Broadband Infraco, Sentech and SITA on their 2015/26 Strategic and Annual Performance Plans, with Deputy Minister in attendance

Meeting report

Apologies were received from the Minister of Telecommunications and Postal Services, Dr Siyabonga Cwele. Mr P Mabe (ANC) replaced Mr T Khoza (ANC).
 

Deputy Minister’s opening remarks
Prof Hlengiwe Mkhize, Deputy Minister, Department of Telecommunications and Postal Services (DTPS) extended the apology of the Minister who had to be in an urgent meeting. She expressed her unhappiness about the recent attack of immigrants in different communities. Government had condemned these attacks and labelled them as unconstitutional and illegal and will be met with the strong hand of the law. Public representatives had been asked to go to different communities as solidarity with the victims but also to send a clear and a unambiguous message that whoever plans to commit further attacks will be apprehended as committing crime against humanity.
 

Broadband Infraco and SITA were transferred from the ministries of Public Enterprise and Public Service and Administration to the newly established ministry of Telecommunications and Postal Services. This was done as part of realignment of State Departments by the presidency in order to improve performance in general and to specifically position the sector to play its rightful role in supporting the radical economic transformation as prioritised by Government. The SITA had been established as the Government Information Technology (IT) procurement arm in the 1990s and had grown over time to become a large entity with a plethora of objectives. It is the aim of the Government to streamline and reposition SITA into a lean and agile entity whose mandate is focused on leading in the implementation of e-Governance, secure State information and continue to procure IT on behalf of Government. The SITA strategy to be presented would speak about this mandate, as it was crucially important.
 

The DTPS was earnestly committed to improving the capacity of Government to deliver on its mandate and view e-Government as an important tool to achieve these objectives. It is also important to ensure that the information of the State is safeguarded and secured to prevent cyber crime. The Department also acknowledges that Broadband Infraco was established with the sole purpose of implementing the rollout of broadband in the country and the entity had developed important capabilities to implement broadband projects. The country had adopted South Africa Connect in 2013 as the country’s broadband policy and the Department is now preparing for the implementation of the first phase of SA Connect in line with the pronouncement that had been made by the President during the 2015 State of the Nation Address (SONA).
 

The Department needs to prepare and to co-ordinate its effort in order to ensure that all available capabilities and competencies are harnessed to implement this policy. Several other entities have capabilities and competencies to assist in the implementation of the broadband programme. The Department had adopted the programme of rationalisation of Sate-Owned Entities (SOEs) in an endeavour to do away with duplication of infrastructure and improve efficiency and effectiveness in implementing broadband policy. The Department had instructed Broadband Infraco to build its strategies around the effort to preserve its value within the context of endeavouring to rationalise the SOEs. The rationalisation of SOEs is based on the report by the Presidential Review Committee (PRC), specifically focusing on the need to improve SOE policy and strengthen the role that these entities play in the economy. The report also observed that there was so much duplication and inefficient use of State resources in the SOE sector as some of the SOEs did not even have a mandate.
 

Sentech had played a critical role towards ensuring that the infrastructure required by the country to move towards Digital Terrestrial Television (DTT) is in place and ensured that the country was fully covered in terms of receiving digital signal. Sentech also possesses capabilities to implement broadband and has strategic assets that may be deployed towards the priorities of the Department. Prof Mkhize appreciated the sterling role played by the former Chief Executive Officer (CEO) of Sentech, Dr Setumo Mohapi. Under his leadership the entity achieved the full roll-out of digital broadcasting infrastructure and he managed to successfully stabilise the entity. Dr Mohapi had now moved to SITA and it is expected that he will perform wonders to the entity.

 

Briefing by Broadband Infraco

Mr Mandla Ngcobo, Chairman of Broadband Infraco, pointed out that the purpose of the presentation was not to say what kind of policies should be followed but the current challenges within the Board are legislative in nature as there is uncertainty around policies and it often takes time for issues to be resolved. Broadband Infraco is in a situation where within 6 - 8 months the entity is likely to be in a precarious situation as there is financial instability; he urged the Committee to attend to this challenge. It is unfortunate that Broadband Infraco has reached a stage where it is teetering on the brink and the matter had been brought to the attention of shareholders but there is an attempt to rationalise the SOCs, which could potentially stabilise the SOC.

 

Ms Puleng Kwele, CFO, Broadband Infraco, said the National Development Plan (NDP) shows that South Africa has resumed its rightful place on the global stage - with an e-literate, economically active population fully able to access and utilise appropriate content and services to enhance quality of life. Broadband Infraco’s purpose is in line with the NDP for establishing national, regional and municipal fibre-optic network to provide the backbone for broadband access. Broadband Infraco operates on the premise that national backhaul, provincial backhaul and districts backhaul require state intervention, thus allowing private investment to lead the way in the access market. The DTPS vision 2020 aims to ensure that 100% of South Africans will have access to broadband service at 2.5% less of the population’s average monthly income. (No, this means all their income to Braodband?) Broadband Infraco’s rollout of long distance backhaul fibre to under serviced areas will enable provincial governments to leverage such broadband infrastructure and services for economic growth, job creation initiatives and poverty reduction efforts.

 

Broadband Infraco was focused on 5 outcomes identified in the Medium Term Strategic Framework (MTSF) and these included:

• Outcome 1- quality basic education

• Outcome 2- A long and healthy life for all

• Outcome 3- Decent employment through inclusive economic growth

• Outcome 4- Skilled and capable workforce to support an inclusive economic growth path

• Outcome 5- An efficient, competitive and responsive economic growth infrastructure network

 

Broadband Infraco focused on Strategic Infrastructure Project (SIP-15): Sub-outcome 5 focusing on expansion, modernisation, access and affordability of our information and communication infrastructure. Broadband Infraco experienced a significant growth of its customers from 1 to 17 as at Feb 2015, including signing SITA and Cell C as anchor clients. There is also a steady growth in revenue, despite the significant reduction of services from Neotel in 2013. Broadband Infraco is on an upward trajectory. The cost of sales has been on a decline since 2012. The entity continues to seek interventions on how to further efficiently manage cost of sales and the biggest drivers are depreciation, last mile services and maintenance.

Strategic objectives of Broadband Infraco is to ensure business sustainability and key performance indicators focused on network performance rebates and the 2015/16 target is 3% of customer revenue, of cash at the end of the year (target ofR100 million) and Earnings Before Interest Taxes Depreciation and Amortisation (EBITDA) based on budget (target of R50.29 million). There is also a focus on business sustainability particularly network saleability and the target to increase the capacity of Synchronous Transport Module (STM 1) equivalents to 1 665. The other strategic objective prioritised on network improvement and the key performances indicators is on extending network and enable SITA connectivity and the target of 22 services by 31 March 2016. The target for the network upgrade on Ramatlabana to Oberholzer region is to be completed by 31 March 2016. Broadband Infraco aimed to create 10 indirect jobs and spend 70% on Broad-Based Black Economic Empowerment (B-BBEE) budgetary discretionary.
 

