Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698926037702.pdf (South Africa)
Friday, 2 December 2022] No 194—2022] FOURTH SESSION, SIXTH PARLIAMENT PARLIAMENT OF THE REPUBLIC OF SOUTH AFRICA _____________________ ANNOUNCEMENTS, TABLINGS AND COMMITTEE REPORTS _____________________ FRIDAY, 2 DECEMBER 2022 _____________________ TABLE OF CONTENTS ANNOUNCEMENTS National Assembly 1.

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Introduction of Bills ......................................................................................................... 2 Referral to Committees of papers tabled .......................................................................... 2 Link to Volumes of Report of Section 89 Independent Panel .......................................... 3 TABLINGS National Assembly and National Council of Provinces 1.
Minister of Finance ........................................................................................................... 3 2.

Minister of Forestry, Fisheries and Environment ............................................................. 3 National Assembly 1.

Speaker ............................................................................................................................. 5 1 COMMITTEE REPORTS National Assembly 1.
Water and Sanitation ........................................................................................................ 6 2.

Water and Sanitation ...................................................................................................... 11 National Council of Provinces 1.

Appropriations ................................................................................................................ 24 2.
Appropriations ................................................................................................................ 42 3.

Appropriations ................................................................................................................ 54 ANNOUNCEMENTS National Assembly The Speaker 1.
Introduction of Bills (1) Mr M G E Hendricks, MP (a) Divorce Amendment Bill [B32-2022] (National Assembly – proposed sec 75) [Explanatory summary of Bill and prior notice of its introduction published in Government Gazette No 47526 of 18 November 2022.]

Introduction and referral to the Joint Tagging Mechanism (JTM) for classification in terms of Joint Rule 160.

In terms of Joint Rule 154 written views on the classification of the Bill may be submitted to the JTM.
The Bill may only be classified after the expiry of at least three parliamentary working days since introduction.

Bill to be read a First Time.

2.

Referral to Committees of papers tabled (1) The following paper is referred to the Standing Committee on Finance: (a) Proposed Conduct standard on conditions for investment in derivative instruments by pension funds in terms of Sections 106(1) and (2)(b) of the Financial Sector Regulation Act, 2017 (Act No.

9 of 2017), for public comment.

2 3.


Link to Volumes of Report of the Section 89 Independent Panel (a) Link to Volumes 1 – 3 of the Report of the section 89 Independent Panel to conduct a Preliminary Enquiry on proposing a section 89 Enquiry.

https://www.parliament.gov.za/report-section-89-independent-panel TABLINGS National Assembly and National Council of Provinces 1.
The Minister of Finance (a) Proposed Repeal of Regulation 33, made in terms of section 36 of the Pension Funds Act, 1956 (Act No 24 of 1956), for public comment.

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The Minister of Forestry, Fisheries and Environment (a) Government Notice No 2192, published in Government Gazette No 46597, dated 24 June 2022: Biodiversity Management Plans for Aloe Ferox and Honeybush Species (Cyclopia Subternata and Cyclopia Intermedia), in terms of the National Environmental Management: Biodiversity Act, 2004 (Act No 10 of 2004).
(b) Government Notice No 2208, published in Government Gazette No 46641, dated 01 July 2022: Intention to declare Management Authorities for Robben Island Museum World Heritage Site and Ukhahlamba Drakensberg Park World Heritage Site, the South African Component of Maloti-Drakensberg Park World Heritage Site under the World Heritage Convention Act, 1999 (Act No 49 of 1999).
(c) Government Notice No 2224, published in Government Gazette No 46649, dated 01 July 2022: Amended format and procedure for nomination of World Heritage Sites in the Republic of South Africa, in terms of the World Heritage Convention Act, 1999 (Act No 49 of 1999).
(d) Government Notice No 2684, published in Government Gazette No 47373, dated 28 October 2022: Call for nominations – proposed establishment of a panel of Experts to advise on the proposed Fishing-Area Closures Adjacent to South Africa’s African Penguin Breeding Colonies and the Decline in the Penguin Population, in terms of the National Environmental Management Act, 1999 (Act No 107 of 1998).
(e) Government Notice No 2688, published in Government Gazette No 47377, dated 28 October 2022: Amendment of the enabling provision under which the Regulations laying down the procedure to be followed for the adoption of spatial tools or environmental management instruments has been made, in terms of the National Environmental Management Act, 1999 (Act No 107 of 1998).
3 (f) Government Notice No 2689, published in Government Gazette No 47378, dated 28 October 2022: Publication of the Revised Draft White Paper on Conservation and Sustainable Use of South Africa’s Biodiversity 2022: For Public Comment.
(g) Government Notice No 2716, published in Government Gazette No 47448, dated 04 November 2022: Amendment of the Identification in terms of section 24(5) (a) and (b) of the Act, of the procedure to be followed in applying for Environmental Authorisation for Large Scale Electricity Transmission and Distribution Development Activities Identified in terms of section 24(2)(a) of the Act when occurring in Geographical Areas of strategic importance, in terms of the National Environmental Management Act, 1999 (Act No 107 of 1998).
(h) Government Notice No 2717, published in Government Gazette No 47448, dated 04 November 2022: Consultation on the intention to amend the procedures for the Assessment and Minimum Criteria for reporting on Identified Environmental Themes in terms of sections 24(5)(a) and (h) and 44 of the Act, when applying for Environmental Authorisation, in terms of the National Environmental Management Act, 1999 (Act No 107 of 1998).
(i) Government Notice No 2718, published in Government Gazette No 47448, dated 04 November 2022: Cape Vultures: Protocol for the Specialist Assessment and Minimum Report content requirements for Environmental Impacts on the Cape Vultures by Onshore Wind Energy Generation facilities, in terms of the National Environmental Management Act, 1999 (Act No 107 of 1998).
(j) Government Notice No 2718, published in Government Gazette No 47448, dated 04 November 2022: Cape Vultures: Protocol for the Specialist Assessment and Minimum Report content requirements for Environmental Impacts on the Cape Vultures by Onshore Wind Energy Generation facilities, in terms of the National Environmental Management Act, 1999 (Act No 107 of 1998).
(k) Government Notice No 2624, published in Government Gazette No 47301, dated 13 October 2022: The Department of Forestry, Fisheries and the Environment: Request for Exporters to provide Information and to Register with the Department of Forestry, Fisheries and the Environment for the Export of Waste Tyres.
(l) Government Notice No 2632, published in Government Gazette No 47302, dated 14 October 2022: Consultation on the intention to declare certain properties situated in the Western Cape Province to be part of the existing Agulhas National Park, in terms of the National Environmental Management: Protected Areas Act (Act No 57 of 2003).
(m) Government Notice No 2536, published in Government Gazette No 46981, dated 27 September 2022: Re-Advertisement: Call for Nominations of Suitable Persons to be appointed as Members of the iSimangaliso Wetland Park Authority Board, in terms of the World Heritage Convention Act (Act No 49 of 1999).
(n) Government Notice No 2598, published in Government Gazette No 47257, dated 07 October 2022: Methodological Guidelines for Quantification of Greenhouse Gas Emissions, in terms of the National Environmental Management: Air Quality Act (Act No 39 of 2004).

4 National Assembly 1.


The Speaker (a) Reply by the Minister of Transport to Report of Portfolio Committee on Transport on Budget Vote 40: Transport and Strategic Plan and Annual Performance Plan 2022-23 of Department of Transport, as adopted by the House on 7 June 2022.

Referred to the Portfolio Committee on Transport.


(b) Reply by the Minister of Transport to Reports of Portfolio Committee on Transport on Oversight visit to Gauteng and Mpumalanga provinces; Oversight visit to Mangaung Metropolitan Municipality and 2020-21 Fourth Quarter Expenditure of Department of Transport, as adopted by the House on 18 November 2021.

Referred to the Portfolio Committee on Transport.


(c) Reply by the Minister of Home Affairs to Report of the Portfolio Committee on Home Affairs on Oversight visit to Government Printing Works, as adopted by the House on 30 November 2021.

Referred to the Portfolio Committee on Home Affairs.
(d) Reply by the Minister of Human Settlements to Report of Portfolio Committee on Human Settlements on Budget Vote 33: Human Settlements, and on revised Strategic Plan for coming Medium Term Expenditure Framework (MTEF) period and Annual Performance Plan 2022-23, as adopted by the House on 14 June 2022.

Referred to the Portfolio Committee on Human Settlements.

COMMITTEE REPORTS National Assembly 5 1.


Report of the Portfolio Committee on Water and Sanitation: Overview of the Fourth Quarter Expenditure Report (1 January 2022 to 31 March 2022) of the Department of Water and Sanitation (Vote 41) for the 2021/22 Financial Year, dated 2 December 2022 The Portfolio Committee on Water and Sanitation, having considered the 2021/22 fourth- quarter report on the expenditure and performance of the Department of Water and Sanitation (the Department), reports as follows: 1.
Background The Portfolio Committee on Water and Sanitation considered the Department's 2021/22 fourth- quarter report on 24 May 2022.

This report reflects the Department's expenditure and non- financial performance by the end of the fourth quarter of the 2021/22 financial year.

It also provides the Portfolio Committee’s critical deliberations, observations, and recommendations.
Those are based on the Portfolio Committee's documents by the Department of Water and Sanitation, the Adjusted Estimates of National Expenditure (AENE) and the section 32 report published by the National Treasury.

2.

Introduction The legislative mandate of the Department of Water and Sanitation is to ensure that the country’s water resources are protected, managed, used, developed, conserved and controlled by regulating and supporting the delivery of effective water supply and sanitation.
This entails adhering to water-related policies and legislation requirements, including constitutional requirements critical in delivering on the right of access to sufficient food and water, transforming the economy and eradicating poverty.

The mandate is derived from the National Water Act, 1998, the Water Services Act, 1997 and Water Research Act, 1971.

3.
3.

Financial Performance of the Department of Water and Sanitation Table 1 below reflects quarter-four cumulative expenditure against the final appropriation.

The final appropriation for the year under review amounted to R17.7 billion.

The actual expenditure 1 6 amounted to R15.2 billion, a variance of R2.5 billion and expenditure as a percentage of final appropriation or 86 per cent.
At the end of the fourth quarter, the Department spent R15.2 billion or 85.7 per cent of the available budget of R17.7 billion.

This equates to a preliminary underspending of R2.5 billion or 14.3 per cent.

Programme 1: Administration spent R1.7 billion or 87.6 per cent against the available budget of R2 billion.

The preliminary underspending of R243.5 million or 12.4 per cent is primarily due to unfilled vacancies and the slow procurement of cleaning and security services.
Programme 2: Water Resources Management spent R3.5 billion or 96.8 per cent of the available budget of R3.6 billion at the end of the fourth quarter.

The preliminary underspending of R116.7 million or 3.2 per cent is due to funded vacant posts, lower travel and subsistence costs and delays in finalising feasibility studies and implementation readiness studies for water management.

Programme 3: Water Services Management spent R10 billion or 82.1 per cent of the available budget of R12.2 billion.
The preliminary underspending of R2.2 billion or 17.9 per cent is due to vacancies, delays in the implementation of the VRS pollution remediation intervention project, as well as delays in the certification, verification and approval for payment of work done by municipalities on behalf of the department through the indirect RBIG and 2 7 WSIG.

Spending on Covid-19 interventions at the end of the fourth quarter amounted to R37.7 million, while R69.3 million was spent in the 2021/22 financial year.
The analysis of the expenditure per economic classification shows that transfers and subsidies are the main cost drivers, as they constitute the highest expenditure at R9.4 billion.

While current payments (compensation of employees and Goods and Services) rank second at just above R1,7 billion and R1.4 billion, respectively, and payments for capital assets rank fourth in terms of expenditure.
Transfers and subsidies are mainly to the Water Trading Entity, water boards and municipalities (in the form of grants).

4.

Non-financial performance for the fourth quarter Table 2 below reflects the non-financial performance for the fourth quarter in each of the three programmes.

Overall, in Programme 1: Administration, the Department achieved 80 per cent, with a budget spend of 88 per cent.
In Programme 2: Water Resources Management, the Department achieved 59 per cent, with a 97 per cent budget spend.

In Programme 3: Water Services Management, the Department achieved 65 per cent, with an 82 per cent budget spend.
In terms of under-performance in each of the programmes, the Department highlighted the following: Programme 1: Administration The areas of under-performance in this programme related to: the implementation of the risk management plan, implementation of training interventions, and expenditure on the annual budget.
3 8 Programme 2: Water Resources Management The areas of under-performance in this programme related to: the architecture of the National Digitised Integrated Water and Sanitation Monitoring System, completion of the Lindley gauging station, cabinet approval of the National Water Amendment bill, gazetting of the Limpopo-North West Catchment Management Agencies’ new operational area, the transformation of four (4) irrigation boards into water user associations, bulk raw water projects in preparation for implementation phase and under construction, scheduled and unscheduled maintenance projects, dam safety evaluations and rehabilitation projects completed, the second draft business case for the independent economic regulator, finalisation of water use license allocations and draft regulation for water allocation reform.
Programme 3: Water Services Management The areas of under-performance in this programme related to: updating water conservation and water demand strategies, feasibility and implementation readiness studies for regional bulk infrastructure projects, district municipality five-year water and sanitation reliability plans, regional bulk infrastructure project phases under construction and completed (mega and large) and cabinet approval for the Water Services Amendment Bill.

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5.

Observations and Recommendations The Portfolio Committee was extremely concerned by the reported under expenditure of R2.532 billion by the Department of Water and Sanitation in the 2021/22 financial year.

Many communities are not assured of water services or quality water services.

Irregular expenditure of R9,347 billion on the Main Account and R8.1 billion on the Main Trading Entity was unacceptable.
Members sought assurance from the Department that procurement policies and adherence to laws to prevent transgressions must be monitored.

