Budgetary
Review and Recommendation Report of the Portfolio Committee on Public
Enterprises, dated 25 October 2011
Section
77(3) of the Constitution stipulates that an Act of Parliament must provide for
a procedure to amend money bills before Parliament. This constitutional
provision gave birth to the Money Bills Amendment Procedure and Related Matters
Act (No. 9 of 2009). The Act gives Parliament powers to amend money bills and
other legislative proposals submitted by the executive whenever they deem it
necessary to do so.
The
Money Bills Amendment Procedure and Related Matters Act therefore makes it
obligatory for Parliament to assess the Department’s budgetary needs and
shortfalls vis-à-vis the Department’s operational efficiency and performance.
This is done taking into consideration the fact that the Department has
oversight responsibilities over nine state-owned companies, namely Alexkor,
Broadband Infraco, Denel, Eskom, Pebble Bed Modular Reactor (PBMR), South
African Airways (SAA), South African Express (SAX), Safcol and Transnet.
1.1. Mandate of the Committee
The Committee’s mandate is to:
·
Consider legislation referred to
it;
·
Exercise oversight over the
Department of Public Enterprises and the nine state-owned companies (SOCs);
·
Consider international agreements
referred to it;
·
Consider the budget vote of the
Department of Public Enterprises;
·
Facilitate public participation in
its processes;
·
Consider all other matters
referred to it in terms of legislation and the rules of the National Assembly.
1.2. Department of Public Enterprises
The vision of the Department of Public Enterprises is to
provide effective shareholder management of state-owned companies that report
to the Department and support and promote economic efficiency and competitiveness
for a better life for all South Africans.
The mission of the Department recognises state-owned
companies as strategic instruments of the industrial policy and core players in
the New Growth Path (NGP). The Department aims to provide decisive strategic direction to all state-owned companies so
that their businesses are aligned with the national growth strategies emanating
from the NGP, and it will do this by ensuring that their planning and
performance, investments and activities are in line with government’s Medium
Term Strategic Framework and the Minister’s service delivery agreement.
1.2.1 Oversight responsibilities
over state-owned companies
The
oversight responsibilities encompass the following:
2. Strategic Priorities and Measurable
Objectives of the Department
2.1 The Strategic Plan of the Department
The
Department of Public Enterprises is contributing directly to creating an
efficient, competitive and responsive economic infrastructure network, a
commitment that forms the basis of the Minister’s service delivery agreement
signed in October 2010. The focus of the Department has been on achieving the
outputs and sub-outputs that are linked to the outcome contained in the agreement,
which comprise the following:
·
Improving the delivery and
maintenance of infrastructure and monitoring the rollout of Transnet and Eskom
build programmes;
·
Achieving policy and regulatory
clarity in sectors in which state-owned companies operate;
·
Improving the operational
efficiencies of state-owned companies, particularly in relation to the reliable
delivery of rail and port services and reliable generation, distribution and
transmission of electricity;
·
Developing operational indicators
for each of the required sub-outputs identified as part of the delivery
agreement and, where necessary, including shareholder compacts concluded with state-owned
companies.
Over
the financial year, key policy and strategic initiatives of the Department were
concretised to give meaning to both the New Growth Path (NGP) and the
Industrial Policy Action Plan (IPAP) as well as the outcomes-based cluster
delivery plans, and whose focus is on employment creation, industrialisation
and infrastructure development.
2.2 The measurable objectives of
the Department as outlined in its
programmes
To
fulfil these objectives the Department has six programmes namely, Administration,
Energy and Broadband Enterprises, Legal Governance and Transactions, Transport
Enterprises, Manufacturing Enterprises, and Joint Project Facility. The
objectives of the programmes are as follows:
2.2.1 Administration
·
To provide strategic direction and
leadership;
·
To provide support services to
enable the Department to deliver on its organisational objectives in an
environment where the human capital within the Department is both motivated and
empowered;
·
To improve the quality of
corporate governance and performance monitoring systems by ensuring that
appropriate policies, processes and procedures are reviewed, updated and
implemented within the Department.
