ATC141031: Budgetary Review And Recommendation Report of the Portfolio Committee on Telecommunications and Postal Services, dated 24 October 2014

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The Budgetary Review and Recommendation Report of the Portfolio Committee on Telecommunications and Postal ServiceS, dated 24 October 2014

The Portfolio Committee on Telecommunications and Postal Services (PCTPS) , having considered the performance and submission to National Treasury for the medium term period of the Department of Communications (DoC) [1] . The BRRR being presented is for the former DoC as it covers the period 01 April 2013 to 31 March 2014, reports as follows:

1. Introduction

During the year under review, two entities were transferred from the Department of Public Service and Administration (SITA) as well as the Department of Public Enterprises (Broadband Infraco) to the Department of Communications (DoC). At the same time, one entity (SABC) and the Regulator (ICASA) from DoC were also moved to the Department of Government Communications and Information System (GCIS). To this end, whilst the Committee did not engage with newly-joined entities during the 2013/14 Strategic Plan and Budget presentations, the entities appeared before the Committee to account on their Annual Reports and Financial Statement for 2013/14.

2. Committee’s Overview of Telecommunication and Postal Sector

2.1. Telecommunications and Broadband

In 2010, International Telecommunications Union (ITU), in conjunction with United Nations Educational, Scientific and Cultural Organisation ( UNESCO ) , launched the Broadband Commission for Digital Development. The aim was to encourage governments to implement national broadband plans and to increase access to broadband applications and services.

Broadband [2] has become a key priority of the 21 st Century, and its transformative power as an enabler for economic and social growth makes it an essential tool for empowering people, creating an environment that nurtures the technological and service innovation, and triggering positive change in business processes as well as in society as a whole. Increased adoption and use of broadband in the next decade and beyond will be driven by the extent to which broadband-supported services and applications are not only made available to, but are also relevant and affordable for consumers. And while the benefits of broadband-enabled future are manifest, the broadband revolution has raised up new issues and challenges.

Broadband, however, represents a new challenge for researchers and governments. First, its deployment has proceeded at an incredibly fast pace. Within 12 years, broadband has been adopted by over 62 per cent of households in the United States, 80 per cent in the Netherlands and 96 per cent in Korea. Consequently, the length of time series data of broadband adoption is considerably shorter than for voice telecommunications. Second, only the countries that have understood early on its economic potential have proceeded to collect statistics at the beginning of the diffusion process. Third, since broadband is an access technology for data communications, it only has an economic effect in combination with the adoption of information technology, and the implementation of organisational and process changes in enterprises.

2.2. The South African Postal Sector

The Committee acknowledges and noted that instability in the South African Post Office environment has resulted in the Group posting an operating loss before tax in the past. For instance, in 2012/13 financial year, there was a sharp decline in revenues by 0.09 per cent. This emerged largely from the post office employee’s strikes during August 2012, February 2013 and March 2013 which contributed to approximately R100 million losses in mail revenue.

The strike action by the road freight industry and SA employees in general as well as other sectors such well as the cash-in-transit security industry also negatively impacted operations and customer service. Additional costs, are also incurred to clear backlogs resulting from the strike action.

Notwithstanding the above, however, today’s business environment indicates that SAPO competes with DHL and FedEx; at the same time, its real competitors are companies like Apple, Mobile operators, Google, Microsoft, Yahoo, and Verizon, or more accurately e-mail, broadband, and computers. In other words, SAPO is competing against digital communications. Social network use (including Mxit, Whatsapp, etc.) has exploded, with worldwide Facebook users growing from 12 million in 2006 to over a billion today.

The need for change could not be clearer. The development of the digital economy has stimulated the need for Posts to innovate and to develop postal electronic services. However, the pace, scope and degree of success of innovation differs among countries, regions and markets. Decision-makers and strategy experts within the sector need this understanding to determine the appropriate strategy and portfolio of e-services that should be developed by Posts. In many developed economies, on average, postal e-services contribute only around 1.5 per cent of a Post’s total revenue.

The South African Post Office Group posted an operating loss before tax of R 206 million in 2012/13 resulting from a sharp decline in revenues of 0.09 per cent to R5.7 billion. Moreover, year 2013/14 financial year marked the beginning of SAPO operating without the government’s annual subsidy allocation for the year ending in March 2014. The allocation has been used to fund the marginal post offices in the under-serviced areas so that it can meet the universal service obligation.

In addition, mail volume (especially letter mail), which constitutes 70 per cent of the revenues, is down. And while some of the decline is due to the slow economy. Most is due to the switch from paper to digital (e.g., electronic bill delivery and payment) is one reason why the Boston Consulting research, for example, predicts that mail volumes may decline 34 per cent from 2009 to 2020.

During the 2013/14 financial year, the Portfolio Committee on Telecommunications and Postal Services (the Committee) carried out its legal mandate while responding to challenges that may have negative impacted on the ICT sector. The report also highlights the major activities the Committee dealt with during the period under review namely:

(i) second round of public hearing on the high cost to communicate;

(ii) digital migration programme;

(iii) passing the technical amendments of the ICASA Amendment Bill ,

(iv) passing the technical amendments of the Electronic Communications Bill ; and

(v) passing the technical amendments of the Post Bank Bill as well as South African Post Office Bill;

3. Legislation enacted during the 2013/14 financial year

The Committee undertook legislative process of conducting public hearings and passed what predominantly were technical amendments to the four Bills that were referred to it for consideration. Public hearings were held in Sandton, Gauteng, to enable greater public and stakeholder maximum participation.

  • The rationale for the South African Postbank Limited Act to be amended was to amend provisions that may negatively affect the operational autonomy and independence of the Office for Banks; to remove any inconsistencies with the Banks Act 2010; as well as to provide for matters connected therewith;

  • The rationale for the South African Post Office State-Owned Company Limited Act, 2011 , to be amended was to improve governance provisions between the Boards of the South African Post Office SOC Ltd and the South African Postbank Limited; to amend the Post and Telecommunication-related Matters Act, 1958, as to provide for the payment of pension benefits to a former spouse of a member on divorce or the dissolution of a customary marriage; as well as to provide for matters connected;

  • The rationale for the Independent Communications Authority Act, 2000 , to be amended was to insert new, amend existing and repeal obsolete definitions, to provide for further clarity on the powers and duties of the Authority; to introduce mechanisms to ensure the accountability of the Authority, including that of councillors and committees; and to confirm the use of electronic communications networks and services for the purpose of electronic transactions, as well as to provide matters connected therewith;

  • The rationale for the Electronic Communications Act 2005 , to be amended was to insert, amend, or delete certain definitions; to align the Act with broad-based black economic empowerment legislation, to refine provisions relating to licensing; to make further provision towards ensuring effective competition amongst persons licensed under the Act; and

  • To remove bottlenecks, to require the Minister of Communications to establish a council to advise the Minister on broadband policy and implementation; to make further provision for the discounted rate at which Internet services must provided to schools, educational institutions and public health establishments, to authorise the Minister to require that certain information be submitted to the Minister; to make provision for the fiduciary duties of members of the Board of the Universal Service and Access Agency of South Africa; to provide afresh for the appointment and conditions of the chief executive officer of the Board; to make further provision for the utilisation of money in the Universal Service and Access Fund, as well as to provide matters connected herewith.

4. Mandate of Committee

Chapter 4 of the Constitution of the Republic of South Africa, Act 108 of 1996 (the Constitution), gives a mandate to Portfolio Committees to legislate, conduct oversight over the Executive and also facilitate public participation. The Committee may also investigate any matter of public interest that falls within the ICT area of responsibility .

The Committee is required to consider legalisation referred to it and to consider all matters referred to it in terms of the Constitution, the Rules of the National Assembly or resolutions of the House. It is also required to respond to matters referred to it by Government within its mandate. Moreover, the role of the Committee is to consider the Budgets, Strategic and Annual Performance Plans of the Department and its entities that fall within its portfolio.

5. The Department

5.1. Department of Communications (DOC)

5.1.1. Overview of DoC

The DoC is mandated to create a vibrant ICT sector that ensures that all South Africans have access to robust, reliable, affordable and secure ICT services in order to advance socio-economic development goals and support the Africa agenda and contribute to building a better world. The mandate is further embedded in legislation as well as other policy frameworks. The legislative framework for the work of the DoC is contained mainly in the:

· Broadcasting Act (Act No.4 of 1999);

· Electronic Communications and Transactions Act (Act No. 25 of 2002);

· Electronic Communications Act (Act No. 36 of 2006);

· Independent Communications Authority of South Africa Act (Act 13 of 2000);

· SENTECH Act (Act No. 63 of 1996);

· Postal Services Act (Act No. 124 of 1998);

· South African Post Office SOC Ltd ( Act No. 22 of 2011); and

· South African Postbank Limited Act (Act No 9 of 2010).

5.2. Description of core functions of the Department

The Department is mandated to perform the following issues:

· To develop ICT policies and legislation that create conditions for an accelerated and shared growth of the South African economy, which positively impacts on the well-being of all our people and is sustainable;

· To ensure the development of robust, reliable, secure and affordable ICT infrastructure that supports and enables the provision of a multiplicity of applications and services to meet the needs of the country and its people;

· To contribute to the development of an inclusive information society which is aimed at establishing South Africa as an advanced information-based society in which information and ICT tools are key drivers of economic and societal development;

· To contribute to e-Skilling the nation for equitable prosperity and global competitiveness;

· To strengthen the Independent Communications Authority of South Africa (ICASA), in order to enable it to regulate the sector in the public interest and ensure growth and stability in the sector;

· To enhance the capacity of, and exercise oversight over, State Owned Companies (SOCs) as the delivery arms of Government; and

· To fulfil South Africa’s continental and international responsibilities in the ICT field.

In executing its role, the DoC is also guided, amongst others, by:

· The Constitution of the Republic of South Africa, 1996 (Act 108 of 1996);

· The Public Service Act, 1994 (Act 103 of 1994) as amended; and

· The Public Finance Management Act, 1999 (Act 1 of 1999) as amended.

5.3. During the 2013/14 financial year, the Department focused on the following strategic programmes :

· ICT Policy Review - which will lead to an adoption of a White Paper on an Integrated ICT Policy Framework;

· Finalisation of Broadband Policy, Strategy and Implementation Plan - to facilitate the deployment of broadband backbone and access infrastructure especially in rural and under-serviced areas;

· Broadcasting Digital Migration Policy - in this financial year, Department concentrated on three main goals: reaching maximum signal coverage; getting digital decoders in the market; and a comprehensive public awareness campaign);

· Postbank - Corporatisation of the Postbank Division of SAPO as a legal entity, that seeks to provide banking and savings opportunities among the public; and

· e-Skills - prioritising the establishment of single integrated entity for e-skills training.

