Report the Portfolio Committee on
Finance on the Annual Report 2006/2007 of the National Treasury, dated
1.
Introduction
The Portfolio Committee
on Finance met on
The Annual Report was presented by the Director-General of the National
Treasury. After the presentation discussions followed which are recorded below
by National Treasury Programme and topic of discussion.
Recommendations are based on the engagement of the Committee with the National
Treasury is provided in the final section.
Programme 1:
Administration
Staff numbers
Regarding staff numbers the Committee referred to Table 3.1 (page 200) of the
Annual Report, which correlated with other tables providing staff numbers, but
not with Table 6.1, which provided equity information. Dates of the staff
number tables were also not the same. The Committee requested that this be
clarified.
National Treasury
indicated that the distinction that was made in these tables was between
positions that existed within and without the establishment. Certain
specialised activities required specialists who one might use on particular
projects but who could not be absorbed into a particular full-time position. So
instead of using consultants such staff were employed ‘out of establishment,’
using funds from vacant posts. Thus, in the tables referred to in the Annual
Report, 710 staff were employed in the establishment and another 57 were
employed out of establishment. Table 5.3, for example, dealt with promotion by
salary band and thus by its very nature would not include the positions
‘outside of establishment’.
Employment Equity and Disability
Statistics
Regarding the employment equity table provided in the Annual Report, the
Committee indicated that no mention was made of National Treasury’s performance
regarding disability: no target or measures of performance were provided, nor a
breakdown by category. The Committee indicated that National Treasury had
to do more in this regard.
National Treasury
responded that it could not force somebody within its organisation to classify
themselves as an employee with disability. National Treasury did have employees
who would be regarded as having a particular physical disability but these
people did not want to be classified as such: this impacted adversely on the
numbers in the employment equity table. In applying for positions at National
Treasury people were of course at liberty to disclose on their application
whether they had a disability and where this was the case special consideration
was given to the application. National Treasury’s experience however had been
that people preferred not to disclose this, asserting that a physical
disability did not impact on their ability to do their job and therefore why
did they need to disclose it.
With regard to the targets set by the DPSA, National Treasury indicated that it
continued to focus on the method by which it was recruiting. It was also going
beyond just
National Treasury had also launched a talent management program, which
encompassed issues around performance, performance management, remuneration and
reward. National Treasury was essentially setting its own development programs
for staff and in this way creating its own supply to fill senior positions. In
addition to performance management and creating own supply National Treasury
also had two other programs, the internship program and the talent pool
program. There were now about 60 people in the internship program. The talent
pool program was also beginning to expand and in addition National Treasury was
making bursaries available. The reality however was that the job market was
tight for the kinds of skills sought by Treasury.
The Committee responded that it would still like to have the
disaggregated disability figures and that there was no reason why National Treasury
could not provide these as other departments did so. The Committee also
indicated that the reasons provided for the low disability equity score did not
appear adequate.
National Treasury
responded by reiterating its previous remark that people who could be
categorised as disabled within the National Treasury at times did not want to
be categorised as such. National
Treasury accepted that it had not met the target but emphasised that
this was not for lack of trying. National Treasury could not insist on
including people as disabled when compiling its equity statistics who refused
to be categorised as such. Treasury further emphasised that in recruiting staff
it made use of an agency that specialised in the placing of disabled people.
All of its job advertisements also indicated that National Treasury
buildings were disabled-friendly.
Secondment to the World Bank and IMF
Regarding the secondment of senior advisers to multilateral institutions,
especially the World Bank and IMF, the Committee enquired after the
policy-impact of such secondment on transformation of the global financial and
development system.
National Treasury
responded that part of the arrangement in question was that
One of the main roles of these officials was to link National Treasury to
discussions taking place on a weekly basis in the boards of these institutions.
It was also a means for
Programme 2: Economic Planning and
Budget Management
Underspending
The Committee referred to the fact that significant underspending had occurred
in a number of programmes of the National Treasury. The Committee enquired
whether there were any common reasons accounting for this. There was a shortage
of information provided in the Annual Report on what the reasons for underspending
were in particular instances, though it seldom appeared to be the result of any
simple efficiency gains. The underspending did also raise concerns about the
quality of the strategic planning of the National Treasury.
