Apologies were received from Minister Lynne Brown, who was attending a Cabinet meeting.
The Committee was briefed by the Department of Public Enterprises on its Annual Performance Plan for 2017/18 and shareholder compacts signed with State-Owned Enterprises.
On the Strategic Plan and Annual Performance Plan, Domestic economic outlook, the Department had briefed the Committee on the challenges that had made Transnet to revise some of its targets because of the commodity crunch; there had been no improvement since then.
On Programme 1: Administration: Through staff turnover, the Department had learnt that automated processes were better as the Department used highly skilled individuals to analyse performance; therefore, when it had to appoint afresh that took time for the appointee to adapt to the Department’s processes.
Programme 3: Energy Enterprises (a): The Department had always been assessing its State-Owned Companies broadly but had decided recently to analyse individual businesses so as to unpack such business’s performance. It was realised that the core business of a company would be dominated by one enterprise through outsourcing over 70% of the work to one company. That automatically elevated the risk of a State-Owned Company.
The Department had constructed Eskom’s shareholder compact in four key performance areas. First was operational performance, which looked at the sustainability of the current performance of Eskom’s plants. Financial performance looked at Eskom’s ability to generate revenue; its cost structure and the level of debt the entity had including its ability to recover revenue in the form of municipal debt. The Department also assessed Eskom’s performance in effecting transformation and Eskom’s ability to execute its current capital programme.
The sovereign investment downgrade of SA had affected the Department’s entities planning and implementation as that meant borrowing and many other conditions had changed but the Department was convinced that all said entities would be able to cushion the effects of the downgrade.
The Committee asked when SA Forestry Company Limited’s (SAFCOLs) investment in Mozambique would start showing returns.
What had been the progress on the infrastructure investment programme as far as Transnet and Portnet were concerned in terms of the R8.5 billion investment at the Saldanha Bay harbour linked to the Industrial Development Zone that had been proclaimed therein.
Previously Minister Brown had been asked about coal mine assets owned by Eskom which did not reflect on Eskom’s balance sheet; to date the question had not been put to rest, could the Department give clarity around that issue because immediately after the question had been asked, the public had learnt about a R2.3 billion sale of mining assets by the Anglo group to a black owned company.
Members commented that Eskom had a perennial problem of compromised leadership as the previous Chief Executive Officer had been found to have questionable dealings through the State Capture report of the Public Protector, and the Acting-Chief Executive Officer had recently been found to have awarded tenders to a company where his daughter-in-law had a stake. There currently was no communication from the Department as to what consequences there were for either of the CEOs. Had there been any probe into the acting-CEO?
The Minister had told Denel’s board to withdraw its court case against National Treasury. What was the status of that directive and its implementation?
The 2016/17 Annual Performance Plan had targeted a reduction of municipal and residential debt in terms of energy but in the 2017/18 Annual Performance Plan the indicator had been removed; why had that indicator been removed?
The Committee also wanted to know why there had been a shift from a Government shareholder management to a Government Shareholder Oversight Policy. When would the Government Shareholder Management bill be submitted to Parliament?
Why had the bundling up of Aventura been targeted for completion for the 2017/18 financial year only; why had it taken so long?
The Acting Chairperson welcomed the Department of Public Enterprises (DPE) led by Deputy Minister Ben Martins. She said the Committee had had to postpone its meetings several times because of DPE entities not availing themselves for engagements for Parliament. She was disappointed to learn that DPE had not given its Annual Performance Plan (APP) to the Office of the Auditor-General South Africa (AGSA) for evaluation.
Deputy Minister’s remarks
Deputy Minister Martins tendered Minister Lynne Brown’s apology as she was attending a Cabinet meeting. Since 1994 he had been privileged to have chaired about six different portfolio Committees where he had learnt the importance of all political parties within a particular Committee. Though elected by different political parties the objective of Members of Parliament (MPs) once in Parliament was to carry out the mandate of the majority party and also the mandate that enhanced the quality of life of all citizens of South Africa (SA).
His experience had been that when all MPs within a Committee apart from being from different parties, felt part of that Committee; more was achievable. Additionally, Committees where the Minister and Deputy Minister attended as regularly as possible had the least problems in regard to oversight, service delivery and outreach to provinces. Ministers as Cabinet members were more constrained regarding Committee attendance but he was committing that as humanly possibly he would attend all Committee meetings, except when there were extended Cabinet meetings which clashed with the portfolio Committee’s roster.
Where the Committee would have scheduled State Owned Entities (SOEs) briefings and they did not pitch; that situation was unacceptable. All Departments had to be aware of briefings by their entities to Committees and whether said entities would have addressed the concerns of a particular Committee.