The Portfolio Committee further noted that under-expenditure within the Regional Bulk and Water Services Infrastructure Grants is directly linked to the non-completion of critical projects intended to ensure that people have access to clean water and dignified sanitation.
Other areas of concern by Members in evaluating the performance of the Department in the fourth quarter related to non-adherence to policies on bid evaluations, low target performance 4 9 in the finalisation of water user licences and slow progress on bulk water and sanitation projects, which increased initial cost estimates.
The Portfolio Committee, therefore, recommended that the Minister, through the Department of Water and Sanitation: • Provide quarterly briefings on progress made on under-expenditure and non-attainment of targets on bulk water and sanitation infrastructure projects.

• Provide a briefing on proposed amendments to the National Water Act, Water Services Act, and Water Research Act.

Report to be noted.

5 10 2.


REPORT ON WATER AND SANITATION ANALYSIS OF THE PORTFOLIO COMMITTEE ON WATER AND SANITATION ANALYSIS OF THE FIRST QUARTER EXPENDITURE REPORT ON THE DEPARTMENT OF WATER AND SANITATION (VOTE 41) FOR 2022/23, DATED 2 DECEMBER 2022 The Portfolio Committee, having undertaken its oversight of the first quarterly expenditure report 2022/23 of the Department of Water and Sanitation (Vote 41) reports as follows: 1.
Introduction In compliance with the provisions of the Public Finance Management Act (PFMA), the Department of Water and Sanitation (hereinafter the Department), submitted its quarterly expenditure report to the Portfolio Committee on Water and Sanitation (hereinafter the Portfolio Committee) on 20 September 2022.
The purpose of Vote 41: Department of Water and Sanitation is to ensure the availability of water resources to facilitate equitable and sustainable socio-economic development, and ensure universal access to water and sanitation services.

The mandate of the Department is set out in the National Water Act (1998) and the Water Services Act (1997).
The Department’s legislative mandate is to ensure that the country’s water resources are protected, managed, used, developed, conserved and controlled by regulating and supporting the delivery of effective water supply and sanitation.

This is done in accordance with the requirements of water-related policies and legislation that are critical in delivering on people’s rights to have sufficient food and water, growing the economy and eradicating poverty.

2.
2.

Challenges and Achievements At the outset of the briefing on the first quarter expenditure performance, the Minister of Water and Sanitation, Minister S Mchunu, acknowledged the findings of the Auditor-General of South Africa on its financial performance for the 2020/21 financial year.

Several challenges still confront the optimal functioning of the Department.
This includes its financial performance and position, service delivery challenges, clearing of legacy cases involving 1 11 unauthorised, irregular, fruitless and wasteful expenditure, fraud and corruption and institutional performance challenges within the water sector value chain.

National Treasury is currently assessing applications by the Department for condonations.
The Department stressed that it has developed and currently implementing a turnaround and financial recovery plan addressing the strategic context, performance and consequence management systems, strategic leadership, institutional stabilisation and transformation, sustainable service delivery, infrastructure maintenance and development, and financial management.
There were ongoing interventions to correct systematic challenges within the water sector, which were being done in collaboration with National Treasury, COGTA, municipalities and water boards.

A total of 23 senior management posts have been filled since the start of the 2021/2022 financial year, including the Director-General post, which was filled with effect from 1 January 2022.

The Chief Financial Officer (CFO) and all other Deputy Director-General (DDG) posts had also been filled.
All Chief Director posts had been filled, except for the post vacated by the current CFO, and the incumbent would assume duty on 1 October.

One vacant director post, that of the Forensic Investigation and Quality Assurance -- was in the process of being filled.

The Forensic Investigation Unit had eight investigators, three of whom had since vacated their positions.

This created a capacity constraint.


The DWS was now following a proactive approach, preparing recruitment and selection processes in instances where it became aware of future vacancies.

It was also reprioritising other critical vacancies in line with the compensation of employees (CoE) budget allocation for the 2022 medium-term expenditure framework (MTEF), and in line with the approved organisational structure.

Specific emphasis was being placed on professional and critical positions.

3.
3.

EXPENDITURE AGAINST ATTAINMENT OF PERFORMANCE TARGETS The Department’s expenditure for the period ended 30 June 2022 amounted to R2.422 billion, representing 13.1 per cent of the total annual adjusted budget of R18.5 billion.

2 12 An amount of R2.5 billion was unspent for the period under review.

The total amount of irregular expenditure condoned by National Treasury amounted to R1.4 billion.
Between 2019/20 and 2022/23, 228 cases were reported to the internal audit unit, and 135 forensic investigation cases are in progress.

A further 73 cases have not yet been investigated, but will be forwarded to external service providers to expedite the investigations.
Budget reprioritisation amounts included R65 million for the Kwazulu-Natal flood disaster, R32 million for the section 63 investigation on water projects in Umkhanyakude, and R67.4 million for the Eastern Cape’s Nelson Mandela Bay and Koega Water Crisis Intervention.

The Department achieved 78 per cent of targets during the year under review.
3.1 MAIN ACCOUNT AND WATER TRADING ENTITY 3.1.1 MAIN ACCOUNT The Department of Water and Sanitation has a total budget of R18.5 billion for the 2022/23 financial year.

At the end of the first quarter, the department spent R2.4 billion or 13.1 per cent of the available budget.

This equates to a lower-than-projected spending of R1.7 billion or 41.6 per cent.

Most of the underspending was recorded under “Payments for Capital Assets” for R796.6 million.
For all departmental programmes, Administration, Water Resources Management and Water Services Management, in the first quarter, the percentage of actual achievement amounted to 78 per cent with a 13 per cent budget spend.

In Programme 1: Administration spent R391.4 million or 23.9 per cent at the end of the first quarter against the projection of R514.5 million.
The lower-than-projected spending of R123.1 million or 23.9 per cent is mainly due to a moratorium on filling vacancies to remain within the compensation of employees ceiling over the 2023 Medium Term Expenditure Framework (MTEF) and delayed payment for external bursaries.

The actual achievement was 81 per cent, with a 19 per cent budget spend.

Under-performance areas include implementing the risk management plan, expenditure on the annual budget, and reduction of debtor days.
3 13 In Programme 2: Water Resources Management spent R1.48 billion at the end of the first quarter, against a projection of R1.5 billion.

Spending is R25 million or 1.7 per cent lower than projected, mainly due to delays in finalising the procurement plans for the Xhariep Pipeline and a shortage of adequately qualified and experienced engineering and technical staff leading to the slow construction of two surface water monitoring gauging network stations.
The actual achievement was 77 per cent, with a 39 per cent budget spend.
The areas of under-performance – Cabinet approval of the National Water Amendment Bill, Gazetting of the National Water Resources Strategy-3, Cabinet approval of the National Water Resources Infrastructure Agency, rehabilitation of conveyance systems, creation of job opportunities through implementing operations and maintenance projects, consultations on raw water charges, draft regulation for water allocation reform, stakeholder consultation on the water economic regulator, and water users monitored for compliance.
Table 1: Main Account Expenditure Spend for the First Quarter, 2022/23 Financial Year Programmes Year-to-date Year –to- date cumulative approved drawings Year-to-date cumulative actual expenditure Available budget/ Variance Variance - Accumulated drawings and actual expenditure Projected spending Expenditure as % of the annual appropriation Variance - Accumulated drawings and actual expenditure R'000 R'000 R'000 R'000 R'000 % % % Administration 2 012 509 514 525 391 420 1 621 089 123 105 25,57% 19,45% 6,12% Water Resources Management Water Services Management Total Programmes Economic classification Current payments Compensation of employees Goods and services Interest and rent on land Transfers and subsidies Province and municipalities Departmental agencies and accounts Foreign governments and international organisations Public corporations and private enterprises - - - - - 0,00% 0,00% 0,00% 10 528 115 2 112 727 1 439 574 9 088 541 673 153 20,07% 13,67% 6,39% 6 223 394 - 164 6 223 230 (164) 0,00% 0,00% 0,00% 2 612 130 1 141 661 1 145 013 1 467 117 (3 352) 43,71% 43,83% -0,13% 250 978 146 851 146 851 104 127 - 58,51%
 58,51% 0,00% 1 413 686 811 973 143 729 1 269 957 668 244 57,44% 10,17% 47,27% 4 14 Non-profit institutions Households Payments for capital assets Buildings and other fixed structures Machinery and equipment Software and other intangible assets Payments for financial assets Total economic classification 139
- 41 966 4 417 (41 966) 0,00% 90,48% -90,48% - - - - - 0,00% 0,00% 0,00% 18 539 669 4 149 920 2 422 603 16 117 066 1 727 317 22,38% 13,07% 9,32% In Programme 3: Water Services Management spent R555 million against a projection of R2.1 billion.
Spending is R1.6 billion or 74 per cent lower than projected, mainly due to the delay in the planned transfer to Umgeni Water Board due to the non‐submission of the required project documentation and the lower spending of the indirect Regional Bulk Infrastructure and Water Services Infrastructure Grants.

The actual achievement was 80 per cent, with a 4 per cent budget spend.
The areas of under-performance – updating the nine (9) provincial situational analyses, regional bulk infrastructure phases under construction (mega and large), cabinet approval of the Water Services Amendment Bill and evaluation of water boards’ performance against performance plans.
• Under-spending per economic classification Significant under-expenditure per economic classification is as follows: • Compensation of employees: R19.957 million due to under-spending mainly due to mandatory outer year budget reduction of R94.732 million.

These funds cannot be committed to preventing unauthorised expenditure in the year of budget reduction.
• Goods and Services: R237.606 million due to the impact of the moratorium on procurement due to the constitutional court judgement, and other operational budgets.

• Payments for capital assets: R796.601 million due to slow-moving projects, procurement processes by implementing agents for water services and regional bulk infrastructure grants per province.
• Transfers and subsidies: R673.153 million due to water boards finalising compliance documents in the second quarter; with the 2022/23 local government payment schedule approval of the Bulk Infrastructure Grant and Water Services Infrastructure Grant.
5 15 • Financial highlights related to the Main Account Table 2 below highlights the movement of funds for the fourth quarter (End-March) of 2021/22 and the first quarter (End-June) of 2022/23 in respect of advances, contingent assets and liabilities, and unauthorised expenditure.

No irregular or fruitless and wasteful expenditure was reported for the period under review.
The advances reflected in the table below include amounts paid per the Implementing Agents with water boards and HDA for Regional Bulk and Water Services Infrastructure projects, including the Bucket Eradication Programme.

Continent assets include mainly legal claims by the Department (Joint with the Special Investigating Unit) for the Giyani Water Project and Fumile Advisory Services.

The matters are before the Polokwane and Gauteng High Court.
Table 2: Financial highlights – Main Account MAIN ACCOUNT Details June 2022 March 2022 Movement R'000 R'000 R'000 Bank balance Favourable (Unfavourable balance) 3 499 019 1 756 287 1 742 732 Prepayments and advances 123 409 156 965 (33 556) Contingent Assets Accruals and payables Commitments Contingent liabilities 3 714 892 3 622 404 92 488 335 855 405 823 (69 968) 6 255 779 6 116 970 138 809 11 033 259 11 197 640 (164 381) Unauthorised expenditure 641 109 641 109 Fruitless and wasteful expenditure 16 813 16 813 - - Irregular expenditure 9 459 330 9 459 106 224 Contingent liabilities, accruals and payables reduction are due to settlements processed in the current period.
Unauthorised expenditure relates to the prior year’s overspending of the main division of the Vote, largely due to the War-on-Leaks Project and the Bucket Eradication Programme.

National Treasury has submitted consolidated recommendations to SCOPA, and amounts are cleared once approval is granted.

3.1.2 WATER TRADING ENTITY The Water Trading Entity (WTE) is not listed as a schedule entity in the Public Finance Management Act (PFMA) and thus functions within the administration of the Department.
The 6 16 Director-General is appointed in terms of section 36(b) of the PFMA as head of the entity.

The WTE has two components, namely water resources management and infrastructure management.

The resources management component oversees the management of water quality, conservation and allocation of water through Catchment Management Agencies (CMAs).

Where Catchment Management Agencies are not yet established, this is done through proto-CMAs located in regional offices.
The infrastructure component oversees the operations and maintenance of existing water infrastructure and the development of new infrastructure.

Funding for the WTE (operations and maintenance and the development of new infrastructure) comes from revenue generated from raw water charges in terms of the pricing strategy.

The Water Trading Entity relies on revenues from the sale of water.
It augments its budget for developing and managing national water resource infrastructure with an MTEF allocation of R9.55 billion.

The medium-term expenditure estimate for the Water Trading Entity is R51.6- billion, comprising R16.4-billion, R17.2 billion and R18 billion in 2022/23, 2023/24 and 2024/25, respectively.
Table 3: Water Trading Entity Expenditure Spend for the First Quarter, 2022/23 Financial Year Programme Annual Budget % spent against the Annual Budget YTD Budget YTD Actual Expenditure Available Budget % spent on YTD budget % Variance 1.

Administration 2.

Implementation of water resources management activities 3.

Operations, maintenance and refurbishment of national water resources schemes 4. Financing and investment in raw water infrastructure 5.

Bulk water supply to strategic users 6.
Implementation of dam safety Total R’000 1 293 018 738 874 % 12% 29% R’000 306 105 295 816 R’000 159 970 216 009 R’000 1 133 049 522 865 % 52% 73% % Economic Classification R’000 % R’000 R’000 R’000 % Compensation of Employees Goods and Services Trans Caledon Tunnel Authority (TCTA) Payments for Capital Assets Total % 26% 55% 0% 87% 48% The programmes under the Water Trading Entity comprise Administration, Implementation of Water Resources Management Activities, Operations, Maintenance and Refurbishment of 7 17 National Water Resources Schemes, Financing and Investment in Raw Water Infrastructure, Bulk Water Supply to Strategic Users and Implementation of Dam Safety.
The Economic Classification provides a breakdown of the Annual Budget of R16.4 billion for the 2022/23 financial year.

