Public Enterprises Workshop: Annual Reports & accounting cycles; Five Year Legacy Review of Department, Committee Legacy Report; Industrial Policy & Infrastructure Linkage report by Department of Trade & Industry

Meeting report

Opening Remarks by Chairperson
The Chairperson welcomed Members and noted apologies. She then noted that Ms Bam-Mugwanya had been unable to attend any of this Portfolio Committee’s meetings to date, and suggested that, in order to allow her to focus on her commitment to rural development, she be replaced by Mr Sonto, who had served previous terms on this Committee, and would thus contribute to its institutional memory.

The Chairperson said that the focus of this meeting would be the development of a strategic plan for the Portfolio Committee on Public Enterprises. The autumn school would be most helpful in orienting members on processes and procedures, and the Workshop would facilitate the formulation of a template for the strategic plan, in preparation for the 2010 Strategic Plan and beyond.

She said that the Committee must also forge relationships with other portfolio committees in Parliament, to better facilitate the oversight of the State-Owned Enterprises for which it was responsible. It also must form working relationships with the Committee on Energy Affairs and on Economic Development. It would need to engage with the Planning Commission on key issues impacting on this Committee’s scope of work. This Committee would also need to engage with issues around the oversight of Transnet, and the under sea fibreoptic cable project; although certain issues were overseen by the Portfolio Committee on Communications, the Public Enterprises Committee would also be involved in some aspects of implementation. There would need to be communication with the Portfolio Committee on Energy around the Pebble Bed Modular Reactor (PBMR); the Energy Committee was responsible for policy but the implementation belonged with this Committee.

The Chairperson then cited media reports regarding the Minister’s and Director General’s lack of support for the PBMR. She had met with the Minister, Deputy Minister and Director General, was briefed on the development of the PBMR, and the funding model of Eskom, and received confirmation of the Minister’s support of the PBMR. The Chairperson had noted the need for clear messages to be conveyed, and had also suggested that future rate changes to the electricity tariffs should be conveyed timeously to the public.

Discussion on Committee business
Mr P van Dalen (DA) suggested that the Committee visit each of the SOEs, and in particular Alexkor. He queried the mechanisms of a multimillion-rand corporation like Alexkor rendering minimal earnings. The Committee would need to obtain a true reflection of how these SOEs functioned, instead of the carefully-presented pictures which these corporations sometimes offered to Parliament, and that surprise visits were often useful, following President Zuma’s example, to get the true state of affairs.

The Chairperson agreed with Mr van Dalen. She had already asked the Chief Executive Officers (CEOs) of the SOEs for their Annual Reports. She agreed that it was urgent to make these visits, and planning should be done over the next week or two, if possible. She noted that these must be linked to the autumn school. The most important visits would be to Eskom, particularly Pelindaba, and other visits should be paid to Transnet, South African Airways (SAA), Infraco, Denel and Alexkor.

Mr van Dalen reiterated that there were problematic issues regarding Alexkor and that these should be a key focus of the Committee.

Mr M Nhanha (COPE) informed the committee that he had met with the Minister informally, and had raised some of his concerns regarding the development of the PBMR. In response, the Minister had offered Mr Nhanha an educational tour of the PBMR.

The Chairperson responded that she understood Members’ concerns about pumping money into a project that was not yielding results. The PBMR project was currently employing the skills of 60 doctoral-level experts, and there were issues needing clarity. It would be a key area for oversight. The Deputy Director General had previously addressed some of the Chairperson’s questions openly and honestly, providing a balanced point of view, including the challenges and potentials of the PBMR project. It would be preferable that this official address the Portfolio Committee directly, to afford Members the opportunity to evaluate the challenges and to map and oversee the way forward for the project.

Dr G Koornhof (ANC) suggested that it might be prudent to complete the workshop and autumn school. Once the Committee Members had a firmer grasp of the procedures and processes involved, they would be in a better position to exercise oversight of the SOEs.

Mr M van Dyk (DA) queried the necessity of the autumn school. He wondered if it was a prudent use of parliamentary resources and the Committee’s time. He also noted that the Annual Reports of Eskom and SAA were still outstanding. Further, he felt that visits to the SOEs were a key focus of the Committee’s oversight function. He agreed that instead of informing the SOEs ahead of time, these visits be surprise visits to see a true reflection of the day-to-day functioning. Finally, in relation to the PBMR, he noted that although R18 billion had been requested for the PBMR, only 160 megawatt-hours would be produced. He asked that this be clarified by Eskom. Although there was a great deal of scientific information on the PBMR, it should nonetheless be presented in plain language, as previous presentations had used far too much jargon and scientific language that had made it difficult to understand what was being communicated.

The Chairperson responded that some of these issues had been raised before Mr van Dyk came into the meeting. The PBMR would be under close oversight by the Committee. The issues that he had raised were important, but would be more usefully addressed during the following week’s meetings, and she asked that he raise them again.

Mr van Dalen suggested that it would be important to investigate the economic viability of the SOEs, who must show the Committee that they were using the allocated funding and resources in a responsible manner.

The Chairperson agreed, but again noted that this issue should stand over to the following week.

