Conditional Grants & CapEx: 2nd Quarter 2006/07 spending by Provincial Treasuries

NCOP Finance

20 November 2006
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Meeting Summary

A summary of this committee meeting is not yet available.

Meeting report


20 November 2006

Mr T Ralane (ANC, Free State)

Documents handed out:
Second Quarter Provincial Outcome for 2006/7 Financial Year: National Treasury presentation
Summary of Conditional Grants Expenditure: National Treasury
Outcome of the Conditional Grant & Capital Expenditure as at 30 November 2006 [Section 32 of PFMA]
Report to the Select Committee - Detailed Analysis: National Treasury
Press Release by National Treasury, 2 November 2006
Statements of Receipts and Payments by provinces: National Treasury: Part1 & Part2
Gauteng Treasury 2006/7 Conditional Grants and Capital Expenditure (Second Quarter)
Free State Provincial Treasury Projected Budget Outcome of Conditional Grants presentation
Limpopo Provincial Treasury presentation
Eastern Cape Report on Conditional Grant and Infrastructure Performance: Part1 & Part2
Northern Cape Provincial Budget Outcome of Conditional Grants and CAPEX
Western Cape Provincial Treasury presentation

National Treasury gave an overview report to the Committee, detailing provincial spending in the first and second quarters of the year. It indicated that some provinces had overspent and others underspent on their estimates, and summarised the departments and programmes in which this had occurred. Total expenditure was at 45.2% on aggregate. Spending on conditional grant allocations across all grants was at R25.9 billion, excluding rollovers, or 32.7%. Low spending was made in forensic pathology services and Mass Sport and Recreation Participation Programmes. Provinces were generally spending slowly on all grants.

Seven of the Provincial Treasuries then briefed the Committee more specifically on the performance of the departments in their provinces. Mpumulanga did not attend the meeting, and as the Western Cape MEC had tendered her apologies and its head of department was not present, that province was not permitted to give its briefing, nor was the report interrogated. Some common themes ran throughout, including lack of capacity, lack of understanding as to what was required, lack of proper planning, particularly in regard to planning projects in advance so that they could begin as soon as funding was allocated, leading to the “spike” of payments during March, and lack of co-operation from the Department of Public Works and Roads and Transport that hindered many projects of other departments. Particular problems in spending occurred with the conditional grant payments, especially within the Departments of Education, Health and Sports and Recreation in each province.

The provincial treasuries outlined the particular steps that they were taking to address the problems. Many had appointed experts to their staff to assist the departments in infrastructure, planning and budgeting. Some held regular meetings. Some had threatened to withhold funding until the requirements were met. The Chairperson was particularly concerned that treasuries were not being consistent in applying the provisions of the Division of Revenue Act and in using their power to withhold payments until satisfied of capacity.

Queries raised by members related to the steps that the provincial treasuries were taking to ensure compliance, to follow up on reports, where these had not been presented, and sought detail on particular projects. More general discussions raised a number of points, including comments on the money used for Industrial Development Zones, which could have been put to use in the provinces, the deficit in the equitable share budget that had a huge impact on service delivery, and the 1% allocation under Division of Revenue Act for building capacity. It was noted that national trade and industry policy did not set out the imperatives that needed to be discussed and there was little clarity on the national framework, strategy or plans. The Chairperson was concerned that money was being paid out before proper infrastructures had been established. He commented that it would be useful for the Committee to attend infrastructure meetings. There was  a need to build capacity at provincial treasury and there was also a need for them to check back to the strategic plans of departments and align strategic plans and budgets. They should be investigating the amount of interest that was accruing when moneys had been transferred but were not being spent. Other members requested Treasury to give an indication of its oversight role, were concerned that some departments would regard the budget adjustments as another opportunity to correct their mistakes,  whether there had really been significant developments, and issues of reporting by road agencies and non-governmental organisations were raised. They were encouraged by the steps being taken by Free State Treasury.

