National Treasury Strategic Plan Update 2007/ 08: briefing

FINANCE PORTFOLIO COMMITTEE
22 MAY 2007
NATIONAL TREASURY STRATEGIC PLAN UPDATE – 2007/ 08: BRIEFING

Chairperson: Mr N Nene (ANC)

Documents handed out:
National Treasury: Strategic Plan Update – 2007/08

Delegation: Their team consisted of Mr Lesetja Kganyago (Director-General: National Treasury), Mr N Allie Edries (Deputy Director- General: Corporate Services), Mr A Donaldson (Deputy Director- General: Public Finance), Mr K Naidoo (Deputy Director- General: Budget Office), Mr L Fuzile (Deputy Director- General: Intergovernmental Relations), Dr C Loewald (Deputy Director- General: Economic Policy), Mr I Momoniat (Deputy Director- General: Tax, Finance and International Economics), Mr P Hadebe (Deputy Director- General: Asset and Liability Management), Mr F Nomvalo (Deputy Director- General: Office of the Accountant General), Mr S Khan  (Chief Operating Officer), Mr N du Plessis (Chief Director: PFMA Implementation), Mr D Jele (Chief Director: Office of the Minister), Mr H Pringle (Director: Office of the DG), Ms T Panday (Director: Communication), and Mr M Cassim (Consultant: Office of the DG).

SUMMARY
The National Treasury team briefed the Finance Portfolio Committee on its Strategic Plan for 2007/ 08. They focused in their presentation on their strategic objectives, operational and policy responsibilities and specific programmes.

MINUTES
Briefing by National Treasury
Mr Lesetja Kganyago (Director-General: National Treasury) gave an overview of National Treasury’s strategic plan. The aim and strategic objective of National Treasury is to promote economic development, good governance, social progress and rising living standards through the accountable, economical, equitable and sustainable management of public finances.

Key focus areas within the strategic plan included budget coordination, sectoral priorities like the development of a contributory social security system, intergovernmental relations, debt management, the Integrated Financial Management Systems (IFMS), fiscal transfers and public entities.
   
Discussion
Mr S Asiya (ANC) asked for information on the progress on pensions given the plight of the poor. He also wanted clarity on the supply chain management within the PMSA which does not get prominence within Treasury. He asked if Treasury can convince him and the public that they provide value for money given their objective of effective service delivery and value for money. He also enquired about Treasury’s contribution to skills development within South Africa.

Mr M Johnson (ANC) asked if Treasury are on course regarding the 2010 FIFA World Cup funding of R 8.4 billion and if the project was going forward as planned. Last week the Deputy Minister of Finance said that a R190 million would be subtracted this year for the building of stadia. He wanted to know if the R190 million would be added to the 8.4 million or whether it would be subtracted from the R 8.4 billion.

Mr Johnson also enquired if South Africa is getting the skills to ensure that infrastructural projects are completed on time.

Mr I Davidson (DA) asked what type of risk analysis the government does when it puts money into certain projects. He wanted to know how one quantifies value for money. Companies like South African Airways (SAA), armoured cars and the pebble bed reactor required lots of money in order to function. Mr Davidson wanted to know when government says enough is enough. He asked where the private sector investors are. The Gauteng government had handed over a mass transportation system, the monorail, to the private sector. He wanted to know when does one start talking about risk transfer against the background of Public Private Sector Partnerships (PPPs).

Given the electricity generation crises within SA, Mr I Davidson asked why private electricity generators are not encouraged.

Fiscal aspects of growth, and how one uses fiscal policy to generate growth was highlighted by Mr Davidson. He wanted the Treasury’s input regarding this issue.

Mr T Vezi (IFP) indicated that last year the municipalities received a memorandum indicating that the increases should be within the inflationary rate thereby enforcing effective financial management. He asked if Treasury has the authority to do any adjustments if the municipalities have gone up too high or too low. He also asked what success and failures do National Treasury experience in their endeavours to fulfil their aspirations regarding the strengthening of financial management, governance, accountability and capacity in local government.

Regarding resignations within National Treasury, Mr Vezi asked what the main reasons could be for staff leaving and how quickly a post can be filled. He also wanted to know what impact vacancies would have on Treasuries operations.

Mr Bhamjee (ANC) asked what processes National Treasury follows to elevate a sub programme to a programme and if there is any funding for the aforementioned.

Regarding Treasuries oversight programme over the 2010 FIFA World Cup, Mr Bhamjee indicated that target mile stones from 2007/ 08 and 2008/ 09 seem to repeat themselves.  He wanted clarity on this.

