ATC201111: Budgetary Review and Recommendation Report of the Portfolio Committee on Mineral Resources and Energy (Vote 26 & 29) Dated 10 November 2020

Mineral Resources and Energy

BUDGETARY REVIEW AND RECOMMENDATION REPORT OF THE PORTFOLIO COMMITTEE ON MINERAL RESOURCES AND ENERGY (Vote 26 & 29) DATED 10 NOVEMBER 2020

 

The Portfolio Committee on Mineral Resources and Energy, having considered the performance and submission to National Treasury for the Medium Term period of the Department of Mineral Resources (Vote 29) and the Department of Energy (Vote 26), reports as follows:

 

1. Introduction

 

The Money Bills Procedures and Related Matters Amendment Act (Act 9 of 2009) sets out the process that allows Parliament to make recommendations to the Minister of Finance to amend the budget of a national department.

 

In October of each year, Portfolio Committees must compile Budgetary Review and Recommendation Reports (BRRR) that assess service delivery performance given available resources; evaluate the effective and efficient use and forward allocation of resources; and may make recommendations on forward use of resources. The BRRR are also source documents for the Standing/Select Committees on Appropriations/Finance when they make recommendations to the Houses of Parliament on the Medium-Term Budget Policy Statement (MTBPS). The comprehensive review and analysis of the previous financial year’s performance, as well as performance to date, form part of this process.

 

The Minister of Finance, Mr TT Mboweni, MP, issued a Notice in the Government Gazette of 31 March 2020 (No 437), in terms of Section 92 of the Public Finance Management Act (PFMA) which, inter alia, exempts Executive Authorities from tabling the annual reports and financial statements of the respective departments and institutions within six-months after the end of the financial year, as set out in the PFMA. These documents are usually tabled by the end of September.

Instead, the Notice stated that the Executive Authorities must table these documents within two months after the normal deadline i.e. by the end of November. These timeframes have been extended owing to the lockdown imposed to curb the Covid-19 pandemic.

 

This extension thus has an effect on the work and programme of the Assembly, especially the consideration of the Budget Review and Recommendation Reports (BRRRs) and Medium-Term Budget Policy Statement (MTBPS). The Money Act states that Parliament and its committees must annually assess each department’s performance i.e. the BRRRs. The Money Act requires that these assessments must, inter alia, make reference to departmental annual reports and financial statements. These assessments are usually conducted in early October.

 

1.1. Mandate of the Portfolio Committee on Mineral Resources and Energy 

 

In terms of the Constitution of the Republic of South Africa, 1996 (the Constitution), Portfolio Committees have a mandate to legislate, conduct oversight over the Executive and facilitate public participation. The Portfolio Committee on Mineral Resources mandate is governed by Parliament’s mission and vision statements, the rules of Parliament and its Constitutional obligations.

 

The mission of the Portfolio Committee is to contribute to the realisation of a developmental state and ensure effective service delivery through discharging its responsibility as a Portfolio Committee of Parliament. Its vision includes enhancing and developing the capacity of Committee Members in the exercise of effective oversight over the Executive Authority. One of the Committee’s core objectives is to oversee, scrutinise and influence the action of the Executive and its agencies. This implies holding the Executive and related entities accountable through oversight of objectives of its programmes, scrutinising its budget and expenditure (annually), and recommending through Parliament actions it should take in order to attain its strategic goals and contribute to service delivery.

 

1.3.       Purpose of the BRR Report

 

Section 77(3) of the Constitution stipulates that an Act of Parliament must provide for a procedure to amend money bills before Parliament. This constitutional provision resulted in the Money Bills Amendment Procedure and Related Matters Act, No. 9 of 2009 (the Act), which sets out the process that allows Parliament to make recommendations to the Minister of Finance to amend the budget of a national department.

 

Section 5 of the Act, states that the National Assembly (NA), through its Committees, must annually assess the performance of each national department with reference to the following:

 

• The medium term estimates of expenditure of each national department, its strategic priorities and measurable objectives, as tabled in the NA with the national budget;
• Prevailing strategic plans;
• The expenditure report relating to such department published by the National Treasury in terms of section 32 reports of the Public Finance Management Act, No 1 of 1999 (PFMA), as amended in 2009;
• The financial statements and annual report of such department;
• The report of the Committee on Public Accounts relating to the department; and
• Any other information requested by or presented to a House or Parliament.

 

Committees must submit the BRRR annually to the NA. The BRRR assesses the effectiveness and efficiency of a department’s use and forward allocation of available resources and may include recommendation on the use of resources in the medium term.

 

Committees must submit the BRRR after the adoption of the budget and before the adoption of the reports on the Medium Term Budget Policy Statement (MTBPS) by the respective Houses in November of each year.

 

The Act therefore makes it obligatory for Parliament to assess the Department’s budgetary needs and shortfalls vis-à-vis the Department’s operational efficiency and performance. This is done taking into consideration the fact that the Department has oversight responsibilities over five entities.

 

1.4.       Method followed by the Committee in writing the BRR Report

 

On  29 May 2019, the President of South Africa, President Cyril Ramaphosa announced a reconfigured executive, which merged the former Department of Mineral Resources with that of the Department of Energy, resulting in a new Department known as the Department of Mineral Resources and Energy (DMRE), hence even though the two respective Departments are still reporting as separate entities, going forward both Departments will be reporting as a single entity to the Portfolio Committee of Minerals and Energy (PCMRE).

