DOC, DTPS, Sentech, & ZADNA 2019/20 Annual Reports

Meeting report

The Chairperson welcomed everyone and announced that the Universal Service and Access Agency of South Africa (USAASA) would not be presenting as its Annual Report was pending finalisation.  

Department of Telecommunications and Postal Services (DTPS) 2019/20 Annual Report

Ms Nomvuyiso Batyi, Acting Director-General: Communications, Department Communications and Digital Technologies, said that the merged Departments (Department of Communications and Digital Technologies (DCDT) consisting of the Department of Communications (DOC) and Department of Telecommunications and Postal Services (DTPS)) operate independently. She mentioned that the DOC performed badly and provided the opening remarks, presentation overview and a summary of progress on the audit action plan and findings by the Auditor-General.

Overview

-77% of planned targets achieved with 96% expenditure

-Improvements in relation to compliance matters as reflected in AG outcomes

-two AG Findings in Audit Report in 2018/19 vs. 0 in 2019/20

-25 AG Findings in Management Letter in 2018/19 vs. 18 in 2019/20

-Previous cases of irregular expenditure amounting to R115 million were investigated and referred to National Treasury during the financial year.

-The Department achieved an unqualified audit opinion for 2019/20 financial year

-At the end of the financial year the Department addressed 86% of audit findings raised by the AGSA

Ms Joy Masemola, Chief Financial Officer, DTPS, provided the budget and expenditure and indicated that 99% of the budget was spent by the Department. She provided the reasons for the underspending in the different projects. 

Mr Farhad Osman, Chief Director: Strategic Planning and Monitoring, DTPS, provided the performance information of the Department’s key projects. He outlined that nine projects had not been achieved in various programmes set out by the Department out of 19 targets.

Significant achievements during the year included the Digital Development Fund Bill, work done on the Presidential Commission for the Fourth Industrial Revolution, Draft National Smart Communities Framework and an e-Government Programme for Smart Communities to guide the implementation of e-Government at local government level, ICT SMME Development Strategy, national s-Strategy, international agenda and reconfiguration of the Departments.  

Ms Masemola mentioned that the DTPS allocation was R1 684 574 000 and R1 620 884 000 had already been spent (96.2%). Advance payments were made to Broadband Infraco (BBI) and Sector Education and Training Authority (SETA) for SAConnect and reconciliations are being made to ensure that the allocated money is spent accordingly by the entities. She outlined the reasons for the underspending on the targets for the programmes of the DTPS.

Mr Osman highlighted that performance decreased from 92% in 2018/19 to 77% in 2019/20 and he provided further explanations on the performance information and on the five targets that were not achieved out of the 22 targets. The targets not achieved included:

-Strategic Risk Assessments conducted and Risk Register updated

-State IT Company Bill submitted to Cabinet for approval

-State ICT Infrastructure Company Bill submitted to Cabinet for approval

-Corporatisation of the Postbank and licensing facilitated through undertaking an Amendment of the Postbank Act

-Rollout of broadband services to additional 400 sites coordinated and monitored.

Department of Communications (DOC) Annual Report

Overview

-53% of planned targets achieved with 99% expenditure

-Two AG findings in audit report – same as 2018/19

-Eight AG findings in management letter vs. 14 in 2018/19

-Previous cases of irregular expenditure amounting to R393 000 were investigated and condoned by National Treasury

-unqualified audit opinion

-94% of audit findings addressed by the end of the financial year by the Department

Significant achievements during 2019/20:

-The Department achieved 53% of its planned 2019/20 annual targets (10 out of 19) while spending 99.3% of its budget allocation

-Intergovernmental Relations and Stakeholder Management: worked closely with the DTPS to develop and advance the Country Position Paper for the International Telecommunications Union – World Radio Conference - 2019 (ITU-WRC-19). Also worked with the DTPS to develop and advance the Country Position Paper at the 5th Brazil, Russia, India, China and South Africa (BRICS) Ministers of Communications Meetings in Brazil.