In response to Mr Asiya questions, the Director-General clarified Treasury's approach in terms of the supply chain framework and policies. Departments adopt this framework to their specific requirements and it is incumbent on the accounting officer to set up a supply chain system for the department subject to Treasury policies.

Mr Kganyago also indicated that it is too early to tell if National Treasury is getting value for money. The Treasury’s focus on sectoral priorities are an attempt to focus on value for money. He said that they look at how much money was spent to achieve certain outcomes and how it compares internationally.

Regarding skills development Mr Kganyago indicated that Nationally Treasury is responsible for macro economic policy. The solution in terms of skills development lies with micro economic policy which involves structural changes that would need to take place. National Treasury are beefing up their ability to do micro analysis. Globally all countries are looking for the same type of skills and international companies are looking for skills within the South African market

With regards to whether R190 million would be subtracted or added to the FIFA World Cup funding of R 8.4 billion, Mr Kganyago said the R190 million was not an addition to the R 8.4 million budget. Funds were brought forward because delivery took place within this year.

In response to Mr Davidson's question regarding PPPs and risk sharing, he said that risks need to be appropriately shared between government and the private sector. Government has learned lessons in the past and the challenge is to make sure that risks are shared.

Regarding fiscal aspects of growth and development, Mr Kganyago said that SA created fiscal space by bringing down debt as percentage of GDP which released resources to be used in other areas. Government is utilising fiscal space to:
- mitigate against external risks,
- invest in future productive capacity, and
- continue rolling out social expenditure for instance in health. The current social security reforms which are envisaged would not have been possible if fiscal space were not created.

With regards to Mr Bhamjee's  question on the elevation of a sub programme to a programme, previously the programmes were too big and that this was being broken up to make it manageable.

Mr Kganyago indicated that staff that left National Treasury mostly went to other government departments. He has statistics which lists reasons why staff left which could be made available to the Portfolio Committee. More staff came in compared to those who left National Treasury and that this has not negatively affected operations.

Mr Andrew Donaldson (Deputy Director General: Corporate Services) said that there is unfortunately no simplistic way of measuring value for money. One has to rely on a multitude of indicators. A new National Treasury initiative focuses on performance information and non financial service delivery information, which aims to improve quality of information to determine value for money. Another aspect of determining value for money was an increased focus within all government departments on index evaluation and monitoring.

Regarding questions relating to skills development Mr Andrew Donaldson said that through the Joint Initiative for Priority Skills Acquisition (JIPSA) government has within last 18 months put a strong focus on specific sets of skills required and capacity constraints. There is a focus on:
- artisan training to address rapidly growing construction and infrastructure,
- revisiting the apprenticeship system for artisans, and
- skills like engineering, town and regional planning, transport planning and engineering.
Investment in critical skills as mentioned are needed at present.

Mr Andrew Donaldson said that there is a focus on skills development within health services, education and welfare and social development services. Treasury are conscious that the public health system lags behind in management and particularly public hospitals are faced with difficult management issues. In the last 18 months work has been done in reviewing management structures in Chris Hani and Baragwaneth hospitals. In partnership with national health there is a focus on the hospital revitalisation programme.

With regards to independent power producers Mr Andrew Donaldson indicated that Treasury has been working with the PPP Unit on how to go about the management of independent power producers if there is a decision to go that route. He said that it is not a not a straightforward matter to introduce aforementioned within the structure of the SA market. The current challenge is on ESKOM to ensure expanding generating capacity is put in place.

The Pebble Bed Modular Reactor (PBMR) is a large and complex project with investments from Industrial Development Corporation (IDC), ESKOM and international investors. Ownership arrangements are still under discussion and the project are moving towards the construction of a demonstration plant. Benefits associated with PMR includes cleaner energy and cleaner waste disposal. There is a commitment by the Finance Ministry to set aside 6 billion rand for this project. The public enterprises ministry are responsible for overseeing this project and they are in discussion with ESKOM as a potential client.

With regards to question if milestones for the 2010 FIFA World Cup repeats itself, Mr Donaldson indicated that there is only one objective which is the delivery of a successful World Cup. There are no multiple objectives but a single focus which is the reason why there are a repetition within documentation.

Mr Y S Bhamjee (ANC) asked if Treasury are over regulating given their requirements that everything must be measured. He said that some staff members are struggling. Mr Donaldson said that maybe regulations might be revisited because it might not be straightforward.

Mr K A Moloto (ANC) asked how efficient are Treasury’s system to pick up any departures from agreed turnaround strategy with Denel, as well as the quality of information received from them, and whether that would enable Treasury to make a timeous interventions.