The annual budget for the Compensation of Employees amounts to R1.4 billion, with 20 per cent or R289 million spent in the first quarter.

On Goods and Services, an annual allocation amounted to R2.6 billion, with 14 per cent or R357 million spent in the first quarter.
The annual budget for the work of the Trans-Caledon Tunnel Authority amounts to R9.5 billion, with 7 per cent or R695 million spent in the first quarter.

Payments for capital assets amount to R2.7 billion, with 9 per cent or R1.4 billion spent in the first quarter.
• Financial highlights related to the Water Trading Entity Table 4 below reflects the financial highlights related to the Water Trading Entity in respect of trade receivables, long-term financial liabilities, contingent liabilities and fruitless and wasteful expenditure for the fourth quarter (End-March, 2022) and the first quarter (End-June, 2022).
Table 4: Financial highlights – Water Trading Entity WATER TRADING ENTITY Details Bank balance Favourable Trade receivables (Gross) Contingent Assets June 2022 R'000 March 2022 R'000 Movement R'000 4 125 228 2 141 999 1 983 229 25 486 008 24 613 875 872 133 2 925 2 925 - Long- term Financial liabilities 13 060 459 11 114 432 1 946 027 Payables from exchange transactions Commitments Contingent liabilities Fruitless and wasteful expenditure Irregular expenditure 2 159 567 1 171 979 323 279 206 808 2 281 500 1 848 706 323 279 206 808 (121 933) (676 727) - - 7 102 949 7 082 046 20 903 As of the end of June 2022, an amount of R25.4 billion was owed by trade customers.
In addition to the enforcement of credit control measures, the Department is part of the Multidisciplinary Revenue Committee which comprises the National Treasury, the South African Local Government Association, and the Department of Cooperative Governance and Traditional Affairs to focus on providing solutions to water debt challenges across the value chain.
8 18 Long-term financial liabilities represent the amounts owed to Trans-Caledon Tunnel Authority by various construction contracts for developing and maintaining infrastructure assets.

Compared to the previous year, the long-term financial liabilities have decreased to R1.9 billion.

Contractual liabilities mainly consist of legal claims against the Department by several service providers regarding contractual disputes on litigation processes.
Fruitless and wasteful expenditure was incurred due to irrecoverable construction costs incurred in the internal and external projects.

4.

REPRIORITISATION OF BUDGETS BETWEEN PROJECTS As part of the measures to prevent under-spending, the Department had reprioritised budgets between projects with supporting acceleration points, including effective contract management penalties, and termination of non-performing contractors.
Some of the key prioritised projects include the following: 4.1 Vaal River System Intervention – Rand Water The Emfuleni Section 63 Directive was being implemented by Rand Water, with an estimated refurbishment cost of R655.96 million in the 2022/23 financial year.

The Department had appointed seven contractors to replace collapsed pipelines and electromechanical projects, and had issued work packages with a combined value of R223.7 million during August.

Construction had already commenced.


Project performance had been affected by community protests and interruptions by business interest groups.

More work packages were being processed, and construction was being accelerated.

The significant expenditure would be realised upon work certification, thus mitigating under-spending.

The current budget allocation of R400 million would be increased with unspent funds from identified non-performing projects.
4.2 Madibeng Bulk Water Supply – Magalies Water The project had many challenges, resulting in work stoppages, community protests, the 9 19 liquidation of one of the service providers, poor project execution, etc.

Efforts had been made to resolve these challenges, and six contractors -- civil, mechanical and electrical -- were appointed with expenditure projections estimated at R488 million for the 2022/23 financial year.
The project was being accelerated, and it was anticipated that additional funding would be required.

The current budget allocation of R105 million would be increased with unspent funds from identified non-performing projects.

4.3 Loskop Regional Bulk Water Supply Scheme Three contractors for projects with a combined value of R1.5 billion were appointed on 5 September.
Construction was expected to commence at the end of September, as the contractors were currently busy with contractual obligations such as surety and insurance.

The budget allocation of R140 million was projected to be spent in the 2022/23 financial year.

Construction would be accelerated, and significant expenditure would be realised upon work certification.
4.4 Upgrade of the Olifantspoort and Ebenezer Water Supply Scheme – Lepelle Northern Water An amount of R422 million had been allocated through the Budget Facility for Infrastructure Fund.

A memorandum of agreement (MOA) had been concluded.

A transfer was scheduled for the second quarter to enable Lepelle Northern Water to finalise the implementation readiness study and start the refurbishment works.
4.5 Budget reallocations between projects within the same province Reallocations between projects were also being processed and aimed at preventing under- spending.

5.
OBSERVATIONS AND RECOMMENDATIONS Members of the Portfolio Committee on Water and Sanitation, having deliberated on the presentation of the first quarterly expenditure report of the Department of Water and Sanitation (Vote 41), derived the following observations and related recommendations: 10 20 5.1 Challenges experienced by implementing agents In response to the challenges experienced by implementing agents, such as capacity constraints, the Department will provide detailed reports on work of the implementing agents per province.
The reports would clarify the stages of work of the implementing agents, and the departmental assistance and oversight to accelerate the process.

5.1.1 The Department should, within a set timeframe, be determined by the Portfolio Committee to provide detailed written responses to constraints encountered by implementing agents in each province, and departmental mitigation strategies to resolve the challenges.
5.2 Irregular expenditure and condonation thereof In response to the lengthy process of condonation of irregular expenditure, the Department noted that there is a set process that National Treasury follows before condoning any amount.

The Department has followed all the rules and procedures of Treasury on the condonation of requested amounts.
The requirements included the Department’s ability to recoup funds and instigating disciplinary measures, including charges of fraud and corruption by transgressing officials.

Over several years and with a historical debt incurred previously, approximately R16 billion within the Main Account and Water Trading Entity was reflected as irregular expenditure.

With the necessary support from National Treasury, the Department, followed all procedures in its requests for amounts to be condoned.
Thus far, the amount of irregular expenditure condoned by National Treasury is R1.4 billion.

4.2.1 The Department should, on a quarterly basis, provide a progress report on recouping funds and work on finalising the disciplinary cases, with information on National Treasury’s processes of condonation requested by the Department.
5.3 Establishment of the construction unit and recruitment of young people to the Academy of Learning 11 21 The establishment of the construction unit many decades ago did not cater for providing experience to young people but to building major infrastructure.

But, members stressed that the issue of transformation within the construction unit was imperative and also argued that it was critical to build the construction unit with more young people, especially in the field of scientists and engineers.
The Department, however, has an Academy of Learning, where young people are recruited through a graduate training bursary.

Thus far, 975 bursaries have been awarded, with 827 students completing the course.

One hundred and forty-five (145) graduates were currently in the new graduate intern programme, and approximately 600 candidates had been appointed to contract positions in the Department.

Three hundred (300) candidates have been appointed to permanent positions in the Department.
5.4 Finalisation of the one long-standing disciplinary cases The Presiding Officer of the disciplinary team hopes to streamline the finalisation of the disciplinary cases involving one of the senior directors to avoid the case dragging on for too long.

Perpetual postponements on the director’s part have delayed the finalisation of the case.

5.5 Reported incidents of fruitless and wasteful expenditure By the end of June, an amount of R25.4867 billion was owed by trade customers.
In addition to enforcement of credit control measures, the Department was part of the Multidisciplinary Revenue Committee (MdRC), which was comprised of the National Treasury (NT), the South African Local Government Association (SALGA) and COGTA, which focused on providing solutions to water debt challenges across the value chain.
Long-term financial liabilities were the amounts owed to the Trans-Caledon Tunnel Authority (TCTA) in accordance with various construction contracts for developing and maintaining infrastructure assets.

Compared to the prior year, these liabilities had decreased by R1.946 billion.

Contingent liabilities mainly consisted of legal claims against the DWS by several service providers regarding contractual disputes, which are within the scope of litigation processes.
Fruitless and wasteful expenditure had been incurred because of irrecoverable construction costs incurred in internal and external projects.

12 22 5.6 Unauthorised expenditure No unauthorised expenditure had been incurred since the prior period incidents.

In prior years, the unauthorised expenditure was related to overspending on the BEP and the "War on Leaks" programmes.

It had been reported to the National Treasury for processing to Parliament.
Fruitless and wasteful expenditure was related mainly to costs incurred on internal and external construction projects that could not be recovered.

Further incidents had been noted at the Water Trading Entity (WTE), which was currently at an assessment stage.

Included in the irregular expenditure was an amount of R8.8 billion submitted for condonation.

Report to be noted.

13 23 National Council of Provinces 1.


REPORT OF THE SELECT COMMITTEE ON APPROPRIATIONS ON THE ADJUSTMENTS APPROPRIATION BILL [B23 – 2022] [NATIONAL ASSEMBLY (SECTION 77)], DATED 02 DECEMBER 2022 The Select Committee on Appropriations, having considered the Adjustments Appropriation Bill [B23 – 2022] (National Assembly – section 77), referred to it in terms of section 12 (15) of the Money Bills and Related Matters Act No.
9 of 2009 (as amended by the Money Bills Amendments Procedure and Related Matters Act, No.

13 of 2018) (the Money Bills Act), reports as follows: 1.

Introduction The Minister of Finance tabled the Adjustments Appropriation Bill [B23 – 2022] (the Bill) in Parliament on 26 October 2022 during the presentation of the 2022 Medium Term Budget Policy Statement (MTBPS).
The Bill was tabled in terms of section 12(1) and (2) of the Money Bills and Related Matters Act as amended by the Money Bills Amendment Procedure and Related Matters Amendment Act, 2018 (Act No.

13 of 2018).

Section 12(1) of the Money Bills and Related Matters Act requires the Minister of Finance to table a national adjustments budget as envisaged in section 30 of the Public Finance Management Act, 1999 (Act No.

1 of 1999) (the PFMA).


Section 12(2) of the Money Bills and Related Matters Act requires that “an adjustments appropriation Bill must be tabled with a national adjustments budget”.

The Bill was referred to the National Council of Provinces (NCOP) and the Committee for concurrence on 01 December 2022, after the National Assembly had passed it.

2.
2.

Public participation process To facilitate public participation and involvement, and in compliance with section 72 of the Constitution of the Republic of South Africa, an advertisement in all 11 official languages was published in national and community newspapers from 27 to 30 October 2022, inviting the general public and all interested stakeholders to make written submissions and comments on the Bill.
Subsequently, in addition to receiving a briefing from National Treasury on the contents of the Bill and consulting with the Financial and Fiscal Commission (FFC) and the Parliamentary Budget Office (PBO), the Committee received written submissions from the 1 24 Congress of South African Trade Unions (COSATU), the Public Service Accountability Monitor (PSAM), the Organisation Undoing Tax Abuse (OUTA), and Equal Education.
COSATU, PSAM and OUTA also made oral submissions during a virtual public hearing on 25 November 2022.

3.
3.

National Treasury briefing The National Treasury reported that a net of R12.9 billion in additional funding was effected through adjustments to the 2022/23 allocations and included the following: • R6.4 billion in unforeseeable and avoidable expenditure to be directed towards the Department of Cooperative Governance and Traditional Affairs, and the Department of Transport for disaster management following the April 2022 floods.
• R500 million earmarked in the 2022 Budget Speech for the Department of Home Affairs Digitisation Project, as part of the Presidential Employment Initiative (PEI).

• R990.5 million in roll-overs; the bulk of which emanated from the Agriculture, Land Reform and Rural Development Vote and the Communications and Digital Technologies Vote for the roll-out of Phase 2 of the PEI.

• R1.6 billion in self-financing expenditure from the revenue-generating activities of Departments.
• R1.9 billion in declared unspent funds, of which R1.8 billion was attributed to the Department of Social Development due to a lower-than-expected uptake of the COVID-19 Social Relief of Distress (SRD) Grant in 2022/23, as more stringent qualification criteria had been introduced.

• R7.2 billion in additional direct charges against the National Revenue Fund (NRF) not anticipated at the time of the main Budget, which included debt service costs of R5.9 billion.
• R13.4 billion in provisional allocations not assigned to Votes.

The aforementioned amounts were offset by a R5 billion reduction in the contingency reserve, R3.9 billion in projected national government under-expenditure, R2 billion in local government repayments to the National Revenue Fund (NRF) and R4.2 billion in the Infrastructure Fund not assigned to Votes.

The Bill also provides for the shifting of funds within and between Votes.
This is to allow the use of unspent funds to defray increased expenditure within the main division of a Vote by 2 25 shifting between different segments (sub-programmes and economic classifications) of the main division, or to another Vote.

The shifting of funds has zero impact on the overall budget allocation, as the effects of additions and reductions cancel each other out.

Furthermore, the Bill requires Parliament to approve some virements between main divisions within Votes.
These include funds totalling more than 8 percent of the amount appropriated for a main division for a financial year; the use of funds appropriated for compensation of employees; the use of funds appropriated for transfers and subsidies; and the use of funds appropriated for payment for capital assets.

4.

Stakeholder submissions 4.1 Financial and Fiscal Commission (FFC) The Financial and Fiscal Commission (FFC) indicated that the 2022 in-year spending adjustments amounted to R13 billion.
Of this, R7.45 billion was in respect of adjustments to Vote appropriations, of which the bulk, R6.4 billion, related to unforeseeable and unavoidable expenditure prompted by flood damage.

The FFC highlighted the proposed roll-overs, amounting to R990.5 million, the bulk of which emanated from two Votes relating to Phase 2 of the Presidential Employment Initiative (PEI) roll-out.
A roll-over of R231 million was proposed for the Agriculture, Land Reform and Rural Development Vote and related to the payment of subsistence producers selected in Phase 2 of the PEI.

The FFC was concerned over the poor spending of this department on the implementation of the PEI, when assessing roll-overs relating to Phase 1 of the initiative.

