Medium Term Budget Policy Statement: Department briefing

Meeting report

PUBLIC WORKS PORTFOLIO COMMITTEE
9 November 2005
MEDIUM TERM BUDGET POLICY STATEMENT: DEPARTMENT BRIEFING

Chairperson: Mr F Bhengu (ANC)

Documents handed out:
Department Power Point presentation on Medium Term Budget Policy Statement
Department comments on Medium Term Policy Statement

SUMMARY
The Department of Public Works briefed the Committee on the Medium Term Budget Policy Statement. The devolution of budgets, introduction of accommodation charges and creation of a trading entity would fundamentally change the management of accommodation-related immovable assets at a national level. It should result in greater efficiency in the management of those assets over time. There would be a large increase in the funds available for maintenance over the Medium Term Expenditure Framework.

The SAPS would be involved in a pilot programme to gradually take over maintenance of police stations, though the Department hoped its improved service delivery programme would enable them to keep other departments as clients. Provinces as part of the provincial equitable share would provide the funding for the expansion of the Extended Public Works Programme in the social sector.

The Committee raised concerns about the potential negative effects of the devolution process on the Department. The provincial equitable share allocation for the Extended Public Works Programme in the social sector would need to be closely monitored. The need for a common position on the disposal strategy regarding the land moratorium was noted. There would be increased financial costs for departments having to set up new infrastructure to carry out service and works functions.

The Committee discussed deadlines for the adoption of reports from the year’s work and proposed overseas visits for next year.

MINUTES

Medium Term Budget Policy Statement (MTBPS): Department of Public Works (DPW) briefing
The Committee had requested the Department to present them with the financial effect of the MTBPS on the DPW budget, any other allocations requested from National Treasury, changes to Department activities due to the MTBPS, and the effect of allocations on service delivery.

Dr S Phillips (DPW Chief Operating Officer) explained that the MTBPS stated that national Departments would take over financial responsibility for their accommodation from 1 April 2006, as proposed in the 1997 Public Works White Paper. The motivation for the change was to see an increase in transparency in departments’ budgets. Individual departments would also become responsible, for example, for their own electricity and water bills, as well as lease costs and rentals for state-owned property. That would introduce incentives for the more efficient use of immovable assets and services. Funding for maintenance of immovable assets would be improved, as DPW alone would no longer be responsible for motivating for maintenance and improvements to buildings.

The DPW budgets that would be devolved were leases, maintenance, property rates, and municipal services. Dr Phillips explained that while the budgets would be devolved from 1 April 2006, the functions would not. The DPW would continue to service their client departments. The funds would be paid back to the Department in the form of accommodation charges.

DPW would use the additional income from the accommodation charges to pay leases on behalf of departments, carry out maintenance and refurbishments to state-owned buildings, and build up a capital reserve for capital works. Treasury had provided funds to capitalise a trading entity, an interim mechanism, in the 2006/07 financial year.

Some departments wanted to take over the management of their properties from DPW, particularly the SA Police Services (SAPS), Defence and Correctional Services. DPW would be implementing a turn-around/service delivery improvement programme to retain clients. However, in discussion with National Treasury and SAPS, DPW were negotiating a pilot programme whereby SAPS would gradually take over management, building and maintenance of police stations. SAPS would have to develop specialist capacity to do so.

Dr Phillips provided preliminary figures for additional funds requested in the 2005 budgeting process. The largest amounts were for Extended Public Works Programme (EPWP) training and mentorship, and for maintenance. The maintenance allocation would be significantly increased, particularly when looking at the proposed figures for maintenance and capitalisation of the trading entity together.

The devolution of budgets, introduction of accommodation charges and creation of a trading entity would fundamentally change the management of accommodation-related immovable assets at a national level. It should result in greater efficiency in the management of those assets over time.

Requests to Treasury for allocations for EPWP social sector programmes had been refused. Provinces as part of the provincial equitable share would provide the funding for the expansion of the EPWP in the social sector. DPW would continue to motivate the funds to be allocated to the Department.

Discussion
Mr I Blanché (DA) commended the Department on long overdue changes. He asked whether the Department would be responsible for property taxes on the unused properties. In metropolitan areas, many had been appropriated for roads to be developed only in the next ten to fifteen years. Who would be paying local taxes in the interim?

