Department of Public Enterprises on issues emanating from the State of the Nation Address

Meeting report

Introduction by Chairperson
The Chairperson welcomed Members and the delegation from the Department of Public Enterprises (DPE). He said that there were three items on the agenda with the main issue being the presentation by the DPE on issues emanating from the 2013 State of the Nation Address (SONA).

Briefing by the Department of Public Enterprises
The briefing was presented by the Director General of the Department of Public Enterprises, Mr Tshediso Matona. The presentation comprised of an outline of the key themes of the SONA, the policy framework and strategic priorities for 2013/14.

Key Themes of the 2013 SONA
Mr Matona said that the speech was anchored around the National Development Plan (NDP). The document represented a detailed set of ideals of the future of the country. The ideals had to be given the proper political positioning and were related to other policy issues such as poverty alleviation, unemployment, inequality and measures to stimulate growth. Focus was also set on the implementation of issues identified in the last SONA. This involved implementation progress on key infrastructure projects and government expenditure on infrastructure. The Address by the President also provided an update on the work of the Presidential Infrastructure Coordination Committee. There was focus on the broad theme of transformation and economic empowerment, youth development and skills development. Combatting corruption was another key anchor of the 2013 SONA.

Policy Framework
Mr Matona said that DPE was trying to articulate the relationship between the NDP and other policies. Aligning with the NDP did not mean ditching other policy documents but the NDP served as a vision statement for 2030. The NDP could be considered as a framework and vision and thus there was the need to continue working with other instruments such as the New Growth Path (NGP) and Industrial Policy Action Plan (IPAP).

The DPE had reviewed its mission and vision and this review was guided by the NDP. The new vision of the DPE was “to drive investment, productivity and transformation in the DPE’s State-Owned Companies, its customers and suppliers to unlock growth, drive industrialisation, create jobs and develop skills”. The strategic posture of the NDP was reflected in this mission and vision.

The major question was on what legislative framework guided the work of the DPE. The DPE thus had to identify relevant legislation and identify gaps in policy. The DPE was going to initiate legislation which had been previously abandoned. It was time to revive legislation as this would help the Department align itself with the NDP. 

The Committee was presented with a graph which illustrated the systematic driving by public investments to the economy. This involved a countercyclical approach to investment policy. Private enterprises also remained key drivers in the economy. Private enterprises were however being encouraged to engage in dialogue with the state to create an environment favourable for growth.

Strategic priorities
The DPE planned to continue to strengthen oversight with particular attention to the build programme. Focus was also going to be placed on the challenges faced by Eskom at the Medupi power station where work had been stopped due to strikes. Mr Matona told the Committee that much had to be done to break the dead lock. The Minister of Public Enterprises was coming up with several initiatives to resolve the crises.

The capacity of the Department was a crucial priority and National Treasury had provided resources to beef up capacity within the DPE. The DPE intended to create a supportive environment and enhance coordination with other government departments and sectoral departments such as energy, transport and communication. Linked to the build programme was the issue of local procurement and local manufacturing. Companies had bought fully into and agreed to the idea of promoting local procurement and local content in supply chain management practices was increasing as a result of capital expenditure programmes. The DPE was going to continue to support companies which were challenged financially by global adverse trading conditions. The Department was working with the National Treasury to prevent the loss of value in these companies.

The role of coordinating infrastructure roll out projects placed the DPE at the centre of the Presidential Infrastructure Coordinating Commission (PICC) mechanism. This had to do with various strategic projects such as broadband infrastructure. The DPE was setting up a Project Management Office in collaboration with the Development Bank of Southern Africa (DBSA) to monitor infrastructure projects. This office was also going to help with the harnessing of specialised skills. The extent of the work had matured and the DPE was now calling a supply development summit in March 2013 where Eskom and Transnet were going to present their plans in terms of supplier development.

Mr Matona provided data on contractual commitments by Transnet and Eskom on the improvement of local content in procurement.