 

The Committee has scrutinised and interrogated all available documents as outlined in Section 5 of the Act. The Committee has assessed the performance of the Departments in the 2018/19 financial year, as well as performance in the 2019/20 financial year.

 

The PCMRE held their meetings on the 2019/20 Annual Report of the DMRE on the 4th of November 2020, which was addressed by the Senior Leadership of the DMRE.

 

The Auditor-General of SA (AGSA) gave input during the budget review and recommendation report process.

 

The Committee, in undertaking this process, used a number of source documents, including the 2014-2019 Strategic Plan of the DMRE, Annual Performance Plans, Annual Reports, Financial Statements, 2018/19 and the 2018 Estimates of the National Expenditure (ENE). It also reviewed briefings by the Department and its entities during the course of the year, as well as the State of the Nation Address (SONA). The Committee also used the Constitution as a reference point.

 

2.  OVERVIEW OF THE PERFORMANCE OF THE DEPARTMENT OF ENERGY and the department of mineral resources

 

2.1. PART 1 – ENERGY

 

2.1.1. Service Delivery Performance

In the previous financial year (2018/19), the Department had 41 performance targets and it only achieved 13 or 32 per cent of the set targets. During the year under review, the Department achieved 17 or 52 per cent of the set performance targets. As evident in table one (1) below, although not significant, the Department has improved in its performance.

 

 

 

Table 1: Summary of financial and performance information 2014/15 – 2019/20

Year	No. of targets set	No. of targets achieved	% Targets  achieved	% Budget Spent
2014/15	39	17	44%	83.6 %
2015/16	76	39	51%	98%
2016/17	77	32	42%	99.5%
2017/18	67	28	42%	97.54 %
2018/19	41	13	32%	98.9%
2019/20	33	17	52%	96.4%

Source:Department of Energy Annual Reports

 

As evident in the table above, the Department consistently performed well on financial expenditure. On the contrary, service delivery performance has consistently been below required standard.  It is also important to note that, whilst the performance of the Department is worsening, there is some progress in certain areas, as 27 per cent of the targets during the year under review were partially achieved.  

 

Table 2: Comparison - Programme Performance 2018/19 and 2019/20 

Programme	2018/19		2019/20
	No of Annual Targets in the APP	Achieved Annual Targets	No of Annual Targets in the APP	Achieved Annual Targets
Programme 1: Administration	9	4	8	4
Programme 2: Energy Policy & Planning	12	0	8	2
Programme 3: Petroleum & Petroleum Products Regulation	5	3	3	3
Programme 4: Electrification & Energy Programme & Project Management	5	5	5	4
Programme 5: Nuclear Energy	4	1	4	1
Programme 6: Clean Energy	6	0	5	3
Totals	41	13	33	17
Percentages		32%		52%

Source: Department of Energy Annual Reports, (2018/19 & 2019/20)

 

The Administration Programme did not achieve four of the eight set targets.

 

As can be seen in table 2 above, for two consecutive years, the Energy Policy and Planning Programme performed unsatisfactorily. In the previous financial year, it achieved zero of the twelve set targets. During the year under review, it achieved two of the eight set targets.  This is an indictment on the part of the leadership and management of the Department as this programme is key to executing the Department’s mandate, energy specific policies, legislation and regulations fall within this programme.

 

Programme 3 performed well, having achieved all three planned targets.

 

Programme 4, the largest programme of the Department, performed fairly well having achieved four of its five planned targets. As stated earlier, the programme has failed to achieve its target of connecting 20 000 households through the non-grid electrification programme. Whilst this programme consistently fails to meet its targets, the performance during the year under review is equally concerning. The Department failed to connect a single household through non-grid electrification. On the other hand, the grid electrification programme exceeded its target of connecting 195 households through grid electrification. 

 

The Nuclear Energy Programme performed dismally having achieved one of its four planned targets. This is the same performance as was in the previous financial year. The planned targets not achieved are as follows:

 

• The Draft Decommissioning and Decontamination Policy was not submitted to Cabinet as envisaged. The Department states that the deviation is because of delays in conducting studies for data collection, due to establishment of a new procurement framework.
• The National Nuclear Regulator Amendment Bill was not submitted to Cabinet for approval as planned. This is because of delays due to engagements with the relevant stakeholders on the outstanding issues.
• The Draft Radioactive Waste Management Fund Bill was submitted to cabinet. The Department states that the delay is because delays due to consultation with the State Law Advisor.   

 

The Clean Energy Programme achieved three of the five planned targets. Targets not achieved related to the following:

 

• Completion of the Draft Renewable Energy Technology Roadmaps (RETRM). According to the Department, unavailability of funds was the main reason the project could not continue.
• Completion of the Annual Solar Water Heater (SWH) Installation. Installation was not achieved due to under delivery of geysers to participating municipalities, and the training of installers.