2.2.2 Energy and Broadband
Enterprises
·
To continuously ensure the
alignment of shareholder strategic intent in relation to the role of
state-owned companies in achieving Government’s objectives in the energy and
communication sectors;
·
To monitor and benchmark the
implementation of corporate plans and shareholder compacts;
·
To support the security of supply
by examining Eskom’s maintenance and operational practices, distribution
efficiency and the reserve margin annually;
·
To maintain state-owned assets by
monitoring progress against the implementation of the care and maintenance
programme by the Pebble Bed Modular Reactor;
·
To create an enabling policy and
regulatory environment for state-owned companies by engaging with the
Department of Energy and the National Energy Regulator of South Africa (NERSA)
on new policies and regulations affecting Eskom as and when they arise over the
Medium Term Expenditure Framework (MTEF) period.
2.2.3 Legal, Governance and Transactions
·
To address constraints on state-owned
companies’ contract negotiations and management to improve commercial
competence and contribute to economic growth and development;
·
To ensure that state-owned
companies and the Department comply with legal requirements through monitoring
and assessing legislative impacts on state-owned companies and alerting the
companies to changes and possible risks.
2.2.4 Manufacturing Enterprises
·
To ensure alignment with
shareholder strategic intent in relation to the role of state-owned companies
in achieving objectives in the defence manufacturing and forestry sectors by
reviewing enterprise strategies and mandates in the context of political and
sectoral policy shifts;
·
To facilitate the financial and
operational sustainability of Denel by reviewing the Denel Board to bring it to
a full complement of members with the requisite skills, experience and expertise,
as well as to develop a turnaround plan that clearly indicates how the company
will achieve commercial sustainability and reduce its dependence on the fiscus;
·
To monitor Denel’s turnaround
strategy by, among other things, providing support to ensure the effective
restructuring of Denel Saab-Aero-structures and Denel Dynamics to return to
commercial viability;
·
To facilitate the disposal of
minority shares within Safcol by engaging with the Department of Rural
Development and Land Reform on its position on the optimal institutional
vehicle to ensure the transfer of shares and developmental benefits to
community beneficiaries.
2.2.5 Transport Enterprises
·
To promote the alignment of
corporate strategies of state-owned companies with Government’s objectives in
relation to the transport and aviation sectors by undertaking a comprehensive
review of corporate strategies, business plans, and annual and quarterly
performance;
·
To provide the Boards of Transnet,
South African Airways and South African Express Airways with strategic intent
statements at their annual general meetings to highlight shareholder priority
areas and guide the policy direction of the companies;
·
To increase the market share of
total freight to rail to an annualised 250mt from the current 177mt by 2014 by
undertaking a detailed diagnosis of challenges facing Transnet Freight Rail and
developing an integrated Government response to growing rail market share;
·
To facilitate the introduction of
private sector investment in rail through public-private partnerships to assist
with the provision of requisite infrastructure where such investments are
unaffordable on the Transnet balance sheet.
2.2.6 Joint Project Facility
·
The Joint Project Facility’s new
mandate aims to align the Department and its portfolio of state-owned companies
with national economic strategies and associated objectives through focused
policy research and the development of catalytic projects.
3. Analysis of the Department’s
prevailing strategic and operational plan
At
the beginning of the year the President of the Republic gave an outline of Government’s
key focus areas. In addressing the nation, the President said, “… government is
committed to addressing the problem of unemployment through practical
measures.” He concluded his statement by saying, “… 2011 will be the year of
job creation through meaningful economic transformation.” The President
maintained that the introduction of the New Growth Path is a major intervention
aimed at achieving many job creation objectives through investment in
infrastructure development, manufacturing, tourism, agriculture, beneficiation
and the green economy.
