APPROPRIATION BILL [B32 - 2012] (NATIONAL ASSEMBLY (SECTION 77)), DATED 16 NOVEMBER 2012

The Standing Committee on Appropriations having received a briefing from the National Treasury on the Adjustments Appropriation Bill and engaged with identified departments, reports as follows:

1. Introduction

The Minister of Finance tabled the Medium Term Budget Policy Statement (MTBPS) on 25 October 2012, outlining the budget priorities of government for the medium term estimates. The MTBPS was tabled in Parliament together with the Adjustments Appropriation Bill [B32 - 2012] and the Division of Revenue Amendment Bill [B33 - 2012]. Section 12 (15) of the Money Bills Amendment Procedure and Related Matters Act, No. 09 of 2009 (Money Bills Act) provides that in the event of a revised fiscal framework, an Adjustments Appropriation Bill must be referred to the Committee on Appropriations in the National Assembly only after the Division of Revenue Bill has been passed by Parliament. Accordingly, the 2012 Adjustments Appropriation Bill was referred to the Standing Committee on Appropriations by the National Assembly on 1 November 2012, for consideration and report.

The 2012 Adjustments Appropriation Bill (the Bill) was tabled within a context of declining tax revenues, slow growth in the economy and uncertain global financial conditions. The Minister of Finance pointed out to the need to put in place measures to ensure that government realises value for money in its expenditure. Critical to enhancing service delivery is the consolidation of programmes and activities by departments in order to obtain value for money within the available resource envelope.

The Standing Committee on Appropriations (the Committee) met with various departments affected by the adjustments in respect of the budget for the 2012/13 financial year. These were the Departments of Human Settlements, Water Affairs, Communications and Public Works.

2. Overview of budget adjustments

The total estimate appropriated expenditure in the 2012/13 budget has been revised downward from R969.365 billion to R967.463 billion. This amounts to R1.902 billion less than the 2012 main budget and 8.9 percent more than the 2011/12 outcome. The 2012 adjustment budget makes provision for an additional amount of R11.523 billion in vote allocations.

The total roll-overs for 2012/13 amount to R1.506 billion, while the provision for unforeseeable and unavoidable expenditure amounted to R2.273 billion. An additional allocation for the higher than expected personnel remuneration costs amounted to R5.480 billion. Furthermore, there was an unallocated amount of R30 million for Economic Development, self-financing expenditure amounting to R440.095 million and additional funding realised from the skills levy and Sector Education and Training Authority (Setas) which amounted to R1.794 billion.

A contingency reserve of R5.780 billion has been set aside and an amount of R3.021 billion has been declared as savings. Declared savings are unspent amounts that departments explicitly indicate they will not reallocate to fund other spending. Savings were declared in a number of areas which include, amongst others, the Employment Creation Facilitation Fund (Jobs Fund) and Rural Households Infrastructure Grant (RHIG) in the amounts of R408.108 and R138.875 million respectively. Local government repayment into the National Revenue Fund amounted to R500 million and an unallocated amount of R30 million has been set aside. A decrease in the State's debt costs is projected at R593.586 million and the projected under spending by departments is estimated at R3.5 billion.

In terms of economic classification, additional allocations amounting to R2.319 billion were provided for Current Payments. This comprised of the following: . R2.266 billion for Compensation of Employees; . R777.928 million for Goods and Services; and . R724.967 million downward adjustment in Interest and Rent on Land.

Total Transfers and Subsidies were revised upward in the 2012/13 budget adjustments from R698.713 billion to R705.232 billion. This represented an upward adjustment of R6.519 billion which comprised of the following: . R4.612 billion for Provinces and Municipalities; . R1.582 billion for Departmental agencies and accounts; . R15.368 million for Higher Education Institutions; . R28.175 million foreign governments and international organisations; . R849.687 million downward adjustment for Public Corporations; . R96.283 million for Non-Profit Institutions; and . R1.033 billion for Households.

Total Payments for Capital Assets was revised downward in the 2012/13 budget adjustments from R15.176 billion to R14.434 billion. This represents a downward adjustment of R741 million which comprised of the following: . R1.246 billion downward adjustment in buildings and fixed structures; . R423.098 million for machinery and equipment; . R500 000 for Heritage Assets; . R50 000 for biological and cultivated assets; and . R81.364 million for software and other intangible assets.

The Committee in its assessment of the 2012/13 budget adjustments established that some departments contravened the Public Finance Management Act, No 1 of 1999 (PFMA) as amended by shifting funds from one programme to another which were beyond the prescribed 8 per cent and by shifting funds from capital payments to other economic classification items.

3. Adjustments per identified departments

The following section seeks to discuss the 2012/13 budget adjustments and the discussions between the Committee and the identified departments below.

