Assets on immovable asset register: Department briefing with Deputy Minister

Meeting report

The Chairperson welcomed Deputy Minister Jeremy Cronin. The Minister, Mr Thulas Nxesi, was attending a memorial service in the Eastern Cape and tendered his apologies. The Department of Public Works (DPW) DG, Adv Sam Vukela, reported that he was not able to get a flight down to Cape Town.

Immovable Assets and foreign assets.
Ms Swanzie Matthews, DPW DDG: Real Estate Information and Registry Services, began by taking the Committee through the types of assets comprising the DPW property portfolio, otherwise known as the Immovable Asset Register (IAR). As at 31 March 2017, the total value of assets under the custodianship of the DPW was R139 billion. This translated into an extensive property portfolio of 29 322 registered and unregistered land parcels on which 93 943 improvements (buildings and structures) were located across 52 client Departments countrywide. The IAR serves as the primary source of data for all property related activities and transactions. DPW’s Property Management Trading Entity (PMTE) had initiated the migration of the rebuilt IAR data into an integrated asset management solution called ARCHIBUS.

A breakdown of land assets by province showed that the total value of state land was around R500 billion while the total value of buildings stood at around R94 billion. Ms Matthews said DPW also releases suitable land parcels to the Department of Rural Development and Land Reform, as well as the Department of Human Settlements, as part of the land reform programme and addressing of the national housing backlog.

96 percent of government buildings were occupied with 54 percent of this being specialised assets such as police stations, prisons, courts and military institutions. 67 percent of land parcels were occupied while the rest was vacant land. Kwazulu-Natal and Gauteng were the top two provinces in terms of the number of state land parcels, while North West and the Northern Cape were at the bottom. Gauteng had the highest number of government buildings, followed by the Western Cape. The bottom two in terms of number of government buildings were North West and the Free State.

Mr Peter Chiapasco, DPW Chief Director: Portfolio Analysis, gave an overview of the state assets held abroad. Until 1990, DPW was the historical custodian of all state-owned properties held abroad. Approximately 101 immovable assets all over the world were in service to the then Department of Foreign Affairs (DFA), (now Department of International Relations and Cooperation) and other Departments involved in foreign missions. Following protracted discussions in the 1990s between DPW, DFA, the Department of Public Service and Administration (DPSA) and National Treasury, the function to manage and procure properties and accommodation abroad was allocated to DIRCO on recommendation of the DPSA through the Public Service Act of 1994.

The scope of the function transferred to DIRCO included all aspects such as leasing, purchasing, disposal, alterations, maintenance, refurbishment and others. This also implied full financial and operational accountability and financial decision-making authority. Notwithstanding the allocation of the function to DIRCO, the Department was not mandated to dispose of state-owned immovable assets abroad since the State Land Disposal Act had not been amended for this. DPW therefore had to assist whenever DIRCO wished to dispose of state property. In 2008, DPW approved13 properties identified by DIRCO, as surplus properties, be disposed of through public tender. Five of these were sold while the balance remained unsold up until today.  

DIRCO championed the Foreign Services Bill, currently before Parliament, which would regularise its power to dispose of state property abroad. With the proviso that the Bill must comply with the Government Immovable Asset Management Act (GIAMA), DPW is engaging with DIRCO to assist with the wording of the Bill. 

Discussion
Mr M Filtane (UDM) asked for more detail on the maintenance of government buildings. He cited the example of an Eastern Cape college where students are currently on strike because the doors of the female residence did not work thus depriving students of their personal privacy. He also wanted to know whether DPW had plans to make unused buildings available as venues for small business owners to use in developing their enterprises. Regarding DPW’s agreement with DIRCO on the administration of state properties abroad, he expressed concern whether this might not be unconstitutional as it could be in conflict with the custodial mandate of the DPW, including its acquisition and disposal function for all state property.

Mr D Ryder (DA) queried the figure of 29 322 state land parcels, as cited in the presentation, against a figure of 110 000, quoted in a previous meeting this year, and another of 190 000 by then Minister of Finance, Mr Malusi Gigaba, in Parliament - which of these was the correct one and what caused this discrepancy?

