Report of the
Portfolio Committee on Public Enterprises on the Budget Vote [Vote 10] and
Strategic Plan 20010/11 – 2012/13 of the Department of Public Enterprises and
its Entities, dated 13 April 2010
The
Portfolio Committee on Public Enterprises, after receiving a briefing from the
Department of Public Enterprises on the strategic plan and budget vote, reports
as follows:
1. Introduction
Guided
by the Rules of Parliament, promulgated in terms of the Constitution, the
Portfolio Committee on Public Enterprise plays an oversight role on the
Ministry, Department and the Entities. The Committee has to scrutinise the
Strategic Plan document of the Department and its Entities in order to determine
whether the funds requested are aligned to the objectives as stated in the
respective strategic plan documents.
2. Strategic Plan
of Department of Public Enterprises
The
Department of Public Enterprises’ 20010/11 – 2012/13 Strategic Plan is informed
by the following
To optimise the alignment between the role of
State-Owned Enterprises (SOE) in the
national economic strategy and the performance of the
DPE’s portfolio of enterprises
through delivering best practice shareholder
management services and engaging
with stakeholders to create an enabling environment
for such alignment.
For the financial year
under review the department has been responsible for nine State-owned
enterprises listed on schedule 2 of the Public Finance Management Act (Act 1 of
1999). These are; Alexkor, Broadband Infrastructure Company (InfraCo), Denel,
Eskom, Pebble Bed Modular Reactor (BMR) (Pty), Safcol, South African Airways
(SAA), South African Express and Transnet. The Department’s overall objectives
are to provide an effective state-owned enterprise shareholder management system
and to support and promote economic efficiency within each of the state owned
enterprises.
2.1
Policy Priorities for 2010/11
The department’s revised
mission and strategic focus has thus been organised around the need to actively
engage with stakeholders, within and outside government, so that the role of
each State-owned enterprise is aligned with broader economic policies and
strategies, and to ensure that sectoral policies and regulations support this
alignment. The department’s immediate focus is to align State-owned enterprises
planning and performance with the outcomes defined by the national medium term
strategic framework.
The Department has
developed a State Shareholder Management Model to bring coherence and
consistency to the management of all SOEs. This model will allow government to
systematically leverage SOEs’ capacity to achieve strategic national objectives
without compromising their financial sustainability. Over the medium term the
Department will focus on getting government’s acceptance of this Shareholder
Management Model and driving its implementation at all the State-owned
enterprises. The Shareholder Management Model seeks to achieve the following
key challenges:[i]
2.2.
Role of State Owned Enterprises in the economy
•
Ensuring
the security of supply and the efficient and competitive provision of key
economic infrastructure.
•
Facilitating
the development of advanced manufacturing capability through:
direct investment via current or new SOEs
•
SOE
investment and procurement programmes
•
strategic
partnership engagements with global enterprises.
•
SOEs can
be used by the State to sort out economically stifling market or regulatory
failures especially in the area of network infrastructure.
The
Department has the following support programmes to other national government
departments:
•
Aligning
skills development programmes within the SOEs with the programmes and
objectives of the responsible national government departments
•
Aligning
investments in and by SOEs with the national innovation development programmes
of the responsible national government departments
•
Supporting
government strategies focused on labour absorption and rural development by
providing infrastructure investments and SOE-services with marginal commercial
viability
2.3 Priority areas and expected
outcomes
For the
period under review, the Department and SOEs have indentified key measurable outputs. These
include:
•
Delivery of new Electricity
Generation capacity by Eskom according to its approved build plan and as
directed by the Integrated Resource Plan (IRP)
•
Facilitation of the
introduction of Independent Power Producers as determined by the IRP
•
Restructuring the Pebble
Bed Modular Reactor Company
•
The restructuring of Denel
•
The creation of a
Remuneration Panel that will promote appropriate remuneration policies and
practices for Chief Executives and the Boards of Directors of SOE
•
The appointment of CEOs and
Board Members to SOEs and ensuring that vacancies are filled with minimum delays
•
Agreement on a way forward
with the Richtersveld Community to ensure that the lives of the community are
improved
•
Pursuing completion of the
land settlement claims at Safcol and to have concrete plans regarding the
future of the SOEs
•
Rail reform policy process
and implications for Transnet Freight Rail
•
Efficiency improvements on
the main freight corridors
•
Create scope for
multi-operator involvement in under-utilised branch lines
•
Assessment of strategic
options for a future SAA and alignment to African Aviation Strategy
•
Continuing to leverage SOEs
as instruments of industrial policy to achieve the State’s social and economic
development objectives
•
The creation of a clear
path of sustainability for the SOE, thus reducing their dependence on the
fiscus
•
Leveraging private sector
investment to retain momentum in the infrastructure build programme and to
promote competition in targeted areas.