Mr Vishen Maharaj, Executive of Capital Programme, Broadband Infraco, mentioned that two capital projects are currently running and these include SITA and 3 Anchor Customer and both of these projects expand the network and enable access, provide coverage in all 9 provinces and 3rd Party metro networks are being utilised to avoid duplications. SITA has appointed Broadband Infraco to provision and manage 54 SITA Next Generation Network (NGN) 1GE services for a period of 10 years, commencing on August 2014. Broadband Infraco has been appointed to provision 125 broadband services for 5 years effective 1 June 2014.Broadband Infraco has to extend its existing network via fibres to the customer and terminate it directly at the customer premises

Broadband Infraco was also involved in infrastructure renewal projects and shareholder support is necessary for this investment programme and an application will be made through the MTEF process for R1.796 billion so as to sustain the network for long term commitments. It is important for Broadband Infraco to focus on network refurbishment by reducing the 44% of obsolete part of network to 0% so as to address the legacy issues and replace the rest of the obsolete equipment. Priority is also on building diverse routes to ensure resilience network and enable higher Service Level Agreement (SLA) and minimise rebates. The entity was completing the process of autonomy from Neotel Points of Presence (PoP), which are no open access. The investment overview shows that network planning was the domain of the vendor and was informed by the Second Network Operator (SNO). The Right of Use (RoU) provided exclusive rights to the SNO with no requirement for sales or sales support as well as extension of the network to enable other third parties to connect. The customers of the SNO dictated upon the network footprint and the initial agreement was based on links with no requisite SLA and resulting in a network with numerous single points of failure. The relationships with Eskom and Transnet were also the terrain of the SNO and Broadband Infraco was only licensed end of 2010. Broadband Infraco improved from having a single customer in 2008 to 15 customers in 2014 and this shows how the entity had been growing throughout the years.

 

Ms Thami Pama, (Google could not match this name) Acting Chief Financial Officer (CFO), indicated that Broadband Infraco is in a precarious financial position and it will be difficult to have funds to sustain financial obligations beyond a certain point. It is critically important to highlight that the entity is in a desperate need for a cash injection as there will be no revenue growth to meet the current commitments to clients. Capital injection will also be important for the entity to be able to invest in Capital Expenditure (CAPEX) as this is not an ideal scenario for an important Government entity like Broadband Infraco. Broadband Infraco will be able to receive funds to invest in the refurbishment of its networks and this will assist in the preservation of assets, as this is one of the concerted efforts of the entity. Capital injection will be important in order for the entity to be able to sustainably preserve its assets. Broadband Infraco currently has 17 clients with 3 anchor clients that contributes80% to the total revenue and this has enabled the entity to continue despite its current state.

Broadband Infraco had made an MTEF application to be submitted to the Department Public Enterprises (DPE). The Fiscal and Liability Committee of National Treasury (NT) considered applications and funds had not been allocated. The R170 Million short term guarantee and R528 million medium term guarantee were submitted to the Executive Authority in the in mid-October and these applications were once again unsuccessful. Funds were usurped by efforts to strengthen the asset and the entity had difficulty in sourcing funding from commercial banks as the balance sheet is not strong – conversion of shareholder loans into equity and there is lack of credit history and lack of clear clarity on the role to be played by Broadband Infraco on SOEs rationalisation. Broadband Infraco was looking at alternative funding like Standard Bank, Nedbank, ABSA, FNB, and Hong-Kong and Shanghai Banking Corporation (HSBC), which require government guarantee in order get the funding.

 

Ms Montseng Mopeli, Executive of Human Resource (HR), Broadband Infraco, stated that the strategic goal of the entity is to create an environment of performance excellence through competence and committed employees. The strategic objective is focused on the optimisation of organisational capacity and capability by ensuring there is a culture of high performance and individual accountability. There is also a concerted effort to review job content, competence profiles and levels for internal relativity and fair job pricing and this could be achieved by focusing on a well-developed system to support management of succession planning, career path and performance based employee reward practices. The implementation of an integrated succession-planning model at Senior and Executive level will institute enhanced performance management framework and guidelines. The target is to ensure that 85% of activated key vacancies are filled with suitable calibre of incumbents by 31 March 2016.

 

Ms Kwele mentioned that Broadband Infraco had managed to identify and intervene in a number of challenges related to regulation and these included the high cost to communicate, review of Information Communication Technology (ICT) policy review on the Rapid Deployment guidelines and radio frequency spectrum on access gab and lack of private sector investment. A number of interventions were undertaken in an attempt to resolve these challenges and these included:

• Drive SOC cooperation and collaboration

• Regulate the non ICT SOCs play within the industry

• Directive for licensees to abide by their license terms and conditions or in the absence of such terms and conditions, the governing regulations or policy be updated to reflect such

• Policy is being defined by High Court Rulings – Dark Fibre Africa (DFA), MTN and Link Africa

• Similar to Altech case of 2006 defining a non-optimal structure of the industry

• High Demand Spectrum

 

It is important for the entity to deal with all the strategic risks that identified by the Auditor-General (AG) and these included the inability to continue as a going concern (lack of funding), inability to resolve fulfilment value chain issues and margin pressure. Other strategic risks comprised of lack of information management systems for decision-making and process control and failure to safeguard information and data. Preventative measures that had been implemented to address these strategic risks and these specifically focused on:

 

• Continue to engage shareholders to support funding efforts either through equity or a guarantee

• Supply Chain Policy approved by the Board on 29 May 2014.

• Continuous socialisation of the Supply Chain Management (SCM) policy.

• Bid specification training provided to end users.

• Appointment of Head of Supply Chain.

• Enterprise Operating Model in place.

• Process in place to integrate business processes.

• Define financial principles.

• Lower incremental costs per bid (CAPEX).

• Shared risk through up streaming and down streaming

• Partnerships established long-term contracts/lock-in deals with customers.

• Improve customer engagement model

• Renegotiate contracts with suppliers to amend or reduce the legacy contract costs

• Finalise (Establish delete) core processes for inputs into the user requirement specification.

• Identification (and implementation) of core Enterprise Resource Planning (ERP) system requirement.

 

Discussion

Mr C Mackenzie (DA) commented that there had been a lot of talks about the rationalisation of SOEs and it would be helpful for the Committee to be provided with more information on the companies that would be involved in this rationalisation. Were there any other companies, specifically in the private sector, that had assisted Broadband Infraco with access to their networks? He asked whether Broadband Infraco had been involved in the rollout of portion of 1 885 km of fibre network in the Western Cape. It is important to know whether the projection to reduce the cost of sales from 35% in 2014/15 to 2% in 2015/16 is realistic and feasible judging by the current climate in Broadband Infraco. It is disappointing to see that there had been very little information on the alternative funding model that will be responsive to operational imperatives.

 

Ms J Kilian (COPE) requested that the Department, Deputy Minister and the DG should explain how they see the role of Broadband Infraco in the roll out of SA Connect, as this was still not clear at this stage. It is important to ensure that all SOEs are aware of their legislative mandate so as to avoid deviation. How will Broadband Infraco ensure that the unprofitable arrangement that had existed with Neotel will not continue going forward? It is commendable that the entity managed to increase its revenue between 2013/14 and 2014/15 and the priority now should be on investment so as to ensure that the infrastructure maintains its ability to improve the NGN. It looks like Broadband Infraco had been regarded as the “stepchild” that belonged somewhere as was still not included in the broad plan of the Department.

Ms M Shinn (DA) asked why each page of the corporate plan had been marked “confidential”. She asked for more information on the outstanding debt of R2 million from THE Umzinyathi partnership in KwaZulu Natal and why they are regarded as doubtful players. What steps were taken to get the R147 million owed by the Department of Science and Technology (DST)? What was that credit for? What was the reason for classifying Route 7 and the Sutherland project as vulnerable links as the project like that should not be vulnerable? It is important for the Committee to get more information on whether it was Telkom or Broadband Infraco who was in the provision of National Health Insurance (NHI) as the Minister had said Telkom had been chosen as the leading agency to assist in the rollout of broadband. She also asked for the name of the 3 Anchor customer and whether the deal had been secured. Who are the two new customers that had been added from the total of 17 as at February 2015?

Ms D Tsotetsi (ANC) asked for provision of the exact number of facilities that had been connected. What strategy is in place to deal with load shedding, as this was likely to impact on the operation and performance of the entity? What strategy is in place to deal with outstanding fees that are owed for services rendered? Is there a debt collection strategy and plan including handing customers over to external legal debt collectors in cases of default payments? It is important to know about the plans in place to raise funds as the process on its own has financial implications and she wondered whether there was an estimated time frame to raise the required funds for the entity. Was there any progress on the process of raising funds to ensure the survival of Broadband Infraco?
 

