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

NCOP Finance

19 February 2007
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Meeting report

FINANCE SELECT COMMITTEE

FINANCE SELECT COMMITTEE
20 February 2007
ROADS AND TRANSPORT PROVINCIAL CONDITIONAL GRANTS AND CAPEX: THIRD QUARTER 2006/07 SPENDING
 
Chairperson:
Mr T Ralane (ANC, Free State)

Documents handed out:
Department of Public Works, Roads and Transport Presentation
KwaZulu-Natal Presentation
Northern Cape Presentation
Limpopo Presentation
Free State Presentation [email info@pmg.org.za]
Eastern Cape Presentation: Part1, Part2 & Part3
Western Cape Presentation

Audio Recording of the meeting: Part1 and Part2

SUMMARY
The KwaZulu-Natal, Northern Cape, Limpopo, Eastern Cape and Western Cape provincial Departments of Transport briefed the Committee on third quarter expenditure on roads and infrastructure. The national Department of Public Works gave a brief presentation on the spending trends noting that the lowest rate of expenditure was recorded in Gauteng and in Limpopo, whereas the North West and the Free State recorded the highest rate of spending.

The provinces, among others, outlined capacity problems, funding shortages, non-compliance by municipalities with rules and regulations, rail transport as an alternative and inadequate performance monitoring and evaluation.
The Committee focused on under spending, the relationship between the provincial departments and the South African National Roads Agency Limited which was experiencing major capacity and management issues, and the lack of proper forward planning for road building and maintenance.

MINUTES
Department of Public Works (DPW) Presentation
Dr Sean Phillips (Acting Director General) provided an overview of expenditure by all public works and transport departments across the nine provinces during the third quarter of the 2006/07 financial year, where he listed the various trends with regards to over- and under expenditure. In terms of allocations for assets, the biggest capital budgets are in the Departments of Public works and Transport. Spending by the departments was at 62.7%, which is 11.7% higher than last year’s figure. The lowest rate of expenditure was recorded in Gauteng and in Limpopo, whereas the North West and the Free State recorded the highest rate of spending.

KwaZulu-Natal Presentation
Mr Bheki Hamilton Cele (Member of Executive Council (MEC)) said that the Department planned on spending its full road infrastructure budget during the current financial year, and that the Department has enough capacity and appropriate monitoring and evaluation systems to effectively deliver on its mandate.

Dr Kwazi Brian Mbanjwa (Head of Department (HOD)) provided an overview of the ongoing maintenance of provincial road infrastructure, the existing backlogs, and the various challenges. The biggest challenge was funding, as there was extensive work that needed to be done in the construction and upgrading of the provincial road networks.

Discussion
Mr E Sogoni (ANC) [Gauteng] asked the Department why they had allocated only R1.8 million to infrastructure development.
 
Mr Cele said the figure was actually R1.8 billion that had been spent on infrastructure development.

Mr M Goeieman (ANC) [Northern Cape] asked the Department to address the issue of capacity, and developments on the road leading to Bloemhof.

Dr Mbanjwa said capacity building was difficult. However the Department has its own in-house engineers in place, which has helped address the issue of capacity. The Department launched training workshops but sometimes employees are lost to other sectors of the economy. The Department submitted additional funding requests to the Provincial Treasury but has not received more funding. He called on the Committee for its assistance in this regard.

Mr Cele said the Department did not allocate funds to municipalities, in that they already received funds from various grants. The Department understood that there is a serious lack of capacity in municipalities but it would take time to correct this. In terms of infrastructure development on the road to Bloemhof, the road was built in a densely populated area and while the Department tried to move people they have had little success.

Northern Cape Presentation
Ms Ruth Palm (HOD) stated that the Department had been allocated a budget of R377 million for the 2006/07 financial year, and that an amount of R2.1 million was received as a roll over from the previous financial year. The challenges faced by the Department included flood damage which impacted on the Department’s spending patterns during the first six months. In terms of monitoring and evaluation, there were many steps that had been implemented which included the withdrawal of funds to district municipalities that failed to adhere to Division of Revenue Act (DORA) rules and the signing of service level agreements with five district municipalities.

Discussion
Mr Goeieman asked why roads were the most under budgeted item in the province.

Ms Palm said the issue of road funding has been a long outstanding one, but that the Department has met with various stakeholders to find solutions even with limited funding.

