ATC151130: Report of the Select Committee on Finance on the Limpopo Oversight visit, dated 14 October 2015

NCOP Finance

REPORT OF THE SELECT COMMITTEE ON FINANCE ON THE LIMPOPO OVERSIGHT VISIT, DATED 14 OCTOBER 2015

1.             Introduction

The Select Committee on Finance conducted an oversight visit to the Limpopo Province from 9th to 10th September 2015. The purpose of the oversight visit was to assess efficiency, effectiveness and value for money in services delivered by the Limpopo Province, in line with the fiscal oversight role of the Committee.

Conducting oversight forms part of the Committee’s strategic goal of ensuring effective oversight over government finances to ensure responsiveness to the needs of the people of South Africa. Two of the strategic objectives of the Committee aim at strengthening oversight over finances of provincial departments, their entities and municipalities over a five year period and influencing budget policy decisions through effective implementation of the Money Bills Act, particularly reporting on macroeconomic, fiscal policy position as well as tax and revenue issues.

The Committee visited Mankweng Tertiary Hospital Mini Depot; the Department of Public Works, Roads and Infrastructure; the Learner Teacher Support Material (LTSM) warehouse in Seshego to measure progress made after the Section 100 intervention. The Committee also visited Limpopo Economic Development Agency (LEDA) as well as the Lebowakgomo abattoir and Ga-Maja donga rehabilitation projects. 

2.         Provincial Department of Health

2.1     Mankweng Tertiary Hospital Mini Depot

The Mankweng Tertiary Hospital provide pharmaceutical services to clients referred by 36 hospitals from 5 districts, with the Out Patient Department (OPD) headcount ranging between 10 500 to 13 000 per month. It also provides pharmaceutical services to 21 outlets within the hospital.

The hospital provides pharmaceutical support to 21 clinics, 4 mobile clinics and the University of Limpopo through supplying chronic medications, Antiretroviral (ARV’s), home based care items and general stock management such as ordering and supplying short supplies and managing stock movement. It also supports Emergency Medical Services (EMS) with stock items needed.

It was reported that the directive to implement Direct Deliveries (DDV) was received in November 2013 from the Minister of Health, the MEC of Health and the Head of Department. The objective was to improve the availability of pharmaceutical supplies which enabled the hospital to create the Mini Depot. Through the implementation of the DDV, the hospital purchase stocks directly from suppliers. 

The following sections were established for the mini depot:

• Dispensary: with the following 4 subsections:
  • Outpatient;
  • ARV pharmacy;
  • Ward dispensary; and
  • Ophthalmic.
• Warehouse: with the following 5 subsections:
  • Contract management;
  • Procurement;
  • Stock control services;
  • Receiving; and
  • Distribution.

2.1.1 Achievements

• The mini depot has employed registered staff to take care of the medicine that amounts to R12 million;
• There are Closed-Circuit Televisions (CCTV) that are installed in the mini depot for the purposes of safeguarding the medicines;
• There are numerous governance structure committees that had been established to address most of the challenges that are experienced by the mini depot;
• The staff at the mini depot had been able to reduce the value of the expired stock from R98.446 million to R 3.539 million; and
• The availability of stock had improved, medicines and surgical sundries range between 92 to 94.7 per cent while ARV‘s availability is 100 per cent.

2.1.2 Challenges

• The organisational structure of the Mini Depot is not fully capacitated as most posts are not filled, with some of those being critical posts; and
• The hospital is experiencing a challenge of attending to patients that are not residing within their area of jurisdiction, those from the Zion Christian Church.

2.2        Provincial Department of Public Works, Roads and Infrastructure  

2.2.1 PROMAN

The Limpopo Province in fulfilling the mandate of the section 100 (1) (a) of the Constitution of the Republic of South Africa, Act No. 106 of 1996, for the 5 Provincial Departments that were placed under administration, implemented the Integrated Database Management System (IDMS) and PROMAN. PROMAN is utilised to prepare portfolio of evidence for the Auditor General.

The system is a web based programme and project management system, which adheres to IDMS gates through milestones. It transforms and manages basic programmes and project management data into management information. A three year contract was awarded to Microzone Information Technology Specialists with a cost of R25 million, which is now in a second year running.

PROMAN is a locally developed proudly South African product. The system was developed for the Free State Roads Directorate in 2001. It was further developed and improved by the Northern Cape Roads Directorate from 2003 to 2010. The system is now fully functional in the Northern Cape Roads and Public Works Directorates.