Ms N Ndongeni (ANC) asked about the strategy that will be used by Broadband Infraco to attract professional engineering service and the number of engineers required. What will be the total estimated cost of the whole exercise? What is the time frame for filling in the vacant post of the CFO?

The Chairperson said the Members had raised a number of substantive issues but core is to know the path that is likely to be taken from the current precarious situation. The Committee is supposed to approve the APP of Broadband Infraco but there is also a possibility that the entity might have to close shop because of lack of funding. What is the position of the Department in relation to Broadband Infraco’s financial status, as the Department should have reflected on the issue? It will be impossible for the Committee to wait for the SOEs rationalisation in order to find resolution on the precariousness of Broadband Infraco, as this issue should be regarded as an emergency.
 

The Chairperson wanted it placed on record that the Department needs to avoid a repeat of what had happened at the South African Post Office (SAPO) where employees had been complaining about lack of payment of salaries. There is a need to be mindful of reputation of the county to the Southern network that is provided by Broadband Infraco. The country needs to strengthen its relationship with the Southern African Development Community (SADC) considering the current wave of xenophobic attacks in the country. What are the mitigating factors that had been implemented by both the Department and Broadband Infraco to unlock the key pressing challenges within the entity?
 

The Chairperson asked about the kind of relationship between the Department and Broadband Infraco, as there seemed to be lack of co-ordination. What steps had been taken by the Department in trying to resolve the current situation at Broadband Infraco? What had been the reflection of the Board about the current status of the entity? It is also crucially important to know whether the Board had looked at alternative measures to address the challenges at Broadband Infraco and the recommendations that could be tabled to the Members as expected to approve the APP.

Prof Mkhize indicated that the Chairperson had directed the thinking of the Department regarding the situation of Broadband Infraco. It is important to emphasise that the whole idea of rationalisation of SOEs came out of the consultative exercise where people from the private sector were trying to assist Government on ways to make impact within the socio-economic sector. The high panel of key leaders in the private sector had noted that there was lack of co-ordination within the SOEs hence there is so much duplication and wastage of resources and funds and this tends to have an impact in the fight against unemployment, poverty and inequality. The rationalisation of SOEs therefore aims to reduce duplication and wastage of resources and funds and the realignment of the entities to play a co-coordinative role in the fight against the triple challenges identified in the NDP.

There is already an existing infrastructure at Telkom that could be consolidated to all government institutions that have the fibre network to enable the country to provide broadband services to the masses. Telkom will also work with other entities to drive delivery of broadband services to reach even those located in rural areas. The selection of Telkom as the leading agency in the rollout of broadband was also based on cost, as this was the SOE. There are legitimate questions that could be asked about why there had not been a tender process in the selection of Telkom as the leading agency in the rollout of broadband but the Department was still at the planning phase to respond to the recommendations made by the Presidential Review Committee (PRC). The Department strongly supports the idea of rationalisation of SOEs especially from a point of co-ordination of resources and reducing cost for Government. The Department will be in a better position to fully explain the recommendations made by the PRC during the Budget Vote and it is important for the Members to debate whether the rationalisation of SOEs could be implemented.

Ms Rosey Sekese, Director-General (DG), DTPS, said there were concerns from the DPE that certain processes needed to be observed in transferring Broadband Infraco to the DTPS and this was one of the reasons the proclamation on transferring Broadband Infraco had been done later than SITA. The Department had been engaging with Broadband Infraco especially on the application for cash injection from the NT although this endeavour had been unsuccessful. The Department also had a meeting with the CEO of Broadband Infraco where there were discussions around the feedback from NT on the future of the entity and the proposal was the entity must come up with cost-containment measures so as to keep the company afloat in terms of preserving the value. The Department appreciated the honesty of the DPE as transparent in highlighting the key challenges that would be inherited by the DTPS from Broadband Infraco. Broadband Infraco is still struggling to get the necessary funding in order to sustain the business and there is little that the Department could do in this regard.

The Chairperson wanted to know exactly where to from here as this was not clear from the responses that had been provided; it will be a complete waste of time to interrogate an APP of a closing entity.

Prof Mkhize responded that the main discussions in the last interaction that the Department had with Broadband Infraco were around the future of the entity and the way forward in the context of rationalising SOEs. The Chairperson of the Audit & Risk Committee, Ms Meta Maponya, had also attended that meeting and the request was for the entity to come back within two weeks clearly articulating its vision and how it fits in within the scope of priorities of the Department. The Department it was important for the Committee to engage further with the APP that had been tabled by Broadband Infraco.
 

Ms Shinn indicated that the Committee was currently in the budget process and therefore needed more information to decide what to be done about Broadband Infraco. Broadband Infraco had been totally left out of the Department’s budget and it is clear that there is no money for the entity and Government had invested about R2 billion in Broadband Infraco and it looked like that money will suddenly vanish.

Mr Mackenzie reiterated that his question on the rationalisation of SOEs was specifically based on how the Department will get the funding for Broadband Infraco, as there is no funding available from the budget. He agreed with Chairperson that it will be difficult to approve the APP of Broadband Infraco without knowing its future and the Committee did not just sit to rubberstamp items.
 

Ms Kwele admitted that the rationalisation issue had created uncertainty on the part of Broadband and the responses from the Deputy Minster and the DG seemed to suggest that the Department had washed off its hands on Broadband Infraco hence was even left out of the budget. There is no rationale in discussing the strategic plan and APP of an entity that had made it known that unless there is funding available it will be forced to close shop.
 

Ms Kilian was concerned that the investment made by Government to Broadband Infraco from 2008-2011 had amounted to approximately R2 million.

Ms Tsotetsi asked about the possibility of amalgamating Broadband Infraco with other entities, as the issue of funding seemed to be creating a huge problem for the operation of the entity.
 

The Chairperson said the report of the Committee will be presented on 12 May 2015 and therefore it was expected to come up with its own position and recommendation per entity. It will be difficult for the Committee to get to this point without getting clarity on the financial status of Broadband Infraco and the path that is likely to be taken. The Committee is struggling to get the specific plan of the Department in dealing with the issue of Broadband Infraco. It will be reckless for the Department and the Committee to recommend the closing of Broadband Infraco, as this was an important entity and there are also State assets that need to be preserved. It seems like the Department together with Broadband Infraco will need to have a conversation so as to come up with a unified voice to the Committee and come up with alternative measures that could be implemented to remedy the situation.
 

The Chairperson highlighted that it is very clear that the Committee will still need to reconvene with Broadband Infraco on 28 April 2015 to thoroughly investigate the way forward. It is difficult to talk about Human Resource (HR) matters as HR planning could only possibly happen when everybody knows about their future going forward. Questions asked by Members were only secondary to the bigger crisis of financial instability and lack of funding for the survival of Broadband Infraco.

Ms Sekese clarified that the Department does see a future of Broadband Infraco and the Department was still in a transitional phase in terms of Broadband Infraco as was still in the rationalisation of SOEs. The Minster had made it very clear that Broadband Infraco as an SOE needed to be saved from the state of collapsing and there had been regular engagement in trying to move with speed to resolve the matter.

Mr Sibongile Makopi, DDG: Shareholder Oversight, DTPS, said there is certain history that had tilted the faith of Broadband Infraco in a particular fashion and Ms Kwele had already pointed out that Broadband Infraco had started with Neotel as the single and only customer and the entity was therefore tilted in favour of Neotel. There had been attempts over the past few years to get funding from the NT and Broadband Infraco had requested for slightly over R3 billion, which had been submitted in the last MTSF. This was to assist the entity to be able to improve its debilitated infrastructure in terms of improvement and refurbishment its infrastructure throughout the country. NT wanted clarity on the end state of the entity as it could not risk and borrow money to the entity without certainty of its future.
 

