Public Works, Roads & Transport Provincial Department Conditional Grant Spending, 3rd Quarter 2006/07: hearings

NCOP Finance

04 February 2008
Chairperson: Mr T Ralane (ANC, Free State)
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Meeting Summary

National Treasury briefed the Committee on the general trends of provincial spending on the Capital Expenditure and conditional grants.

The KwaZulu-Natal (KZN),  Free State, Eastern Cape, and the Western Cape provincial Departments of Public Works, Road and Transport briefed the committee on their mid year results of spending on roads and infrastructure. National Treasury gave a brief presentation on the spending trends in the provinces. Spending was generally on track, but there would be projected over spending in six provinces, but low spending rates on some areas of social development. 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 issues of under and overspending, management issues and the lack of proper planning for road building and maintenance. KZN was asked to comment on whether they had been able to raise the roads budget during the preparation of the provincial budget. Members however commended the province for their road safety campaigns. Members asked the Free State to comment on how much the Department received from the infrastructure grant to provinces, and to what extent were the funds being used to address issues of overspending.   Members felt that the provincial Departments did not state clearly whether they had been doing work in or working closely with municipalities.

The Chairperson felt that the biggest problem in the Western Cape was that Integrated Development Plans were not prioritised. He said that if planning was not done properly, then there was a serious problem, and the Committee needed to find a way of addressing the matter. Given the nature of the reporting by the Western Cape, the Committee felt that maybe it was time to go to the Municipalities and see whether the work had actually been done. Members asked the Eastern Cape to comment on the issue of Fleet Africa, and whether the Department was responsible for maintaining the vehicles. The Committee Chairperson ruled that the Committee would debate this issue further once a report from the MEC had been received.

Meeting report

 

Provincial Spending Trends: National Treasury (NT) Presentation
Mr Chris Adams, Director, National Treasury, outlined the trends in provincial spending as at 31 December 2007.  He said that provincial spending was on track with 71.6% of the provincial budget already having been spent. There was projected overspending of R1.4 billion in 6 provinces. The spending against budgets on conditional grants was lower than the total provincial spending average.

Mr Adams tabled slides dealing with provincial aggregated expenditure, and trends in payments for capital expenditure. He noted that Provinces had spent R11.8bn or 61.4% of the capital adjusted budgets. Two provinces, Eastern Cape and Western Cape, were projecting to overspend by R20.1m (EC – R18.4m; WC -R1.6m). Seven provinces were projecting under expenditure of R666.6m. There had been a 17.7% increase comparative to the last year. The largest provincial capital budgets were for public works, roads and transport departments at R7.3bn or 37.9% of the total capital adjusted budget.  There had been 69.4% spending, an increase of 45.2% comparative to the previous year.

Tables were presented for the process of the conditional grants, and the summary of the spending.

The objectives of the Infrastructure Grant to Provinces (IGP) were set out.
It was noted that in the first nine months, the spending was subsumed in the spending of a range of departments and programmes and therefore no reporting was required.

Mr Adams tabled a slide dealing with the Gautrain project, and the first nine months expenditure. 
Spending recorded against the conditional grant allocation amounted to R1.6m or 54.4% of the grant allocation. Transfers received amounted to 94.0% of national allocation. The Department would have to respond on the service delivery outcomes. 

A slide was tabled, dealing with the new Public Works Grant known as the devolution of property rates grant, to ensure that provinces took over the responsibility of paying property rates and municipal charges of properties that were administered by national government on their behalf. This grant was introduced with baselines of R889 million in 2008/09, R997 million in 2009/10 and R1.1 billion in 2010/11. It would be phased into the provincial equitable share in five years time.

KwaZulu-Natal Provincial Department (PDOT) Briefing
Mr Bheki Cele, MEC for Public Works, Roads and Transport, KZN, and Mr Chris Hlabisa, Head of Department (HOD), PDOT, noted that the Department had been successful in previous years to fully spend the allocations. The Department had
embarked on three major projects during the financial year. These included the John Ross Highway, Sani Pass, and the King Shaka international Airport and Dube Trade Port.  The Department faced various challenges, such as the lack of human resources, and the shortage of technical skills. Other challenges included a hostile terrain, which made the construction of roads and bridges difficult, flood damages, and overloading. The Department also faced a backlog of road maintenance, but had implemented maintenance programmes to address the backlogs.

Discussion
Mr D Botha (ANC, Limpopo) asked whether all the provinces had a clear indication on the differences between a provincial road, a national road, and a municipal road.

Mr M Robertsen (ANC, Eastern Cape) said that clarification needed to be provided on Sani Pass. The Department wanted to spend a lot of money on Sani Pass, as it would be a short cut from the Free State to KZN. This, however, was a road that was extremely difficult to travel, especially during the rainy season. The Department should also state on whether the targets set out in the presentation had been reached.