2.2.2 Achievements

·          All the immovable assets of the Province are now being kept on the system and can be accounted for and the Province was  working jointly with Ernest and Young;

·          A total of 200 interns were being trained on PROMAN, with 27 professionals and 70 officials from the department involved in the project;

·         On-line (secure web based system), access anywhere any time;

·         Strict control and setup of user permissions;

·         Secured backup and fall back servers;

·         A single source of data storage provides improved transparency needed to make important financial and management decisions;

·         Improves communication between project role-players and stakeholders;

·         Centralised online document management system;

·         User activity and audit trails keep track of all transactions; and

·         Centralised online repository for all facilities, assets and projects.

2.2.3 Challenges

·         The Province has not done well in terms of training enough departmental officials in order to be able to manage the PROMAN system as the contract with Microzone Information Technology Specialists will come to an end.

2.3     Provincial Department of Education

2.3.1 Learner Teacher Support Material

The Limpopo Provincial Department of Education, in fulfilling the mandate of the section 100 (1) (a) of the Constitution of the Republic of South Africa, Act No. 106 of 1996, secured a LTSM warehouse in Seshego in order to address the challenges it faced during the intervention.

The Department of Basic Education provided the Limpopo Department of Education with Afrikaans text-books. These books were not being used and had been in transit to the Free State and Northern Cape Provinces for an estimated amount of R7.5 million.

In preparation for the 2016 academic year procurement, the Limpopo Department of Education had consolidated data for the scholarship stationery, grade 11 literature/set work and grade R big books. The requisitions had been prepared for and orders had been generated. In relation to textbook top-ups, schools requests had been received and capturing was at 90 per cent. The issuing of orders will take into consideration the available stock in the warehouse and will include a per cent level to address unforeseen circumstances.

2.3.2 Achievements

• The Limpopo Department of Education had been able to secure the LTSM warehouse;
• There was a security company that had been sourced to monitor and guard the premises of the warehouse 24 hours a day; and
• The Department of Basic Education will print and distribute all workbooks to all the public schools in Limpopo for the 2016 academic year.

2.3.3 Challenges

• The Limpopo Department of Education was provided with Afrikaans text-books by the Department of Basic Education which could not be used by the Province;
• The overall planning for the project was poor in terms of allocation of human resources;
• The communication between the Limpopo Department of Education and the South African Post Office was very poor;
• The Service Level Agreement (SLA) discussion should have been started six month prior to the commencement of the project to avert delays in the commencement of the project;
• The Limpopo Department of Education replenishment and demand forecasting still posed challenges and needed corrective attention further with immediate effect;
• The price per book invoice amount (billing) status still remained a challenge; and
• There were no sufficient tools of trade in the LTSM warehouse.

2.4        Limpopo Economic Development Agency  

LEDA is one of the three implementing agencies for the Limpopo Economic Development, Environment and Tourism (LEDET) Department.  It was established in terms of the Limpopo Development Corporation Act (Act 5 of 1994, as amended). It culminated from the amalgamation of four historical agencies, namely: Trade and Investment Limpopo (TIL), the Limpopo Business Support Agency (LIBSA), the Limpopo Agricultural Development Corporation (LADC) and the Limpopo Economic Development Enterprise (LimDev).

As a provincial agency with LEDET acting as shareholder on behalf of the Province, LEDA is listed as a Schedule 3D of the Public Finance Management Act (Act 1 of 1999 as amended) (PFMA). In terms of this listing, LEDA is a provincial government business enterprise. It was established to address some of the challenges identified in the Limpopo Employment Growth and Development Plan (LEGDP), related to employment growth and economic development.

The agency is funded by the Limpopo Economic Development, Environment and Tourism Department and the National Department of Trade and Industry. It generates revenue from rent, interest, commissions received as well as agro sales.

2.4.1     RISIMA

RISIMA is a wholly owned subsidiary of LEDA and was established to provide housing solutions to improve the quality of life of the people of Limpopo Province.  It was created to provide home loan finance to end-users who are permanently employed citizens of South Africa in rural and urban areas of Limpopo. The citizens are assisted to acquire land, expand, renovate, build residential property on commercial terms and conditions, at competitive interest rates that will create an acceptable return for the shareholders and funders and ensure sustainability of the company.