Mr Matona said that there was a need for more systematic operation in terms of transformation. Good progress had been made with regards to BBBEE but there was need to investigate deeper into finding who the beneficiaries were and how sustainable the projects were. There was desperate need for a new approach related to BEE. In this light, a close eye was to be kept on skills and youth development.

On the recapitalisation of State-Owned Companies (SOCs), Mr Matona said that if Eskom recapitalisation was not going to come from the tariffs, alternative capitalisation had to be resorted to. This was also the problem with South African Airways (SAA) and other SOCs. These companies needed sufficient capitalisation to carry out their mandates.

Mr Matona told the Committee that the BRICs summit themes were going to include cooperation, economic development and cooperation with regard to infrastructure, SOC best practice and governance. Dialogue on SOCs could be beneficial thus there was going to be a side event where relevant Public Enterprises ministers were going to meet top executives of companies relating to cooperation on SOC.

In conclusion, Mr Matona said that the SONA, through the profiling of the NDP, required the DPE to align to itself to the national framework. There was no need for new policies but for mere aligning to the NDP and the tools available for the implementation of the NDP vision such as the NGP and IPAP.

Discussion
Ms N Micheal (DA) said she was worried about the Minister of Public Enterprise’s response during the 2013 SONA debate. Why did he list the projects that were supposed to be done as opposed to highlighting the major successes? She had written to the Minister urging him to create a permanent mediation team at Medupi and Kusile power stations. It was also very important for the Committee to call the contractors at Medupi so that it could explain what the problems and challenges were.

Mr Matona replied that the delays at Medupi and with all capital expenditure programmes were a matter of concern. This was because of the complex nature of the projects and the fact that their complexity made them proned to delays. The contractors were using the Project Labour Agreement (PLA). This Agreement committed all parties to the conditions for the project to unfold. It was however experienced that it was not quite efficient as conditions on the field had changed and it was important to consider a revision of the Agreement. What needed to be done was to ensure that the document was reviewed to remove all possible issues so as to ensure permanent peace at Medupi. That was the kind of dialogue which was being encouraged. The project management office which was being established was going to handle these kinds of issues. Another reason was because the project was being driven by the contractors while Eskom as the project sponsor was too far removed. The overall objective of the measure currently taken by the Minister was to ensure permanent peace. There was the urgent need for the project to restart and be carried on at an accelerated rate. The situation posed a threat to the national supply of power and required solid leadership.

Mr E Marais (DA) said that the implementation of the NDP was very dependent on the activities of Transnet and Eskom. It was therefore important that the performance and operation of those companies be taken seriously.

Dr G Koornhof (ANC) asked why high port tariffs were still being charged at South African ports. He suggested that the Committee should investigate the problem of high tariffs imposed on South African products at ports of exit. These high tariffs were a hindrance to industrialisation.
Dr Koornhof further expressed concern that the Medupi power station was still at a standstill since January 2013. It was distressing to hear statements made by a British analyst who said that Eskom was showing a bad example for doing business in the country. It was however important to note that the problem was not only Eskom’s. The problem was with the policy and legislative environment. Eskom had serious challenges and the Committee had the duty to assist it through oversight and to help the DPE and the SOCs. There had to be policy alignment and legislative alignment.

Mr Matona replied that the matters raised by Dr Koornhof were matters of great concern. The observation that the rush around infrastructure roll out was a means to make up for previous shortcomings was correect. In the past, a lot was dependent on the contractors and the state removed itself from the operations. This meant that the companies had to fund themselves with high interest rate loans thus leading to the eventual imposition of high tariffs. The DPE was looking at ways of restructuring the system so as to achieve lower tariffs. It was important to establish that the state and its companies should not depend on high tariffs. In a few days, the Portfolio Committee on Trade and Industry was convening a colloquium to address the issue of high tariffs and administered prices. Lessening the dependence on tariffs was important and major questions relating to budget, revenues and cross subsidies had to be asked.

