Problems & Solutions Related to Marine & Coastal Management & the Marine Living Resource Fund: briefing by Minister

ENVIRONMENTAL AFFAIRS AND TOURISM PORTFOLIO COMMITTEE
3 November 2006
PROBLEMS AND SOLUTIONS RELATED TO MARINE AND COASTAL MANAGEMENT AND THE MARINE LIVING RESOURCE FUND: BRIEFING BY MINISTER

Acting Chairperson: Mr L Zita (ANC)

Documents handed out:
Status of the MLRF to the Portfolio Committee

SUMMARY
The Minister of Environmental Affairs and Tourism and the Director General presented the issues surrounding the Marine Living Resource Fund and its mismanagement and structure. They highlighted the position of the fund away from the Department as being a critical challenge. In addition the previous management and structure of the fund made it unsustainable. They showed what steps were being taken to get the fund into order. The Committee made suggestions on how the fund could be better managed and all agreed that the fund should be under one authority and that should be the Department of Environmental Affairs and Tourism. The issues around the cost of the Departments’ sea vessels were discussed.

MINUTES
The Minister and Director General of Department of Environmental Affairs and Tourism (DEAT) presented a viable strategy to take them through the difficult times associated with Coastal Management.

Minister Marthinus Van Schalkwyk (Minister of Environmental Affairs and Tourism, DEAT) said that the Director General would make the presentation. He said that they had a long history at the Marine and Coastal Management (MCM). The decisions taken in the 90’s were problematic. The fund was established in 2001. He appreciated that the Committee would apply their mind to the structure and position of the fund. He did not think it was right to have the fund outside of the Department. They inherited this structure and must deal with it and turn it around. He assured the Committee that it was being dealt with. The Director General would give a broad overview of the generic challenges.

Presentation on the Status of the MLRF to the Portfolio Committee
Ms Pam Yako (Director General, DEAT) presented the generic issues associated with the Marine Living Resources Fund which she divided into three categories; income and expenditure, financial and internal control and governance. The last two were also dealt with in the Auditor General’s report. The fund was established in 2001 and is made up of money from the Government and from the Industry. Salaries were paid for by Government and operations were covered by the Industry. This was the model that the Department inherited.

The running costs of the vessels, especially the fuel cost is problematic. The increase in cost could not be transferred to the industry. There was an absence of a cost recovery framework. The Department needed to put one in place. The fund is for public entities and so management of it should be different. The Government worked on a cash account but public entities used an accrual account. In order to remedy the situation, the Department needed to recover money from the service providers as they were essentially given a product that did not work. They had difficulty in getting financial statements and had changed to a system of tendering.

In terms of governance of the fund, the Department is responsible for its management. Officials should therefore have an oversight responsibility. She explained the origin of the fund and the various sources of income including money gained from the sale of confiscated abalone. The income vs. expenditure graph made the fund look healthy but that was because it included money from the Government for the vessels. The income thus looked artificially high and decreased from 2004 when the vessels were put in full operation.

Mr A Ismail (Chief Financial Officer, DEAT) explained the financial graphs further, explaining that for every R1 of the fund, 83c is spent on the vessels.

Ms Yako stated that the cost for running the vessels was mostly (60%) due to fuel costs. She listed the challenges to the fund’s management including a lack of staff training. To remedy the situation, the Department was putting a cost recovery framework in place. The abalone stock could generate money but it was a perverse incentive as they got more money from catching poachers but their real responsibility was to keep the abalone in the sea. It was not sustainable or desirable. In the future they do not want this to be the source of income. A big problem was the lack of source documents.

Minister van Schalkwyk added that the historical dimension of the fund cannot be used as an excuse for mismanagement. He did not think it could ever be self funded. He felt it was wrong to take the fund out of the Department and he had his own ideas about what to do about it but wanted to hear the Committee’s opinion. They wanted to solve the problem but it would take a very long time.

Discussion
The Chairperson asked why some of the ANC members had arrived late.

They replied that they had been at the wrong location and this was due to a misunderstanding.

Mr M Swart (DA) said that it was a serious situation and they needed to ensure that the fund was turned around as soon as possible. It must be under the control of the Department or somewhere else. The Director General had raised the issues of concern. The vessels made the fund low and they did not anticipate the running costs. This indicated bad management. It was important to have the vessels, were they a good investment? If the service providers were fired in 2004, why were new people only being hired in 2006? There was an obvious lack of dedication. Who was accountable for the mess? They needed to determine this even though the money was irretrievable. The Annual Report of 2002 indicates that the CFO is the head of the fund and the Director General and CFO together are responsible. It also stated that a risk assessment and internal audit would be done but nothing happened in the next 4 years. Who was responsible and did they get a performance bonus?

Mr M R Shah (DA) asked if value had been put to the vessels as they stand currently. Why did it take so long to decide that more capacity was needed as a solution? Would throwing money at the problem really help? He appreciated the Minister’s frankness. The vessels were not a good business as they are not financially sustainable. He could not understand the idea to begin with and they must be held responsible.

Ms J Chalmers (ANC) said that she was impressed by the presentation. The vessels were so expensive, was there any way they could bring money in by chartering them out? Has this idea been examined? They could be useful all over the world, not just to South Africa. She added that she hopes the no go zones for harvesting in the Western Cape would also happen in the Eastern Cape.

