A summary of this committee meeting is not yet available.
FINANCE SELECT COMMITTEE
12 February 2007
3RD QUARTER SPENDING ON CONDITIONAL GRANTS AND CAPITAL EXPENDITURE: NORTHERN CAPE, WESTERN CAPE AND GAUTENG PROVINCIAL TREASURY BRIEFINGS
Chairperson: Mr T Ralane (ANC, Free State)
Documents handed out:
National Treasury Presentation: Provincial Conditional Grants & Capital Expenditure: December 2006
Free State Presentation
North West Presentation: Part1, Part2 and Part3
Kwa-Zulu Natal Presentation
Northern Cape Presentation
Western Cape Presentation
Audio Recording of the meeting: Part1, Part2 and Part3
The National Treasury said that some of the key highlights were that the provinces HAD spent R131.7 billion (69.9%) of the R188.4 billion adjusted budget, which was R16 billion (13.9%) more than at the same period the previous year. The provinces were all expecting to overspend, but looking at the trends over the last three years, it was evident that there would not be the level of over-expenditure that they were expecting. Capital spending was at R2.4 billion (61.4%) which was a significant increase of R834.7 million (54.9%) compared to the previous year. The lowest rates of capital spending were in the Western Cape at 49.5% and Kwa-Zulu Natal at 50.8%. The Free State at 76.6% and the Northern Cape at 73.6% had the highest rate.
There had been a huge swing during the financial year from potential under- to potential over-spending and there was probably going to be huge under spending in all of the provinces. Capital spending however was positive and provinces were going to be very close to spending their budgets. Spending on the Conditional Grants in housing was very low and this required attention from everyone.
Free State said that aagriculture had spent only 49.3% (R17.7 million) of their total adjusted Conditional Grant allocation of R35.9 million after three quarters and projected to spend the remainder of the allocation by the end of the current financial year. They had been allocated R30 million for the Further Education and Training (FET) College Sector grant and after the third quarter they had spent the full amount. R8.1 million (91.9%). In the HIV and Aids Grant they had received R8.9 million and had spent
Sport, Arts and Culture spent 65.4% (R6.5 million) of their 2006/07 adjusted allocation of R10 million for the Mass Sport and Recreation Participation Programme grant during the first three quarters, and projected to spend the remaining R3.4 million (34.6%) before the end of the financial year.
North West said that there was a substantial improvement in the infrastructure/development and Conditional Grants spending during the first nine months of the 2006/07 financial year compared to the same period during the last financial year. This improvement was a result of the supporting interventions by the provincial treasury and the commitment of the provincial Departments.
The Provincial Legislature had spent 14.82% for the first nine months, which was well below the target of 75%. However, service delivery and expenditure was set to increase during the fourth quarter. One of the challenges here was that a contractor was appointed, but the work done was sub-standard so payment was withheld. The Department of Economic Development and Tourism had spent R26 498 000 (31.27%) of its funds but the Department was hindered by a lack of capacity to manage and drive development projects and there were challenges redesigning the internal reticulation and bulk supply of electricity plans.
Limpopo said that as per the NT presentation, there were a few areas that were problematic. The first was in HIV/AIDS education, and the reason for under expenditure here was because of a change in focus to other aspects of education. At this stage it was clear that they were not going to spend their full allocation. Another worrisome area was in housing where the expenditure was less than last year and the Department had applied for roll overs which they now they believe should have not done due to the low/slow expenditure.
Kwa-Zulu Natal said that spending on buildings and fixed structures (infrastructure) was at 62.5 % with low spending on machinery and equipment of only 47.3 %, mostly in respect of equipment ordered with delivery to take place during fourth quarter. The overall expenditure trend showed gradual increases in spending levels to a peak in the quarter.
They said that they were happy that agriculture had not spent any of its allocation as the Department had recovered two disclaimers from the Auditor-General over the past two years. Things were not going well in this Department and it was actually better that they had not spent anything.
After the lunch break, the Northern Cape, Western Cape and Gauteng Provincial Treasuries briefed the Committee third quarter spending on conditional grants and capital projects. The Northern Cape stated that the major expenditure challenges faced in the third quarter were related to infrastructure spending due to poor planning by the client departments. The Western Cape informed the Committee that it followed a cooperative approach with departments to arrive at solutions to spending problems. Gauteng stated that it had conducted a rigorous analysis of spending projections by various departments for the third quarter and made recommendations to some departments to surrender funds for reallocation.