The question was also asked on the role of Broadband Infraco on SA Connect and this was a question that could not be immediately resolved and the rationalisation of SOEs is to improve on efficiency and ensure that Government resources are utilised as most effectively as possible. The rationalisation of SOEs also attempts to create certainty on who is going to play what role and understand the capabilities that are possessed by entities to actually implement broadband policy in the country. The process of rationalisation of SOEs was still at an early stage, as already mentioned by the Deputy Minster and no final decision had been taken as yet. The only responsibility of Broadband Infraco at the moment is to preserve the value of the company so as to wait for the rationalisation process.
 

The Chairperson pointed out that the Minster had stated that the rationalisation process will take 3 years and the Committee could not wait for that time to resolve the current financial crisis at Broadband Infraco. Broadband Infraco had never been invited to the initial phase of SA Connect and the discussion of ICT policy review. The DG had already indicated that last year the Department had been made aware of the challenges that were to be inherited from Broadband Infraco but there was still a lack of urgency to seek to address those challenges. There should have been interaction between the Department and Broadband Infraco before coming to the Committee so as to come up with a unified voice on the way forward to address the challenges. It will be against the law for the Committee to approve an APP that had questions around funding meaning it is impossible to approve an unfunded mandate.

Mr Ngcobo agreed that the major issue was not on what the Department wants to do with Broadband Infraco going forward but how the entity will be assisted within the next five to twelve months. It is important to put it on record that the Board had drawn attention to the financial situation of Broadband Infraco since 2012 and this had been the result of the drop in revenue of 45% when the Neotel contract came to an end and the entity had managed to increase the number of its customers.

Ms L Maseko (ANC) added could not understand the rationale behind the omission of Broadband Infraco in the budget process considering that this was an important entity. It is important for the Committee to know whether there had been any justification for not inviting Broadband Infraco to the initial phase of SA Connect and the discussion of ICT policy review. It also seemed that the DG had not been part of the discussion with the NT on the possibility of getting funding for Broadband Infraco.
 

Ms Tsotetsi reiterated that the exclusion of Broadband Infraco in the deliberations and budget process was particularly concerning especially considering the mandate of the entity within SADC and putting South Africa on the map internationally. The presentation that had been provided by Broadband Infraco was contrary to the hope that had been provided by the Department and it is in the best interest of everyone to face the reality.

The Chairperson requested that the Department provide a formal written response to the Committee indicating specifically where to from here in terms of Broadband Infraco and clearly outlining how the current situation will be resolved. This will assist the Committee to take the decision on what to include in the budget report.

Mr Ngcobo indicated that Broadband Infraco had responded to the Minister on 26 February 2015 after the meeting on 19 February 2015 outlining all the financial problems that had been facing the entity.

Ms Kwele responded that Broadband Infraco was also working with DFA, Neotel and also Telkom, and DAF is currently the leader on the metro networks and there are engagements with Fibre Core as well. The entity did not have any firm agreement with the Western Cape regarding the existing 1 885 km of fibre in the region but the entity had indicated the availability of its network to various areas. The contract of Neotel ended in 2012 and the entity had an interim Memorandum of Understanding (MOU) and was currently on a master service agreement that had its third anniversary in April 2015. The ICT sector is a very competitive sector and is owned by private companies that could be present in the Committee and therefore the corporate plan of Broadband Infraco had to be marked “confidential”. Umzinyathi is an under service area licensee and probably one of the few players that currently exist and they are doubtful payers as they had failed to pay on time.
 

Ms Kwele responded that the DST had promised to pay the credit of R147 million by June 2015 and there is correspondence that Broadband Infraco will definitely get its money as this was a contractual agreement. All entities provide information to the Council of Scientific and Industrial Research (CSIR) as the leading agency but Broadband Infraco also does plotting based on the proximity of network. The entity ensures that its network is dimension based on the critical areas for capacity development. The 3 Anchor customer is Cell C and Broadband Infraco does not have an Electronic Service Licence (ECS) and therefore does not necessarily connect the facilities directly. The vacancy of the CFO should be seen in relation to the precarious situation of Broadband Infraco as it becomes difficult for any individual to join a company with no certainty of the future and the solution at the moment was to get an interim CFO. The funding for that position will also need to be looked at as the entity needs to be scrupulous in its expenditure.

Ms Pama responded that the revenue of Broadband Infraco had grown from R353 million in 2014/15 financial year to R469 million in 2015/16 and this had produced a 33% Year on Year (YOY) growth. All the financial projections had been thoroughly analysed and the key drivers of the increase in revenue is the full recognition of both SITA and Cell C in the current financial year as opposed to partial recognition in the previous financial year. Broadband Infraco was currently reviewing its prices and this had the potential to lead to an increase in the lease prices. It should be commended that the entity had a very healthy sales pipeline and was quite aware of where the demand is in terms of the network. Investment in capital formation is critical for preserving the assets which will necessitate increase in revenue and it will be important for Broadband Infraco to invest in CAPEX in order to be able to gain an increase in revenue nationally.
 

Broadband Infraco won contracts for both SITA and Cell C and this had contributed to the increase in Cost of Sales (COS) in 2014/15 financial year as the revenue associated with those two customers necessitated an increase in cost. Broadband Infraco had been investing the money received from various sources in order to reduce dependency on Neotel. It is important to highlight to the Committee that Broadband Infraco was in a cash containment process and was purely operating on incurring cost that will generate the top line and the payment of salaries is the biggest line of operation cost. There are currently 17 clients for Broadband Infraco and 3 Anchor customers (Cell C, SITA and Neotel).
 

Ms Kwele responded that Route 7 and Sutherland is not necessarily a favourable route in terms of maintenance and it is correct that it is the link for Square Kilometre Array (SKA) and it will be important to have the diversity of the route before 2016. Recently a company from Beaufort West connected with Broadband Infraco.
 

Mr Maharaj responded that all electronic equipment used by Broadband Infraco ran on battery back-up and also followed standards for the time period for the battery back-up depending on the battery power required. There are also generators for every region in case the battery runs out of power.

Ms Mopeli responded that engineering capability constitutes the largest component of staff compliment as 97 out of a total 176 staff member are in the engineering environment and this comes at a huge cost. Broadband Infraco has had a challenge in terms of attracting and retaining qualified engineers because iof scarcity in the country and globally. The average cost of qualified engineers is hovering at above R600 000 - R800 000 per annum and there is still a requirement to boost the level of application to required standards through training and development. The entity had resorted to develop internal capacity, as the cost of obtaining the engineers on a contractual basis was extremely costly and unsustainable.

Ms Sekese responded that the Department had consulted DPE during the finalisation of SA Connect on the role to be played for Broadband Infraco. Broadband Infraco had participated in the Committee on Infrastructure and Services about the discussions on ICT policy review and this was the Committee that was dealing with the rollout of broadband and open access policy regime.

Ms Kwele corrected that Broadband Infraco was not involved in the main Committee but rather Sub-Committee on Infrastructure and Services.
 

Ms Sekese responded that the omission of Broadband Infraco was after the request to the NT to raise funds had been unsuccessful.
 

The Chairperson once again reminded the Department to provide the Committee with a formal written response by 28 April, indicating specifically where to from here in terms of Broadband Infraco and clearly outlining how the current situation will be resolved. The Committee must also be provided with a letter of guarantee to NT.
 