Mr M Oriani-Ambrosini (IFP) apologised for arriving late, noting that he had needed to attend another Committee on this day. He said that a key function of this Committee would be oversight on the implementation of legislation, and ensuring that legislation adequately and accurately reflected policy. The Committee would need to focus on what the function of the Department of Public Enterprises (DPE) was, and what the function of government was in its ownership of public enterprises, and what role these enterprises should play in developing trade policy. It would be helpful to receive presentations on these issues in due course.

The Chairperson noted that it had earlier been said that this Committee would need to establish working relationships with other departments. She agreed that the oversight of SOEs could not be effectively undertaken without an understanding of the role of public enterprises in economic development. Today’s workshop would include a presentation by the Department of Trade and Industry (dti) on industrial policy.

Mr van Dalen agreed that the kind of discussions that were currently under way were crucial. He questioned if the money spent on this workshop, however, would not have been better spent on oversight visits.

The Chairperson responded that the decision to meet at a hotel was taken by Parliament, since there were 50 committee meetings on that day, but only 27 Parliamentary venues.

Mr van Dalen noted that the Committee must ensure that the SOEs were taking care of their budgets and that core assets were being maintained in a responsible manner. If not, he asserted that the Committee should remove the budget and assets from the SOEs. If, as was the case with Transnet and stolen railway lines, the SOEs were to request a budget although core assets were being repeatedly vandalised or stolen, the SOE must account to the Committee for the issue before their budget request was considered.

The Chairperson expressed support for Mr Van Dalen’s point. She acknowledged the fundamental importance of oversight visits.
 
The Committee Secretary, Mr Mocumi, clarified that every Committee was required to make two local oversight visits and two international study tours.

Mr van Dalen queried whether these were the minimum or maximum number of visits provided for.

The Chairperson undertook to try to arrange for the most possible oversight visits. She also noted that she had received Mr Oriani-Ambrosini’s letter to the Minister, and asked him to bring a copy of this letter to the following meeting.

Usefulness of Annual reports to oversight in the accountability cycle
Mr Nimrod Zalk, Deputy Director General: Industrial Development, dti, said that his presentation would focus on the constitutional and oversight issues, as well as Public Finance Management Act requirements.

Mr Zalk noted that oversight by Portfolio Committees could be summarised as the process of developing a strategic plan, providing for a budget and the interrogation of the Annual Report of the department or departments that reported to it. Oversight was legislative oversight over the Executive, and not oversight by the opposition parties over the ruling party. The government’s priorities were reflected in the strategic plans, budgets and reports. Service delivery targets had to be aligned with the strategic plan. Budgets were to be seen as “forward-looking” documents, while Annual Reports reflected back. Budgets estimated what funds were necessary to implement strategies, and Annual Reports detailed how the budget had been used to implement the strategic plan. 

The Portfolio Committees were seen as serving the accountability function, as they exercised oversight of service delivery. Committees were required to share information with each other to improve the effectiveness of the oversight function. He said that, in particular, this Committee would ideally need to hold joint hearings with the Portfolio Committees on Energy, Defence and Transport. Joint hearing with the Standing Committee on Public Accounts (SCOPA) could also provide important and relevant information regarding issues that emerged from the oversight of the SOEs. The role of the Committee Researcher was to become familiar with the challenges, policies and oversight development in the Committee’s particular focus areas. The Committee Researcher also communicated with the National Treasury, where relevant, in matters which related to the particular department.

Mr Zalk noted that one method for the process of oversight was to draw up a template to guide the oversight process in the future. The tabling of Annual Reports was key to the process of oversight development. This usually took place in the last two weeks of October. Annual reports allowed the public to become aware of how the various State departments were achieving their service delivery plans. The interrogation of the Annual Reports facilitated accountability, but also provides a means to publicise achievements.

During the preparation phase, timeous tabling of the Annual Reports allowed for the full interrogation of these Annual Reports by the Portfolio Committee. The Committee staff was responsible for ensuring that the committee members had timeous access to the reports and other relevant documentation. Committee Members should be able to review all documents that would enable them to compare the performance in the current year with that of previous years. Experts and stakeholders could then be identified to inform the Committee of pertinent issues and questions relevant to their oversight function.

During the oversight hearing process, the Minister was required to give an overview of the Department’s performance, and either the Minister or Accounting Officer would make a presentation. The Annual Report would be interrogated page by page.  The Minister or the Accounting Officer would present to the portfolio committee and the annual report would be interrogated page by page.
When preparing for the oversight process, the Committee would set clear guidelines around commencement, milestones and completion targets. The process also was influenced by international visits, during which the Committee Members could compare and add insights gleaned from a study of the oversight process in other countries.

The Annual Reports were the most important instrument of accountability. They must, in terms of the legislation, be submitted within five months after the end of the financial year. Further, the Executive authority must table the Annual Report within one month of receipt of the report from the Auditor-General. If this was not possible, then written reasons must be given. The Annual Report must follow the guidelines of National Treasury, in respect of the structure and content. National Treasury further provided guidelines on performance, and also provided information to guide the evaluation of Annual Reports and facilitate the reporting of financial misconduct.

