PMTE on leasing of government properties; with Ministry

Meeting report

The Chairperson welcomed Minister Sihle Zikalala and Deputy Minister Bernice Swarts.

Chairperson’s opening remarks
The Chairperson indicated that the meeting was convened to receive a briefing from the DPWI on its asset optimisation strategy of DMTE. It emanated from the Committee’s concern over the DMTE’s overdraft and its functionality. The Committeewas made aware of the Department’s State Immovable Asset Optimisation Strategyand wanted to know if this strategy would improve the leasing function of PMTE so that PMTE would be functional.

The Chairperson highlighted a few figures on PMTE’s overdraft. PMTE had an average of budget shortfall to the amount of R7 billion. In 2021/22, the entity was operating on an overdraft R1.8 billion. In 2022/23, it operated on an overdraft R851 million.

The Committee’s question to the Department is whether the strategy in place would solve the challenge and ensure that PMTE would be functional in collecting fees from client departments. As the matter stands currently, some client departments are doing their own maintenancework which defeats the purpose of the DPWI which has a constitutional mandate of doing such maintenance work. Should all departments be allowed to do so, she questioned the meaning of PMTE's existence.

Minister’s opening remarks
Minister Sihle Zikalala said the Department’s goal and strategy is to ensure PMTE contribution to government revenue. Both the positions of DPWI Director-General and head of PMTE had been filled. The purpose of the State Immovable Asset Optimisation Strategy is to seek to reduce its lease portfolio and enhance government capacity to house departments through utilising government properties. It is also a means to generate income. DPWI wanted to ensure that all government departments are accommodated properly. Its priority would be to use government buildings to house departments. In the event there is no government funds to do so, PMTE would work through the private sector.

Leasing government property; accommodation of service delivery departments
Mr Siza Sibande, the newly appointed head of PMTE, said the purpose of the PMTE presentation was to brief the Committee on the leasing of government properties and functional accommodation of service delivery departments as well as report on the implementation of the State Immovable Asset Optimisation Strategy under the administration of the Department of Public Works and Infrastructure (DPWI ).

Mr Sibande noted the annexures on PMTE leases with the private sector, state properties PMTE had let to the private sector, list of properties for asset optimisation, the Asset Optimisation Strategy and the DPWI Disposal Policy.

Details of the state-owned property portfolio were provided to the Committee. It was highlighted that in Bloemfontein SAPS has 316 existing private leases and the Department of Justice and Constitutional Development has 146 private leases for its court buildings. It is a concern which PMTE would have to look into as those service delivery departments should be housed on state property and not though private leases.

Details of departments on state leases were provided.

The Department of Defence is PMTE’s largest client accounting for 50% of the state leases; SAPS accounts for 23% of state leases, followed by Correctional Services at 23%, Courts at 3%, Home Affairs at 0,4% and Labour Centres at 0.2%.

Mr Sibande reiterated that PMTE operated on a deficit budget which led to its overdraft. The Minister was concerned because the Department was paying more on private leases than it would on state properties. The shortfall for 2025/26 is R 8.3 billion and R 8.8 billion for 2026/27. The overall shortfall over the MTEF is R25bn. As a result of the shortfall, PMTE cannot deliver the basic services required, backlog maintenance cannot be performed and future refurbishments cannot be executed.

This means further deterioration of the buildings that will lead to the need for more capital injection. The property management function of PMTE entails facilities management, maintenance, repair and construction. This not only creates skills development and job opportunities in government ,but due to the outsourced nature of its business, it also means job creation and economic growth in the private sector.

Allocation of Land for socio-economic benefit was explained to the Committee.

The leasing-in portfolio was provided to the Committee.

The leased-out land portfolio to private entities was not a good one. The Department only generated R102 million as compared to R49 billion in state land assets. The profit was only 0.5%. He pointed out the contradiction that a lessee in Gqeberha pays little rent to PMTE but it generated millions in its business.

Mr Sibande noted from a study which PMTE had recently conducted that although SAPS police stations in the City of Cape Town had fewer private leases, the rental amount per sqm is much lower.

The State Immovable Asset Optimisation Strategy was provided to the Committee. The crucial importance of the strategy was emphasised as the state would need the strategy to be in place in order to manage the state assets which PMTE and the Department oversee.

