Department & SABC Annual Reports : briefings; Electronic Communications Amendment Bill [B38-2007]: adoption

Meeting report

COMMUNICATIONS PORTFOLIO COMMITTEE
6 November 2007
DEPARTMENT & SABC ANNUAL REPORTS 2006/7: BRIEFINGS; ELECTRONIC COMMUNICATIONS AMENDMENT BILL: ADOPTION

Chairperson: Mr I Vadi (ANC)

Documents handed out:
Department of Communication 2006/7 Annual Report [available shortly at www.doc.gov.za]
Department of Communications presentation
SABC 2006/7 Annual Report [available at www.sabc.co.za]
SABC presentation

Audio recording of meeting

SUMMARY
The Committee adopted the Electronic Communications Amendment Bill, with amendments.

The Acting Director-General and the Deputy Director-General of the Department of Communications briefed the Committee on the Department’s strategic focus areas, achievements and financial performance during the 2006/07 financial year.

Members asked questions about the training of personnel, the filling of vacancies, the employment of historically disadvantaged individuals and handicapped persons, the Department’s e-schools and e-cooperative projects, the items of wasteful and fruitless expenditure listed in the financial report, the licensing of the undersea cable, the submission of a plagiarised report and the potential for adverse competition between the two state-owned entities Sentech and Infraco.

The outgoing Board Chairperson, Group Chief Executive Officer and Chief Financial Officer of the SABC briefed the Committee on the goals and performance of the Corporation during 2006/07.

Members asked questions about the funding model for the public broadcaster, human resources issues, the measures implemented to curb corruption and the migration to digital technology project. A suggestion from the CEO to hold further discussions on the funding of the SABC was agreed to by the Chairperson.

MINUTES
Electronic Communications Amendment Bill: finalisation
Ms M Smuts (DA) referred to the proposed amendment to paragraph (d) of section 2 of the Act. The proposed amendment was suggested by M-Net and Orbicom in the public hearings on the Amendment Bill and allowed the Minister to issue policy directives that did not conflict with the objects of the Act. The wording of the paragraph needed to include reference to strategic investment in infrastructure as well.

Ms Mashila Matlala (DOC) and Adv Gideon Hoon (Principal State Law Adviser, Office of the State Law Adviser, Department of Justice) requested clarity on the phrasing of the paragraph.

The Chairperson said that the phrase “including strategic information, communication and technology investment” should be included in paragraph (d) of section 2.

Ms Smuts suggested that the Preamble to the Amendment Bill included the phrase “in order to reduce the cost of access to information, communication and technology infrastructure” as the intention was to reduce the cost of access to infrastructure rather than the cost of the infrastructure itself. She suggested that the phrase “on a wholesale basis at cost-oriented rates” rather than “at a wholesale rate” was used.

Mr Paris Mashile (Chairperson, Independent Communications Authority of South Africa) said that it was essential to make it clear that the cost of services was cost-based, that it was sold to re-sellers and that it was not available for retail.

Mr R Pieterse (ANC) said that the concept of “wholesale rate” was widely understood and that too much detail in the legislation should be avoided.

Mr Mashile said that the cost-based principle needed to be imposed to meet the objective of reducing costs. This differed from the concept of competitive rates offered by competing wholesale providers.

Ms Smuts clarified that what was meant was that charges were cost-based rather than calculated at cost. It was necessary for the Regulator (ICASA) to determine the cost of providing services in order to approve the price of wholesale services.

Ms S Vos (IFP) said that the Amendment Bill was meant to be a specific strategic intervention and asked whether provisions should be left open to interpretation.

The Chairperson said that the meaning of “wholesale” was commonly understood.

Mr E Kholwane (ANC) requested that the ANC Members were allowed the opportunity to discuss the wording suggested by the DA. The Chairperson agreed to halt the proceedings while the discussion took place.

Subsequently, Mr Kholwane reported that the ANC accepted the DA’s proposed wording of paragraph (d) of section 2. He proposed that line three of the Preamble read “in order to reduce the cost of access to information, communication and technology”. The suggested phrasing in line five of the Preamble, “on a wholesale basis at cost-oriented rates” was accepted.

The Chairperson summarised the proposed amendments. He read the motion of desirability of the Amendment Bill. The motion was proposed by Mr Pieterse and seconded by Ms Vos.

