ATC130613: Report of the Standing Committee on Appropriations on the Appropriation Bill [B1-2013] (National Assembly – Section 77), dated 12 June 2013

REPORT OF THE STANDING COMMITTEE ON APPROPRIATIONS ON THE APPROPRIATION BILL [B1-2013] (NATIONAL ASSEMBLY – SECTION 77), DATED 12 JUNE 2013

Having considered the Appropriation Bill [B1 – 2013], referred to in terms of Section 10(1)(a) of the Money Bills Amendment Procedure and Related Matters, Act No. 9 of 2009, the Standing Committee on Appropriations reports as follows:

1. Introduction

Section 27(1) of the Public Finance Management Act No. 1 of 1999 (as amended) (PFMA) requires that the Minister of Finance (the Minister) table the annual budget for a financial year in the National Assembly before the start of that financial year or, in exceptional circumstances, on a date as soon as possible after the start of the financial year, as the Minister may determine. Section 26 of the PFMA requires Parliament and each provincial legislature to appropriate money for each financial year for the requirement of the State and the province, respectively. In executing this mandate, the Standing Committee on Appropriations, hereinafter referred to as the Committee, was established in terms of section 4(3) of the Money Bills Amendment Procedure and Related Matters Act, No. 9 of 2009, and herein referred to as the Act. In line with section 10(1)(a) of the Act and after the adoption of the Fiscal Framework, the Standing Committee on Appropriations has a responsibility to consider the Appropriation Bill, and report thereon to the National Assembly. In terms of sections 10(5) and 10(6) of the Act, Parliamentary Committees may advise the Appropriations Committee on the appropriated funding. No formal submissions were received from Committees in terms of sections 10(5) and 10(6) of the Act. The Bill was referred to the Committee on 13 March 2013 for consideration and reporting.

The budget for the 2013/14 financial year was tabled by the Minister of Finance in the National Assembly with the Appropriation Bill (B1 -2013), hereinafter referred to as the Bill, on 27 February 2013. The Bill was tabled together with the Division of Revenue Bill, Estimates of National Expenditure (ENE), Budget Review and the Budget Speech. Given the fact that Committees on Finance and Appropriations have different mandates derived from the Act, the Appropriation Bill was therefore referred to the Standing Committee on Appropriations.

In the process of dealing with the Appropriations Bill, section 9(7)(a) of the Act requires the Committees on Appropriations of both Houses to consult with the Financial and Fiscal Commission (FFC). S ection 10(8)(a) and 10(8)(b) of the Act requires the Committees on Appropriations to hold public hearings on the Appropriation Bill and proposed amendments and for the Committee on Appropriations to report to the House on the comments on and amendments to the Appropriation Bill. In addition, an advertisement was published in national and community newspapers from 22 to 28 April 2013 inviting general public comments and one submission was received from Earth Life Africa - Johannesburg . The stakeholders who were invited by the Committee and made submissions to the Committee were, namely:

· Financial and Fiscal Commission (FFC); and

· Public Service Commission (PSC).

In addition to the National Treasury which briefed the Committee on the Appropriation Bill in its entirety, the following departments were invited for hearings on their respective budget allocations:

· Department of Public Works;

· Department of Water Affairs;

· Department of Rural Development and Land Reform; and

· Department of Cooperative Governance and Traditional Affairs.

2. Context and Overview of the 2013 Appropriation Bill (B1 – 2013)

2.1 Context for the 2013/14 Appropriation Bill

The 2013 Budget was tabled within the framework of the National Development Plan (NDP). The National Development Plan contains proposals for an integrated strategy for accelerating growth, eliminating poverty and reducing inequality. The 2013 budget appropriation provides for spending that supports improvements in service delivery, expansions in infrastructure investment, economic support and development, job creation and enhancements in local government capacity.

In order to create the fiscal space to fund investment in these key areas, government at all levels has contributed to making funds available through reprioritization. This entailed all provincial and national departments and public entities being asked to identify areas where inefficiencies exist and effecting budget reprioritization in lower priority programmes. The 2013 budget framework makes available funding allocation of R117.2 billion over the medium term. The R117.2 billion funding made available comprises of R52.1 billion which has been identified for reprioritisation through expenditure reductions , R37.2 billion has been made available to compensate primarily for inflationary effects, and R27.9 billion is the drawdown from the contingency reserve.

The 2013 budget framework provides for average annual real growth in consolidated government spending of 2.3 percent over the MTEF period. The consolidated government expenditure is budgeted to increase by 7.9 per cent a year, from R1.1 trillion in 2012/13 to R1.3 trillion in 2015/16. The table below shows trends in the economic classification of payments for consolidated government expenditure for the period 2009/10 to 2015/16.

Table 1: Consolidated Expenditure by Economic Classification

Source: National Treasury 2013

In the 2013/14 financial year, compensation of employees constituted 35.3 per cent of consolidated government expenditure followed by transfers and subsidies at 32.7 per cent and goods and services at 15.3 per cent. Payments for capital assets and payments for financial assets were 6.8 per cent and 0.3 per cent respectively.

During the period 2009/10 to 2012/13, transfers and subsidies as a share of consolidated expenditure have increased from 32.0 per cent to 32.8 per cent. Transfers and subsidies are projected to increase marginally from 32.7 per cent in 2013/14 to 32.8 per cent in 2015/16. The large share of expenditure allocated to transfers and subsidies represents government’s significant contribution to poverty reduction and social development. More than half of all South African households benefit from social assistance. In particular, average annual growth in the number of recipients is projected to moderate in the medium term to 17.1 million recipients in 2015/16.

The share for compensation of employees of government consolidated expenditure has increased from 33.3 per cent in 2009/10 to 35.3 per cent in 2013/14. The rapid growth in compensation of employees in the past five years has been driven largely by increases in government employment, salary increases and several occupation-specific dispensations. The budget share for compensation of employees is projected to moderate in the medium term and reach 34.5 per cent in 2015/16. The share for goods and services remains stable at an average percentage share of 15.3 per cent in the medium term. Payments for capital assets and payments for financial assets maintain an average percentage share of consolidated government expenditure of 6.9 per cent and 0.3 per cent respectively in the medium term. The management of the public sector wage bill is critical in ensuring a balanced and a priority focused government expenditure framework.