The second largest roll-over, amounting to R200, million was proposed for the Communications and Digital Technologies Vote.
The FFC noted the additional allocation of R48.5 million, classified as unforeseeable and unavoidable expenditure, proposed for the provincial equitable share (PES) to assist provincial departments of social development to continue caring for flood victims placed in shelters as a result of the April 2022 floods in Kwa-Zulu Natal.

While the FFC welcomed the assistance to households affected by floods, it emphasised that government should initiate a more permanent solution for relocating the flood victims.
To this end, a timeline and milestones should be shared with Parliament so that oversight could be exercised in this regard.

3 26 With regard to the proposed R618.8 million to be added to the skills levy for sector education and training authorities (SETAs), the FFC stated that, whilst additional funding in support of skills development was essential, the effective and efficient utilisation of funding was equally important.
The FFC alluded to a recent presentation by the Auditor-General South Africa (AGSA), highlighting some of the challenges characterising SETAs.

The FFC was of the view that it was pertinent to ensure that additional funding was coupled with strong oversight by Parliament and other role- players in respect of the use of the resources, to avoid further maladministration.
The FFC welcomed the in-year adjustments relating to the provision of funding to repair flood damage, rebuild damaged infrastructure and support affected households.

However, it emphasised the importance of ensuring minimal delays and quality when repairing and rebuilding damaged infrastructure; and of Parliament receiving regular updates on progress in this regard.
4.2 Parliamentary Budget Office (PBO) The Parliamentary Budget Office (PBO) gave an overview of the Bill, as well as the expenditure by Vote, which stood at 47.4 percent of the adjusted appropriation of R1.094 trillion as at the end of September 2022.

The PBO highlighted that a total of R44 billion had been allocated for the Social Relief of Distress (SRD) Grant in the 2022/23 financial year, to serve 10.5 million people.
It reported that the Department of Social Development (DSD) had published amended regulations for the Grant on 16 August 2022, which had resulted in the means test threshold being increased from R350 to R624.

The PBO noted that the DSD had reported in August 2022 that only 7.5 million people were receiving the benefit on a monthly basis; which would result in a significant projected under-spending by the end of the 2022/23 financial year.
The PBO emphasised the importance of the SRD Grant and the need for the discussions around social security to continue, as the Grant would be terminated in March 2024.

In this regard the PBO made reference to the household survey conducted by Statistics South Africa in 2021 and the recent findings of the Household Affordability Index.
The PBO concluded that the cost of living crisis had plunged more people into destitution after the shock caused by the COVID-19 pandemic; and asked whether government could afford not to spend more in order to address the ongoing risks to the livelihoods of South African citizens and the economy at large.
4 27 4.3 Congress of South African Trade Unions (COSATU) COSATU welcomed the positive allocations in the Bill, in particular for the following: • Disaster management emergency housing and infrastructure repair allocations.

• Additional allocations for Parliament, Home Affairs and Statistics South Africa (StatsSA).

• Additional allocations for industrial financing, electrification grid connections and the Department of Employment and Labour IT capacity.
• Additional funds for basic education infrastructure, the National Student Financial Aid Scheme (NSFAS) and technical and vocational education and training (TVET) colleges.

• Additional funds for the South African National Defence Force (SANDF) deployments and South African Police Service (SAPS) visible policing.

COSATU expressed concern over the following key trends: • Disaster management relief disbursements delays.

• Cuts in export incentives and minimal industrial financing.
• The never-ending shifting of the school infrastructure backlog and continuing NSFAS administrative chaos.

• Massive cuts in Social Relief of Distress (SRD) Grant expenditure, South African Social Security Agency (SASSA) administrative chaos and cuts to social grants.

• Cuts to SAPS budget lines in the face of a massive decline in the SAPS headcount.
4.4 Public Service Accountability Monitor (PSAM) The Public Service Accountability Monitor (PSAM) submitted that the continued under- spending by key service delivery departments and local government needed to be addressed as a matter of urgency, as the reasons most frequently cited for shifts/virements and under- spending were not satisfactory explanations in the current context.

PSAM indicated that fruitless and wasteful expenditure further undermined service delivery.
5 28 PSAM further pointed to systemic deficiencies, contributing to weak governance and poor service delivery, at the provincial and municipal levels of government; despite government having spent R9.1 billion across 40 state agencies to support the proper functioning of municipalities.
PSAM submitted that adequate and effectively executed resources (financial and non-financial) were central to addressing these challenges and underscored the implications of weak or unwilling political motivation to ensure compliance with legislated public finance management prescripts.

PSAM expressed serious concern over the R 2 billion that had been returned to the National Revenue Fund (NRF) owing to local government under- spending; in the context of slow service delivery achievement.
PSAM was further concerned that the budgets for the Department of Cooperative Governance and Traditional Affairs’ Institutional Development Programme and Anti-corruption sub-programme had been reduced by R3.56 million and R500 000, respectively; given its key role in fostering sound financial management in municipalities and ensuring that they perform their basic functions; deliver quality municipal services and promote transparency and accountability.
With regard to infrastructure projects, PSAM pointed to backlogs occurring mainly in the Departments of Health, Basic Education and Human Settlements which impacted on services.

Management of procurement, contracts and expenditure needed to be improved to ensure value for money, and that transparency and accountability requirements were adhered to.
PSAM was encouraged by government’s stated commitment to scaling up efforts to improve the project pipeline and the provision of additional resources for project preparation, but remained concerned about measures to safeguard funds and manage contracts and expenditure throughout the project duration.

With regard to funding for institutions fighting crime and corruption, PSAM indicated that budget and other resource constraints continued to undermine the capacity of the National Prosecuting Authority (NPA).
While the recent increases to the NPA’s budget were positive, limited year-on-year growth was a risk to its ability to continue to compensate recently recruited staff.

The Special Investigations Unit (SIU) had received no additional funding in both the 2021 and 2022 MTBPS, despite the entity’s important role in providing forensic investigation and civil litigation services to combat corruption, serious malpractices and maladministration.
In addition, the budget for the function under which the SIU budget was allocated, was set to decrease by 0.5 percent in the 2023/24 financial year.

PSAM was concerned that, overall, the Peace and Security function budget was declining on average by 2 percent in real terms over the MTEF.
6 29 PSAM expressed further concern over whether the institutions supporting democracy, such as the Public Protector and the South African Human Rights Commission, would be able to perform their duties, with allocations to them declining in real terms over the MTEF; and encouraged the Committees to ensure these institutions were adequately resourced.
PSAM welcomed the introduction of a pilot mechanism to garner public input on fiscal policy - the Fiscal Openness Accelerator (FOA) project; as it had the potential to deepen meaningful public participation and increase transparency and efficacy of fiscal policy decisions; and encouraged National Treasury to consider ways to continue to partner with civil society beyond the conclusion of the FOA pilot in September 2022.
The PSAM made the following recommendations: • The Committees should request further information from under-spending departments to determine the challenges; what was being done to resolve them and to insist on corrective measures to prevent persistence of these trends.
• The Committees should ensure that the notices for material irregularities (MIs) issued by the Auditor-General of South Africa (AGSA) to national government departments are acted upon, and that those who continue to mismanage funds are held accountable.

• The Committees should further play a role in strengthening internal controls and accountability mechanisms to improve the performance of departments.
• There should be greater transparency of spending data and information to enable the public to monitor performance and demand justifications from departments on their spending and planning decisions.

• The Committees on Appropriations, Finance, Public Accounts and Cooperative Governance and Traditional Affairs should exercise their powers to call for political support for technical interventions aimed at bolstering capacity and compliance.
• The Committee should consider requesting a comprehensive report from the National Treasury detailing all interventions to improve municipal functioning through capacity-building, technical support and resourcing over the past decade, and their impact.

• The Committees should insist on open and transparent contracting processes to enable public oversight for all major public infrastructure projects; in order to ensure that these projects had the intended developmental impact.
7 30 • The Committees should consider a pilot of social audits in areas where local government was failing to deliver services.

In addition to improving participation in the budget process, this could improve spending outcomes and provide opportunities for skills development and income support for communities facing high levels of poverty and unemployment.
• Parliament should allow any member of the public or any civil society organisation to testify during its hearings on the budget proposal prior to its approval.

Additionally, allowing members of the public or civil society organisations to testify during hearings on the Audit Report would contribute to improving budget efficacy and citizen trust.

The role of the parliamentary constituency offices should be considered in this regard.
4.5 Organisation Undoing Tax Abuse (OUTA) The Organisation Undoing Tax Abuse (OUTA) called for government to procure locally manufactured vehicles; submitting that the silence on this initiative indicated government’s reluctance to adopt robust economic measures to improve the economy.

OUTA further called on government to reduce the vehicle allowances for politicians at all levels of government.
With regard to Vote 34: Mineral Resources and Energy, OUTA noted the proposed roll-overs in programme 5: Mineral and Energy Resources Programmes and Projects; and that R28 million was rolled over to finalise non‐grid projects through the Integrated National Electrification Programme (INEP).
In addition, R43.8 million was rolled over to finalise payments to service providers for the solar water heater programme, and R1 million to finalise 50 electrification connections for households in the Dikgatlong Municipality.

In light of the current load shedding by Eskom, OUTA said it expected the Department of Mineral Resources and Energy (DMRE) to expedite non-grid electrification to ensure that households had access to energy.

OUTA expressed concern that the allocated funding had not been spent.
It also submitted that the solar water heating programme had been dogged by problems in recent years, as the DMRE had incurred storage costs which were flagged by the Auditor- General of South Africa as wasteful and fruitless expenditure.
OUTA welcomed the promise that the National Prosecuting Authority (NPA) Investigating Directorate would be permanent and the commitment to increase the NPA budget from the 2023/24 financial year; in particular, the proposed increases with regard to specialised tax units, specialist services and the promise of the establishment of a digital forensic data centre and increased funds for witness protection.
OUTA submitted that it wanted to see 8 31 considerable strengthening of the resources and capacity of the NPA to implement the recommendations of the Zondo Commission, which were aimed at strengthening institutional governance and accountability mechanisms in the country.

OUTA felt that the current annual budget of R4.9 billion for the NPA was insufficient to achieve the priorities listed in the 2022 MTBPS and the President’s response to state capture.
OUTA compared the NPA’s allocation to the budget for VIP Protection Services and Static Protection in the Police and highlighted the disparity, giving an indication of government’s priorities.

OUTA welcomed the fact that funds had been reprioritised in the Justice and Constitutional Development Vote to the Financial Intelligence Centre (FIC) to implement recommendations from the Zondo Commission.

However, it felt that this should not have had to be deducted from other law enforcement functions.
OUTA further welcomed the additional reprioritisation for court security, replacing computer equipment, procuring vehicles for provinces, and enhanced capacity at the Thuthuzela care centres.

OUTA welcomed the promise of additional resources in 2023 to the country’s security forces, with 15 000 additional constables to be recruited over the next three years; stating that it hoped that the budget would also include sufficient resources for the police to operate.
However, it raised concern that the Police Vote had been reduced for the year, and particularly over the removal of R326 million for the construction and upgrading of police stations and R32 million from detective services.
Noting the proposed additional allocation of R3.6 billion to the Cooperative Governance and Traditional Affairs (CoGTA) Vote for the reconstruction and rehabilitation of damaged municipal infrastructure as a result of natural disasters in Kwa-Zulu Natal and the Eastern Cape, OUTA called for stringent oversight over the funds to ensure effective and efficient spending.
It also noted the promise of additional funds in 2023/24 for the delivery of free basic services to poor households to counter the rising cost of free basic services.

While welcoming the principle of this support, OUTA expressed concern that much of this funding would go to municipalities where it was diverted to other spending and not used for subsidising these services.
OUTA referred to the current situation where 43 municipalities were in crisis and planned government interventions including prioritising, revenue management, audit outcomes, supply chain management, the Municipal Standard Chart of Accounts and strengthening 9 32 monitoring and enforcement of financial recovery plans.
However, given the state of municipalities, OUTA questioned how these would be resourced and implemented; in light of the significant resources spent through CoGTA on support for municipalities.

OUTA proposed that National Treasury introduced mechanisms to halt the allocation of grants to municipalities that continued to misallocate or misspend.
It also submitted that the policy of paying once-off gratuities for non-returning Councillors needed to be reviewed, and either scrapped, or the amount significantly reduced.

While welcoming the additional allocation of R1.4 billion to NSFAS in the Higher Education and Training Vote, OUTA indicated that the current funding model for NSFAS was unsustainable within the fiscal constraints and recommended that government prioritised the urgent finalisation of a new funding framework for the sector.
OUTA further noted the additional allocation of R618.8 million to the skills levy and sector education and training authorities (SETAs), bringing the funding to R21 billion.

While supporting skills development as essential for improving the economy and individuals’ lives, OUTA emphasised that these funds should be used efficiently and effectively.
OUTA mentioned the AGSA’s report on challenges in the SETAs, including irregular expenditure of R3.5 billion and its own previous report on corruption in the Services SETA; to emphasise the need to ensure that the addition of funding was coupled with strong oversight to avoid further maladministration.

OUTA submitted that the realisation of the right to basic education would regress under austerity budgets and that the decline in real expenditure on education was concerning.
In addition, teacher vacancies and overcrowded classrooms, combined with the commodification of education through private schools, meant that the existing gap in the quality of education would continue to grow.

OUTA submitted that government needed to derive sufficient return on investment for the funds invested in education and suggested that school principals, governing bodies and teachers must have performance targets to encourage retaining learners in basic education.
Furthermore, OUTA felt strongly that the Grade 9 exit certificate must be prioritised to create multiple exit pathways for the youth.

It also welcomed the promise of additional funding in 2023/24 for the National School Nutrition Programme Grant and for improving and expanding early childhood development (ECD) programmes.
OUTA continued that the ECD model needed to be strengthened to ensure that all stakeholders cooperated for the transition of this programme from Social Development to 10 33 Basic Education to work effectively.

