Deputy Minister and Department of Public Enterprises on matters emanating from the State of the Nation Address

Meeting report

The Chairperson opened the meeting and welcomed Members. The Chairperson extended a special welcome to the Hon. Ben Martins, Deputy Minister of Public Enterprises. The Chairperson also congratulated the newly appointed Director-General and wished him well on his new tasks. The Chairperson requested that the meeting pay specific attention to the implications of the State of the Nation Address (SONA) on the Committee and the Department, and not specific government enterprises as these were to be discussed at the strategic meeting.

Address by Deputy Minister
The Deputy Minster forwarded an apology on the behalf of the Hon. Malusi Gigaba, Minister of Public Enterprises, for his absence. The Deputy Minister had hoped that the new collective leadership of the Department would be present at the first engagement with the Portfolio Committee. The Deputy Minister said that the Department placed a high premium with regard to interaction with the Portfolio Committee. He believed that it was possible to have a critical but constructive relationship when ministers made it their responsibility to interact as vibrantly as possible with committees. The Deputy Minister expressed an appreciation of the committee level of Parliament. He believed that there was a time and place for party politicking but felt that, at committee level, Members shared a common responsibility of representing every South African citizen. The Deputy Minister pledged to serve all Members regardless of political party association without fear of favour but ultimately in the best interest of the people who elected them. He further remarked on the new appointments in the Department and recognized the leadership of Dr Andrew Shaw, Deputy Director-General, and senior staff who kept the Department of Public Enterprises (DPE) afloat. The Deputy Minister said since their appointment in November 2010, they had meet with all state owned enterprises (SOEs). He said that they engaged the SOEs on their challenges, success and failures. He said that they asked critical questions on job creation and opportunities for young people. The Deputy Minister mentioned briefly the outcomes of their engagement with SOEs. He noted that there were 502 state owned enterprises yet only eight resided in the DPE. He promised to come back with the Minister at an opportune time with more detailed information with regards to SOEs and their programmes.

Department of Public Enterprises on matters emanating from the Sate of the Nation Address: briefing
Mr Tshediso Matona, Director-General (DG), DPE, submitted the Draft Presentation to the Portfolio Committee. The Department understood the implications of the State of the Nation Address on the role definition for SOEs in job creation and inclusive economic growth. He said that the role was defined by the Departments’ framework going forward. The DG said this framework would be guided by the Monitoring and Evaluation Department in the Presidency, the New Growth Path (NGP) and the Industrial Policy Action Plan (IPAP). The briefing identified SOEs as strategic instruments of industrial policy and key in the NGP. The briefing noted the DPE’s plan of action which included the alignment of SOEs with the national growth strategies emanating from the NGP. Other key considerations from the SONA were job creation and infrastructure development through Eskom’s and Transnet’s build programmes. Energy security through investments in power stations and energy saving initiatives were noted as critical issues. The presentation also noted the need for SOEs to play a key role in skills development and procurement leverage as a means of investing in national industry, and the strengthening tourism markets through South African Airways and South African Express. Youth development, the filling of key vacancies at departmental and SOE level were highlighted as means of building capacity. Private sector participation was noted as integral part of the build programme. The promotion of the African agenda was mentioned as an important theme with regard to opportunities in the regional and continental space as a means of sustainability.

The presentation mentioned the DPE’s medium term strategic focuses which included decisive leadership and ensuring that the Government shareholder management model was implemented, together with increasing capital investment and operational efficiencies in SOEs, the refining of policy and regulatory environment and the integration of key programmes into the wider industrial policy and economic cluster programme, and lastly the issue of knowledge management with regards to capacity building and a lesser reliance on consultants.

