SANRAL Annual Report 2020/21; Impact of COVID-19 on road infrastructure projects across the country

Meeting report

Chairperson’s opening remarks
The Chairperson noted the discussion would be on key indicators presented in the Annual Report of the 2020/21 financial year. He allowed the Chairperson of the South African National Roads Agency (SANRAL) to brief the Committee.

SANRAL 2020/21 Annual Report
Mr Themba Mhambi, Chairperson, SANRAL, introduced the SANRAL delegation present at the meeting. The presentation was an integrated report capturing SANRAL’s work over the past year, as audited by the Auditor-General of South Africa (AGSA). The presentation also highlighted the financial matters of the entity. The Acting Chief Executive Officer (CEO) of SANRAL led the presentation on behalf of the entity.

Ms Lehlohonolo Memeza, Acting CEO, SANRAL, presented the 2020/21 SANRAL integrated Annual Report. SANRAL’s principal tasks and objectives include planning, designing, constructing, operating, maintaining, and rehabilitation of the country's national roads. It also included generating revenue from the development and management of assets and undertaking research and development to advance knowledge in the design and construction of roads and related fields. SANRAL also advises the Minister of Transport on matters relating to the country's roads.

For the second consecutive year, expenditure on road development, improvement, strengthening, and maintenance expenses declined. The total amount spent, R12 680 million, was 19% lower than the previous year. 51% was allocated to capital projects, while the balance secured routine and periodic maintenance. SANRAL convened 55 targeted stakeholder events, including 29 within the year and nine meetings with municipalities. The remaining 26 involved a range of stakeholders such as business organisations, labour federations, and faith-based organisations.

Mr Adolph Tomes, Acting Business Operations Executive, SANRAL, presented a snapshot of the five-year Information and Communications Technology (ICT) strategy. The strategy identified five key pillars to support the nine key focus areas enabling SANRAL to realise its Horizon 2030 strategic objectives.

Mr Thabiso Malahleha, Head of Strategy, SANRAL, presented the impact of COVID-19 on SANRAL's Annual Performance Plan. SANRAL had to refine its targets and redefine its operating conditions because of COVID-19, which led to organisational challenges and changes.

Ms Fortunate Mashabela, Senior Finance Manager, SANRAL, presented the entity's Annual Financial Statements (AFS) for the 2020/21 financial year. The audit report showed SANRAL received an unqualified audit opinion in 2020/21. Key audit matters were revaluation of the road network and structures, expected credit losses on toll debtors, and the Gauteng Freeway Improvement Project (GIFP). The AGSA drew attention to the dependence of SANRAL on positive developments to resolve the e-toll impasse by Cabinet, as the accumulated loss and SANRAL's funding strategy indicate a material uncertainty on SANRAL's ability to continue as a going concern.

Irregular expenditure of R175.3 million was incurred in the current year due to non-compliance with prescribed procurement prescripts. The irregular expenditure included R76.3 million, which required National Treasury approval because the variance was more than 20%/R20m. Tender notices of winning bidders which were not placed on the Construction Industry Development Board (CIDB) website for at least five working days amounted to R23.1 million. Previous irregular expenditure of R11.229 billion was identified, and of this amount, National Treasury condoned R9.956 billion. The loss control committee was considering further applications for condonation.

Impact of COVID-19 on rollout of road Infrastructure projects across the country
Ms Memeza said due to the pandemic, the workplace has become more digital as employees and stakeholders across the ecosystem are communicating and collaborating in different and new ways. This trend will continue as the entity realises the digital workplace benefits. She outlined how situations have improved since the beginning of the pandemic in 2020. The impact of COVID-19 on procedures and processes is evident for 2020/21, with only 33.7%of planned tenders awarded. The efficiency index reflects significant improvement from 33.7% in 2021 to 50.5% on 28 February 2022 (11 months).

