Report of the Portfolio Committee on Public Enterprises on Budget Vote
9: Public Enterprises, dated 31 May 2006:
The
Portfolio Committee on Public Enterprises, having considered Budget Vote 9:
Public Enterprises, reports as follows:
1. Introduction
1.1 The
briefings on the budget of the Ministry and Department of Public Enterprises
(DPE) took place on 10 and 11 May 2006. These briefings followed on the “Annual
Workshop of the Public Enterprises Ministry, Department and Portfolio
Committee”, held on 15 March, and the “Autumn School”, held from 3 to 7 April,
which both served, in different ways, as a background to the budget briefings
and facilitated the expeditious processing of the briefings.
1.2 The
Committee adopted fairly detailed Budget and “Annual Report” reports in
previous years. This year’s report should be seen against the background of
these reports, especially those adopted in 2005. In this report we seek to
avoid repeating issues covered in previous reports, except where necessary.
Moreover, following the “strategic shift”, organisational
restructuring and appointment of new managers over the past two years, the
Department has become more stable and its programmes
more consistent and easier to follow; and, as a Committee, we also now have a
better grasp of our portfolio. This
report should be seen in this context – and our aim in future is to have
reports that are less elaborate on what the Department says and focus more on
the Committee’s views. The current
report is longer than it should be; but it serves as an important reference for
us to play our oversight role more effectively.
1.3 This report
offers a brief summary of the presentations made by the Department at the
briefings on its budget. The presentations, including the very useful Strategic
Plan for 2006-2009, can be obtained from our Committee Secretary, Mr Chris Thisani.
1.4 Those who
appeared before the Committee for the briefings on the budget included Minister
A Erwin; Director-General (DG), Ms P Molefe; Deputy
Directors-General (DDG) Ms S Coetzee, Mr L Mcwabeni, Mr T Mphuti and Mr J Theledi; JPF Co-ordinator, Ms K Venier; Chief
Financial Officer, Ms S Hutchings; and Chief Operating Officer, Ms R Issel.
2. Minister’s Political Overview
2.1 Minister
Alec Erwin explained that the Department would respond in detail to the issues
raised in the Committee’s 2005 reports. His brief response to the issues
included:
·
The Department’s new three-year Strategic Plan would
provide greater clarity and precision on the role of the Department and the
state-owned enterprises (SOEs). Defining the
contribution of the SOEs to the Accelerated and
Shared Growth Initiative of South Africa (ASGISA) had also enforced the need
for this.
·
There has been progress in defining more clear
measurable objectives for the Department and the SOEs,
but this is still “work in progress”, especially in respect of the SOEs. Defining shareholder compacts has proved to be “a very
interesting intellectual and economic challenge”. The process will take “a bit
longer” but the “quality of the compacts will be better – and that is
important”.
·
There has been “considerable improvement in risk management
both in the Department and across the SOEs, but this
is a massive area, it’s not simple, and we are looking at further ways of institutionalising these systems”.
·
Reporting from the SOEs to the
Department had also improved in the past year.
·
The retention by SOEs of non-core
businesses will not assist in employment; in fact, badly managing them would
worsen the situation. Disposing of non-core businesses could save jobs. It is
by allowing SOEs to focus on their core functions and
contributing to economic growth that they can make a useful contribution to job
creation.
2.2 Minister
Erwin said that the new Strategic Plan sought to more clearly define SOEs and their role. Whereas a private company sought to maximise profits, an SOE sought to maximise
an economic rate of return. An SOE must achieve certain strategic economic
goals set by government – but it must do this efficiently. Efficiency is
necessary because it has to be financially successful and be able to raise
capital in the domestic and international markets. Measuring the cost of
capital therefore is an important criterion to judge the performance of an SOE’s Board. Many countries are moving towards a “much more
precise classification, categorisation and
measurement of SOEs”.
2.3 The
Minister said it is important to have clear shareholder compacts and mandates
for the SOEs and appoint “exceptionally competent and
professional Boards” and have good management teams. “We don’t want to
micro-manage SOEs. We want them to be clear about
what they must do and then get on with it.” Criteria by which SOEs will be measured include:
·
How efficiently are SOEs utilising capital? This is especially important in view of
the government’s macro-economic strategy.
·
What are the SOEs investment plans, how strategic are they, and how
effectively are they being implemented?
·
How are SOEs contributing to the
efficiency of the economy? Are the SOEs “taking this economy to the leading edge of efficiency
of the operations of infrastructure”?
·
Are SOEs complying with the
Public Finance Management Act (PFMA) and other legislation?
2.4 The greater
clarity on the nature and role of SOEs has set the
stage for new legislation. DPE is working with National Treasury and the
Department of Public Service and Administration to amend the PFMA and introduce
legislation on shareholder management.
The legislation will be tabled next year.
2.5 The
Minister said that the power outages had “tested Eskom and the Department quite
considerably and highlighted that we have underinvested as an economy in
infrastructure over the past 10 years. But we are pleased with progress on Eskom’s very big
investment programme, so much so that we’ve asked the
Board to give us a revised plan which would speed up the projects if we need
to. We need to stabilise the REDs
(Regional Electricity Distributors). We need some clarity on the national RED,
in which Eskom could play a facilitating role. Otherwise it’s full steam ahead
for Eskom”.
2.6 Transnet
had made progress in reorganizing its divisions, giving them clarity and
beginning the disposal of non-core assets, said the Minister. Metro Rail had
been transferred to the Department of Transport with effect from 1 May. The
separation of SAA from Transnet was “technically exceptionally challenging
because of the overlapping financial and loan links. There are two important
steps. One is, at what value do we transfer the
assets? And, two is, once separated, what about the capitalization of SAA?” The
Minister explained that rate of growth of container traffic is higher than it
has ever been, and that the ports have to be expanded.
