Budgetary Review and Recommendation Report of the Portfolio Committee on Mineral Resources on the performance of the Department of Mineral Resources for the 2010/11 financial year, dated 26 October 2011.
The Portfolio Committee on Mineral Resources, having assessed the performance of the Department of Mineral Resources for the period 1 April 2010 to 31 March 2011, reports as follows:
The split of the former Department of Minerals and Energy (DME) into two stand-alone entities has meant that the new Department of Mineral Resources (DMR) was now able to focus squarely on the mining and minerals industry. South Africa is the world's biggest producer of platinum, chrome, vanadium and manganese, the third-largest gold producer and a major source of coal. Against the backdrop of clear signs that the economy is recovering from the global recession, the mining industry has an opportunity to ensure that South Africa and its people benefit from the wealth of resources beneath the soil. Whilst the pace of recovery remains uncertain, DMR has to work towards positioning the South African mining and minerals industry to ensure that it is ready to take full advantage of the inevitable upswing in the economy.
This report seeks to analyse, amongst others, the performance and expenditure of the Department during the 2010/2011 financial year.
1.1 The Committee
1.1.1 The role of the Committee
In terms of the Constitution of the Republic of South Africa, Act 108 of 1996 (the Constitution), Portfolio Committees have a mandate to legislate, conduct oversight over the Executive and facilitate public participation. The Portfolio Committee on Mineral Resources mandate is governed by Parliament’s mission and vision statements; the rules of Parliament and its Constitutional obligations. The mission of the Portfolio Committee is to contribute to the realisation of a developmental state and ensure effective Service Delivery through discharging its responsibility as a Portfolio Committee of Parliament. Its vision includes enhancing and developing the capacity of Committee Members in the exercise of effective oversight over the Executive Authority. One of the Committee’s core objectives is to oversee, scrutinise and influence the action of the Executive and its agencies. This implies holding the Executive and related entities accountable through oversight of objectives of its programmes, scrutinising its budget and expenditure (annually), and recommending through Parliament actions it should take in order to attain its strategic goals and contribute to service delivery.
Furthermore, Section 5 of the Money Bills Amendment Procedures and Related Matters Act, No 9 of 2009 (the Act) provides that the National Assembly, through its committees, must annually assess the performance of each national department and these Committees must annually submit Budgetary Review and Recommendations reports (BRR reports) for tabling in the National Assembly. These should be submitted to the Minister of Finance and the relevant Ministers.
1.1.2 Process/method followed by the Committee in writing the BRR Report
The Committee in reviewing the work of the Department for the 2010/2011 financial year placed emphasis on the following aspects:
· An overview and analysis of the Department’s strategic priorities and measurable objectives;
· An overview of the overall performance of voted funds: Vote 32;
· Consideration of the Auditor-General’s activities in relation to the Department;
· Committee observations; and
The Committee, in undertaking this process used a number of source documents, including the 2009-2013 Strategic Plan, Annual Report, Financial Statements, 2010 and 2011 Estimates of the National Expenditure (ENE), briefings by the Department and its entities during the course of the year, as well as the State of the Nation Address. The Committee also used the Constitution as its basis.
1.2 The Department
The Department of Mineral Resources is the primary Government institution responsible for formulating and implementing policy on mining. It reports to and advises the Minister of Mineral Resources (the Minister) who, in conjunction with the Cabinet, takes final responsibility for Government policy. The Department is headed by the Director-General responsible for ensuring the exploration, development, processing, utilisation and management of South Africa’s mineral resources.
The legislative mandate of the Department is to ensure transformation, economic growth, health, safety and sustainability of the minerals and mining sector. Its vision is to promote investment in the mineral sector and through regulation ensure a healthier, safer and equitably transformed mineral sector by 2014, and also be a leader in the transformation of South Africa through economic growth and sustainable development by 2025. Its mission includes promoting and regulating the Minerals and mining sector for transformation, growth and development. It further ensures that all South Africans derive sustainable benefit from the country’s mineral wealth.
2. Department’s Strategic Priorities and Programmes
2.1 Strategic Priorities of the Department
The strategic objectives of the Department for the period under review comprised the following:
· Actively contributing to sustainable development by promoting sustainable resource management, contributing to skills development and creating meaningful/sustainable jobs.
· Promoting and transforming the Minerals sector by promoting and facilitating value addition to mineral resources extracted in the Republic, and also redressing past imbalances through promoting investment, broader participation in the minerals sector, direct intervention in communities, increased Black Economic Empowerment (BEE) and Small Medium and Micro Enterprises (SMME) participation inclusive of women, youth and the disabled.
· Regulating the Minerals sector by developing new policies, reviewing existing policies and amending legislation to make them current to an evolving environment and achieve transformation in the minerals and mining industry.
· Promoting Health & Safety in the Minerals Sector by providing clear policy and regulatory framework to manage health and safety risks and promote best practice in the mining sector.
· Protecting the environment by reducing the impact of mining activities on the environment and public health through management of rehabilitation of ownerless and derelict mines, research and development in mine environmental management and development of mine environmental policies.
· Ensuring efficient and effective service delivery by developing and reviewing internal processes, understanding stakeholder needs and improving turn-around times.
