BBI, USAASA / USAF & Sentech 2021/22 Annual Performance Plans; with Minister

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Communications and Digital Technologies

11 May 2021
Chairperson: Mr B Maneli (ANC)
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Meeting Summary

Video: Portfolio Committee on Communications

Annual Performance Plans

Broadband Infranco SOC Limited (BBI), Universal Services & Access Agency of South Africa (USAASA), and the Universal Service and Access Fund (USAF) briefed the Portfolio Committee on Communications on its 2021/22 Annual Performance Plan (APP) and Budget in a virtual meeting.

The Public Service Act makes the Minister or executive authority responsible for the strategic direction of the portfolio committee which the Minister is assigned to. Critical priorities are identified, and there are processes and responsibilities in relation to it. This in turn applies to the entities as well.

The entities take its cue from the identified strategic objectives, and have to ensure its APPs are aligned to it. When targets are not met, the Department looks at broader challenges.

The BBI presentation included: Strategic risks; Benefits of State-owned companies rationalisation; Services for State Digital Infrastructure Company (SDIC); Capitalisation and Shareholder funding; Performance at a glance; BBI Network Footprint; SA Connect per Province; Strengths, Weaknesses, Opportunities, and Threats (SWOT) Analysis; APP 2021/22; Sales Strategy; Financial position; Financial performance; and Statement of Cash Flow.

Similarly, USAASA and USAF presented its APP and Budget as follows: Programme One - Business Support: Indicators, Annual and Quarterly Targets; Updated key risks 2021/22; and Budget.

Members asked questions relating to shareholder funding and loan conversion; debt funding; funding challenges and increased competition; merger between BBI and Sentech; on-boarding of private sector equity partners; vacant positions; the interim board; fast-tracking processes; provision of timeframes; supply chain management regarding capacity building; strengthening internal controls; wholesale and long-distance connectivity provision; challenges with chips and other Information and Communication Technology (ICT) equipment; mitigation plans; Broadcasting Digital Migration (BDM) project; division of labour and responsibility in the rollout and implementation of BDM; service delivery and support; Socio-economic support for small, medium, and micro enterprises (SMMEs) and Broad-based Black Economic Empowerment (BBBEE); voucher system to the subsidised market; set-top boxes (STBs); 30-day payment of valid invoices; wasteful, fruitless, and irregular expenditure.

The Committee was supportive of all of the actions taken by the entities to ensure, in the end, there was service delivery. The Committee said the Ministry will have to take decisive action, especially with cleaning up entities and restoring the confidence in State-owned entities.

Members have an oversight role, and will continue to monitor the implementation, as noted in the APPs and budget proposals. 

Meeting report

The Chairperson said there was a House sitting which a few Members were still participating in. The Committee was meeting to consider two reports from two entities, which related to the 2021/22 Annual Performance Plans (APPs) and the Budget, as part of the preparation for the budget votes.

Committee secretary, Ms Hajiera Salie, noted an apology from Mr C Mackenzie (DA).

She referred to a comment made by the parliamentary liaison officer, Ms Zandile Ngubeni, saying the Deputy Minister of Communications and Digital Technologies, Ms Pinky Kekana, would arrive late to the meeting.

Minister of Communications and Digital Technologies, Ms Stella Ndabeni-Abrahams, was present.

Mr Z Mbhele (DA) asked the record to reflect Ms P Van Damme’s (DA) apology from the morning’s meeting, to apply to the current meeting as well, because he did not see her logged in.

The Chairperson noted all the apologies. There were Members who physically attended the House sitting and would be connecting to the meeting later. He welcomed the Minister.

Minister’s Overview

The Minister said the Department came to the Committee to make a presentation on the APPs of the Universal Service and Access Agency of South Africa (USAASA)/ Universal Service and Access Fund (USAF) and Broadband Infranco SOC Limited (BBI). The Public Service Act says the Minister or executive authority is responsible for the strategic direction of the portfolio committee he or she is assigned to. Out of the strategic direction, critical priorities were identified, taking its cue from what government identified as key priorities. A performance agreement was signed with the appointing authority, namely the President.

Out of the three processes, the last issue the executive authority was responsible for according to the law - was to ensure there was proper structure to implement the strategic objectives identified, as he or she is responsible for strategic direction. Lastly, the Minister or executive authority is again responsible for budget votes. This meant, as the Minister or executive authority set out priorities, the Minister or executive authority were also responsible for ensuring National Treasury allocated R500 million to the Department.

The executive authority had to look into the priorities and say how the Department would allocate or distribute the money based on the priorities. The Department held its strategic planning session with its own entities, taking its cue from matters discussed in the current meeting. This followed on to the entities as well.

In this context, the Department held workshops with the entities reporting at the current meeting. This was to take the entities through the performance agreement and strategic objectives as identified. The entities took its cue from this, also looking at the mandate of the entity.

The Department made sure the APPs were aligned to what was discussed, as informed by the whole of society, and set out by the Department. The core of the process was to ensure the Department provided critical projects or continued to deliver on critical projects. This included the popular digital migration which started in 2008, which was still being talked about. The President said the digital migration would be fast tracked. Timelines would be put together to make sure there really was migration, come March 2022.

Proper utilisation of the funds taken from USAF was at the centre of the matter. Government took a decision to say the funds put into USAF were the funds which were going to be ring-fenced, and would go toward the project of digital migration. Other funds were for the broadband rollout. There was proper structure in place to implement the work.

The entities would now get into the details of how it was going to do everything the Department looked at. Regarding structure, one of the things the Department did in relation to USAASA was to request Cabinet to allow it to appoint an executive caretaker to make sure it shifted its focus to repurposing USAASA and USAF into the Digital Development Challenge Fund (DDCF). When the Department was not satisfied with the work done, it looked at the broader challenges which related to it.

