Limpopo Provincial Treasury

1. Limpopo Provincial Treasury Presentation to the NCOP 20 November 2006

2. Table of Contents • Conditional Grants spending as at 30 September 2006 • Observations on Conditional Grants • Capital & Provincial Infrastructure Grant spending as at 30 September 2006 • Observations on Capital & Provincial Infrastructure Grant • Reasons for under spending

5. Observations • The capacity to spend has improved as department spent 11% more as compared to the same period of the previous financial year. • The area of concern is on the following Grants • Education • HIV/AIDS 24%

6. Observations cont. • Health • NTSG 28% • FPSG 37% • Housing • IH&HSD 31% • Sport • MSRPP 17% • Agriculture • CASP 28%

7. Observations cont. • The following conditional grants shows a healthy spending trends • Education • FET 50% • Health • Hospital Revitalization 57% • Agriculture • Land Care Programme 50% • The under spending clearly demonstrate that departments approved poor business plans or there is lack of capacity to implement programmes and projects

8. Corrective Action • All Conditional Grants business plans for 2007/8 MTEF will be evaluated by treasury in consultation with departments to ensure that they are easy to implement and monitor

9. Infrastructure Expenditure Trends

10. Expenditure Sept 06

11. Expenditure Sept 06 – incl. rollovers

12. Provincial Infrastructure Grant

13. Provincial Infrastructure Grant – Incl. adjustments

15. Observations • Expenditure has been slow to pick up across all sectors - the momentum is been slow to build up due to late project starting times (expenditure in subsequent months is affected) • Total expenditure at 39% (with 50% of the time gone) versus 28.7% for the same period last year • Spending on PIG is at 30% versus 23.8% for the same period last year • When rollovers and other adjustments are considered, picture changes for the worse • With total spending going down to 32% (2005/06: 24.9%) and PIG to 23.1% (2005/06: 23.0%)

16. Observations • Spending on capital continues to be a challenge • Key hiccups identified are: • Infrastructure planning (selection of the projects and business cases not done on time etc.) • Delay in the procurement processes • Delays to handover sites due to geo-tech assessment tests being performed just before construction as a result of poor planning • Departments not meeting their own cash flow by projections

17. Corrective action • Multi-year planning processes need to be strengthened within departments (to avoid procurement of projects in year of implementation) • Departments need to review their technical capacity requirements, i.e. staff • Close monitoring and imposition of heavy penalties on underperforming contractors

18. Corrective action cont. • Education • The department has procured the services of a short-term Technical Assistant to support infrastructure delivery in the department • The department has also advertised (June 06) for the services of an infrastructure operational support team (short-term). The bid was evaluated in October and an award will be made in due course. • Health & Social Development • Close monitoring of implementing agents and contractors. • With hospital projects, these have been packaged in two lots to speed up delivery. • Established developers are being encouraged to form joint ventures with CIDB registered emerging contractors.

19. Corrective action cont. • Agriculture • A work scheduled was drawn up proposing for the service providers to do resource audit as well as drawing a Masterplan within 15 days on whose basis explicit permission would be given for final designs and actual physical implementation of projects. Again it took a long time for service providers to comply. • Due to the above problems, a decision was taken to break the Masterplans into implementable elements without compromising the quality and integrity of the whole project. Items such as soil and land surveys, enlargement and lining of leydams, repairing of bulk water conveyance systems and repair or replacement of pumps is now done separately. • The analysis of the unit costs submitted by Service Providers during tendering has been completed and one-to-one meetings have been arranged with Service Providers. Resolution of this matter will help expedite the submission of acceptable Bills of Quantity (BoQ) costs and speedy processing of invoices.

20. Corrective action cont. • Agriculture… • An additional engineer from ARDC (state-owned entity within the department) has been drafted in to help with the processing of designs and related technical work. • The Bid Committee has ratified the appointment of the Construction Supervision Service Provider in yet another effort to expedite projects implementation

21. Corrective action cont. • Roads & Transport • Proactive management of projects, e.g. shifting of funds to fast-moving multi-year projects that are already running when delays are encountered in new projects. • The projects are outsourced to the private sector with the Roads Agency doing project management. This enables the department to deliver much quicker, despite the legal challenges experienced this year which delayed project implementation, the department projects to spend all its budget. • The department has a very good project management capability within the Roads Agency. • In the prior financial year, some districts in the province experienced very heavy rains and this affected certain projects, this was also compounded with the fact that most of the big contracts were awarded in September. The department was still able to spend 95% of its budget.

22. Corrective action cont. • Infrastructure Delivery Improvement Programme (IDIP) • Phase II of IDIP has commenced (November 2006) • Two Technical Assistants (TAs) have been seconded to the departments of Public Works and Education • The TAs will help the departments streamline planning and delivery processes during the 12 month Technical Assistance programme • This intervention is expected to have an impact on infrastructure expenditure and delivery in the medium to long-term as it seeks to address systemic shortcomings in departments’ infrastructure delivery mechanisms, e.g. planning processes, procurement planning, capacity issues, etc;

23. Corrective action cont. • IDIP….. • A TA will be deployed to the department of Health in the new year • The Department of Roads & Transport enjoys limited support from a Technical Assistant stationed at National Treasury. • IDIP also seeks to institutionalize multi-year planning processes in departments to prevent planning, procurement and implementation being done in the same year - this inevitably leads delays. IDIP extends planning horizons of departments. • It is expected that once departments are fully aligned with IDIP principles (e.g. proactive multi-year planning), under-expenditure will be eliminated.

