Department of Public Enterprises on its Annual Performance Plan

NCOP Public Enterprises and Communication

24 May 2017
Chairperson: Ms E Prins (ANC; Western Cape)
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Meeting Summary

The Select Committee was briefed by the Department of Public Enterprises (DPE) on its Strategic Plan for 2014/15-2018/19 and the 2017/18 Annual Performance Plan (APP). The state-owned companies (SOCs) within the Department had a combined asset value of over R1 trillion and this capacity could influence the direction of the economy. Projects in Programme 1 (Administration) were targeted to modernise the organisation and improve its influence. The focus of Programme 2 (Legal and Governance) in 2017/2018 was to conclude the Government Shareholder Policy; Programme 3 (Energy Enterprises) would focus on improving the sustainability of Eskom and improving its contribution to the broader competitiveness of the economy. He added that Denel had shown that government could implement a turnaround and incorporate private sector without weakening government’s influence on the company. SAFCOL would be supported to improve its processing capacity. The decline in economic activity had had an impact on the operations of the transport enterprises and the Department continued to pursue programmes to support black participation in the manufacturing sector. SOCs continued to operate under constrained business environments which impacted on their sustainability. SA Express’s financial position was significantly constrained. The downgrading of the sovereign debt to sub-investments will have a material impact on the ability of SOCs to raise funding.

DPE’s budget increased from R266.7 million in 2017/18 to R296.5 million in 2019/20. Over the medium term compensation of employees was expected to increase from R166.9 million in 2017/18 to R184.6 million in 2019/20. Goods and Services was expected to increase from R96.9 million in 2017/18 to R108.6 million in 2019/20 to support the increased establishment.

Members did not take kindly to not having the Minister and the Deputy Minister in the meeting. Members appreciated the good report and questioned why entities had not declared their dividends as well as the extent in the development of Transnet rail line. They asked if Alexkor was a liability as its performance was worrisome. They questioned the measures in place to make community projects sustainable and beneficial. There were some concerns whether automation of key business processes would lead to retrenchments of some critical posts.

The Committee wanted to know how performances of entities were measured and if CEOs of the entities had the right qualifications. They questioned the impact of the downgrade on ordinary people and the status of Denel and SA Express. 

Meeting report

Opening Remarks

Ms Z Ncitha (ANC; Eastern Cape) said the Committee accepted the apology from the Minister because she went to a Cabinet meeting but did not take kindly to not having the Deputy Minister in attendance. There was a narrative out there and there was need for clarity from the political heads of the Department. The Committee hoped this did not repeat itself.

An alternating Member of the DA said the statement that went out after the Committee sat a day earlier was in all the newspapers. The NCOP was just as important as the portfolio committees. When Eskom came to present, the NCOP should be incorporated into a joint sitting in order to listen to the presentation. This Select Committee always got second hand news and this was not right. The Chairperson should ask for a joint inquest into this issue

Mr A Singh (ANC, KZN) said he agreed with the sentiments of the last speaker. .

The Chairperson said she was happy that the Committee Members were the ones engineering this conversation. It was disturbing to read reports in the media. There was no stability - not only in terms of the story from the media but also what was happening in the Committee. The Select Committee could not say if someone resigned or not. If there was no stability in the entity it will affect the work of the Committee. The Committee must call the Department as well as Eskom to come and explain so that the Committee would know what was going on. There was need to have the views of the members of the board. She appreciated the Members for raising the issues and said in the future there should be a joint sitting on issues like this. There was need for Eskom to appear before the Committee urgently. 

Mr O Sefako (ANC, North West) said if the Minister was not present in the current meeting, the Select Committee must give DPE an opportunity to hear what the Committee had to say as the Department was capable of answering the questions from the Committee.

The Chairperson said the Committee would deal with people who were responsible. The Minister was responsible to oversight and she was accountable to the Committee.

Ms Ncitha said she was in agreement with the Chairperson’s proposal. The Committee should not put the officials of the Department on the spot in a matter that was dealt with at a political level.

The Chairperson welcomed the agenda and said if the officials felt they had something to say on the matter of Eskom they were welcomed to do so but the officials had no obligation to say anything if they did not want to.

Mr Mogokare Seleke, Director-General, DPE, said the Department was also carrying a heavy weight. It was not easy to work in a difficult atmosphere. The Department had done its best in terms of administration so that if there was an enquiry, the records would speak even if the officials were no longer there. Sometimes what was said out there in the media was misrepresented and inconsistent with the report. It seemed that no one was interested in the facts. There was no need to wait for formal meetings before the Committee got the facts. There was a lack of communication and what was reported out there was a runaway thing. The questions on the table did not talk to the facts but on other issues. The state of affairs at the moment was working on the psychology of the Department.