5.4. Purpose of the BRR Report

According to section 5 of the Money Bills Amendment Procedure and Related Matters Act, the National Assembly, through its Committees, must annually asses the performance of the each national Department. These should be considered by the Committee on Appropriations when it is considering and reporting on the Medium Term Budget Policy Statement (MTBPS) to the House and should be submitted to the Minister of Finance and the relevant portfolio Minister. Therefore, the annual assessment of the Department provides the starting of the procedure for the BRRR.

The Act also requires Committees of the Assembly to annually submit the BRRR after the adoption of the Appropriation Bill and prior to the adoption of the reports on the Medium Term Budget Policy Statement (MTBPS). The BRRR and the reports on the MTBPS serve as an indication whether amendments might be proposed to the fiscal framework and the budget bills when these are introduced the following year. In fact, when the Minister of Finance introduces the National Annual Budget, a report to Parliament setting out how the Division of Revenue Bill and the national budget give effect to, or the reasons for not taking into account, the recommendations contained in the BRRR and the reports on the MTBPS.

The purpose of this report is to provide an account of the PC on TPS work during the 2013/14 financial year and to highlight issues pertaining to the oversight and legislative programme over Department and its portfolio organisation especially weakness the entire financial and non-financial service delivery value chain. The focus will be to highlight key achievements made as well as challenges encountered during the 2013/14 financial year, as reported in the 2013/14 Annual Reports and Annual Performance Plans of Department and entities. The review seeks to establish whether the DoC and its entities have achieved their aims and objectives, set out in their Strategic Plans, as well as whether they continue to fulfil their constitutional mandates.

5.5. Methodology

The previous Committee on Communications considered the Strategic Plan and Budget of the Department on 10-11 April 2013. The newly established PC on Telecommunications and Postal Services after the 2014 national General Elections considered both the 2013/14 Annual Reports and Annual Performance Plans of Department and entities and audit outcomes on 21 October 2014.

The Committee met with the DoC and the following entities: SENTECH, National Electronic Media Institute of South Africa (NEMISA), State Information Technology Agency (SITA) and .ZA Domain Name Authority (.ZADNA). Prior to this prologue of the meeting, the Minister of Communications had written to the Speaker of the National Assembly requesting an extension for the tabling of the South African Post Office (SAPO) and Broadband Infraco Annual Reports. However, out of the two entities, Broadband Infraco still managed to table and present before the Committee in line with the Public Finance Management Act.

In addition, the Committee consulted various sources, in order to make objective and informed assessment and recommendations on the Department’s performance during the 2013/14 financial year. The source documents consulted are:

· The 2013 State of the Nation Address (SoNA);

· The Department of Communications Strategic and Annual Plans 2013/14;

· The Department of Communication Annual Report and Financial Statement for 2013/14;

· The Strategic Plans and Annual Performance Plans of the entities that fall under the Department of Communications, as well as their Annual Reports and Financial Statement for 2013/14;

· Quarterly reports of the Department;

· Auditor-General of South Africa reports presented before the Committee on the audit outcomes of the Department;

· National Development Plan;

· National Growth Plan;

· National Treasury Section 32 Reports;

· 2012/13 BRR Report;

· 2013 Legacy Report: Recommendations by the previous Committee on issues that require follow by the new Committee on the DoC and entities;

· Oversight/ Public Hearing Reports on the Cost to Communicate; and

· Committee meetings.

5.6. Outline of the contents of the Report

The BRRR comprises broader government policy framework, which is enshrined in the National Development Plan. The report reviews the key programmes and targets undertaken by the Department to ensure that the priorities of the given financial year are realised. Furthermore, the report also makes reference to the previous financial years (2012/13) BRRR to ascertain whether they have been acted upon.

It also looks at the recommendation by the Committee during the 2014/15 Budget Vote process. The report then assesses the financial and service delivery performance indicators to ascertain whether the budget allocated to the Department was spent in line with the Public Finance Management Act and Treasury Regulations prescripts as well as the achievement of targets as had been envisioned in the Annual Performance Plan (APP).

Finally, it summarises the observations made by the Committee after considering all necessary supporting documents, presentations and oversight visits and or public hearing before making recommendations aimed at improving service delivery.

6. Overview of the key relevant policy focus areas

6.1. State of the Nation Address (SoNA)

During 2013, in his State of the Nation Address (SoNA) President Jacob Zuma highlighted the need for intervention to develop the Second Economy as means of addressing a lack of opportunities and under development in South Africa. Such pronouncement included:

  • The call for government to reduce the cost of communications; and
  • 100 per cent Broadband roll-out by the year 2020.

6.2. Contribution to the Outcomes approach (Outcomes 6) and Five Priorities of Government

In terms of the DoC’s contribution towards achieving the 5 Priorities of Government, which are creating decent work, health, education, fighting corruption and combating crime and rural development, during the 2013/14 financial year, it implemented the following:

Education : The Department finalised the Broadband Strategy and Plan- SA Connect in December 2013. One of the focuses of the Broadband Strategy is to connect schools and educational institutions. The Broadband Strategy has specific targets related to the education system. During year under review, Telkom’s project connected 1650 schools.

SENTECH reported that it had connected 14 schools across provinces for the period under review

Between 19-24 August 2013, the Deputy Minister of Communications and the Deputy Minister of Public Enterprises led a delegation to China in which an MoU was signed between the South African government and the government of the people’s Republic of China through its Information Industry Ministry. The MoU focuses on communications policy and regulatory framework including sharing experience in satellite as well as focus on rural schools connectivity.

Job Creation : The South African government through the DoC signed an MoU with the Finnish government and the focus of this is to enhance the delivery and implementation of the provincial growth and development plan for poverty alleviation in Limpopo and Northern Cape. To this end, the partnership resulted in Finland providing software applications to the Eastern Cape and Limpopo provinces.

In addition, the DoC signed another MoU with South Korean Ministry of Public Administration on the establishment of the South Africa-Korea Information and Communication Centre in South Africa. The government of Korea has offered training opportunities to the government of South Africa.

Out of a planned total target of 500 ICT SMMEs, the Department only managed to capacitate 129 ICT SMMEs to take up opportunities in the Broadcasting Value Chain.

In addition, the Department created 865 jobs, 549 of these were youths.

Health: The Broadband Strategy and Plan commonly referred to as SA Connect targets hospitals, clinics and health institution.

Fighting Crime : Although the National Cyber Security Advisory Council (NCAC) was appointed the Department failed to establish the Virtual Cyber Security Hub as planned.

Rural Development : In its infrastructure deployment to expand access to ICT services throughout the country, the Department facilitates universal access to ICT networks and applications for schools, health and government centres. During the year under review, the SABC resolved not to expand its FM Low Power project meaning that are still many people especially those in rural areas who still have no access to terrestrial broadcasting services.

At the same time, SENTECH’s DTT network rollout population coverage increased to 82.1 per cent after a construction of 46 signal transmission sites. As part of efforts supporting rural development various existing community radio stations were also provided with expanded geographic coverage and value-added services. Other initiatives include Broadband upgrades and construction initiated in two local municipalities in Kwazulu-Natal (uMsinga) and the Eastern Cape (Emalahleni).

6.3. National Policy Frameworks

It has taken less than two decades for the commercial Internet and broadband to go from innovation to indispensable, from fun to fundamental. About 2.5 billion people are connected to the Internet today, a third of the world’s population; there are projected to be about 4 billion users by 2020, or more than half the global population. The year 2020 is significant in South Africa because of the two pillars that drive policy development for government (National Development Plan, 2013 State of the Nation Address by President that pronounced 100 per cent connectivity in South Africa by 2020 as well as the Department’s own 2020 vision document.) Therefore, c ontinuous access to information, commerce, communication, friends and entertainment – among a myriad of other things – has become a daily fact of life for billions and will soon become a reality for billions more. As the Internet and Broadband makes its full weight felt in more high-impact areas such as healthcare, education and government services, access to digital services will only become more essential for everyone in the years to come.

6.3.1. The National Development Plan (NDP )

Government has a number of key policies and these include the long-term plan, the NDP, which aims to eliminate poverty and reduce inequality by 2030. South Africa can realise these goals by drawing on the energies of its people, growing an inclusive economy, building capabilities, enhancing the capacity of the state, and promoting leadership and partnerships throughout society. It envisioned the creation of about 11 million additional jobs by 2030. The NDP identifies the ICT sector as one of the main contributor to job creation by reducing the cost to communicate as well as putting policies and regulations.

6.3.2. The New Growth Path (NGP)

The medium term policy plan, NGP, is the government's key programme to take the country onto a higher growth trajectory. The New Growth Path focuses on creating the conditions for faster growth and employment through government investment, microeconomic reforms that lower the costs of business (cost of communications for poor households and business), competitive and equitable wage structures, and the effective unblocking of constraints to investment in specific sectors. Furthermore, the telecommunications sector has committed to create over 1 million jobs in the sector by 2020 through the DoC’s own vision 2020 programme. The NGP, the Industrial Policy Action Plan (IPAP) and the NDP are complementary policies in the effort to lower costs in the economy, as high costs contribute towards limiting employment growth and increase hardship for poor households.

6.3.3. Medium Term Expenditure Framework

The BRR Report also includes the assessment of performance and is guided by the Medium Term Expenditure Framework (2009-2014).

6.3.4. National Broadband [3] Policy

South Africa Connect , the national broadband policy and the associated strategy and plan, gives expression to South Africa’s vision in the National Development Plan (NDP) of “a seamless information infrastructure by 2030 that will underpin a dynamic and connected vibrant information society and a knowledge economy that is more inclusive, equitable and prosperous”. In this regard, the Department contributes to the development of an efficient, competitive, and responsive economic infrastructure network (outcome 6) by developing ICT policies and legislation as well as overseeing the operation of public entities within the sector.

7. Structure of Programmes in 2013/14 and 2014/15 (if there ARE any changes after the elections )

During the 2013/14 financial year, the Department had five programmes; Programme 1: Administration; Programme 2: International Affairs; Programme 3: Policy, Research and Capacity Development; and Programme 4: Broadcasting and Communications Regulations and Support; as well as Programme 5: ICT Infrastructure Support. The Programmes were supported by the Regulator and six entities SENTECH, National Electronic Media Institute of South Africa,(NEMISA) Universal Access Agency of South Africa (USAASA), South African Broadcasting Corporation (SABC), Independent Communications Authority of South Africa (ICASA); South African Post Office (SAPO) and ZA Domain Name Authority (Zadna).