National Treasury
indicated that details per program on their spending performance was on page
119 of the Annual Report which stated why a particular program had under-spent
or had saved. Treasury highlighted that the biggest underspending or saving had
occurred in programme 4, the financial systems programme, which was an
environment that used to be dominated by consultants. Contract management of
those consultants had tightened significantly over the past 3 years and savings
had therefore been realised there.
A primary reason for underspending had been delays in the implementation of the
integrated financial management system (IFMS). Most of the required tenders
eventually only went out at the beginning of 2007 and the adjudication was now
taking place. There was a delay in the finalisation of the user requirement
statements, mainly on the HR module. National Treasury had to rely on the DPSA
coordination with other government departments to ensure that everyone was on
board.
Regarding broader trends underlying underspending, National Treasury noted that
if one looked through the programs, with the exception of program 5, one would
notice that the issue of vacancies had been a key driver of the underspending.
One noticed that the programs that had the lowest spending also tended to have
higher vacancy rates.
In the case of the IFMS, because of changes that were taking place and the roll
out of a new system, it didn’t make sense to immediately fill all of the
positions. Just as National Treasury preached to the other departments that if
they could not spend their money it needed to be returned to the National
Revenue Fund, so National Treasury had returned this money to the National
Revenue Fund when it realised that there was a delay in the implementation of
the project.
The Committee then noted that underspending in each programme had occurred and
enquired whether the management of the planning process was adequate. The
Committee raised concerns to what extent the underspending was a once-off
occurrence or a trend across programmes which would have to be taken into
account in future appropriations.
National Treasury agreed that the Committee was raising a point, which was of
general application to all departments when it came to underspending, namely
whether departments failed to plan, planned badly, or planned well but didn’t
execute the plan.
National Treasury
emphasised that it did its best to ensure that the measurable objectives it
provided related to what it was expected to deliver. Across the board, there
was however a struggle to quantify measurable objectives.
In National Treasury,
on an annual basis, once the update of the strategic plan had been completed,
the DG entered into a contract with each programme manager and checked on
progress formally on a quarterly basis. This approach however did not
necessarily capture the financial aspect.
National Treasury
agreed that underspending should lead to reallocation, and that funds could
even be removed from the vote if necessary. The vacancy rate was high and was a
key driver of underspending. Although over the next 12 months existing
positions could be filled, people were also leaving, so net change was likely
to remain small.
Regarding programme 4’s R166.6 million underspending, delays in the
implementation of the Integrated Financial Management System (IFMS) and in the
rollout of training were to blame. Approximately 160 million was associated
with delays in the IFMS. These delays would not however affect the attainment
of the deadline for the project as a whole.
Regarding delays in training, in 2006/2007 responsibility for financial
management training was shifted to SAMDI. Less courses were offered in
2006/2007 because a strategy had been developed in this period. This was now
finalised and unspent funds from the period under review would still be used
for this.
Other variances related to conditions for transfers under the DORA not being
met. Transferring funds where conditions were not met would be tantamount to
throwing money away. This also accounted for a great deal of underspending.
The Land Bank
Regarding the Land Bank and guarantees by government, the Committee asked National Treasury to
comment on the fact that the initial agreement had been for the Land Bank to
submit its turnaround strategy to both National Treasury and the Department of
Agriculture by 15 November 2005. This was subsequently changed to
National Treasury firstly confirmed that the Land Bank was supposed to have
provided government with a turnaround strategy by
Subsequently a couple of events had taken place, which had created an
environment in which it was difficult to get the turnaround strategy ready. The
Department of Agriculture wanted to have a clear understanding of what was
happening at the Land Bank and had requested that the executive committee
vacate the office to give them space to get a clear understanding of what was
happening. Seven to eight weeks thereafter the executive committee was brought
back in. Unfortunately, while they were still working on the turnaround
strategy the CEO of the Land Bank resigned. Accordingly there was something of
a vacuum and government was still waiting, and working very closely with the
Land Bank to ensure that a turnaround strategy was completed. Currently the
Land Bank was under the acting CEO who is also working on this strategy. Though
the Land Bank was provided with a guarantee and an extended guarantee, the main
condition for this was that they would still have to provide the turnaround
strategy.
The Pebble
Bed Modular Reactor (PBMR)
Regarding the Pebble Bed Modular Reactor (PBMR), the Committee enquired after
the financial aspect of this project. When would the PBMR generate revenue?