1. Department of Human Settlements

The budget for the Department of Human Settlements has been revised downwards from R25.263 billion to R25.137 billion following the 2012/13 budget adjustments. The Department received an additional amount of R13.500 million for rollovers and declared savings of R138.875 million. This represents a total downward adjustment of R125.375 million.

The Department declared savings amounting to R138.9 million on the Rural Household Infrastructure Grant (RHIG). The Department stated that the budget reduction on RHIG was effected only in those municipalities where there were limited qualifying beneficiaries.

The Department recorded an expenditure of R10.056 billion or 40 per cent of the adjusted appropriation of R25.137 billion at the end of September 2012 (second quarter). The Department stated the main reason for the under- expenditure was the scheduling of payments for the Urban Settlements Development Grant for which only one payment had been made in the 1st half of the year with two more payment tranches to follow.

The Department indicated that plans were in place to ensure that the remaining funds under the RHIG would be spent by the end of the 2012/13 financial year. The Committee expressed concern at the readiness of the Department to utilise the originally allocated grant funding given the spending performance of the Department with regard to the grant RHIG. The Department was directed to consult and to draft an integrated plan to accelerate the implementation of the RHIG.

The Department stated that funds were shifted from funded vacancies to other priorities which included research projects, interest on financial leases, transfers to the Human Settlements Scholarship programme, creation of Human Settlement Chair at the Nelson Mandela Metropolitan University, payments for employee social benefits and the purchasing of office equipment. The Department's current vacancy rate stood at 31 per cent. The Committee expressed concerns about the shifting of funds from funded vacancies and its impact on the Department's service delivery programmes.

2. Department of Water Affairs

The budget for the Department of Water Affairs (the Department) has been revised upwards from R8.812 billion to R8.993 billion after the 2012/13 budget adjustments. The Department received an additional amount of R416.557 million for roll-overs, savings of R227.512 million were declared and there was another downward adjustment of R8.544 million for the forestry function which was shifted to the Department of Agriculture, Forestry and Fisheries. This represented a total upward adjustment of R180.501 million. The rolled-over funds were for the identified areas: . Upgrading of video conferencing equipment (R7 million); . Business process review (R16 million); . Development and implementation of the enterprise monitoring and evaluation tool (R3.71 million), . Transfers to the Rand Water Board for infrastructure refurbishment, water losses management and metering (R18 million); . Acquisition of water drilling equipment (R3.77 million); . Moutse Bulk Water Supply (R20.018 million); . Construction of the Lukalo to Lambani pipeline in Nandoni (R61.600 million); . Construction of the Vuwani pipeline in Nandoni (R113.600 million); . Acid Mine Drainage (R150 million); . for the Metsi Bophelo Borehole Project R10 million; and . Validation and verification processes (R5.600 million).

The Department declared savings of R227.512 million due to operational efficiencies and cost optimisation measures implemented in respect of the infrastructure projects of the water trading entity as well as vacant posts that will not be filled. Cost saving measures was also implemented on catering, consultants, venues and facilities, travel and subsistence and machinery and equipment across all programmes of the Department. The Committee was concerned at the impact of shifting funds from funded vacant positions on the implementation capacity of the Department.

The Department had spent R2.738 billion or 30.4 per cent of the adjusted appropriation of R8.993 billion as at end of September 2012. The Committee was concerned at the poor expenditure performance of the Department. The Department provided a number of reasons for the under expenditure and these include delays in the approval for the Trans Caledon Tunnel Authority (TCTA) to undertake work with regard to Acid Mine Drainage, lack of project management capacity in implementing agencies, financial instability of some implementing agencies and delays in the filling of vacant posts.

With regards to non-financial performance, the Department had planned to provide an additional 746 004 people with access to water but only managed to provide for 346 000 by end of September 2012, only 1 674 out of the target of 7 000 rainwater harvesting tanks had been distributed, the Department had provided 180 subsidies to resource poor farmers from a set target of 750 and only 166 out of a target of 803 water treatment works had been assessed. The Department indicated that there were budget shortfalls for targets and that the supply of rainwater harvesting tanks was a support initiative to the Department of Rural Development and Land Reform. The Committee pointed out targets stated in the Department's performance plans were the responsibility of the Department and that budget shortfalls arise due to a lack of alignment between the Department's Annual Performance Plan and its budget.

The Committee was concerned at the slow expenditure of the Department as at the end of the Second Quarter of the 2012/13 financial year, with specific reference to the recurring poor performance on the Nandoni and De Hoop Dam projects. The Department stated that delays in the Nandoni project were due to the non-performance of a historically disadvantaged (HD) category contractor. The established contractor was 86 percent complete and litigation involving the HD contractor was ongoing. With regard to the De Hoop Dam, the work was being finalised on the completion of the Dam but not on the bulk water reticulation system.

