North West Department of Transport Funding: discussion

NCOP Finance

12 August 2008
Chairperson: Mr T Ralane (ANC)
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Meeting Summary

The meeting had been scheduled to discuss the funding concerns of the North West (NW) Department of Transport. The NW Department of Transport, the NW Provincial Treasury and National Treasury were in attendance. The Committee noted a general trend amongst provinces that there was under-spending even though they requested increases in budgets year after year.

The NW Department of Transport said that road funding came from the equitable share, the Infrastructure Grant to Provinces, and that Department’s own funds. Although there had been a growth in infrastructure funding over the past six years, and the Department received R1.7 billion per annum to maintain current infrastructure, this was too low, as it needed R56 billion to pave 14 000 km of gravel road. The Department had a good relationship with South African National Roads Agency Limited, to whom it had handed the responsibility of building roads, and it also had a good relationship with National Treasury. The main issue was inflation on construction costs.
  The NW Provincial Treasury noted that the budget of the province had decreased as a result of demarcation and migration. Due to these decreases in the budget, allocations towards social development had been below the 75% required percentage, and in order to meet the required percentage to social development, monies had to be transferred from transport to education. The particular need had arisen due to an overspending on personnel in education. The Chairperson questioned the overspending on education personnel, as even a large province like Gauteng had shown under-spending in this area. The Chairperson thus called for an audit of the effect of demarcation on the NW, Gauteng and Northern Cape provinces, to shed further light on how assets and people had been transferred. Members believed that there was a need for the provinces to quantify their road networks, and that provision should be made for scholar transport. The Chairperson also felt that budgets of provinces were often not credible in that they often projected overspending when in fact under-spending would be found.

Meeting report

North West Department of Transport (Department): Funding concerns
The Chairperson noted that the Committee had scheduled the meeting to consider the funding concerns of the North West Provincial Department of Transport, which considered that it was under-funded. He noted that the North West Province’s Department of Transport was represented by Mr Patrick Setshedi, Director, and Mr Petros Van Staden, Deputy Director General, North West Province Department of Transport and the North West Provincial Treasury was represented by Mr Joe Mohlala, Head Official, Provincial Treasury.  National Treasury was represented by its Directors Mr Tebogo Makube, Ms Noxolo Mbambo and Ms Gaarekwe Ogalaletseng.

The Chairperson said that he could not understand why the North West Province Department of Transport felt it was under-funded. He said that provinces were supposed to have provincial growth and development strategies. He would like the North West Provincial Treasury to inform the committee as to how it dispersed the Infrastructure Grants to Provinces (IGPs). He Chairperson noted that the biggest problem in the North West Province was that there were pockets of development funds. As a result certain areas were compromised. The ideal situation should have been the prioritisation of areas like health, education and roads, which would lead to growth in the economy. The provincial department should therefore have priorities. Money was available but it was not going where it was needed.

The Chairperson referred to the Provincial Budget Report 2002 - 2010 and said that the observation was made that provincial budgets were declining. However from a national perspective it would seem that provincial budgets were growing. The Chairperson felt that something was being done wrongly in the equitable share allocations. He noted, for instance, that funds were not reaching Early Childhood Development centres. He said that the Committee was always at loggerheads with the Financial and Fiscal Commission (FFC) over the placing of conditional grants in the equitable share. The Chairperson pointed out that in the Eastern Cape there was an infrastructure department, yet infrastructure was non existent in the province. It was noted that there was supplementary funding in infrastructure grants in provinces.

The Chairperson wanted to clarify that National Treasury (NT) had not been invited to attend the meeting to provide additional funding to the North West Provincial Treasury or the North West Provincial Department of Transport. The idea was to ensure engagement between the three entities. He said that sometimes the impression was given that provincial treasuries were thinking of themselves as “demi-gods” and consequently refused to designate funds. In the Eastern Cape alone there was an underspending of R24 million.

Mr D Botha (ANC, Limpopo) said that when the responsibility of building roads was handed over no timeframes were provided for completion.

The Chairperson said that the Committee would discuss that issue at another time.

North West Provincial Department of Transport (PDOT or the Department) briefing
Mr Petros van Staden, Deputy Director, North West Provincial Department of Transport (PDOT), said that from a transport perspective, road funding came from the equitable share, the IGP, and that Department’s own funds. He said that infrastructure development was critical and hence road building was critical. For the past six years there had been a growth in infrastructure funding. The PDOT had received a fair share to build roads. Mr Van Staden said that it was a growth issue that was part of the province’s growth strategy. The PDOT received R1.7 billion per annum to maintain current infrastructure. However, it needed R56 billion to pave 14 000 km of gravel road. He noted that the Department had a good relationship with South African National Roads Agency Limited (SANRAL), and had been very willing to hand over to that Agency the responsibility of building roads. There was ongoing engagement and co-operation was ongoing. He said that generally there was also a good relationship with National Treasury (NT) as well. All provinces grappled with road infrastructure. The main issue was Inflation on construction costs due to the fuel price increase. He said that, for example, if the cost of building one kilometre of road was previously R2 million, it would now cost R2.5 million.