In
response to the Government’s call for infrastructure investments and job
creation initiatives the Department of Public Enterprises set for itself
certain key performance indicators that speak directly to Government’s New
Growth Path objectives and those of the Industrial Policy Action Plan. Despite
the leadership instability that impacted the Department and two of its state-owned
companies namely, Eskom and Transnet, the Department managed to meet most of
its service delivery targets. Through its programmes, the Department’s
strategic and operational plans are as follows:
3.1 Administration
The
programme consists of the Ministry of Public Enterprises, the Office of the
Director-General which includes the Office of the Chief Investment and
Portfolio Manager as well as Corporate Services with its sub-programmes: human
resources, information technology, financial management, secretariat, knowledge
centre, internal audit and communications, as well as property management. In
line with its targets the Department has developed logical planning, monitoring
and evaluation framework guidelines and, amongst other targets, the
standardisation of financial and risk reporting templates and dashboard with
enhanced analytical functionality.
3.2 Energy and Broadband
Enterprises
The
Department has been instrumental in developing and securing Cabinet approval
for financing the support package that will enable Eskom to deliver on the
capacity expansion programme on time and within budget. The proposed hybrid
funding solution comprises a R20 billion equity injection to Eskom and R174
billion additional guarantees, bringing the total guarantee framework to R350
billion. This was confirmed by Eskom in its annual report for 2010/11 where it
said that about 71% of the funding shortfall had been secured with the support
of Government.
A
study commissioned by the Department and conducted by McKinsey & Company on
the implications and impact of Broadband Infraco not obtaining an Electronic
Communication Services (ECS) licence has been completed. After looking at the
options the Department decided to establish a joint venture between Infraco and
Sentech at an infrastructure level. A project in
The
Pebble Bed Modular Reactor (PBMR) has been granted exemption and is no longer
required to submit corporate plans, shareholder compacts and quarterly reports
nor annual reports as it has been transferred to “care and maintenance” in
response to the winding down of the nuclear project.
3.3 Legal Governance and
Transactions
A
report on the remuneration guidelines for non-executive and executive directors
of state-owned companies has been submitted to Cabinet for consideration.
Cabinet has mandated the Minister of Public Enterprises to conduct further
consultations before a final remuneration model is approved.
Significant
progress has also been made in the implementation of the Deed of Settlement
with the Richtersveld community. The Pulling and Sharing Joint Venture between
the Richtersveld community and Alexkor has also been established, paving the
way for optimum mine operations. The upgrade of the township’s civil and
electrical engineering services to municipal standards has commenced and is
expected to be completed by the end of the year.
3.4 Manufacturing Enterprises
The
main focus has been on the engagement with Denel and the National Treasury
regarding effective implementation of Denel’s turnaround strategy with a
particular focus on cost cutting and revenue growth as well as the entity’s interim
financial sustainability, particularly in respect of the development of a
framework for the resolution of the Denel Aviation Strategy.
The
Department has developed a position paper on the available options for the
turnaround of Denel Saab-Aerostructures. A roll-over of guarantees amounting to
R1.85 billion has been secured as an interim support for Denel’s financial
sustainability until September 2012.
A
turnaround strategy for Safcol’s future role post land claims has been
submitted to the Department by the Board. According to the Fepartment, the
implementation of the strategy has commenced. Included in the turnaround
strategy is the developmental role that Safcol can play in the rural areas in
which it operates. The Department is also working with the Department of Rural
Development and Land Reform on the resolution of land claims and on the
transfer of minority shares for the benefit of surrounding communities from
previously privatised packages.
3.5 Transport Enterprises
In
respect of aviation, major achievements include the final approval of the
Airbus transaction, the delivery of the first A330-200 in February 2011, the
completion of the South African Airways Technical (SAAT) business plan and the feasibility
study on expanding SAAT as a regional maintenance and repair facility. The Department
has developed an African Aviation Strategy (Airlift Strategy) for South African
Express and South African Airways. This includes a review of SA Express’s joint
venture operations in
3.6 Joint Project Facility
The
South African Power Project (SAPRO) is focused on nuclear and renewable energy
as key elements of the country’s energy mix in ensuring security of supply. The
South African Renewables Initiative (SARi) forms part of SAPRO and is aimed at
identifying the sector’s potential for industrial development and exploring
strategic bilateral relationships as a means to subsidise the technology.
