Report: Strategic Planning Workshop, dated 12 June 2012

REPORT OF THE PORTFOLIO COMMITTEE ON PULIC ENTERPRISES ON ITS STRATEGIC PLANNING WORKSHOP, DATED 12 JUNE 2012

1. Background

The President of the Republic of South Africa unveiled a massive infrastructure investment plan during the State of the Nation Address (SONA). The President identified state-owned companies (SOCs) such as Transnet and Eskom to play a critical role in the implementation of the infrastructure programme. Through the infrastructure programme, government’s objective is to improve the socio-economic conditions of society through job creation, skills development, rural development, local manufacturing and beneficiation.

2. Introduction

The Portfolio Committee on Public Enterprises, as the legislative arm of the state entrusted with the oversight responsibility over the executive, convened its strategic planning workshop from the 23 – 24 February 2012 at Villa Via, Gordons Bay . The purpose of the workshop was to (1) do a mid-term review of the work of the Portfolio Committee; (2) assess the performance of the Department of Public Enterprises and its entities; (3) develop priorities for the oversight and accountability work of the Committee; and (4) develop a plan for the 2012/13 and 2013/14 years. The Committee was briefed by the Department of Public Enterprises on its strategic plan and priorities for the remaining years of the political term.

3. Presentation by Department of Public Enterprises

In the presentation, the Director-General gave a brief overview of the vision, performance of the Department, challenges, priorities and how the Portfolio Committee could assist the Department in achieving its goals.

3.1 Vision of the Department

The vision of the Department has been changed to align it with national economic strategy which is “t o drive investment, productivity and transformation in its portfolio of State Owned Companies (SOC), their customers and their suppliers to unlock growth, drive industrialisation, create jobs and develop skills”.

3.2 Outcome six: An Efficient, Competitive and Responsive Economic Infrastructure Network

The Department is focused on achieving the outputs and sub-outputs linked to outcome six and those contained in the Minister’s Service Delivery Agreement. These are:

3.2.1 Improving the delivery and maintenance of infrastructure and monitoring the rollout of Transnet’s and Eskom’s build programmes;

3.2.2 Achieving policy and regulatory clarity in sectors in which the state-owned companies operate;

3.2.3 Improving the operational efficiencies of the state-owned enterprises, particularly in relation to the reliable delivery of rail and port services and the reliable generation, distribution and transmission of electricity; and

3.2.4 Developing operational indicators for each of the required sub-outputs identified as part of the delivery agreement. Where necessary, these will be included in the Shareholder Compacts concluded between the Boards of the SOCs and the Minister.

3.3 Performance of Department in relation to outcome six

This is how the Department has performed in relation to outcome six:

3.3.1 Improving competition and regulation

• Work on the Rail Policy and Rail Act has progressed to the finalisation of a draft green paper, now under industry stakeholder consultation.
• A Private Sector Participation (PSP) framework has been developed to address private sector participation in rail.

3.3.2 Generation, distribution and transmission of energy

• Legislation for the creation of an Independent Electricity System and Market Operator (ISMO) was introduced in Parliament by the Department of Energy and it is expected to be promulgated during 2012.
• Following the Minister’s directive, Eskom has ring-fenced the System and Market Operator (SMO) unit. The implementation plan to establish the SMO as a subsidiary is being finalised.
• Approximately 248 000 households were electrified during the period from November 2010 to November 2011, and 3 655 homes were connected to off-grid solar systems.

Eskom build programme (as end of 2011)

• Medupi is 35% complete, with 56.9% of the budget having being spent.

• Kusile is 17% complete, with 30% of the budget having being spent.

• Ingula is 41% complete, with 54.3% of the budget having being spent.

• The Return to Service programme is 93.5% complete, with 89% of the budget having being spent.

• Transmission projects are more than 70% complete, with 70.4% of the budget having being spent.

Regarding the development and implementation of Coal Haulage Road -to-Rail Logistics for Eskom’s fleet of coal-fired power stations, a Cooperation Agreement between Eskom and Transnet was signed by both parties in November 2011. The resulting Haulage Agreement details the routes and sources of coal to be transported to Eskom powers stations.