Members felt that the problem with most departments was poor planning, and that capacity challenges, particularly in the Northern Cape were still a major problem. Members also asked the various provincial treasuries to give clarity on the problems faced by the various departments in their relationship with the provincial Departments of Public Works.
National Treasury Presentation on Provincial Conditional Grants and Capital Expenditure as at 31 December 2006
Ms Sandra Sooklal, a Chief Director: Provincial Budget Analysis, said that some of the key highlights were that the provinces spent R131.7 billion (69.9%) of the R188.4 billion adjusted budget, which was R16 billion (13.9%) more than at the same period last year.
The 2005/06 figures were adjusted to exclude the Social Assistance grants for comparable purposes due to a function shift to SASSA with effect from the 1st of April 2006. This resulted in a decrease of the Social Services share of the total budget from 81.8% in 2005/06 to 73.7% in 2006/07. Education remained the largest item of budget at 42.6%, Health the second largest item of budget at 28.3%, with Social Welfare Services having only 2.8% of the budget. There was a notable improvement in capital expenditure where provinces spent R2.6 billion (34.7%) more than the third quarter of 2005/06.
She said that the provinces were all expecting to overspend, but looking at the trends over the last three years, it was evident that there would not be the level of over-expenditure that they were expecting. Expenditure had risen slowly over the past nine months but then increased suddenly in January and February. It seemed as though the “March Spike” had now moved to February.
In education, spending was at R58 billion ( 72.3%) against a R80.2 billion adjusted budged, and there were projections to overspend by R635.6 million (mostly on personnel). This was an increase of R5.1 billion (9.5%) compared to the previous year. The lowest rates spending were in Gauteng (68.8%) and Mpumalanga (71.5%), with Kwa-Zulu Natal (75.2%) and the Northern Cape (75.1%) having the highest rates. Spending on education personnel was at R46.6 billion (74.1%) of a R62.9 billion adjusted budget with projections to overspend by R518.7 million.
Capital spending was at R2.4 billion (61.4%) which was a significant increase of R834.7 million (54.9%) compared to last year. The lowest rates of capital spending were in the Western Cape at 49.5% and Kwa-Zulu Natal at 50.8%. The Free State at 76.6% and the Northern Cape at 73.6% had the highest rate.
In health, spending was at R38.7 billion (72.7%) against a R53.2 billion adjusted budget. There were projections to overspend by R560.5m, which was an increase of R5.2bn (15.5%) compared to the previous year. The lowest rates of health spending were in the North West (68.1%) and the Eastern Cape (69.1%). The Northern Cape (77.6%) and Gauteng (76.3%) had the highest rate of
spending in health.
Spending on health personnel was at R21.2 billion (73.6%) of a R28.8 billion adjusted budget. Non-personnel, non-capital spending was at R14.3 billion (73.8%) of a R19.3 billion adjusted budget. Here, there were projections to overspend by R649.7 million. Capital spending was at R3.2 billion (63.2%) which was a significant increase of 52.2% compared to spending for the same period last year. The lowest rates of capital spending were in the North West (54.4%) and Kwa-Zulu Natal (59.3%). Gauteng (70.9%) and Mpumalanga (67.9%) had the highest rates.
In the health programmes analyses, spending on Programme 2 (Provincial District Health Services) was at R15.2 billion (71.1%) of a R21.4 billion adjusted budget. The lowest rates of spending were in the Eastern Cape (68.6%) and the North West (69.0%), and the highest were in Kwa-Zulu Natal (74.1%) and the Northern Cape (72.6%). In Programme 4 (Provincial Hospital Services), spending was at R9.5 billion (74.7%) of a R12.7 billion adjusted budget. The lowest rates of spending were in Mpumalanga (61.1%) and the North West (71.9%), with the highest rates being in Limpopo (86.1%) and the Northern Cape (81.8%). In Programme 5 (Central Hospital Services), spending was at R6. 5 billion (79.3%) of a R8. 2 billion adjusted budget. The lowest rates of spending were in the North West (61.5%) and Limpopo (70.9%) with the highest being in Gauteng (84.0%) and Mpumalanga (81.9%).