The 2013 Budget review states that the value of major infrastructure projects in progress or under consideration in general government totals R3.6 trillion. It is envisaged that the NDP will guide decisions on the implementation of proposed projects. The table below shows public sector infrastructure delivery for the period 2011/12 to 2015/16.

Table 2: Public Sector Infrastructure 2011/12 to 2015/16

Source: National Treasury 2013

Total investment in infrastructure by the public sector has shown steady growth over the years increasing from R208.3 billion in 2011/12 to R262.8 billion in 2013/14. The public sector’s investment in infrastructure is projected to amount to R827.1 billion over the 2013 MTEF. A significant share of the funding allocation for infrastructure investment within General Government will be rolled out by provincial departments and local government. Infrastructure projects that address social needs thus not resulting in revenue streams will be financed by the fiscus and undertaken by national, provincial and local government. While many infrastructure projects are characterised by poor planning, lack of project management capacity and inadequate oversight, the strengthening of regulations and planning requirements should lead to improvements in infrastructure delivery.

2.2 Overview of the 2013/14 Appropriation Bill

Key national budget baselines additions amount to R52.6 billion over the 2013 MTEF period. In particular, R8.9 billion is allocated for the 2013/14 financial year, R11.6 billion in 2014/15 and R32.1 billion in 2015/16. National departments will receive R2.6 billion for compensation of employees to cover the costs of the improved conditions of service. The 2013/14 national baseline additions strive to give effect to governments key policy priorities which include investment in infrastructure, social services and job creation.

Table 3: 2013/14 Main Appropriation per Vote

Source: National Treasury 2013

The table above shows allocations per vote as per the 2013 Appropriation Bill (B1 – 2013). The main appropriation for national departments (excludes direct charges against the National Revenue Fund) increases from R546.4 billion in 2012/13 to R588.7 billion in 2013/14. The national votes receiving the largest allocations for the 2013/14 financial year are Social Development, Police, Cooperative Governance and Traditional Affairs, Transport, Defence and Military Veterans and Higher Education and Training. Other national votes receiving significant funding for 2013/14 include Basic Education, Health, Human Settlements, National Treasury and Correctional Services.

Table 4: Economic Classification for 2013/14 Main Appropriation

Economic Classifications	2012/13 Adjusted Appropriation R’000	2013/14 Main Appropriation R’000	2013/14 Main Appropriation % share
Current Payments	158812	168968	29%
Compensation of Employees	103301	111916	19%
Goods and Services	55429	56964	10%
Other	82	88	0.01%
Transfers and Subsidies	371681	402550	68%
Capital payments	14435	14258	2%
Payments for Financial Assets	1451	2905	0.5%
TOTAL	546379	588682	100%

Source: National Treasury 2013

The table above shows the 2013 Appropriation Bill (B1- 2013) classified per economic classification. In 2013/14, current payments are allocated R168.9 billion or 29 per cent of the total main appropriation. The allocation for current payments is comprised of compensation of employees which is allocated R111.9 billion or 19 per cent, goods and services which is allocated R56.9 billion and other which is allocated R0.08 billion or 0.01 per cent. The largest allocation of the 2013/14 appropriation is for transfers and subsidies. A significant share of national transfers and subsidies include transfers to households and conditional grants. Capital payments is allocated R14.2 billion or 2 per cent and payments for financial assets is allocated R2.9 billion or 0.5 per cent in the 2013/14 appropriation for national government.

3. Hearings on the 2013 Appropriation Bill (B1 – 2013)

3.1 National Treasury

National Treasury briefed the Committee on the 2013 Appropriation Bill. National Treasury stated that the Bill provides for appropriation of money from the National Revenue Fund with spending subject to provisions contained in the Public Finance Management Act No. 1 of 1999 (as amended). In addition, transfers to sub-national government were subject to provisions contained in the Division of Revenue Act of 2013.

The Committee was concerned with the significant allocations for infrastructure investment allocated to provincial and local spheres of government in relation to the successful completion of long term development projects. In particular, many infrastructure projects at local government level had not been completed per specifications. The Committee pointed out to the need to distinguish between funding earmarked for refurbishments and maintenance; and funding for long term developmental infrastructure projects. National Treasury indicated that most infrastructure spending was for replacement of existing infrastructure.

With regards to the maintenance of infrastructure, the Committee pointed out to the need to enhance the monitoring of maintenance and replacement budgets of departments and entities. The Committee was of the view that it was easy for departments to neglect the proper maintenance of existing infrastructure and thus rather opt to request additional funding for new infrastructure developments. For example, there was a need to track if infrastructure developments earmarked for a lifespan of 20 years were not poorly maintained thus reducing their useful lifespan to much less than that planned for.

The Committee welcomed government’s commitment to infrastructure investment of R827.1 billion over the MTEF. However, there was a need for an explicit differentiation of funding allocated from the fiscus and funding raised by state enterprises.

The Committee was concerned with the consistent poor performance in the provision of water services. In addition, the Committee pointed out to the lack of alignment and integration in the implementation and rollout of water services by various state institutions. In particular, the Committee was concerned about the rollout of water services in the local government sphere. National Treasury noted that there were challenges in the broad water sector which includes the national department, the water trading entity, the 12 water boards, water services authorities and municipalities.

The Committee pointed out that it had recommended that specific clauses be explicitly incorporated in the Appropriation Bill on the enforcing of planning as a requirement for infrastructure programmes. The Committee noted the response by the Minister of Finance on the incorporation of planning requirements for infrastructure in current revisions to the Treasury Regulations. However, given the persistent underperformance in national transfers on infrastructure to provinces and local government, the Committee viewed it as imperative that the clause be explicit in the Appropriation Bill.