The Committee pointed out that the Department needed to utilise the budgeting framework as provided for in the Medium Term Expenditure Framework (MTEF) so as to minimise the need for rollovers and improve planning and expenditure performance.

3. Department of Communications

The budget for the Department of Communications (the Department) was revised downwards from R1.712 billion to R1.655 billion after the 2012/13 budget adjustments. The Department received an additional amount of R1.642 million for personnel remuneration increases and savings of R58.957 million were declared.

The declared savings were as a result of delays in the procurement process for the 112 Emergency Call Centre. The Department indicated that service providers for the 112 Emergency Call Centres are in the process of being appointed.

A total amount of R144.413 million has been defrayed as a virement from Programme 5 (ICT Infrastructure Development) to Programmes 1 (Administration), 2 (ICT International Affairs and Trade), 4 (ICT Enterprise Development) and 6 (Presidential National Commission). This virement amounted to 51.5 percent of the total budget of Programme 5. The breakdown of this virement is as follows: . R44.413 million reprioritisation from the 112 Call Centre Project to cater for the Digital Terrestrial Television (DTT) awareness in Programme 1, . R100 million reprioritisation from broadband infrastructure to fund the following:

- R3 million to fund Information Communication Technology (ICT) Trade/Partnership in Programme 2;

- R10 million to fund Small Medium and Micro Enterprise Development in Programme 4;

- R16 million to fund Independent Communication Authority of South Africa (ICASA) and South African Broadcasting Corporation (SABC) for the 2013 Africa Cup of Nations (AFCON), the ICASA complaints and compliance committee, and for small medium and micro enterprise development in programme 4;

- R65 million to fund SABC for AFCON 2013 for broadcast rights; and

- R6 million to fund the information society and development cluster in Programme 6.

The Department's expenditure in the first six months of 2012/13 was R763.628 million or 46.1 per cent of the adjusted appropriation of R1.655 billion. The Minister of Communications (the Minister) indicated that expenditure performance had improved compared to the previous financial year when only 26 percent had been spent by November 2011.

The Committee expressed concern at the credibility of planning in the Department given that broadband infrastructure was a critical priority of government. Of more concern to the Committee was the recurring non-delivery on the 112 Emergency Call Centre project which had been rolled over regularly. The Committee viewed the non-attainment of performance targets such as the creation of only 150 jobs from a target of 17 322 as a major concern given that the Department was critical in government's broad development strategy. The Committee further expressed concern at the delay in the filling of vacancies, with specific reference to the senior positions such as the Chief Financial Officer.

The Department presented the Committee with its Turnaround Strategy which focused on improving overall performance. Key areas for the Turnaround Strategy were strategic management, organisational culture, leadership management and development and governance.

The Department stated that whilst there have been slight improvements in performance compared to previous financial years there were still challenges in skills capacity with regard to Digital Terrestrial Television (DTT) and the Broadband project. The Department indicated that it was in the process of developing a single coherent strategy for the implementation of the Broadband project hence the reluctance to utilise funding until such a strategy was in place. The process of finalising appointments of senior personnel, including the Chief Financial Officer was scheduled for the end of December 2012.

The Department indicated that a new branch has been established to improve oversight capacity over the Department's public entities. In order to improve expenditure performance, the Department stated that it had created a system that links budgets with projects which will track actual expenditure against budget allocations per project. In terms of broadband infrastructure, the department stated that the rollout of broadband infrastructure was part of Government's infrastructure build programme, which is coordinated by the Presidential Infrastructure Coordinating Commission (PICC).

4. Department of Public Works

The budget of the Department of Public Works (the Department) has been revised downwards from R7.993 billion to R7.891 billion following the 2012/13 budget adjustments which represents a total downward adjustment of R102.458 million. The Department received an additional amount of R87.095 million for rollovers, R3.753 million was provided for unforeseen and unavoidable expenditure for the establishment of a new office for the newly appointed Deputy Minister of Public Works. An amount of R212.0 million has been declared as savings and there were other adjustments of R18.604 million for personnel remuneration increases.

The Department had reduced the infrastructure budget by R485 million from R1.484 billion to R999.742 million. An amount of R212 million has been declared as savings under which R102 million was for the Land Ports of Entry and R110 million that was ring-fenced for the Department of Home Affairs' project on the Land Ports of Entry (LPOE). An amount of R273 million was reprioritised from Programme 2 (Immovable Asset Management) to other expenditure items within Programmes 1(Administration), 2 (Immovable Asset Management) and 3 (Expanded Public Works Programme). The Committee was concerned at the impact of the delays in these infrastructure projects given their strategic importance in the protection of the country's borders.