Briefing by Sentech

Ms Rudzani Rasikhinya, Acting CEO, Sentech, indicated that the Corporate Plan was also submitted to NT as required in terms of section 52 of the Public Finance Management Act (PFMA) and Treasury Regulation 29. The vision of Sentech is to be a world-class provider of sustainable communications platform services in South Africa and the rest of the African Continent and the mission is to provide and operate communications network services that enable all broadcasting and content services to be accessible by all South Africans. The shareholder strategic goals (5) and strategic objectives (5.2) in the MTSF from 2015-2020 focused on shareholder priorities. Strategic goal 1 focused on enabling the maximisation of investment in the ICT sector and creating new competitive business opportunities for growth of the sector. Strategic objective 1.1 paid more attention to inclusive economic growth through the development and implementation of ICT policies, legislations and targets. The Sentech strategic plan alignment plans to provide input into the development of the policies, regulations and programmes that enhance the viability community broadcasting and the digital content sector based on operational insight into various regulatory and business interactions.
 

Strategic goal 2 aimed to ensure that ICT infrastructure is reliable, accessible, and affordable and secure to meet the needs of the country and its people. Strategic objective 2.1 aimed to increase broadband coverage and affordable access to Government services by 2020. The Sentech strategic plan is expected to actively participate in the DTPS development of the SA Connect implementation plan. Strategic goal 3 paid more attention to accelerating the socio-economic development of the country and facilitate the building of an inclusive information society through partnerships with business and civil society. Strategic objective 3.1 focuses on growth and development of Small Medium Micro Enterprises (SMMEs) to improve their sustainability through the use of ICT. The related Sentech strategic plan alignment will prioritise on implementing an enterprise development strategy that supports local ICT SMME procurement and develop the entrepreneurship capabilities for the content industry especially the digital sector.
 

Strategic objective 3.3 focuses on inclusive information society through partnerships with business, civil society and the three spheres of Government. The related Sentech strategic plan alignment will ensure that the company’s digital multimedia platform services are provided on open access principles to enable access to all stakeholders in the broadcasting and digital value-chain. Strategic goal 4 focuses on improving departmental performance and enhancing the role of ICT SOEs as the delivery arms of Government. Strategic objective 4.1 prioritises on efficient and effective oversight to SOEs and the related strategic plan alignment aims to ensure that Sentech has the appropriate corporate governance structures and policies to enable effective shareholder oversight.

Strategic goal 5 aims to contribute to the global ICT Agenda by prioritising Africa’s development and strategic objective 5.1 focuses on South Africa’s active participation in bilateral and other African International Forums to advance the SA ICT Agenda. The related strategic plan alignment aims to ensure that Sentech submissions on policy and regulatory development processes are informed by global benchmarks with particular focus on Africa and developmental states. Strategic objective 5.2 focuses on trade and investment for the ICT sector in the country and the strategic plan alignment aims to ensure that Sentech’s stakeholders engagement model supports shareholder’s Africa and global initiatives.

Sentech had been instrumental in expanding the public and commercial FM radio stations services and over the last 4 years between the end of 2010/11 and the third quarter of 2014/15. For public FM, the population coverage had increased by 1 329 490 and geographical coverage by 57 632 square km and for commercial FM, the population coverage had increased by 15 617 383 and geographic coverage by 100 055 square km. Between the end of 2010/11 to third quarter of 2014/15 the population coverage had increased by 4 692 254 and geographical coverage by 129 369 square km. Sentech has now completed all 178 migration sites which provide population coverage of 84.23%and a geographical coverage of 57.99%. The 15.77% of the population that will not be covered by DTT will be covered by the Direct-To Home (DTH) satellite gap filler solution, which is complete. Sentech had completed a total of 178 migration sites throughout the country and the most of those sites being in the Western Cape.

 

Sentech operates approximately 330 terrestrial distribution sites and satellite platforms where the networks are operated on a 24-hour 7 days a week basis. The networks are continually maintained to sustain reliability, as well as to ensure the availability of services and long-term operations continuity. The company’s revenue increased by 16% from R794 million in 2010/11 financial year to R925 million in 2013/14 resulting, after considerations of costs and other items, in an increase of 48% in shareholder entity from R745 million to R1.1billion for the same period. Since 2010/11 Sentech had been a definite improvement in corporate governance, with significant decrease in irregular expenditure and material audit findings.

 

In the short to medium term, Sentech had to contend with and respond to a challenging external environment informed by policy environment, regulatory environment and entertainment and media market outlook. In the 2014 calendar year the regulatory continued to make significant progress in enabling diversity of voice and programming in the radio market, largely the licensing of new commercial radio services to FM and MW. There are still a number of regulatory challenges for the radio market remains as the radio broadcasting industry and seeks to drive public discourse on digital radio Digital Audio Broadcasting (DAB+) and Digital Radio Mondiale (DRM). The Television market regulatory regime remains a challenge for all the industry players, including Sentech as uncertainty on the commercial launch of DTT services persist. Despite the on-going policy vacuum on DTT STB control system, there has been movement in the regulatory framework in 2014.

 

Broadcasting Signal Distribution Services will remain central to the operational activities of Sentech in the 2016 financial year and it is projected that this area will contribute 70% to the company’s total revenue of R847 million in the 2015/16 financial year. The rollout of digital services included activities related to DTT rollout, Digital-to-Digital Migration and the rollout of future multiplexes and digital radio trials. The company had completed a phased Analogue Switch-Off (ASO) plan that considers and prioritises the requirements of SKA area in the Northern Cape. This also considers geographies that may be affected if neighbouring countries were to start phasing out their analogue services and operating their DTT services under International Telecommunication Union (ITU) protections. Sentech currently operates a total of 620 transmitter network sites provided South African Broadcast Corporation (SABC), ETV, M-net and community broadcasters Television broadcasting services.

 

During the past three years Sentech has focused on maintaining the Analogue network in order to be able to meet the SLA terrestrial television platform performance targets of 99.7% availability across the network. FM radio is the second largest contributor to revenue of the company and Sentech operates a total of 823 transmitter network sites to provide FM radio signal distribution services to the public, commercial and community broadcasters using radio frequency spectrum between 88 Mhz and 108 Mhz. This transmitter network supports 18 Public Radio Services, 18 Commercial Radio Services and 89 Community Radio Services.

 

Mr Kganki Matabane, Chief Operating Officer (COO), Sentech, indicated that the organisation will focus on a number of strategic programmes and projects for the MTEF and these included organisational efficiency and effectiveness. The Board had approved a new operating structure with 4 operating business units and Sentech will combine various strategic initiatives into strategic initiatives into a strategic programme that deals specifically with the transforming of the company. There is also a focus on human capital strategy implementation as the company moves towards building the new organisation, the next phase of Project Sakhumntu will focus on implementing programs that are aimed at embedding culture of excellence ad centricity. Sentech also plans to focus on enterprise and supplier development and this is to advance supplier and customer development and the inclusion in the ICT
 

Ms Rasikhinya said that Sentech is projecting an EBIT of R195.7 million and earnings after Tax of R155.9 million for the 2016 financial, an earnings decrease of 5% and 7% respectively compared to the year-end forecast for the 2015 financial year. The projected revenues for 2015/16 financial year are based on the analysis of the market environment and estimated earnings to be derived from the new licensees. The estimates for 2016/17 are based on figures of projected 2015 financial year increased by the October Consumer Price Index (CPI) of 5.9% and dual elimination will only be funded for 2016/17 financial year.

Prof Mkhize wanted to thank the leadership of Sentech as the presentation clarified the entity’s mandate as most of the targets had been achieved. The presentation also spoke of challenges that were similar to other SOEs that had presented to the Committee. Sentech is one of the entities that seemed to be prepared for the delivery of digital migration but there is a legal challenge at the moment where one of the broadcasters had gone to court to challenge some of the Department’s policies and this might be a hindrance to Sentech in the delivery of ASO.