-Enterprise Development: The Department implemented the Enterprise Development Programme with the intention to empowerment of SMMEs in creative industries and audio-visual content industries (training and capacity building) and to coordinate and facilitate digital entrepreneurship environment in creative industries and audio-visual content industries.

-Broadcasting Digital Migration Programme: A revised delivery model was completed and approved by Cabinet on 13 December 2019, paving a way for the finalisation of the migration process pending the available required financial resources. The recommendations include reprioritisation and sequencing of the BDM Programme in lieu of High Demand Spectrum release as well as making use of voucher system for qualifying indigent households.

-Reconfiguring the DTPS & DOC: Both Departments participated in the NMOG process and worked very closely together on joint projects as well as undertook resource sharing from both a financial and human resource perspective. Jointly developed the DCDT strategy as well as the start-up structure for the DCDT which was approved by the Department of Public Service and Administration (DPSA). The transfer of employees from the DCDT and the DOC to the newly established DCDT was also concluded

Areas of under-achievement in 2019/20:

The Department did not achieve nine of its 19 planned 2019/20 annual targets, as reflected below:

-98.8% of compliant invoices were paid within 30 days

-2019/20 Strategic Risk reports approved, 2020/21Strategic Risk Assessment conducted, and strategic risk register updated

-Audio-Visual and Digital Content Strategy developed for the 4IR

-Broadcasting Amendment Bill submitted to Cabinet for approval

-PMO established and operationalised to support the Presidential Commission on Fourth Industrial Revolution

-Training of Audio-Visual SMME in three Provinces focussing on 4IR Skills and Enterprise Development

-Country-wide Implementation Plan on Analogue Transmission Services Switch-Off approved by Minister

-Report on BDM awareness and educational campaigns conducted in nine provinces

-12 performance review and compliance monitoring reports of SOEs developed

[see presentations for details]

SENTECH Annual Report  

Mr Mlamli Booi, Chief Executive Officer: SENTECH, outlined the vision and value proposition of SENTECH, COVID-19 response actions, operations overview and network performance, business highlights as well as the portfolio performance which grew by 5% in the 2019/2020 financial year with revenue of R1 329 million compared to R1 261 million in the previous financial year. He mentioned that SENTECH focuses on customer satisfaction and that 100% of the objectives have been achieved. He added that a clean audit was achieved by SENTECH.

Highlights included:

-revenue grew by 6%

-100% of predetermined objectives achieved

-Sentech Connect launched

-Customer satisfaction index increased to 73% from 65%

-transformation spend was R167 million

-eighth consecutive year of clean audit

Ms Rudzani Rasikhinya, Chief Financial Officer: SENTECH, presented the statement of profit/loss and other comprehensive income, the statement of financial position and the cash flow statement, socio-economic transformation on the total preferential procurement and skills development achieved and the targets. Cash generated from operations drop in FY2018 was as a result of the main customer unable to pay for services provided and requested a payment holiday. The FY2018 debt has since been settled in full, the Covid-19 pandemic has restricted customers ability to pay in FY2021.

Ms Tebogo Malaka, Non-Executive Director: SENTECH said that SENTECH had achieved level 1 BBB-EE and highlighted that sustainability at SENTECH is a challenge and that diversity will ensure sustainability to improve performance.

In terms of the future outlook, Sentech anticipated an even tougher trading environment as exacerbated by the macroeconomic and Covid-19 pandemic. A lack of economic growth will impact the company’s revenue, moving forward, as some of its major customers will be affected by declining sales and the need to cut costs. Its emphasis would be on cost optimisation and revenue growth to ensure business sustainability in the short, medium and long-term. Its strategy is thus to optimise and transform legacy business and grow and expand connectivity and digital businesses through strategic partnerships, acquisitions and own capabilities.  It will leverage its strong balance sheet to grow and expand our connectivity and digital solutions. It will also prioritise digital transformation to achieve optimisation and more focused business segments.

The ZA. Domain Name Authority (ZADNA) Annual Report

Ms Palesa Legoze, Chairperson: ZADNA Board, introduced the ZADNA representatives and said that ZADNA achieved 82% of the annual targets and received an unqualified audit report for the 2019/2020 financial year.