The main reason for the PMTE overdraft was due to the increase in the debt owed by client departments. This and other matters points to thefundamental question of the existence of the entityas a going concern, which further place themaintenance of state immovable asset at high risk. The challenges were outlined including T’s instruction.

Mr Sibande distinguished the levels of conditions of buildings. Fair means escalators, aircons are working on and off from time to time. The Department is not operating at that level in providing FAIR office space. The Department of Labour and trade unions are inspecting buildings highlighting issues such as fire hydrant, ventilation, escape routes, etc.

The entity’s business operational model,cost benefit analysis, value proposition were all provided to the Committee (see presentation).

Discussion
The input of Ms A Siwisa (EFF) was inaudible due to muffled sound (1:55:19-2:02:36). She mentioned the Department’s leasing-out its own properties. She noted that there were hijacked state properties in Pretoria and throughout the country and asked what has been done to address that. She criticised the Department for the lack of action in implementing its maintenance plan. She commented on the possibility of utilising some of its buildings to DHA so that its offices could operate during load shedding hours since many people have travelled long distance to get to DHA.

Ms Siwisa urged proactive intervention by the Department to deal with its budget shortfall. It was not right that its client departments are doing their own maintenance work despite DPWI having the obligation of doing that.

Ms Siwisa called Telkom Towers a DPWI failure. It is shocking that 2 000 hectares of properties were not being utilised. She questioned how in a democratic state DPWI could lease out properties at R40 per sqm for 25 years? It means that state land and properties are not working in favour of disadvantaged people. To date, DPWI is still unsure of its asset register [2:00:26—2:00:48 unclear]. She criticised it for having grand but unrealistic ten-year long-term plans whereas the Committee is more interested in its maintenance plan on government properties for 2024/25.

She did not think that the Department should dwell on public private partnerships (PPP) because only a certain section of the people benefit under this arrangement and it leaves out the masses. It sent a wrong message to the public that private ownership still prevails.

Mr I Seitlholo (DA) asked if progress had been made in the policy review of the PMTE framework. In the 10 October 2023 committee meeting, the Auditor-General alerted the Committee that PMTE was operating an outdated framework from 2016. That framework was in desperate need of review.

He requested an update on the progress of the Public Works Bill intended to deal with user departments incurring debt and to regulate user departments in their payment of rent and taxes for properties owned by DPWI. This is instrumental for DPWI.

Mr Seitlholo commended the presentation and noted the point which has also been raised by the Auditor-General that DPWI continually failed to deliver high-quality projects in a timely manner and within budget. He commended the DPWI effort in appointing the DG and PMTE Head which helped address leadership instability and governance challenges in the Department.

He wanted to hear if the Department has a sound human resource strategy in retaining scarce-skilled employees in PMTE to deal with its myriad of challenges. The Committee noted the resignation of 158 PMTE employees and the threat of poaching of skills by the private sector.

Mr Seitlholo found it odd that the R100 million Immovable Asset Register did not form part of the presentation. In the absence of an effective register, how was DPWI planning on recovering stolen properties? The absence of an effective register is the root cause why buildings are illegally occupied or abandoned.

He quoted s156(4) of the Constitution which states:
The national government and provincial governments must assign to a municipality, by agreement and subject to any conditions, the administration of a matter listed in Part A of Schedule 4 or Part A of Schedule 5 which necessarily relates to local government, if—
(a) that matter would most effectively be administered locally; and
(b) the municipality has the capacity to administer it.

Given the failure of DPWI and PMTE to manage government buildings effectively, he was of the view that it was necessary to devolve the management of properties and land parcels to capable cities. There is no use for the Committee to sit at these meetings, be faced with the glaring evidence of failure and not come up with solutions. For instance, the City of Cape Town is in dire need of land for housing. This has been communicated with national government extensively about existing state land parcels.

He asked for DPWI plans to engage with municipalities on the need to devolve these land parcels to municipal level so they can be used for alternative housing purposes. The Committee cannot allow thousands of buildings of which DPWI does not know their whereabouts. They can be used for betterment of communities at local government level.

The presentation stated that over 1200 buildings were identified as being illegally occupied. He asked apart from the Immovable Asset Register, how DPWI ascertained that figure and the progress in reclaiming and refurbishing those buildings.

