National Treasury Q4 2021/22 Performance for National Departments & Update on SOEs

Meeting report

The Chairperson thanked National Treasury for taking the time to brief the Committee on the 2021/22 fourth quarter expenditure for national departments. The Deputy Minister had connection problems, so the team, led by Dr Mampho Modise, would proceed with the presentation until such time that the Minister was able to connect to the meeting.

2021/22 expenditure for national departments

Dr Modise, Deputy Director-General: Public Finance, National Treasury, said the presentation would look into under-spending, over-spending and additional information. For the year 2021/22, the overall under-spending by departments was R14.9 billion, which was 1.5% preliminary under-expenditure compared to the available budget of R1 026 billion. The under-spending was on goods and services, transfers and subsidies and payment for capital assets.

Departments with the most under-spending were the Department of Cooperative Governance, followed by the Department of Water and Sanitation, the Department of Environment, Forestry and Fisheries, and National Treasury.

The Department of Cooperative Governance (DCoG) had, in the past three years, been under-spending significantly, as it had an under-spending of R3.6 billion in the 2020/21 and R3.4 billion in the 2019/20 financial years.

The same went for the Department of Water and Sanitation (DWS) and the Department of Environment, Forestry and Fisheries (DEFF), which had been under-spending significantly in the past three years.

The Department of Police had improved significantly from the previous financial year, where it had had an under-spending of R4.1 billion, and in the current year had an under-spending only of R878.4 million. Expenditure on buildings had contributed significantly to the overall under-spending in the past four years. It was followed by goods and services, which had also had significant under-spending in the past two years

The departments that showed over-spending were the Department of Health (DOH), and the Department of Social Development (DSD). The DSD had preliminary over-spending of R962.6 million, while the DOH had preliminary over-spending of R366.4 million. The DSD overspending was mainly due to overspending on the special COVID-19 Social Relief of Distress (SRD) grant as a result of a higher than anticipated number of beneficiaries. The DOH over-spending was mainly due to the payment for COVID-19 vaccines. The spending had been authorised in terms of section 16 of the Public Finance Management Act (PFMA) and section 6 (1)(b) of the Appropriation Act.

The Department of Agriculture, Land Reform and Rural Development (DALRRD) had preliminary under-spending of R1.1 billion, which was equivalent to 6.1%. This under-spending was mainly due to delays in the payment of vouchers for support to smallholder farmers, and delays in the settlement of land claims and finalisation of the land acquisition process.

National Treasury’s under-spending of R1.3 billion was mainly due to delays in the initiation of the tender process for the Municipal Revenue Management Improvement Programme (MRMIP), procurement of the Integrated Financial Management System (IFMS) pilot implementation service, and the Land Bank recapitalisation, which was not processed in 2021/22 due to the outstanding agreement. The Department of Water and Sanitation’s under-spending of R2.5 billion was mainly due to unprocessed/disputed invoices, contractual disputes and litigation on the emergency drought relief interventions, and low operational costs for the Vaal River remediation intervention project.

2021/22 expenditure for state-owned enterprises
Mr Jeffrey Quvane, Senior Analyst, National Treasury, said that Eskom’s debt had been reduced by R5.5 billion, bringing total debt, securities and borrowings, to R396.29 billion as at 31 March 2022, against a budgeted total of R432.35 billion. To date, the government had provided Eskom with equity support of R136 billion from the R230 billion which was made up of R49 billion in 2019/20; R56 billion in 2020/21 and R31.7 billion in 2021/22. Since 2008/09 to date, the government had provided Eskom with equity support amounting to R241.6 billion.

To enable Eskom to execute its borrowing plan, the Minister of Finance had approved a special dispensation to allow it to access additional guaranteed debt of R42 billion in 2021/22, and R25 billion in 2022/23, which fell within its existing guarantee facility. Eskom utilisation of Open Cycle Gas Turbines (OCGTs) had amounted to R6.4 billion, higher than budget as at 31 March 2022, due to its poor generation performance.

The South African Post Office’s (SAPO) financial position continued to be severely constrained, and cash flow had been managed closely. A net loss position of R830 million was reported against the projected net loss of R368 million -- a negative variance of R462 million (125%) -- and had deteriorated against the prior year (PY) by R363 million (78%). Creditors, including accruals, had amounted to R4.4 billion and included a salary debt of R150 million for the period from April 2020 to February 2021. No government guarantees were currently in place for SAPO, and no further funding had been allocated to it in 2022/23.

