ATC221124: Report of the Standing Committee on Appropriations on its Oversight visit to the Department of Defence and its Institutions in the Gauteng Province from 19 to 22 April 2022, dated 23 November 2022
Report of the Standing Committee on Appropriations on its Oversight visit to the Department of Defence and its Institutions in the Gauteng Province from 19 to 22 April 2022, dated 23 November 2022
The Standing Committee on Appropriations, having undertaken an oversight visit to the Gauteng Province from 19 to 22 April 2022 reports as follows:
The Standing Committee on Appropriations (the Committee) is established in terms of section 4(3) of the Money Bills Amendment Procedure and Related Matters Act, No.9 of 2009. The Act requires the Committee to consider and report on:
- Spending issues;
- Amendments to the Division of Revenue Bill, the Appropriation Bill, Supplementary Appropriation Bill and the Adjusted Appropriation Bill;
- Recommendations of the Financial and Fiscal Commission (FFC), including those referred to in the Intergovernmental Fiscal Relations Act, 1997 (Act No. 97 of 1997);
- Reports on actual expenditure published by the National Treasury (section 32 reports); and
- Any other related matters.
The Committee undertook an oversight visit to the Gauteng Province in order to visit the South African National Defence (SANDF) Portfolio in order to engage with the SANDF leadership, organised labour and other stakeholder on various matters affecting the entire defence ecosystem. The Committee, had engagements with the following stakeholders during the oversight visit:
- National Treasury;
- Auditor General of South Africa (AGSA);
- Department of Public Works and Infrastructure (DPWI);
- Denel SOC Limited;
- Armaments Corporation of South Africa (Armscor); and
- Organised Labour.
- Purpose of the oversight visit
The purpose of the oversight visit was to allow the Committee to engage with the South African National Defence Force (SANDF) leadership, organised labour and other key stakeholders on various issues of interest affecting the SANDF and conduct physical inspection on SANDF facilities where it was considered necessary by the Committee. Given the recent continued baseline reduction on the budget allocation for the SANDF, the Committee wanted to assess the capacity and ability of the SANDF to protect and defend the sovereignty of the Republic as envisioned in the Constitution of the Republic of South Africa. Section 200 (2) of the Constitution of the Republic enjoins the SANDF to defend and protect the Republic, its territorial integrity and its people in accordance with the Constitution, and the principles of international law regulating the use of force.
The Committee also wanted the SANDF, Denel and Armscor to brief it on detailed, practical and measurable plans, and time frames to address all the critical areas of concern as identified and reported by the Auditor General of South Africa (AGSA) to Parliament on the SANDF, Armscor and Denel financial statements. In line with the report and recommendations made by the AGSA, the oversight visit was also intended for the Committee to assess the extent to which the SANDF, Denel and Armscor are able to develop reliable and measurable audit action plans in the interest of prudent public finance management, and report to Parliament.
Having undertaken an oversight visit to the SANDF facilities in the Free State province during the Fifth Parliament (13-17 August 2018), the Committee wanted to engage the SNDF leadership on progress made, and challenges encountered in implementing the recommendations made by the Committee and passed by the National Assembly on the Committee’s oversight report.
The oversight delegation comprised of the following Members of Parliament: Mr S Buthelezi (Chairperson), Mr X Qayiso (ANC), Ms ED Peters (ANC), Mr OM Mathafa (ANC), Mr EJ Marais (DA), Ms EN Ntlangwini (EFF) and Mr NLS Kwankwa (UDM). The Committee was accompanied by the following parliamentary officials: Mr A Arends (Committee Secretary), Mr M Maubane (Committee Secretary), Ms N Magazi (Researcher), Mr S Magagula (Content Advisor) and Ms N Chaso (Committee Assistant).
The Portfolio Committee on Public Enterprises joined the Committee on 22 April 2022 for a joint session at the Denel`s Headquarters in Centurion. The delegation of the Portfolio Committee on Public Enterprises comprised of the following Members of Parliament: Mr K Magaxa (Chairperson), Ms J Tshabalala (ANC), Ms J Mkhwanazi (ANC), Ms R Komane (EFF) and Mr G Cachalia (DA). The Committee was accompanied by the following parliamentary officials: Mr D Mocumi (Committee Secretary), Ms Y Cele (Committee Assistant), Ms L Bramwell (Researcher) and Adv R Mnisi (Content Advisor).