Mr Zalk then moved to the technical quality of Annual Reports. The Annual Report must address all matters mentioned in the Strategic Plan, or give clear reasons for not doing so. It must follow the structure and template provided by National Treasury. It must be written in a manner that could be easily understood by the man-on-the-street. It was not necessary that Annual Reports be presented in an elaborate fashion, and, particularly in the current economic climate, the costs in producing that Report should be kept to a minimum.

The Annual Report must account for service delivery goals, as defined in terms of quality, quantity and time limits. The background information must include the mandate, strategic plan, budget, and internal and external challenges. It should also address the organisational concerns and options. It must evaluate past performance, which incorporated improvements in performance and service delivery information and any changes to be implemented to improve performance. Future performance targets should also be evaluated, and should reflect a balance with output. Institutions would need to be questioned so that the Committee could effectively address issues around performance.

Mr Zalk discussed the interpretation of financial and auditing information. He noted that the crucial documents were the financial statements, and the Audit Committee Report, which would cover the Accounting Officer’s Report, and the audit report in which the responsibilities of the stakeholders as well as the framework used to prepare the Audited Financial Statements were outlined. Finally, an Appropriation Statement, providing information on the content of the report as well as guidelines for use of that content, was to be included. Any unauthorised expenditure must be reported, although he stressed that if the appropriate controls were in place, this should not occur.

In addressing the financial management model, Mr Zalk noted that the Accounting Officer (AO) was responsible for the delivery of performance. He or she must delegate responsibilities through internal management and reporting.

The Auditor-General would then audit the financial statements and provide a report, which was included in the Annual Report and brought before the Portfolio Committee.

Discussion
The Chairperson noted that two Annual Reports, from Eskom and SAA, which should have been delivered to the previous Portfolio Committee, were still outstanding, and she wondered whether National Treasury could outline the procedure to be followed to ensure their delivery. The new Annual Reports could not be properly interrogated without first having dealt with these previous reports.

The Chairperson also noted that this Portfolio Committee had requested that the Minister, and not the Accounting Officer, should ideally make the presentations to the Committee.

Mr van Dyk agreed, saying that past experience had often shown that the Accounting Officer would be accompanied by a large delegation, who answered questions. He agreed that it was preferable that the Minister and Accounting Officer address queries and comments.

Mr van Dyk then queried the procedure in relation to unauthorised expenditure. This was usually referred to SCOPA for scrutiny, but since inception of the Public Finance Management Act (PFMA) he was not aware of a single instance in which an official was held accountable for the unauthorised expenditure, despite Hon Trevor Manuel’s statement to Parliament that unauthorised expenditure was to be made public and that steps would be taken against the offenders. He asked whether National Treasury would take account of previous unauthorised expenditure when allocating budgets.

Mr Oriani-Ambrosini commented that he had been involved in drafting strategic plans, which were often fraught with bureaucracy that stilted the proper development of the plans. He felt that this Committee should not be hide bound by the document provided by National Treasury, but that the Committee should define its work for itself. He also commented that workshops were not always essential and that in the economic climate of austerity, the efficacy of workshops for the Portfolio Committee could be scrutinised. He also felt that the preparation and presentation of Annual Reports should reflect the priority of cost reduction, and that these should not be extravagant. He noted that it was up to the Committee independently to request Annual Reports. The Committee could, in terms of the Constitution, hold the Minister responsible, but had no power in law over the Accounting Officer. He thus agreed with the Chairperson that the Minister be the first port of call for queries and comments during the oversight hearings.

Mr Jayce Nair, National Treasury, noted that National Treasury had undertaken to provide guidelines on Annual Reports, but could not enforce adherence to those guidelines. It was the responsibility of the manager to ensure these issues were adhered to, and that person would be accountable if not adhered to. These comments could be conveyed to the Department.

Ms J Masilo (ANC) commented that the DPE had not presented Annual Reports on approximately three successive occasions. She queried how this could be remedied and what channels could be followed to follow up. She too concurred with the Chairperson that the Minister should be present at the presentations to answer policy issues around the Department.

Mr Nair confirmed that the Portfolio Committee could indeed insist that the Executive appeared before the Committee. The Minister was accountable to the Committee and if resolutions were taken by the Committee that were not implemented, this could be raised with the Speaker, calling the Executive to account.

Mr Nair noted that the Annual Reports for both SAA and Eskom had been tabled in Parliament, and if they had not yet been made available to the Committee, then it was incumbent upon the Committee to arrange for this. Any problems around the tabling of the reports should be referred to the Speaker, since the tabling was provided for in legislation.

Mr van Dalen asked whether the important points that the Committee wanted the Accounting Officer to address should be notified to that person before the meeting, and wondered if advance notification on pertinent issues would also facilitate their inclusion and addressing in the Annual Report. He also asked whether the Annual Reports could not be “tidied up” to portray a more favourable impression.

Mr Nair explained that the Auditor General signed off on all reports and that once his signature was appended, the Annual Report could not be changed. It would be regarded as a serious offence to tamper with the Annual Report after signing off.

He added that the individual Portfolio Committees could decide whether questions and comments could be made available to the Executive before the hearings.

