Presentation to Select Committee on Finance: KZN’s Unaudited Provincial Position – 2016/17

1. Presentation to Select Committee on Finance: KZN’s Unaudited Provincial Position – 2016/17 23 June 2017

2. Contents • Progress on implementation of the provincial economic growth and development strategies • Unauthorised, irregular and wasteful expenditure • Unaudited provincial own revenue collection and challenges • Aggregate Unaudited provincial expenditure, with emphasis on Departments of Health and Education • Unaudited infrastructure expenditure on economic and social infrastructure • Unaudited Economic classifications (details on COE and Goods and services) • Unaudited Conditional grants • Fiscal position covering bank balances and accruals

3. Progress on implementation of the provincial economic growth and development strategies

4. PGDS Strategic Goals and Vision INCLUSIVE ECONOMIC GROWTH 1 2 HUMAN RESOURCE DEVELOPMENT HUMAN AND COMMUNITY DEVELOPMENT 3 KwaZulu-Natal will be a prosperous Province with a healthy, secure and skilled population, living in dignity and harmony, acting as a gateway to Africa and the World 31 4 STRATEGIC INFRASTRUCTURE 5 ENVIRONMENTAL SUSTAINABILITY STRATEGIC OBJECTIVES 6 GOVERNANCE AND POLICY 7 SPATIAL EQUITY

5. PGDS Strategic Objectives

6. PGDS Strategic Objectives

7. PGDS Review

8. PGDS Review

9. Progress on the Implementation of the PGDS

10. Progress on the Implementation of the PGDS (cont’d)

11. Unauthorised, irregular and wasteful expenditure

12. Unauthorised, irregular and wasteful expenditure Unauthorised expenditure trend • There is a 49% decrease in unauthorised expenditure from 2014/15 to 2016/17

13. Unauthorised, irregular and wasteful expenditure Irregular expenditure trend • There is a 244% increase in irregular expenditure incurred from 2015/16 to 2016/17

14. Unauthorised, irregular and wasteful expenditure Irregular expenditure graph

15. Unauthorised, irregular and wasteful expenditure The main reasons for the increase in Irregular Expenditure are as follows: • The increase in Human Settlements’ irregular expenditure is due to contracts entered into with municipalities (the department is unable to find/ locate the SCM documentation) – These contracts were entered into from 2002 – 2016. • Numerous contracts for the Department of Health have expired, but the department still using these contracts (on a month-to-month basis). • The increase in Transport is attributable to prior year multi-year contracts being deemed irregular. The expenditure was incurred in the current year. Other general categories for Irregular Expenditure are: • Fewer than 3 quotations obtained. • TR16A6.4 deviations (impractical vs emergency). • Use of implementing agents (agents not following process) • No tax certificates or expired certificates. • No authority for overtime. • TR16A6.6 use of transversal contracts (no authority or use of other contractors not on list)

16. Unauthorised, irregular and wasteful expenditure Fruitless and Wasteful expenditure • There is a 89% decrease in fruitless and wasteful expenditure from 2015/16 to 2016/17

17. Unaudited provincial own revenue collection and challenges

18. Provincial own revenue collection and challenges

19. Provincial own revenue collection and challenges

20. Provincial own revenue collection and challenges • These tables show provincial own receipts for 2016/17, by department and by economic classification, respectively • Also given is the Final Appropriation, over/under-collection, as well as the percentage collected • The bulk of the province’s own revenue is usually derived from five main sources, being Motor vehicle licences by Transport, Health patient fees by Health, Casino taxes and Horse racing taxes by Office of the Premier and Interest, dividends and rent on land by Provincial Treasury • The aggregated unaudited revenue collected by the provincial departments amounted to R3.190bn compared to the Final Appropriation of R3.032bn, resulting in an over-collection of R158.672m or 5.2% • 2 departments show an under-collection and 13 show an over-collection • Largely responsible for the provincial over-collection are Transport, Education and Office of the Premier