PMTE had a budget shortfall of R25 billion for the MTEF which again required the Committee’s involvement in providing solutions and recommendations.

He referred to the leasing of its portfolio on slide 17 and asked if the revenue had been generated. He asked where the slide 24 land parcels are located.

He referred to slide 27 and asked DPWI what needs to happen to improve the leased out properties so that PMTE could start generate revenue. He did not understand how government properties could be leased to private individuals but yet there is such a low generation of revenue.

It is a shame that the Committee had to learn about the Telkom Towers situation from the news and that the project has been ongoing for so many years since 2015. The issue had been discussed last week. There was a shooting range in the North West which could be used by SAPS for police officer firearm competency training without having to travel over 150km from Britz to Potchefstroom. Committee members had mentioned that to DPWI repeatedly. He urged the Committee to understand that the government would not get anywhere if the national department refused to oblige with the existing legislative prescript to let capable municipalities take over the reins. For example, he urged DPWI to consider the implications for small harbours and to give municipalities the power to run those harbours in order to protect jobs and livelihoods. He criticised DPWI for its obsession that the national government has to retain this burden when it is clearly unable and incapable of putting those facilities into good use.

As the Minister had to leave early, he was allowed to make comments before he departed.
Minister's comments
Minister Sihle Zikalala said whilE he understood Members’ concern if PMTE would drive transformation in the property and construction sector, the presentation gave DPWI's plan and he was confident that the strategy would take it forward and be more effective and efficient with its client departments.

He understood that DPWI would be interrogated in the Committee but he cautioned certain Members using this platform for their own cheap politicking which would dilute the discussion. He disagreed with and cautioned against the devolution of functions as there are some competences that are reserved for national government only. South Africa is a unitary state that belongs to all the people of South Africa and the Committee should not be entertaining backward ideas of federalism.

The plight of the people in the Western Cape is well known, but that is because local government in the Western Cape is failing them including having some of its housing projects stopped. He criticised the Western Cape government's handling of marginalised Africans in certain areas in Saldanha Bay and Hout Bay because the Western Cape government does not view black men as human lives.

Discussion continued
Ms S Van Schalkwyk (ANC) said that the Auditor-General had flagged the PMTE material irregularities as a concern, especially its control environment which is a recurring problem. The Committee needed to see action taken to address the PMTE material irregularities.

She referred to the 141 lease portfolio on slide 17 which had not been reported on. She requested a report on that.

She remarked that the 1 038 private leases for SAPS were extreme compared to other departments. The main intention of Telkom Towers had been to assist SAPS. Yet DPWI still has these unutilised buildings and she was unsure what is happening. She expressed her concern that many of those vacant buildings are regularly hijacked by private individuals. She enquired about DPWI inspection and protection of them such as providing security services at all vacant buildings.

She welcomed DPWI releasing land parcels for public use, particularly the release of 25 land parcel for use by Eskom which she was confident would assist in energy regeneration.

She requested DPWI give plans and timelines on when it would adjust its rentals to multi-million companies to assist PMTE revenue generation as some of those leases are not market-related and not been adjusted for many years. She emphasised the need for DPWI to develop an action plan to improve revenue generation.

She disagreed with the DPWI approach in the disposal of obsolete assets on slide 37. How had DPWI come to this decision without establishing what was needed moving forward? The Department needs to avoid a situation where it disposes of assets it deems obsolete but later would need to acquire such again and at a higher price. DPWI's focus should be on maintenance of those buildings to make them of value to government.

On slide 38, what has DPWI achieved so far? It is important to look at the contributing factors why businesses are leaving inner city areas. She asked why government allowed private sector to abandon inner city areas. She suggested that this may require Nedlac involvement in the DPWI renewal plan.

Mr Seitlholo denied the Minister’s accusation that he was engaging in cheap politicking. He reminded the Minister that the Committee had an engagement with the Public Service Commission on 25 October 2023 where it had learnt about the systemic challenges in properties and facilities. There was specific emphasis on the under-performance and under-spending of PMTE that could be attributed to its inadequate business and funding model resulting in it being unable to compete with the private sector.

The Committee had been engaging with PMTE during the Sixth Parliament and it is an overall assessment that the cons outweighed the pros. Section 156 of the Constitution does not to advocate for federalism. He urged DPWI to operate within the ambit of the Constitution. Committee members are entitled to refer to policy instruments to better DPWI performance.

