Public Property Management: Intersite briefing

PUBLIC WORKS PORTFOLIO COMMITTEE
22 August 2007
PUBLIC PROPERTY MANAGEMENT: INTERSITE BRIEFING

Chairperson: Mr F Bhengu (ANC)

Documents handed out:
Presentation by Intersite on Public Property Asset Management Models

Audio recording of meeting

SUMMARY
Intersite, a public property asset management company, briefed the Committee on the models used in other countries, specifically Finland, Norway, Sweden and Australia for management and governance of public assets. It was noted that Intersite was a separate corporate entity that managed and developed the property portfolio of the South African Rail Commuter Corporation (SARCC), which included public transport assets. A full presentation was given on the models used in the four countries named. Management of assets must support the government strategy, agenda and objectives. Ownership and management were in most cases separated, with management being done by a specialist, whilst Government had representatives on the boards of the managing entities. Full reporting mechanisms and oversight were in place. Private sector principles applied. Further research would be done into models in Canada and an Eastern country. A brief description of each model was given. Emphasis occurred throughout all models on efficiency, accountability, focus on delivery, business and private sector principles and the introduction of the user pay policy. Challenges in South Africa included adequate skills on disclosure and asset recordal. Members raised questions on the challenges in South Africa, the effectiveness of models, whether there had been investigation into whether the models could apply at local government level, the composition of the Boards, and the necessity for supervision from government. Further discussions related to the desirability of encouraging a return to rail transport, particularly for environmental protection, and the need to retain and develop properties near rail links, to improve security and policing, to build businesses and malls closer to rail and to encourage energy efficiency. Challenges of non-competitive salaries and obtaining the right skills must be addressed. It was suggested that using a pilot concept in smaller towns, coupled with a research Task Team, would be helpful, that planning must become more integrated, that there should be convergence of objectives, and that sufficient budgets must be sought.  There would be further discussions. The Committee discussed the recommendations of the Chair of Chairpersons in relation to report backs by the full House to Committees, and the Chairperson briefly discussed the oversight visit and said the reports would be tabled for adoption.

MINUTES
Intersite Public Property Asset Management Briefing
The Chairperson stated that any new ideas in the maintenance and running of state assets would be helpful, and this briefing had been arranged to better understand the management principles around State assets in other countries. 

Ms Nonyameko Mandindi, CEO: Intersite, gave the background to Intersite, noting that it was a corporate entity specialising in the management and development of State owned property portfolios. It had started as a property division of the South African Rail Commuter Corporation (SARCC), which included public transport assets, and in 1992 was established as a separate corporate entitle to manage and develop the property portfolio of the SARCC, including stations and land.  Over the years, Intersite had developed a business model which meets the special needs of the Public sector, while offering the quality and service-delivery standards synonymous with market-driven businesses.

Ms Mandindi said that in developing its models Intersite had researched other models on public property management worldwide. Her presentation included detailed examples of models used in  Finland, Norway, Sweden and Queensland, Australia (see presentation). In all cases the critical factor was that the assets and management would support the government agenda, strategy and objectives.

Ownership and management of the properties were often separated. The management function would be transferred to a specialist in that area and the government would maintain representation on the board of directors of the property manager. There would be a full reporting mechanism together with continued alignment of the objectives and oversight. Specific performance parameters would be clearly indicated and monitored. The entities would be structured to operate on private sector principles and the level of control and oversight that were necessary would be discussed. The dynamics faced were different, but overall much the same questions were faced in each situation.

Intersite was still intending to conduct an examination into another model, that of Canada. A related model in the East was still being sought.

The Finnish model was formulated in 1998 and the objectives were efficiency, yield on capital, reduction on facilities costs and the increase in the property value. The real estate was divided into two groups: core and non-core. Although the assets of the core properties were transferred to a property manager, the State still held the title deeds so there was no transfer of ownership. In respect of non core assets, a real estate investment company that had been appointed to handle the assets on private sector lines. The asset still appeared on the balance sheets of government. The assets were in the main classes of  universities, office premises, special premises (which included animal health and research institutes), defence premises and development premises. The property managers would finalise a lease agreement, which would allow the asset classes to be released to do their core functions. Private sector companies would also rent properties from the government. Some non-core assets had been sold into the private sector.

Norway's model was then described.  In 1992 there was a reorganization and separation of the commercial property and those  “purpose” buildings (infrastructure). The difference in Norway’s model  was that all assets, including title deeds, were transferred to the property management company. The managers were responsible to the Ministry of Modernisation and all building projects would be financed by the re-investment of the rent income by the government subsidy. The company would act on behalf of the government as a consultant and manager in construction and property management, as well as offering advice around the needs in new or existing buildings. Annual rental income was used for maintenance.
 