There was a need for the Department to review the decision, and go back to Cabinet to say extra people had to be put in place. This was because the Department was looking at repurposing the structure. It had to be established, but there were also the functions which belonged to the old organisations, and therefore many hands were needed to look at this, especially regarding governance. These were critical projects. The Department appointed an interim board. The Board was inducted according to the priorities, what was expected of it regarding current priorities, and what needed to go to National Treasury. Money was allocated, and the entities would go into detail regarding how much was allocated to it, and what it would be spent on, staying in line with the priorities discussed at the present meeting.

BBI followed the same process. The Department knew BBI was its infrastructure and technology company which ensured people got connected, among other things. The Department and government agreed regarding the SA Connect project it was rolling out. BBI, Sentech, and State Information Technology Agency (SITA) would be the key drivers as state-owned entities (SOEs). This was done by the Department, and taking into consideration the capability challenges the state faced, it took a commitment as government to say it would try and work towards building a capable and entrepreneurial State.

Ensuring people were connected was important to ensure the state could complement the work being done by the industry. BBIs term of office was coming to an end at the end of March, which the Department extended, as it was undergoing certain processes towards the appointment of the new Board. The appointments would be done within the week, as the Department went to other government meetings. If the Board was approved, the Department was looking forward to making sure it appointed those who were there. At the centre, this was an agency which would be affected by the rationalisation spoken about regarding establishing the digital infrastructure company. BBI was one of the entities identified. The Department had since established a joint operations forum between the two agencies of BBI and Sentech.

As time moved on after the development of the business case, it was important to sit with the Department to look at what the challenges and urgent things needed to be attended to. The Department realised the longer it waits for the quarterly reports, because the law requires quarterly reports, at times there were things which were overlapping, or things which it would have managed to resolve. Therefore, the Department would have been able to meet the targets it was talking about, should it have engaged on the matter of time. There was the establishment of the Joint Operations Forum in all of the entities affected by rationalisation.

The presence of the entities was emphasised because the Department was present to report on operational work. In the previous meeting the Department said the Board, as an accounting authority, was taking responsibility for strategic leadership of the agencies. It was guided by the executive authority, and monitors the performance of the agencies. The Department said, as it drafted the Memorandum of Incorporation, it was imperative for the entities to know the responsibility resided with it. This was why, as one looked at Cabinet and the other entities, the Department looked at reviewing the governance models. This included a review of the number of years it appointed, attached, or assigned the performance assessment of members who were appointed to those governance structures.

BBI Corporate Plan & Annual Performance Plan 2021/22

Mr Andrew Matseke, Chief Executive Officer (CEO), BBI, presented on strategic risks; benefits of state-owned companies’ rationalisation; and Services for State Digital Infrastructure Company (SDIC).

Mr Mandla Ngcobo, Board Chairperson, BBI, presented on: capitalisation and shareholder funding; performance at a glance; BBI network footprint; SA connect per province; and Strengths, Weaknesses, Opportunities, and Threats (SWOT) Analysis.

Mr Ian Van Niekerk, Chief Financial Officer (CFO), BBI, presented the APP 2021/22; sales strategy; financial position; financial performance; and statement of cash flow.

Regarding the overview of the corporate plan, APP, and the budget, as per the 2016 plan, BBI is supposed to raise capital from the market using the balance sheet. In the 2016/17 financial year there was a change in accounting standards which classified shareholders loans as liabilities. BBI started the process of having these shareholders loans converted to equity to strengthen the balance sheet and make it possible to raise funds. The process is only recently nearing completion because of a delay on the part of the Industrial Development Corporation (IDC). BBI is waiting for the formal authorisation of the shareholder loan conversion documents. Regarding historical performance, the mix of revenue impacts the performance of the company. The revenue from anchor customers is declining over time because of the price dynamics of the market, and BBI needs to sell and invest more to get to the revenue it had before. Growth is being experienced for the mobile network operators, national revenue, and SA Connect. Regarding organisational capacity, there is a steady decline of employee numbers over the past two years. Due to the pending merger with Sentech there is a moratorium on filling vacancies on a permanent basis. Engagement with the ministry has been renewed to replace some capacity through fixed term contracting.

At net profit level BBI is taking a loss, but at earnings before interest, taxes, depreciation, and amortisation (EBITDA) level, which is operating profit, it is positive. BBI strengths include easy access to senior leadership, operational ability to deliver, new product development, and SA Connect opening a market for smaller player participation. Weaknesses include lack of funding, organisational capacity, and inability to fill vacant positions. Opportunities include broader SOEs, consolidation and rationalisation, and leveraging SA Connect to drive network extension. Threats include customer self-provision of own infrastructure, speculations about proposed merger, and uncertainty about future of SA Connect.

The APP was approved by the executive authority. From a revenue perspective BBI is targeting sustainability. Therefore the target revenue for 2021/22 is R400 million with a 36% revenue year-on-year growth. The debtors’ collection target of 60 days per contract is being maintained. The target debt to equity ratio is 107% and the target increased investment funding is R15 million cash, and cash equivalent available. From an operation profit perspective, the target was set to exclude interest. The target is to improve the operating profit by R37 million. Small Medium and Micro Enterprise (SMME) invoice payments are to be paid within 30 days. If one considers it from an organisation enablement perspective, the target is for the integration plan to be finalised and signed-off by key shareholders. The target to improve corporate governance is to maintain an unqualified audit report. If one considers it from a network resilience perspective, BBI is to maintain 7.5 hours to restore core network faults. The target percentage of gross revenue paid as network performance rebates is less than 0.3% of gross revenue. Considering it from an SA Connect perspective, BBI is to maintain the 713 SA Connect sites connected to BBI. Looking at SMMEs from a socio-economic transformation perspective, the target is to have three SMME allocated installation work with 70% of the total discretionary budget to be spent on Broad Based Black Economic Empowerment (BBBEE). The target is for 40% of total BBBEE spend to be on black-owned entities. Out of a 40% spend, ten percent should be on women-owned entities, and BBBEE level four must be maintained. 

