Department of Public Enterprises on its 2013/14 Annual Report

Meeting report

Department of Public Enterprises on its 2013/14 Annual Report
Ms Matsietsi Mokholo, Acting Director-General: Department of Public Enterprises, noted that the Department of Public Enterprises (DPE or the Department) was the Shareholder Representative Department for Government, with oversight responsibility for eight State Owned Companies (SOCs). These were: Eskom, Denel, Safcol, Broadband Infraco, Alexkor, Transnet, South African Airways (SAA), and South African Express Airways (SAX). The Department was organised around three programmes, Programme 1: Administration, Programme 2: Legal and Governance, and Programme 3: Portfolio Management and Strategic Partnerships. 

Ms Mokholo said that the DPE’s strategy for the period under review was focused on six areas:
1) Maintain the robust shareholder oversight practices within the framework of shareholder management model that the Department had adopted
2) Stabilising and repositioning of the SOCs, looking at funding options
3) Recognising that State Owned Companies (SOCs) were key instruments for a Developmental State with regards to driving fixed investment (particularly in a counter cyclical manner) to unlock economic growth; leveraging procurements to support industrialisation; skills development; transformation and job creation
4) Gearing up the DPE's shareholder oversight to lead in driving capital investment with emphasis on the Strategic Integrated Projects (SIPs)
5). Capacity building to enhance Department’s ability to execute its Strategic Plan
6) Creation of a supportive policy environment to support sustainability of SOCs.  

*Ms Mokholo said that the key enablers were:
- Institutional repositioning of the Department
- A coherent policy and regulatory environment
- Effective strategic coordination across the whole of government.

She reported that there were no changes to the existing structure. The only focus was on filling critical posts. All Deputy Director General positions had been filled. The Director General had resigned on 30 August and an Acting Director General had been appointed by 01 September.

Ms Makholo said that, with regard to key compliance areas, all accepted and approved invoices were settled within 30 days. Management accounts were submitted to National Treasury within stipulated deadlines. An accurate Asset Register was maintained.  An Annual HR Plan was developed and submitted to the Department of Public Service and Administration (DPSA) within the stipulated timelines. All staff had signed performance contracts and were assessed, in line with the DPSA prescripts. The vacancy rate was reduced from the 10% that it had been in the previous financial year, down to 1.8%. The Departmental Strategic Plan and APP were developed and approved within the stipulated timelines. A performance monitoring and evaluation policy was approved and implemented. This had resulted in improved management and oversight on performance information within the Department. The Annual Report was developed and approved within stipulated timelines. The three-year Strategic and Operation Internal Audit Plan was also developed, approved and implemented, with twelve projects undertaken. The Audit Committee met, as per statutory requirements, and continuously exercised oversight over the Department. The Talent Management Strategy was approved and was being implemented.

There had been a reduction in the use of consultants, showing a decrease in cost by 38.5% compared to the previous financial year, with consultants having cost R29.8m in 2012/13, but R18.3m in 2013/14. The Enterprise Risk Management approach was implemented, in line with National Treasury guidelines and prescripts.  The Strategic Risk Register and action plans were approved and implemented. The fraud detection and prevention mechanisms were in place. The Minister and Deputy Minister were accompanied by Chief Executive Officers of SOC and visited seven provinces as part of the provincial engagements programme.

Ms Mokholo noted that in this year, irregular expenditure amounting to R711 000 was incurred. Disciplinary processes were in progress against those responsible. Fruitless expenditure amounting to R530 000 was incurred, mainly as a result of the cancellation of the SOC BRICS Summit. An investigation was undertaken and concluded that no DPE official acted negligently.

The Department achieved 83% of the targets for the 2013/14 financial year. This reflected a 19% improvement in the Department’s performance compared to 2012/13. The Department further restored its clean audit opinion. This had been a direct result of the increased focus in the management of performance information and improvements in the performance contracting with SMS employees.

Ms Mokholo then outlined some of the key challenges for 2013/14 the performance of the economy has had a profound impact on the SOC operational environment. The State’s Airlines had been the most affected.   The slower than expected economic performance resulted in lower volumes which meant that some of the targets by SOCs such as Transnet could not be achieved. The creation of a supportive policy framework that promoted effective functioning and financial sustainability of SOCs remained a challenge. The ability of the Department to attract and retain the critical capabilities was required to execute the function. Despite these challenges, the Department performed well and achieved a clean audit opinion, and also received a good performance rating against the Annual Performance Plan, at 83%. 