The model used in Sweden fragmentised and specialised its focus and transferred the five entities  to specific areas. The five entities dealt respectively with Universities, Defense, Rail properties and management of the forests and  forts, and foreign affairs. Modernisation of the buildings took place to maintain compliance. One entity was non-profit but the other entities were all profit related.

The Australian model, applied in Queensland, was different, and the public works were in a traditional role. The drive was towards excellence and efficiency, not profit.  A high level of maintenance and facilities management was being achieved. The fleet was managed efficiently and there was a policy around technology. Maintenance of the bridges, roads, dams and infrastructure was achieved this way and all the state archives systems were electronic. Various different areas were covered and highly trained individuals were consulted for proposals, after which their technical expertise would be used to manage the projects. There was a distribution centre for all office perishables and each division would report back to the Director General, which worked well from an operational point of view.

The main issues in these models, and in the system applied by Intersite, were efficiency, accountability, focus on delivery, business and private sector principles within the entity, and the introduction of the user pay policy, whether market related or a controlled system. In the South African context adequate skill was needed to disclose the property separately on the budget and was key in how the process was taken forward. The property agency concept had been implemented more than a decade ago in Nordic countries. Public works in the Scandinavian countries had an overarching mandate over their state property. Capacity building was done through institutions of higher learning.

Discussion
Dr S Huang (ANC) commented on the excellent presentation but noted that there were no examples yet of Eastern countries. Asset maintenance needed to be taken into account. He asked how it was intended to deal with the public works sector, where it did not comply with public works structures in South Africa, and what the challenges would be. 

Ms Mandindi replied that the challenges faced in the South African property landscape were around accommodation. A further challenge lay in that the debate around this issue was as yet not detailed enough to have formed a definition position. A further risk was the level of capitalisation that was needed for the entities to enable proper use.  The separation was another issue. In Australia all properties were still held by the departments, who assisted with the asset management and treatment of the structures so that efficiencies were achieved.

Mr Mandindi added that it was not yet known what assets there were in South Africa. The formulation of an assert register must be credible. She suggested that there needed to be a pilot project in one city, to look at the issues on a smaller scale before reaching up to national level. This was a possible option. She commented that the Eastern countries were being investigated to see if other models existed to give a more balanced view.

She added that after the land leases expired, the ownership would revert back fully to government, or SARCC Intersite.

Mr L Maduma (ANC) commented that the presentation had really assisted in understanding the issues. The question was which would be the best model for South Africa. In Queensland the Department of Public Works was well organised in delivery of services. He asked how effective the central delivery system would be in delivery of stationery and other office supplies, and how effective they would be in the lower structures of management and the regional responsibility.

He added that the introduction of the User Pay Principles was assisting the Department in assuming the responsibility. There was a challenge since most state assets resided presently at local government level, yet not much had been done to check the model’s workability at this level. 

Ms Mandindi stated that the efficiency model was a clear articulation of frameworks and guidelines. In Queensland there were guidelines dealing with a host of issues and on how Departments could trigger the asset management process if they did not have the expertise.  These guidelines applied at national and local government level, to guide management and treatment of every public asset. 

Mr Maduma (ANC) queried the User Pay issue, and asked if the budget was regional or local, and the level which was used for maintenance.

Ms Mandindi stated that the User Pay System applied across the board, but that the rates would differ per area. The User was charged market related prices, and sometimes a proportion of the cost of the property was charged to the user, depending on the classification of the area.  A financial buffer was in place for maintenance, and the profit was used for the upgrading of the portfolio.

A central delivery would undertake to deliver to all divisions and was poised for that on all levels. Purchases would be made from within the region, and all would be accounted for and delivered to a nearby warehouse. The departments were not encouraged to keep stock themselves, as this could be delivered at any time.

Mr N Gogotya (ANC) enquired as to how much power the agency boards had in changing those regulations. He also asked about government representation on those boards. 

Ms Mandindi replied that in the case of Sweden the department was formed under Trade and Industry, and the recruitment of staff in this division was different from government recruitment.  Industry specialists were targeted.  If government owned the petro-chemical board then the representative would be a specialist in that sector. Government would appoint the chairpersons of some of the boards.  The Performance Measures were already formulated. In the petro-chemical industry, it was possible to work on returns of 20% to 30%.  As the government was being informed by industry specialists it was unlikely that the government agenda or specialist agenda would be missed. The board appointed for oversight would be trustworthy,  and government would be involved in appointments. Either government or the private sector would appoint the Chairperson.  .

Mr Gogotya stated that Transnet rolling stock had been lost on the rail system. There was no supervision from government in the distribution of the assets like wood and steel. He questioned whether there could be a system put in place where a broader picture of the assets would be seen before decisions were made.

Ms Mandindi stated that the quality of the members of the Boards was a factor, and that all issues needed to be interrogated and mandates given to the entities. Mandates should cover such issues as whether Transnet could sell as asset of a certain value without government input. If there was such a mandate, then delegated levels of authority should be set up, and parliament would need to be informed. This would restrict the running of the entities but would ensure parliamentary oversight that would act as a check. Decisions would not necessarily always be value-based, as assets could also have historic value.