The social welfare budgets stood at R5.3 billion (2.8% of total provincial adjusted budgets). The social security function was shifted to National Government on the 1st of April 2006. this resulted in a decrease of the share to total provincial budgets from 27.4% in 2005/06 to only 2.8% in 2006/07. Spending was at R3.5bn (66.5%) against a R5.3 billion adjusted budget, which was an increase of R610.3 million (20.8%) compared to the previous year. There were varying degrees of spending with low rates of spending in the North West (55.7%) and Kwa-Zulu Natal (62.2%) while the Eastern Cape (72.4%) and Gauteng (71.4%) had the highest rates. There were projections to under spend by R66.2 million.
In housing and local government, the adjusted budget amounted to R10.4 billion (5.5%) of the total provincial adjusted budgets. Spending was at R6.2bn (59.5%) against the adjusted budget. The provinces were projecting to under spend by R273.1 million, which was an increase of R696.8 million (12.7%) compared to the previous year. The lowest rate of spending were in the Eastern Cape (49.3%) and the Free State (52.3%) while the Northern Cape (74.6%) and the North West (68.9%) had the highest rate. Spending on the housing CG was at R4.2 billion (60.8%) (including provincial rollovers). There were projections to under spend by R94.7 million and indications were that some provinces were not in a position to fully spend their funds. A request was also received from National Housing to withhold funds to prevent fiscal dumping.
Provincial personnel spending totaled R77.4 billion (73.5%) of the R105.3 billion personnel adjusted budgets which was an increase of R5.8 billion (8.1%) over comparative spending last year and it included public service increases effected from the 1st of July 2006. there were projections to overspend by R326.1 million and the lowest level of personnel spending were in Mpumalanga (71.6%) and Gauteng (71.7%). Limpopo (75.3%) and the Eastern Cape (74.9%) had the highest levels of personnel spending.
In payments for capital expenditure, capital spending was at almost R10 billion (61.4%) of the R16.3 billion adjusted capital budgets which was a significant increase of R2.6 billion (34.7%) compared to spending last
year. There were wide fluctuations between provinces compared to last year and a projected under spend of R31.1 million. The under spending may actually be more given that provinces had only spent 61.4% after nine months. However, it should be less than previous years due to significant improvements in the spending capacity compared to the same period in the previous financial year.
Projections suggested that the “March Spike” was now moving to January and February due to added focus on March by the Treasury. Overspending of R79.6 million was projected in Gauteng in education. The lowest rates of capital spending were in the Western Cape (58.3%) and Kwa-Zulu Natal (59.1%). The Free State (80.9%) and the Northern Cape (69.8%) had the highest rates of capital spending. The biggest capital budgets in the provinces were in the Public Works, Roads and Transport Departments at 34% (R5.5 billion) of the total capital budget of R16.3 billion. Spending was at R3.5 billion (62.7%), which was an 11.1% increase on last year.
The adjusted allocations for all of the Conditional Grants (CGs) was R28.3 billion (including the Schedule 4 grants and provincial roll-overs) with health making up the bulk at R10.6 billion. Excluding the Schedule 4 grants, spending against the total adjusted allocation of R16.4 billion, amounted to 50.5% (R8.3 billion) in terms of section 29(4)(b) of the 2006 Division of Revenue Act. Specific grants that showed low rates of spending included the Agricultural Disaster Management (23.8%); the Forensic Pathology Services (FPS) (27%); the Land Care Programme (47.5%); the Mass Sport and Recreation Participation Programme (51.3%) and the Housing conditional grant 60.8%).
Indications were that some provinces were not in a position to fully spend their allocations and there had been a request received from the National Health Department to withhold some funds. This may prevent fiscal dumping and as yet there was no spending recorded against the Gautrain project.
Mr Jan Hattingh, a Chief Director of Provincial Budget Analysis, added that there had been a huge swing during the financial year from potential under to potential over-spending and there was probably going to be huge under spending in all of the provinces. Capital spending however was positive and provinces were going to be very close to spending their budgets. Spending on the CGs in housing was very low and this required attention from everyone.
Free State Presentation
Mr D Barlow, the Head of Department (HOD), said that their adjustment estimates increased by 2.2% from last year to R265.5 million, with R133.1 million coming from the equitable share, which was an increase of 1.1% and their CGs also rose by 1.1% to R123.4 million.
