Appropriation Bill & Eskom Debt Relief Bill: National Treasury briefing

Meeting report

The Chairperson welcomed the Select Committee on Appropriations to a meeting with National Treasury (NT) to consider the 2023 Appropriation Bill and the Eskom Debt Relief Bill.

2023 Appropriation Bill

2023 Budget

Ms Gcobisa Magazi, Director: Public Finance, NT, said the 2023 Budget retained the fiscal consolidation strategy. Overall, the gross domestic product (GDP) growth was expected to increase by 0.9% in real terms in 2023. NT expected growth of 1.8% by 2025.

NT estimated that the total consolidated government spending would amount to over R7 trillion in the next three years, with 51% of the budget going towards social wages. There was a net increase of R128.4 billion in the budget for non-interest spending. Additional allocations amounting to R227 billion were meant mainly to extend the Social Relief of Distress (SRD) grant until March 2024.

The 2023 Budget also provided a primary surplus of 1.7% by 2024/25, while the consolidated debt was set to narrow from 4.2% to 3.2% by 2024/25. On social wages, NT said that the bulk of the expenditure was to provide additional support to basic education, social protection and community development.

Provincial allocations

The budget also allocated R1.5 billion for provisional priority areas. This allocation was yet to be confirmed, as they were subject to certain requirements which would need to be confirmed when the Minister tabled the 2023 medium term budget policy statement (MTBPS). The largest provisional allocation was set to go towards the South African Revenue Service (SARS).

2023/24 Appropriated funds

The bulk of the appropriated funds were allocated towards transfers and subsidies, and supporting current payments linked to the effects of the 2023 social wage.

On allocations by votes, Ms Magazi said that the bulk of appropriations went towards cooperative governance, higher education, social development, and the departments of police and transport. NT noted that the majority of the funding was going towards labour-intensive portfolios.

The largest components of expenditure regarding compensation of employees were for the Department of Higher Education (DHET), police and defence, and justice and correctional services salaries. These labour-intensive portfolios also had the most goods and services allocated towards them to support their functions.

Payment for financial asset allocations

NT had R1.9 billion provided in 2023/24 for the recapitalisation of the Land and Agriculture Development Bank, the World Bank, the  African Development Bank and the African Development Fund.

See attached for full presentation

2023 Eskom Debt Relief Bill

Dr Duncan Pieterse, Head: Asset and Liability Management, NT, said that the Minister of Finance had announced a R254 billion debt relief arrangement over the next three years, with R168 billion in capital and R86 billion in interest. The Debt Relief Bill had been tabled to give effect to this debt relief arrangement.

Key elements of Eskom Debt Relief Bill

The Bill enabled NT to advance the amounts as a loan to Eskom, subject to conditions imposed by the Minister to convert portions of the amount of the loan into ordinary shares issued by Eskom to the state each financial year.

The advances may be used only for the purposes of capital and interest payments. Furthermore, the Bill proposes a R70 billion debt takeover, which was set to be finalised in 2025/26. The Bill requires NT to report to the relevant Committees on Eskom’s compliance with the conditions. NT must also disclose any amounts converted over time from a loan to Eskom into equity.

Governing features of Eskom Debt Relief Bill

Dr Pieterse said the funds would be advanced only when the debt settlements fall due. He explained that the conditions were created to safeguard public finances and would be finalised when the Eskom Debt Relief Bill was enacted into law.

To foster accountability, the Bill proposed that Eskom, NT and the Department of Public Enterprises (DPE) hold quarterly meetings to ensure progress was achieved in alignment with the conditions. Failure to comply with the conditions would result in the loan being converted from an interest-free loan to an interest-bearing loan. This interest-bearing loan would have to be repaid by Eskom to the National Revenue Fund at market rates, which would be determined at the end of the debt relief period.

See presentation for proposed conditions.

Discussion

The Chairperson asked how the Bill supported the infrastructure-led economic recovery. She noted the budget cuts in some of the vote allocations, and asked how this would impact government mandates going forward.

On behalf of the Mpumalanga province, she raised concerns regarding the Moloto Development Corridor. She asked what progress had been made so far. She noted a media announcement by the Premier of Gauteng, with the Premier of Limpopo stating that there was a plan in the pipeline for a speed train. She asked where this left Mpumalanga, as it was between the two provinces. She asked whether they had any intention to address this matter.

