Implementation of the Government Immovable Asset Management Act: PMTE briefing

Meeting report

Opening remarks

The Chairperson welcomed all present to the meeting and asked if there were any Members that had requested to be excused from the meeting.

Ms SJ Graham (DA) replied that her fellow party member, Ms S Kopane had requested to be excused from the meeting due to being ill.

The Chairperson accepted the apology and gave mention that the Minister Ms P de Lille and her Deputy Ms N Kiviet were also absent as they were part of Cabinet for the day. The Chairperson proceeded to hand over to Adv. S Vukela, Director General of the Department of Public Works and Infrastructure (DPWI) to proceed with their presentation.

Department of Public Works Presentation

Official’s remarks

Adv. Vukela gave thanks and said the presentation would give the background of the PMTE, GIAMA and its status of today. Mr Jacob Maroga, Head: PMTE, DPWI, would present on the background of the PMTE and financial stability of the PMTE.

Mr Maroga said as an opener spoke about the history of the Union Building to highlight historical issues that existed from 1910-1950 which later became the basis of South African public infrastructure development. The issue of public infrastructure was how to utilise it to deal with structural issues in South Africa.

The State’s intention: State Property Agency

The 1997 DPWI White Paper: Towards the 21st century encapsulated the State’s Property Challenges and recommended various interventions with respect to:

• Property Investment Management
• Property & Facilities Management
• Construction Project Management

In May 1999, Cabinet approved, in principle, the creation of a State Property Agency (SPA) to effectively manage the State’s immoveable assets based on these recommendations. Mr Maroga added that this approval was the birth of PMTE and the realisation for an agency to manage the state portfolio.

Revisiting the state’s property challenge: DPWI White Paper 1997

The property investment problem statement included:

• Lack of uniform guidelines for property investment decisions
• Fragmentation of the state's portfolio
• Size and diversity of the portfolio
• Inefficiencies in the public works portfolio
• Absence of an integrated management information system
• Lack of appropriate skills
• Lack of accountability by client departments

The property investment policy interventions included:

• Establishing a management information system and asset register
• Gradual devolution of responsibilities to the client
• Establishing a property investment policy for the entire government
• Innovation and best practice

Mr Maroga added that prior to some of these issues were that the entire responsibility to take care of the portfolio was vested in Public Works. There was no clarity in terms of client responsibilities and this issue persisted till today. Regularising the clear responsibilities between the Department and the client was necessary.

Property and facilities management policy interventions:

• Restructuring the property and facilities management division to ensure client accommodation needs are met in an effective, efficient and cost-effective manner
• Define roles and responsibilities between head office and the regions
• Obtain and operationalise information management systems
• Addressing the maintenance backlog

Project Management policy interventions included:

• Engaging the construction industry over best practice codes
• Improved inter-governmental relations
• Good practice benchmarks
• Practice guidelines
• Organisational transformation
• Enhancing project management

General challenges: public infrastructure in SA

General issues affecting government infrastructure:

• Inadequate funding due to low tariffs
• Tariffs do not adequately make provision for capital
• Tariffs do not adequately make provision for maintenance
• Lack of proper controls for adequate infrastructure investment
• Lack of proper asset information to adequately manage portfolios
• In SA context -Infrastructure not developed to services all citizens (pre/post 94)

Mr Maroga added that this rating was the state of infrastructure across the entire country including roads and water infrastructure and not just the Department’s portfolio. This was an issue that needed to be addressed as liberation would become hollow if people did not have access to proper functioning infrastructure. The Department had to deal with structural and functional challenges.

National Treasury: interim solution/mechanism

A joint National Treasury (NT) and Department of Public Service and Administration (DPSA) Technical Committee was engaged from May 2002 and recommended a trading entity as an mechanism towards the end-state (SPA)

In 2006 the establishment of the PMTE was approved by NT as an Interim Mechanism (Trading Account) in response to:

a) State Public Finance Management reforms including the passing of the Public Finance Management Act (PFMA) in 1999

b) The Devolution of Budgets and accommodation charges 2006

c) The subsequent passing of GIAMA in 2007

GIAMA 2007

Government Immovable Asset Management Act (GIAMA)

• provide a uniform immovable asset management framework to promote accountability and transparency within government;
• ensure effective immovable asset management within government;
• ensure coordination of the use of immovable assets with service delivery objectives of a national or provincial department and the efficient utilisation of immovable assets;
• optimise the cost of service delivery by:
• ensuring accountability for capital and recurrent works;
• the acquisition, reuse and disposal of an immovable asset;
• the maintenance of existing immovable assets;
• protecting the environment and the cultural and historic heritage; and
• improving health and safety in the working environment.