Ms Mokholo set out some of the major achievements for the 2013/14 financial year. There had been a successful processing of transactions, and the Medium Term Expenditure Framework, Estimates of National Expenditure and the financial statements were submitted within the required deadlines. The Department managed to ensure that all reports were delivered on time. A talent management framework had been developed to respond to the capacity and retention challenges. She repeated that by the 2013/14 Financial Year, the vacancy rate was at 1.8%, compared to 11.9% in 2012/13 financial year. New performance monitoring policies were developed to guide the institutionalisation of the outcomes based planning and monitoring within the Department. A policy also created a framework for aligning individual performance to organisational performance. Fleet procurement was implemented by SOCs. A Memorandum of Understanding (MOU) was signed by DPE, Department of Science and Technology (DST), Centre for Scientific and Industrial Research (CSIR) and Department of Trade and Industry (dti) on the benchmarking of research. The SOC Supplier Development Programme was expanded for Eskom and Transnet.  The Department established a DPE-SOC procurement forum to share lessons learnt. A SOC skills plan was implemented to ensure support to the National Development Plan (NDP). Youth strategic priorities were implemented and  meetings with stakeholders were held. The DPE position on carbon tax was developed. SOC policy (Eskom, Transnet and SAA) research was conducted, the draft scoping report was developed and the report was collated and peer reviewed.        

Discussion

Mr R Tsedi (ANC) welcomed the presentation from the Department. He said that he had been concerned by the use of consultants although the Department had reduced that usage in the last year.

Mr Tsedi asked if the Department could give an indication of how much, percentage-wise, it was contributing towards overall Government targets in relation to job creation.

Mr Tsedi asked why certain people in the department could not take responsibility as to the cancellation of the BRICS Summit which led to a fruitless expenditure of over R1 million.

Mr Tsedi asked how effective the strategy would be in terms of the challenges in HR management so that skilled people did not leave the Department.

Mr Tsedi also wanted more clarity on how much had been achieved in terms of the targets, and how far the DPE had improved. He stressed that the Committee needed to consider the question of targets that were not vague but measurable, so that the Committee could hold people accountable if those targets were not achieved.

Mr K Morapela (EFF) said that one of the mandates of the Department was to unlock economic growth which was very interesting. He asked how many people had been helped or empowered to grow economically and to become financially sustainable or to be serious contributors to the economy, so as to realize the mandate of the economic growth path.

Mr Morapela asked what the actual programmes were with regard to the youth empowerment, commenting that this was not clearly indicated in the presentation.

Mr Morapela agreed with Mr Tsedi in terms of the fruitless expenditure, particularly on the R530   000 which could not be explained, and the cancellation of the summit. He asked the Department to explain in more detail what exactly had happened.

Mr Morapela wanted to know if the Servcon situation was likely to be improved, and when, because it seemed that there were to be changes in terms of its strategy. He then enquired how long that was likely to take.

Mr Morapela asked when South Africa would stabilise after the economic downturn so that it would be possible to have a greater focus on growing the economy of the country, using the Department.

Ms N Michael (DA) was confused with the figure of R711 000 of irregular expenditure, which was said to be due to non-compliance, and did not understand how non-compliance would result in irregular expenditure, because there was no explanation in the report. She asked whether action was taken against any individual, and whether any action was taken against those responsible for the cancellation of the BRICS summit.

Ms Michael asked for more detail on the cancellation of 10 South African Airways airlines contracts, and whether those airliners were Boeings or Airbuses.

Ms Michael wanted to know what the DPE was doing to retain staff in the Department, saying that seemed that because DPE was used as a university, and other entities came in and poached their staff, which was a major problem for the Department.

Ms Michael asked which State Owned Entities (SOEs) were going to be privatised.

Dr Z Luyenge (ANC) asked the Department to elaborate on the methodology behind the retention strategy of the Department, agreeing with previous remarks that it was not desirable for DPE to be a university or training ground for other institutions. The Committee needed to understand its strategy clearly.

Dr Luyenge asked whether where there any litigation cases against the Department, or any where the Department was the plaintiff.

Dr Luyenge asked for more detail on what was being done to implement equity plans in the Department

Ms P Van Damme (DA) asked what the Department was doing, as a shareholder, to address problems around the Annual Reports of SAA and South African Express, to ensure the reports were not submitted late to Parliament.

The Chairperson asked whether the Department was achieving its goals, and complying with its vision and mission statements.

The Chairperson asked what the Department was doing to address the instability in financial management in most of the SOEs. She also asked why the Department and Minister had visited most of the SOEs, what had been the outcome and achievements of those visits, and whether they had found any discrepancies in the entities.

She also asked the Department to elaborate on some of key challenges of 2013/14 particularly given that  where there was slower performance in the economy, this resulted in smaller volumes, and the fact that some of the key targets of SOEs like Transnet could not be achieved.

The Chairperson asked whether the unemployed graduates were considered un-trainable, in terms of the skills that were required by the Department and rather than outsourcing skills outside the country, she asked if there was any training programme in the Department for re-training unemployed graduates.