21. Provincial own revenue collection and challenges The most significant over-collections are discussed below: • Transport reflects an over-collection of R66.252m. The over-collection is mainly made up of revenue from higher than anticipated applications for new and renewal of motor vehicle licences, auction sale of redundant vehicles and traffic fines paid. This revenue was mitigated to some extent by under-collection against applications for learners’ and drivers’ licences, commission on PERSAL deductions, rentals, parking fees, abnormal loads licences, etc. • Education reflects an over-collection of R35.504m. The over-collection mainly relates to revenue received from the sale of redundant motor vehicles which was not budgeted for, as well as monies recovered from previous years, related to over-payments of suppliers and/or the department’s employees • OTP reflects an over-collection of R25.021m against budget, mainly due to revenue from Casino taxes being higher than budgeted. Revenue from this category is dependent on economic activity and is therefore difficult to project accurately. The KZNGBB was moved to Vote 1 in-year as determined by Premier’s Minute No. 2, and as a result revenue items related to this function were moved from Provincial Treasury to Office of the Premier for the remaining 6 months of 2016/17

22. Provincial own revenue collection and challenges The unaudited over-collection is mitigated by under-collection as follows: • Provincial Treasury under-collected by R13.635m, due to the under-collection against interest revenue earned on the provincial bank account as a result of declining cash balances • Agriculture and Rural Development under-collected by R4.697m which the department has ascribed to the 0% increase in academic fees, scholarships given to 30 students by the department, as well as the slow rate of payments by students. Also, the college still awaits payments from University of KwaZulu-Natal (UKZN) students who registered for agricultural degrees.The department also under-collected as a result of an auction of redundant motor vehicles which did not take place as anticipated in March 2017

23. Challenges in revenue collection Health • The economic climate of the country, characterised by high unemployment, high cost of living, fluctuations in the Rand as a result of international financial trends, among others, impacts on the public health sector in various ways • Based on the KZN population totalling in excess of 10 million, 16% (1 729 044) rely on the private health care sector and the remaining 84% (9 077 485) of the population depend solely on the under-resourced public health sector • Socio-economic challenges in the province limit the ability of the dept. to recover revenue owed to it by the public. Review of the Uniform Patient Fees Structure (UPFS) – more groups are exempt from paying fees, coupled with the reduction of fees payable by certain categories of patients • Prevalence of inefficient manual billing systems

24. Challenges in revenue collection Transport • Loss of revenue to other provinces as KZN’s tariffs are one the highest in the country. Have kept annual increases below inflation to mitigate this until KZN’s fees are in line with the other provinces • KZN is currently ranked the highest in 4 of the categories using an average calculation, namely caravans, motor cycles, motor vehicles (inclusive of sedans, LDVs, taxis, busses and trucks), as well as tractors

25. Aggregate Unaudited provincial expenditure, with emphasis on Departments of Health and Education

26. Aggregate provincial expenditure

27. Aggregate provincial expenditure • This table shows the summary of the Unaudited Actual expenditure for KZN for 2016/17, per Vote • The provincial allocation was increased by R86.890m during the Second Adjustments Estimate and this is included in these tables. These funds are in respect of the Education Infrastructure Grant and this was formalised in the Second Adjustments Estimate which was tabled in the Provincial Legislature on 30 March 2017 and is therefore included in the Adjusted Appropriation column in the tables • As at the end of 2016/17, the aggregated expenditure for the year amounts to R109.595bn compared to the Final Appropriation of R109.914bn, resulting in under-expenditure of R319.565m at year-end or 0.3% below budget • This is the 6th consecutive year where KZN’s expenditure has deviated from the budget by less than 1%

28. Aggregate provincial expenditure • All15 departments under-spent against the Final Appropriation due to various reasons, with the largest under-expenditure being portrayed by Provincial Legislature, Education, Provincial Treasury, Social Development, Transport, COGTA and Health • Although the Provincial Legislature reported substantial under-spending, it should be noted that the Provincial Legislature is in the process of compiling the AFS on an accrual basis, in line with a finding of the A-G, and it is expected that the year-end position will significantly change, once accruals are included. In terms of the cash basis of accounting, though, the Legislature under-spent against their budget by R80.957m being the highest under-spending in the province • Health and Education are analysed in more detail on the following slides