The
Competitive Supplier Development Programme (CSDP) under the Joint Project
Facility programme is also responsible for finding innovative ways to leverage
state-owned company procurement to build local world-class manufacturing
capabilities in
3.7 Analytical overview of the
department’s operational plans
The
Department has managed to achieve most of its strategic objectives as set out
in the service delivery agreements signed between the Minister and the President
as highlighted in the above section. Challenges, however, remain over some of
its oversight responsibilities, especially in the case of Denel’s Saab-Aerostructures,
and as a result the entity’s growing concern remains a matter of great concern.
Broadband Infraco on the other hand is still without a Chief Executive Officer
since the resignation of the former CEO early this year (2011). The Department
has seconded Dr Andrew Shaw to Infraco as acting CEO until the post is filled.
Of
serious concern also is the lack of quantifiable data on the number of jobs
created and skills developed in the six-month period since the beginning of the
2011/12 financial year. The information is crucial in understanding how the Department
and the various state-owned companies under its jurisdiction should practically
respond to Government’s New Growth Path and the objectives of a developmental
state. Lastly, it would be of great benefit to the Committee if its oversight
programme for the next financial year includes a visit to the Department itself
to ensure that all the initiatives stated in the Administration programme, such
as the dashboard, monitoring and evaluation systems and risk management
frameworks are in place and are operational.
4. Analysis of annual report and
financial statements
Government
recognises state-owned companies as strategic instruments of industrial policy
and core players in the New Growth Path. This recognition compelled state-owned
companies to align themselves with the Government’s broader economic and
strategic priorities such as job creation and investment in infrastructure. The
provision of adequate and efficient infrastructure services is aimed at
stimulating (further) investments in other sectors of the economy and
increasing productivity in state-owned companies’ customer base.
Consequently,
the focus of Government has been to align the planning and performance of state-owned
companies with the outcomes defined by the national medium term strategic
framework in order to ensure that their investments and activities are aligned
with national priorities. The idea is to gain greater recognition for state-owned
companies as strategic instruments of industrial policy. This includes the
systematic integration of their key programmes into the broader industrial
policy and economic cluster programmes of Government.
To ensure clarity
and transparency of the objectives for state-owned companies and a precise
articulation of the trade-offs between policy, regulatory, customer and
financial interests, the Department of Public Enterprises consulted with sector
departments, namely National Treasury and the Presidency, to determine the
strategy of the Government as a shareholder in state-owned companies. Such
consultation entailed an assessment of the interaction between the policy and
regulatory environment with the financial and operational goals of state-owned
companies to ensure the optimisation of shareholder value and achievement of
wider socio-economic objectives.
The Department
identified the following key areas as strategic in facilitating the country’s
growth prospects:
·
Ensuring the security of supply and the
efficient and competitive provision of key infrastructure;
Furthermore,
the Department of Public Enterprises paid specific attention to the country’s
macro-economic challenges, particularly poverty and unemployment. Below is the
Department’s expenditure for the 2010/11 financial year:
4.1 Department of Public
Enterprises’ Budget 2010/11
Table
4.1(a) DPE Budget 2010/11
|
|
2010/11 |
2009/10 |
||
|
Programme |
Final |
Actual |
Final |
Actual |
|
|
R'000 |
R'000 |
R'000 |
R'000 |
|
1. Administration |
104
834 |
101451 |
90 502 |
86 999 |
|
2. Energy & Broadband |
174
476 |
170
857 |
1 959
192 |
1 958
790 |
|
3. Legal, Governance & Transaction |
50 023 |
48 797 |
147379 |
145793 |
|
4. Manufacturing Enterprises |
192
782 |
189
595 |
199
335 |
198
068 |
|
5. Transport |
22 958 |
19 077 |
1 568
730 |
1 568
656 |
|
6. Joint Project Facility |
10 476 |
10 134 |
26 022 |
24 986 |
|
TOTAL |
555
549 |
540
001 |
3 991
160 |
3 983
292 |
The
Department’s budget for the 2010/11 financial year amounted to R555.5 million
and the Department managed to spend about R540 million of this amount. In other
words, the Department has underspent by about R15.6 million. In all the
programmes, under-spending occurred mainly under compensation of employees as a
result of some posts not having been filled due to the scarcity of specialist
skills in the market, as well as under-spending under goods and services which
arose due to some projects having been delayed until very late in the 2010/11 financial
year.
