PATRICIA DE LILLE: Innovative solutions being sought to optimise use of state-owned properties

Since I took office I have always said public land and public buildings must be used for the public good. Government buildings should enable decent service delivery and be optimally used for the people of our country.

The department of public works & infrastructure is responsible for providing office accommodation for government departments and is the custodian of most state-owned properties, including about 30,000 land parcels on which about 82,000 buildings are located. More land and buildings are under the custodianship of provincial and local governments.

However, over the years these assets have fallen victim to complexity issues, which resulted in them accruing significant and underfunded maintenance backlogs. Many strategies have been tried, but the fact remains that many state-owned properties are not adequately maintained, or used, and the solution needs a partnership with the private sector and communities to ensure optimal use and financial viability of public buildings.

Maintaining such a vast portfolio of properties is a huge task and one that requires innovative solutions to ensure public land and public buildings are used for public good.

The issue of repairs and maintenance to state-owned buildings largely relates to a shortfall in recovery of rental income from the department’s 52 client departments. The rentals charged to client departments are also well below market rates or the full maintenance and capital replacement costs.

In a briefing to the portfolio committee on public works & infrastructure in November 2020 the committee was made aware of these fiscal constraints and the struggle to recover rentals from government departments. At the time, the department was owed R6.6bn in rental from its user departments. 

The rentals charged to government departments stem from the User Charge Model Policy of 2006. In 2006 accommodation charges were calculated per client per facility type. Based on the calculations then, the charges proved to be unaffordable to the fiscus. The total amount had to fit within the baseline of the department's budget vote.

This resulted in a substantial reduction in the rate per facility type. For example, an office building should have been charged at R26/m² but was only charged at R4.74/m². The 2006 tariff of R26/m² was based on operational requirements only, such as maintaining the portfolio. This tariff did not accommodate the capital requirement to do periodic refurbishment and rehabilitation, including reserves for replacement of the facility.

Ninety-six percent of facilities are occupied by client departments. The government is the key funder of total life cycle cost of the portfolio, and the shortfall of the required budget has had a major impact on maintenance of state facilities. As part of the Devolution Framework of 2005, it was envisaged that this R4.74/m² should grow 15% year on year to reach sustainability by 2017.

However, the actual growth was only 10% on average (5% over the past five years) which gave rise to a funding gap of R2bn in the 2017/2018 financial year. In 2016 the department developed an implementation plan for financial sustainability known as itemised billing.

The plan was approved by the National Treasury to implement in cycles over five years. The purpose of itemised billing was to address the total cost of the life cycle of the asset portfolio and address the maintenance backlog of state properties. The department asked the Treasury to approve tariff structure per cycle as follows from 2019 to 2024:

• Cycle 1 (2018): there were two departments, labour and communication, with the request of R343m and approval by the Treasury of R121m resulting in a total shortfall of R222m, with no commitment to increase it by 15% a year.
• Cycle 2 (2019): there were four departments — home affairs, health, social development and the SA Social Security Agency — with a request of R1.1bn and approval of 299m by the National Treasury resulting in a shortfall of R825m.
• Cycle 3 (2020): there were three client departments, namely justice & constitutional development, environmental affairs and rural development, and approval of R522m by the National Treasury resulting in a shortfall of R990m.

During the medium-term expenditure framework of 2021 the department asked the Treasury to allocate additional funding for the shortfall of R2bn, which was not approved by the Treasury. The department was asked by the National Treasury to engage user departments to increase the tariff structure, but user departments are also experiencing budget cuts. The estimated budget shortfall by 2024 for the first three cycles is estimated to be about R12.1bn. 

Another key constraint to ensuring optimal operation of state-owned properties is that government departments do not always pay on time. As at December 31 the total outstanding debt owed by user departments was R8.6bn, including disputed claims of R4.5bn.

The department of public works has implemented a number of measures to improve recovery of rentals from user departments and clients. Repairs and maintenance of buildings were built into user chargers to make provision for repairs and maintenance and capital.

The reality is that the current budget doesn’t allow the Treasury to give the department all the funding we require. We are now only receiving enough to keep buildings operational, but not to make provision for the required level of scheduled repairs and maintenance over the life cycle project.

We have identified buildings that are not being used, and those where we require private sector expertise and capital to fully operationalise the assets. This is our Refurbish, Operate & Transfer Strategy. A joint task team was initiated with the Development Bank of Southern Africa (DBSA) in July 2021, and the pilot phase is due to be initiated in the first half of this year.

Together with Infrastructure SA the department has approached the Infrastructure Fund for assistance in developing a Refurbishment, Operate & Transfer Programme (ROTP). In pursuit of this long-term strategy in the management of government properties the ROTP is to be implemented for the department’s top 300 high priority facilities.

This programme will help sweat the assets of the state by maximising income and realising the true economic potential of these assets. The main strategic objectives of the ROTP are to:

• Implement comprehensive asset life cycle management on high value state assets;
• Leverage the department’s extensive portfolio of assets to stimulate industrial scale operations of refurbishment, construction, property management and maintenance;
• Leverage funding from the public and private sector and to mobilise private sector capabilities for the benefit of the state property portfolio;
• Promote economic development and inclusive growth;
• Create jobs;
• Empower women and the youth; and 
• Promote SMME development.

The ROTP was submitted and approved for registration by the Infrastructure Investment Review Committee of the Infrastructure Fund in November 2021. The department has collaborated with the DBSA for the programme and project preparation work in completing an early business case. This will be packaged to leverage funding from the private sector.

The intention is for the first set of properties to be published for proposals from the market during the first half of 2022. This important task shows the department’s commitment to finding solutions to optimally use state-owned properties and ensure a greater level of maintenance and financial sustainability.

It is my hope that this will bring long-standing solutions and partnerships between the public and private sectors to ensure we use more public buildings for the public good.

• De Lille is public works & infrastructure minister.