3. Budget
Summary:
The Department of Public
Enterprises (DPE) has been allocated approximately R350.5 million for the
2010/11 financial year. This confirms National Treasury’s statement that much
of the infrastructure funding will not come from the fiscus. This is a huge
decrease from the R3.9 billion the Department was allocated in the previous
financial year. The budget allocation for the Department is mainly for
administration and shareholder management of the various SOE’s. Consequently,
there are no major transfers to State-owned enterprises and only two SOEs are to be funded from this budget
namely, the Infrastructure Company (Infraco, R138 million) and Alexkor (R36
million). The operational budget of the Department remains
within the baseline over the period, which is linked to the business plans of
the units.
3.1 Programme 1:
Administration
The
purpose of the administration programme is to achieve the Department’s
strategic objectives through providing overarching management and key
supporting functions and processes. The programme is allocated R101.2 m.
3.1.1 Priorities of
the programme include the following:
•
Monitoring in-year
cost-saving initiatives
•
Attraction and retention of
relevant specialist sector skills
•
Internal Risk Management
•
Effective and efficient
knowledge management
•
Enhancing departmental
performance management reporting
•
Continued compliance with
relevant legislation e.g. PFMA and Treasury
Regulations including
tender and procurement processes
•
Secure and stable IT
environment
3.2 Programme 2:
Energy and Broadband Enterprises
The purpose of the Energy and
Broadband Enterprises programme is to provide shareholder oversight over:
•
Eskom, which includes the generation,
transmission and distribution of electricity, with a particular emphasis on the
execution of its infrastructure programme and the optimisation of current
operations.
•
Broadband Infraco, which includes development
of a sustainable business model, assessing the business plan and monitoring the
commissioning of the full service network (FSN).
•
PBMR, this includes a review of the
business plan and the development of a sustainable future business model and
structure.
3.2.1 Priorities for the programme
•
Monitor
Eskom’s system adequacy and the delivery and funding of its capital expenditure
programme (Generation, Transmission and Distribution).
•
Enable and support the
execution and implementation of the Inter-Ministerial Committee on Energy
workplan, leading the facilitation of a Strategic Equity Partner for the Kusile
new build project as well as the development of a sustainable coal haulage
solution.
•
Resolution of Infraco’s
licensing and the development and implementation of an associated sustainable
business model.
•
Rationalisation of PBMR
whilst protecting skills and intellectual property of value to
3.2.2. Outcomes regarding to Eskom, PBMR and Infraco
§
Shareholder Compact and
Corporate Plan alignment to government objectives for the Energy &
Broadband Sector.
§
Alignment and delivery
against key objectives of Infrastructure IMC outcomes based approach.
§
Guidance to the Minister on
Annual General Meeting and associated Shareholder rights.
§
Appropriate skills mix on
the Eskom, Infraco and PBMR Boards.
§
Assessment of performance
against agreed compact targets.
3.2.3. Outcomes regarding to Eskom, Infraco and PBMR
§
Delivery of Eskom’s infrastructure
expenditure programme as planned and directed by the Integrated Resource Plan
and the optimisation of its maintenance and operational practices.
§
A sustainable coal haulage
solution, the introduction of a Strategic Equity Partner for Kusile and the facilitation
of the introduction of Independent Power Producers.
§
Infraco’s impact on
Broadband Pricing in
§
Development of a
sustainable business model for Infraco to achieve its mandate.
§
Infraco’s execution of
projects to complete the terrestrial cable network.
§
Implementation of the
International Submarine Cable (
§
PBMR successfully
restructured.
The programme has been allocated R150.4 m.
3.3. Programme
3: Legal, Governance and Transaction
The purpose of the programme is to provide effective
and sound legal advice to the Department that will highlight and manage
potential legal risks; and to develop effective corporate governance frameworks
that will promote transparency and good corporate governance by SOEs.
