DCDT & entities 2020/21 Quarter 2 performance; ICASA on spectrum auction and litigation; with Deputy Minister

Meeting report

The Chairperson welcomed the Members, the delegation, and Deputy Minister of Communications and Digital Technologies (DCDT), Ms Pinky Kekana, to the meeting. He noted an apology from the Minister of the DCDT, Ms Stella Ndabeni-Abrahams, who was unable to join the meeting due to an ongoing National Coronavirus Command Council (NCCC) meeting. There was also an apology and a request from the Film and Publication Board (FPB) to join the meeting late and present in the last slot, as it had convened an emergency meeting following the passing of one of its personnel the night before. He expressed his condolences to the FPB.

The Chairperson requested that the DCDT and the entities take ten minutes each to present their reports in order to allow Members to appropriately engage with the presentations. He said that the presentation of the quarterly reports would be for the purpose of mainly highlighting targets that were not achieved, the reasons for non-achievement, and what would be done to correct these shortcomings, since the Members had received and read through the presentations beforehand.

Deputy Minister Kekana joined the Chairperson in passing on her condolences to the FPB for the loss of one of its internal audit unit personnel.

She said the Department was it required by law to make presentations on a quarterly basis so as to brief the Committee to allow it to do its job of monitoring the actual expenditure of the DCDT and its entities, and to ensure that the targets within each annual performance plan (APP) were realised. The DCDT and entities should be able to share why targets were not achieved and what their turnaround strategies were if they were not operating effectively.

Department of Communications and Digital Technology (DCDT)

Ms Nonkqubela Jordan-Dyani, Acting Director-General (DG), DCDT, took the Committee through the DCDT’s Quarter 2 performance report, and indicated that eight out of 42 targets were not achieved, meaning 81% of the DCDT’s targets were achieved. These unachieved targets would be discussed.

Development of a new DCDT organisational structure:

The Service Delivery Model (SDM) was supposed to have been finalised by the end of Quarter 2, but due to a lack of resources and having to operate under lockdown, this target was unable to be achieved timeously. The SDM had been concluded in the last month, and the DCDT was trying to work on targets simultaneously in order to catch up on the operation of the SDM.

Capacitating the Fourth Industrial Revolution (4IR) Project Management Office (PMO):

Not all vacancies were filled as planned in Quarter 2. Since then, the DCDT had held interviews and had finalised the process for appointments to those positions.

Tabling of annual reports of State-Owned Entities (SOEs):

The annual reports of the DCDT and the SOEs were postponed by National Treasury by two months. The revised annual reports of the entities were subsequently submitted, with the exception of the South African Post Office (SAPO), which was outstanding as it was completed late.

Performance Management System for the Independent Communications Authority of South Africa (ICASA) Councillors:

The engagement workshop between the DCDT and ICASA Councillors could not be conducted as planned due to the last council member’s appointment on 15 September 2020 not leaving enough time to organise the workshop. Since then, an engagement workshop was held with the executive, and the DCDT also shared drafts awaiting comment to ICASA. The DCDT hoped that the session with the Minister and the ICASA Councillors would be held in March.

State Digital Services Company Bill:

The Business Case for the State Digital Services Company Bill was developed but was not submitted for approval as planned due to limited resources with regards to the legal drafting of the Bill. The DCDT was seeking support to assist with the finalisation of the business case. The business case was then approved at the end of Quarter 3, and the DCDT was proceeding to consult the relevant stakeholders.

Provision of Broadband services to 970 connected sites:

The DCDT fell short of the target, as only 942 sites were connected at the end of Quarter 2. The challenges that contributed to the non-achievement of this target were related to theft and vandalism, and technical issues as the Covid-19 pandemic affected normal operations. At the end of Quarter 3, the provision of broadband services to all 970 connected sites was monitored.

860 000 subsidised digital television installations:

With regards to the Broadcasting Digital Migration (BDM), the DCDT would be distributing the 860 000 Set-Top Boxes (STBs). There had been a number of delays, one of which was the conclusion of the service level agreement (SLA) between the Universal Service and Access Agency of South Africa (USAASA) and SENTECH. The SLA had subsequently been finalised and National Treasury had granted USAASA the approval to appoint SENTECH to manage the installations. An update had already been given on fast-tracking the rollout of the BDM, as well as the conclusion by March 2022. The DCDT would then concurrently ensure that the voucher system was provided to households in the provinces.

National e-Government Strategy and Roadmap:

The technical review of the National e-Services Portal process with the State Information Technology Agency (SITA) was delayed due to capacity constraints, as well as staff changes at SITA. There were ongoing engagements with SITA to expedite the matter. The DCDT had subsequently finalised the matter and were consulting at a cluster level at government.

Financial performance

Ms Joy Masemola, Chief Financial Officer (CFO), DCDT, said that by the end of Quarter 2, the DCDT had spent 40% of its allocated budget, largely due to operations being severely affected by the hard lockdown and the fact that under administration, the DCDT was awaiting invoices from the Department of Public Works and Infrastructure which were received only in Quarter 4.

Expenditure per economic classification:

The expenditure for compensation of employees was sitting at 37.8% of budget. This underspending was due to the cost-of-living adjustment, pay progression, and performance rewards not having been paid in time. There were also vacant posts which were awaiting the finalisation of the organisational structure process. The underspending for goods and services was due to the advance that was paid to Broadband Infraco (BBI) and SITA, and was still being utilised. Presently, BBI and SITA had started using their allocated budget. There were a few delays with the payment for capital assets, and as was reported in Quarter 1, laptops had not been delivered by the end of the 2019/20 financial year but were delivered and paid for in Quarter 2. Further, there was an ongoing process of procuring motor vehicles for the Minister and Deputy Minister.

Transfers:

The transfers made to the various entities were in line with the schedule agreed upon by National Treasury and the entities. An amount of R3.5 million was paid under households to ex-employees for medical aid subsidies as per the order from the Public Protector’s report.

Audit action plan:

The DCDT had resolved 50% of the audit findings. The findings highlighted in the presentation included the findings that were raised by the Auditor-General of South Africa (AGSA) in the previous financial year for the former departments. On the findings that had not been resolved, the Broad-based Black Economic Empowerment (B-BBEE) verification processes had commenced, and a service provider would be appointed to verify the financial statements in terms of the B-BBEE regulations. On the findings raised in relation to the organogram, once the process of developing the organisational structure was finalised, these findings would be resolved. The cases of irregular expenditure were being followed up on and investigations had commenced, and consequence management was being implemented. The rest of the unresolved findings were mainly on policies that had been developed and presented in the government structures that were awaiting approval.

SENTECH

Mr Sandile Malinga, Chairperson, SENTECH, requested Mr Mlamli Booi, Chief Executive Officer (CEO), SENTECH, to present the report.

Mr Booi commented that the start of Quarter 2 had been difficult for everyone in the sector, but those involved had to manage under those circumstances. In Quarter 2, total revenue was positive, and profitability was higher than planned due to activities being delayed during lockdown in order to abide by the lockdown regulations. The biggest contributor to the performance of SENTECH was the television business, which was the national television coverage. SENTECH had managed to achieve in line with the television budget. It was focusing on the area of connectivity, in order to grow that business to take care of the changes that are happening in the television space as a result of the migration that was causing the cost of broadcasting and signal distribution to decrease, and cause the television revenue to SENTECH to decrease.

Key performance indicators:

SENTECH achieved 82% of its Quarter 2 targets. Two targets were not met. The first target related to achieving progress in the development of 4IR technologies. This target had been caught up on now, and the aim was to completely achieve this target by Quarter 4. The second target related to the national broadband network, called the State Digital Infrastructure Company. This project was delayed, but SENTECH had since caught up and should be able to achieve this target by the end of the 2020/21 financial year.

Financial Performance

Ms Rudzani Rasikhinya, Chief Financial Officer (CFO), SENTECH, said that for the quarter ending September 2020, its continuing business revenue was R57.778 million (10%) higher than what was budgeted. The reason for the variance was mainly due to the delayed analogue switch-off (ASO), as the budget was a combination of SENTECH offering television services using both digital and analogue services. The total revenue, which took into consideration the dual illumination costs, had a variance of 7%, meaning it was R48.711 million higher than what was budgeted. For expenditure, there was a saving of R20.574 million (3%), mainly because some planned maintenance could not be done due to the lockdown. SENTECH was in a catch-up mode as the CEO had mentioned. The main contributors to the positive variance of 103% for the earnings before interest and taxes (EBIT) were the 10% positive variance of the continuing business revenue, and the fact that when the budget was drafted, an exchange rate of around R17 was used and as the Rand did better in the market, the EBIT had improved. This also explained the net finance cost of R55.483 million and net profit before tax of R80.821 million. These had positive variances of 91% and 113% respectively.