Regarding its financial position, BBI’s base is set with budget guidelines and assumptions. Cost of sales and expenditure is based on contract values. No salary increases are budgeted for and no performance bonus/retention incentive is included in the budget. Employees head count is increasing. The assumption is BBI will be able to employ fixed-term contractors, which is less expensive. Regarding shareholder support, support from shareholders in the form of equity or a R100 million allocation will be required. This is due to BBI exclusively using its own generated funds to fund infrastructure roll out, which should have been used and accumulated to fund working capital. This capital expenditure (CapEx) spend accumulated to an excess of R464 million.BBI requires this injection to ensure future sustainability, to enable mandate fulfilment. Critical external enablers to ensure sustainability include the conversion of shareholders loans, shareholder support to generate funding, and the moratorium on sourcing resources on a fixed-term contract basis being lifted. Regarding CapEx, BBI is planning to expand its network by R730 million in the next financial year, a big part of which will be spent on SA Connect, and also to generate revenue by spending on infrastructure. The revenue target will be met because of enabling the doors on CaPex. From an equity perspective and due to the shareholder loan conversion, there is a shift in the balance sheet. There is a net asset position now, and there is no longer insolvency. From a funding perspective, BBI is looking at raising R464 million in debt-funding to fund the R730 million in CaPex, which is planned to be spent on various aspects.

Regarding the financial performance of BBI, from a profitability point of view there is a 94% increase in revenue. If BBI spends and plans the detailed sales strategy and implements it together with the expansion of the network, BBI is positive it will meet the robust revenue target it has set. BBIs cost base is shrinking, so some cost increases are included for expansion. The total expected profit before taxation is R179 416 000. When adding the grant, the earnings before interest, taxes, depreciation, and amortization (EBITDA) amounts to R401 554 000. Regarding cash flow, BBI will be trading and remaining cash positive throughout the year with a year-end budget of R12 991 000 net cash and cash equivalents.

The merger with Sentech is one of the key activities BBI is jointly working on with Sentech and the ministry. A joint oversight committee has been formed. It will manage progress on the merger at a strategic level. At an operational level during the previous financial year, the two entities worked with an external consultant to develop the corporate strategy of the merged entity. In the upcoming financial year BBI will now be moving towards the detail of the strategy so it can prepare it for operational level implementation when the merger happens. Part of the strategy is service for State Digital Infrastructure Company (SDIC). The kind of services the two entities foresee is the combined entity providing a combination of what BBI and Sentech currently provide, as well as new offerings enabled by combining the infrastructure and capacity of the two entities. This includes connectivity such as mixed fibre services, content and multimedia, such as TV terrestrial, extended services, such as TV and FM broadband, and new offerings.

USAASA and USAF Annual Performance Plans and Budget for 2021-2022 Financial Year

Ms Mapuleng Moropa, Interim Board Member, USAASA and USAF, introduced the presentation.

Ms Wendy Chwayita Madikizela, Acting CEO, USAASA and USAF, presented the USAASA and USAF APP and Budget on: Programme 1 - Business Support: Indicators, Annual and Quarterly Targets; and Updated key risks 2021/22. Mr Frik Nieman, Acting CFO, USAASA and USAF, presented the USAASA and USAF Budget.

USAASA’s mandate is to promote and pursue the goal of providing universal access and service. There was always focus placed on implementing the BDM project and rolling out connectivity in strategic areas through the broadband project. The interim board was appointed on February 2021, to assist the organisation in implementing the APP for 2021/22, and to immediately fill critical vacancies. Emphasis was placed on collaborating with other entities and leveraging on each other’s strength. USAASA partnered with Sentech to assist with the rollout of BDM Phase One. USAASA will be dissolved and converted to the Digital Development Challenge Fund (DDCF), with a deadline of March 2023.

The APP of USAASA includes one outcome for 2021/22, being a well governed and high performance organisation and Fund, delivering on its mandate. The six annual targets include: (1) Board approved USAASA integrated plan of action in support of the implementation of National Strategic Plan on gender-based violence developed; (2) Board approved Stakeholder Strategy and Plan implemented; (3)Enterprise risk maturity level from 2020/21 baseline improved; (4) 100% of valid invoices paid within 30 days from date of receipt; (5) Reduction of wasteful and fruitless expenditure to 20%; and (6) Reduction of irregular expenditure to 15%.

For the gender-based violence target, a committee was instituted to look into the national importance of this measure, and other ministries aligned with this. For the stakeholder engagements, the work done is on the ground. The Municipality and provincial structures are key stakeholders. The mitigation plan is to collaborate with other line functions and affected stakeholders, and to monitor the stakeholder engagement plan and quarterly reporting.

Previously the culture of risk was not inculcated in the organisation. In this APP, USAASA will ensure the risk culture is reintroduced in the organisation. For the valid invoices, this measure will only look at the invoices ready to be paid, and which is assured to be valid. USAASA is aiming at 100% payment of invoices in less than 30 days. To reduce wasteful and irregular expenditure, USAASA is looking at closing all of the loopholes structurally, from a process-wise existence in the organisation. A forensic investigator is to be appointed and outcomes implemented.

USAF's APP includes three outcomes: Outcome One is broadened access to broadcast digital services by qualifying households; Outcome Two is increased access to broadband in under-service areas; and Outcome Three is a well governed and high performance organisation and fund, delivering on its mandate.