The subsidiary had a staff complement of 19 employees and a board. It signs a compact agreement with LEDA on an annual basis and reports monthly to the LEDA Executive Council. Its stakeholders include Department of Public Service Administration (DPSA), Provincial Housing Department, Glencore mining company and Bond Life. It plans to foster relationships with municipalities, targeting the development of Special Economic Zones in Tubatse and Musina.

RISIMA affords the entry level contractors an opportunity to gain experience. It uses in-house building inspectors to offer guidance and expertise on site and assists contractors to get building material by signing cessions to guarantee their payments.

2.4.2     Great North Transport

The Great North Transport (GNT) is a bus company founded in 1970 and wholly owned by LEDA. It is a schedule 3D company in terms of the PFMA. GNT had an original fleet of 540 buses, 7 of which were written off and 533 operating. The company operates through 11 depots, 10 of which are in Limpopo and the other one in Mpumalanga. It transports approximately 31 million passengers per annum, operates three negotiated (Seshego, Mokopane and Hoedspruit) and six interim (Makhado, Tzaneen, Giyani, Bushbuckridge, Motetema and Marble Hall) contracts with two non-subsidised depots (Phalaborwa and Bapedi).

GNT has a 70 per cent market share dominance in Limpopo, with 868 drivers, 11 per cent of which are female. It generates revenue from subsidies, branding and advertising, casual, private hire and contracts. GNT is the only bus company in South Africa operating within the PFMA regime to obtain unqualified audit reports in two successive years. It has one of the lowest incidents and accident rates in the country, with a reliability rate of 95 per cent.

The challenges are that public transport is not a profitable industry naturally; profit margins are low and government subsidies have declined. Maintenance costs are high and diesel price increases and driver wages further increase the operational costs.

2.4.3     Enterprise Development and Finance

The Division also assists in funding small and emerging enterprises who require capital to fund various contracts awarded to them and which do not appeal to the commercial banks.

The Enterprise Development and Finance Division comprises three departments, namely Finance Support; Business Support; and Training and Development. The division’s main responsibility is to accelerate the development and sustainability of SMMEs and co-operatives, by ensuring that they create sustainable job opportunities in Limpopo. The division provides an array of enterprise support programmes, such as SMME and Co-operative Focus; mentoring and coaching; incubation services; co-operative grant funding and technical and business training.

2.4.4     Corridor Mining Resources

The Corridor Mining Resources (CMR) focuses on pursuing the development of mining properties in the Province. CMR strives to optimise the development of the vast mineral resources in Limpopo to ensure economic growth, job creation and to promote black participation in the mining sector.

The company facilitates development of the assortment of mineral prospecting rights held through the various subsidiaries registered under CMR. The properties are at different stages of prospecting, with some very close to obtaining mining rights and going into production in the foreseeable future. Limited financial resources hamper the speed of finalising prospecting properties to becoming operational. The potential for job creation to be derived from the properties held by CMR is significant.

2.4.5     Agribusiness Department

The purpose of the Agribusiness department is to make a vital contribution to rural economic development, job creation and food security for all people in Limpopo Province, through agro-processing value chain activities. The programme provides agribusiness opportunities and agricultural support in order to enhance economic development and support primary and secondary agricultural cooperatives. The Lebowakgomo chicken abattoir project is being implemented by the Agribusiness department.

2.4.6 Lebowakgomo Chicken Abattoir project

The Lebowakgomo project is an agribusiness initiative aimed at benefitting the poultry sector emerging farmers in the rural Province of Limpopo. The project was expected to provide agribusiness opportunities and agricultural support and contribute to rural economic development, job creation and food security for all people in Limpopo Province, through agro-processing value chain activities.

The project comprises of a breeder for egg production; a hatchery for chicks; broiler rooms for the rearing of chickens and an abattoir. The Abattoir should enable the farmers in the area to slaughter, clean, package and sell the chickens.

The chicken abattoir is located in Lepelle-Nkumpi Local Municipality, around Habakuk industrial area in Lebowakgomo. The slaughtering capacity of the abattoir has been increased to twenty thousand (20 000) chickens per day on single shift. The chicken abattoir and the hatchery is owned by the LEDA while the other two components are owned by individual farmers.

LEDA has called for proposals for the appointment of an investor for the operationalization of the chicken abattoir. The preferred investor/ operator was expected to have relevant technical knowledge and the capability to raise capital required to fund this project. The process had been closed and LEDA was in a process of choosing the best candidate for the project.