Statement of profit and loss:

The lease expenses, which are foreign exchange nominated, contributed to the variances for net finance cost and net profit before tax as the exchange rate improved during the year from about R17 to R16 in September.

Management letter points:

To date, SENTECH had done quite well in achieving its targets. There were eight management letter points raised during the 2019/20 financial year end audit. These mainly related to finance, supply chain, legal and operations divisions. As of the end of September, five of these points had been completely addressed, two were in the process of being addressed, and one had not been addressed. The one that had not been completed was outside of SENTECH’s control, as it dealt with a lease agreement that had to be signed for a site. In this regard, negotiations were ongoing with the relevant municipality to ensure that the lease agreement was signed.

Mr Booi commented that SENTECH was still operating in line with its mandate, despite the challenges of Covid-19.

State Information Technology Agency (SITA)

Mr Luvuyo Keyise, Executive Caretaker and Administrative Authority, SITA, said the entity had achieved 87.5% of its Quarter 2 targets, which was something that it had not done in more than a decade.

Programme performance:

The target that SITA was unable to meet in Quarter 2 was ensuring that 50% of the capacity of the Cloud Foundation Infrastructure (CFI) was utilised. By now, utilisation of the CFI was sitting at more than 70%. Government departments had signed up orders of more than 130% of the available capacity, meaning that SITA was investing in an additional 30% capacity for the CFI. It was now working on assisting departments in moving the data on their servers to the more secure CFI. This work was taking time, but more support was being provided for this migration. Financial targets were also being met. One of the main challenges was the issue of vacancies and the lack of leadership. In this regard, a new CFO had joined SITA, and the filling of the last executive position would be finalised. The other core matter that had to be looked into was ensuring that SITA’s procurement processes were free of delays. It was confirmed that the procurement transactions for clients could now be met, and even the backlog of 410 delayed transactions of more than R5bn from January 2020 had been closed. One matter that the Committee had asked SITA about was ensuring that small, medium, and micro enterprises (SMMEs) and black, female businesses were able to get not less than 40% of the procurement spend. It had achieved 42.72% of the procurement spend for this target, and would continue to improve this by year end.

Financial performance:

Mr Molatlhegi Kgauwe, CFO, SITA, took the Committee through the financial statements of SITA. He said SITA was in a good position in terms of its financial health.

Financial statements:

Looking at the figures up to September 2020, total revenue was sitting at R145.121 million below the budget. This was mainly due to opportunities that had not materialised at the end of Quarter 2. Some of these opportunities had since materialised. He highlighted that the total cost of sales was R132.117 million below budget. This saving corresponded with the lower total revenue. There was a budget of R642.245 million for total operating expenses, of which there was an actual expenditure of only R467.295 million due to the management decision to focus mainly on activities that contribute to achieving SITA’s financial objectives as a result of financial constraints. SITA had budgeted for a deficit of R29.247 million before tax, but actually had a surplus of R161.523 million before tax.

Audit issues:

The audit outcome had regressed from an unqualified to a qualified audit opinion. The issues were mainly around non-compliance of the statements with the standards of the Generally Recognised Accounting Practice (GRAP), challenges with contract and document management, implementation of controls to detect and prevent irregular expenditure, and lack of consequence management. Management had developed an audit action plan, monitored by the audit committee and the Board, to address the root causes to ensure that there would not be a recurrence of these issues. The plan had been implemented, and SITA had appointed SizweNtsalubaGobodo (SNG) to assist with the GRAP compliance review and to review all transactions from 2018/19 and 2019/20. On supply chain management (SCM), policies and governance processes were reviewed to be made compliant. Controls were implemented to close the gaps identified by the AG. More than 60% of the irregular expenditure came from the data lines, thus controls were put in place to stop the irregular expenditure, such as putting in place a new contract to better manage the data line expenditure. All contracts and processes were reviewed to identify irregularities and resolve them. A loss control committee (LCC) was put in place to investigate irregular expenditure and plug the gaps, ensure implementation of consequence management, and perform oversight. The LCC reports are monitored by the Executive Committee (EXCO), the risk and audit committee, and the Board. Cases of irregular expenditure had been submitted to National Treasury, of which 27 cases, amounting to R336.7 million were condoned.

Mr Keyise indicated that most of the necessary controls that had been identified were being implemented. SITA’s key focus was ensuring that by the year end, all client-related targets were met, including procurement and service delivery targets.

National Electronic Media Institute of South Africa (NEMISA)

Ms Molebogeng Leshabane, Board Chairperson, NEMISA, asked Mr Trevor Rammitlwa, Chief Executive Officer (CEO), to present the report.

Mr Rammitlwa said that at the end of the second quarter, NEMISA had gone through a difficult time and had achieved only four out of 11 targets. Since then, a recovery plan had been implemented to address this.

Reasons for non-achievement:

Covid-19 had resulted in the cancellation or postponement of many training programmes. At the time, the learning management system (LMS) was unable to launch, but the LMS had since been approved and online training had been launched. The target of signing a Memorandum of Understanding (MoU) had since been met, with an MoU having been signed, approved by the Board, and concluded with the KwaZulu-Natal (KZN) Economic Development and Tourism Department. Further, the other MoU for the annual target had been signed with Microsoft.

In terms of Programme 3: e-astuteness development, the target of training 5 000 citizens in basic digital literacy was not met, with only 580 citizens trained. However, in Quarter 3, just over 5 000 people were trained, and at the end of Quarter 4 there had been about 10 000 citizens trained. Online learning had also been launched, which had begun to gain traction. Virtual training sessions, running twice a week, had also been launched. The target of developing one creative media course was not achieved, but had since been achieved. On the annual target of training 800 citizens on specialist technology, the Quarter 2 target of 150 was not met, with only 42 citizens being trained. Since then, the annual target had been achieved, with just over 1 500 citizens having been trained. The launching of online training significantly assisted this achievement. Of the 100 governmental departments’ and institutions’ employees who had to participate in digital transformation advocacy and awareness campaigns in Quarter 2, only 82 had done so. Since then, training had been rolled out, mainly in Limpopo and KZN, and this target would be met by the end of Quarter 3. The targeted 1 500 registered users on the LMS that were to be integrated into the cloud platform were not registered in Quarter 2 due to delays in Quarter 1. Since then, the LMS was approved and launched with training courses, and the number of registered users was steadily increasing, and the target would likely be met by the end of the Quarter.

In terms of Programme 4: monitoring and evaluation framework, the target was not achieved in Quarter 2, but would be achieved in Quarter 4 as monitoring and evaluation activities were under way, and reports were being produced. An impact assessment project was also being implemented, which would produce a report at the end of March.

Financial performance

Mr Thilivhali Ramawa, CFO, indicated that NEMISA was hoping for an unqualified audit outcome, and was for that reason prioritising the implementation of measures in the audit action plan to ensure that the findings of the AG were resolved and that regulations would be adhered to. Those findings had almost all been resolved, with the only remaining finding being the closing financial procedures that would be done when the statements are finalised. In preparation of that, NEMISA had taken some of the staff to GRAP training. It would ensure that those findings do not occur again.

Financial health:

Some of the training expenditure was not incurred due to Covid-19 causing cancellations and postponements. This contributed to the surplus, hence too much weight must not be given to the surplus as it was largely the result of the training model being delayed. However, NEMISA was in good financial health, and all that had to be ensured was that the surplus was committed in line with the regulations.

Direct Expenditure:

This expenditure related to training, which is the core mandate of NEMISA. The actual expenditure for training was much less than what was budgeted, as less training was done. It was anticipated that in Quarter 3 and Quarter 4, the expenditure should pick up due to the LMS being activate. The variance for overheads and administration expenditure was within a normal range, largely as the administration expenses are fixed expenses, such as salaries and rental. NEMISA had to ensure that it moved quickly to secure the surplus to avoid surrendering it to the revenue fund of Treasury, and that spending was done within the regulations.