2.7 Denel has
“embarked on a fundamental and critical reformulation of the strategy which
means it will not be a full systems manufacturer in the international markets,
but will be a systems integrator for the South African National Defence Force. This has probably been the most difficult of
the turnaround strategies. The first step was to persuade Treasury that we at
least had a turnaround strategy that was worth financing. Denel received R2
billion. And I’m pleased that we’re on
track to sign our first partnership deal in the aerospace sector with SAAB.
There’s going to be no magic turnaround in the financial fortunes of Denel. The
aim is to stabilise Denel in the next two years or
so.”
2.8 The
Minister said that a settlement of the Richtersveldt
land claim was “very close. We have an excellent relationship with the
community. I congratulate the community leaders for their courage and
vision.” He said that “the uncertainty
on the legal status of Alexkor is destroying its
viability”. With the settlement, Alexkor would be revitalised commercially. There is “no strategic reason”
why the state should own a diamond mine, and once Alexkor
transfers its current state responsibilities to local and provincial government
and becomes commercially viable, the state may withdraw from Alexkor.
2.9 The
Minister explained that Safcol’s role is being
reviewed and a new strategy being developed.
2.10 Arivia.kom will not be disposed of as a whole, but parts of
it may be ring-fenced and sold. A new ICT infrastructure company (Infraco) may be formed. It will deal with broadband
infrastructure.
2.11 A new SOE to
cater for the Pebble Bed Modular Reactor (PBMR) is to be established by the end
of 2006. The aim is to develop the technology to provide environmentally
friendly and cheap electricity and to develop a leading edge nuclear industry
in
2.12 The Minister
explained that the major SOEs were trying to revive
their old apprenticeship systems, and Eskom and Transnet will be playing
leading roles in the Joint Initiative for Priority Skills in South Africa
(JIPSA).
2.13 The Minister
explained that the Department had a relatively small budget, but “was changing
a bit from being an administrative department to having a budget that reflects
transfer payments for capitalisation of SOEs.” The R2 billion allocation
to Denel is an example.
2.14 The
Committee feels that the new Strategic Plan is very much clearer about the role
of the Department and its programmes, measurable
objectives, and structures. The Plan also provides greater clarity on the
nature and role of the SOEs and what is required of
each SOE. The Committee welcomes the Minister’s direct responses to the issues
raised in our 2005 reports, and accepts that there has been meaningful progress
in addressing these issues. Obviously, we will pursue the matter of tabling
shareholder compacts in Parliament once they are finalised
– and will exchange further with the Minister on this. We accept that job
retention cannot necessarily be ensured through the SOEs
retaining their non-core assets; the Committee’s concerns are about effective
negotiations with the trade unions, the effectiveness of Social Plans, employee
share option schemes, and other issues related to the disposal of non-core
assets. The Committee congratulates the Transnet management and trade unions on
their amicable settlement of the strike. Of course, the Committee does not
understand the full complexities of the dispute, and hopes that both sides have
drawn useful lessons from it. There may well be some lessons for other SOEs in the Transnet strike. We find the criteria for
assessing the performance of SOEs set out in section
2.3 above useful – and need to explore how we use them, together with any other
criteria relevant to a portfolio committee, to become more rigorous in our oversight
role.
2.15 The
Committee welcomes too the Minister’s statement that the power outages have
highlighted the underinvestment in infrastructure over the past 10 years. The
Committee feels that there should be greater acknowledgement of the consequences
of this. We feel too that the Executive must take its fair share of
responsibility for this underinvestment and draw the necessary lessons. But
Parliament too cannot escape its responsibility for this – and our and other
parliamentary committees need to also draw lessons and become more effective in
fulfilling our oversight responsibilities.
2.16 The
Committee feels that as Denel has been allocated R2 billion from the national fiscus and is likely to be allocated more money to meet its
R5,1 billion recapitalisation target, we should be
more rigorous in monitoring progress in the implementation of Denel’s
turnaround strategy and its financial recovery. Since the budget briefings, the
Committee received a briefing from Denel, and was impressed with Denel’s
greater clarity of vision, strategy, programmes and
structures, and the progress it has made in the past six months,
notwithstanding the considerable challenges.
2.17 The
Committee is keen to hear more from SAA about its new strategy and how it is
being implemented.
2.18 The PBMR
project is very new for the Committee, and we will have to develop an
understanding of the key issues entailed, especially in view of the
significance and complexities of the project.
2.19 The
Committee welcomes the much-needed legislation proposed on the new shareholder
management model.
2.20 The
Committee recognises that the portfolio of the
Ministry is constantly expanding and increasing in significance. Yet the
funding and resources available remain essentially the same. The progress
achieved over the past year and the programmes
decided on for this financial year therefore have added importance.
3. Overview of Strategic Plan and Budget
3.1 Overall,
the DG, Ms Portia Molefe, complemented much that the
Minister said, and gave further details. She stressed that the new Strategic
Plan went a long way to clarifying the role of DPE and the SOEs.
She said that the classification of SOEs, given their
variety, is quite complex, and suggested that the Committee considers holding a
workshop so that the Department can engage with us more fully on the new
shareholder management model and broader issues raised in the Strategic Plan.
3.2 But for
some refinement, the DPE’s mandate, vision and
mission are essentially similar to last year. The DG said that the Department
was still working on making these more concise and “refining the language”.
3.3 To ensure a
more focused and integrated role in transactions, DPE has merged the Corporate
Finance and Transactions Unit with the Legal, Governance and Secretariat Unit
to form the Legal, Governance and Transactions Unit. Programme
5 will now deal with special projects such as Aventura
and Alexkor. The Joint Projects Facility (JPF),
reporting to the Minister and the SOEs Chief
Executive Officers Forum, has been established.