The Committee voted on the clauses of the Amendment Bill. The Long Title was agreed to, with amendments. The Preamble was agreed to, with amendments. Section 1 was agreed to, without amendments. Section 2 was agreed to, with amendments. Section 3 was agreed to, with amendments. The Chairperson read the formal resolution. The Committee adopted the Amendment Bill. The adoption was proposed by Mr Pieterse and seconded by Mr Kholwane. Ms Smuts abstained.

Department of Communications (DOC) presentation
The Portfolio Committee was joined by Members of the Select Committee on Communications for the briefing by the DOC. Ms Gerda Gräbe (Acting Director-General, DOC) introduced the delegates from the Department and gave an overview of the DOC’s mandate and core functions (see attached document). She reported on the achievements under each of the strategic focus areas and provided extensive details of the DOC’s involvement in the Presidential National Commission on Information Society and Development (PNC on ISAD).

Mr Harry Mathabathe (Deputy Director-General, DOC) briefed the Committees on the Department’s financial performance during the 2007 financial year. Total revenue amounted to R4.7 billion and total expenditure was R1.3 billion. R3.4 billion was transferred to the National Treasury. A summary of the appropriation statement and details of transfer payments were included. The Department’s funding requirements for operational expenditure for the 2008 to 2011 medium term expenditure framework (MTEF) period were submitted.

Ms Gräbe concluded the presentation by listing the challenges faced by the Department, which included improved access to information, communication and technology (ICT) infrastructure, the high costs of ICT communication, the low levels of ICT usage, the scarcity of ICT skills and limited local content and development capacity.

Discussion
Mr Pieterse asked whether historically disadvantaged individuals (HDI’s) were appointed as consultants. He asked whether all vacant posts were filled and requested a breakdown of employees by gender. He wanted to know what approaches were made to potential alternative funders for the SABC. He asked what was being done to increase the exposure of some of the official languages by the SABC. He asked whether there would be competition between Sentech and Infraco.

Ms Vos asked for clarity on the nature and purpose of the capacity training of the 400 youth co-operatives. She asked for details of the multi-purpose centres. She wanted to know whether the DOC had any plans to recoup some of the expenses incurred for the 2010 projects. She asked what the timeframes were for resolving the fruitless and wasteful expenses reported in the Annual Report. She commented that the amount spent on gifts appeared to be high.

Mr Mathabathe replied that the Department shared the concerns raised over the use of external consultants and admitted that more can be done. The DOC was governed by the Preferential Procurement Act. He reported that approximately 30% of outsourced work was allocated to HDI’s. Not all vacant posts were filled and the DOC extended advertising for the vacancies to more of the smaller print media.

In response to Ms Vos’ questions, Mr Mathabathe said that the Department was currently dealing with the items of wasteful expenditure and implementing the recommendations that were made. In certain cases the responsible persons were no longer employed by the DOC. He expected most of the cases to be finalised by March 2008. He reported that gifts were made in accordance with the Public Finance Management Act (PFMA) and included donations of equipment to schools and churches.

In response to Mr Pieterse’s questions, Mr Norman Munzhelele (Acting Director-General, DOC) said that the issue of language exposure was important. The DOC and ICASA had considered the funding model of the SABC during the licensing process for the new TV channels 4 and 5. He explained that Sentech provided fibre-optic infrastructure while Infraco was mandated to provide wholesale access to infrastructure.

Ms Gräbe replied that the local communities were consulted before the capacity-training programmes for the youth co-operatives were developed. She explained that the multi-purpose centres were called Thusong Centres and were also used to gather and digitize local content.

Ms Botlenyana Mokhele (Chief Director, DOC) advised that the plans for recouping some of the costs for the 2010 projects have not yet been finalised. Some of the infrastructure provided was expected to provide ongoing benefits.

Mr Pieterse noted that there were no examples of disabled persons receiving promotion.

Ms Smuts asked whether the amount of R203 million received in March 2007 for technical upgrades was the final amount. She remarked that the independence of the SABC was compromised because of its reliance on funding from the DOC. She asked whether the DOC monitored the application of funds by the SABC. She said that Cabinet involvement in the appointment of CEO’s to boards was not perceived to be healthy. She asked for clarity on the human resource problem areas and referred to a 37% vacancy rate. She asked whether the investigation by the Public Service Commission (PSC) in the matter of higher salaries being paid than the amount advertised was finalised. She recalled that the PSC found that an appointment was irregular and had declared it to be void but the Director-General had rejected the finding. The PSC recommended that the DOC referred the matter to the State Law Adviser and she asked whether this was done. She asked for clarity on the licensing of the undersea cables. She referred to the reports that the Department’s report on the local loop unbundling process was plagiarised and asked what action was taken.