Outcome One’s targets are: (1) 810 000 subsidised set-top box (STB) installations coordinated and monitored in four provinces; (2) 2 266 474 digital terrestrial television (DTT) subsidised digital television installations coordinated and monitored; and (3) 289 058 direct to home (DTH) subsidised digital television installations coordinated and monitored.

Outcome Two’s target is the provision of broadband internet connectivity to 280 sites.

Outcome Three’s targets are: (1) 100% of valid invoices paid within 30 days from date of receipt; (2) Reduction of wasteful and fruitless expenditure to 20%; and (3) Reduction of irregular expenditure to 15%.

For the subsidised STB, the mitigation plan includes stakeholder engagements, and project management office (PMO) capacity. For DTT and DTH subsidised television installation, National Treasury allocation is to cover the budget deficit. There is also a plan to hold stakeholder engagements, PMO capacity, and roll out the voucher system framework strategy.

For the provision of broadband connectivity, the plan is to identify a target local municipality. Further mitigation plans include securing a service provider through SCM processes, a reliable choice of technology, and remote monitoring tool.

For valid invoices paid, personnel will be dedicated to monitor the payment value chain, and an invoice register is to be developed.

For wasteful and irregular expenditure there will be an appointment of a forensic investigator and its outcomes will be implemented.

USAASA’s budget for the 2020/21 financial year is R265 million, which was divided into the compensation of employees and goods and services. There is R58.1 million for compensation of employees and R207.5 million for goods and services.

National Treasury implemented baseline reductions on the budget. For the 2021/22 financial year there is a budget cut of 33% to R177 million. Compensation of employees is increased to R62 million for the appointment of district coordinators. It is to ensure BDM rollout takes place, and goods and services are reduced to R114.7 million.

For 2022/23 and 2023/24 there is a major reduction in the budget, because the BDM project should be rolled out by then.

USAF's budget for the 2020/21 financial year includes the total revenue of R741 million. A breakdown of the budget is R578 million for the BDM project, R158.9 million for broadband, and R4.1 million for administrative costs.

For the 2021/22 financial year, the total revenue is increased to R1.1 billion because the bulk of the roll out of the voucher system is to take place. The breakdown of the budget is R1 billion for BDM, R61.1 million for broadband, and R3 million for administrative costs.

For 2022/23 and 2023/24 year, there is another major reduction in the budget because the BDM project should be rolled out.

Discussion

Ms P Faku (ANC) appreciated the presentations from BBI and USAASA/USAF, as well as the opening remarks from the Minister. She said BBI was one of the best performing entities the Committee had. On the issue BBI raised about the money it needed from the Department, she said she thought the Minister approved it, and asked if BBI could tell the Committee more about what the funds were meant for. Past experience regarding people requesting money from the shareholder showed, at times shareholders did not want to cooperate. There was the question of a merger between BBI and Sentech, and she asked how far the process currently is. She heard there was oversight, but the Committee needed to have timeframes regarding it. When it came to USAASA/USAF, she was happy the Minister was present. The Committee raised concerns with regard to the vacant positions. One really wanted to hear what the plan was to fill up the vacant positions. She asked for timeframes on this. There were a couple of people acting in these positions, and she sometimes felt it is unfair for the Committee to allow it to happen for quite some time.

Regarding capacity management for USAASA/USAF, there was a problem with the supply chain. She asked if USAASA/USAF has the necessary capacity for the unit, if the unit was not currently performing. Mr Frik Nieman, [Acting CFO, USAASA and USAF] was coming from the Department of Communications - she said he was doing quite a good job and she wanted to believe he could do an even better job if he was given the necessary human capital to assist him to deliver. This was because some of the challenges experienced, especially with the STBs, were not able to be moved. This included the Integrated Digital Television (IDTVs), because there were challenges within the supply chain unit. One wanted to understand what the Department and USAASA’s plan was. She saw now, the Department had people currently aiming to assist Ms Madikizela. One only hoped Ms Madikizela had a turnaround strategy, and she had all of the Members’ support. One of the things the Committee did, was to have metrics or a tool where it was going to measure some of the issues which were outstanding in the Department. It was especially important to make sure internal controls, especially when it came to internal audit, are strengthened to change the current situation USAASA was in.

Mr Z Mbhele (DA) said his first set of questions were for BBI. He apologised if the answer to his question was contained in the corporate plan and therefore easily answered, as he had not had time to work through all the material in detail. His question related to a point on slide 24, where there was mention of R 286 million debt-funding, which comprised 62% of the funding mixture. He asked where this sum will come from, and asked if it will come from commercial banks.

He said he was trying to get a clearer understanding of what the debt-funding referred to, as opposed to the other slices in the funding pie. He directed his second question to both BBI and the Minister, as he thought the Minister could explain the strategic outlook on an executive level. He referred to the stated funding challenges and the increasing competition in the space, as was outlined in the identified textbox in slide 10 of the SWOT analysis. He asked if there was any scope for taking a consortium approach to fulfilling the mandate around wholesale and long-distance connectivity provision. He said he meant the coming aboard of private sector equity partners, especially as part of the transition to the model of what was called the State Information and Communication Technologies (ICT) infrastructure company. When there was such a transition, it was the best opportunity to shape it from the start. There was already ongoing talk about leveraging private sector equity partners in relation to South African Airways (SAA) and Eskom. He wondered if there was not an opportunity to harness additional resources and value in this way, by seeking out and consolidating structured public-private partnerships. This spoke to the issue of funding, as well as the competition which existed. He suggested people could pull together and synergise, in the instances where people were doing people’s own thing on the side.