Department of Public Enterprises on its Annual Performance Plan

Mr Seleke briefed the Select Committee on its Strategic Plan for 2014/2015-2018/2019 and 2017/18 Annual Performance Plan (APP). The state-owned companies (SOCs) within the Department had a combined asset value of over R1 trillion and this capacity could influence the direction of the economy. Projects in Programme 1 (Administration) were targeted to modernise the organisation and improve its influence. The focus of Programme 2 (Legal and Governance) in 2017/2018 was to conclude the Government Shareholder Policy; Programme 3 (Energy Enterprises) would focus on improving the sustainability of Eskom and improving its contribution to the broader competitiveness of the economy. He added that Denel had shown that government could implement a turnaround and incorporate private sector without weakening government’s influence on the company. SAFCOL would be supported to improve its processing capacity. The decline in economic activity had had an impact on the operations of the transport enterprises and the Department continued to pursue programmes to support black participation in the manufacturing sector. SOCs continued to operate under constrained business environments which impacted on their sustainability. SA Express’s financial position was significantly constrained. The downgrading of the sovereign debt to sub-investments will have a material impact on the ability of SOCs to raise funding.

DPE’s budget increased from R266.7 million in 2017/18 to R296.5 million in 2019/20. Over the medium term compensation of employees was expected to increase from R166.9 million in 2017/18 to R184.6 million in 2019/20. Goods and Services was expected to increase from R96.9 million in 2017/18 to R108.6 million in 2019/20 to support the increased establishment.

Discussion 

The Chairperson said the Committee had a responsibility to make DPE deliver on its mandate but equally had a duty to keep the Department comfortable. The good work must go on despite the media reports.

Mr E Mlambo (ANC, Gauteng) appreciated the presentation and said it was not every day that the Committee got good explanations when annual performances of the Departments were dealt with. He asked why the entities were not declaring their dividends and what was holding them back. On Transnet he wanted to know how far the development of the rail line was.

Mr Sefako said it appeared Eskom was doing well judging from the proceeds. He wanted to know if Alexkor was a liability if its profits were considered and what the challenge was. In terms of SAFCOL, he asked what the challenges with the trust and communal property associations (CPAs) in these areas are. As a Department, was there any approach that could ensure that communities were well trained and their projects were sustainable and benefited the entire community? He wanted to know if automation of key business processes leads to retrenching in some of the critical posts and added that it made the Department survive under such stringent budgets.

Ms Ncitha said the issue of Alexkor was worrying because there was a high expectation for that entity to assist communities to get out of poverty. What were the steps put in place to measure the performance of such entities? It was a very poor area of Alexander Bay yet they were supposed to be very rich. Eskom’s ratio was 74%, Denel was at 80% and SA Express went nearly to 100%. SA Express was not part of the entities mentioned and the airline was a disappointment. DPE should be worried about its performance because this affected the Department’s rating on economic development. Were the CEOs of these entities really qualified f the performances was so bad? DPE was gearing towards positioning the SOEs to support the industrial development. Was this possible going by the reports on these entities? The Committee was here to assist the Department through policy and legislation. Had the SOEs under DPE signed shareholders contracts with the Department with respect to performance agreement and service delivery objectives? Were there any SOEs that did not achieve their targets for executive managers’ board?

The Chairperson said she hoped the issues in Alexkor could be addressed as it was worrisome. People were unemployed and had called for the Committee to come and do something, because they were not benefiting. Those people were not aware of what was going on. She said she hoped that by June there would be a proper structure in place. What was the impact of the downgrading by the agencies? Was it going to affect ordinary people? She wanted to know what the status of the merger was and if DPE was looking at the remunerations as well as the bonuses to board members. It was not acceptable. She wanted a status update on Denel. How were the people sustained in Denel and what had been done to make the company grow? Was SAFCOL now stable?

 Responses

Mr Seleke responded and said on the declaration of dividends that when the infrastructure programme was conceived, government did not have the cash to invest. Money was borrowed and that money was to be invested in the companies. The debt level was high and there was focus on servicing the debts. Government continued to borrow and invest and this ran to the outer years. It was the same concept that investors used in stock exchange businesses. This limited the dividends that went back to the economy.  The concern was that the focus was on macro-economy and the micro economy was suffering. The intention was that the private companies would move to the micro economy and this did not happen

On Alexkor, he said the greatest trouble around Alexkor was the coal contract. The Department was a victim of what it knew nothing about. Some contracts ran up to 45 years and about R45 billion was spent on coal annually. It meant that someone had been making that money. It was a handful of very big companies. The real problem must be on the table for a fair and transparent process. DPE would submit a written report on it as the Department was working towards a most tenable outcome without any interference in between. Alexkor could create jobs. Parliament should exercise its role and put certain pressure on these people in Alexkor to address unemployment. There might be a lot of talks about beneficiation but most investors wanted minimal cost.