Mr K A Moloto said that Correctional Service said that they budgeted for 4 correctional facilities but can only built one because of delays with feasibility studies and problems with contract management. In relation to public finance with regards to improved infrastructure planning and project evaluation he wanted to know what type of intervention would Treasury make in this case.

Mr K A Moloto asked the Director –General (DG) what his concerns are regarding the impact of commodity prices on financial stability within developing countries. He also asked the DG what  proposals and solutions he can advance to deal with this issue.

Mr B A Mguni asked if the department cannot consider a strategy that would target the poor and enable them to have access to finance. He said that at the moment it is only loan sharks who are serving the poor.

Mr S Marais (DA) referred to Treasury’s milestone of implementing budget reforms in the 25 largest municipalities. He asked to what extent the reforms would be advice or prescriptions.

He also asked how Treasury would strengthen and facilitate the implementation of financial management, accountability and capacity within local government.

Mr S Marais wanted to know what the conditions were of Siyenza Manje initiative is and how it differs from other initiatives.

Mr M A Johnson asked clarity on the progress of Treasury regarding monitoring of service delivery programmes in provincial departments. He also asked for clarification regarding new municipal PPPs projects which previously would have created difficulties with the unions.

He suggested that the Portfolio Committee should be involved in some G 20 processes to ensure that this committee does not tail behind processes.

In terms of the Correctional Services question by Mr Moloto the Director General said that there is officials from the PPP Unit and Public Finance working with the Portfolio Committee on Correctional Service to help. These officials are optimistic that the remaining correctional facilities would be built in time.

With regards to commodity prices Mr Kganyago said that SA is caught in a situation where the country are a beneficiary of commodity prices but also have to pay up because commodity prices are high. A number of countries like Russia, Norway and East Timor have created a stabilisation fund to deal with commodity prices going up and down. Stabilisation funds are one option which was looked at but was not found to be an attractive option.
He said that one can allow commodity prices to happen which means that you run a budget surplus when commodity prices are high and when they are low you run a budget deficit.

He said that SA response to commodity prices has been to a decision to run a budget surplus in 2007and not to constrain investment. Expenditure was redirect towards infrastructure and people and a fiscal stance was run which was broadly balanced. These mitigated against risk that SA were exposed to.

Mr Kganyago said that regarding the questions about municipalities that Treasury’s focus is on the implementation of the Municipal Finance Management Act which does not encroach on the constitutional mandate of local government.

Regarding Siyenza Manje Mr Kganyago said that Treasury did not put additional money into local government. Treasury are working with the Development Bank of Southern Africa to build capacity in local government.

Mr N Allie Edries (Deputy Director General: Corporate Services) that in most cases PPPs did not have much resistance from unions because they are about new services and new infrastructure.
Extensive consultation took place including labour. He said that there is a number of PPPs where there is genuine risk transfer. 

Mr N du Plessis (Chief Director: PFMA Implementation) said that regarding supply chain management that Treasury are in process to prepare a PFMA amendment bill and part of that process is to align the PFMA with the Municipal Finance Management Act.

Regarding questions about when government say enough is enough about organisations like SAA and Denel, the Treasury official said that Government has 2 options which is either to close an organisation down or to assist. Government has a lot obligations which includes guarantees and loans when it deals with state owned entities. If government decided to close down SAA it would have needed R 17 billion within 6 months time to deal with obligations like loans. If government did not assist Denel it would have required R12 to 16 billion rand to deal with obligations and guarantees. Regarding the Land Bank if government did not provide cash injection of R 700 million and a guarantees, government would have had to finance R16 - R18 billion. He said that within the space of 10 months the obligation fees for government would have been about R50 billion rand. National Treasury therefore tries to become involved with agencies and tried to ensure turnaround.

Regarding Mr Mguni’s question on the development finance institutions (DFIs), the Treasury official said  that a desk top analysis was done on DFI loans against a usual financial institution. At the riskier side of their loan book they have about 3 -5 % loans and on the safer side (business side) they have about 75 %. The biggest challenge regarding DFI’s is that SA does not have DFI policy. Government need to provide guidelines within which the DFIs need to operate.

Mr Kganyago said that regarding the G20 that only Ministers of Finance and Reserve Bank governors are currently allowed to serve on its board. 

Mr Mguni asked how certain are we that our neighbours in SADC have a good banking system and if their banks are properly regulated given future regional integration. He also wanted to know who determines our economic policy and how much influence the outside world have on our economic policy.

Dr C Loewald (Deputy Director General: Economic Policy) said that the Reserve Bank is actively involved in SADC working with uniformity of payment systems. He also said that the banking system in some SADC countries are an extension of South African banks like Standard Bank, and that those banks are regulated by Standard Bank.

The meeting was adjourned.