29. Aggregate provincial expenditure Health under-spent by R12.603m: • It must be noted that 54% of the KZN population reside in rural areas and an estimated 10% of the urban population reside in under-developed informal settlements. This has significant implications for service delivery and health outcomes as a result of under-development and unavailability of essential services, for example, potable water, sanitation, waste removal, as well as adequate employment opportunities. The Department of Health, therefore, faces an added burden which stems from these socio-economic challenges, thus placing more pressures on the already constrained resources • The department processed a number of journals and virements, and cleared suspense accounts subsequent to the Preliminary Close-out Report. Overall, the net over-spending has changed from R97.749m reflected in the Preliminary Close-out Report to under-spending of R12.603m in the Unaudited Close-out Report, and the position at both the programme and economic classification levels has changed substantially because of the post Adjustments Estimate journals and virementsundertaken • This department attributes this significant turnaround to a reduction of R198.738m in the levy required by the Medicine Trading Account. This levy is based on the volume of medicines processed via the account, however, running costs were substantially less than the levied amount due to vacant posts, as well as cheaper delivery mechanisms. The surplus was thus returned to the books of the department

30. Aggregate provincial expenditure Health under-spent by R12.603m (cont’d): • Note, however, that the department under-spent part of its specifically and exclusively appropriated funding by R67.036m, meaning that specifically and exclusively appropriated funds were utilised to absorb spending pressures in other areas. Thus, if this is taken into account, the department actually over-spent its budget by almost R55m • The over-spending is despite a turn-around plan submitted to Treasury by Health in October 2016 which set out a plan to ensure no over-spending would be incurred. While the plan mentioned that a number of costs would be deferred to 2017/18, the amount was not stated, and this has now been estimated at approximately R1.306bn carried over to 2017/18, compared to approximately R1.200bn carried over from 2015/16 to 2016/17. The department does have an age analysis which largely supports this number, however there are many inconsistencies that are still being investigated

31. Aggregate provincial expenditure Health under-spent by R12.603m (cont’d): • While Health under-spent at year-end, they undertook numerous virements post-Adjustments Estimate to deal with various spending pressures • The department processed extensive post Adjustments Estimate virements, mainly to reduce unauthorised expenditure at programme level. The net effect of the virements has reduced unauthorised expenditure at programme level from R292.844m in the Preliminary Close-out report to R18.997m. Note that not all over-spending at programme and economic classification level could be addressed due to PFMA limitations on moving more than 8% of a main sub-division of the Vote • The main virements are discussed here: • The department significantly under-spent in most programmes against Compensation of employees mainly due to enforced delays by the department in filling critical OSD posts to reduce over-spending, the non-payment of the Joint Medical Establishment funding to UKZN while the agreement is being reviewed, the reduction in community services staff and a reduced intake of student nurses as part of cost-cutting. In total, R153.318m was moved from Compensation of employees (Prog. 1, 2, 4, 5, 6 and 7), with R131.751m moving to other categories including Goods and services in Prog. 2 to address ARV medicine spending pressures related to the change to the universal test-and-treat (UTT) regime which resulted in increased numbers of patients being placed on ARVs. Also receiving funding was Transfers and subsidies to: Households in Prog. 2, 4, 5 and 6 mainly for under-funded medico-legal claims and staff exit costs. A further R21.567m moved within the category to Prog. 3 and 8 to address overtime allowance payments to paramedic staff, which were not budgeted for and minor under-budgeting, respectively

32. Aggregate provincial expenditure Health under-spent by R12.603m (cont’d): • While Health under-spent at year-end, they undertook numerous virements post-Adjustments Estimate to deal with various spending pressures, and the main virements are discussed here: • As mentioned, Goods and services in Programme 2 was under pressure due to increased ARV spending (R492.353m over-spending against medicines in the preliminary numbers), which was addressed by the movement of savings from Compensation of employees in a number of programmes. There were also further virements from Goods and services in Prog. 1, 3, 5 and 7 to address this pressure. The savings in Prog. 1 and 5 were due to the effect of cash-blocking, which was a result of over-spending elsewhere in the budget. The savings in Prog. 3 and 7 were a result of lower than anticipated fleet service costs and orthopaedic workshop tender price disputes, respectively • As mentioned, Transfers and subsidies to: Households in Prog. 2, 4, 5 and 6 was increased to address under-funded medico-legal claims and staff exit costs, with movements mainly from Compensation of employees and Goods and services. The provision for medico-legal claims was increased by R37.032m • R99.508m was moved within capital from Machinery and equipment in Prog. 8, with R29 000 moving to Buildings and other fixed structures within the programme, and the balance moving to Machinery and equipment in Prog. 1, 2, 4 and 5. The savings in Prog. 8 were largely intentional in order to reduce over-spending elsewhere in the budget, while some delays related to slow SCM procedures. The funding was moved to address the need to replace critical medical and non-medical equipment