He found the Minister’s reaction ironic. Compared to the Committee’s constructive interaction with Deputy Minister Swarts, the Minister is always different and it is the second time that he reacted in this way and had to leave the meeting early. The Committee is resolute in its criticism of DPWI and its entities. The Committee acknowledged and applauded the leadership stability now at DPWI.

The Committee had now been discussing those challenges. On various occasions both he and Ms Graham-Mare had sent letters to the Minister. It was unfortunate that as a Committee member that he had to endure such remarks. It is the second time that the Minister was not in the meeting to account for his behaviour.

The Chairperson appreciated the presentation which contained strategies and future plans. She commended the DPWI innovative solution proposing to lease some of its properties to private businesses such as Takealot. The shift for online transactions has contributed to an increase in the demand for warehouses, a niche which DPWI could effectively use to its revenue advantage.

However, she agreed with many of the concerns that her colleagues raised.

The Department seems to be feigning to adhere to the Public Finance Management Act because there seems to be no consequence management when its contractors do not finish their work. It is a concern which the Committee had raised several times. The Committee wanted to see those contractors blacklisted, not only by DPWI but by other departments and regulatory body as well. For instance, the implementing agency for Telkom Towers has failed and continues to fail to turn the property into a habitable place.

The Chairperson did not understand why DPWI still had leases in effect which dated back to the 1940s and 1960s. She questioned who owned those companies given the dated nature of those leases and their relevance in the post-1994 South Africa.

She emphasised that DPWI needed to resolve the many recurring findings that the Auditor-General flagged. The Department has the potential but it fails to do so. It needs to review lease prices and implement the audit findings. By doing that, it will also contribute to the self-sustenance of PMTE so that it would not again be in overdraft.

PMTE response
PMTE Head, Mr Sibande, said it was unfortunate that there was a deficit in Member’s confidence in the DPWI and PMTE. He hoped that the perception would change over time and expressed his confidence that the plan presented would improve DPWI service delivery.

He corrected Members that it was not the intention of DPWI to compete with private sector. Rather DPWI is working with the private sector. The Department understands that its role is to create a conductive environment for the private sector to thrive in. DPWI also works in partnership with local government through the Intergovernmental Framework.

He recognised that DPWI had its challenges. The Deputy Minister is hellbent on developing a technological solution for the DPWI asset register so that the register would be responsive to the needs of the public, its clients and linked to the municipal catalogue. The Department was enhancing its asset register as part of its drive in the new year to ensure that its interface with the local government register in the form of the general valuation roll. The Department’s collaborative initiative to work together with local government would help in bringing in additional rates and revenue in order to generate more income.

The list of the state properties made available to assist human settlements would be shared with the Committee. That report would include details such as which land and how much of the land has been shared with which entity or government.

Mr Sibande commented that some of the recurring challenges in DPWI required leadership to coordinate some of those programmes. The DG has been working on translating some of the DPWI initiatives into actions.

Mr Sibande agreed with Members’ concern about Telkom Towers and other buildings around the city centre of Pretoria. It is not ideal that there is over-reliance on state support and fiscal dependence. The Department’s view is that it should move away from reliance on the state because there is private sector appetite to enter the fray and the value of that should be unlocked. He believed that the effort to support private sector to unlock its potential will turn the situation around.

It was unfortunate that in the past beautiful assets were left to become derelict. He had met with DPWI yesterday and an agreement was reached to improve security for those properties. The Department takes responsibility for its failures and has requested the Minister to dig into the Telkom Towers issues to bring those responsible to account, so that similar mistakes would not be repeated.

DPWI had developed an audit action plan to address the Auditor-General’s findings which would improve its internal governance.

Mr Sibande said he could not comment in the meeting on the 158 employees who resigned over one year and he would have to look deeper into the issue.

The Department is working with National Treasury on the turnaround strategy to improve DPWI's billing capacity.

Mr Sibande assured the Committee that PMTE is not disposing any asset soon as such process would be rolled out in phases. The first phase is to conduct due diligence and so far it has identified buildings that are of no future use to the state. It is also working with other departments such as SAPS to review how to improve properties so that they can be used by SAPS. Overall, the primary objective of PMTE is clear. It has to serve the interest of government departments before it leases out to the private sector.

