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Department of Transport. Standing Committee on Appropriations Expenditure 2008/09 12 August 2009 10h00 Committee Room 2, Upper Ground Floor 90 Plein Street, Parliament, Cape Town. 1. Contents. Introduction Adjusted Budget for 2008/09 Summary of expenditure per Programme for 2008/09
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Department of Transport Standing Committee on Appropriations Expenditure 2008/09 12 August 2009 10h00 Committee Room 2, Upper Ground Floor 90 Plein Street, Parliament, Cape Town 1
Contents • Introduction • Adjusted Budget for 2008/09 • Summary of expenditure per Programme for 2008/09 • Under expenditure per Programme per economic classification • Requests for roll over to 2009/10 • Summary of under / (over) expenditure in 2008/09 • Reasons for under spending 2
Introduction • According to the letter from the Committee the Department under spent its budget for 2008/09 by R57,9 million (5,6%) less than the adjusted budget • The correct figures are: • The Department over spent its budget by R345,8 million (1,4% of the total adjusted budget) • Current expenditure was under spent by R37,4 million (0,15% of the total adjusted budget) • Current expenditure (only compensation of employees plus goods and services) was under spent by R51,5 million (0,21% of the total adjusted budget) 3
Introduction (continued) Actual expenditure against budget: (high level economic classification) 4
Introduction (continued) Summary of expenditure per economic classification: 5
Adjusted Budget for 2008/09 R’000 6
Under expenditure per Programme per economic classification 8
Expenditure per economic classification against budget R’000 R’000 10
Requests for roll over to 2009/10 Relevant under expenditure Rollover request 11
Reasons for under spending • Compensation of employees • Goods and services • Transfer payments 13
Compensation of employees (continued) • Moratorium placed on filling of posts – if all “funded” posts are filled, the Department will over spend on compensation of employees: • Refer once off additional funds allocated on the Adjusted Budget for 2008/09 for higher than budgeted wage increases for the Department of R46 million. If not sustained, moratorium on filling of posts will have to be maintained 16
Compensation of employees (continued) • Measures that were introduced to reduce the vacancy rate: • Concurrent headhunting with normal recruitment process was implemented • Retention Strategy was approved on 2008/06/11 and is currently being implemented (Counter offer targets women, people with disabilities, rewarding of above average performance, people development and capacity building, empowerment of managers on Labour relations matters) • Appointment of second appointable candidates who are women or people with disabilities • Office Administrator posts were advertised as standard vacancies • Approval was granted to access & advertise identified posts on Job Access to accelerate the appointment of persons with disability 17
Compensation of employees (continued) • Branch Managers were given quotas to meet on people with disability and women at SMS levels • The pro forma submission for the filling of posts has been improved to include Branch EE status updates • SMS Members will be assessed in terms of meeting the EE targets under the People Management and Empowerment CMC which carries a weighting of 20% • Tender to appoint a pool of recruitment agencies to assist the Department with headhunting of suitable candidates when normal recruitment process is unsuccessful • HR Interventions to assist the fast tracking of the filling of the posts, signing of Performance Agreements, Performance assessment process • Contract employees were employed to fill posts and perform functions related to vacant posts until the posts could be permanently filled 18
Transfer payments (continued) • The Division of Revenue Act places responsibilities on transferring national officers, such as: • Monitoring of expenditure and performance information • May transfer funds only after information required is secured • Submit monthly information to Treasury • The Department could not make the transfer payments to the Passenger Rail Authority of South Africa (PRASA) due to non-compliance by PRASA 23
BUS SUBSIDIES:CONTENTS • CURRENT CONTRACTUAL OBLIGATIONS • SUBSIDY DISTRIBUTION • SUBSIDY BUDGET ALLOCATION • SHORTFALL PER PROVINCE • INTERVENTION MECHANISMS • CONCLUSION • IMPLEMENTATION 25
Current Contractual Obligations • Competitive tendering introduced in 1997 • Current Contract Regime • Interim Contract – ticket based • Tender Contract – kilometre based • Negotiated Contract – kilometre based 26