The Chair stated that the Department needed to cooperate with the South African National Roads Agency Limited (SANRAL) and provinces such as the North West in order to address the matter. He found it interesting that the Department had spent R2.1 million of the conditional grant and asked for clarity on current expenditure on conditional grants.

Ms Palm said the R2.1 million was used for road maintenance.

Limpopo Presentation
Mr Justice Pitso (MEC) said his province needed a better working relationship with SANRAL. Progress had been made with regards to provincial road infrastructure and spending on the conditional grant. The entire infrastructure grant has been fully utilised, and the provincial grant would be used to pay for outstanding commitments. Project plans have been finalised and consultants have been appointed for the 2007/08 financial year.

Ms Mabel Makibelo (HOD) said that the challenges faced by the department included a lack of funds to meet certain programmes. Plans to develop roads that had been transferred from Mpumalanga have been evaluated, but required substantial additional funding which has not been included in the provincial equitable share.

Discussion
Mr Sogoni asked how they could successfully plan future projects while they were under spending. He also wanted clarity on the relationship with SANRAL.

Ms Makibelo responded that every year the Department identified roads that required maintenance. The funds that are used to maintain the roads come from the previous financial year and it is through forward planning that under expenditure is avoided. The SANRAL issue is being addressed and the Department is looking at reclaiming certain projects that are currently managed by SANRAL in order to sort out the management issues.

Mr Goeieman noted that the Department had already issued for 2007/2008, and wondered where the funds for the tenders had come from. 

Ms Makibelo reiterated that such funds come from the previous financial year.

The Chair asked the Department to comment on the report by Provincial Treasury, which stated that roads and transport infrastructure expenditure of the Provincial Infrastructure Grant (PIG) is at 44.1% indicating a drop of 12.2% from the previous year. This resulted in tenders having to be re-advertised and SANRAL taking the Department to court.

Ms Makibelo said there had been a problem with contractors; however the matter has since been resolved.

The Chair stated that since conflicting reports had been provided by the Department and Provincial Treasury, the credibility of the Department’s spending projections will come into question in the 4th quarter.

Free State Presentation
Adv Makhosini S Msibi (HOD) began the presentation by stating that the MEC, Mr Seiso Mohai, offered his apologies for not attending because he had other matters to attend to. The briefing outlined the Department’s expenditure for 2006/7, where it was stated that 49% of the Department's infrastructure grant accounted for building and maintainig road infrastructure. The Department's infrastructure grant also had to account for public transport, hence the Department was forced to stretch what was a very limited budget. The Department also outlined the various projects in place for the FIFA 2010 Soccer World Cup road infrastructure, and the monitoring and evaluation mechanisms in place to ensure successful completion of the projects.

Discussion
Mr Sogoni felt comprehensive capacity at provincial level had to be addressed urgently.

Adv Msibi felt they had more than enough capacity, but that additional recruiting will be done in order to solve the issue. The issue of capacity had also been addressed in collaboration with the Department of Public Works in terms of implementing a retention strategy; however the strategy is unable to compete with the highly competitive salaries in the private sector. The Department however was currently training a number of engineering students, in order to address the skills shortage.

Mr D Botha (ANC) [Limpopo] asked for an explanation on how the Department planned to manage projected over spending.

Adv Msibi stated that 73% of the total spending represented road infrastructure spending at the end of the third quarter; however 63% represented the total infrastructure spending for the third quarter, and the Department was on top of the matter.

Ms Goeieman felt the Department should provide an explanation into why only 7% has been spent on the motel project, while other projects have spent 93% and more.

The HOD responded that the projects are being financed over two financial years. Therefore the 7% expenditure should be seen as existing spending for both the 2007 and 2008 financial years, and not as under expenditure at this point.

Eastern Cape Presentation
Dr Maria Annandale de Villiers (HOD) provided an overview of provincial expenditure on roads and infrastructure. The Department was plagued with many challenges, which led to delays in certain projects. In order to address the challenges the Department had implemented a monitoring and evaluation strategy by which officials do monthly site visits to determine progress. However it was important to note that the lack of adequate funding negatively affected the delivery of a solid road network and transportation services.