Current costs for salaries alone, in terms of the Adjustments Appropriation,
were in the region of R 300 - 500 million per year.
National Treasury noted that it had not been directly involved in the review
and feasibility work that was done for the PBMR project. In very broad terms
the feasibility assessment indicated that the commercial viability of the PBMR
was very long term and depended on the PBMR becoming a significant international
supplier of new generation nuclear technology.
Partly because this was a project that depended on its becoming a significant
supplier internationally, the intention had always been that the development of
the project needed to involve an international business partner, or possibly
several, and there had been a great deal of work on exploring the possibility
of a relationship with an investment partner in the project. The R 6 billion
that had been set aside on the budget for the project was a South African
Government contribution, but there was as yet no clarity on investment partners
and therefore the overall eventual ownership structure of the company.
The project would not generate revenue for a long time. It was now going into a
demonstration construction phase and so the full viability of the project was
still to some extent under review. The project was still in a research and
development stage regarding the full commercial viability of the initiative.
The project, if all went according to plan, would begin to generate revenue in
about four years.
Research on Capital Spending Plans
The Committee referred to a reference in the Annual Report to research
conducted on capital spending plans in government and asked what the issues
were that arose from this report.
National Treasury
responded that this was an initiative that had been underway for 2 to 3 years
which had seen the development of a capital projects register within the budget
office. This was quite a detailed exercise in terms of which National Treasury
staff had engaged not only with line departments that dealt with large capital
projects but had also been engaging with SOE’s and was beginning to consolidate
the major capital projects and present information on them at their different stages
of development, from the planning stage to procurement to the actual
development on the ground. The data that was gathered was obtained firstly from
the reports that were available from the different entities themselves, but
trips and on-site visits had also been conducted. The purpose of this project
register was to feed into the capital budgets committee of the budget office so
that when departments came to request funds for additional capital spending,
National Treasury would be able to determine the performance of these
departments and decide accordingly.
The Public Entities Governance Framework
Review
The Committee enquired how far National Treasury was with the implementation of the
2004/2005 recommendations for the Public Entities Governance Framework Review
and what its impact had been to date.
National Treasury
indicated that the project had been completed and the review had now moved into
an implementation phase which had several aspects to it. One was the collection
of information and financial records of public entities which constituted an
information base National Treasury was now able to draw on in extending the Estimates of National Expenditure
documentation.
There were also some legislative and regulatory aspects and the public finance
management amendment process was still outstanding business.
There had also already been amendments to the Public Service Act tabled by the
Minister of Public Service Administration which followed from this review and
there would possibly be further aspects to this.
Lastly, National Treasury pointed out that various departments, such as the
Department of Transport, the Department of Housing and National Treasury
itself, had over the course of the last two years strengthened their
departmental oversight capacity over the entities that reported to them and
this too had been to some extent triggered and informed by the review.
The Neighbourhood Partnership
Development Grant
Regarding the Neighbourhood Partnership Development Grant (NPDG), the Committee
noted that it was a bit confused as to where it belonged as in the ENE it was
located under programme 6 but in the Annual Report it was reported on as part
of programme 2.
National Treasury
responded that the
grant itself, as a flow of funds to municipalities, was included in programme 6
along with the other provincial and municipal transfers, but that the unit
which ran the program was part of the budget office.
Official Development Assistance (ODA)
and the budget
The Committee noted that in programme 2 one of the milestones for 2006/2007 was improved
coordination of ODA programming with the budget processes. The Committee
enquired whether progress was being made there as it wasn’t sure where in the
Annual Report it was reported on.
National Treasury noted that this remained a challenging area. Although
the ODA programme did not involve a large amount of money compared to the
budget, it did involve a substantial number of country assistance programmes
and a range of bureaucratic requirements. To align all of these with the budget
was not easy and thus this was best regarded as ongoing work.
In a further question on official development assistance (ODA), the Committee
enquired what percentage of donor funds were actually aligned with the budget
and were addressing budget objectives, and whether there were any further plans
to ensure that donor funds addressed
National Treasury
noted that
Home Affairs
The Committee noted that National
Treasury had been involved in the re-engineering of home affairs and
enquired the lessons learned and what was the state of financial management in
home affairs.
National Treasury
responded that in general, support to departments related firstly to supporting
them in preparing their reports to the oversight institutions. National Treasury
provided training in this regard, which was valuable as long as departments
sent the right people to the training. But in some cases this did not occur.