24. ENDTHANK YOU!!!

25. Conditional Grant reasons for under spending

26. Reasons for underspending provided by the department Education • HIV & AIDS • Programmes and workshops are run and conducted only during school holidays thus hampering substantial progress as the same target group is trained on Revised National Curriculum Statement which is a national priority. • National School Nutrition Programme • There is always delays in submission of supplier’s invoices and some of those submitted are erroneous and have to be referred back for rectification thus causing delays in processing payments.

27. Reasons for underspending provided by the department--contd • Health • HIV and AIDS • Enormous exercise of verification and payment processes of 287 NGO’s at R 12,5million per quarter • Delay in filling of vacant posts for which interviews were conducted. Recommended candidates had to serve notices at their previous workstations. • Delay in completion of fixed structures (Buildings/Containers) intended to increase working space. • 26 Buildings/Containers on construction. Payment progress certificates started in the second quarter. • Shortage of qualified medical personnel in posts earmarked for ARV and Step Down Facilities

28. Reasons for underspending provided by the department--contd • Health • Forensic/Pathology Services. • Delay in delivery of purchased vehicles due to conversions required on same vehicles to suit mortuary specifications. These processes take longer than five months. • Phased/stepped purchases of 19 mortuary vehicles to the total amount of R 3,2 million for the year is in progress. At the end of the quarter purchases orders for 12 vehicles amounting of R2,6 million were issued.

29. Reasons for underspending provided by the department--contd • Health • National Tertiary Services. • Shortage of qualified medical personnel in posts earmarked for Specialists at the Tertiary Hospital. • Delay in drawing of Specialists Medical Equipments due to lack of Specialists knowledge on type of equipments required for specific jobs. Overall amount involved is R 22 million, and list of equipments in question follows hereunder: - 2 Portable Ventilators , 2 Bispectral Index Systems, 4 Infusion pumps, 2 ICU Ventilators, 2 fibre-optic and light source. • Delay in delivery of purchased equipments due to their extent of sophistication and buildings alterations needed on installation points. The statement is with regard to an amount of R7, 2 million on orders as at the end of the quarter. Another amount of R 3 million worth of equipments could not be processed for payment at the Tertiary Hospital due to alterations needed to be made on the building.

30. Reasons for underspending provided by the department--contd • Health • Health Professional Training and Development. • Delay encountered in recruitments and verifications for appointments of Specialists in Tertiary and Regional Hospitals. • Delay in delivery of purchased equipments due to their extent of sophistication and buildings alterations needed on installation points. This statement is with regard to the total amount of R 2, 3 million committed on purchases orders placed by Regional/Provincial and the Tertiary Hospitals. Lists of break down of commitments on these orders include amongst others: Anaesthetic Machines, Transport Incubators, Ventilator icu, Fluid warmers, x-ray machine, Craps, mobile x-ray units, • Training and development process that follows specific schedules with external service providers. • Sizable payments of bursaries for deserving students will be effected in January/February 2007

31. Corrective measures • Appointment of staff done. Staff linked directly with the Conditional Grants to avoid delays in expenditure posting. • Suppliers are being contacted to provide invoices on completed work in order to allow a progressive payment that matches with the grant’s cash flow. • Follow ups are constantly made with Suppliers of Vehicles. First trench delivery is expected in the third quarter. • Specification process has been completed. Adjudication of Specialist Equipments Tender in progress. Purchases orders will be placed in the third quarter. • Department has entered into partnership with United Nations Volunteers in order to intensify staff recruitment programmes through its program, UNDP.

32. Reasons for underspending provided by the department--contd • Local Government and Housing • Integrated Housing and Human Settlement Development • The under expenditure is mainly due to late submission of Geo-tech reports, late identification of development areas, internal project management capacity, shortage of building material (bricks), late submission of beneficiary forms by municipalities and late pronouncement of subsidy quantum.

33. Corrective measures • Engineers and contractors are closely monitored to ensure adherence to project implementation time table. • Creation of additional project management capacity, i.e. PMU establishment and hiring of more Project Managers. • The department use trilateral agreement to purchase building materials for the Developers (Bricks).

34. Reasons for underspending provided by the department--contd • Agriculture CASP The underspending resulted from building of crush pens, auction pens, dipping tanks, piggery houses, and holding pens which require more than a month to be completed.