Mr Maroga said that it was important to understand that the GIAMA was concerned with how custodians and users interface with each other in the management of government immovable assets but did not go in detail on and regulate the engineering side of the assets but only the management side.

The engineering side of state infrastructure had been neglected and the state needed a larger engineering capacity. The state needed engineering capacity to handle state infrastructure and deliver better infrastructure to its clients. The DPW was reliant on service providers as it did not have its own engineering capacity. The Department’s lack of engineering capacity created complexities for commercial and oversight reasons.

Salient Points

• The Minister of DPWI was appointed as custodian of immovable assets which vest in the national sphere of government. The Minister acts as the caretaker of immovable assets and is given the powers to acquire, manage or dispose of these assets.
• GIAMA regulates immovable asset management by means of contractual relationships between the custodian and national user departments.
• The custodian is required to annually prepare a custodian immovable asset management plan (C-AMP).
• The user department is required to annually prepare a user immovable asset management plan (U-AMP).
• The preparation of asset management plans represents the backbone of the immovable asset planning and budgeting process.
• The implementation of GIAMA has proven to be difficult particularly the development and budgeting of credible asset management planning on an annual basis.

Section B the Seven year plan

Seven year plan: improving state property management

In response to various challenges faced by the Department, the Minister launched the Seven Year Business Improvement Plan in 2012 aimed at:

• Addressing Fraud & Corruption / Mal Administration
• Improving Business & Operationalisation the PMTE
• To address the original Cabinet Directive to strengthening the ability of the State to manage its property portfolio in an efficient, effective and economic manner, a property management improvement programme was designed and made the responsibility of a capacitated PMTE and included:
• Full Operationalisation of PMTE in line with 2006 approval
• Establishment of state property management vehicle
• Lease review and business improvement process
• Re-building a complete and credible immovable asset register

 

PMTE: In the context DPW recovery

Mr Maroga said he would give a summary of the turnaround process in the Department. There was a stabilisation phase that was supposed to end in 2014. This was followed by an efficiency phase from 2014 that was supposed to end in 2019 and the Department was supposed to currently be in the final year phase of sustainability and growth.

There has been big success and big lapses when it came to turnaround. In as far as stabilising government and bringing the processes of governance into Public Works, he said the Department was amongst the best of all the departments.

Financial management and sustainability still required a huge turnaround but the asset register had made a turnaround.

Technical operations and the engineering capacity was an area that still needed attention and major turnaround and was an important area for success in the Department.

Section C

What is the PMTE? Trading entity and operating model and scale of operation

PMTE: scale of the operation

A Trading Entity is ideally a ring-fenced operation, with a separate trading account, within a Department, premised on the idea of running on a financially sustainable basis to lesson fiscal reliance.

PMTE is effectively the custodian of the majority operation of DPWI, reporting through the lesser Main Vote (An industrial scale operation, managed through a Department)

DPWI regions: implementing the core mandate

• Regions are National DPWI’s “Implementing Arms” spread across the country
• Regions therefore constitutes the majority operation of the PMTE.
• One Regional Office per province, except for the Eastern Cape and Gauteng with two each.

Implications for PMTE

1.Above priorities require uncompromised efforts to effectively optimise the portfolio to serve as a catalyst

2.As a custodian of State land, the PMTE has central role in reversing the legacy of apartheid spatial injustice

3.The PMTE’s primary role is to ensure that these assets are well maintained and cost effectively managed.

State of the Estate: Where are we now?

Land Parcels: 29664

Buildings: 89626

Mr Maroga said the target was a moving target. He briefly spoke about the spatial representation of the land parcels and structures.

On the level of advancement or lack of it on the asset register capability, he said the Department now had capabilities to now zoom in and view assets electronically on maps which gave client information as well.

