DPE on Adjusted Budget & Revised Annual Performance Plan; with Minister

Meeting report

Opening remarks

Chairperson Magaxa said he was co-Chairing the meeting with Mr Matibe of the Select Committee on Public Enterprises and Communication.

He welcomed Mr L Mpumlwana (ANC), a new member of the Committee, who was replacing the late Ms D Dlamini.

The meeting was a briefing by the Department of Public Enterprises (DPE) on the impact of the Adjustments Appropriation Bill. as presented by the Minister of Finance, Mr Tito Mboweni. The budget had been adjusted to mitigate the COVID-19 impact. The DPE would not be impacted positively as a result of the cuts. The presentation would deal with how the cuts would affect the Department throughout the remainder of the financial year.

The budget articulated would continue to be discussed by the Committee on either a weekly or fortnightly basis. There would be continuous engagement.

The Minister of Public Enterprises, Mr Pravin Gordhan, and the Deputy Minister of Public Enterprises, Mr Phumulo Masualle, had apologised. They were engaged in other sessions taking place.


DPE:  2020/21 Special Adjustment Budget

Mr Kgathatso Tlhakudi, Acting Director-General: DPE, said Government had to pitch in to ensure the fiscal support package announced by President Cyril Ramaphosa in response to COVID-19 was met. R100 billion of the R130 billion baseline reprioritisation came from the national sphere.

The 2020/21 budget overview provided a high level view of the changes. The original budget was labelled as the “approved budget”. The 20% reduction distribution was shown alongside the revised budget figures. The goods and services spheres were the focus of the cuts. The approved budget of R309.4 million had been adjusted to R247.5 million.

Mr Tlhakudi asked the Chief Financial Officer (CFO) to go into the individual programmes’ financial details, but when the CFO did not respond, continued the presentation himself.

In Programme One – Administration -- the budget had been reduced from R164.3 million to R135.4 million, with most of the cuts being made to compensation of employees, use of consultants, and travel and entertainment. This was slightly offset by an increase in legal fees as a result of the Department dealing with more legal challenges in light of changes to its deadlines and funding capabilities.

In Programme Two – State-owned company (SOC) governance, assurance and performance – the R54.6 million budget had been reduced by R11 million in the same areas as programme one.

In Programme Three -- business enhancement, transformation and industrialisation – cuts had also been made to compensation of employees, use of consultants, and travel and entertainment, reducing the budget by R22 million from R90.4 million to R68.4 million.

Mr M Nhanha (DA, Eastern Cape) complained that he was experiencing feedback from one of the participant’s microphones, and was struggling to hear the presentation.

Chairperson Magaxa asked all participants to mute themselves, unless they were speaking.

Mr Tlhakudi said that with the R62 million budget reduction, the remaining funds would be spent in a constrained manner. Certain expenses had been committed to in the previous financial year and could not be repurposed. There were no funds available for additional priorities.

The Department normally had an informed oversight activity by commissioning studies to understand developments in the specific entities in which it was operating. This required the use of consultants, as the Department would be bringing in skills that were not typically used in the Department because of the infrequent nature of their use. This would no longer be possible due to the funding cuts. It would seek assistance from other departments to fill these gaps in expertise.  

Discussion

Chairperson Magaxa thanked Mr Tlhakudi and welcomed Minister Gordhan, whose other meeting had finished earlier than expected and had logged in to the meeting.

Ms J Tshabalala (ANC) asked to be returned to for her questions, as she had network issues.

Mr G Cachalia (DA) said he had been through the report, but was going through it a second time as he had no questions at that point.

Ms O Maotwe (EFF) said the budget overview of the Department was once again not convincing. Whilst in the COVID-19 pandemic, the Department was acting as if it was business as usual. There was nothing in the presentation to show contributions or the channelling of money to fight the pandemic by the Department. The reality of the pandemic was that the country would be dealing with it for a long time.

Why was money still going towards consultants when the Government was the most highly staffed entity in the country? What were all the Department’s managers doing? Otherwise they should be laid off, and consultants used in their place. She rejected the budget. She said Mr Tlhakudi was doing nothing to contribute to budget cuts, but coming and “crying” before the Committee.

