SA Weather Service: Tariff Regulation; Former CEO contract termination

Meeting report

The Chairperson said the Committee was supposed to deliberate on two issues. The first was a detailed report from the South African Weather Service (SAWS) board on the reasons why Parliament should not demand that its members be responsible to pay in their individual capacity for the fruitless and wasteful expenditure (eight months’ salary) incurred relating to the termination of the contract of the former SAWS’ chief executive officer (CEO). The second would be an informative presentation by the Regulating Committee for Meteorological Services (RCMS) on the process and methodology of generating aviation tariffs.

There were two letters in connection with the first issue. One was from the Minister, and the second from the board of SAWS. The board of SAWS had been expected to present the report before the end of May 2017, but had written to request an extension that would enable them to present the report to the Portfolio Committee (PC) after a board meeting scheduled for 31 May 2017. Afterwards, the board had sent a letter that explained that the decision to relieve the CEO of her duty had been in the best interests of SAWS, and was in accordance with the SAWS Act No. 8 of 2001. The board was in concurrence with the Minister in releasing the former CEO, and did not believe that it had been wasteful expenditure, but that it had acted in the interests of SAWS. He said the report would be sent through the office of the Minister.

The letter from the Minister, dated 5 June 2017, stated that she was currently in New York for the United Nations Oceans conference and was unable to attend the PC meeting, and would like to request that the matter be deferred to 13 June, when she would be available and would attend the meeting.

The Chairperson requested that Members should comment on the two letters received from both the board and the Minister. However, he was not happy with the request to postpone because the request for the report had been sent about a month ago. The board had asked for an extension so that they could meet, but afterwards there had been no report, but a referral to the Minister.

Mr T Hadebe (DA) said the board had been given ample time but had failed to present a report. He said that this was the second time for such occurrence. He found it strange that the board was disregarding the PC’s call for a report. He requested that they should be summoned to appear before the Committee. He said the Minister was accountable to the Portfolio Committee on Environment.

Ms J Edwards (DA) said the board had asked for an extension for the submission of the report and at short notice, and the Committee had referred the matter to the Minister.

Mr R Purdon (DA) said the report had been requested from the board and he did not understand why the Minister had to respond to it.

Mr Hadebe said the board had been requested to produce a report, and not the Minister. The board was not showing respect to the PC in this regard. It was obligatory for the board to respond to the request of the PC. The Committee had been treated with disdain, and the apology and request for extension were therefore rejected. He said the PC must take a tough stand on this development.

The Chairperson said the board members were not available to explain, and though the CEO was around, he was new. He said Ms Judy Beaumont, Deputy Director General (DDG): DEA represented the board. He asked if she would be able to explain the situation to the PC.

Mr Hadebe said the issue was made worse by the fact that the Deputy Minister was present at the PC meeting, and should have presented the report.

The Chairperson said although the Deputy Minister was available, but the report was not available. He asked Ms Beaumont if the issue had been discussed at the meeting, and why the board had requested an extension.

Ms Judy Beaumont said she could not provide clarity on the matter, as it had been discussed between the chairperson of the board and the Minister.

The Chairperson asked if the issue had been discussed at the board meeting.

Ms Beaumont said the issue had not been discussed.

Ms Barbara Thomson, Deputy Minister: DEA, said she did not have the report and had not seen it.

Mr Purdon said it was not acceptable that the board had asked for an extension but had not discussed the issue at the board meeting, as stated in their request.

The Chairperson said it had not been the right attitude when the report of the Committee was not presented to the Board. It was unacceptable that the board thought it had no obligation to be accountable to the Committee. The request for the report had met with a similar attitude in the past, and had been postponed several times.

Ms Beaumont said the decision on how to respond had been discussed before the board meeting. There had been no detailed discussion at the board, other than the information that the Minister would respond.

The Chairperson said the Minister and the board would need to give their reports separately, because the final decision to dismiss the CEO lay with the board. The decision of the board had led to a situation of financial waste, since the Minister was not at the meeting. The PC would tell the board that it took exception to the disregard, as all members of the board had to come to the meeting with the PC to clarify their roles in the dismissal process, because earlier reports by the board had indicated the decision was not unanimous. The stand of the PC would be communicated to the board in writing.

Regulating Committee for Meteorological Services (RCMS): Aviation tariffs

The Chairperson said that during the presentation of the Annual Performance Plan (APP), there had been questions on aviation tariffs. There was a need to have an understanding on tariffs, and the presentation by RCMS would be an informative exercise.

Mr Abel Sakhau, Chairperson: RCMS, introduced his team.

The Chairperson said that looking at the report, he could not find the information on the composition of the RCMS and the roles of its members.

