Government Immovable Asset Management Bill: Public hearings

Meeting report

PUBLIC WORKS PORTFOLIO COMMITTEE
7 March 2007
GOVERNMENT IMMOVABLE ASSET MANAGEMENT BILL: PUBLIC HEARINGS

Chairperson: Mr F Bhengu (ANC)

Documents handed out:
Lamacs Asset Management: PowerPoint Presentation
Development Bank of Southern Africa: PowerPoint Presentation
The Construction Education and Training Authority (CETA): PowerPoint Presentation
Keith A Ross submission
Government Immovable Asset Management Bill [B1-2006]

SUMMARY
The Committee continued with its public hearings on the Government Immovable Asset Management Bill. The submissions highlighted departments’ lack of proper accounting records relating to the treatment and disclosure of fixed assets which would impact on the implementation of the Bill; that the Bill did not address the critical and fundamental area of immovable asset/property administration; that the Bill should enforce a single standard of administration, much the same way that the Public Finance and Management Act and Municipal Finance Management Act enforced a single standard of accounting; that certain aspects of the Bill should be phased in because it would take time to meet all the requirements; that the Department of Public Works should consult with stakeholders and industry players on guidelines, standards and the possible unintended consequences of the Bill and that greater thought must be given to the practical implications resulting from the Bill.

The Committee was mainly concerned with the fact that the Bill in its current form would not apply to local governments. Most Members appeared to support extension of the Bill to this level as did all the presenters. The Committee resolved to consider all the suggestions and concerns that were raised.

MINUTES
Introductory Comments by the Chairperson
The Chairperson recaptured the previous day’s oral presentations to the Committee. Matters pertaining to condition assessments, international best practice, optimisation on rate of investment, job creation and concerns about terminology were highlighted. In general, all the speakers welcomed the Government Immovable Asset Management Bill (GIAMB) as a starting point to address the problems that confronted government and user departments.

Presentation by Keith A Ross
Mr Keith A Ross, Registered Accountant and member of the Department of Defence Audit Committee, stated his interest and knowledge of asset management. Of particular concern, GIAMB placed a huge responsibility on accounting officers and managers. They would not be able to carry out the requirements of the Bill because of capacity problems and administrative deficiencies. His review of Departmental Annual Reports (2005) underlined the poor accounting practices and information systems at most departments.

Discussion
Mr J Blanche (DA) accused the Department of Defence of failing to maintain its assets.

Mr Ross did not dispute this assertion. The Department’s facility register did not reconcile with the records of the Department of Public Works (DPW). All departments struggled to maintain their assets because they did not have proper accounting records regarding the treatment and disclosure of fixed assets.

Ms C Ramotsamai (ANC) stated that the purpose of these hearings were not only to raise concerns but also to provide solutions. She sought to establish how his concerns could be addressed.

Mr Ross reiterated that the Annual Reports showed that management did not have the information to fulfil the requirements of GIAMB. The ideal scenario would see all departments having updated asset registers and financial records. Government had taken steps to meet this standard. However, GIAMB should be delayed until this had been sufficiently addressed.

The Chairperson remarked that the Committee appreciated his submission. They would not delay the Bill and planned to table it before the National Assembly by the end of the month. The Committee would call upon him to assist them when they dealt with the DPW Annual Report.

Presentation by Lamacs Land Asset Management
Mr Alex Croote, Chief Executive Officer, commented that GIAMB focused on Lamacs’ core function- providing property and asset management for government. GIAMB was groundbreaking legislation because it created an explicit imperative to administer and manage property portfolios. It also placed property on an equal footing with other assets such as finances and people.

He supported Mr Ross’s position. It was difficult to manage that which you have not administered. Administration in government departments were in poor health and GIAMB did not address the critical and fundamental areas of appropriate immovable property/asset administration. Departments received huge maintenance budgets but could not report on the efficacy of this. The level of planning articulated in GIAMB was not possible with the current levels of information available. Departments should be mandated to administer property properly and this should be facilitated by a standardised and consistent aggregation of information. The Auditor-General would never give a favourable audit opinion to departments that did not exercise proper administration.

GIAMB should enforce a single standard of administration, much the same way that the Public Finance Management Act (PFMA) and Municipal Finance Management Act (MFMA) enforced a single standard of accounting, i.e. Generally Recognised Accounting Principles (GRAP). The definition of asset should be expanded. GIAMB did not make an explicit distinction between infrastructure and non-infrastructure assets. This was relevant because they had different attributes and life cycles.

Lamacs Solutions and other organisations were willing to assist government. He concluded with these words: “Once you have your asset under control, you can exploit it and derive opportunities from it”.

Discussion
Ms Ramotsamai asked whether DPW had consulted with Lamacs Solutions during the drafting process.

Mr Croote replied that despite several attempts from their side, no one from the Department consulted with them.

Ms Ramotsami commented that during the early stages of the Bill, the Committee wanted to extend GIAMB to local government level. This was shelved due to legal imperatives and some persuasion from DPW. She wanted his views on this matter.