The Chairperson noted that the presentation had not included resources earmarked for implementing the medium term strategic framework (MTSF) national strategic plan on gender-based violence and femicide (GBVF), while ensuring proper mainstreaming of gender issues. She asked whether there had been any progress in this regard.

Medical legal claims had been raised many times, and she said there were far too many of these claims, which were very costly. She asked what measures were being taken to address this issue, which consumed a large amount of the resources in the sector.

She highlighted a media announcement from the DA in Gauteng complaining about the state of health facilities, and said that all of the parties shared these concerns. She asked what plans there were to address this.

She asked what progress had been made in addressing the flood damage in the Eastern Cape and KwaZulu-Natal (KZN). This matter had been brought up several times in the House. She questioned whether funds were being transferred to the provinces for support. She felt that the delays had negatively impacted the lives of the citizens of these provinces.

Regarding the Eskom Debt Relief Bill, she asked how the proposed R70 billion debt takeover in 2025/26 would be financed, considering that there had been financial challenges. She acknowledged that the NT had engaged institutions and the state regarding financial plans.

She asked how the NT planned to recover the debt owed to Eskom from municipalities, government agencies, and national and provincial departments. She felt that this issue was long overdue to be addressed. NT had to intervene in the matter. She felt that something must be done to adjust the budgets allocated to departments, which could be done with the assistance of provincial departments.

The Chairperson noted that the Debt Relief Bill was not an Appropriation Bill. She asked what the rationale of the NT was, to table the Bill before the Appropriations Committee.

Mr D Ryder (DA, Gauteng) asked for confirmation that three times the amount spent on basic education would be spent on higher education. He felt that it was alarming and indicative of the cost of last-minute promises by outgoing presidents.

He acknowledged that the primary budget surpluses had been missed by R8 to R10 billion, and asked if the targets for incomes were missed in the budget surplus. Did NT have a plan to adjust the appropriation to not spend money that had not yet been earned?

Continuing on adjustment budgets, he felt that the credibility of the entire Appropriation Bill must be looked at. This was because there had been a Cabinet reshuffle subsequent to the budget announcement and the submission of the Appropriation Bill. Ministers would want to change departments and their priorities to influence their performance. He asked whether NT had experienced pressure from new Ministers to make adjustments to appropriations. He asked how soon it would be before an Adjustment Appropriation Bill came forward.

He asked when there would be an appropriation for the Minister of Electricity, or whether he would be a one-man department working out of the presidency. He commented that the Appropriation Bill had not changed to deal with the electricity crisis.

He noted that this impacted the South African Revenue Service's (SARS) collections due to decreases in production and rebates from big businesses. He asked NT whether any money had been set aside in the Appropriation Bill to resolve the energy crisis.

He said the Eskom Debt Relief tied in with relief given to municipalities that owed Eskom many legacy debt. The conditions placed a substantial burden on municipalities and provinces to implement the conditions, such as procuring large amounts of prepaid meters, or fixing financial systems.

He asked NT to confirm whether the Department of Cooperative Governance and Traditional Affairs (CoGTA) had been active in redirecting the funding of the appropriations to provinces and municipalities following the Debt Relief Bill conditions.

He was surprised that splitting Eskom into three entities was not one of the preconditions for debt relief. The Minister of Electricity had made comments affirming this. He had expected NT to demand this, as it was part of the original plan when the Debt Relief Bill was envisioned. He asked for an explanation on why that was not a condition in the Bill.

Mr F Du Toit (FF+, North West) noted that the Eskom Debt Relief presentation indicated that frequent meetings would be held between Eskom, NT and the Minister of Public Enterprises. He asked whether the Minister of Electricity would be part of these meetings, and what his engagement would be.

He appreciated that the funds would be made available over the next three years to cover Eskom’s debt costs. He asked whether NT had a real-time audit system in place to ensure Eskom handles the funds appropriately, considering the alleged fraud, corruption and the Zondo Report.

Were the large allocations to social support and government salaries sustainable, given the impact of inflation and load-shedding on the economy?

How would NT suggest that government should rearrange allocations and appropriations to ensure more funds go towards development? He said this, fearing that government would fall deeper into having to provide social support.