Mr Molehe Wesi, Chief Executive Officer: ZADNA, presented the strategic overview of ZADNA and highlighted the policy and regulations, human resources, the challenges faced and the namespace development from the 2017/18 financial year to the 2019/20 financial year.

He further explained on the performance against the strategic objectives and noted the unachieved objectives.

Highlights for the year included:

-82% of ZADNA’s annual targets were achieved, under the then prevailing conditions;

-Achieved a clean audit for the past two years;

-Conducted 12 reseller-registrar training across the country which capacitated a little over 200 South Africans;

-Domain Namespace ICT Infrastructure had no interruptions; and

-Stable financial position with acceptable levels of liquidity and solvency ratios

Challenges for the year included:

-Diminishing stakeholder (membership) confidence - member-centric;

-Single source of revenue;

-‘Negative’ impact of “Improve Organisation’s Delivery Capacity” strategic goal non-achievement on staff morale; and

-Slow sectoral transformation

Strategic objectives not achieved included:

-annual evaluation report on SLR registrar experience (due to SLRs not being implemented yet)

-commencement of SLR (Baord resolved to review the SLR projects during the 2021/22 financial year)

-100% of training budget used (due to less interest on domain name courses)

-annual salary percentage grading review (conducted but not finalised due to absence of HR officer)

-quarterly and annual employee performance assessment (due to two employees who had labour- related matters with the employer)

Mr Justice Tembo, Finance Representative: ZADNA said that an unqualified audit was received and that ZADNA is in a good financial position and outlined the financial performance of ZADNA.

Discussion

Ms W Ngwenya (ANC; Gauteng) welcomed the presentations. She commended SENTECH for maintaining a clean audit for the past eight years and asked on the signal distribution costs to the SABC considering the current financial challenges. She inquired on whether the organisation had been receiving consistent monthly payments for signal distribution from the SABC and asked on the performance of the broadcaster.

She also asked for SENTECH’s view on the request from the SABC to cut signal fees in half by R500 million and the progress on the Infraco and SENTECH merger. She further inquired if SENTECH had engaged with the SABC on common interest issues and if there was a strategy to enhance human capital for high signal coverage. She said that the stealing of copper is concerning and asked if there is enough security to prevent copper theft.

Mr C Mackenzie (DA) thanked all the presenters for the presentations. He commended Ms Batyi for the Department’s unqualified audit report and asked whether the unspent budget is retained or returned to National Treasury, He asked on how the Department plans to achieve zero-based budgeting and if this will impact the work of the Department as announced by the President and Minister of Finance.

He asked the DOC for clarity on the transfer to households and expressed his concerns that the Department’s Project Management office was under-staffed. He said that when the merger happened between the two Departments, both Departments were fully staffed, and retrenchments were expected to happen. He asked why more people were employed after the merger and how the public sector wage bill was affected by this employment.

He commended SENTECH for the work done and their COVID response plans especially the delivery of food parcels to the entity’s contractors. He asked for further details on the R360 million Forex loss and whether the loss could have been avoided given the instability of the currency market.

He said that the origins of the ZADNA annual report should be evaluated as the figures that were presented on the employees and board members are contradictory and requested further details on the matter. He added that the lack of diversity was concerning and should be improved.

Mr Mackenzie highlighted that the accumulated surplus of the entity was healthy and asked if the surplus will be returned to National Treasury.

Page 53 of the ZADNA annual report mentions the items Computer Software, Computer Equipment and IT Equipment, he asked for clarification on the difference between the three and asked why the interns left before their contracts ended.

He mentioned that the term “collaboration with progressive blacks in ICT” was first presented in Parliament by Mr Rolls and asked for the total number of trained resellers, if their progress is monitored regularly and if additional support has been given to the entities that were upskilled. He added that there was no mention of the merger with SETA and asked if it will happen and the steps being taken to ensure the merger.