However, the aforementioned administrative powers and functions of the Departments and entities would not remain as is in the fifth Parliament. On 07 May 2014, upon his re-election into Office, President Jacob Zuma pronounced that the Ministry of Communications will now be divided into two ministries, namely:

  • Ministry of Communications headed by Minister Faith Muthambi; and
  • Ministry of Telecommunications and Postal Services headed by Minister Dr Siyabonga Cwele.

The appointment of the Executive by the President on the 26 of May 2014 (President’s Act No. 135 and No. 136) various administrative and legal steps were taken to give effect to the new Executive portfolios. The National Macro Organisation of the State (NMOS) Steering Committee was established comprising the Director General: Presidency as the Chairperson, Directors General of all affected Departments; the Department of Public Service and Administration, National Treasury, Government Communication Information System and Department of Public works.

The MNOS process is limited to giving effect to the Presidential proclamations regarding the establishment of a new or amended Executive portfolio, the remaining and establishment of new departments, and the transfer of the legislation between Ministers in terms of the Constitution. In this regard the following has happened;

  • The President issued Proclamation No. 43 of 8 July 2014 to amend Schedule 1 of the Public Service Act to establish new and renamed Departments;

  • A second Proclamation was issued Proclamation No. 47 of 15 July 2014 to transfer the administration of legislation and entities from one Minister to Another in terms of section 97 of the Constitution;

  • Proclamation No. 27 of 26 September 2014) was gazetted to transfer powers and functions entrusted to the Minister of Public Enterprises by the Broadband Infraco Act, 2007 to the Minister Telecommunications and Postal Services;

  • The MNOS process was to be concluded by October 2014; and

  • Practically the GCIS became a new Department of Communications with its Vote and the current Department of Communications became the Department of Telecommunications and Postal Services.

In terms of transfer of functions and entities to new Department the following is worth noting:

  • Government Communications and Information System functions;

  • ICASA moves from ‘old’ Department of Communications to New Department of Communications;

  • SABC moves from ‘old’ Department of Communications to new Department of Communications;

  • Broadband Infraco moves from Department of Public Enterprises to new Department of Telecommunications and Postal Services;

  • State Information Technology Agency (SITA) moves from Department of Public Service and Administration to new Department of Telecommunications and Postal Services;

  • USAASA moves from ‘old’ Department of Communications to new Department of Telecommunications and Postal Services;

  • NEMISA moves from ‘old’ Department of Communications to new Department of Telecommunications and Postal Services;

  • Universal Service Fund moves from ‘old’ Department of Communications to new Department of Telecommunications and Postal Services;

  • SENTECH moves from ‘old’ Department of Communications to new Department of Telecommunications and Postal Services; and

  • South African Post Office Limited moves from ‘old’ Department of Communications to new Department of Telecommunications and Postal Services.

8. Evaluation of Response by the Department and Minister of Finance

In tabling the MTBPS in 2013, the Minister of Finance raised the following generic issues and agreed with recommendations made by all Committees’ BRR Reports:

· Accelerated recruitment : Departments must speed up the process of filling vacant positions, especially the recruitment of high-level staff;

· Realistic targets : Departments need to establish feasible targets in their annual performance plans that are aligned to their core objectives and budgets;

· Auditor-General Recommendations : Departments should work more closely with the Auditor-General and abide by its recommendations;

· Performance agreements : All Departments should have staff performance agreements in place;

· Strengthen information and communication technology: Departments need to strengthen their information and communication technology to improve the quality of data on spending and performance;

· Disabled workers : Departments must remain committed to employing people with disabilities;

· Monitoring and evaluation : Departments must establish mechanism for monitoring and evaluating their programmes, with measurable objectives and clear timeframes;

· Better supply chain- Departments should focus on proper supply chain management to combat corruption;

· Abide by previous BRR Reports: Departments should abide by the BRR Report recommendation; and

· Stronger internal audit and financial controls : Internal Audit capacity and risk-management systems should be strengthened in a number of departments to ensure compliance with relevant legislation. Financial controls are needed to reduce irregular or fraudulent spending.

9. 2014/15 Committee Budget Report

On 11 July 2014, the Committee considered the Strategic Plan of the DoC and its public entities for the 2014/15 financial year, and it was satisfied with the Strategic Plans 2014 – 2019 and Annual Performance Plans for 2014 – 2015 of the Department, USAASA,.ZA Domain Name Authority; SAPO, SENTECH, ICASA and INeSI. The Committee, however, recommended that the Minister:

(i) ensure DoC and all its entities fill all funded vacant positions especially those at Senior Management Service (SMS) level;

(ii) ensure the finalisation of new policy directive on Transparency Pricing Policy to an effort to deal with the cost of communications;

(iii) ensure the finalisation of new policy directive National Spectrum Policy that will support the digital dividend;

(iv) ensure that sub-programmes, Research, Market and Economic Analysis are allocated sufficient resources;

(v) submit a detailed report with timelines on how to address negative audit findings by the Auditor-General of South Africa (AGSA) in the past financial years, as well as in both the Budgetary Review and Recommendation Reports (BRRRs) and the fourth Parliament’s Legacy Report;

(vi) should ensure that the mandate and funding of SABC, funding model and budget of SAPO and funding of ICASA are reviewed;

(vii) should ensure that all entities include timeframes against their targets;

(viii) ensure that the Department and its entities have existing Disaster Recovery Plans;

(ix) ensure that USAASA mandate is reviewed to be in line with the modern broadband and data services; and

(x) ensure that INeSI develops new marketing strategy to ensure that more people are aware of the e-skills initiative.

10. Overview and assessment of financial performance

Budget Allocation of the Department of Communications


The Department programmes comprised the following:

Programme 1 - Administration ;

Programme 2 - International Affairs ;

Programme 3 - Policy, Research and Capacity Development ;

Programme 4 - Broadcasting and Communications Regulations ; and

Programme 5 - ICT Infrastructure Support

10.1. Entities of the DoC reporting to the Committee

The Department has six (6) State-Owned Companies (SOCs) and the regulator that report to it under Programme 6 whose aim is to provide strategic leadership to international agreements and monitor the implementation of South Africa’s ICT foreign policy as well prioritising Africa’s development through the:

· Positioning of South Africa’s ICT sector as an economic hub;

· Fulfilment of South Africa’s ICT responsibilities within Multilateral Institutions of governance (Geneva focal points: ITU, UPU, OECD);

· Fulfilment of South Africa’s ICT responsibilities towards the socio-economic development on the African continent; and

· Fulfilment of South Africa’s International ICT responsibilities within Bilateral Institutions of governance.

Name of Entity

Mandate of Entity

Independent Communications Authority of South Africa (ICASA)

To license and regulate electronic communications and broadcasting services and the postal sector.

South African Broadcasting Corporation (SABC)

To supply broadcasting and information services and services that are ancillary thereto, to the general public in the Republic of South Africa and beyond its borders and to achieve the objectives as set out in the Broadcasting Act 4 of 1999.

Sentech

To provide the Electronic Communications and Electronic Communications Network Services as stipulated in the Electronic Communications Act No 36 of 2005.

Ikamva National e-Skills Institute (iNeSI)-launched in February 2014

A merger between the former National Electronic Media Institute of South Africa (NEMISA), Institute for Satellite and Software Applications (ISSA) and the e-Skills Institute. All were entities of the Department which were merged in order to address existing overlaps and avoid duplication and undue competition within the Department. iNeSI is a national collaborator and facilitator to develop e-skills within the country for equitable prosperity and global competitiveness. A multi-stakeholder collaborative network ensures impact.

Universal Service and Access Agency of South Africa (USAASA)

USAASA is established in terms of an Act of Parliament. The existence, functions, duties and mandate of the Agency are governed by sections 80 – 91 of the Electronic Communications Act No 36 of 2005 (“the EC Act”) which came into operation on 19 July 2006. ASAASA promote the goal of universal service access and construct infrastructure in under-serviced areas.

.za Domain Name Authority

The za Domain Name Authority (za.DNA) was established to assume responsibility for the za Domain Name Space. The entity was established in terms of Chapter 10 of the Electronic Communications and Transaction Act(ECTA), 2002

South African Post Office (SAPO)

To provide affordable and accessible postal and financial services to South Africans.

10.1.1. Telkom

In addition to the State-Owned Companies mentioned above , Telkom historically evolved as part of the then Department of Posts and Telecommunications that existed prior to the demise of Apartheid. It is now a listed company on the Johannesburg Stock Exchange (JSE). Government is a majority shareholder. As at 31 March 2011, the shareholding structure at Telkom was :

· Government 39.8 per cent ;

· Public Investment Corporation 10.9 per cent ;

· Telkom Treasury 2.0 per cent ; and

· Free Float 47.3 per cent .

10.2. department’s Financial performance 2013/14

10.2.1. Programme 1: Governance and Administration – R216.4 million

The purpose of this programme is to provide strategic support to the Ministry and overall management of the Department . In the 2013/14 financial year, programme was allocated R216.1 million compared to R196.0 million which was an allocated for the previous financial year. In nominal rand changes, this allocation has increased by R19.1 million or 9.70 per cent, however, in real rand change which takes into account the projected inflation, the amount rather indicates an increase of R7.6 million or 3.88 per cent. This programme’s amount also constitutes about 14 per cent of the overall allocation.

10.2.2. Programme 2: International Affairs – R36.6 million

The purpose of this programme is to ensure alignment between South Africa’s international activities and agreements in the ICT sector and the country’s foreign policy.

It has since become a norm for this programme, as evident from the previous three financial years (2011/12 ; 2012/13) and the current financial year(2013/14), to be allocated the least amount, which constitutes an average of 2 per cent of the total budget. In the current financial year programme 2 was allocated R 36.6 million compared to the previous year’s adjusted allocation of R 47.8 million. Programme 2 budget has declined from R47.8 million in 2012/13 to 36.6 million in 2013/14 financial. This shows a nominal change in programme 2 of about R-11 million.

10.2.3. Programme 3: Policy, Research and Capacity Development – R88.9 million

The programme develops legislation that supports the development of an ICT sector that creates favourable conditions for accelerated and shared growth of the economy. It also develops strategies that increase the uptake and use of ICTs by the majority of the South African population in order to bridge digital divide.