 

2.1.2 Performances challenges

 

The Department highlighted the following performance challenges:

• 14 Izimbizo out of 20 were conducted, due to budget constraints;
• Proposals of the “end-state” of the electricity sector were delayed by the production of the overarching electricity policy;
• Off-take agreement on the Grand Inga Project was not negotiated due to delays in the appointment of the project developer by the Democratic Republic of Congo (DRC);
• Appointment of panel of contractors for the non-grid electrification were delayed;
•  The Draft National Nuclear Regulator Amendment Bill was not submitted to Cabinet due to engagements with the relevant stakeholders on the outstanding issues taking longer than expected;
• Radioactive Waste Management Fund Bill could not be submitted to Cabinet due to delays in stakeholder consultation;

• Reports on the installation of National Solar Water Heaters (NSWH) were produced, however, installation was not achieved due to under delivery of geysers to participating municipalities, and the training of installers     

 

2.1.3. Financial Performance

 

As in the past, when considering the financial performance of the Department, one appreciates the consistent good financial performance. For the 2018/19 financial year, the Department had an available budget of R7.2 billion.[1] For the 2019/20 financial year, the Department had an available budget of R7.1 billion.[2] This is almost the same allocation as in the previous financial year.

 

Table 3 below provides a clear picture of the budget allocated to the DMRE or Vote 26 for the 2019/20 financial year. It further provides the proportion of the total budget of Vote 26 spent on specific line items according to economic classification as at 31 March 2020.

 

Table 3: Vote 26 – Financial Performance of the Department, 2019/20

R million	Available Budget	Year End Expenditure	Year End Percentage spent
Programme
1. Administration	293,583	279,383	95.2%
2. Energy Policy & Planning	47,568	39,945	84.0%
3. Petroleum & Petroleum Products Regulation	88,355	80,710	91.3%
4. Electrification & Energy Programme & Project Management	5,274,825	5,064,328	96%
5. Nuclear Energy	1,050,143	1,039,907	99%
6. Clean Energy	429,083	422,956	98.6%
Total	7,183,557	6,927,230	96.4%
Economic Classification
Compensation: Employees	375,454	356,438	94.9%
Goods and Services	284,986	258,770	90.8%
Total transfers and subsidies	6,518,602	6,309,774	96.8%
Payments for capital assets	4,504	2,237	49.7%
Payments for Fin. Assets	11	11
Total	7,183,557	6,927,230	96.4%

Source: National Treasury (2020)

 

Of the total allocated budget for the 2019/20 financial year, the Department has spent R6.9 billion, or 96.4 per cent, the majority of which has been used on transfers and subsidies; compensation of employees; and goods and services. During the same period, in the previous financial year (2018/19), the Department had spent 99 per cent of its available budget.[3]

 

On Transfer Payments - net budget underspending of R208.83 million or 3.2% due to:

• Integrated National Electrification Programme (INEP) Non-Grid Households: R199.83 million underspending due to procurement process which could not be finalized by year-end.
• International Membership fees: R4.89 million underspending mainly for subscription fees to multilateral    international organizations.
• Households: R603 thousand underspending as a result of outstanding payments relating to early retirement applications and pension liability payable to the GEPF
• INEP Municipal grant: R3.51 million underspending due to the withholding of a payment to JS Moroka in Mpumalanga due to underspending by the municipality.

 

On Payments for capital assets - The net budget underspending of R2.27 million is due to fewer requests than anticipated, mainly due to the merger of DoE and DMR.

 

On compensation of employees, there is an underspending of 5.1 per cent. The Department was allocated R375.4 million; however, it spent R356.4 million. The reason cited for the underspending is the delayed filling of critical vacant posts. According to the Department, the delay was deliberate, as the new two Departments had merged, thus a new organisational structure was scheduled to be implemented in 2020/21 financial year.

 

On goods and services, – Actual spent was R258.77 million against projected spending of R284.99 million resulting in a net budget underspending of R26.22 million or 9.2% due to:

• Delayed commencement and finalization of planned projects which included the LPG Audit in the Petroleum and Liquid Fuel Industry project; B-BBEE Monitoring project;
• Non-grid Monitoring and Evaluation (M&V); the Electrification Master Plan development project;
• Stress-testing the NECSA Turnaround Strategy
• SWHP’s installation of procured units.
• Operating Leases item for office accommodation at Head Office, as payments to DPW were lower than budgeted for pending the resolution of a dispute with DPW.

 

2.2. PART 2 – MINERAL RESOURCES

 

2.2.1. Service Delivery Performance

 

The past four years, the Department of Minerals Resources (DMR) has consistently performed well, achieving over 80 per cent of its planned targets. In the previous financial year, the Department achieved 84 per cent of its planned targets. During the year under review, it achieved 85.8 per cent, an improvement of almost 2 per cent. The Department attributes this performance to an improved control environment with management ensuring that all targets within their area of control are achieved in accordance to the Annual Performance Plan.

Table 4 below shows performance per programme – this is to show which areas the Department had underperformed on.

 

Table 4: Comparison - Programme Performance 2018/19 and 2019/20 

Programme	2018/19	2019/20
	% Achievement of Annual Targets	% Achievement Annual Targets
Programme 1: Corporate Services	96%	96.3%
Programme 2: Financial Administration	87%	73.3%
Programme 3: Mine Health & Safety Inspectorate	81%	81%
Programme 4: Mineral Regulation	67%	76.9%
Programme 5: Mineral Policy & Promotion	91%	95.8%

Source: Department of Mineral Resources Annual Reports, (2018/19 & 2019/20)

 

Programme 1: Corporate Services, performed well in the previous and current financial year, having achieved 96 per cent of its planned performance targets, respectively. The programme partially achieved one (1) target – and the target related to a number of policies/guidelines developed and/or reviewed. The Department had set itself five (5) targets in this regards and it achieved none.