SUBSIDY DISTRIBUTION Western Cape 17% Eastern Cape 4% Gauteng 40% Tender/Negotiated Mpumalanga 10% Interim Contracts % Subsidy No. of Contracts No of Buses 66% 31 4 800 Free State 4% 3 300 34% 82 Kwa-Zulu Natal 18% Limpopo5% North West 1% Northern Cape 1% Tendered/Negotiated Contracts vs Interim Contracts Total Subsidy Split between Provinces for all Contracts 28
SUBSIDY BUDGET ALLOCATION • Department annually motivated increases for bus subsidy baseline allocation since 1997/98 • This was to provide for restructuring of public transport and to cater for growth in the current subsidised services • No increases granted to the baseline until 2009/10 29
SUBSIDY BUDGET ALLOCATION • Annual subsidy allocation was solely inflation related up to 2009/10 and made no provision for service improvement • No funding to cater for increases in demand for public transport 30
SUBSIDY BUDGET ALLOCATION • For the period 2004/05 – 2007/08 the average year on year subsidy baseline increase was 5.5% • During the same period escalation (capital, labour & fuel costs) on contracts averaged between 10 to 12% • Passenger growth for the same period averaged 10% 31
INTERVENTION MECHANISMS • A Public Transport Operations Grant replaced the former bus subsidies: • Subsidy levels have been insufficient since 2005/06 to halt the declining levels of service, escalation in costs and the growth in demand • In order to improve operational and financial efficiency a more focused approach to determining service priorities will need to be developed • Implementation Plan: • Conditional Grant to Provinces introduced • Phased implementation in co-operation with Provinces • Negotiated performance based contracts for route operations • Formalisation of unscheduled Interim Contract services • Define operating areas that will not be served • Implementation of supporting infrastructure • Continued enforcement and monitoring of all contracted Public Transport Operations 37
Operators will have to accept: Bus Subsidy Funding - Conditional Grant in DORA Critical conditions: Interim contracts to be converted to negotiated (kilometre based) contracts by September 2009 Alignment with IRPTN • Change in compensation method – based on fixed kilometre • KPI’s • New national monitoring model • Fare levels as set by the authority • Fleet replacements to be based on requirements of the contracting authority • Contracting authority may purchase existing assets (eg depots) and contract compliant vehicles Contracting authorities will have to: • Finalise integrated road based networks • Develop KPI’s • Identify key role-players who are to be part of the operating entity • Engage with all parties to establish operating entity • Implement depots and vehicles if so decided • Recruit/develop admin capacity to manage the contracts INTERVENTION MECHANISMS (continued) Interventions to achieve change 2009/10 onwards: 38
INTERVENTION MECHANISMS (continued) Intervention conditions: • Operators that accept will sign a negotiated contract that includes: • KPI’s • Provision that the operator will be provided with an opportunity to be party to a new integrated contract regime for some or all of the services within the contract area Operators that do not accept will continue on month-to-month basis and their contracts will be terminated as and when required 39
Conclusion • Subsidy levels have been insufficient since 2005/06 to halt the declining levels of service • Current levels of subsidy are unable to meet the escalation in costs and the growth in demand • Bus operators will not recapitalise their fleets due to the continued uncertainty of government policy regarding the contract system • In order to improve operational and financial efficiency a more focussed approach to determining service priorities will need to be developed 40
Conclusion (continued) • The method of contracting road based public transport services has to change to better reflect the complexities of the network by eliminating the costly duplication of services between modes • Metropolitan and other large towns must have full control of their public transport services and this is achieved by ensuring all services are scheduled, monitored and managed • Alignment between the current public transport services and the introduction of the IRPTN is critical 41
IMPLEMENTATION PLAN • Phased implementation in co-operation with Provinces • Negotiated performance based contracts for route operations • Formalisation of unscheduled Interim Contract services • Define operating areas that will not be served • Implementation of supporting infrastructure • Continued enforcement and monitoring of all contracted Public Transport Operations 42