Refurbish programme to address the poor state of government properties; with Minister and Deputy Minister

Meeting report

The Chairperson reminded the meeting that this item had been on the agenda for some time, and that the Minister had indicated that he visited some of the properties. The Committee had requested a full list of state-owned properties. She commented that state properties were not in a good condition, especially public hospitals. State properties had the potential of raising revenue, but needed to be in a good condition.

ROTP to address poor state of government properties

The Chairperson said the Committee would receive a report by the Property Management Trading Entity (PMTE) on the Refurbish, Operate and Transfer Programme (ROTP) to address the poor state of government properties in cities and rural towns through the involvement of private sector investment.

Mr Sihle Zikalala, Minister of Public Works and Infrastructure, requested that Dr Alec Moemi, Head of Infrastructure South Africa (ISA), lead the presentation, as he would step out of the meeting at some stage after making introductory remarks.

He said the presentation would concentrate on work done and progress made by the Department and ISA on Telkom Towers, Public Works House, the Civitas building, the South African Police Service (SAPS) barracks, and the Department of Defence (DoD) apartments.

Public-private partnership (PPP) processes were governed by National Treasury, together with specific requirements from the Public Finance Management Act (PFMA) and the involvement of external parties, and this prolonged processes. That was one of the reasons why the PMTE had been established to manage government properties. The question therefore was, should there not be a fully-fledged entity to manage state properties? Entities were better than a department, and more effective.

Phase one of the project involved the properties dealt with in this report, and phase two would deal with an additional 50 buildings.

Ms Nyeleti Makhubele, Acting Director General (DG), Department of Public Works and Infrastructure (DPWI), handed over to Dr Moemi to lead the presentation.

Dr Moemi said the programme roll-out would focus on the unutilised, or under-utilised, commercial buildings, with a focus on the resuscitation of central business districts (CBDs). The Department of Public Works and Infrastructure (DPWI) would use the innovation of private sector participants to enable spatial inclusivity, spatial integration, equitable access and inclusive growth.

There would be a drive to reduce the life-cycle costs of the assets with improved facilities management strategies and, where possible, leasing contracts to generate revenue for the Department. There were between 15 000 and 20 000 properties, and these projects would therefore be dealt with in phases.

The process of the current five properties had started in August 2022, when the programme was transferred to ISA. In December 2022, the legal opinion on the procurement processes was confirmed, and the registration application for the programme was sent to National Treasury in February. Treasury confirmed the registration of the PPP projects as a pilot phase in May 2023. The delay in the process was due to a legal opinion indicating the programme should be implemented as per Regulation 16 of the PFMA. ISA and the DPWI had had to extensively engage with National Treasury on the strategy and approach before final approval was granted.

As any other process was restricted by law, it was agreed to opt for a Regulation 16 process, and approval from National Treasury was granted for Civitas, Telkom Towers and Public Works House. The two additional projects have been re-submitted for consideration.

It was envisaged that the transaction advisory in terms of Regulation 16 of the PFMA would be appointed in October, and requests for proposals (RFPs) would be issued on three of the PPP projects to the market by March 2024. Further discussions and motivations in terms of two of the properties were still ongoing with Treasury.

Key challenges that required to be addressed by the technical team after the transfer of the ROTP to ISA included:

• A legal opinion on the delivery mechanisms and their compliance to the legislative framework;
• Discussions with the Government Technical Advisory Centre (GTAC) around possible delivery mechanisms;
• Determinations around the requirements for condition assessments, as per the Treasury Approval  1 requirement of the PPP regime; and
• Capacity constraints within the DPWI, specifically on condition assessments.

Mitigation strategies have been embarked on to address key challenges. These involved closer collaboration with the GTAC around the three projects registered as PPPs with National Treasury, and the two projects submitted for consideration to be registered as PPPs, and the finalisation of the appointment of condition assessments teams by the DPWI. ISA also had to finalise the appointment of a transaction advisor to package PPP procurement, and continue its engagement with the GTAC on opportunities for fast-tracking the implementation of the ROTP, including possible exemptions.