The Committee met with the following stakeholders at various sites and stakeholder engagement meetings during the oversight visit:
Auditor General of South Africa: Mr T Rabonda (Deputy Business Executive Director); Mr LA Laurens (Deputy Business Unit Leader), Mr MB Tsotetsi (Business Unit Administration Manager) and Mr EC Coetzee (Senior Manager).
Department of Public Enterprises: Mr L Tekane (Parliamentary Liaison Officer).
National Treasury: Mr M Bhidza (Director), Ms T Marotholi (Director), Dr D Randela (Chief Director), Ms M Nxumalo (Acting Chief Director), Mr J Mahangu (Analyst) and Ms S Ntombela (Analyst).
Department of Defence: Major General Ledwaba (Officer in Command of the Defence Works Information), Major General N. Mkhize ( Officer Commanding of the South African Army Support Base), Major General Dube (Chief of SA Army,) Admiral A. Morris (Acting Chief Defence Military Technology), Mr A Agotsi (Acting Secretary of Defence), Brigadier General A Wiesse (Director: Human Resources Acquisition), Ms P Muregu (Director HR Career Management), Ms Turnbul (Geomatics Officer), Mr L Mahlangu (Liaison Officer), Mr PM Faltenjwa (Staff Officer for Strategy & Planning), Mr PM Falatenjwa (Senior Staff Officer for Strategy & Planning), Mr J du Plooy (Facility Warrant Officer), Mr RA Marimi (Parliamentary Liaison Officer), Lieutenant Colonel L Nontshinga (Staff Officer for Infantry), Colonel MT Leketi (Senior Human Resource Manager), Colonel TT Taedi (SSO Effect Analyst), Brigadier General ML Selloe (Director for Information Warfare), Brigadier General P Raseroka (Director for Legal Services), and Colonel D M Khubyana (SSO Crisis Management).
Department of Public Works and Infrastructure: Mr P Nsengani (Director), Mr E Motlhabane (Deputy Director), Mr S G Motshwane (Deputy Director), Mr Mazibuko A (Acting Chief Financial Officer), Ms B Mokhuthu (Deputy Director-General), Ms R Nadassen (Director), Mr PF Chiapase (Chief Director), Mr R Limet (Director); Mr G Ntombela (Chief Director); Mr R Lima (Director) and Mr S Ntombela (Deputy Director).
National Health and Allied Workers Union (NEHAWU): Mr Nanto (Head of Organizing).
Solidarity: Mr van der Bijl (Head of Legal Affairs) & Mr Pretorius (Representative).
South African Security Forces Union (SASFU): Ms Mavuso (President) and Mr Sethona (National Treasurer).
United Association of South Africa: Mr R Grobler (Sector Manager).
National Union of Metalworkers (NUM): Mr M Madolo (Metal Sector Coordinator), Ms C Nanto (Head of Organising) and Mr Badi TK (Industrial Engineering Manager).
South African National Defence Union(SANDU): Mr L Mohapi (National Organizer), Mr J Dubazana (National Negotiator), Mr Munyedzi B (Regional Organizer) and Mr L Chisiwa (Regional Organiser).
Denel SOC Limited: Mr S Ntshikele (Chief Executive Officer), Mr T Badi (Industrial Engineering Manager) and Ms TN Sabela (Acting Chief Financial Officer).
Armscor: Dr M Mkaza (Group Executive: Research & Development), Mr Gungqwa
(Business Development Manager), Adv S Mbada (Chief Executive Officer), Adv B Senne (Group Executive: Business Assurance); Mr F Chauke (Quality Specialist), Mr M Teffo (Group Executive Officer: Acquisition and SCM) and Mr G Grobler (Chief Financial Officer).