The presentation further identified the immediate tasks that were underway in the Department to address the issues raised in the SONA. These tasks included job creation and SOE contributions through the build programme; the filling of key vacancies at Departmental and SOE level; the rigorous performance management and the constant monitoring and evaluation of SOE chairpersons, boards and executives; the alignment of mandates of SOEs with those of the NGP and the IPAP; and the key focus on industrialization through the review of the SOE procurement regime. The presentation also included the setting of targets on building industrial capacity around SOE programmes for the incorporation into future shareholder compacts. Youth development through directing SOE corporate social investment and bursaries towards employment and training were identified in the presentation together with developing a framework to govern the relationship between shareholder, the boards and cabinet and enhancement of communication through reviewing existing governance structures between the shareholder and SOE.

The Department noted that SOEs engaged with the NGP and each developed plans to contribute. The Department said that, over and above the strategic national contribution that each SOE made, the targets in respect of skills development, and job creation were particularly requested in December 2010. The responses by the respective SOE differed as a result of their sizes and national role specificity. Mr Matona noted that in some instances funding constraints limited expansion and skills development. As a result of funding constraints, the DPE was engaging with the Department of Higher Education and Training (DoHET) to unlock national skills and funding support and investigating possibilities for sharing facilities and leverage support from the private sector. The presentation identified NGP contributions upon refinement and agreement as monitoring through shareholder compacts.

The DPE would focus on achieving the outputs and sub-outputs linked to Outcome 6 and those contained in the Minister’s Service Delivery Agreement which included the improvement of the delivery and maintenance of infrastructure and monitoring Transnet’s and Eskom’s build programmes; the achievement of a policy and regulatory clarity in areas where SOEs operated; improving operational efficiencies of SOEs; and the development of operational indicators for each of the required sub-outputs identified as part of the delivery agreement.

Mr Matona concluded that DPE through its leverage on the shareholder compacts focused on Infrastructure development through the build programmes to enhance national economic growth. The issue of job creation and role of SOE in skills development and procurement leverage to promote investment in downstream industries, thus supporting manufacturing and promoting jobs, was highlighted.

Discussion
The Chairperson commented that Mr Matona understood clearly what the marching orders of the SONA were. The Chairperson said that the Committee would not wait for the annual reports to learn of progress made on the instructions of the SONA but would interact with the Department to gain insight on the progress made. He asked whether the DPE was in a position to execute its marching orders from the SONA in light of the skills issues, and if not what it intended doing in order to carry out its responsibility.
Ms C September (ANC) asked how the Department was able to respond to the President's SONA last year and how it was moving forward in the current year. She asked how the DPE was going to deal with the contradiction arising in SOEs, highlighted the jobs creation issues and the tariff structures which Eskom imposed on citizens. Ms September asked how the issue of tariff increases impeded on the performance of local government.
Mr Matona responded that the Department was small but intended addressing the skills shortages while filling vacancies and deepening technical capacity. He noted, however, that the Department was filled with people who understood the work of the SOEs and planed to preserve the present capacity.
Mr P van Dalen (DA) asked for clarity on graph on page 8 of the presentation and asked how, in a situation like that of a company like BHP Billiton which used about 15% of energy in South Africa at a price of 15 cents a unit and contributed less than 1% to the gross domestic product (GDP) while it created only about 3 000 jobs, the DPE planned to address such an anomaly. Mr Van Dalen mentioned the loan agreement that Eskom had signed with the World Bank which required Eskom to import roof tops abroad at three times the amount and at an inferior quality. Mr Van Dalen noted that as a result of the loan agreement by Eskom, local firms which should have been supplying the roofs were closing down. He further encouraged the DPE to act on such issues hurting local industries and to lead by example.