Ms L Matlhoahela (ID, Northern Cape) asked what recruitment plans were in place.

Mr Mathabathe replied that the efficient funding of the SABC was a challenge but the migration to digital technology was expected to have a positive effect. He said that the funding provided for infrastructure projects was transferred as required by the PFMA. The PFMA governed how funds were applied. The DOC conducted oversights to ensure good governance of allocated public funds.

In response to Mr Pieterse’s comment, Ms Gräbe replied that promotion was based on competence and gave the assurance that the DOC was committed to the upliftment of disabled personnel. She confirmed that the Department was not given the opportunity to discuss the PSC’s recommendation but the Director-General had written to the Commission and subsequently met with them. The matter was taken up with the State Law Adviser.

Ms Basani Baloyi (Chief Director, DOC) replied that agreements affecting human resources were made within the bargaining council. The DOC addressed the human resource concerns raised in the Annual report by tightening the performance management policy and conducting training audits. She reported that the situation was improving. The DOC’s organisational structure has been approved and a response from the Department of Public Service and Administration was awaited. She was confident that the recruitment plan for the revised Departmental structure would be successful.

Mr Munzhelele said that the DOC was in the process of finalising policy guidelines for the licensing of undersea cables in terms of the Electronic Communications Act (ECA). The recommendation was to increase ownership and control over international connectivity. There was a continual increase in demand for international connectivity. The DOC studied the approach taken by the United States and India. He agreed that regulation was necessary and said that the proposed regulations would soon be ready for public comment.

Mr Harold Wesso (Acting CEO, Meraka e-skills Institute) advised that the plagiarised report was regarded in a very serious light. The matter was investigated and the report was re-issued with the proper references and acknowledgements. The substance of the report remained unchanged. Ms Smuts asked whether a consultant was paid for compiling the report but Mr Wesso confirmed that it was done in-house.

Mr Kholwane asked whether ICASA was reconsidering reducing the amount paid by school for access to the internet. Currently schools paid 50% of the price for access and many had no access at all. He asked if the DOC was taking any action in the re-scheduling of Sentech in terms of the ECA. He suggested that future reports from the DOC included details of the Department’s oversight activities.

Ms P Themba (Chairperson of the Select Committee on Labour and Public Enterprises, ANC, Mpumalanga) asked what progress was being made in the training of e-cooperatives. She asked what criteria were used to determine the scale and content of the training material. She asked what was being done about increasing access to the NEPAD e-schools project.

Ms J Terblanche (DA, North West) requested that future reports from the DOC included a breakdown per province as well.

Mr S Nxumalo (ANC) asked whether the DOC’s asset registers included the buildings and properties previously owned by the South African Post Office.

Mr Pieterse felt that the SABC as the country’s public broadcaster needed to be fully funded. There was too great a reliance on funds generated from commercial interests.

Mr Mathabathe agreed with Mr Kholwane’s suggestion to provide oversight details. He said that although schools requiring internet access have been identified, many could not be located by Telkom. ICASA was investigating the matter and was working with the Department of Education on GIS identification of the schools in order to provide telephone lines and electricity. He said that Sentech prioritised the provision of access to schools, clinics and Government institutions and was working with the Treasury to obtain sufficient funding. (In terms of the ECA, Sentech was prevented from raising funds through borrowing). He confirmed that the Post Office properties were included in the DOC’s asset register. He said that a policy framework for the funding of the SABC needed to be developed.

Mr Munzhelele replied that the SABC was capacitated to ensure that broadcasting content contributed to the goals of the public broadcaster. The Department intended to submit a new Bill with proposed amendments to the ECA and the Broadcasting Act. The funding issue was being addressed in the new Bill. He said it was important that the SABC was financially capacitated and had the right mix of resources.

Ms Baloyi said that the transfer of staff from ICASA to the DOC went well. Affected employees were not worse off as a result. The major concern of employees was the issue of whether post-retirement benefits were paid out or retained in the Government Pension Fund (GPF). She confirmed that the Department’s internship policy had been approved and individual programmes were developed for each employee.