2.4.7 Challenges

• The project is experiencing challenges with water as they do not have the water right certificate which takes long, more especially for the emerging farmers;
• The chicken abattoir facility has not been in use for the past two years;

2.5 Donga Rehabilitation Chuene Maja  

The donga rehabilitation Chuene Maja Molepo project is the initiative of the Polokwane Local Municipality, which is funded by the Department of Environmental Affairs through the Environmental Protection and Infrastructure Programme (EPIP), with a budget of R10 million. It was reported that, to date an amount of R4.6 million had been spent, mainly on wages, material, training and transport.

Three of the 10 initially proposed projects have been funded in Chune, Maja and Molepo, each costing R3.3 million. The municipality is working with the Department of Environmental Affairs to monitor the project and do site inspection.

There is a bi-monthly project advisory committee with stakeholders including the councillors, the project implementer, municipality, department representatives as well as the Technical Recommended Committee comprising of the engineer, quantity surveyor, geo-technician, articulturalist from the municipality and private engineers. Workers were getting accredited and non-accredited training on health safety and project implementation skills. The project was using local emerging contractors.

Polokwane municipality applied for funding for donga rehabilitation following the death of a person who fell into the bridge.

The original project duration was 17 months (starting from December 2014 to April 2016, but it was revised to 16 months, (starting on February 2015 and ending on June 2016). It was reported that the project would be completed as scheduled.

The primary goals of the project are:

•    Construction of gabions;

•    Sloping of dongas;

•    Planting of vertiver grass;

•    Construction of culverts; and

• Storm water channelling.

2.5.1 Achievements

• The project is making use of the local contractors in terms of supplying rocks in rehabilitating the dongas; and
• The projects has been able to create 168 temporary jobs.

2.5.2 Challenges

• There are challenges with regard to the usage of transport or plant from Chuene to Maja or Molepo; and
• Vandalism that is taking place as barricades are being torn and burnt by community in Chuene and cows going through site (Maja).

3.         Committee Observations

The Committee made the following observations:

3.1       There has been much improvements in the functioning of the Mankweng Tertiary Hospital since the previous visit by the Committee;

3.2       The Committee was pleased with the work being done by the management of the Mankweng Tertiary Hospital more especially with the mini depot;

3.3       The Committee was satisfied with the progress made by the Limpopo Provincial Department of Public Works, Roads and Infrastructure, in putting systems in place to improve service delivery to the people of Limpopo;

3.4       The PROMAN system will prevent the loss of departmental documents by some officials so that paper trail for wrongful awarding of tenders cannot be traced;

3.5       The number of officials participating in the system was very low (70), as the system covers all the projects implemented by the Limpopo Provincial Departments;

3.6       The cost of the transportation of text-books from the Limpopo Province to the Free State and the Northern Cape is too expensive (R 7.5 million);

3.7       The LTSM warehouse was not properly designed in terms of the bin numbers;

3.8        The Committee has noted that:

·         RISIMA competed with commercial banks and had R37 million loan book, of which R3.9 million comprised of arrears and irrecoverable historical loans;

·         LEDA’s Agribusiness department made a revenue of R12 million in the current financial year alone and had plans to expand revenue collection;  

·         The buildings previously used by the former public entities prior to amalgamation into LEDA had not being utilised; and

·         Availability of water was a huge challenge for emerging farmers in the Province. The farmers needed water allocation rights.

3.9        LEDA had aligned its plans to the NDP, Industrial Policy Action Plan, Limpopo Development Plan and linked with programmes of municipalities’ Local Economic Development and Integrated Development Plans. LEDA’s medium term plans appeared ambitious given the water challenges in the Province and the current slow economic growth environment;

3.10       There were a number of Senior Acting positions in LEDA and its representation was predominantly male. The Committee has noted that transformation and amalgamation led to acting positions and that the agency had advertised the CFO and Managing Director positions;

3.11       The agency support given to SMMEs was historically driven by numbers; however, a strategy had been developed to grow the SMMEs towards commercialisation; 

3.12       The 2008/09 recession, Section 100 (1) b intervention as well as the challenges associated with amalgamation of four previous entities into LEDA affected its operations as businesses collapsed. The agency and Limpopo government depended largely on government financial support for survival;

3.13       LEDA was collaborating with Small Enterprise Development Agency on support given to cooperatives, particularly those with high sector programmes;