Only
three transfers were made from the Department’s 2010/11 budget to state-owned
companies: a transfer of R36 million was made to Alexkor for the development of
the
4.2 Department of Public
Enterprises’ Expenditure from 1 April to 30 September 2011
Table 4.2(a) First and second
quarter expenditure
|
Departmental total |
First Quarter |
Second Quarter |
Total used % |
Available |
Expenditure 30 September |
|
R'00 |
R'00 |
R'00 |
R'00 |
R'00 |
R'00 |
|
353 342 000 |
69 304 781 |
50 945 097 |
38.25% |
218 180 618 |
120 249 878 |
|
|
|
||||
|
Programmes |
1st quarter |
2nd quarter |
Total used % |
Available |
30-Sep-11 |
|
1.
Administration |
20 077 443 |
32 119 837 |
53.48% |
51 626 494 |
52 197 280 |
|
2.
Energy & Broadband |
42 983 349 |
5 762 116 |
79.65% |
12 453 597 |
48 745 465 |
|
3.
Legal & Governance |
1 165 141 |
2 450 871 |
28.74% |
9 606 035 |
3 616 012 |
|
4. Manufacturing |
1 254 034 |
1 818 452 |
2.40% |
125 224 275 |
3 072 486 |
|
5.
Transport Enterprises |
3 041 601 |
6 255 768 |
56.14% |
11 515 856 |
9 297 369 |
|
6.
Joint Project Facility |
783
213 |
2 538
052 |
40.96% |
7 754
362 |
3 321
265 |
As
a result of adjusted estimates of national expenditure, the Department
appropriated R353.3 million instead of the R230.2 million it had initially
received from National Treasury at the beginning of the 2011/12 financial
year. A total of R7.8 million was
requested as roll-over from the previous year’s total unspent budget amount of
R15.548 million. National Treasury, however, approved a roll-over amount of
R3.378 million which was made up as follows:
·
Financial modelling support for SAA and SAX
(R1.836 million);
·
Performance audit pilot project by the Auditor-General
(R1.542 million).
From
April to September 2011 (first two quarters), the Department had spent a total
amount of R120.2 million or 38,3% (especially when taking into account
commitments made for goods and services). For the first two quarters (April to
September) the Department is left with R218.1 million geared for the next six
months.
Less
than 50% of total expenditure in the first two quarters might appear as
under-expenditure. However, the Department has attributed this to the compensation
of employees due to vacant posts. Compensation of employees is an issue which
the Department will need to address as it not only has a negative impact on the
organisation’s expenditure, but also on job creation objectives as outlined in
the New Growth Path.
In the
first six months of the current 2011/12 financial year, the Department only
spend 38.3% or R120.2 million of its total budget. The expenditure trends were
reported as follows; capital expenditure spent approximately 74.8% of its
budget by 30 September 2011, goods and services spent 49%.1%, compensation of
employees spent 47.2% and transfers spent only 25.5%.
4.4 Shareholder capital and debt
In the past
few years, state-owned enterprises have obtained loans from the African
Development Bank (Eskom US$2.5 billion), the Japanese Bank for International
Cooperation (Transnet Ұ35 billion) and the European Investment Bank (€480
million to various state-owned enterprises). The World Bank has granted Eskom
US$3.75 billion, along with US$250 million from the World Bank’s Clean
Technology Fund. Further financing of US$1.25 billion is expected to be
available from the World Bank in a subsequent phase. Eskom has recently received a total loan amount of R980 000 from
the Agence Fracaise de Development (AFD) for its renewable energy projects.
Government
has attempted to do its part by providing a R60 billion subordinated loan to Eskom as well as up to
R176 billion in guarantees, making to total framework of guarantees to be R350
billion.