3.4 The DG
explained that the five priority areas of DPE activities are to implement an
effective shareholder management system, ensure the implementation of the
infrastructure investment programme, strengthen SOE
balance sheets, introduce private sector partners where optimal, and leverage
the SOE’s Capex programme to “catalyse new
economic activities and re-established industries”.
3.5 DPE is
increasingly focusing on the “medium-term to long-range economic and
developmental goals of the SOEs and the country. For
example, if we are to achieve our target of 10% clean energy, we need to know
where we are going to get our gas supplies 20 years from now.”
3.6 DPE is
paying keen attention to the investment programmes of
the SOEs and their contribution to economic growth.
Eskom’s 20-year investment programme is being
reviewed to take account of higher economic growth forecasts. Transnet is to
soon finalise its 20-year investment programme. DPE has developed an investment dashboard to
monitor progress. DPE is also giving attention to investment by the private
sector in the SOEs and the sectors in which the SOEs play a role.
3.7 DPE is also
concerned to ensure adequate local content in procurement by SOEs, especially with the massive Capex
programme underway. A procurement guide is to be finalised by September 2006. This guide will also be used
by government generally in the overall Capex programme. DPE is
also focusing on the role SOEs can play in fostering
call centres in rural areas as a contribution to job
creation.
3.8 DPE has
also developed its Transaction Guidelines further, particularly in respect of
processing significant and material transactions in terms of section 54(2) of
the PFMA.
3.9 The total
number of posts allocated to DPE is 157, of which 127 are filled. The vacancy
rate is 19% and the turnover rate is 13%. The Department of Public Service and
Administration benchmark for turnover rate is 8%. Sixty-three per cent of DPE’s staff comprises women. Of these 47% are at senior
management level. There are no people with disabilities employed at DPE. The
target is to employ 15 people with disabilities over a two-year period. The DG
said that the Department is much better skilled this year and is running more
efficiently. Internal processes and procedures and the documentation system
have improved and there is better co-ordination across the entire Department.
Co-operation on project management has improved and “we now have a project
management system where we can, at any given time, check progress on any
project”.
3.10 Of the
Department’s budget of R683,4 million, R580 million
comprises transfer payments, the largest being to the PBMR. In effect, the DPE’s budget is R102,3 million,
which includes R10 million for the JPF, previously funded by SOEs. The Department underspent
by 0,2%. This rises to 4,77%
if the transfer to Denel is excluded. The reason for this is that the R3, 1
million due to Diabo Share Trust was not transferred
because its audited financial statements were not available.
3.11 The
Committee welcomes the DG’s commitment to refining
and making even more concrete and clear the Department’s mandate, vision and
mission, even though there have been improvements since last year. The DG wants
these functions to be more concise and in simpler language. This is surprising,
coming from a senior manager in a government department! MPs have often
complained about the bureaucratic-speak and unnecessarily technocratic language
used by officials of a department, which often tends to hide or obfuscate (we
cannot find a simpler word that conveys this precise meaning!) issues – and we
have had to really struggle to get anywhere with officials of a department on
this. So the DG’s attitude is a breath of fresh air.
Of course, this is not to deny that the complex technical work of some
departments sometimes requires technical language which is not easy to simplify
– but in general there is certainly room to be more precise, concise and
simple. This too should be a measure of a department’s progress.
3.12 The
Department’s re-organisation referred to in section
3.3 above seems very reasonable. The Department is again commended for the high
percentage of women it employs. That not a single person with disabilities is
employed is unacceptable. The Committee would be interested to see what
progress there has been by next year’s budget briefings in addressing this,
especially as the Department has set a target.
3.13 It seems to
the Committee that the Department is very productive in the use of its budget.
The underspending is understandable.
3.14 The
Committee welcomes the DPE’s project management
system.
3.15 The
Committee is very keen to see progress on the call centres
referred to in section 3.7 above.
3.16 The
Committee is keen to engage further with the Department on its investment
dashboard and Transaction Guidelines, and will arrange briefings on these
within six months. The Committee has arranged for a workshop on the new
shareholder management model and will also deal then with outstanding issues
raised in the Strategic Plan.
4. Programme 1:
Administration
4.1 This programme is responsible for managing the Ministry and
Department and providing administrative support services.
4.2 The Chief
Operating Officer, Ms Rashida Issel,
said that this programme “ensures an infrastructure
geared to respond effectively and timeously to the
needs of core programmes. We are responsible to
ensure adherence to the Department’s mandates through various units.” These
units are:
·
Planning, Monitoring and Evaluation;
·
Human Resources;
·
Communication and External Relations;
·
Information Management;
·
Corporate Services;
·
Finance;
·
Internal Audit and Compliance.
4.3 The programme’s budget of R44,3
million is similar to last year’s allocation, but there are shifts in
allocation between different items. These are due mainly to internal capacity
building needs and the costs of leases and accommodation.
4.4 Two key
concerns of this programme for this financial year
are to upgrade the Department’s ICT system and ensure effective skills training
for the staff.
4.5 From what
the Committee can tell, the administration and technical co-ordination of the
Department seems to be improving, and the achievements of the outputs for this
financial year will take DPE further in this direction.
5. Programme 2:
Analysis and Risk Management
5.1 This programme has been covered in some detail in previous
reports of the Committee and will be dealt with briefly here.
5.2 DDG Mr James Theledi said that the
main purpose of the programme is to “analyse and monitor the financial, operational and
socio-economic performance of the SOEs to ensure
compliance with corporate plans and shareholder compacts, and actively mitigate
key risks flowing from SOE activities”.
5.3 There are
three sub-programmes: Management; Analysis; and Risk
Management.