The actual third quarter expenditure was R8.692 billion (73.1%) and the total projected spending was R12.194 billion (102.6%) against an adjusted budget of R11.883 billion. The net projected over expenditure amounted to R311 million (2.6%) compared to R367 million (3.2%) after the second quarter. There was going to be over expenditure by 6 departments to the tune of R360.6 million (3.0%) and under expenditure by 4 departments of R49.4 million (0.4%). The Departments that were projecting to overspend were: the Premier’s Office R400 000 (0.4%); the Legislature R500 000 (0.6%); Health R 25.8 million (0.8%); Education R100 000 (0%); Public Works R333.2 million (31.2%) and Agriculture R700 000 (0.3%).
The third quarter expenditure on CGs amounted to R1.239 billion (68.6% of the adjusted CG budget of R1.807 billion), or 92.2% of transferred CG funds (received from National Treasury (NT)), amounting to R1.343 billion or 14.3% of total provincial third quarter expenditure of R8.692 billion. The Departments projected to spend the total 2006/07 CG allocations, except Health, which projected R19 million under expenditure.
Agriculture had spent only 49.3% (R17.7 million) of their total adjusted CG allocation of R35.9 million after three quarters and projected to spend the remainder of the allocation by the end of the current financial year.
Local Government and Housing spent 56% (R296.2 million) of the adjusted Housing fund allocation of R528.6 million during the first three quarters and projected to spend the remaining R232.5 million (44%) by the end of the financial year. The Provincial Treasury thought that this was very optimistic and did not think that the Department of Housing would spend the full amount, especially given the problems there such as poor contractor performance.
Expenditure by the Education Department (including the PIG) in the first three quarters amounted to R141.4 million (82.8%) of their total adjusted CG allocation of R170.8 million and they projected to spend the remainder by the 31st of March 2007 which the treasury concurred with.
They had been allocated R30 million for the Further Education and Training (FET) College Sector grant and after the third quarter they had spent the full amount. R8.1 million (91.9%). In the NSNP In the HIV and Aids Grant they had received R8.9 million and had spent Grant R72.7 million had been received and R466 million (64.1%) had been spent. 59.3 million had been allocated for the PIG and R56.6 million (95.5%) had been spent.
Health had spent 69.8% (R593.8 million) of their adjusted CG allocation of R850.7 million and they projected to under spend by about R19 million towards the end of the financial year. In the HIV and Aids Grant, R142.3 million had been allocated and R97.8 million (68.7%) had been spent. The Department was projecting to spend the remaining R44.5 million (31.3%). In the FPS Grant, the adjusted allocation was R46.9 million, of which R16.7 million (35.7%) had been spent and there was a projected under expenditure of R10.5 million (22.4%).
In the Health Professions Training and Development Grant, R92.5 million had been allocated and R74.6 million (80.6%) had been spent. The Department was projecting to spend the remaining R17.9 million (19.4%). In the Hospital Revitalisation Grant, the adjusted allocation was R59.6 million and R41.7 million (69.9%) had been spent. There were projections to spend the remaining R17.9 million (30.1%).
In the National Tertiary Services Grant the allocation was R458 million with expenditure of R352.3 million (76.9%) and there were projections to under spend by R6.5 million (1.4%) in the PIG, the allocation was R51.4 million with expenditure of R10.7 million (20.9%). There was projected under expenditure of R2 million (3.9%).
Sport, Arts and Culture spent 65.4% (R6.5 million) of their 2006/07 adjusted allocation of R10 million for the Mass Sport and Recreation Participation Programme grant during the first three quarters, and projected to spend the remaining R3.4 million (34.6%) before the end of the financial year.
Public Works, Roads and Transport spent the total adjusted 2006/07 allocation for the PIG, which amounted to R183.4 million at the end of the third quarter. Third quarter expenditure on the PIG (included in discussions per Department) amounted to R250.7 million (85.3%) of the allocation of R294 million from the NT and projections indicated that the total allocation would be spent by the end of the financial year (except for R2 million by Health).