Mr S Gumede (ANC) said that Mr Cachalia was correct – it was difficult to ask questions in a situation of that nature, as there was not much the Department and the SOEs under the Department could do, as they had been allocated very little. The funds that had been deducted under the Adjustments Appropriations Bill (AAB) may seem small, but within the Department the funds could have gone a long way under the circumstances facing the country at that stage. It was a process that Members could not change.

He requested that the Department, at another time, provide a proper presentation as to how it would use the adjusted budget given to them. He had heard the arguments about the issue of hiring consultants, and the Committee had argued with the Department to fill vacant posts. Impacted by COVID-19, the Department now had to employ consultants because these posts had not been filled. He threw the ball back to the Department to request, through the Chairperson, that the Department present the constraining circumstances, and what to expect where deficits and contractual obligations had to be filled.

He was sure that SOEs were experiencing a triple blow. Ordinarily, SOEs were weak, and the Committee had made its position clear that SOEs had been languishing, with many complaints about this. SOEs had also now been impacted by COVID-19. There had also been budget cuts. He believed that it would not the situation for the current financial year only, but would surely be the same predicament for the following financial year as well, and possibly the third. Therefore, the Department needed to have a plan or strategy to deal with its preparation for functioning well under the cuts.

What would be the impact of the budget cuts on staffing? He knew there were always employment issues. The first people to get affected were always staff. Some faced retrenchments, or were offered severance packages. These were challenges faced.

He asked if the Committees could be given open discussions about reforms in the Department. He understood the Department would be coming forward with some reforms to make SOEs more efficient, and wanted a more in-depth explanation.

Ms L Bebee (ANC, KwaZulu-Natal) said she had noticed the budget cuts on the compensation of employees (CoE) in all three programmes. Did the cuts come from salaries, bonuses, incentives or employees being laid off? Would people lose their jobs because of cuts?

She welcomed the budget cuts on consultants, travel and subsistence costs, which were spot on. She wondered if similar savings could also be made with the rental of premises through renegotiation of lease rentals during COVID-19 to cut costs.

Mr M Nhanha (DA, Eastern Cape) said he had asked a question previously to the Department, which was even more relevant in this case. It had a small budget because in its nature it was a small department in terms of staff. How did it hope to exercise oversight over SOEs that had budgets ten to 15 times that of the Department’s budget? This matter was more relevant, with the cuts being presented. By the Department’s own admission, it would be constrained in the financial year. This statement on its own placed an uncomfortable focus on the Department. It suggested that the constraints of the financial year would provide difficult challenges for the Department to exercise its oversight role over SOEs who really needed to be checked. The Committee knew the history of SOEs.

He asked what actions were being taken. What had been put in place as a mitigating mechanism, inasmuch as there had been cuts to the Department’s budget? What mitigating strategies had been put in place to ensure at the end of the financial year the Department would achieve its key performance indicators (KPIs)?

Finance Minister Mboweni had propagated the need to cut the wage bill, and if his plan to cut the state’s wage bill was implemented, how would this affect the Department?

Mr A Cloete (FF+, Free State) said he had no questions.

Ms V Malinga (ANC) applauded the Department’s cuts on consultants. If this attitude continued, it would go a long way. She was pleased to see cuts in legal services. She was impressed that the Department was not cutting on the budgets of its employees, and was all about skilling them.

Ms C Phiri (ANC) said she had been covered mostly by her colleagues’ questions and those who had welcomed the adjustments. She was also experiencing network issues. She awaited the responses.

Ms J Mkhwanazi (ANC) said she was covered.

Ms R Komane (EFF) commented that the rate at which the Department was working at filling its vacant posts forced it to take on consultants. In the budget, this was a call for concern.

The Department had not elaborated on the actual impacts of the cuts on the DPE. The Members had only been informed of the numbers. What were the implications of the cuts? Little had been done in regard to speaking about South African Express (SAX) issues. This was a concern.

