Agriculture Provincial Conditional Grants & CapEx: 3rd Quarter 2006/07 spending

NCOP Finance

18 February 2007
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Meeting report

FINANCE SELECT COMMITTEE

FINANCE SELECT COMMITTEE
19 February 2007
AGRICULTURE
PROVINCIAL CONDITIONAL GRANTS AND CAPITAL EXPENDITURE: THIRD QUARTER 2006/07 SPENDING

Chairperson: Mr T Ralane (FS, ANC)

Documents handed out:
Department of Agriculture Western Cape presentation
Department of Agriculture Conservation and Environment North West Province presentation
Department of Agriculture Eastern Cape presentation
Department of Agriculture Mpumalanga: Hearing Report on Conditional Grants
Department of Agriculture Mpumalanga Trends on Financial Data for Quarter 3 January 2007
Mpumulanga Provincial Government presentation
Department of Agriculture Mpumalanga: Performance Report on Conditional Grants
National Treasury Outcome of Conditional Grants and Capital Spending presentation
Department of Agriculture Free State Third Quarter Conditional Grants report
Department of Agriculture North Cape Presentation

SUMMARY
The Provincial Departments of Agriculture each presented a summary of the third quarter spending, and a comparison of the amounts spent to date also in the fourth quarter, to indicate whether they expected to over or underspend in relation to the conditional grants and capital expenditure. They focused on the Comprehensive Agricultural Support Programmes, Land Care and Disaster Relief. All provinces had underspent to date, and most cited capacity problems, lack of forward planning that enabled projects to begin in the first quarter, and beneficiary dynamics as problems.

Members expressed general concerns that the form of reporting was not always standardised, which sometimes made it difficult to compare accurately the spending against the targets. It was clear that National Department needed to provide guidelines.

The National Department of Agriculture was asked to consider holding discussions on the equitability of the conditional grant, whether there was a formula to deal with capacity building, the substantial delays in payment of disaster relief funding, and perhaps consider putting aside some money from the Equitable Share. It was asked to consider guidelines on the use of expanded public works models, and to consider comprehensive intervention of all departments in the disaster management plan.  The role of the conditional grants should be interrogated. The question of risk should be addressed since there had been underspending in six provinces on the Land Care programme. Serious consideration should be given to whether the allocations should be reduced or withdrawn until Departments could prove themselves competent to spend properly. The National Department should perhaps consider dedicating a set amount to addressing capacity, to consider guidelines for reporting and requests, and the general principle of roll overs,

The Western Cape was asked whether there had been a business plan and why disaster relief payments were so long delayed, funds committed, the monitoring of funds and projects and the roll over in flood relief allocations. Further questions addressed poverty relief programmes, the Provincial Infrastructure Grant, and staffing issues.

The North West was asked how it would improve its spending which had stood at 34%.It was also asked about interest on funds granted but not spent, the new guidelines that had been developed for tenders, low spending, the EPWP model, the underspending on drought relief despite the desperate need for it, and whether the problems lay in planning or management of projects.

 
Mpumulanga was asked to clarify the NoordKaap project, food security programmes and the overspending on some projects, the generally low spending trends and whether there was proper monitoring. Members noted that there were no percentage comparisons given in the report. The amounts spent on fencing were queried. The principle of equal amounts being granted to three districts was questioned, particularly in the light of under performance. Wind power pumps for water were raised.

The Eastern Cape shearing shed project was questioned. Full details of land care spending should be forwarded to the Committee. Further questions related to the monitoring systems, the reasons for such late requests for roll over, the disaster relief funds, the Massive Food Programme, and the approval that was needed from the provincial legislature on the Comprehensive Agricultural Support Programme (CASP) and land care. A problem was identified in retaining skilled staff as the salaries were below those of other provincial departments.

National Treasury noted that six provinces were expecting to underspend in Agriculture. For January to March there was an increase in spending but National Treasury was not sure whether some of the projections were realistic. There was concern over the low spending on disaster management and allocation of grants across districts.

Free State was asked about its cancelled projects, those that reflected no spending, unallocated expenditure and the cancellation of a contract with a service provider in respect of disaster relief fodder distribution. Explanations were sought on the constraints in the tender processes, the percentage comparisons of projects to budgets, how far the Department interrogated contractors and did assessments, the necessity to balance spending against need, the accuracy of the information and the late implementation of projects.

The Northern Cape was asked to respond to the questions in writing in view of the shortage of time. These questions included over expenditure on the amounts transferred, despite under expenditure against budget. Concerns were expressed that funding had been received from the Provincial Infrastructure Grant although the allocation for CASP had not yet been exhausted.

Members also discussed general issues, which included the need for immediate release of funds for disaster relief, the problem of efficient spending, the performance of extension officer staff, problems of inconsistent and sometimes not comprehensive reporting by Departments, and possible withdrawal or decrease in allocations pending proper performance.


MINUTES
The Chairperson noted that the Departments would not be speaking of trends, but only of the spending in the fourth quarter.

Western Cape Department of Agriculture Briefing on third quarter spending
Member of the Executive Council (MEC) Mr J J Dowry announced that the Province had recently won a silver award for land care programmes. He indicated that the projected spending on the Comprehensive Agricultural Support Programme (CASP) was R10.49 million by the end of the fourth quarter, of which R7.5 million was already committed. In respect of the Land Care programme, spending had been 870 000. For the fourth quarter R1.86 million needed to be spent, but R1.6 million was already committed. The drought relief showed spending of R129 000 in the previous quarter, and projected spending of R2.67 million for the fourth quarter. Mr Dowry indicated that this might be spent because there were no further applications for relief pending as far as he knew. Disaster relief showed nil spending in the third quarter. R33 million was received in December but spending would only commence in the following financial year, if the roll over was permitted, as there was not sufficient time to spend the allocation before the end of the financial year. National Treasury (NT) had been asked for permission to roll over, but this had not yet been approved.