· Enhancing the Department culture, systems and people by attracting, developing and retaining appropriate skills, promoting good organizational culture, and making the department an employer of choice.
· Ensuring long term financial stewardship by optimal utilisation of resources, managing budget effectively, implementing Risk Management strategies and promoting corporate governance.
2.2 Programmes of the Department
The activities of the Department were organized in the following programmes:
Programme 1: Administration
This programme provides strategic support and management services to the Ministry and the Department. This programme comprises: Audit Services Chief Directorate, Corporate Services Branch (HR, Auxiliary Support Services, Communication and International Co-ordination, Legal Services and Special Projects and Programmes), the Office of the Chief Financial Officer (Finance, Information Technology and Supply Chain Management) and the Chief Operations Officer (Strategy, Risk Management, Monitoring and Evaluation).
As of 1 April 2010, the Department became a stand alone organisation independent from the energy functions as shared under the DME umbrella. The establishment of a new administration for the Department with capacity and expertise to discharge the new mandate was to be at the centre stage of work that needed to be done during the period under review. The Department identified crucial functions needed in the establishment of a new organisation and therefore set itself within the first quarter of the 2010/2011 financial year to ensure that appropriate capacity was built around these areas using human resources transferred from the DME and newly recruited employees.
During the period under review, the Department set itself to develop and start the implementation of the Department's Intergrated Human Resource Plan that would cover areas like Human Resources capital needs going forward, individual strategies on human resource development, talent management, knowledge management, etc. The Department also wanted to develop and implement its communication strategy to ensure that it was able to establish its profile as a custodian of the country's mineral resources. It further set itself to implement an intergrated corporate branding and marketing campaign to profile its work.
Programme 2: Promotion of Mine Health and Safety
This programme ensures the safe mining of minerals under healthy working conditions. The programme comprises of two sub programmes; namely Mine Health and Safety (Regions) and Governance Policy and Oversight. Mine Health and Safety (Regions) is responsible for mine inspections, audits, investigations and inquiries, engineering expertise and examination services at regional level. The Policy and Oversight programme is responsible for developing policy and legislation guiding enforcement work, chairing tripartite structures and facilitating HIV and Aids work in the sector.
Under this programme, the Department had set itself to do capacity development and process improvement; monitoring and evaluation of occupational health programmes at mines; monitoring and evaluation of mine safety programmes; reviewing of health and safety legislation to incorporate best practice; and monitor the implementation of Tripartite Summit Actions and support initiatives to deal with illegal mining and small scale mining.
Programme 3: Mineral Regulation
This programme regulates the minerals and mining sector in order to promote economic development, employment and ensure transformation and environmental compliance. Mineral Regulation and Administration is also responsible for the administration of prospecting and mining rights licensing, and compliance to the Mineral and Petroleum Resource Development Act (2002) (the Act) including mine environmental compliance.
During the period under review, the Department, under this branch had set itself to embark on a plan to review the work processes in respect of applications for rights, in terms of the Act, in order to improve on the turnaround time on such applications. An economic impact assessment tool was also to be developed which was to be utilised to assess and measure the economic benefits of exploration and mining in South Africa. Efforts were to be undertaken to improve cooperative governance so as to share information with relevant stakeholders as well as interested and affected parties to ensure a holistic approach to regulating the minerals sector.
Programme 4: Mineral Policy and Promotion
Mineral Policy sub-programme develops new policies, reviews existing policies and amends legislation to achieve transformation in the minerals and mining industry whereas Mineral Promotion promotes mineral development and gives advice on trends in the mining industry to attract investment.
Through this programme, the Department set itself to focus on the Mine Rehabilitation Strategy, Beneficiation Strategy, Small Scale Mining and assistance to mines.
3. Analysis of attainment of the Department’s Prevailing Strategic and Operational Plans
3.1.1 Corporate Services Branch
The split of the DME into two separate departments, namely the Department of Energy (DOE) and the Department of Mineral Resources, was completed by the end of the 2009/10 financial year. The two new departments became operational on 1 April 2010, each with its own budget, budget vote, personnel and accommodation. In light of the above, Corporate Services Branch of the new Department of Mineral Resources managed the transition fairly well with only minor hiccups. All systems that were put in place ensured the smooth running of the Department.
Some successes included securing bursaries that contributed to skills development; implementation of communication initiatives; establishing projects benefiting vulnerable groups; conducting mining career opportunity workshops; execution of staff development programmes; approval of the Communications Strategy; successful media briefings and stakeholder engagements; and placement of the Department’s information pieces in the media.
The Department, however, encountered some challenges which included inadequate/lack of funding for capacitating/implementing the new approved structure; implementation of talent management strategy as it was only developed in 2010; timeous processing of some presidential queries; failure to conduct customer service satisfaction survey; escalation of vacancy rate during the fourth quarter of the 2010/2011 financial year; and inability to reduce staff turnover rate considerably.
In dealing with the above-mentioned challenges, the Department had undertaken to prepare requests for additional funding through the Medium Term Expenditure Framework (MTEF) process for the implementation of the approved organisation structure; approve talent management strategy (approved in 2011); sign off calls by the relevant Chief Directors responsible for the regional offices; consult with the GCIS-Survey to be conducted in 2011/2012; fast track the filling of vacancies; and monitor the staff turnover rate.