Adv L Mpumlwana (ANC) asked for the criteria and actual impact that the cuts in the AAB would have, with specific reference to South African Airways (SAA), Denel and Eskom.

Ms J Tshabalala (ANC) said the Committee was dealing with more than an adjustment budget -- there was a state of zero budgeting. Members should therefore ask themselves what it meant. Zero budgeting meant that programmes the Department did not necessarily need, things that had been planned and targeted for, may not be realised. The priorities of the February 2020 fiscal framework were no longer relevant. Zero budgeting priorities set targets based on what was totally necessary and could not be removed. Therefore, when asking whether the Department would look into its strategic plans, when operating under zero budget circumstances, the reality was that it would not be the same strategic plan due to COVID-19. The impact of this on South Africa’s fiscal framework, and the debt to gross domestic product (GDP) ratio, were the realities of the situation.

She was happy that Minister Gordhan was a former Minister of Finance, as this would make him able to share more of the impacts of the financial crisis. South Africans and the Committee Members always spoke to issues of expenditure and accumulation, but never spoke on how money was to be gained. This did not address driving the GDP and the economy. She was concerned about the sovereign debt crisis in South Africa. Borrowing in the market would not be able to be serviced. She asked the Minister to share his thoughts.

She questioned whether the Department would be able to fulfil its mandate of oversight, informed by principles from sources such as the National Development Plan (NDP), the Medium Term Strategic Framework (MTSF), GDP, the New Growth Path, and the Industrial Policy Action Plan (IPAP2). This was crucial, due to South Africa’s debt crisis and its high levels of unemployment. SOCs were meant to be the driving force of the state’s strategic objectives, creating jobs, enhancing equity and opportunity. She asked whether this was likely. How could SOCs be repositioned into fulfilling this mandate?

Mr Tlhakudi had spoken about the secretariat services given by the Department to the Presidential State-Owned Enterprises Council (PSEC). What was the budget for this, at what scale, and what was the time frame of the work in this regard?

The special adjustment budget had produced a 20% reduction in the administration budget. There remained a question on the issue of filling vacancies in light of the cuts. The Department would be hit hard in this area. This tied in to it finding ways to augment its skills capacities.

When would there be a permanent Director-General? These changes needed to start at the top of the organisation, otherwise this hampered the governance of any institution. If acting positions continued for long periods, it could mean the need for recapitalisation, or cuts. Compensation budgets for the filling of other vacancies could be reduced. Was the top heavy approach of the Department being looked into?

DPE’s response

Mr Tlhakudi said he had looked at the impact based on the programme put before the Committee in terms of the APP and strategic plan. The presentation had spoken only to these aspects. From the nature of some of the questions, more detail needed to be shared.

Regarding the reactions to the pandemic, many activities had been unfolding at SOEs in helping the government. Transnet had been busy. Entities had been involved in sanitation fluid production, and face shields had been created using 3D printers at SOEs. Denel had designed and produced a decent electronic ventilator. This was gratifying, and he hoped to deploy it soon.

On the use of advisory services, there were certain capabilities ordinarily not held in the Department as they were utilised so infrequently that having them in house would be wasteful. For example, the Department made use of aviation consultants when forming the business model for SAA. These were not cheap services. When dealing with restructuring issues, the Department dealt with transaction advisors. These were specialist skills which were ordinarily not found in government. The Department was fortunate that South Africans were always willing to pitch in and help out, to advise on such matters at lower costs or on a pro bono basis. This fell under the Thuma Mina call.

He recognised the need for more details, and asked if a meeting could be scheduled to provide them.

On staffing, the Department had re-examined its use of internal resources. Most spending was concentrated in Programme One, Administration. Work was under way to look at reorganising its resources to continue its oversight work.

On the suggestion of rental renegotiations, the DPE’s accommodation was provided through the Department of Public Works, and a message would certainly be conveyed to it on this matter. The DPE was continually looking at its portfolio spending areas in order to optimise them, but there was not much room in this area.

The Department would try to mitigate against the cuts in order to continue the critical oversight mandated of the Department. He would call on Minister Gordhan later in the meeting to speak on this.