Mr Ryder asked whether it could be confirmed that ARCHIBUS, a professional, reliable property database management system proposed by DPW, was now up and running and whether the asset register was still being managed on a spreadsheet as was claimed and “partly denied” before. Another big concern was that by far, the majority of state buildings (around 70 percent) were described as being in need either of maintenance or serious repair. He argued that this spoke to the urgency of clarifying the allocation functions and responsibilities between DPW and other user departments regarding the administration of these properties, especially maintenance. What was the condition of the assets held abroad? If these assets were neglected, this could be a serious reputational risk for South Africa. He agreed with Mr Filtane that the uncertainty around DIRCO and state property abroad must be clarified once and for all.

Mr Ryder found it “scary” that a large number of state properties stood vacant with risk of further degradation, lack of maintenance, vandalism, etc especially when most government buildings were overcrowded, such as police stations and Magistrates offices. He judged DPWs five-year cycle to be too long for the IAR Enhancement Programme. The programme involved 132 young graduates and project managers conducting physical verification and condition assessments of state buildings. To avoid waiting up to four years for a report, he suggested that the programme duration be broken down into “bite-sized chunks” to free up assets that could be put to use now rather than later.

As for surplus assets not required by any sphere of government, but with economic income potential, Mr Ryder strongly urged that a clear policy be put in place to prevent these assets falling into corrupt hands. He warned against disposing of these assets for purposes of dealing with DPW’s financial overdraft facility. He pointed out that one did not sell the family silver to pay for ones credit card. The state needed to sit on certain assets because it might need them down the line.

Mr K Sithole (IFP) wanted to know how many assets were assigned a value of one Rand each as per the Department’s Deemed Cost Model which was used to eliminate assets from the register. What was the current status of these assets? He wanted further explanation and a breakdown (per department and per province) of the 25 012 buildings listed as “other” in the presentation. With regard to surplus properties abroad, which DIRCO had been unable to sell, who was responsible for maintenance? He suggested a meeting with DIRCO to establish who does what in relation to maintenance and disposal of surplus state property. He further enquired what timeline was agreed to to conclude the process of clarifying legislative and other outstanding issues with DIRCO.

Ms L Mathys (EFF) remarked that it was worrying that state assets could be administered from a spreadsheet as claimed by no less an authority than the Auditor-General himself at a previous meeting. Assurance was needed that this was no longer the case. If 33 percent of land parcels were vacant, how much of that could be used for farming and for land expropriation without compensation? Lamenting the poor state of buildings at key service delivery Departments, such as education and health, Ms Mathys asked who was responsible for this as it seemed no one knew what “was going on”. To what extent was Public Works responsible for local schools and hospitals and to what extent was provincial government? She painted a worrying picture of inequality where MPs and government Ministers had access to the best state facilities while the poor and most vulnerable had to make do with a crumbling infrastructure. She challenged Committee Members to spend one night in a government hospital and see if they “will ever want to go there” again. Regarding vacant buildings in big cities, like Johannesburg, there was no reason why these buildings could not be used for student accommodation given the high demand.

Ms E Masehela (ANC) spoke of the need for DPW to clarify its working relationship with DIRCO vis-a-vis the administration of state property abroad. If DIRCO, as mentioned in the presentation, had identified other uses for the unsold properties on the foreign assets list, what were those uses?

Ms P Adams (ANC) was also not satified with the rationale behind DPW''s agreement with DIRCO. If one of the main objectives of DPW was to provide oversight of the public works sector, did that not include the state's foreign properties as well? She then asked the Department to explain the continued existence of unregistered land parcels despite four years of sustained attention by the Committee on the asset register issue. She requested a figure of the number of land parcels released by DPW to the Department of Rural Development and Land Reform and Department of Human Settlements both for land reform and addressing the housing backlog in South Africa. She asked whether DPW makes follow-ups on the use of that land. By how much value, in money terms, had the property portfolio grown over the last four years? When it came to the summaries of land parcels and buildings per department and per province, Ms Adams found some of the figures puzzling especially with regard  to the land parcels and buildings used by the Department of Home Affairs. She asked the Department to take another look at the numbers. When would the assets under construction be finished? She agreed with Mr Ryder that the five-year cycle of the verification and assessment project was too long.

Dr Q Madlopha (ANC) spoke about the four percent of unoccupied buildings in the portfolio. If one subtracted it from the total of 93 943, one got a number of 3 757 unused buildings. How long have these been unoccupied? What are the implications of this for DPW and what plans are there to mitigate the situation? In concert with other Members, Ms Madlopha touched on the DIRCO matter asking questions around the nature of the agreement between DPW and DIRCO - was it just a gentleman's agreement? What legislative mechanisms are being used to accomodate the agreement and was DIRCO merely performing a task or a constitutional mandate?