33. Aggregate provincial expenditure Health under-spent by R12.603m (cont’d): • The following is a snapshot of spending at Programme level: • P1: Administration was fully spent after virementsand journals. However, prior to these movements, the programme was under-spent by R9.454m, mainly because of cash-blocking due to insufficient funds in the department’s bank account, which resulted in BAS being closed for processing. This has, however, resulted in anticipated carry-over costs of R18m related to IT, business advisory services and legal costs, to be paid in 2017/18 • P2: District Health Services was over-spent by R14.885m, after virements and journals. This unauthorised expenditure could not be addressed by virement due to PFMA limitations. This is significantly less than the over-spending of R275.580m reported in the Preliminary Close-out Report. The preliminary over-spending was a result of pressures on monitoring tests (HIV and AIDS) and ARV medicines. The pressure relates to the change to the UTT regime which resulted in increased numbers of patients being placed on ARVs. Note that the above-mentioned cash-blocking also impacted on this programme and the over-spending would have been far higher. The department reports that there are anticipated carry-over costs of R576m, of which approximately R67m related to transfers for eThekwini municipal clinics (Q3 and Q4 invoices not received) and R25m in respect of vehicles (R10m for PHC outreach vehicles and R15m for mobile clinics). The balance of R484m carried over is against Goods and services, mainly for medicines (R228m), NHLS (R175m), medical supplies (R26m), as well as property payments (R20m)

34. Aggregate provincial expenditure Health under-spent by R12.603m (cont’d): • The following is a snapshot of spending at Programme level: • P3: Emergency Medical Services spending was on budget after journals and virements, but was over-spent by R17.264m before these movements. This was mainly attributed to pressures under Compensation of employees due to overtime allowance payments to paramedic staff, which were not budgeted for. Mitigating this over-spending was under-spending against Goods and services due to fleet service costs being lower than anticipated. Also impacting was the non procurement of paramedic uniforms to offset pressures elsewhere in the budget. Note that cash-blocking also impacted on this programme and the over-spending would have been higher. The department reports that there are anticipated carry-over costs of R30m, with R23m related to delayed vehicle payments to stay within budget, and R7m for various Goods and servicesitems • P4: Provincial Hospital Services marginally over-spent by R4.112m (increased from R878 000 prior to journals and virements). This increase in over-spending was due to journals processed increasing final expenditure, but PFMA limitations prevented the department from fully addressing this by virements. According to the department, there were pressures in Transfers and subsidies to: Households due to excessive costs of medico-legal litigation (R112.515m). The main contributors by institution were Prince Mshiyeni Memorial Hospital (R72.757m), Stanger Hospital (R16.253m) and Mahatma Gandhi Memorial Hospital (R15.842m). Staff exit costs were higher than anticipated by R2.871m. Also contributing were exchange rate pressures in respect of medicines (R15.214m). These pressures were mitigated by under-spending of R44.537m against Compensation of employees due to the unresolved JME payments owing to UKZN. There was also under-spending of R46.701m in NHLS payments being carried over to 2017/18, as well as property payments (cleaning, security, electricity, water, etc.) by R15.227m as a result of cash-blocking. The department reports that there are anticipated carry-over costs of R320m, with R150m for accrued JME costs, as well as R57m for medicine, R35m for medical supplies, R15m for property payments, R10.600m for agency and support services (patient catering and medical waste) and R9m for medical equipment (anaesthetic machines, etc)