5.4 The key
risks include safety; occupational health and HIV/AIDS; environment; security
of key infrastructure, such as pipelines, ports, railways and airports ;
security of supply against demand in a growing economy; industrial action;
skills; solvency of SOEs and their contribution to
national financial stability; governance; and litigation.
5.5 Among the
outputs for this financial year are the following:
·
Progress on specific aspects of the review of SOE pension
and medical aid funds (October);
·
Approval of financial analysis manual (May);
·
Standardised Annual Reports
(December);
·
Approved KPIs and benchmarks
(November 2006);
·
Publishing 5-year review of SOE performance (June 2006);
·
Progress on Risk Register for SOEs
(September);
·
Approved Risk Management Framework (August);
·
Implementation of the Risk Management System (November);
·
Submission of the proposed Crisis Management System to the
CEOs Forum (May).
5.6 Mr Theledi explained that DPE
actively engages with the SOEs on risk management and
advises them on section 54 PFMA applications and materiality frameworks. DPE
identifies risks that it has to monitor, assess their impact and likelihood,
and set up early warning and reporting systems. “The SOE Boards and management
are responsible for enterprise-wide risk management. The Department is more
concerned with the aggregate risk profile and mitigation plans and the key
risks that have a systemic impact with limited Board responsibility.”
5.7 Mr Theledi said that the
electricity power outages in the
5.8 The programme’s budget more than doubled from R7,09 million last year to R16,72 million this year. This is
partly to fill vacancies in the financial risk section. An amount of R2,5 million has been allocated for consultants, contractors
and special services, and R2,8 million for computer services. The increases for
consultants are necessary for capacity building in risk management, projects in
Alexkor’s internal control review and exploration programme, and SOE risk assessments. The increased computer
services are for setting up the risk management, benchmarking and integrated
financial systems.
5.9 The
Committee feels that this programme is making steady
progress and we do not have much to add to what we have said in previous
reports. We feel that the outputs projected for this financial year and the
deadlines provided are good. We would, however, be interested to better
understand how a more effective risk management system would assist in dealing
with electricity outages – and what precisely is being done to ensure that this
happens. We look forward to the finalisation of the
Risk Management Framework which is set for August. The Committee feels that
greater emphasis should be placed on measuring financial risk, including
through such measures as “
Value at Risk”. The programme’s budget seems to us to
be appropriate for the activities and outputs intended.
6. Programme 3:
Legal, Governance and Transactions
6.1 As
explained in section 3.3 above, this programme is the
merger of two previous programmes. It seeks to
provide SOE mandates, and ensure alignment of SOE governance systems,
compliance and performance with government’s policy objectives.
6.2 Its
measurable objectives are to “develop effective governance, transaction and
policy frameworks that ensure that all SOE activities are performed with
integrity, honesty and in compliance with appropriate legislation”.
6.3 Its sub-programmes are Management; Legal and Litigation; Governance
and Secretariat; and Legal Transactions.
6.4 DDG Sandra
Coetzee explained that more work is being done on drafting the new SOE
legislation (referred to by the Minister in section 2.4 above). The precise classification of SOEs is proving challenging. Consideration is also being
given to using categories such as state-owned and state-reporting enterprises.
How precisely is government as a shareholder different from shareholders in
private companies? How should the state deal with SOEs
in which government is the sole shareholder compared to where it shares the
shareholding with other partners? These and many other issues are being
addressed in the draft legislation.
6.5 “I find the
analogy of a jockey and a racehorse useful“, said Ms Coetzee, “to communicate
the relationship between DPE and the SOEs. We are the
jockey steering the potential winning racehorse in the right direction. It’s
not always easy. Racehorses can have a mind of their own. But without the
jockey, the racehorse is not worth much, and the same applies in reverse. We
are working on becoming better, more confident jockeys”.
6.6 Among the
outputs for this financial year are the following:
·
Reduction of outstanding litigation by 25-50%;
·
Establishment of Legal Panel;
·
Regular reports on impact of draft legislation;
·
Internal DPE procurement guidelines;
·
Finalisation of new SOE
legislation;
·
Setting Minimum Requirements for Memoranda and Articles of
Association of SOEs;
·
A generic shareholder compact and key performance areas and indicators;
·
More effective Board management: remuneration guidelines;
Board induction toolkit; Board profiling and Shadow Board Database; improved
AGM and strategic intent general meetings; and better Board evaluation;
·
Transaction Good Practice Framework: Transaction Management
Guidelines; Employee Share Option Schemes and Management Buy-Out guidelines;
Broad-Based Black Economic Empowerment and Preferential Procurement guidelines; corporate structure guidelines;
and model shareholders agreements;
·
Transaction Execution: Eskom Finance Corporation
securitization; PBMR; SAA; Property Project; Infraco;
and Safcol.
6.7 “This is a
heavy-loaded work year”, said Ms Coetzee. “We want to establish consistency in
shareholder management during this financial year so that in the following
years we focus on implementation and further precisioning.
So this is a year of building, heavy building activity in this programme.”
6.8 To ensure
that there is effective co-ordination within DPE and across government and that
messages given to the SOEs by different parties are
consistent, DPE is working on a governance workflow model.
6.9 The budgets
for the two separate programmes that have been merged
will be consolidated during the adjustments estimates process. The significant
increase in salaries is due to the original restructuring of the unit and the
need for highly skilled staff. A portion of the budget allocation for the new Programme 5, Special Projects, will be retained to
accommodate the expenditure which will be incurred in this programme.
This will also be addressed during the adjustments estimates process. The 30,2% expected average annual growth in expenditure is mainly
to provide for increases in staff, higher costs of specialists and refurbishing
equipment.
6.10 The
Committee feels that this new programme is an
advance. It is coherent and comprehensive. But is it aiming to do too much? Are
there the personnel and resources to effectively achieve the targets?