Section F: Critical issues

The Department came from a consolidated Public Works then there was an PMTE which took over most of the operations of Public Works. There was an accounting separation between the PMTE and Department and PMTE inherited the largest part of the issues Public Works had. The PMTE was required to account in a different form to the Department and therefore there was higher standards of accounting for the PMTE. Due to this there was big issues when it came to PMTE auditing outcomes

Complex Technical Assets

•Ageing portfolio, high maintenance backlog.

•Outsourcing model towards maintenance provides conducive environment for ballooning costs (asset management by Procurement)

•Centralised Custodianship vs. Decentralised budgets.

•Lack of technical competence to engage technical issues adequately and interface technical expertise from sector.

•Currently operating in run-to-failure mode where relief is provided only after failure.

•Client budgets for maintenance is not commensurate with the extent of portfolio.

•Lifecycle maintenance and operations costs are not quantified or budgeted for

Interventions: Technical

OPERATIONALISING THE PMTE

• Establishment of PMTE has been premised on the idea of adopting a business-like approach in managing the portfolio.
• PMTE has been failing to adequately institutionalise required technical competence to manage the issues outlined above
• PMTE remains operating as a Government Department instead of industrial size public institution as intended by Cabinet and NT
• PMTE has been pursuing operating reformation by introducing interventions with a view of improving efficiencies
• •NT / DPWI joint responsibility to affect separation of the PMTE as the implementer form the Main Vote as the regulator

Section G: Towards Full Cost Recovery

Mr Mokgoro gave thanks and said he would discuss the financial side of matters. He said the Department was a custodian of state property and it was the largest custodian of national assets who controlled the bulk of the state’s assets. Since 1994 there had been changes and the pre-democracy eras and democratic eras had to be reconciled. This process of integrating was intricate and that was why the asset register was a complex process.

Complexities of the portfolio

The Department had about 29 664 land parcels, but land parcels did not give an indication of what was being spoken of. The 29 664 land parcels were in terms of sites which was about 5.5 million hectares of land. In relation to the geographic land area in the country the total geographic area is about 1.2 square kilometers which was about 122 million hectares of land. The Department had about 5.5 million of land that in terms of proportional custodianship meant the Department was responsible for about 4.5 % of total land in the country.

A lot of data analytics had to be done to assess the state portfolio because of its massive size. When calculating costs, the cost of acquisition less depreciation has to be accounted for, but for state assets the cost of acquisition for many state buildings such as the Union Buildings for example was not available. Currently the estimated cost for state assets was at R126 billion however, this was not a transactional value.

Cost Recovery

Funding was a major challenge for managing the portfolio.

Currently there was R12.6 billion to manage the portfolio which was made up of the R4.5 billion that was partial operation recovery from the clients, R3.8 billion support from National Treasury and R4.3 billion was from private sector leases. In the baseline it had R12.6 billion.

To move towards full cost recovery it had been calculated that clients should be charged R8.3 million to achieve cost recovery. To achieve full cost recovery and consider the lifecycle costs of assets an additional R4.8 would be needed which was not available. To achieve cost recovery, maintain the building through its lifecycle and consider major refurbishment there had to be an additional 7 billion additional which would total at R24.4 billion.

The mandate was therefore underfunded by R11.8 billion per annum and it would not be simple to raise funds even if assets were disposed of and sold. If assets were disposed it would raise about R8.5 billion but an annual deficit would remain.

Knock on effect: client challenges

• Closure of client facilities due to statutory contraventions (Dept Labour, Water Affairs, Municipalities)
• Increasing breakdown incidents logged by clients due to poor condition of facilities
• Poor performance of critical components related to service delivery to the citizens (e.g. lifts, boilers, air conditioning, water systems)
• Accommodation charges vs client expectations
• The performance of Newly Constructed Facilities

Buildings were not being maintained and the Department was aware that it did not maintain buildings. The service points were not maintained, and clients were being evicted. There was a breakdown in state property and the responses were day to day and not long-term orientated maintenance measures.

This affected client experience because infrastructure such as lifts and boilers not working and the expectations gap was widening. New facilities have been constructed and but there has been no maintenance.