Regarding USAASA/USAF, he said he had one high-level question, because he was still struggling to capture the framework clearly in his understanding. He was sure the BDM project was outlined and explained before, and he apologised for making USAASA/USAF rehash ground already covered. He asked what exactly the division of labour and responsibility between the Department, USAASA, and Sentech in the rollout and implementation of BDM is. He asked how the roles played by each of the entities link, flow together. He said he was realising, with the backdrop of the morning’s meeting, he might have a misunderstanding or misalignment as to who should be asked which particular question, regarding aspects of the process. He asked to get some coherence or a clear outline of how the whole picture fits together, and who was who in the zoo, in relation to what roles should be played or tasks implemented.

Ms N Kubheka (ANC) joined the Committee. She addressed BBI, and said she hoped this financial year, there would be movement. She was happy because she could see the presence of BBBEE when looking at BBIs outcomes on the side of service delivery and support, especially in outcome one and outcome five.

She asked BBI to continue focusing on it, and not to leave it, because the Committee wanted to see the role it would play when coming to the side of service delivery. These were the entities which could at least do something to push service delivery, especially regarding the economic recovery plan.

She could see on the side of risk, BBI managed to mitigate, and knew how best it could resolve the challenges it encounters. She asked BBI to be left to continue its work.

She thanked the shareholders because it was now being said there were positive results. In this regard she referred to the allocation of R100 million. On the issue of the rolling out of projects, she said she thought it would be much easier because there was no issue of frustration to deal with. She could see BBI, Sentech, and SITA worked hand in hand to push connectivity. She asked for it to be allowed to continue its work. The Committee would hear and receive feedback as the entities presented the issue of the R100 million, which came from the side of the shareholder.

Regarding USAASA/USAF, she said results could be seen in the current financial year. She hoped the story of STBs could finally be pushed to the effect there were no stories to be heard come 2022. She could see USAASA/USAF tried to check itself against the quarterly reports, and said at least it could push whatever APPs or targets it put in place. She hoped, on the side of the Digital Terrestrial Television (DTT) and Direct to Home (DTH) set-top, the Committee would see something being done in this financial year, with positive results for it to manage within the next financial year. It had to switch over from analogue to digital.

Regarding invoices, she noted USAASA/USAF comments about it wanting to be on time with the 30-day payments. USAASA/USAF wanted to push in a harder way and wanted to reduce the time taken to pay invoices, as it included percentages. The Committee would try to make a follow up on the issue of wasteful, fruitless, and irregular expenditure. Members would be the eyes as the other quarters were moved into, just to see if USAASA/USAF were indeed honouring the promises it made in its presentation to the Committee.

Regarding the issue of vacancies and people who continued working in positions in an acting capacity, she said it was not a nice position to be in when such employees wanted to work harder to achieve positive results within the entities.

She heard the Minister appointed a Board, but it seemed as if it was an interim board and not a Board to be in place for multiple years. She asked for clarity regarding how long the interim board would be in place, and asked if it was only for the sake of assisting USAASA/USAF to push its mandates, as it had the timeframes it put in place for itself.

If there was a challenge on the side of supply chain, it had to be taken that indeed 100% could not be reached. It was going to be a challenge, and she hoped the Minister and the Minister’s team could play a role, so the entities could finally close the gaps. These were the key positions which needed to push the entities to move forward.

Regarding BBI, the Chairperson said there was a point regarding the R100 million which needed clarification. This was what was expected, and therefore not necessarily a conversion of a loan to equity, but more of what a shareholder investment would be, going forward. He asked for clarity on the point about the forms to be signed off, and if there was progress made otherwise. He asked if BBI was referring to the R100 million which BBI was trying to source from the shareholder. Alternately, he wanted to know if it was about the loan, which was an issue for some time. Here he was referring to the loan which needed to be converted from a loan to equity in a way which boosted its financial viability and balance sheet, as it raised money with other possible investors and identified partnerships. He asked for these points be clarified because the slide on the SWOT analysis was not updated to reflect the matter was now resolved.

He said under the ‘weaknesses’ slide, it referred to the conversion loan as outstanding. This was important for the Committee to know. It had to know if the matter was still pending. The Committee should know if it is the case, and the Minister should be able to give a sense of how the matter would have been resolved. The matter was part of the recommendations the Committee would have made over time. It was important to clarify this to the Committee, so it knew how things stood, and if there was a need to update the Committee it must be done. If the matter was now resolved, this presented an opportunity for BBI to go to the market, rather than it being a weakness.

On the part of USAASA/USAF, he referred to the point about the timelines which were put in place in relation to the switch off. He said he was sure the Minister would also want to come back to this point, as sometimes one made pronouncements, but when engaging with the industry it would be found it was not ready at a particular time, which was why it continued to engage. It was read in articles and different publications. There might be a problem with chips and other ICT equipment, including mobile phones. He asked if the risk, regarding reaching the timelines, would have been factored into the planning. If the article was anything to go by, it talked about South Africa having this shortage. Some international people were commenting and indicated Beta would only be available by 2022, while the target was actually 31 March 2023.

Building on this, he agreed there may be a focus on a voucher system to the subsidised market. There was also the unsubsidised market. If there was the possibility of scarcity of what was required, there was the concern of there not being enough suppliers for such a market, or the problem of there being no suppliers. He thought the Committee needed some indication to allay its fears on this. The timelines had not been moving, as heard in the introductory remarks by the Minister. The Broadcasting Digital Migration (BDM) was a project since 2008 and the Committee was now in a situation where it wanted to see a real change, this was the reason for the timelines. He asked USAASA/USAF to reply comprehensively, so the Committee could know the situation clearly.