Three Departments benefited from this grant: Public Works, Roads and Transport with an allocation and expenditure of R183.4 million (62.4%); Education with an allocation of R59.3 million (20.1%) and expenditure of R56.6 million (95.5%) and Health with an allocation of R51.4 million (17.5%) and expenditure of R10.7 million (20.9%). There was projected under expenditure of R2 million (3.9%).
North West Presentation
Mr G Paul, the Acting HOD, said that there was a substantial improvement in the infrastructure/development and CG spending during the first nine months of the 2006/07 financial year compared to the same period during the last financial year. This improvement was a result of the supporting interventions by the provincial treasury and the commitment of the provincial Departments.
The total provincial spending amounted to R10 676 780 or 68.64% of the total budget for the first nine months of the financial year compared with 68.43% in the previous year. The province had a total allocation of R2 599 734 000 for infrastructure development and during the first nine months R1 953 7474 000 was available for development spending. Of this, R1 741 409 000 (89%) had been spent. This amount was exceptionally high given the fact that R15 907 000 was received on the 20th of December 2006 for the Department of Health.
The expenditure of R1 741 409 000 of a budget of R2 599 734 000 translated to 67% expenditure, which was just 8% of the indicative 75% expenditure for the first nine months, and this was an improvement against the 62% expenditure for the same period during 2005/06. The uncertainty that prevailed on the approval of rollovers for national infrastructure CGs delayed the implementation of many infrastructure projects.
The province received R1 920 178 000 in CGs for 2006/07 and R1 416 118 000 was made available for spending. Spending for the first nine months amounted to R1 381 888 000 (72% of the total CGs). This was an improvement compared to the 66% spent during the same period last year. More significantly, 98% of the funds transferred were spent.
A request had been submitted to the National Department of Health and the NT for approval to use possible unspent CG funds that related to the Hospitalisation Grant for the North West clinic-building programme. Stripping the late approved NT rollovers on CGs that amounted to R267 553 000, the expenditure stood at 84%.
The Office of the Premier had spent R1 798 000 of their funds for the first nine months, which was an expenditure of 34.25% of the funds received and 25.69% of the total infrastructure/development funds of R7 million. The Department indicated that it would spend the full amount, but a challenge facing them was a delay in some of the tendering procedures and the contractors’ holiday period also delayed progress.
The Provincial Legislature had spent 14.82% for the first nine months, which was well below the target of 75%. However, service delivery and expenditure was set to increase during the fourth quarter. One of the challenges here was that a contractor was appointed, but the work done was sub-standard so payment was withheld. The Department of Public Works was approached and a tender was re-issued, closed and adjudicated. The new contractor was busy at work.
The Department of Health had spent R228 918 000 of their funds, which translated to 89.53% of the funds received and 61.52% of the total infrastructure funds. For their CGs, the Department had spent R353 638 000 (94.91%) of the funds received and 64.54% of their total CG funds. Some of the challenges were the relatively low spending on the infrastructure and CGs (especially the Forensic Pathology Services Grant), capacity constraints and problems with the contractor at the Moses Kotane and Vryburg Hospitals.
The Department of Sport, Arts and Culture had spent R5 784 000 (17.66%) of their funds and only 13.26% of their total development funds. For their CGs, R2 526 000 (30.82%) had been spent, which was only 22.75% of their total CG funds. Claims were outstanding from municipalities on libraries and consultants for the archives building and would be paid during the fourth quarter.
The Department’s low spending was a concern and should this trend continue, the Department would under-spend during the financial year. The constraints they were dealing with included a lack of capacity in forward planning and the delayed implementation of projects by local municipalities. Some bidders were unresponsive so tenders for districts and one public library were re-advertised as close tenders.
The Department of Economic Development and Tourism had spent R26 498 000 (31.27%) of its funds but the Department was hindered by a lack of capacity to manage and drive development projects and there were challenges redesigning the internal reticulation and bulk supply of electricity plans.
The Department of Education spent R314 844 000 (108.89%) of their funds or 71.8% of their total development funds. On their CGs, they spent R142 457 000 (100.8%) of their funds. One of the challenges facing the Department was limited funds to address infrastructure needs. As an intervention, an additional amount of R248 million was provided to repair schools damaged by floods and to fund infrastructure projects. A plan to merge farm schools into mega farm schools with better facilities was also launched. Discussions were held with the Department to improve delivery and spending on FET colleges.