Ms D Robinson (DA, Western Cape) asked for clarity on what had been done to reduce road fatalities. The Department should also state whether they had considered approaching the Department of Education for assistance in promoting road safety awareness.  An issue of concern was the high turnover of staff, so she asked for comment on the retention strategies.

Mr Mbongeni Radebe, Chairperson, Gauteng Provincial Legislature, said that the Financial and Fiscal Commission (FFC) in their recommendations raised the issue of road classification and noted that it was a matter that needed to be addressed. In regard to road safety, the Committee should be getting advice on how to perform road safety from KZN, as he was pleased to state that KZN managed to reduce fatalities.

Ms Robinson asked the Department to comment on how much they were spending on radio advertisements. She felt that there should rather be proper educational materials, not just quick advertisements for short term gain.

The Chairperson asked the MEC to comment on whether he had been able to raise the budget for roads, which had been a serious matter during the preparation of the budget. If the budget for roads was shrinking there would be issues of economic growth, which would be of great concern. The matter needed also to be raised with Department of Local Government (DPLG.

Mr Cele replied that one of the major problems faced by municipalities was capacity. Many of the municipalities did not properly maintain the roads. The Department was spending about 78% of its budget on the maintenance of road infrastructure. The Department faced many challenges with regards to road infrastructure, one of which was the right of way. Roads needed to be constructed to communities, however some farmers did not co-operate with neighbouring communities. These communities were usually locked in and people had to go through private properties to access the farms. In regard to road safety, he said that this was an internationally-raised issue. There would be a huge economic impact if the country did not address matters pertaining to road safety, and the Department was always trying to find solutions that worked. The Department had called for the creation of pedestrian friendly infrastructure and a lot of money was needed for the creation of the infrastructure.

The Chairperson said that some of the matters raised would be resolved on 4 March when the National Department of Roads (NDOT) was due to appear before the Committee.

Mr E Sogoni (ANC, Gauteng) asked for clarity on the prevalence of communities being deprived access to economic activities.

The Chairperson added that the issue of access roads was also prevalent in other provinces. There needed to be integration amongst the various Departments, including that of Agriculture, on how the issue could be addressed.

Mr Hlabisa replied that in regard to the classification of roads, the Department had submitted a secondary strategic network to the National Department of Transport. It should be noted that the John Ross highway was part of the network. The Department was hoping to meet its targets by 2009, and there were many interventions and innovations to make sure that these targets were met. On the retention strategy, the Department was working hard using guidelines of Development Bank of South Africa (DBSA), to retain engineers, especially civil engineers. A retention policy had been created in order to determine how people were trained and retained. The cost of advertising was somewhere between R1.5m to R2.0m, and KZN had become known as the trend-setter in various projects that had then been adopted by other provinces.

The Chairperson said that the Committee would soon be dealing with the Division of Revenue discussion on 4 March, and South African National Roads Agency Limited (SANRAL) should be part of the discussion.

Mr Botha said it would be a very good idea to include SANRAL as they could also indicate their plans. KZN and the MEC must also be complimented for their “arrive alive” campaigns

Mr Sogoni supported the decision to invite SANRAL as it would indicate how seriously the transport budget was to be taken.

The Chairperson asked the Department to comment on how much of the equitable share the transport budget represented.

Mr Cele replied that the amount given to transport fell at around 15% of the equitable share. The Department was looking at other ways of maintaining road infrastructure. KZN had become the province with the most toll roads, and this had become very expensive for regular users of those roads.

Free State Provincial Department of Transport Briefing
Mr Seiso Mohai, Free State MEC for Roads, and Adv Makhoseni Msibi (HOD, Department of Transport, said that the Department had overspent its budget as it had very ambitious and bold plans.  The Department was meeting with National Treasury in order to deal with the over expenditure. There were various challenges that confronted the province, and South African Roads Agency Limited was working very hard to address the challenges. Since the province was a central province, the roads took a huge amount of pressure as a result of excessive use. The  Free State needed road infrastructure that connected the various communities and towns, as most of the roads only linked to major cities. There was a shortage of technical capacity, as most of the skilled professionals were recruited to work in other countries and provinces. The Department was in discussion with the construction Sector Education Training Authority as a means of alleviating the skills shortage.

Discussion
The Chairperson said according to the National Treasury expenditure report, all provinces were projecting overspending, however Free State was saying that they were losing personnel. There were low levels of personnel spending in the largest provinces. The Committee planned on looking into whether the personnel really existed, as a clear audit was needed. There was also a useful issue that was raised by NT, pertaining to traffic officers and the Public Service Act. The Department should comment on how the matter could be resolved.

