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 1

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) 2

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,

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 4

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 5

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 6

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 7

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 8

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 9

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 11

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. 12

…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 13

Section 10(m) and (n) Proactive Funding Comment  Allowing 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. Response  The 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. 14

…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. 15

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. 16

…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 3 rd 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 3 rd 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. 17

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  I t 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. 18

….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. 19

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 R  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. 20

…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 R separate from the total NLB expenses which is at around R in 2011/2012.  These costs will be grossly higher, adding R more than the current R

…RIA Recommendations Option 3  proposes 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 R which is R more than of the current R

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. 23

THANK YOU 24