The MEC set out the challenges that faced the Department in relation to spending. These included time constraints linked to staffing, legal issues, serious cash flow problems and debts, and IT problems in record keeping. Reallocation of funds had taken place. This amount of R2.5 million related to farms that had been attached and which were subject to legal processes of repossession. Since the Department was aware that ownership was at stake, it could not spend on those properties and the money would be retained pending finalisation of the legal processes. Reporting of field staff, the shortage of engineers and economists, and monitoring and evaluation were further problems. The Department was nonetheless confident that it would be able to spend the allocations at the end of the Fourth Quarter.

Discussion
During the question sessions, the Chairperson indicated that he would like to hear replies from the National Department of Agriculture (NDOA). Mr Koos Geldenhuys, Deputy Director Budgeting, NDOA said that he would try to answer all the issues raised.

The Chairperson interjected that it would have been expected that NDOA should have sent someone with the necessary authority to answer all the matters. He suggested that Mr Geldenhuys should attempt to answer the queries but must, on his return to office, get one of the responsible Directors to respond in writing. He noted that some of the issues would have to be raised at MinMEC, including the problems of capacity that were raised in a number of the presentations. He suggested that perhaps discussions should be held with the Financial and Fiscal Commission on the equitability of the conditional grant and whether there was a formula to deal with capacity building (see below).

Mr Geldenhuys said that he would do so. The questions that were posed are listed under the discussions.


Mr M Goeieman (ANC, North West) noted that the slides presented by the Western Cape had been difficult to follow. The Department had received R33 million in December for drought relief, but had not yet spent the funds. He asked if there was a business plan. He noted that the Department had applied for a roll-over. He could not understand why there had not been spending according to the business plan.

Mr D Botha (ANC, Limpopo) asked Western Cape about the projections for funds not spent but committed. He noted that there was still R2.5 million outstanding. He noted that there was no indication where it had been transferred, to whom and whether there was a monitoring system on spending.

Ms Joy Isaacs, HOD, WC Department of Agriculture noted that this amount was related to the extension officers. This amount of R2.5 million had been reallocated through a process in which the needs for additional funding were assessed, and new projects were identified. 150 projects were being monitored. The business plans had been submitted to the National Department, and those for CASP effectively were a budget. Expenditure would commence when the project started. It was possible that one amount might be requested and another might be spent, but this would be dependent on the nature of the project. There were only 47 extension officers in the Western Cape, which translated to about seven or eight  per municipality, who were responsible for food security, farmer settlement and farmer support. Group dynamics had been problematic and conflict was part of the problem. Some groups struggled to replay large loans. There were a number of projects where the beneficiaries had requested the Department to pay their accounts. If the people did not pay then the banks would take action. This was difficult to manage. The Department was aware of the difficulties in recruiting extension officers. Therefore it had now set up a human capital development strategy over he medium to long term to recruit more young people into the department and, together with the Eastern and Northern Cape departments, was looking at ways to improve the output  of existing extension officers. Agricultural economists, vets and engineers had been identified as scarce skills. The intake at university into these professions had been declining. There were some possible ways of addressing the problems being discussed.

Mr Botha also asked the MEC to clarify why he was not expecting there to be further applications for drought  relief. Drought was a problem in the province.

The MEC answered that this scheme was dependent on the gazetting of a relief programme by the National Department. As soon as this had been done, the claims would be paid. He was not sure if further claims would be made, but they seemed to have slowed. It was likely that all had been lodged and that some of the funding might have to be returned, although he would seek to pay out as much as possible.

Mr Botha also expressed concern about the disaster payments, which were intended to cover disaster relief in respect of events in 2006. Affected individuals were still waiting for payment. If there was a bottleneck he asked how the Committee could assist to open up the process.

MEC Mr Dowry answered that the Province had asked for a roll over in respect of the flood relief funds because the funding could only be spent after the national Department had finalised a flood scheme and gazetted it. This had not happened. There were indeed plans in place, prior to the request for funding. The assistance was granted by way of the adjustment budget in December. Province now awaited the finalisation of the schemes before the spending. A Memorandum of Agreement had been signed, and the National Department of Agriculture (NDOA) was in the process of finalising the framework, which should be finalised that day in Pretoria. However it would not be possible to spend the full R33 million in the next two months, hence the request to roll over.

The Chairperson commented that he would like to see far more speedy resolutions of these matters and asked NDOA to comment. He noted that the business plans existed, and that provided they were credible there was seemingly no reason why they could not be acted upon immediately. He suggested that NDOA must find some way to prioritise matters, perhaps by setting aside an allocation from the Equitable Share.

Mr Botha called on the National Department to give an indication of the processes and problems that led to months long delays. He asked for an identification of the problem.

Mr Geldenhuys said that he would discuss the matter of the equitable share and would revert in writing to the Committee.

On the question of the disaster funds, Mr Geldenhuys confirmed that it was not always an easy process, as outlined by the MEC of North West. It did not follow that funds could be paid out immediately. Business plans were required but in addition there had to be signature of criteria frameworks by the minister. In this instance there had been a three month delay. The funds were approved from the adjusted estimate in December. The NDOA had been putting matters in place. He confirmed that the matter would be finalised that same day. He noted that other Departments, such as Provincial and Local Government, Health, Social Development and local government were involved as well.

Mr E Sogoni (ANC, Gauteng) noted that the challenges in Western Cape included allocation of funds and problems with contractual agreements. He asked what could be done to improve the situation.

Mr Sogoni asked Western Cape if the amount for land care was too small and he asked why it was not being spent for poverty relief. He asked for identification of the particular problems.

Mr Dowry said that poverty relief programmes were being run. There were river works in Calitzdorp employing the local population.

Mr Goeieman asked for an explanation why there had been nothing reflected on the Provincial Infrastructure Grant (PIG) in the first quarter.