Mr Phatu Rasivhetshele, Director: Sectoral Oversight Division, National Treasury, said that Treasury had been requested to provide quarterly updates to Parliament on the utilisation of the R2.7 billion allocation to SAA subsidiaries. The R2.7 billion allocation formed part of the R10.5 billion that had been allocated to SAA during the 2020 Medium Term Budget Policy Statement (MTBPS). SAA had exited business rescue as at 30 April 2021, but the airline had remained under care and maintenance until September 2021 when it resumed operations.

Mr Lefentse Radikeledi, Director: Development Finance Institutions (DFI), National Treasury, said that in December 2021, the Minister of Finance had appointed the new Land Bank board, which would oversee the restructuring of the Land Bank. The board was currently working on developing a business case for curing the debt default and a strategy for the future of the bank. The current chief financial officer (CFO) was now acting as the chief executive officer (CEO) of the bank after the CEO's departure in April, and the process to recruit a new CEO was underway. The R7 billion recapitalisation transfer to the Land Bank would not happen until the bank and the lenders have agreed to a liability solution.

Discussion
Mr Z Mlenzana (ANC) asked what could be done to force departments and entities to adhere to the expenditure trends without fail, given that there were departments that constantly under-spent their budgets.

If ever there was a spoiled child in the family, which would be Eskom, because they always worried about Eskom while Eskom was not even worried about itself. The consistent and perpetual defiance by Eskom was worrying.

Mr O Mathafa (ANC) appreciated National Treasury’s presentation in breaking down the detail of the under-spending, especially on goods and services. What efforts were being made by Treasury to ensure that the training and development that was reflected within goods and services were being addressed and the spending was being improved? The under-spending in the Department of Military Veterans was also concerning, as there were instances where military veterans went on strike due to their benefits not being paid out, while there was money that was being sent back to Treasury due to under-spending.

Could Treasury clarify whether it was true that R12 billion of the R31.7 billion that had been advanced in the previous financial year to Eskom had been spent irregularly? How was it that the little that was advanced to Eskom was irregularly spent, while it was being said that Eskom was unable to sustain itself? What measures were being taken to ensure that this irregular expenditure was eradicated, as it did not seem that there were any consequences for this? What was also being done about the shareholder compact targets for Eskom that were not being raised? It was also worrying that there was an abundance of coal in the country, but yet they had a situation where billions were spent on OCGTs which were traditionally not supposed to be the primary generation source. Had Treasury received any indication from Eskom on how best they were going to move away from using diesel to power the country?

Mr X Qayiso (ANC) expressed his concern at the constant under-spending by the top five under-spending departments. National Treasury should not form part of the departments with significant under-spending, as this did not give a good impression to the other departments. In the presentation given by Treasury, there was no indication of consequence management for departments and provinces. It would be helpful for Treasury to report that they held the responsible departments accountable for misconduct where public funds were concerned. A breakdown of provinces in terms of under-expenditure should also form part of the presentation in order for the necessary steps to be taken to address this matter.

It was indeed concerning that there was under-spending in the Department of Military Veterans, given that military veterans were complaining about not receiving their benefits. Drastic measures must be taken to address this matter, because military veterans should not be suffering because the Department was unable to spend the money allocated to them.

The Post Office was still needed in rural areas, and it would be appreciated if measures could be taken to save it and redesign it in such a way that it was able to still function as the South African Post Office.

The Chairperson thanked Treasury for its detailed presentation, and said that it could not have come at a better time, as the Committee was currently dealing with the Appropriation Bill. He asked Treasury to expand on the under-spending on buildings and other structures, and what that consisted of, as it was not clear what it referred to. Could Treasury also clarify what the under-spending on housing really meant? It was really unacceptable that there was under-spending on bursaries in some departments while there were so many young people who would like to go to universities and other tertiary institutions.

On the “March spikes” that had been mentioned in the presentation, how was that related to the failure of some of the departments to pay service providers, especially small businesses, within 30 days? Parliament had appropriated R7 billion to try and deal with the challenges of the Land Bank, the main reason being to enable the bank to continue with its business. There seemed to be excuses given by Treasury for not resolving the Land Bank issue -- could it at least provide timeframes as to when it could resolve the matter?