The Chairperson asked about irregular expenditure and matters generally related to the Auditor-General. He said one worries about the targets USAASA/USAF is giving, such as reductions by 20% or up to 20%, for example. The point was USAASA/USAF wanted to eradicate the problems completely, but once it planned to go to a lower target, it left the impression there was no effort which would be put in, and it was accepting in advance an inability to deal with the situation.

The problem was the country was committed to changing the tide regarding how it was perceived, especially regarding matters of corruption and similar issues. USAASA/USAF might want to explain this aspect because for him it was informed by an understanding regarding the annual reports dealt with for 2019/2020. Something could have happened in the 2020/2021 year in trying to address such challenges. As 2021/2022 was planned for, he asked for it to still be accommodated, and for note to be taken USAASA/USAF might not be able to get rid of irregular and wasteful expenditure. It must however be accepted it may minimise the impact. The Chairperson asked for the point to be clarified.

He said his other point related to finances, because when USAASA/USAF said it would pay 100% of valid invoices in 30 days, and linked this to the presentation, it would be on the basis of what was delivered. It is important to allay the fears of the Committee. The Committee has not seen the 2020/2021 financial year because it was still something which was coming, given Covid-19.

Secondly, USAASA/USAF would not have paid what it had to, then come back and say it had not paid someone because of trying to frustrate a programme, to avoid what happened in the past regarding people going to court. He asked USAASA/USAF to speak on this so the Committee could have a better understanding of service delivery. It may have been delivered only to find perhaps, the processes were not correct, and therefore it would come back as flagged.

Responses

The Minister began with the last question the Chairperson asked. She said considering the Department is positioned between the trade wars of the big giants which dominate the tech industry in the East and the West; it was not a matter affecting South Africa alone. It also affects the other countries which rely on the two big countries. The Department previously told the Committee it was engaging with the industry to ascertain if there was capacity within the industry. One of the things the Department needed to look at practically was the impact the lockdown had, and therefore the Department had engagements.

The Minister said she spoke of the Department establishing a committee to look at the challenges which may be experienced by the participating entities. This was to ensure if anything started, which required the Department of Trade and Industry (DTI) to intervene, that it brought the DTI on board. Anything which needed to be fast tracked had to be fast tracked because this was a critical project.

She said Ms Kubheka made reference to this being expressed in the economic recovery plan. It meant government was really paying attention by saying the project had to be a success. As the Department engaged with the industry, being more the broadcasters and manufacturers, it received an indication there was a sizeable number available which would really take the Department somewhere, while it continued to observe and engage the counterparts. This was saying it was really possible to get it.

As the issue of trade wars was being discussed, she knew the two major countries were fighting even as the Department engaged with the industry at the National Security Council (NSC). The Department requested the Minister of International Relations to engage on behalf of South Africa as a neutral tech-arm country and to state South Africa’s position. Therefore, it was indicated the chips were available. She said the East indicated it had a sizeable number available. Of course the West indicated this as well, as it was able to tell South Africa it could or could not make use of it, because if it went with it, then certain things would happen. The Department was still fighting for South Africa as a sovereign country, and should not be dictated to by any other country regarding who it must trade with. However, in the engagements the Department had with the industry, it was given comfort in the chips being available. The Department was looking at the STBs, while in the previous year the Minister briefed the Committee about Cabinet having a hybrid model. This meant in the Department would complement those areas which did not have STBs, with the IDTVs, as mentioned earlier. There was only one challenge with the STBs, and it related to those which would be imported. However, the Department would continue to engage the different areas. As standards were relaxed, it worked to the Department’s advantage to see if it could meet it halfway.

On the loan conversion, it was correct to say the slide presentation was not updated. The loan was converted. The Department was now a 76% shareholder of BBI and the Industrial Development Corporation (IDC) was a 24% shareholder. It was done, which meant the R100 million now went to the balance or books of BBI, as what it had in equity. Regarding the vacancies which were there, the Department had placed a moratorium, especially on the agencies which were going to be merged. This was done because, as it could be heard, the State was really bleeding the personnel it had. It had to be taken into consideration, when two or three agencies were brought together, it meant there was going to be a duplication of certain positions. This was why the Department said if the critical vacancies were filled, it could not be done away with, and had to be made for a fixed term.

Regarding the finalisation of the processes, a critical question was asked about when the Department thought this would be resolved. BBI and Sentech were the business cases which were at advanced stages, and on the DDCF, which was where USAASA/USAF was going, and which the Department was fast tracking. The Department put a timeline in place, which by the upcoming Thursday should have something which it would receive, as and when it interacted with it. Unfortunately, this was not only an internal process, meaning the Department had to interact with National Treasury, state law advisors, and other stakeholders.

However, the Department gave itself until the upcoming Thursday to say the team was to come on board and share with the Department, so it could see how far it could go. One of the proposals from the state lawyers was that the Department already had the existing agencies, and could therefore make amendments between the two companies to say it was amending the legislation to incorporate the functions. However, these were matters which had to be explored and checked on all aspects, including both legally and the economic impact it might have.

For now, as the APPs had not included the timelines, the Department was trying to make sure it would not miss the targets. Regarding the USAASA interim Board duration, the Department did not currently have duration for it, simply because the approval by Cabinet was for 24 months. The interim board was filling in until January, once the process is finalised. The agency would cease to exist because the Department was establishing a DDCF. A Board could not be appointed as per the existing Act to say there was a three-year Board, because once the rationalisation or establishment process of the DDCF was finalised, it meant a new Board kicked in. This was how the Department was looking at the governance members of the agency, and if it would require a Board or not. These were processes whereby the Department could not say it would be three years, and so forth, but the Department was doing it because Cabinet approved the interim Board up until January 2022.