On SA Express, he replied that the CEO had been relieved of his post. There had been no improvement over a long period of time.  DPE had proposed a new process and how the process should be implemented. DPE wanted South African Airways (SAA) and SA Express to benefit one another. The new CEO who came from Denel had said that there was some convenience for some people in the company when some part of the company was not working. This was the reality and it had strengthened the case for privatisation. DPE did not want to fall into that trap that said people would only take care of the company if such people owned the Company. The Department was faced with challenges that were operational and ideological.

On Denel, he replied that the South African National Defence Force (SANDF) needed a supplier who was dependable as well as reliable. There had to be a primary supplier for SANDF who was suitable as a company to sell their products to the Defence Force as well as strong in terms of its security standards. The company also had to be sustainable. When DPE visited Abu Dhabi, there was a military show. People gave offers to Denel that could not be refused. There were two challenges regarding Denel: there was no capital to service the orders and modernise their plans and they continued to lose capable clients to private companies. There was an ongoing conversation with Treasury in this regard. DPE had resolved that all issues that were uncomfortable were dealt with procedurally. The Department will also ensure that the guarantees on Denel are Denel had been given a high investment rating but it was dependent on the renewal of their guarantee.

DPE was on the last stages in term of the delivery of the legislation on oversight and in terms of shareholder content and service delivery agreements; he replied that the shareholder must have achieved a certain level. It also came with the evaluation of the board performance by the Minister. There were annual general meetings (AGMs) and board members that were entitled to bonuses were determined based on the reports.

On SAFCOL, he replied that the post of the CFO had been filled but there had been no suitable candidate found for the filling of the CEO post. There was an ongoing process to have that post filled. The board had a target that it would hit the R1 billion mark in terms of revenue. The concern of a company that was doing business with SAFCOL was that the latter was reducing in revenue. There was also a complaint came from   the Competition Commission, which came from other companies. The companies had said they needed supplies from SAFCOL to stay in business. The CEO had been advised that instead of playing the blame game, there should be a discussion around how to “grow the cake”. Once that was done there would then be a bigger pool of the resource as well as a sector plan that was based on the totality of the resource. Opportunities lie in the forests that were still in the hands of the government. There are resources that were outside the borders of the country in Mozambique. The Department had asked the Deputy Director-Generals to inspire this kind of conversation that would inspire the growth of the economy so that the companies as well as the private sector could work together for the growth of the economy.

On the status of the merger he replied that there was a private company that had independently analysed the situation and had given DPE the different scenarios. The Department would apply its mind to the scenarios next week and thoughts of privatisation were remote as DPE was not considering that. The policy on standardisation of remuneration had been endorsed and was at the level of application. It would be put on trial implementation so that DPE could constantly report back to Parliament on how it was working

Mr Sefako said in Nespruit, there was this challenge of Nkosi Mnisi with SAFCOL on the land claim. How was it impacting on the future of SAFCOL in that area? There was a cloud of uncertainty as to what SAFCOL would do with the land taken from the community. In one of the villages in the North West there was a huge forest of eucalyptus trees. In the 1950s this was used for fencing. This stopped in 1959 and the trees were vandalised. There was a need to continue to resuscitate this project as fencing played an important role in the safety of lives.

Mr J Parkies (ANC; Free State) asked Mr Seleke if there was perhaps any time frame that he could attach to certain objectives. Mr Seleke spoke about the evaluation of the board that was involved in awarding a bonus and the power of the Minister to ask a board member to remain or leave. How would that impact on the work of the parastatal as politics in the country was polarised?

Responses

Mr Seleke replied that to get a forest to the level where it would become a benefit would take about 20 to 30 years. Communities did not have that kind of patience. It was necessary for SAFCOL to continue to exist but it should have a role of maintenance and protection. DPE had put together a programme of beneficiations. SAFCOL would take care of the forest but the community would benefit from it and make an alternative livelihood from it.  It would have to be in a controlled environment. DPE would have to give them a protected market environment. Public procurement should be preserved for development. That was how China had succeeded. The current problems in the country were deliberately manifested to defocus the Department from the real issues.

On eucalyptus trees, he replied that the only hope was to use corporate social investments (CSIs).

Rating agencies said the companies in anticipation of these risks had already implemented certain measures to cushion themselves against the downgrade. The buffers were there but it could only be to a certain level. Government was supporting the cluster of Ministers who were engaging the rating agencies to clarify the concerns. The conversations were continuing. On time frame to record some achievements, he replied that the projects that were currently running would show results by the end of the financial year.

The Chairperson said the Committee was satisfied with the Department’ responses and she encouraged DPE to stay open and do the right thing even though that may not be very easy.

 Adoption of APP and Strategic Plan and Minutes

The Committed adopted DPE’s Strategic Plan for 2014/15-2018/19 and 2017/18 APP was adopted.

Minutes dated 3 May 2017, 10 May 2017 and 15 March 2017 was adopted.  

The meeting was adjourned.

 

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