Mr Sakhau said the he was a bio-environmentalist specialising in climate change, and the RCMS was backed by laws to ensure that decisions made as regulators were within the scope of the legislation, with financial experts and technical support for aviation modeling,

The Chairperson said he had expected the basic issues, such as the names of the regulators and their responsibilities

Mr Sakhau said the members of the committee were selected by the Minister of Environmental Affairs through nominations by the public, and served a three-year term.

The Chairperson said he should send details regarding the members of the RCMS to the PC for information purposes.

Mr Sakhau said that due to the problems associated with monopoly, the RCMS had been created in 2001 to protect the interests of the aviation industry, with the purpose of determining a methodology for aviation tariffs and revenue and the maintenance of an annual calendar of the regulatory process. The name of the committee was the Regulating Committee for Meteorological Services (RCMS) and not the South African Weather Services (SAWS) Regulating Committee, which clarified the vision of the Committee.

The RCMS used the rate of return (RoR) regulatory framework to determine SAWS’s revenue from the provision of aviation services. The needed revenue calculated by the use of RoR was recovered by charging the aviation companies that used the services of SAWS, based on the weight of the aircraft – where only aircraft weighing 2 500kg and above, used for commercial purposes were charged – and the distance covered. The tariff was based on the Eurocontrol Formula, and was calculated by dividing the required revenue, using the RoR, with the transaction service units.

He explained that the differences that occurred between the revenue and the expenditure -- surplus or shortfalls -- were retrieved using a correction factor. While the service units were calculated by using the Eurocontrol Formula, it used the Capital Asset Pricing Model (CAPM) to determine a reasonable return on infrastructure investment. Although the SAWS and RCMS used one formula for the calculation of the tariff, they often arrived at different tariffs. This was basically because of the assumptions. RCMS used pure principles in the process of calculating the tariffs, while SAWS used assumptions. RCMS challenged the assumptions of SAWS, and where there were no sufficient motivations to support such assumptions, they were overturned by the regulators.

The history of tariffs in the last three years showed that the projections of RCMS were often closer to the actual occurrences. However, the process of recovery for over-expenditure or under-expenditure took two years, because it could be initiated only at the end of the financial year after the audited financial statements had been finalised. Over the past three years, aviation and SAWS had often disagreed and needed the intervention of the regulator to make recommendations to the Minister on such issues.

Discussion

The Chairperson asked if the RCMS had been submitting its annual report to the Committee as required by the legislation.

Mr Sakhau confirmed that it had been submitting its annual report.

Ms H Nyambi (ANC) said asked why only aircraft weighing 2 500kg and above were liable for paying tariffs to SAWS and smaller aircraft were not charged. If smaller aircraft did not use the services of SAWS, how was SAWS sure that these smaller aircraft were not used for commercial purposes? She asked if the tariffs paid to SAWS by aviation in South Africa were similar to those that were paid to SAWS counterparts in other countries.

Mr Purdon asked if the operating expenditure of SAWS, as included in the calculation of the tariffs, were scrutinised to ensure they did not include luxuries.

Mr Mabilo asked RCMS to explain implications of the massive tariff reduction of about 35.5%, and asked the RCMS to state the concerns of the aviation industry.

The Chairperson asked who provided the administrative support to the RCMS.

RCMS’s response

Mr Abel Sakhau said the Department of Environmental Affairs provided administrative support for the RCMS.

He said SAWS needed to determine the cost of any service delivered to general aviation, and the outcome of this process was not yet available. A methodology had not yet been put in place for the calculation of service charges for smaller aircraft, though there was an awareness that some of them might be used for commercial purposes. There had been negotiations on this in the past, but they had collapsed. It was an area of challenge and it was up to SAWS to resolve it.

The charges of SAWS and SAWS’s counterparts internationally should be relatively similar using the same formula, but a disparity might arise from the revenue base of the individual country being considered.

The aviation industry, represented by Airline Association of South Africa (AASA) and the Board of Airline Representatives of South Africa (BARSA), scrutinised the expenditures of SAWS to such an extent that salary increases became a problem if they were above the inflation rate. Also, only the infrastructure costs directly related to the delivery of service were recoverable.

The reason for the 35.5% reduction in tariffs had been because SAWS had over-recovered its expenditure. The concerns of aviation had been the monopoly of household expenses by SAWS, and aviation always demanded a zero percent increment.

The Chairperson asked if there any concerns in terms of service delivery to aviation.

Mr Sakhau said the aviation stakeholders held meetings where service delivery issues were discussed.

Mr Jerry Lengoasa, Chief Executive Officer: RCMS said aviation safety was crucial, and the aviation industry contributed 35% of SAWs revenue in the current year’s budget, making it a major client. There had been incidences in the past where specific products were not accessible to aviation industry, but these issues had been resolved within expected time, and the SAWS service was one of the best in the world.

The Chairperson said although he did not know all the members of the RCMS committee, he would like see that it was equally gender represented.

The meeting was adjourned.