Roads and Transport Provincial Departments First Quarter Conditional Grant 2006/07: hearings

FINANCE SELECT COMMITTEE
13 SEPTEMBER 2006
ROADS AND TRANSPORT PROVINCIAL DEPARTMENTS FIRST QUARTER CONDITIONAL GRANT 2006/07: HEARINGS

Chairperson: Mr T Ralane (ANC) (Free State)

Documents handed out:
Kwa-Zulu Natal Department of Roads and Transport presentation
Gauteng Department of Roads and Transport presentation
Western Province Department of Roads and Transport presentation
Limpopo Department of Roads and Transport presentation
Eastern Cape Department of Roads and Transport presentation
Free State Department of Roads and Transport presentation

SUMMARY
Kwa-Zulu Natal said that they had spent 25% of their budget in the first quarter, and were actually going to slow down spending to remove the risk of overspending. The Department needed a further allocation of R18 billion over the next five years. They had enough capacity and evaluation systems in place to deliver on their mandate.

The Western Province said that their capital expenditure for roads infrastructure for the first quarter amounted to R114 298 million or 12.6% of their budget. There was a slow start to spending in the quarter on the conditional grant. In terms of their capacity to spend, skills in engineering and quantity surveying were in short supply and posts were hard to fill.

The Eastern Cape said that they had been allocated R742 057 million and had spent R175 910 million (24%) by the 30 June 2006. Reasons for the variances were that some of the projects are starting in September 2006. Challenges included prevailing provincial conditions such as backlogs and climatic and geological problems.

The Free State said that on roads, they had spent R12.2 million in April which was a bit low, R39 million in May and R43 million in June. This amounted to under-expenditure of R52 million over this period. This was caused by the re-planning in March and April necessitated by the heavy rains that affected the Province. Some of the challenges the Department faced were that planning procedures were still not where they should be and there were still problems in project management including monitoring. There were still challenges created by the backlogs caused by the floods and there were problems in attracting more skills.

Gauteng said that in capital expenditure, R69 658 000 (16%) had been spent of the R432 554 000 budget which was a bit low due to disruptions caused by heavy rains. Projections were however, that the full allocation was going to be spent. The delay in the sign-off of the financial implications of the Gautrain project may lead to under-expenditure. Indications were that the financial closure would be reached towards the end of September 2006 and this milestone would accelerate expenditure.

Limpopo said that of a R1 100 888 000 budget, R156 676 000 (14.23%) had been spent. The Road Agency Limpopo submitted monthly, quarterly and annual reports to the Department and the Provincial Treasury.


MINUTES
Kwa-Zulu Natal Department of Roads and Transport Presentation on 1^st Quarter Conditional Grants.
Dr K Mbanjwa, Head of Department (HOD), said that their allocation for infrastructure was R1.825 billion, with R1.477 billion came from their own fiscus with the remaining 348 million coming from the Provincial Infrastructure Grant (PIG). They had spent 25% of their budget in the first quarter, and were actually going to slow down spending to remove the risk of overspending. In terms of some outputs, they had committed to build 59 gravel roads in the Empangeni Region and had so far completed eight. In the Ladysmith area, they had spent R10.5 million.

The Department needed a further allocation of R18 billion over the next five years. They had enough capacity and evaluation systems in place to deliver on their mandate. Massification of their rural growth and development was not possible unless supported by appropriate transport infrastructure. 

Discussion
The Chairperson said that he was worried that they had only spent 17% of their equitable share. Dr Mbanjwa had claimed that they had spent 25% of their budget but the Treasury report said that they had only spent 19.3%. Why did they not first use their equitable share budget and then use the PIG? Provincial Treasuries were erring in making PIG available too easily. It should only be disbursed on the basis of Departments’ capacity to spend. Since they had only spent 17% of their equitable share it was clear that they did not have that capacity. They were failing to spend R1.4 billion and yet they wanted R18 billion more.

Mr E Sogoni (ANC) (Gauteng) said that Provinces were rushing to spend money but the important thing now was to ensure that there was quality work being done.

The Chairperson announced that there was new funding for Municipalities for public transport infrastructure and systems of R519 million for this year and R624 million for next year from the national Department. It was meant to accelerate planning and the construction and improvement of new and existing public transport and systems. It would be very interesting how they were going to disburse this without duplicating what Provincial Departments were doing.