Discussion

Mr Mackenzie welcomed the presentation and wanted to congratulate the former CEO, Dr Mohapi on the sterling work on achieving a clean audit for Sentech. It is commendable and innovative to see that Sentech managed to generate funding for CAPEX from internal resources as it shown on the MTEF that out of R831 million to be generated for CAPEX only R81 million will be from external funding. It is also important for the Committee to know about any possible funders for the R81 million for CAPEX and why it is necessary to borrow externally. Sentech should also be congratulated for quickly resolving the labour unrest that took place last year. What steps had been taken to prevent any recurrence of labour unrest at Sentech?
 

Mr Mackenzie commended that the presentation on Key Performance Indicators (KPI) had been broken down into quarterly performance targets as this gives a clear indicator on what is expected to be done and gives the Members an opportunity to effectively monitor the progress that had been made. He requested Sentech to ensure that the presentation is simplified to avoid jargon that might exclude a certain people.

Ms Tsotetsi asked whether there were mitigating strategies to deal with the escalating costs in order to reach the target. It is important for the Committee to get more information on the kind of training and the credibility of the service provider offering training for Sentech as it had been reported that the training had not been officially recognised by South African Qualification Authority (SAQA). What the strategy is in place to deal with performance evaluation within the Board given the problems of low morale, lack of motivation and capacity?

Ms Shinn asked about plans to deal with the serious challenge of a yet to be commercialised Digital Terrestrial Network (DTN) as this is operating as an unfunded mandate for the last two years. What is the cumulative cost of this unfunded mandate to the entity on an annual basis? She asked whether there was a time frame for the funding of dual elimination as it was indicated that it will be funded for 2016/17 financial year. When will the entity expect to spend the funding for dual elimination? What will be the plan for dual elimination going forward considering the delays? What had been the progress on the delays in issuing of permanent licenses to the 4 new pay TV stations and the estimated cost of these delays? What is the reason for the exclusion of DTT from the Digital Media Services (DMS)?
 

Ms Kilian commented that it was good to see an entity that was going on a very poor trajectory to have turned the situation and moved to a completely different path and this again had highlighted the importance of planning, risk analysis and the kind of interventions to be implemented. The ageing analogue TV infrastructure is linked to further delays on ASO and this had been creating significant expenditures for certain entities. To what extent is Sentech indicating to the shareholder about the implications of the additional expenditure for Sentech and other entities. What is the plan in place for Sentech to deal with load shedding and the implications of power outage on the operation of the company? What is Sentech doing to attract the right skills going forward and to ensure that certain accredited development programmes are in place so that employees could be part of life-long learning? It is commendable that Sentech preferred that the information about suspected fraud and corruption be submitted in writing although there is necessary protection on an individual and recommended that other institutions should also follow a similar plan.

Ms Maseko requested more information on the 330 terrestrial distribution sites that had been operating in three regions. She also requested detailed information on the reward and recognition strategy and to be assured that the rewards and bonuses are equivalent to the performance of the entity. What are the main reasons for the possible closure of Short-Wave Services? What measures that had been put in place to prevent crime and providing emergency service? She wondered whether the entity had factored the funding for the Committee to perform oversight visits in the current corporate plan. When will the position of the CEO be filled on a full-time basis?

Ms Ndongeni wanted to know the criteria that had been used to determine the qualification of students as beneficiaries of bursaries.

The Chairperson said a number of issues had been raised by Members but wanted to emphasis the lack of funding for the Committee to perform oversight visits. It was also apparent that Project Sakhumntu was a good initiative but there were issues of staff at Sentech who could not see value in the project. She requested more information on a number of issues and these included labour unrest about the 13th cheque, recognition of equal pay for equal work, certain staff members that had been required to produce a “must certificate” in order to receive a recognition. There had also been complaints about some staff members who had been given the same job but not the same tools of trade. She recommended Sentech allocate budget per programme but rather per KPI so that the Committee could be able to properly monitor the delivery and expenditure.
 

The Chairperson expressed concern about the infrastructure of Short-Wave sites and asked whether it will be used for other purposes. The Committee is also particularly concerned about the court case that had been lodged by ETV as this might be a hindrance in the delivery of DTT. What are the cost implications for the refurbishment of the existing analogue infrastructure? It is a concern that Sentech had not implemented the Employment Equity Forum as this was an important legislation to redress the imbalances of the past. She suggested that the Committee call the Independent Communications Authority of South Africa (ICASA) and other entities to deal with regulatory issues as this had been a recurring problem to all the entities. It is important for the Committee to appreciate the legacy that had been left by the former CEO and hoped that the team that remained will carry on from his legacy and continue to stabilise the entity.
 

Mr Magatho Mello, Board Chairperson, Sentech, responded that Sentech would be looking at various issues of labour including the 13thcheque on the Board meeting scheduled for 29 April. Action would be taken to simplify the language in the presentations and other public documents so as to avoid the use of technical terms. Most of the training that had been offered by Sentech had been developed internally and the entity was now in a process of getting the internally developed training certified by SAQA. There is also a balancing view that staff members do need to be offered comprehensive training in order to improve capacity. Sentech had been looking at strategies to holistically improve the morale of staff members so as to improve on overall efficiency as the issues that had been pointed out were mainly on fundamental ethos and culture of the organisation.
 

Mr Mello also acknowledged the stellar work that had been done by the former CEO in the organisation and was confident that the team that had remained behind would carry on from his legacy to stabilise the entity. Sentech will have to go through to all the rigorous process for the appointment of the new CEO and it is expected that the new CEO will be appointed by September.

Ms Rasikhinya responded that the R81 million for CAPEX had already been on the books of Sentech and was coming from NT specifically for disaster recovery and finishing up DTT in terms of the full-green field sites. The funding had not been borrowed and external funding in that context referred to grant funding. Sentech had done a zero-based budgeting and wanted to ensure that the operating cost that had been included in the corporate plan is a true reflection of what might happen. The majority of 22% from the energy costs is the tariff that will come through Eskom and the different municipalities. The organisation had taken an approach to reduce non-essential costs like travelling and subsistence and focus is on the core business. It is important for the organisation to balance between the public service mandate and being commercial as the substantial increase in revenue might affect the community broadcasters and the focus was now on increasing revenue by the CPI inflation. The situation in terms of financial sustainability will change in the next phase of corporate planning as the organisation will develop the necessary digital technological solutions in order to attract more revenue.
 

Ms Rasikhinya replied that training offered by Sentech had been developed internally and is specifically aimed for career progression so that technical people, especially in the broadcasting sector, could move up the ranks of the organisation. Sentech had collaborated with two tertiary institutions so as to assist in the accreditation process from SAQA. The NT had appropriated R95 million via the Department to Sentech however there will be no money that will be allocated for two subsequent years. Any further delays in the allocation of the R95 million for dual elimination will add problems to the existing infrastructure that had been built since 2008. Sentech had not calculated the cost for the replacement of the infrastructure for dual elimination as most of the equipment still has a lifespan of 7-10 years and any delays means the organisation will start incurring further costs.

There are two dual eliminations, one before the announcement of ASO period, which is the one the NT had been funding for the past years when Sentech started with the rollout but was not funded for 2017/18 financial year. It is difficult to determine the time frame for the dual elimination until the announcement of ASO. The cost of dual elimination is R95 million in the current financial year and expected to increase to R130 million inclusive of VAT. Sentech had looked at ways to ensure that terrestrial television whether analogue or DTT is packed it into one of the business unit meaning the Broadcasting Distribution Services and this is the reason why DTT is not part of the digital media services. The organisation had been spending money to replace the aging analogue TV transmitters as the majority of the infrastructure had been debilitated. The Committee could be provided with a written response about the figures of the money that had been spent replacing the aging analogue TV transmitters.