3.3.3 Logistics: road, rail and ports

• With regard to increasing the market share of total freight from a 177 mtpa baseline to rail to an annualised 250 mtpa by 2014, 178 mt was achieved in 2010/11. Up to December 2011, 148mt was recorded and Transnet is on track to achieve 206mt by the end of the 2011/12 financial year.

§ With regard to productivity improvements at the Durban container terminal (DCT), an average of 24.8 crane moves per hour was achieved in 2010/11 from 21 crane moves per hour in 2009/10, in line with the target of 25 crane moves per hour for that year.

§ Transnet’s build projects are generally on track. Two container berths at the Ngqura port have been completed and an additional two will be completed by March 2012. A total of 875 000 containers have been handled at Ngqura since it opened in October 2009, and the additional two berths will improve capacity to 800 000 containers per annum.

§ The National Multi Products Pipeline (NMPP) 24 inch trunk line for petroleum products from Durban to Jameson Park was commissioned and completed in January 2012.

§ Three rail branchline opportunities for private sector concession in 2012/13 have been identified and there has been consultation with KwaZulu-Natal , Northern Cape , and

Free State provinces in this regard.

3.3.4 Information and communication technology

§ F ollowing the establishment of Broadband Infraco, wholesale broadband prices have dropped by about 73%.

§ As part of its mandate to increase access to broadband services, Broadband Infraco has access to 18 Points of Presence (POPs), of which 5 are open access sites in the main centres .

§ Sentech and Broadband Infraco have also commenced with the Broadband Plan for the Kwazulu-Natal province pilot project, and site surveys on three districts are complete.

3.4 Key challenges facing the Department

The challenges included the following:

3.4.1 The current prioritisation of infrastructure expansion for growth and employment creation and the role of the Department’s SOCs, especially the infrastructure SOCs (Eskom, Transnet and Broadband Infraco), will challenge and shape the future trajectory of the Department.

3.4.2 The Department has the capacity challenge to oversee the investment programmes and its intended impacts, i.e. industrialisation, job creation, skills development, etc both from a shareholder perspective as well as from an SOC performance perspective.

3.4.3 Legislative framework supportive of the Department’s specific shareholder mandate/role requires clarification.

3.4.4 Challenges with skills attraction and retention.

3.4.5 Budgetary constraints.

3.4.6 Interdepartmental co-ordination and alignment of mandates of SOC require strengthening.

3.4.7 Evolution of the Department will be informed by the President Review Committee on State Owned Companies (PRC).

3.5 Priorities of the Department

The priorities of the Department are informed by the State of the Nation Address which pronounced on the infrastructure development programme and its impact on job creation, skills development, localisation, Broad-Based Black Economic Empowerment, industrialisation and regional integration. Furthermore, the Department will focus on the electricity price path, electricity conservation and the green economy.

3.6 Assistance from Portfolio Committee

The Department requested the Portfolio Committee to assist to deliver its mandate by:

3.6.1 Adequate notice for presentations and briefings in order to assist with proper planning and execution of functions and duties. This will assist the Department with efficient use of resources, given current constraints.

3.6.2 Clear and specific requirements for reporting will result in improved preparation and a common understanding of expectations.

3.6.3 Assist the Department to secure additional funding for its operations.

3.6.4 Participation and engagement in the Department’s annual Parliamentary Learning

Programme to provide insight into the sector and key issues of relevance to the Committee.

3.6.5 Engaging counterpart committees and departments that are critical to the NCOP.

3.6.6 Securing a conducive policy and regulatory environment for SOCs.

3.6.7 Regular engagement on issues of mutual interest affecting the SOC.

4. Review of the Portfolio Committee’s performance

In planning for the remainder of the term, the Portfolio Committee undertook a review of how it has executed its oversight and accountability mandate, and whether it was efficient and effective. Most importantly, it assessed whether it implemented resolutions taken, and whether proper follow up was done to ensure their positive conclusion. The Committee made the following observations:

4.1 Shortcomings of the Committee

4.1.1 The Committee identified time as a constraint to follow through the implementation of

resolutions and the lack of a resolution-tracking mechanism.