3.2 Financial and Fiscal Commission

The Financial and Fiscal Commission (FFC) in its submission welcomed the 2013 Appropriation Bill and commended the current allocation of resources to designated priority areas. However, the FFC was concerned with the limited development impact of increased government expenditure. The FFC stated that challenges in general public service delivery lay not in technical financial management but in the political-administration interface, human resources management, organisational systems and capacity. In addition, negative sentiments on the country’s fiscal governance and fiscal prospects were borne out by the consistent lack of improvements in audit outcomes.

The FFC noted that while there is the tightening of regulations at local government level such as amendments to the Municipal Systems Act prescribing competency criteria and other regulations relating to conditions of employment of Section 57 managers; there was no similar tightening of the regulatory framework at provincial level. A key consideration was an assessment on whether provincial financial governance instruments such as the PFMA were attaining their intended outcomes.

The current dominant discourse in fiscal policy is sustainability. The FFC indicated that central to efforts to achieve fiscal sustainability will be the composition of budget expenditure. In addition, fiscal consolidation will remain under pressure in the medium term as the country’s economic growth remains vulnerable to the slow global economic recovery and domestic factors such as labour instability and service delivery protests. The FFC indicated that positive economic growth may still be attained provided that reductions of projected government expenditure (i.e. wage bill consequently consumer spending) are counterbalanced by increased infrastructure investment.

With reference to spending that promotes economic development, the FFC supported the emphasis on funding for education, infrastructure, energy, competition policy, economic regulation of utilities, trading standards and others. However, critical was the need to improve the quality of spending in provinces as they have significant levers to shape the outcome of policy programmes. In addition, national departments have yet to establish norms and standards for concurrent functions that are implemented by provinces. Therefore, the access and quality of services differs markedly between provinces.

With regards to investment in infrastructure, the Presidential Infrastructure Coordinating Commission has identified and prioritised 18 Strategic Infrastructure Projects (SIPs). The FFC indicated that a significant share of identified infrastructure projects falls within the ambit of local government. This includes plans to expand electricity distribution networks, develop national capacity to assist at least 23 least resourced districts to develop infrastructure for the delivery of basic services, and coordinating the planning and implementation of public transport and quality human settlements.

South African unemployment has remained consistently high for the past two decades. The high levels of unemployment place significant pressure on government budgets. The FFC’s assessment of government’s main pillars of economic policy such as the National Development Plan, New Growth Path, Industrial Policy Action Plan are anchored in significant expansion in government capital expenditure as a way of meeting government’s job creation target of 5 million jobs in 2020 (NGP) or 11 million jobs in 2030 (NDP). The FFC found that fiscal expansions (i.e. increasing infrastructure investment and current expenditure) have minimal impact on employment growth and must be accompanied by policy instruments that place emphasis on skills development and support to Small Micro and Medium Enterprises (SMMEs).

The FFC reported that skills and capacity are often a key challenge hindering the successful completion of service delivery projects at local government level. The 2013/14 Appropriation Bill allocates R763.6 million for local government capacity improvements which include Municipal Systems Improvement Grant (R240.3 million), Infrastructure Skills Development Grant (R98.5 million) and the Local Government Financial Management Grant (R424.8 million). The FFC highlighted that conditions for local government capacity grants should be verifiable and fully adhered to so as to ensure the achievement of desired outcomes.

The Committee pointed out that skills development need to be a central tenet of the Expanded Public Works Programme (EPWP), i.e. project leaders and facilitators should be competent and skilled in their respective roles. The FFC indicated that the EPWP programme needed to be significantly scaled up. However, the Committee was concerned that the envisaged improvement in skills was not being realised in the EPWP programme.

The Committee welcomed the positive initiatives by government with regards to economic support and development. In addition, the Committee noted the emphasis placed on Small Medium and Micro Enterprises (SMME) by the FFC and sought clarity on government’s provision of training for entrepreneurs. The Committee pointed out that there was a need to develop visible mentorship programmes through partnerships between government and the private sector.

The FFC agreed that in some instances national policy objectives were not prioritised by provinces and local government. In addition, whilst local government capacity remains one of the main bottlenecks in implementing many government programmes, there is no collective ownership of the consistent lack of capacity within local government.

3.3 Public Service Commission

The Public Service Commission (PSC) was invited to comment on the 2013 Appropriation Bill (B1-2013). In its submission it addressed the following issues, namely:

· Governance;

· Efficient, economic and effective use of appropriated funds, especially the disjuncture between the alignment of departments’ pre-determined objectives and actual expenditure;

· An assessment of skills and capacity levels of departments to deliver on key infrastructure programmes;

· An assessment on the use of consultants in National Government.

In its submission, the Public Service Commission (hereinafter referred to as the Commission) focused its presentation on national departments that were directly or directly involved in infrastructure programmes, namely; Education, Energy, Health, Human Settlements, Public Enterprises, Public Works, Transport and Water Affairs. The Commission assessed financial disclosures of Senior Management Service (SMS) members and found that only 84 out of 154 national and provincial departments complied fully with the financial disclosure framework. The departments not complying fully with the financial disclosure framework include Basic Education, Health, Public Works and Water Affairs.

The Commission manages the National Anti-Corruption Hotline and refers cases to departments. Less than half of corruption cases referred were closed in 83 per cent of national and provincial departments. Furthermore, the number of referred cases closed as at end of May 2013 is zero in Basic education, 17 per cent in Energy, 4 per cent in Health, 1 per cent Human Settlements, 100 per cent in Public Enterprises, 27 per cent in Public Works, 59 per cent in Transport and 43 per cent in Water Affairs.

The Commission reported that while departments incurred significant amounts of irregular and unauthorised expenditure, only marginal amounts were reported for financial misconduct thus suggesting under-reporting by departments on cases of financial misconduct. The Committee viewed the involvement of the Forum of South African Director Generals as critical in elevating the need to thoroughly deal with cases of financial misconduct.

In many instances, discipline is not managed effectively due to inadequate capacity to chair disciplinary hearings and represent departments. The Commission’s analysis of the 2010/11 and 2011/12 annual reports of 77 national and provincial departments shows that the number of departments that suspend employees for periods exceeding 60 days is increasing.