OUTA looked forward to more detailed information about these aspects in the 2023 national budget.
OUTA welcomed the extension of the SRD Grant for another year but expressed concern that the MTBPS was silent on how government would address the plight of citizens as they battled to survive the relentlessly upward-spiralling cost of living and high levels of unemployment.

OUTA was disappointed that the SRD Grant had not been adjusted for Consumer Price Index (CPI) inflation and that there was still no clear pathway for how permanent social support would be introduced following its termination.
It also expressed concern that the Grant was not being accessed by all the people who needed it and were entitled to it, mainly due to a more stringent qualifying criteria; submitting that the shift of R2.9 billion from the Department of Social Development to the Department of Public Enterprises was an example of how social spending was cut to fund other priorities.
OUTA believed strongly that the reductions in social spending was linked to the depletion of state resources due to years of state capture, corruption and mismanagement.
With regard to Water and Sanitation Vote, OUTA expressed concern over the continuous roll- overs on the Regional Bulk Infrastructure Grant for the Vaal River Pollution Remediation project; indicating that about 15 million people were dependent on the Vaal River in some way or another, making it imperative that the project be given urgent and immediate attention.

OUTA reported that government had undertaken to contribute R100 billion over 10 years to the Infrastructure Fund; but that this had not happened.
Instead, every year the budget allocated funding over the MTEF and every year the MTBPS removed it.

The 2022 Budget had allocated R4.2 billion to this initiative for 2022/23, R15.4 billion for 2023/24 and R7.8 billion for 2024/25; but the MTBPS deleted this year’s funds and halved the following years’ allocations, promising to make it up in future years.
OUTA questioned the purpose of the Infrastructure Fund and asked whether it was merely being used as a contingency fund; indicating that it would like to see this fund used not just for new infrastructure, but also for repairs to infrastructure such as water supply systems and water treatment works that had been left to collapse.
4.6 Equal Education (EE) Equal Education (EE) emphasised the fact that basic education was a fundamental human right under the Constitution and that government had the obligation to actively take steps to 11 34 promote and fulfil this right.

EE further explained that basic education consisted of certain core components, including safe and sufficient infrastructure, transport, as well as learning and teaching materials such as textbooks and furniture.
EE submitted that South Africa’s schooling system was in crisis, with persisting systemic inequalities leaving many schools with overcrowded classrooms, burnt-out teachers, unsafe and deteriorating school infrastructure, and a lack of basic services such as sanitation, water, and electricity; and that poor black learners living in rural areas were disproportionately disadvantaged.
EE was concerned that, despite the situation described above, the 2022/23 Medium Term Expenditure Framework (MTEF) showed a continuation of existing trends in basic education funding, not keeping pace with inflation, growing learner enrolment, and the real costs of providing education services across the provinces.
The additional allocation of R3.7 billion to basic education for the current financial year, as well as increased medium-term estimates, were erased by higher-than-expected interest rates, as funding levels did not keep up with inflation over the medium term.

Real consolidated basic education funding was anticipated to experience negative growth from 2022/23 until 2025/26 and when rising learner enrolment was factored in, spending per learner declined even more sharply over the following three years.
While the additional R116.8 million allocated to the Education Infrastructure Grant (EIG) to repair schools affected by floods in KwaZulu-Natal and the Eastern Cape was welcomed, EE reported that it still fell short of the current infrastructure backlog's funding needs.

The DBE had reportedly stated that it would need R442 million to address the flood damage to schools in KwaZulu-Natal alone; and that an additional R5 billion would be needed to address the overcrowding crisis in schools across the country.
These figures did not factor in the building maintenance crisis, with existing functional school infrastructure across the country risking falling into disrepair, further deepening the existing school infrastructure crisis.

EE was deeply concerned that the DBE and provincial education departments were not meeting their targets for school infrastructure grants.
In the first half of the 2022/23 financial year, only six out of the targeted 30 schools for the year had been built through the School Infrastructure Backlogs Grant (SIBG); only 149 out of the targeted 450 schools had been provided with sanitation facilities; and only 19 out of the targeted 50 schools had been provided with water.
EE further reported that the basic education system suffered from endemic under-spending, and irregular, fruitless and wasteful expenditure, impeding government’s ability to provide an equal and quality basic education for all learners and impacting the ability of basic education 12 35 to advocate for additional funding from National Treasury.

EE reported that under-spending was often the result of a lack of capacity to effectively plan and implement projects.
In addition, the current outstanding balance of identified irregular expenditure that the DBE had not dealt with, totalled R6.6 billion.
EE asked the Committee to – • Reject the 2022/23 MTEF, and call for a budget for basic education that grows in line with inflation and learner enrolment; • Call on National Treasury to adopt a human rights-based budgeting approach that prioritises socio-economic rights like quality basic education; • Take its oversight responsibilities seriously, by actively engaging the departments on how they spend their money, in particular basic education; and institute public hearings for the Budgetary Review and Recommendations Reports (BRRR)s and create consequences for departments that do not follow its recommendations, and seek increased consultation with civil society and the public on their findings on government spending; • Ensure that the DBE and provincial education departments use their money efficiently and effectively; and • Work in the public's interest by implementing the Zondo Commission recommendations on parliamentary practice.
5.
Observations and findings The Select Committee on Appropriations, having considered the inputs from the above stakeholders on the Adjustments Appropriation Bill [B23 – 2022], made the following findings: 5.1 Whilst the Committee welcomes the Bill, it also notes that some national departments have exceeded the 8 percent virement threshold in the 2022 Budget, which is provided for in section 43(2) of the Public Finance Management Act, and this requires Parliament to approve it upon adequate information being presented during the 2022 MTBPS process.
5.2 The Committee notes the proposed adjustment amount of R12.9 billion in additional funding for the 2022/23 financial year, meant for unforeseen and unavoidable expenditure (natural floods, in April 2022), the Home Affairs 13 36 Digitisation Project, roll-overs, self-financing expenditure, the rebuilding of Parliament, declared unspent funds, an additional amount towards direct charges against the National Revenue Fund (NRF) and provisional allocations not assigned to Votes.
5.3 The Committee notes the proposed R618.8 million to be added to the skills development levy for sector education and training authorities (SETAs), and the recent presentation by the Auditor-General of South Africa (AGSA), highlighting some of the challenges of corruption at SETAs.

The FFC’s view on the need to ensure that additional funding was coupled with strong oversight in respect of the use of the resources, was also noted.
5.4 The Committee notes that over the medium term, provincial education budgets will stabilise as funding is added for compensation of employees to fill teacher vacancies and to reduce class sizes and support learning outcomes, and further notes the need to keep compensation spending in line with resources over the long term.
5.5 The Committee agrees with the FFC that government should initiate a more permanent solution for relocating the flood victims, and a clear timeline and milestones should be shared with Parliament and provincial legislatures so that oversight can be exercised in this regard.
5.6 The Committee agrees with the PBO about the importance of the SRD Grant and its impact on the neediest and most vulnerable people; and on the need for the discussions around social security to continue, since the Grant will be terminated in March 2024.
5.7 The Committee notes National Treasury’s submission that the adjusted appropriations and the special appropriation were trying to balance the need to address a very significant unforeseen and unavoidable event, such as the floods, and other needs, such as supporting the continued deployment of the SANDF to Mozambique, with the fact that long simmering risks to the fiscus, emanating from SOEs, were materialising and becoming a reality.
5.8 The Committee notes that an additional R6 billion had to be allocated to debt service costs in the adjustments budget, due the fact that the costs were higher than anticipated during the main Budget of 2022; and that this is negatively impacts on efforts to address the shortcomings in the education and health sectors.
14 37 5.9 The Committee shares COSATU’s concern over the reduction of R1.3 billion in land reform and the reduction in the budget of the South African Police Service (SAPS), especially to detective services; as well as over government’s apparent inability to deliver infrastructure projects; with funds continually being moved from implementation to planning.
5.10 The Committee notes COSATU’s concern around the need for the Department of Social Development to address administrative challenges and ensure fair criteria for the distribution of the SRD Grant.

This is in line with the Committee’s recommendations in previous Reports.
5.11 The Committee agrees with COSATU’s view about the importance of government having ample available reserves and of capacitating the State for rapid response in the case of natural disasters; and also of having strong transparency and accountability to avoid corruption with disaster relief funds.

5.12 The Committee agrees with PSAM’s view that increasing budgets does not translate into better service delivery outcomes.
Moreover, some departments still spend their total allocated budgets but fail to achieve all the performance targets contained in their annual performance plan.

5.13 The Committee notes PSAM’s view that there is a need for government to prioritise development objectives through a pro-poor budgeting framework; as well as a need for government to continue to address the impact of wasteful and fruitless expenditure to ensure that public funds are effectively spent for the intended purpose.
5.14 The Committee agrees with PSAM that the continued under-spending by key service delivery departments and local government needs to be addressed as a matter of urgency; and that fruitless, wasteful and irregular expenditure further undermine service delivery programmes meant for the poor and vulnerable.
5.15 The Committee shares OUTA’s concern over the continuous roll-overs on the Regional Bulk Infrastructure Grant allocation for the Vaal River Pollution Remediation Project; where about 15 million people are affected and dependent on this River in some way or another.

15 38 6.
15 38 6.

Recommendations The Select Committee on Appropriations, having been briefed and engaged with the above stakeholders on the Adjustments Appropriation Bill [B23 – 2022], recommends as follows: 6.1 The National Treasury should ensure that any movement of funds is approved according to the provisions of the Public Finance Management Act of 1999 and Treasury Regulations.
However, the Committee does not support the movement of funds above 8 percent, when it is as a result of poor planning and project management and unsatisfactory performance by government departments.
6.2 The National Treasury should approve and gazette in the Adjustments Appropriation Bill [B23 -2022] an adjusted amount of R12.9 billion, of which R6.4 billion (49 percent) goes to the Department of Cooperative Governance and the Department of Transport to address the April 2022 floods in KwaZulu-Natal and the Eastern Cape.

The Committee implores both Departments to strengthen expenditure control and financial management systems to realise value for money.
6.3 The National Treasury and the Department of Home Affairs should ensure that proper financial management controls and clear plans and milestones are developed and put in place for the spending of the proposed adjustment amount of R500 million for the digitisation project, to avoid wasteful and fruitless expenditure.
6.4 The National Treasury should approve and gazette the roll-over amount of R990.5 million, emanating from the Department of Agriculture, Land Reform and Rural Development and the Department of Communications and Digital Technologies.

The Committee implores both Departments to develop clear and time-bound remedial actions, with specific targets, to address under-spending and improve service delivery performance; while ensuring project are completed on time.
6.5 The Department of Cooperative Governance and the National Disaster Management Centre (NDMC), together with National Treasury, should undertake a review of the disaster management and administrative processes in order to ensure rapid response and transfer of much-needed relief funds for victims; and to ensure quality standards when repairing and rebuilding damaged infrastructure, 16 39 while ensuring that projects are completed on time.

Parliament will continue to follow up on this.


6.6 The Committee implores the Department of Higher Education and Training and National Treasury to ensure that the issues of maladministration and corruption raised by the Auditor-General of South Africa (AGSA), which are negatively affecting the capacity of sector education and training authorities (SETAs) to deliver, are urgently addressed and consequence management implemented, where necessary.

Parliament will continue to monitor progress.


6.7 The National Treasury and Department of Planning, Monitoring and Evaluation should ensure that better alignment between performance targets and budget allocations is realised at a planning and budgeting phase, to ensure correlation between expenditure and performance targets achieved at the end of the year.
Notwithstanding the fact that there is a need to improve planning, the Committee also believes that government should evaluate its programmes, and discard those that are continuously not bearing any results; instead of relying on incrementalism.
6.8 The Committee implores the Department of Social Development (DSD) to address all the administrative challenges in the Social Relief of Distress (SRD) Grant application system and to ensure proper internal controls to effectively manage and distribute the Grant to all the deserving beneficiaries.

The Committee is of the view that the conversation around a basic income grant should continue amongst all the relevant stakeholders to find a permanent solution in this regard.
6.9 With regards to the Vaal River Pollution Remediation Project, the Department of Water Affairs and Sanitation, together with the National Treasury, should ensure that project planning for the Regional Bulk Infrastructure Grant projects is properly done timeously to avoid funds being rolled over to the next financial year or returned back to the fiscus.
The Committee believes that the failure to spend on infrastructure budgets continues to undermine government’s commitment to implement an infrastructure-led economic recovery.

6.10 The National Treasury, together with the Department of the Police, should ensure that adequate resources are allocated for detective services, and that planning is 17 40 continuously improved for the Integrated Criminal Justice Strategy (ICJS), to avoid non-expenditure, such as the R30 million, by the Department.

7.
7.

Conclusion After having complied with section 12 of the Money Bills and Related Matters Act No 9 of 2009 (as amended), the Select Committee on Appropriations, having considered the Adjustments Appropriation Bill [B23 - 2022], referred to it for concurrence, and classified by the Joint Tagging Mechanism as a section 77 Bill, reports that it has agreed to the Bill, without proposed amendments.
The Democratic Alliance (DA), the Economic Freedom Fighters (EFF) and the Freedom Front Plus (FF+) reserved their positions on the Report.

Report to be considered.

18 41 2.


REPORT OF THE SELECT COMMITTEE ON APPROPRIATIONS ON THE SPECIAL APPROPRIATION BILL [B24 – 2022] [NATIONAL ASSEMBLY (SECTION 77)], DATED 02 DECEMBER 2022 The Select Committee on Appropriations, having considered the Special Appropriation Bill [B24 – 2022] (National Assembly – section 77), referred to it in terms of section 12 (15) of the Money Bills and Related Matters Act No.

9 of 2009 (as amended by the Money Bills Amendments Procedure and Related Matters Act, No.
13 of 2018) (the Money Bills Act), reports as follows: 1.