There were reasons why the DPE had not submitted its APP to the Office of the Auditor-General South Africa (AGSA) but they would be ventilated in the presentation.
Mr R Tseli (ANC) said at the Committee’s last meeting there had been a standard arrangement that commitments made previously would get priority before new briefings unfolded; to the effect that the Committee expected DPE to start talking to progress on previous commitments each time it came before the Committee on a particular brief.
Mr Mogokare Seleke, Director General (DG), DPE, said the Department had noted the Committee’s view on following the calendar of the Committee. However; the Committee would recall that DPE had never refused an invitation by the Committee and to date had received no correspondence on its entities defaulting attending a Committee meeting.
It was important that DPE had engaged AGSA in relation to the letter AGSA had submitted regarding DPEs non-compliance in giving AGSA access to its APP. At very low level DPE had been talking to AGSA and the matter of the APP had never reached the DG before the letter was submitted to the Committee. Furthermore, the audit manager that had been allocated to DPE had been recently appointed and after Mr Seleke had spoken to AGSA, a second letter had been written by AGSA to clarify the matter.
The Acting-Chairperson interjected that the Committee had been lamenting the fact that DPE had not been communicating and marketing its successes efficiently and effectively enough.
Mr Seleke then took the Committee through the presentation.
Strategic Plan and Annual Performance Plan Presentation to Portfolio Committee on Public Enterprises
Strategic context: Domestic economic outlook
The DPE had briefed the Committee on the challenges that had made Transnet to revise some of its targets because of the commodity crunch; There had been no improvement since then.
Programme 1: Administration
Through staff turnover, DPE had learnt that automated processes were better as the Department used highly skilled individuals to analyse performance of DPE; therefore, when it had to appoint afresh that took time for the appointee to adapt to DPE processes.
Programme 3: Energy Enterprises (a)
He said DPE had always been assessing at its SOCs broadly but had decided recently to analyze individual businesses so as to unpack such businesses performance. He said that DPE had realized that the core business of a company would be dominated by one enterprise through the outsourcing over 70% of the work to one company. When that was the case DPE had realized that automatically elevated the risk of an SOC. He said that Eskom’s debt structure was so vulnerable that if DPE did not keep a close eye on it that would put Eskom in big trouble.
SOCs performance targets (summary)
Ms Makgola Makololo, Acting-Deputy DG (ADDG), Energy, DPE, said the Department had constructed Eskom’s shareholder compact in four key performance areas. First was operational performance, which looked at the sustainability of the current performance of Eskom’s plants. Financial performance looked at Eskom’s ability to generate revenue; its cost structure and the level of debt the SOE had including its ability to recover revenue in the form of municipal debt. DPE also assessed Eskom’s performance in effecting transformation and Eskom’s ability to execute its current capital programme.
Ms Matsietsi Mokholo, DDG, Legal & Governance, DPE, said DPE had been assessing Transnet’s ability to continue with its market demand strategy. As one of the SOEs not very dependent on state guarantees DPE also assessed Transnet’s ability to service its loans which comprised local and international debt.
Mr Seleke said the sovereign investment downgrade of SA had affected DPE entities planning and implementation as that meant borrowing and many other conditions had changed but DPE were convinced that all said entities would be able to cushion the effects of the downgrade. Currently SA Express (SAX) had an acting Chief Executive Officer (CEO) that had been seconded from Denel and the DG was confident that the turnaround strategy which DPE with SAX had put in place would bear fruit soon.
The Acting Chairperson said she hoped that SAXs current acting CEO would consider past turnaround strategy elements that were useful for incorporation into the new strategy.
Mr Tseli said he needed clarity on the 30% target for procurement by Denel from black owned suppliers; what strategies were being implemented to ensure that was achieved?
What consequence management was in place for entities that would not have achieved on their targets?
Why had some targets changed completely; where such changes not going to affect the performance of entities or retard it?
Mr P Marais (DA) asked when SAFCOLs investment in Mozambique would start showing returns.
He also wanted a progress report on the infrastructure investment programme as far as Transnet and Portnet were concerned in terms of the R8.5 billion investment at the Saldanha Bay harbour linked to the Industrial Development Zone that had been proclaimed therein.
Mr M Dlamini (EFF) said he had previously asked Minister Brown about coal mine assets owned by Eskom which did not reflect on Eskom’s balance sheet; to date the question had not been put to rest, could the DPE give clarity around that issue as immediately after he had asked the question, the public had learnt about a R2.3 billion sale of mining assets by the Anglo group to a black owned company.