He welcomed the comments on equipping officials with the right skills, as this was important. As much as possible, the Department had tried to protect the skilling of officials within the cuts. Retaining in-house capacity helped with training. Doing the job itself trained members.

The presentation had not reflected the support given to SAX by the Department. The Department had guaranteed leases of R164 million made available to deal with SAX.

Mr Tlhakudi said he was aware of the support regarding guaranteed loans provided to SAA.

On the criteria for cutting expenses, the Department was seeking to protect critical/strategic tasks by looking at expenses that could be “got away with.” Travel had been a top candidate in this regard. Government had already regulated matters to ensure only essential travel was allowed.

He asked Minister Gordhan to respond to the sovereign debt issues that had been raised, and on the leveraging of SOEs to promote economic growth.

The PSEC support funding would come from Programme Two, as the Department’s secretariat responsibility. This would be provided using internal resources.

Regarding the “top heavy Department” comment, as referred to previously in the Committee, he said the DPE used financial analysts, economists and engineers to conduct its work. These were in-demand skills in the rest of the economy. Moreover, directors in the Department were atypical, as they had limited administrative responsibilities. Directors were brought in to provide their professional services. The Department tended to use “senior specialist” titles to refer to its directors, indicating this distinction. This drove home the point that directors and the Department offered professional services more than administrative services.

Minister’s comments

Minister Gordhan said the appointment of a permanent Director-General would be resolved very soon. COVID-19 had been very disruptive in regard to normal government administrative processes.  

In the Department itself, several employees had been found to be COVID-19 positive. Each time someone was found to be positive, the offices needed to be closed and sanitised. This was becoming highly disruptive to what the Department was doing. Safety in the Department was highly prioritised, however. Equally, each of the major SOEs was undertaking its own measures.

Transnet provided the Department with daily reports, because it had many frontline workers. These were on the freight rail side, while others were operating in the ports, working with “gangs” of 80-100 people. If one person in the gang was found to be positive, the whole gang was displaced. This had a significant impact on exports from some of South Africa’s ports, as well as the management of imports. Transnet had done remarkably well to be agile and responsive to some of these challenges. In one case, a whole squad had been transported from eThekwini to Cape Town in order to help the Cape Town corps meet its targets, particularly at a time when citrus exports were critical to farmers in the region. The Department took COIVD-19 very seriously.

On the question of consultants, Mr Tlhakudi had already pointed out that consultants were not used to conduct financial or similar work. Consultants in the Department required and provided high-level skills. Mr Nhlanhla had pointed out the disparity between a small department such as Public Enterprises and the tens of thousands of professionals such as engineers in entities such as Eskom and Transnet. There was no match. The two relative capabilities were so disparate that they presented challenges of oversight, as well as evaluating the plans that such entities came up with. This created challenges in evaluating the shareholder compacts that were meaningful in this context. Through the mechanisms pointed out by Mr Tlhakudi, the Department required specialists such as financial modellers, aviation specialists, electrical industry specialists, or ports specialists. This was how the Department was able to match its entities in terms of capabilities.

The country was in a post state corruption period, and in a process of rebuilding. Skills had been lost in SOEs and the Department as a result of this period. Good skills had been built up but had been lost or chased away during the period.

Mr Gumede’s reform comments had made some good points. Minister Gordhan suggested arranging a seminar with the DPE and the Committee in roughly a month’s time to conduct an in-depth presentation and debate on the issue.

He supported Ms Bebee’s suggestion that rental agreements with Public Works should be renegotiated. This was being done in the private sector already. Revenue and economic growth were already dropping, and property owners needed to make sacrifices, as they had already made a lot of money from the state. They had been occupying properties and had escalated the rentals that they billed at exorbitant rates. This would be communicated to the Minister of Public Works, Ms Patricia de Lille.

On mitigating mechanisms, Minister Gordhan said the Department would have to beg and borrow, but not steal. They were seeking to use public-spirited people for assistance at lower fees in comparison to the private sector. He hoped services would be provided at discount rates or voluntarily in order to cope with the situation.