Bank overdraft and outstanding claims

The Department had a large bank overdraft and there was almost a 1:1 relationship between overdraft and money that was supposed to be collected from the client. Banking was done with the Pay Master General so there was no interest. If all debtors were to settle the outstanding debt of R 3,5 billion (31 Mar 2018) the bank overdraft would be resolved.

Conclusion

• The journey towards the State’s objective to have an effective vehicle to manage its expansive portfolio, saw the establishment of the PMTE in response to Government-wide reforms (PFMA, GIAMA, Devolution)
• The PMTE journey has unpacked key concepts necessary to address and to improve the management of State property
• Professionalizing and capacitating of property management to the State has a direct impact on State’s ability to deliver services to the citizens
• The PMTE creates the platform to enable the introduction of “New Money” to compliment the fiscus
• The PMTE’s benefit for the new DPWI is affording it the space to execute its bigger mandate (regulation & policy) more effectively
• PMTE Business Improvement Initiates currently underway, will set the standard for the entire Public Sector Property and Infrastructure Management

Mr Mokgoro said the new role DPWI was expansive because of its new mandate and times would be tough for the Department going forward.

Discussion

Ms A Siwisa (EFF) thanked the Officials for the presentation. She questioned the state of State entities which fell under the DPWI such as South African Airways (SAA) and Eskom and the challenges they faced regarding management and finance.

She asked how the DPWI could come to the assistance of SAA, Eskom and Denel so that these entities could be sustainable. What was the role of the Department in terms of aiding these state entities?

On the shift of Public Works over the years, Ms Siwisa asked if the services of the DPWI were improving over the years or not.

She suggested that the Department had their own engineers that addressed technical matters instead of an agency that would be a middleman as it was responsible for the majority of the infrastructure.                             

She proposed a meeting where the Department’s issues and if a budget increase was applicable because it would reflect badly on the Committee if the Department had inadequate funds.

Ms S Graham (DA) started by correcting a naming mistake on slide 40 and 41, where there was reference made to the Sarah Baartman District Municipality by its old name of the Cacadu District Municipality.

There needed to be clarity across the board within the Department with regards to roles and responsibilities as there were many competencies. This would make it easier for the Department to enforce financial payments.

She questioned if the properties that were mentioned in the presentation were all the properties or only those overseen by the National government.

On the devolution of the budget to 42 departments, she asked if economy of scale was not a better option and was concerned that splitting the budget into 42 would lead to departments not having adequate budgets to do their work.

She asked how compliance could be enforced across the board because there seemed to a weakness in the enforcing mechanisms and as a result this has led to a large overdraft budget. There did not appear to be strength in the Department’s enforcement mechanisms for receiving payment.

Mr P Van Staden (FFPlus) said that the Department was in serious trouble with regard to its state-owned infrastructure in this country, such deep trouble that was going to need new plans and a few more years to achieve. Are there any plans or time frameworks in place to send structural engineers to the infrastructure that the Department is losing due to fires and vandalism as well as to assess if these infrastructures are up to a fit and safe for human use?

On slide seven and eight, he asked what sort of plans were in place and what time frames were set to sort out the problem.

On slide nine about the ‘D rating: at risk of failure’, he asked if there were any timeframes to handle the problem and why was the necessary attention not given to infrastructure for the past 25 years. There had to be an explanation for why attention was not given to infrastructure since 1994.

On slide ten, he asked what was currently being done to finalise and implement the policy and whether there were political problems or rather an administration and management problem.

On slide 13, he asked for clarity on the Department’s plans with regards to other state departments that owe the DPWI money. What is the Department planning on doing should these other Departments not adhere to their side of the deal in terms of paying the monies that they owe to the DPWI? What is the Department’s action plan for debt collection?

On slide 18, he asked how long it would be before matters were addressed if the turnaround plan kept reflecting Departmental challenges.

On slide 22 which coincides with slide 13, he said it mentioned that there would be private sector partnerships for 20 years and then it would go back to the state. What happens if the private sector does not buy into this model and were there contingency plans?

On slide 39 about the asset register he asked if it could be made available to the Committee as a confidential matter.

On slide 44, mega city developments, he raised concern about the development of mega cities without considering infrastructure like police stations, hospitals and schools. He asked what the development of mega cities would cost the tax-payer over the next 5-10 years and if there were any estimates on this available.