Mr M Nhanha (IFP) noted that when Denel had made a presentation to the Committee, he had queried whether Denel was able to implement its employment equity (EE) goals, and the response was that Denel was on track. However, less than 50% of the personnel were black, and 53% were white. This clearly did not reflect EE goals, and he was concerned that the presenter had misled the Committee. He queried what would be done about such a situation.

Mr Nair confirmed that giving misleading information during oversight hearings was a serious offence. He referred the Committee to the Parliamentary guidelines as to how to address this issue.

Mr Nhanha then referred to the tenure of Mr Andre Viljoen at SAA. During this period, SAA placed an order for airbuses costing over R1 billion, despite it being clear that SAA did not need the aircraft and could not afford them. However, Mr Viljoen was not held accountable, but he was also given a “golden handshake”. The order for the airbuses could not be cancelled without hefty penalties, and the executive was now burdened with these legacy issues. He felt that there should be some accountability from Mr Viljoen and those party to this decision.

Mr Nair noted that National Treasury did make recommendations to the entities in respect of unauthorised expenditure. However, it was not responsible for issues related to such expenditure. The Accounting Officer was responsible, and it was that person who should be dealing with the expenditure. He explained that the decision to place the order had been taken by the Board as a collective, and that Mr Viljoen should have gained the approval of the Board as a matter of procedure, so he was not personally accountable in this instance. However, the Board would indeed be accountable to the Committee, who could pursue the matter further.

Mr Nhanha asked about performance indicators and performance bonuses, querying whether performance bonuses should be allocated for work done within the scope of the normal expectations for a particular portfolio. He believed that performance bonuses should only be paid if the performance had superceded ordinary job expectations. 

Mr Nair agreed with Mr Nhanha that a performance bonus should be awarded only in instances where performance had been above and beyond the call of duty. The framework must be defined to determine what constitutes “performance which had superceded ordinary expectations” for that job specification.

The Chairperson commented that the nature of this Committee’s work meant that some degree of expertise was required, including some knowledge of the commercial viability and related issues of the SOEs. Because the staff of both the Department and SOEs were technically competent, the Committee might require some technical training, and she enquired whether there was a budget for the education and empowerment of Committee Members to ensure that the Committee could effectively meet its responsibilities.

Mr Nair responded that he was not aware of any budget allocated for the purpose of educating and empowering Committee Members, but that the Committee could ask National Treasury to assist in any matter with which they needed assistance.

Mr Thembile Pleetjie, Media Liaison Officer, National Treasury, added that budget officers of National Treasury had in the past helped other Portfolio Committees, such as that on Home Affairs.

The Chairperson noted that the Committee had previously addressed a report with recommendations to the Minister of Finance, but that neither the Minister nor National Treasury were forthcoming in their response. She enquired who would hold the political head and Treasury responsible for failing to meet the recommendations of the Committee, and what was the role of National Treasury in relation to performance criteria for the Department.

Mr Pleetjie answered that the National Treasury was not, in the instance referred to, accountable to the Committee, but the performance of the Minister, who was subject to a performance agreement, could be made known to the Committee.

The Chairperson noted that the political head might often be evasive in terms of accountability, and that usually it was the Accounting Officer who was held responsible for non-compliance to the Strategic Plan. She was not aware of any tool by which a Portfolio Committee could hold the Executive responsible.

Mr Nhanha clarified that the President had made provision for the Executive to be held accountable to the performance agreement. He suggested that this new provision be given time to filter down to the level of implementation.

Mr Pleetjie confirmed that the Portfolio Committee has every right to hold the Executive to their performance agreement.

Mr Nair clarified that the policy statement was an official document tabled in Parliament and that the Executive authority was responsible for the appropriate implementation of this policy statement. The Accounting Officer was responsible for the outputs towards the outcome.

Mr E Kholwane (ANC) commented that part of the role of the Committee was to find out the main performance areas, specifically linked to budget. The operational plan often deviated from what had been stated by the Executive. If policy was not appropriately put into operation, this must be addressed. He mentioned that there had been some suggestion of a score card to measure performance, but there had not been any further information as to implementation of these. They may facilitate standardised measuring and assessment of performance.

Mr Nhanha queried how soon after the due date of 30 September Committees could expect to receive the Annual Reports. He queried whether they could be made available in advance of the meetings, to enable Members to prepare properly, and whether, seeing that many Members were new, whether it would be possible for National Treasury could make an in-depth presentation to prepare them to interrogate the Reports.

Mr Nair responded that the Annual Reports should be available on the day following their tabling in Parliament.

The Chairperson added that they were usually provided to Members at least a few days prior to the presentation to the Committee.

Mr Nair continued that the evaluation of those Annual Reports was ideally done during November, to ensure that sufficient time and consideration was given to budget issues. Although National Treasury could not prescribe the processes, it would be willing to meet with the Committee to support the Members in this task.

Mr Eric Boskati, Parliamentary Research Unit, agreed that usually there was sufficient time to prepare, and that he, as Committee Researcher, would provide some analysis of the Annual Reports and flag important issues, and would also often draft possible queries and considerations for the Committee to address.

The Chairperson added that even when Annual Reports might contain sensitive information that was embargoed, some preliminary information was usually provided.