Introduction Section 213(2) of the Constitution of the Republic of South Africa, provides that money may be withdrawn from the National Revenue Fund only in terms of an appropriation by an Act of Parliament.
The Special Appropriation Bill [B24 - 2022] was tabled by the Minister of Finance on 26 October 2022, during the tabling of the 2022 Medium Term Budget Policy Statement (MTBPS), and was referred to the National Council of Provinces and the Committee, for concurrence, on 01 December 2022, after it was passed by National Assembly.

2.
2.

Public participation process To facilitate public participation and involvement, and in compliance with section 72 of the Constitution of the Republic of South Africa, an advertisement in all 11 official languages was published in national and community newspapers from 27 to 30 October 2022, inviting the general public and all interested stakeholders to make written submissions and comments on the Bill.
Subsequently, in addition to receiving a briefing from National Treasury on the contents of the Bill and consulting with the Financial and Fiscal Commission (FFC) and the Parliamentary Budget Office (PBO), the Committee received written submissions from the Congress of South African Trade Unions (COSATU), the Public Service Accountability Monitor (PSAM) and the Organisation Undoing Tax Abuse (OUTA).

All three stakeholders also made oral submissions during a virtual public hearing on 25 November 2022.

3.
3.

National Treasury briefing National Treasury reported that the Bill proposed the following additional funding allocations in the 2022/23 financial year: 1 42 • R23.7 billion for the South African National Roads (Sanral) for repayment of its maturing debt and debt-related obligations.

• R3.4 billion for Denel SOE Limited (Denel) for the implementation of its turnaround plan.

• R2.9 billion for Transnet SOE Limited (Transnet) for the acceleration of the repair and maintenance of locomotives.
According to the National Treasury, these funds would only be disbursed once the Minister was satisfied that the required conditions have been met.

3.1 Denel The funding requirement for Denel’s revised turnaround plan was R5.2 billion, of which R1.8 billion would be raised by Denel through the disposal of non-core assets and R3.4 billion through recapitalisation by government.
The entity had realised R900 million through the Denel Medical Benefit Trust (DMBT) and anticipated realising the remaining balance from the sale of non-core assets by the end of March 2023.

Denel would utilise the funds received from the fiscus and the disposal of its non-core assets to settle remaining current and legacy obligations, enabling it to manage existing threats of liquidation, including restructuring costs to stabilise and sustain Denel’s anticipated growth opportunities.
Government would provide the funding subject to adherence to the following conditions: Pre-conditions: • Shareholder confirmation of support of the turnaround plan.

• Disposal of all identified non-core assets.

• Submission of a strategic equity partnership strategy.

• Surplus funds from the section 189 process of the Labour Relations Act No 66 of 1995 to be utilised to reduce government guaranteed debt.

• Funds for legacy obligations should be ring-fenced.
• The Denel monitoring committee must be re-established.

Post-conditions: • The Department of Public Enterprises (DPE) must finalise a Memorandum of Co- operation with the Department of Defence within six months.

• The DPE must withdraw specified government guarantees.

2 43 • Denel must continue submitting its quarterly performance reports to the DPE and National Treasury.

• No bonuses may be paid, following receipt of recapitalisation and the period of the turnaround plan implementation.
3.2 Transnet Transnet’s operational loss incurred in the 2021/22 financial year could be largely attributed to a shortage of freight rail locomotives; as its inability to repair and maintain its freight rail locomotives had an adverse impact on its domestic and export coal operations.

The return of out-of-service freight rail locomotives would improve Transnet’s ability to service the coal industry and would benefit the South African economy.
The allocation of R2.9 billion, to allow the entity to repair and maintain freight rail locomotives, was subject to the following conditions, which would be reviewed on an annual basis: • Independent review of all freight rail corridors and associated port operations.

• Monthly report on the progress made in the rehabilitation of locomotives and the impact on volumes.

• Monthly report on progress made in addressing the operational challenges.

• Monthly update on the status of the Transnet debt.
• Transnet to avail the relevant representatives to discuss the monthly reports.

• PFMA section 54(2) applications to be approved by the Minister of Public Enterprises and the Minister of Finance.

• The DPE to include National Treasury in the PFMA section 54(2) pre-notification process.

• The DPE to consult National Treasury prior to the conclusion of the Transnet Shareholder Compact.
3.3 Sanral To avert the pending Sanral default and the subsequent call on the Sanral government guarantee, it was recommended that a funding allocation of R23.7 billion be provided to Sanral for the repayment of the maturing debt and the interest thereon for the 2022/23 and 2023/24 financial years.

Sanral government guarantees would be reduced in line with the allocated funds.

Sanral could not raise or refinance debt until the Minister of Finance communicated otherwise.
The allocation would be split into two tranches: R9 billion would 3 44 be released within 10 days of the Bill being passed into law; and R14.7 billion would be released once the following conditions had been met: • The Department of Transport must submit the draft Road Funding Policy to the National Treasury by 31 January 2023 for comments, prior to submitting the policy to Cabinet for public comment by 1 April 2023.
• Independent review of the Sanral supply chain management policy and related procurement processes.

• Independent review of the performance of the Sanral board.

• National and provincial government to sign an agreement on a solution for the Gauteng Freeway Improvement road network.

If the above conditions were not met by 31 March 2023, outstanding allocations would be returned to the National Revenue Fund; and the National Treasury may request updates on the progress made in meeting these conditions.
4.

Stakeholder submissions 4.1 Financial and Fiscal Commission (FFC) The Financial and Fiscal Commission (FFC) gave an overview of the purpose of the Bill and expressed appreciation for government’s commitment to continue promoting a growth friendly, fiscal consolidation policy path geared towards stabilising government debt.

However, the maturity of SOEs debt payments and poor functionality posed a substantial risk to the fiscus.
The challenges of SOEs had resulted in poor service delivery, poor financial management, less growth, massive unemployment, corruption and low business confidence.

The FFC further cautioned that the poor performance of SOEs would result in persistent government guarantees and bail-outs to ensure their survival.

SOEs considering themselves too big to fail and expecting constant bail-outs, imposed further pressure on contingent liabilities.
The FFC further submitted that SOE bail-outs were not fiscally sound and implored government to include stringent conditions that deterred SOEs from indulging in moral hazard behaviour.

The FFC further noted that National Treasury had advised that the pre-conditions and conditions attached to bail-outs included financial and operational reports to ensure that money was used to repay debt and facilitate sustained development of the affected SOEs.
The FFC further cautioned against the use of a Special 4 45 Appropriation Bill to provide funding for SOEs, in addition to the Adjustments Appropriation Bill; as this signalled fiscal uncertainty, perpetuating the cycle of bailing out poorly performing SOEs.

The FFC recommended that stringent conditions be attached to the provision of funding and that National Treasury, Denel, Transnet, and Sanral be transparent during the bail-out period and make all reports and conditions publicly available.
4.2 Parliamentary Budget Office (PBO) The Parliamentary Budget Office (PBO) explained the rationale for appropriating additional funds to the Department of Public Enterprises and the Department of Transport for the 2022/23 financial year.

The PBO submitted that the 2022 national budget had revealed that Sanral’s debt guarantee exposure had increased by R11.7 billion to R49.1 billion by the end of the 2021/22 financial year, mainly due to accrued interest and revaluation of inflation- linked bonds.
A total of R47 billion of Sanral’s debt would be shared between the Gauteng provincial government and the national government, with a 30 percent to 70 percent split, to unblock the impasse surrounding the Gauteng Freeway Improvement Project (GFIP).

An amount of R23.7 billion of the debt would mature soon and would be paid by the national government; conditional on the implementation of a solution to phase 1 of the GFIP.
The PBO further reported that, due to under-collection of e-tolls, government assistance had become a significant supplementary source of funding for the toll portfolio over the previous three financial years.

In the 2021/22 financial year, Sanral had been given R3.85 billion in the form of a GFIP grant, up from the R 2.72 billion grant allocated in the 2020/21 financial year.
The PBO reported that the Gauteng provincial government had resolved to set up task teams to look at sources of funding for their 30 percent share of the GFIP debt and to investigate how the entire e-toll infrastructure could be repurposed to deal with crime issues; and had indicated that it intended to stagger repayment of its 30 percent share of the GFIP debt over 20 years, in order to avoid pressure on the Province’s finances, delivery on social services and other obligations.
The PBO reported that Transnet’s operational and financial performance for the 2021/22 financial year had been below target.

The main reasons were security problems, constraints on locomotive availability, and subdued economic trading conditions.
The PBO further indicated that the volume of goods transported in South Africa had decreased by 20 percent between 2018/19 and 2021/2022; and that this cash injection would assist Transnet Freight Rail to address declining volumes and revenue and, with government support, to improve its 5 46 revenue flows and liquidity position by improving its operational efficiency and leveraging its balance sheet.
The PBO indicated that Denel’s guarantee facilities and debt was at R3.4 billion in 2021/22, after R2.5 billion in revenue had lapsed following the cancellation of the Egyptian missile contract and the maturity of R1 billion debt.

Denel had been allocated R3 billion in the 2022 main budget to cover capital and interest payments on guaranteed debt, reducing its debt to R290 million.
Denel’s financial challenges had resulted in it struggling to pay salaries during the COVID-19 pandemic and failing to submit financial results within the required time frame, which had led to the Johannesburg Stock Exchange (JSE) suspending trading of its bonds earlier in 2022.

This resulted in the entity being unable to sell more debt on the primary market and its bonds not being traded on the JSE's secondary market.
The R3.4 billion allocated in the Bill would support recent progress made to stabilise the entity.

4.3 Congress of South African Trade Unions (COSATU) COSATU welcomed the allocation of R23.7 billion to reduce the Gauteng E-Tolls debt; indicating that a final solution was now needed to correct this policy mistake for good.

COSATU expressed the hope that government had heard from struggling commuters who could not afford to continuously bail out the State.
While COSATU welcomed the allocation of an additional R2.9 billion to repair Transnet infrastructure and locomotives; it indicated that more needed to be done by law enforcement to protect the country’s railway infrastructure.

COSATU expressed extreme disappointment over the failure to provide similar support to Metrorail, where many lines had still not been returned to service two years after the 2020 lockdown.
COSATU appreciated the allocation of R3.6 billion to Denel, especially for those workers who had not been receiving their salaries; but indicated that government needed to provide assurances that the money owed to the Denel workers would now be paid.

COSATU found it shameful that workers had not been paid for more than 18 months and that unions had been forced to take Denel to court repeatedly.
COSATU indicated that government should share the envisaged turnaround plan for the entity and that this plan needed to include saving its employees’ jobs.
4.4 Organisation Undoing Tax Abuse (OUTA) The Organisation Undoing Tax Abuse (OUTA) submitted that, with regard to the Gauteng Freeway Improvement Project (GFIP), it would have preferred that government had not embarked on the costly exercise of implementing e-toll infrastructure in the first place, or had 6 47 paid exorbitant amounts to a collection agency.
Notwithstanding, OUTA welcomed the resolution of the matter and the acknowledgement by government that Gauteng commuter roads (social infrastructure) should be funded by the fiscus.

OUTA submitted that it was important that there be improved transparency and clarity around the finances of Sanral before the Bill was finalised in Parliament.

OUTA noted that, in 2012 court papers, the cost of the GFIP had been indicated as R20 billion.

Sanral had borrowed R20 billion to fund this.


Since 2011/12, national government had authorised government grants totalling R30 billion to Sanral, explicitly for the GFIP (including the R3.740 billion transferred in July 2022, but excluding the R23.7 billion proposed in the Bill); and Sanral had also raised about R6.2 billion in e-toll revenue.

However, the GFIP debt remained inexplicably high.


OUTA further noted that, of the R25.6 billion in GFIP grants to the entity from 2011/12 to 2021/22, Sanral had recorded receipt of only R22.4 billion, leaving a discrepancy of R3.2 billion.

To this end, OUTA submitted that an independent investigation was required on the entity’s actual expenditure on the GFIP project.
Such an investigation should ascertain - • How much was spent on the various road construction packages of GFIP; • How much was spent on the e-toll infrastructure; • Why the costs escalated significantly from approved budgets in 2012; and • How National Treasury’s GFIP allocations to Sanral were applied between 2012 and 2022.
OUTA noted that one of the conditions attached to the Sanral allocation, was that the Department of Transport should submit a draft Road Funding Policy to National Treasury by 31 January 2023.

OUTA submitted that this policy should be published for public comment; the public must be given sufficient time to respond; and public comments must be taken into account.
OUTA requested the Standing and Select Committees on Appropriations to request the Portfolio Committee on Transport to encourage the Department of Transport to make the process of drafting this policy as transparent as possible, to ensure public buy-in on this crucial matter.

OUTA expressed concern around the ongoing failure of SOEs as well as government’s continued failure to reassess this sector.
It submitted that Eskom in particular would be a significant drain on the fiscus for years to come; making reference to the 2022 MTBPS which stated that financial support for Eskom had amounted to R224.6 billion between 2019/20 and 2025/26.

This was likely to increase further when National Treasury took on a significant 7 48 amount of Eskom’s debt.
While OUTA agreed that Eskom needed support, it found it distressing to see funds, which should be used for improving quality of life, having to be used to clean up the results of state capture.

OUTA emphasised that government had repeatedly promised to overhaul the SOE sector, but had done nothing.

OUTA submitted that it was time for the unnecessary SOEs to be shut down or amalgamated, and for much more stringent controls over them.
OUTA was of the view that it was pointless for government to continue to pour massive sums into Eskom, while failing to address the key problem of the debt owed to the entity by customers, particularly delinquent municipalities.
4.5 Public Service Accountability Monitor (PSAM) The Public Service Accountability Monitor (PSAM) was concerned that bail-outs to state- owned entities (SOEs) continued despite very little evidence that these entities would become self-sufficient, or that conditions attached to bail-outs had any impact; as it continued to pose a threat to public finances; and made the following recommendations: • The Committees should insist that the conditions applied to bail-outs to SOEs (including those in the past few years) be made available to the public, together with a clear plan for weaning SOEs off of state interventions.
• The Committees should urge that the National Treasury, the Department of Public Enterprises and other departments ensure transparency and timely reporting in the operations of SOEs who receive public funds.