Mr Dowry responded that during the first quarter the Department was busy compiling a Memorandum of Agreement with the Cape Town City Council. In the second quarter there had been spending of R4.5 million and the extra funding had come from the Equitable Share as the spending had exceeded budget. In the third quarter there had been further spending from the Equitable Share. The Equitable Share in the fourth quarter was likely to be used. There had been some savings in appointments not yet made, although the Department was addressing the staffing issues.

North West Department of Agriculture, Conservation and Environment (DACE): briefing on third quarter spending
Mr E Mayisela, MEC, North West Province tabled but did not discuss the spending trends in respect of capital expenditure. He noted that as at 31 January 2007 the budget allocation to Agriculture in the Province was R309.159 million. During the adjustment this rose to R366.794million. Spending of R270.904 million had occurred, representing 73.8% of budget. This represented the overall budget. In respect of the environmental programmes the allocation was R40.918 million, adjusted to R56.956 million. Spending amounted to R33.617, or 59% of allocation. The overall spending on budget was about 73%. By way of comparison, there had been 49.4% spending by the end of the third quarter, so there had been substantial spending in January. In that context the Department felt that there had been great improvement and that it had managed to overcome the shortcomings of the previous years. It was confident that with the various turnaround programmes it shroud be able to spend the allocated funds.

Mr Mayisela tabled the spending for conditional grants and the equitable share. The conditional grants totalled R8.28 million, and expenditure was at about 34%, or R2.8million.On the CASP programmes there was around 60% expenditure, or R41.746 million. Drought relief had only received an allocation in November or December, of R16 million. Expenditure as at 31 December was about 93.2%, or R14.9 million. Previous presentations had spoken to how the equitable share was allocated provincially. Amounts were reflected for settlement support. R12.575 million was rolled over during the year, giving a total of R39 million, and spending was R9.354 million, or about 23.9%. In respect of heritage sites, there had been a roll over from the previous year, which, combined with the budget, totalled R11.320 million, and money spent was R2.525 million, or about 32.3%. The totals therefore indicated 49.4% expenditure up to end December 2006. This rose in January.

Project spending rose in the last two quarters of the financial year. Funds committed in October and November were paid in December, along with other payments that traditionally took place in the late third or early fourth quarter. The transfer of some funds only took place in November, rather than in September. Problems were experienced on the land care programmes. Some related to the manner of running the programmes, using the Expanded Public Works Programme (EPWP) model, especially in projects such as fencing, where people first needed to be trained. The processes tended to be slow. However, the Department had begun to ensure a fast tracking of the EPWP projects.

There was also minimal spending on the equitable share. Funds here were reserved mainly for production input that had been committed to in November and December to fit in with rainfall patterns.

The Heritage Sites had also under performed because of compliance with international norms. Two sites were involved, which required compliance with UN bodies' standards, which had proved problematic.

The MEC concluded that the projections were quite ambitious, but were believed to be realistic. A portion of the land care funds, probably around 15%, would hopefully be rolled over . All CASP funds had been committed and spent. Drought relief and settlement support would be spent. About 30% of the Heritage Site funds would be rolled over.

The MEC tabled the plans for 2007/08, which derived from the strategic plan presented in September. Proposed projects had been presented to the National Evaluation Panel. Some projects had been identified to run with municipalities, for integration with the Integrated Development Plan (IDP) processes. There were tender processes set for early March. A draft strategy on development funds would be workshopped on 8 March 2007 to try to rationalise all requests for funding.

Discussion

Mr Goeieman asked North West to give details of what was in place to improve the spending of only 34%, since North West had confirmed that not enough had been done. He did not know what the remedy would be. North West acknowledged that little had been done in terms of the equitable share. Mr Goeieman asked what exactly had happened. R4.8 million had been rolled over on heritage sites. The money was presumably in the bank yet there was no indication of the interest on the money. The same pertained to land care where he would like to hear about the 23% expenditure and improvement.

Mr Goeieman noted that North West had developed guidelines on tenders. He asked what had been incorrect in the previous system that the guidelines now sought to address.

Mr Mayisela confirmed that the Province had a Provincial Growth and Development Fund so that any programmes would have to establish linkage with that Fund. Matters to be raised were how tenders fitted into the local Integrated Development Plans of municipalities, how they related to local economic development, whether they matched the Department's priorities, and whether they were sustainable. There had recently been a move away from group projects. It had been realised that land re-allocated from one farmer to perhaps 400 people would not be able to produce in the same way. The Department was encouraging owners to be productive without necessarily staying on the land and thereby lessening the amount available for culture. Group dynamics also often created problems. The Province was moving towards attempting to empower individuals who would be able to sustain projects rather than group projects.

Mr Botha commented that in the North West settlement support and land care spending were low. The MEC had apparently made promises that morning to improve.

The MEC confirmed that the spending was low. The biggest challenges related to general capacity building and training. The Province was trying to conclude training programmes so that they would be completed before implementation and did not hinder the spending. the other problem areas identified related to the EPWP model that was used for land care. Personally he had some doubts whether it was properly effective. Clearly people needed to get training and capacity, but it must be recognised that this would take time and the results would not be realised overnight.

The Chairperson asked the National Department if there were guidelines on this point. Innovation must be within the bounds of some guiding policies.

Mr Sogoni noted that North West had improved. However, he was still concerned that there were roll overs and underspending. For drought relief, there had been a roll over from 2005/6, and 2006/7 still showed that there was underspending. The Committee had paid an oversight visit to the Province and had seen the desperate need for relief. The spending was not commensurate with the needs He asked where exactly the problem lay; whether with planning or project management, He asked National Treasury also for input. He believed that there must be business plans and that it was necessary to monitor spending.