The Policy, Research and Capacity Development programme receives about 4.15 per cent of the total budget. This programme was allocated R88.9 million compared to the previous financial year allocation of R112.9 million. Over the last two financial years this programme’s allocation has steadily declined from R107.9 million in 2011/12; R122.9 million in 2012/13 to R88.9 million in 2013/14 .

10.2.4. Programme 4: This programme known in the outer year as Broadcasting and Communication Regulation Support has been altered to: ICT Enterprise Development and SOE Oversight – R719.1 million

The purpose of this programme is to oversee and manage government’s shareholding interests in the ICT public entities. This programme also facilitates growth and development of Small Micro Medium Enterprises (SMMEs).

In the last financial year, the programme was allocated the most funds which constituted 45 per cent of the total Communications budget. During the 2013/14 financial year it was allocated R1.2 billion compared to the 2014/15 allocation of R719.2 million.

The programme was allocated most funds which constituted 66 per cent of the total Departmental budget. During the 2013/14 financial year, this programme received R1 075.0 billion compared to R1 070.6 billion allocated in 2012/13 financial year. Of the allocation for 2013/14 financial year, R1 062.7 billion was transferred to entities through sub-programme: Public Entity Oversight.

10.2.5. Programme 5: ICT Infrastructure Support – R580. 0 million

The purpose of this programme is to promote investment in robust secure reliable ICT infrastructure that supports the provision of a multiplicity of applications and services .

This programme has received the second largest allocation of R580.9 million of the Department’s total budget’s previous allocation of R227.5 million. However, the amount reflected in the DoC’s Annual Report 2013/14 is R959.3 million, which suggests that there was a major shift of funds or virements during the 2013/14 financial year which affected this programme.

10.3. FINANCIAL ALLOCATION TO Entities of the Department of Communications

The following shows the transfer of funds to entities and agencies reporting to the Minister of Communications and the ICT regulatory authority.

10.3.1. South African Post Office – R0-00 [4]

SAPO is a schedule 2 public entity in terms of the PFMA. It is a government business enterprise established to provide postal and related services to the public, and derives its mandate from the South African Post Office SOC LTD Act (Act 22 of 2011) and the South African Postbank Limited Act (No 9 of 2010). The Postal Services Act (Act 124 of 1998) grants SAPO the exclusive mandate to conduct postal services. This Act further makes provision for the regulation of postal services and the operational functions of the postal company, including Postbank’s universal service obligations and associated financial services.

SAPO’s strategic goals over the medium term are to:

· maintain good corporate governance principles;

· remain customer centric by providing quality services;

· invest in employees by building capacity and implementing transformation programmes;

· attain financial sustainability while delivering on government’s social mandate;

· provide affordable postal and related services that meet the needs of customers;

· remain environmentally conscious by promoting green practices;

· provide a secure, efficient and integrated infrastructure for better responses to its stakeholders; and

· continue the corporatisation of Postbank and the upgrading of its banking system.

In addition, the key focus areas will be on: property evaluation, balance sheet structure, funding solutions, capital adequacy, implementation of turnaround plan, and Postbank Corporatisation.

10.3.2. Sentech – R535 304 million

Sentech Limited is an SOE established in terms of the Sentech Act (Act 63 of 1996) and is listed as a schedule 3B public entity in terms of the PFMA. Its mandate is to provide broadcasting signal distribution for broadcasting licensees, with a particular focus on accelerating the implementation of government ICT interventions within the framework of the NDP and the strategic integrated project for expanding access to communication technology.

Sentech’s strategic goals over the medium term are to:

  • align its strategic roadmap with shareholder programmes to enable the development of open access government participation in the communications industry through infrastructure based investment;
  • continue working to support and realise government’s ICT vision and goals, including innovation in broadcasting and media services and content management distribution;
  • create solutions that enhance the customer experience and are in line with government’s mandate of providing all citizens with access to communication services; and
  • repackage social responsibility interventions and create community social investment ICT programmes that improve lives, create value and are sustainable.

10.3.3. Universal Service and Access Agency of South Africa – R60 090 million and USAF R285 046 million

USAASA was established in terms of section 80 of the Electronic Communications Act (ECA) (2005) as a statutory body and is listed as a schedule 3A public entity in terms of the PFMA (1999). Its sole mandate is to promote universal service and access to electronic communication services, electronic communications network services and broadcasting services.

In order to contribute to the achievement of government priorities and outcomes; USAASA is to pursue the following strategic goals over the medium term:

  • facilitate the rollout of broadband infrastructure in the 250 identified underserviced areas;
  • ensure that all identified needy households are subsidised in the switch to digital broadcasting;
  • ensure the effective and efficient administration of the USAF;
  • enhance the strategic and operational capacity of the agency and maintain good corporate governance;
  • facilitate connectivity in primary health care facilities and government institutions; and
  • facilitate connectivity in all schools, including schools for people with disabilities.

10.3.4. NEMISA/ Ikamva National e-Skills Institute (INeSI) – R 50 746 million

The Broadcasting School of South Africa was established in 1988 as section 21 Company in terms of the Companies Act to deliver requisite skills for the broadcasting industry (radio and Television. In 2001, the school was renamed National Electronic Media Institute of South Africa (NEMISA) and was re-launched in 2006 to include qualifications in animation and graphic design. The entity was established as a non-profit institute in terms of the Companies Act (1973) and is listed as a schedule 3A public entity in terms of PFMA (1999).

Formed as part of government’s initiative in 1998 in response to the White Paper on Broadcasting Policy, the institute’s main purpose is to train previously disadvantaged individuals, particularly women, to equip them with the necessary skills to play significant roles in the constantly changing broadcasting environment.

In contribution to this broader mandate of DoC, NEMISA provides much needed skills training at an advanced level for the broadcasting industry. It is accredited by the Council for Higher Education and offers diploma courses, short courses and internships in three subjects: TV production, radio production and creative multimedia.

In the 2013/14 financial year, the Department merged NEMISA with e-Skills and ISSA into a single entity called Ikamva National e-Skills Institute (iNeSI). The following are the strategic objectives of NEMISA:

· Transforming NEMISA into a technology, research, training and development Centre of Excellence on ICT ;

· Ensuring financial viability and institutional sustainability;

· Having a secure, efficient and effective organisation with key outcome; high performance organisation;

· Improving and aligning stakeholder and strategic partnerships both internally and externally; and

· Expanding the accessibility and reach of NEMISA’s product offerings with key outcomes; a recognised training institution of choice from all over South Africa.

10.3.5. SABC (R127 055 million and R44 673 million and ICASA - R390 661 million

During the 2013/14 financial year, both ICASA and SABC were transferred to GCIS. As a result, the Portfolio Committee on Communications established after the 2014 general election will reflect on the Annual Reports and Financial Statements of the entity and the regulator for 2013/14 in its BRR Report.

10.3.6. za Domain Name Authority – R1.6 million

The za Domain Name Authority (za.DNA) was established to assume responsibility for the za Domain Name Space. The entity was established in terms of Chapter 10 of the Electronic Communications and Transaction Act (ECTA) 2002.

za Domain name was allocated a budget of R1.6 million for the period under review. The transfer payment did not flow due to the entity being self-sustainable.

11. New Entities that joined the Department as a result of the Presidential Proclamation

11.1. State Information Technology Agency - No allocation from Programme 4 of Vote 11: Department of Public Service and Administration. [5]

The government of the Republic of South Africa is the sole shareholder of the State Information Technology Agency SOC Limited (SITA) and the shareholder representative is the Minister. A shareholder performance compact is concluded annually between SITA and its shareholder that details the agreed key performance objectives and indicators for the organisation.

SITA was established in 1999 to consolidate and coordinate the South African Government’s information technology resources to achieve cost savings through economies of scale, increased delivery capabilities and to enhance the interoperability system. SITA is committed to leveraging Information Technology (IT) as a strategic resource for government, managing the IT procurement and delivery process to ensure that government receives value for money, and using IT to support the delivery of e-government services to all

SITA is governed by the founding State Information Technology Agency Act (Act 88 of 1998), as amended by the SITA Act of 2002 (Act 38 of 2002). Section 6 of the Act states the following as the objectives of the agency:

· To improve service delivery through the provision of information technology, information systems and related services in a maintained information system security environment to government departments and public bodies; and

· To promote the efficiency of government departments and public entities through the use of information technology.In addition, the Act separates SITA’s services into mandatory services (services that SITA must provide) and non-mandatory services (services that SITA may provide). The agency’s strategic goals over the medium terms are to:

  • Significantly improve service delivery to its client;
  • Prioritise citizen-focused projects;
  • Attain best practice in people management and leadership;
  • Overhaul internal and external communications to improve transparency, visibility and image; and
  • Build an appropriate organisational structure and team to achieve its strategic objectives.

11.2. Broadband Infraco – R0 00 (No Allocation from Vote 12: Department of Public Enterprises)

Broadband Infraco SOC Limited (Infraco) is a state-owned company (SOC) in the telecommunications sector intended to improve market efficiency in the long-distance connectivity segment by increasing available long-distance network infrastructure and capacity to stimulate private sector development and innovation in telecommunications services and content offerings, as well as to provide long-distance national and international connectivity to previously under-serviced areas. Broadband Infraco is majority owned by government with 74 per cent while the Industrial Development Corporation owns the remaining 26 per cent.

Broadband Infraco was created as a State Owned Company (SOC) in 2007 to provide Information Communication Technology (ICT) infrastructure and broadband capacity. In October 2009, the company obtained an Individual Electronic Communications Network Services (I-ECNS) licence, and launched commercially in November 2010 in order to broaden its customer base to other licenced operators.

By March 2013, Broadband Infraco had deployed and commissioned 13 125 kilometres of network. In 2006/07, a capital transfer of R1.3 billion was made to Broadband Infraco for its establishment and operational costs. This was made up of R627 million in 2006/07, R377 million in 2008/09, R208.5 million in 2009/10, and a final transfer of R138.6 million in 2010/11. There have been no further transfers to the company since 2010/11 and the company has been able to generate cash to complement shareholder funding. The company is also to play a significant role in terms of broadband infrastructure roll out and the objective of achieving universal broadband access by 2020. This will require the company to have access to additional resources to contribute to this goal.