 

Programme 2: Financial Administration has regressed. In the previous financial year, 87 per cent of the planned targets was achieved. However, in the current financial year, 73.3 per cent was achieved. The programme failed to achieve four of its planned targets and these are as follows:

 

• % achievement of Service Level Agreement (Target 95% vs Actual  achieved 94%)
• Customer Satisfaction Index (1-5) (Target 3 – Actual achieved 0)
• % of Financial reports delivered on schedule (Target 100% vs Actual achieved 98.22%)
• % of fully implemented agreed upon management action plans (Internal Audit) - (Target 100% vs Actual achieved 87%)

 

In the case of the Financial Administration programme its operational performance has regressed, this can be partly explained by the findings of the internal audit of the department which labelled some of the ICT systems as obsolete and posing a threat to the sustainability of the department’s operations. The above issue warrants a serious engagement between the National Treasury and the Department, in order to substantively address the ICT infrastructure inadequacy, thus enabling the Financial Administration branch to fulfil its mandate optimally and ensure long term sustainability to the operations of the department.

 

Programme 3: Mine Health and Safety Inspectorate (MHSI)remained the same as in the previous financial year, having achieved 81 per cent of its planned targets. The following four (4) uncontrollable measures were partially achieved and negatively contributed to the achievement of 81 per cent:

• % Reduction in occupational fatalities (Target 20% vs Actual achieved 17%)
• % Reduction in occupational injuries (Target 20% vs Actual achieved 2%)
• % Reduction in occupational diseases, including TB (Target 10% vs Actual achieved 4%)
• % adherence to prescribed timeframes for MPRDA applications (Target 100% vs Actual achieved 98%)

 

There was a noticeable improvement in the mining fatalities statistics during 2019, with 51 fatalities being recorded during the period, reflecting a 37 percent improvement on the fatalities recorded in 2018. Gold (42%) and coal (36) mines accounted for 78 percent of mining fatalities. The Department asserted that Management remains committed to the goal of Zero-harm and continues with stakeholder engagement and collaboration. Furthermore, it stated that the reasons for partial achievement on fatalities is attributed to increase in seismic induced fatality fall of ground at the mines and this area continue to be a focal point of the inspectorate.

 

The following are some of the key highlights on MHSI:

 

Tripartite Health and Safety Initiative

 

• The Department, led by Director General (DG) Adv. Thabo Mokoena, participated at the Anglo-American Tripartite Health and Safety Initiative on 28 to 29 November 2019. The two-day summit gave an opportunity for stakeholders to engage on health and safety matters.

 

World Aids Day Commemoration

 

• On the 6th December 2019, the Department, in collaboration with the Mine Health and Safety Council, hosted a World Aids Day commemoration event in the Northern Cape. The event was well attended by over 1000 delegates from mine employees and persons from the nearby mine communities. 

 

Release of the 2019 Mine Health and Safety Statistics

 

On 24 January 2020, the Minister of the DMRE released mine health and safety statistics during the media a briefing in Pretoria. The number of fatalities in the sector reported in 2019 was the lowest on record with no disaster recorded for the first time since 2016. There was a 37% reduction on fatalities from 81 during to 51 in 2019.

• The ooccupational diseases decreased by 23% from 4483 cases in 2017 to 3458 cases in 2018. The reduction was mainly on silicosis, Pulmonary TB and noise induced hearing loss with 29%, 24% and 22% respectively.

 

No Violence Against Women and Children in the Mining Sector

 

• The Department led a launch of the first Men’s’ Dialogue for the Mining Sector on “No Violence Against Women and Children” on 29 November 2019 in Mpumalanga. The Prevention of Gender Based Violence Steering Committee was also established.

 

Successful Rescue of Trapped 1800 Mineworkers

 

• On 1 May 2019, a successful rescue of the 1 800 mineworkers was conducted. The workers were trapped at the Sibanye-Stillwater’s Thembelani shaft in Rustenburg following damages at shaft infrastructure on 30 April 2019.

 

Programme 4: Mineral Regulation has improved on its performance. In the previous financial year, it achieved 67 per cent of its planned targets, whereas during the year under review, it achieved 76.9 per cent. The following six (6) measures were partially achieved and negatively contributed to the achievement of 76.9 per cent:

• Number of Social Labour Plans (SLPs) development projects completed (Target 120 vs Actual achievement of 99 or 82.5%)
• Number of jobs created through mining (Target 1 500 vs Actual achievement of 295 or 19.67%)
• % of complaints closed vs received (Target 100% vs Actual achievement of 26%)
• Number of legal compliance and verification inspections (MLA & SLP) (Target 150 vs Actual achievement of 142 or 94.67%).
• % adherence to timeframe committed to DPME (Target 70% vs Actual achievement of 16%)
• % Implementation of risk management plans (Target 100% vs Actual achievement of 88%)

 

Programme 5: Mineral Policy and Promotion improved on its performance. During the previous financial year, the programme achieved 91 percent of its set targets. However, during the year under review, it achieved 95.8 per cent. The following measure was partially achieved and negatively contributed to the achievement of 95.8 per cent.

 

• Number of technical partnerships implemented (Target 7 vs Actual achievement of 5 or 71.43%).