Sentech had introduced the term called “relationship by objective” where the organisation had met labour unions and this had been facilitated by an external person. The purpose of this was to find the root cause of the breakdown in relationship between Sentech, labour unions and the employees. The outcome of this was a plan that had been signed by all parties involved in ways to deal with the broken relationship between the representatives. Sentech had also developed a report that had been forwarded to the Department so as to consolidate the responses for all the different entities. Sentech had agreed with the labour unions on a number of conceptual matters and the organisation had submitted its proposal in December regarding the 13th cheque. The issue of the 13th cheque will now be taken to the Nominations and Remunerations Committee. Sentech had reviewed almost all the human capital policies and had been taken to the Board meeting and there had been no agreement regarding the 13th cheque and this is why the matter had been taken to the Nominations and Remunerations Committee. Sentech has not had any problems regarding Employment Equity Forum and how the meetings had been conducted.

Mr Matabane responded that the racial and gender breakdown of region representatives shows that regions are being led by one coloured male and two black males and there are 15 operators underneath them and there is only one black female out of the 15 operators. This needs to be viewed in the context of historical disadvantage as black people were not allowed to do maths and science.
 

The Chairperson warned that apartheid could not be used as an excuse for lack of transformation in important institutions considering that the country has had democracy for 21 years.
 

Mr Matabane responded that the main reason that Short Wave had not been doing well is because of an aging technology and it is expensive to maintain the technology. Sentech had introduced a short-term plan to deal with load shedding and this included having a proper relationship with Eskom for the schedule for the rollout of blackouts so as to inform the customers. The organisation had been busy with the long-term plan to deal with the blackouts in terms of budgeting for diesel in the utilisation of generators as an alternative source of power. Sentech was also looking at using solar energy for smaller sites and by the end of the first quarter in the current financial year and the long-term will address the issue of efficiency and reliability.

The Chairperson was concerned that the utilisation of consultancy had gone up by 19% as the Government had taken the decision to reduce the consultancy fees and prioritise on building internal capacity. It is absurd that Sentech had indicated that there would be reliance on consultancy for the realignment of corporate strategy as there is capacity internally to perform the realignment of corporate strategy. The only reasonable increase in the utilisation of consultancy should be 5% of the budget and not more and Sentech would need to revise a plan to reduce the cost of consultancy. The redesign of the organisation should be in line with the SOEs rationalisation.
 

Ms Tsotetsi wanted to know if there was a plan and capacity in place to deal with the possibility of load shedding taking longer than had anticipated. She requested the breakdown of 18 Public Radio Services, 18 Commercial Radio Services and 89 Community Radio Services in terms of location for the purpose of oversight visit. She hoped that the presentation on HR would be consistent to what the Members will hear during the oversight visit. It is important for the Committee to also be provided with a breakdown of bursary beneficiaries in terms of location and the conditions for qualification.

 

Mr Mackenzie mentioned that the fact that Sentech was in a highly specialised environment it therefore sometimes required to utilise external capacity. It is important to know about the number of licenses that had been issued in relation to the expansion of community FM radios.

 

The Chairperson corrected that ICASA and not Sentech issue the licenses and therefore the question should be directed to ICASA.

 

Ms Kilian wanted clarity on the restructuring salary package of the organisation in relation to the on-going conflict regarding the demand for a 13th cheque. She wondered whether the demand for the 13th cheque was not due to lack of proper communication with workers. What did Sentech foresee in terms of the demand for the 13th cheque?

 

The Chairperson wanted to place on record that the Committee does not have a stand on whether Sentech pays the 13th cheque or not as this is the matter of the organisation.

 

Ms Rasikhinya responded that indeed the increase in consultancy was unacceptable and there is money that had been set aside for the organisational redesign. The intention for the reorganisation of Sentech was to ensure that there is accountability in terms of who is responsible for the type of services offered. The law requires Sentech to put aside 3% of the net profit after tax for enterprise and supplier development. Sentech had realised that there could had been better communication t between the organisation, employees and the unions and had developed an engagement plan where each and every Executive must meet with their own unit throughout the financial year. Sentech had discovered that some of those who had been offered the bursaries were doing courses that were completely irrelevant to the organisation. There will be proper criteria that would be used for the allocation of bursaries. It is often difficult to develop the required skills when some of employees had not signed the performance agreement.

 

Mr Matabane responded that most of the sites of Sentech have generators and most of the generators could run for more than 24 hours, which gives enough for the organisation to send the technicians to the sites to do the refill of diesel and maintenance.

 

Mr Mello responded the organisation would only determine after the Board meeting on whether the organisational redesign would be in line with the SOE rationalisation.

 

Ms Rasikhinya responded that the union wanted a guaranteed 13th cheque meaning over and above and not as part of the salary and the organisation had been engaging with union to look at the affordability of the 13th cheque.

 

The Chairperson thanked Sentech for its presentation and requested SITA to make the last presentation.

 

Briefing by the State Information Technology Service Agency (SITA)

 

Dr Setumo Mohapi, CEO, SITA, stated that SITA has developed a transformation strategy to make the agency work. The SITA Annual Performance Plan (APP) is aligned to SITA’s 2014-2019 strategic plan. Accountability and good governance are at the core of SITA’s operations. Restoring customers confidence in the agency is one of our key strategic drivers, under the general banner of customer centricity. SITA continues to strive to improve services delivered to customers so that the depth and breadth of operational grows and ultimately value for government and citizens is enhanced. Transformation and modernisation of our procurement processes is vital. Numerous critical flagship projects such as e-Government and e-Cabinet are gaining traction. SITA’s bandwidth had been upgraded by 43% resulting in significant cost saving to customers. SITA’S core network infrastructure is being upgraded and refreshed to deliver further benefits to customers and enable e-Government rollout.

 

Dr Mohapi took the Committee through the SITA strategic priorities and these included:

• Procure goods and services at a lower cost than any single department could on their own, within similar time frames

• Deliver to customers through an efficient and service-oriented procurement process

• Leverage economies of scale to provide core IT services (e.g. infrastructure & security) at market-competitive rates and productivity levels

• Provide advisory services and architecture standards and ICT governance as well as transversal capabilities

• Act as a thought-leader to customers to proactively identify and deliver on technology needs

• Be the driving force behind the continued digitisation of public sector resources in South Africa

• Set and drive the e-Government agenda for the country and drive the modernization of the public sector

• Build an effective and robust information Security environment within the organisation

• Act as a leading Agency in defending South African Government information Assets (Securing South African Cyber Space)

• Integrate and automate finance and procurement process

• Develop transparency on costs of services provided

• Develop and implement customer engagement model, implement measures to reach desired state

 

Programme 1 focused on procurement and the strategic objective was to review and improve Supply Chain Management (SCM) turnaround time performance. The annual target aimed for 85% of tender awards completed within the targeted turnaround time and 80%of tender contracting completed within the targeted turnaround time of 30 Days. Sentech also aimed to prioritise on driving transformation agenda and the annual target was to ensure that 7% of ICT acquisitions spend through SMME entities. Programme 2 focused on service delivery and the strategic objective was to enhance efficiency of Government business processes. The annual targets aimed to ensure that 15 e-Services would be implemented for 2015/16 financial year, 50% of national Government Departments trained on e-Cabinet.

Programme 3 paid more attention to financial sustainability and the strategic objectives was to achieve revenue growth and achieve sound financial management and the annual target was to increase the revenue to R5 390 million (8% of forecast revenue for 2014/15 of R4  692 million and achieve profitability of 3% surplus after tax. Programme 4 focused on the organisation and the strategic objectives were to build a performing organisation and the annual target was to see an improvement of 10% on High Performing Organisation (HPO) baseline on all dimensions. Programme 5 prioritised on governance and administration and the strategic objective was focused on establishing an effective governance practice and the annual target was to ensure that there is compliance with Internal Control Framework.