Western Province Department of Roads and Transport Presentation on 1^st Quarter Conditional Grants
The Acting Head of Department said that their capital expenditure for roads infrastructure for the first quarter amounted to R114 298 million or 12.6% of their budget. There was a slow start to spending in the quarter on the conditional grant (CG) as the cash-flow had adjusted to compensate for difficulties in accessing certain areas, delays in awarding tenders and delays in obtaining environmental assessment approvals.

On public transport, R8 million would be transferred to the Department of Public Works and the construction of an impoundment facility at Beaufort West would was planned to begin later in the year.

In terms of capital expenditure on agriculture, R3.536 million or 31.43% of the budget had been spent. The total included a rollover that had been requested of R4.319 million. Public Works had therefore already spent more than 75% of its original budget of R2 million in the first quarter.

In terms of the Department’s compliance with the Division of Revenue Act (DORA), they had submitted detailed infrastructure plans for the 2006 budget by the 14^th of April 2006 for Departments that were targeted by the grant. The Department was expected to prioritise the rehabilitation of class 2 roads and identified the freight corridors that executed the projects in accordance with the Extended Public Works Programme (EPWP) tender and design guidelines.

In terms of their capacity to spend, skills in engineering and quantity surveying were in short supply and posts were hard to fill. There were programmes in place to deal with this problem in the long term.

Discussion
The Chairperson reminded the Department that DORA directed that Departments must not spend more than 1% of their budgets outsourcing external capacity.  

Ms D Robinson (DA) (Western Cape) said that she was really concerned about the low spending and the lack of capacity in the Province. Did they have any solutions to these problems?

The Chairperson said the Province had to respond in writing to these concerns.

Eastern Cape Department of Roads and Transport: 1^st Quarter Conditional Grants
MEC T Mhlahlo said that they had been allocated R742 057 million and had spent R175 910 million (24%) by the 30^th of June 2006. Reasons for the variances were that some of the projects are starting in September 2006 such as Ugie Langeni phase 3, the Middledrift to Alice road and the T15 Mt Frere to Mt Fletcher phase 1. Also, some projects were being completed in the first quarter.
 
In managing and monitoring, Departmental officials attended monthly site progress meetings. In addition the (Chief Financial Officer) CFO and programme manager conducted random site visits on the progress of the contracts. The Department submitted a detailed quarterly report, which captured the full details of the projects including the allocation for the year, the expenditure for the period in question and the outputs achieved.

Specific reports were submitted on progress made with respect to social indicators such as employment, BEE and local resources. Monthly in-year Monitoring reports were also submitted to the Provincial Treasury to monitor the expenditure. The South African National Roads Agency (SANRAL) implemented three projects on behalf of the Department in terms of a service level agreement monitored by Departmental staff.

Challenges included prevailing Provincial conditions such as backlogs and climatic and geological problems. Capital expenditure outweighed the maintenance allocation (R1.071 billion) where currently, capital expenditure was 60 % of the total roads budget of R1.795 billion. There was a lack of adequate funding for roads, and currently only 35% of their maintenance needs were being met. They also needed to improving internal technical capacity. There was a long and resource hungry procurement cycle and the quarterly transfers from National Treasury did not match actual project cash-flows. 

Free State Department of Roads and Transport: 1^st Quarter Conditional Grants
MEC S Mohai said that R550 million was allocated to roads infrastructure, transport was allocated 19.9 million and traffic was allocated R112 million. On roads, they had spent R12.2 million in April which was a bit low, R39 million in May and R43 million in June. This amounted to under-expenditure of R52 million over this period. This was caused by the re-planning in March and April necessitated by the heavy rains that affected the Province. In terms of the new projections, most of the money for the financial year would be spent by the end of December and they were engaged with Treasury to obtain extra funds.

In terms of the Department’s capacity to spend, they had built the requisite capacity within the Department to make sure that they did not outsource the skills. About 22 posts for engineers were filled at various levels. There was still a challenge to compensate them appropriately however and this meant that administration costs were going up.

He admitted that there had not been any expenditure for the EPWP as they had to implement intervention measures to repair the rain-damaged roads. The Department also had challenges in dealing with the Departments of Sport, Arts and Culture and Environmental and Tourism as they had to re-plan. Expenditure for these Departments was very low.