 

Key highlights in this programme are as follows:

Regulatory Certainty and Investment

• Publishing of the draft upstream petroleum bill is opening up investments in the petroleum space.
• The Total gas find has been the highlight for investments. The company has further committed to drill more holes in June 2020. This is a huge boost for the economy.
• South Africa improved as a mining destination according to the 2019 Fraser Institute Survey on mining indicating that the investment drive and regulatory framework provides confidence to the investor community.

 

International Matters

• Through South Africa’s interventions and negotiations at the KPCS, the Central African Republic is now able to trade its diamondsfrom certain provinces; Zimbabwean diamonds are now able to enter international markets.

 

Rehabilitation Programme

• Sixty-one (61) mine shafts were sealed, includes those that were outstanding from the previous year.
• Three (3) asbestos mines were rehabilitated – (but two (2) of these were completed during the last week of May due to the national COVID-19 lockdown).

 

2.2. Financial Performance

 

In 2019/20 financial year, the Department spent 99,3 percent of the allocated budget as compared to 99,44% in 2018/19 financial year, this being below the National Treasury variance threshold set at 2% of appropriation. Thus, with the DMR, there is correlation between financial and service delivery performance. The programmes that surrendered more funds to the National Treasury (NT) is Administration, Mineral Regulation and Mineral Policy and Promotion.

 

Table 5: Financial Performance of the DMR, 2019/20

Economic Classification

As evident in the above table;

• In 2019/20 the department spent 99,3% of the allocated budget as compared 99,44% in 2018/19, this being below the National Treasury variance threshold set at 2% of appropriation.
• The programmes that surrendered more funds to NT is Administration, Mineral Regulation and Mineral Policy and Promotion

 

Expenditure outcome – Economic classification

• Compensation of employees: 2019/20 recorded a larger variance as compared to 2018/19 because there was a directive for departments affected by NMOG process to halt filling of posts until the process is finalised.
• Transfer payments: the `allocation on transfers to households was overestimated, payment in respect of claims against the department by DMR officials and payments of leave gratuity to officials resigning/retiring from the employ of State 
• Payments for capital assets: there is an improvement as compared to 2018/19. Variance is due to delay in installation of security system in Head Office.

 

2.2.3. Summary of audit outcomes

 

• Material misstatements
  • Contingent liability and provisions
  • Lease commitments
  • Movable assets
  • Performance information
• The prior year irregular expenditure was condoned by National Treasury (NT)
• Irregular expenditure of R358 000.00 was incurred in 2019/20 – the tax status of the supplier awarded a tender changed to non-compliant before the procurement process was finalised
• Wasteful expenditure of R551 000.00 was recorded under travel claims, once the investigation is finalised the department will implement consequence management.   

 

 

 

 

Table 6: Expenditure Management

EXPENDITURE MANAMENT	As at 31 March 2020	As at 31 March 2019
Creditor-payment period	30 days	6 days
Amount of total accruals	R4,638m	R3,639m
30+ days accruals as a percentage of total accruals	0.%	0%
Amount of 30 days accruals	0	0

Source: DMRE presentation to the PCMRE on 04 November 2020

 

 

 

Table 7: Revenue Management

REVENUE MANAGEMENT	As at 31 March 2020	As at 31 March 2019
Debtor-collection period	430 days	809 days
Amount accrued departmental revenue	R229,094m	R206,632m
Amount debtors impairment provision	R174,099m	R113,373m
Debtors impairment provision as a percentage of departmental revenue	76%	54,9%

 

• Although the debtor-collection period has reduced substantially, there are challenges in the department’s revenue management environment
• Accrued departmental revenue continue to increase due to delay (by prospecting rights applicants) to execute the granted prospecting right
• New developments: Under DMR the officials who were performing revenue management functions were also responsible for reporting and one Director responsible for FA& Reporting. On the new structure of DMRE there is a dedicated team of 4 officials responsible for revenue management; and a dedicated Director for Revenue and Financial Provisions Management.

 

 

 

 

 

 

 

3. REPORT OF THE AUDITOR-GENERAL OF SOUTH AFRICA (AGSA) ON THE DEPARTMENT OF ENERGY AND THE DEPARTMENT OF MINERAL RESOURCES

 

The Auditor General of South African appeared before the Committee on 03 November 2020, to brief the committee on the audit outcomes of the Department of Mineral Resources and Energy and its entities for the period 2019/20. The Department is struggling to address issues pertaining to compliance with legislation as well as ensuring proper financial record keeping, internal controls according to the Auditor General were found to be compromised. The Department was also found to have inadequate procurement and contract management processes resulting in irregular expenditure. The Auditor General also concluded that there were material misstatements in the submitted financial statements.

 

Below is a summary of the Audit Outcomes for the Department and the entities reporting to it.

 

3.1. Audit outcomes of portfolio over five years (Mineral Resources)

Entities reporting to the Department of Mineral Resources:

• Council for Geo-Science (GCS)
• Mintek
• Mine Health and Safety Council (MHSC)
• State Diamond Trade (SDT)
• SA Diamond and Precious Metals Regulator (SADPMR)

 

Table 8: Audit outcomes of portfolio over 5 years – Department of Mineral Resources

	2019/20	2018/19	2017/18	2016/17	2015/16
Unqualified with no findings	SADPMR	CGS, DMR	Mintek, MHSC	Mintek, DMR, SDT	Mintek, SADMR
Unqualified with findings	CGS, DMRE, Mintek, MHSC, SDT	Mintek, MHSC, SADPMR, SDT	CGS, DMR, SADPMR, SDT	CGS, MHSC, SADPMR	CGS, DMR, MHSC, SDT
Qualified with findings
Adverse with findings
Disclaim with findings
Outstanding audits

Source: AGSA presentation to the PCMRE on 03 November 2020

The SADPMR has improved on its audit outcomes and obtained a clean audit. The DMR and CGS regressed due to non-compliance with key legislation. The MHSC, MINTEK and SDT audit outcomes remained constant when compared to the prior year. Material non-compliance with legislation was identified at DMR, CGS, MINTEK, MHSC and SDT.