Second Quarter provincial overview: National Treasury Briefing

Mr Anthony Phillips, Director, Financial Management, NT stated that in the aggregate the provinces had spent 45.2% (R82,7 billion) of their combined budgets. This represented an increase from the last year. The provincial aggregated budgets and expenditure were tabled. The combined budget was R183 billion and there was a projected overspend of R4.3 billion, which could change because of rollovers. The areas of overspend were likely to be in respect of personnel, mostly in Gauteng, Kwazulu Natal and Limpopo, and capital assets, where provinces were likely to overspend by R1.5 billion. The education budgets were under pressure and there was a projected overspend of R1.5 billion. Limpopo in particular showed a worrying trend of overspending year on year. There was a further R1.6 billion overspend expected in the health departments, again mostly relating to capital expenditure.

Personnel expenditure was at 48.3% of budget. Overall capital budgets and expenditure were at 38.2% , which had improved from the last financial year. The largest capital budgets related to public works, roads and transport where the spending was at 38.5%.

The spending on conditional grants was also tabled, excluding expected rollovers.  The agricultural spending was centred on the conditional grants, where there was general under spending, reaching only 35%.  Housing was under performing, at 40% of budget being spent, and sport had spent only 24.2% of budget in six months on the Mass Sport and Recreation Participation Programme (MSRPP).  The spending on the HIV and Aids grants was low, with five provinces showing less than 35% of spending and forensic pathology services, which had recently been transferred from the S A Police Service (SAPS) was also under performing, spending only 15.5%.  The Integrated Housing and Human Settlement project had also under spent by R417 million.

Provincial revenue included budgeted equitable share allocations, conditional grants and own revenue. Total revenue for the six months was at 50,7% of total budgeted revenue. National Government had transferred 52% of the equitable share and 41.8% of the conditional grants to provinces. It was anticipated that most provinces would exceed collection of own revenue, but this was often due to understatement of targets.

Schedules of spending on specific departments and projects were tabled in full. In summary, Mr Phillips stated that there was some year-on-year growth in education. Health budgets in all provinces were under pressure. Provinces were generally experiencing difficulty with the capital budget spending. There had been some unreliable projections. Personnel budgets were challenged. Most provinces had significant challenges and lacked capacity to undertake more projects.

Second quarter expenditure briefing by Gauteng Treasury
Mr Julian Naidoo, Chief Director: Financial Management, Gauteng Treasury (GT), reported that Gauteng departments had exceeded their revenue targets by about 8%, mostly resulting from motor vehicle licensing and gambling. It was anticipated that there would be a R1.5 billion overspent by the end of the year, mainly due to the Department of Health. To date, R8 billion had been spent in the second quarter.. R8.7 billion had been allocated to Province and about R2.6 billion received to date. National Treasury had withheld instalments because of reporting problems. These problems would be eliminated by the third quarter.

There had been underspending on conditional grant projects, which reached only 36%. This figure would drop to 1.1% if the Gautrain Rapid Rail Link, representing 97% of the conditional grant, was not included. The underexpenditure included the land care programme of the Department of Agriculture, and the Department of Health’s life skills education and HIV Aids programmes. Other health services were on track. Forensic pathology was problematic. Housing urban renewal programmes had only managed to spend 25% of budget but hoped to spend on other resources. The MSRPP programme was also of concern. There had been no spending to date on the Gautrain Rapid Rail Link.

The Further Education and Training (FET) programmes showed a high performance, as did professional training and development of the Health Department, the Hospital Revitalisation programmes and the National Tertiary grants.

Mr Naidoo tabled and explained specific conditional grants. There were problems in particular with the Comprehensive Agricultural Support Programme (CASP), data capturing in Education, Forensic pathology, the Integrated Housing and Human Settlement Programme (IHHS) and urban renewal programmes in Alexandria, sport and culture, who had failed to report, and the Gautrain project, where construction had begun only in October. There had been no transfers under the provincial infrastructure grant (PIG) because of non-reporting and GT was working closely with departments. R238.5 million would be released the following week.

Mr Naidoo then tabled the capital budgets and expenditure, which were at 39%. He reported that there was a concern with education, local government and community centres. Treasury showed a 166% overspend, due to relocation costs, and other departments had also overspent. It was hoped to smooth over the capital expenditure in the next two quarters.