• The Committees should request national departments responsible for SOEs to facilitate the opening of annual general meetings (AGMs) of SOEs to the public, and to make information on remuneration and incentives of board members and executives public.

5.
Observations and findings The Select Committee on Appropriations, having considered the inputs from the above stakeholders on the Special Appropriation Bill [B24 - 2022], made the following findings: 5.1 The Committee notes that the Bill proposes additional funding allocations amounting to R23.7 billion for the South African National Roads Agency (Sanral) for repayment of its maturing debt and debt-related obligations; R3.4 billion for Denel SOE Limited (Denel) for the implementation of its turnaround plan; and R2.9 billion for Transnet 8 49 SOE Limited (Transnet) for the acceleration of the repair and maintenance of locomotives.
5.2 The Committee notes that these additional funds are accompanied by pre- and post- conditions and further notes that National Treasury will only disburse these funds once the Minister is satisfied that the required conditions have been met by the aforementioned entities.

However, the Committee remains concerned that there seem to be no clearly outlined penalties within the pre- and post-conditions to deal with non- compliance.
5.3 The Committee remains concerned over the fact that government is being forced to pay for the poor decisions made by Sanral, leading to it requiring R9 billion immediately to maintain its going concern status.

Furthermore, the Committee is concerned over the fact that there are no clear plans for how Gauteng would fund its 30 percent share of the Sanral debt; and what the consequences will be if it fails to raise the money.
5.4 The Committee notes that Denel’s financial challenges have resulted in it struggling to pay salaries for 18 months during the COVID-19 pandemic and failing to submit financial results within the required time frame; leading to the Johannesburg Stock Exchange (JSE) suspending trading of its bonds earlier in 2022 and the entity being unable to sell more debt on the primary market and its bonds not being traded on the JSE's secondary market.
5.5 The Committee agrees with the Financial and Fiscal Commission (FFC) that the challenges of the state-owned entities (SOEs) have resulted in poor service delivery, poor financial management, less growth, massive unemployment, corruption and low business confidence and further compromised government’s social programmes to alleviate poverty, unemployment and inequality.
5.6 The Committee agrees with COSATU that more needs to be done by law enforcement to protect the country’s railway infrastructure, given the scourge of cable theft and many other criminal activities taking place in that space.
5.7 The Committee agrees with OUTA that the Road Funding Policy to be drafted by the Department of Transport should be published for public comment; the public must be 9 50 given sufficient time to respond; and public comments must be taken into account to ensure public buy-in on this matter.
5.8 The Committee shares the concern of the Public Service Accountability Monitor (PSAM) that bail-outs to SOEs continue despite very little evidence that these entities will become self-sufficient, or that conditions attached to bail-outs have any impact; as their situation continues to pose a threat to public finances.
5.9 The Committee agrees with the Parliamentary Budget Office (PBO) that the continued bailing out of SOEs constitutes a sovereign credit risk, and is further concerned over the need to find alternative funding models to finance Sanral’s debt, seeing that the user-pays principle seems to have been rejected by citizens.
6 Recommendations The Select Committee on Appropriations, having been briefed and engaged with the above stakeholders on the Special Appropriation Bill [B24 - 2022], recommends as follows: 6.1 The Minister of Finance should gazette the proposed additional funding allocations, with clear conditions, as indicated in the Special Appropriation Bill [B24 – 2022], amounting to R23.7 billion for the South African National Roads Agency (Sanral) for repayment of its maturing debt and debt-related obligations, R3.4 billion for Denel SOE Limited (Denel) for the implementation of its turnaround plan, and R2.9 billion for Transnet SOE Limited (Transnet) for the acceleration of the repair and maintenance of locomotives.
6.2 The Minister of Finance, together with the Minister of Public Enterprises and the Minister of Transport, should ensure that the pre-and post-conditions prescribed for the bail-outs are fully complied with, and that clear consequences are explicitly outlined as part of such conditions; so that appropriate action will be taken against the transgressor in the case of non-compliance.
Furthermore, the Committee is of the view that, in order to encourage transparency in public finances, any bail-out must have conditions that are publicly available for continuous accountability and oversight.
6.3 Whilst the Committee welcomes the allocation of R3.4 billion to Denel to deal with the turnaround strategy as well as the non-payment of workers for 18 months; the Committee recommends that the Minister of Public Enterprises, together with the Denel 10 51 Board, take concrete steps to ensure that the process of paying outstanding salaries for Denel employees is fast-tracked immediately.
6.4 The Minister of Finance, together with the Minister of Public Enterprises and the Minister of Transport, should ensure that all additional funds earmarked for their respective departments are spent according to the approved plans and within the ambit of the Special Appropriation Bill [B24 – 2022], and ensure that clear internal controls and financial management systems are put in place to prevent poor, wasteful and fruitless expenditure, and that consequence management is enforced.
Parliament will continue to monitor the implementation and expenditure of such allocations through regular in-year monitoring by sector committees and the section 32 reports required by the Public Finance Management Act No.1 of 1999.

6.5 The Department of Transport should expedite the process of developing a draft Road Funding Policy, which should then be promptly published for public comment.
The public must be given sufficient time to respond and public comments must be taken into account to ensure public buy-in on this matter.

6.6 Whilst recognising the need for government to intervene where there is market failure, the Committee believes that the provision of continuous financial support to state- owned entities (SOEs) directly from the fiscus will continue to compromise social programmes for the poor and other developmental obligations.
As part of the overall SOE turnaround strategy, the Committee is calling for concrete steps to be taken by the Department of Public Enterprises, the National Treasury, the Department of Transport and other departments with ailing public entities to strengthen oversight, leadership capacity/boards of directors and financial management capacity, and to ensure the appointment of suitably qualified and experienced officials to turn around the balance sheets of these entities within a reasonable period of time after the adoption of this Report by the House.
6.7 The Committee does not encourage the tabling of special appropriation bills in Parliament, unless they are absolutely necessary and dictated by exceptional circumstances; as it may signal budgeting challenges related to fiscal uncertainty.

When 11 52 these bills are introduced, it needs to be done timeously so that Parliament has sufficient time to engage with the public and process them accordingly.

7.
7.

Conclusion After having complied with section 12 of the Money Bills and Related Matters Act No 9 of 2009 (as amended), the Select Committee on Appropriations, having considered the Special Appropriation Bill [B24 - 2022], referred to it for concurrence, and classified by the Joint Tagging Mechanism as a section 77 Bill, reports that it has agreed to the Bill, without proposed amendments.
The Democratic Alliance (DA), the Economic Freedom Fighters (EFF) and the Freedom Front Plus (FF+) reserved their positions on the Report.

Report to be considered.

12 53 3.


REPORT OF THE SELECT COMMITTEE ON APPROPRIATIONS ON THE PROPOSED DIVISION OF REVENUE AND CONDITIONAL GRANT ALLOCATIONS TO PROVINCES AND MUNICIPALITIES AS CONTAINED IN THE 2022 MEDIUM TERM BUDGET POLICY STATEMENT, DATED 02 DECEMBER 2022 Having considered the 2022 Medium Term Budget Policy Statement, and in compliance with section 6(10) of the Money Bills and Related Matters Act, No.

9 of 2009 (as amended), the Select Committee on Appropriations reports as follows: 1.
Introduction The Minister of Finance (the Minister) tabled the Medium Term Budget Policy Statement (MTBPS) on 26 October 2022, outlining the budget priorities of government for the medium term estimates.
According to section 6(10) of the Money Bills and Related Matters Act No 9 of 2009 (as amended), committees on appropriations must, within 30 days after the tabling of the MTBPS or as soon as reasonably possible thereafter, report on the proposed division of revenue and conditional grant allocations to provincial and local government as contained in the MTBPS.
This report must contain - • The spending priorities of national government for the next three years; • The proposed division of revenue between the different spheres of government and between arms of government within a sphere for the next three years; and • The proposed substantial adjustments to conditional grants to provinces and local government, if any.
Upon tabling of the 2022 MTBPS, the Committee considered the proposed division of revenue and conditional grant allocations to provinces and municipalities contained therein; and will conduct further consultations after the tabling of the 2023 Division of Revenue Bill by the Minister of Finance.

2.
2.

Revised medium term expenditure priorities The proposed division of revenue shows that government remains committed to avail considerable resources to core functions and social priorities, despite slower spending growth in recent years in line with fiscal consolidation.

The medium term changes to spending are largely driven by government’s decision to extend the COIVD-19 Social Relief of Distress (SRD) Grant by one year until 31 March 2024.
1 54 Additional funding will be provided by government for safety and security to increase the number of police, boost the investigation and prosecution of serious crimes, and safeguard the country’s borders and seas.

Government has committed to support the implementation of the recommendations of the Zondo Commission of Inquiry into State Capture.
Further allocations will be made to address shortfalls in the compensation of employees (COE) budget in provincial education, retain additional health workers appointed during the COVID-19 pandemic and support the provision of free municipal basic services.

More funds will be allocated to rehabilitate damaged municipal infrastructure and address the backlog in the refurbishment of provincial roads.
Government has also reprioritised functions and reallocated budgets to fund cost pressures and urgent policy priorities within departments and entities.

The proposed division of revenue demonstrates that provinces are responsible for basic education and health services, roads, housing, social development, and agriculture.

On the other hand, municipalities provide basic services such as water, sanitation, electricity reticulation, roads and community services.
Provincial and municipal governments face multiple pressures from rising costs of basic and social services over the medium term as government contains spending growth, and weak economic growth affects other revenue and funding sources.

The current proposed division of revenue shows that consolidated government spending is projected to increase from R2.21 trillion in 2022/23 to R2.48 trillion in 2025/26, growing at an annual rate of 4 percent.
Learning and culture, which is allocated R1.43 trillion over the period, accounts for the largest share of this growth.

3.

The proposed division of revenue Table 1 below shows that, over the next three years, government proposes to allocate on average 48.4 percent of available non-interest expenditure to national departments, 41.4 percent to provinces and 10.1 percent to local government.
Proposed Division of Revenue National allocations Provinces Equitable share Conditional grants Local governments 2023 Medium Term Estimates 2023/24 2024/25 2025/26 R billion 817.7 684.3 556.4 128.0 164.9 R billion 822.2 709.5 576.5 133.0 174.6 R billion 859.1 743.3 602.9 140.4 183.5 2 55 95.1 15.4 54.4 36.5 Equitable share General fuel levy sharing with metropolitan municipalities Conditional grants Provisional allocations not assigned to votes Unallocated reserves Non-interest allocations Debt-service costs Contingency reserve Main budget expenditure Percentage shares National departments Provinces Local government Table: 1: Proposed division of revenue framework 4.
The provincial equitable share The provincial equitable share (PES), the main revenue source for provinces, is made up of six components, namely education, health, basic, institutional, poverty and economic activity.

To ensure fair funding allocations to each province, the PES formula is updated annually to reflect demographic changes and demand for services based on need.
The National Treasury has indicated that the changes introduced in 2022/23, as a result of the review of the health component, would continue to be phased in over the 2023/24 and 2024/25 financial years.

The PES task team, made up of representatives from the National Treasury and provincial treasuries, is reviewing the education component in partnership with relevant departments and agencies.
Table 2: Proposed provincial equitable share allocations Province Eastern Cape Free State Gauteng KwaZulu-Natal Limpopo Mpumalanga Northern cape North West Western Cape Total 2023/24 R million 71 682 30 815 118 566 113 240 64 175 45 834 14 878 39 373 57 822 556 385 2024/25 R million 74 059 31 798 123 219 116 758 66 774 47 581 15 441 41 027 59 844 576 501 2025/65 R million 77 422 33 157 128 844 121 688 70 276 49 882 16 182 43 091 62 359 602 900 3 56 5.
Changes to provincial conditional grant allocations The MTBPS proposes several changes to the structure of provincial conditional grants over the medium term.

Over the next three years, R1.6 billion will be added to the Early Childhood Development (ECD) Grant to strengthen the Department of Education’s oversight and monitoring capacity and to improve and expand ECD services in provinces.
A sum of R1.5 billion is added to the National School Nutrition Programme Grant, to continue providing nutritious meals to 9 million learners each school day.

In order to address backlogs in the refurbishment of provincial roads, R7.1 billion will be added to the Provincial Roads Maintenance Grant.
The following funding has been added to several conditional grants through the Budget Facility for Infrastructure (BFI) funding: • R144 million to the Comprehensive Agricultural Support Programme (CASP) Grant to KwaZulu-Natal Agri-Hub.

• R1.5 billion to the Education Infrastructure Grant for the Gauteng Schools Programme.

• R3.7 billion to the Provincial Roads Maintenance Grant for the building of modular steel bridges in rural areas.
• R1.8 billion is allocated to the Coega Development Corporation for a water security programme involving the construction and upgrading of bulk infrastructure, benefiting the Eastern Cape Province.

• The BFI allocation for the Limpopo Central Hospital has been rescheduled.

This is done within the National Health Insurance (NHI) Indirect Grant to align the allocations with the cash-flow requirement of the project.
The current baselines are rescheduled with the amounts of - R372 million, R432 million and R569 million over the 2023 MTEF.

6.

Changes to the structure of local government allocations Over the Medium Term Expenditure Framework (MTEF) period, R523 billion will be transferred to local government, including R161.8 billion in conditional grants.
The largest transfer to municipalities is the local government equitable share (LGES), which grows by 9 percent in 2023/24, 7.6 percent in 2024/25 and 6.8 percent in the 2025/26 financial years, respectively.

These above-inflation increases account for growth in household numbers, and 4 57 higher bulk water and electricity costs.

To increase coverage of the provision of free basic services, an additional allocation of R5.3 billion has been added to the LGES over the MTEF.
The proposed division or revenue shows that the LGES formula has been updated to account for projected household growth and increases in the cost of services.