 

3.2. Audit outcomes of portfolio over five years (Energy)

Entities reporting to the Department of Energy:

• Central Energy Fund Group (CEF)
• SA Nuclear Energy Corporation Group (CEF)
• National Energy Regulator of SA (NERSA)
• National Nuclear Regulator (NNR)
• National Radioactive Waste Disposal Institute (NRWDI)
• SA National Development Institute (SANEDI)

 

Table 9: Audit outcomes of portfolio over 5 years – Department of Energy

	2019/20	2018/19	2017/18	2016/17	2015/16
Unqualified with no findings		NERSA, NRWDI	NERSA, NRWDI, SANEDI	NERSA, NNR, SANEDI	DoE, NERSA, NNR
Unqualified with findings	DoE, NNR	CEF, NNR, SANEDI	CEF, NNR	CEF, NECSA, NRWDI	CEF, NECSA, NRWDI, SANEDI
Qualified with findings		DoE	DoE	DoE
Adverse with findings
Disclaim with findings		NECSA	NECSA
Outstanding audits	CEF, NECSA, NERSA, NRWDI, SANEDI

Source: AGSA presentation to the PCMRE on 03 November 2020

 

The DOE improved on its audit outcome. The audit outcome was improved due to the department disclosing the irregular expenditure., also material non-compliance with key legislation was identified at DOE. The audit opinion for NNR remained the same as the prior year due to their still being material non-compliance reported.

Outstanding audits for the period under review, include the following entities: CEF group; NECSA group; NERSA; NRWDI and SANEDI

 

1. Financial health and financial management
   1. Revenue management

The balance of accrued departmental revenue and the debtors' impairment provision as a percentage of accrued departmental revenue is high and has increased from the prior year for the DMR. This is an indication that the department is experiencing challenges in the collection of outstanding amounts due to it, which exposes it to cash flow risk. Management should review the department's credit control policy, to ensure prompt payment and improve the quality of its cash flow and revenue management. Management should enhance its remedial actions to improve the revenue management of the department, particularly focusing on the debtor’s collection turnaround time. The debtor's collection period has decreased compared to prior year but this was not due to improved collection but increased impairment.

 

DoE should be more rigorous in terms of the collection efforts regarding accrued departmental revenue to ensure that what gets recognised during the year is collected as soon as possible. Further any opening balances should also be followed up more rigorously to ensure that payments are received timeously.

 

1. Expenditure management

The expenditure management of the DMR has regressed as the creditors payment period has increased compared to prior year.

1. Fruitless and wasteful expenditure

During the 2018/19 financial year the fruitless and wasteful expenditure was R118m, it decreased during 2019/20 to R90,706m, i.e. R90.254 million represents non- compliance in 2019 20 and R0.452 million is expenditure relating to prior years.

The majority of the disclosed fruitless and wasteful expenditure for the current year was caused by storage costs for geyser units to various suppliers by DOE (R90.118). The remainder of fruitless and wasteful expenditure relates to travel expenses not approved; travel expenditure for flights missed by staff and incurred for late renewal of system licence fees.

1. Irregular expenditure

According to the AGSA, R48,878 million represents non-compliance in 2019/20. Irregular expenditure for the prior year was restated due to correction of prior period error at DOE and subsequent disclosure of Irregular expenditure of R162,450 million.

Majority of the irregular expenditure for the current year relates to Procurement without proper competitive bidding process at MHSC R34,481million). Procurement relating to non-compliance with legislation on contracts at DOE (R8,550 million) Payments made whereby the proper process was not followed in terms of lease contracts in the prior years at DMR (R3,311 million). The remainder of irregular expenditure relates to procurement for service provider whose tax matters were not in order and procurement without competitive bidding or quotation process.

1. Supply Chain Management

According to the AGSA there regression in SCM compliance, i.e. 2019/20: 0 with no findings. The AGSA stated that all SCM findings should be investigated. Findings on supply chain management included:

• Contracts awarded to suppliers whose tax matters had not been declared to be in order (DMR)
• Goods, works or services were not procured through a procurement process which is fair, equitable, transparent and competitive (SDT, NNR and MINTEK)
• Payment in excess of original quotation (CGS)

 

1. Concluding notes by the AGSA

• AGSA commended the SADPMR on obtaining clean audits.
• There is a continuing struggle to prepare and submit quality financial statements and performance reports throughout the portfolio.
• Non-compliance with key legislation remains a challenge especially in SCM, which has led to irregular expenditure and fruitless and wasteful expenditure being incurred.
• Non-compliance relating to material adjustments made to the annual financial statements remains a concern and management should implement the necessary controls and checks in place to ensure that annual financial statements prepared are of a good quality.
• The audit process is not finalized for a number of entities within the portfolio.