USAASA had to fill vacancies on critical projects urgently, by appointing a project management office, as well as BBI and SA Connect. The lack of funding and lack of infrastructure fund was discussed, and the Presidency was mobilising funds. The Department made submissions to National Treasury and continued to engage the investors to come and invest in the infrastructure fund.

Another question which needed to be cleared up was if the Department was considering private equity into the state-owned infrastructure company. The Department was not yet considering doing so. One of the critical things the Minister mentioned in her remarks was what the Department had committed to do as government. As much as it appreciated the challenges it was faced with, both regarding capital and capacity issues, it had to ensure it built a capable and entrepreneurial State. Even in those areas where the Department identified a need, it would look at what the cost to the State is, and what the capability of the agency is. If the Department needed to take a particular decision along those lines, it would see. The Department had the IDC on board at BBI. The Department had not thought of bringing in other external parties for now. The Department would of course praise Parliament if the shareholders decided otherwise.

The Minister said she made reference to the impact of the trade wars on the chips for cell phones. The Department had established a team chaired by the Minister of Communications, was comprised of other ministers as well, DTI, state security, and the Department of International Relations and Cooperation. The matter was elevated to the NSC, which was being chaired by President. The Minister said she spoke about getting the Minister of International Relations to engage the stakeholders. The industry was on board, and the Department was working with the industry to say South Africa should not be deprived of the opportunity. So far there was nothing which really made an impact and the Department continued to engage with the two countries and the countries companies.

Mr Matseke thanked the Minister for the insight and detail provided on BBIs behalf. He said a question was repeatedly raised regarding the R100 million funding requirement which BBI referred to in its funding plan. He made it clear the R100 million was not related to the shareholder loan conversion. BBI compiled a capital investment plan to say, due to the historical backlog in investment, it needed R100 million to invest to catch up and have its network able to meet the requirements of existing customers as well as the market. The CaPex plan was in the region of R700 million, out of which the plan for the current financial year was R464 million, as seen on the slides. The package referred to BBI historically diverting money meant for operations into doing small cumulative capital investments in its network. This was done to ensure the continued sustainability of the company. BBI needed to claw back about R100 million out of the +R400 million which was invested in the network over the last five years. This was where the R100 million came from. It was intended for capital investment in the network. The other question was the balance thereof; where BBI referred to debt funding; and where it would be sourced from. On this issue, the Ministry said the current Board or some members of it were exiting; said the members already served the maximum allowable terms; said there would be a new Board, and said BBI was going into a merger with Sentech.

Therefore, the view was BBI had to be very careful regarding acquiring debt before the merger. The proposed process was to let the new Board come on board and then BBIs debt requirements could be taken into further engagements with the Ministry. It would say if BBI were to catch up regarding capital investment in its network, some form of debt was unavoidable.

However, he said this would be finalised with the Ministry once the new Board was appointed. The idea was to engage the likes of the Development Bank of Southern Africa (DBSA) and the IDC as a bank, and not as a shareholder in BBI. He said this was according to the advice BBI received from the Ministry. The Ministry said to let it be an approach which would get approved by the new Board as soon as it is constituted by the Ministry. Lastly, BBI acknowledged the SWOT analysis in the presentation was overtaken by developments around the shareholder loan conversion. BBI did not want to include a SWOT analysis in the presentation which was different to the one which was in the corporate plan. The corporate plan was completed and submitted before the end of March, which was why the SWOT analysis which was in the presentation was now outdated due to the developments which took place over the last six to seven weeks. BBI would certainly update this as part of the process of finalising the corporate plan and APP being shared with the Committee.

Mr Van Niekerk said there was just one other point the Chairperson raised around irregular expenditure which he wanted to touch on. It was obviously everyone’s prerogative to reduce and eradicate irregular expenditure. However, it was almost inevitable that irregular expenditure would be incurred from time to time. He thought that it was imperative for BBI to ensure the irregular expenditure was not connected to fraud and corruption. In part of BBIs clean up, it continuously identified small contracts which did not fully comply with national Treasury’s instructions, specifically regarding cost containment and expansion. BBI was also continuously ensuring it brought due irregular expenditure, it still received value for money, although it was small, being R100 000 or R200 000. BBI also tried to clean up the environment to such an extent, and improve on the processes so it did not incur any new irregular expenditure. Regarding irregular expenditure BBI currently had, it was in the process of requesting National Treasury condone it through the normal processes. BBI had fully implemented the new irregular expenditure framework and the steering committee reported to the Board, so it was in full compliance with the process to ensure it complied with regulations in this regard.

Ms Madikizela said there was a question around the vacant positions and the timeframe of it. USAASA/USAF advertised the vacant CEO and CFO positions, which closed the previous week. This meant the process of short listing the candidates would be underway. When it came to the supply chain, USAASA/USAF previously reported Mr Nieman was left at 0% capacity in the supply chain as a whole. Mr Nieman was therefore the supply chain and the CFO. Since the establishment of the Board and the appointment of the Acting CEO, the Department seconded a senior manager for the supply chain. USAASA/USAF employed two people on a temporary basis. This was a Contract Manager from a supply chain management (SCM) point of view, and an SCM specialist, to help Mr Nieman fill the gaps. USAASA/USAF seconded two people internally, from operations, and some administrators in the province. Provinces like Gauteng and the Western Cape did not have projects dedicated to it which were starting immediately. USAASA/USAF seconded these to SCM to facilitate and help with regards to the administrative components the positions would demand. This was so the SCM and the appointed contractors could focus on the work. USAASA/USAF had these people from October 2020 up until April 2021. The agencies functioned with 0% capacity, and now with the capacity brought on board, some kind of stability was established regarding capacitating and channelling what the agency needed to do. There was a lot of administrative work from an SCM point of view which needed to work. It could only be done with capacity from SCM.