Mr Sogoni noted that that the legal case against the Department was very problematic and the matter was out the hands of the Department. If Free State lost the case, there would be implications for the rest of the country. On the classification of roads, the Department should comment on who was responsible for the construction and the payment for the roads that the Department mentioned in their presentation
 
Mr Botha said that slide 21 of the presentation provided a list of challenges. Clarity should therefore be provided on the cash flow to contractors, and what had been done to address issues of overloading.

Mr Z Kolweni (ANC, North West) said that he would like to have a reflection on programmes that dealt with poverty alleviation. The Department should comment on whether there were any programmes that took into account the emerging contractors, and who were the people who received maintenance contracts. Comment should also be provided on the identity of those to whom the Department owed money for various services, and how much was owed. The Department of KZN had further stated that it was making provision for pedestrian friendly infrastructure and for non motorised transport. Clarity should be provided on whether the Free State had similar provisions.

The Chairperson asked why the provincial treasury did not take into account the first charge. Clarity should be provided on whether the Department received an adjusted budget during the adjustment period. Clarity should be provided on how much the Department received from the infrastructure grant to provinces (IGP), and to what extent the funds were used to address issues of overspending. The Department had not clearly stated whether they were doing work in municipalities or working closely with the municipalities. The Department should consider other sources of revenue such as toll roads or a fuel levy.

Adv Msibi replied that there needed to be a reclassification of roads. The Department was working in partnership with various municipalities to look into certain roads in order to determine the correct classification. The Department was funding some of the municipal roads that were being constructed, as the routes were crucial to the Department’s public transport strategy.

The Chairperson said that he understood the sentiment; however the bottom line was that the Department was undertaking an unfunded mandate.

Mr Sogoni added that the matter of road classification had been ongoing, and clarity needed to be provided whether the matter was a provincial or a national matter.

Adv Msibi replied that there was a framework that was in place to address the issue of classification. The biggest challenge was that of addressing the various backlogs that existed within the province.

Adv Msibi clarified that in the legal matter mentioned, the Department lost the case on appeal despite having a top legal team. With regard to the cash flow, in terms of the project management principle, the contractors were doing work but invoices were withheld. In regard to the issue of overloading, truck drivers usually avoided weigh bridges and most of the trucks used provincial roads during hours where traffic officers were unavailable. There needed to be 24-hour policing of provincial roads.  In regard to the queries on the municipal debt, the MEC had instructed the National Department in 2006 with regard to the debts owed by municipalities and there had been many letters written to the municipalities regarding the matter.

The Chairperson said that the issue of the debts owed by the municipalities was one that needed to be urgently dealt with.

Adv Msibi replied that there was a task team in place, including National Treasury representatives, that had been set up to resolve the matter.

Mr Mohai added that on the implementation of infrastructure the Department employed labour intensive methods. Free State took on projects that would have capacity to absorb great numbers of people. In regard to contractors the Department adopted a framework which looked at registered contractors, in order to ensure that there was an increase of contractor capacity. The Department was looking into improving the road building equipment and how best to collaborate with the municipalities in ensuring effective service delivery.  The province would also look into the issue of provincial taxation and would tighten up on the issues pertaining to the overloading.

Mr Botha said that the withholding of invoices was of great concern and it was unacceptable that the Department had overspent their funds. The withholding of funds had a ripple effect on the people on the ground, as contractors were unable to pay labourers.

The Chairperson said that the Committee would monitor the issue as the last thing that he would like to see was a situation where there were disgruntled workers. There was a need for interaction, and the Department needed to look at the type of trade-offs that needed to be made in the process of budgeting.

W
estern Cape Provincial Department Briefing
Mr Darryl Jacobs, Acting HOD, Western Cape Department of Transport and Public Works, and Mr Cedric Ismay Chief Financial Officer, Western Cape Department of Transport and Public Works, indicated the trends in allocations. The Department had spent 83.85% of the infrastructure grant to provincial roads, and 61.93% of the infrastructure grant to provincial public works. The Department also allocated 39.07% of the Capital Expenditure (CAPEX) transfers to municipalities. It should however be noted that the transfers in the fourth quarter were still to be effected. The Department had implemented monitoring mechanisms that included monthly reporting on expenditure and transfers, and a quarterly infrastructure reporting model.

Discussion
Ms A Mchunu (IFP, Kwazulu Natal) asked why transfers to municipalities had only been done in the fourth quarter

Mr Ismay replied that the Department usually made three to four transfer payments during the financial year. The last transfer would usually be made during the months of January and February; therefore not all transfers were made during the last quarter.

The Chairperson said that the first problem was how the transfers spoke to the Municipal Infrastructure Grant. With reference to the CAPEX transfer to municipalities, there was a budget, and there was no justification for the adjustments, especially looking at the poor performance of 39% spending after 9 months. A point of concern was that the transfers did not equal spending, and the Committee was not sure whether the 39% shown represented actual spending. There needed to be clear cut business plans, and municipalities needed to show the province how they planned to spend the allocated funds. The province needed to set conditions for the municipalities, and if the municipalities did not agree to or comply with the conditions then there was no need for the Provincial Department to release the funds to the Municipalities.