Ms Nomfundo Tshabalala, Head of Department, Gauteng Treasury added that Treasury had instructed departments to meet with them tomorrow and present their plans for acceleration on spending. Capital expenditure, currently at 39%,  was of concern. There were outstanding variance explanations from departments, and a lack of comprehensive analysis as to the discrepancy between budget and spending. GT was attempting to assist departments to come up with the reports.  There was a risk of overspending by Department of Health, on capital expenditure and personnel, and GT had urged them to stick to budget and to manage the risks. GT was also trying to curb the March “spike” of spending. GT had appointed information specialists to monitor the situation, had developed reporting formats, and would undertake a comprehensive third quarter analysis to inform the credibility of projects.

Mr D Botha (ANC, Limpopo) asked Gauteng Treasury why there appeared to be low spending , as the reasons for the low spending had not been identified. He further asked what Treasury would do when no reasons were provided as it was clear that reports should be given.

Ms Nomfulo Tshabalala replied that GT did highlight challenges on an ongoing basis, including the lack of reports, variance, or lack of detailed explanation or analysis by departments. Departments were indeed identified and personnel experienced in financial management would be sent across to work with and look at the departments. Not all matters were within the scope of provincial treasury but it would try to intervene wherever possible and would have bilateral meetings with departments.

The Chairperson asked whether GT had considered withholding the funding if reports were not given or there was no cooperation.

Ms Tshabalala stated that those departments not cooperating were requested to given detailed explanations and plans to the subcommittee and in Exco. In future GT would be considering withholding of funds where the problems were not addressed, and instead making allocations to the departments who had complied. This could not be done before there had been sufficient engagement with departments at the end of the second quarter.

Mr Botha asked for clarity on the appointment of specialists to monitor the capacity of projects, and asked who the consultants referred to were.

Ms Tshabalala replied that the specialists were not consultants in the sense that they were outsiders. These specialists were permanent employees of the GT, who were to focus on infrastructure. Not all had been appointed finally. They would be assisting the Departments with infrastructure issues and spending.

The Chairperson had posed a general question to all treasuries, asking why money was still being transferred under the PIG.

Ms Tshabalala stated that the education department had not submitted infrastructure plans, but that this posed a special challenge. Infrastructure was required in all schools. She also raised the question of scholar transport, stating that some of the problems were linked to insufficient schools.

The Chairperson interrupted Ms Tshabalala, stating that the Education Department would dispute her statements and he suggested that she should not put herself on the line. He said that they had reported that some schools were empty, and the MEC had identified this as a major challenge. She should not attempt to speak on their behalf.

The Chairperson asked for clarity whether the figures on the Further Education and Training (FET) colleges referred to money transferred or actually spent.

Ms Tshabalala confirmed that the money had been transferred. However, the figures on spending were available, and could be sent through from the department.

Limpopo Treasury Briefing
Mr Mpho Mofokeng, Acting HOD: Limpopo Treasury (LT), stated that spending in Limpopo was averaging 45% of budget, (or 38% spending if the rollovers were not taken into account), so that there had been some improvement from the previous year. There remained challenges with Sports and Agriculture programmes, and with spending on HIV and Aids education and hospital revitalisation programmes.

Mr Mofokeng reported that capacity had improved since the previous year. Underspending on conditional grants had resulted mainly from poor business plans or lack of capacity. LT would need to ensure better spending by evaluating the conditional grant business plans. He explained that the cash flow projections were used as a measurement in stetting the budgets. Expenditure had been slow across all sectors, and there had been late project start times on a number of projects. Local Government had indicated that it could experience high increases in the third quarter. The problems were once again related to the infrastructure planning, and the slow start on business cases. There had been delays in procurements and the hand over of sties.

Corrective action taken by LT included the departments being assisted by Treasury to strengthen their multi-year planning process and avoid procurement of projects only in the year of implementation. LT was looking more carefully to that stage that projects had reached in order to compare. Departments were being asked to review their technical capacity requirements. There would be closer monitoring and the imposition of penalties on under performing contractors. Hospital projects by the Department of Health would be monitored better and a differed packaging system had been formulated. Established developers were being encouraged to form joint ventures with emerging contractors to assist them. Work schedules had been drawn up for the Department of Agriculture and master plans were to be broken into implementable elements. Unit costs were discussed at meetings. There was proactive management of projects in the roads and transport sector, where the Department had good project management capacity, but it had experienced weather delays. Two technical assistants had been seconded to the infrastructure delivery improvement programme, and one to health.