South African Post Office (SAPO)

Ms Tia van der Sandt, Acting Chairperson, SAPO, said the key events in the media and at the forefront of the Members’ minds would be the media statements by the previous CEO and the resignation of the former CFO. The Board had decided to focus on a stakeholder engagement policy to deal with the comments of the former CEO to ensure that SAPO maintained its own narrative. On the CFO’s resignation, it was devastating to receive the resignation of Mr Ramukumba. However, she assured Members that the Board and Mr Ramukumba had parted on good terms, and had wished him well at UNISA. SAPO had commenced the process to fill the vacancy quickly.

She admitted that SAPO was in financial distress due to continuous losses and the no funding allocation that was received in October. Financial assistance was urgently required to continue with business operations. Executive members were faced with the effects of these financial constraints daily. The separation of Postbank from the SAPO without compensation had dire consequences for SAPO’s liquidity and going concern status. The Board appreciated the Minister’s decision to appoint a team of independent specialists to assist with the turnaround of SAPO. This team would work closely with the Board and executives to ensure that long-term sustainability of SAPO was ensured.

Ms Reneilwe Langa, Acting CEO, SAPO, said there had been some slight improvements in the overall revenue performance of SAPO in Quarter 2 when compared to Quarter 1. SAPO was mindful that even though slight improvements were indicated, SAPO was experiencing cash flow challenges. There was a need for an overall turnaround, and it was believed that the Minister’s intervention would assist in addressing the key challenges.

Performance overview:

SAPO had continued to pay the South African Social Security Agency (SASSA) grants. In Quarter 2, it had managed to pay about 8.2 million beneficiaries. In September, 1 639 cash pay-points (CPPs) serviced payments to 217 480 beneficiaries. SAPO had also managed to pay Social Relief of Distress (SRD) grants. In the current quarter, there had been some slight increases in the number of customers for services rendered in government departments and for the SRD grants. While the short term was prioritised, it was recognised that the main challenges had to be addressed. One had to be mindful that there was no funding allocated in October. As a result, there were no critical investments made in capital expenditure. The slight improvements had to be strengthened in the long-term. SAPO continued to record a net loss. Expenses continued to exceed the revenue, which had led to the cash flow deficit on a monthly basis. There were some issues that were being addressed.

Key performance indicators:

In Quarter 2, SAPO achieved 94% of its 100% baseline revenue target. This continued to be worked on. The target of reducing the staff costs was missed by 1%, hence going forward there would have to be more concerted efforts to optimise staff utilisation. SAPO had achieved the target of improving its profitability, but the target of improving liquidity was not achieved. The return on assets target was not achieved, purely due to the lack of funding for improved security. Work continued to be done with law enforcement to minimise risks. Customer complaints were not resolved within the target period of 14 days as a result of the Quarter 1 challenges, with a service provider of equipment being liquidated. Work must be done to improve customer relations, and particular significance must be placed on meeting the requirement of utilising a tracking system.

Although the target of achieving the regulated mail delivery standard was met, work must be done to ensure that mail delivery is improved and remains in the regulatory levels. In this regards, work was being done to address the issue of backlogs. According to assessments done, SAPO was sitting at 99% for maintaining network availability, which meant the target had been achieved. The digital transformation target was not achieved due to funding uncertainty and the fact that due diligence had to be carried out for the evaluation processes, which delayed the execution of this objective. In this regard, the evaluations were finalised and alternative funding sources were being identified to achieve this target. In terms of the audit findings, the target for Quarter 2 was met, but SAPO was still to get the finalised 2019/20 annual report, and it was clear that the target of a clean audit would not be achieved.

The South African Broadcasting Corporation (SABC)

Ms Yolande van Biljon, CFO, SABC, said the Corporation was still reporting against a corporate plan that was submitted in February 2020, and had since received permission to submit a new corporate plan based on the latest circumstances confronting the organisation. From Quarter 2 onwards the SABC would report against that corporate plan.

Executive summary:

It was clear that the SABC had been severely affected by the impact of the lockdown, with the revenue being about R1.3 bn less than was budgeted for the year to date. Expenditure was also about R1 bn less than was budgeted, but that was not enough. The SABC recorded a loss of twice what was budgeted and about 100% more than the prior period. Television licence collections were about R140 million below budget. The forecast then had been a loss about R1.2 bn, but since then, the SABC had been able to claw back money through certain initiatives to be able to forecast a loss of about R844 million. At the time there was about R1.9 bn in cash at the bank, of which about R1.3 bn was the ring-fenced bail-out money.

Due to the challenges in the first six months, the capital expenditure, content and maintenance plans were all delayed, as a result of a combination of the lockdown restrictions and the impact on the supply chain throughout that period. Expenditure was less, due to significant savings under operational expenditure and lower royalties. There was a small positive, in that the public commercial radio stations reported a profit, mainly driven by Metro, and the public commercial television stations reported a profit, mainly driven by SABC 1.

Consolidated performance:

There had been a significant reduction in budget. Under television revenue, the main reasons for the underperformance were Covid-19, the reduction of money spent by advertisers as they attempted to operate within the new normal, with the restrictions on alcohol advertisements particularly impactful. Under radio revenue, there were similar trends, with there also being a significant negative movement. Here, the cancellation of key events had an impact, and longstanding clients had cut back on long-term investments. Since August, new ways had been found to engage with clients, and from Quarter 3 the positives could already be seen. All three significant television licence revenue streams were below the budget, with there being a significant reduction in renewals. Debt collection agencies (DCAs) also experienced a decrease in collections as licence holders became less compliant.

Expenses:

Employee costs were slightly above budget, mainly because of the leave accrual. Content amortisation, broadcast costs and other operational costs were lower than budgeted for, which meant the SABC recorded a saving of almost R1 bn.

Cash basis revenue analysis:

Television revenue was budgeted at about R1.3 bn, but the forecast was now about R984 million for the year, which was still greater than the previous year.

Forecast review:

The forecast had presented a grim cash flow situation, but due to the circumstances and the activities of the SABC, that negative position had slightly improved. Since the new corporate plan would be reported against, the negative performance from commercial enterprises was also less than anticipated.

Financial position:

Debtor’s collection was at 60 days, compared to the prior period of 40 days, but was still on track with the target. The slight negative was due to initiatives that the SABC put in place to support clients. The creditor’s period had improved, as the SABC had received the bail-out in October 2019 and had made a significant inroad into the creditor’s balances. There was positive movement for the going concern, but liquidity, the state of property, plant and equipment, the turnaround strategy and executive stability, revenue growth, profitability, and the generation of operational cash, was not where they were supposed to be. The creditor’s balance had increased because a creditor had allowed a three-month credit holiday, and following engagements, the SABC had caught up on the majority of the outstanding balances. There was a bit of a negative movement for irregular expenditure, with some issues found in the 2020 audit, but the SABC had implemented some initiatives to reduce that theme in the organisation, with an LCC being created which developed a guideline for consequence management.

Audit findings:

At the time, the audit for 2020 had not yet been done, as it was concluded only at the end of October, and thus the SABC was reporting against the 2019 financial year, with 87% of those findings being completed by September. The internal audit was being improved.

Performance against predetermined objectives:

In total, ten out of 17 targets were achieved. This achievement rate was hardly improved on in Quarter 3, but there were a number of initiatives ongoing. In Quarter 2, only one of three finance targets had been met, but since then, another one had been achieved, with the remaining one being the creditor’s days. Five out of seven content and platform targets had been achieved, and although there was a slight hitch in Quarter 3, it was being worked on. Both digital targets had been achieved, but various factors had affected the achievement of the targets in Quarter 3. The one target was achieved for partnerships. The SABC had not achieved any human resources targets, and had also struggled to do so in Quarter 3, mainly due to the effects the section 189 processes had had on business. For example, the culture revitalisation programme was put on hold and would probably start in April. It had achieved one out of two governance targets at that time, with the audit having been delayed and the start of the action plans being delayed. Significant progress was made on the policy target that was not achieved in Quarter 2. By the end of Quarter 2, the turnaround strategy was 53% completed, with 38% of the items as work-in-progress. By the end of January, the strategy was 61% completed, with 34% of the items as work-in-progress.

Mr Bongumusa Makhathini, Chairperson, SABC, commented that the revenue for Quarter 2 was largely affected by the need for the SABC to complete its public mandate, by ensuring that the public was aware of all Covid-19 developments. To do this, many commercial programs had been displaced. All platforms had to be used to ensure that the messages regarding Covid-19 were made public. He would like to thank the Deputy Minister, who had tried very hard to engage the Government Communication and Information System (GCIS) to help the SABC with funding. Quarter 3 was looking better than Quarter 2, with the SABC sitting at 92% of revenue generation.