The MEC replied that drought relief was a complex issue. In North West there had been two recent incidents. One related to a veld fire that ravaged a huge area. The biggest challenge was the assessment of who qualified for relief. The qualification process was quite complex. The Department had to determine whether the relief would apply to the land alone, the infrastructures on land, and other matters. Most farmers would hold insurance on their farms. A decision was required whether drought relief could be applied across the board, or only as a top up to insurance cover. Veld fires would also result in the price of commodities such as feed rocketing as not many emerging farmers produced feed. The commercial farmers would raise their prices when there was large demand .There were also political issues. The Province had developed a proactive disaster management plan ahead of time. In a recent disaster in Taung, the Executive Council had decided that any disasters would have to be tackled collectively in terms of a comprehensive intervention plan. It was uncertain how the various initiatives should be linked.

The Chairperson noted that this question too should be considered by the National Department. He noted that part of the discussion must be at conceptual level. Many disaster areas would also involve municipalities and it was necessary to consider how they would link in to issues. The role of conditional grants in broader matters was a matter to be considered.

Mpumulanga Provincial Department of Agriculture: Briefing on third quarter spending
Mr M Mathebula, Acting Head of Department, Mpumulanga Provincial Department tabled a letter that clarified all the processes. he noted that steps were taken to ensure that matters were progressing, that institutional arrangements were in place and that there were monitoring and control systems. 

He indicated that the presentation contained a detailed report on each project. In summary, however, there had been an allocation to CASP of R28 million. Land care had been allocated R4 million. This was divided between three districts. The first report tabled related to the Ehlanzeni district, which was allocated R9.8 million. Here there had been a late start in spending due to the need to re-plan, as the Department had found that its structures were becoming increasingly allied to Public Works. This meant that a project such as building a broiler house would be held up for several years as the beneficiaries did not have money to stock it when completed. Under the replanning process the associated funding was also being assessed so that the farmers were actively assisted to begin their activities. At the end of the third quarter the spending was R2.3 million. It was anticipated that expenditure would pick up in January and February, and this had happened, with spending now at R6. 9 million, well on track, and a balance of R2.5 million remained.

In the Gert Sibande district spending had been slow. In nine months the total spending was only at R2.5 million, but had increased by February to R3.9 million, leaving a balance of R5.5.million. The projects were listed and the stage of each was indicated. There was no anticipated under expenditure as work was being done at present. A large portion of the remaining R5.5 million would be spent by the end of the current week.

Nkagala district was allocated 9.3 million. R1.1 was spent by December. There was a balance of R6.2 million still to be spent. This was a major project to supply broiler houses, but the contract with major chain store suppliers was terminated. The Department had to consider whether to continue with the project or rather try to re allocate the funds and leave space to renegotiate other contracts. The farmers should not produce if no market was likely to exist.

Land care had received an allocation of R4 million across 3 districts. It was doing well in expenditure, employing EPWP methods. Of the R1.1 million allocated to Ehlanzeni the balance was R159 000, mainly consisting of salaries. All should be spent. The Gert Sibande projects were almost completed, with a balance of around R11 000. The Nkagala district was progressing well.

There were no roll-overs as in the previous year all conditional grants allocated to land care and CASP had been spent. In this year it was anticipated that there might be a roll-over of 10% of the retention funds allocated to the projects as most would only be completed in March. The Department was approaching NT for permission to utilise the R2.8 million of CASP allocation that was locked into retention money to purchase material that would be required for CASP in the coming year. If this was allowed, there would be 100% spending of the conditional grants for 2006/7.

Discussion
 Mr Mathebula commented on a general point made by National Treasury in relation to the accuracy of the predictions on spending. He said that Mpumulanga would do its projections at a certain time, and would not change them but then later use them as a benchmark to assess at the end of the period. He noted that the CASP projects showed that money would be retained because the project would not be completed until March. Rather than having the funding unspent he would prefer to spend it on known expenses that would occur otherwise in the following financial year.

Mr Goeieman asked the Department o clarify the NoordKaap project. He noted that the remarks indicated that the remaining funds were transferred, yet there was apparently over spending. Therefore there should not be any remaining funds.

Mr Mathebula said that NoordKaap was a small farming village near Barberton, which projected over expenditure of R478 000. This represented funds transferred to Mpumulanga Agricultural Development Corporation, a parastatal responsible for agricultural development, to give support to emerging farmers to enable them to spray, use fertilisers and improve the land in the four years before their crops would be harvested. Without that additional support the money put into the project would be wasted.

Mr Goeieman asked the Department  to explain the food security, where the projects had been completed but there had been overspending of R2 million. There was no indication of the source of the money that was overspent.

Mr Mathebula said that most of the overspending related to small amounts only. One overspend would be balanced out across the projects by another under spend. At the conclusion of the financial year Mpumulanga would ensure that there was no overall overspending.

Mr Botha said that in Mpumulanga the spending trends in all districts were very low. He asked how the Department had monitored the situation according to the business plans. Some projects were committed, some had been paid, but the HOD had not given an assurance that the projects were all under control, since the Committee would be asking him to account for them at the end of the fourth quarter.

Mr Mathebula said that spending on the CASP and land care had not commenced in the first quarter. This was because the Department was re-planning all its projects. Tenders were sent out only in the second quarter. The basis for the re-planning was that a number of the projects had been identified as becoming "white elephants", where farmers were too poor to afford stock, or unable to afford to plough or plant. A decision needed to be taken whether such projects should be assisted or dropped. The revised plans had been submitted to the relevant authorities and the Department was on track in terms of the redrawn plans. The situation was being monitored and he was hopeful that all the funds, with the exception of the retention money, would be spent.

Mr Sogoni noted that sometimes in Mpumulanga's report it was difficult to pick up the exact spending, as there was not a summary to indicate the actual percentages.

Mr Mathebula said that there had been no roll-over for drought in this year. He agreed that a full summary of all spending had not been provided, but that he would do so in future.