Expenditure Trend of the Department

The spending focus over the medium term will be on the digital terrestrial television awareness campaign, expediting the rollout of infrastructure for digital television by providing a subsidy scheme for Set-Top-Boxes, and accelerating access to ICT by coordinating the participation of the government in specialised ICT agencies. As a result, the former Presidential National Commission programme was merged into the Policy, Research and Capacity Development programme and the ICT Infrastructure Support programme was restructured, leaving only broadband and digital terrestrial television related activities including capital transfer to SENTECH in the programme.

12. 3 rd Quarterly spending trend of THE DEPARTMENT (2009/10 - 2013/14)

Table 1 on: Expenditure Trends for 2011/12 - 2013/14 – Third and Fourth Quarter Expenditure

Department Name

2011/12

2012/13

2013/14

3rd

4 th

3rd

4th

3rd

4th

Communications

45.15%

66.78%

65%

99.8%

83.2%

99.8%

Source: National Treasury (2010/11-2012/13)

Graph 2 below shows: Expenditure Trends for 2009/10-2013/14 – Third Quarter Expenditure

13. Department of cOMMUNICATIONS Adjustments for 2013/14.

Though section 43 of the Public Finance Management Act (No 1. of 1999) makes provision for virements and the shifting of funds from one programme to another, as well as the movement of funds within a programme, there are certain requirements that need to be met by an Accounting Officer. These conditions are as follows:

Section 43(2) of the Public Finance Management Act provides that “the amount of a saving under a main division of a vote that may be utilised in terms of (1) may not exceed 8 per cent of the amount appropriated under that main division.” Moreover section 43(4) states that this section does not authorise the utilisation of a saving if: (i) an amount is specifically and exclusively appropriated for a purpose mentioned under a main division within a vote; (ii) an amount appropriated for transfers to another institutions; and (iii) an amount appropriated for capital expenditure to defray current expenditure.

During the year under review, virements were effected from all programmes on most of the items to defray/augment excess expenditure. This is mainly due to some savings being realised from different items in different programmes. Virement was done in accordance with section 43(1), (2) and (4) of the Public Financial Management Act (PFMA) and was effected as follows:

Virement per programme

Description

Budget

Expenditure

Variance

Shifting

Virement

Available budget

Balance

R`000

R`000

R`000

R`000

R`000

R`000

R`000

DCM: Administration

Compensation of employees

78,114

70,233

7,881

(2,226)

(5,655)

70,233

-

Goods and services

136,581

137,918

(1,341)

1,238

-

137,815

(103)

Interest and rent on Land

-

6

(6)

6

-

6

-

Payment of financial assets

-

555

(555)

555

-

555

-

Provincial and Local Government

-

9

(9)

9

-

9

-

Departmental Agencies and Accounts

249

4

245

4

-

253

249

Public Corporations and Private Enterprises

-

46

(46)

47

-

47

1

Non Profit Institutions

-

300

(300)

300

-

300

-

Households

-

71

(71)

71

-

71

-

Machinery and Equipment

1,122

1,230

(108)

-

1,601

2,723

1,493

Software and Intangible assets

-

72

(72)

-

72

72

-

TOTAL

216,066

210,444

5,622

-

(3,982)

212,084

1,640

DCM: International Affairs and Trade

Compensation of employees

11,944

12,469

(525)

-

525

12,469

-

Goods and services

4,629

7,688

(3,059)

-

3,048

7,677

(11)

Foreign Gov & International organ

16,161

20,902

(4,741)

-

-

16,161

-

Machinery and equipment

537

346

191

-

(180)

357

11

TOTAL

33,271

41,405

(8,134)

-

3,393

36,664

-

DCM: Policy Development

Compensation of employees

59,617

53,388

6,229

(6,229)

-

53,388

-

Goods and services

28,269

33,833

(5,564)

5,238

-

33,507

(326)

Non-profit Institutions

-

99

(99)

99

-

99

-

Households

-

892

(892)

892

-

892

-

Machinery and equipment

1,512

582

930

-

(433)

1,079

497

TOTAL

89,398

88,794

604

-

(433)

88,965

171

DCM: ICT Enterprise development

Compensation of employees

11,723

8,431

3,292

(252)

(3,040)

8,431

-

Goods and services

10,198

11,134

(936)

250

686

11,134

-

Departmental agencies & accounts

788,126

786,543

1,583

-

-

788,126

1,583

Public Corporations & Private

267,120

256,570

10,550

-

-

267,120

10,550

Households

-

2

(2)

2

-

2

-

Machinery and Equipment

1,131

69

1,062

-

(935)

196

127

TOTAL

1,078,298

1,062,749

15,549

-

(3,289)

1,075,009

12,260

DCM: Infrastructure develop

Compensation of employees

33,597

25 , 162

8,435

(8,435)

-

25,162

-

Goods and services

385,323

398,469

(13,146)

8,402

4,436

398,161

(308)

Public corporations and priv ent

535,304

535,304

-

-

-

535,304

-

Households

-

33

(33)

33

-

33

-

Machinery and equipment

860

427

433

-

(125)

735

308

TOTAL

955,084

959,395

(4,311)

-

4,311

959,395

-

13.1. ROLL OVERS

A request was made to National Treasury in terms of applicable guidelines to roll over unspent funds on machinery and equipment. A roll-over request of R1,4 million was submitted mainly to finalise the implementation of Microsoft software licences by the Information Technology (IT) section and to pay for assets acquisitions that were not yet delivered.

14. Summary of key issues contained in report(s) of Finance/ Appropriation Committees

14.1.1. Standing Committee on Appropriations

The Department did not appear before the Standing Committee on Public Accounts (SCOPA) 2013/14 financial year.

14.1.2. Financial and Fiscal Commission Recommendations to the Department

In September 2004, the Department of Basic Education was the first government department to publish a White Paper on e-Education which sought to ensure that

“every South African learner in the general and further education and training band will be ICT capable (that is, use ICTs confidently and creatively to help develop the skills and knowledge they need to achieve personal goals and to be full participants in the global community) by 2013.”

This policy goal is supported by the Information Society and Development (ISAD) Plan of the Department of Communications 2006, which gives e-education as one of three priorities. Paragraph 4.1.1. of its Strategic Plan of the Department states:

The education systems of this country, therefore, have an obligation to support the development of a citizenry that can actively participate in this new (information) society and deliver on public expectations of delivering quality education for economic growth and social development . Two of the main targets for e-education are:

  • All schools connected and using ICT for teaching and learning; and
  • All provinces have budget allocation for e-education.

According to the Financial and Fiscal Commission (FCC), there are 24 861 public schools in South Africa with almost 12.1 million learners. Most of these learners and schools have not yet benefited from the White Paper on School Connectivity. Based on this and in light of the 10-year anniversary of the White Paper on e-education which stipulated that all schools should be connected in 2013. The FCC put different financing and non-financial proposals to all stakeholders.

14.1.3. FCC recommends the following :

· South African government needs to find long-term, sustainable ways of financing e-learning in public ordinary schools;

· The assumptions of the e-education model (physical buildings, desktop and laptop computers) can be amended towards a much less costly infrastructure approach and a stronger e-education approach (tablet-type devices and content);

· Requirement for explicit budget allocations for e-education at national and provincial levels;

· Supporting strategies and funding from institutions such as the DoC, ICASA, telecoms operators; and

· Building public accountability for policy implementation into the education ecosystem.

14.2. 2015/16 MTEF financial allocations of the department

The graph below shows the summary of funding submissions to National Treasury for the 2015/16 MTEF:

15. Overview and assessment of service delivery performance

Overview of the Vote allocation and spending

FINANCIAL YEAr

2012/13

2012/13

2013/14

2013/14

2013/14

201/14

Name of Programme

Final Appropriation

Actual Expnditure

(Over)/Under Expenditure

Final Appropriation

Actual Expenditure

(Over)/Under Expenditure

R'000

R'000

R'000

R'000

R'000

R'000

Administration

196 011

195 959

52

213 083

210 443

1 640

International Affairs

47 866

44 190

3 676

36 664

41 405

(-4741)

Policy, Research and Capacity Development

112 966

113 262

(-296)

88 965

88 794

171

Policy, Research and Capacity Development Support

1 070 604

1 070 223

381

1 075 010

1 062 749

12 261

ICT Infrastructure Support

227 577

227 577

0

959 395

959 395

0

Total

1 655 024

1 651 211

3 813

2 372 117

2 362 786

9 331

15.1. Financial PerfoRmance of THE DEPARTMENT FOR 2012/13

In the past, the Department of Communications emerged as the worst spending Department with the lowest expenditure recorded of only 66.8 per cent (i.e. R1.4 billion against an available budget of R 2.1 billion) spent in the 2010/11 financial year. It has since improved on this.

The spending for the 2012/13 financial year amounted to R1.651 billion which equates to 99.8 per cent, however, there was an under-spending of R3.8 million. The under-spending is mainly on transfer payments to the New Partnership for Africa’s Development (NEPAD) e-Africa Commission. The huge spending is mainly under programme 4, which constitutes 73 per cent of the budget on transfer payments to entities. Programmes 1, 2 and 3 were the culprits in contributing to the under-expenditure. At the same time, Programme 4 (Broadcasting and Communications Regulations and Support) overspent its budget by R296 000. Programme 5 is the best performing programme in terms of financial expenditure, having spent 100 per cent of all its allocation for the year. However, while 2012/13 marked a year with highest expenditure for a financial year to date for the DoC, none of its programmes achieved 100 per cent of its planned targets.

Overall, the DoC achieved a total of 21 targets or 54 per cent of out of the total of 39 planned targets. In addition, some of the reported achieved targets, though few, were achieved in either late April or in May which can be assumed to have not been achieved at all, as the projects’ implemented dates fall outside of the financial year which starts in 1 April and ends on 31 March each financial year.

15.2. Financial PerfoRmance of THE DEPARTMENT FOR 2013/14

During the 2013/14 financial year, DoC received a total budget allocation of R2 billion which excludes the adjustment appropriation. During the adjustment period, the Department received R328.2 million). The final allocation amounts to R2.3 billion, which represents a nominal increase of R717.1 million or 43 per cent from the 2012/13 financial year.

The actual expenditure amounted to R2 .3 billion, representing 99.6 per cent of the allocation spent by the Department, however, in the process the Department has recorded an under-expenditure of R 9.3 million or 0.2 per cent compared to the previous years’ R3.8 million under-expenditure. This shows that in terms of under-expenditure of the allocation, the Department has regressed by over R5 million. The under-expenditure relates to Programmes 1, 3 and 4. It should be noted that Programmes 2: International Affairs overspent its allocation by R4.7 million. The good thing is that Programme 5: Infrastructure Support continues to spend all its allocation, including the previous financial year. However, as was the case in the previous financial year, not a single programme achieved all set targets.