Broadband Infraco (BBI)

Mr Mandla Ngcobo, Chairperson, BBI, asked Mr Andrew Matseke, CEO, BBI, to present the report, along with Mr Ian Van Niekerk, CFO.

Performance overview

Mr Matseke said that for Quarter 2, BBI had achieved 11 out of 19 targets.  It did not achieve four financial sustainability targets, the first of which was revenue, which was impacted by a professional service contract that BBI was doing for SITA, related to SA Connect, which had been affected by Covid-19. The revenue target was achieved in Quarter 3. Secondly, the target of signing new sales contracts was not met, with only R15 million new sales contracted against a target of R100 million. This was due to the lockdown. Since then, a sales pipeline had been built up which led to an improvement from Quarter 3. Thirdly, the operating profit target of R16 million for Quarter 2 was not met, with BBI sitting at R11 million, but there was an improvement in Quarter 3. The debtors’ days went above the target of 60 days due to a debtor defaulting in Quarter 2. This issue had received engagement, and subsequent debtors’ days targets were below 60 days.

The one network availability target that was not achieved, was that of passing rebates on to customers. One of the major causes for this was repeated fibre breaks close to the railway belonging to the Passenger Rail Agency of South Africa (PRASA), which resulted in more rebates than anticipated needing to be given to customers. This had improved. The one economic transformation target that was not met was related to BBI being unable to implement its plan regarding the visit to Byletts Secondary School due to the pandemic. Action was taken and the target would be met during this quarter. The governance target of a clean external audit was not met, with the finalisation of the external audit for 2020 in Quarter 2 resulting in four repeat findings. The one human resources target of a 0.30% salary bill on training was not met, with only 0.14% used due to the training being cancelled in Quarter 1 and being virtual from Quarter 3, with the target being caught up.

Mr Van Niekerk said that the BBI’s cash resources were around R20 million, and the target was to maintain them at that level. This meant that BBI had two months’ worth of working capital available to sustain the business. This was not sufficient in the long-term to fulfil customer needs -- to roll out the network and improve operations. BBI was working hard to ensure the sustainability of the organisation. A whole sequence of events had to happen, beginning with the conversion of its loans into equity. In this regard, there was good news on the outstanding amount that would enable BBI to access financial resources to execute and extend the network with sufficient capacity to improve on the revenue numbers.

Financial position:

Current liabilities were almost two times the current assets, which indicated the constraints that BBI experienced. There was a good pipeline, and some of the ratios had been improving throughout Quarters 3 and 4.

Financial performance:

Total revenue remained 16% below the budgeted revenue. Costs were maintained well below what was budgeted, with operating expenses being even less than the previous year. Some of the reasons for this were that some of the costs were related to revenue, and there were certain maintenance expenses that were avoided due to the cash constraints. Although BBI was generating positive cash from the normal operations of the business, it remained cash constrained, as it was using much of that cash to provide services to customers. Due to Covid-19, customers were no longer signing long-term contracts, and cash deals were no longer happening. This placed cash constraints on the organisation. Thus, the profitability was not necessarily there.

Cash flow:

From an operations point of view, BBI was R64 million below, meaning it had used cash from the previous year, with most of that cash being the money received from the DCDT for the execution of SA Connect. Only R9 million had been spent on capital expenditure, which was far less than had been hoped.

Funding:

It was difficult to execute normal business operations due to the lack of funding, with some of the loans not yet converted into equity.

Irregular expenditure:

The figure of about R94 million in irregular expenditure all stemmed from previous years. However, it could be expected that there may be irregular expenditure on contracts that might have expired that would have to be corrected. No fraud or corruption had been identified thus far.

Mr Ngcobo indicated for SA Connect, in Quarter 2 BBI had completed the sites that had been rolled over from the previous year. There were also challenges that had to be dealt with, such as theft and vandalism, partial closures and unavailability of power at some facilities during the lockdown. Despite this, the entire SA Connect project was eventually completed.

Mr Van Niekerk said that BBI was working hard to maintain its B-BBEE status, achieving a level four, which was an improvement on the year before, where they had received a level seven.

Mr Ngcobo commented that BBI had been working from home since the beginning of lockdown. In terms of risk, the presentation had highlighted several issues in service security that were identified and were receiving attention. Risks at level two were manageable risks. Work was being done to resolve the audit findings before the end of the financial year.

.za Domain Name Authority (ZADNA)

Ms Palesa Legoze, Chairperson, ZADNA, said that during Quarter 2, ZADNA had achieved 56% of its targets. This was due to the hard lockdown and capacity constraints. ZADNA had been figuring out how to operate and was adapting to new ways of working. Systems had been put in place to enable 100% target achievement by the end of the financial year.

Mr Molehe Wesi, CEO, ZADNA, said that the entity had failed to achieve five targets, but remained in a good financial position. During Quarter 2, it had had to part ways with a staff member due to ill health, and had an employee relations issue that was still ongoing at the Commission for Conciliation, Mediation and Arbitration (CCMA). The Board had met and provided adequate governance and oversight. The termination of the staff member was a fair and transparent process that was done due to the fact that the staff member was unavailable for work from June 2019 to June 2020. He had joined the entity during Quarter 2, and the matter that was outstanding with the CCMA was that of the resignation of the former CEO. There was a proposed sitting that could not be convened due to constraints on the part of the CCMA, and had been deferred to this year.

Performance:

It was notable that in Quarter 2, ZADNA exceeded the target of 6 250 domains that had to be registered by realising a total of 24 407 domain registrations, which exceeded the annual target. This would have had an impact on the revenue. The first target that was missed was the registry and registrar training. This target was not achieved in Quarter 2, as ZADNA was still putting in place the necessary framework and systems to capacitate the training. These efforts had paid off, with six training sessions being held in Quarter 3, which meant that the backlog of Quarter 2 was also dealt with.

The target for internet governance engagements was not met due to the lockdown preventing in-contact sessions. This target was the focus for Quarter 4, and numerous activities had been concluded for this target. The research report target was not achieved because ZADNA used a questionnaire as a tool to get feedback from participants, and did not receive an adequate response. This target was deferred to Quarter 4, and different methods were analysed to use to meet this target. Good progress was being made. The drafting of the registry and registrar licensing framework target was missed, but with the guidance of the Board, a project plan was put in place with a project committee to oversee the endeavour. At this stage, ZADNA had caught up and appointed service providers to assist in achieving the target. The audit finding target was not met, with only 5% of the findings being resolved. This target was exceeded in Quarter 3, and a risk and audit management committee had been put in place to assist management to eliminate repeat findings.

Financial performance:

Quarter 2 was a positive one, as the revenue target of R3.8 million was met, with revenue of R4.3 million being achieved. This was due to the increase in the number of registered domains, as more people started working from home. Thus, there was excess revenue of 12.6% over the budget. Income of R250 000 had been budgeted. Other income relating to the interest on investments made was budgeted at R150 000, but ZADNA had managed to achieve R282 000. Due to the lockdown, the targeted expenditure of R4.4 million that was set was well above the actual expenditure, which came to R2.8 million as a result of cancelled events. It was realised that virtual events had to be held to maintain performance and operations. A loss of R428 000 was budgeted for, but due to the lockdown and the increase in revenue and other income, ZADNA had achieved a net profit of R1.7 million before tax. Some of this was reinvested. As an entity, there were limited resources, with there being a budget of around R15.9 million. Those resources had to be managed to continue as a going concern. ZADNA had non-current assets of R6.1 million and current assets of R19.5 million. There were current liabilities of only R1.5 million, the majority of which was the Value-Added Tax (VAT) liability that must be submitted to the South African Revenue Service (SARS). Most of that money had been paid over to SARS in the subsequent quarters.

Mr Wesi indicated that ZADNA was engaging in many activities to fulfil expectations, and were harmonising the transition as operations were moved back to the office. He noted that the DCDT had always been supportive in assisting ZADNA to fill the necessary critical functions, of which one core function had recently been filled. Work was being done to ensure ZADNA acted in line with the APP, and as of Quarter 3, ZADNA had achieved 78% of its targets and caught up with some of the targets of Quarter 2. ZADNA was working on developing a business continuity management framework.