Mr Nair requested that the Annual Reports from SAA and Telkom be followed up, as this was a long-outstanding issue needing to be addressed.

Parliamentary Research Unit Presentation: Five Year Review of the Department of Public Enterprises (2004-2009)
Mr Eric Boskati, Parliamentary Researcher, explained that his presentation was an excerpt from the more comprehensive Five Year Review, and that questions on both documents would be welcomed.

Mr Boskati gave some background information on the DPE, focusing on the legacy of unclear policy and strategic planning goals during the previous terms. In 2002, the policy dictated that some SOEs would be privatised, but it was not made clear which would be affected. The example of Telkom was cited in relation to previous privatisation drives. Other entities were provided with turnaround strategies, and non-core assets were sold off, in the case of Transnet, SAA, and SA Express. The turnaround strategies demanded that entities still owned by the State be required to focus on developing their core business. When SAA was released from Transnet, it was required to function as a stand-alone business. This was a tall order, since at the time of release it was already showing a negative balance sheet.

The Chairperson interjected that while this information was important, the sources for the information needed to be cited.

Mr Boskati replied that the full detail regarding the point he was making was available in the Five Year Review document, which was included in the workshop documentation.

Mr Boskati continued that the previous DPE policy required that SOEs needed to become part of the economic climate of globalisation. This required SOEs to establish internal controls in order to become part of the globalised market. The Accelerated Shared Growth Initiative of South Africa legislation of 2004 required that SOEs take the lead in economic development and job creation, and there was later a shift in the focus towards service delivery.

Mr Boskati said that there was not much legislation other than the initial founding legislation for the SOEs, which he outlined. This lack of oversight mechanisms allowed for certain activities to take place without the knowledge of Parliament, but SAA was still to remain accountable to Parliament. The Infrastructure Company Act, setting up Infraco, drew significant public interest and comment, including that this Act should have fallen under the Communications Portfolio Committee. Sentech also argued that Infraco should have fallen under their management, since they were already providing this kind of service nationally, but the response by the Minister was that Sentech was already significantly burdened with digital migration challenges, and that it would not be able to effectively execute the challenges met by Infraco. In addition, Infraco was structured under Schedule 2 of the PFMA, which would grant it some borrowing power. The DPE had been aware of potential investors interested in Infraco, and was concerned that if it were to be established as a Schedule 2A company, these investors would be unwilling to invest, and that Infraco would be prevented from taking advantage of opportunities in the market. National Treasury, although initially reluctant to structure Infraco as a Schedule 2 company, had eventually conceded the point, and established it in this way, but noted that legislation would need to limit the Treasury’s responsibility if money borrowed by Infraco could not be timeously repaid. This was to prevent the situation that had occurred in the past, where National Treasury had been called upon to bail out companies who had difficulty in repaying loans. The Committee would need to evaluate Infraco’s performance and establish whether it was able to manage its debt independently of National Treasury.

Mr Boskati noted that the DPE’s budget reflected the government’s concern with privatisation during the period 2004 to 2006, as there were no capital injections. However, with the implementation of the turnaround strategies, government was required to make more capital investments in the SOEs. In 2005 and 2006 SAA was released from Transnet, and Infraco was established, which impacted on the budget. In 2008 capital injections were increased, due to developments at SAA, Denel and the development of the PBMR.

Mr Boskati drew attention to some of the points made by the Auditor-General (AG) about the SOES. In particular, the AG had found that the procurement procedures at SAA were not fair and equitable and that there were significant issues around the tendering process. Denel’s losses were still being sustained, although these had been decreasing, and the implementation of its risk analysis framework was not strong. In fact, risk analysis issues in general applied to most of the SOEs, including SAA. SAA often cited legacy issues when accounting for its challenges, but he noted that if SAA were to apply an effective risk analysis process, it must be held accountable. The risk analysis was also an issue for Alexkor, where the losses due to the land claims were an issue. There had been an out-of-court settlement to the Richtersveld community, and the process would be overseen by the Land Claims Court.

Mr Boskati therefore noted that the risk analysis framework for the DPE would be a significant issue that should be prioritised by the Committee. Oversight would need to be exercised over appointment of Board members of the SOEs, and they should be held accountable and called upon to present to the Committee. It would be necessary to carefully monitor the Eskom Build Programme as well as the Transnet Infrastructure Programme, as also the PBMR and SAA.

Discussion
Ms Masilo asked why Board members would be paid, even if not active, and said that they needed to report on their activities.

The Chairperson noted that the Minister had recently informed her that an advertisement to fill the post of Chief Executive Officer for SAA had been placed, and the selection would be finalised within three months. However, she agreed that the Board did need to appear before the Committee. The same applied to the Eskom Board. She noted that two of the members of this Board were not South African, and she queried whether it was prudent and effective to have non-South African nationals on the Board.

Mr M Mangena (AZAPO) suggested that the Committee should examine the founding legislation for each of the SOEs and determine whether it allowed Parliament to play a role; if not then it required amendment.

Mr van Dalen questioned, in regard to Infraco, whether the installation of two optical fibre communication cables, both serving the same function and ending at the same point, were necessary, or if this was not a waste of resources.