Mr Louw Kannemeyer, Engineering Executive, SANRAL, said COVID-19 impacted infrastructure projects according to the lockdown levels and restrictions. Under level five, all infrastructure projects were suspended, and when the country moved to the lower levels, some projects were able to start under the relevant restrictions.

Over two previous financial years, the reduction in roadworks is evident, with further decline into 2020/21 because of COVID-19. The first two years' decline was mostly related to an 18-month delay in clarifying National Treasury regulations (which was resolved in July 2019). The reduction in jobs over two previous financial years is also evident, with further decline into 2020/21 because of COVID-19, and the urgent need to reverse these trends through construction projects is clear.

The e-tolls future is still not resolved and has resulted in low payment compliance, which SANRAL is not allowed to prosecute, negatively impacting the entity's ability to finance the toll portfolio in the short term. Regarding additional factors affecting infrastructure rollout, he mentioned the following issues:

Spatial Planning and Land Use Management Act (SPLUMA) requirements affecting municipal capacity for processing and implementation.
Unable to hold public participation sessions as per regulations, therefore unable to obtain community resolutions.
Integrated Development Planning (IDP) and council meetings could not be undertaken effectively, compromising coordinated planning and project rollout.
Inefficiency of regulations for public entities with regard to financial provisioning for rehabilitation of borrow pits and quarries.
Unsustainable demands for jobs and Small, Medium and Micro Enterprise (SMME) opportunities on the projects due to severe economic downturn.
Land invasions negatively impacting on project rollout.
Vested interests and conflicts of interest by certain PLC members take advantage of socio-economic issues and mobilise communities to stop projects.

Discussion
Mr M Dangor (ANC, Gauteng) said e-tolls in Gauteng need to be resolved urgently because it causes uncertainty and continuously shows up in the Auditor-General's report as a risk. The communities of Ennerdale and Pinetown near the south are of the view they were forced to move to those areas by the apartheid regime and are now being punished for the second time. In Soweto, more than two million residents do not have railway access, and these are communities that do not have access to adequate transport. There needs to be an immediate resolution.

Ms M Moshodi (ANC, Free State) wanted to know when the CEO post and other vacant executive posts will be filled at SANRAL, considering there is currently an Acting CEO. She also wanted to know the number of positions held by women on SANRAL's Board. She wanted to know if the Department considered people living with disabilities regarding the construction work opportunities.

Mr T Brauteseth (DA, Kwazulu-Natal) wanted to know the reason for the 19% decline in construction in the previous financial year and the time period for the Recovery Plan to be fully implemented. He also wanted to know about the poor road conditions and asked about the plans to address those. He said this was in the context of the financials showing about R29.3 billion in the bank.

There was one internship granted to a youngster who is Coloured but nothing noted under Indians and Whites. Regarding demographics, as far as he understood, there should be an allocation to Whites and Indians too. He wanted to know why one internship was granted to a Coloured youngster and nothing was granted to Whites and Indians. He asked if it was a case of people not applying for internships. He also asked about SANRAL’s plans to improve on the kilometre decline regarding the conditions of the roads.

The AG said SANRAL is losing R10.2 billion from e-tolls per annum. He asked if SANRAL was going to be a going concern. He also wanted to know what consequence management has been enacted regarding the irregular expenditure of R175.3 million. SANRAL said the business forums are a massive problem. He asked about the impact of business forums in the last financial year and asked about what SANRAL has heard from the Department of Transport regarding the Interministerial Task Team. Lastly, he asked about the status of the N5 between Winburg and Harrismith in the Free State area.

Mr M Rayi (ANC, Eastern Cape) asked for a breakdown of the provinces regarding Social and Relationship Capital, according to the value of work, percentage of contracts, etc. He also asked for an update on the incomplete Gordon Qumza road in Mdantsane in the Eastern Cape.