The Committee sought clarity on possible interventions in cases where suspensions exceeded 60 days. The Committee was concerned at increased litigation costs that may arise out of extended periods of suspensions. The Commission indicated that the management of discipline was a function of individual departments but that the Department of Public Service and Administration was looking into setting up a structure to manage disciplinary functions.

The Commission indicated that whilst most departments spend 90 per cent and above of their allocated budgets, the percentage share of national and provincial departments that managed to achieve more than 80 per cent of their predetermined objectives declined from 9 per cent in the 2010/11 financial year to 4 per cent in the 2011/12 financial year. The table below shows trends in spending versus performance for the main departments responsible for infrastructure delivery.

Table 5: Performance vs. Budget Spend

Departments	Expenditure		Performance		Audit Opinion
	2010/11	2011/12	2010/11	2011/12	2010/11'	2011/12
Basic Education	89.4%	91.4%	47.0%	53.0%	Unqualified	Unqualified
Energy	97.9%	99.6%	47.0%	57.0%	Unqualified	Unqualified
Health	96.6%	99.0%	37.0%	No appropriate evidence	Qualified	Unqualified
Human Settlements	98.0%	99.0%	67.4%	77.0%	Unqualified	Unqualified
Public Enterprises	97.0%	98.0%	61.8%	not indicated	Clean	Clean
Public Works	89.9%	88.9%	44.0%	46.0%	Disclaimer	Disclaimer
Transport	99.2%	99.2%	67.0%	74.0%	Unqualified	Unqualified
Water Affairs	96.0%	90.4%	65.8%	8.0%	Qualified	Qualified

Source: Public Service Commission 2013

The Committee expressed serious concerns at the continual non-attainment of predetermined objectives while departments manage to regularly exhaust budget allocations. In particular, the Committee has found in its assessment of national department’s financial performance that departments struggle to spend budgets as per spending projections throughout the year, in some instances only 50 per cent of appropriated funds had been spent by the end of the third quarter, yet a large share of the budget is spent within the last quarter of financial year. The Committee views this phenomenon as a clear case of fiscal dumping and a fundamental reason on why planned performance targets are not attained.

The Committee views the support of Executive Authorities (EAs) and Heads of Departments (HoDs) in departments’ performance management systems as critical for the entrenchment of accountability systems in government. The Commission indicated that there has been a steady decline in the number of HoDs evaluated over the past five years. In particular, HoDs in the Public Service are required to enter into Performance Agreements (PAs) with their EAs and these filed with the PSC by June of each year. However, the overall compliance rate for the submission of Performance Agreements (PAs) of HoDs by the due date of 30 June 2012 was 65 per cent.

With regards to vacancy rates, the Commission reported that as at 30 June 2012, almost 80 per cent of departments had a vacancy rate of above 10 per cent in respect of professionals and senior managers. The average length of time to fill posts in more than 70 per cent of national and provincial departments was more than 9 months.

The Committee sought clarity on reasons that led departments to appoint staff that is additional to the approved staff establishment. The Commission indicated that Chapter 1, Part 3 (g) of the Public Service Regulations provides for such practice but that it would investigate possible cases of abuse. Furthermore, the Commission reported that it may be a cost effective alternative to appointing consultants by departments as remuneration will be within government personnel grading systems. The Committee expressed concerns at the consistent high vacancies in technical and professional job categories. The Committee indicated that its expectation was that as more posts were filled in the public service there will be a simultaneous decline in the use of consultants.

The Commission in its submission reported that preliminary findings on its current study on the role of outsourcing in the public service show that, although 23 per cent of the sampled departments indicated that they had service delivery models in place, copies could not be obtained and departments could not explain what the models entailed. A major concern emanating from this finding is that the use of consultants without such guiding models may lead to possible duplication of skills and effort. Furthermore, the Commission’s analysis shows that the largest share of the departments’ budgets for consultants, contractors & agencies was spent on the rollout of infrastructure (i.e. Departments of Public Works, Roads and Transport combined).

4. Interactions with Selected National Departments

4.1 Department of Public Works

The Department of Public Works (DPW) has been allocated an amount of R6.2 billion for the 2013/14 financial year. The budget comprises of R2.8 billion for current payments, R2.5 billion for transfers and subsidies and R778.4 million for payment of capital assets. The Department is comprised of the following programmes, namely; Administration (R1.1 billion), Immovable Assets Management (R3.0 billion), Expanded Public Works Programme (EPWP) (R1.9 billion), Property and Construction Industry Policy Regulation (R39.2 million), and Auxiliary and Associated Services (R50.7 million).

The Department reported that its key priority for the medium-term was the implementation of the turnaround strategy which aims to return the Department to a state of full functionality. Although the turnaround strategy consists of 23 discrete projects , the Department’s key focus will be on six areas, namely; developing a credible and compliant register of state immovable assets; conducting a comprehensive audit of leases and the establishment of a Lease Management Framework; ensuring the progressive improvement of audit outcomes for the Department with particular attention to processes, systems, controls and better supply chain management; actively reducing fraud and corruption in the Department, meeting the needs of Prestige clients and operationalising the Property Management Trading Entity (PMTE) in terms of the Department’s mandate.

The Committee welcomed the focused approach in the implementation of the turnaround strategy. However the Committee was concerned that the Department does not have the necessary technical skills to deliver on its mandate and was instead reliant on consultants for critical skills such as engineers, quantity surveyors and contract managers. In addition, there were concerns at the extended period of time it takes to fill vacancies. The Department acknowledged that over the years there has been a gradual loss of critical skills within the department and that this was being addressed as part of the Turnaround Strategy.

The Committee expressed concerns regarding poor planning and weak contract management for infrastructure projects. The Department indicated that it is currently investigating measures to implement the Infrastructure Delivery Management System (IDMS) to address constraints and challenges on infrastructure delivery. With regard to contract management, the Department indicated that it was in the process of developing a capability model to re-establish this function to effectively support the Department’s operating requirements.