Mr M Mangena (AZAPO) explained that the West Coast cable would allow for cheaper and better access to the internet, which was vital for institutions undertaking research, and that the universities and science councils were pleased with Infraco’s involvement in the installation of the fibre optic cables. Mr Mangena also commented on what he understood as potential legal problems regarding infrastructure owned by Telkom. The Committee would need to consider what to do about these, as they could pose both financial and legal problems for DPE.

Mr Boskati concurred that the cables would decrease the time necessary for downloading information.

The Chairperson asked for clarification regarding the optical fibre network which burned in Somalia, and commented that a risk analysis framework would be a key point for consideration regarding Infraco. She requested that Mr Mangena contribute his expertise to this part of the process.

Mr Mangena responded that he would help wherever he was able, and that the researcher could also play a role in contributing to this process.

Mr van Dalen repeated his question why it was necessary to have two cables running to the same place.

Mr Boskati responded that the function of this was to increase bandwidth.

The Chairperson asked who would be responsible for laying the two different cables.

Mr Kholwane commented that State-sponsored cables should be distinguished from other cables laid by private companies, and that there needed to be some clarity regarding who was responsible for laying which cables.

The Chairperson acknowledged that although Telkom did not fall under the DPE, the links between Telkom’s involvements and the DPE should be explored.

Mr van Dalen asked if the Richtersveld community had made claims on the diamond mining operation at Alexkor. The machinery and equipment at Alexkor were outdated, and there was a lack of strong management. He wondered whether the arrangement for a 51% share was equitable, since it implied a share of the returns with no investment.

The Chairperson noted that although some questions were not directly related to the strategic plan, these questions were important nevertheless. She commented that there had been a report that the production lines in Alexkor were heavily weather-dependent, because of the use of outdated machinery, and that government would have to provide for new machinery to facilitate more efficient production.

Mr van Dalen commented that the Alexkor operation must be a viable one and that diamond yield must support further capital investment.

Mr Kholwane commented that government did not inject more capital into Alexkor until the outcome of the land claims had been finalised. In the interim, the equipment had not been maintained.

Mr van Dalen commented that this was the wrong attitude; if the company was to be handed over to the Richtersveld community, it should have been handed over as a going concern, and that Alexkor should have been maintained as optimally operational until the final decision had been reached.

Mr van Dyk agreed, and added that there was also some feeling that the mining operations should also be handed over to the Richtersveld community as part of the land claim, but that currently the mining must continue to be government-funded, since this community currently did not have the resources to operate the mining operation.

Industrial Policy and Infrastructure Linkage: Department of Trade and Industry (dti) presentation
Mr Nimrod Zalk, Deputy Director General: Industrial Policy, dti, noted that the annual Industrial Action Plan for 2007 / 2008 had been formulated in terms of the National Industrial Policy Framework. This must then be developed into a revised and scaled action plan, which could be taken to Cabinet. Some emerging priorities in terms of sectors had been outlined from this action plan. These priorities included metal fabrication, capital equipment, transport equipment, agro-processing, automotives, including components and medium/ heavy vehicles, clothing, textiles, leather and footwear, plastics, pharmaceuticals and chemicals. There were opportunities to resuscitate sectors and build them into competitive export sectors. The role of the dti’s institutions and policies was focused on discouraging poor quality imports, and on developing export market access.

The dti had two perspectives on infrastructure. Firstly, manufacturing needed cost effective and reliable infrastructure, which was not currently the case. The rail system was not reliable, and this had caused a shift from rail to road transport, instead of the opposite. The port systems lacked optimal efficiency, meaning that the ports were, when compared to international ports and other developing countries, very expensive. This was largely due to the high cargo dues levied in South African ports, which had a detrimental effect on manufacturing in South Africa, and also impacted negatively on industrial development in South Africa. This issue was being investigated by the dti.

The Chairperson commented that Transnet and Portnet must be invited to present to the Committee on this issue.

Mr Zalk agreed that this would provide an opportunity to address the impact of these costs on key manufacturing concerns. The high port costs shielded South Africa from imports, but were also problematic for exports, as they increased the value-chains of both import and export-intensive manufacturing concerns like the motor industry, and were highly problematic in that they affected both directions.

The Chairperson asked Mr Zalk how soon the dti would be ready to present to the Committee on these concerns in particular.

Mr Zalk responded that the dti could present in about a month. He added that it would be helpful to allow key manufacturing concerns also to present to the Committee on their experiences.

Mr Mangena commented that the time taken to load and unload cargo also impacted on port costs and that was another issue for consideration.

Mr Zalk continued that infrastructure also posed a broader issue. The government’s investment in infrastructure for bulk primary and semi-processed products, rather than the transportation of break-bulk products, reduced the efficiency and productivity of the infrastructure networks. For example, in the automotive sector, the large costs of infrastructure and logistics must be compensated for. In addition, since the beginning of 2008, the investment in the electricity infrastructure, in terms of both generation and distribution, had had a significant impact on manufacturing, as manufacturers were struggling to adapt to increasing electricity costs.

Mr Nhanha requested that Mr Zalk simplify some of the terminology used, commenting that jargon such as “break-bulk” was unfamiliar to him.