On slide 65, he said the repair and refurbishment backlog was a major problem that had to be dealt with urgently. He asked for an indication of the number of backlogs. Why are there 3800 unoccupied buildings? what is the reason behind this? what is the Department doing about this and why cannot state departments occupy these floor spaces if they cannot rent it out to the private sector?

He said that if the client were not paying for services rendered there needed to be consequences, even if the client was the state because if not, the Department would not survive financially as it had to run like a business.

He added that it was shocking that the maintenance backlog amounted to R74 Billion. If infrastructure had been maintained correctly this amount would not be as high. What is the Department going to do to decrease this amount and prevent it from increasing year in and year out?

On slide 68, expenses were far too big over the revenue and if it were a business it would be already bankrupt. He asked for clarity on the the figures at the bottom of the page and if they were the cash deficit figures that were estimates.

What is the figure in Rands and cents of the property rates for the unoccupied infrastructure by the Department for every year on slide 69?

On slide 73, he said service providers must only be appointed by the Department if all loyalties can be put forward for payment. He iterated that business principles had to be adhered to by the Department when it came to clients.

The Department had to maintain and keep its buildings in good condition as properties are investments in the future.

On slide 85, he said repairs and upgrades had to be done for infrastructure such as reservoirs which were leaking for example.

Mr WM Thring (ACDP) on slide nine about the overall public infrastructure grade of D+, he said that the country was certainly close to the risk of failure. He was concerned about this risk of failure. If there would be no turnaround within the next few months the rating would slip into rating E. Some of the turnaround strategies mentioned had to work as there was no option as the entire country would be at risk.

On slide 15, he asked if putting a value that appears to be wrong in the asset register one of the challenges faced. He asked how soon the asset register would be completed. He gave an example of how in municipalities there was a change in how rates were given to residents and proper property valuations were done very quickly.

This example illustrated that it did not take multiple years to get property valuations completed and therefore he wanted to know the date for when state property valuations would be done. He added that Department’s challenge of clients not paying and asked why the problem had not been picked up much earlier considering it has been happening for years.

He added that it had been mentioned in yesterday’s meeting that white papers ought to be drafted to rectify the challenges but they still remained in draft form or incomplete and asked if this was not the problem. The problems of the Department have been identified years ago but yet policies and clear directions have not been materialised and implemented.

The Auditor General was unable to do its job properly because they said they lacked “teeth” to bring remedial measures to government departments. What “teeth” did they need and what proper legislation was there to ensure that the Department did not fail?

On the problem statement about complexities of portfolios, he said the slide mentioned 34 million square meters floor space but the speaker said 36.5 million square meters. Why was there a discrepancy?

A Committee Member said integration by the Department was a good idea. There had to be infrastructure development in rural areas.

He made an example of Mpumalanga where a building was burned in 2013 but it has not been rebuilt yet and in relation to rebuilding that has been vandalized due to public violence, how would the Department deal with this? This was also negatively affecting communities as they could not access services that the police station provided.

On the Department not currently maintaining its assets, he said it had to be remembered that people have died or are disabled because of poor maintenance of infrastructure and therefore the Department had to hang its dead in shame. This had to change now.

On the issues of school infrastructure, he said it appeared that when white children exited or black children entered from previously white or semi-private schools, infrastructure maintenance dropped and buildings deteriorated. Why was this happening did the Department only care about schools when white children were attending? Was the life of an African child not cared for? Was the cause because the Department does not maintain assets? He said he had come from that era and seen these cases happen in schools. He gave an example of how schools in the same area with majority white children had better maintained infrastructure than majority black schools yet both schools were public schools. The disparity between public schools had to be addressed.

On land that could not be accounted for by the Department, he asked for reasons why this was the case. Reasons had to be provided for why land could not be accounted for.

He disagreed that there was no longer a need to build student residences as there were many students who could not afford private accommodation and were in need for accommodation,

Lastly, he said that the Department mentioned various problem statements but the manner in which the problems were going to be resolved or what their attempts to address problems and hindrances were was not provided. If the Department did not address its challenges at the end of the day it would not be able to deliver because it could not collect payments. National Treasury does allocate money to departments and spheres of government but the money budget for paying the Department is not utilized correctly and there had to be accountably.

