2. The Joint Budget Committee invited Defence to present on the theme of Justice and Protection Services after consultation with other departments categorised under this theme. The presentation may include other themes which the Defence function impacts.

3. The aim of Defence is to defend and protect the Republic of South Africa, its territorial integrity, and its people in accordance with the Constitution and principles of international law regulating the use of force.

4. Although Defence is categorised under theme 1: Justice and Protection Services, it participates in the following clusters:

5. This presentation focuses on the JCPS and IRPS clusters. Defence priorities are shifting from crime prevention and security in conjunction with the Department of Safety and Security to international relations in conjunction with the Department of Foreign Affairs.

6. Continuous interaction between Defence and other departments in the Justice and Protection services exists through the JCPS Cluster (Department of Safety and Security) and the IRPS cluster (Department of Foreign Affairs). This interaction leads to the setting of objectives and themes as well as the identification of challenges per cluster. Defence's involvement in supporting the objectives and priorities of the clusters is manifested by the alignment of the Defence Plan and Budget with the relevant priorities and themes of the clusters.

7. IRPS Cluster

c. Key Challenges. Enhance the capacity of the intelligence structures and the SANDF.

9. To understand the challenges facing Defence to support the cluster objectives and themes a brief historical perspective is essential. Table I reflects Defence's budget both in terms of GDP and Government Expenditure since 1994 taking into account the impact of the Strategic Defence Procurement Programme.

10. The decline of the budget in real terms as well as in terms of Government expenditure and the GDP signals a declining priority. The demand for force deployments has not taken account of this, reality. With this in mind Defence has submitted a request for additional funding against the background of returning Rbl to the NRF due to favourable exchange rates.

11. The composition of Defence's budget in terms of the economic classification of expenditure for Y2005/06 is reflected in the two tables below showing the situation including and excluding the effect of the SDPs. From both tables it is clear that the personnel component represents a substantial part of Defence's budget that needs to be rectified to ensure a proper balance between the three main classifications ie compensation of employees, goods and services and payment for capital assets. This is one of the objectives of the updating of the White Paper on Defence.

12. Defence requested R 59,279 million to implement the scarce skills and rural area allowance for selected health professionals in the Department of Defence. No additional funds were approved as the request was not deemed unforeseeable and unavoidable.

13. The events leading to this request were as follows:

14. The consequences of the inability to implement the allowances ~r military health functionaries are:

15. Defence has repeatedly requested Treasury to take into account that Defence maintains three major hospitals and 53 sickbays providing healthcare to approximately 350 000 patients when funding improvements of the national health system such as the recapitalisation of hospitals and improving of capacity.

16. In view of the declining budget but growing demands on outputs, Defence has submitted four policy options for funding for the 2005/06 MTEF period. These options are the result of a detailed process followed within the Department and interaction with the MTEC. The options are:

17. Ammunition Disposal. The age and condition of the DOD stock of ammunition is a serious concern. The total stock is 19 years old on average. Almost 50% of the ammunition is in condition C (unusable but reworkable) and 7% in condition D (unusable and not reworkable). The risk of this ammunition being the

cause of casualties, injuries or great damage to facilities is increasing daily.

18. It is estimated that 23 000 tons need to be disposed of immediately which will take i 35 years using the conventional disposal method. The safety aspect with regard to warehousing, shelf life and operational use has reached a critical point where safety cannot be guaranteed.

19. Latest indications are that the construction of the Ammunition Disposal Plant (ADP) will be financed through an Industrial Participation Programme and will take at least two years to construct. The earliest that disposal of DOD ammunition by this plant can be expected is therefore in the FY 2006/07 if construction commences in FY 2004/05. In the meantime the reworking of unstable ammunition must continue to minimize the risk. The cost of reworking is estimated at RIO million per annum and operation of the plant at R80 million per annum.

20. Facilities. The historical backlog of maintenance on all Government owned facilities has necessitated the development by the National Department of Public Works (NDPW) of a specialized approach for the repair and maintenance of facilities. The intent of a comprehensive Repair and Maintenance Programme (RAMP) is to systematically eliminate the existing backlog of repair and inadequate maintenance activities.

21. NDPW conducted and completed the status quo investigations (Phase 1) on 69 bases I facilities as well as all bases I facilities on the southern side of Pretoria. The investigations indicated that an amount of Rb 3.4 would be necessary to implement the RAMP on these bases I facilities. If all the bases I facilities of the DOD were taken into consideration an estimated amount of Rb 10.5 would be needed to implement the RAMP on these bases I facilities.

22. The DOD will embark on a programme to reduce its facilities portfolio by at least 25%. If this were taken into consideration, an estimated Rb7.9 would be needed over an implementation period of 10 years.