It was unacceptable for Eskom to be getting deviations from the laws that had been passed by Parliament, because exceptions could not be given to Eskom alone. It could not be accepted that there were institutions which were allowed to spend money appropriated by Parliament without following its laws and policies. What was Treasury doing to address the issues raised about Eskom?

What was the status of SAA and Mango? How much of the market shares of SAA and Mango had been taken by other airlines?

Treasury's response
Mr Quvane said that Treasury was equally concerned on the reliance of Eskom on the fiscus, as the intention of Treasury was to see Eskom becoming able to sustain itself and honour its obligations. Treasury was trying its level best to develop every solution that could assist Eskom to be sustainable and no longer dependent on the fiscus.

The equity allocation to Eskom was ring-fenced purely in respect of redeeming debt and interest, and was not used on any of its other expenditures. Treasury’s monitoring of Eskom ensured that the money given to the entity went where it was intended, and if it were to be used for something else, the auditors would be able to pick that up. Therefore, on the R12 billion irregular expenditure, Treasury's colleagues at the Office of the Chief Procurement Officer (OCPO) were seized with that matter. From an equity point of view, the money certainly went towards redeeming interest and debt. As the Committee could see in the presentation, there had been a slight decrease in the debt of Eskom as at 31 March.

The diesel power stations were not meant to be used as baseload stations or as a fleet, but were meant to be used at a particular point in time to actually assist in dealing with the peaking. The manner in which Eskom was using them was not good, and the increase in the unplanned losses contributed directly to the over-usage of the diesel stations. For Eskom to reduce their reliance on the OCGTs, they had to improve their maintenance and bring the Medupis online into the system and ensure that all the identified defects were corrected.

Mr Rasivhetshele replied that there were ongoing interactions between Treasury, SAA and the Department of Public Enterprises, but there was no clear indication as to when the process would be completed. There had clearly been a loss of market share for SAA, as it currently was not operating any intercontinental flights and had reduced its domestic operations. The passenger aviation industry operated on very low margins, and it was important to ensure that one operated efficiently in order to generate profits. Treasury did not have an exact date as to when Mango would resume operations and what routes they would be flying.

Mr Radikeledi said that National Treasury was very concerned at the slow pace on the Land Bank matter, and at some point, the Minister had indicated that the bank must find a solution quickly otherwise the R7 billion should be given to another state entity. In March 2020, the Land Bank was sitting with assets to the value of R44.5 billion, and its total debt was around R42 million. As a result of it defaulting on its credit obligations, the lenders had the power to liquidate the bank and at that point, Treasury had tried to negotiate with the lenders to not liquidate it. Had the Land Bank been liquidated, they would not have the Land Bank anymore because all the assets would have been taken by the lenders.

Ms Ulrike Britton, Chief Director: Urban Development Infrastructure, National Treasury, said it was easy to have a training and development budget and not spend it when the system did not identify the gaps that managers needed to fill. When there was failure to hold people accountable, it was not easy to identify the gaps around training and development to ensure that the right people were employed. One of the things that needed to be done in the capital budgets of departments, was that before invoices were paid for work that was being undertaken, the work done must be verified as per the contract specifications. The buildings and other structures included office accommodation and infrastructure spending at the national level.

Dr Rendani Randela, Chief Director: Justice and Protection Services Unit, National Treasury, replied that Treasury had shared the Committee’s concerns on the military veterans' under-spending ever since that department had been established, as it had been having management and leadership instability. The Director-General (DG) in the Military Veterans Department was currently permanent, and it was the hope of Treasury that all the issues would now be resolved.

Dr Modise replied that there were two types of under-spending. The first of these was under-spending because of savings that the departments had incurred, and the second was under-spending which resulted in less service delivery. The worrying one was the under-spending that led to lower service delivery by the departments, as the citizens of South Africa were affected by that. There were also various reasons as to why there was under-spending within the different departments. Treasury was trying to address the issue of under-spending by having monthly monitoring of departments' spending, and highlighting the issues that were picked up during the monitoring.

Committee minutes

The Committee considered and adopted its minutes of 20 and 24 May 2022.

The meeting was adjourned