Overall, the DoC achieved a total of 17 targets or 51 per cent of the 28 planned targets. These included partially achieved targets.

16. SUMMARY OF THE 2014/15 FIRST QUARTER BUDGET AND EXPENDITURE OF THE DEPARTMENT

Graph below shows the 2013/14 vs 2014/15

16.1. Overview of the Department’s spending patterns

The Department of Communications has an available appropriation of R1.6 billion for 2014/15 which represents a nominal decrease of R799.4 million or 42 per cent from the 2013/14 financial year. Transfer and subsidies account for R1.1 billion and the department has so far transferred R345.2 million, or 31.8 per cent mainly to departmental agencies and accounts. This means that the Department has an available budget of R508.9 million for operations. Of this, the Department has spent R99.8 million or 19.6 per cent, the majority of which has been used on goods and services and compensation of employees. Whilst the first quarter expenditure for the current year is almost 2 per cent better than the 17.3 per cent spent in the previous financial year, departments are, however, required to spend 25 per cent of this allocation per quarter.

16.1.1. Operational Expenditure per programme 2014/15

The largest element of operational expenditure to the end of quarter 1 in 2014/15 was R 55.7 million under the Administration mainly on goods and services and compensation of employees. The next largest element was R27 million under programme Policy, Research and Capacity Development. The ICT Infrastructure Support programme spent R 7.8 million also mainly on goods and services and compensation of employees.

16.1.2. Expenditure per programme for 2014/15 compared to the 2013/14 financial year

Programme 1: Administration

A total of 55.9 per cent of operational expenditure from April to June was on Administration, representing R 55.7 million. The expenditure under this programme has decreased by R24.2 million or 30.3 per cent when compared with the same period during the last financial year primarily due to lower spending on goods and services.

Programme 2: International Affairs

Operational expenditure at the end of quarter 1 was R5.4 million. Expenditure under this programme has increased by R0. 7 million or 14.2 per cent, when compared with the same period in the last financial year primarily due to additional spending on goods and services mainly on travel and subsistence. The main cost drivers were international travel including associated cost for accommodation and subsistence allowance.

Programme 3: Policy, Research and Capacity Development

Operational expenditure at the end of quarter 1 was R27 million. Expenditure under this programme has increased by R6.4 million or 31.2 per cent, when compared with the same period last in the financial year primarily due to additional spending on goods and services. The main cost drivers were for payments to consultants for project management, particularly the ICT Policy Review project and the study on broadband value chain market analysis. In addition, payments were made for the e-skills summit that was held in 2012 and there was an outstanding amount of R2 million paid in the current financial year (all these services were implemented in the previous financial year but most of the invoices could not be paid in 2013/14 due to budget constraints.

Programme 4: ICT Enterprise Development and SOE Oversight

Operational expenditure at the end of quarter 1 was R3.9 million. Expenditure under this programme cannot be compared to the previous financial year due to the department’s change in structure in 2013/14.

Programme 5: ICT Infrastructure Support

Operational expenditure at the end of quarter 1 was R7.8 million. Expenditure under this programme has decreased by R10.4 million or 57.2 per cent, when compared with the same period in the last financial year primarily due to lower spending on goods and services. The main cost drivers were for payments for legal advice by external consultants to provide legal opinions regarding Broadcasting Digital Migration (BDM) policy amendments in 2013; the payment of SITA for Internet service charges for the upgrade of infrastructure on Microsoft licences, as well as travel expenses.

16.2. Service delivery performance for 2013/14

Key reported achievements recorded in the year under review include the following:

· The Department established the National Broadband Policy and appointed its Council as well as National Broadband Strategy.

· The Department ensured that the Public Broadcasting Policy Review was completed and a position paper was developed and consulted upon

· The migration of all Senior Management Service (SMS) and non-SMS employees into the revised organisational structure;

· The Cabinet approved the National Integrated ICT Policy Review Green Paper;

· The appointment of staff in critical positions such as Deputy Director-General: SOCs Oversight and Enterprises Development; Deputy Director-General: Information Society Development and Research and Deputy Director-General: ICT Infrastructure Support, ensuring the full complement of DDGs;

· The Department improved on the use of consultants - the Department contracted a total of 24 consulting companies/individual consultants, in the process costing just over R10.4 million for an average of over 360 days’ work, compared to the 2012/13 financial years’ total of 124 individual consultants, who worked on 10 projects at an average of 115 months costing the DoC R44.6 million ;

· Targeted e-Skills courseware was developed in line with the National e-Skills Curriculum Framework;

· Technical Amendment of Bills – The ECA, ICASA, SAPO, Postbank which required technical amendments were all made.

· The integrated Ikamva National e-Skills Institute was officially launched;

· The e-Strategy framework was developed in line with the Electronic Communications and Transactions Act (ECT A) and the National Development Plan;

· The applications for a Banking Licence was submitted to the Registrar of Banks and names of Board members have also been submitted to the Reserve Bank for fit and proper assessment.

16.2.1. Key reported challenges recorded in the year under review include the following:

· The financial allocation/ transfer from the Department to NEMISA was done towards the end of the 3 rd Quarter of the financial year.

· The Community Broadcasting Support Strategy was not finalised.

· The Department failed to create a conducive policy environment to ensure that, as part of the DTT, it achieves its planned objectives of getting digital decoders to the market; as well as conducting a comprehensive public awareness campaign.

· No signed performance agreement of the Director-General was submitted to the Public Service Commission.

· Out of a total of 86 Senior Management Service (SMS) employees, only half , 40 signed a performance agreement, which is the basis for bonus rewards against individual and collective achievement of targets against the overall Department strategic objectives.

· The Department awarded performance rewards to 177 employees out of the total staff establishment of 333 at an average cost per employee of R16.998 .

· The Department put four employees on precautionary suspension which exceeded 30 days with an average of 150 days spent by an employee costing the Department R1.07 million in the process,

· The 2013/14 financial year also marked the highest expenditure to date (99.6 per cent) for the DoC, however, none of the five programmes achieved 100 per cent of all their planned targets.

· Overall, the DoC achieved many of its targets, however, there are still issues with editing and proof reading the Annual Report for 2013/14. There appears to be minimal errors. For instance, pages 39, 44, 62, 76, 80, 86, etc contain different font sizes to other pages.

· All achieved targets are not dated and because in the past the Department had indicated targets achieved in either late April or in May, it can be assumed that they were not finalised at all. It is imperative to indicate timeframes of the achieved targets as the projects implemented dates fall outside of the 2013/2014 financial year.

· The vacancy rate still stands at 19.4 percent in the current financial year compared to 37.1 per cent in the outer year, however, the vacancy rate is still too high when taking into consideration that the Public Service and Administration standard is below 8 per cent.

· Under the International relations programme the Committee observed that despite the cut in budget allocation in the programme, the department did not amend and reprioritise its international relations programme, hence the unauthorised expenditure.

· In the 2010/11 financial year, Cabinet issued a directive to all departments to have 50 per cent gender representivity at Senior Management Service (SMS) level. The DoC has neither achieved this target nor has it achieved the 2.2 per cent representation of people with disabilities. Only 1.7 per cent of the total staff establishment comprises people with disabilities and 37. 7 per cent are females at SMS level.

· During the 2011/12 financial year, the DoC appointed technical advisors for a feasibility study on 112 Emergency Call Centre projects and the tender was advertised in March 2012. The project was meant to be implemented as soon as possible in 2012/13 but it was cancelled altogether in the 2013/14 financial year.

· The implications of the non-establishment of the 112 Emergency Centre is a major contravention of Chapter 13 of the Electronic Communications Act, Act No. 36 of 2005), based on the following reasons: (a) section 72-79 of the Electronic Communications Act. Section 72 of the ECA instructs the Director-General of the Department to establish and manage a museum that depicts the evolution and history of the telecommunications and information communication technology sector in South Africa; and (b) section 76 calls for the establishment of the public emergency communication centres and the protection of the national public emergency number which has not happened. This could have been part of South Africa’s 20 Years celebration activities of democracy.

· Non-financial audit outcomes and steps taken to address adverse audit findings, if any.

16.3. Report of the AGSA audit outcomes of the Department 2013/14

Table 3: Irregular, fruitless, wasteful and unauthorised expenditure

Year Incurred

Irregular Expenditure R’000

Fruitless and wasteful expenditure R’000

2011/12

R 116 701

R 11 553

2012/13

R 44 910

R 1 075

2013/14

R 73 55

R 774

Source: DoC (2010/11-2013/14)

The DoC obtained a qualified report for the 2009/10 financial year, and improved to an unqualified opinion with findings in last four consecutive financial years, (2010/11, 2011/12, 2012/13 and 2013/14). However, there is still room for much improvement in order for the Department to get a clean audit.

While the DoC has consistently acquired an unqualified audit opinion during the 2013/14 financial year, it incurred R73 550 in irregular expenditure. This is a major improvement from the amount incurred in the 2012/13) financial year, namely R5. 2 million.

On fruitless and wasteful expenditure, during the 2013/14 financial year the DoC incurred R774 000 compared to the previous financial year amounting to R1 075 million.

In addition to irregular, fruitless and wasteful expenditure, the Auditor-General has also emphasised other recurring matters in his reports on the DoC. These include the following:

· Annual financial statements, performance and annual reports - The financial statements submitted for auditing were not prepared in accordance with the prescribed financial reporting framework as required by the section 40(1)(a) and (b) of the Public Finance Management Act.

· Human Resource management and compensation - Not all senior managers had signed performance agreements for the year under review as required by Public Service Regulation 4111/8.1.

· Expenditure management - Contractual obligations and money owed by the Department were not settled within 30 days or within the agreed period, as required by section 38(1)(f) of the Public Finance Management Act.

· Leadership - Inadequate leadership capacity prevented consistent oversight over compliance with laws and regulations and accurate financial reporting.

· Financial and performance management - lack of adequate controls over daily and monthly processing of and reconciling of transaction; and

· Investigations - An investigation into the Media Corner contract was initiated by way of a proclamation issued by the President during the year 2014. The investigation was still not finalised at year end.

Similarly, the AGSA found the following in the Department in the previous financial year which also exist in the current financial year:

· Non-compliance with legislatio n - The DoC consistently failed to adhere to the requirements of the PFMA, Treasury Regulations and Public Service Regulations.