He said Eskom had a perennial problem of compromised leadership as the previous CEO had been found to have questionable dealings through the State Capture report of the Public Protector (PP) the acting-CEO had recently been found to have awarded tenders to a company where his daughter-in-law had a stake. There currently was no communication from DPE as to what consequences there had been for either of the CEOs and from that it could be seen that the Committee wanted Eskom to regress. Was there any probe into the Acting-CEO?
Regarding Denel; the Minister had told Denel’s board to withdraw its court case against the NT. What was the status of that directive and its implementation?
Ms Nobanda wanted to know why there had been a shift from a Government shareholder management to a Government Shareholder Oversight Policy. When would the Government Shareholder Management bill be submitted to Parliament?
The 2016/17 APP had targeted a reduction of municipal and residential debt in terms of energy but in the 2017/18 APP the indicator had been removed; why had that indicator been removed?
The Acting Chairperson reiterated Mr Tseli’s earlier comments about the Committee’s resolution to hold DPE accountable through revisiting earlier commitments; furthermore, the Committee had issue with the changing of targets as that affected the way it oversaw the DPE. The Committee would want to know the progress of a previous indicator before it had been removed completely or replaced with a new one.
In the financial years (FY) 2014/15 the DPEs core challenge had been building capacity within DPE but the DG was reporting that said capacity was exiting DPE. The Committee had once suggested that within DPEs strategy or plans it had to recruit or appoint people with the proviso that the appointee would stay with DPE for at least three years. Had DPE made any progress in that regard?
Since reading about capacity build before demand, she had also read about an intended nuclear energy programme by Eskom. Was that necessary when the Committee had heard from Eskom that it was sitting with an excess of energy?
DPE had also had challenges with the different spheres of Government, including local Government; what was the progress in resolving those issues and what percentage of debt had been recovered from municipalities?
The Committee had never received SAXs Annual Report (AR) and was aware of the financial challenges with the airline; was it prudent for SAX to continue with its Corporate Social Investment (CSI) programme whilst having challenges with its operational functions?
The Committee had also heard through print and digital media that Eskom would be closing some power stations, retrenching many in the process, but the DPE were also targeting the creation of 6 million jobs in future; what was actually happening?
The Committee had been on oversight at Orlando East, Soweto, Johannesburg at the start of 2017. Her concern was that the Batho Pele policy was non-existent at the Eskom regional offices there. Was there any capacity building programme in terms of Batho Pele there?
Ms Nobanda asked why the bundling up of Aventura was targeted for completion for the 2017/18 FY only; why had it taken so long.
Deputy Minister Martins replied that four years prior he had been Deputy Minister of DPE and SAX already had challenges then. Upon his return the challenges were still there and there was an ongoing investigation of malpractices at SAX. There was a strong indication that there were individuals within SAX involved in corruption and collusion in terms of procurement of spare parts. The investigation would also look into the general management of SAX. Positives were that within a month of the new CEOs tenure of that SOE he had pointed out things needing correction from skills match of employees; the low morale of employees and a few other matters needing attention. The previous day the Minister and Deputy Minister had met with the new CEO, SMS and the board Chairperson of SAX where the Executive Authority (EA) had challenged what the work of a board of directors was at an SOE if there remained festering rot.
The Deputy Minister suggested that the Committee schedule a separate meeting for DPE to brief the Committee on the energy mix and the integrated resource plan (IRP) which Government had undertaken to implement.
Regarding procurement from black owned suppliers; at his first stint as Deputy Minister of DPE they had undertaken an audit of all major contracts allocated to companies from legal to facilities where it had emerged that black owned businesses received minor work from DPE; big contracts for litigation and auditing still went to the four main legal and auditing companies. The DM and then Minister of DPE Mr Malusi Gigaba had engaged those big four to ensure that the “specialised work” they were doing had to be done in collaboration with black businesses so that there could be skills share and transfer.
The most recent report that the Deputy Minister had seen from a DPE delegation that had visited the SAFCOL plantation in Mozambique had showed that the plantation had not been optimally maintained for a number of years. There had also been residential encroachment onto the plantation however; there were processes underway to correct those challenges. He had also visited Ngoma in KwaZulu-Natal (KZN) where he had seen computer laboratories that SAFCOL had donated to schools as part of its corporate social investment (CSI).
Regarding coal mines owned by Eskom; there was an ongoing investigation into a clear delineation of property belonging to Eskom versus that belonging to the Anglo group and how it had sold disputed assets and to whom it had sold those to. The DPE was concerned with the SMS turnover at Eskom. There was a forensic investigation on Mr Matshela Koko but the DPE would furnish the Committee with a report.