Mr Matona added that the sooner the DPE knew what Eskom was expected to do and what resources it was going to need, the better for the Department. Eskom was going to be a very important player in the energy sphere so it required the necessary support. Only the Minister of Energy could determine what Eskom could bill. On the Medupi deadlock, the DPE was going to do all it could to facilitate and ensure permanent peace. After the resolution, there had to be making up for lost time in terms of accelerated production.

Mr A Mokoena (ANC) recalled that the President spoke about the issue of land restitution. What was the DPE doing with regards to land restitution? He also asked what the status of the DPE and its SOCs in terms of BBBEE was. What was the response of the DPE with regards to the aspect of 30 day payments for creditors?

Mr Matona replied that there was a need for a change of approach with regards to land restitution. The overcoming of administrative and bureaucratic blockages was very important. The DPE was going to welcome any mechanism which could bring about positive developments in land restitution, rural development and transformation. Work was being done on the BEE legislation to eliminate possible problems and shortcomings. The DPE was going to support the improvements by the DTI. It was a good and important policy and could not be abandoned. The idea of BEE was to have the state promote a proper functioning of the economy and its entire people. The fundamental philosophy of BEE had to be relooked and recalibrated. On 30 day payment, the DPE was doing well in reporting on the progress. It was achieving very high scores in this regard as just very few cases of non-compliance were registered and this was not the fault of the DPE officials. The other companies could not be vouched for but the general progress was good. The audits by the Auditor-General were going to identify the progress and that was going to be the total responsibility of the companies. The urge was to score 100% compliance.

Mr C Gololo ANC asked if the rumours of the possible exit of the group CEO of Eskom from the company were founded.
 
Mr Matona replied that the Department’s plans with regards to Eskom and its future had always included the Group CEO, Mr Brian Dames. This was still the case. The DPE had not been advised as to his intention to exit. The board and the CEO himself had the duty to respond and dispel the rumour or advise on the issue. Eskom was a fairly well-run company but with very a complex nature.

Ms C September (ANC) said that the NDP spelled out three areas where the DPE needed to focus on. These included a need for a clear mandate, a proper governance structure, and the focus on constraints and challenges. Where was the DPE in relation to these important aspects raised in the SONA?

Mr Matona replied that a reading of the NDP suggested that there were a range of issues which were very important. The DPE was already working on some of these issues. Infrastructure was central but was linked to skills, localisation, and corporate governance of SOCs. The DPE was busy with many of the issues and was working on strengthening the alignment and improving the structures. Some of the issues required further processing, communication, coordination, etc. Overall, the DPE was looking at the broad aspects of the NDP and was working on moving itself in alignment with the NDP and its tools.

Ms G Borman (ANC) said people were getting confused about the NDP. It was not a policy per se but a framework which was to guide other issues. If there were wrong people in the DPE’s offices and positions, there was going to be trouble and poor implementation. The Project Management Office (PMO) was a great idea and expertise was needed. How far was the DPE with the development and operation of the office?

Mr Matona replied that the PMO was going to be accountable to the Department and the DBSA was going to allocate some officials and experts to deal with the running. It was going to be a shared model between the government and the DBSA. The work was well advanced in terms of the concept and design.

Mr Mokeona said that he was not satisfied with a shared top heavy structure of the PMO.

Mr Matona replied that it was just a monitoring organ and it was still in the design stage and was still going to be fine-tuned.

The Chairperson said that very important issues had been raised and serious steps were going to be taken. The Committee was going to follow up on ideas such as the meeting with the Medupi contractors for detailed explanations as to the problems hindering progress at the power station.

Committee Report on Annual Reports the Department and State-Owned Companies
The Committee considered its report which covered the 2012 Annual Report of the DPE and all other State-Owned Companies.

The Committee corrected minor grammatical errors and noted that information that had been requested from South African Airways (SAA) had not been provided.

The meeting was adjourned.