Dr Keith Shongwe (Deputy Director-General, DOC) gave feedback on the NEPAD e-schools project, involving connecting 600 schools across Africa to the Internet. The next phase for providing connection to six schools was in progress. The project entailed wireless, fibre-optic as well as cable technology. The competency levels in the Provinces were being determined and the Provincial MEC’s were being involved in implementing the project.

Ms Gräbe undertook to respond to the question on the e-cooperatives in writing. She said that the DOC had 3 APEX projects and the key to the successful implementation of the projects was developing the youth. The timeframe for implementation was 2009 and the first batch of trainees was being trained by the Tshwane Technicon.

South African Broadcasting Corporation (SABC) presentation
Mr Sonwabo Funde (Chairperson, SABC Board) briefed the Committee on the SABC Board’s corporate, people, financial, stakeholder, technology, governance and performance monitoring goals (see attached document). The challenges faced by the Corporation included the funding model, 2010 FIFA soccer world cup, greater citizen participation, dynamic internal communication and the lack of understanding of the role of the public broadcaster.

Adv Dali Mpofu (Group Chief Executive Officer, SABC) outlined the strategy framework and provided details of the Corporation’s achievements of the goals set for the year. The results of the investments that were made in the provision of universal access to television and radio broadcasts and in building capacity were outlined. The migration to digital technology posed new challenges. R1.1 billion was allocated to increase human resource capacity. R543 million was invested in local content programmes. Investment in technology amounted to R500 million. More than 80 local and international awards were won.

Mr Robin Nicholson (Chief Financial Officer, SABC) presented the Corporation’s financial report (see attached document). For the 2007 financial year, operating income amounted to R4.3 billion and operating expenditure totaled R4.1 billion. The presentation included analyses of the revenues and costs. An outline of the factors that will have an impact in future was given.

Discussion
Mr Pieterse extended the thanks of the Committee Members to the outgoing Board. He raised the issue of funding for the public broadcaster.

Ms Smuts asked whether the proposed 24 hour news channel would be free-to-air or by subscription. She referred to the ICASA blacklisting report which was not released by the SABC. She asked whether the recommendations of the Sisulu Commission were being considered.

Adv P Swart (DA) referred to the security situation at the SABC and requested further details of a possible fine being imposed. He requested further details of the loss of staff with so-called “hot” skills. He requested comment from the Board on the reported loss of R52 million under fruitless and wasteful expenditure.

Mr Funde replied that the Sisulu Commission report was covered in a full explanation given to the Committee on a previous occasion. The SABC had rejected the report and provided a detailed summary that dealt with the key issues raised. The decision was taken not to publish or release the report.

Ms Smuts asked whether ICASA was informed of the rejection of the report.

Adv Mpofu advised that the matter was discussed. He said that the issue was the SABC’s obligation to publish the report. The content of the report was however leaked by the Mail and Guardian although the report was considered to be an internal SABC report. The report contained inherent weaknesses. Confidentiality was guaranteed for those who testified and only he knew the names of the staff members who had testified. He said that it was not a judicial process as evidence was not given under oath and was not tested. The SABC and SANEF had a fundamental difference in values. The Corporation valued human dignity, equality and freedom and did not condone theft.

In response to Ms Smuts’ question, Adv Mpofu advised that a VIVID platform pilot project was in progress. The intention was to provide a free-to-air news service. The testing phase was planned from 1 April 2008 and full roll-out would take place after the conversion to digital technology.

In response to Adv Swart’s questions, Adv Mpofu said the Corporation was very concerned over security as it was a national key point. He said the SABC was working with the National Security Agency in this regard to ensure compliance. A security committee was in place. He was however unaware of any fine payable. He said that money accounted for 80% of the reasons given for the loss of staff with “hot” skills. Factors such as working conditions also played a role. The private sector generally paid higher salaries. Ironically, the SABC was also accused of poaching staff from the private sector.

Adv Mpofu said that the SABC had a policy of zero tolerance on corruption and internal audit was considered to be a core management function. There was an increase in the number of incidents detected as a result of the implementation of more control measures. The acceptance of bribes to air music (known as “payola”) had become normal practice over the years but was nevertheless unacceptable. Once guilt was proven, the SABC took disciplinary action against employees. Civil action was taken against ex-employees and any criminal action was reported to the SAPS. The cases listed in the annual reports were not finalised as at the end of the financial year. The largest case of wasteful expenditure dated from a technical project initiated in 2002. The SABC obtained an independent report on that matter. It was the policy to make examples of high profile cases and a hotline was introduced for reporting incidents.