Mr Dlamini interjected, asking whether it was not prudent that Mr Koko be put on suspension whilst the investigation was going on as he could be an obstacle during the investigation.
Deputy Minister Martins said Minister Brown had set afoot a process to which after receiving a report she would then determine a way forward. The issue of Mr Koko was not taken lightly.
The Acting-chairperson reminded the Committee of a forthcoming briefing from DPE on the effectiveness of the competitiveness supplier development programme.
Mr Seleke said DPE had not cancelled its target but with AGSA had tested the measurability to ensure that the targets would cover issues that were not generally covered before. For example, municipal debt; under Eskom the presentation spoke to the review of Eskom’s operating cost structure. Therein was included the matter of debt collection by Eskom; therefore, the targets had simply been enriched and not removed.
On capacity within the DPE the target on automation of key business processes on programme 1 spoke to capacity: that is, beyond retention of staff. DPE wanted to also retain the work which would have been produced by exiting staff. Certainly, DPE would in writing submit to the Committee a comparison between the old and new targets to further emphasise and elaborate the changes made on targets.
Regarding consequence management; the performance target within DPE and all the SOEs were linked to bonuses such that when targets were not met, incentives were retained and not paid over. At executive level; the issue went to performance contracts across the board from DPE through all SOEs.
Mr Seleke maintained that DPE believed that SAX could be turned around if DPE had managed to turn around Eskom. DPE would compile a report to that extent and certainly when SAX appeared in future before the Committee; the new strategies would become apparent.
He said Mr Dlamini had asked a Parliamentary question on the issue of the coal mine where DPE had responded.
Mr Dlamini interjected that the response from Minister Brown had related to the independent power projects (IPPs) and not ownership of mines by Eskom; which is what he required.
Mr Seleke said that DPE would certainly submit a written response to the Committee in that regard.
He said the shareholder policy was for SOEs in Government and not only in DPE and it would inform the management of all SOEs.
DPEs structure had been reworked as it had a R15 million budget cut and currently had 206 positions. To retain capacity DPE had been taking on interns and contractors so that they could fill the positions as staff exited DPE but the budget cut had meant that contractors had to be released though internships would be ongoing. The reality was that compensation management in the public sectors had started affecting how flexible Departments could be in retaining talent.
On challenges with other Departments; DPE had been working hard with the Departments of Energy (DoE), that of Transport (DoT) and Defence (DoD) as they were policy drivers of SOEs under DPE.
The Inter-Ministerial Committee (IMC) on Local Government would sit the following day to discuss the issue of municipal debt.
The closure of power stations was part of Eskom’s long term planning and would probably be also informed by the IRP as indicated earlier. The future briefing by DPE on the IRP would certainly elaborate on that issue as well, since there were many factors affecting that.
DPE noted the Committee’s concern about Eskom staff conduct, especially those on the coal face.
Ms Mokholo said when DPE last appeared before the Committee, it was in the liquidation process of Aventura. That process had been completed and DPE awaited a liquidation certificate from the office of the Master of the High Court but there was also a parallel process that DPE had instituted which was the repeal of the Overvaal Act and submitted the repeal bill to Cabinet and it had been approved for onward submission to Parliament. The liquidation process had been lengthy as DPE had to ensure that the properties transfer and notice went out to all affected parties and were endorsed by the deeds office and that of the Master of the High Court. DPE had then received dividends of R3 million which had been replaced into the fiscus where NT had acknowledged receipt of the dividends.
Mr Dlamini said his question on Denel taking NT to court over the R10 billion deal with VR Laser had not been answered.
Mr Seleke said DPE were engaging NT on the matter but he was not privy as to how far the matter was, as it was at EA level he would convey the matter to Minister Brown.
The Acting Chairperson said her concern with SAX and the DPE sentiment that it would certainly manage to turn things around was that SOEs could not continue being allowed to raid the NT every now and again. DPE had to be more rigid in its monitoring of SOEs and be firm in dealing with maladministration. The Committee had resolved that SOEs that had turnaround strategies now and again had to report quarterly to the Committee on progress with said turnaround strategies. The Committee also wanted DPE to report on progress with its Strategic Plan quarterly. Currently the Committee together with DPE were being blackmailed by SAX through the entity not submitting its Annual Report.
Deputy Minister Martins said the reality was that the Committee oversaw the DPE which oversaw the SOEs. For that to work there had to be consistent interaction between all those stakeholders as the Committee was the final arbiter deciding on the budget for DPE.
The Acting Chairperson thanked Department for coming to the Committee and released the visitors.
Adoption of minutes
The Committee considered and adopted minutes for the 3 May 2017.
The meeting was then adjourned.
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