The Responses of the Department of Trade and Industry to Submissions on the Lotteries Amendment Bill, 2013

Presentation To The Portfolio Committee on Trade And Industry

21 August 2013,

Parliament, Cape Town

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Delegation

• Ms Zodwa Ntuli: Deputy Director General (DDG), Consumer and Corporate Regulation Division (CCRD)

• Mr MacDonald Netshitenzhe: Chief Director, Policy and Legislation (CCRD)

• Ms Mammope Makaepea: Director: Regulated Industries (CCRD)• Mr Tshifhiwa Mavhuthugu: Director, Legislative Drafting (CCRD)• Mr Nkoatse Mashamaite: Deputy Director, Regulated Industries

(CCRD)• Mr Moeketsi Lebotse: Assistant Director: Regulated Industries

(CCRD)• Ms Tsholofelo Shale: Assistant Director: Regulated Industries

(CCRD)• Mr Nhlanhla Mabasa: Intern: Legislative Drafting (CCRD)

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Purpose

The purpose of this presentation is to provide the Portfolio Committee (PC) with initial

responses on submissions made by stakeholders during the Public Hearings on the

Lotteries Amendment Bill, 2013

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Background

• The Lotteries Act came into effect in 1997• In 2007 a study was conducted on the performance and the

challenges• In 2009 the Minister commissioned the Gambling Review

Commission chaired by Ms Astrid Ludin• In 2010 a Roundtable established and chaired by the Minister to

discuss challenges raised by the public• In 2010 a Working Group was established by Minister and

chaired by DDG, Ms Zodwa Ntuli to develop interventions and action plan to address the challenges

• In July 2010 Minister issued Regulations to provide direction on the distribution of funds and priorities aligned to government priorities

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Background

• In September 2010 the Gambling Review Commission presented its report to the Minister, which included findings and recommendations relating to the lottery

• The report by the PC on the Gambling Review Commission report was concluded in March 2012 with specific recommendations taken into account in the Policy

• In 2010 a Regulatory Impact Assessment was conducted on the policy proposals, and ongoing assessment being conducted as the process unfolds

• In June 2011 National Lotteries Board (NLB) requested by the dti held the first INDABA on issues pertaining to distribution of funds to obtain further input from stakeholders

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Background

• In May 2013 the Policy and Bill were taken to Cabinet to approve for wider public consultation

• The Policy was adopted and the Bill was published on 8 May 2013; comments closed on 7 June 2013

• The Bill was submitted to the State Law Advisor for certification • The Bill was certified on 10 July 2013 and introduced into

Parliament in July 2013• Initial Briefing was done by the dti and the PC specifically

requested the cost analysis for the full time Distributing Agencies• Public hearings on the Bill commenced on 14 August 2013 and

main issues raised relate to organ of state, distribution agencies, proactive funding and internal review mechanism

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Analysis of Challenges• Public outcry included the following:

– Funds not reaching intended beneficiaries– Most deserving organisations excluded by high requirements– Long waiting periods for decisions on and payment of grants– Complex processes leading to high levels of declines/rejection– Lack of communication by the NLB– Perceived conflict of interest by persons involved in making decisions on

grants– Missing documents leading to non compliance– Infrequent calls impacting significantly on declined applicantions– Funds not efficienty distributed by the NLB

• Analyses causes that arise from inefficiencies in the organisation, and those that emanate from legislative gaps or loopholes

• Identified areas that require improvement in regulation

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Scope of the Review and proposed Bill

• Appointment of Distribution Agencies (DAs)• Quorum and conflict of interest• Simplification of the process• Categorisation of grants• Disbursement of the funds• Size of the Board• Differentiation between the role of NLB and that of its Board of Directors• Clarification of the role of the Minister and that of the Board• Proactive funding• Grants through conduits• Internal review mechanism • Auditing / Independent Review

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Purpose of the Lottery

• Wiehann Commission looked at gambling in South Africa and made recommendations

• Policy decision to establish a state lottery, albeit run through a licence, and to streamline lottery regulation in South Africa in relation to lotteries

• Approach adopted for lottery was one of revenue maximisation while putting measures to prevent over-stimulation and ensure responsible play

• Funds to be generated through the lottery (NLDTF) should be used for good causes, in South Africa as a developmental state

• Funds should assist in funding causes that state funds are not sufficient to extend to such

• Fund does not replace any budget appropriated to any state department or entity through normal state budgeting processes

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NLDTF APPLICATION PROCESS

Objectives of the Bill

• To outline the Lotteries Amendment Bill so as to amend the Lotteries Act, Act No. 57 of

1997 (the Act)

• To provide for the establishment of a National Lotteries Commission

• To provide for the extension of the powers of the Commission

• To provide for the licensing of Organ of State to conduct National Lottery

• To provide for a clear accountability process for Distributing Agencies

• To provide for the professionalisation of the Distributing Agencies

• To eliminate overlapping of functions between the Minister and the Board

• To provide for the removal of Reconstruction and Development Programme (RDP) as a

category

It is proposed that the objective include the purpose of the NLDTF which is to fund good causes and development of communities

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Section 10(1)(c)(i) Internal Review Mechanism

Comment

Reviews and Appeals will be best conducted by an independent

body or ombudsman which must be manned by legal and industry

experts.