He noted that the South African Reserve Bank (SARB) was allegedly putting contingency plans into place regarding the possibility of a total blackout. The South African Special Risk Insurance Association (SASRIA) had made mentioned that they would not be able to make any payments should that happen. Insurance companies, such as Outsurance, were distancing themselves should a total blackout happen.

He felt it was important for all these factors to be taken into consideration.

Mr W Aucamp (DA, Northern Cape) referred to the role of the Director of Public Prosecutions, and said many people were implicated in the Zondo Report and public prosecutions were underway. He noted that some of the prosecutions were badly handled, with misrepresented evidence, and that S174 discharges were given before the accused had to present their cases. He acknowledged the calls for money to be made available for the Director to make use of private legal experts to assist with the prosecutions of high profile fraud and corruption cases. The public prosecution teams needed to be equipped to match the quality of legal representation that the accused in those matters received.
He asked whether additional funds would be made available to the Director to ensure there were good legal teams with excellent expertise capable of representing the state.

Regarding the Department of Agriculture, he noted that money was set aside once a natural disaster had been declared. However, he felt that disasters were very rarely declared, which meant that money consequently came from other budgets. He asked whether more money should be set aside for immediate disaster relief.

The Chairperson felt that many of these issues had been raised before with the relevant Ministers, and it was vital that NT provide responses and solutions to these issues.

NT's responses

Ms Ulrike Britton, Chief Director: Urban Development Infrastructure, NT, responded on the Moloto Corridor, and said that the Appropriation Bill had allocations in the Department of Transport budget for upgrading the R573. This had been in the budget and planned since 2013.

The Department completed a feasibility study in 2014, which came into the budget as a Public-Private-Partnership (PPP). The 2023 Appropriation Bill did not include any allocations for the upgrading or construction of a rail link from Limpopo through Mpumalanga to Gauteng and Pretoria.

There were various challenges in understanding the problem of how low-income workers commute across provinces, and the economic consequences associated with this. NT's last correspondence with the Department involved considering that transport was an induced demand concerning economic development.

Ms Britton said that options must be considered surrounding economic development for the residents of Mpumalanga. This had been handed over to the province, which happily wanted to start a new process for the matter, but this had not come into the budget yet.

She clarified that there were no new allocations for any new developments regarding a rail link in the 2023 Appropriation Bill.

On funding for floods and natural disasters, the change to the Division of Revenue Bill was related to emergency housing. In the 2023 Appropriation Bill, within the capital budget for the Department of Human Settlements (DHS), there was an allocation for the DHS to take over the responsibilities of provinces to deliver emergency housing.

Ms Britton said the immediate response grant was another mechanism to fund disaster recovery. This was in Vote 3 of CoGTA, relating to immediate relief grants and recovery grants. Funding for historic disasters was provided for in the Adjustments Budget.

The Adjustments Budget also provided more funds for the municipal disaster recovery grant. The 2022 Adjusted Appropriation Budget increased what the provincial emergency housing grant was. She explained that any disasters after the Adjustment Budget would use the standard processes within CoGTA and the DHS to provide immediate relief.

Ms Britton said that there were shifts in the adjustments budget relating to the indirect regional bulk infrastructure grant and water improvement grants. These grants allowed funds to be used for water tanking services where water infrastructure was damaged, while recovery processes took place.

The funding system for disasters was being followed through into the 2023 Appropriation Bill. The relevant applications were coordinated through the Disaster Management Centre at national and provincial levels, with the Department of Human Settlements. This was because the categorisation of housing emergencies was extensive and included aspects such as fires in informal settlements, which would not normally be classified as a disaster.

Dr Rendani Randela, Chief Director, Public Finance Division,  NT, referred to the capacity of the National Prosecuting Authority (NPA), and said that the budget had provided an additional allocation of R1.3 billion towards the NPA. R750 million of that went towards Section 38 appointments. This enabled the NPA to bring in private sector specialists to deal with complex cases.

On issues related to GBV, he said many initiatives had been explained at length in the expenditure overview. In the justice sector, there would be an additional 40 sexual offences courts, and the Thuthuzela Care Centres would be increased from 60 to 68 in the outer years of the MTEF.