Ms N Khubheka (ANC) shared sentiments with Mr Mackenzie on commending the DCDT for the unqualified audit reports and efforts that have been made to finalise the reconfiguration even before the merger happened. She noted that only five targets were not achieved and asked if there were plans in place to achieve the prior mentioned.

She appreciated the clean audit from SENTECH, requested the strategy used in achieving these results and asked for the strategy used to achieve level 1 BBBEE status. She also applauded SENTECH for prioritizsng customer satisfaction and for achieving the targets in empowering women in the entity.

Ms Khubheka mentioned that ZADNA, as a new entity, had achieved a clean audit and its role as a key entity especially in ensuring racial balance and diversity. She asked if the budget was enough for the entity to compete globally and why TVET colleges are prioritised over the private sector concerning entrepreneurship domain spaces.

Ms Z Majozi (IFP) welcomed the presentations and asked for clarity on how 57% of the targets were achieved with 100% of the budget and inquired on how the remaining targets would be achieved with the remaining allocations.

She commended SENTECH for performing well and highlighted that the entity is second on the SABC bill, therefore, the allocated budget from SENTECH cannot be reduced. She asked on what the plans were in trying to meet the SABC halfway to reduce the costs of services to the broadcaster.

Ms Batyi thanked the Members for their inputs and congratulatory remarks on the performance of the Department. She said that there is a limited budget available to the Department and the surplus amount, if possible, will be rolled over to the next financial year.

Mentioning zero-based budgeting, she said that National Treasury has not yet implemented the plan and that it would be an internal pilot process for the National Treasury Department. All budgets have been reduced and operations need to happen with the limited budget available.

She explained that retrenchments would not happen, but employees would be reskilled for the DCDT. The Project Management office is additional to the establishment of the DCDT and those recruited have a three-year fixed term contract, so it would not make sense to replace permanent employees with the contracted people. She added that the Project Management Officer requires specific skills which permanent employees do not have.

She mentioned that there are issues around achieving the milestones of the Department and that further details will be provided.

She said that while it has been indicated that there is a 100% spent budget with a few targets achieved, this does not mean work has not been done but it was not completed. She used the example of the audio-visual paper, which was approved by the Executive Committee, but it could not be passed to Cabinet because of the national disaster period.

On the signal distribution costs, she said that in the turnaround report, the Deputy Minister had set up a structure that involves SENTECH, SABC, ICASA and the Department to report back on what needs to happen with transmission costs.

Ms Rasikhinya said that outstanding signal fees debts were settled by the SABC by the end of March 2020 and that during the current financial year, fees were settled from September but there was a default payment and a payment holiday was given to the SABC to start paying from the 7th of July 2020.

The issue of cutting signal costs in half is being addressed to find common ground because if R500 million is cut, then SENTECH will suffer financially as the SABC is the entity’s biggest customer. She explained that there was no money lost through Forex investments.

She said the ten-year contract on satellites was discounted and the financial lease liability and corresponding usage were recorded based on the IRFS 60 standard. Two approaches have been adopted to address Forex exchange irregularities and a hedging strategy which allows customers to pay in foreign currencies has also been adopted. There is also a foreign control currency account where payments can be received and paid out and where forecasts are also received from the banks on the foreign currencies.   

Mr Booi said that the SABC is an important customer of SENTECH and a process of discussion is underway on cutting the signal fees and added that the merger with Infraco should be addressed by the Department.

On enhancing human capital for high signal coverage, the staff is trained to respond to errors, manage networks and to resolve technical issues.

There are security systems in place to secure copper, but the theft happens in remote sites where there is no tight security. However, security upgrades are in place to ensure improved security systems.

The effectiveness of achieving objectives is based on the year planning, employee commitment and the approval and development of policies by the Board to ensure compliance with regulations. The areas of focus are on employee training, technical training, leadership training, Corporate Socio Investment and Supply Chain Management to pay suppliers within a 14-day commitment as well as sourcing quality products.

Ms Legoze said that the number of board members is required and controlled by the Electoral Communications and Transactions Act.