The Chairperson indicated to Members that there were time constraints and asked for Members to be conscious of time when they spoke.

Mr T Mashele (ANC) welcomed the presentation and appreciated its workshop nature that educated Members on matters in the Department.

On the PMTE, he said he wanted to believe that if all proper systems were in place it would be an enabler for social infrastructure and the developmental agenda of the state. The failure of the PMTE would compromise service delivery in the country.

He said due to time constraints he would not ask all the questions he prepared but other Members brought up some points he wanted to raise.

He asked how the PMTE would get further funding once the infrastructure development management system has been transferred to the DPWI and what was the estimate for this further funding.

Does PMTE have a full understanding and appreciation of what all the government immovable assets is comprised of? To create a clear and focused turnaround strategy one had to have the maximum information at hand.

PMTE leased more than two thousand properties to private properties but its primary role was to accommodate government why was this the case?

Over 5 billion was spent annually on leases what else could be done with such an amount to advance the developmental agenda?

On the maintenance of government buildings, he asked in relation to the funding whose responsibility and what budget it was that had to cover maintenance? Buildings needed to have maintenance budgets because if they did not costs would balloon and increase challenges.

On properties leased out by the PMTE, he asked for details on the ownership structures of the landlords. How did PMTE deal with its current private sector leases and ensure that government objectives are met including property transformation charters.

He asked when the last lifecycle audit in user needs of the buildings was. Did the Department really know the state of the buildings?

The Chairperson said Mr Mashele could forward his unasked questions to the Committee Secretary who would forward it to the Department to answer.

Ms S Van Schalkwyk (ANC) said that due to time constraints it would not be due justice to let the Department respond to all the questions. She said it appeared that on some of the questions would need in-depth research to be answered in order to give the Committee a clear picture and more elaborate response. She proposed that the Department return a written response all the questions asked to the Committee.

She asked for an indication of the dates that the data in the presentation was researched or collated and how up to date they were.

One of her main concerns was occupational health and safety and lack of maintenance. Coupled with this concern was the lack of capacity of the inspectorate in that area. She wanted to know if the Department was liaising with other departments like the Department of Labour as it was highly specialised field and there was a lack of capacity across the country in terms of that specialisation. Were there plans in place to ensure that bursaries or capacity building to strengthen that Department and to develop and implement proactive responses for building safety.

On accommodation challenges such as housing backlogs she said the four percent vacant relating to the 3800 properties there was a big potential that could be used somewhere else. She feared that if properties were just left alone vandalization would occur. She asked how this four percent could turn into income generation.

She welcomed the schooling and background information provided and said it should be shared in the public domain so citizens could better understand and respect state infrastructure.

A dedicated plan and timelines for money-saving as well as income generation that could speed up process so that the Department was proactive despite client non-payment. The Committee needed to see the action plan as soon as possible.

The Chairperson said the Committee had to invite the Department and PMTE back for a full day as there were matters that still had to be discussed. She said the Department would present at two o’clock again and that Members could send questions to the Committee Secretary for the Department to answer.

Mr van Staden supported the Member’s request for a written response to questions. He however requested that if Members came back at 2o’clock and if it was the same officials returning could these matters not be handled before starting the next presentation.

The Chairperson said the challenge would be transport as the meeting would be longer than scheduled and there were no arrangements made for a shuttle bus.

Department’s Response

Adv. S Vukela said the Department would respond in writing. What they could say now was that the evolution of the PMTE was taken into the consideration regarding the lessons learned in relation to the performance of all state entities, and the National Treasury would never allow the Department to proceed with something that would burden government.

The Department wanted to ensure anything they did was accounted for and at the end of the day aid the entire government out of its current financial situation. The questions raised were relevant and would be responded to. The team would change in the afternoon and the majority of group would not return.

Mr Maroga suggested taking the questions provide written answers with preparation for the next engagement. He agreed that there was a lot to engage on and in fact now after this presentation engagement would be very productive. The Department appreciated the ideas raised and the dedicated engagement by Members. He proposed that the Department would provide a written response to questions but a meeting for engagement had to be set up.

The Chairperson gave thanks to the officials and said the information would assist Members to prepare for future engagements. She said that not all the officials would return at 2 o’clock therefore the discussion on this matter could not continue then.

The meeting was adjourned.