Dr Phillips responded that the provinces would be responsible for property rates for provincial roads. Property rates for properties earmarked for national roads would be the responsibility of the SA National Roads Agency (SANRA)

Ms C Ramotsamai (ANC) asked for elaboration on the trading entity. The Department explained that it was an artificial accounting mechanism. It would receive and allocate funds that could be used for maintenance and could eventually be taken over by a government agency.

Mr Blanché hoped that the trading entity was only an accounting entity in the Treasury and would not compete with the private sector. Dr Phillips assured him that it was not a commercial profit making entity.

Mr Gogotya asked who had the right to call on the funds in the trading entity and what mechanisms had been put into place as safeguards to misuse.

Ms Ramotsamai asked if the new maintenance allocation would help with the enormous backlog. Dr Phillips said that the Department felt the funds would be a good start. The increases were substantial. The existing baseline figure for maintenance of national government properties for the next financial year is R951 million with an additional fund allocation for maintenance of R200 million which is a more than 20 percent increase. DPW could also use part of the R580 million additional funds for capitalisation of the trading entity for maintenance as well, which altogether would mean a 30 to 50 percent increase in one year for maintenance budgets. It was important to note that the allocations would need to continue increasing over the next ten years, in order to successfully meet annual and backlog maintenance needs. The maintenance backlog would then be addressed within fifteen to twenty years as planned.

Ms Ramotsamai asked if the proposal to sell unnecessary properties was still being considered. Dr Phillips said that a full time disposal unit within the Department was in place. A disposal policy and strategy was being finalised to make sure that when properties were disposed of Black Economic Empowerment (BEE) goals were achieved. However, even if all properties not needed for service delivery were disposed of, the funds would be relatively small compared to the maintenance backlog. Treasury had agreed that the trading entity would receive those revenues.

Ms Ramotsamai asked if the devolution to departments would result in staff retrenchments within DPW. Dr Phillips noted that apart from the SAPS pilot project, DPW would not be devolving its functions to other departments. The devolution would have no negative effect on DPW staff. In fact, with the shortage of project managers in South Africa, it would lighten the overloaded project manager’s work to a more manageable ratio of projects to managers. The devolution would see increased capacity needed in the financial section of DPW.

Mr Blanché felt that the devolution down to local level was an excellent move as a better job could be done. He thought that the Education Departments were looking after their own buildings. Dr Phillips responded that only the Gauteng Education Department had a works section and was responsible for its own buildings. Provincial DPW serviced all other Education Departments. The introduction of accommodation charges would only be made at a national level. All provinces made their own decisions about works functions.

Ms T Nwamitwa-Shilubane (ANC) asked if the re-allocation of parliamentarians from various parliamentary villages were still under discussion.

Ms Nwamitwa-Shilubane asked if the provincial equitable share allocation for the EPWP in the social sector would be closely monitored to prevent those funds being used in other areas. Dr Phillips recognised that DPW would have preferred a system of allocating conditional grants to provinces for social sector EPWP. DPW together with the Department of Social Development, would be monitoring closely and reporting to the Committee, National Treasury and Cabinet.

Mr L Maduma (ANC) asked about the Tshwane Inner City Programme (TICP). Dr Phillips said that Cabinet approval had been obtained for the programme. The Department was working in close partnership with the Tshwane Metropolitan municipality. It involved improving the head offices of departments as well as the surrounding urban environment. The aim was to improve the working environment and buildings for public servants. Issues of safety, greening, roads, pedestrian walkways were all part of the spatial development plan that had been submitted.

Mr Gogotya asked what plan of action was in place to address similar needs in other government buildings throughout the county.

Mr E Magubane (ANC) asked if black maintenance companies were doing a good job, how many there were and what type of maintenance work they were engaged in. Dr Phillips said black maintenance companies were doing a good job. He did not have the figures on hand, but would provide them to the Committee. The roll out of the Construction Industry Development Board (CIDB) register would enable the Department to have a thorough understanding of the industry and create improved emerging contractor development programmes. The register provided data of the percentage of black contractors at each level and areas with shortages could be identified.

The maintenance programme was under way. Confusion may have arisen about the request for contractors to hire unemployed workers as part of a training programme to address artisan shortages. That had been delayed. The Department had a good record of capital and maintenance budget expenditure, which is why it was receiving additional funds.