The Department of Local Government and Housing had spent R530 201 000 (92.09%) of its funds, or 70.4% of its total development funds. Some of the challenges here were the zero expenditure for disaster management projects, and this was an area of concern. As interventions, the Provincial Treasury did not allow fiscal dumping by the Department before the year-end of municipalities. These infrastructure projects started during the new fiscal year of municipalities and the expenditure was expected to improve during the fourth quarter. The infrastructure CGs were committed and would be spent during the fourth quarter.
The Department of Transport, Roads and Community Safety had spent R397 372 000 (98.04%) of its funds and R317 532 000 (119017%) of its CGs, which was 94.76% of their total CGs. Some of the challenges here were that the Department was experiencing capacity problems at their regional offices and this was delaying expenditure on road maintenance. Expenditure on weighbridges was also delayed due to the inability of contractors to perform.
The Department of Public Works spent R138 656 000 (99.08%) of its budget but still faced some challenges. Targeted Historically Disadvantaged Individual Small to Medium Enterprises failed to register or did not want to register at the Construction Industry Development Board (CIDB). Also, established contractors were reluctant to register with the CIDB. There was an inability of emerging contractors to raise performance guarantees and many of them lacked project management and financial management skills. To address some of these problems, the Department formed part of the Infrastructure Delivery Programme (IDIP) and the continued interaction between the Government and the Provincial Treasury were yielding positive results.
The Department of Social Development had spent R25 232 000 (74.79%) of its funds but had zero expenditure on its CGs because of late approvals from the NT. Expenditure would occur however in the fourth quarter. Some of the challenges were the limited capacity within the Department to manage or plan infrastructure projects. To solve this problem, the Department had appointed a chief works inspector to assist in departmental planning and infrastructure management in December 2006.
The Department of Agriculture, Conservation and Environment had spent R71 414 000 (56.33%) of its budget and this low expenditure could be attributed to the late approval of the infrastructure and CG fund by the NT. Of its CGs, the Department had spent R59 534 000 (70.38%) of the transferred funds. Some of the challenges that slowed down the pace of delivery were in the procurement of services for individual projects, shortages of specialised skills such as project managers and agricultural engineers and constraints imposed by financial delegations at the beginning of 2004/05.
Expenditure on the Provincial Infrastructure Grant (PIG) was at R351 870 000 (198.59%) or 81.6% of the total CG funds. Some of the challenges in spending this money were the high demand to address the needs in terms of the maintenance of infrastructure projects coupled with the limited funds available. Limited professional skills as well as the limited capacity within Provincial Departments to comprehensively plan, cost and integrate infrastructure projects was also a concern.
There had been improved expenditure in the PIG due to improved infrastructure planning and the consistent interaction of the Provincial Treasury and Provincial Departments.
In conclusion, he said that the North West Provincial Treasury had succeeded in enhancing controls to monitor the impact on service delivery and the actual expenditure on CGs and infrastructure/development expenditure.
Mr M Mofokeng, the Acting HOD, said that as per the NT presentation, there were a few areas that were problematic. The first was in HIV/AIDS education, and the reason for under expenditure here was because of a change in focus to other aspects of education. At this stage it was clear that they were not going to spend their full allocation. Another worrisome area was in housing where the expenditure was less than last year and the Department had applied for roll overs, which they now they believe should have not done due to the low/slow expenditure. In fact they had not spent anything on this grant since April. The third area of low expenditure was in sport. This was a result of a lack of clear guidelines in how to spend the money.
Money had been spent on the FET colleges, but the issue was whether it had been spent on the correct things, that is, to develop people and their skills to be able to employ themselves. They were doing well in administering the National School Nutrition Programme but there was a concern that they were feeding children not entitled to be fed, and not feeding those who were. He also conceded that they should never have allowed a roll over for the FPS but they were not doing as badly with this grant as other provinces.
In the past there had been under expenditure on their infrastructure grant as a result of a lack of ability to plan properly. They then began looking at the Department’s cash flow projections to determine where under expenditure was probably going to occur. Where this was identified, funds were withheld. They also had to examine what the money was also being spent on to make sure that it was being spent effectively.
Spending on the PIG was at 56%, compared with 48% last year, which was a good improvement. Spending on roads was only at 44% compared to 56% last year. The Department of Transport, Roads and Community Safety maintained that it would spend its full budget but the Executive Council commissioned an investigation to ascertain where the money on roads was actually going to ensure that there was ‘value for money.’