The Committee was concerned at the continual non-attainment of targets as stated in the Departments annual performance plan. The Department reported that the non-attainment of targets is being addressed through the Department’s three phased Turn-Around Strategy. The Department indicated that the percentage of targets achieved for 2010/11 were not been recorded by the Office of the Auditor-General (AG) on the Management Letter. The Committee views the management of performance as a core function of management and not dependent on the audit process.

The Committee was also concerned with overall progress and success of the Expanded Public Works Programme (EPWP). The Department indicated that the EPWP Programme has created 3,054,027 work opportunities for the period April 2009 to March 2013. This constituted 68 per cent of the five year target of 4,500,000 work opportunities. For the 2012/13 financial year, three provinces over-performed against their work opportunity targets, i.e., Eastern Cape , Mpumalanga and Western Cape , while the Northern Cape achieved 99 per cent of its work opportunity target.

In terms of financial performance for the Social Sector Grant, six provinces (GP, KZN, MP, NC, NW and WC) had spent more that 95 per cent of their allocations in the 2012/13 financial year while EC, FS and LP had spent less than 80 per cent of their allocations. With reference to the EPWP Integrated Grant to Provinces, full expenditure was not achieved in GP, FS, NC, NW and WC. In terms of EPWP Grant to Municipalities, only 53 per cent had been spent as at 31 March 2013.

The Committee expressed concerns with regards to payment of suppliers within the prescribed period of 30 days. Furthermore, the Committee sought clarity on payments made by other government departments for lease and building contracts under the Department’s management. The Department indicated that ensuring payments to suppliers are settled within 30 is a high priority and measures instituted to ensure compliance include addressing backlogs, improving the current invoice processing system and the implementation an invoice management system. The Department indicated that past trends show that client departments pay within 60 to 90 days.

The Committee sought clarity on the completion of the asset register and the quantification of the state’s immovable assets. The Department indicated that it is currently finalising the development of the software for physical verification and that the physical verification exercise is envisaged to be completed by July 2014 and the vesting will be completed by March 2016. Furthermore, the Department’s Immovable Assets Register Enhancement Programme will be finalized by 31 March 2016.

4.2 Department of Water Affairs

The Department of Water Affairs (Budget Vote 38) was allocated a total budget of R10.2 billion for the 2013/14 financial year. The budget comprised of six programmes, i.e. Administration (R978.6 million), Water Sector Management (R516.4 million), Water Infrastructure Management (R2.6 billion), Regional Implementation and Support (R5.9 billion), Water Sector Regulation (R118.7 million), and International Water Cooperation (R25.4 million).

The Department reported that in the process of implementing its Mega Projects for the 2013/14 financial year it will strive to ensure that s pending is according to demand plans and employ quantity surveyors and cost estimators to improve on overall project costing. Below is a summary of Mega Projects to be undertaken by the Department in the 2013 MTEF, namely:

· Olifants River Water Resources Development Project – Phase 2A (De Hoop Dam) – Project cost to completion (R3.1 billion). Projected to be completed in 2013/14.

· Olifants River Water Resources Development Project – Phase 2 Bulk Distribution System – Project cost to completion (R4.7 billion). 50 per cent of the project to be completed in 2013/14.

· Groot Letaba River Water Development Project (GLeWaP) – Construction of Nwamitwa Dam – Project cost to completion (R1.7 billion). 12 per cent of the project to be completed in 2013/14.

· Nationwide Dam safety rehabilitation – Project to cost R200 million in 2013/14. In the 2013/14 financial year the Department will complete the Elandsdrift Dam (EC), Stompdrift Dam (WC), Cata (EC) and Mnyameni (EC).

· Olifants-Doorn River Water Resources Project – Raising of Clanwilliam Dam – Project cost to completion (R1.9 billion). – 20 per cent of the project to be completed in 2013/14.

· Mokolo and Crocodile River (West) Water Augmentation Project Phase 1
(MCWAP-1) –Project cost to completion (R2.1 billion). 95 per cent of the projected to be completed in 2013/14.

· Groot Letaba Water Augmentation Project (GLeWAP) –
Tzaneen Dam Raising - Project cost to completion (R125 million). 25 per cent of the project to be completed in 2013/14.

· Mdlot River Development - Hazelmere Dam – Project cost to completion (R360 million). 85 percent of the projected to be completed in 2013/14.

· Luvuvhu River Government Water Scheme: Nandoni Pipelines— Project cost to completion (R750 million). – Project to be commissioned beginning May 2013.

The Committee was concerned at the levels and adequacy of capacity on projects where the Department is collaborating with the Water Boards and Water Service Authorities (WSA). Furthermore, the Committee pointed out at the need for adequate planning and management capacity to monitor and evaluate projects. The Department indicated that in the past there has been adequate capacity from Water Boards in assisting WSA to implement infrastructure projects. However, the introduction of the Municipal Water Infrastructure Grant (MWIG) will require that Water Boards develop additional capacity. In dealing with Mega Projects, the department indicated that a Project Management Unit (PMU) has been initiated which has access to expertise such as civil electrical, mechanical and structural as well as environmental, quantity surveying etc.

The Committee was concerned at the levels of internal capacity and readiness to implement water projects for the 2013/14 financial year. In particular, the Committee expressed concerns at the existing high vacancy rate for skilled professionals. The Department indicated that the vacancy rate was at 10.5 per cent which was 849 posts. The Department has advertised 702 posts for the 2013/14 financial year.

The Committee pointed out that in many instances a significant share of funding earmarked for projects is accrued to consultants and sought clarity on measures undertaken by the Department in maximising value for money through the utilisation of internal capacity in the implementation of projects. The Department indicated that it only appoints the category of consultants (i.e. technical engineering and construction related) as required by Construction Industry Development Board (CIDB) and those required to assist warm bodies with specialized skills.