35. Aggregate provincial expenditure Health under-spent by R12.603m (cont’d): • The following is a snapshot of spending at Programme level: • P5: Central Hospital Services was fully spent following journals and virements. Prior to these movements, the programme was under-spent by R7.245m. The department attributes this to under-spending against Compensation of employees due to enforced delays by the department in filling critical vacant OSD posts (nursing, medical specialists, etc.) as part of the department’s cost-containment plan. Also contributing to the under-spending was agency and support/ outsourced services and NHLS due to payments being carried over to 2017/18. This under-spending was partly mitigated by over-spending against Transfers and subsidies to: Households due to excessive costs of medico-legal litigation (R36.783m). The hospitals contributing to this were King Edward VIII Hospital (R30.932m), Inkosi Albert Luthuli Central Hospital (R4.860m) and Greys Hospital (R991 000). Also over-spent was Machinery and equipment due to the need to replace critical mammographic unit equipment at Greys Hospital, which was budgeted for under Prog. 8 but paid in Prog. 5 (R5.500m). The department reports that there are anticipated carry-over costs of R160m related largely to March invoices for the PPP at Inkosi Albert Luthuli Central Hospital, medicine, NHLS and property payments • P6: Health Sciences and Training fully spent its budget, but was under-spent prior to journals and virements by R21.854m. This was mainly attributed to Compensation of employees due to a reduced intake of student nurses and the department is still in the process of determining the exact numbers. Also impacting on the under-spending was the previously mentioned payment of EMS training staff who were incorrectly paid from Prog. 3 instead of Prog. 6 and now corrected by journal. This was mitigated to a small degree by R1.977m over-spending against Transfers and subsidies to: Households resulting from pressures in the Cuban Doctors’ programme caused by exchange rate pressures. The department reports that there are anticipated carry-over costs of R34m mainly for the deferment of bursary payments to 2017/18 for students studying in South Africa

36. Aggregate provincial expenditure Health under-spent by R12.603m (cont’d): • The following is a snapshot of spending at Programme level: • P7: Health Care Support Services was under-spent by R31.600m following virements and journals. Before these movements the under-spending was R57.719m due to under-spending against Goods and services related to consumable supplies and medical supplies. Both items relate to a reduced acquisition of linen, orthopaedic workshop disputes on tender prices and subsequent non-delivery of supplies, which has resulted in minimal stock levels for artificial limbs and delays with the renewal of the tender for crutches, etc. This was exacerbated to some extent by under-expenditure on Compensation of employees due to enforced delays by the department in recruiting suitably qualified orthotic and prosthetic staff, as well as Machinery and equipment due to serious delays in the procurement processes with the acquisition project to moderniseorthopaedic workshop equipment (R10m) and the inadvertent misplacement of an order within the department for laundry trucks, with the procurement deferred to 2017/18. The department reports that there are anticipated carry-over costs of R12m • P8: Health Facilities Management spent on budget after journals and virements, but was under-spent before these movements by R99.701m. This was largely due to under-spending against Machinery and equipment due to enforced savings to address pressures elsewhere in the budget. Included in the equipment not purchased were generators for hospitals and clinics, essential health technology replacement equipment, such as X-ray machines, as well as EMS equipment, with procurement deferred to 2017/18. In addition, critical mammographic unit equipment at Greys Hospital, which was budgeted for under Prog. 8 was paid from Prog. 5, as mentioned. The department reports that there are anticipated carry-over costs of R135m, including R65m for medical equipment, R52m for various building projects and R18m for Goods and services (maintenance) items

37. Aggregate provincial expenditure • As a result of these matters, among others, the Provincial Executive Council recently approved a Health/ Provincial Treasury assistance plan so that these problems do not continue to recur • In KZN, in particular, Health faces various challenges, such as: • Budget pressures • Poor asset management • Substantial accruals that have accumulated over the years • Medical equipment that needs maintenance • SCM capacity constraints • Lack of proper internal controls • Increasing medical-legal claims, and so on • To assist with these challenges, Provincial Treasury deployed resources in the department earlier this year. An assessment was done and it indicates that there are systemic problems that need formal intervention • The Honourable Premier, the MEC for Health and the MEC for Finance are working very closely on this matter and have had various engagements in this regard. The officials from Health and Provincial Treasury are working jointly and urgently to provide the necessary support to address the issues identified

