3. Report of the Portfolio Committee on Defence, having conducted departmental hearings on the medium term expenditure framework (MTEF), medium term budget policy statement (MTBPS) and the quarterly financial report on Friday, 05 November 2004, reports as follows:

1. INTRODUCTION

The Committee, as part of its oversight of the Department of Defence, conducted a public hearing on 5 November 2004 concerning the Medium Term Expenditure Framework (MTEF) and the Department’s quarterly financial statement in the context of the Medium Term Budget Policy Statement (MTBPS), which was tabled on 26 October 2004 in the National Assembly.

2. MEDIUM TERM BUDGET POLICY STATEMENT

3. QUARTERLY FINANCIAL POSITION

Unforeseeable and unavoidable items, such as Scarce Skills and Rural Areas Allowances;

Self-financing allocations: income from sales;

Rollover claims;

Humanitarian assistance to Madagascar;

Incomplete capital works;

Virements, such as the reallocation of R11 million to Defence Foreign Relations sub-programme from the Defence Intelligence programme; and

Surplus on the Special Defence Account due to the favourable exchange rate.

4. MEDIUM TERM EXPENDITURE FRAMEWORK

The MTBPS acknowledges that peacekeeping deployment will remain at high levels. However, funding pressures for peace support operations will continue over the medium term.

The Department’s main priorities over the medium term are:

To review the White Paper on Defence and the Defence Review, which will ensure that the defence budget is aligned with government policy;

To prepare combat and support functions for cost-effective peace support operations;

To align resources with government initiatives;

To implement its Human Resource Strategy 2010; and

To build capacity in the Defence Secretariat.

The Department points out that unlike in the past, when funding followed function, the Department can retain the funding when it withdraws from crime prevention operations conducted jointly with the South African Police Services. This will bring about savings over the MTEF, but this could be eroded by the volatility of the exchange rates attached to the strategic defence packages.

The Department believes that two activities may shift its strategic plan over the medium term expenditure period, with consequent funding implications: (1) levels of personnel deployed to African Union and United Nations Peace Support Operations and (2) the update of the White Paper on Defence and Defence Review, which may change force design and structure.

The funding of new priorities within the existing baseline means that activities have to be terminated or scaled down, which places pressure on the services and divisions to adapt their medium term expenditure allocations. These new priorities are (1) the military skills development system and (2) integration of the newly acquired systems in the SA Air Force (fighter aircraft and helicopters) and SA Navy (corvettes and submarines).

Personnel expenditure has grown even as personnel numbers have decreased, partly as a result of annual salary increases and scarce skills allowances.

Provisions of the PFMA state that all proceeds from sales must be paid into the National Revenue Fund. The Treasury, however, has agreed that the Department can retain these funds through the adjustment budget, and the baseline of the Department will be corrected in the following year. The Committee has stressed that the South African National Defence Force is a unified entity and that income from sales should not necessarily go back to the unit that makes a sale, but to SANDF headquarters, which will decide how to apply the funds to benefit the defence force. The Department points out, however, that income from sales may span several years, and that sales of major equipment and currency fluctuations can make reporting more difficult.

The Auditor-General’s qualified opinion on the Department’s financial statements results from five factors: (1) entry of leave into the database on a manual basis, which meant that there was information outstanding at the end of the financial year; (2) movement of assets was also captured manually, with the same negative consequences; (3) information on monies that the Department collected on behalf of the state was not readily available; (4) there was a time lag between items purchased and paid for, with a spillover effect into the new financial year because information was not captured automatically; and (5) losses were not registered at unit level, which could be corrected by the introduction of registers by the Officers Commanding.

The Department emphasises that an IT upgrade can address many of these issues. The Department’s satisfactory record of unqualified opinions during the last two years has been tarnished due to the new reporting system.

5. CONCLUSION

The Committee notes the Department’s opinion that it has executed its mandate in the face of budgetary constraints and a changing global strategic environment. It also acknowledges that the Department’s capacity has been stretched, and that additional funding is needed to prevent erosion of capability.