The agreed timeline for the first three properties -- Telkom Towers, Public Works House and Civitas -- to be registered for the pilot phase with National Treasury as per Regulation 16 of the PFMA, was during the first quarter. During quarter two, the transaction advisors must be appointed and the drafting and packaging of the Treasury Approval 1 and Approval 11A must commence. The finalisation and submission of Treasury Approval 1 would take place during quarter three, and the completion and submission of Treasury Approval 11A would take place during quarter four, when the RFP would be issued to the market.

The SAPS barracks and DoD apartments would follow a different timeline, as they required further technical assessment before registration as PPPs.

Dr Moemi emphasised that due to the different sizes and purposes of the buildings, timelines would differ, depending on the individual building.

The projected timelines for phase two would take into consideration lessons and experiences from phase one, and it was currently envisaged to do a high level analysis of facilities on the basis of specific criteria of suitable buildings during the 2023/24 financial year. Feasibility studies and the selection of suitable sites in metros and intermediary cities would take place during the 2024/25 financial year, and a selection of suitable sites in district and local municipalities would take place during the 2025/26 financial year.

Dr Moemi said that, in summary, the completion of the pilot phase would contribute towards an improved strategy for implementing phase 2 as part of the overall PMTE optimisation of the state-owned fixed asset portfolio strategy. The optimisation of the state-owned fixed asset portfolio would contribute towards revenue-generating opportunities for the state, in which assets could be utilised for commercial ventures.

In the long term, this project would contribute to the value retention and enhancement of the portfolio, and also direct the PMTE initiative towards improved financial and asset management sustainability.

See full presentation attached

Discussion

Ms A Siwisa (EFF) expressed her disappointment at the lack of reference to "Operation Bring Back" which had been emphasised during a previous presentation by the Acting DG. The Department had previously mentioned that they had a plan to maintain buildings. She asked if this was the plan, or if the private sector involvement was the plan.

Ms Siwisa asked what the plan was to make sure rent was paid. She was concerned that the Department was paying more rent than it received through its properties.

She said that hospitals, schools and SAPS offices were not maintained. She asked what was planned for these buildings to be maintained, and urged that when they did maintenance, they were sure that the buildings belonged to the Department.

Mr I Seitlholo (DA) asked for clarity on the role of the Independent Development Trust (IDT), as he was under the impression that they were the Department’s facility management component, and he asked why ISA had been brought in. He was concerned that the PMTE did not have sufficiently qualified personnel and needed to be restructured. He also said that the DPWI had not provided leadership around property management policies, and had not brought to Parliament the draft Public Works Bill that had been promised since as far back as the 4th Parliament.

He said that there were a number of buildings and properties that could be maintained and renovated by the regions, as they had previously undertaken this. One such example was a proposal made by a school in Wynberg, but the building had now been hijacked. He said the presentation looked good on paper, but he felt that there was no coordinated approach applicable to buildings and properties across the country.

Mr E Mathebula (ANC) said that the Department, as a public sector entity, could not work in isolation from the private sector. He asked why the Department was leasing buildings to the private sector, and if the programme was to generate money. He also asked if leasing properties was profitable, versus the rental that it paid for properties.

Mr P van Staden (FF Plus) said the dilapidated state of the properties was a symptom of inadequate planning and the lack of a maintenance programme. An old and existing problem was renting properties from the private sector, which resulted in a loss of money. He proposed that a proper plan of how the maintenance problem would be rectified and how it would be rolled out, should be presented to the Committee.

The Chairperson said she had been told that ISA would not replace the PMTE, and she was very concerned that there had been mention of another entity by the Minister. The DPWI was the leader on policy across departments, and it should assist Treasury with PPP policies. She emphasised that the Department should lead. She was concerned that there was no routine maintenance, and asserted that if there had been maintenance, it could have prevented the hijacking of buildings.

Department's response

Dr Moemi said that he had noted all the questions the Members raised. The plan was not to ask the private sector to refurbish the buildings, but to ask the private sector to use their own resources to refurbish buildings, and then generate their own revenue through long agreements.