Mr N Gogotya (ANC) asked what the other departments’ reactions had been to the new proposed changes. Dr Phillips responded that departments were comfortable with the proposals and had been kept informed of the process.

Mr M Likotsi (PAC) asked if the devolution to other departments was a reflection of DPW’s inability to provide service. He was concerned that the result of the changes would be DPW staff retrenchments. Dr Phillips noted that the Department had been frank about problems with the level of service delivery. DPW was working on a turnaround programme and was in the implementation phase. The Department did not think many client departments would go the route of managing their own immovable assets. Most would focus on their core functions and leave service and works tasks to DPW.

Mr Gogotya asked for elaboration of incentives offered to client departments. Dr Phillips explained that as departments became responsible for their own water, electricity and rental budgets, they would have more incentive to keep the costs down and curb wastage. While the DPW remained responsible for those costs, departments had no regard for expenditure.

Dr Phillips explained that departments would have a new item on their budgets for accommodation. DPW would effectively act as ‘landlord’ and invoice departments for the use of state properties.

Mr Likotsi asked about unused property costs. Dr Phillips said there were maintenance and property taxes for unused properties. The three-year disposal programme was aimed at disposing of useless properties.

The Chairperson asked Dr Phillips his opinion on the land moratorium and its impact on DPW’s disposal plans. Dr Phillips said that the Department had an ongoing relationship with the Housing Department. DPW was to be kept informed about which land was to be allocated for housing, and it would not then be disposed of. He suggested the asset register should be analysed and appropriate properties reserved for that purpose.

The Chairperson stressed the need for a common position on the disposal strategy regarding the land moratorium. An audit should be completed identifying land required.

The Chairperson said he had inspected a government residence in Rondebosch recently, and it had been in a state of neglect. He questioned the efficiency of WSP, the management company whose contract had been extended and requested a copy of their contract. The Committee had been told of a clause, which enabled the company to be given additional work. He felt that millions had been spent and their work was shoddy.

Dr Phillips felt that maintenance was probably deficient in some areas, due to lack of funding. There was a need for proactive regular inspections rather than reactively waiting for complaints. He agreed to provide the Committee with the contract and thought it was currently out on tender.

The Chairperson expressed concern that the devolution issue reflected negatively on DPW performance. He asked if there were any international case studies showing pilot projects. In Canada, he believed the service functions had been handed back to public works after attempting to devolve those functions onto individual departments. Dr Phillips said that DPW participated in international forums of Public Works Departments. The problem of centralisation and decentralisation was a common problem worldwide. Countries had gone full circle repeatedly.

Mr H Maluleka (ANC) argued that there would also be increased financial implications for departments having to set up new infrastructure to carry out those functions. Dr Phillips agreed that a department such as the SAPS would have to develop management capacity in a situation where there was a shortage of those skills and private sector competition.

Mr Blanché asked if the Department was going to run a media campaign, informing municipalities that accounts such as water and electricity were being handed over. Many police stations, for example, ran heaters all winter with no regard for cost. Dr Phillips assured him DPW was engaging with municipalities and it would be part of a long process with teething problems.

The Chairperson stressed the importance of running media campaigns to make the public aware of the good work being done by EPWP on the ground.

Adoption of Reports
The Chairperson said that reports on oversight visits, DPW annual report briefings, the Independent Development Trust (IDT), CIDB and the Committee programme would be circulated by end of day. Members’ comments and amendments needed to be in by Monday, 14 November as Wednesday, 16 November was the deadline for tabling all reports for the year.

The Committee agreed that recommendations made during the year had not always been acted upon. It was important to go through the minutes and make sure that those areas were highlighted and addressed.

Proposed visits
The Chairperson confirmed the Committee’s visit to the Philippines and London. A delegation of six had been agreed upon. ANC delegates would consist of the Chairperson, Mr Maduma, Ms Ramotsamai and Mr Gogotya. Mr Blanché of the DA and Mr Likotsi of the PAC would make up the final two delegates.

The delegation would be adjusted for the proposed trip to the USA. The Chairperson stressed the need for organising a trip to Canada and China next year. It would be important to study cases where public works had devolved, while DPW was going through that same process.

The meeting was adjourned.