Mr Botha asked why Treasury had apparently not followed up sooner on the business plans which indicated significant underspending, such as Sports.

Mr Mofokeng said that LT had struggled to try to get sector analysts and was still hoping that the business plans would be submitted and dealt with by the end of this month.

The Chairperson asked what was the situation with the acting appointments, pointing out that the HOD himself was only acting.

Mr Mofokeng said that whilst he could not comment on his own position, a number of the acting appointments were to be finalised shortly. He indicated that there had been a series of unfortunate circumstances. The previous HOD had been ill for some time before his death. Matters were now getting back on track.

The Chairperson asked if the overspending was a true reflection of the position, or whether it was being put up as an example to try to boost the budgets. He noted that he had recently been told by an MEC from Limpopo that there was good spending, but once again the figures showed underspending, and he asked what would be done on the agriculture and sport programmes.

Mr Mofokeng stated that LT would play a role in assisting in capacitation. In relation to the overspending, he pointed out that this had mainly occurred in a hospital revitalisation programme, and that it would fall if this was taken out of the picture. The newly appointed personnel would be looking closely at the programmes.

The Chairperson expressed concern that funds were being transferred to education, under the PIG, when that department in Limpopo did not appear to be ready to spend.

Free State Treasury Briefing
Mr Donald Barlow, Head of Department: Free State Treasury (FT), stated that actual expenditure was currently at 47.2% of the budgeted R5.48 billion. Project expenditure was at 1032%, with over expenditure by three departments and underspending by another three. Full details of departments and spending were outlined in the presentation. FT was more worried about the underexpenditure and the variance between cash requisitions and expenditure. Performance discussions had been held the previous week. The adjusted budget would take care of the projected over expenditure. An amount of R51 million not previously released would now be released and would address the over-expenditure in the Department of Health. There was the potential for over expenditure on Public Works and Roads and Transport and both departments had been challenged to show they could deliver instead of allocations being made upfront.

Conditional grant expenditure amounts to 47.2% of budget. It was likely that there would be full spending by the end of the year. Details of the grants and the reasons for the slower spending were set out and explained. The Land Care Grant spending was slow, reaching only 31% by end September, although the figures had risen in October. Spending on housing projects was at 41.6%. Education showed 91.6% expenditure and this had been discussed in detail with them. Spending in the Health department was promising, almost on target, but sports was disappointing, at only 25.8% on the MSRPP programme. Some of the spending related to schools and should be able to pick up in the new school year. Public works spending was only at 32% but there had been good spending in October and was set to improve. The health estimates had been used as an example of how the cash requisitions could properly be used to measure the allocations.

There had been 46.6% spending on the provincial infrastructure grants and it was likely that the full grants would be spent, with the possibility of overexpenditure by the Departments of Health and Public Works, although the adjusted budget would take care of this. Tourism would also be covered by the adjusted budget.

FT had identified possible areas for intervention. Quarterly reviews were proving useful, as they were addressing deficiencies in capacity, information, gaps in the infrastructure plans and options for improved delivery. There were in addition monthly engagements between FT and departments, when projections were compared to spending.

The Chairperson noted that the public works spending was outlined in the presentation but asked whether the whole of the provincial budget was being spent before there was a move to the PIG funds.

Mr M Phukumsi, Senior Executive Manager, Free State Treasury replied that when the infrastructure revenue meetings discussed issues they looked at the total budget rather than at the equitable share, which was then regarded as part of the whole budget, rather than as a separate item. This issue would be addressed with the Department.

The Chairperson noted that the Division of Revenue Act required that where there was lack of capacity a certain percentage should be set aside to address it. He asked whether this funding had been used to improve the infrastructure.

Mr Phukumsi, FS Treasury indicated that FS had already employed this with Public Works. Several people had, using this funding, been appointed to key posts, which had improved spending capacity. Each department was to employ an engineer to do key work with the Department of Public Works. Within the sports department, the sports engineers would now do certain work,

The Chairperson indicated that the Division of Revenue Act (DORA) required a province, in allocating the provincial infrastructure grant, to take into account the capacity to spend and manage the infrastructure. This was why he had raised the point. He asked whether provinces were actually doing this investigation, or whether it was simply being persuaded that additional amounts were required.