To reduce
funding of state-owned companies from the fiscus, the Department of Public
Enterprises is of the view that state-owned companies must look at other
innovative sources of capital and debt funding, including:
4.5 Analysis of expenditure trends
by the Department of Public Enterprises
One
of the challenges faced by the Department and some of the state-owned companies
in the 2010/11 financial year has been the filling of vacant posts, especially
at senior management level. For almost the entire 2010/11 financial year, the Department
was without a Director-General. Leadership squabbles at state-owned companies
also contributed to the vacancy rate as both the Chairperson of the Board and
the Chief Executive Officer of Eskom resigned.
The
same can be said of Transnet as one of its senior executives appeared before a
disciplinary hearing on allegations of mismanagement. In the first two quarters
expenditure on goods and services (including commitments) was slightly more
than the expenditure on compensation of employees with 38.25% already spent,
while only 47.2% was spent on the compensation of employees. A better view of
this trend will be clearer at the end of the 2011/12 financial year.
The
filling of posts both in the 2010 and 2011 financial years has affected the Department’s
expenditure. The Department’s under-expenditure of R15.6 million in the
2010/11 financial year has been attributed to “some posts not having been
filled due to scarcity of specialist skills.” This contradicts Government’s
commitment to fill posts six months after the positions became vacant. On a broader
perspective, the filling of posts in the Department also contradicted the New
Growth Path’s objectives of job creation.
The
Department’s performance in meeting its objectives as indicated in the previous
sections is commendable, in particular the clean audit opinion of its finances.
The Department has also done well in achieving its employment equity targets
with the exception of targets for people with disabilities. More than 60% of
the Department’s workforce is black (Africans, Coloureds and Indians). Targets
for people with disabilities remain a challenge and will hopefully be addressed
in the 2011/12 financial year.
5. Expenditure trends per
programme
5.1
Administration
In this financial year the programme’s budget allocation has
slightly increased from R86.9 million in 2009/10 to R101 million in 2010/11.
There was an increase of R4.8 million or 5.2% in real terms. It was the only
programme in this financial year whose allocation had been increased. This
increase was attributed to, among other things, the establishment of the Deputy
Minister’s office as well as the shifting of the risk component in the Legal,
Governance and Transactions programme to the chief investment portfolio
manager’s office. Expenditure is expected to grow moderately over the MTEF
period at an average annual rate of 6.7% from R92 million in 2009/10 to R111.8
million in 2012/13. This was generally in line with inflation, but also reflected
savings resulting from the centralisation of services.
5.2 Energy and
Broadband
Spending in this programme was mainly on transfer payments to
the Pebble Bed Modular Reactor and Broadband Infraco. This year the programme
has been allocated about R170.8 million and although this amount is less than
the allocation the programme received in the previous financial year by R1.9
billion, it was still the highest compared to other programmes. There was only
one transfer for this programme, namely R138.6 million earmarked for Broadband
Infraco. Expenditure was expected to decrease from R1.96 billion in 2009/10 to
R14.9 million in 2012/13 at an average annual rate of 80.3% when Government’s
contribution to the Pebble Bed Modular Reactor ends.
5.3 Legal,
Governance and Transactions
This programme has been allocated R48.7 million for 2010/11.
This year’s programme allocation has decreased by R94.9 million in real terms
or by 62,7%. The only projected transfer was that of Alexkor at an estimated
value of R36 million as part of the funding of the Richtersveld land
claims settlement agreement. In terms of
expenditure trends, expenditure was expected to decrease over the MTEF period
from R145.9 million to R20.4 million at an average annual rate of 48.1%, due to
the finalisation of the Richtersveld community’s land claim.
5.4 Manufacturing
Enterprises
The aim of Manufacturing Enterprises is to align and monitor
the corporate strategies of Denel and the South African Forestry Company
Limited (Safcol) against Government’s strategic intent and performance targets.
The budget allocation for this programme has decreased from R198 million in
2009/10 to R189.5 million in the 2010/11 financial year. Neither Denel nor
Safcol were expected to receive any transfers, as was the case in the previous
financial years. The implication is that this allocation for the programme was
meant only for the management and oversight functions of the manufacturing
enterprises sector. Expenditure was expected to decrease from R199.3 million in
2009/10 to R16.7 million in 2012/13, at an average annual rate of 56.3%.