Universal Service and Access Agency of South Africa (USAASA) and Universal Service and Access Fund (USAF)

Mr Sipho Mngqibisa, CEO, USAASA, said that he would begin with the USAASA presentation and then move onto that of USAF.

USAASA performance information:

For Quarter 2, only one out of four planned targets were achieved. The first target that was not achieved related to the up-scaling of the USAASA labour force. In Quarter 2, its performance delivery was affected by Covid-19. In that quarter, most of the institutions were not available to do training, and further, there had been two critical projects. The one involved providing the matric learners with information technology (IT) devices. Most of the labour force was assigned to that project to liaise with the seven targeted provinces, and some of the employees were involved with the data capturing for that project. As such, the target could not be met. Subsequently, USAASA had tried to engage with SITA to see how it could revise the training plan that had been submitted.

The second target that was not achieved related to compliance with the 30-day invoice payment period. In Quarter 2, USAASA had experienced problems with its payment platform, as the system needed maintenance. All but three outstanding invoices had been paid in subsequent quarters for both USAASA and USAF. There were two outstanding invoices which pertained to the manufacturers of the STBs, and the other pertained to the provisioning of broadband connectivity.

The third target that was not achieved was related to USAASA establishing a Geographic Information System (GIS) mapping tool that would be hosted by one of the government entities. In Quarter 2, USAASA were unable to secure appointments with the target institutions. Since then, all targeted institutions had been consulted and the blueprint and draft framework of the GIS mapping capability was in place.

USAF performance information:

In Quarter 2, two of the four planned targets were achieved. The first target that was not achieved was linked to phase one of the implementation of the Broadcasting Digital Migration, where SENTECH had been appointed for the installation of 860 000 STBs. Problems of the lack of availability of accredited installers at the municipal level and the pricing for installation were experienced. The issue of pricing related to the fact that USAASA’s proposal that installers charge less was not well received by the local installers. There were also issues of mayors attempting to take over the process at the local level. The DCDT had since intervened and as a result, the rate of installation had increased significantly.

The second target that was not achieved related to the provision of broadband services to 300 sites in two municipal areas. Challenges were faced as the entity had previously changed its delivery model for broadband. USAASA used to abide by section 14, and would thus provide subsidies for the rollout of infrastructure and once the infrastructure was in place, would enter into negotiations with the service provider to maintain the sites for 24 months. Now the model would be to buy services, so USAASA had appointed Telkom. The negotiations with Telkom took longer than expected, and as such the rollout was delayed and Telkom had to go and conduct a feasibility study to identify which sites would be suitable. Further, USAASA wanted to ensure that the connectivity speeds were in line with the SA Connect policy so that municipalities could access their services. In Quarter 3, the rate of installations had improved, and the SLA with Telkom was being finalised to conduct the rollout of the sites.

USAASA financial performance:

Mr Frik Nieman, CFO, USAASA, said the agency had obtained a ‘green’ unqualified audit report, as it received a clean bill of health on its financial statements and performance information. There was one finding that the AG raised regarding the internal controls -- that the irregular expenditure and consequence management had not yet taken place. The former Executive Caretaker had instructed that a forensic investigator be appointed to investigate the internal controls to ensure that in the 2020/21 financial report, that finding would have been addressed. USAASA had received interest of R673 000 and about R135 million from DCDT government grants. The total revenue was R136.1 million, and USAASA recorded a surplus of R109 million at the end of the six months.

USAF financial performance:

Total revenue recorded until the end of Quarter 2 was R37.4 million, of which R31 million came from grants from the DCDT. Due to the BDM and broadband projects being delayed, there was very little expenditure, with there being a total expenditure of R280 000. Thus, there was a surplus of R47.2 million. The current assets totalled R2 bn, of which almost R1 bn came from inventory.  The payables from exchange transactions under current liabilities, totalling R27 221, were the invoices that were under investigation.

Audit report:

The audit outcome was not as glossy as that of USAASA, purely due to the inventory of R835 million. In the past, USAASA relied on reports from SAPO for stock-takes, but this time it did an open review to ensure it counted 100% of the stock stored at the SAPO warehouses. USAASA had reason to believe that some stock was unaccounted for, and brought that up with SAPO, which did not agree. It was agreed that a forensic investigator would be appointed to ensure that there would be an understanding of the position of all the stock belonging to USAF. USAF had received seven findings, which were related mainly to the inventory. It believed that once the investigation was concluded, those findings would be addressed.

Independent Communications Authority of South Africa (ICASA)

Dr Keabetswe Modimoeng, Chairperson, ICASA, handed over to Mr Willington Ngwepe, CEO, to present the report, along with Mr Tebogo Matabane, CFO.

Mr Ngwepe reported that ICASA had planned 31 targets for Quarter 2, and had achieved 18. There was a slight improvement in Quarter 3. ICASA had achieved very well in the area of administration but did not do so well in the core divisions.

Non-achievement for Quarters 2 and 3:

In licensing, ICASA fell short on one of the key projects around the licensing of community broadcasting services. In policy research and analysis, the target of the mobile broadband services inquiry was not met. The target for the subscription television inquiry was not met, nor was the target for the review of the regulations on municipal elections. In engineering and technology, the target to update the national frequency plan was not achieved, as well as the frequency migration plan, both of which were delayed. The reasons for non-achievement varied. One reason pertained to the reconstitution of council committees in Quarter 2, which was occasioned by the changes in the council. Another reason was the Covid-19 pandemic and lockdown restrictions. There were also procurement challenges, and extensions had to be given for some of the regulation-making processes.

Migration measures and projected Quarter 4 outlook:

Council and management had deliberated on how to catch up on the lost performance in Quarters 1 and 2. Their strategic planning unit had assessed the mitigation measures and implementation plans that had been put in place to ensure that planned targets were met. The assessment was that by the end of the financial year, ICASA should be sitting at above 80% performance.

Financial performance

Mr Matabane noted that ICASA’s revenue consisted mainly of what the entity received from the DCDT. As of Quarter 2, it had received R238 million from the DCDT. In Quarter 3, it had received a total of R358 million from the DCDT for the three quarters. It normally invested revenue made for 30 days and transferred it to the national revenue fund. For Quarter 2, ICASA had collected a total amount of R5.1 million, which had increased to an amount of R8.1 million at the end of Quarter 3. Total expenditure for Quarter 2 was R196 million, which increased to R299 million in Quarter 3. Due to the lockdown, many activities were suspended, which caused savings to be made in advertising and publicity, repairs and maintenance of vehicles, international travel, conferences, and the moratorium on recruitment. These savings were redirected to the Covid-19 interventions, as these were not budgeted for.  ICASA was expected to collect revenue on behalf of National Treasury, with ICASA collecting R956 million for Quarter 2, which increased to R1.2 bn in Quarter 3.

Audit report:

Progress had been shown in resolving the issues raised by the AG. There was one major issue that related to debt owed by one of the departments. The proposed resolution to that problem was tabled in council and approved, so engagements were under way with the Department and National Treasury on the way forward to resolve that issue. There were no other material issues, but there were many immaterial issues raised by the AG. In order to ensure that these issues are resolved and there are no repeat findings at year end, internal processes had been initiated. The major issues raised related to disclosures on the financial statements.

In the quarter, the process of preparing financial statements got under way, and an internal audit was introduced. In Quarter 2, the financial statements had been prepared and were reviewed by the internal audit, with the recommendations from that audit used to prepare the financial statements for Quarter 3. The internal audit would provide a true reflection of the progress made. The need was identified to capacitate the team internally and those who contributed to the preparation of the financial statements, and training workshops were being scheduled for the beginning of April. ICASA was hopeful that the issues would be resolved for the next audit report.

Film and Publication Board (FPB)

Ms Nomvuyiso Batyi, Acting Accounting Authority, FPB, gave her deepest condolences to SENTECH for the loss of one of their late board members on behalf of the FPB. She thanked the Chairperson for acknowledging that the FPB had also lost one of its team members. She handed over to Ms Abongile Mashele, Acting CEO, and Mr Mahomed Chowan, CFO.

Ms Mashele said that she would sound like a stuck record in referring to the impact the Covid-19 pandemic had on the operations of the entity. She said the FPB team had been working to ensure that the entity would at least catch up and be able to present a report that reflected a better performance at the year-end.