Mr Zalk explained that break-bulk products were products that needed to be containerised for transport ,but which did not require an entire transport line, such as a train line, so that different products could be transported on the same transport line. In this case, more sophisticated logistics were required to accommodate these different “break-bulk” products.

Mr Zalk continued that the dti’s second perspective on infrastructure was that it required public expenditure of R787 billion. Particularly in the area of electricity and transport infrastructures, there were strategic opportunities to create competitive supply industries. From a macro-economic perspective, the development of competitive supply industries had the potential to counteract the negative trade balance, and could also resuscitate key sectors of the economy. It was important to adopt a long-term perspective to place these sectors on an export path to the rest of the continent and the world.

The Chairperson queried whether this long term process of developing key industries along the export path had been defined and put into operation.

 Mr Zalk responded that the time frame had not yet been defined in specific terms, but was envisaged as more of a process or sequence of events. Firstly, industries must become competitive on the domestic market, to minimise the need to import. Redevelopment of these sectors required a significant initial investment but eventually this would allow the industries to position themselves as internationally competitive.

The Chair requested a concrete example.

Mr Zalk responded by giving an example of the procurement of buses by the Johannesburg Metro. Since the Metro took too long with the administration around procurement, it ran out of time and had to import the first batch of buses from Brazil. A similar situation arose with the preparations for the 2010 FIFA World Cup. It would have been more beneficial to take a long-term strategic view on procurement, rather than the short-term crisis limitation. The loss of procurement contracts meant significant job losses.

Having said that, he noted that there were budget constraints both from seller and buyer. The local buyer often experienced constraints as a result of financing challenges, and would then resort to procuring from whoever offered the best financial terms, since the local buyer’s balance sheet was often not strong. Local sellers were often constrained because their need to meet the demands of working capital was not competitive with international sellers. This was being addressed through the Industrial Development Corporation (IDC).

Another example was Black Economic Empowerment (BEE) import fronting. Companies in South Africa could produce products, but the narrow interpretation of BEE meant that BEE import agents were instead importing the product. As a result, the South African companies were losing orders, with attendant job losses.

Mr Zalk felt that this Committee had an important role of the oversight of SOEs like Eskom. State departments and line functions must address the long-term approach to procurement, and should also be securing price advantages through secure production. Development of the supply chain was a key part of procurement development. Import fronting must be addressed, and there should be close oversight of the supplier development role of SOEs.
Discussion
Mr van Dalen asked whether the electricity supply issue had affected the mining sector, as media reports had suggested, although no figures were yet available.

Mr Zalk responded that overall, the collapsing export markets were likely to have affected the mining industry more substantially through decreased demand, rather than the electricity issue alone. He added that there had been a drop in manufacturing world wide. In South Africa capital utilisation dropped from 85% to 80%.

The Chairperson commented that it seemed that South African manufacturing had performed well over the period 2001/2002. She wondered what had happened to the benefits accrued from this period.

Mr Zalk responded that South African manufacturing was not growing as rapidly as the rest of the world, and that it fell more significantly than the rest of the world as a result of the global economic crisis.

Mr van Dalen asked what factors had contributed to this significant drop.

Mr Zalk responded that he did not have the details of the specific factors, but that this might be reflective of the drop in currency during the same period.

Dr Koornhof commented that if the decline continued, the manufacturing sector was headed back to the position it had held nine years ago.

Mr van Dyk commented that the government must act in accordance with what it thought was necessary at the time. For instance, in the case of Eskom, it was known that there would be challenges down the line, but these were not addressed timeously.

Mr Mangena commented that there was too much leeway for SOEs to act independently, and he considered that, for instance, Eskom should be receiving guidance from dti rather than making decisions on its own. He agreed that there was too much short-term focus. The Committee must make its input to the SOEs on the need for long-term planning.

The Chairperson agreed that the Committee could influence the SOEs and that the need to address long term strategic planning in SOEs must be included in the Committee’s programme.

Mr Nhanha noted that a body had been established to recommend procurement strategies and supply development strategies, but that the SOEs did not adhere to the recommendations.

Mr Zalk responded that the SOEs were obliged to have a competitive supplier development plan, and that they did have these plans to some extent. However, the dti was not aware of the progress and outcome of these supplier development programmes, and would support stronger oversight of these areas.

Mr Kholwane commented that adherence to the procurement strategies set out by the dti would make a significant impact on job losses, which had the worst effect on the poor. Procurement strategies were originally discussed as part of the 2010 FIFA World Cup preparations, but they had not been implemented in the way anticipated. The need for communication between the Portfolio Committees on these points should also be included in the Committee’s programme.

The Chairperson agreed, saying that the communication between committees had been addressed in the earlier session. She agreed that the Committee must also focus on the SOEs at a policy level as well as a departmental level, to address their “free reign”.

Dr Koornhof agreed that the procurement strategies of the SOEs must be addressed by the Committee.

Mr Nhanha queried whether the Department of Economic Development was a fully functioning department as yet.

Mr Zalk responded that it seemed to the dti that personnel must still be appointed and the Department still needed to be up and running.

Mr L Greyling (ID) commented that the Planning Commission would also play an important role, and that the Committee needed to communicate with it.