3.14       The Committee noted that LEDA spent about 57 per cent of its total budget on compensation of employees in the previous financial year, more than 50 per cent of which was the GNT driver wages;

3.15       Some of the GNT routes had not been subsidised and this had implications for finances and maintenance. The Committee has noted that there were subsidy disparities across the country, differing from province to province and from operator to operator, with Limpopo subsidies being the lowest at R10.27 compared to R16.50 while Limpopo transports the poorest people;

3.16       LEDA, as a 3D company could not borrow money or leverage government assets but relied heavily on government funding. The agency needed to be exempted from the 3D entity requirements to enable it to borrow money, since this way it could double its revenue and repay its loans;

3.17      The Chicken Abattoir building is a white elephant, which has been funded by the LEDA to an amount of R72 million. The Committee has noted that the Lebowakgomo abattoir had not been operational for two to three years;

3.18      LEDA was still paying electricity, water, insurance, maintenance, and Security Company for the project, which economically did not provide a viable business entity;

3.19      The suppliers to the abattoir, farmers, had been experiencing challenges since the abattoir was closed.  The operating company was expected to proceed;

 3.20     The Donga Rehabilitation Chuene Maja  project is a good initiative by the Polokwane Municipality as it has been able to create 168 jobs; and

3.21      The donga rehabilitation Chuene Maja Molepo project was part of the Polokwane Local Municipality Integrated Development Plan.

4.         Recommendations

The Committee made the following recommendations:

4.1       The Provincial Department of Health should provide Mankweng Tertiary Hospital with more funding in order to fill all the vacant posts in the mini depot;

4.2       The Mankweng Tertiary Hospital should plan for an increased number of referrals from Moria, given the likelihood that the Zion Christian Church will continue to refer patients to Mankweng, particularly during the three annual conferences. These patients should be billed accordingly for making use of the hospital services;

4.3       The Provincial Department of Public Works, Roads and Infrastructure should make sure that there are skills transferred to its employees at the end of the three year contract by the service provider (Microzone Information Technology Specialists);

4.4       The Limpopo Province should train more of its staff on PROMAN, as at the end of the three year contract, they will be able to manage the system on their own;

4.5       All the Limpopo Provincial Departments should be encouraged to make use of the PROMAN system as the documents gets to be centralised online, which will make their work easier during audit period;

4.6       The Limpopo Department of Education and the South African Post Office should fast track the SLA process in order to finalise the redesign of the LTSM warehouse;

4.7       The Limpopo Department of Education should employ more skilled officials for the LTSM warehouse;

4.8       The Limpopo Department of Education should install CCTV cameras inside the LTSM warehouse for security reasons;

4.9        LEDA’s plans should take into consideration the current slow economic growth environment and water challenges in the Province. The plans should also be guided by policy pronouncements in the upcoming MTBPS;

4.10      The agency should prioritise filling of the acting senior positions for stability and consider employing more females at the top management to make the agency more gender representative;

4.11      The agency support to SMMEs should focus on assisting the small businesses to graduate from small to medium sustainable enterprises. LEDA should also keep a database of SMMEs assisted and must take into consideration youth, women and people with disability;

4.12      The Committee has noted that LEDA has developed a document outlining the need for a once-off recapitalisation, requesting government to provide funding and has submitted the request to Provincial Treasury and LEDET. This document must be submitted to the Committee;

4.13      While the Committee noted that cooperatives are incubated for two years, registered on supplier database and offered additional support, LEDA must ensure that the cooperatives supported are functional and sustainable;

4.14      The Department of Economic Development, LEDA and Provincial Treasury must work together and develop a plan to address the higher spending on compensation of employees to free some funds towards economic growth and development and job creation projects;

4.15      The National Department of Transport must look into reviewing the transport subsidies across the country to take into consideration the need and the rural nature of some provinces like Limpopo;

4.16      National and Provincial Treasury must look into the feasibility of assisting LEDA to leverage its assets, and become self-sustainable.

4.17     LEDA must work towards operationalising the abattoir and provide the details to the Committee regarding when it will start being functional or consider disposing the chicken abattoir (asset) to divert its funds where they could be used efficiently;

4.18      Polokwane Local Municipality should apply for more funds from the Department of Environmental Affairs through the Environmental Protection and Infrastructure Programme (EPIP) in order to be able to cater for other villages that require donga rehabilitation; and

            The Municipality and the Department of Environmental Affairs must ensure that the project is completed as planned to avoid any possible cost implications.

Report to be considered.