23. Integration of Corvettes and Submarines. The acceptance and integration of the Corvettes and Submarines into service is a complex and time-consuming process, which has led to many unforeseen and thus unplanned activities. In terms of international benchmarking this is not a new or strange phenomenon. The problem has been exacerbated by exchange rate fluctuations which have led to the "Customer Furnished Equipment and Services" Register growing at the expense of the SA Navy MTEF. This has led to a situation where the SA Navy now requires additional funding of less than one percent of the cost of the Strategic Defence Packages (Corvettes and Submarines), in order to ensure the contracted acceptance and integration of these platforms into service.

24. An additional serious, unforeseen and unavoidable constraint is being posed by the sub-specification functionality of the Naval Dockyard electricity supply system. This has resulted in an unplanned extended use of Corvette generators, which in turn impacts significantly on fuel consumption and spares usage.

25. Compliance with National Health Legislation. The SAMHS's activities have been under-funded for a considerable time due to pressure on the DOD budget. A factor that is also disregarded is that the cost of health care has increased every year with at least 10% more than what the SAMHS was receiving as an increase. The effect of contractual obligations (service to SANDF members), government priorities and expectations and regulatory imperatives are further impacting on the expenditure.

26. Policy changes and Government incentives to retain scarce skills have a major impact on the SAMHS. The collective effect of scarce skills and rural allowance, legislative changes and Presidential requirements amount to around R90 million, including a VIP ward at 1 Military Hospital. Vehicles and equipment are directly service- and patient- related in the SAMHS and affect all outputs. Ambulances per se are not the only SAMHS vehicles utilised in patient care. It must also be recognised that services provided to DOD personnel have a direct impact on force readiness and the ability to service Government priorities

27. The Military Health Depot does not comply with new legislation. This fact and its impact is a long standing point in request for funding. The deadline for compliance is less than a year away. If funding is not forthcoming the DOD will have no option but to apply for a non-compliance certificate approval. If this fails there will be no pharmaceutical support for patients in the DOD and for deployed forces.

28. Table 4 is a summary of the additional funding requirement submitted by Defence for the four policy options. It also reflects the recommendation of the Medium Term Expenditure Committee to the Ministers Committee for the Budget.

29. Budgetary pressures relate to those programmes that are experiencing rapid increases in outputs, but where the resultant costs cannot be accommodated within the baseline. Affected programmes are as follows:

a. Administration (Defence Foreign Relations). In an effort to align defence foreign relations with Government's objective to increase foreign representation, the DOD has opened one new military attache' office and plan to open another six offices over the medium term. The offices which were and will be opened are at the United Nations and in Kenya, Algeria, Belgium, Saudi Arabia, Pakistan and Uganda. Through the opening of the new offices and by means of some of the existing offices, Defence will also provide twelve new non-residential representatives in Lesotho, Swaziland, Burundi, Mauritius, Ivory Coast, Rwanda, Ghana, Australia, Chile, Tunisia, South Korea and Gabon. In the process of opening the new offices, Defence will also be appointing and placing seventeen additional military attache's and attache' staff.

b. Air Defence. The SA Air Force is responsible for the air transport of the President, Deputy President and Mr Mandela. This service is delivered by means of the newly acquired Presidential Business Jet, named "lnkwazi". Although the initial expectations were that "lnkwazi" would be used mostly for regional and international flights, the confirmed usage pattern is now that the aircraft is the standard mode of air transport for the President both within and outside the RSA borders. This has increased the annual flying hours by one third, from 600 to 800 hours per year, and is accompanied by a corresponding increase in its operating cost and increased demands on facilities and infrastructure.

c. Military Health Support. The output of the military health support programme is mainly based on the annual number of defence patients that require a medical service. Although the number of Defence patients that required a medical service and the outputs produced by military health support programme, such as consultations, prescriptions, referrals etc, have stayed relatively constant, other factors related to the delivery of these outputs have caused a major increase in the cost of maintaining at least the same level of outputs. These factors are:

d. Peace Support Operations. For the latter part of the medium term the National Treasury allocated only an additional R500 million per annum for this purpose. If the current levels of deployment need to be maintained this is clearly insufficient. The full requirement remains at R700 million. If only R500 million is affordable, R352,490 million will be allocated to maintain current force levels for the UN Peace Mission in the Democratic Republic of the Congo (DRC). R147,510 will therefore remain for the Protection Support Detachment in Burundi. This implies that the current force levels of 1,500 will be scaled down to 459. The FY 2005/06 will have to address this issue.

30. In terms of the White Paper on Defence, the Defence Review and current deployments, Defence is under-funded. The result is that the 2005106 MTEF plan is neither affordable nor sustainable. It is foreseen that the updating of the White Paper on Defence and the Defence Review will have a crucial impact on the budget composition. It must however be noted that the full impact of this realignment will in all probability only become visible during FY 2006/07 and more so during FY 2007/08.

31. The effective, efficient and economic implementation of the result of the updated White Paper on Defence and Defence Review will require a collaborative effort between members of the Legislature, Executive and Administration. Defence remains committed to support Government initiatives, priorities and objectives. Additional funding based on the above will make compliance with legislative imperatives possible and empower Defence to fully support Government initiatives, priorities and objectives.