3.1.2 Chief Financial Office
The purpose of the Chief Financial Office Branch is to provide strategic and administrative support services to the Ministry and the Department. This branch is headed by the Chief Financial Officer.
Through this branch, the Department managed to record a 0.12 per cent under-spending on allocated budget for the period under review which is far below the five per cent threshold set by National Treasury. This was realised through effective and continuous monitoring processes that were implemented during the 2010/2011 financial year. The process of compiling the 2011/12 budget and ENE chapter for the Department was also completed. All branches have compiled and submitted their spending plans which were used as a basis for projecting the monthly expenditure. In pursuit of consistency and in order to eliminate non-compliance to legislation, various policies were approved and implemented and parallel to the development of these policies, procedures were also developed.
During the year under review, the Department relocated its head office to new premises in order to improve the morale of staff and improve its overall image. The relocation had become a necessity due to the appalling condition of the previous head office building. The entire Information and Communications Technology (ICT) infrastructure was also upgraded in order to improve efficiency in the work of the Department and this has resulted in increased capacity as well as improved security around its network.
On the internal processes perspective, challenges encountered included difficulty in adhering to the Service Level Agreement, prescribed turnaround times, and turnaround time on filling vacant posts; and availability of the system and increase in the number of ICT related complaints. In dealing with the above, the Department has undertaken to develop and implement checklist; monitor performance on a monthly basis; review and implement Service Catalogue; place adverts within two weeks of termination notification; and establish helpdesk and system for recording and monitoring ICT related incidents.
On the financial perspective, challenges encountered by the Department included, amongst others, difficulty in reducing irregular, fruitless and wasteful expenditure; difficulty in the execution of fraud prevention and Employee Relations Management (ERM) implementation plans; and receiving a number of repeat findings on the internal audit follow up report. In addressing the above, the Department undertook to update its Policies and Procedures with new Practice Notes issued by National Treasury; continuous monitoring, identification and reporting of irregular, fruitless and wasteful expenditure cases; update implementation plan with risks for the 2010/2011 financial year and monitor execution thereof; and develop, implement and monitor the action plan to address the audit findings.
3.2. Promotion of Mine Health and Safety
The establishment of the Inspectorate provided for 297 posts of which 233 were currently filled with 64 posts remaining vacant. There had been a 25 per cent reduction of the fatality rates at all mines for the period under review with two regions succeeding to have a fatal free year and two others managing to maintain the same number of fatalities. There has also been an improvement of about eight per cent on injury rates.
In terms of the major commodities, the gold, platinum and coal sectors have registered a reduction in fatality rates of 20 per cent, 18 per cent and 33 per cent respectively, during the period under review. However, it was of concern that the diamond sector had an increase in fatality rates of about 45 per cent. Whilst reportable injury rates in gold (18 per cent), coal (13 per cent), iron ore (10 per cent) and other mines (36 per cent), rates dropped substantially, it was also of concern that other commodities registered continued to increase in this regard.
There has been a significant 26 per cent improvement regarding fall of ground fatalities, from 65 in 2009 to 48 during 2010. Also, there has been a reduction with the machinery, general transportation and mining fatalities of about 63 per cent, 38 per cent and 21 per cent recorded during the period under review. Although the above-mentioned improvements had been achieved, the fall of ground, general, transportation and mining categories continued to remain the major contributors to fatalities in the mining sector.
Challenges encountered by the Department in ensuring promotion of mine health and safety included occupational health, occupational safety, capacity building and percentage of certificates of competency issued. In dealing with the above challenges, the Department has undertaken to establish a Chief Directorate on Health which was already operational; convert single sex hostels and integration of employees into communities; hold an HIV/TB Summit in this financial year; Mine Health and Safety Inspectorate with assistance of service providers to conduct verification of mine sampling results; stoppage of unsafe mines in line with legislation; hold Mine Health and Safety Summit during this financial year; review of Mine Health and Safety Act to strengthen enforcement and set minimum standards; request quarterly reports from the mining company boards and engaging Chief Executive Officers; appointment of legal advisors at the regional offices; draft and implement the Action Plan to improve pass rate during the 2011/12 financial year; and collaborate with the Mining Qualifications Authority to develop and implement Certificate of Competency Model to improve pass rate.
3.3. Mineral Regulation
Through this programme, economic development through mining has increased, in that, of the 625 mining rights issued since 2004, 435 were now already used for mining. Action to enforce compliance, alternatively to revoke rights initiated resulting from drive on inspections. The Department managed to exceed the following:
· target of jobs created through Social and Labour projects;
· target of granting mining rights to Historically Disadvantaged South Africans (HDSAs);
· target of women-led licensed mining companies; and
· Target of inspections to monitor and enforce compliance.