Mr Phukumsi gave an example. He said that the Free State Department of Health had been affected by the adjustments, as hospital revitalisation had not proceeded far enough and therefore Health did not receive the PIG, as it had indicated constraints to its spending capacity. The overspending was looked at department by department. A certain percentage of spending fell within a certain category and therefore the funding withheld was not transferred. The Department of Public Works and Transport were projected to overspend by R216 million. They would not necessarily receive additional allocations. These issues had been investigated.

Mr Phukumsi made a general comment that the FT projections wee based on historical expenditure over the past two years, compared with the trend over the current financial year. The Departments would be called upon to give their projected spending but clear spending would have to be shown before any adjustments would be made. Many departments did project overspending, but were pleased that in fact the money had not been transferred, as some had now come back and asked that no more transfers be made, as the departments had decided instead to reprioritise in order to fall within their budgets.

Eastern Cape Treasury briefing
Mr Billy Nel, MEC for Finance: Eastern Cape, stated that the Eastern Cape Treasury (ECT) remained concerned at the negative expenditure that had continued into the second quarter. This resulted mainly from planning difficulties. The conditional grants showed some problems. Business plans were often not realistic, but Treasury was working on trying to improve them. Cash flow projections were not always linked to projected activities, and risk management plans still needed to be devised to mitigate under- and over-spending. Internal supervision within departments was limited. Cabinet Budget Meetings were held in the Eastern Cape after the 15th of each month, when matters would be interrogated, but unfortunately there were often discrepancies.

The Eastern Cape had had one adjustment to the budget, which was pre-planned in order to force spending and the standard of accountability. Long-term challenges remained in financial management capacity in all departments. There were issues of planning, procurement and recruitment. The Treasury had attempted to improve housing delivery by using larger housing companies to improve service delivery. Where there was under spending it would try to minimise the damage, and try to rectify the situation before the end of the financial year. Improvements should occur in 2007/08 in both accountability and spending. The Eastern Cape was prone to lack of expertise and Treasury was trying its best to overcome this. Wherever possible ECT had tried to put plans in place and to assist departments in becoming more standardised and more focused, and had seen some dramatic changes already in management styles. There was no quick fix and it would take time.

The underexpenditure figures were tabled, by department, and Mr Nel said that the ECT was trying to motivate and recruit staff to deal with it.

The conditional grants budget was R2.8 billion and there had been underspending of about R414 million. The main concern lay in the forensic pathology services, which had only achieved 9% spending. Integrated Human Settlement had only achieved 37.7% spending. The comprehensive HIV and Aids programme had managed to achieve 121% spending and Further Education and Training 100.1%. The underexpenditure was tabled, by month, for each department and Mr Nel pointed out that there had already been underexpenditure by the end of the first month. This was reversed slightly in June but had started to fall again in July. Attempts were being made to improve the underperforming areas. The infrastructure spending figures were tabled. Sport, Local Government and Housing had achieved no spending at all.

Mr Nel tabled the purpose and comments on the conditional grants and detailed the interventions made by ECT in respect of each. Treasury was generally trying to support the departments in planning, assisting with the approval process, reviewing of business plan formats, and increasing supply chain management capacity. Some interventions were not short term so that results would only show in a few years. Attempts were being made to align business plans to the next budget, and cash flow projections were checked against the management plan to mitigate the possible risk.

The Chairperson asked whether DORA had been complied with. He noted that Roads had a budget of R1.54, of which only 38% had been spent. He asked what reasons had been advanced why the money should be released, and why there was such a substantial budget allocation when the state of the roads was so poor.

Mr Nel replied that roads were identified as a priority area in the PIG and this could not be changed. In the new allocations there would not be an increased budget to roads, but increases would rather be directed towards health and education. ECT was complying with treasury regulations.

Mr Botha asked about the underspending on the schools nutrition programme. He pointed out that R26.4 million had been budgeted, and asked how many times per week the children were fed, and whether all children were included in the scheme.