Mr Goeieman asked for further details of the description of the amounts spent on fencing, as the figures did not appear to tally. He asked why the fencing seemed to be so expensive.

Mr Mathebula replied that the Department would have no control over the number of beneficiaries in a project as they would be farming already. The differences related to the different measurements of fencing. Some farmers would be farming on four hectares, others on considerably more. A bidding process was used for costs, so the prices might vary from one instance to another.

The Chairperson made an observation and concern for Mpumulanga. He indicated that this was a conditional grant and although he could appreciate the reasons why it had been split equally, he had noted that Nkangala was not performing. He was not sure whether the grants should be split equally as the backlogs were unlikely to be the same, and this split would not take into account differences in performance. 

Mr Mathebula responded that the Department was aware of under performance in some areas. It had already decided, for 2007/08 that the CASP allocation would be transferred to districts that showed the capacity to manage. This would mean that the others would be able to concentrate on a lesser number of existing projects and be able to set aside time for proper planning. Nkangala would only be receiving 10% (around R4.2 million) for one project, which was a poultry project with established contracts. This would also link to the IDP. If the Department could provide information to Municipalities this would contribute to a better planning approach.

Ms A Mchunu (IFP, Kwazulu Natal) asked the provinces generally whether they were harnessing wind power for the pumping of water.

Mr Mathebula responded that this method of extracting water was not always feasible in Mpumulanga. Whilst it was true that pipes and diesel engines would invariably be stolen, the reality was that for several months of the year it was not possible to harness sufficient wind to raise the water. He said that some farmers had undertaken to put guards on the pumps and equipment and this had worked for a while, but the challenges remained and were being addressed.

Eastern Cape Department of Agriculture Briefing on third quarter spending
Mr Anib Nyondo, HOD, Provincial Department of Agriculture indicated that 56% of the budget was spent by December 2006. He tabled a list of the categories into which the 170 projects fell, and showed the budget for each and the commitments. Money was spent on fencing, storm water dams and a number of other projects.

Detailed figures were tabled. In relation to CASP there was a budget allocation of R57.06 million, with a roll-over of R5.9 million awaiting approval by Provincial legislature. R45.6 million had been transferred, and R32 million had already been spent at 31 December 2006. Spending by 6 February 2007  had risen to R33.9 million. He listed the challenges to spending and the remedial measures taken.

Land care had received a budget allocation of R6.6 million with a roll-over of R777 000 from the previous year. An addition R4 million was approved but this was still awaiting approval by the legislature. R5.3 million had already been transferred and R5.2 million had been spent. The projects were tabled and their specific expenditure set out.

There was no money and no expenditure as yet on Agricultural Disaster Management.

Mr Nyondo indicated that there had been delays on Capital Expenditure due to the lengthy processes of procurement and expensive capital equipment but the Province had spent R9.5 million and hoped that there would be full payment by the end of the financial year.

In the area of food security there was a  total budget of R57.06 million, and expenditure was R32.06million at the end of the third quarter.  The allocation was comprehensively tabled by district and by category. The Massive Food Programme figures showed a budget of R68 million and spending of R60.2 million. It was noted that of the 25% deposits that farmers should have paid only R1.7 million had been deposited.

Challenges included lack of financial capacity, and socio political problems. The Department believed that the systems were in place and the projects would be completed on time.

The Agricultural Disaster Management Budget was R12 .4 million, but there had been no expenditure as the amount was caught up in the delayed adjusted Estimated, that were yet to be approved. The Capital expenditure for the third term showed a budget of R13.7 million of which R9.59 million had been spent.

Discussion

The Chairperson said that there had been interesting points. He noted section 2 of the DORA, which noted issues of risk management. He asked whether the risk issues were assessed when transferring to provinces. One of the problem areas was the land care programme, in which seven provinces as at the end of the third quarter had spent under 60%. He asked what the National Department was doing about this matter.

Mr Geldenhuys responded that NDOA had monitoring teams who would visit provinces and carry out ad hoc inspections of projects on the ground. Where provinces had been underspending money was withheld. For instance two instalments had in this year been withheld from North West until it could prove that it was on track with its spending. In the monitoring process NDOA had identified that capacity and proper planning were problematic. The NDOA had indicated that in cases where there were capacity constraints a portion of the CASP funding could be used to "buy in" the necessary capacity.

The Chairperson was concerned that this would surely divert the business plans.

Mr Geldenhuys responded that this was so, but NDOA considered this the preferable course since otherwise provinces would have to apply for augmentation of their budgets, whilst in the meantime funds were being withheld.

The Chairperson pointed out that Section 9(3)(c) of the Division of Revenue Act (DORA) already made provision that a province could designate a certain percentage of funding to addressing capacity. He asked whether NDOA or MinMEC should not designate the percentage. He maintained that it would be problematic if figures reflected as being for one matter were simply moved to the side. He suggested that NDOA should perhaps consider dedicating a set amount to addressing capacity, and that Mr Geldenhuys should convey this suggestion to the Department so that it might be included in the adjustments. This would be more sustainable than using consultants.

Mr Geldenhuys noted that in certain instances NDOA had offered the use of its own staff, particularly engineers, to assist.

Mr M Goeieman (ANC, North Cape) noted that there seemed to be little work being done in Eastern Cape. A lot of money was committed but this did not indicate that work was being done. The Province had been asked to indicate how sure it was that particular amounts would be spent. He noted that the shearing shed projects showed commitment of R2.8 million that was not spent.

Mr Nyondo replied that these funds had indeed been committed. The orders were raised and the contractors were previously disadvantaged contractors. Measures were in place to assist these contractors. However, cash flow problems meant that the projects took longer than anticipated to be completed, and therefore the spending was only half of what had been budgeted. The Department, despite some of the difficulty in using small scale contractors, was nonetheless committed to the process, and would have to live with the delay.

Mr Goeieman commented that Eastern Cape had also indicated spending on land care, but had not indicated specifically what would be done with the balance of the funds.