Regarding Home Affairs and the lessons learned, National Treasury indicated the
importance of leadership. If leadership did not focus on issues of
administration, then problems were likely to occur. And this indeed was the
case with Home Affairs. Policies needed to be implemented and administrated
well and this was not the case for Home Affairs.
The basic things needed to be done and done well in the case of Home Affairs. National Treasury
worked with the turnaround team appointed by the Minster in this regard. It was
however still too early to assess the impact of these actions.
Correctional Services
Regarding correctional services, the Annual Report indicated that National Treasury
gave guidance to Correctional Services in the case of an efficient way forward
for 5 new correctional facilities. The Committee enquired whether Correctional
Services valued this assistance and whether they cooperated and whether there
had been an improvement in the management of correctional services.
National Treasury
noted that Correctional services had also had some financial management
problems, especially related to costs and contract management of the building
programmes, resulting in delays in facilities getting built as well as delays
from facilities being built to their being operational.
National Treasury
had played a role in ensuring that new facilities needed to be planned
properly, not just the construction costs but also the subsequent operating
costs. This had been a process of tough engagement but National Treasury
believed correctional services had found it useful.
Programme 3: Asset and Liability Management
Turnover in the Domestic Bond Market
The Committee enquired after the reasons for the turnover in the domestic bond
market in the period under review.
National Treasury
confirmed that liquidity had improved from 8, 1 to 11, 4 trillion, a 40.7% increase,
during the period under review. Although this issue had not been dealt with in
detail in the Annual Report, it was covered in the Budget Review. International
investors had shown an increased appetite for domestic bonds. Their
participation increased from 16.5% in 2005 to 20% in 2006, when they purchased
R 34.1 billion bonds in the domestic market.
This trend was due to the upgrades that the country continued to receive in
investment ratings, and which was beginning to attract investors who would not
otherwise have been attracted to
Management of guarantees
Regarding the management of guarantees, the Committee referred to the R 1.3
billion guarantee issued to South African Airways (SAA) at the end of March and
the fact that this guarantee had conditions attached to it. The Committee
enquired what mechanisms had been put in place to ensure that SAA did adhere to
these conditions. The Committee referred also in this regard to comments by SAA
in the media that it required recapitalisation to the value of R 4 billion.
National Treasury confirmed that on
The Committee followed
up by pointing out that one of the conditions that was set for SAA was that SAA
would not compete as a global airline but would function as an African airline
with global reach. The latter implied that international routes would be
limited to key cities on each continent. The Committee enquired whether
National Treasury was satisfied that SAA was meeting this condition.
National Treasury noted that SAA had previously announced new inter continental
routes but that they hadn’t taken on those routes. They had also withdrawn from
certain routes. So in these respects they were meeting the conditions. National
Treasury emphasised that what was transpiring with SAA was not something which
would be happening again and again.
Hedging by State-Owned Enterprises
On the general issue of state owned enterprises, the Committee enquired whether
any state owned enterprise had hedged any of their borrowings and what risks
existed for government as a result of current guarantees.
National Treasury indicated that it used to regard its liabilities as the area
where the risks lay, but that risk now resided in its assets, and specifically
in the exposure on the SOE’s. National Treasury had conducted various stress
tests to determine the probability of guarantees being called and there was
indeed some cause for concern.
Regarding hedging activities, National Treasury noted that a treasury review
had ascertained whether SOE hedge positions had in fact exposed government
beyond a basic hedge position which sought to cover interest rate and currency
risk. National Treasury could confirm that there was no SOE which had taken a
hedge position beyond its core business mandate and the requirements thereof.
The SOE’s were also clear now on the position of National Treasury in this
regard.
Mzansi
Accounts and Retail Bonds
The Committee requested National Treasury to comment on the Mzansi accounts and
retail bounds and on the extent to which the public was participating in these
two initiatives.
Regarding retail bonds, National
Treasury responded that, in gross terms, since the retail bonds were introduced 2 ½ years back
it had been able to raise an amount of about R3 billion. About 1.5 billion had
been redeemed since, that has been given back to the investors, since the bond
maturity had been two years. But the majority of investors that had invested in
retail bonds (about 65%) preferred not to earn interest on a monthly basis or
twice a year but instead re-invested. For National Treasury this was a very
positive trend as it indicated the willingness of investors to invest further
rather than enjoy the immediate benefits of investment returns.