The Deputy Minister requested the relevant information from Mr Van Dalen with regard to the allegation of the loan agreement between Eskom and the World Bank.
Mr Matona referred all questions on the World Bank loan to the Eskom website where the loan agreement was available online.
 Dr Shaw explained the graph which Mr Van Dalen had asked about. He also commented on the issue of tariff increases and said that the increases were directly linked with Eskom’s funding model which saw a lesser reliance on Government grants and more dependence on tariffs. This was a result of the DPE’s wanting to establish a funding regime which did not depend much on Government funding and which could be used for other pressing social needs.  He further commented on the question on public and private sector relationship and said that the Department was working the SOEs through the shareholder compacts.
Mr Matona addressed the issue raised by Mr Van Dalen in principle and said that the Department was going to match the capacity of large corporations and promote the enhancement of capacity with real economic outcomes. He conceded that it could no longer be the case that large energy consumers paid low tariffs but did not give value in relation to beneficiation. He said that the issue of tariff increases fell under the space of the regulator. He further said that the issues of the tariff model were linked with that of the funding model.
Ms September asked how the international economic crisis affected SOEs.
Mr Matona agreed that the international economic crisis affected SOEs, specifically with regard to reduced revenues which posed a major challenge to SOEs and the reduction of demand. He said that he would ensure that the effects of the economic crisis did not hamstring plans and programmes of the DPE.

Ms G Borman (ANC) saw the filling of vacancies and skills training as important. She asked what the role of the private sector in relation to SOEs was and highlighted the importance of Infrastructure development.
Mr Matona replied that the DPE would look at the kind of vacancies that needed to filled and act accordingly. Mr Matona said it was important to forge a strategic partnership with private sector and pledged to follow the SONA’s call to work with private sector.

Mr L Greyling (ID) said that the Committee needed to be briefed on the conditions of the World Bank Loan. Mr Greyling commented that over the past ten years there had been a R 1.5 trillion infrastructure investment back log which should have been invested. He further believed that Government had to make up for the backlog. He commented that public sector was crowding private sector investment as the graph showed that public investment outweighed private investment. He expressed caution on the planed new state mining company, which needed a large capital investment, and further asked why it did not fall under the DPE instead of the Department of Mineral Resources.

Dr G Koornhof (ANC) agreed with the DG on the nature of the relationship between the private and public sector. He also commented that he would appreciate if the Department’s briefing after the SONA would happen yearly. He remarked on the nature of the relationship between SOE executives and the DPE as the chief executive officers (CEOs) were accountable to the boards. Dr Koornhof asked whether the DPE had engaged with SOEs on the issues of job creation initiatives. He commented on the issue of renewable energy raised by the President and how the DPE was interacting with Eskom with regards to the issue. He asked whether all the shareholder compacts were in place. He stressed the importance that job creation and skills development targets be measurable.
Mr Matona responded that the shareholder compacts were all in place.
Dr Shaw added that the shareholders compacts had been around for some time and the DPE continued to engage with the issue.

Dr S van Dyk (DA) asked what was going to happen to rural rail networks. He commented that it was important to restore the rural networks as it was not possible to rely only on the current operational ones. He asked what the DPE planned to do about the ailing rural network.
Mr C Gololo (ANC) expressed optimism over public and private sector partnership. He used the example of the Victoria and Alfred (V&A) Waterfront, Cape Town, acquisition through public and private sector partnership. Mr Gololo asked if there were any possibilities that, as a department, the DPE could promote the expansion of the railway network. He felt that a possible expansion programme would stimulate job creation.
Mr A Mokoena (ANC) noted that South Africa had over 21 000 km of rail network. He asked how Transnet planned to benefit from the R8 billion allocation for infrastructure investment. He proposed the introduction of railway police.
Mr Matona responded that the DPE was currently consulting the Department of Transport on the issues raised. He conceded that the issue of rail networks in rural areas fell under the branch of policy and regulations of other departments.
Dr Shaw commented that the Department of Transport was developing a policy on the branch lines.

The Chairperson asked the Committee and the Executive to start their relationship on the premise of a clean slate. He further thanked the Deputy Minister for attending and committed the Portfolio Committee to a healthy working relationship with the Executive. He also gave a commitment that the Committee would meet more regularly and not only for considering and adopting the annual reports.
The meeting was adjourned