Performance highlights:

In Quarter 2, the FPB achieved seven out of 15 targets planned for the quarter. The APP for the current financial year was the first phase of the FPB implementing its new five-year strategy. The targets had to be adapted to ensure that the achievements were aligned with the vision statement of the current strategy, which was a media and society were FPB ratings were embraced. In Quarter 2 the 2019/20 annual report was finalised and the FPB had received an unqualified audit opinion, which was a regression from the previous year’s clean audit report. The reason for the unqualified report had to do with a compliance matter in the financial statements that was corrected immediately before finalising the report, but was nevertheless picked up by the AG as a material matter. Most of the findings raised by the AG were corrected during the audit, and the audit action plan implemented was to ensure that there were no repeat findings.

The FPB had classified 162 titles and received one appeal. There was a significant decline in submissions for classification. Responses were received by the executive authority for the revised tariffs which came into effect in 2020. Non-compliance notices were issued to 64% of non-compliant distributors. Online platforms were used to conduct public engagements. 47% of the APP targets were achieved and 45% of the Operational Plan (OPP) was achieved. The APP was revised to consider the effects of Covid-19, and with the revision, the performance improved quite significantly in Quarter 3.

Targets not achieved:

There were dependencies on external resources for the execution of key projects in the quarter which required the FPB to go through the National Treasury tender bulletin to source new service providers. The tender bulletin was closed in Quarters 1 and 2, so the procurement of some critical expertise could not be completed. The FPB also had capacity challenges, due to high vacancy rates, especially in the research and information and communications technology (ICT) divisions, which are key drivers of the APP.

On the first target to produce a content classification index to gauge consumer sentiment, a pilot study was meant to be conducted in Quarter 2, but the services of a research company to assist in this could not be procured. On the second target of designing a classifier training programme, the FPB could not secure content expertise to assist in designing the programme. The FPB had since started that process, and its implementation was extended past year 1. On developing a brand repositioning strategy, the FPB could not proceed with conducting the survey due to the bulletin being closed, hence that target was not achieved. Both targets of the research and development outcome could not be met, as there was a vacancy in the unit. A resource manager was appointed, but subsequently left after two months. The target of producing four change management reports to support the staff during the pandemic-enforced changes could not be met due to the bulletin being closed. The target of achieving 50% implementation of the approved ICT plan was not met. The FPB managed to fill the positions of ICT Manager and Systems Administrator, but in the quarter the Chief Information Officer (CIO) resigned. SITA had been approached on this matter, and the FPB was hopeful of closing that position. The last target relating to the revenue enhancement strategy could not be finalised as there was not sufficient capacity in the finance team to work on this, but the target should be met in Quarter 4.

Financial Performance:

Ms Chowan indicated that as of Quarter 2, the FPB had collected its grant revenue and had revenue of R56.3 million against a budget of R58.6 million. A drop in the revenue collection was due mainly to the online distribution fees and classification fees tracking below budget. Total expenditure of R48.1 million, excluding commitments, was incurred. There was a negative variance of R1.4 million for classification fees due to the significant decrease in titles that were submitted for classification. The key drivers of the under-spending were the restrictions on the travelling of compliance monitors, the hosting of virtual stakeholder engagements, and the delays in vacancies being filled.

Discussion

The Chairperson allowed the Members to engage with the presentations, adding that ICASA was still going to present on a specific matter. He reminded the Members that next week, SITA would brief the Committee on its turnaround strategy, as well as the outstanding statements of SAPO.

Ms P Faku (ANC) expressed her appreciation for the presentation of the DCDT. She said that the DCDT was at a better stage than before, but there were still areas that were lacking, especially with regard to the audit findings. She noticed that when there was stability there was better performance, as could be seen with the DCDT. She appreciated that the SAPO had appointed an Acting CEO, and that USAASA had an Acting Chairperson. As a Committee, it would be agreed that the vacant positions had to be permanently filled. Where there was stability, such as with SENTECH, one could see improvements. The DCDT must be applauded for this. With SITA, there was a poor background, but there were evident improvements.

She wanted SITA to respond to the issue of why other government departments had complained about experiencing problems when having SITA provide services for them, since it was in a good position now. She appreciated the work being done by SENTECH and SITA, as well as BBI. She was, however, concerned about NEMISA, which had to deal with the issues outlined in its audit report, and there must be drastic changes to show improvements.

She insisted that there must be consequence management. She appreciated the work being done by ICASA, although they had challenges in releasing the spectrum. Perhaps ICASA would have time to discuss the issue of the litigation?

On the SABC, it would be unfair to expect much, but perhaps there would a better performance in Quarters 3 and 4. An important matter had previously been raised by Ms P Van Damme (DA) that the SABC must understand that the Committee did not want the SABC to make a profit, but merely to break even. A new funding model must be looked at for the SABC, but before that happened, the SABC had to prove that it could improve and perform. Digital Terrestrial Television (DTT) was one of the things that the Committee had looked at and said could assist the SABC going forward.

On SAPO, of course there were challenges. They had made improvements, but again SAPO had recorded a net loss of R1.7 bn. Why was there such a big loss? She hoped that with the new CEO there would be new ideas that could improve the situation. She made it clear that the Committee would put pressure on the SAPO executive to make changes, as the situation was not conducive for anyone. SAPO had to sit down with SITA and resolve the issues, one being security. These entities had to work together, not in competition.

She was disappointed with the FPB, as she believed that the Acting CEO could do better in managing the crisis of vacant positions. Maybe the Acting DG could assist in finding qualified people to ensure that the entity performed to the necessary level.

It was also important to discuss the issue of the merger of this Department, and there had to be finalisation when it came to the merger of these entities. Lastly, it was important to raise the issue with ICASA of what had happened with the eNCA and Lindsay Dentlinger, when she had requested only black politicians to keep their masks on during interviews. South Africa was a non-racial, non-sexist country, so ICASA must investigate that issue. Overall, there was improvement, but one would want to see more improvement moving forward.

Mr C Mackenzie (DA) appreciated the Deputy Minister’s continued presence at the Committee meetings. He asked the DCDT about its Fourth Industrial Revolution (4IR) project management office (PMO). He understood that when the telecommunication systems were combined, the surplus executives in the DCDT would be transferred to the PMO to staff and capacitate it, yet the DCDT had informed the Committee that the PMO was understaffed. How many positions were in the PMO, what were the roles, and how many positions were vacant? Why was the SAPO annual report not tabled? He observed that the DCDT was buying vehicles -- what vehicles were being bought and what did they cost? Could the DCDT give the Members a breakdown of the dual illumination costs?

He noticed that SITA’s mandate in terms of SA Connect was to connect a ten megabits per second (Mbps) line. Two years ago, he had made a speech to Parliament singling out the Minister for connecting a ten megabits per second line when Vodacom was connecting fifth generation (5G) sites at 20 gigabytes per second (GB/s). The Minister had responded that government had been instructed to connect at 100 Mbps. Why was SA Connect still being connected at ten Mbps?

He thanked NEMISA for its presentation and sought to echo Ms Faku’s comments. What percentage of NEMISA’s training was online, excluding the CoLabs? Why did it take so long to implement this? What was the specialist technology training? What technology was the focus of the training and what kind of courses were covered? He congratulated NEMISA on its LMS. He had registered on that system and noted that with the exception of the home page, the site was very user-friendly and content-rich.

He said that the SABC’s cash flow figures had improved by R901, as he had accessed the SABC website, inputted his Identity Document (ID) number and noticed that he owed the SABC R901. He would have liked that amount to have been broken down. He urged every Member to do so as well.

He was pleased to see that ZADNA had turned a loss into a profit. It was clear that the lockdown had actually benefited ZADNA. Why did ZADNA not aim for a profit or at least a breakeven in its initial budget? He urged ZADNA to remain in a position where it generated a surplus or broke even. Was there any cooperation with NEMISA to offer programmes to the target audiences? NEMISA could market its website better, as it was a very powerful tool, but was relatively unknown.

Some of the targets where ICASA had under-achieved seemed to indicate a lack of capacity. Was that the case? If so, what was being done to address this issue?

He did not want to call SAPO the Committee’s stepchild, as it really was part of the family, but it certainly was a problem child. He thanked the SAPO Secretary, Mr Dawood Dada, as well as Mr Simon Labelo, who had been an incredible resource. These two were examples of SAPO members who continued to work hard. He asked for an update on the suspension of CEO Lindiwe Kwele, and where in that process SAPO was, as the position was filled, and the person had since left. Mr Ramukumba had resigned after three months for personal reasons. How was the SAPO going to attract people, other than the CEO? It could be argued that joining the SAPO at an executive level was a career limiting move, as he did not believe that SAPO could be turned around.

