Department of Public Enterprises Annual Report 2006/07 briefing

PUBLIC ENTERPRISES PORTFOLIO COMMITTEE
20 November 2007
DEPARTMENT OF PUBLIC ENTERPRISES ANNUAL REPORT 2006/07 BRIEFING

Co-Chairpersons: Mr P Hendrikse (ANC) and Ms N Kondlo (ANC)

Documents handed out:
Department of Public Enterprises Annual Report Presentation
Department of Public Enterprises Annual Report

Audio recording of meeting

SUMMARY:
The Department’s presentation provided an overview of performance during the past year, as well as the performance review of all programmes. The presentation provided relevant statistics, as well as a detailed financial statement. It was noted that the Department had achieved an unqualified audit report. Although it had a saving of R280 million, this related specifically to VAT on transfer payments to Denel, which was subsequently discovered should not be paid, and apart from this there had been only 0.003% under spending. There were increases in the annual appropriation of funds. The Department was faced with various challenges, which included high tariff increases that had the potential of raising inflation, and the skills scarcity, which threatened the growth, plans of State Owned Enterprises.

Members sought clarity on who constituted on the Joint Project Facility and asked the Department to comment on the R280 million unspent surplus. Members felt that the high number of resignations was of great concern and sought clarity on the profiles and qualification of the senior managers. The Department was also asked to comment on the whistle blowing policy that had been implemented, and on issues pertaining to HIV/AIDS testing and prevention. Some Members questioned the decision to wind up the South African Forestry Company Limited, and asked if the decision could be reversed, or what other action could be taken. Further questions were asked about possible litigation against the Department by the Indian authorities, what had transpired from irregular expenditure, performance awards, the rating of the State Owned Enterprises for broad based black economic empowerment, staff debt as mentioned in the Annual Report, the turnaround strategy of South African Airways and the future plans for Alexkor.
MINUTES:
Department of Public Enterprises (DPE) Annual Report Briefing
Ms Portia Molefe, Director General, Department of Public Enterprises, provided an overview of performance during the past year, as well as the performance review of all programmes. She stated that some of the key achievements during the financial year were the sale of Metrorail to the Department of Transport, the settlement of the Richtersveld community land claim, and the separation of South African Airways (SAA) from Transnet.  The Department had also managed to implement an efficient and effective recruitment system, which had positively impacted on the Department’s ability to achieve its objectives. It had introduced the Competitive Supplier Development Programme (CSDP), and had invested in skills development and improvements of capacity and resources. It had achieved better employment equity with regard to recruitment and appointment of people with disabilities.

The progress on policy was outlined, in regard to State Owned Enterprises (SOE), and it was noted that over-leveraging of SOEs could negatively affect government’s balance sheet, while high tariff increases could raise inflation.

Various statistics were tabled in relation to the establishment and the filling of posts, and employment equity. Ms Molefe then proceeded to outline the targets and the achievements for each of the DPE’s programmes (see attached presentation). She noted that the Department had reviewed the effectiveness of its structure and decided to re-align the programmes based on the SOEs residing within the sectors.

In dealing with the financial statements, Ms Molefe noted that DPE achieved an unqualified audit, and had approved a risk-based operational plan, which was implemented successfully to enable the unit to evaluate the effectiveness of risk management, internal control and governance processes.   A saving of R280 million was recorded during the financial year, and it was in respect to the transfer payments for VAT in respect of Denel. Other than that, there had been 0,003% underspending by the Department. There had also been an increase in the annual appropriation of funds, which included the roll over of funds from the previous financial year, adjustments for VAT on previous transfer payments in respect of the Pebble Bed Modular Reactor, a court settlement to an injured party, and completion of an environmental impact assessment in respect of Alexkor. The Department however was faced with various challenges, which included high tariff increases that had the potential of raising inflation, and the skills scarcity, which threatened the SOE’s growth, plans.

Discussions
Dr M Van Dyk (DA) sought clarity on the critical occupations and asked the Department to state whether the staff complement at the Department had enough capacity to oversee the SOEs. The Department should have clarity on the profiles and qualification of their senior managers. Clarity should also be provided on the issue of performance bonuses.

Ms Molefe replied that the last section of annual report provided an HR oversight table, which described the trends of the critical skills of the Department. The Department would provide the relevant information regarding qualifications at a later stage. However, it should be noted that the critical skills required were financial analysts.  With regard to the bonuses, there would be people who would resign and were due for bonuses, and paid when they transferred through the systems to other government departments.

Mr C Gololo (ANC) stated that there seemed to be a high number of resignations and it was of great concern. He asked about issues pertaining to HIV/AIDS, noting that the Department had begun an initial voluntary testing programme in order to determine the extent of the prevalence of HIV and AIDS within the Department. Clarity should also be provided on the R75 million litigation involving Transnet.

Ms Molefe replied that the resignations were a result of promotions and contracts expiring. With regard to HIV/AIDS programme, the DPE had initially done an HIV/AIDS-prevalence testing. She noted that the DPE had no idea about the R75 million litigation involving Transnet, and this matter would have to be dealt with by Transnet. The Department was willing to investigate the matter and would report back to the Committee.

Mr Z Kotwal (ANC) sought clarity on who constituted the Joint Project Facility (JPF).

Ms Molefe responded that the JPF was a construct made up by people from the department.

Ms N Kondlo (ANC) asked the Department to comment on the R280 million unspent surplus.

Ms Molefe replied that the R280 million were in respect of transfer payments intended for Denel in respect of VAT for the 2005/06 financial year. Subsequent to this allocation it was discovered that because the transfer was of a capital nature it would not attract VAT, and therefore the funds were not disbursed.

Mr Kotwal stated that the Department should provide clarity on how it was assisting communities in gaining mineral rights, and what had been done in empowering small scale miners.