4.1.2 Over-concentration on the major entities and neglect of the smaller entities.

4.1.3 Lack of timeous notification on changes and developments in state-owned companies.

4.1.4 Inadequate robust oversight visits to state-owned companies and the Department.

4.2 Priorities for the Committee

In line with the strategic focus of the state with regard to the economic development, the Committee identified key priorities that SOCs will have to report on in the remainder of the 4th Parliament. These include job creation, skills development, rural development, beneficiation, promotion of local manufacturing and small businesses and the impact of SOCs on the communities.

4.3 Focus areas for each SOC

In addition, the Committee identified all the outstanding challenges facing state-owned companies, and would intervene and monitor to ensure their positive conclusion.

The areas identified for each entity are as follows :

4.3.1 South African Airways

The Committee will monitor the financial position of the entity, route expansion programme, the R1.6 billion guarantee, the Airbus deal and investigate high airport taxes, the performance bonus system and the hedging practice.

4.3.2 South African Express Airways

The Committee will monitor the f orensic investigation, ensure action against external auditors, investigate the relationship between SA Airlink and SAA, monitor the performance of the board, and ensure external auditors and audit committees are effective and accountable.

4.3.3 Transnet

The Committee will ensure that Transnet improves financial management systems to eradicate fruitless, wasteful and irregular expenditure, follow up on the R8.5 billion irregular expenditure, monitor the implementation of the TSDBF resolution, monitor the infrastructure development programme (including PE tank farms and storage facitilities), and ensure that the entity has the capacity to deliver and that the development contributes to the priorities of the state.

4.3.4 Safcol

The Committee will ensure that a decision is taken on future role of Safcol, it will advocate for the funding shortfall for training of staff, follow up on oversight resolutions and that they are implemented, ensure that land claims are resolved speedily, and that the entity expands its social responsibility by ensuring beneficiation and improving the lives of the adjacent communities.

4.3.5 Eskom

The Committee will monitor and await the outcome of the SIU investigation, monitor the high electricity tariffs, ensure compliance of subcontractors, monitor the introduction of IPPs and renewable energy, monitor the negotiated contracts with smelters, ensure that Eskom has the capacity to deliver, monitor security of supply, and that Eskom projects promote localisation, beneficiation, jobs and skills development.

4.3.6 Alexkor

The Committee will monitor f inancial management systems in Alexkor, Alexkor Development Foundation and Namda, ensure sound corporate governance practices, and monitor mining production at sea for the productivity of the entity.

4.3.7 PBMR

The Committee will monitor and ensure that the registration of intellectual property is with the state, and will ensure that the Department reports on progress of care and maintenance of the entity.

4.3.8 Infraco

The Committee will ensure that there c larity on the public mandate of the entity, address the concern on the structure of points of presence, monitor progress on the turnaround strategy, look at the relations between Infraco with Sentech and follow up with the issuing of ECS licence to the entity.

4.3.9 Denel

The Committee will m onitor the recapitalisation of Denel Aerostructures, seek clarity from the Department of Defence and Military Veterans (DoDMV) on what is sovereign and strategic for defence, and the streamlining of procurement between DoDMV and Denel.

4.3.10 Department of Public Enterprises

The Committee will seek clarity on the future role of the Department , look at legislation impacting on the mandate of the Department and SOCs, monitor the oversight function of the Department, monitor the departmental premises (suitability), await the remunerations report with recommendations, and look at the capacity constraints and skills shortage in the Department.

5. Oversight and accountability mechanisms

The Portfolio Committee will use the following mechanisms to improve its oversight and accountability functions:

5.1 Entities will send quarterly reports on progress regarding turnaround strategies, financial and performance reports and reports on any other matter of interest to the Committee.

5.2 The Committee will ensure regular interaction with communities and stakeholders such as unions and interest groups on matters of interest to the public.

5.3 The Committee will undertake robust oversight visits to state-owned companies to ensure that they deliver on their mandates and improve the lives of communities.

5.4 The Committee will use the legislative processes in Parliament to improve its oversight and ensure compliance with relevant legislative frameworks across all SOCs (BRRR, budget vote and strategic plans, annual reports, section 32 reports).

6. Conclusion

The Committee acknowledged that the outcomes of the Presidential Review Committee on SOCs will have an impact on the role, structure and alignment of state-owned companies and will give clarity to policy and legislative challenges facing state-owned companies. However it would ensure that SOCs deliver on their public mandate and contribute towards the developmental objectives of government.