National Treasury Q1 2023/24 Performance (focus on national departments & SOEs)

Meeting report

Opening Remarks

The Chairperson welcomed the Committee Members and National Treasury, and acknowledged the presence of Dr Mampho Modise, Deputy Director: Public Finance, at National Treasury (NT).

He said the NT had come to brief the Committee on the over-expenditure and under-expenditure by various government departments and state-owned enterprises (SOEs). It was important for the Committee to meet with the Treasury because this was good for oversight and to ensure service delivery. The Committee would like to ensure that there was no wasteful expenditure. The money that some departments did not use had to be used by other departments that needed the money. Government expenditure was important for aggregate demand and economic growth, therefore failing to deal with it would compromise the economy. The Committee had therefore decided that they would spend a lot of their time looking at various departments and SOEs to see how they were spending their budgets and how deviations could be improved.

The Chairperson handed the platform over to Dr Modise, and said he would give National Treasury one hour to deliver their presentation.

2023/24 Quarter 1 Spending Outcomes: Presentation

Dr Modise said that for the first time in a long while, the deviation from projected spending that was being witnessed in the 2023/24 financial year was the lowest in a couple of years, therefore government departments had performed well.

She said spending was always compared to projections made at the beginning of the financial year. To show the changes in the expenditure, National Treasury would like to show the Committee past expenditure. It was important to show the Committee the composition of expenditure in government.

The Departments that had underspent their budgets were:

• Science and Innovation
• Human Settlements
• Social development
• National Treasury
• Transport
• Agriculture, Land Reform and Rural Development
• Water and Sanitation

Departments that had overspent their projected budgets were:

• Defence
• Police

Departments that had recorded a surplus were:

• National Employment Fund.
• National Health Laboratory Service.
• National Research Foundation
• National Skills Fund
• National Skills Financial Aid Scheme
• Passenger Rail Agency of South Africa (PRASA)
• Road Accident Fund
• South African National Parks
• South African Revenue Service
• South African National Roads Agency
• South African Social Security Agency (SASSA)
• Department of Tourism
• Unemployment Insurance Fund

Update on State-Owned Companies' Q1 performance

Land Bank

Mr Lefentse Radikeledi, Director: Development Finance Institutions (DFIs), NT, presented the figures for the Land Bank. He said that there was no big update on the Land Bank. The only thing to note was that the bank was finalising repayments to its biggest lenders. They had received an unqualified audit opinion with findings for the 2022/23 financial year, and were finalising discussions on improving their expenditure. There was currently a discussion on making sure that blended finance was a success for the bank.

Eskom

Mr Jeffrey Quvane, Chief Director: Energy and Telecommunications, NT, presented the figures for Eskom. The entity continued to report losses. Revenue had increased, but this was only because of tariff increases. The concern that the entity currently had was the increase in municipal debt and the failure of municipalities to settle their debts. The Eskom Debt Relief Act had been assented to on 6 July 2023. A task team had been set up and would monitor Eskom’s compliance with the conditions set out in the Act. If these conditions were met, the loan would be converted to equity.

South African Airways

Mr Thato Masenya, Senior Analyst, NT, presented the figures for South African Airways (SAA), and said that the entity would also be given conditions that they needed to meet for their business rescue. The airline had made progress with complying with some of these conditions. The entity had recorded a loss of R150 million against a projected loss of R182 million. Mango was still under business rescue, so it was still not operating. 

Transnet

Security incidents, locomotive unavailability and the poor state of the rail infrastructure negatively impacted Transnet. He said that port productivity was too low.

South African Post Office

The South African Post Office (SAPO) had been placed in financial liquidation on 9 February 2023 because of being unable to pay its debts to its creditors. A monitoring task team had been established to monitor this business rescue process. The entity had been allocated R2.4 billion to help with the turnaround, but there were conditions for how this money needed to be used. Revenue continued to decline due to the closure of some of the branches and the impact of load-shedding on the existing branches. There were no government guarantees in place for the entity.

Denel

Mr Collen Makhubele, Analyst: General Sector, NT, presented the figures for Denel, and said that the entity was historically unable to meet its financial obligations. However, a turnaround plan consisted of disposing of non-core assets, consolidating core capabilities and achieving growth through collaboration.

For the full presentations, see the attached documents.

Discussion

The Chairperson asked Members to remember that the focus of the meeting was on the reasons for the expenditure of the different government departments and SOEs only.

Mr Z Mlenzana (ANC) asked what was happening at PRASA currently, and requested that the Committee be provided with a helicopter view of what was happening. He appreciated the conditions given to Eskom, and hoped that the entity would improve. The energy availability factor was concerning, however. He asked how this would be solved, and if South Africa was ready to fund autonomous entities.