The SANDF plays a pivotal role in the South African Security Services as outlined in both section 199 and section 200 of the Constitution. The Committee noted the continued reports and complaints about the inadequacy of resources allocated to the Department of Defence (DoD). Resources appropriated by Parliament to the SANDF started to decline in the 2008 MTEF and has been consistently decreasing throughout the previous financial years. According to the 2021 Appropriation Act, SANDF had a baseline reduction of R13.4 billion over the 2021 Medium Term Expenditure Framework (MTEF) period totalling R3.9 billion in 2021/22, R5.4 billion in the 2022/23 and R4 billion in 2023/24. The SANDF has consistently indicated that will inhibit SANDF to execute its Constitutional mandate. As a consequence of these allocation reductions, the Committee was concerned that these would likely have the following implications on the operations of the SANDF and the entire defence ecosystem:
- Industry risks owing to exposure and reliance on Denel and Armscor for prime mission equipment. The Committee was concerned about the financial performance of these entities and their possible impact of the work of the SANDF;
- The possible implosion of the domestic defence manufacturing capability, which would necessitate South Africa to be import dependent, with potential negative externalities to the sovereignty of the State;
- The delays in the filling of the critical positions and recruitment of critical military personnel;
- The delays/lack of training and retention of the existing military personnel;
- The lack of attraction and recruitment of highly skilled military personnel;
- Reduction in the morale and commitment among the existing military personnel; and
- Slow procurement and maintenance of tools of trade (including ammunition, military gear, vehicles and planes).
In its physical inspections, the Committee visited military and defence facilities in the Thaba Tshwane Joint Services Base and the Waterkloof Air Force Base. Inspections were conducted on the strategic sites at these two Bases on 20 April 2022 an on 21 April 2022 respectively. However, due to time constraints, the Committee was unable to conduct site inspections at the Denel and Armscor facilities. Details on the findings and observations are contained in this report.
- Key objectives of the oversight visit
The objectives for the oversight visit are as follows:
- To meet with the National Treasury, Auditor General South Africa and DPWI to gain insights on key funding and financial performance related matters of the SANDF portfolio;
- To hold discussions with organised labour represented in SANDF, Denel and Armscor on labour related challenges faced by the personnel.
- To engage with SANDF leadership on the impact of budget reductions over the past five financial years;
- To have briefing by SANDF on the assets disposal policy of non-core and old assets;
- To gain insights on the progress made in respect local economic transformation and empowerment, particularly for youth, woman and people living with disabilities;
- To assess the progress made in respect of devolution of the maintenance responsibility of SANDF infrastructure from the DPWI to the Department of Defence;
- To receive an update on the progress made to address the challenges in respect of the poor living conditions for military personnel. To assess the poor workmanship in various projects and subsequent consequence management to the affected service providers, security concerns on various military facilities including training facilities that house high calibre and dangerous ammunition from SANDF; and
- To have discussions with Denel, Armscor and SANDF, the challenges experienced by the State-Owned Companies (SOEs`) and measures undertaken to restore their fiscal stability.
- Committee Engagements with the Key Stakeholders
This section focuses on the matters that were raised by the various stakeholders in a meeting that took place at the Southern Sun Hotel in Pretoria on 19 April 2022:
- Auditor General of South Africa
The Auditor General informed the Committee that the Public Audit Act No 25 of 2002 was amended and the Committee welcomed this development. Despite the amendment, the Committee expressed displeasure on the number of audit errors in many departments including the Department of Defence. The Auditor General explained measures that were put in place to mitigate the recurrence of these errors.
The Auditor General reported that it was unable to fully audit Department of Defence due to existing limitations. These limitations were caused by the sensitive nature of some defence information that should ideally, not to be used in the audit. The Auditor General submitted that this audit limitation creates an opportunity for corruption and violations of supply chain and procurement regulations applicable to government institutions. Lack of consequence management and strict internal control, including poor financial management remain serious challenges within the Department of Defence.
The Auditor General`s reported that Denel has failed to produce financial statements for a considerable period.
- National Treasury
The National Treasury appraised the Committee on the possible implications of the Cabinet`s approved 2021 baseline reduction of R5 billion that was implemented in 2019 on the Special Defence Account.
National Treasury submitted to the Committee that it has conducted a spending review in 2020/21 on a sample of properties that Defence leases from the private sector to assess value for money. These leases were managed by the DPWI on behalf of DoD as the custodian of government properties. National Treasury submitted to the Committee that DoD was paying above the market rate on some of the facilities leased from the private sector.