The budget allocated for SAPO was around R500 million, plus around R95 million for the voucher system, but that barely covered the Quarter 2 loss. SAPO was using creditors and suppliers in the most unconscionable way to keep the business afloat. An example of this was the abuse of landlords, with landlords not receiving rent for the post office sites for up to six months, yet keeping the sites open for the public to receive their grants. There was no indication that the government would provide a bailout, and in any case, SAPO would need a bailout of around R2 bn. Where would that money be found? The IT system had been down for ages.

How would the Post Office be made sustainable? SAPO’s latest turnaround plan talked about e-commerce, yet it was recently made public that Parcelninja had been bought by Imperial Logistics. There were entities that were taking over SAPO’s space and were performing better than SAPO, which was slugging along to debt administration and ultimately bankruptcy. Government was determined to separate the Postbank from SAPO, which would make SAPO completely bankrupt. Year after year there was no solution, nor was there any political will to improve the situation. Yet there were private parties which would be able to turn the situation around after buying a share of SAPO. Why not do what government did with Telkom, and sell SAPO off to private parties? Could he get any assurance that SAPO could be turned around? He had noticed that there was social distancing in the offices, but not outside. The lines outside the offices must be policed. The maintenance of the offices had ground to a halt, with certain sites overrun by traders and homeless people, and the lights did not work. How did the staff feel about working there? He was disgusted at the state of SAPO.

Mr Z Mbhele (DA) limited himself to focusing on one aspect -- the SABC and the decline in its advertising revenue. He commented that there were short-term impacts of the lockdown, but the long-term dimension was the shifting of marketing online. Another point that had not been mentioned was that there would be a generally depressed economic climate in the medium term. Could the Members get an elaboration on the shifts seen? Was it the same for television and radio, or was there a marked difference? Which of those media had greater prospects of sustainability? He believed that there was a difference. Could there be some clarity?

Mr T Gumbu (ANC) commended SITA for its achievements. He noted, however, the low performance on its digital programmes. How would SITA improve on this? SENTECH was still doing well, but were there still clients who were unable to settle their debts, including the SABC.? He appreciated the presentation by ICASA, but wanted clarity on why only the critical positions were being filled.

Ms Z Majozi (IFP) expressed her unhappiness that most of the entities could not account for their compliance. If they could not account for compliance, then they could not handle their finances. She urged the DCDT to work with the entities to ensure accountability. If there were positions that had to be filled, the positions had to be filled for there to be stability and accountability.

On the SABC, would the Committee look at the indication that there had been improvements in Quarter 3? Could the SABC tell the Members if there would be new avenues to redeem its revenue on television licences? What other plans were there to collect revenue on licences?

She echoed Mr Mackenzie on SAPO. SAPO was a real concern. The DCDT had to pay special attention to the entity, as it never improved. The Committee could not hear the same troubles over and over again. The DCDT must look into that. She did not know what was wrong with SAPO’s turnaround strategy.

She was tired of hearing the same challenges in terms of spectrum for ICASA. Could ICASA bring an update and proposed solutions on spectrum? Spectrum had to be released.  

Lastly, she emphasised that the entities had to comply with regulations and implement consequence management to ensure that officials and personnel took accountability. The Committee wanted to hear that there was compliance.

Ms N Khubheka (ANC) expressed her condolences to the FPB. She appreciated that the DCDT and its entities had shown some improvements, despite the challenges brought about by Covid-19. She wanted to ensure that the entities were ready if the country was hit with a third wave. She hoped that Quarter 3 would show that the DCDT and its entities could deal with the situation.

NEMISA had said that vacancies would be filled in December, but even then it had said that there were major challenges. Could NEMISA give the statistics on the training and appointment of personnel? Programme 3 was concerning.

If the industry players for spectrum were challenging, or there were litigations, ICASA would be frustrated regardless of how far the entity sought to move. The issue of consequence management was a priority, and the Committee must ensure that there was accountability so that there could be the capability to improve. She observed that there had been some improvements with the audit reports.

USAASA had tried to raise the critical matter of compliance, with there being challenges on the rolling out of connectivity and the finances. The transparency was appreciated. The huge amounts that were committed was concerning, but movement could now be seen.

She knew that there was strength in the FPB, with issues that the AG had raised being clearly spoken about and trying to be addressed, even though there was a regression. It was clear that SITA was trying to resolve issues and implement consequence management and adhere to its action plan and abide by the regulations and measures. The Committee would monitor how fast the issues of irregular expenditure were dealt with, and she noted that National Treasury had condoned certain cases of irregular expenditure.

She appreciated BBI acknowledging the issues on data and information security, as well as financial sustainability. Now BBI could work to achieve what it intended to. However, the issue of skills had to be addressed as well. The Committee wanted to see all of ZADNA’s targets being achieved, since the entity had regressed slightly. The entity had to push itself to correct the issues it had, and perform better.

The finances of SENTECH had to improve, and the Committee intended to push it to do this. Further, if it was possible for SITA to assist the other entities, especially SAPO, it must do so to ensure the sector was sustained. SABC was still receiving qualified audit opinions, but there were some improvements on other matters. As the SABC had raised the concerns it had in terms of content, it was necessary for there to be some improvements in this regard. There also had to be movement on the issues with section 189, with the assistance of funding.

There had been a slight improvement at SAPO, but it was clear that the executive intended to correct the issues and improve. The issue of the net loss had to be raised. When the former CEO was there, SAPO had been trying to convince the Committee that performance was good, but since he left the net loss had started at R1 bn. At the end of the day, work must be done by all to try and move SAPO into a stable position. She welcomed the new CEO, and said she was sure that the key challenges would be confronted. She thanked everyone, and said the Committee would help to monitor the DCDT and the entities to correct their situations.

The Chairperson commented that some questions may have to be answered in writing due to time constraints.

He referred to Mr Mackenzie’s question on the separation of Postbank and the turnaround strategy of SAPO. The Committee had raised concern over the separation before, until the new Board gave assurances that SAPO could be turned around with Postbank and that the MoU being signed with Postbank would assist in keeping SAPO afloat. The Committee must be assured that there was a turnaround strategy and clarity must be given on the Postbank situation. Further, it was important to take the Committee into confidence and disclose whether the turnaround strategy was largely dependent on SAPO receiving a government bailout. He corrected Mr Mackenzie, and said that SAPO would require close to a R7 bn bailout due to Covid-19.

He also asked for an indication from USAASA on its plan to appoint the correct people to ensure stability. Could the Deputy Minister inform the Committee if the response team had been approved to push the BDM forward? He noted that SITA could come back to the Committee to respond. Further, USAASA did not update the Committee on whether the Integrated Digital Television (IDTV) plan was still on the table, and an update had to be given

Mr Mackenzie raised a point of order. He clarified Ms Khubheka’s comments on Mr Mark Barnes leaving SAPO. Mr Barnes had received a bailout, so when he left, there was R835 million in the bank and there were no government guarantees to cover any SAPO debt. SAPO had been very well positioned for the future when he left.

Department and entities’ responses

Deputy Minister Kekana said that the issue of non-performance and how the situations would be turned around was something the Committee would want to see. When the next engagement occurred, this could be discussed, as at that time the DCDT and entities should be able to say that, looking at the past statements, these were the action plans and how the regressions and repeat findings would be avoided. Stability was crucial, and vacancies in the governance and executive sides had to be filled. She noted that the Members had spoken adamantly about revenue enhancement and the DCDT’s contribution to the national fiscus. Given that SARS would not be able collect as much as it should, the DCDT would act to assist.

She agreed with Mr Mackenzie, that charity began at home. Everyone must check that licences had been paid and compliance was adhered to. She did not want to see the SAPO as a stepchild, but agreed that there were issues, and there were so many opportunities that SAPO was missing. The issue of the suspension and turnaround strategy must be spoken about. The entities could not continue suspending people, as this affected operations and finances. On consequence management, accountability had to be enforced. It must be ensured that at the next engagement, the entities reported on all these things adequately.

Ms Jordan-Dyani said that resources were being shared across the spectrum. Mr Mackenzie had asked about the PMO. When the DCDT did the 4IR report, the President had appointed a team of 35 experts who were supported by researchers from the Department, who had acted as scribes. For the PMO itself, it was an additional committee, so recruitment took place to fill 11 positions, with six positions having been filled. The five positions that were being finalised were the head of the PMO, and three research experts on digital transformation, eco-metrics, statistics and a multimedia strategist. The DCDT had appointed a team of experts to fast-track the implementation of the turnaround strategy, deal with the immediate problems, and assist in repositioning the entity.