Ms Yoliswa Makhasi, Deputy Director General: Corporate Management, DPE, answered the questions on the fruitless expenditure. She noted that the amount of R530 000 was due as part of BRICS commitments  made to South Africa during the previous financial year, 2012/13, when South Africa hosted the BRICS Summit. There was a session of Heads of Departments which took place in preparation for the Ministerial session, and at the last minute, the Ministerial session was cancelled, because two days before that event it was discovered that most of the Ministers were not able to attend, despite the fact that DPE had relied upon the Department of International Relations and Cooperation (DIRCO) to issue the invitations and do the follow ups. It was not possible to do anything other than cancel, but that cancellation resulted in the fruitless expenditure of about R527   000.

DPE had done its investigation into the matter, and was satisfied by the information and evidence provided by colleagues within the Department on the progress that was made in terms of organising, and the engagements that were made between the DPE and DIRCO.

Ms Makhasi then turned to the issue of irregular expenditure. This arose as a result of non-compliance with policies and procedures within the Department. One of the key drivers of the irregular expenditure was bursaries that were given to staff in the previous financial year, without following processes; she explained further that in the initial stages, everything was done properly, but in the final leg of that process  the Director-General was supposed to sign off those bursaries, but instead, somebody else at HR had done so. An investigation was undertaken on that particular issue. The staff member involved, who was also charged on other charges, had been dismissed, but she was appealing the case, so it was not regarded as finalised until the appeal had been finalised. The staff member was an HR Director at the time of her dismissal.

She added that there were also some other matters of non-compliance, which resulted in deviations from the supply chain management requirements. For instance, certain expenditure required that three quotations be obtained, but in some cases only two quotations were obtained because, when the DPE called for quotations, less than three were submitted. Contracts were thus awarded according to the quotations that had been received. However, there was still a process that had to be followed, declaring a deviation or declaring upfront that only two quotations were received. The DPE had already attended to the audit findings in this regard, and had addressed whatever needed to be addressed. This report to the Committee would close off the matter.

Turning to questions around the retention of staff, Ms Makhasi noted that the agreement between the DPE and the SOEs was that the methodology on retention was governed by Department of Public Service and Administration (DPSA). She said that to a large extent there was reliance on performance bonuses, and in government departments there were not such substantial performance bonuses compared to what, for example, was paid  in Transnet. Another issue related to salary adjustments. If

people were recognised as having performed well, they could be moved up one salary notch, but in reality this did not make much difference when a person has another option, or was looking for different levels of satisfaction. DPSA had, however, defined other tools that could be used as part of the retention strategy - such as opportunities for training and bursaries. There was also an internship programme in the department and there was a talent pool strategy in the Department, where it had recruited young people who were being incubated in different units within the Department.

Ms Makhasi indicated that the equity plan appeared on page 91 of the Annual Report and the statistics in terms of that equity plan were outlined. In terms of disability employment, the DPE was doing well, and in terms of gender balance at the DDG level it was also doing well; out of seven DDGs, five were female.  Within the SMS category, which included directors and chief directors, DPE had around 45% women and was still struggling to get the 60% women target, although it was making progress. In the lower staff levels, it was also doing quite well, with 60% women and 40% men. The racial and disability balance was also quite sound.

Ms Makhasi said, in respect of the provincial engagements, that the programme for provincial engagements was developed by the Minister and the Deputy Minister in order to ensure that the Department engaged with communities as well with the provincial government departments and businesses. Typically, in a provincial engagement, the Minister, the Deputy Minister and the SOEs would meet with the Provincial Government,in present the DPE services to them, and would hear in turn what was happening in the provincial departments. A task team had been set up between the SOEs and the Department to work on improving those matters, and to and ensure that issues would be taken back to the operations divisions of the SOEs, if matters required attention at those levels. Those engagements would typically last for half a day. In the afternoon sessions of the provincial engagement programme, time was spent with communities. The DPE might, for instance, go to a school and open a telemetric project (which was something it had been doing for quite some time). The  telemetric project  was basically aimed at bringing science and mathematics to the most rural schools, and DPE was working on this in partnership with the University of Stellenbosch. Further to this, sessions would be held where the DPE Ministerial team and SOEs engaged with business, discussing opportunities that existed in that particular community.

Ms Makhasi confirmed that the DPE had quite an elaborate youth programme, and its advice to the SOEs, as they would confirm when they presented their Annual Reports, was that the SOEs should focus on some specific areas already identified, and they must given further details on those to the Committee. The youth programme of the DPE consisted largely of career expos. DPE had visited a number of schools and communities where it ran career expos, and recently it had a career expo in Gugulethu, which attracted more a thousand learners from schools from the area and surroundings. Furthermore, there was a skills programme for SOEs, which also looked at creating opportunities for young people to be trained in the SOEs. There were bursaries available, especially in science and mathematics. There were job opportunities that were created for young people and the DPE and the SOEs would document all these initiatives and bring them to the Committee.

The Chairperson said she was glad to hear this, and the Committee looked forward to receiving the information. She thanked the Department for the presentation and responses, and was looking forward to the next engagement with the SOEs when they presented their Annual Reports.

The meeting was adjourned.