Ms Molefe replied that the Department was investigating the matter and would return to the Member with a written report on the issues.

Mr Van Dyk stated that the Department should provide a report on senior managers and the bonuses they received. It was also unacceptable that the Department was referring the R75 million issue back to Transnet.

Ms Molefe stated that the Department would provide the Committee with data on the skills of senior managers at a later stage. The Department had stated that they would investigate the matter relating to Transnet, and would report back to the committee at a later stage

Ms Kondlo stated the Department, in its previous Annual Report presentation, stated that they would look into the role of SOEs in the context of a developmental state. She asked for an update on the progress of this matter, as well as comment on what happened to the Diabo Trust.

Ms Molefe responded that in terms of the role of SOEs, there was a document that was compiled a while back, but the Department had been snowed under with other matters, and was hoping to go back and revisit the assignment. 

Ms Molefe noted that the Trust referred to was created when Telkom was privatised, and covered people who were employees of Telkom at the time. The Department was in the process of hiring tracing agents who would identify the former employees of Telkom so that the Department could make the necessary transfers.

Mr Gololo stated that South African Forestry Company Limited (SAFCOL) was an SOE that was performing well, yet was being wound up. He asked why this was happening.

Ms Molefe replied that the decision to sell off SAFCOL was taken a few years ago, and it should be noted that Komatiland Forestry Company Limited (KLF) had already been sold. The KLF transaction did not initially meet the Competition Commission requirements, so the Department had agreed to hold back the transaction and review the role of SAFCOL. The conclusion was reached that SAFCOL by itself was too small to make a big impact in the economy and shift the structure of the forestry sector.

Mr R Nogumla (ANC) stated that he noticed that there was a time frame for the winding up of SAFCOL. He would like to know more of the new mandate that was set for SAFCOL. Clarity should also be provided on when the new mandate would be concluded, and whether it was possible for the Board to complete its work in the allocated time frames.

Ms Molefe responded that before the Department had decided to wind up SAFCOL, the Department of Water Affairs and Forestry had stated that they needed an agent for afforestation. However there was a view that a Schedule 2 company could not be used for afforestation since this task of necessity implied a great deal of developmental work. This would therefore have involved changing SAFCOL from a commercial agency to some sort of developmental agency.  The Department was looking into approaching National Treasury and asking whether it was possible to use the proceeds from the disposal of SAFCOL to set up an afforestation agency for the Department of Water Affairs and Forestry.

In regard to time frames, Ms Molefe noted that the Department had decided that if the Board could not achieve their milestones, the Department would hold a serious discussion with the board, in order to determine the possibility of an extension.

Ms Kondlo stated that the Department’s presentation mentioned that there was a whistle-blowing policy that had been implemented. She asked how effective this was.

Ms Molefe responded that the whistle-blowing policy was part of the fraud prevention plan. If a whistle blower came forward, the Department would undertake an investigation and the whistle blower would always be kept anonymous.

Mr Gololo sought clarity with regard to issue of the litigation against the Department by the Indian authorities.

Ms Molefe replied that the Department was still awaiting a clear charge sheet from the Indian government, and that the matter had not yet been resolved.

Mr Kotwal asked the Department to comment on the issue of irregular expenditure, as the Annual Report did not mention what happened to the officials who were liable.

Ms Molefe responded that one of the conditions to resolve the matter was that the Department take disciplinary action. However the responsible officials had since left the Department, with the result that disciplinary action was not taken. The Department had improved its procurement policies and the training of staff in an attempt to avoid future recurrences. 

Ms Kondlo stated that the Annual Report was not very clear on the issue of performance awards.

Ms Molefe replied that the framework used for performance awards was that set by the Department of Public Service and Administration, and the balance score card was used.  The Department also had hired consultants to look into the overall framework of the Department.

Mr Gololo sought clarity on how the Department rated SOEs with regard to Broad Based Black Economic Empowerment (BBBEE).  Further information should also be provided on the performance awards, as there needed to be clarity on which employees received the awards.

Ms Molefe replied that the Department let the SOEs do a self assessment of their BBBEE rating, and the Department had developed a self assessment tool kit, which was intended to ensure that the SOEs achieved the intended outcome. With regard to the performance awards, everyone in the Department qualified, but they were also dependent on how long an individual had been working in the Department. This proved to be a problem as the rules that were set by the Department of Public Service and Administration applied to permanent staff, and most of the Department’s employees were on five-year contracts.

She added that part of the Department’s shareholder compact with the SOEs related to the BBBEE using the legislation as a basis.  The next area where the Department monitored the BEE Code was that the Department looked at various transactions involving the disposal of non core assets. On both criteria the SOEs were meeting and achieving their targets.

Mr Kotwal asked the Department to comment on the issue of staff debt, which was raised on page 79 of the Annual Report.

Ms Molefe replied that the Department awarded several bursaries, and in instances where an individual failed the course he was liable to pay back the Department the amount invested.

Ms Kondlo asked the Department to comment on the issue of South African Airways (SAA). The Committee was also concerned with Alexkor, and the Department should also comment on their future plans for Alexkor.

Ms Molefe replied that the Department was happy with SAA’s turnaround strategy, and the achievements that had been made. It was also good to see that the unions and SAA had come to some sort of agreement. With regard to Alexkor, the real challenge faced was that Alexkor was unable to implement a complete exploration programme. In addition, every time Alexkor tried to reprocess the dumps, the community would put a work stoppage on it as a result of the outstanding claims. The Department was looking into moving into forming a new exploration programme for the company, and also looking into reprocessing some of the dumps to give revenue generation for the mines. The Department was also looking into forming a partnership with De Beers to investigate mine exploration.

The meeting was adjourned.