National Treasury submitted that its analysis revealed that DoD can realise savings going forward if some of the leases are renegotiated to reflect the prevailing market price. It was recommended that the DoD and DPWI should expedite the process to transfer the custodial infrastructure management function from DPWI to Defence. This would reduce costs and improve the state of DoD buildings.
In relation to assets disposal, National Treasury submitted that there were currently no policy, regulatory and legislative challenges for the disposal of assets. The challenges can emerge if the disposing department wants to retain revenue and the disposal of assets. This due to the requirements of section 213(1) of the Constitution and section 11(1) (a) of the PFMA which requires that money received by the national government must be paid into the National Revenue Fund (NRF) except for money reasonably excluded by the PFMA or another Act of Parliament. However, National Treasury submitted that the retention of revenue can be done legally through annual allocations during the Adjusted Estimates of National Expenditure (AENE) as a self-financing expenditure which only required the approval of the National Treasury`s approval.
National Treasury further submitted that it has on several occasions since 2018/19 annual budget processes, advised the DoD to expedite the generation of own revenue through leveraging of its assets (especially endowment properties) and intellectual property.
Regarding local procurement and empowerment, National Treasury submitted that it supported the SANDF’s Project Koba-Tlala. This project was aimed at decentralising procurement of goods and services to the lowest practical level in order to engage locally with communities and, through its spending capability, provide a catalyst for the development of small, medium and micro sized enterprises and small scale and emerging farmers. However, the National Treasury submitted that it has not received any request for deviation through the OCPO to support local procurement for food related items from the DoD/SANDF.
- Department of Public Works and Infrastructure
The Committee was briefed on the prevalence of poor quality of work done by some contractors. The Committee sought explanation on the efforts made by the Department to recoup the monies paid to contractors where there is evidence of poor workmanship.
On planning to implement refurbishment and life-cycle maintenance across the DoD Portfolio, DPWI submitted that this was constrained inter-alia by; dependency on the User charges received from the Users based on the devolution framework arrangements; and the reduction of DoD budgets that contributes towards maintenance. DPWI further submitted that inability to service the current maintenance backlog was estimated at R3.27 billion which was contributed to further deterioration of the DoD facilities.
On economic transformation, DPWI submitted its position to the Committee. The Committee encouraged the Department to do more in order to include the historically excluded racial groups in the economy of South Africa.
An update was provided on the progress made on the devolution of maintenance responsibilities from SANDF to DPWI. The Committee encouraged both Departments to expedite the process.
- Organised Labour
The Committee engaged with Organised Labour on 20 April 2022 at Thaba-Tshwane Joint-Service Base and the following matters were raised:
- Organised Labour reported that their submissions to the Committee were edited by the DoD management and more issues that they wanted to submit to the Committee have since been removed from their presentations. According to Organised Labour, this was the clearest of the acrimonious relationship that existed between employees and management.
- Organised Labour requested a full session with the Committee in order to allow it to submit all their concerns which they couldn’t do due to time constrains.
- On the challenges currently facing both Denel and Armscor, Organised Labour felt that there are officials who were pushing for the failure of both Denel and Armscor in order for them to be sold and their associates buy these entities of government.
- Organised Labour submitted that there was rampant corruption and nepotism which involves doctors and management in respect of preferential appointments within DoD. Organised Labour blamed the bloated organogram as one of the financial burdens within SANDF where for example, forty-six Generals were cited as earning over R1million per annum compared to the low salaries of other employees of SANDF.
- On Denel, Organised Labour submitted that non-payment of workers` salaries made it difficult for them to meet their financial obligations and this led to the low morale among workers. Organised Labour submitted that these issues and poor/lack of succession planning have negatively impacted on the workers` relationship with the management. Organised Labour asked the Parliament through the Committee for urgent interventions.
- Organised Labour submitted to the Committee that these SOEs were no-longer able to attract capable employees and to retain those with scarce skills which intellectual property was consistently being lost to competitors that pay competitively to employees.