The Committee was concerned at the diverting of infrastructure funds from one municipality to another. In particular, the Committee stated that often it is the poorest municipalities that had principal need for infrastructure investment and capacity support. The Department indicated that the diverting of funds in some instances was due to external reasons beyond the control of the recipient municipalities such as the slow responses to tender advertisements thus impacting on the project life cycle. The Department indicated that it offers limited support to municipalities through regional offices and most capacity support to municipalities were carried out by the Municipal Infrastructure Support Agency (MISA).

4.3 Department of Rural Development and Land Reform

The Department is allocated R9.5 billion for the 2013/14 financial year. This includes R1.7 billion for compensation of employees, R1.4 billion for goods and services, R6.4 billion for transfers and subsidies and R16.3 million for capital payments. It is important to note that a large part of this allocation goes to transfers and subsidies under the Land Restitution Programme and the Land Reform Programme. The spending focus will be on settling restitution claims to increase access to and the productive use of land; and the implementation of the comprehensive rural development programme (CRDP).

The Department indicated that it has developed operational plans per programme on how the budget allocations would be spent. The Director-General reported that performance agreements had been signed with the Deputy Directors-General within the Department to ensure that there was no deviation from operational plans. The department further indicated that only 14 per cent of the Department’s overall budget will be spent on the support function with the remainder being allocated towards the priority areas.

The Department reported that Restitution, Land reform, and Rural Development were its key priorities for the 2013/14 financial year. With regards to Restitution, the following priority areas were identified:

· Re-opening of the lodgment date for land claims to accommodate those communities or individual who missed the 31 December 1998 cut-off date and to also provide for the exceptions to the 1913 cut-off date to accommodate historical landmarks, heritage sites and descendants of the Khoi and San who lost their land long before 1913; and

· Settling 230 land claims and finalising 208 backlog land claims.

With regards to Land Reform, the following priority areas were identified:

· Recapitalisation of 730 land reform farms to improve productivity;

· Acquisition and allocation of 311, 917 hectares of strategically located land; and

· Tenure reform policy.

Under Rural Development, the following priority areas were identified:

· Continue with the CRDP roll-out in 23 prioritized poorest districts;

· Increase job creation through infrastructural projects and rural enterprises; and

· Progress with Phase 2 and Phase 3 of CRDP (enterprise and industrial development).

The Department reported that it has identified the following focus areas in order to promote effective budget expenditure and improvements in service delivery:

· Improved Budget & Programme Planning: Extensive Consultation during Target Setting;

· Focus on Improving Supply Chain Processes;

· Internal Monthly Expenditure Monitoring as an Early Warning Mechanism;

· Use of the Available Government Budget Monitoring Instruments;

· Improving Internal Governance & Planning Structures for Improved Service Delivery;

· Portfolio Prioritisation Framework; and

· Institutionalisation of a Project Management Framework.

The Committee made reference to the re-opening of the lodgement of land claims and expressed concerns at the Department’s existing capacity to successfully redress challenges experienced during the initial land claims process. In addition, the Committee was concerned at the readiness of the Department to effectively and efficiently process the additional land claims that are to be submitted during the re-lodgement period as it was envisaged that more claims would be submitted. The Committee also sought clarity on the estimated cost implications of the re-lodgement process. The Department indicated that it could not, at present, quantify the rand value of outstanding land claims to be settled.

The Department indicated that legislation on land reform has been prepared and submitted to Cabinet and undergoing public consultations. In 2010, the department had undertaken broad consultations with beneficiaries on land reform programme and it found that many were in favour of an overhaul of the programme. While 7.5 million had been affected through past land legislation, only approximately 90 000 had lodged claims and 95 per cent of these have been settled. The department envisaged that a significant number of new claims were likely to be on already settled claims.

The Committee was concerned at the litigation costs incurred in the process of finalising land claims and their impact on the overall funding allocation for restitution. The Department indicated that in the past Provincial Commissioners’ had undertaken commitments without conducting through due diligence consequently the Department has resolved to centralise its legal office so as to streamline all litigation matters.

The Committee expressed concerns regarding delays in the successful implementation of the Comprehensive Rural Development Programme (CRDP) and clarity was sought on whether this was as a result of a lack of capacity. In particular, the Committee pointed out to the negative impact that the use of unqualified extension officers has on the success of the rural development programme; and the need to link the activities of the Department of Agriculture, Forestry and Fisheries; and the activities of DRDLR.

The Department reported that new branches have been established to assist in the roll-out of the CRDP and these included Post-Settlement, Rural Infrastructure and Enterprise Development. The Department indicated that the Land Commission is to be re-engineered to focus only on claims. Furthermore, the Department will seek to expand the capacity of the state in mapping and cadastral systems through linking various internal branches with the Land Commission, Deeds Office and other research institutions such as the Human Sciences Research Council and the University of South Africa .

The Committee sought clarity on whether there were collaborative consultations between the Department and other relevant stakeholders such as local municipalities, provincial departments and national departments in the implementation of the land restitution programme. The Department indicated that there were instances where a specific land claim was successful on a particular piece of land but that the identified land was already being utilised for other purposes. For example, in one instance mining rights had been awarded on a piece of land which was to be later successfully claimed. The Department indicated that the lack of strategic partnerships between relevant stakeholders delayed the land restitution programme.

The Committee was concerned at the Department’s prevailing vacancy rate and pointed out that the Chief Financial Officers’ (CFO) position has not been filled for the past three years. The Committee emphasised the importance of adhering to legislative prescripts with regards to the filling of funded vacant posts, i.e. the Public Finance Management Act No 1 of 1999 (as amended), Public Service Act of 1994 (as amended) and the Public Service Regulations of 2001 (as amended). While the Committee welcomes the Department’s stated interventions aimed at effective budget spending for the 2013/14 financial year, the omission of the filling of funded vacant positions as a key pillar in the Department’s strategy to promote effective budget expenditure and improve service delivery was cause for concern. The Committee pointed out that there were 698 vacant posts in the staff establishment that still had be filled. In particular, there were around 350 vacancies in critical priority functions such as Rural Infrastructure and Rural Enterprises.