Some of the challenges the Department faced were that planning procedures were still not where they should be and there were still problems in project management including monitoring. There were still challenges created by the backlogs caused by the floods and there were problems in attracting more skills.  The Taxi Recapitalisation Project had also caused them some problems as they had to make sure that their testing stations were compliant as they were critical to the process.

Some of the interventions employed were ensuring that the Department was appropriately staffed they had changed their planning patterns, had ensured the fast-tracking of payments to service providers and they were also streamlining their operations.

Discussion
The Chairperson said that the Department claimed to adequate capacity to spend but their spending patterns told a different story. Also, their actual spending out-stripped their cash-flow.

Mr Sogoni said that the picture was not as good as it seemed to be because the Auditor-General had noted 29 issues that the Department had to deal with. In one instance R22 million went missing and was unaccounted for.

MEC Mohai replied that the R22 million referred to property management contracts and really did not affect the Department.

Gauteng Department of Roads and Transport: 1^st Quarter Conditional Grants
Mr D Sedumo, the Chief Financial Officer/Acting Head of Department, said that the Department had R163 098 million and had spent R34 834 million. In capital expenditure, R69 658 000 (16%) had been spent of the R432 554 000 budget which was a bit low due to disruptions caused by heavy rains. Projections were however, that the full allocation was going to be spent.

Key projects were the construction of the dual carriageway and two intersections for Cosmo City; the construction of K60 in Sunninghill; construction of a dual carriageway from Dalpark to Heidelberg - K109 Old Heidelberg road and the rehabilitation of the Cullinan road in the Dinokeng area.

He then gave a progress report on the Gautrain. The delay in the sign-off of the financial implications of the project may lead to under-expenditure. Indications were that the financial closure would be reached towards the end of September 2006 and this milestone would accelerate expenditure. The budget was R4 641 000 000 of which only R254 405 (5.5%) had been spent.

Mr G Martins, the Deputy Director-General of Public Works said that in capital works, 16% (R24 981 080) of the R150 315 000 had been spent. Expenditure in the April was low due to the commencement of work on site. New projects started this financial year had a low capital expenditure in the first month. To ensure that expenditure was maintained at minimum average of R12 million per month in accordance with the budget allocation, the under-spending in April was being factored into the proceeding months. Monthly project review meetings were held to monitor expenditure.

In maintenance, 32% (R6 434 792) of the R20 million had been spent. Pretoria had the largest number of Public Works facilities that were required to be maintained; hence the budget allocation was large in comparison to the other regions. Expenditure is in line with the projections and monthly project review meeting were held to review progress and outputs.

Some of their future plans were the introduction of multi-year financial budgeting and implementation for projects and life cycle budgeting to be developed at project identification phases. Construction Contact Centres were to be established to assist with contractor development and project assistance.

In monitoring capacity and planning, monthly expenditure report meetings were held between programme managers and the Finance branch. Senior quarterly management meetings were used to discuss performance of the various programmes and the Executive Management committee also received monthly expenditure report from the CFO. The HOD and Deputy Director-General of Public Works held one-on-one meetings with individual managers from time to time to ensure accountability for service delivery.

At unit level performance was monitored against operational plans and monthly and quarterly infrastructure reports were sent to Treasury. Project Management Resource Groups assisted in ensuring performance happened at site level. Client Departments needed to have plans developed and implemented.

Limpopo Department of Roads and Transport: 1^st Quarter Conditional Grants
The Chairperson heavily curtailed the presentation and told Dr T Farisani, the Chief Financial Officer/Acting Head of Department, to focus only on the Department’s monitoring capacity. In this regard, Dr Farisani said that of a R1 100 888 000 budget, R156 676 000 (14.23%) had been spent. 

The Road Agency Limpopo submitted monthly, quarterly and annual reports to the Department and the Provincial Treasury. They also submitted any report that may be requested at anytime to comply with the Department and Provincial Treasury. Service level agreements were signed after the awarding of tenders to contractors.

Discussion
The Chairperson said that the Limpopo Department still owed the Committee answers from issues it had raised during their last meeting. They were still waiting.

Mr Sogoni said that in the future there should be a harmonisation of the Departments’ reports. The Committee should get the same reports as the National and Provincial Treasuries. 



The meeting was adjourned.