5.5 Transport
Enterprises
The Transport Enterprises intended to align and monitor the
corporate strategies and the performance of Transnet, South African Airways
(SAA) and South African Express Airways (SAX) against Government’s strategic
intent and performance targets. This programme has been allocated R22 million
(2010/11) compared to the R1.5 billion it received in for 2009/10. This year’s
allocation has been slashed by 98% with no transfers to any of the state-owned
companies that fall under this programme. Most of the transfers have been going
the way of South African Airways, but since the airline reported a profit in
the last financial year this seems to have come to an end. Expenditure is expected to decrease
significantly to R23.4 million over the MTEF period, at an average annual rate
of 75.4%.
5.6 Joint Project
Facility
The budget allocation for this programme for 2010/11 is R10.4
million and like all the other programmes, this programme has been allocated
less compared to the previous financial year where it was given R24 million.
The budget is used for expenses related to support functions such as
remuneration, and goods and services. The Joint Project Facility was
established in 2005/06 and was funded by all the state-owned companies.
In 2006/07, the unit was included as a sub-programme under
the Manufacturing Enterprises programme, but through the realignment of the
functions within the Department a new programme (Joint Project Facility) was
created in 2007/08 and historical expenditure was adjusted accordingly.
Expenditure was expected to decrease from R26 million in 2009/10 to R9.1
million in 2012/13, at an average annual rate of 29.5%. This is mainly due to
the completion of some of the projects and programmes and the shift of the
oversight and implementation of these projects to the relevant state-owned
companies’ teams.
5.7 An analytical overview of the
Department’s expenditure trends
In
terms of allocation, the Department of Public Enterprises was allocated
approximately R555.5 million for the 2010/11 financial year. This confirms National
Treasury’s statement that much of the infrastructure funding undertaken by
Eskom and Transnet would not come from the fiscus. This is a huge decrease from
the R3.9 billion that the Department was allocated in 2009/10. The general
perception is that this allocation for the Department was mainly for
administration and shareholder management of the various state-owned companies.
Consequently, there are no major transfers to state-owned companies and only
two of them were funded from this budget namely, Broadband Infraco (R138 million)
and Alexkor (R36 million); the latter’s transfer was mandatory in terms of the
Deeds of Settlement with the Richtersveld community.
The
Department’s budget allocation has decreased by R3.6 billion in monetary terms or
by 91% compared to R3.9 billion for 2009/10. In other words, the overall budget
allocation for each of the Department’s programmes decreased significantly
except for the Administration programme for 2010/11. This, however, does not
mean that state-owned companies were, in general, not in need of further
capital. On the contrary, over the next few years state-owned companies were
estimated to spend more than R700 billion on capital investments. According to
the Minister of Finance, this capital expenditure had to come from internally generated
resources and a mixture of long-term and short-term borrowings in the domestic
and foreign markets.
Expenditure
trends for 2011/12 continue to decrease with the Department’s overall budget
allocation of R353.3 million and was slightly less than the R555.5 million
the department received in the previous financial year. This is due to a
reduction in transfer payments to state-owned companies. Between 2007/08 and
2010/11, transfer payments to state-owned companies totalled R11 billion.
The reduction, therefore, came as a relief to the fiscus and in particular to those
who have been calling for a stop on the fiscus funding state-owned companies.
A
close look at economic classifications, especially on the compensation of
employees, showed a steady increase of the Department’s overall expenditure.
This was mainly due to the establishment of the Deputy Minister’s office in
2009. However, spending on consultants and professional services increased from
R27.2 million in 2007/08 to R37.7 million in 2013/14, at an average annual rate
of 12.1%. Over the MTEF period, spending on consultants and professional
services increased at an average annual rate of 0.2% due to the need to support
critical skills and provide specialist technical expertise in the priority
sectors in the Department.