Mr Nel replied that the school programme was feeding 1 million children per day. The programme had undergone some changes. The supply by large supermarket chains was changed to a co-operative concept but this became politicised and the feeding scheme was halted so that it could be reinvestigated. The Premier had recently made a ruling and the universities were involved in donating food.

The Chairperson asked about the migration figures and how this affected the schools feeding programme and education. He pointed out that the people migrating to the cities were not always taking their children with them, and that gave rise to further problems in planning and had other implications for other departments.

Mr Nel replied that the Finance and Fiscal Commission (FFC) had asked for input on the formula to be used to appropriate money from the equitable share. Even where there was migration, the schools would have to stay open, and although there would be savings under the school feeding programme, there would still need to be allocations for teachers, infrastructure, maintenance of buildings and the like. There was also migration the other way as people tended to retire back to the Eastern Cape, which meant that there was an ageing population that was not economically active and made no contribution to the fiscus. There were increased costs in health and problems in distance. He suggested that perhaps the National Council of Provinces should look into the FFC formula and to the standard of living.

The Chairperson agreed. The bottom line being considered by the Committee at this point was whether money was being poured into a “black hole” or whether projects of quality were being operated, and what the impact of those projects was. There was certainly an improvement on the last financial year, but this must still translate into visible delivery.

Mr Kolweni added that in relation to the FFC, there had been certain comments made on the standard of primary health care to rural areas and that was another area to be looked into.

The Chairperson also said that the Committee would need to look into whether calls for increased finance were the result of increased needs or whether money could be better allocated towards under-resourced rural schools, for example.

Northern Cape Treasury Briefing
Mr Sello Mokoko, Head of Department: Northern Cape Treasury (NCT), stated that the “budget game” was found in all provinces, in all interactions with departments and projects. Similar challenges were faced also by the Northern Cape in relation to unqualified financial officers.

The Department of Transport, Roads and Public Works were the implementing agents for a number of other departments, and similar challenges were faced in regard to their capacity to deliver. Two technical assistants had been employed by NCT, one for education and one for transport, goods and public works, to assist with infrastructure.  Two more appointments would be made in the course of the week. This would improve Treasury’s ability to understand the built environment and to operate more effectively. 

National Treasury had now released some of the funding that had been held back. After the third quarter NCT would employ shifting of funds if the departments were not spending. An amount of R198.5 million had been spent on capital assets, representing 42% of the yearly budget. The province projected overspending on capital expenditure by 18% of budget. The total expenditure on conditional grants amounted to R338.2 million, or 37% of allocated budget, and the province projected overspending on the conditional grants by R9.5 million.

A full schedule of capital expenditure and total infrastructure payments, broken down by department, was presented and each of the departments were detailed and explained. Planning was a major problem as even on capital projects departments would only begin to plan in April and were rarely able to implement their plans before September. Part of the technical assistance by NCT was directed towards helping departments to plan before the commencement of the financial year. Sport, Arts and Culture projected an overspend, partially due to a four year project that had not been permitted to roll over funds from previous years. Housing and Local Government were on track, and 88% of its budget had been put to eradication of the bucket system. Other departments lagged behind.

The main cause of infrastructure underspending were that project lists were not submitted timeously, there was lack of forward planning, inadequate assessment of infrastructure plans by departments, budgets for large projects tended to be committed to one financial year, and there was lack of skills in departments to manage projects. Solutions included the full implementation of the Infrastructure Delivery Improvement Programme (IDIP) and building capacity in line departments.

The expenditure on the Conditional Grants was also tabled, with a breakdown of each type of grant. The total budget was R915.6 million, the total transfers received to date were R410.1 million and 84% had been spent, representing 37% of the annual budget. There had been an overall decline compared to the previous year. Nothing had been spent on the Further Education and Training and the Department had been requested to find out the reasons. Health was generally unable to spend the conditional grants, which was attributed to changes in the business plan, but no details had been given.

The Chairperson interrupted that HIV and Aids programmes in other provinces did not appear to have been affected.

Mr Mokoko said that it might be the ability to understand the conditions that was hindering the implementation. He tabled the Health Department’s performance across all the grants, which was generally low.

The Department of Housing and Local Government was also lagging in their spending, attributed to non-performance by a number of contractors, and Sport, Arts and Culture had spent only 30% on the MSRPP programme, because of delay in appointing contractors.