6.11 That the new
shareholder management model is going to be encapsulated in legislation is most
welcome. Progress in this regard seems to be good. The Committee looks forward
to the Bill.
6.12 Co-ordination
between DPE and the regulatory and other departments that impact on SOEs seems to be improving, and is meant to be consolidated
further this year. The Committee is keen to see this happen. The Committee
welcomes the governance workflow model that is being shaped, and is interested
to pursue this further with the Department.
6.13 The
Committee welcomes the Department’s commitment to speedily addressing
outstanding litigation issues.
6.14 The budget
of the programme seems very reasonable given the
aims, activities and intended outputs.
7. Programme 4:
Corporate Strategy and Structure
7.1 The aims of
this programme are to define and implement industry
structures; and ensure public/private service delivery and SOE strategies that
will optimise overall industry efficiency, service
provision, pricing of services and economic development.
7.2 The overall
objective of this programme is to design strategies
and structures for the SOEs and the industries in
which they operate that ensure delivery on government’s economic growth
objectives. This will be achieved through increased competitiveness; lowest
sustainable input costs; globally competitive services; sufficient capacity
provision; and utilising SOEs
to strengthen key sectors. Other objectives include improving the quality of
infrastructure investment and liaising with the JPF in development of
strategies.
7.3 Its sub-programmes are transport; energy; strategy; Economic
Research Unit; and JPF.
7.4 DDG Mr Litha Mcwabeni
set out in detail the work programme and DPE
objectives for each SOE – amplifying the presentations of the Minister and DG
in sections 2 and 3 above. He said a key concern of this programme
is to ensure that SOEs reduce the cost of business
and strengthen key sectors of the economy as part of ASGISA. “The gross fixed
capital formation as a percentage of the GDP has declined in the past 10 years
and the state is determined to change this.” He also stressed the important
role of the private sector. “For example, we need private sector participation
in the ports, particularly in Coega,
7.5 He said
that with the separation of SAA from Transnet, DPE will have to play a more
direct monitoring role and develop expertise in this. “It presents peculiar
challenges because SAA is involved in a fairly volatile environment which is
influenced by fluctuations in both the exchange rate and oil price. So unlike
other SOEs, here we have oversight without any control
over two major variables.”
7.6 Among other
issues he dealt with are:
·
Eskom’s pricing framework, and the financing of its Capex programme while keeping its
balance sheet positive;
·
The role of the Capex programme in resuscitating certain dormant industries and
also drawing on “local content” to encourage job creation;
·
The need to address the SOE Capex
programme being hampered by the “tedious
administrative process” of securing Environmental Impact Assessments (EIAs);
·
A study on the mining sector as it impacts on Alexkor;
·
The need for state ownership of Safcol
for now because “demand is higher than supply” and also to “encourage small players
in the industry and diversify the market share”.
7.7 Among the
outputs for this programme during the current
financial year are the following:
·
Procurement of Private Sector Partner for Coega container terminal;
·
Separation of SAA from Transnet;
·
Pricing Policy for Electricity Sector (October);
·
Introduction of Private Sector Participation in electricity
industry;
·
Key partnerships for Denel;
·
Beginning of sale of Denel’s non-core assets (September);
·
Development of Safcol strategy
(September).
7.8 JPF Co-ordinator, Ms Katherine Venier, explained that the
JPF is “a financial facility for the development of projects that enhance the
value of an industry or can leverage off the assets and/or capabilities of the SOEs to benefit SOEs and the economy as a whole”. Its measurable
objective is to facilitate the rapid development of projects so that an
operational company or financial investor accepts an investment case and/or costed operational plan.
7.9 The six
areas for projects are ICT; property; energy and pipelines; human resources;
continental investment; and investment optimisation.
7.10 Among the
outputs for the JPF are:
·
Efficient SOE infrastructure investment in the Continent;
·
Pipelines Masterplan;
·
Training Facilities and opportunities for SOE capital
expansion programme;
·
Provision of low cost telecommunications infrastructure and
reduction of telecommunication costs by 50%;
·
Disposal of SOE non-core properties;
·
Consolidation of SOE procurement for supplier industry
development.
7.11 The
Corporate Strategy and Structure budget increased from R8,5
million last year to R600,7 million. This is because of the R580 million that
has to be transferred to the PBMR project and the increases for salaries and
goods and services. Excluding the PBMR,
the budget for this programme is expected to rise at
an average annual rate of 38,6% and reach R24,8
million in 2008/9. The allocation to JPF is expected to increase by R10 million
per year for the next three years.
7.12 The
Committee’s views on many of the issues covered in this programme
are expressed in section 2 above and will not be repeated here. Overall, the programme is clearer this year. The work that has to be
done in each particular sector is more clearly defined. Of course, it is not
easy to set deadlines for certain outputs, especially with certain ongoing
activities, and it would not do to impose mechanical deadlines, but
consideration should be given to setting more specific deadlines for aspects of
this programme.
7.13 The
Committee is very interested in the Department’s focus on the role of the SOE Capex programme in revitalising certain dormant industries and encouraging
“local content”, and will monitor this keenly.
7.14 The
Committee agrees that some of the administrative requirements of the EIAs may be too cumbersome, but the changes effected should
not serve to dilute the need for and goals of EIAs.
The Committee needs to better understand EIAs and
also further develop our views.
7.15 The
Committee will follow the progress on Eskom’s pricing framework.
7.16 The
Committee is interested to see what emerges from the Alexkor
and mining
sector study.
7.17 The
Committee feels that, for the reasons referred to in section 7.6 above and
others, Safcol should, for now, remain in state
hands.
7.18 The JPC is
interesting, exciting and laudable. To the Committee, the challenges seem more
formidable than is made out, and the Department’s willingness to take them on
is impressive. Are there adequate staff and resources to carry the project
through?
