PRESENTATION TO THE STANDING COMMITTEE ON APPROPRIATIONS PRESENTATION TO THE STANDING COMMITTEE ON APPROPRIATIONS 16 September 2016

1. FOURTH QUARTER EXPENDITURE REPORT 2015/16

2015/16 EXPENDITURE PER PROGRAMME FINAL BUDGET R'000 BUDGET % EXPENDITURE R'000 VARIANCE R'000 % Spent Administration 223 030 16% 221 864 1 166 99.5% ICT International Affairs 43 310 3% 41 542 1 768 95.9% Policy Research and Capacity Dev 97 132 7% 73 979 23 153 76.2% ICT Enterprise Dev & SOC Oversight 490 231 35% 488 960 1 272 99.8% Infrastructure Suppport 551 550 39% 473 753 77 797 85.9% Total 1 405 253 100% 1 300 097 105 156 92.5% Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development A global leader in the development and use of Information and Communication Technologies for socio-economic development

Expenditure per Economic Classification Final Budget Expenditure Variance % to be Spent Compensation of employees 196 447 181 693 14 754 92% Goods and services 318 195 230 427 87 768 72% Transfers & Subsidies 882 814 882 049 765 99.9% Payments for Capital Assets 7 350 5 481 1 869 75% Payment for Financial Assets 447 - 100% Total 1 405 253 1 300 097 105 156 92.5% Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

TRANSFERS AND SUBSIDIES   Appropriation Actual Transfer Variance % Spent USAASA - DTT: Distribution and project management costs 196 000 - 100% USAASA - Operations 66 429 USAASA - DTT: Set top box, installation 181 160 Universal Service and Access Fund 52 380 SA POST OFFICE 115 092 NEMISA 36 601 Sentech: Dual Illuminnation 209 000 Foreign Government / International Organisation 25 394 24 629 765 97% TOTAL 882 056 881 291 Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

The underspending is mainly due to: The spending for the 2015/16 financial year amounted to R1.300 billion (92.5 per cent) from the adjusted budget of R1.405 billion and the underspending is R105.2 million. The spending rate is 5% less than the 2014/15 financial year’s expenditure. The underspending is mainly due to: The delay in filling vacant positions, and The implementation of the South Africa Connect Broadband project. The implementation of the project was delayed as the Department was exploring various options to implement the decision made by Cabinet Lekgotla in February 2015 to designate Telkom as the Lead Agency for Broadband roll-out. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

The Broadband project funds were diverted to be utilised as follows: Transfer of R100 million Sentech – Digital Terrestrial Television Migration Project Dual illumination. 2. Transfer of R50 million to SAPO – For the rollout of the National Address roll-out project. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

2. FIRST QUARTER REPORT 2016/17

PROJECTED BUDGET TO 30 JUNE 2016 R'000 EXPENDITURE PROGRAMME BUDGET R'000 BUDGET % PROJECTED BUDGET TO 30 JUNE 2016 R'000 EXPENDITURE R'000 VARIANCE R'000 AVAILABLE TO YEAR END R'000 % Spent Administration 193 337 8% 48 407 52 126 (3 719) 141 211 27% ICT International Affairs 44 710 2% 5 119 4 071 1 048 40 639 9% Policy Researchand Capacity Dev 95 618 4% 23 660 17 797 5 863 77 821 19% ICT Enterprise Develop and SOE Oversight 891 801 37% 717 236 658 420 58 816 233 381 74% Infrastructure Suppport 1 191 946 49% 171 098 6 865 164 233 1 185 081 0.6% Total 2 417 412 100% 965 520 739 279 226 241 1 678 133 31% Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development A global leader in the development and use of Information and Communication Technologies for socio-economic development

Expenditure per Economic Classification Final Budget Expenditure Variance % to be Spent Compensation of employees 213 713 47 949 165 764 22% Goods and services 494 583 38 343 456 240 8% Transfers & Subsidies 1 054 148 103 1 054 045 0% Payments for Capital Assets 4 968 2 882 2 086 58% Payment for Financial Assets 650 000 650 002 (2) 100% Total 2 417 412 739 279 1 678 133 31% Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