· Irregular expenditure has been the result of the DoC’s failure to follow proper procurement procedures (payments to suppliers were not made within 30 days as required by Treasury Regulation). This was also reported in the 2010/11, 2011/12 and 2012/13 Annual Reports.

· Funded vacant positions were not filled within 12 months which was in contravention of Public Service Regulation 1/VII/C.1A.2. This was also reported both in the 2011/12 and 2012/13 Annual Reports.

· Leadership - The accounting officer did not always exercise an oversight responsibility with regard to putting proper processes in place to ensure compliance with laws and regulations.

· Financial and Performance Management - Management did not adequately review and monitor compliance with applicable laws and regulations to prevent non-compliance.

16.4. Service delivery performance for 2014/15

During July 2013, the Committee conducted public hearings on the Cost to Communicate in Gauteng, Eastern Cape and KwaZulu-Natal.

16.4.1. Cost to communicate programme

The high cost of calls amongst other factors has been attributed to the high interconnection rates that operators charge to terminate calls on mobile and fixed line networks. ICASA acknowledges reductions in the mobile and fixed line telephony retail prices as a result of the introduction of Mobile Termination Rates glide path. However, the Authority is still concerned that the costs of communication are still high, and competition is this market is still inadequate. Recent regulatory intervention in reducing the cost to communicate in South Africa include the collection and analyses of information and communications technology indicators from licences regarding the provision of communication products and services, including broadband, voice and data.

ICASA also announced the launch of its Cost to Communicate Programme on 7 June 2013, promising an extensive review of the South African telecommunications sector. The Programme specifies five projects expected to be completed by June 2015 and serves as a formal notice from the regulator of its intention to complete these projects:

  • A broadband value chain analysis;
  • Review of the market for call termination services;
  • Local Loop Unbundling (LLU);
  • ICT indicators; and
  • Finalisation of the review of the market for wholesale transmission services for Digital Terrestrial Television (DTT).

ICASA stated boldly that it intends to address information disparities between itself and the industry so as to improve planning for policy and regulation. This information can also be used to benchmark South Africa against its peers in respect of communication cost and quality and is required to be submitted to the ITU. Aside from these specific projects ICASA also wishes to:

  • Stimulate public debate around the cost to communicate in South Africa;
  • Establish regulatory needs to address the cost to communicate in South Africa; and
  • Stimulate enhanced competition in the telecommunications sector which should result in:
    • Increased consumer choice;
    • Enhanced ability to switch suppliers;
    • Increased transparency in product pricing offers (which currently are regarded as being generally opaque); and
    • Fair and reasonable wholesale and retail.

The notice provides a basis for the statement that the current cost to communicate in South Africa is too high by citing reports from the World Economic Forum, Research ICT Africa and others which show the high cost of mobile tariffs in South Africa relative to its regional, continental and global peers. In the next financial year, ICASA will conduct a study on the South African broadband value chain to determine what causes high prices, and then develop regulations to address problem areas.

16.4.2. Other Sources of Information

16.4.2.1. Industrial Policy Action Plan (IPAP II)

Set-Top Boxes and Digital Televisions (TVs)

Although the Conformance Lab has been completed and is ready for operations, the Department did not implement Public Awareness programmes to reach 75 per cent of the population as well as the planned target of allocating 1.5 million subsidised STBs to subsidy scheme recipients.

Under the competition policy of IPAP 2013–2015, Telkom was fined R449 million for market abuse.

16.3. Findings of the BRR Report by the Previous Committee

The Committee analyzed the Department’s 2013-2015 Strategic Plan; the 2012/13 Annual Report of the Department of Communications and its entities; the 2012/13 Estimates of National Expenditure Reports; the Report of the Standing Committee on Accounts; the Industrial Policy Action Plan, and Committee oversight reports.

The Committee noted the following:

  • While the 2012/13 financial year marked a year with the highest expenditure for a financial year to date for the Department, none of the six programmes achieved 100 per cent of their planned targets.
  • The vacancy rate still was at 37.1 per cent.
  • The Department has not achieved the 50 per cent gender representation at Senior Management Service (SMS) and that the Department and its entities have not achieved the 2.2 per cent target of representation of people with disabilities.
  • During the 2011/12 financial year, the Department appointed technical advisors for a feasibility study on the 112 Emergency Call Centre project. The tender was advertised in March 2012, so that the project could be implemented as soon as possible in 2012/13. However, the project is yet to be implemented.
  • The Department and its entities were not adequately following supply chain management processes when procuring goods and services as required by the Treasury Regulations.
  • In spite of the Department and its entities being unable to achieve its set targets for the year under review, performance bonuses were nonetheless paid to senior managers and staff.

16. 4 LEGACY REPORT: Recommendations BY THE PREVIOUS COMMITTEEE ON ISSUES THAT REQUIRE FURTHER FOLLOW UP BY THE NEW committee

· Respond to 2012/13 BRRR recommendations;

· Status report following the President’s signed proclamation authorising the SIU to investigate certain matters relating to the affairs of the Department;

· Status report on SAPO SIU report;

· Status report on Cost to Communicate programme of ICASA;

· Status report on the legal litigation by the dominant operators (MTN and Vodacom) regarding the recently published Call Termination Rates (CTRs);

· Status report on price transparency issues;

· A report on the development of a comprehensive plan on ICT and disabilities, in addition to the scope of the National Universal Access and Service strategy;

· Status report on the Regulatory Impact Assessment (RIA) framework to the Committee;

· Status report on DTT State of Readiness;

  • ensure that corrective and remedial measures are taken against the accounting officers and other senior managers for failing to comply with the relevant sections of the PFMA and Treasury Regulations;
  • set realistic achievable targets for the Department in line with SMART principle;

· Status report on Spectrum Audit;

· Status report on cyber security initiatives by the Department;

· Status Report on ICASA consumer advisory panel;

· Status report on USAASA investigations;

· Status report on issues of people with disabilities in terms of DTT;

· Status report on launch of DTT in rural areas;

· Status report on Auditor-General recommendations;

· Status report on role of Department as identified in the Cabinet 2007 Free and Open Source Software (FOSS) Policy; and

· Status report on National Treasury, the DoC and SAPO negations on the issue of the government subsidy for the entity.

17. Concluding comments on service delivery performance 2013/14

During the period under review (2013/14), the Department indicated that it will focus on implementing the consumer and education awareness campaign, and monitoring the DTT infrastructure roll-out-84 per cent population coverage both of the later has achieved by SENTECH. Some of the achievements recorded by the Department are achievements that were implemented by entities, and it makes double reporting on the same target by the Department and its entities.

The other important issue is that while it is imperative for the Department to facilitate workshops at all levels, including international level, this is hardly a full achievement of targets. The fully achieved target is the implementation of the recommendation/resolutions of those meeting in all spheres of government and society.

The targets by the Department which relate to the implementation of service delivery at provinces must be specific. For instance, the Department lists a target of celebrating World Telecommunication and Information Society Day in KwaZulu-Natal. It not clear whether this was done in a certain city, township or rural area or the entire province or at least spend days in different parts of the province.

S ervice industries play a crucial role in national economic development. Telecommunications, transportation, financial services and so forth are not only important in their own right, but are also important inputs into other industries. Because service outputs feed into other industries, economies with highly priced and inefficient service sectors will find their competitiveness in extractive and manufacturing industries affected as well. A key performance indicator for telecommunications in South Africa is the relative price structure of services, in an international context. Relative prices affect the competitiveness of the South African telecoms industry in export markets. High telecommunications prices have a negative effect on economic activity.

The limitations of mobile-broadband networks in terms of capacity and speed need to be taken into consideration, and fixed-broadband technologies, in particular fibre-optic networks, need to be deployed in order to build reliable backbone infrastructure and to cater for data-intensive users and urban areas where internet users are concentrated. Governments need to review the progress made in terms of privatising and liberalisation all the building blocks of broadband internet access, particularly in countries where prices are high and penetration rates remain low like South Africa.

The successful development of e-commerce and e-government requires that business and government have efficient telecoms links with consumers and citizens. If the majority of the population is either not connected or cannot afford to use the services, e-commerce and e-government initiatives will falter, economic growth will be restricted, and South Africa’s Information Society will be confined to an elite minority. If people are not connected, they cannot participate.

In January 2010, Government, together with the other African Union heads of State, declared “the Information and Technology sector as a top priority and adopted a declaration that a called on all African countries to prioritise ICTs as a vehicle for driving Africa’s Development Agenda. Based on the performance of the Department over the period under review, which encompassed a slow pace in implementing DTT, in many areas the targets as contained in the Department’s Strategic Plan were also successfully met.

Parliament’s oversight over the Departments is critical to ensure that departments spend according to their strategic plans and cash flow projections. It should ensure that departments and State–owned enterprises have plans in place for spending the funds before the financial year commences, and proceed to monitor implementation of these budgets and programmes to ensure that departments adhere to their strategic and expenditure plans.

18. COMMITTEES Observations and response 2013/14

Under Programme 2: International Affairs, the Committee observed that despite the cut in budget allocation in the programme, the department did not amend and reprioritise its international relations programme, hence the unauthorised expenditure.;

Signing of Performance Agreements by SMS members as on 31 May 2013

Only 40 of the 86 SMS had signed the performance agreement for the year under review. No valid reasons were received for late or non-submission of performance agreements. HR only received, recorded and filed the Pas. However, HR issued reminder circulars and letters to both supervisors and employees as well as respective DDGs.

Performance Rewards

To encourage good performance, the department has granted the following performance rewards during the year under review. The information is presented in terms of race, gender, disability, salary bands and critical occupations (see definition in notes below).

Table 3.8.1 Performance Rewards by race, gender and disability for the period 1 April 2013 to 31 March 2014 (PLEASE NOTE: Performance Cycle was 2012/2013 but paid in 2013/2014)

Race and Gender

No. of Beneficiaries

No. of Employees

% of total within a group

Cost

(R ‘000)

Average cost per employee

African

Male

47

124

37.9

751

15 972

Female

86

150

57.3

1 459

16 969

Asia

Male

1

7

14.3

17

16 987

Female

3

5

60

57

18 911

Coloured

Male

2

5

40

14

6 774

Female

11

14

78.6

186

16 942

White

Male

7

13

53.8

170

24 219

Female

12

13

92.3

215

17 956

Employees with disability

1

2

50

21

20 949

19. Summary of reporting requests

The Committee requested additional matters from the Department to report on:

Reporting matter

Action required

Timeframe

Turnaround strategy to address AG recommendations

Written plan from the Department, NEMISA, Broadband Infraco, SITA

Within 90 days of the adoption of this report

Development of a draft funding strategy

Written plan from Broadband Infraco, IKamva

Within 90 days of the adoption of this report

Strategy to strengthen supply chain and procurement issues

Written plan from Department Broadband Infraco, IKamva

Within 90 days of the adoption of this report

20. Overview of key developments in the organisational and service delivery environments of the Department for the 2013/14 and 2014/15 MTEF cycles

The organisational restructuring exercise was introduced in the 2010/11 financial year. According to the DoC, ‘the approval of the new organisational structure will strengthen [the] capacity to ensure alignment between it and SOEs and the structure establishes a dedicated branch that will be responsible for oversight of SOEs. Initially the Department planned to ‘finalise[d] organisational review process’ during the 2012/13 financial year but it has now completed the migration of the structure during the 2013/14 financial year.

