Roads and Transport Conditional Grants: Quarterly Spending 2007: Provincial Department briefings

NCOP Finance

06 November 2007
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Meeting report

FINANCE SELECT COMMITTEE
7 November 2007
ROADS AND TRANSPORT CONDITIONAL GRANTS: QUARTERLY SPENDING 2007: PROVINCIAL DEPARTMENT BRIEFINGS

Chairperson: Mr T Ralane (ANC, Free State)

Documents handed out:
KwaZulu Natal presentation
Road Infrastructure "Quarterly Performance Reports: 2006/07 "&" 4th Quarter"

North West presentation
Free State presentation
Eastern Cape presentation
Gauteng presentation
Western Cape presentation

Audio recording of meeting

SUMMARY
The KwaZulu-Natal, North West, Free State, Eastern Cape, Gauteng and the Western Cape provincial Departments of Road and Transport briefed the committee on their mid year results of spending 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 whereas the North West and the Eastern Cape recorded the highest spending rate.

The provinces outlined capacity problems, funding shortages, non-compliance with the municipalities with rules and regulations and inadequate performance monitoring and evaluation. The committee focused on under and overspending, management issues and the lack of proper planning for road building and maintenance. North West, Eastern Cape and Western Cape were asked to provide their responses in writing to the Committee.

MINUTES
Roads and Transport Spending on Conditional Grants
The National Department of Public Works (DPW) gave a brief presentation on the spending trends, noting that the lowest rate of expenditure was recorded in Gauteng whereas the North West and the Eastern Cape recorded the highest spending rate

KwaZulu-Natal Presentation
Mr Chris Hlabisa (HOD for Transport, KZN) noted that there had been some distortion in the figures during the wet months that affected the creation of roads. This was encountered especially in 2005/06. Current expenditure figures were affected by non-capturing of payments and projects like the John Ross road costing R258m.

Mr Sanjay Rabichand (Acting CFO, KZN Department of Transport) presented the committee with slides detailing all the figures. He noted that the infrastructure beginning with the infrastructure budget of R2, million. He noted that the Provincial Infrastructure Grant (PIG) of R573,012m was 23% of the infrastructure budget and he detailed how this was made up. He also highlighted that the Department spent 44% of the PIG and that they were well on track to meet their milestones set for the financial year.

Discussion

Mr D Botha (ANC, Limpopo) asked if the bridge that the Department was building was 1.5 or 2.5km and where exactly was it built.

Mr Hlabisa pointed out that the bridge was 1.2km across the Ntsezi River Bridge in Mpangeni and that it was the longest bridge built.

Mr M Robertson (ANC, Eastern Cape) wanted to know why payments in the first half to municipalities had not been made, and whether the provisions that the Department was going to make in the second half were going to consist of the total amount or not.

Mr Hlabisa responded that the Department had not done transfers to the municipality because the Ethekwini Transport Department had not given them reports as to how they planned to do the work which then made it impossible to monitor the expenditure.

Mr Robertson pointed out that in 4 to 6 weeks construction companies were going on holiday until January next year. He asked how the Department was planning to allocate these funds and what their basis was in allocating funds to the municipality.

The Chairperson asked what measures the Department took about the overspending.

The Chairperson also wanted to find out if there were any indications that the Department would perhaps be faced with a similar situation in the current financial year.

The Chairperson asked what the Department’s strategy was in allocating for the PIG and that why they would request more funding if their equitable share was already sitting on 39%.

In terms of planning, Mr Hlabisa said that the Department was well in advance but the appeals going back and forth were beyond their control. He said that there would not be under spending in the current financial year because effective monitoring in terms of performance and allocation of funds was in place.

Mr E Sogoni (ANC, Gauteng) was concerned with the progress of the bridge being built in terms of the Medium Term Expenditure Framework (MTEF) and the plans that they had.

The chairperson said that the Committee would be lenient to the newly-appointed HOD and requested him to go back and investigate the issue on the equitable share

North West Presentation
Mr Nic van Staden Head of Department, North West Transport, said that the adjusted budget for 2006/07 was R550 million and there was a 100% spending. The qualifications decreased from 5 in 2005/06 to 2 in 2006/07, those being in relation to fixed assets and tracing fees. This was due to inadequate internal controls, non-compliance with the legislation and material corrections. The breakdown of the Provincial Infrastructure Grant (PIG) network was given in terms of surfaced, gravel and earth roads. More than 65% of the network gravel or earth, and about 30% of the paved roads, were in poor condition. The Roads Infrastructure Plan for 2006/07 was to upgrade 101,52km gravel to paved, to reseal or rehabilitate 96,55km and to perform routine maintenance. The Infrastructure Grant was broken down, and Mr van Staden explained that out of the budget of R515 million, R219 million was actually spent, or 43%. Negative factors that the Department had encountered on service delivery were the recruitment and retention of engineers and technicians and the capacity of emerging contractors and consultants. The estimated backlogs for 2007/08 were tabled

Discussion
The Chairperson asked what the allocations of the infrastructure budget meant for the equitable share.

Mr Sogoni pointed out that the figures and percentages were exactly the same as the previous quarter’s figures and thus asked the Department to explain.

The Chairperson then requested that the Department investigate the issue and that no further questions could then be asked because this implies that they not taking the fact that they are servicing the public seriously. The Chairperson also noted that the equitable share did not clearly define what the expenditure was.