7.19 The
Committee will obviously be monitoring progress on the delivery of the overall Capex programme very keenly, and
will focus on this in greater detail during the Department’s first quarterly
briefing on this on 14 June.
8. Overview of Committee’s Response to the
Strategic Plan and Budget
8.1 The
Committee’s specific views on different aspects of the Department’s programmes and budgets are covered in different sections of
this report, and will not be repeated here except as necessary.
8.2 Given the
scope and complexities of the Department’s portfolio, we feel DPE has made
significant strides since the last budget briefings, is much clearer about its
role and current programmes, and has budgeted
appropriately for the achievements of its targeted outputs in this financial
year. The new Strategic Plan for 2006-2009 is commendable, as expressed in
section 2.14 above, and there is a much better fit between the Plan and the
budget than in previous years. We will be able to better assess after we have
considered DPE’s Annual Report for the last financial
year when we consider it later this year, but, at this stage, we feel that DPE
has made effective and productive use of last year’s budget.
8.3 Of course,
major challenges persist, but the Committee feels, at this stage, that the
Department certainly has the potential to meet most of these challenges. The
Department’s senior managers are new, young and enthusiastic – and hold a lot
of promise. The skills level of DPE has improved since the last budget
sittings, although challenges remain. It was a more confident Department we
engaged with this year. The Minister and
new DG must be commended for putting together such a potentially good team. The
challenge, of course, is to create a productive harmony of this new team and
most effectively deploy their skills and passion – and here too the signs are
promising. Of course, given the nature of the interaction between
departments and parliamentary committees, and for a variety of
other reasons, there are aspects of the a department’s role and functioning,
usually negative, that we are unable to see, but with this qualification, we
are very clear: DPE is doing well, and is poised to do better. Of course, time
will tell!
8.4 There is a
fairly high level of synergy between the Minister and DG’s
approach to their portfolio and this is also reflected in the approach of the
senior managers – and this too suggests the clarity being forged in attending
to this portfolio.
8.5 There seems
to be increasing co-ordination between DPE and the policy, regulatory and other
relevant departments. Of course, this co-ordination can be challenging – but
the Committee notes the progress, and hopes to see more.
8.6 As the SOEs stabilise and their new role
becomes clearer, DPE is increasingly focusing on the long-term economic and
developmental needs and goals of the country – and this is to be welcomed.
8.7 Given the
importance of the SOE Capex programme,
the Committee will meet with DPE quarterly to receive progress reports.
8.8 As
explained earlier, the Committee looks forward to the new SOE legislation.
8.9 As happened
last year, DPE’s presentations at the briefings were
in respects different from what appeared in Vote 9 (Public Enterprises) of the
“Estimates of National Expenditure” (ENE), including the financial figures. The
quality certainly of the Strategic Plan and the presentations at the briefings
was significantly superior to that found in the ENE. The Committee feels that
the different time cycles are not enough to explain the differences. While
there have been major improvements in the presentation of National Treasury
budget documents over the years, there is still space for some improvements in
the way Vote 9 is presented so that it is clearer and more accessible – and the
Committee feels that DPE should engage with Treasury about this, especially
since it agrees with the Committee on this. The differences between the ENE and
DPE documents presented at the briefings serves to reinforce the Committee’s
concern to receive DPE budget documentation at least seven days before the
briefings so that the Committee can prepare properly.
9. Challenges for the Committee
9.1 For the
Committee to get a better sense of DPE’s Strategic
Plan, programmes and budget, we need to be able to
evaluate how effectively the Department fulfilled its programmes
and used its budget for the previous financial year. Yet such an evaluation
cannot be properly done until we consider DPE’s
Annual Report for the 2005-6 financial year – but this
report will be tabled in parliament at the end of September. Of course, there
are National Treasury and DPE documents, including DPE’s
Quarterly Reports, that provide information on
progress on programmes and use of budgets. In the
consistency and manner we play our oversight role, and the way we make use of a
variety of documents, including Quarterly Reports, we need to more effectively
link assessments of a Strategic Plan, proposed programmes
and budgets during a budget briefing with progress achieved on Strategic Plans,
programmes and budgets of the previous financial
year.
9.2 This report
has focused more on plans, strategies and programmes,
and not enough on the concrete details of the budget. We need to address this
in the way we manage future budget briefings and report on them.
9.3 We need to
develop our skills in evaluating DPE’s budget and
become more rigorous in our oversight role.
9.4 We need to
more actively pursue the possibility of engaging the services of technical
experts in the energy, defence and transport sectors.
9.5 The
Committee needs to visit more SOE sites as part of our study tour programme to better understand several aspects of DPE’s programmes and assess
progress.
10. Appreciation
10.1 The
Committee expresses its appreciation to the Minister, DG and other officials of
the Department for their co-operation in processing the budget briefings.
10.2 The
Committee expresses its appreciation to researcher, Ms Desmoreen
Carolus, for the background report on which this
report drew.
5. Report of the Portfolio Committee on
Minerals and Energy on Budget Vote 30 – Minerals and Energy, dated 24 May 2006:
The
Portfolio Committee on Minerals and Energy, having considered Budget Vote 30 –
Minerals and Energy, reports as follows:
A. Terms of Reference
The
Committee resolved to conduct budget briefings on 16 and 17 May 2006. The
objectives of the briefings were to:
·
Establish how allocated funds and transfers to statutory
bodies were to be spent;
·
Monitor the achievement of targets, and whether funds
allocated meet those targets;
·
Monitor progress made and establish problems encountered;
·
Fulfill its mandate of
overseeing the Department of Minerals and Energy and statutory bodies that fall
within its portfolio;
·
Determine whether policy developments take place in accordance
with the key objectives and aims as stated in the Department’s strategic plan;
·
Determine whether policy developments take place in
accordance with government’s priorities of poverty alleviation, job creation
Black Economic Empowerment (BEE), human resource development and growing the
economy;
·
Monitor compliance with the Public Finance Management Act
(PFMA).