Challenges encountered by the Department in performing its work under this programme included amongst others the following:
· Approved enforcement and compliance structure for 114 personnel remained entirely unfunded;
· Drive on inspections diverted resources from processing of applications and prescribed processing timeframes could not be met;
· Holders of mineral rights were found to have not exercised the rights issued to them;
· Whilst the branch may have succeeded in conducting inspections, the effectiveness of compliance inspections conducted was not yet fully apparent as the remedial processes in terms of Sections 93 and 47 required diligence in finalisation;
· The branch experienced an increase in complaints from communities. Though wide ranging, these complaints related to non-compliance by mining companies on Social and Labour Plans (SLP) commitments;
· Community in-fighting was exacerbating the implementation of local economic development initiatives;
· Inadequate funding for personnel, goods and services; and
· Challenges relating to severe capacity constraints.
In dealing with the above challenges, the Department undertook to put the following corrective measures in place:
· Engage National Treasury to fund approved enforcement and compliance post and personnel structure;
· Implement the new electronic system for the lodgment and efficient administration of mining and prospecting applications;
· Strengthen capacity of Regional offices by re-deploying Chief Directors, creation of additional Chief Director posts, and additional resources for monitoring and evaluation; and
· Increase the rate of enforcement and compliance inspections and remedial actions.
3.4. Mineral Policy and Promotion
Through this branch, the Department succeeded in doing, amongst others, the following:
· The Geoscience Amendment Act 16 of 2010 was signed into law in December 2010;
· The Mining Industry Growth, Development and Employment Task Team (MIGDETT) stakeholders signed a declaration on the sustainable growth and meaningful transformation of mining industry in June 2010;
· The Reviewed Charter came into effect on 13th September 2010;
· A mining sector strategy was developed based on the signed declaration of stakeholders;
· Cabinet approved the usage of African Exploration, Mining and Finance Corporation (AEMFC) as nucleus for the establishment of a State Owned Mining Company;
· Five asbestos projects were successfully rehabilitated; and
· The Department successfully hosted the Association of Diamond Producing Countries (ADPA) Council of Ministers in 2010 with the Minister as Chair of the organization.
The Department had however encountered some challenges and these related to, amongst others, the drafting of the Mineral and Petroleum Resources Development Act (MPRDA) Amendment Bill which was in the stage of consultation with other departments; Beneficiation strategy, which was not completed as per the target in the 2010/11 financial year but has since been adopted by Cabinet; and Small Scale Mining Strategy, which was in the process of discussion on some matters.
The Department, however, undertook to deal with the challenges encountered by implementing the following corrective measures:
· MPRDA Bill would be introduced to Cabinet after obtaining the State Law Advisors preliminary certification;
· Beneficiation Strategy had been approved by Cabinet and implementation plan was in progress to cabinet for approval; and
· Small scale mining strategy has been developed with new vision.
4. Analysis of Expenditure Reports
4.1. The overall departmental allocation and expenditures for 2010/11 financial year and the first quarter 2011/12
The main appropriation for the Department in the 2010/11 financial year was R1.030 billion but came down to R995.8 million after it was adjusted downwards by R34.2 million. The Department spent R994.6 million (99.9 per cent) of its budget. The variance between available budget and actual expenditure amounted to R1.2 million or 0.1 per cent (under expenditure).
In 2011/12, the Department was allocated R1.036 billion and it had spent R261.9 million or 25.3 per cent of its total budget by the end of the first quarter. The overall spending for the first quarter is in line with the 25 per cent spending per quarter benchmark. The expenditure per programme in the fourth quarter of the 2010/11 financial year and the first quarter of the 2011/12 financial year was as follows:
The main budget for the Administration programme in the 2010/11 financial year was R239.0 million but was adjusted downwards by R15.3 million to R232.9 million. The Department spent R227.5 million or 97.7 of the programme budget by the end of the fourth quarter. This translates to an under expenditure of R5.3 million or 2.3 per cent.
The National Treasury reported that the under spending related to delays in delivery, late receipt of invoices and consequent delay in processing of payments in the procurement of goods and services. In order to address this challenge, the Department reported to Parliament that it is in the process of reviewing its supply chain processes with a view of centralisation of invoices. In the 2011/12 financial year the programme’s main appropriation was R247.9 million and R62.5 million or 25.2 per cent was spent by the end of the first quarter. The actual spending on the Administration programme was in line with the projected expenditure for the first quarter.
4.3. Promotion of Mine Safety and Health
This programme was appropriated R145.9 million in the 2010/11financial year, which came down to R135.6 million after adjustments. The Department spent R137.1 million or 101.1 per cent by the end of the fourth quarter. This translates to an over expenditure of R1.5 million in monetary terms.
The Promotion of Mine Safety and Health programme has been appropriated R147.5 million in the current financial year. The programme spent R29.4 million or 19.9 per cent of its budget by the end of the first quarter. This is approximately six per cent below the 25 per cent spending benchmark per quarter and lower than the projected expenditure per quarter. According to the National Treasury, the under spending was due to the number of unfilled inspector posts and the outstanding payment in respect of annual performance bonuses which were supposed to have taken place in June 2011.
4.4. Mineral Regulation
The main appropriation for Mineral Regulation programme was R215.9 million, which was adjusted downwards to R183.7 million in 2010/11 financial year. By the end of the fourth quarter R187.7 or 102.2 per cent was spent. In monetary terms this is an over expenditure of R4.1 million. According to the National Treasury, the over-expenditure related to posts that were filled within the branch for which projected expenditure was under estimated.