3.3.1 The outcomes of the programme include the
following:
•
Transfer
Diabo Trust assets to the beneficiaries and wind up the trust
•
Transfer
remaining Aventura resorts and wind up Aventura
•
Internal
legal advice to minimise DPE’s legal risk (e.g. adequate legal protection in contracts
with service providers)
•
Successfully
resolve all litigation in government’s favour
•
Continuously
improve DPE adherence to applicable legislation through developing
templates for legal and regulatory compliance (e.g.PAIA, PAJA and PFMA Compliance
framework)
•
Develop
SOEs legal and governance frameworks to
•
Align SOEs governance to developments in
corporate governance regulation (e.g. Companies Act, 2008, King III)
•
Contribute towards shareholder and Board
effectiveness (Owner’s Manual; Board Database)
•
Oversee SOE adherence to corporate
governance principles to promote stronger Boards (including improving reporting
on SOEs Board and CEOs remuneration)
•
Promote
transparency and accountability of governance processes through annual
governance audits and strengthening SOEs
governance reporting requirements
•
Ongoing
monitoring of SOEs acquisition and disposal of subsidiary list
The operational budget in this Programme increased
slightly as a result of additional funding required to cover anticipated legal
costs for a number of transactions as well as inflationary increases in
Compensation of Employees.
The transfer payments to Alexkor in 2009/10 and
2010/11 are earmarked for the capitalisation of the pooling and sharing joint
venture and the establishment of the
The programme has been allocated R54.4 m.
3.4.
Programme 4: Manufacturing Enterprises
The Purpose of the programme
is to provide shareholder oversight of
Denel which includes business turnaround and sustainability, alignment with the
strategic requirements of the Department of Defence and its contribution to
government objectives such as skills development and advance manufacturing.
Further provide shareholder oversight of SAFCOL which
includes assessing the business plan and the future role of SAFCOL in the
economy and other government objectives.
3.4.1
Key outcomes for Denel
The key outcome is a financially sustainable company.
Monthly / Quarterly / Annual Interventions:
•
Approved
and aligned Corporate Plan, Shareholder Compact, Annual Reports and effective
Board control
•
Shareholder
Strategic Intent communique
•
Quarterly
investor brief to the SOE Board
3.4.2 Key Deliverables
•
Resolution
of Denel’s growing concern status and long term solvency issues
•
Oversee
Denel’s turnaround plan and business growth strategy
•
Alignment
of Denel’s restructuring plans with Department of Defence’s
requirements
•
DPE will
facilitate:
Denel’s
programme delivery, Skills development and transformation, the role of Denel in
advance manufacturing and equity partnerships for Denel entities.
The future state of Denel would include the finalisation of the Rooivalk programme, multi year orders from DoDMV, Right sizing and
restructuring the Denel Group.
There are no transfer payments planned for Denel.
Denel must embark on an operational turnaround and any future recapitalisation
must be for growth and not working capital. Furthermore, the decrease in
transfers is because future claims cannot be quantified in advance. The
expenses have to be incurred and then audited to verify validity of the claim.
The
programme has been allocated R16.2m.
3.5 Programme 5:
Transport Enterprises
The purpose is to align the corporate strategies and
performance of Transnet, South African Airways and South African Express
Airways against government's objectives.
3.5.1
Outcomes relating to Transnet, SAA and SAX
•
Alignment
of Shareholder Compact and Corporate Plan to Government objectives for the
transport sector
•
Guidance
to Minister on AGM and associated shareholder rights
•
Appropriate
skills mix on the Transnet, SAA and SAX Boards
•
Assessment
of performance against agreed Compact targets
The significant reduction in the budget for this Programme
is attributed to the decrease of transfer
payments and the final transfer to South African Airways being in 2009/10.
There is no substantial increase in the operational budget in this Programme.
The
programme has been allocated R18.5 m.
3.6. Programme 6:
Joint Project Facility
The purpose of the programme is to provide project
management support for a number of projects that aim to identify and unlock
synergies among State Owned Enterprises,
and to coordinate cross-cutting projects that leverage
the assets, activities and capabilities of SOEs to the benefit of the
enterprise and the economy as a whole.
3.6.1 Outcomes of the programme
•
Skills Development, TSAPPRO and CSDP: Leveraging of SOE build programmes to promote investment in plant, technology
and skills so as to increase the level of national economic activity and decent
employment through inclusive growth.
•
Environmental Oversight:
Reduction in delays associated with environmental authorisations for the Build
Programmes whilst ensuring integrity of environmental assets and natural
resource protection.
•
Property Project: Release
of SOE non-core property ensures state’s right of first refusal for
developmental benefits (e.g. contributes to sustainable human settlements) and
land use optimisation.
The operational budget for this Programme decreases
substantially over the medium term due to the completion of some of the
projects and programmes, such as the Aerostructures, Technology Management
Framework (TMF) and ICT/Marine Cable projects.
The programme has been allocated R9.8m.
4. Committee Observations:
The
Committee raised concerns some of which were adequately responded to, while
others required further clarification. The Committee will continuously conduct
its oversight function and ensure executive accountability on the progress made
with respect to the strategic priorities and budget allocation presented by the
Department.
Report to be considered.