He said the Department would incorporate any plans to curb costs. They would keep within cost guides, not pay inflated costs, and remain within the allocated timeframes.

Ms Makhubele said that through "Operation Bring Back," the Department would target 1 260 hijacked buildings. The supply chain approval to obtain a service provider had been received. They had been successful with one building, and the operation would consist of three legs:

• to recover/identify stolen properties;
• to recover illegally occupied buildings; and
• where possible, to get occupants to pay rent in order to at least pay rates and taxes.

This was a three-year project, starting in January or February 2024.

She said the Department had hoped to bypass the PPP, as it delayed processes, but in light of the legal opinion obtained, the PPP was the only legal route that could be followed for the refurbishment of the properties mentioned in the presentation. She confirmed that the properties would be leased to the private sector.

She said the Public Works Bill was still in draft format, and not yet ready for tabling.

The Department was conducting workshops to upskill regions and provinces to reduce the reliance on contractors for maintenance. Client departments may conduct their own maintenance to the value of R1 million, and the DPWI would be responsible for the bigger projects.

It was a concern for the Department to follow the PPP route when dealing with more buildings. For example, the next phase involved 50 buildings, and they were working with Treasury to see how the problem could be resolved and the process be speeded up.

Further discussion

Mr Seitlholo asked if Circular 135 was an official document and if it was not, he proposed that it become policy.

Ms Siwisa raised a concern that if "Operation Bring Back" had been successful in only one building, she was also of the opinion that three years was too long to wait for the project to be completed. She also raised her concern about the role of ISA, as it was her understanding that they would be responsible for major projects, and now they were doing maintenance.

She expressed her dissatisfaction that the Department had never presented a maintenance plan to the Committee -- they would only come up with the answer that maintenance was routine.

Mr Van Staden agreed that the government must recover buildings, as these buildings belong to the taxpayer. He asked for a maintenance programme of government buildings to be presented to the Committee, together with an asset register, and suggested it could be done in camera if necessary. He asked the Department what their plan was to get past the section 26 hurdle around accommodation for people currently living in hijacked buildings.

Minister Zikalala explained that refurbish, operate and transfer, were not the same as maintenance. The first involved total facilities management, and could be done by the private sector, while the second was geared to build state capacity and re-establish workshops of physical maintenance. Some of these projects were also allocated to expanded public works programme (EPWP) workers. The ROTP was applicable only if the building was dilapidated. He said that with the ROTP, a private entity would renovate at its own expense, lease it out, and give it back to the state after a period of time.

The Minister said that Mr Seitlholo was ill informed and did not understand Circular 135. He explained that Circular 135 could be issued to invite the private sector to invest in these buildings - to rent, renovate and maintain.

The Chairperson again asked the Minister to ensure that the DPWI guided other departments on the construction and occupation of buildings.

Mr Seitlholo said that the Members of the Committee were there to hold the executive to account, and they had always worked well together. The question around Circular 135 had not been a political gimmick -- it had been a genuine question, posed with honesty -- and he requested the Minister to reconsider labelling his question.

Ms Siwisa again asked that the maintenance plan of the Department be presented to the Committee.

Mr Van Staden repeated his request that the asset register be made available to the Committee, and said the discussions could be in camera if the Department had concerns.

Ms Bernice Swarts, Deputy Minister of Public Works and Infrastructure, proposed that the difference between ISA and PMTE be placed as an agenda item for the next meeting, to ensure a clear understanding of the different roles of the two entities. She also suggested presenting the full maintenance plan at the next meeting.

The Chairperson reminded the Committee that the PMTE was on the agenda for the next meeting, and some of the questions raised during this meeting could be asked then. She also agreed with the sentiment of Members that maintenance had been a problem for a very long time. Some attempts at carrying out maintenance could be seen, but the private sector always seemed to be involved.

She also raised the matter of the long-outstanding Public Works Bill.

Committee minutes

The minutes of the meeting held on 5 September were adopted.

The meeting was adjourned.