Kwa-Zulu Natal Presentation
Mr D Shabalala, the HOD, said that expenditure was at 59.1% with the Departments of Education, Health and Transport at 50.8%, 59.3% and 65.9% respectively. The largest capital expenditure budget was in Transport (41.2% of the total provincial budget) and the total expenditure of R2.136 billion (59.1% of the adjusted budget). There was projected end-of-year under expenditure of R5.8 million and the capital budget increased by R83 million in the adjustments estimate.
Spending on buildings and fixed structures (infrastructure) was at 62.5 % with low spending on machinery and equipment of only 47.3 %, mostly in respect of equipment ordered with delivery to take place during fourth quarter. The overall expenditure trend showed gradual increases in spending levels to a peak in the quarter. This raised concern regarding the ability to plan and implement projects at the beginning of the year and this could lead to under-expenditure and subsequent roll overs.
In the Education adjustments estimate, an amount of R100 million in respect of infrastructure was suspended due to the Department’s low spending at mid-year; and R47.6 million was moved from machinery and equipment to deal with other spending pressures in the Department. Despite this decrease, the Department continued to show low spending at 50.8%. The Department of Education attributed this to claims of R116 million from implementing agents that had not yet been processed. Including this, the percentage spend increased to 67.5%. The Provincial Treasury was in discussions with the Department regarding the timeous processing of claims and projections indicated an over-expenditure of R13.3 million.
In Health, the main budget increased by R69.9 million, mainly in respect of revitalisation grant roll-overs. The Department spent 59.3% as at December 2006 and the low spending was linked to the initial delays experienced in implementing revitalisation grant projects. There were optimistic projections for the last quarter resulting in an over expenditure of R17.8 million.
In Transport, additional funding was given for infrastructure in the adjustment estimates. 65.9% had been spent which was in line with past trends, and projections showed slight under expenditure of R32.3 million.
He said he was happy that agriculture had not spent any of its allocation as the Department had recovered two disclaimers from the Auditor-General over the past two years. Things were not going well in this Department and it was actually better that they had not spent anything.
The very low spending of 15 % in the FPS was attributable to the late take-over of the service from the SAPS. Outstanding claims from the National Department of Public Works in respect of upgrading of facilities and various commitments had been made but payment would only be effected once delivery had taken place. The Department was projecting under expenditure of R27 million. In the Professional Training and Development Grant the Department had spent 69.7 % and was in a position to spend the full 2007/08 budget allocation
In housing, the bulk of the Departmental budget related to the Integrated Housing and Human Settlement Development Grant. After low spending in the first quarter, the Department had managed to increase spending level to 74.4% at end of the third quarter. They also projected to fully spend the allocation.
In the Mass Sport and Recreation Grant, initial problems with suppliers had been resolved. Problems had resulted in relative low expenditure at 64.9% but it had picked up during third quarter and it was projected that the allocation would be spent.
Mr Z Kolweni (ANC) (North West) asked Kwa-Zulu Natal why their Agriculture Department was performing so badly when compared with the other Departments in the province.
Mr Shabalala replied that the Department of Agriculture was the worst performing ones in terms of financial management. In fact in 2005/06 they over-spent by R97 million but it was hard to account for this expenditure. The Department was being dealt with as a special case and the Provincial Cabinet was aware of the problems. The Provincial Treasury was doing all it could to save the Department.
Ms D Robinson (DA) (Western Cape) said that there were some improvements in the presentations but she was worried about the poor performances in the grants that had to do with nutrition and health as these related to people directly. With the problems with crime it was essential that the FPS Grant was administered and used properly.
Mr B Mkhaliphi (ANC) (Mpumalanga) said that two provinces reported that they had spent 100% of their funds for the FET colleges. The respective treasuries had to ensure that this was real, effective expenditure, and not merely a transfer of funds.