The Department recorded an expenditure of R4.137 billion or 52.4 per cent of the adjusted appropriation of R7.891 billion at the end of September 2012. The expenditure performance of 52.4 per cent was slightly higher as a result of the downward adjustment. The Department had exhausted the budget for Programme 5 (Auxiliary and Associated Services) due to expenditure on state funerals. The Department indicated that the original allocation for state funerals was R15 million and thus far had spent R29 million due to the ad hoc nature of requests for funding The Committee expressed concern at the over expenditure trends and advised the Department to allocate a contingency budget in future to accommodate any ad hoc requests that may emanate from Presidential functions such as State funerals.

The Department indicated that the Expanded Public Works Programme (EPWP) Phase 2 targets for the five year period were 4 920 000 work opportunities. The programme has created 2 462 502 (50.05 per cent) work opportunities against the 5 year target of 4 920 000 to date. It is to be noted that phase 2 of the programme started in 2009 and 2012 is its fourth year.

The Committee was not certain that 50.05 per cent was an acceptable level of performance given that the programme is in its fourth year of implementation. The Department stated that the programme was rapidly expanding in the final stages of implementation but the Committee was of the view that since budgets were shifted from infrastructure projects, those targets for phase 2 of the EPWP will be affected. The Committee viewed the non-attainment of targets for the EPWP as a major concern given that the programme was the government's promise to the people to deliver job opportunities.

The Committee expressed concerns at the shifting of funds from capital assets to fund other budget items. This was not in accordance with Section 43 of the Public Finance Management Act, as amended. National Treasury indicated that the Appropriation Act allows for the shifting of funds from capital provided approval is sought from the Minister of Finance. The Committee's view is that this is an act of amending the budget which is the exclusive authority of Parliament.

The Committee expressed concern at the non-attainment of targets with regard to the percentage of asset register fields populated with data for the present 209 293 properties. The Department stated that there was an agreement with the Accountant-General on up-scaling the asset register. The project was an intergovernmental initiative and therefore was a complex exercise. An implementing agent has been appointed to assist with the project and the target date for completion was 2014.

4. Committee findings

The Standing Committee on Appropriations, having considered the inputs from the above stakeholders made the following findings:

1. There is a general tendency by departments to contravene section 43 of the Public Finance Management Act, No 1 of 1999 by shifting funds from one programme to another which were beyond the prescribed 8 per cent. This pervasive shifting of funds negatively affects the credibility of departmental budgets.

2. The Committee noted the declared overall savings which amounted to R3.021 billion, of particular concern was the amount of R408.108 million in respect of the Employment Creation Facilitation Fund. This was a cause for concern given the fact that job creation is a priority of Government.

3. The Committee noted that a Turnaround Strategy for the Department of Communications has been introduced.

4. The Department of Public Works has created 2 462 502 or 50.05 per cent of job opportunities in year four (2012) against the 5 year (2009 - 2013) target of 4 920 000 job opportunities for the Expanded Public Works Programme. This was a cause for concern given the fact that job creation is a priority of Government. 5. The Committee expressed concern at the impact on the administrative capacity of departments to deliver services by shifting funds from funded vacant posts.

6. The Committee remains concerned that the compilation of the asset register by the Department of Public Works has been going on for years without completion despite multiple agencies being appointed with no results.

7. The Committee noted a persistent gap between the expenditure outcomes and achieved performance targets of departments at the end of each financial year.

5. Committee Recommendations

The Standing Committee on Appropriations having engaged with the above stakeholders recommends as follows:

1. That the Minister of Finance ensures that the National Treasury considers incorporating a clause into the Appropriation Bill to enforce planning as a requirement for infrastructure programmes.

5.2 That the Minister of Public Works: 5.2.1 Puts measures in place to ensure that job creation targets set for the Expanded Public Works Programme are attained.

5.2.2 Submits to Parliament quarterly progress reports on the compilation of the asset register.

5.3 That the Minister of Communications: 5.3.1 Ensures that the Department of Communications expedite the process of finalising the national broadband strategy and the rollout of broadband infrastructure.

5.3.2 That critical posts such as that of the Chief Financial Officer are filled expeditiously.

3. That the Department of Communications reports on the necessity for introducing the 112 Emergency Call Centre project given the regular rollover of funds allocated to this project.

4. That the Department of Communications report to Parliament quarterly on the implementation of the Turnaround strategy.

5. Conclusion

The Standing Committee on Appropriations, having considered the Adjustments Appropriation Bill [B32 - 2012] (National Assembly- Section 77) referred to it and classified by the Joint Tagging Mechanism; reports that it has agreed to the Bill without amendments.

Report to be considered.