21. Summary of previous key financial and performance recommendations of Committee

21.1. 2013/14 BRRR recommendations [6]

Achievements of Entities

In respect of Sentech the Committee noted the following:

· Sentech had received a clean audit for the 2013/14 financial year. The company is liquid and operating as a going concern and has a healthy balance sheet. The Committee praised this achievement as a clean audit has been received for the second year in a row.

· Sentech has achieved 90.9% of its objectives, which represents 10 out of 11 targets.

· The roll-out of Digital Terrestrial Television (DTT) is the only key performance indicator not achieved. However, certain targets have been set by National Treasury for the next financial year.

· A key highlight for Sentech was that the DTT network population coverage increased to 82.13% after the construction of 46 sites.

· The number of new Direct-To-Home Satellite customers and Multi-channel Content Distribution Platform users exceeded the target by 60%.

· Customer satisfaction improved and network availability exceeded its annual target.

· The vacancy level is too high and needs to be addressed. Sentech needs to address its employment equity numbers as it does not have enough females employed at a professional level.

  • Broadband Infraco is the only entity that has a viable structured strategy for SMMEs development; diversification of the sector in terms of suppliers as well as an intensive internship programme.
  • Sentech must work towards diversifying the sector through a strategy that seeks to benefit the ICT SMMEs.

In respect of .ZA Domain Name Authority the Committee noted the following:

· An unqualified audit was received by .ZA Domain Name for the 2013/2014 financial year. The entity has received clean audits before this financial year.

· The Committee noted that the entity is doing well but a closer work relationship and support needs to be created.

· The Department and .ZA Domain must work together to develop a strategy that mitigates against the risks associated with inadequate financing of the entity.

In respect of SITA the Committee noted the following:

· SITA has received an unqualified audit opinion for the 2013/2014 financial year. Irregular expenditure has been reduced from R120 million to R28 million.

· SITA has 39 performance targets. Ten of these targets were achieved, ten were partially achieved and eighteen were not achieved.

· The Board must expedite the process of appointing the CEO and other critical positions in order to bring about leadership stability in the institution.

· SITA is a defendant in various lawsuits that are being opposed. The outcome of these lawsuits cannot be determined and no provision for liability has been made.

· According to the Auditor-General of South Africa (AGSA), several instances of non-compliance with laws and regulations pertaining to procurement processes, contract management, adherence to internal controls, financial and performance management, expenditure management and various investigations have been identified. The report of AGSA was of concern to the Committee.

· Effective steps to prevent irregular expenditure as per the requirements of the PFMA were not taken. The Committee strongly cautioned that the issue of non-compliance of entities in respect of the laws that govern it will not be tolerated.

· Internal control deficiencies were identified.

· Concern was expressed about the lack of SMME support and poor service delivery of SITA.

· Performance contracts should be addressed and accountability and clarity of responsibilities of staff in respect thereof should be ensured.

In respect of NEMISA the Committee noted the following;

· The report of AGSA on the financial statements of NEMISA presents fairly in all material aspects.

· The appointment of the CEO is currently underway.

· NEMISA has a budget of R37 million and works in close collaboration with the Department and the private sector. The private sector contributed towards the largest amount of the budget in the amount of R 32 million.

· NEMISA has experienced challenges in respect of the integration of three institutes, namely Ikamva, the e-Skills Institute and the Institute of Space and Software Applications (ISSA).

· NEMISA was advised to go back to the drawing board and interact with all stakeholders, including the Department, to establish consensus around its mandate.

· The Committee resolved to have further interaction with NEMISA in its 2015 programme to determine the status of the merger.

In respect of Broadband Infraco the Committee noted the following:

· The legislative mandate of Broadband Infraco as set out in the Broadband Infraco Act (Act 33 of 2007) has at its core the main objectives to expand the availability and affordability of access to electronic communications.

· Broadband Infraco boasts an open access network and supports public and private investments in the telecommunications sector. The public-private partnerships were regarded in a positive light by the Committee.

· The company engages and collaborates with various stakeholders such as SITA, USAASA, Eskom, etc in line with both the National Development Plan (NDP) and the Broadband Policy.

· In terms of digital development the broadband roll-out is aligned to other departmental programmes and various provinces have been engaged in this regard. Broadband Infraco requires urgent support in its engagement with the provinces.

· The challenge experienced by Broadband Infraco in respect of receiving an Electronic Communications Service (ECS) licence needs to urgently be addressed with the Minister in order to prevent the entity from losing further revenue.

· A further challenge of joining the ICT Review Panel should also be addressed by the Department.

· The use of credit cards by the company is contrary to National Treasury regulations and will be done away with.

· The role of Broadband Infraco needs to be defined and better co-operation with the Department is required.

In respect of USAASA and USAF the Committee noted the following:

With regard to USAASA, both the Chairperson of the Board and the Chief Executive of the Universal Service and Access Agency of South Africa (USAASA) were not available and did not formally communicate their intentions of not presenting before Parliament in time. As a result, both USAASA and the Universal Service Fund (USAF) are not included in the current report for the year under review. Notwithstanding this, USAASA and USAF tabled their 2013/14 Annual Reports and Annual Performance Plans on time and the Committee noted the following:

  • USAASA did not achieve the 6 per cent (3000 000) target of installations of Set-Top-Boxes in approved households;
  • USAASA developed the Fund Manual to comply with the USAF requirements;
  • There is a 30 per cent under achievement on planned targets;
  • There is an under spending of R240 million due to the DTT project;
  • USAF received an unqualified audit opinion with no matters of emphasis;
  • The Universal Service and Access Strategy was published;
  • Most of the planned targets for risk, human resources and safety;
  • All targets were achieved under Legal and Information Technology;
  • All targets were achieved under Supply Chain Management and Finance ;
  • Overall, 70 per cent of the targets were achieved; and
  • USAASA received an unqualified audit opinion with matters of emphasis.

In respect of SAPO the Committee noted the following:

Whilst the Committee did not engage with SAPO as per the submission date of Annual Reports and Financial Statement for 2013/14 in accordance to the PFMA, however, Committee is concern that SAPO must expedite the implementation of the turnaround strategy to ensure long-term financial and non-financial sustainability in order service the general public.

22. BRRR Recommendations for 2013/14 BY THE COMMITTEE

The Committee recommends that the Minister of Telecommunications and Postal Services should:

  • Ensure that the Department and all entities respond to the previous and the 2013/14 BRR Reports;

  • Ensure that the Department and its entities review outdated legislation;

  • Ensure that transfer from the Department to entities are not done towards the end of the 3 rd Quarter of the financial year;

  • Ensure that Broadband Infraco and all entities receive adequate financial injections in order to sustain and develop themselves;

  • Ensure SMME support and issues of ICT transformation are clear;

  • Ensure that all SMS and all staff members have signed performance agreements and are assessed quarterly before the payment of bonuses;

  • ensure that the Department and its entities have existing Disaster Recovery Plans;

  • ensure that the establishment of broadband access points in major cities and under-serviced areas from the current number which is 5 to 18 in the 2014/15 financial year;

  • Ensure that the Department and all entities have realistic targets; and

  • Ensure that the Department together with its entities fully implement the DTT Public Awareness Campaign.

Report to be considered.

Glossary of Terms

AENE

Adjusted Estimate of National Expenditure

AFCON

African Cup of Nations

AGSA

Auditor-General of South Africa

APP

Annual Performance Plan

BDM

Digital Migration Policy

BRRR

Budget Review and Recommendations Report

CAPEX

Capital Expenditure

CTRs

Call Termination Rates

CIO

Chief Information Officer

DBE

Department of Basic Education

DoC

Department of Communications

DPSA

Department of Public Service and Administration

DTI

Department of Trade and Industry

DTT

Digital Terrestrial Television

GCIS

Government Communication and Information System

GDP

Gross Domestic Product

ICASA

Independent Communications Authority of South Africa

ICT

Information Communication Technology

ISSA

Institute for Software and Satellite Applications

MIS

Management Information Systems

MTRs

Mobile Termination Rates

MTSF

Medium Term Strategy Framework

NDP

National Development Plan

NEMISA

National Electronic Media Institute of South Africa

NEPAD

New Partnership for Africa’s Development e-Africa Commission

NGP

National Growth Path

OECD

Organisation for Economic Co-operation and Development

OFCOM

Office of Communication

PCC on TPS

Portfolio Committee on Telecommunications and Postal Services

PCC

Portfolio Committee on Communications

PFMA

Public Finance Management Act

PPR

Preferential Procurement Policy

SABC

South African Broadcasting Corporation

SAPO

South African Post Office

SCM

Supply Chain Management

SCOA

Standing Committee on Appropriations

SOCs

State Owned Companies

SoNA

State-of-the-Nation Address

STB

Set Top Box

The Institute

NEMISA

TR

Treasury Regulations

USAASA

Universal Service and Access Agency of South Africa

USAF

Universal Service and Access Fund

USO

Universal Service Obligations

.zaDNA

.zaDNA

ITU

International Telecommunications Union

UNESCO

United Nations Educational, Scientific and Cultural Organisation



[1] After 2014 May General Elections, President Jacob Zuma published a proclamation dissolving the Department of Communications and transferring its administrative powers and function to a newly-created/ established Department of Telecommunications and Postal Services( Government Gazzette No. 2889). For the purposes of continuity, this BRR Report will reflect the DoC as the lead department to the new DTPS and refer to all the new entities as instructed by the Presidential Proclamation.

[4] In 2013/14 financial year and in the outer financial years, government decided not to fund the Universal Service Obligation(allocation) to SAPO

[5] SITA is registered a schedule 3A Company, therefore the Agency does not receive any funding from government and is self-sustaining.

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