Mr A D Mokoena (ANC) stated that neither the DG nor the Minister were culpable for the trouble. The Chairperson had previously asked him to attend the public hearings on the issue and he was horrified at what was said. These issues did not surface. The MCM is a public entity and is a cave without the MLRF. A similar issue arose with Eskom. The Committee are legislators. They need a conference on the MCM and MLRF. There is no provincial connection. They need integrity between the provinces. The MCM in KwaZulu-Natal do what they like without deliberation with the rest of the country.

Ms R A Ndzanga (ANC) said that there was not much to say after Mr Mokoena’s statement. The Minister and the DG were not to blame. They got into this mess and the person responsible was gone. They should be brought back and held responsible.

The Chairperson said that they will have another round of questions. The Committee has a clear consensus. They must discuss the sustainability of the fund and the perverse incentive issue. They may need a system of levies. Abalone sales must be only a bonus. The model of the fund must be looked at. They cannot turn it around quickly. They need briefings on a quarterly basis to see what the trends are.

Ms Yako replied that they had tried to charter the vessels out. One vessel had just returned which generated about R4 million of income. They had looked at the cost to have in port vs. out to sea. It costs R220 000 per day per vessel to be in port and R690 000 per day per vessel to be at sea. There was difficulty in managing the purpose of the vessels. They were for research and to patrol. It was a very difficult decision that must be taken every day. They were supposed to be for patrolling and not to be chartered. With regard the lack of foresight, some things were difficult to foresee like the fuel cost increase. Other industries did not foresee such an increase. It was different in banks, for example, where the public absorbs the cost, but the Department had to in this case as the fishing industry was not able to. They had not weighed the cost of patrolling vs. income from abalone sales. The financial structure could have been quicker. They would need to relieve the CFO of other responsibilities so that he could focus on this issue. They were supposed to review the risk assessment annually. The DDG of MCM was supposed to do this though she does not want to point fingers. Things could have been done better. They should not hang on to the past but rather move forward. There was a workshop that day to develop a risk assessment for the fund. It would be ready by the end of November. Putting more money into the vessels was not simply throwing money at them. The research vessels were needed for predictable and reliable science. They could do less stock assessments but they were at a top level in fishery management world wide. They needed to see what the cost was and what the country was prepared to pay. They did not want to take the easy route out of selling the vessels.

Mr M Mayekiso (Deputy Director General, DEAT) said that it was an integrated system. They could not have compliance vessels without research vessels. Information from each type of vessel feeds into one another. He agreed with Mr Mokoena that there was a disparity between KwaZulu-Natal and the rest of the provinces. This is because historically they had more capacity. They must look at this issue further.

Mr Swart said that the fuel costs were small in comparison to the daily cost. The vessels were important, for research in particular. Funding for research should really come from the Department. It was recently on the news that the world’s fishing ecosystem would collapse in 40 years. This required much more research. Most catching of poachers was done inland once the abalone was dead. They need to be caught at the harbours so that they could be put back. They needed more control of MCM. They should be increasing the number of people in MCM, not reducing it.

Mr Shah said that submarines had been bought as part of the Strategic Defence Package for protecting economic zones. The compliance vessels should have had a separate structure like the coast guards in other countries with separate funding. Now they have both the navy and the Department doing the same thing. They would need a high level cabinet decision.

The Chairperson said that the package was for rearming the country and all parties had supported the decision at the time. He asked if they could not have hired the vessels instead of buying them.

Mr Mokoena said that they had consensus. What about bringing the MLRF back under the Department and having one authority? They must get a legal framework to deal with it. They needed a holistic solution from all entities and global input to get multiple perspectives. They should have a forensic audit to find out who was responsible so that they can build the future.

Mr M U Kalako (ANC) said that it was not a crisis situation as depicted. The fund had not been managed properly but MCM was not about to collapse. They have been told what efforts were being made. It was an exaggeration to give the impression of collapse and it would not help to have a forensic audit as this was a big cost and nobody stole money. They were addressing the problem through training. The media would think there was a crisis. The Department is running it and there were problems with the fund.

Ms Chalmers asked what amount the treasury was providing to cover the shortfall and if it was a shortfall.

Ms Yako replied that there was a shortfall of R35 million.

Mr Ismail said that fuel had gone up from $310 per ton in July 2003 to $680 in 2006. There was a massive increase in 2006 alone.

Mr Mokoena asked if marine diesel was different to car fuel.

Mr Ismail replied that marine diesel was a thick black fuel. This was the major cost increase as the costs of manning the vessels increased normally with the CPIX. The shortfall was for the confiscation of money. R35 million was for this unforeseen event and there was another R100 million from treasury to help over the next three years.

Minister van Schalkwyk stated that he had full confidence in the DG, they wanted to solve the financial statement issue when she was still DDG. He said that he took the consensus of the Committee seriously and agreed that the fund must be under the Department. They would give quarterly reports until they have turned the corner but it would not be an ad infinitum agreement. He warned that there would be further negative reports for another year until the situation is turned around.

The Chairperson agreed that there were elements of a solution. The MCM is important and must be looked at closely.

The meeting was adjourned.