Mr A Sarupen (DA) asked about the Land Bank and their current operations. Was Treasury tracking the amount of money Eskom used for the open cycle gas turbines to reduce load-shedding? He asked what was happening with Mango.

Mr A Shaik Emam (NFP) expressed concern about what was happening at South African Airways, because it seemed like nothing was happening there. He asked to be provided with the figures for the sale of the 14 planes sold by the airline, as well as who had authorised the transactions.

Underspending in the first quarter needed to be avoided so fiscal dumping did not happen in the second quarter. He asked that the Committee be provided with progress on the Zero-Based Project.

He wanted to know what would be done about municipalities that were not paying Eskom because this was a constant complaint, and the measures being put in place to get the payments were not working. He requested that the Committee be given the figures on the reserves of the municipalities. The progress at Prasa was impressive. The Road Accident Fund was not effective -- had the Treasury proposed a different model or structure that would make the Fund more sustainable?

Mr O Mathafa (ANC) commended the government and the Committee for their support that had led to the progress of Prasa. He asked if National Treasury had identified any lessons from Prasa, and how this could be used to help other departments improve their operations. There had been a stop to filling vacancies in the Department of Public Works and Infrastructure. He asked if this moratorium was justifiable and if it would impact service delivery. How would this be improved? He also asked about the recapitalisation of the Land Bank, and if there were equity conditions the bank needed to meet for them to receive the funds.

Ms T Tobias (ANC) asked how long it would take for the task team that was suggested for the South African Post Office to be established, and to be given a reason why there was a delay in implementing the plans at Denel. She said Eskom was going to have to prepare for the conversion of equity. She asked Treasury to comment on how this would happen.

Mr X Qayiso (ANC) asked how the Department of Defence planned to deal with the problem of its ballooning personnel complement. He said that the conditions of debt relief for Eskom and the South African Post Office raised the issue of salaries and wage increases. He maintained that the National Treasury should not make this decision and needed to be discussed with the relevant bargaining parties. How would the declining performance at Transnet be resolved?

On behalf of Ms N Ntlangwini (EFF), the Chairperson asked about the grant put on hold in Nelson Mandela Municipality due to corruption. What would be done to ensure that people still received services and would not suffer from a lack of service delivery because of corruption?

The Chairperson, on behalf of Mr N Kwankwa (UDM), asked why Eskom was not allowed to invest in renewable energy, and mentioned that this would make Eskom reliant on the private sector. The separation of Eskom into three companies with Eskom would lead to weak balance sheets -- how would this be avoided?

The Chairperson said that he recognised and appreciated some of the targets that had been met. He applauded the Committee for the good work they had done. He asked what impact the deviation of spending would have on service delivery. Was there any way of monitoring if the departments were doing what they said they would do from now until the end of the quarter so there were no surpluses at the end of the year? He asked how the grants provided for farmers would be improved, and why there was a surplus in the Compensation Fund. Since the National Health Laboratory Service had a surplus, what impact would this have on service delivery? He asked if students were getting funds, since there was a surplus at the National Student Financial Aid Scheme (NSFAS).

National Treasury's response

Ms Lebogang Madiba, Chief Director: Public Finance, explained the Comprehensive Agricultural Support Programme (CASP), and said that the grant was an indirect grant paid out after provinces submitted business plans. The programme supported farmers with infrastructure, so if provinces delayed submitting these applications, infrastructure development would be slower. The Treasury would try to implement a plan that would result in less impact on the farmers. Engagements were happening with provinces to address the issue of farmer support.

Ms Ulrike Britton, Chief Director: Urban Development Infrastructure, admitted that National Treasury was cautiously optimistic about the Passenger Rail Agency of SA (Prasa) which was on a good trajectory. It was implementing its turnaround on a corridor-to-corridor basis. There were also difficulties, such as removing 5 000 houses that were on the rail reserves. Prasa had had to deal with vandalism, so it needed to undertake a massive capital programme, and this would be monitored to ensure that once it was completed, the new infrastructure was not damaged. There was a small amount of revenue, so success would be measured by being able to get more commuters on the trains. She said that Naional Treasury had no responsibility for the success of Prasa -- it was the experts in the entity and its CEO who should be given credit for the successful turnaround plan.

The Road Accident Fund (RAF) was experiencing backlog problems, but they were working on a solution to make their turnaround processes quicker.

In response to the question about the task team established for the South African Post Office, she said that the task team was more of an oversight committee. Treasury would like to play a different role from the one they usually played, and would like to have more insights into what was happening in the entity. 

The underspending in Human Settlements was because of the conditional grants, and was not a reflection of the actual spending. Those provinces' business plans had not been approved yet. The moratorium on Public Works had been implemented by the new Minister, and had been lifted at the end of June. She agreed that the moratorium would impact service delivery, and said that the Committee would be provided with further information regarding this at a later stage.