 

6. FINDINGS AND OBSERVATIONS

The Portfolio Committee of Mineral Resources and Energy having assessed the performance of the Department of Mineral Resources and the Department of Energy made the following findings and observations:

 

6.1. Auditor-General of SA (AGSA)

 

• The audit process is not finalized for a number of entities within the energy portfolio. These include: CEF Group, NECSA Group, SANEDI, NRWDI and NERSA. Members pointed out that in light of some of the entities who still have outstanding audits, the “overall picture” as presented by the AGSA might change, especially relating to irregular expenditure and fruitless and wasteful expenditure.
• The AGSA pointed out and emphasized that the audits which have not been finalised, does not mean that the applicable entities have not submitted on time. The AGSA acknowledged that there were challenges between the audit teams and the management of these entities.
• According to AGSA, various factors contributed to the delays in finalising the audits of the abovementioned entities. These included: requesting additional information which lead to delays, COVID-19 issues which impacted, delays in board meetings, differences between the audit teams and senior management of the entities.
• AGSA confirmed that NRWDI’s audit was signed-off on Friday, 30 October 2020.
• The committee commended the SADPMR on the improved audit outcomes and obtaining a clean audit.
• The committee is concerned that the DMR and CGS regressed due to non- compliance with key legislation.
• The AGSA commended the DOE on the improved audit outcome. According to the AGSA, the audit outcome improved due to the department disclosing the irregular expenditure.
• The committee stated that it was encouraging to notice that the fruitless and wasteful expenditure has decreased from the previous financial year (R118m) to R90,706 for 2019/20. The majority of the disclosed fruitless and wasteful expenditure for the current year was caused by storage costs for geyser units with various suppliers by DOE (R90.118 million).
• The committee were further pleased to see that irregular spending has also decreased to R48,8m in 2019/20 (in 2018/19 it was R192,8m).
• The committee raised concerns regarding the regression and non-compliance relating to supply chain management (SCM) processes.
• With regard to assisting the department and entities with non-compliance of SCM, the AGSA stated that non-compliance cannot be rectified. The AGSA stated that they do discuss with management the new pronouncements coming through, which the department need to be on the lookout for, so that they can comply. Some entities do have a checklist, so prior to procurement process, they go through the checklist to ensure that they comply. The AGSA also share best practices by other departments and entities, who are doing well in this area.
• According to the AGSA all SCM findings should be investigated.

 

6.2. Department of Mineral Resources and the Department of Energy

 

• The committee expressed their concern regarding the outstanding audit reports of the CEF Group, NECSA Group, NRWDI and SANEDI. The committee’s view was that the AGSA has failed the process, as far as the outstanding audit statements are concerned, as they must always ensure that financial statements are submitted and audited timeously.
• According to the DMRE, a significant part of the financial year was dedicated to managing the merger and putting in place transitional arrangements.
• The department stated that the merger process affected filling of critical vacancies, where a decision was taken not to fill vacancies in anticipation of excess capacity post-merger.
• The new DMRE will be conducting a reorganisation exercise after the merger, aimed at ensuring optimal service delivery.
• The committee commended and applauded the empowerment of women in the department, as well as the establishment of a GBV subcommittee.
• The committee raised concern regarding the performance of the Energy Policy and Planning branch, which only managed to achieve 2 targets, and there was also an underspending of R7,6m.
• The committee congratulated the department on its efforts in electrifying households, where they have exceeded set targets.
• The committee further commended the department on their approval of licences to 50 percent of HDSAs.
• The committee were encouraged with the accelerated rollout progress of the renewable energy programme.
• With regard to the budget cuts and the slow progress of projects, the department stated that financial results are also shared with the National Treasury (NT). So when the NT requests for budget reductions, they are already aware of projects which are moving slowly. The department also report to National Treasury on a monthly basis. On budget cuts relating to service delivery programmes, the department stated that at times there are ‘push-backs”, but they discuss extensively with NT and come up with a collective agreement.
• The budget for the solar water heater (SWH) programme for 2019/20 was R62,8m
• According to the department, the actual number of missing solar water heaters (SWH) has not been ascertained. However, it is actual components or parts which are missing from the units. Currently, a litigation is ongoing, as a full working unit is needed for installation. The manufacturer thus has to give a full unit, as this is what the department has paid for.
• The committee enquired as to the reasoning behind a feasibility study being conducted during the period under review (when the project is already being implemented) and the department stated that this was a carry through from the previous financial years, which was performed because of the delays experienced.
• The committee raised concerns regarding the major underspent in compensation and goods & services of R256m, according to the department R208m of this relates to transfers, and a big part of this relates to the non-grid programme.
• The committee pointed out that the department incurred irregular expenditure of R8.555 million in the New Nuclear Build Programme (NNBP). The department stated that they have accepted the irregular expenditure, but noted that it has to go through its due processes, one of which is the investigation and for it to be condoned by NT, some action need to be taken, and this process might spill over to the next financial year.
• With regard to fruitless and wasteful expenditure, the department informed the committee that an investigation is currently underway.
• The department acknowledged that there were delays relating to the non-grid programme, specifically relating to procurement delays and the lockdown contributed to some of these delays. Because of the hard lockdown, the various bid committees could not meet. However, the department confirmed that the bid has been concluded, contracts are being drawn up and allocations are being attended to by the specific branch. The department confirmed that there should be no further delays in the administrative part of the programme. The branch has been requested to inform the service providers that the implementation should happen speedily.
• On creditor payments, the department stated they do discuss these matters with the Auditor-General of SA and that they do share their calculation methods with them.
• The committee again raised concerns regarding the slow submission (perpetual postponement) of legislation to Parliament. The department stated that since the merger of the two departments, the branch has now moved with speed to finalize and process legislation to be tabled to Parliament and also assured the committee that a number of pieces of legislation will be tabled before the end of the financial year, i.e. Gas A/B, Nuclear Waste Management Bill, these will be before Cabinet in 2 weeks’ time. With regard to the ERA and NERA bills, the department foresee delays on the processing of these, especially the ERA Bill, as these relate to current issues relating to the restructuring of Eskom, the need to regulate this space in term of the new structure etc.
• With regard to the R500k incurred by an employee of the department, the department stated that this is currently a legal matter, which is handled by the State Attorney working with the department’s legal services Chief Director. So when the matter was investigated, the employee was then seconded from the Gauteng (Braamfontein office) to head office in Pretoria.
• The committee were very displeased with the wasteful expenditure of R 551 000.00 which was recorded under travel claims for an employee, who was seconded from the regional office in Gauteng to the Head Office in Pretoria. This wasteful expenditure has been happening since 2012. Members questioned as to why no disciplinary action has been instituted against the employee. According to the department, once the investigation is finalised the department will implement consequence management.
• On the wasteful and fruitless expenditure by the department on the travelling costs by an employee, the committee pointed out and highlighted that this should not have happened, and emphasized that this is clearly a failure of Human Resource management in the department. The committee reiterated that these are matters of the internal disciplinary processes, which the department failed to institute since 2012.
• The committee further questioned as to why the AGSA only reported on the above-mentioned wasteful and fruitless expenditure during the period under review, as the incident occurred since 2012/13 financial year.
• According to CGS, contingent liabilities calculations, have been performed by them for many years and they have never had a problem in this regard, neither in the method of calculation or accounting standards which have been used. What made this situation peculiar for the year under review is: the service provider who is providing actuarial expertise to the CGS, requires particular information which is consolidated for them to do the calculation. The transition of the transfer of derelict and ownerless mines from CGS to another entity of DMR, meant that they had to depend on 2nd hand and tertiary sources of information in order for them to consolidate their calculation. The quality of information provided was further affected by the national lockdown. With the report being finalised much later, this is where this anomaly has occurred.

