Transport & Sport and Recreation Provincial 3rd & 4th Quarter Spending: hearings

NCOP Finance

12 August 2008
Chairperson: Mr T S Ralane (ANC, Free State)
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Meeting Summary

National Treasury indicated that the Eastern Cape was still topping the list of chronic under-spenders and that certain key service delivery objectives were not being met due to this. The Committee expressed their concern, dismay and disapproval that the Departments of Sports and Transport were not withholding funds from those provinces and municipalities who were guilty of under spending.

Construction of the 2010 stadiums were going according to plan, but the Green Point Stadium required additional funding as it was running over its budget. The Gautrain Rail Link was also developing at a respectable rate, even though it did not meet its earlier target of 52% completion by mid 2008. The poor progress on the Public Transport Infrastructure and Systems projects such as at King Sabata and Amatole received harsh criticism from the Committee as they accused the Department of Transport of not stepping up to the plate and providing managerial oversight. The Department promised to provide an improved progress report in six months’ time.

Meeting report

National Treasury briefing on Third and Fourth Quarter spending
Mr Rigard Lemmer (Director:
Intergovernmental Relations) briefed the Committee on National Treasury’s role and the Pre-audited Outcomes of Provincial Budgets and Expenditure as at 31 March 2008.

Mr Lemmer noted that the role of NT was to develop a culture of publishing information, assessing the credibility of provincial budgets and preparing consolidated quarterly reports for all nine provinces.

Sports, Arts and Culture
Mr Lemmer said that provinces spent R2, 3 billion of the R2, 4 billion adjusted budget allocated for Sport, Recreation, Arts and Culture (SRAC). This led to an increase of R487,1 million over the same audited outcome of last year. The provinces of Limpopo and Gauteng were singled out as the provinces with the lowest rate of annual spending whereas the Free State (101.3%) and the Western Cape (99.1%) recorded the highest rate of annual spending in SRAC. Limpopo and Gauteng were also singled out as they under spent R19, 8 million and R24, 7 million respectively.

He noted that R762, 4 million of an R805, 4 million adjusted budget had been spent on SRAC Personnel and that Capital Expenditure was pinned at R192, 5 million or 86,6 %. This was a significant increase of R53, 7 million compared to the audited outcome of 2007. The Eastern Cape (63 %) and Mpumalanga (63.9%) were singled out as the two provinces with the lowest capital expenditure in comparison with the Northern Cape (203,4 %) and the Free State (104%) that recorded the highest rate of capital expenditure. (For further information: See Provincial breakdowns document)

Sport and Recreation SA Grants: Mass Sport and Recreation Participation Programme Grant
The objective of the Schedule 5 Grant was to promote mass participation within schools by the development of a selected number of sport codes through the empowerment of educators and volunteers to manage and implement policy directives and plans in conjunction with provincial departments responsible for Sports, Recreation and Education.

Sport and Recreation spent R190,7 million of the 197,9 million adjusted allocation and the transfers received amounted to 99,8 % of the national allocation. (For important dates and submissions: See Document)

Department of Sport and Recreation (SRSA) input
Finance of Conditional Grants and Capital Expenditure: DoRA Presentation
The purpose of conditional grants to the SRSA was to develop sports in communities as well as empowering communities through sports.

The outcome of the grant framework noted that it was important that life long participation in sports should make people more active and to improve the capacity of national and provincial government in delivering the programme of mass participation.

(For further information on the conditional grant spending per province: See Document)

It was noted by the Department that the Eastern Cape, Gauteng and the Western Cape had been some of the provinces that paid back unspent funds to the SRSA.

About 2010 FIFA World Cup Stadium development, the nine provinces that housed the World Cup venues spent 70% of the entire budget of R4,6 billion. Green Point Stadium was experiencing difficulties with its budget and it had requested more funds to complete the stadium. Very little had been spent on Ellis Park, as the contractors had not yet started on some of the key construction plans. (For further information: See Document.)

Discussion
Mr Ralane noted that the Limpopo Provincial Department of Sport claimed a lot of successes, but upon a visit it was discovered that the sport clubs had no resources, let alone fields to practice and play on. He added that it was unacceptable that the Eastern Cape underspent by 95% as Mr E M Sogoni (ANC, Gauteng) had visited that province several times. During one of the visits he was told by the MEC that the province did not want to accept any more transfers, as they did not have the capacity to spend the money.