38. Aggregate provincial expenditure • The initial areas that the assistance plan will cover are: • Pharmaceuticals and Provincial Pharmaceutical Supply Depot • Supply Chain Management • Internal Control • Assets • Clearing of accruals • Medical equipment • National Health Laboratory Services • Once all these issues have been attended to, many of Health’s issues should be resolved making it easier for the department to manage their spending to remain within budget thus reducing the number of post Adjustments Estimate virements

39. Aggregate provincial expenditure Education under-spent by R74.452m: • It should be mentioned, though, that the department under-spent against the NSNP grant by R116.807m, but the Vote as a whole is only under-spent by R74.452m, which means that the department effectively utilised the grant allocation for other purposes, which is in contravention of the PFMA • Education undertook numerous virementsand shifts post Adjustments Estimate subsequent to the Preliminary Close-out Report. This was mainly to reduce the over and under-expenditure at programme level, as well as over and under-spending at economic classification level • At economic classification level, the following virements post Adjustments Estimate were undertaken: • Compensation of employees was decreased by R271.767m (mainly against Programme2) ascribed to various reasons, such as a decision taken by the department not to fill posts as the department calculated that they would not be in a position to afford the carry-through costs of these posts. The department was allocated additional funds in the 2016/17 Adjustments Estimate for the wage agreement shortfall, however, the department maintains that vacant posts, as well as attrition posts in districts, could not be afforded within the available budget and, as a result, a number of posts were not filled in-year. Provincial Treasury requested that the department undertake a comprehensive analysis of the vacant and filled posts in order to determine how many posts can be afforded. This analysis was only undertaken late in the year contributing to delays in filling vacant posts

40. Aggregate provincial expenditure Education under-spent by R74.452m (cont’d): • At economic classification level, the following virements post Adjustments Estimate were undertaken (cont’d): These savings were moved to the following categories to offset spending pressures: • Interest and rend on land was increased by R380 000 to cater for interest incurred on overdue accounts for various services including water and electricity accounts for schools • Transfers and subsidies to: Provinces and municipalities was increased by R173 000 due to higher than anticipated vehicle licencefees • Transfers and subsidies to: Households was increased by R1.795m due to higher than anticipated staff exit costs, as well as Other transfers to households for transfers to bereaved families who lost children through accidents, etc.

41. Aggregate provincial expenditure Education under-spent by R74.452m (cont’d): • At economic classification level, the following virements post Adjustments Estimate were undertaken (cont’d): These savings were moved to the following categories to offset spending pressures: • Goods and services was increased by R269.262m to offset spending pressures in various items as follows: • Higher than anticipated costs for printing attributed to various printing including training materials for training of principals and curriculum education specialists and development of curriculum material, as well as printing of examination papers for both the supplementary and final matric exams for the 2016 academic year • Travel and subsistence due to higher than anticipated costs to enhance supervision in schools, as well as Operation Bounce Back aimed at improving matric results through the holding of boot camps in various districts • Property payments in respect of high costs for cleaning and security services in various office buildings and marking centres • LTSM due to the purchase of textbooks and other school materials through the management agent on behalf of some schools, as well as venues for examination marking centres since some boarding schools could not be utilisedbecause of their dilapidated state • Catering for departmental activities was high in respect of provision of refreshments for various marking centres and Operation Bounce Back aimed at improving matric results through the holding of boot camps, as well as communication for advertising of various departmental programmes, including telephone and fax costs in various districts

42. Aggregate provincial expenditure Education under-spent by R74.452m (cont’d.): The following is an analysis of expenditure against some of the economic classifications: • Compensation of employees was under-spent at 99.9%, or R22.639m after virements post Adjustments Estimate were undertaken with the main reason for under-spending against this category being the decision taken by the department to not fill certain posts due to the inability to afford the carry-through costs. The department assures that this only related to non-educator posts and that educator posts were filled as and when needed • Goods and services was at 98.7%, under-spent by R51.562m after virements post Adjustments Estimate were undertaken. The under-spending mainly relates to the NSNP grant which was under-spent, because March invoices for feeding for the month are only paid in April. The department also implemented enforced savings in line with an internal cost-containment plan against various items, including consumables and supplies and minor assets