Mr Botha questioned the lack of spending on Transport, Roads and Public Works. He pointed out that the provinces already knew what they were likely to receive over the Medium Term Expenditure Framework cycle and therefore there was no reason why they should not be able to plan well in advance to implement projects over that cycle.

Mr Pakes Dikgetsi, MEC: Finance, Northern Cape legislature stated up front that the Executive Council acknowledged that it had a problem. Quite apart from the lack of technical capacity, he explained that there had been problems of instability between the political and administrative offices. This had led to both the MEC and the HOD being removed by the Premier, who felt that the problems were hampering progress. The figures now presented reflected those problems. Treasury was anticipating the expenditure problems and the Premier had asked Treasury to undertake the IDIP process. Issues had been raised with the departments in budget bilateral discussions and there would be a monitoring process to see that whatever had been promised in the bilaterals was delivered upon.

Ms A Mchunu (ANC, Kwazulu Natal) stated that there seemed to be several issues of poor planning. Every department should be able to do its planning prior to March of each year. She was concerned about the underspending in departments that contributed to the “health and well being of the nation” and cited Sports and Recreation and Health as prime examples. Neither was spending properly on the conditional grants and this was hindering the health of the nation.

Mr Dikgetsi stated that planning was indeed a critical issue and that the interventions made by NCT into the departments would hopefully address these issues. In respect of the bucket eradication he stated that this would be the last year that money would be allocated from the conditional grant. In future funding would be sourced from the Municipal Infrastructure Grant and the programme would be done in conjunction with the Department of Water Affairs and Forestry. Approximately 3000 households would be eradicating the bucket system.

In respect of underspending by the Department of Health on the hospital revitalisation, Mr Dikgetsi noted that Health had not been included on the list of original priorities under the Integrated Development Planning. There was a need to fast track Health, and NCT would be undertaking a mid-year review to expedite the problems associated with hospital revitalisation. The Province was trying to ensure correct spending.

Mr Kolwane referred to the total infrastructure statistics and noted that Roads and Transport and Agriculture fell short of their targets. He asked what specific actions were being taken by NCT.

Mr Dikgetsi confirmed that Agriculture fell short of targets, but the department had given reasons. The NCT was beginning to insist that departments must comply with their allocations, the time frames and all technical requirements. Three weeks ago there was a management committee meeting including the Heads of Departments and the MECs. The Premier and Executive Council had taken the position that fiscal dumping, the transfers, and the inability to report on time and accurately must be added to the agenda and must be monitored consistently. There had been three managerial posts created and interviews would shortly be held to fill those posts.

Mr Mokoko added that the Department of Roads and Transport had been called in and for the third time this year NCT had addressed the MTEF allocations. In essence they were aware that the allocations should be used as a planning tool. It was also made clear that that Department must not only plan for the provision of services to other departments but must also plan properly for its own roads, and not begin to plan only in April.

The Chairperson referred to DORA and stated that it as up to the Province to ensure that each department responsible for education, health and roads must enter into and implement service delivery agreements with national and provincial departments. There seemed to be not reason why the delivery could not take place. He suggested that the NCT should check whether such agreements had been signed and the contractors who were being cited should surely be held accountable for breaches. He suggested that perhaps it would be useful for the Committee to attend some of the infrastructure meetings.
The Chairperson asked whether the amounts reported as underspent were credible. He asked the NCT to persuade the Committee why the funds should not be withheld under DORA. He noted that Northern Cape still owed money to other provinces and asked whether this should not be paid back. This province was clearly underperforming substantially.

The Chairperson noted in particular that Roads and Transport had underspent but that R115 of their total budget allocation came from PIG. He asked why there had been the allocation in the face of the substantial underperformance. He asked whether the Department were aware of the PIG requirements.

The Chairperson asked what the “project” was that Sports were busy with.

Mr Dikgetsi replied that this was an arts and culture centre which had been planned over a four year period. The funding did not come from the PIG but was a specific project on which Province had decided to spend the equitable share.

The Chairperson asked for an explanation of why Sports were apparently involved in construction, which surely fell outside their mandate, and why funding was not available from the municipal infrastructure grants.

Mr Dikgetsi stated that the funding was incorrectly allocated and would need to be corrected. There had been some problems in this area.