Mr Ralane said that it was unacceptable that some provinces financed professional sport clubs or codes, as was the case with boxing in the Eastern Cape, the Premiers Cup for soccer in the Eastern Cape and the Premiers Challenge in the Free State and Gauteng and the North West that sponsored a professional club that participated in the Vodacom League. The conditional grant was meant to facilitate mass participation in sports and was not for the financing of professional clubs. He was adamant that these provinces should be brought to book for malicious spending of public money on programs that did not directly benefit the poor.

Mr Sogoni asked whether the SRSA had any monitoring mechanisms in place to ensure that the conditional grants were spent on what they were intended for as provincial governments now sponsored professional clubs that played in major soccer leagues.

Mr
Thembinkosi Biyela (Chief Director: Mass Participation, SRSA) replied that the capacity for monitoring and evaluation was still a challenge and that the CFO of SRSA had implemented a Recovery Plan that addressed the same issues raised by the Committee.

Ms Xoliswa Sibeko (Director-General: SRSA) said that the Chief Director for Mass Participation had engaged with provinces where they were told that they were not allowed to initiate programs that had not been included in their Business Plan and that officials would be held accountable. A process was underway to develop Terms of Reference to assess the discrepancies. SRSA had also sent out a team to assist and work with those provinces that had been guilty of chronic under spending and contracts had been signed with provinces that compelled them to spend the allocations in the prescribed manner, as the SRSA could not previously withhold funds.

Mr Ralane asked what the SRSA intended to do about the provinces that funded these professional clubs. He berated the SRSA for allocating money to provinces that had constant roll-overs. He noted that he held the SRSA personally accountable for this situation.

Ms Sibeko replied that previously the SRSA could not refuse funding as there had been no precedent. The SRSA could refuse funding now as they had entered into contracts with the provinces to spend their allocations.

Mr Ralane replied that the SRSA did not need a precedent, nor a contract as the Division of Revenue Act had been very clear on allocating funds to provinces that had chronic under spending patterns. He added that it seemed as the SRSA was condoning the actions of these provinces.

Ms Sibeko replied that in retrospect it could be assumed that the SRSA condoned the actions of the provinces, but that it would not be tolerated in future. Provinces had not budgeted for sport and relied too heavily on DoRA.

Mr Biyela added that the SRSA did not condone the actions of the provinces as such as meetings had been held with these provinces to identify the constraints, capacity or otherwise.

Mr Ralane noted that club development did not exist and asked the SRSA to define what they meant by club development.

Mr Biyela and Ms Noma Kotelo (Director:
Sport Support Services, SRSA) replied that it was the responsibility of provinces to identify which sporting codes should be developed and to engage with the various stakeholders involved in those codes.

In relation to implementation of club development, he noted that people had been trained on administration and development and that only one province had implemented training for coaches as part of their mass participation program.

Mr Biyela added that various provinces had different needs in terms of what was needed to start sport clubs and that the Club Development Program formed part of DoRA, which gave precise guidelines to provinces on expenditure.

Mr Thulani Ntuli (Director: Risk Management ) replied that the SRSA had a process in place to deal with the problem areas and that the audit would help in facilitating the process.

Mr Sogoni noted that this would be futile, as the SRSA would only become aware of problems, once they had received the audit report.

Mr Ralane added that he would like to receive a list of all those provinces that under spent on their allocations as the Committee decided they would deal very harshly with these culprits.

Ms D Robinson (DA, Western Cape) said that it was very important that clear direction should be provided on the purpose of funding as it was unacceptable that provinces under spent in such a bad manner.

Ms Sibeko replied that the SRSA did implement processes to check the validity of requests for funds and that for each transfer that was made, a report would be required. Previously, several provinces put pressure on the SRSA to release the funds.

Mr Ralane asked the DG to name these provinces.

This question went unanswered.

Mr Sogoni and Mr Ralane both asked whether the stadiums would be ready for 2010.