Northern Cape Presentation
Mr S Makoko (Head of Department (HOD): Provincial Treasury) provided a summary of the total provincial budget, and outlined the provincial expenditure on Infrastructure [Infrastructure Reporting Model (IRM), Conditional Grants, and gave reasons for the department’s under/over expenditure. He said that the province projects to over-spend on capital expenditure (CAPEX) by about R24, 6 million or 5% of the adjusted budget, and that total expenditure on conditional grants amounted to R627, 9 million or 66% of the adjusted budget as of 31st December 2006. He also said that the major challenges faced were infrastructure challenges due to poor planning by the client departments. Therefore, as a result, the submission of project lists to the Implementing Agent (Department of Public Works) was always late, which led to the late start in the planning and design of future projects.
Mr E Sogoni (ANC) [Gauteng] said that the problem with most departments was poor planning, while capacity in the Northern Cape was still a problem. He also asked the department to provide clarity on what could be done if there are signals that a province lacks capacity to spend.
Mr Makoko replied that the R80 million underspending occurred in the hospital revitalisation programme. Part of the problem stems from a difference in views and personalities of the HODs. The Provincial Treasury has taken the Department of Health to task for its delays in starting projects, as it is plagued by poor management and planning.
Mr D Botha (ANC)[Mpumalanga] asked the department to give clarity on the problems between departments and Public Works. It was a concern if there were no service contracts between Public Works and the departments. He also asked the department to elaborate on its role in providing oversight in the Northern Cape.
Mr Makoko responded that the relationship between Public Works and client departments had always been and still are difficult and fragile. Provincial Treasury had hosted numerous meetings between Public Works and client departments on the issue; however there has been no clear solution to the problems.
The Chair stated that the fact that certain departments in the Northern Cape had not signed service delivery agreements was a matter that the Committee would have to follow up.
Western Cape Presentation
In his presentation, Mr H Malella (Head of Public Finance: Western Cape Provincial Treasury) outlined the expenditure on the conditional grant, infrastructure and capital expenditure. He provided service delivery information, the business plan for 2006/07 and 2007/08 process and how provincial expenditure was monitored. In terms of monitoring mechanisms, Provincial Treasury engaged other departments in a cooperative manner, so that they could jointly seek solutions to particular issues, and prevent fiscal dumping. They were also meeting quarterly with the provincial MEC’s for finance, education, health and public works in order to discuss infrastructure spending and other difficulties.
The Chair pointed out that road maintenance was still a problem in the province.
Mr Makoko replied that the province allocated about R1billion to roads on an annual basis.
Mr Sogoni said the Committee was not interested in “fancy” presentations; the only thing that mattered was whether or not the correct figures were provided. He felt there were spending problems in the Western Cape and asked the department to elaborate on what was being done to improve the expenditure levels.
Mr Z Kolweni (ANC) [North West] asked for clarity on provincial agriculture spending.
Ms M Robinson (ANC) [Western Cape] asked whether the provincial disaster management grant would be spent fully.
Mr Malella responding that the Department was still looking into the matter and would provide a more detailed answer to the Committee shortly.
Ms Robinson believed that the response was not adequate and asked the Chair if the matter could be looking into further.
The Chair agreed that the Committee would follow up on the matter at a later date.
Ms N Tshabalala (HOD: Gauteng Provincial Treasury) provided an overview on the overall service delivery expenditure, expenditure on capital budget, the expenditure challenges faced by most departments, and the interventions by Treasury. There was an estimated projected over expenditure of R168 million, as total expenditure is anticipated to exceed estimated revenue. Treasury would encourage the utilisation of the Infrastructure Delivery Improvement Program in order to help integrate planning, budgeting and reporting cycles. She concluded that Treasury conducted a rigorous analysis of spending projections by various departments in the third quarter and made recommendations to some departments to surrender funds for reallocation.
Mr Sogoni stated that planning clearly continued to be a challenge and asked the department to give clarity on the purpose of the funding allocation to Rand Water, and the problems in sport and recreation.
Ms Tshabalala agreed with Mr Sogoni and said that the department was faced with huge capacity problems. The department had created relationship agencies and planning agencies to provide it with clarity and identifying where the problems were. Sports and recreation was also a big concern for Gauteng’s treasury in that monitoring and evaluation mechanisms were severely hampered by various issues. He did not elaborate.
Mr Botha asked the department to elaborate on the reasons for the existence of the community safety budget.
Ms Tshabalala stated that the community safety budget existed because the provincial departments had to implement a monitoring mechanism for the traffic police and for traffic management issues.
The meeting was adjourned.
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