Mr H Mouton, Chief Director, Western Cape Provincial Department, replied that transfers to municipalities took place throughout the year. The Department subsidised 80% of the expenditure, which would happen only when the project was completed.

Mr Jacobs added that the Department would only release funds once the proof of expenditure had been received from the Municipalities.  This would explain the trends that had occurred during the financial year, which showed the inability to spend by the municipalities.

The Chairperson said that the main problem in the Western Cape was that Integrated Development Planning (IDP) was not being prioritised. If planning was not done on the basis of the IDP, then there was a serious problem, and the Committee needed to find a way of addressing the matter. Given the nature of the reporting by the Western Cape, the Committee felt that maybe it was time to go to the Municipalities and see whether the work had been done. The Department should comment on how it planned on dealing with the municipalities, when it was already fully aware of the gross underspending that was about to take place.

Mr Jacobs replied that the money that was paid in transfers was paid for routine road maintenance. The Department was in the process of reducing the municipal responsibility for routine road maintenance.

The Chairperson noted that the Department still did not respond to how the processes related to the Municipal Infrastructure Grants (MIG). All municipalities received a MIG allocation for roads and the MIG was set to increase in the up coming budget.

Mr Ismay replied that the transfers that had been given for roads were used for public transport infrastructure, as well as for roads infrastructure. A part of the funds was also used for the upgrade of Athlone stadium. The public transport investments were all linked to the municipal mobility strategies and integrated transport plans.

Mr E Sogoni (ANC, Gauteng) said that the issues of capacity at municipalities raised a number of issues. The Western Cape had not made mention of the various mechanisms that were in place to address the issues of capacity. On the issue of the upgrade of stadiums, there was a fund given to the National Department of Transport (NDOT), which addressed such issues.  It was hard to understand why the province did not make use of the funds that were earmarked for the upgrade of stadiums, instead of using the equitable share.

Mr T Malahelha, Director, NDOT, said that the Department did make allocations for 2010 infrastructure. Therefore there may have been some double counting between the Department’s allocation and the allocation the province was making.

Mr Ismay said that the transfers did not relate to the 2010 World Cup issues and there was no double count. The Department was informed that the grants for 2010 were designed for municipalities and the provinces could not access the funds. If one read the IDP framework in the Division of Revenue Act (DORA), one would find that roads and transport were not included. The Department was in a difficult situation in regard to the matter.

The Chairperson said that the issue was only prevalent in the Western Cape.  The Department should also state what laws or regulations it was adhering to, when it decided to subsidise 80% of municipal expenditure on roads.

Mr Jacobs said that it was an ordinance law, which only applied to a provincial road that went through a town, and not to any other road.

The Chairperson said that the Free State faced the same situation and explained that they were bound by a political need as opposed to being bound by the law.  This matter needed to be investigated and clarified.

Mr Sogoni said that the Committee needed to look into how the ordinance law related to the MIG.

The Chairperson asked the Department to provide a list of the municipalities that had received the allocations.

Mr Ismay asked whether the Department should forward a copy of the law, or prepare a presentation on the law.

The Chairperson said that a copy of the law was necessary so that the Committee could compare its relationship with the MIG and other municipal laws.

Eastern Cape Provincial Department Briefing
Mr Mbulelo Peterson, Director of Department of Roads and Transport, Eastern Cape Provincial Department, said that the variance of 6.36% over expenditure was due to the accelerated contractor programmes of various projects that would be completed ahead of schedule. He said that in relation to management and monitoring, departmental officials attended monthly site progress meetings, and the Department submitted detailed quarterly expenditure reports to Provincial and National Treasuries. The Department was, however, faced with various challenges. These included an acute shortage of building materials, and the ever-increasing road construction costs. Some of the achievements included the launch of a train service between Queenstown and Molteno, and the renovation of Bisho airport.

Discussion
Mr Robertson asked the Department to comment on the issue of Fleet Africa, which was problematic, and whether the Department was responsible for maintaining the vehicles.

Mr Peterson replied that the Department was merely the co-ordinating body and provider of the vehicles. The maintenance would be done by fleet Africa.

Mr Robertson asked the Department to comment on their involvement concerning the maintenance of vehicles.

The Chairperson said that the question should not be responded to, and the Committee wouldl pick up on the matter again, once a report had been received from the MEC.

Mr Sogoni asked the Department to provide clarity on the community based transportation

Mr Peterson replied that the Department had learnership where people were trained to become supervisors and contractors, and there was a mentor from the Department of Public Works. The Department had people from the communities who were employed to maintain the roads. They had been given tasks such as bush cleaning and the cleaning of drains.
The meeting was adjourned.



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