Dr M Figg (DA) identified an apparent contradiction in the presentation between two statements pertaining to the 1999 agreement between DIRCO and DPW - the one statement said the scope of the function transferred to DIRCO included purchasing and disposal of property while the other stated that despite the allocation, DIRCO was not mandated to dispose of these assets as the State Land Disposal Act had not provided for it. He asked the Department to explain the decision to evaluate some assets at one Rand. Referring to the surplus assets sold through public tender, as in the case of Namibia, where had the tender been advertised? Was the advertising only local, and with respect to the still unsold property, who is paying the rent and other costs?

DPW Response
Regarding the correct figure for the total number of land parcels, Ms Matthews said the Department stood by the figure quoted in the presentation i.e. 29 322. She conceded that other numbers might have been quoted by someone else but the one in the presentation was official and appeared on the Department's Annual Report. DPW would engage with those who had put out a different figure. The confusion could be due to fluctuations caused by ongoing purchases and disposal of assets in addition to those assets retrieved by DPW as part of its Operation Bring Back.

Deputy Minister Cronin confirmed the Department’s position on the figure given in the presentation suggesting that the figure quoted by the Minister of Finance could have been an oversight caused by the pressure of delivering a tight budget. He assured the Committee that discussion was ongoing between the two Departments around this issue.  

The Chairperson acknowledged the explanation but added that the Committee noted contradictory figures were put out on public platforms and that Members still wanted clarity.

Deputy Minister Cronin reiterated that DPW was in communication with National Treasury and it looked as if the figure quoted by the former Minister of Finance, in his Budget Speech, had been an innocent mistake and would be duly corrected. If the Committee wanted to find out for itself what happened, then it should approach either the Treasury or the Portfolio Committee on Finance.

Dr Madlopha suggested that Members should accept Deputy Minister Cronin's comments and position and let DPW handle the matter as it saw fit.

On the large number of buildings in need of mantainance, Ms Matthews said DPW was consulting user departments on contributions to be made to a mantainance fund and the related revenue generation mechanisms needed in building up the fund. Part of the problem was the dichotomy which had always dogged governments the world over, namely the tension between budget allocations and the persistent need for more expenditure on capital mantainance projects. This is all the more difficult to grapple with during times of economic constraint such as South Africa is experiencing. 

Ms Matthews stated that hospitals and schools fell under the provincial level of government and were therefore a provincial competence. On the evaluation of some assets at one Rand, the Deemed Cost Model was not market-related and therefore was the most effective way of eliminating those assets. Other models used were the Municipal Evaluation rules, the Comparable Sales Method (which utilises location to measure the value of property) and the Replacement Cost Model (evaluating destroyed, damaged or unavailable property against the cost of replacing it).  Given the current contrained financial environment and the size and complexity of DPW's portfolio, it was not feasible to run everything on a market-related basis.

Mr Nashtheer Sankar, DPW Director: Real Estate Information and Registry Services, explained the high level assessment mentioned in the presentation - basically this referred to the score each government asset was given, in line with guidelines drawn up, as part of the physical verification process. The process was part of building the asset register from the ground up, starting from the land parcel, then the buildings, components and infrastructure within the facility. Based on the guidelines, the condition of the asset would be physically assessed and given a score ranging from 20 percent up to 100.  In response to malfunctioning doors at an Eastern Cape college, a facilities assesment branch was added to the condition assessment and verification project to take care of conditions such as those Mr Filtane had highlighted. ARCHIBUS, the system to which the asset register was being migrated, was now in pilot phase and was scheduled to go live on the 2 April 2018. For purposes of reporting to the Auditor-General, DPW had to use an Excel spreadsheet but maintained that all that information was now part of ARCHIBUS.

Mr F Adams (ANC) had a problem with the answer on ARCHIBUS - DPW's CFO, at an earlier briefing, had informed the Committee that ARCHIBUS was up and running, in stark contrast to what Mr Sankar was now saying. Had the CFO lied?

