenuous, and it seemed as though government was subsidising corruption and wasteful expenditure. He said that while it was fine that National Treasury was working with Eskom supply chain management, there was still little indication of the money saved.
He noted that Eskom management has complained that law enforcement failed to assist in tackling the endemic corruption and criminality. He recalled that the previous Minister of Finance had stated that National Treasury was going to tackle the municipal debt crisis. This was when the debt still stood at R40 billion and it has now increased to R60 billion. He stressed that no practical action was being taken and that there should be action from the Department of Cooperative Governance and Traditional Affairs (CoGTA) or the South African Local Government Association (SALGA) to move all customers to prepaid.
He mentioned that many municipalities depend on electricity tariffs to cross-subsidise other services and that this would necessitate a new local government model as Eskom’s revenue could not be robbed to cross-subsidise other services.
Mr Aucamp agreed that it was a problem that municipalities relied on a certain percentage of their income from electricity tariffs. He said that municipalities often used the income to pay other expenses, such as salaries and vehicles, and is not paid back to Eskom.
He asked how ringfencing could be implemented so that municipalities can get their markup for distributing Eskom, while ensuring Eskom is paid the money they are owed. He felt it was unfair to expect Eskom to operate properly when they do not have the money owed to them by municipalities.
The Chairperson concurred that the funds taken by municipalities were often not used for their intended purposes and that regarding the deal with CoGTA, the Committee had engaged with the Deputy Minister concerning it.
On Eskom’s debt, he asked why National Treasury, when giving their allocation of the critical share to provinces and municipalities, could not provide a share to small businesses as they were being destroyed by not being paid within 30 days. He said this suggestion had been shut down many times, called unconstitutional, and stated that the relevant legislation had to be changed to address the issues at hand. He said that the Committee had to develop positions on the matter to address the issue.
He asked the rationale behind accepting the relief, provided that Eskom cannot invest in new generation. He explained that the state assisting Eskom should assist them with going to the markets to raise money to invest in new generation.
He inquired about what could really be done with the current power stations, which were outdated and required maintenance, as many people were of the opinion that Eskom would not be able to do much with the current infrastructure.
He said there should be a series of public-private partnerships and public sector involvement in a variety of forms, other than handing over a basic service, such as electricity, to the private sector. He added that there were many ways to get private sector participation.
National Treasury Responses
Dr Duncan Pieterse, Head of Asset and Liability Management, National Treasury, said that the bulk of municipal debt was owed by a handful of municipalities. Treasury responded by issuing a new municipal circular which would write off the debt owed to Eskom for participating municipalities. He explained that those who benefit from the phased debt write-off over the next few years would have to maintain their payments to Eskom. They would need to provide updates, table funded budgets and reflect the costs of providing electricity. He mentioned that it was still unclear how many municipalities would take up this offer, however, the intergovernmental division was engaging with key municipalities responsible for the debt. This was in conjunction with SALGA, CoGTA and other stakeholders to ensure that municipalities do take up the opportunity. He stated that if municipalities do take up the opportunity, many of the underlying concerns would be addressed through the conditions which have to be complied with. National Treasury would, at a later point, update the Committee on what the uptake on the municipal debt matter has been.
On new generation, he said that Treasury required that Eskom avoid new generation capital expenditure for three reasons. Firstly, Eskom’s balance sheet challenges prevented them from undertaking the required capital maintenance during the existing fleet. He explained that this was why the fleet had deteriorated so significantly over the last few years and that Eskom should prioritise the capital maintenance expenditure of its existing fleet to get better performance out of it. Secondly, he highlighted that the main reason why the new generation projects were unable to be connected to the grid was due to lack of investment in new transmission infrastructure. Due to Eskom’s limited balance sheet and resources, the entity prioritises transmission investment and this was from a balance sheet and a human capital perspective. He added that Eskom would not be able to cater for the new Gigawatts coming online in the future. Thirdly, he explained that new generation would require new borrowing which creates difficulty as National Treasury would be providing Eskom with a bailout while allowing them to borrow more. He added that this defeated the purpose of the bailout and could result in Eskom asking for more bailouts down the line and in terms of the conditions, Eskom would not be able to borrow without the permission of the Minister of Finance. He explained that this was to allow Eskom to deliver balance sheets, restore their financial sustainability, and focus on the projects which are critical for the sustainability of the grid, including transmission and distribution infrastructure. He said that this condition on new generation was only posed for the debt relief period.
[The meeting was adjourned]
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