35. Corrective measures • Due to the above problems, a decision was taken to break the Masterplans into implementable elements without compromising the quality and integrity of the whole project. Items such as soil and land surveys, enlargement and lining of leydams, repairing of bulk water conveyance systems and repair or replacement of pumps is now done separately. • Additional Capacity • Internal staff members have undergone training in Irrigation Design as well as Project Management during July /September 2006. • An additional engineer from ARDC has been drafted in to help with the processing of designs and related technical work. • Repriotization plans are in place to implement the Biofuels project for R6, 5mill in Sekhukhune. Reprioritization to pressing Land reform project of Tea Estates in Vhembe • Engineering Companies have been contracted under the RESIS program to support other programs on engineering related activities. • Project Management system - PS Next has been adopted acquired in September 2006 to improve on the Database and Reporting. • A shift from micro projects to clustering, massification and mega projects to improve on the resource use and impact visibility has been adopted. The numbers of projects are reduced in line with HR capacity to implement. • The department has also embarked on the project massification approach which will also speed the processes in term of bulk management and spending

36. Reasons for underspending provided by the department--cont • Sport • Mass Sport and Recreation Participation Programme • Underspending as a result of delay in the advertisement and awarding of tender for sport equipment.

37. Corrective measures • The tendering process will be finalized in November and purchases will be done during the same month. Payments thereof will be done within the first two weeks of December 2006.

38. Capital and Infrastructure reasons for underspending

39. Reasons for under-spending • Education • Late project starting times. • Schools under trees [95] – total cost R102, 3M • 28 projects awarded and handover was delayed due to the completion of Geo-Tech assessments. • 16 projects under construction • Award of 15 projects was only finalised at the end of July 2006.

40. Reasons for under-spending…contd • Education… • Storm Damaged Schools [239] – total cost R272M • Adjudication of bids for 70 projects was only finalised during the last week of June 2006. • Adjudication of bids for 67 projects was finalised during the second week of July 2006. • Bids for 2 x 8 schools advertised on the 15 July 2006 and site hand over in August 2006. • Bids for 40 schools were advertised in the bulletin of 30 June 2006. Sites were handed over in August 2006.

41. Reasons for under-spending…contd • Education… • New Schools [3] – total cost R47M • Contractors took sites in July 2006. surety

42. Reasons for under-spending…contd • Roads & Transport • The department undertakes new capital projects through the Roads Agency Limpopo (RAL), an agency within the department. • Late in the 2005/06 financial year, the agency was taken to court by bidders who challenged its procurement policies and awards for certain projects. This forced the agency to refine its procurement policies and procedures and awards in line with the court decision. • The projects that had been advertised in March 2006 were withdrawn/cancelled to enable the legal department to incorporate the new guidelines into the advertisements to avoid further legal challenges. • The number of projects that had to be re-advertised is 52 projects with a value of R322, 5M.

43. Reasons for under-spending…contd • Health & Social Development • Late appointment of contractors which led to projects starting late. • Clinic Upgrade Programme [20]: 2006 - 2007 – total cost R49, 6M • Bids for 10 clinic projects were advertised on 30 June 2006 and handed over in August 2006. • Bids for 6 projects were advertised on the 15 July 2006 and sites handed over in August 2006.

44. Reasons for under-spending cont. • Health & Social Development • Mortuaries • Site handed over for Tshilidzini project on 3rd July 2006 – cost R7, 6M.

45. Reasons for under-spending cont. • Agriculture • Revitalisation of Smallholder Irrigation Schemes (RESIS) –total cost R170M • R70 mil was budgeted for bulk infrastructure services at various schemes. R100 mil was budgeted for installation of infield infrastructure. The plan envisaged the appointment of Turnkey Service Providers by 1st April 2006 to perform work on 57 schemes some of whom were work carried over from 2005. • Due to the experience of 2005 where-in it was found that Service Providers were using dubious prices and unacceptable mark-ups, it was decided to include the provision of pre-approved unit prices by prospective bidders during the tendering stage. It took a longer time for bidders to comply with this requirement as it negatively impacted on their profit margins.

46. Reasons for under-spending cont. • Agriculture… • Because of the new tender process as explained, service providers were only officially appointed at the end of June 2006. • Tenders for poultry houses were concluded and cancelled due to inability of the service provider to deliver. • Some delays are caused by the hesitation from others to take-over work previously done by other service providers whose contracts were terminated by LDA in 2005. These service providers site such issues as professional liabilities for integrity of designs done by others, to lack of adequate information from previous reports, e.g. land surveys not being geo-referenced, etc

47. Reasons for under-spending cont. • Local Govt. & Housing • Review of all service providers contracts led to delays in projects starting times

48. Reasons for under-spending cont. • Public Works • R 1 million for land development has not been spent. Tenders for the development of landscaping projects closed on 10th July 2006 and they are at adjudication stage. Expenditure is expected to start in October 2006. • An amount of R3, 5 million for the refurbishment of the Parliamentary village was not spent because the projects are at tendering stage. Expenditure is expected to start in October 2006. • Other projects linked to the construction of 11 MEC’s houses amounting to R2, 369 million, were started in July 2006, and planning & design of the relocation of Legislature to Polokwane is still continuing. • Construction of 11 MEC houses only started in May 2006 with the first claim for the project submitted at the end of June 2006 for payment.