He wanted to know the arrangements made by SANRAL with the municipalities in situations where national roads go through towns within municipalities, for example, the N2 highway which goes through Idutywa, Butterworth, King William’s Town, and so on. He asked because those roads do not have the standard of a national road, as they go through towns or municipalities.

He also asked if SANRAL pays its suppliers within the 30-day deadline.

Regarding scholarships and additional bursaries, he wanted to know if the Northern Cape province is included and if there is a reason for its omission.

Regarding the Gauteng Freeway Improvement Project (GPIF), he said the impression was the matter would be addressed soon, but it seems SANRAL is still waiting on Cabinet to resolve it. He wanted to know if there is a possibility of changing the e-tolls in Gauteng to normal toll gates because it is unfair to the 18% of people who continue to pay while the rest are not paying.

Lastly, he asked for an update on the Moloto Corridor.

The Chairperson asked for an elaboration of SANRAL not meeting its targeted maintenance of the National Road Network. Maintenance is important to ensure sustainability of the assets which exist.

He also asked for an explanation of why SANRAL did not meet any of its community development targets. The presentation spoke nothing of SANRAL’s contribution to the District Development Model (DDM).

Lastly, he wanted to know the criteria used by the entity in taking over the roads, which were initially provincial.

Responses
Mr Mhambi said e-tolls had concerned SANRAL and the Executive Authority in the Ministry of Transport. The President convened a Task Team, which included National Treasury, the Gauteng Province, SANRAL, and the Department of Transport. The Task Team has done its work, and the matter is currently with Cabinet. The Minister of Transport has assured SANRAL the matter is receiving serious attention. The biggest challenge is the financial aspect of decisions taken, given the number of people who have already paid and those who have not. There is also money that was mobilised from markets, which makes this a complex situation National Treasury is grappling with. The expectation was that the Minister of Finance would make a pronouncement in his most recent budget speech, but SANRAL understands this is a complex issue. SANRAL is a lot more optimistic than a year ago because it is aware of all actions taken behind the scenes to find a solution.

Regarding the post of the CEO, he said the various vetting which had to take place for the particular candidate, as was recommended by the Board to the Minister, was concluded the previous week. A report was submitted to the Minister, who will pronounce on the recommendation. The Minister has personally been following up on this matter in the past few weeks. Regarding senior positions held by women on the Board, he said the representative from the Department of Transport was a woman until she resigned in August last year. The chairperson of SANRAL's audit and risk committee was a woman, but she also resigned and the Minister included this aspect in his current work towards establishing a new Board, as its term ended on 30 August last year. On the current Board, Ms L Madlala represents women alongside the male board members.

Regarding the value of work in the various provinces, he said it is important to understand at any given point, it would depend largely on where SANRAL's work is happening. If SANRAL is working in a particular province, it is guaranteed the people of the province will participate in the subcontracting. The main contractor is open to the rest of the country, and those factors impact the value of work in a particular province. The involvement of people living with a disability in SANRAL work has to be at a minimum in line with the prescribed limits set by government. SANRAL is also moving strongly towards military veterans because this area has become a sore point in the country.

The Board is constantly looking at the possibility of SANRAL becoming a going concern. It can confidently say that outside of the GPIF matter and e-tolls, the going concern status of SANRAL is assured. The Minister has been supportive in this regard by ensuring SANRAL’s applications for the movement of some funds to the e-toll portfolio are supported while government is finalising the decision on the e-tolls matter.

SANRAL's management responded with the relevant investigations regarding irregular expenditure- sometimes irregular expenditure does not happen because an individual was at fault, and occasionally irregular expenditure is unavoidable. There are currently three ongoing investigations where recommendations were made regarding holding some officials accountable. The Acting CEO has been communicating with the chairperson of the Board and assuring him the recommendations are receiving the necessary attention. In the Annual General Meeting, the Minister also isolated the irregular expenditure issue and asked that the necessary actions be taken to address it.