The Committee pointed out that there has been a regression in audit outcomes since the 2010/11 financial year with the AG finding that the lack of improvement in the audit outcomes of DRDLR is as a result of the inadequate preparation, implementation and monitoring of the action plans. The Department indicated that it envisages reductions in irregular and fruitless and wasteful expenditure following the withdrawal of delegations from Regional Offices.

4.4 Department of Cooperative Governance and Traditional Affairs

The Department of Co-operative Governance and Traditional Affairs is allocated
a budget of R58.3 billion for the 2013/14 financial year, this includes R277.7 million for compensation of employees, R2.1 billion for goods and services, R55.8 billion for transfers and subsidies and R12.2 million capital payments. A large portion of the Department’s allocation is earmarked for transfers for the local government equitable share which will be used to cover municipalities’ operational costs and further expand the provision of basic services.

The Department recorded an under expenditure of R1.412 billion at the end of the 2012/13 financial year. The Committee expressed concern about this significant under expenditure. Of particular concern was that the under expenditure related to the withholding of the Local Government Equitable Share from those municipalities that had performed poorly on their conditional grants allocations. The Committee was of the view that any decision to withhold funds from municipalities should be preceded by extensive support and interventions from the Department. The Committee emphasised that section 154 of the Constitution provides that national and provincial government must support and strengthen the capacity of municipalities to manage their own affairs, to exercise their powers and to perform their functions. In addition, t he Committee sought clarity on reasons underlying the directive by the Department to withhold the transfer of Municipal Infrastructure Grant funding allocations and Local Government (LG) Equitable Share funds to various municipalities.

The Department reported that MIG funds had been withheld from 141 municipalities that had been performing poorly in terms of the MIG’s performance projections and that funds were later released to the affected municipalities. The Department indicated that municipalities had responded positively to withholding letters and support sessions were conducted with various municipalities. There were three core challenges identified in the support sessions conducted by the Department, namely, institutional (vacancy rates, high turnover of staff, commitment), planning and procurement (failure to prioritise projects and finalise necessary documents), Project and Financial Management (poor management oversight).

With regards to the withholding of the LG equitable share, National Treasury reported that funds withheld from the LG Equitable Share (R725.6 million) was to refund conditional grant amounts not actually spent in previous financial years, which should have been returned to the National Revenue Fund in accordance with the relevant Division of Revenue Acts. The Committee remains concerned at the implication the with-holding of funds has on the planning and operations of vulnerable municipalities.

The Committee was concerned with overall efforts by national government at improving and enhancing local government capacity. In particular, the Committee stated that previous programmes aimed at enhancing local government such as the Siyenza Manje programme had not yielded the desired outcomes. Furthermore, it was not clear if there were clear synergies and strategic linkages amongst the various units offering local government capacity support such as the Technical Assistance Unit in National Treasury, MISA and other support packages within the Department of Cooperative Governance and Traditional Affairs. Moreover, the Committee expressed concerns about MISA’s capacity to provide support to municipalities while it had a significant number of vacancies.

The Committee expressed concerns regarding the levels of under expenditure in the Disaster Relief Grants. The Division of Revenue Grant Framework allows for the immediate release of funds for disaster relief following the declaration of a disaster. For the 2012/13 financial year, only R74.2 million out of R510.4 million had been spent as there were no further disasters declared for which financial assistance was requested. For the 2013/14 financial year, R534.6 million has been made available for disaster relief of which R121.9 million has been transferred to repairs to damaged infrastructure following the December 2012 disasters. The Committee pointed out that the need to support poor municipalities in easing access to disaster funds is critical.

The Committee was concerned at the effectiveness of measures instituted by COGTA in ensuring that vacant posts in municipalities are filled. Furthermore, the Committee was concerned at the continual reliance on consultants to implement infrastructure projects. The Department indicated that it has developed a compliance monitoring tool in order to ensure that municipalities comply with the Municipal Systems Act and employ critical skilled staff. Furthermore, the Department indicated funding allocations such as the Municipal Infrastructure Grant do not prescribe conditions on the use of consultants.

The Committee was concerned at the utilisation of consultants for the most basic job categories in carrying out the Community Works Programme (CWP). The Department reported that it had utilised and spent funds on Non Governmental Organisations (NGOs) in the CWP programme for the management of more than 100 sites and the distribution of wages to participants. The Committee was of the view that the bolstering of internal capacity was critical in carrying out the core mandate of the Department with regards to ensuring that basic infrastructure development; refurbishment and maintenance functions at municipalities are supported and effectively implemented.

4.5 Earth Life Africa – Johannesburg

EarthLife Africa – Johannesburg (JHB) indicated that they welcome the Government’s proposed significant investment in infrastructure, specifically the investments planned in the energy sector. However they had the following concerns regarding the nuclear procurement programme and the R1.6 billion allocated to Nuclear Energy Corporation South Africa (NECSA) over the MTEF:

· The cost estimates of the nuclear build programme by the Department of Energy (DoE) as set out in the Integrated Resource Plan 2010-2030 are inadequate as a basis of decision-making and budgeting because the estimates are incomplete. The nuclear expansion programme’s full costs, risks and benefits for the economy have not been adequately determined .i.e. insufficient or inaccurate estimates of the true cost of proposed future nuclear power.

· A fleet of nuclear power stations will involve a level of investment unprecedented in South Africa and could bind the state and future generations and be costly to change.

· The electricity demand estimates used in Integrated Resource Plan 2010-2030 are inaccurate and too high because of negative changes in the economic outlook. Overstatement of the electricity demand, together with incorrect nuclear and renewable energy costs estimates is likely to mean that the current Integrated Resource Plan is not optimal and might result in non-optimal allocation of State resources.

· Regardless of the current cost of nuclear energy, procurement of a “fleet” rather than single nuclear reactors violates the requirements of cost-effectiveness and effective financial management.

· Concerns regarding the degree of transparency in the procurement process of large scale infrastructure investment such as nuclear energy. Lessons from the Arms Deal were cited and findings by the Standing Committee on Public Accounts (SCOPA) on the Arms Deal were referred to.

