Shareholder compacts signed with State-Owned Companies: briefing by Department of Public Enterprises

Meeting report

Presentation by the Department of Public Enterprises
The delegation from the Department of Public Enterprises (DPE) was led by the Deputy Director-General: Legal and Governance, Ms Matsietsi Mokholo.

In an overview, Ms Mokholo said that the briefing to the Committee comprised of the legislative context of the Shareholder’s Compact; government’s policy objectives for State-Owned Companies (SOCs); an update on the Logical Planning, Monitoring and Evaluation Framework; key components of the Compacts; performance against agreed targets; and a status update on the portfolio of SOC Compacts.

The Shareholder’s Compact was a legislated performance scorecard between the executive authority, who was the Minister of Public Enterprises, and the Accounting Authority, which was the Board of the SOC. According to Treasury Regulations, all SOCs must conclude a shareholder’s compact with the executive authority on an annual basis. The compacts documented the mandate, key performance measures and indicators to be attained and the objective was to define clear objectives for performance measures and targets for financial, operational and socio-economic performance.

Ms Mokholo told the Committee that the policies that defined government’s national economic development priorities and informed the shareholder’s compacts included the Performance Evaluation Framework, the National Growth Path and the Industrial Policy Action Plan. At departmental level, the DPE was implementing the Logical Planning, Monitoring and Evaluation Framework that operated on annual and quarterly programmes and evaluations.

The Shareholder’s Compact was the primary governance tool setting out the mandate, shareholders expectations, strategic objectives and key performance areas and targets to be achieved by SOCs. Although there were standard components of the Shareholder’s Compacts, there were also SOC specific components, as one size did not fit all in this context. Various components of the components of the Compacts were outlined.

On the portfolio performance for the year ended 31 March 2012, the DPE’s Chief Director: Governance, Ms Orcilla Ruthani said that out of the eight SOCs, only Eskom had registered an improvement in the level of non-achievement of planned targets. South African Airways (SAA), South African Express (SAX) and Alexkor had recorded decreases in the achievement of planned targets. Broadband Infraco, Denel, Transnet and SAFCOL had maintained their levels with regards to the achievement of planned targets.

On the status of the Shareholder’s Compacts for 2013/14, only the compacts for Eskom and Alexkor had been approved. The approvals for Transnet and Denel were going to be done by the end of March 2013 while approvals for SAA, SAX, SAFCOL and Broadband Infraco were going to be done by the end of April 2013.

Discussion
The Chairperson asked what the consequences were for non-delivery on shareholder’s compacts and also whether the DPE had the skills and capacity to monitor the delivery. He also asked if the DPE had the necessary early warning systems in place.

Ms Mokholo replied that the Public Finance Management Act (PFMA) did not provide punitive measures for non-delivery related to SOCs. The Minister of Public Enterprises has to tell the Board his expectation before the signing of a compact. The DPE as a shareholder had to also step up its game with regards to the ensuring of delivery by SOCs. The measures used by the DPE had been tested in the strategic intent. There had been situations where the entire board was moved. Even the leadership was not right and there were problems with personnel. Constant changing and continuous pressure was being put on the SOCs. The DPE was no longer an office of privatisation and its role within government was being strengthened. There was new unit, the Strategic Partnerships that helped SOCs in creating sustainable partnerships. There was the need to get the right people and the required capacity.

Ms G Borman (ANC) asked if there was any way in which the Committee could assist with the issue of including punitive sanctions into legislation.

The Chairperson said that all the legislative hurdles faced by the DPE had to be made clear to the Committee.

Ms Mokholo said that the DPE was working on improving draft legal tools and was going to update the Committee on the progress made.

Ms N Micheal (DA) said that the Key Performance Indicators (KPIs) were way below what the targets should be. Worst still, these KPIs were still not met. How binding were the compacts and what action could be taken by the DPE? Was the contract reciprocal and could the SOCs hold the DPE for breach in circumstances where the DPE failed to leave up to its mandate as a shareholder.