Criminal elements of the business forums have gone down generally, and this is ascribed to SANRAL's engagements with the forums. Through these engagements, SANRAL identified criminal elements as having become a minority. Categorically, most business forums said it is not practice to demand payment for work not done or appointments made without due processes. This extortion is not a function of business forums in general. There are task teams between SANRAL and the business forums and they are working to an extent. There have been fewer distractions in the air projects.

Regarding the N5 and N1, there were several calls to SANRAL and the Department during the most recent December holidays because of rain and floods. SANRAL management was on the scene dealing with the potholes, and the regional manager assured the Board it was working on interim measures to ameliorate the situation on the N5. There is an allocation made for the total resealing of the road.

Regarding irregular expenditure for the acquisition of a building, an investigation was undertaken and SANRAL’s internal audit has assured the Board the investigation is being finalised. The matter of procurement violations falls within the work the CEO is currently dealing with. The entity had an internal loss control committee - the board decided that since these were the same people who might be implicated in the irregular expenditure investigations, the committee should consist of people from the outside. The social ethics and transformation committee will conduct interviews to get those people be part of the committee. The adverts were released and applications were submitted. The process is ongoing.

Regarding convergence of national, provincial, and municipal roads, he said legislation says if a road falls under the province or a municipality, SANRAL may assist by either helping to manage the road or have the road handed over to the entity. SANRAL is open to helping and has assisted several provinces and municipalities, but the requirement is it may not do so from a process point of view unless it was instructed to do so by the national Minister. The process is that the municipalities or province would have to apply to the Minister first, and SANRAL may step in after the Minister’s approval. The Minister has been all over the country with SANRAL to assist with several municipal roads, especially in places where national roads are going through municipalities.

The Department established a task team led by the DG to identify particular roads to be a systemised and holistic approach inclusive of all provinces. This approach will enable SANRAL to assist everywhere. The only challenge is resources are limited and the approach is, if provinces have a budget regarding the particular roads in their municipalities, provinces can bring those funds to SANRAL so it can work together with the province. SANRAL is also pushing the issue of capacity within provinces and municipalities because, in most cases, the challenges are mostly based on capacity. SANRAL also plans to share its own graduates from its technical excellence academy with the provinces and the municipalities to make things easier.

Ms Memeza said the 19% decline in manufactured capital has happened for two consecutive years. The reason for the decline is COVID-19 and the 18-month delay in clarifying National Treasury regulations. It can send the details of the value of the social and relationship capital to the Committee.

Regarding national roads which go through municipalities and the conditions of these roads, she said in 2010, the Strategic Primary Roads Plan was approved. About 13 000 national roads that belonged to provinces and municipalities were identified and transferred to SANRAL. The Minister is heading the process of municipalities and provinces, consolidating lists, and following the process. Those on the 2010 Strategic Primary Roads Plan do not need to follow the process because these were already approved.

SANRAL pays its service providers within the 30-day benchmark.

Mr Tomes said there is a split in how SANRAL reports on youth and people with disabilities in the projects and construction level. Over the past four years, SANRAL appointed four people with disabilities, and between 2006 and 2014, it appointed another four, which equates to eight people. SANRAL’s recruitment plan and recruitment drive puts forward people with disabilities as part of the criteria and preferences. The entity is currently on a recruitment freeze because of the organisational review. This will result in future recruitment roles being constructed within the Employment Equity Plan (EEP) definition. The target was to align the recruitment and policy processes to the EEP, as defined and approved by the entity.

SANRAL started the journey of making space for interns within its environment and no one has been turned away, as all interns who have applied have been appointed based on their applications. The entity is also looking to expand its net in how it attracts different people from different demographics into its processes. There are diverse demographics in the bursary programmes and the entity would like to mirror this with its recruitment processes. SANRAL is aware that in the Northern Cape, there is a low take-up of the bursaries, but it has gone on a marketing drive in the province through roadshows in schools and the various target areas in the province.

The Chairperson thanked the delegates and adjourned the meeting.