B. Introduction
The
first day of the two–day session with the Department of Minerals and Energy was
a joint session with the Select Committee of Economic and Foreign Affairs. The
Director-General presented the Department’s strategic plan for the 2006/7 MTEF
period. The focus of the first day was on programmes 1 to 4, which covered
Administration; Mine Health and Safety; Mineral Regulation; and Mineral Policy
and Promotion. The focus of the second day was on Hydrocarbons and Energy
Planning, Electricity and Nuclear and Associated Services.
C. Overview of Departmental
Programmes
The
Director-General explained that Department’s strategic plan was informed by a
commitment to ensure that its implementation plans, programmes, time and
resources were allocated to activities aimed at advancing the economy, bridging
the gap between the first and second economies, redressing past imbalances,
developing of appropriate skills needed to grow the economy, facilitating job
creation and fighting poverty. Special attention was also paid to providing
access to energy and ensuring security of energy supply to all South Africans.
The implementation of key legislation, such as the Mineral and Petroleum
Resources Development Act, the Petroleum Products Amendment Act and the
Petroleum Pipelines Act, demanded a shift in focus from policy making to policy
implementation. This also meant that restructuring the Department would be
imminent to effectively improve service delivery.
D. Key issues emanating
from the presentation
1. Mine Health and Safety
Branch
The purpose of this programme
is to regulate and promote health and safety in the mining industry to the
highest standards in the world, thereby improving the quality of life of those
employed in industry and those affected by industry’s activities. Its
measurable objective is to reduce mining-related death, injuries and ill
health. The Department highlighted “the fatality rate per million hours worked
has decreased from 0.25 in 2004 to 0.21 in 2005 – this corresponds to 246
deaths in 2004 and 202 deaths in 2005.” (These statistics were taken from
the Director-General’s presentation notes). Much more work was needed to
bring it in line with international rates. As it stood, the rate was at its
lowest in South African mining history. Detailed statistics were made available
to the Committee.
2. Mineral Regulation
Branch
The
main aim of this programme is to effectively promote, manage, transform and
regulate the mining sector to achieve transformation and sustainable
development. This branch’s responsibility was to implement the Mineral and
Petroleum Resources Development Act (MPRDA) and other mineral policies. It
would also be incumbent upon the branch to improve the turn-around time for
processing prospecting and mining licence applications in this sector, with a
special focus on assisting first-time entrants in the industry. Statistics on
progress relating to licences and applications were made available to the
Committee.
3. Mineral Policy and
Promotion Branch
This
branch is effectively responsible for policy formulation and promotion. Work
has already started around amending the MPRDA, which proved to have some
unintended negative consequences to the spirit of the Act.
4. Energy
4.1 Electricity
The
first Regional Electricity Distributor (RED) was launched in
In
terms of reaching the targets for universal access by 2012, the Department was
behind schedule as a result of inadequate financial allocations. The same
challenge was experienced with the Integrated National Electricity Programme
(INEP) which made provision for the electrification of 500 000 households per
annum, but the funding provided in the 2006/7 budget only allowed for 89 525
connections.
4.2 Nuclear
Investment in nuclear research and
development capabilities will increase during this MTEF period. Cabinet’s
approval of the Radioactive Waste Management Policy necessitated the
establishment of structures to facilitate the implementation of the policy.
4.3 Renewable Energy
Legislation was being developed to address
areas in the White Paper on Energy (1998), which had not yet been covered by
existing legislation. Special attention will be given to promoting the uptake
of renewable energy, energy efficiency and climate change.
4.4 Hydrocarbons
The petroleum industry in
The Department set out to conclude the
paraffin safety strategy this year, which will ensure the phasing out of
paraffin as a household fuel, while looking at other more environment-friendly
fuels. The provision of liquefied petroleum gas (LPG) and other renewable
energy sources to households will be intensified.
E. Budget
The Committee was given a breakdown
of the Department’s budget. Of the total budget of R2, 548 billion, transfers
and subsidies accounted for R2 billion, of which R1,5
billion was allocated to electricity and the remainder to the public entities.
An amount of R500 million was used in the department of which R290 million went
to employee compensation. The remainder was allocated for goods and
services. Mining rehabilitation
programmes also took up a large portion of the budget.
A
large portion of the Department’s budget was transferred to the public
entities. The Department plans to improve the monitoring of the operations of
its entities and also to align the entities’ objectives with those of the
Department and Government.
Restructuring
of the Department to improve service delivery, finalising its strategy on the
support of SMME’s, using the transformation
legislation to ensure effective and efficient BEE and gender empowerment would
receive special attention in all line function programmes. There would be a
commitment towards continuous capacity–building within the minerals and energy
sectors.
H. Issues raised by the Committee
·
The Committee expressed concern at the lack of information
around the motivating factors to establish RED 7. The Committee was taken
through an extensive process of understanding and overseeing work towards the
establishment of the other six REDs. The Committee
was not aware of any evaluation of the RED process, which would inform the
viability of a seventh RED, nor had it been involved in any discussion in
relation thereto. The Committee, therefore, questioned its establishment at a
time when only one of the six REDs had been launched.
·
Were there enough mine inspectors to visit the mines?
·
How would the new Environmental Impact Assessment (EIA)
regulations affect the Department? Would
the Department be bound by the new EIA authorisations and would there be a need
to amend the MPRDA, which also provided for regulation on Environmental
authorisations?
·
Clarity was sought on the Department’s youth and gender
focus.