Mr Dan Moyo (Chief Director 2010: SRSA) replied that in some provinces the municipalities that acted as host cities utilized their own funds to finance the construction of stadiums as they had been waiting on funding from the SRSA. These municipalities had subsequently indicated that they could not foot the bill any more as their funds had been depleted and asked the SRSA for assistance. The SRSA had brought R700 million forward to assist with the various construction processes, as there had been specific guidelines.

Mr Sogoni indicated that the reality on the ground was different from the picture the SRSA was painting and asked for a comprehensive report on the readiness of the Stadiums for 2010.

Mr Ralane said he failed to see why the SRSA was saying that everything was on track with the Stadia when the expenditure patterns painted a different story.

Mr Moyo replied that that the spending patterns pertained to the construction schedule of the venues. He noted that the reason for the low expenditure on Loftus Versveld was attributed to the fact that contractors had only started working on 12 May 2008 and that as of the 1 July 2008, 50% of the R 52,778 million allocated to Loftus had been spent. With the Royal Bafokeng Stadium minor renovations were being made to align the stadium with FIFA requirements and completion was due 15 December as strike action had no impact on the project.

Mr Moyo stated that strike action had affected construction at the Peter Mokaba Stadium and that a court order had prevented the unions from calling a strike again. The SRSA had subsequently signed an Accord that stipulated the policy directives that pertained to all the stadiums to ensure that they are completed.

He added that the strike action at the Mbombela Stadium had affected construction and that both the City and project managers had endorsed the revised program for the stadium as it was nearly completed.

Green Point Stadium, he said, had the biggest budget of all stadiums that had been partially funded by the City and the Western Cape Provincial Government. The Western Cape LOC had asked for more funding, but they had been told to look for bridging finance somewhere else, as the costs were too high. The stadium was due to be completed by December 2009, with a 35% work schedule still to be completed.


Mr Ralane asked that Mr Sogoni visit Soccer City and Mr B Makhaliphi (ANC, Mpumalanga) had visited Mbombela to inspect the progress made.

Mr Sogoni asked how inflation affected the construction process of these stadiums.

Mr Moyo replied that a meeting was held with Mr Jabu Moleketi, Deputy Minister of Finance to get clarity on cost escalation and that it was noted that cost escalation was a reality as the fuel price was at an all time high. He added that in many instances municipalities worked their own costs into their 2010 budget which resulted in money being allocated for certain programs that had not been identified as 2010 programs.

Department of Transport (DoT) on Gautrain and Public Transport Infrastructure and Systems (PTIS) grant projects
Mr Theo Maeder (Chief Director: Urban Transport, DoT) briefed the Committee on the Gautrain Rapid Rail Link.

Accountability
Mr Maeder noted that a Business Plan was concluded between the DoT and the Gauteng Provincial Department of Transport, Roads and Works and that key milestones related to payment schedules had been approved as measures had been put in place for penalties to be issued if the project was not finished on time and bonuses if it was finished ahead of time. He added that a dedicated expert had been appointed that had to administer the Conditional Grant and the implementation of the Gautrain Integration Plan.

Achievements: Annual Report 2007/2008
It was noted that 1207 of the 1224 affected properties had been made available and that the monthly expenditure rate on utilities had improved, but that it was still lower than expected. The Concessionaire had also fallen short of planned designed submission targets, which had created problems.

At the end of March 2008, 46% of the project had been completed, but this was 8% from the target of 52%. The various stakeholders had indicated that the delays could be mitigated.

Mr Maeder noted that private sector borrowing had funded the initial stage of the project and that this funding had been completely utilized by November 2007, with the balance being funded by DoRA transfers.

Overall 3800 meters of the projected 15 000 meters had been covered with construction on six of the nine viaduct superstructures already underway.

The total budget for the project was estimated at R12, 36 billion over 5 years. For further information on the expenditure and budgets of the Gautrain, see document.

Public Transport Infrastructure and Systems (PTIS) Expenditure and Budgets
Ms Angeline Nchabeleng (
Deputy Director-General: PTIS) briefed the Committee on PTIS expenditure for the third and fourth quarter. She noted that the DoT had allocated R13, 6 billion over 6 years for PTIS. For actual PTIS expenditure, see document.