Treasury would also be introducing inflation-linked retail bonds and had signed
a deal with a major retail company to sell the bond through them as well as
through the post office and the office of the National Treasury.
Although the retail bond share (R 3 billion) of the total debt of R 550 billion
was small, the retail bond had actually had a great impact. Institutions and
organisations were for example issuing instruments that were structured around
the retail bonds. Most importantly of all, the new instruments encouraged and
would continue to encourage more South Africans to save.
Regarding the Mzansi accounts, National Treasury noted that according to the Financial Sector Council report
for 2006 that was released recently, about 4.2 million Mzansi accounts had been
opened by people leaving in the Living Standard Measure 1-5 of the adult
population. This number included the accounts provided by the Post Bank. If one
took away the Post Bank accounts the number was 2.8 million. Treasury noted
that at the same time last year the total number of accounts supplied by all the
commercial banks including post banks was 3 million, so there been increase
from 2005 to 2006 of about 1.2 million.
The Mandate of the Development Finance
Institutions
On the Development Finance Institutions (DFI’s) the Committee referred to a
review of these institutions and enquired whether there was any closure on the
nature of their mandate. The issue was especially pertinent given the role
these institutions needed to play in the development of especially the
underserviced and unbanked areas.
Treasury responded that
it was happy to indicate that the first phase of the DFI review had been
completed and a broad picture now existed of the current challenges facing the
DFI’s in
Programme 6:
Provincial and Local Government Transfers
Support to Municipalities
Regarding municipalities, the Committee referred to information provided in the
Annual Report on the financial management conditional grant. The Committee
noted that at the end of the national fiscal year an average 38% of disbursed
amounts had been spent. Given that this was three quarters into the municipal
financial year, the Committee enquired what Treasury was doing to improve
spending performance by the municipalities, since this kind of challenge was at
the heart of service delivery problems. A further, related question posed by
the Committee concerned the direct support provided by National Treasury to
municipalities. The Strategic Plan had indicated that 157 municipalities were
to be supported in the medium term, with an intermediate target of 50 for
2006/2007. It was however reported in the Annual Report that hands-on support
had only been provided to 25 municipalities in 2006/2007. This issue required
comment because again matters of capacity appeared to be at the heart of
current service delivery problems.
National Treasury
responded that it currently engaged in a package of initiatives to assist
municipalities to effectively spend the conditional grants they received.
Siyenza Manje was one such initiative that provided direct hands -on support;
the financial management technical advisers were there to provide secondary
support as well. There were also DPLG programmes that supported municipalities.
A further big initiative around technical capacity support was the 469 graduate
interns that were serving in municipalities already for a 2 year period. So
there was a critical mass of capacity support being provided to municipalities.
A further means of support was the direct meetings and visits to municipalities
to get them to deliver appropriate plans to ensure that they did provide
reports to the councillors themselves firstly, and to move accountability
towards the municipal managers. National Treasury believed these initiatives
were beginning to bear fruit.
However, it had to be acknowledged that in some of the municipalities there was
a high turnover of staff. Because of high turnover of actual senior management
staff there was a dip in the use of conditional grants and renewed commitment
then needed to be attained through council resolutions.
National Treasury indicated that the 469 graduates that were in position were
in fact working in over 220 municipalities, so the target of 157 municipalities
being supported was actually exceeded if one counted these graduate interns.
One also needed to understand that there was definitely a scarcity of skills in
the financial management area. And to get people to want to serve a year or two
as advisors and technical experts in some of the municipalities was a challenge
that needed to be recognised. The other measure that had proved useful had
actually been to call the municipal managers in to account to committees of
parliament and this had apparently really changed the mindsets of managers who
were now eagerly providing reports and the support needed to track progress
with reforms.
Recommendations
The Committee recommends that National Treasury provides more disaggregated
figures in reporting on its attainment or non-attainment of disability targets.
The Committee recommends that National Treasury, in future, provides more
specific as well as detailed reasons for underspending of particular
programmes. The Committee felt that in some respects the shortage of
information made the annual report inadequate as an oversight document.
The Committee recommends that National Treasury provide a report on Official
Development Assistance (ODA) indicating both current amounts of ODA inflows and
the policy framework utilised by National Treasury in determining whether
potential ODA funding was in line with the objectives of Government.