·
How would electricity targets be met from the current
budget?
·
Did the Department have a reliable staff retention programme?
·
What was being done to identify suitable sites for
high-level nuclear waste? What was the Department’s position with regard to the
Pebble Bed Modular Reactor (PBMR)? How much more money would be required for
the PBMR?
·
What portion of the budget goes to ESKOM, and why was only
10% allocated to electricity and nuclear? Would such a low allocation not cause
the Department to run into problems in these areas?
·
What were the time frames for filling vacant posts in key
offices of delivery?
·
How was the Department monitoring the mining scorecard and
to what extent were companies complying?
·
Could legislation be used to address the issue of
“fronting”?
·
Was progress being made with regard to SMMEs. in
the mining sector, and what statistical information was available in that
regard?
·
If the need arose to urgently assess a mine, would the
Department have the flexibility to attend to it? What was the line of
communication in drawing attention to a particular mine, given that the
presentation made mention of the involvement of the Departments of Water
Affairs and Forestry and Environmental Affairs and Tourism?
·
What happened to the Committee that was established and
tasked with overseeing compliance with the Liquid Fuels Charter?
·
The Department should explore developing policy to encourage
government departments to procure energy-saving appliances in terms of stand-by
time.
·
The Committee commented on the opportunity for BEE in
relation to biofuels and was looking forward to the
strategy on biofuels. It was suggested that one
should look beyond just using agricultural products for biofuels.
Weeds from wetlands might be an option to consider.
·
The presentation did not place much emphasis on climate
change, commitments and plans relating to the Kyoto Protocols although
·
Tax and other incentives with regard to renewable energy
were not sufficient.
I. Responses by Department
·
The substance of the Department’s policy was to de-racialise the South African mining industry and to
introduce previously disadvantaged South Africans into this sector. The shift
from policy formulation to policy implementation exposed a number of
challenges. These challenges related to activities of not only established
companies, but also to the beneficiaries of this process. Black people allowed
themselves to be used to defeat the objectives of the law. In an attempt to
penalise “fronting“, the Department wanted the documentation submitted in this
respect to be in the form of a declaration, so that a false declaration would
constitute criminal liability according to law.
·
Compliance with the mining scorecard was being monitored.
·
Staff retention and vacancies remained a challenge due to
the scarcity of skills and the skills requirements were knowledge-intensive.
This also has an effect on the time frames for filling vacancies.
·
The evaluation of the business case for RED 1 was not only
confined to the Department, but also involved broader role players. At the implementation phase of RED 1 and at
the time of making the business case for RED 1, it was felt that some things
might have been overlooked by the Department, which necessitated the
establishment of the National RED. A process of engagement on this matter
between the Committee and the Department should follow.
·
There were enough inspectors to visit mines.
·
In terms of mine rehabilitation, the Department was
prioritising the most polluted mines, but these priorities could be shifted.
Provisions under the MPRDA were still being enforced, but there were
consultation processes with the Departments of Water Affairs and Forestry and
of Environmental Affairs and Tourism.
·
There had been a five–year review on the Liquid Fuels
Charter.
·
The Department could not respond to questions on the PBMR as
its governance, operational and shareholding functions were located in the
Department of Public Enterprises. The Department of Minerals and Energy was the
policy department as far as the PBMR was concerned. The Director-General
explained that the same applied with Koeberg and
ESKOM, where the Department of Minerals and Energy was only responsible for the
regulatory environment.
·
The development of the biofuels
strategy would result in enormous opportunity for rural development and upliftment. The Committee would be updated as the strategy
was being developed.
1. The Committee acknowledged the open manner in which the
Department presented its strategic plan and budget, highlighting both strengths
and challenges. The Committee resolved to follow up on key issues raised with
the Department on an ongoing basis. The Committee undertook to strengthen its
oversight and monitor the implementation of programmes and projects highlighted
in the Department’s strategic plan. The Department’s annual report will have to
reflect the extent to which it had delivered on its services efficiently,
effectively and economically, and whether these services had impacted on or
made a difference in terms of the strategic priorities identified.
2. The Committee was not satisfied with
the Department’s lack of response on PBMR matters. The Committee noted the
movement of this project from the Department of Minerals and Energy to the
Department of Trade and Industry, and questioned the current location of this
project within the Department for Public Enterprises. In discussing its scope
for oversight on nuclear-related matters, the Committee resolved to seek
clarity on the situation of the PBMR project through a meeting to which both
the Ministers of Minerals and Energy and Public Enterprises will be invited in
order to start a process of discussion on the subject. The Committee was also concerned about the
minimal role the state utility on nuclear issues, the Nuclear Energy
Corporation of South Africa (NECSA), had to play in the PBMR process. It
recommends that the Executive be requested to arrange for a much more
meaningful role for NECSA in the PBMR process to be explored.
Role clarification was necessary to ensure accountability.
3. The Committee recommends that the
Department strengthen its leadership initiatives in the profiling and highlighting
of key departmental programmes and policies. Specific reference was made to the
Minister of Public Enterprises’ recent pronouncement on the biofuels
strategy, once again motivated by the issue of role clarification between
departments/ministries to give effect to meaningful oversight and
accountability.
4. On the issue of electrification and the
inability of INEP and the Department to meet their targets due to insufficient
budget allocation, the Committee has decided to approach National Treasury to
arrange a briefing session for Members of the Committee to
enhance their understanding of how allocations were made to departments that
were tasked with specific goals by the President, but that lacked the financial
resources to implement.
5. The Committee expressed concern over
the lack of consultative processes regarding the establishment of a seventh RED
and will invite all relevant stakeholders to a meeting to
discuss, through a public participatory process, the decision to establish the
viability and role of this seventh RED.
Report
to be considered.