Mr Joe Mohlala, Head, North West Provincial Treasury, said that he would comment from a point of view of demarcation. He said that the North West Province (NW) had lost R2 billion from the equitable share and that revenue had gone down by R70 million. Statistics SA figures had shown a migration out of the NW province as well. The impact of all this was that the budget of the province was shrinking. Mr Mohlala said that when the NW provincial budget was being prepared the allocation for social development had to be reduced. When the Provincial Treasury presented the budget to National Treasury,  the latter had realised the shortfall in social development, noting also that it was not up to 75%, as was the norm. The Provincial Treasury had henceforth to move funds from elsewhere to social development. There had to be a reduction from R234 million to R200 million from equitable share funds allocated for road infrastructure. Funds had to thus be moved from transport to education, as education was under-funded. He did point out that National Treasury had given provinces R200 million as a once-off payment due to demarcation taking place. Mr Mohlala said that in the year 2007/2008 , the provincial Department of Education had overspent its budget by R109 million, resulting from over-expenditure on personnel.

The Chairperson said that the over-expenditure on personnel was worrying. He said that in a huge province like Gauteng the opposite was happening.

Mr E Sogoni (ANC, Gauteng) said that since demarcation there had been problems. The demarcation issue was a difficult issue for all parties concerned, including the national and provincial departments, and National Treasury. He asked if the issue of over-spending on education personnel in the province had been thoroughly investigated. The National Department of Education was also asked to look into the matter.

The Chairperson said that the consequences of demarcation needed to be examined. He stated that perhaps the Northern Cape, Gauteng and North West Provincial Education Departments needed to meet with the Committee. An audit was needed to check whether the correct people and assets had been transferred. The National Department of Education would also be invited to the meeting.

Mr Botha referred to a recent visit to schools in the NW Province and said that there had been cutbacks on the feeding schemes for pupils. He asked where had all the funds gone if there was over-spending in education.

Mr Mohlala said that the exercise suggested by the Chairperson would be most useful. The education personnel budget had increased. There was a need to verify how many teachers there were, and this process had been started. He noted that for education there was a projected overspending of R133m. This was a challenge that needed to be addressed.

Mr Tebogo Makube, Director, National Treasury, said that there was pressure on road infrastructure. What made things more difficult was the fact that certain provinces were unable to quantify their road network. He felt that this should be a priority. Provinces need to be open and to detail what their backlogs were. Mr Makube said that the road network to be constructed under SANRAL should be about 20 000km. He noted that another challenge was the maintenance and management of roads. He suggested that the role of the infrastructure grant needed to be considered, and that it needed to supplement the equitable share.

The Chairperson said that the issue was about appropriations. Funding had been set aside for road infrastructure. It became a concern when such funds were used elsewhere. He asked what the increase in allocations was for road infrastructure for the current financial year. He asked National Treasury and the NW Provincial Treasury to work together to quantify road networks. The maintenance of roads was another important issue. There was an ongoing review of the equitable share by the FFC. Inasmuch as road maintenance was important, another critical issue was scholar transport, which was a constitutional issue that needed to be resolved. Every child had the right to education and to be able to access that education.
The Chairperson said that an audited result of the spending patterns was needed. Another issue was migration of individuals. The problem was that it was not reflected in the planning of provinces and municipalities. For example, teachers were often transferred to other provinces, but the budgets of the provinces out of which they were transferred still continued to grow. A practical solution was needed.

Mr Sogoni referred to the NW Provincial Treasury and said that in 1994 the portion of the equitable share to the social cluster had been 85%. It was at present only 75%. He asked how had the decrease in that had benefited other departments such as transport. He said that monies had been allocated for the building of roads but the issue was what was happening on actual delivery. He said that an audit would shed light on how the money was being spent.

The Chairperson said that the problem was that budgets were not credible. He said that provincial budgets tended to be problematic. More than often provinces projected overspending, yet would finally under-spend. He said that last year there had been a projected overspending of R5 billion yet there was an under-spending of R2.4 billion. He said that the Committee needed to look into why budgets were approved when they were not credible. Another issue was that conditional grants were not being used because the conditions attached to them were felt to be too onerous. Better planning was needed, and in order to achieve this there should be greater co-operation.

Mr Van Staden responded that planning was being done and work on roads was going ahead. He said that villages were being linked to one another. Additional funding had been received as monies were being spent. The issue was even that funding was still not enough.

Mr Mohlala said that the NW Provincial Treasury had an unfunded mandate as far as scholar transport was concerned. He felt the National Department of Transport should more properly be dealing with the issue.  
Mr Makube said that National Treasury had a project list that would be forwarded to the committee. It could shed light on why provinces tended to under-spend.

Mr Z Kolweni (ANC, North West) referred to the building of roads in the Rustenberg area and asked what the role of the mines was.

Mr Van Staden said that the Premier was in negotiations with the mines on their participation in road building. There was a joint priority list for the Rustenberg area. Mines had been willing to contribute, but wanted to know what the province was willing to contribute financially. Meetings with the mines were held on a monthly basis. There were six large mines in the area.

The meeting was adjourned.


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