 

 

7. RECOMMENDATIONS

 

Informed by its deliberations, the Committee recommends that the House request that the Minister of Mineral Resources and Energy should:

 

1. Ensure that there should be the required urgency by management in responding to the AGSA’s requests relating to addressing risks identified and improving internal controls that will improve the audit outcomes of both the department and its entities.
2. Ensure and emphasize that there should be regular and timely reviews of performance information by senior management to ensure that valid, accurate and complete reporting is done to minimise reporting errors.
3. Provide feedback on the implementation and progress of action plans to ensure improvement in the audit outcomes of the portfolio.
4. Address the non-compliance with key legislation which remains a challenge especially in Supply Chain Management (SCM), which has led to irregular expenditure and fruitless and wasteful expenditure being incurred.
5. Develop intervention to ensure that management implement the necessary controls and checks in place to ensure that annual financial statements prepared are of a good quality.
6. Focus more on gold and coal mines when devising a strategy to achieve the zero harm goal.
7. Identify all activities that are likely to be negatively affected by level one regulations and develop a mitigation plan to address these.
8. Present the findings of the legislative reviews that were performed during the last financial year, as well as the programme of action before the Committee.
9. Present a medium term plan to deal with obsolete ICT system, which was identified by the internal audit, as posing risk to the sustainability of the departments operation.
10.  Present on the licensing regime, including the SAMRAD system, so as to evaluate turnaround time and efficiency in relation to revenue collected.
11. Provide a comprehensive report relating to the incident of the employee who incurred fruitless and wasteful expenditure on travelling. The report should detail how the cost was incurred, how the department intend addressing the issue and who was responsible for this loss. The aim of the information requested is to ensure that the wasteful expenditure does not flow into the next financial year.
12. Ensure that the outstanding audits are finalised by 30 November 2020,
13. Engage the National Treasury regarding the financing of the ICT system as to minimise risks to the department’s operations.

 

 

8.  APPRECIATION

 

The Committee would like to thank the Minister of Mineral Resources and Energy, Mr S.G Mantashe, the Director-General of the department, Adv. T Mokoena, senior staff members and the staff of the Department s, for their cooperation and transparency during this process.

 

The Chairperson wishes to thank all Members of the Committee for their active participation during the process of engagement and deliberations and their constructive recommendations reflected in this report.

 

The Committee also wishes to thank its support staff, in particular the Committee Secretaries, Ms A Boss, Mr A Kotze, the Content Advisor, Mr N Kweyama, the Researcher, Mr S Maboda, the Committee Assistant, Ms V Makubalo and the Executive Secretary to the Chairperson, Ms N Baleni, for their professional support and conscientious commitment and dedication to their work. 

 

Report to be considered.

 

 

 

 

 

 

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[1] Department of Energy Annual Report (2018/19)

[2] National Treasury (2018)

[3] National Treasury (2018)