Mr Nyondo replied that R1.4 million was reflected in respect of land care. He confirmed that there had been no indication in the report as to what this money had been spent upon but he undertook to obtain full details and forward them to the Committee.

Mr Botha was concerned about the funds allocated and transferred. The money was transferred into the districts, but he queried the monitoring systems in place and to whose accounts the funding was transferred.

The Chairperson commented that the Department should be able to track the money when it was transferred and the Committee might wish to assess the impact of any transfers on the communities.

Mr Nyondo said that there was a system, although his current presentation was very brief. Some of the instructions had not been standardised so he apologised if not all the information was present. He confirmed that a number of National Members of Parliament had visited the Eastern Cape and had either selected or had areas selected for them to visit. None had said that the Department was not doing what it had promised.

Mr Sogoni asked how at this stage Eastern Cape could still be applying for roll-over when the new budget was about to be announced. He asked when the Department had noticed that it would not be able to spend, and therefore needed to apply for roll-over. He noted that 56% was spent by end December on CASP. It was highly unlikely that it would be able to spend fully over the next three years. He felt that this could not happen. He had heard of commitment but there was not service delivery. He asked when the Department  had noticed  that it had not spent and could not do so.

Mr Sogoni asked Eastern Cape for an explanation of the R12 million for disaster relief, which indicated that  was no cash flow. He asked for clarity on this point, and what happened in this regard.

The Chairperson asked the Eastern Cape to explain the massive food programme. He asked for confirmation whether this money was from the Equitable Share. He noted that the performance was problematic.

Mr Nyondo said that the  massive food programme operated on the basis that whenever a contractor acted or completed a task he or she would issue an invoice. Some of the money had not yet been transferred, as more fully set out in the presentation. The money might be at District level awaiting transfer. He was confident that the money would be spent.

The Chairperson also commented on the approval that was awaited from the provincial legislature on CASP and land care. He felt there was a problem. This was a conditional grant and he did not think it should be approved by the Provincial legislature. Section 22 of DORA referred to unspent funding and indicated that a Schedule 5 or 6 allocation that was not spent, plus interest, should revert to the National Revenue Fund. Therefore he was not sure why the provincial legislatures were being asked for approval. Mr Sogoni had also referred to this. Business plans were submitted to National departments and if they were also submitted to the legislature then that might tie in with the approval, but if not, then the position must be clarified.

Mr Nyondo commented that some funding was still tied up with legal processes, and there was a roll over from CASP that should have been decided upon in November 2006. This had not been done and the matter had been postponed once to January, and then again and had still not been finalised. The Department had been told that it must participate in this process, which was not limited to examination of the Department of Agriculture. Indeed it was one of the other departments that had problems that had caused the delays. The actions of this Department were not under scrutiny but they had become caught up in and were suffering delays from this system. Treasury were apparently meeting with the Executive and the legislature now to try to reach finality.

NDOA was asked to comment on roll-overs and Mr Geldenhuys stated that there should be good reason provided for the roll-over. It did happen that projects could not be completed in one financial year and would have to roll over to the next.

The Chairperson asked if there were any comments that Mr Phila Nkayi, Chairperson of the Portfolio Committee on Agriculture, Eastern Cape, would like to make.

Mr Nkayi said that the matters that Eastern Cape had raised had resulted from some political agitating and expediency. Twice in the past the Eastern Cape Province had fallen into debt and others had had to assist in the recovery of money owed to the national budget. This had caused some paranoia in the Province with the result that the legislature was keeping a much closer watch over departments. Conditional grants had been used in a sometimes cavalier fashion. The Eastern Cape Department of Agriculture was not doing so, but they had suffered in consequence of others. He corrected Mr Nyondo, saying that the adjustment was passed in December. The Department had issued guidelines on the grants very late and by the time they had arrived there was insufficient time to spend the money before the end of the financial year. He noted that crops were seasonal. Therefore if no seeds were purchased in one month, a different seed might be needed for a later planting. He acknowledged that shortage of skills was a major problem affecting land care. Engineers were particularly scarce and were regrettably paid far less in the Eastern Cape than in any other province, or indeed in local government. Therefore it was impossible to retain engineers. Land care programmes were vital in Eastern Cape because of erosion, degradation of soil, and the heavy dependence on the land. Although the Department had submitted a budget it had not had the capacity to implement the programmes.

National Treasury Briefing on Conditional Grants
Mr Anthony Phillips, Director: Finance, National Treasury (NT) noted that overall there was an adjusted budget but that Provinces had projected expenditure of 1.3 billion. However, the tables in relation to the  agriculture sector indicated that six provinces were expecting to underspend in agriculture. He detailed the projected under expenditure. For January to March there was an increase in spending but National Treasury was not sure whether some of the projections were realistic. Mpumulanga had asked to bring some of the 2007/08 expenditure forward to ensure that there would be full spending in this year. This was an illustration that some of the targets might not be accurate. The five grants for disaster management were showing only an aggregate spending of 23.8 % and land care an aggregate of 47.5%. There was also the issue of how grants were allocated across districts. If this was done equally, it raised the question of whether there had been proper prioritisation, and a proper assessment of the likelihood of completing the spending.

Free State Provincial Department of Agriculture: Briefing on third quarter spending

Mr M Mokitlane, MEC Free State gave an overview of some of the challenges facing the Department, including a dispute with a service provider, that appeared more fully in the documents. He noted that 55.6% of the budget in relation to CASP, 50.9% in relation to Land Care and 24.4% for Agriculture Disaster had been spent at the end of the third quarter.