- South African National Defence Force
After the meeting of the Committee with the SANDF on 20 and 21 April 2022 at Thaba-Tshwane Joint Services Base and Waterkloof respectively. SANDF leadership explained how the budget cuts have impacted on its functionality as mandated by Section 200(2) of the Constitution. SANDF also highlighted the deployment of army personnel to foreign missions and lack of equipment as serious challenge facing the SANDF within the current fiscal consolidation environment.
On issues industrial relations, the leadership of SANDF submitted that they did not experience any level of animosity between itself and the employees. However, given the submissions made by Organised Labour, the Committee encouraged the SANDF management to work closely Organised Labour and try to resolve any form that might exists, in the interest of the SANDF.
On the allegations by Organised Labour about a certain medical personel (Doctor) privately practicing while on the employ of the SANDF, the SANDF presented its position and promised to investigate the matter further and report to the Committee. However, the SANDF submitted that there are instances where contracted medical personnel are allowed to practice privately because the SANDF cannot afford to absorb these Doctors on full time basis due to issues of financial constraints.
On employment equity, the Committee raised its concerns that there few females within the senior management of the SANDF and highlighted this as a weakness that needed to be addressed by the SANDF. SANDF submitted to the Committee that there were challenges in accessing the Safety and Security, Sector Education and Training (SASSETA) for the capacitation of personnel and the SANDF committed to continuous engagements with SASSETA on this matter.
At the in-loco inspection of the Waterkloof Airbase, the SANDF engaged the Committee on the impact and the extent of the damage caused by fire at the Waterkloof Air Force Base. SANDF further clarified the risks that are associated with non-functioning fuel pump station that was affected by the fire. The Committee encouraged SANDF to work closely with the National Treasury to work out funding plans for repairs in order to minimise potential risks that might compromise the reputation of the country.
- Denel and Armscor
A joint session with the Portfolio Committee on Public Enterprises was held at the Denel Headquarters on 22 April 2022. A briefing was received Denel and Armscor respectively. Matters that were raised are as follows:
- Armscor management submitted to the Committee that due to its weak balance sheet, it has been difficult to honour employees’ salary obligations for over extended period of time. This was despite some unions having obtained Court Orders against the entity on behalf of their members. The entity pleaded with Parliament through the two Committees for cash injection in order to allow it to operate.
- The Committee enquired about Armscor and Denel’s relationship and their ability to openly engage and assist each other where there is a need. The Committee encouraged the two entities to find ways to work together for the benefit of both the SANDF and the country.
- On Denel, the Committee was concerned about the current Denel’s inability to trade and generate the withdrawal of Tax Clearance Certificate by the South African Revenue Services (SARS). The Committee implored on Denel leadership to engage and resolve these compliance challenges with SARS.
- On its financial requirements, Denel submitted that currently, it has requested a R3.7 billion bailout from the Department of Public Enterprises in order to implement its turnaround strategy.
- Overall Committee Observations and Findings
Having engaged with various stakeholders and made in-loco inspection with the SANDF portfolio and Organised Labour during its oversight visit, the Committee made the following observations and findings:
- Maintenance and refurbishing of SANDF facilities
- The planned devolution of maintenance responsibility from the DPWI to SANDF has not been finalised as per the Committee recommendation after the oversight visit to SANDF facilities in Free State Province from 13 17 August 2018. This was largely due to the SANDF still developing some internal maintenance capacity. The Committee encouraged the SANDF and NPWI to quickly finalise this process where the SANDF has already developed capacity in line with previous Committee recommendations.
- The Committee noted the current refurbishments projects at the South African Army College which was underway.
- The Committee noted the submission by the SANDF that the Tshwane Metropolitan Municipality was involved in the SANDF construction sites around Tshwane and provided technical advice where appropriate.
- On the issue of the sink hole in Thaba-Tshwane, the Committee noted the submission by the SANDF that expert advice from the Tshwane Metropolitan Municipality in collaboration with the SANDF geologist was intended to share these critical skills and minimise the possible danger posed by the dolomite in the Thaba-Tshwane area where the SANDF facilities are built.
- Lease contracts and associated costs
- The Committee noted with concerns on the submission by National Treasury that property owners were charging the SANDF higher than market related prices for existing lease contracts.