43. Aggregate provincial expenditure Education under-spent by R74.452m (cont’d.): The following is an analysis of expenditure against some of the economic classifications: • Buildings and other fixed structures was at 99.6%, under-spent by R8.119m after R86.890m was allocated in terms of the Second Adjustments Estimate for the EIG. The under-expenditure was mainly due to delays in projects caused by poor performance of some contractors on site e.g. Ekwakheni primary school in the uMkhanyakude district, KwaGumbi primary school and Mason Lincon special school in the Umlazi district, Siyeza primary school, Gqokamandla high school and Buhlebuzile primary school in the Zululand district. These projects were supposed to be completed in March 2017 in respect of Refurbishment and rehabilitation: Capital. In order to avoid under-expenditure, the department had to focus on New infrastructure assets: Capital projects which were progressing well on site, as a result of efficient contractors • Machinery and equipment was at 45.3%, under-spent by R57.033m attributed to enforced savings in order to offset spending pressures against Goods and services, non-filling of posts resulting in the non-purchase of tools of trade, as well as the fact that the purchases of IT equipment such as tablets for schools was accounted for against Goods and services instead of Machinery and equipment

44. Unaudited infrastructure expenditure on economic and social infrastructure

45. Infrastructure expenditure

46. Infrastructure expenditure • This table gives a breakdown of infrastructure expenditure by department against the 2016/17 infrastructure budget • Unaudited aggregate spending for all departments as at March 2017 is at R11.930bn, showing minimal over-spending of R438 000 • The largest variances are portrayed by Agriculture & Rural Development, Education, Human Settlements and Transport and these are dicussed in more detail here: • Agriculture & Rural Development showed over-spending of R22.390m mainly against New infrastructure assets: Capital in respect of various irrigations schemes, abattoirs, a packer house and poultry houses due to faster than anticipated progress in projects • Education showed over-spending of R32.079m with the main reason for this being Infrastructure: Leases which was over-spent by R40.198m and this is attributed to the payment of operating leases for office buildings in various districts from 2014/15 and payment of arrears for the rental for the office buildings in 145 Church Street and 185 Longmarket Street in the uMgungundlovu district. This was due to non-compliance to safety standards by the landlord resulting in the department withholding the rent payments until the buildings were safe for officials

47. Infrastructure expenditure • The largest variances are portrayed by Agriculture & Rural Development, Education, Human Settlements and Transport and these are dicussed in more detail here (cont’d): • Human Settlements showed over-spending of R17.324m mainly against Infrastructure transfers: Capital which caters for the operational costs for accredited municipalities, as well as the CRU programme. There was over-spending of R37.369m as a result of accelerated performance by some municipalities, such as the eThekwini Metro and the Msunduzi Municipality in respect of operational costs, as accredited municipalities are paid either 3 or 4% of the amount spent on capital projects for their operational costs. It is noted that the classification of operational costs under capital is currently being reviewed by the department. This was offset by under-spending against New infrastructure assets: Capital and this relates to the Social and Economic Amenities programme and was under-spent by R20.042m due to delays in appointing new implementing agents for the construction of social and economic amenities. The initial contract was terminated in 2015/16 as a result of poor performance of the contractors. The new contractors were appointed in March 2017 to complete the remaining work within this programme • Transport showed under-spending of R25.890m in respect of Upgrades and additions: Capital due to the construction of bus lanes on Main Road P577 in the eThekwini Metro. This project is implemented by the department and is co-funded by the eThekwini Metro. The Metro made a payment of R25.246m for the construction of bus lanes on 28 March 2017, which resulted in under-spending by the department as the next tranche is only due to be paid in 2017/18 then. As the project is ongoing, the department has requested a roll-over of this amount for the continuation of the project in 2017/18

48. Economic and Social Infrastructure

49. Expenditure per Nature of Investment

50. Major Infrastructure Projects • Social infrastructure projects include: • Dr. Pixley ka Seme Hospital • Ndumo Model School • Economic infrastructure includes the following projects by Transport: • Main Road P253 forms part of Main Road P700 upgrade between Empangeni/Hluhluwe/Mfolozi Game Park and provides an important economic mobility route connecting these centres • District Road D1867 located from Nsiligwane on the N2 to Lantshi toward eDumbe in uPhongolo • Main Road P281 located between Cwaka and Tugela Estates in uThukela