The budget for the 2011/12 financial year was reduced from R183.7 million in 2010/11 to R160.4 million, which is a reduction of 12.7 per cent. The amount of R46.2 million or 28.8 per cent was spent by the end of the first quarter of 2011/12 financial year. The expenditure is 3.8 per cent above the benchmark of 25 per cent and slightly higher than the projected expenditure per quarter.
4.5. Mineral Policy and Promotion
The Mineral Policy and Promotion programme was appropriated R429.2 million, which was increased to R443.8 million after adjustments. The programme spent R442.3 million or 99.7 per cent of the budget by the end of the fourth quarter 2010/11 financial year. This translates to an under expenditure of R1.45 million or 0.3 per cent of the budget.
The 2011/12 financial year budget for this programme is R480.4 million and R123.9 million or 25.8 per cent was spent by the end of the first quarter. The spending is within the benchmark but actual spending is lower than projected for the first quarter.
4.6. Economic classification of spending trends
4.6.1. Current Payments
The main appropriation for current payments for 2010/11 financial year was R607.3 million but came down to R542.9 million after adjustments. The Department spent R550.3 million or 101.4 per cent by the end of the fourth quarter. This amounts to an over expenditure of R7.5 million or 1.4 per cent. The bigger portion of current expenditure was on compensation of employees. This item constituted 59.3 per cent of the current payments budget. Compensation of employees was allocated R325.7 million but spent R326.5 million or 100.3 per cent of the budget. The expenditure exceeded the allocated amount by R847 000 or 0.3 per cent. Goods and services item was allocated R217.2 million and spent R223.8 million or 103.0 per cent.
The main appropriation for current payments for the 2011/12 financial year was R587.6 million and R137.5 million or 23.4 per cent was spent by the end of the first quarter. Compensation of employees spent 21.8 per cent of its budget by the end of the first quarter. The actual expenditure was below projected expenditure by the end of the first quarter.
4.6.2. Transfers and subsidies
Transfers and subsidies was appropriated R408.7 million but was adjusted upwards to R438.8 million. The expenditure amounted to R438.1 or 99.85 per cent of the budget by the end of the fourth quarter. This translates to an under expenditure of R66 000 or 0.15 per cent.
The transfers and subsidies item was appropriated R438.4 million and R123.5 or 28.2 per cent was spent by the end of the first quarter.
4.6.3. Payment of capital assets
In 2010/11, the Department spent R6.2 million or 43.4 per cent of the R14.2 million (R14.1 before adjustments) allocated for this item. This reflects an under expenditure of R8.0 million or 56.6 per cent.
The budget for the 2011/12 financial year was reduced from R14.2 million to R10.1 million or 28.6 per cent. By the end of the first quarter of the 2011/12 financial year, the Department had only spent R990 000 or 9.8 per cent of theR10.1 million budget for this item. This expenditure was below the projected expenditure by the end of the first quarter.
5. Analysis of the Department’s Annual Report and Financial Statements
5.1. Analysis of Non-Financial Performance
The Department of Mineral Resources comprises four programmes, namely: Administration, Promotion of Mine Safety and Health, Mineral Regulation and Mineral Policy and Promotion. The following is an analysis of the performance of the Department against its programme objectives.
Contribute to skills development
As a result of better donations than expected, the Department undertook 17 skills development initiatives against a target of five. This involved securing commitments from the mining companies to fund 17 bursaries.
Drive transformation policies
The Department managed to secure a buy in from the National Youth Development Agency (NYDA) for the Youth in Mining Sector Strategy.
Promote social and labour plans
Six projects were established through social and labour plans, which exceeded the target of two. The projects included science laboratory computers and furniture for the high school in KwaZulu-Natal (KZN), Umtha Welanga jewellery project, provision of computers and furniture for Mofolo Home Based Care for the disabled in Gauteng Province, National Peace Accord Trust Labour sending area supported with furniture and support for HIV-Aids project, KZN MKVA supported with computers for skills development and furniture, and two houses for the elderly in Ekurhuleni revamped by Anglo America.
There were no inspections conducted on projects that impact vulnerable groups. This was against a set target of 140 inspections. The failure was reportedly due to lack of capacity.
Sustainable development of vulnerable groups
The target of two economic projects in sector groups was achieved. The projects were the brick making project at Engcobo in the Eastern Cape and the Green Field mine (Ventona) in Mpumalanga that was facilitated by the Department with the support of Xstrata.
5.1.2. Promotion of Mine Health and Safety
Actively Contribute to Sustainable Development and Growth
The Department set itself a target of 20 per cent of certificates of competence to be issued during the 2010/11 financial year. According to the Annual Report only 17 per cent was achieved. This is not clear because the Department did not specify the actual number of certificates targeted to be issued. Therefore the Department has to provide the actual number of certificates that were targeted to be issued and the number that was issued.