Mr Nicholson added further details of the technical project and “payola” incidents mentioned by Adv Mpofu.

Adv Swart recalled that financial losses involving large amounts were reported in the previous year as well. He asked whether any moneys were recovered.

Adv Mpofu replied that recoveries were not included in the financial reports and offered to provide written details to the Committee.

Mr Nicholson confirmed that the audit committee submitted regular detailed reports to management.

Mr Nxumalo asked for the status of the PSL debacle. He wanted to know what the “Msansi fo sho” slogan of the TV1 channel meant. He requested further details of the sale of sport broadcasts.

Mr Kholwane remarked that the funding objective to increase license fees in line with inflation was not achieved. He asked what progress was made with regard to closer co-operation with ICASA and the DOC.

Ms Smuts commented that more than R200 million was allocated for the migration to digital technology yet the SABC reported a surplus. She noted that a number of projects were discontinued and six projects were delayed. She asked whether this was as a result of a loss of focus. She wanted to know where the digitisation projects were reported on. She remarked that large bonuses were paid to employees.

Mr Nicholson explained that R250 million was allocated, of which R30 million was for VAT. R217 million was spent on digitisation projects. The surplus was the unspent balance of R3 million. A full declaration was provided and the money was spent on hard physical assets. The SABC had requested R1.1 billion for digitisation but had to fund the IT developments itself. Completion of the project was planned for 2010. All the funds were allocated over the next three years.

Adv Mpofu remarked that not all technological investments were funded through grants. Since the report, three more high-definitions vans were purchased at a cost of R80 million each.

In response to Mr Nxumalo’s question, Adv Mpofu explained that the arbitration hearing for the PSL dispute was set for January 2008. If the case was won, no bonuses will be paid. He was confident that the SABC will be successful and added that there was a possibility that the case could be settled if the intellectual property rights were returned to the SABC. He said that the radio rights were a separate issue and was useful as a bargaining chip in the negotiations.

In response to Mr Kholwane’s question, Adv Mpofu said that the Corporation’s TV license inspectorate was performing well but the SABC continued to experience shrinking revenues from licensing fees. Its only recourse was to increase collection of the fees payable. During the past year, there were four successive increases to interest rates. This had a negative effect on the SABC’s compliance level and less was being spent by companies on advertising. Other countries (e.g. Canada) had fully-funded public broadcasters and he suggested that a special hearing was held to debate the issue.

Ms L Yengeni (ANC) asked what was meant by the phrases “dramatic increase” and “slow growth” used in the presentation on the demographic spread of personnel. She requested that actual numbers were provided and not just percentages.

Adv Mpofu explained that the phrases meant as compared to the SABC’s own targets. More growth was expected in the numbers of female managerial staff. He agreed to provide numbers in future reports.

Mr Pieterse remarked that employees were remunerated for doing their job and bonuses should only be paid for exceptional performance. He noted that high-profile sporting successes such as winning the recent Rugby World Cup united the nation. He asked why netball as the second most popular sport received limited coverage. He asked what was being done to increase the number of people who pay for TV licenses instead of burdening the current small percentage who do pay with increased fees.

Adv Mpofu replied that netball was considered to be a less commercially-attractive sport than soccer and rugby. The SABC considered that it was necessary to increase both the license fees and the number of TV license holders. The Corporation would like to see that pay-TV decoders were only sold to the holders of a valid TV license.

Mr Funde said that there was not yet a complete record of all TV owners in the country. The collection rate improved when TV sets were only sold to license holders. Television was a service and other service-providers such as Telkom and Eskom were allowed to increase prices on a regular basis.

Mr Nicholson reported an increase in income from license fees to R400 million. The number of households with TV licenses rose to 5.1 million. Approximately 88,000 households did not have a TV license and many were unable to afford one. 30% of households could afford he license fee but did not pay for one. 95% of new television sets were purchased by valid TV license holders. He said that it was expensive to trace defaulters.

Mr Kholwane suggested that the Committee undertake to hold further discussions with interested parties on the matter of funding for the SABC.

The Chairperson agreed to Mr Kholwane’s suggestion. He thanked the SABC Board for the presentation and extended his best wishes to the outgoing board members.

The meeting was adjourned.