Mr S Ramakarane, HOD, Department of Agriculture, Free State added that the CASP spending of 55% at the end of December was below the expected 75%. However it was to be noted that there was a commitment of R9.8 million. By February the spending had reached R18 million which represented 73% of budget so, based on these projections, it might be that there was eventual overspend on the CASP projects. The Department had already begun to engage with NT. Land Care, which stood at 50.9% spending in December, had risen by 12 February to 66%. He was confident that the targets would be met. There were challenges around the disaster fund. Expenditure was low and this reflected the difficulties with the termination of a contract of a service provider who was to distribute fodder. A fee of R1.2 million was due for the work done to date. The distribution had been given to another provider and was progressing. There might still be under expenditure of around R7 000 although it was hoped that the project would be able to reach completion.

Mr Ramakarane tabled and explained various projects. He noted that some were at the tendering stage so that there had been no expenditure. Some had had expenditure since the table was drawn. Some projects had been highlighted where it was now clear that the Department would not be able to spend, either through lack of capacity in the Department to deal with t he project or through poor planning which would hinder completion of the project. For instance, a hydroponics scheme had now been assessed by the university of the Free State, who concluded that the project was ill conceived because of the quality of the water that would not allow a successful project to run. The Agricultural Research Corporation had also been called upon for assistance.

Mr Ramakarane acknowledged that there were constraints, and lack of technical skills was problematic. The Department had held discussions with NT and hoped that capacity would be addressed in the next financial year. It had also identified that the implementation of projects would have to begin at the start of the year, so that all planning must be completed before the end of the previous financial year. Some of the constraints also related to group dynamics. Funding of agricultural inputs to support infrastructure had been a problem.  Free State was confident that it was on track to spend and projected a slight over spending on CASP.

Discussion

 The Chairperson commented that it was most interesting to see the different format of the reports from each Department as each one posed a different set of issues. He was concerned about the project that had been cancelled altogether and asked what spending had occurred. He was also concerned about the description of "unallocated expenditure" and asked for some clarity on what this represented.

In respect of the cancelled projects Mr Ramakarane stated that an original amount of R171 000 had been paid. This related to a grazing project on commonage. However, there were difficult group dynamics within the intended beneficiaries, the agreement with the Municipality was problematic and unable to be ascertained properly. R150 000 had been paid for planning processes already done. When it became clear that the project was doomed to fail, it was cancelled and the remaining funds were redirected.

In respect of the unallocated expenditure Mr Ramakarane said that this did not represent a large amount. This represented CASP projects that were not gazetted in the current financial year and would spill over to the next. Reports had been provided to NDOA and Treasury.

Mr Goeieman asked for clarity on the statement that tender procedures were a constraint.

Mr Ramakarane responded that the lack of documentation on supply chain management issues had led to a qualification in the audit report. The Department had gone through a learning curve and was now far more compliant in regard to systems and processes. Staff were also being trained. This was no longer a constraint.

The Chairperson noted that the figures given for each project did not indicate the status of the project, nor what relationship the figures spent bore to the budget, nor any comparative percentages. He commented that it would be useful to be able to assess the sustainability of projects.

The MEC took the point and said that the reports could have been more detailed. However, he cautioned than the percentage comparisons of spending against budget might not always be a true reflection of the work on the ground. For instance the tannery project was currently reflected at 1% spending. The tannery was a going concern that employed nine people, who would be taking it over as a going concern through the medium of a trust for those beneficiaries. The paperwork was virtually complete and once signed the funds could be transferred. This project involved R1.5 million for the business, the implements and funding to increase the capacity of the business.

Mr Botha noted that the project cancelled had presumably been scrutinised by the Department  and he enquired whether the Department had interrogated the capacity of the contractor, whether the funds were available, whether there were credit facilities and other such issues. It was known that some suppliers did not deliver. He enquired if the department was satisfied that it was doing it s best to assist the tenderer to complete the work and to ensure that the projects would succeed.

Mr Ramakarane replied that there had been challenges with one service provider. He noted that it was very difficult to award a tender but not make constant inputs and checks on the service provider. Often BEE service providers had problems of bridging finance. It was hoped that funding could have been obtained but when it became clear that matters were not proceeding the pragmatic decision was taken to cancel the contract.

Mr Goeieman noted that some projects were still reflected as being on tender while the spending had not commenced on others. He asked what were the allocations in respect of those where there had been no spending.

Mr Ramakarane indicated that service providers were not likely to be on site while projects were still on tender so these would reflect nil spending. He reported that one of the projects in which there had been no spending was the hydroponics scheme where the University of Free State had, after doing some preliminary investigations, concluded that there was no suitable water supply and that the project could not be implemented. Certain projects would be redirected. He added that R2.4 million had been allocated to the training of beneficiaries of the land reform programmes and that only R500 000 had been allocated to date. The training would be taking place across the province so that the spending would be incremental.

Mr Sogoni asked whether the commitments listed were separate from the expenditure listed previously. He was concerned that if these amounts had not been separated there might be an overspend. He was also concerned that any spending should be carefully done, not merely for the sake of meeting budgeted expenditure. He queried whether it would be possible to spend when the trend over the previous ten months had not indicated sufficient work done. He stressed that in appearing before the Committee, the departments should provide accurate information and thus enable the Committee to identify any problems and assist in reaching solutions.

Mr Ramakarane confirmed that there would be no "fiscal dumping". The amounts spent and committed were above projections for the current months and both CASP and Land Claims indicated that there was not a sudden spike but in fact an increase over several months. He reiterated that in some projects implementation had begun late. Matters were on track.

Mr Ramakarane commented generally that the Department fully recognised that it had  not commenced spending when it should. However the problems of the past had been identified and addressed and the Department was now confident that it had everything in place to do the job. He noted that no PIG allocation was given, merely a CASP allocation and that although more money was needed he accepted that the Department would have to be able to justify, through its own work and spending, that the additional was warranted and would be used. An amount of R10.4 million had been budgeted to improve capacity and this demonstrated that in order to spend more the capacity would need to be increased.