Free State Presentation
Adv Makhoseni Msibi (HOD, Department of Transport, Free State) said that the 2006/07 budget was R1, 006 million but the Department spent R1, 425 million. The over expenditure was due to capital operations that were fully detailed in the presentation. The Department could not afford to repay the over expenditure in 2007/08 and therefore requested to repay a portion in this year and the remainder in 2008/09. The Department had spent more than 50% of its budgets up to September 2007 in most areas, but noted that projects were awarded early in the year, that it would be expensive to stop projects after site handover, and that the previous expansion of capacity was to be reversed. There was regular reporting. The budget expenditure was set out.

Discussion
Mr Robertson said that in terms of the spending outcomes no amounts for theft, claims and losses had been indicated and requested that the committee be told what these were

Mr Sogoni was concerned about how much came from the equitable share, conditional grants, and adjusted budget because that was also not defined in the presentation.

The Chairperson noted that the Department could be faced with a situation where they would not be able to pay the National Treasury, thus asked for their clear-cut planning.

Mr Msibi indicated that in terms of the budget planning the province had experienced floods that were not budgeted for.

Mr Sogoni pointed out that the government did provide funds for such unforeseeable disasters and asked why the Province did not budget for it.

Mr Msibi said that the Minister was consulted but the problem was that these funds were not declared hence they could not access these funds.

Mr Msibi said that overspending would be experienced in 2007/08. He also indicated that the decline in the Expanded Public Works Programme (EPWP) was due to the contractors being in class in the first quarter. The amount for theft and losses amounted to R3, 5m including the legal appeals, which he illustrated by saying that if a citizen had a tyre burst, the citizen would often claim from the Department. Thefts included own equipment and diesel and the fact of the Province’s position on the Lesotho border also posed a threat.

Eastern Cape Presentation
Mr M Peterson (Director of Department of Roads and Transport, Eastern Cape) stated that the expenditure for the PIG for the 2nd quarter was 52, 7% and he highlighted the zero amounts for the municipality transfer which was due to the municipality not submitting audited reports. The Department had therefore used the funds for capital and current projects. The project breakdown was given, noting that is that of the budgeted capital projects of R1,08 billion, R508 million was spent. Around half of the current projects budget was spend. For the EPWP projects 42% was spent.

Discussion
Members noted that the Department did not seem to be budgeting for equitable share, conditional grant, and municipalities and asked that a further explanation be given. However, because the Head of Department and the MEC for Roads and Transport were not present at the meeting, the current representatives could not be expected to answer the questions, nor be held liable. The Members requested a full response in writing.

Gauteng Presentation
Mr Rannoi Sedumo (Acting HOD, Gauteng Department of Public Transport, Roads and Works) highlighted the clean audit reports that the Department experienced and said that the PIG expenditure in the 1st and 2nd quarter were R42, 4 million and R41,2 million respectively. From the slides, he indicated that the 4th quarter reflected double the amounts and the Department was confident that the money would be spent even though they had about 15 days to do so. This was because the procurement process had been completed and the project manager had indicated that the money would be used. Capital expenditure for quarter 4 was budgeted very high, and he explained that the Gautrain on its own was capable of spending R600m. The key projects in Roads Infrastructure were linked, including a link to the Lanseria Airport that was needed for 2010. Mr Gilberto Martins (DDG, Gauteng Public Works Department) indicated that of the R71. 3 million budget for capital works, 40% had been spent to date.

Discussion
Mr Z Kolweni (ANC) requested an explanation on the cancelled project.

Mr Sogoni said that if spending was 30% on conditional grants and 35% on equitable share, he wanted to know where would the Department get the capacity to capture the remaining budget.

Mr Sogoni asked why the Department waited until the last minute to appoint consultants, noting with concern that this was one of the main reasons for the delay.

Mr Sogoni pointed out that, other than the money spent on the Gautrain, he was not sure what the other spending comprised. He also said that the fact of spending did not necessarily mean that they had delivered.

Mr Sogoni said that the William Nicole road had a side which is a provincial road. He suggested they send a budget to the committee indicating how they spent the money.

Mr Martins said that the cancellation of contracts was due to non-compliance because the Department had indicated cases where performance was 18 months late, which then inconvenienced the department. He said that in terms of costs, the Department would evaluate the stage of completion of the project, and if there was still a lot of work to be done they would sue for damages and the same applied for penalty clauses. Otherwise the Department would make use of their own maintenance department.

Western Cape Presentation
Mr Thami Manyathi (HOD, Western Cape Department of Transport and Public Works) indicated the trends in allocations , the outcomes for 2006/7 and the infrastructure grant to provinces. He noted that at mid year there was 42.7% spending on public works and 57.9% spending on roads. Capex spending was at 51.7%The majority of transfers to municipalities were scheduled for payment only in the last two quarters. There had been some problems with performance. He tabled some of the major projects.

Discussion
Mr Sogoni asked, in terms of the transfers to municipalities, who qualified and what the transfer entailed, especially in terms of performance.

Mr Sogoni also indicated that the Department’s expenditure only reflected conditional grants and asked why the capital expenditure was not detailed.

Mr Robertson asked if the fact that municipalities could not come up with the 20% contributions meant that they were in difficulties.

Responses were requested in writing because of the 87-page document which contained additional information resulting in members being confused as to what exactly is going on.

The meeting was adjourned.

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