Regarding police, one of the initiatives was to have violence and victim-friendly rooms specifically for GBV-related cases. This had been discussed at length in the estimates for national expenditure on pages 444 to 445, and 484.

Ms Julia de Bruyn, Chief Director: Education and Related Departments, Public Finance Division, NT, confirmed that the spending on higher education was roughly three times that of basic education. She said that this was because of the huge differences in services that each provides. She gave examples of different services required to teach doctors and engineers compared to teaching foundation phase, matric reading, and maths. The allocation was based on the nature of the service.

On allocations for disasters in the Division of Revenue Act, she said there was an add-on of R283 million to the education infrastructure grant. This had been allocated to deal with school-related flood damage in the Eastern Cape and KwaZulu-Natal.

Dr Mark Belcher, Director: Social Services, NT, responded on medical legal claims, and said that the Department of Health (DoH) had been working recently on improving case management systems. It had established a system for reporting all of the cases from provinces to interrogate and work on. This included setting up forensic investigations, as there were a lot of problematic activities from various sides. Even the Special Investigating Unit (SIU) was involved in the forensics.

He said that the judgment in the Eastern Cape had opened the door for public health defence as it had indicated that not everybody who got a medical legal judgement necessarily needed to be permanently in a private facility -- many could be managed in a public facility.

The South African Law Reform Commission (SALRC) reports were yet to be concluded. Dr Belcher said that medical health was a very serious issue, and Parliament played a vital role. He explained that the Portfolio Committee on Justice had pulled back the State Liability Amendment Bill.
The general sense from all three Ministers was that the Bill needed to return to the Portfolio Committee on Justice to be reintroduced. He requested that Parliament reintroduce the Bill. The Committee and the DoH must think of a new model for medical legal practice which was along the lines of the United Kingdom or New Zealand systems.

Dr Belcher said that it might be possible to establish a national tribunal to assess cases on an administrative basis which had standardised rates of compensation. This would mean that not every case had to go through a lengthy and expensive legal process.

Dr Mampho Modise, Deputy Director General: Public Finance, NT, responded to the question on the budget for the Minister of Electricity, and said that the funds in the Adjustments Budget would be determined by the number of people in his office and the structure of his annual performance plan (APP). The Department was still undergoing planning. Once the Adjustment Budget was finalised, they would have a clearer indication of the mandate, and its cost implications, and identify where to recover the funds from relevant departments for the Minister of Electricity. At this point, they would also know which other departments were implicated in the changes resulting from the announcement of the President.

Dr Modise said that if the primary surplus was not met, the MTBPS allowed NT to present changes in the fiscal framework. The budget process itself was dynamic and subject to constant change and pressure. Once the MTBPS was published, they would better understand the revenue numbers and spending pressures, and what options existed if they had to reconsider spending or revenue. When they did their budgets, they looked at the overall picture, revenue spending and debt metrics.

He said that all of these factors influenced changes in the MTBPS. They also had to consider unforeseen and unavoidable expenditure, and rollovers. They would present a package once they had reached the MTBPS, looking at whether they were going to achieve their fiscal stance, and if it was not achieved, they would identify what measures had to be put in place to ensure the fiscus remained stable.

Dr Pieterse said that Table 7.2 in the Budget Review indicated that the arrangement on financing the Eskom Debt Relief Bill was part of the gross relief borrowing requirement. This would be a combination of the short-term and long-term loans which were articulated per year.

On municipal debt, he said that the Municipal Finance Management Act (MFMA) circular 124 on their website indicated their proposal of hoping to work with Eskom to deal with the debt owed to them from municipalities. Municipal debt formed the largest outstanding debt, at R57 billion. The circular stated that provided municipalities met certain conditions, a portion of municipal debt to Eskom would be written off every year over a three-year period. A key condition was that municipalities keep their accounts up to date, including their account with Eskom. If municipalities complied with the conditions for 12 consecutive months, they would qualify to have their debt written off.

Regarding whether funding would be redirected to provinces to meet the conditions of the circular, Dr Pieterse said that this would depend on the take-up. The relevant division at NT had had various engagements throughout government with provinces and municipalities on the circular and proposal.
If fiscal issues arose from the take-up by municipalities, they would address them as and when they happened.