Regarding the implications of the wage bill cuts, the DPE was not cutting the number of employees. It intended to find a way of mitigating and attenuating the growth in the quantum of the wages in order to manage the fiscus constructively over the next few years, and not move deeper into the debt crisis. This required the Committees to encourage departments and government entities to save more money and spend much less. This had already been implemented on savings on travel and accommodation expenses. It had been proven that Parliament could equally competently interact for oversight duties through the development of electronic media competency for communication that had been used to save costs of travel, accommodation and sustenance. Life after COVID-19 could be different for Parliament and officials. The savings could run into billions of Rands. The fiscus could do well to keep the savings within their own pockets to reduce the fiscal load.

On SAA, the Government would make the necessary announcement when it was ready. This would happen shortly. There had been a creditors’ meeting on 15 June. A vote with substantial support had been led by a competing airline, which had led to the adjournment of the meeting until 14 July. Amendments to the SAA business rescue plan tabled on 25 June had been published the night prior to the Committee meeting. It was available to read.

On SAX, the DPE was trying to find money for the staff at SAX. It was in a state of provisional liquidation. One or two entities were interested in partnering with SAX. There was nothing certain to date, however. The focus was on ensuring workers received money in their pockets.

The AAB to be discussed in Parliament was the first step towards a zero budgeting approach for the new financial year. From July onwards, leading to the medium term budget policy statement (MTBPS), Treasury would be working on a zero budgeting basis. For the DPE, it started from a point of no staff and commitments, and from here the question asked was, what mandate did the Department have. Thereafter, it determined the kind of staff and additional capabilities that were required, and from there, the new budget was constructed. This was not compromising important aspects of the social safety net built up in South Africa over many years.

Referring to the economic impact of the COVID-19 crisis, he said Finance Ministers did not usually comment on other Finance Ministers. Minister Mboweni had made it very clear that COVID-19 required the country to respond as expansively and intensely as possible to the health and economic crises, as well as the livelihood crisis. Minister Mboweni and the President had made various announcements in this regard. The question was what would happen with the increasing debt this expenditure required. Another dynamic was the cutting of costs and departmental budgets to provide the fiscus with more cash for pandemic expenditure.

There were other issues involved in growing the economy now and in the post COVID-19 environment. One critical factor was increasing the revenue base and collections from South Africa. The Committees needed to appeal to corporations and other high earners in South Africa that needed to pay their fair share of taxes. The R300 billion reduction in tax revenue over several years was formidable. Not everyone was without income, and the tax evasion of several wealthy actors undermined the fiscus. Parliament needed to take a collective view that all South Africans should pay their taxes. This was an apolitical position. Parliament could only then debate how taxes were spent.

Spending wisely and conservatively by SOEs and departments was equally important, given the crisis.

On SOEs creating jobs, Minister Gordhan said the reality was that many SOEs themselves were financially constrained. There had been valiant efforts from SOEs to train entrepreneurs and unemployed youth through artisanal jobs training and apprenticeships. He hoped this could be scaled up. This would provide supply chains feeding into jobs directly. This would make a big difference.  

Similarly, other countries in the world were asking their private sectors to take exceptional steps in the time of crisis. For example, in Britain, the Chancellor of the Exchequer, Mr Rishi Sunak, was making an announcement to set aside £2 billion for youth. This was providing work opportunities for the youth at no cost to firms. As a result, there was useful training and exposure to the youth in those firms, as well as income in the process. South Africa had its own similar schemes that needed to be implemented.

He said the DPE had no assets to dispose of, but SOEs did. This needed to be looked at more seriously, to lighten the burden on their balance sheets. There had been odd behaviour at some SOEs in this regard. For example, Denel had been running short of cash to pay salaries, yet it had a medical aid fund with around R1.4 billion benefiting just 70 of its members. Denel would not part with this surplus, which was a contribution from the company, to pay its workers’ salaries. This needed to be exposed more. The privileged few could not continue looking after themselves. He had seen this elsewhere in SOEs, and at a time where the country needed collaboration, he had seen greed and selfishness.