Overall,
the reduction of transfer payments to state-owned companies in the 2011/12
budget meant that struggling companies like Denel would have to find solutions
based on their balance sheets, rather than being funded from the fiscus. Safcol
on the other hand was dealing with land claimed by communities around its
plants. Whether this would have any financial implications or not on their
balance sheets would depend on the negotiations between the Department of
Public Enterprises and the Department of Rural Development and Land Reform.
From the Government’s side, Safcol still had a strategic role to play in the
South African forestry industry.
5.8 Analysis of Auditor-General’s
report
For
the financial year under review the Department had received an unqualified
audit report with no emphasis on any accounting matter. For the past three
years the Department has consistently been receiving clean audits. This was a
great achievement for the Department and was not only an indication of good
managerial skills on the part of management but also a reflection of strong
financial management systems and internal controls that were effective and
efficient.
6. Oversight Reports
The Committee undertook an oversight visit to Denel on 24 June
2011 in order to familiarise itself
with the challenges that were reported at Denel Saab-Aerostructures (DSA),
which is one of the business units at the Denel group. DSA had been recording
financial losses for the past number of years, which had adversely affected the
overall performance of the Denel group. DSA implemented measures to cut
operating costs and to ensure the financial sustainability of the unit. The Department was working closely with
Denel’s management on a business plan for DSA division in order to turn the
division to profitability. The Denel group has recorded a profit for the
2010/11 financial year.
The
Committee also had the opportunity to attend a one-day workshop organised and
facilitated by PriceWaterhouseCoopers in 29 June 2011 on corporate governance principles.
The focus of the workshop was the King III Report on Corporate Governance
Principles for
The
Committee also undertook an international study tour to
Lastly,
the Committee also had the opportunity to attend a three-day
7. Committee’s Observations
7.1
The Committee welcomed the unqualified report of the Auditor-General and the
clean audit that the Department received and urged the Department to ensure
that this practice was sustained and for such performance to be shared with
other stakeholders in the relevant forums, such as the Directors-General forum.
7.2
The Committee noted with great concern the irregular expenditure of R8.5 billion
reported at Transnet. The Committee failed to understand how such an amount
escaped the attention of Transnet’s audit committee as well as the monitoring
and evaluation systems of the Department itself.
7.3
The Department’s budget reflected an increasing use of consultants. In the
first two quarters, expenditure on consultants amounting to 49.1% was second to
capital expenditure. The Committee would monitor this trend closely and hoped
that the Department would in the near future be able to recruit the required
skilled personnel to reduce the use of consultants.
7.4
The Committee also noted with concern the state-owned companies that were
working in silos rather than in a co-ordinated manner to maximise their
potential output in the economy and the country in general. A good example of
co-ordination among state-owned companies was Transnet’s rail project which was
intended to transport Eskom’s coal supplies to power stations. This should be
emulated by other state-owned companies where projects of common interest were
meant to yield economic benefits to each state-owned company and the country.
8. Conclusions
The Committee took note of the improvements and achievements
made by the Department on its performance and the financial management of its
budget for both 2010/11 and the six-month period since the beginning of the
2011/12 financial year. The Committee also took note of the decreasing budget
allocations and expenditure trends of the Department and the implication this
has on struggling state-owned companies like Denel. The filling of vacant posts
was a matter of concern as it had been affecting the Department’s expenditure
negatively (under-expenditure).
9. Recommendations
For
2010/11, the Department has been allocated R230.2 million and based on the
Department’s projections for the MTEF period there will be less funding for 2012/13.
This must come as a relief to the fiscus as no more recapitalisation for
state-owned companies is envisaged. Based on the analysis of the Department’s
budget for the year under review, the following recommendations are made:
9.1 The
Standing Committee on Public Accounts should investigate cases of fruitless and
wasteful expenditure reported in annual reports of state-owned companies,
especially the wasteful expenditure of R8.5 billion at Transnet.
9.2 The
Department should finalise the executive remuneration review recommendations
with urgency to address the discrepancies among the salaries of executives of
state-owned companies.
9.3 The
Department should provide the Committee with the shareholder compacts of
state-owned companies to enhance the oversight work of the Committee.
Report
to be considered.