Zero per cent improvement in compliance to health and safety regulations was recorded against a target of 10 per cent. The Department commented that inspections and audits were conducted but due to lack of a system (compliance levels monitoring tool) the improvement in compliance could not be measured. This challenge was identified by the Department when presenting to Parliament on the 2009/10 Annual Report where it reported that the electronic business management system was being developed. This is therefore the second consecutive year where the Department could not measure improvement in compliance to regulations.
The Department set itself a target of 100 per cent health and safety information to be disseminated. In the Annual Report it is reported that this target was achieved. This is however difficult to verify since the actual number of reports and newsletters to be disseminated was not stated.
Regulate the Minerals Sector
It is reported that the target of 100 per cent audit and inspection monitoring tools developed was achieved. However, the Strategic Plan did not state the actual number of audit and inspection monitoring tools to be developed. This makes it difficult to verify the claim if the tools are only mentioned in the Annual Report and not in the Strategic Plan.
The Department reported that it achieved the 10 per cent reduction in complaints relating to procedural inconsistencies target. The number of complaints in the previous financial year is not provided and therefore cannot determine the 10 per cent reduction.
In its strategic plan the Department did not provide the number of policies and guidelines to be developed and reviewed but only set a 100 per cent target. Percentage achievement can only be measured when the actual target numbers were provided. Providing information in the Annual Report when it was not in the Strategic Plan is measurement after the effect while clear and measurable targets were supposed to be provided in the Strategic Plan.
Promote Health and Safety in Minerals Sector
The Department reported that it exceeded the target of 10 per cent reduction in occupational injuries and fatalities by achieving 16 per cent. The reduction in fatalities was 24 per cent while the reduction in injuries was seven per cent amounting to an average of 16 per cent. However looking at it separately, it felt short in reduction of injuries by three per cent. This is also difficult to verify without the benchmarks.
There was a slight increase in occupational ill health from 8 134 in 2009 to 8 170 in 2010 (0.44%). The target of 10 per cent reduction was therefore not achieved. Occupational non casualties went down by 0.76 per cent indicating a failure to achieve a target of 10 per cent reduction. To promote best practice, fourteen expos and seminars were organised and attended against a target of 17 resulting in 82 per cent achievement against a target of 100 per cent. It would be better to state the actual number of expos and seminars to be organised in the Strategic Plan rather than setting a target in terms of percentages.
The Department completed five policy studies against the target of seven leading to a 71 per cent achievement against a target of 100 per cent. The number of planned policies was not provided in the Strategic Plan. Six policy gaps were identified and were being addressed through the review and amendment of the Mine Health and Safety Act and therefore there is no reduction in policy gaps until the amendments are approved. Therefore the Department did not achieve its 60 per cent target.
Culture, Systems and People
The Department did not manage to reduce the vacancy rate by one per cent as planned. The vacancy rate, at the time of reporting, stood at 17 per cent. The reason provided for failure to fill the vacancies was the lack of funding. The Department set itself a target of 20 per cent implementation of talent management strategy. This target was not achieved because the Department did not have a strategy in place. This explains the failure to reduce the vacancy rate.
Ensure Financial Stewardship
The Department reported that it was 97.5 per cent compliant with the Public Finance Management Act. However, the Auditor General reported that the Department was non-compliant but did not specify the level of compliance/non-compliance. The Department also failed to achieve its target of receiving an unqualified audit opinion in the 2010/11 financial year. The fruitless, wasteful and irregular expenditure increased by more than 1 000 per cent against a target of 60 per cent reduction. It was however reported that a written warning was issued to the relevant official.
5.1.3. Mineral Regulation
Actively Contribute to Sustainable Development and Growth
All but one target under this objective were met, which is the number of women undergoing mining related courses. Only 372 women underwent mining related training during the 2010/11 financial year against a target of 500. The reason provided for failure to achieve the target was that women are few in the mining industry. However, the Department knew the number of women in the mining industry when setting the target.
The target number of employees attending and completing ABET within the mining sector was exceeded by 12 580. Further explanation indicates that this number included the community members. It is therefore important to know what the number of employees is and community workers that completed ABET training.
The Department set itself a target of achieving 27 (3 per region) infrastructural development projects through Social and Labour Plans. This target was 95 per cent achieved. The actual number of projects was not recorded but can be estimated to 26. Sixty three income generating projects were implemented against a target of 18 (2 per region) through Social and Labour Plans. Sixty one SMME projects were implemented against a target of 27. The above-mentioned projects led to the creation of 3 527 additional jobs against a target of 100. Two hundred and eight local economic development projects were created through SLPs against a target of 100.
Promote and transform the sector
The Department met most of its industry transformation targets except licencing of youth led companies. Only eight youth led companies were licenced against a target of 27.
The Department met most of its monitoring and enforcement of compliance targets except for the 100 per cent level of compliance with regulatory requirements. On this measure 75 per cent was achieved. The Department issued 1 272 section 93 and section 47 notices.
The Department failed to meet the target of 90 per cent adherence to prescribed time frames with regard to processing and adjudication of applications and registration of rights and recording of permits and permissions. Of the 3 798 applications received, 1 387 were processed on time (36.5%).
5.1.4. Mineral Policy and Promotion
Actively Contribute to Sustainable Development and Growth
The Department supported 82 SMMEs against a target of 35. The projects included 16 beneficiation projects.
