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Auditor General reports significant misspending of funds by energy department
Report highlights irregularities in tender processes and withholding of tax and payments to service providers
DA calls on Minister of Public Service and Administration to report on status of task team set up to review government expenditure





The recent report by the Auditor-General has brought to light that PetroSA and the Central Energy Fund (CEF) have chalked up nearly R40 million in fruitless and wasteful expenditure during the past financial year. The Democratic Alliance (DA) expressed serious concern about the nature of this expenditure when the two state-owned enterprises and the Department of Energy (DoE) reported to the Energy Portfolio Committee in Parliament on Tuesday and Wednesday.

It was also found that PetroSA and the CEF had collectively incurred irregular expenditure of nearly R1 million. According to the report:
• PetroSA incurred R24,45 million in fruitless and wasteful expenditure, and R682 000 in irregular expenditure
• The CEF incurred R15,15 million in fruitless and wasteful expenditure, and R309 000 irregular expenditure.

To date, the ANC administration has squandered over R1 billion from the public purse on frivolous parties, self-congratulatory advertorials, World Cup tickets and its inability to exercise due caution when spending funds. Government has yet to announce a clear strategy aimed at curbing wasteful expenditure in the public service, which seems to indicate that the squandering of public finances will continue unabated.

The DA will once again write to the Minister of Public Service and Administration, Richard Baloyi, to enquire about the status of the task team set up by government over a year ago to review government expenditure and will request that he inform us when its findings will be announced. The DA wrote to the Minister on this important issue in July 2010 and we are yet to receive a response from him.

The findings of the Auditor General's report to the Energy Portfolio Committee reaffirms the urgency of addressing the issue of irresponsible public spending. PetroSA, the CEF's flagship company, reported a loss of R356 million for the past financial year, thus knocking the CEF into a loss of R81 882 for the year ended 31 March 2010. The DA believes that this could have been avoided if the responsible officials had exercised due diligence and vigilance. The DA would like to see the Minister of Energy exercising firmer oversight of the CEF, PetroSA and the various other companies and entities in the Department of Energy (DoE) stable.

While the DoE itself did not incur any fruitless and wasteful expenditure, the department did incur irregular expenditure of R4,2 million "as a result of contravention of the authorised delegations of authority of the department." The irregular expenditure was condoned in the 2009/10 financial year.

The DOE's irregular expenditure was mainly incurred as a result of penalties and interest paid due to late payments to service providers and tax related disputes with SARS. For instance, during the past financial year PetroSA paid an amount of R13 million to SARS in respect of value added tax. "PetroSA earned interest in cash held on the same value of R10 million, which resulted in a net loss of R2 million," the CEF reported. In certain instances, withholding payment therefore resulted in net gains for the companies concerned.

In the Portfolio Committee meeting the DA questioned whether officials were withholding payment to SARS or service providers deliberately, with the intention of getting the money to accrue interest before making the necessary payments. The DA strongly cautioned that if this was the case, the companies would be guilty of "gambling or speculating" with public money in the hope of gaining from accrued interest. This, warned the DA, would be a very dangerous game to play and should be stopped. The CEF assured the committee that it would never speculate with the public's money and that such behaviour would not be tolerated. If this is the case, the CEF should take clear and decisive steps to avoid the withholding of payments in the future.

With regard to the irregular expenditure, the amount of R309 000 incurred by PetroSA was attributed to the fact that "a proper tender process had not been followed." This is a matter that needs to be investigated further and the DA will be issuing parliamentary questions to determine which companies the tenders were awarded to and why they were not put to open bid.