Discussion
Chair said that the rail project was a flagship project. The Committee needed to meet with the national Department of Transport in order to see how assistance could be provided for maintaining the rail link, and part of the issue would be how to interact with the various municipalities with regards to the rail link. The Chair asked the Department to provide reasons why there were no road networks leading to certain health clinics.

Mr Thobile Mhlahlo (MEC) said timber transport was vitally important for provincial economic development. One way of transporting timber would be via the rail network. The Department welcomed the efforts of the Committee in looking at the details of the rail network, and recommended that it meet with all stakeholders. In terms of road infrastructure to clinics; most of the clinics were built in areas where road construction was provided by municipalities. The Department has been building new roads; but maintenance was a major challenge due to the fact that there is not enough capacity, especially at municipal level.

Mr Botha stated that companies should be encouraged to use rail transport when it came to the transportation of heavy materials, as the use of heavy duty trucks caused damage to roads.

Ms A Mchunu (IFP) [KwaZulu-Natal] stated that the Department should consider the use of crushed stones when it comes to building new roads, as it would help create employment for people living in mountainous areas. During a recent visit to Germany, it was discovered that “Hitler had done a good job in building a sustainable road infrastructure’’; therefore the Department should investigate the possibilities of using crushed stones in building permanent roads. She also requested that allowance to be made in DORA to cater for flood damage.

The Chair said the comments made by Mr Botha and Ms Mchunu were noted; however they were not to be responded to at this stage.

Mr Sogoni said that the Eastern Cape had indicated that expenditure is at 70%, and asked the Department to elaborate on whether or not it projected to under spend by the end of the year.

Dr de Villiers said the Department had funding reduction fears, which will become an issue in the next financial year. The Department however does not project to under spend during the current financial year.

Western Cape Presentation
Mr Thami W Manyathi (HOD) gave a brief presentation in which he stated that the roads infrastructure programme will not be able to spend R24 million of the R90 million of the PIG that was for flood damage in July 2006. Reporting and evaluation of performance monitoring still remained a challenge, while transfer payments had been made on the submission of claims by the municipalities. Steps have been taken to fast track those claims.

Discussion
The Chair asked the Department to provide details on the long-term plans for allocations given to municipalities.

Mr Manyathi said there were a number of developments regarding the road infrastructure finance strategy.  The primary focus of the strategy would be to facilitate the management of road networks, and determine who would be tasked with the maintenance and financing of roads. The Department had implemented a provincial growth and development strategy which plays an important role in facilitating the maintenance of municipal roads.

Mr Sogoni said that according to the Provincial Treasury only 58% of the budget had been spent on roads in 9 months. However, despite the under expenditure the Department requested an adjustment of R24 million. Why was this requested?

Mr Manyathi said the Department had spent 100 percent of its original allocations by the end of the third quarter. However due to the adjustments that were made in order to repair flood damage, the Department’s grant was almost doubled. Therefore the percentages that are reflected in the report included the adjusted amounts.

Mr Goeieman stated that the Department had consistently failed to provide information regarding the unfinished highway in the Cape Town city center. He asked the Department to provide clarity on who was responsible for road infrastructure planning in the Western Cape.

Mr Manyathi said that the Department, together with the Cape Town municipality, had taken a conscious decision to prioritise investment in public transport. Various stakeholders including the province and the municipalities, facilitated road infrastructure planning. It was important to note that one cannot solve the infrastructure problem by building more road networks, and that one needed to look at ways of improving public transport.

The Chair concluded that governance and accountability issues at the SANRAL had to be addressed urgently. It was also important for advisory bodies such as the Financial and Fiscal Commission (FFC) to work with the Committee to resolve road backlogs especially in the rural areas. It was further important for the Departments not to allocate funds to the municipalities, as they already received the Municipal Infrastructure Grant (MIG) and part of the MIG went to building and maintaining municipal roads. There also needed to be new strategies for the Departments’ recruitment and retention of skills.

Mr Sakumizi Macozoma (Manager: Infrastructure Network Management, Department of Transport) noted the Chairperson’s remarks and said that the Department was satisfied with the answers provided by the provinces. Road infrastructure had to be urgently addressed, and there has to be an improvement in the interactions with municipalities, and SANRAL. Stronger emphasis also had to be placed on the importance of integrated planning across all provinces as it still remained a challenge.

The meeting was adjourned.



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