The Committee notes a disjuncture between the strategic aims of the Cabinet clusters and activities of the departments, because the PFMA does not allow for "cluster budgeting". The Department contends that the PFMA should be amended to enable it to exercise greater control over the budgeting and expenditure process in line with the strategic aims of the Cabinet.

The Department can be more creative when tabling funding proposals to the Ministerial Committee on the Budget. The SANDF’s new role in African peacekeeping, and support to the civil authorities, means more commitments that should be adequately funded.

The Committee will continue to assist the Department to adjust the White Paper and Defence Review so that the Department’s budget will be in line with government policy.

4. Report of the Portfolio Committee on Defence, having undertaken an oversight tour to Swartklip Products on 10 November 2004, reports as follows.

A. Introduction

The aims of oversight visit were to;

inspect health, safety and security standards, in relation to the workforce and the surrounding communities,

assess the feasibility of moving the facility, and

tour the facility, especially the production, storage areas and the perimeter to assess the proximity of the plant to the community.

Delegation

The delegation consisted of the following members:

Swartklip Staff

Mr E Mkuchane - Head of Group Communications

B. Briefing

(a) Introduction

(b) Output

According to Swartklip the turnover was R208 million in 1999/2000, with a net profit of R9 million. The labour cost was 20%. In 2003/04, the turnover was R478 million, with a net profit of R54 million. The labour cost was 16%.

(c) Safety, Health and Environment.

Swartklip’s property covered about 517 hectares and there are different bird and plant species.

Swartklip received the ISO 14001 certificate in 2001. A requirement for this environment certificate was the existence of an integrated waste management system. This system was approved in 1996-1998. The 5 star NOSA certificate, a safety rating, funded by the industry, was received in 2000.

Swartklip has a full-time Occupational Health Practitioner on site and a community consultative forum to address matters of safety and health. The Committee was informed that injuries on duty were minimal, but studies indicated that some retired workers have developed asthma and cancer, which were the main diseases. Swartklip is monitoring this situation.

Applications were submitted to the National Department of Environmental Affairs and Tourism and the local municipalities to build an incinerator to reduce air pollution from the open burning of heavy metals. The Department of Environmental Affairs and Tourism would release the report of the independent inquiry into this matter by January 2005.

Another option was to remove the facility, which would address the encroachment problem by the surrounding community. According to Swartklip feasibility studies however indicated that relocation was a risk, due to the huge capital outlay and the accompanying cash flow implications.

The communities were too close to the perimeter of Swartklip, with the result that any accident at Swartklip would have a big impact on the community.

The facility was not secure, as the community entered it regularly to collect firewood.

Swartklip is an important institution in the Mitchell’s Plain area as an employer and corporate benefactor.

Swartklip’s products are sold internationally and earn valuable foreign currency from exports.

E. Recommendations

The delegation wishes to make the following recommendations, that:

the security around the facility should be improved to ensure the safety and integrity of the establishment. There were too many gaps in the fences.

the stakeholders at local community level, as well as local, provincial and national government level should be fully informed of the possible relocation plans; in terms of the financial risk and loss of jobs, but also the possibility of accessing the land for housing or a community park and the benefits to the environment.

independent testing should be done to assess the pollution of the underground water and the soil.

a report on occupational safety and the treatment of injured workers, past and present at Swartklip, should be submitted to the Committee.

the Committee should also visit Somchem in the Somerset area, which is similar to Swartklip Products.

F. Conclusion

Swartklip Products is a technologically advanced company that is of strategic importance to the state, but its location has become a threat to the surrounding communities. It has to balance its mission with the needs of the environment and the communities. Feasibility studies should ascertain the risks of (1) further investments in its current location and (2) possible relocation.

This report of the oversight visit to Swartklip Products, having been put to the committee, was adopted on Tuesday, 08 February 2005.

Report to be considered.