Response

The Internal Review Mechanism (IRM) was established to reduce the costs of

approaching the courts by the aggrieved applicants.

The IRM is intended to assist the smaller organisations that are not satisfied

with adjudication.

The review process already exists albeit informally. The provision is merely

there to formalise it.

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…Internal Review Mechanism

The Board comprises of independent directors that are capable of

considering matters on merit, hence the issue of independence

does not arise

It is recommended though that for the credibility of this process:

A framework (criteria) for review must be included in the Bill

Bill to enable regulations to be issued to provide for procedures to

ensure certainty and consistency, and prevent possible abuse

The regulations will include the necessary forms to be used and

timelines applicable for the review

Bill be improved to provide for the decision of the review to be binding

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Section 10(m) and (n) Proactive Funding

CommentAllowing funding without application will be a root cause for bad practice, it will lead to corruption. This practice will not be fair to other applicants who have to comply with the stringent application processes.

ResponseThe provision is intended to ensure that worthy causes are proactively identified funded based on research, which research would include engagements with the community.

On proactive funding the research reports will be presented to the DAs for consideration that the cause meets all the requirements for proactive funding.

A normal adjudication procedure by the respective DAs will be followed.

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…Proactive Funding Provision for proactive funding should be made in respect of categories,

i.e, the Arts, Culture and National Heritage, Charities , Sports and Recreation and Miscellaneous.

It is recommended that the Bill clearly provide the criteria for proactive funding to ensure it does not conflict or undermine the normal aplication process.

The Bill should provide for regulations to be issued for guide the process for proactive funding, and for the Minister to determine the percentage to be allocated for pro-active funding in each category

The proactive funding is intended to complement funding to good causes that are not necessarily represented by a particular organisation, but are clearly worth funding to assist communities.

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Section 13(7) Licensing of Organ of State to conduct National Lottery

• Comment

Organ of State will not have the knowledge, expertise and technology to

run the lotteries. It may be difficult to ensure compliance if an Organ of

State is appointed.

• Response

The proposed provisions are in the first instance intended to deal with the

situation where the licence is revoked, or has expired with the next

operator not being appointed, for any reason.

Secondly, it seeks to address an instance where licensed lottery operators

have consistently failed to implement objectives of the transfer of skills,

BBBEE, localisation, local procurement and technology capacitation.

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…Licensing of Organ of State to conduct National Lottery

• Observations to date are that the lottery technology remain outside the shores of SA in terms of ownership, and little effort is made to localise this industry and its technology. These requirements have been included in the RFP for the 3rd National Lottery licence

• An Organ of State will only be appointed if a third party fails to meet the objectives listed above. (will not affect 3rd Licence RFP)

• It is however recommended that the Bill be improved to provide for clear grounds for such intervention by the state in running the lottery to create certainty.

• The following are examples of States involved in their Lottery operations.

France own 72% of the Company operating their Lottery Belgium Lottery is partially run by State Australia has two Companies all owned by State to operate Lottery.

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26A Appointment and Composition of the Distributing Agency

Comment

A single DA with nine members to service all categories will not provide sufficient capacity to adjudicate all applications.

Response

It is proposed that the provision be reconsidered to retain all the

categories, save for the RDP category which is being removed in line

with the policy.

The Bill should confer powers to Minister in consultation with the

Board to determine the size of DAs in each category after assessing the

capacity in each category in line with their respective functions and

workload.

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….Appointment and Composition of the Distributing Agency

The rationale for professionalisation of the adjudication process:

Backlog

Quorum

Frequent meetings

Speedy turnaround times

Conflict of interest

All year application

Adjudication as part of the Minister must be empowered to appoint

the DAs on full-time basis.

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RIA Recommendations

Option 1

The DA’s be integrated as a structure within the NLB.

The DAs may be appointed as permanent, full-time or part-time capacity within

the NLB.

The total expenses to run the NLB during the 2011/2012 financial year arrived

at R127 511 000.00.

In this model there might be a need to spent more on DAs since they will be

appointed on full-time basis at this stage, adding to the total budget.

This is the model that has been adopted in the Bill.

the dti concede that there will be minimal increase of the running costs and

this will be outlined below.

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…RIA Recommendations

Option 2

Establish the DA as a separate entity with own board and executive

administrative capacity which will account separately in terms of the PFMA.

The new entity will assume full control of the National Lotteries Distribution

Trust Fund (NLDTF).

The NLB will only be responsible for the regulation of the Lotteries Operator.

It is estimated that the costs to establish such an entity will be around R138

720 000.00 separate from the total NLB expenses which is at around

R127 511 000.00 in 2011/2012.

These costs will be grossly higher, adding R111 242 000.00 more than the

current R127 511 000.00.

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…RIA Recommendations

Option 3proposes that each DA be constituted as standalone entities, each responsible for their own mini NLDTF and independently accountable to Minister and Parliament.

The NLB will only focus on the regulation of the Lotteries Operator. Each DA will require full time administrative capacity.

It is conceded by both that the option will be disproportionately costly.

It is estimated that this option may cost up to R303 308 000.00 which is R175 797 000 more than of the current R127 511 000.00.

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Conclusion

It is recommended that the pc accepts the dti recommendations as presented

It is recommended that the PC allow the dti to provide the detailed responses to the pc by Friday, 23 August 2013

The dti would like to thank the public for the valuable input in the process.

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THANK YOU

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