Mr Jobo Moshesh, CFO, SITA, indicated that SITA was looking for possible revenue of R5 billion for the coming financial year and the budget had been developed in a manner in which it will cost less for the organisation to provide services to the public sector. SITA had set aside 2% of the revenue for research and development, as this was critical important in order for the organisation to be able to grow and become innovative. SITA was looking to increase either asset base or modernise the existing asset base in order in order to move to areas such as e-Services and providing the latest equipment and providing data security. It is important for SITA to maintain the cash flow that will allow the delivery of the services since the organisation is self-funded. SITA

Dr Mohapi concluded that retaining our customers and rebuilding trust amongst SITA’s customer base remains a key objective for the agency. SITA‘s core services need improvement; the infrastructure needs refreshing to ensure that government’s data is securely stored. The organisation is addressing procurement processes and segmenting procurement in a way that allows the agency to respond better, faster and with improved transparency. SITA’s aspiration is to be the lead ICT agency for government hence the focused drive on addressing cultural issues, accountability, motivation, control and coordination. It is important to highlight that out of the 1 127 employees previously reported as displaced only 16 have not been placed and their matters will be resolved by end March 2015. A more focused and condensed balance scorecard ensures that SITA’s focus on improving performance is more achievable.

Discussion

Ms Shinn requested the Committee be provided with information on the targets of the previous financial year so as to make comparisons. What is the current status of the tender awards that had been completed within the targeted turnaround time? She also asked whether the target of making 70% of the public facing services on online accessibility by 2019 was achievable. There had been an increase emphasis on cyber security and yet there had been no mention of a comprehensive strategy in place to deal with this threat. The greatest challenge to any organisation is lack of skilled people to deal with cyber threat and SITA did not mention any plan to boost skills to hunt specific skilled people to deal with cyber threat, as the possible hacking of SITA database might be harmful to the country.

Ms Shinn asked whether there had been any progress in the drafting of the Cyber Security Bill and whether there had been any public participation to this Bill. What is the strategy in place to deal with the loss of scarce skills? She urged that there should be public participation in the drafting of any Bill especially on the issue of cyber security.

Mr Mackenzie said it is disappointing for an organisation like SITA to produce a disgraceful document to the Committee as the presentation had been cut and paste from last year’s presentation. The picture of Ms Lindiwe Sisulu on the presentation had no place in the Committee as this was the Minster of Human Settlements and this again spoke to the laziness and lack of preparation for the presentation. It is a complete waste of time to interrogate the presented document as it showed that nothing had changed from the strategic plan and APP of the previous financial year. It is totally unacceptable to find cases where in the addendum, the sources of reference had not been mentioned or found as this summed up the state of SITA and the new CEO had a mountain to climb in terms of generally improving the organisation.

 

Ms Maseko asked about the HR issues specifically the report on the 1 100 employees that had been reported as displaced and the 16 that had been reinstated. What measures in place to deal with cyber security especially the legal aspect of cyber crime? She asked whether those who are in the SCM had been vetted, as this was where most problems emanated from and the AG had insisted on the matter. It is important to know whether SITA had any collaboration with the Department of Science and Technology (DST) on the Research and Development (R&D). What is the reason for the continuing cases where the President had been signing proclamation?

 

Ms Tsotetsi also added that the matter of cyber security was a matter of concern especially for an organisation like SITA and wondered whether there was capacity in place to deal with the matter. She asked about the financial implication of the proposed new entity to drive procurement best practices and whether this will consider the pool of staff within SITA or a complete new staff. It is also important to be mindful of the rigorous process in the amendment of the legislation for the formulation on a new entity. What will be the benchmark to see if SITA had procured goods at lower cost than any other single Department?

 

Ms Kilian also expressed dismay at the shoddiness of the document that had been presented to the Committee and this matter must not been seen as frivolous. This is also indicative of an organisation that is in serious crisis. She also expressed surprise about the lack of source of reference in the addendum and the picture of Ms Sisulu and it is quite clear that the presentation had been cut and paste with few additions. She suggested that the presented document on the strategic plan and APP should be withdrawn, as it will be an embarrassment to the Committee. It is important for the Committee to get clarity on the two deputy CEOs as the Committee had not been aware of the amendment to create two subsidiaries as this seemed to suggest that the entity that had been creating its own legislative mandate as it moves on. She also felt that any further interrogation of the presented document was a waste of time.

 

The Chairperson wondered whether there is quality assurance processes at SITA in light of the shoddy document that had been presented before the Committee. It is indeed concerning for an organisation to present information to the Committee with no reference as sources were identified as “reference not found”. The role of the Committee is to comply with what had been ordered by the President, Minister of Finance and the Minister of the Department. She felt that the use of the pictures of the Minister to the presented document is absolutely unprofessional and as the Minster is not directly involved in the institution. The Committee had previously turned back the presentation by SITA because every slide had a picture of the Minister with the quotations. The presentation is exactly the same as the previous years and the only thing that had changed is the structure of the organisation.

 

The Chairperson also wanted to know about the change of structure of the organisation, as the changes had not been presented to Parliament. She requested SITA to provide a written response on how to deal with the two deputy CEOs as the information shows that they had not been properly appointed. The issue of vetting is critical important in order to root out corruption and non-compliance in the procurement procedures.

 

Prof Mkhize agreed with the comments and concerns that had been flagged and hoped that the new CEO will be able to bring improvements to the operation of the organisation. She hoped that the new CEO would also focus on identified risks especially on the integrity in procurement process as the cancellation of tenders had created the impression of corruption and maladministration. The delay in the procurement process also affects the audit processes of relevant Departments. SITA is indeed at the centre of Government administration and therefore there is need for a concerted effort to strengthen the skilling aspect across the entire Departments. This is to ensure that people who are in the area of technology are properly skilled and competent to even monitor the technology to plan properly.

Mr Jerry Vilakazi, Chairperson of the SITA, apologised to the Chairperson and the Members of the Committee on behalf of the Board on the poor quality of the document that had been produced before the Committee. The new CEO will help the organisation to ensure that there is quality assurance in the document to be produced to Parliament. There is a protocol around the use of the pictures of the Ministers or anyone in the documents to be presented in Parliament. He admitted that lack of source of references on a number of information was an embarrassment to the organisation and this is something that needs to be rectified. SITA will engage with the Minster around the structure of the organisation. There had been a lot of discussions within the institution on the new structure of the organisation as it comprised of two deputy CEOs. It is indeed important to focus on the decision by Government to focus on the centralisation of the procurement process and the new role to be played by SITA in that context.

Mr Vilakazi responded that there had been a meeting with the new CEO on how to deal with the issue of the cancellation of tender process and this is problem is linked to lack of proper specification of tender process on the desired technical competency that is required. There will be further cancellation of the tenders especially since there had been an arrival of a new CEO. The second biggest challenge is lack of response in the market on advertised tender and this again points to ambiguousness in the specification of required service providers.

Dr Mohapi responded that SITA had submitted three documents; the first one is the strategic document 2014-19 that had been done and tabled last year to the then Minister of Public Service and Administration, the late Mr Collins Chabane. The second document had been done very late as the Minister and the Department had been pushing for the revision of the strategic document for the inclusion of SA Connect, SOE rationalisation, e-Government and cyber security.

The Chairperson said perhaps the Minister should not have tabled the strategic plan and he should have asked for postponement until all other issues had been resolved. She suggested the Committee should note the submitted strategic plan but not adopt it so as to wait for SITA to submit a revised strategic plan that is properly written with quality assurance.

It was clear that the meeting needed more time as there were many issues that were still to be discussed and responded to by the Department. The Committee would allow SITA a month to submit a properly written strategic plan and other outstanding information from the entities that had presented today. There were a number of challenges that needed to be addressed as highlighted earlier especially on compliance to transformation, accountability and transparency and the increase in the utilisation of consultancy. She thanked everyone who had been present in meeting particularly the Minister for providing responses on number of issues that required clarity.

 

The meeting was adjourned.