Ms Mokholo replied that the DPE was aware that there was room for improvement in the KPI’s of SOCs. The Shareholder’s Compacts included a clearer mandate, new targets, specific KPIs and particular directives from the Minister of Public Enterprises. This was intended to improve the performance of the companies and put more pressure on the boards and management.
 
Ms Borman said that there was a need for a practical working out of the huge infrastructure spends which the DPE had to oversee. The DPE and the Committee had to ensure that the huge budget was reflected in delivery on the ground. She asked if there were any doubts that the outstanding SOC compacts will be signed by the end of April.

Ms Mokholo replied that the DPE was very certain that the outstanding Compacts were going to be signed by the end of April 2013. However, she could not give an absolute guarantee. 

Mr E Marias (DA) asked how the DPE measured the performance of the SOC boards in relation to their remuneration. He said that National Development Plan was resting almost wholly on Transnet and Eskom. What was the DPE doing to provide assistance and support to these companies?

Ms Mokholo replied that the plight of Eskom and Transnet were being considered as they had the duty of immensely supporting the NDP while still having to deliver their mandates. The Minister of Public Enterprises was involved in Medupi to assist Eskom in the resolution of the problems faced and eventually assisting it in achieving its milestones.

Mr M Sonto (ANC) asked how DPE balanced the issue of non-performance and remuneration. What yardstick was the DPE using to ensure compliance? What was being done to noncompliant SOCs and what was done in situations where the responsibility for failure was actually on the DPE?

Ms Mokholo replied that she was going to provide to the Committee a written answer on how the dashboard model that was being implemented by the DPE handled the issue of performance and remuneration. The DPE was working on clearing itself from all responsibility for failure. The most outstanding case where the DPE was blamed for the poor performance of an SOC was the case of Denel. In this case, conditions were set for Denel to meet before the DPE could transfer the funds. If these conditions were not met, the DPE was not going to release the funds.

Mr A Mokoena (ANC) said that the presentation on the shareholders compact was a foundation stone for improved oversight by the Committee. He said that it was important for the DPE to factor in the inputs of the Department of Performance Monitoring and Evaluation. It was a good thing that SOCs were going to incubate and nurture artisan and training. He congratulated the DPE for showing leadership in SAA. That same leadership should be reflected in other SOCs.

Ms Mokholo replied that DPE was quite ahead of the inputs of the Department of Performance Monitoring and Evaluation. The dashboard model had considered and reflected the inputs from the Presidency with regards performance, challenges and supervision of SOCs.

Dr G Koornhof (ANC) said that the DPE had very limited capacity in terms of budget and personnel. The issue had to be acknowledged and tackled seriously. It was important to measure the budget and capacity per SOC versus the DPE budget and capacity. There was insufficient project management and cost overruns. The DPE and the Committee had to do monthly oversight and join forces in covering the massive project roll out over the next four years. He recommended that the DPE should share the dashboard model with the Committee so that the they could call the various SOCs for engagements relating to targets, performance and the challenges faced. 

The Chairperson said that it was important for the DPE to ensure that the SOCs must train the required skills. The DPE had to establish what it needed in terms of skills so that the Committee could assist it in seeking and acquiring the required budget.

Consideration of Committee minutes
The Committee considered the minutes of the meeting held on 19 February 2013.

Mr Koornhof said that he had read through the minutes and they did not contain all the discussions that took place on the 19 February 2013. It was important for the minutes to reflect that there was recent high turnover in the governance and management structures of the SAA.

Ms C September (ANC) said that there were some other issues relating to the problems at the SAA, which were discussed during the meeting but were not captured in the minutes.

The Chairperson confirmed with the rest of the Committee members and decided that the Committee Secretary should rewrite the minutes and ensure that the entire discussions of the meeting of the 19 February 2013 were captured. The Committee deferred the consideration and adoption of the minutes to a later date when the re-written minutes would be available.

The meeting was adjourned.