Promoted Transformed Minerals Sector
The target of 15 per cent BEE ownership was not achieved. The industry only managed 8.9 per cent transformation level.
Promote and Transform the Minerals Sector
The industry managed one per cent increase in levels of local beneficiation against a target of two per cent.
Internal Business Process
The Department reported that 71 per cent of the companies complied with the transformation objectives of the MPRDA (section 28(2)).
5.2. Analysis of Financial Performance
5.2.1. Statement of Financial Performance
The original allocation to the Department as per Estimates of National Expenditure (ENE) was R1 030 billion but was adjusted to R995.8 million after roll-over and shifting of funds. The allocation decreased from the R4 682 billion allocated in the 2009/10 financial year to R1 030 in 2010/11, which was a significant decrease (-78.7 %). The Departmental revenue was down to R30.3 million from R217.1 million (-86.0%). The total revenue was down to R1 026 billion from R4 899 billion (-79.1%). The decrease in revenue can be attributed to the split in the DME into two stand-alone departments, namely Department of Mineral Resources and Department of Energy.
The annual appropriation was split among the programmes as follows: Administration-R227.9 million, Promotion of Mine Health and Safety-R137.1 million, Mineral Regulation-R188.6 million, Mineral Policy and Promotion-R442.3 million. Therefore, the larger portion of the budget was allocated to Mineral Policy and Promotion (44.4 %).
The larger portion of the departmental revenue was Interest, Dividends and Rent on land (89 %). This item amounted to R26 978 million from R210 791 in the 2009/10 financial year (-87.2 %).
The total expenditure amounted to R994.7 million from R4.550 billion in the 2009/10 financial year (-78.14 %). The total expenditure was comprised as follows: total current expenditure-R527.9 million, total transfers and subsidies R438.1 million, total expenditure for capital assets-R28.6 million and payment for financial assets-R50 000. Sixty two per cent of the total current expenditure budget was used for compensation of employees. Transfers and subsidies were the second largest expenditure item at R438.1 million (44 %). However, expenditure on transfers and subsidies decreased from R3.8 billion in the 2009/10 financial year (-88.5 %). This significant decrease can also be attributed to the split of the DME into two stand-alone departments.
The surplus for the 2010/11 financial year amounted to R31.4 million indicating a 91 per cent decrease from the R348.6 million of the 2009/10 financial year.
5.2.2. Statement of Financial Position
The Department registered the total assets of R58.2 million and the total liabilities of R57.1 million resulting to the net assets of R1.1 million. There was a significant decrease in total assets, total liabilities and net assets as a result of the split of the DME. The net assets decreased by 67.8 per cent from R3.3 million to R1.1 million.
5.2.3. Report of the Auditor-General
The erstwhile DME received a qualified audit opinion in the 2009/10 financial year. The basis for a qualified opinion was reported to be that the Accounting Officer of the Department did not ensure that full and proper records of the receivables for departmental revenue were kept as prescribed by the norms and standards in accordance with section 38(1)(a)(i) and section 40(1)(a) of the Public Finance Management Act (Act 1 of 1999).
The Department could not provide sufficient appropriate audit evidence to support the departmental receivables for revenue balance amounting to R25.6 million. These receivables were in relation to interest, dividends and rent on land. Receivables for departmental revenue are divided into opening balance, less-amount received and add-amounts recognised. The following amounts were recorded: R10.437 million for opening balance, nothing for less-amounts received and R15.130 for add-amount recognised. The total amount was R25.567 million (R25.6 million). The A-G reported that there were no satisfactory alternative audit procedures that could be performed to obtain reasonable assurance that all the receivables for departmental revenue were properly recorded.
It was further reported that interest was not levied and recorded on all outstanding balances and for the individual receivable balances where interest was levied, the rate used was not in accordance with the rate specified by the Minister of Finance, as required by Treasury Regulation 11.1. Consequently, the A-G did not obtain sufficient appropriate audit evidence to satisfy himself as to the completeness, valuation and rights and obligations of the receivables for departmental revenue.
Irregular expenditure to the amount of R4.2 million was incurred as a result of contravention of the authorised delegations of authority of the department. The irregular expenditure was condoned. The Department materially under-spent the budget on Programme 7: Associated services to the amount of R123 million.
One of the recommendations of the BRRR was that the Director General in his capacity as an Accounting Officer, together with his financial team, had to ensure that the concerns raised by the A-G were acted upon and work towards a clean audit report for the 2010/11 financial year and beyond. The Department, however, once more received a qualified audit opinion for the 2010/11 financial year.
188.8.131.52 Basis for the qualified opinion
As in the previous financial year, the basis for qualified opinion in the 2010/11 financial year was the failure to comply with section 38 of the PFMA. The A-G reported that the receivables for departmental revenue balance of R72.2 million was misstated as a result of omissions in respect of payments received and not recorded, amounts due not being raised and incorrect interest calculations on outstanding balances. This implies that the R72.2 million that is recorded as owed to the Department is incorrect due to reasons stated. Payments received and not recorded might have led to the amount being lesser and amounts due not raised could have led to the amount being higher. Incorrect interest calculations on outstanding balances could have gone either way depending on whether higher or lesser interest rate was used. The A-G further stated that the Department did not identify and correct all the errors that existed in the balance as a result the extent of the error could be determined.