The Chairperson said that there was not a Portfolio Committee covering this Commission, but that issues could be addressed through the Speaker.

Ms Masilo asked Mr Zalk whether the focus on long term procurement would not impact on the value of procured products.

Mr Zalk clarified that long term procurement strategies did not necessarily mean procuring all items at once, but rather developing a strategy in advance to cover future procurements. If it was known that there was a need for a product, long-term strategies should be put in place to obtain the product locally rather than importing it.

Mr Boskati commented that it had been suggested that the dti was averse to the risk of funding local businesses, and he queried its approach.

Mr Zalk noted that he did not recall the Harvard Report, to which Mr Boskati referred, as having stated that the dti was “risk-adverse”, but he thought it had suggested that the IDC could play a stronger role in identifying and financing business development. However, there were real budget constraints. The dti had a finite budget. The IDC had not received any recapitalisation since the 1950s, and operated wholly upon a commercialised balance sheet. The IDC were now acting increasingly in terms of the Developmental Bank mandate but was constrained by its budget.

The Chairperson asked whether the IDC as a stakeholder or shareholder in the SOEs.

Mr van Dalen responded that they owned 5% of the PBMR

Mr van Dalen asked Mr Zalk to clarify the import of raw copper and the import of the processed copper products, and whether there was a double charge when the processed copper product was imported back into the country. He wondered whether this procedure impacted on local job creation and if the dti could assist in keeping this industry within South Africa.

Mr Zalk responded that the dti shared the concerns raised by Mr van Dalen. Strategic prioritisation of infrastructure was very important, and exporting raw materials was less beneficial than exporting processed products, especially for job creation. If there was to be an investment in infrastructure, there must be some return on this investment, such as keeping these industries within South Africa.

Legacy Report of the Portfolio Committee on Public Enterprises: Committee Secretary’s presentation
Mr Disang Mocumi, Committee Secretary, tabled the Legacy Report of the previous Portfolio Committee on Public Enterprises, and addressed some of the key issues that emerged from it (see attached document). He noted that the allocated meetings would be held on Tuesday mornings during the plenary, alternatively Tuesday afternoons, and that pressing issues would be addressed on a Friday.

Ms Masilo (ANC) asked with which other committees this Committee would be clustered.

The Chairperson responded that the document tabling which committees would meet on Tuesday would be made available to Members, and if too many Members of this Committee had competing engagements, then she could make representation to have the meeting day changed.

Mr Mocumi noted that the establishment and implementation of the management committee had been noted as effective, and therefore a management committee of 5% of members was proposed, to be discussed further with Ms Ramodibe.

The Chairperson clarified that the management committee would be comprised of three ANC members and two opposition members, and must be institutionalised.

Mr van Dalen asked whether the management committee would form part of the Portfolio Committee, and noted that he was not aware of their existence.

The Chairperson clarified that management committees were recommended by Parliament but they were not compulsory.

Mr Mocumi continued by outlining the oversight trips taken during the last term, including visits to Alexkor in 2004, to Transnet and Eskom and Coega in 2005, the Eskom windfarm in 2007, and the PBMR project at Pelindaba in 2008. However, he noted that the oversight function was not robust, and that these oversight trips were mostly to familiarise the Committee with the functioning of the SOEs. In response to a question from the Chairperson, he noted that there had also been a study tour to the Philippines, as further detailed in the legacy report. He noted that there was some challenge in the lack of available or accessible reports.

The Chairperson commented that this Committee would need to make more than two oversight visits in a year, and may also need to do some follow-up visits. She commented that the lack of reports meant that the Committee would be hampered in drawing on past experiences.

Mr van Dyk commented that finance for oversight trips was allocated on a first come-first served basis and that the Committee could be allocated more oversight trips by preparing ahead of time.

The Chairperson confirmed that she would endeavour to arrange as many oversight trips as possible, to ensure that the obligations of this Committee were effectively met.

Mr Mocumi highlighted some of the challenges faced by the Committee during the past term, the most significant being the limited time available for oversight visits.

Mr van Dalen suggested that perhaps the Committee could combine its oversight visits and Committee meetings, by requesting use of other boardrooms and convening meetings on site.

The Chairperson agreed that the Parliamentary guidelines noted that at least one Committee meeting could be held outside parliament

Mr Mocumi then noted that there would need to be engagement with SAA regarding their turnaround strategy, as well as the voluntary severance packages for the Accounting Officer, and that the operational plan, consideration of the strategic importance of SAA, and the stabilisation of its balance sheet were further issues needing to be addressed.

He noted that the Committee must still meet with the DPE and Alexkor regarding the land claims issue.

Outstanding Annual Report briefings also would need to be addressed particular in the case of Alexkor, Eskom and SAA. There would need to be close oversight over Eskom and SAA.

Another issue concerned the oversight and monitoring of the efficiency of Transnet, especially transport by rail.

The Chairperson commented that the current Committee was not to be constrained by legacy issues and that its role would be to extract what was of strategic importance, due to time and money constraints.

Mr van Dalen commented that when oversight visits are made, the relevant SOEs should be required to give feedback on outstanding issues.

The meeting was adjourned.