Mr J Blanché (DA) questioned global warming and its effects on South Africa water and building efficiency.  He also queried why state property near railways tended to be sold. It bordered the best and most energy-efficient mass transport system, and should be retained in order to encourage transport to return to rail. Large shopping malls were built far from the rail systems. Building businesses close to rail would cut costs. Energy efficiency was a factor needing urgent attention. Intersite, in his view, had a role to play in encouraging people back to using rail, and the railways needed to be extended again to factories. Intersite must plan for those properties, and also take proper water into account.

Ms Mandindi stated that Intersite had a major role to play if rail was used as the backbone of the economy. Issues such as cost of transport, safety and security and housing close to railways must be addressed. She had written to Sweden about the global warming research and would put the findings into the design parameters for future structures.  The re-design of Cape Town Station would take energy efficiency into account, and energy efficiency was to be included specifically in the design guidelines and used as a long-term goal.

Mr H Cupido (ACDP) stated that the project services department, being a sub-department, needed to be effective.  He referred to the Queensland examples, and noted that South Africa had a major problem in retaining skilled people in government structures due to salary imbalances against the private sector.

Ms Mandindi agreed that salaries were not comparable and that the HR strategy was a continuous challenge.  Retention was not the only issue; there was also a question of exposing staff to opportunities to develop and expand their expertise. In Queensland 655 professionals were involved, who were highly qualified. Government employees had designed government buildings. In South Africa there needed to be development and a sustained professional capacity at all levels, with proper forward planning so as one skilled person left a replacement was available. Continuity was vital and the implementation needed to start now.

Mr Maduma queried why the Scandinavian countries, having small populations, were used as models, rather than France or Germany, and asked if smaller countries were more efficient.

Ms Mandindi stated that models had been chosen according to maturity of the development. In some instance South Africa had better solutions. In Brazil the economic profile was very similar, but Intersite preferred to learn from mature markets, adapt the solutions to the South African context and implement them.

Ms C Ramotsamai (ANC) commented that using a pilot concept coupled with a Task Team to do research would be helpful.  She recommended that the Board members report to the Department of Public Enterprises and the Auditor General to safeguard decisions made.

Mr Blanché queried what the physical planning for structures could do to direct local government, now that sufficient malls had been developed.  He queried if there could also be malls built in other areas.  Rehabilitation of property could require relatively small investment and it would be helpful to look at potential Intersite properties with a view to development. Local government should make use of local buildings.

Ms Mandindi stated that the planning was far too fragmented and failed therefore to reap the full benefits. The local authorities did not have competence and transport planning was presently fragmented. The plans for cities from local government or from Intersite would differ, and the objectives did not coincide.

Mr Blanché suggested that there must be new business centers in the rural areas, as many new businesses were re-zoned far away from the public transport nodes. 

Mr M Likotsi (PAC) stated that further information would certainly assist in making decisions.

Ms Ramotsamai referred to the issue of malls being situated by the railway stations.  This had been tried at Nyanga in the early 1990s, but there were problems with security and lack of policing. All sectors had to be involved when planning. Maintenance of rail was also a factor to be built into the budget, and integrated transport plans must be developed.

Ms Mandindi was pleased to note that the railways were becoming safer with increased policing.

Dr Huang stated that the railway situation was difficult if the substations in rural areas could not be used, and it there was insufficient budget allocated to railway transport.

Ms Mandindi stated that the assets were divided into passenger lines run by the SARCC, and cargo lines run by Transnet.  The policies needed to be aligned with government policy and direction, as some lines were under-capitalised. If rail transport was the backbone of economy then a budget and delivery expectations must be known.

The Chairperson was glad to have had an interactive flow of discussion.  Another meeting would be arranged to discuss further matters.

Other Committee Business
The Chairperson suggested that the International visit reports and financial reports be tabled for adoption.

The Chairperson reported that in a meeting with the Chairperson of Chairpersons, he had recommended that when a recommendation of a Committee was adopted by the full House, then there should be a report back and follow up by Parliament, to ensure that the authority of parliament prevailed. He further noted that the budget needed to be tabled before the beginning of the present session and the criteria for the budget from Treasury should be made available to the Committees. The Chair of Chairpersons stated that a report on the People’s Parliament should be tabled as it had come up with certain recommendations.

The Chairperson reported that in the Northern Cape the oversight debriefing had not taken place as the MEC was not present, but had now  been invited to Cape Town for the debriefing. Members were requested to further assist the MECs on Provincial and National competency levels in that province. Key principles needed to be addressed.

The Chairperson reflected briefly on the oversight visit to Gauteng, Mpumalanga and Eastern Cape. Draft reports would be tabled, and key areas would be discussed.

The meeting was adjourned.