DPWI response
Mr Sifiso Mdakane, DPWI Director General, noted the Committee’s concern about the Immovable Asset Register and attributed that to DPWI's challenge in the ICT environment. He confirmed that the Department would push hard on that.

Mr Mdakane said that DPWI has a progressive approach in working with municipalities in the distribution of state land parcels. He mentioned the distribution of the Salvokop state land. In the process, DPWI has engaged with various departments to build their head offices there. It also worked with the City of Tshwane to ensure that sewage, water and electricity were done in a way that is amicable. So far that project has been moving in a positive direction. A similar project was being undertaken in Limpopo as well.

He said DPWI would ensure that the recurring material irregularities would be addressed.

On SAPS leases, government's intention had been that 13 SAPS leases in Pretoria would lapse after it had acquired Telkom Towers. There had been lapses which resulted in the challenges DPWI faced today. The progress is that there have been engagements between the Police and Public Works Ministers and himself and SAPS National Commissioner on expediting the use of state buildings for SAPS.

He noted Members’ comment on hijacked buildings. The sooner DPWI could move to the programme of leasing out those buildings so that they were occupied, the sooner these invasion would be resolved. On that note, DPWI is conducting condition assessments across the Department’s buildings and pushing Total Facility Management (TFM) to maintain habitable buildings.

He could not agree more with Committee members on the importance of consequence management for contractors. DPWI would provide a report that deals with contractors who defaulted so the Committee could also monitor those measures and guide DPWI.

Finally, Mr Mdakane agreed that DPWI has a huge potential to raise revenue and it took note of that.

Deputy Minister’s closing remarks
Deputy Minister Bernice Swarts welcomed Committee members’ progressive positive criticisms.

She updated the Committee on the progress of the Public Works Bill. The Department is engaging the Office of the Chief State Law Advisor to pre-certify the Bill. Meanwhile, DPWI consultation with provinces was underway. The Department is reviewing the implications of the 58 pieces of legislation under DPWI. The entities that have been consulted included Council for Built Environment (CBE), Eskom, the Presidency, DBSA, Department of Water and Sanitation and Department of Human Settlements. It is anticipated that the process would be concluded at the end of August 2024.

The Deputy Minister explained the complexity of the functional accommodation that SAPS requires. SAPS leases properties for its police stations, dogs units, horse mounted units, SAPS garages, and SAPS 13 stores for stolen vehicles and SAPS provincial headquarters. The extreme number of SAPS leases need to be located within that context. Eventually, a conversation should be held on what SAPS is trying to do to shift to permanent buildings instead of leasing a four-room farm house with leases dating back to 1944 or having a container police station instead of a proper brick-walled police station. That discussion requires the participation of multiple stakeholders including the Committee, DPWI and SAPS.

The Deputy Minister remarked that PMTE Head, Mr Sibande, had been appointed into a blazing fire due to PMTE’s former instability.

The Deputy Minister emphasised the crucial role of an integrated ICT system for the operation of the Asset Register. The Department has to oversee 88 000 buildings. In the absence of a property leasing system, the Auditor-General would continue to flag this as a concern. For a turnaround strategy which is informed by a proper technological solution, DPWI is working around the clock and is going to the market for ICT assistance apart from the assistance received from SITA. The Department hoped that this solution would assist DPWI to build an integrated ICT system that address properties being hijacked. In the absence of such a system, DPWI is unable to instantly be notified when a building has been abandoned or hijacked. For example, at the moment DPWI would only find out later through its eleven regional offices when SAPS abandons its buildings.

The Deputy Minister was confident that Operation Bring Back will assist DPWI in reclaiming properties. PMTE is look at establishing a unit that could oversee 88 000 buildings.

She could not comment on the Minister’s earlier remark and asked Members to write to the Minister if they needed a reply.

The Deputy Minister suggested the Committee include aspects that needed to be improved on and achievements which DPWI had achieved in the Sixth Term in the Committee legacy report. That would ensure continuity in the transition to the next Committee.

The Chairperson thanked Deputy Minister and said that the Committee was there to help DPWI and hopefully its inputs would help improve DPWI performance in future.

The committee minutes of 28 February 2024 were adopted and the meeting adjourned.