The total revenue of the Department for the 2010/11 financial year was R1 billion comprising annual appropriation of R995.8 million and departmental revenue of R30.3 million. However, the A-G reported that he did not obtain sufficient appropriate audit evidence to satisfy himself as to the completeness, accuracy and classification of the departmental revenue of R30.3 million because the Department could not provide sufficient appropriate audit evidence to support journal entries of R50.4 million debited to revenue. It is therefore imperative to ascertain from the Department what the R50.4 million journal entry was debited for.
The Payables-Current amounted to R53.517 million, largely comprising of Other Payables at R53.515 million. Payables are defined as amounts owing to other governmental entities. The breakdown of other payables by description was Disallowance Miscellaneous at R53.481 million and salary reversal control at R34 000. The A-G reported that he was unable to conclude on the existence, completeness, valuation and allocation of and obligations pertaining to the above-mentioned payables balance.
The Contingent Liabilities and contingent assets of the Department opened with a balance of R367.4 million and closed with the balance of R74.3 million. The biggest amount of reduction was in the claims against the Department, which went down from R299.961 million to R41.773 million. The liabilities incurred during the 2010/11 financial year were R41.772 million. This item includes the contingent liabilities in respect of rehabilitation of ownerless and derelict mines. The inability of the Department to quantify its liability in this respect was one of the bases for a qualified opinion.
184.108.40.206 Emphasis of matter
It is reported that material losses amounting to R5.8 million were incurred as a result of the assets that could not be verified during the asset verification process conducted for the financial year ended 31 March 2011. This means that there was a mismatch between the assets recorded on the asset registered and the tangible assets. There were therefore fewer tangible assets than recorded assets and the assets on the register that could not be found were treated as material loss to the Department. These assets were therefore written off.
220.127.116.11 Irregular expenditure
The irregular expenditure relating to the 2010/11 financial year amounted to R7.974 million but when amounts condoned (R619 000) and recoverable amounts (R131 000) were subtracted, it came down to R7.2 million irregular expenditure awaiting condonation. This is an increase from the R4.2 million condoned in the 2009/10 financial year.
6. Committee’s Observations
Having assessed the above information, the Portfolio Committee on Mineral Resources has made the following observations:
· There was a reduction in the budget allocation for the Mineral Regulation programme while the programme over-spent its budget in the previous financial year. The programme was allocated R183.6 million in the 2010/11 financial year and the allocation was reduced to R160.3 million in 2011/12. The programme had spent above the 25 per cent benchmark by the end of the first quarter of the 2011/12 financial year.
· The Department registered a significant under spending on Payment for capital assets in 2010/11 and it appears that the scenario is going to repeat itself in 2011/12 since only 9.7 per cent was spent by the end of the first quarter of the 2011/12 financial year.
· The Department included its organogram in the Annual Report as requested by the Committee.
· The Department addressed the issues raised by the Auditor General in his 2009/10 report to Parliament.
· Notwithstanding the above, the Department has once again received a qualified audit opinion in the 2010/11 financial year. Some of the findings that led to the qualified audit opinion are repeat findings e.g. invoices not paid within 30 days.
· The Department has put in place plans to correct the mistakes identified by the A-G in his 2010/11 report and the Committee is satisfied with these corrective measures.
· The Department requested R452.3 million in the 2011/12 financial year for capacity building but was allocated R10.1 million by the National Treasury.
· The Department had 142 vacant and funded posts as well as 530 vacant and unfunded posts totalling to 672 vacant posts. This translates to a vacancy rate of 39.2 per cent.
· The Department is seriously underfunded to the extent that it is difficult for it to perform some of its functions.
The Department met most of the target it set in the Strategic Plan. However, there are some of the targets that were not met. In terms of financial performance, the Department recorded a surplus of R31.4 million in the 2010/2011 financial year, which is an improvement from the R348.6 million in the 2009/10 financial year.
Overall the Department should be commended for fulfilling its mandate and encouraged to improve where there is still room for improvement.
The Committee recommends that:
· The Department should fast-track the filling of vacant posts, especially the vacant funded posts
· The Department should fast-track the implementation of the talent management strategy to reverse the tide of staff-turnover.
· Resources should be obtained to populate the approved enforcement and compliance structure.
· The Department should address the issues raised by the Auditor General in his 2010/11 financial year report.
· The Department should strive for an unqualified audit opinion in the 2011/12 financial year.
· A downward adjustment for the Payment of Capital Assets should be considered in order to mitigate a possible over expenditure on Transfers and Subsidies.
· An upward adjustment for the Mineral Regulation programme should be considered in view of the over expenditure in the first quarter of the 2011/12 financial year.
· The Department should fast-track the quantification of government liability with regard to the Rehabilitation of Derelict and Ownerless Mines.
· The Department should ensure that inspections of projects that impact vulnerable groups are conducted.
· The Department should develop the compliance levels monitoring tool.
Mr. MF Gona, MP Date
Chairperson: PC on Mineral Resources
Report to be considered