On the reform of SOEs, he would prepare for a seminar on this matter. The suggestion on the renegotiation of rentals was a useful idea.

The DPE needed more specialists and fewer administrative staff. This was the turnaround required over the next year. He also wanted to reorganise the Department. This process had started a few days ago. This involved interrogating what every member of staff did, up to deputy director level on a day to day basis. Two of the five key units at the Department had been completed. A discussion would then be held, as this was an effort to reorganise it to focus on the real job that needed to be done.

He thanked the Members for their suggestions, and looked forward to the seminar on the repurposed SOEs role and perspectives of reform.

Co-chairperson Matibe thanked Minister Gordhan, and invited follow-up by Members.

Ms Tshabalala said Minister Gordhan should keep up the good work. She welcomed the idea of the follow up seminar. It was critical for the Committee to play oversight over what needed to be done.

Minister Gordhan had not answered her question on when the Director-General and other posts would they be filled.

Ms Maotwe said Minister Gordhan had answered Ms Tshabalala’s question – he had said it would be resolved soon, but had been delayed by COVID-19.

Returning to the issue of consultants, she said the Committee could not have the Minister of Public Enterprises motivating for consultants. The use of transactional advisors was where legalised looting occurred. Everyone had seen what this had done at SOEs. She said SOEs possessed this expertise already -- why did the Department not trust these people? Instead, it was duplicating what the experts in the SOEs already possessed by verifying what had already been done. The Department knew the mechanisms for catching liars and the mis-leaders. Instead there was a duplication of consultants everywhere. The salary bill was bloated. Those who were not truthful at work should be removed.

Minister Gordhan had a tendency of coming to the Committee and “crying” about Denel and Transnet. She said the opposition would act on this behaviour. Members needed to be told what would be done about such issues. Denel and Transnet were accountable to Minister Gordhan as the shareholder. What was being done to ensure misconduct was addressed? At this moment in time, everything needed to be centred on saving peoples’ lives. If people at SOEs were not doing so, they needed to be taken to task.

Co-chairperson Matibe said the additional input from members had mostly been comments. He asked whether Minister Gordhan had anything else to add.


Minister’s response

Minister Gordhan said he completely disagreed with Ms Maotwe's point. If she wanted clarity on some of the issues and how things actually happened in the real world, she was welcome to contact him for guidance. He was not “crying” -- he was stating a fact. She was welcome to contact him and he would explain what a transactional advisor was according to the Department’s understanding, and what consulting firms did, and why they were needed. Mr Tlhakudi had already explained this earlier in the meeting.

He gave the public the assurance that neither Mr Tlhakudi nor he would permit any wasteful expenditure of any kind. As soon as it was detected, it would be dealt with. Some of the expertise that Ms Maotwe had spoken about may lie in SOEs, and this would then be made use of by borrowing or working with them. In other cases, the reality was that the Department needed external reference points. An example was the Presidential special task team on Eskom in 2018/19, and the report on the state of play at Eskom and what needed to be done. Subsequently a ministerial task team had been formed.

Minister Gordhan said he was not an engineer. He did not know how a boiler at a power station worked. There was probably only one person in the Department of Public Enterprises who understood such a matter. As far as aviation was concerned, the numbers were similar. Yet the Department was expected to guide SOEs such as SAA and SAX through the processes that the country had been through in the past six or seven months.

He said the last person he would cry to was Ms Maotwe. It was not about crying, it was about informing and communicating to the Committee of the challenges faced by the Department in dealing with SOEs and special interests. He hoped he would be forgiven for correcting Ms Maotwe. He suggested she choose her words more wisely. He did not think he sounded like he was crying at all. Of course, he did not have to play to any gallery, or try to fabricate sound bites.

Co-chairperson Matibe thanked Minister Gordhan. He welcomed the proposal for a seminar. This would assist Members to understand the SOEs so they had the required background for oversight.

Chairperson Magaxa said he hoped the issues raised would be considered by the Department and Minister Gordhan. Issues of outsourcing had been raised for consideration.

The meeting was adjourned.