This is why it was a key factor. The Ministry and the Department really helped with giving capacity to USAASA/USAF. USAASA/USAF had a very strong lead, which it was thankful for, as the Ministry and Department helped stabilise it. Regarding the framework and how it worked, from a basic project manager role point of view, USAASA/USAF was the sponsor of the project. The Department filled the role of a shareholder and Sentech became the project manager. The project management capacity or capability employed from Sentech only focused on the depletion of staff. This was Phase One of BDM. It did not roll over into Phase Two because then there was no installation and the model really did not work.

South African Post Office (SAPO) became the delivery and distribution arm because the STBs are at the SAPO warehouses. The aim was really to deplete the stock to free the money it was currently paying to SAPO for warehousing. When it came to the liability and responsibility, USAASA became responsible for the project. All the questions on the project, when it came to the delivery of the project, came to USAASA. The implementation of the project, because it was a shared key performance area (KPA) or APP for the first time, became the delivery arm which sat with Sentech. However, USAASA/USAF took on the responsibility as the project sponsor and owners of the project because the responsibility was ceded to them.

She said Ms Kubheka asked a question about the depletion of stock. She previously highlighted some milestones USAASA/USAF reached in opening up the provinces. However, the run rate was still an issue USAASA/USAF was tackling with Sentech on a day to day basis, as its project management office, which also did the quality assurance and call centre component. These components were still being looked at on a daily basis by a steering committee which had all three of the entities, being the shareholder, project manager, and sponsor, sitting on a weekly basis to assess the delivery model. It was still a concern to USAASA/USAF if it would be able to achieve the delivery of the programme by the time stipulated. This was why the structures were built, to model and deliver. District coordinators were employed to help facilitate and project manage on the ground. Regarding the 30 days irregular expenditure, it was something USAASA/USAF was checking. She agreed it was law and it was in line with what the Minister’s Key Performance Area (KPA) dictated. USAASA/USAF was incrementally increasing it over the months to cover or achieve full complement of the Minister’s target of 20%. It was the first time the agency embarked on eradicating irregular expenditure. The work the forensic investigator would do would really assist the agency in eradicating it. USAASA/USAF had also put into place controls which she discussed earlier. The assurance providers were now fully on board, working with each division to ensure no gaps were left from an irregular, fruitless, and wasteful expenditure point of view.

USAASA/USAF was not taking a slow pace. It was paced in line with what it knew the agency could do, knowing full well there was a forensic investigator perhaps aimed at starting or concluding the work soon. She said it was currently in the service delivery model process, to be finalised. It was underway and would be able to give USAASA/USAF a sense of which gaps could be closed with which assurance providers. Risk and internal audit were currently working with each division in the organisation.

The Minister corrected what she said earlier regarding shareholding at BBI. She had said the state was at 76%, but it was actually at 74%, and IDC at 26%.

The Acting CEO of USAASA/USAF referred to her comments on instability and unavailability of the SCM staff at USAASA, which negatively impacted the project being fast tracked. The Department was reporting on USAASA for a number of years, and the project had really been dragging. The project was fraught with various issues of governance, including its weaknesses on contract management. If one was going to talk about procurement processes which were later challenged and set aside by the courts, or talk about the last acquisition and the delivery or non-delivery thereof, and installations, all of these pointed to the lack of capability within USAAS. This was why the Department made it clear if USAASA was to deliver according to the timeframes the Department set and committed to the nation; it had to make sure it brought in external people. She said people came, acted, left, came, were appointed, and left. This showed a problem not only at a higher level, because the suspensions talked about regarding allegations were in relation to the same project being talked about.

In most cases the Department was looking at the boards and the executives, and now the Department was hoping the investigation would prove and get to the root cause of why the project had been delayed. The Department saw the interest, but all of this pointed to supply chain processes which were weak and talked to capacity. Even if the Department had the warm bodies, and even if it was not suspended, the fact was this process was undergone for all of these years while these people were there. There was a need for intervention and bringing in external people.

The Department was hopeful USAASA would really try to fast track the matter without missing any compliance steps in the law, as it sought a resolution. It would have clarified certain things and dealt with the perception of the digital migration process only being there for the Minister or the Chairperson, because of the nature of it and because of the procurement. If the Department received reports of government paying certain monies while there was no proof the devices were delivered, it meant it had to take action. When the Department took action, it would unfortunately lead to it saying certain people or companies were indeed found to have committed the offence, and would have to be blacklisted. She said this was something the Department may unfortunately be unpopular for, but it had to protect government’s investment. It was high time the Department instilled the effects of government employees, and the industry it worked for, in relation to the ecosystem of the project being talked about.

The Chairperson thanked the Minister for the additions she made. He asked Members if Members had any further questions or follow ups on the questions.

Ms Kubheka said all of the questions were covered. It was safe to say the Committee was happy, as the Department managed to fast track the resolutions. The Committee and Department should move forward as a team to see how best all of the entities could finally achieve what it put in its APPs.

The Chairperson wanted the Minster and the entities to leave the meeting with the understanding the Committee was supportive of all of the actions taken to ensure, at the end, there was delivery. The Committee knew on this road, the Minister and her team would have to make or take decisive actions, especially in cleaning up entities and restoring the confidence South Africans were to have in state owned entities. Indeed, with this the Department may be trampling on toes but wanted to know the Committee was fully behind it. The Committee had agreed it did not want to be counted as part of the statistics, especially as it related to the digital migration programme. The Committee and the Department wanted to see it turn the corner and delivering the programme to South Africans itself, as the President would have committed to the country that things would change. The Committee stood with the Department. The Chairperson said Members, as part of the oversight role, would continue to monitor the implementation as members had now been presented with the APPs and budget proposals.

The meeting was adjourned.

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