Mr Croote believed that GIAMB should be applied to local government. There was currently massive under management of properties at local government level and GIAMB would address this.

Mr Blanche expressed the Committee’s view that the management of maintenance should be in the hands of the local government.

Mr Croote agreed with this in principle. It should be managed and administered locally assuming they operated under a standardised framework.

Mr T Anthony (ANC) continued on the same path. He was adamant that GIAMB be extended to local government because mismanagement and lack of control occurred at that level.

The Chairperson pointed out that DPW informed the Committee that GIAMB would only apply to national and provincial governments because the MFMA was sufficient for local government.

Mr Croote answered that the MFMA required municipalities to generate revenue from their property portfolio. This was not an imperative for national and provincial government. However, Section 63 of the MFMA did deal with the property portfolio. GIAMB should therefore be extended to local municipalities.

Mr Blanche stated that there was a need for institutions to train and educate people on how to manage government assets.

Mr Croote agreed. This was a specialised task that required specialised skills. He called for the establishment of a single standard administration, much the same way that the PFMA and MFMA enforced a single standard of accounting, i.e. GRAP.

Mr Ramotsamai queried whether he agreed with the term “immovable asset” it applied to the Bill.

Mr Croote did not have any problems with the term.

Mr N Magubane (ANC) queried whether the Minister of Public Works had the right to dispose of the assets of municipalities.

Mr Croote asserted that municipalities were independent. They derived their rights from the MFMA and had a right to make their own decisions. The Minister could however intervene in certain instances.

Mr L Maduma (ANC) asked him to elaborate why he felt it necessary to expand the definition of assets.

Mr Croote replied that there was no common definition on what constituted an asset. It could include infrastructural and non-infrastructual buildings and the like.

Ms Ramotsamai was aware that all municipalities had been given the responsibility of registering their assets. She sought to determine the progress of that initiative.

Mr Croote answered that every single municipality was in breach of MFMA regulations regarding this matter.

Mr B Radebe (ANC) asked whether there was any problem with integrating GIAMB with MFMA.

Mr Croote offered that there was no need for integration because MFMA dealt with accounting practices and financial management while GIAMB dealt with asset management.

The Chairperson stated that the presentation was very informative. The Committee would give further consideration to the issues raised.

Presentation by the Development Bank of Southern Africa (DBSA)
Mr Barry Jackson, Principal Policy Analyst, stated that DBSA was participating in this process because GIAMB would ensure that their borrowers maintained their assets. This would enable them to extract value from their property.

Bearing in mind the enormous range of state assets (land, buildings, airfields, dams, roads, pipes etc), and range of capabilities of state entities, DBSA urged caution when introducing these requirements. The introduction should be phased in in order to encourage adoption out of conviction rather than compulsion. There should be a similar process to guide municipalities to manage their assets, including infrastructure. A substantial budget should be given to DPW to assist custodians and users.

DPW should be wary of including policy statements in legislation. Clause 5(1)(f)(iii) which referred to the redistribution of wealth was guilty of this. There was a certain amount of confusion regarding the role, sequence and activities of a user and a custodian. Questions were asked about who had to draw up a management plan, who would do the costing, take decisions on surplus and disposal and whose performance measuring system took precedence.

Discussion
Mr Radebe observed that the presenter was against the inclusion of policy statements in legislation. Did this imply that he disagreed with government’s socio-economic policies?

Mr Jackson stated that he supported government’s decision to use funds and assets for the benefit of the poor. A policy should not be put in legislation because it might have possible unintended consequences. He had no problem with what was said but where it was said. It would be better to set benchmarks.

Mr Maduma noted that the presenters had similar views on the role and responsibility of municipalities. He added that GIAMB should have a positive impact on local government.

Presentation by the Construction Education and Training Authority (CETA)
Mr Teboho Tejane, Chief Executive Officer, articulated that CETA was involved in skills development in the construction industry. They welcomed the tabling of the Bill because it enshrined the principles of accountability and transparency in the management of government assets.

Greater thought must be given to the practical implications resulting from the Bill, in order to achieve higher rates of efficiency and effectiveness with regards to both asset management and service delivery.

Discussion
Ms Ramotsamai queried whether the speaker was supportive of previous statements that GIAMB should be extended to municipalities.

Mr Tejane answered in the affirmative. Applying immovable property management at local government level would be important because it could make a huge contribution to service delivery.

Ms Ramotsmai enquired whether the DPW had consulted CETA during its drafting process.

Mr Tejane confirmed that only this Committee had contacted CETA.

The Chairperson declared that the Committee needed to engage DPW on the issue of extending the Bill to local government. It was clear that Members and all the presenters were in favour of such an extension. This issue needed to be resolved urgently.

The Chairperson made a plea to all the presenters to inform their colleagues in the industry about this process. They also had an opportunity to make further written contributions because the Committee still needed to study the Bill clause-by-clause with DPW.

The meeting was adjourned.