PTIS Projects

The DoT was currently busy with several PTIS projects across the country. The cities involved in these projects were Mangaung, Johannesburg, Cape Town, Nelson Mandela Bay, Ethekwini, Polokwane. Mbombela, Rustenburg, Tswane and other non-2010 allocations.

In Polokwane the airport was busy being upgraded as well as the construction of bus shelters and pedestrian sidewalks whereas in Mbombela, tenders were being advertised for the Mataffin Stadium Precinct, R40 HOV Lane and Interchange facilities. In Rustenburg park and ride facilities were due be constructed in 2009 and the Phokeng Stadium Precinct designs had been completed and tenders advertised. In Tshwane the Loftus Versveld Precinct was under construction with detailed designs on the airport access roads currently underway. In Cape Town the N2 Airport-City link was well underway with the Bus and Minibus Taxi (BMT) Lane already completed.


Discussion

Ms Robinson asked whether the problems surrounding the tunnel had been sorted out after a part of it collapsed.

Mr Maeder replied that everything was under control.

Mr Sogoni asked what the conditions for the Gautrain were and whether Government was footing the bill alone.

Mr Maeder replied that funding was provided by both the private and public sector (Government) and that Government had contributed 88%, whilst the private sector had contributed 0.5 % in private sector equity and 11,5 % in private sector debt.

Mr Sogoni noted that it was quite a struggle to get to Oliver Tambo International Airport and asked when the linkage would be completed.

Mr Maeder replied that DoT had a concession agreement and that this agreement specified fixed dates.  The first train would be operational by June 2010.

Mr Ralane asked what the DoT planned to do about the constant under spending on PTIS projects and whether Ms Nchabeleng had been to the King Sabata and Amatole regions.

Ms Nchabeleng said that the DoT had implemented a Recovery Plan to address the problem of under spending and that she had visited the two areas in question.

Mr Ralane said that he got the impression that these municipalities had been of the opinion that they did not need additional funds as they tended to under spend, without realizing the consequences of their actions.

Mr Sogoni noted that since the inception of PTIS there had been constant problems and that he failed to see how the intergovernmental task team would help matters as the real challenges had not been highlighted by the DDG. He added that maybe the municipalities should be stripped of their oversight role over these projects and the line function allocated to provinces, as it seemed that these provinces did not have the necessary capacity to spend the money.

Mr Ralane added that it was inconceivable that the DoT continued transferring funds to these municipalities as it had become clear that they did not prioritise these PTIS projects as important.

Ms Nchabeleng replied that the constitutionality of such an action had to be taken into account as DoRA, the Public Finance Management Act and Municipal Finance Management Act had been clear on the role of municipalities.

Mr Ralane noted that he was aware what the Constitution said about municipalities, but the reality spoke of municipalities not performing. He said it was time that the DoT intervened in a more hands-on approach to sort out these problems.

Mr Collins Letsoalo (
Deputy Director-General: Financial Services, DoT) noted that cities had to submit a priority list in terms of the 2010 agreements and that this corresponded with the Integrated Development Plan and that a team of technical experts would be sent to these cities to monitor and evaluate the processes that curtailed good financial management.

Mr Ralane asked why the DoT had waited so long and whether it was a case of “Rather late, than never”.

Mr Letsoalo stated that problem areas had been identified and that the processes were in place to deal with them. DoT would intervene as the process unfolded and he conceded that the DoT had probably reacted too late. He added that he would make sure that the figures were more optimistic over six months. He also blamed the National Treasury for some of the woes of the PTIS.

Mr Ralane noted that Mr Letsoala would face serious consequences if he could not deliver on his promise to the Committee.

Mr Tebogo Makube (Director:
Provincial Government Infrastructure, National Treasury) said that National Treasury had nothing to do with the problems that PTIS projects had experienced. The DoT had not engaged with provinces on what type of engagement was needed and National Treasury had performed an oversight function over budgets.

Mr Ralane added that DoRA was clear on defined roles and said that the DoT should provide clarity on whether they really thought the PTIS projects were going well.

Mr Lesoala replied that it would be misleading to say that things were going well as the contrary was more applicable. A team had been put together to intervene and assist these municipalities to solve their problems.

Mr Ralane noted that it was pertinent that the DoT addressed the issues that were raised by the Committee and National Treasury. He said he expected a progress report.

The meeting was adjourned.

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