TRANSFERS AND SUBSIDIES Appropriation Actual Transfer Available to Year End % Spent Foreign governments and international organisations 23 363 - 0% National Electronic Media Institute of South Africa 77 200 Universal Service and Access Agency of South Africa 69 045 Universal Service and Access Fund 55 156 South African Post Office: Broadcasting Digital Migration 240 000 Universal Service and Access Fund: Broadcasting Digital Migration 589 384 TOTALS 1 054 148 Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Variances per Economic Classification Compensation of Employees :The variance is as a result of vacant positions that have not been filled. Goods and Services : The variance is as a result of the delay in the implementation of projects stemming from the appointment of service providers. Transfers and Subsidies : The variance is as a result of transfers to The Departmental entities not being effected as per the draw down schedule. These transfers were to NEMISA, USAASA and USAF for operations and Broadcasting Digital Migration. Capital Assets : The variance is as a result payments for IT infrastructure upgrade project with SITA. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Performance Information Inputs Q4 APP Targets for 2015/16 Not Achieved and Q1 APP targets for 2016/17 Not Achieved

ICT ENTERPRISE DEVELOPMENT AND SOC OVERSIGHT Branch APP Targets Not Achieved in Q4- 2015/16 ICT ENTERPRISE DEVELOPMENT AND SOC OVERSIGHT Branch 2015/16 TARGET: Mandates and funding models for state owned companies reviewed (in line with the ICT Policy Review and SA Connect) Q4 TARGET: Recommendations report on Sentech’s revised mandate and funding model submitted to Cabinet for approval No Progress Reason: Human Resource capacity constraints. Work in progress: Capacity challenges to be addressed in the new financial year. Q4 TARGET: Recommendations report on SITA’s revised mandate submitted to Cabinet for approval No Progress Reason: Human Resource capacity constraints. Work in progress:Capacity challenges to be addressed in the new financial year. Q4 TARGET: iNeSI Bill submitted to Parliament for enactment No Progress Reason: There were concerns raised by Department of Higher Education and Training. Work in progress: DTPS-DHET Task Team was established to resolve DHET concerns. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

ICT Infrastructure Support Branch APP Targets Not Achieved in Q1- 2016/17 ICT Infrastructure Support Branch 2016/17 TARGET: Project manage the roll-out of the Broadband connectivity Implementation Plan Phase 1 towards connecting 2700 sites Q1 TARGET: Broadband Connectivity Implementation Plan finalised No Progress Reason: No progress due to pending tender process finalisation. Work in progress: The Department through SITA went out on tender to appoint a service provider for broadband connectivity. Q1 TARGET: Connectivity to 675 identified site’s project managed and monitored No Progress Reason: No progress due to pending tender process finalisation. Work in progress:The Department through SITA went out on tender to appoint a service provider for broadband connectivity. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Progress in resolving the challenges around the South African Post Office

Progress in resolving the challenges around the South African Post Office Post the prolonged illegal strike, SAPO’s main challenges were: Leadership Instability: Governance and leadership issues (inadequate internal control systems and accountability, high vacancy rate at senior management, inadequate leadership and management) Progress Appointment of the Board and Group CEO assisted to bring leadership stability & the filling of other critical senior positions (CFO, COO and Company Secretary) is being fast- tracked. Governance structures put in place: SAPO maintains records of fruitless and wasteful expenditure, irregular expenditure, material losses and track progress of investigations and outcomes. Financial misconduct committee maintains regular reviews on a monthly basis and report to the Board through the Audit & Risk Committee Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

Progress in resolving the challenges around the South African Post Office R650 mn 2016/2017 MTEF allocation, R50 million transferred for the National Address roll-out project & R3.7 billion long term borrowing (including existing R1 billion ) secured with the commercial banks by SAPO with the assistance of Treasury & DTPS. Borrowings supported by government guarantees issued by DTPS & Finance Ministers Availability of the above funding is setting SAPO on the road to recovery as it assists to stabilise operations and labour environment by enabling settlements of long outstanding debts (unpaid creditors backlogs and historical labour agreements). It also assists with the implementation of the corporate plan (investing in some revenue generation initiatives) in subsequent quarters of 2016/17. SAPO also to finalise its strategy for its parcel and logistics subsidiary (CFG) Complied with all SARB’s requirements for the application for authorization to establish the bank (s12 of Banks Act), authorisation was granted authorisation on 04 July 2016. Next steps towards obtaining the banking license to be completed by end of June 2017. Funding & operational challenges: Lack of funding & severe cash-flow shortfalls: Inability to invest in revenue generation initiatives, loss of customers’ confidence & inability to meet operational obligations (unpaid creditors backlogs, unmet long outstanding labour agreements etc) Labour instability: Some threats of industrial actions and sporadic interruption of services by some of the Unions mainly due to labour becoming impatient with non-settlement of long outstanding agreements Delays in the corporatisation of the Postbank Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development