Ms Julia de Bruyn, Chief Director: Public Finance, responding to the question regarding the Compensation Fund, said that the Fund had received more revenue than they had anticipated, and had also paid fewer claims than they had anticipated. Additionally, some claims had been declined due to technical difficulties, but this was being worked on.

NSFAS had less revenue than anticipated because they are still running a loan scheme. The entity had made fewer transfers than it should have, and there had been delays in the claims submitted by universities and technical and vocational education and training (TVET) colleges. The current goal was to ensure that the correct students received their allowances. There was an ongoing Special Investigating Unit (SIU) investigation, and NSFAS should be called to give further information.

Mr Mark Bletcher, Chief Director: Health and Social Development, reported that the National Health Laboratory Service was improving, and was currently modernising its laboratories.

Dr Modise said that National Treasury focused on the departments that were outliers, because departments did spend according to their projections. Monitoring capital expenditure was done monthly, and when systems picked up irregularities, Treasury communicated with the departments to see how these could be corrected.

Regarding the zero-based budget, she said that spending reviews had been finalised and the recommendations had been presented to the Cabinet. She attributed underspending to poor planning, and said that departments took too long to finalise their processes at the beginning of the year, making the first quarter slow. Treasury planned to work with these departments so that the first quarter was quicker, and departments avoided "dumping" in the second quarter.

Mr Ravesh Rajlal, Chief Director: Assets and Liabilities, said that National Treasury would not be able to give detailed answers to some of the questions asked. The operational assessment done with Eskom would help create a plan to move the entity forward. Treasury was not saying that wages and salaries were decided by them. If the entities needed to increase these, they needed to do so internally and make sure that they did not come back to Treasury to request more money.

If Eskom wanted to invest in renewable energy, it could do so with approval from the Minister of Finance. Eskom was currently in talks with creditors as to how the unbundling process would happen, and the effect of the process.

Mr Radikeledi said that the Land Bank was not doing a lot on the commercial lending side. There were equity conditions that the bank still needed to meet. It was giving monthly updates to the Treasury on its progress.

Mr Quvane acknowledged that there was a challenge with the energy availability factor (EAF) at Eskom. The entity had been able to release funds for maintenance in advance, which would help improve the EAF. The unbundling of Eskom would lead to the three entities performing as subsidiaries which would not trade independently. The disposal of assets would only be of the assets that were not core to the generation of electricity, and these proceeds would be used to improve the EAF. Eskom would be able to invest in renewables and capital expenditure once it had fixed its balance sheets. He maintained that the conditions given to Eskom were not aimed at taking away its bargaining processes.

Mr Thato Masenya, Senior Analyst, NT, said that Mango had been placed in business rescue in August 2021. The SAA aircraft had been sold at various stages, but the National Treasury was committed to finding out how the aircraft had been disposed of by the Department of Public Enterprises (DPE). The conditions imposed on the South African Post Office were not an imposition on the company to not engage in a bargaining meeting. The idea was to focus on the turnaround plan for the entity.

Mr Makhubele confirmed there had been a delay in the turnaround plan at Denel. Some of the reasons for this were external, and he added that it was difficult to sell assets under current economic circumstances.

Ms Wendy Fanoe, Chief Director: Intergovernment Policy, said that the main reason why municipalities were not paying their debts was that they were not budgeting for this. The first step was to ensure that there was sufficient budget to pay the debts. Municipalities would have to submit to the National and Provincial Treasuries, who would monitor these budgets. There would be midyear field visits from the Treasury to see if municipalities were using their budgets the right way. Municipalities were required to report their spending quarterly. If any corruption was picked up, the Treasury would take the necessary steps to deal with it.

Further discussion

Mr Shaik Emam said that he believed that municipalities did not need to be given an increased budget. He expressed his disappointment with National Treasury's inability to give direct answers. He demanded transparency when addressing the sale of the airlines at South African Airways.

Mr Qayiso suggested that National Treasury remove the salary conditions because of their binding nature. The conditions should be dealt with at the relevant platform.

Responses

Mr Rajlal said that the Department of Public Enterprises should answer the technical questions asked by the Committee, because they were the shareholders of South African Airways.

Mr Quvane assured the Committee that their concern about the salary conditions had been heard, and would be discussed further by Treasury.

Ms Britton said that all national departments had a support program to help provinces and municipalities. These programmes were budgeted for, and annual performance plans were requested by Treasury.

The Chairperson thanked the Treasury for their attendance, and excused them.

Committee matters

The Committee discussed the draft programme for the third term. The Chairperson asked that Members approve the programme.

Mr Mlenzana proposed adoption of the programme, and Mr Mathafa seconded.

The Committee discussed the minutes of 13 June. The Chairperson requested a motion to adopt the minutes, which was proposed and seconded by Mr Mlenzana and Mr Mmemezi.

The meeting was adjourned.