Ms Matthews clarified that implementation of ARCHIBUS was carried out in phases and according to different modules. The component relevant to the asset register was part of that process. She was not sure what the context was when the CFO made the remarks in question.
Mr Adams did not want to belabour the point but noted the Committee had expressed reservations about ARCHIBUS and had wondered why DPW could not have developed its own system given availability of IT expertise within the Department.

On unregistered land parcels, Mr Sankar explained the problem is mainly caused by delays between the office of the Surveyor-General and Deeds Office but DPW is working with the Deeds Office to resolve these delays. On unoccupied buildings, there is a plan to utilise those buildings and the plan could be made available to the Committee. The five-year cycle, with regard to the physical assessment of assets, was a requirement of the Government Immovable Assets Management Act (GIAMA) and therefore a statutory imperative. The work was being done in phases and, with addition of the facilities management branch, a more indepth analysis of the property stock is underway.

In response to several requests from Committee Members for clarification around state assets held abroad, Mr Chiapasco noted that in the 19 years since these assets were transferred from DPW to DIRCO, the issue had aroused much interest and dicussion. While today GIAMA allows the Minister of Public Works to assign custodianship of state property to any organ of state, before 1999 that was not the case. Such permission could be given only by DPSA  through the Public Service Act. It was against this background that the transfer of foreign assets, to the then Department of Foreign Affairs, took place. Minister Alfred Nzo of the DFA wrote a letter to then Minister of DPSA, Mr Zola Skweyiya, asking that he be allowed to take over these assets as DFA was better suited to administer them. Then Public Works Minister, Jeff Radebe, relented and the agreement was implemented. In confirmation of the above, Mr Chiapasco read out a letter from then Minister Skweyiya to then Minister Radebe titled "Placement of the Function Concerning the Management and Procurement of Properties and Accommodation Abroad", detailing aspects of the agreement, including procurement and disposal of these assets and full financial implications thereof.

Mr Chiapasco made the observation that, contrary to what is thought now, this was a complete transfer of DPW's function and not a delegation. DIRCO does not account to Public Works regarding these assets - it reports to the Auditor-General. However, in line with the DPW's preeminent position as custodian of state property, the Department would have oversight as part of implementation of GIAMA despite the fact that the entire day-to-day management of the function lies with DIRCO.

The problem was that the State Land Disposal Act, which allows only the Minister of Public Works to dispose of state property, was not amended thus making it irregular for DIRCO to do so on its own. This meant that DIRCO has to approach DPW for assistance anytime it has to dipose of property held abroad. The fact that DIRCO cannot perform the disposal function might be taken to mean that it does not have custodianship. However, DPW is in communication with DIRCO on this matter and is assisting DIRCO with the wording of a Bill before Parliament designed to correct the anomaly. As to the constitutionality of the agreement, Mr Chiapasco believed that it probably was constitutional while conceding that it might be tested in the process of passing the Bill. Regarding the state of the assets, DPW is not privy to that information since it would be in the preserve of DIRCO.

On the suggestion to change vacant office buildings into student accommodation, Mr Chiapsco said a team is currently working on that concept as part of a bigger plan to rehabilitate empty government buildings for purposes of service delivery. With handing over of land to other departments, the process is quite robust and includes an evaluations board that makes sure that everything is above board. Knowledge about the 13 unsold properties abroad was not up to date - DPW could only assume that DIRCO was maintaining these properties at least at some basic level and it was hoped that soon DIRCO will find a suitable use for these properties. As for properties sold by public tender, the process was advertised in Namibia where the properties were situated.

Mr Sankar said all government entities with a concurrent custodial function, whether at national or provincial level, had to comply with GIAMA meaning that DPW, as the preeminent custodian of state property, has to make sure all custodial entities complied with GIAMA. Consequently, a Custodian Forum was formed to manage GIAMA compliance issues. 

Ms Mathys returned to the issue of concurrency between national government and provinces, reminding the political leadership of DPW that Section Four of the Constitution was not clear about concurrency. Regarding the need to mantain government buildings, she urged the Minister and his Deputy to ensure that health and education, which are very important as key service delivery vehicles for the poor, do no suffer because of the concurrency issue.

Mr Adams, noting the lack of time, proposed the next presentation on the Department “Operation Bring Back” be postponed to another meeting.
The Committee supported this.

Adoption of Committee Minutes dated 27 February 2018
Committee Minutes dated 27 February 2018 were adopted with one minor grammatical amendment.

The meeting was adjourned.