Public Enterprises: Budgetary Review and Recommendation Report 2010

Meeting Summary

The Department of Public Enterprises presented its response to questions asked and recommendations made by the Portfolio Committee in relation to the 2009/10 Annual Report presentations of the Department of Public Enterprises (DPE) and the State Owned Entities (SOEs) that fell under it. The role of the SOEs in the context of the Revised Industrial Policy Action Plan was highlighted, noting that severe public investment shortfalls were apparent up to 1994, and that between 1994 and 2004 the Department had been paying back inherited debt, which resulted in less being available for infrastructure. SOEs should drive and leverage investment in infrastructure, channeling it through a procurement leverage programme, to then improve productivity, unlock investments in supplier industries and create jobs. However, this investment should be continuous. The four levels of funding requirement to be taken into account were outlined. The presenters then described Eskom’s investment programme. They highlighted that electrification programmes produced over 3 million connections, and that over R1 billion in investment had recently been leveraged, although it still had a funding shortfall for the next seven years until Kusile Power Station was commissioned. A number of initiatives to close the gap were investigated and proposals were put to National Treasury. The Committee was asked to include a recommendation on the R20 billion requirement in the recommendations. The Transnet investment programme was then set out, highlighting major projects in Richards Bay, Durban, Cape Town, and Saldanha, most to be funded primarily through the balance sheet. The Capital Supplier Development Programme plans were finalised in November 2009, and goals should be realised through transfer of skills and intellectual property. The Capital Structure Model of the Department was then explained. The DPE noted a marked decrease in transfers to SOEs.

The presenters then described shareholder management, noting the shareholder’s responsibilities, including those in relation to the Board and senior staff. All SOEs, other than Pebble Bed Modular Reactor were compliant with the logical planning, monitoring and evaluation process. Risk management frameworks were in place. The presenters then addressed questions on consultants, particularly the costs and categorisation of these costs. The Airbus A320 transaction, entered into in 2002, prior to the Public Finance Management Act being in operation, had proven problematic and unaffordable, although SAA had no legal reason to withdraw from it, but in 2010 this contract was re-negotiated and amended, with SAA now to receive 20 aircraft, which it now needed, at the same delivery cost. Members asked about this deal, wondered if it was merely an attempt to “save face”, and urged that the DPE keep up the pressure on SAA to perform.  Members asked about the structure of DPE, questioned reports that senior management were contractors. They commented that the capital structure model for Eskom seemed positive but stressed that electrification was required in rural areas, asked about upgrades by Transnet of the East London Harbour, asked whether DPE was assisting Eskom to negotiate out of unfavourable long-term contracts, and suggested that heavy-duty industries should be called upon to share risk. Members asked why some SOEs reported to DPE and noted a Presidential Review Committee working on oversight of all SOEs, and questioned the position with Alexkor, and its socio-economic obligations.

Members then discussed what recommendations it wanted to include in the draft Budgetary Review and Recommendations Report (BRRR). These included reduction of consultants, cutting of SOE costs, the need to provide Members with Shareholder Compacts, descriptions of the role and copies of each SOE’s key performance indicators, and the need to step up management of performance of the SOEs. The Committee recommended risk management analysis to avoid poor decision making, recommended the completion, urgently, of the funding model, and that the large energy-intensive industries and companies should be approached to share the shortfall funding risks.