Western Cape Treasury Briefing
The Chairperson indicated that the MEC for Western Cape had tendered her apologies that she could not attend. However, he noted that the Head of Department was also not present. Therefore, since the presenter was not the accounting officer, the Committee would not hear the presentation but would simply accept the written document as the record. No questions were asked.

General comments relating to all briefings
Mr Nel, Eastern Cape said that the concept of Industrial Development Zones (IDZ) was good, but in reality a great deal of funding was required for these projects which could have been used usefully elsewhere, for building houses and clinics. There was a political motivation for projects like Coega and Alcan. More than R1 billion had been paid by the Province to these projects, which could have been used for infrastructure.

Mr Nel further pointed out that there was a deficit on the equitable share budget of R3.5 billion and this was recovered by simply not building schools, roads and other necessary services. This had a huge negative impact upon service delivery.

Mr Phukumsi, Free State Treasury commented that the Committee should also perhaps look into the 1% allocation under DORA for building capacity. It might be that some departments could benefit from receiving a portion of the funding allocated to others under this formula, as this would surely help to build capacity where it was most needed.

The Chairperson agreed that these issues should be discussed, and that perhaps an appropriate time to do so would be during discussions on the 2007/08 budgets. A scramble for funding should not compromise economic growth. There were clearly trade-offs in dealing with the needs of nine provinces. Perhaps it was necessary for all provinces to compare their provincial growth and try to strike a balance.

Mr Barlow, Free State Treasury indicated that the national trade and industry policy did not set out the imperatives that needed to be discussed. It seemed that in order to get a foot in the door some provinces would say that development would happen, when it was not clear exactly what would be done. Some provinces had mentioned mining when there were no significant mining resources in that province. There was no clarity on the national framework, strategy or plans.

The Chairperson commented that perhaps some of the Committee should attend infrastructure meetings or at least have discussions with National Treasury which of the issues would need to be kept in the forefront.

He noted with concern that some of the provincial treasuries were giving money before the departments had managed to establish a proper infrastructure to deal with it. He suggested that money should not be allocated until the plans had been put in place, and the monitoring had started, at which stage the funding could be unlocked, stage by stage.

The Chairperson commented that there was clearly a need to build capacity at provincial treasury and there was also a need for them to check back to the strategic plans of departments and align strategic plans and budgets.

The Chairperson further said that the treasuries should also be investigating and perhaps reporting on the amount of interest that was accruing when moneys had been transferred but were not being spent.

Mr Botha suggested that Treasury should also give the Committee an indication of what their role was in oversight over the departments, and whether the standing committees in the provinces would monitor their own provincial departments’ business plans.

The Chairperson commented that some of the issues would have to be addressed by management forums, and related to planning. He was concerned that some departments would regard the adjustment as another opportunity to correct their mistakes so that they would not plan properly. He was encouraged to hear of the steps that were being taken by Free State Treasury.

Mr Botha noted that Treasury had made reference to steps to assist and monitor the departments, but pointed out that similar reports had been made the previous year. He asked whether there had really been significant developments.

Mr Botha also indicated that he was concerned about where the road agencies were reporting. The Chairperson indicated that this would be dealt with when the Committee considered the reports of that Department, but Mr Botha said that his concern related to whether Treasury were monitoring the process of reporting, and whether Roads and Transport reported to Treasury at all.

Mr Botha also questioned whether the Departments paying money to the NGOs would send reports to Treasury.

Mr Z Kolweni (ANC, North West) stated that the over-expenditure was a concern. He enquired whether the departments would be engaged also on the under spending. He noted the monthly engagement of the Free State Treasury and said that similar measures should be put in place by other provincial treasuries.

The Chairperson was concerned that Sport was consistently underperforming.

The Chairperson made a general comment to all treasuries that they had not apparently justified their allocations under DORA. He was concerned that they must follow the correct procedures and be very strict. Capacity was clearly a problem but DORA, as mentioned earlier, did allow certain percentages to be set aside to build capacity. The bottom line was proper planning.

The Chairperson also commented that the conditional grant should be seen as supplementary, but he was concerned that sometimes these funds were being used to boost the main budget.

The meeting was adjourned.


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