On unbundling as a condition, he said that NT did not see this as a critical issue because it was in the process anyway. As recently as the evening before the meeting, the Eskom team and NT had met to discuss issues related to unbundling and the debt relief arrangement. This was not in the presentation, as Treasury was still in ongoing discussions with Eskom. The proposed conditions would be finalised by the Minister of Finance when the Bill was enacted. They were collecting various additional proposals that may qualify as conditions.

On the Minister of Electricity as part of the engagements, Dr Pieterse said that there was not yet a Minister of Electricity when the Bill was proposed. However, the Minister had been part of all other NT engagements through the National Energy Crisis Committee (NECOM). It could be incorporated if it was necessary to have the Minister as part of the quarterly engagements.

Regarding real-time audits and appropriate use of funds, Dr Pieterse said they had various mechanisms that could be used to track spending at Eskom. This included daily liquidity reports sent to NT from Eskom.

While there was no real-time audit, Treasury worked very closely with the Eskom finance team. Every quarter, Eskom would have to provide a report to assess whether the funds were spent on their intended purposes. Only if the Minister of Finance and NT were satisfied with this, would NT sign off on the loan for that quarter, and the conversion thereof into equity.

Ms Lebogang Madiba, Chief Director: Public Finance, NT, responded regarding immediate specified funding support for agriculture, and said that there was an agricultural production line which was used to fund farmers affected by disasters in the sector. This was in-house support. In the Appropriation Bill, Treasury had proposed R1 billion over a three year period. Through these funds, they ensured that support was directed from a government point of view.

Further discussion

Mr Ryder said he hoped that NT was aware that the project management skills at that level did not exist in many instances. This was the reason for the municipal debt.

He hoped the NT would support municipalities going forward once they received the debt relief. The legacy debt was hampering the performance of new officials to provide service delivery.

On the Appropriation Bill, he said the new ministers had come into office with the almost finalised Bill. He felt that there was not much room for them to make changes. Had any of the new ministers indicated that they wanted to bring about changes in their Departments?

The Chairperson asked why the Debt Relief Bill had been tabled before the Committee, as it was not an appropriation bill.

NT's response

Dr Modise said that when NT was preparing the Appropriation Bill and the budget, it was prior to the Cabinet reshuffle. The amount considered could be found within the existing baselines. The NT was working with Departments to ensure sufficient funding for the operations of different offices.

He said that Ministers were mostly moved between different departments. The only new Minister was the Minister of Electricity. They were working on resolving budget issues with the presidency and the Department of Performance Monitoring and Evaluation (DPME).

Dr Modise said that ministers had not yet made drastic changes to departments, as this process took time. The Treasury encouraged the ministers to assess how far departments were in their processes, and policy changes could be made as and when they were implemented.

NT had been trying to avoid having the changes in the Ministry impact the implementation of policies in different departments. It encouraged policy and implementation continuity. They were not concerned with the costs of new ministers, as they had earmarked funding in the Appropriations Bill and had encouraged the APPs to continue policy implementation. Any changes to APPs were likely to be because the MTSF had ended, rather than because of a new minister entering.

Adv Empie van Schoor, Chief Director: Legislation, NT, said that the money in the Bill was a direct charge against the National Revenue Fund. This meant that the Bill was a Section 77 money bill.

The Chairperson thanked NT for availing themselves at the last minute.

Referring to the Moloto Corridor, the Chairperson acknowledged that Treasury was merely responsible for funding projects, not their implementation. She said that the people of Mpumalanga were suffering, and she would come up with a recommendation to assist in resolving the matter. Many people had died in accidents while travelling in the area, and these incidents were still increasing. There were busy crossroads without robots or traffic circles. This had placed pressure on the DoH due to the high volume of accidents in the area. The expansion of the road had not made a difference to the users. She felt that the Committee had to engage the relevant Committee on the matter to obtain informed responses and solutions. She suggested that oversight be done in the area.
She requested that NT provide a written response that the Committee may take with them when addressing the relevant Committee on the matter.

Committee matters

The Committee considered the minutes of 3 May 2023. Ms M Mamaregane (ANC, Limpopo) moved their adoption, and Mr Aucamp seconded.

The minutes were adopted without amendments.

The meeting was adjourned.