Ms Mchunu asked how many people would be benefiting from the projects in hide tanning. She also asked how many schools were involved in Land Care and how much each would receive. She asked whether the Parys Hydroponics scheme was still operating. In relation to skills transfer she believed that there should be a concerted effort to train those working in the projects, rather than departmental officials who might provide services for a while and then move to another job.

Mr Ramakarane confirmed that there would be ten beneficiaries in the tannery business.

The Chairperson noted that a service provider had been dismissed and yet that certain funds had been paid out. He indicated that the President had recently mentioned that the costs of doing business should be lowered. He was concerned that litigation should as far as possible be avoided through correct planning.

Northern Cape Department of Agriculture Briefing on third quarter spending

Mr N Mothibe, HOD, Northern Cape Department of Agriculture, said that on the CASP projects there was a budget allocation of R22.49 million, of which R12.4 million (55%) had been spent in the third quarter. the Land Care project had a R8 million budget, of which R6 million, or 75% had been spent. The PIG was budgeted for R4.8 million and there had been spending of R2.6 million, or 55%. Overall there had been 60% spending on the total budgets. He tabled the conditional grant spending versus the cash allocation, noting that more had been spent than allocated. He detailed the expenditure per month. A situational analysis was provided for CASP, which indicated that a roll-over had been requested as the Department  had struggled to complete all projects. Less projects had been planned for 2006/07 as officials were concentrating on completing those outstanding from previous years. 99% of the transfers made had been spent. In respect of land care there was a requested roll-over of R1.8 million, and 130% of the transfer received was spent. In respect of PIG a roll-over of R1.5 million had been requested and approved. In respect of all grants there was a necessity to improve monitoring and implementation. A dedicated team from NDOA had assisted Northern Cape.

Mr Mothibe outlined the challenges and identified one as advanced planning so that implementation of projects would be able to start on 1 April. Other problems related to cash flow difficulties by BEE contractors, capacity problems and improvement of delivery on the conditional grants.

Mr Mothibe noted that the business plans were drawn and that these were evaluated by the Provincial Evaluation Panel, which included a number of land and agriculture stakeholders and Provincial Treasury.  Steps were taken to ensure that projects would have the capacity to be properly implemented and met the payment schedules.

Mr Mothibe summarised that the Department did lack capacity.

Discussion

Mr Goeieman noted that in the third quarter there was over expenditure of the amounts transferred. He asked how it was possible to have a doubling of expenditure over transfers.

The Chairperson was concerned that funding had been received from PIG although the allocation for CASP had not yet been exhausted. He pointed out that the money from PIG should supplement the conditional grant. He asked whether specific projects should relate to PIG. He suggested that this was a matter that would have to be pursued with the Provincial Treasury.

He noted also that DORA stated that in making allocations the Provincial Treasury should take into account the capacity of the receiving department to spend and manage its money. if it could not spend CASP and Land Care then more money should not be allocated from PIG.

Since there was not sufficient time to answer the questions, the Department was asked to respond in writing before 22 February.

General Discussion
Mr E Sogoni asked a general question of all MECs and HODs relating to the allocations. If the Provincial Departments approached National Department after a disaster it must be clear that the funding was needed immediately. National Government apparently declared the area a disaster area, but failed to pay over funding speedily. The Minister of Finance had indicated that the problem was not money, but was rather a problem of spending. It was clear that there was a problem. He asked about the performance of the extension officer staff employed to assist with agriculture. Many people would not automatically know how to go about seeking relief. This was surely a specific function of the extension officers. He was concerned at the comment that further claims were not likely, when it seemed people were unaware that they could claim. 

In regard to extension officers, Mr Mayisela, MEC North West indicated that North West Province was undertaking a workshop with all extension officers to ensure that they understood their changing roles. They would henceforth no longer be office bound, and technically orientated. They would instead act on the ground.


Mr Sogoni noted the question of comprehensive reporting. He indicated that sometimes there would be a report that there was no spending, but there was no indication of spending on the equitable share. According to a Free State press release, Eastern Cape, North West and Western Cape and Gauteng had all spent less than 60% at the end of December. The question of planning arose.

The Chairperson indicated that National Department and Provincial Departments may wish to convince the Committee that it should not withdraw some of the allocations. Where the provincial departments were under- performing and were not handling the funds properly, he suggested that there was good reason to reduce their allocations they were better able to perform on Land Care and CASP. He asked that this matter be discussed with National Department and in the provinces. DORA would be passed on 29 February and the final negotiating mandate would be taken on 20 February. There would have to be motivations from each province to say that there was capacity to spend in 2007/8. He would like to see what exactly had been put in place.


Mr Goeieman noted that the NDOA was aware of some problems and there was a clear need to assist. He proposed that the NDOA should assist provinces before the allocations were made and be able to assess what was needed in order to assist so that when money was allocated it would be sufficient to cover other development costs.

The Chairperson added that NDOA would have to address problems of capacity.

Mr M Mokitlane, MEC Free State said that problems of capacity had been discussed at MinMEC. It was clear that thee was difficulty in getting technical skills. The NDOA was to assist by raising remuneration levels to standardise them so that this would lessen the poaching of staff. This process was due to begin in April. The Agricultural Research Council (ARC) would also be able to assist.

The Chairperson a\said that perhaps specific focus needed to be made on such issues in the business plans. Part of this discussion in fact related to the medium term Budget Policy Statement in October. Although there was a responsibility by Provinces to deal with these issues, NDOA should also share in the problems and challenges. Experienced people should examine the business plans to ensure that they contained certain points so that a proper interrogation of those plans could be conducted prior to transfers. He did not consider it would be useful for business plans simply to be rejected without any constructive attempts to improve them or to assess them. He also felt that each business plan should be regarded independently of others so that no province should be held up by another. There clearly needed to be collaborative work with the provinces and the national Department should not seek to shift the responsibility, nor simply throw money at the problem.

The meeting was adjourned.

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