- The Committee noted with concerns the submission by the AGSA that some buildings were being leased and paid for by the SANDF but were not fully utilised by the Department of Defence.
- Projects overrun and consequence management
- The Committee noted with concerns on the submission by the National Treasury and AGSA that some infrastructure projects for the DoD exceeded the projected period for completion.
- The Committee noted with concerns that despite some negative findings by the AGSA on the DoD `s finances, there was no consequence management for officials or contractors for late completion of contracts despite violations of PFMA and Treasury regulations.
- Threats posed by the Dolomite on the SANDF facilities
The Committee noted with concerns the life threatening danger and potential serious risks posed by the dolomite belt running through Thaba-Tshwane SANDF precinct and surrounding communities.
- Denel SOC Limited and Armscor SOC Limited
- The Committee noted with concerns on the financial state of both Denel and its failure to honour its salary obligations to its employees. The Committee encouraged the entity to quickly implement its turnaround strategy if the requested funding were to be made available.
- The Committee noted with concerns the submission by Labour that there was poor working relations between Denel and Armscor. Given that these are government entities, the Committee holds a view that these institutions that are key role players in the defence ecosystem should complement each other where possible and never compete against each other as government institutions.
The Committee, having engaged with the stakeholders and undertaken site visits to various Defence institutions recommends the following:
- That the Department of Defence and the Department of Public Works and Infrastructure should expedite the transfer of maintenance responsibilities from DPWI to the SANDF in areas where there is existing capacity within the SANDF, in line with the Committee recommendation made in 2018 after the oversight visit to the defence facilities in the Free State Province.
- That the Department of Public Works and Infrastructure explore alternative on constructing new sites to host government departments to avoid paying hefty amounts for lease contracts. As a starting point, the Department of Public Works and Infrastructure must conduct government land audit both nationally and internationally for the construction of government owned buildings.
- That the Department of Public Works and Infrastructure should provide a list of all the incomplete projects and all government institutions who are defaulting on paying rent and for other services in government owned buildings.
- That the Department of Defence should embark on a public education programme to create awareness to the surrounding communities about the dangers of ignoring water leakages, which in turn results in sinkholes.
- That the Committee should engage Department of Water and Sanitation to encourage initiatives for creating public awareness on the dangers of ignoring water leakages as they can lead to sinkholes.
- Follow-up meeting to assess progress made in relation to the transfer of the maintenance function from DPWI to DoD since the Committee oversight.
The Committee held a follow-up meeting with the DoD and DPWI on Friday, 2 September 2022 via the Zoom virtual meeting. The Committee made the following findings during this meeting:
- The Committee noted that the devolution function intended to transfer DoD infrastructure maintenance function from DPWI to DoD had not been finalised since the Committee`s last oversight visit to the SANDF and its institutions in the Gauteng Province.
- The Committee noted that there were a number of disagreements between DPWI and DoD, and encouraged both departments to improve their working relationship in order to ensure the successful implementation of the Committee resolution to migrate the maintenance function of DoD infrastructure from DPWI to DoD.
- The Committee noted that a number of level one to four maintenance projects were stalled, pending the finalisation of the devolution responsibility.
- The Committee noted with concerns that the state of disrepair of 1 Military Hospital has cost South Africa`s honour as a preferred country to provide the best medical services to heads of state across the globe.
Subsequent to the above-mentioned meeting, the Committee resolved that the DPWI and DoD work on a joint report and brief the Committee on how the devolution responsibility will be expedited and report back to the Committee within two months. Furthermore, the Committee requested that that the DPWI should speedily attend to the serious threats posed by the sinkholes in the Thaba Tshwane area in order to protect surrounding communities and the potential loss of life.
The Committee undertook to share other issues outside its mandate with other relevant departments through other committees of Parliament. Furthermore, the Committee undertook to continuously engage with both DPWI and DoD on the transfer of the maintenance function and other related budget matters affecting the SANDF portfolio.
The responses to the recommendations as set out in section 7 and 8 above by the relevant Executive Authorities must be sent to Parliament as well as the Committee within 90 days of the adoption of this report by the National Assembly.
Report to be considered.