With regard to the above concerns, EarthLlife-JHB made the following recommendations to the Committee:

1) The Provision for R1.6 billion allocated to NECSA should not be approved and no long term nuclear power related commitments should be entered into until the Integrated Resource Plan (“IRP”) has been revised so as to address the shortcomings of the IRP 2010 relating to the costing of the nuclear program.

2) The Department of Energy to complete an accurate cost analysis of proposed future nuclear energy that takes account of all relevant information.

3) The Department of Energy should be required to act in a more transparent manner, providing adequate information to the public and Parliament as to its intentions and the decisions being taken regarding this proposed procurement and allowing consultation and debate to take place;

4) Any money budgeted for large-scale energy procurement should be conditional on greater Parliamentary oversight.

The Committee deliberated on the presentation and was of the view that EarthLife-JHB had not presented a firm case with clear and quantifiable alternatives for consideration. The Committee indicated that there was a need for a detailed cost analysis and projections on future energy sourcing alternatives.

The Committee together with the Portfolio Committee on Energy (PCE) deliberated on the status of the Nuclear Energy Programme. PCE indicated that there were ongoing discussions regarding the Nuclear Build Programme and that no policy decision has been taken in this regard. It was further reported that the Integrated Resource Plan (IRP) is subject to review every 2 years and that the current IRP 2010 is currently due for review. However the review thereof was still under consideration given that a broader plan, namely the Integrated Energy Plan (IEP) which encompasses all the energy needs of the country including nuclear energy was in the process of being developed. Given that the IEP was still under development, no decision has yet been finalized on the review of the IRP 2010.

In its submission, NECSA reported that the government’s grant allocation of R1.6 billion in the 2013 MTEF is to be utilised for the following:

· Normal operational and mandated institutional activities;

· Some specific programmes relating to, for example, the conversion of SAFARI-1 to low enriched uranium fuel and the decommissioning and decontamination of facilities from historic strategic fuel cycle activities; and

· Delegations conferred on NECSA by the Minister of Energy.

NECSA indicated that although the grant transfer forms part of the Nuclear Energy Programme in the DoE’s budget, this does not mean that the foreseen R1.6 billion MTEF allocation to NECSA is due to be spent on the planned nuclear power procurement programme. In addition, NECSA stated that it currently does not spend any funds on work that can be directly linked to the Nuclear Build Programme.

In its submission, NECSA indicated that a small share of the entity’s operational funding is allocated to continued pre-feasibility studies relating to a future South African nuclear fuel cycle (NFC) programme, as mandated to NECSA in the Nuclear Energy Policy. NECSA reported that these are all general research studies since the Minister of Energy has not authorized the entity to perform any experimental or development work on the NFC.

5. Findings and Observations

5.1 The mechanisms for support to provincial and local government to carry out infrastructure programmes still require significant improvement. There is also a need to enhance the monitoring of funds earmarked for infrastructure maintenance and refurbishment.

5.2 Due to limited support capacity by the Department of Cooperative Governance and Traditional Affairs, poor and under-resourced municipalities are unable to readily respond to incidents of disaster.

5.3 National departments lack the requisite capacity in managing the discipline function which results in extended delays in the finalisation of disciplinary cases. This in turn has a knock-on effect on service delivery and has significant cost implications.

5.4 While most departments had spent above 90 percent of their allocated budgets, the percentage share of departments that managed to achieve more than 80 per cent of their planned targets was less than 5 per cent during the 2011/12 financial year.

5.5 National priorities are not always prioritised by the provincial and local government spheres.

5.6 There is a high number of departments that have high vacancy rates for skilled professionals and senior managers. Furthermore, there is a high prevalence of the utilisation of consultants in departments.

5.7 There is a need for alignment in the roles and responsibilities of the various stakeholders such as national and provincial departments, local and district municipalities, water service authorities and water boards in the water services sector for the successful delivery of basic water services.

5.8 National Treasury had withheld funding from the local government equitable share (R725.6 million) to refund conditional grant amounts not spent in previous financial years, which should have been returned to the National Revenue Fund as per the relevant Division of Revenue Acts.

5.9 The Department of Rural Development and Land Reform indicated that the need for enhanced strategic partnerships between relevant stakeholders such as the Departments of Public Works and Mineral Resources; and District and Local Municipalities was critical to the effective implementation of the land restitution programme.

5.10 The Nuclear Energy Corporation of South Africa’s (NECSA) R1.6 budget allocation for the 2013 MTEF is for operational and mandated institutional activities (including research and development as per the Nuclear Energy Act) and delegations conferred on NECSA by the Minister of Energy.

6. Recommendations

The Standing Committee on Appropriations, having considered the briefings and comments by departments and invited stakeholders on the 2013 Appropriation Bill, recommends as follows:

6.1 That the Department of Public Service and Administration ensures that the filling of funded vacancies is prioritised by all departments in line with the prescripts contained in the Public Service Regulations of 2001 (as amended) and as per the directive of the President in the 2013 State of the Nation Address.

6.2 That the Department of Public Service and Administration expedites the process of doing away with the 5 year time bound performance contracts for top management and link contracts to performance.

6.3 That the Department of Public Works develops a framework for long term skills transfer and skills development in partnership with institutions of higher learning, industry professionals and other stakeholders in the roll-out of infrastructure programmes.

6.4 That the National Treasury and the Department of Cooperatives Governance and Traditional Affairs ensure that the prescripts of Section 216 of the Constitution and Section 39 of the Municipal Financial Management Act (MFMA) are adhered to in any consideration to withhold funds from municipalities.

6.5 That the Department of Cooperative Governance and Traditional Affairs expedites the payments of disaster grant funding to ensure that the poorest and most vulnerable of municipalities are not prejudiced by unnecessary red tape in the application for Disaster Grant Funding.

6.6 That the Department of Public Service and Administration ensure that all national departments minimise the use of consultants and have service delivery models in place that prioritise the utilisation of internal capacity.

7. Conclusion

The Standing Committee on Appropriations recommends that the National Assembly adopts the 2013 Appropriation Bill without amendments.

Report to be considered.