Reserves in ZADNA need to exist so that there is continued operations especially since the entity has one source of revenue which is the domain spaces. If there are no operations, it will impact the national security of the economy and social well-being. ZADNA solely receives funds from the domain spaces and not National Treasury so surplus funds cannot be ‘returned’ to Treasury.

Mr Wesi said that the matter of ethnic diversity and inclusivity is being addressed.   

ZADNA has eight funded and filled positions and two that are outsourced because of the previous financial position of the entity.

He mentioned that concerning interns who had left, one had decided to not complete their term as they returned to school, another left because of a better opportunity and the remaining one did not receive a fulfilling experience.

He explained that there is a central registry for the resellers and that an intervention was implemented to open the market. From 2016/2017 to the current financial year, a total of 26 reseller registered trainings were held and there are 30 participants. The training tries to capacitate economic activities for resellers and the counterparts are handed the registry of resellers where they are certified. There is continuous monitoring, but some resellers lose interest because of the technical aspect.

He mentioned that the activities in the entity will attract more funding and the partnerships that have been created will ensure that efforts are not duplicated. The Companies and Intellectual Property Commission (CIPC) partnership has encouraged the creation of a platform that was launched to allow businesses to register a companies or a domain name which has worked in favour of ZADNA because there was a slight increase in the number of companies that were registered on the platform.

On the focus of TVET colleges, he said that the statement was a scenario statement but there are multiple stakeholders from all sectors that ZADNA engages with.

Mr Tembo explained that the three items, computer software, computer equipment and IT equipment, are listed separately because they each have their own depreciation rates and the decision was advised by the auditors. Computer equipment refers to the actual computers, computer software is the applications used on the computers such as Microsoft Office, and IT equipment is the communication equipment such as modems.

He said that ZADNA can manage the minimal budget that is available to fulfil obligations and objectives in a responsible manner.

Further discussion

Mr Mackenzie asked on the IT needs of ZADNA and if the equipment is bought through SETA, and that is not the case, he asked for reasons.

Mr Wesi said that ZADNA is not a Public Finance Management Act (PFMA) entity so there is no obligation to procure equipment through SETA and because of the size of the entity some critical ICT equipment is leased.

Mr Mackenzie asked if ZADNA would be willing to procure through SITA because massive economies of scale can be used as buying power and that the Microsoft licenses would be cheaper from a state entity.

Mr Wesi welcomed the recommendation by Mr Mackenzie.

The Chairperson asked if SENTECH’s youth empowerment and BBBEE achievements would have been motivated by the amended regulations of the 2020 judgement and said that a challenge with a decline of revenue from clients was highlighted and asked if the commitment of employees resulted in the achievements. He also asked how the entity planned to address the challenges without impacting employees.

He said that the DCDT compliance reporting needs to be complete and that the interest of the Committee is to ensure that funds are used properly.

Ms Batyi agreed that progress to reaching the targets is important and that reporting will be done clearly.

The merger between Infraco and SENTECH is a business case that is still underway and will be submitted to the relevant Ministers for feedback.  

With regards to the transformational targets for youth empowerment, Mr Wesi mentioned that the judgement that was handed down is still being reviewed by SENTECH and that the Department of Trade and Industry established that there would be no coalition on any state owned entity to perform procurement policies for the previously disadvantaged. SENTECH is willing to work with any business while ensuring compliance and observing the comments from DTI.

On the cross-cutting revenue, he said that SENTECH is focused on media, but broadband services have also been an area of focus. The cost of transmission is high so SENTECH tries to increase the top line to ensure sustainability and to protect people.

The Chairperson said that the quarterly reports show that there could be improvements in some areas and that clean audit reports should be achieved and maintained in future by all the entities. Set targets need to be achieved because there is a lot of planning and processes that happen to set the targets and the expenditure needs to justify the targets that have been set. All state entities can assist each other in achieving deliverables such as ICT to maximize economies of scale. He added that state entities need to learn from each other’s strategies so that there is overall improvement. There is satisfaction with the entities with continuous clean audits and the Committee’s oversight will ensure that all entities function properly.

Meeting adjourned.