The formula will be refined over the 2023 MTEF period through a review of the cost factors driving basic services, the creation of a fire services sub-component and estimates of household growth.
This refinement, which is part of the five-year local government reform plans, adopted by the Budget Forum in 2021, will be underpinned by high-quality, credible and verifiable data.

An additional allocation of R2.8 billion is proposed to the Municipal Disaster Recovery Grant to fund the repair and reconstruction of municipal infrastructure damaged by the April 2022 floods.
With respect to the Public Transport Network Grant, funds amounting to R8 million in 2024/25, and R13 million in 2025/26, are reprioritised to fund the roll-out of the Single Integrated Ticketing System.

With regard to BFI rescheduling, additions of R105 million in 2023/24, R40 million in 2024/25 and R316 million in 2025/26 are proposed to the Public Transport Network Grant to align with the revised implementation plan and cash-flow projections for the City of Cape Town’s MyCiTi public transport network.
There is also a proposed reduction of R136 million in 2023/24 and an addition of R1 million in 2024/25 to the Regional Bulk Infrastructure Grant to align with the revised implementation plan and cash-flow projections for the George Local Municipality’s Potable Water Security and Remedial Works project.
Over the 2023 MTEF, a sum of R6.5 billion will be allocated to several municipalities (eThekwini Metropolitan Municipality, City of Johannesburg Metropolitan Municipality, Drankenstein Local Municipality, Sol Plaatjie Local Municipality and Nelson Mandela Bay Metropolitan Municipality) to fund municipal infrastructure projects approved through the sixth window of the BFI.
A further allocation of R8.1 billion is made through the BFI over the 2023 MTEF to three municipalities through the Indirect Regional Bulk Infrastructure Grant.

7.

Update on long-term borrowing for municipalities The MTBPS indicates that Cabinet approved the updated municipal borrowing policy framework in August 2022.
This framework will support the development and growth of an efficient and liquid market for municipal borrowing by: (i) introducing reforms needed to expand the scope of municipal borrowing and attract more investors to municipal debt markets; 5 58 (ii) clarifying the role of development finance institutions (DFIs) to ensure that they do not crowd out the private sector; and (iii) outlining infrastructure financing mechanisms for municipalities.
The National Treasury will lead consultations with stakeholders such as DFIs and commercial banks on how to implement these changes.

To complement the borrowing reforms, Cabinet has also approved the Municipal Fiscal Powers and Functions Amendment Bill for tabling in Parliament.

This Bill will improve and standardise the regulations of development charges, a source of municipal revenue charged to developers for connecting new developments to municipal services.

8.
8.

Building capability for service delivery National Treasury submitted that, in order to help municipalities to build capacity and function efficiently, government had spent R9.1 billion across 40 state agencies in the 2019/20 financial year.

Following the National Treasury’s review of this capacity-building system, government is developing a multi-year programme to improve its outcomes and cost effectiveness.
In addition, with the support of the Government Technical Advisory Centre (GTAC), the National Treasury will finalise the design of a revised programme and agree on an integrated approach to local government capability development during 2023.

In summary, over the 2023 MTEF period, additional funding will be provided for health, education, safety and security and infrastructure investment.

Municipalities will receive support to cover cost increases in free basic services.
Moreover, government is working to improve the efficiency of spending.

9.
9.

Observations and Findings While considering and deliberating on the proposed division of revenue and conditional grant allocations to provinces and municipalities as contained in the 2022 MTBPS, the Select Committee on Appropriations observed the following: 9.1 The Committee notes the proposed allocation of 48.4 percent of the available non-interest expenditure to national departments, 41.4 percent to provincial government and 10.1 percent to local government over the next three years.
9.2 The Committee takes note of the 2023 MTEF proposed provincial equitable share allocations for compensation of employees (COE) within the education sector.

These are 6 59 R5.7 billion in 2023/24, R6.7 billion in 2024/25 and R7.6 billion in the 2025/26 financial years, respectively.
The Committee further notes the proposed allocation for the health sector to cover COE, service backlogs, including for anti-retroviral and tuberculosis treatment, laboratory services and other goods and services plus medicines and medical supplies.
9.3 The Committee welcomes the fact that additional funding will be provided for safety and security to increase the number of police, boost the investigation and prosecution of serious crimes, and safeguard the country’s borders and seas; as well as government’s commitment to support the implementation of the recommendations of the Zondo Commission of Inquiry into State Capture over the 2023 MTEF.
9.4 The Committee also notes that the proposed division of revenue shows that consolidated government spending is projected to increase from R2.21 trillion in 2022/23 to R2.48 trillion in 2025/26, growing at an annual rate of 4 percent.

Learning and culture, which is allocated R1.43 trillion over the period, accounts for the largest share of this growth.
9.5 The Committee welcomes the fact that the proposed division of revenue for the 2023 MTEF proposes several changes to the structure of provincial conditional grants, including the addition of R1.6 billion to the Early Childhood Development (ECD) Grant to strengthen the Department of Basic Education’s oversight and monitoring capacity and to improve and expand ECD services in provinces; the addition of R1.5 billion to the National School Nutrition Programme Grant, to continue providing nutritious meals to 9 million learners each school day; and the addition of R7.1 billion to the Provincial Roads Maintenance Grant to address the backlog of provincial roads refurbishment.
9.6 Whilst the Committee remains concerned about the poor spending of some provincial conditional grants, it welcomes the additional funding being proposed to several provincial conditional grants through the Budget Facility for Infrastructure (BFI); including the Comprehensive Agricultural Support Programme (CASP) for KwaZulu- Natal, the Education Infrastructure Grant for Gauteng, the Provincial Roads Maintenance Grant for rural bridges, the National Health Insurance Indirect Grant for the Limpopo Central Hospital, and the Coega Development Cooperation for water services, which will benefit the Eastern Cape.
7 60 9.7 The Committee welcomes the approval of the updated municipal borrowing policy framework by Cabinet in August 2022; as this framework will support the development and growth of an efficient and liquid market for municipal borrowing.
9.8 The Committee further welcomes the Cabinet approval of the Municipal Fiscal Powers and Functions Amendment Bill to complement the above borrowing reforms; as the Bill will assist to improve and standardise the regulations of development charges; a source of municipal revenue charged to developers for connecting new developments to municipal services.
9.9 The Committee welcomes the proposed above-inflation increases to local government allocations over the 2023 MTEF, and the fact that R523 billion will be transferred to local government, including R161.8 billion in conditional grants, over the same period.
9.10 The Committee notes that the largest transfer to municipalities is the local government equitable share and that this will continue to grow by 9 percent in 2023/24, 7.6 percent in 2024/25 and 6.8 percent in the 2025/26 financial years, respectively.

9.11 The Committee welcomes the proposed allocation of R2.8 billion to the Municipal Disaster Recovery Grant to fund the repair and reconstruction of municipal infrastructure damaged by the April 2022 floods and disasters.
9.12 The Committee notes the proposed funding over the 2023/24 MTEF for the Public Transport Network Grant, amounting to R8 million in 2024/25 and R13 million in 2025/26, respectively, and that the money is reprioritised to fund the roll-out of the Single Integrated Ticketing System.
9.13 The Committee notes the fact that, over the 2023 MTEF, R6.5 billion will be earmarked for several municipalities, including the eThekwini Metropolitan Municipality, the City of Johannesburg Metropolitan Municipality, the Drankenstein Local Municipality, the Sol Plaatjie Local Municipality and the Nelson Mandela Bay Metropolitan Municipality, to fund municipal infrastructure projects approved through the sixth window of the BFI.
9.14 The Committee notes the South African Local Government Association’s (Salga’s) assertion that the functions allocated to local government by the Constitution outweigh functions allocated to the other two spheres of government; and yet it receives the lowest share of the nationally raised revenue over the MTEF.
9.15 The Committee further notes Salga’s view that the current under-funding of local government, and the consequent financial distress, is a direct result of the fiscal 8 61 assumptions contained in the Local Government White Paper of 1998, many of which have proven to be incorrect, or have not been implemented as envisaged.
9.16 The Committee notes Salga’s recommendation that any envisaged bail-out to Eskom in the MTEF allocations must be comprehensive enough to also consider the debt owed by municipalities to the entity; and that government should consider offsetting debt owed to Eskom by financially distressed municipalities against any bail-out appropriated to the entity, with conditions.

10.
Recommendations After considering and deliberating on the proposed division of revenue and conditional grant allocations to provinces and municipalities as contained in the 2022 MTBPS and submissions by stakeholders, the Select Committee on Appropriations recommends as follows: 10.1 The provincial departments of education and health should ensure that the proposed additional allocations for the 2023 Medium Term Expenditure Framework (MTEF) through the provincial equitable share (PES), which is earmarked for compensation of employees, service delivery backlogs, anti-retroviral and tuberculosis treatment, laboratory services and other goods and services, medicines and medical supplies, are spent according to approved plans and that all funded vacant posts are filled to improve frontline service delivery.
10.2 More resources should be set aside over the 2023 MTEF for safety and security, in order to increase police visibility, boost the investigation and prosecution of serious crimes, and safeguard the country’s borders and seas, as well as for the implementation of the recommendations of the Zondo Commission of Inquiry into State Capture.
10.3 The Department of Basic Education should develop mechanisms to ensure that the proposed additional amount of R1.6 billion is spent effectively and efficiently to strengthen oversight and monitoring capacity to improve the implementation of the Early Childhood Development Grant to expand early childhood development services in provinces over the 2023 MTEF period.
The Committee again reiterates its previous recommendation that intensifying investment of resources at the early stages of education is crucial for the future of this country.

Parliament and provincial legislatures will continue to monitor progress in this regard.
9 62 10.4 The Department of Basic Education, together with its provincial counterparts, should ensure that proper processes and systems are developed and implemented to address under-spending on crucial conditional grants and ensure that the proposed R1.5 billion allocated to the National School Nutrition Programme Grant is effectively spent to continue providing nutritious meals to 9 million learners each school day for the 2023 MTEF.
10.5 The National Treasury, together with its provincial counterparts, should ensure that mechanisms to continuously improve provincial conditional grant expenditure are implemented, as articulated in the conditional grant frameworks, to achieve value for money, particularly for the proposed additional grant funding earmarked through the Budget Facility for Infrastructure (BFI).
These include funding for the Comprehensive Agricultural Support Programme (CASP) for KwaZulu-Natal, the Education Infrastructure Grant for Gauteng, the Provincial Roads Maintenance Grant for rural bridges, the National Health Insurance Indirect Grant for the Limpopo Central Hospital, as well as the Coega Development Corporation for water services in the Eastern Cape.
10.6 The National Treasury, together with the Department of Cooperative Governance, provincial departments of cooperative governance and the South African Local Government Association (Salga), should expedite the review of the capacity-building system for local government as well as the development of a multi-year programme to improve basic service delivery outcomes and cost effectiveness.
The National Treasury should also fast-track the design of a revised programme and agree on an integrated approach to local government capability development for the 2023 MTEF.
10.7 The National Treasury, together with the Department of Cooperative Governance, provincial treasuries and provincial cooperative governance departments and the South African Local Government Association (Salga), should ensure that proper plans are continuously implemented to improve the quality of spending and performance in local government to achieve value for money; in light of the proposed allocation amounting to R523 billion, including R161.8 billion in conditional grants.
10.8 Although the Committee believes that a proper review of local government transfers is necessary to address the structural under-funding of the sphere; it supports the proposed above-inflation increases in local government allocations over the Medium Term Expenditure Framework (MTEF) period.

Parliament and provincial legislatures will 10 63 continue to monitor progress in this regard to ensure that the aspirations contained in the Local Government White Paper of 1998 are eventually realised.
10.9 The National Treasury, together with the Department of Cooperative Governance and its provincial counterparts, should put proper mechanisms in place to ensure that the much- needed relief funding earmarked for disaster recovery promptly reaches the deserving beneficiaries/victims; and improve the expenditure for the proposed additional allocation of R2.8 billion to the Municipal Disaster Recovery Grant to fund the repair and reconstruction of municipal infrastructure damaged by the April 2022 floods.
10.10 The Department of Cooperative Governance, together with its provincial counterparts and the South African Local Government Association (Salga), should always ensure that municipalities plan in advance for the proposed R8.1 billion of the Indirect Regional Bulk Infrastructure Grant earmarked for some municipalities over the MTEF period in order to avoid the return of funds back to the fiscus without delivering services.
10.11 The National Treasury, together with the Department of Cooperative Governance and its provincial counterparts should ensure that proper planning and monitoring is conducted to avoid wasteful and fruitless expenditure as well as corruption for the proposed R6.5 billion earmarked for the eThekwini Metropolitan Municipality; the City of Johannesburg Metropolitan Municipality; the Drankenstein Local Municipality; the Sol Plaatjie Local Municipality and the Nelson Mandela Bay Metropolitan Municipality, to fund municipal infrastructure projects approved through the sixth window of the Budget Facility for Infrastructure (BFI) over the MTEF.
10.12 The National Treasury and Cabinet should ensure that a concerted effort is exerted to address the financial challenges experienced by municipalities in financial distress.

Furthermore, a portion of the higher than anticipated revenue generated should be utilised to alleviate financial pressures for these municipalities; with such an intervention being accompanied by stringent conditions to enforce accountability, and improved oversight.
10.13 The Committee is of the view that, for government to realise its infrastructure-led economic recovery plan, proper alignment of budgets and infrastructure plans is key for all spheres of government.

Therefore, government should continue to intensify the implementation of the economic recovery strategies to assist businesses in distress and address Eskom challenges, as electricity supply is critical for growth over the medium term period.
Parliament and provincial legislatures will continue to monitor progress in this regard.

11 64 The Democratic Alliance (DA), the Economic Freedom Fighters (EFF) and the Freedom Front Plus (FF+) reserved their positions on the Report.

Report to be considered.

12 65