The SENTECH moratorium took place as two critical state companies were being created, which meant that there would be a merger between BBI and SENTECH, so some non-critical positions were not filled for that reason. The same applied to the FPB, ZADNA and USAASA, where there was a need for revised job specifications. There was the appointment of an interim Board at USAASA, and that Board’s plans were under way to fill the senior executive management posts.

Ms Masemola responded to Mr Mackenzie’s questions on the funds for the BDM. The R204 million for dual illumination costs had been allocated to SENTECH for the financial year. Initially, R578 million was allocated to USAF, but after a cut in the funds, R78 million had been re-prioritised for Covid-19 interventions. There was R20 million allocated to the DCDT for the awareness campaign for the BDM project.

The vehicles had been bought to replace the old vehicles. As per the ministerial handbook, the vehicles had to be changed every five years or once the mileage reached 120 000 kilometres, whichever came first. The cost thereof was limited to R700 000, inclusive of VAT, security upgrades and the maintenance plans. The DCDT was required by National Treasury to procure these cars through the RT50 contract entered into by National Treasury and the manufacturers of these cars.

The Chairperson suggested that SAPO’s response be postponed, as it was scheduled to brief the Committee on its annual report at a later date. SITA was also returning to the Committee next week to discuss its repurposing, and would respond to the unanswered questions then. The remaining questions on the other entities could be responded to in writing.

Mr Mackenzie agreed with the Chairperson’s recommendation, and commented that the future engagements with all the entities on quarterly reports should be dealt with across more than one sitting.

The Members agreed with the Chairperson’s suggestion.

The Chairperson clarified that there would be time to interrogate the issues left unanswered in the future. He commented that clarity had been given, especially on issues of the audit reports and the action plans to be implemented to prevent a reoccurrence of problems. Clarity had also been given on the approved revised APP’s.

The matter raised by the Deputy Minister had to be considered, and stability must be found for the entities. The Committee had to track the implementation of the reconfiguration. The DCDT had been reconfigured as of 1 April 2020, and the status of the new situation must be discussed. This reconfiguration would address the number of entities that briefed the Committee.

The point of the economic reconstruction and recovery plan must be raised. This plan related to SA Connect which addressed broadband connectivity, and the ASO, which talked to the BDM. The Committee may need to get a report, based on its recommendations, that the issue of the going concern status of BBI needed to be addressed at the ministerial level, so that clarity could be given on whether the loans remained loans, or if they had been converted to equity. This was a priority for the country, as it affected BBI’s ability to access funds to connect all of its sites. He wanted clarity on whether the response team had been appointed so that the Committee could have a proper engagement on the implementation of the BDM, and whether the Integrated Digital Television (IDTV) process would go forward.

He thanked the entities for presenting, and allowed them to leave so that ICASA could present.

Briefing by ICASA on spectrum

Dr Modimoeng appreciated the Chairperson’s acknowledgement that this was a sensitive matter, as the issue was still before the court. He would respect the sub judice principle, and discuss only that which could be discussed.

He said that on 2 October 2020, ICASA had issued an invitation to apply (ITA) that was preceded by the policy directive issued by the Minister on the licensing of the Wireless Open Access Network (WOAN) and a memorandum of information. ICASA had then embarked on the process to license the high demand spectrum in a two-pronged manner. On the one hand, there was the spectrum auction, which was aimed to be hosted no later than 31 March 2021. On the other hand, there was the WOAN, for which applications closed on 30 March 2021. ICASA was still proceeding.

ICASA had gone to court on 8 and 9 February, which was occasioned by Telkom filing court papers on 22 December 2020 seeking relief in three parts. Part A was around administration matters. Part B was related to an order interdicting ICASA from assessing the applications received from the invitation. Part C was made up of several orders.

ICASA had received six applications for participation in the Auction on 28 December, including Telkom. On 12 January, e.tv filed papers to join Telkom in seeking relief in the form of Part B and Part C. The argument was that it was irrational for spectrum to be auctioned on the 700 megahertz (Mhz) and 800 Mhz frequency bands, since the BDM had not yet happened.

On 27 January, court papers were received stating that MTN was launching its application to remove the Tiering and Opt-in schemes from the auction ITA process, not to interdict the auction process. The court date for the MTN matter would be announced.

On 8 and 9 February, ICASA went to court for the Telkom and e.tv litigation. On 23 February, Vodacom had filed a counter-application to be heard together with MTN’s court application. On 25 February, ICASA received correspondence from the Minister checking if the authority would participate in a mediation process. ICASA had responded on 26 February that, having considered the evolution of the matter and the delays it had caused, it would not participate in a mediation. ICASA was of the view that the court must decide, and the entity would not contradict its plans by entering into mediation. On the court date, ICASA the parties were informed that the Minister would abide by the judicial outcome of the Telkom and e.tv case. Judgment was pending.

In the intervening period, ICASA had been working to ensure that spectrum was released. Until spectrum was released, the country would battle with the issue of data costs, the cost to communicate, and the issue of dropped calls. Essentially, the country would struggle to effectively regulate service. Spectrum was necessary for e-learning and better use of online platforms. The door had been opened for the publication of the ITAs, so the matter was ongoing, and the specifics of the licensing could not be discussed. ICASA had to ensure that spectrum was licensed in the public’s interest.

Discussion

The Chairperson made it clear that the purpose of the briefing was to ensure that the Members were kept aware of the matter. As the matter was still before court, engagement with the specifics of the matter would be difficult.

The Members agreed that no real engagement could be done, and that interrogation would happen only after the court ruling was published.

Mr Mackenzie noted that he did have two questions to pose.

The Chairperson wanted to ensure that Mr Mackenzie’s questions did not open the matter up and contravene the sub judice principle.

Mr Mackenzie said he did not believe that his questions would breach the sub juice principle at all. He asked the Chairperson to allow him to ask the questions.

Ms Faku raised a point of procedure. She said it was important to respect the sub judice principle, but if Mr Mackenzie had to ask questions then the Committee had to allow ICASA to respond at a later date. She hoped that Mr Mackenzie would withdraw his questions, but if not, then ICASA should be afforded the right to choose to answer.

The Chairperson agreed with Ms Faku that if the questions were merely for clarity, they could be posed, but if the questions bordered on the actual case, ICASA could decide not to answer.

Mr Mackenzie asked about the submissions made before the process started -- by Telkom, MTN and Vodacom. Were the substantial issues raised in the applications given to ICASA before ICASA tabled any documents or processes? Could detail be given on what Liquid Telecoms was doing as a stakeholder in the litigation?

Response

Dr Modimoeng responded to the first question by saying that ICASA had applied itself on all of the submissions received and aimed to strike a balance in finalisation of how the ITAs ended up. There was an interesting scenario, where on one hand the smaller operators had taken ICASA to court on accusations of benefiting only bigger operators. On the other hand, the bigger operators had taken it to court, saying that the entity benefited the smaller operators. These contradictions illustrated the extent to which ICASA had tried to strike a balance.

On the question of Liquid Telecoms, he responded that as the MTN matter was still at the case management stage, the issue of which party remained as a litigant in the matter would be crystalised once the matter had gone to court.

The Chairperson thanked Dr Modimoeng for taking the Committee into its confidence on this matter. He said that it was in the country’s interest for the Committee to be taken into confidence. The briefing had helped. The Committee was looking forward to the resolution of the matter and spectrum being implemented.

He allowed ICASA to leave the meeting, and asked to move on to the consideration and adoption of previous minutes.

Consideration of minutes

Minutes of 23 February

The Chairperson noted that the minutes referred to the discussion of the Committee on the SABC’s status report, which in the body of the minutes would be a report that would go to the House. He asked for confirmation that the report covered the section 189 applications and the specific recommendations that had been made.

Ms Hajiera Salie, Committee Secretary, confirmed that the minutes included the section 189 applications. She noted that a second report would be drafted which would include the SABC, USAASA and SAPO.

The Chairperson went through the minutes page-by-page.

Mr Mackenzie noted an error regarding his name, which was corrected. The name of the Acting DG, Ms N Jordan-Dyani, was also corrected.

The minutes were adopted with alterations.

The Chairperson thanked the Members for their input.

The meeting was adjourned.