DPE & SOEs mid-term performance report, including issues raised by AGSA; with Deputy Minister

Meeting report

DPE Minister Pravin Gordhan sent his apologies and Ms R Komane (EFF) said that she would be joining late at 10:30am. Ms J Mkhwanazi (ANC) also sent her apologies, as she was receiving physical rehabilitation after her surgery.

Department of Public Enterprises Mid-term Performance Report 2021/22
The DPE briefed the Committee on the mid-term performance report for the DPE and state-owned companies (SOCs), including issues raised by the Auditor-General of South Africa (AGSA).

Deputy Minister’s Input
As had been requested by the Committee, the expectation was for the Department to present the mid-year performance report of the Department and comment on the AG audit outcomes. A presentation had been prepared on this and had been provided to the Committee. The Director-General would lead the presentation to look at the performance issues, which were a consequence of the COVID-19 pandemic (though the Department had grown used to this extreme situation). Over the period that the report looked at, 80% of set targets had been met.

DPE Director-General, Mr Kgathatso Tlhakudi, presented on the Department’s initiatives to improve the effectiveness of oversight processes; the DPE’s mid-year performance for the 2021/22 financial year including a summary of its performance, Human Resource Management (including more internships for young people), and the Financial Performance for 2021/22.

The DG also covered the issues raised by AGSA, which included the DPE 2020/2021 financial year audit findings, SOC audit findings, and performance per programme. APP performance results were categorised into three programmes:

• Programme 1: reskilling/upskilling and DPE’s HR plan
• Programme 2: monitoring SOCs and the financial performance of SOEs
• Programme 3: SOCs’ socioeconomic impact

The DG lastly covered SOC performance, including Eskom, Transnet, Denel, Alekor, SAFCOL and SAA.

Adv Melanchton Makobe, DPE Acting DDG: Legal, Governance and Risk, presented the Fraud and Corruption Report which covered Transnet, Eskom, and SAA.

See attached presentation for more information.

Discussion
Ms J Tshabalala (ANC) was satisfied with the DPE’s unqualified audit and target achievement over 80%. The Department report had indicated that progress had been made in its functioning since the easing of the COVID-19 pandemic restrictions.

The performance of the APP had shown that the Department was determined to improve corporate governance and financial management, which were both key to the financial turnaround and development of state-owned enterprises (SOEs). She noted that this improved performance was a good development and congratulated the Department in this instance.

On HR Management, the Department had stated that appointments, interviews, and shortlisting were in progress, with the sale of SA Express and possibly Mango. The Department needed to check the SOEs that it oversaw. It would have two fewer SOEs to oversee. Why did the Department require additional capacity if it was minimising?

What were the issues that had prolonged the negotiations of the signing of shareholder contracts for Alexkor, Eskom, SAFCOL, Transnet, SAA, and Denel?

On Alexkor’s audit outcomes, Ms Tshabalala commended Alexkor, as the Committee had seen many changes around Alexkor and its performance. She added this also applied to SAFCOL. She noted “good progress” on these initiatives.

How far was the Department on Alexkor’s audit outcomes? The process had been set to finish in November 2021. The Committee saw this as an unresolved matter. The revenue was showing an increase from Alexkor’s side and that Alexkor did not require a bailout from the Committee’s side; this was good progress.

On the re-advertised posts, why were the posts for the service provider conduct, external quality assurance review, and HR management re-advertised? What were the reasons for the re-advertisement?

On the State Capture report, the Department report showed that Trillian Management owed Eskom R595 million. This was the same company that owed SARS R600 million. SARS had been given the preferential claim and Eskom had not contested this. Why had Eskom not contested the preferential claim, considering this was an extreme financial situation?

Ms Tshabalala commended Adv Makobe’s presentation on recovering money in situations such as these. This showed that something was being done to “go after our money”, through forensic investigations and disciplinary hearings. The Committee had been asking the Department to clarify this. The Committee still needed to hold a session where the legal services that dealt with disciplinary procedures and forensic investigations took the Committee through these processes in detail.

On the DPE’s presentation to the Committee, Ms Tshabalala said that the Department had aimed to provide the Committee with information on every SOE’s and the Department’s challenges. The DG covering these challenges during his presentation was quite important.

For the 2021/22 financial year, the Department had underspent on its compensation. The Department needed to help the Committee understand why R43 million had been underspent.

The DPE had had a vacancy rate of 21% at the end of December 2021. It had underspent on its compensation of employees and had budgeted by 5% on the projected expenditure for the third quarter. The DPE needed to advise the Committee on what it was doing. Ms Tshabalala hoped that this would not happen in the next financial year.

The Committee could not speak about under-expenditure compensation every year. She understood that advertisement of vacancies to attract new skills to the Department was important. This gap needed to be tightened, as there was huge unemployment in the country.

On the Reliability Maintenance Recovery (RMR) programme that had been implemented and the problem of a high number of unplanned blackouts, Ms Tshabalala asked whether the RMR programme had been “bearing fruit”. What was the DPE doing to assist Eskom with loadshedding?

In the DPE’s 2021 Annual Report, Eskom had stated that it had requested additional board members from the shareholders. Had the DPE approved this request? What progress had been made on this request? What was the reason for the resignation of board members?

Ms Tshabalala said that the DPE needed to update the Committee on the Section 189 process [retrenchment process of the Labour Relations Act (LRA)] that was being undertaken by SAA Technical.

The DPE needed to update the Committee on SAA subsidiaries and their future sustainability. She noted that this could “cause trouble going forward”.

Had the DPE decided on whether SA Express would be sold or liquidated? The Committee wanted a simple, clear understanding of this from the DPE.

On the progress of the separation of Transnet National Ports Authority (TNPA) into a separate subsidiary under Transnet, had the Board been appointed? Who had been appointed? Ms Tshabalala recalled that there were vacancies.

The DPE should clarify the Transnet investment in infrastructure, particularly on Transnet’s freight rate and port terminals.

During the DPE’s presentation to the Committee on 18 August 2021, the DPE had stated that Alexkor remained financially distressed and had been unable to meet its immediate obligation, though the presentation today had shown a different picture. Was the Pooling and Sharing Joint Venture (PSJV) restructuring critical to Alexkor’s sustainability? What were the other options being developed and evaluated?

The administrator position had represented governance challenges. She recalled that a suitable arrangement had been explored, as per Alexkor’s report.

The Richtersveld community structures remained in administration and long-term decisions on the entity were being considered. The Committee needed an update on the governance structure and the entity. What were the long-term options that had been developed and evaluated on this?

Ms Tshabalala congratulated the DPE and the DG on the presentation.

Mr G Cachalia (DA) said that he would focus on topics “over and above” what had been covered in the presentation to understand what the DPE was doing and would do to mitigate “the mess” it found the SOEs in, except for SAFCOL.

For proper oversight, annual financial statements were required. This could not be disputed. Annual financial statements had only been produced by Eskom, Transnet and SAFCOL, and Transnet’s had been late. What was being done? There was a private members bill in place to address this. Was it being given due attention?

On the R17.5 million allocated by the DPE to perform key tasks, Mr Cachalia recalled that due to the DPE’s capacity of challenges [mentioned in the presentation], the DPE was using consultants. What was the cost and scope of this? Was it out to tender? What transparency was in place? What measures going forward were being taken internally to build the DPE’s capacity to prevent these types of external expenses?

On Eskom, he said that the separation of transmission business was key to progress. However, the transmission deadline for unbundling had not been met. What was being done to address the external dependencies that were delaying this?

During the President’s speech at SONA, there appeared to be a realisation that something had to be done in Eskom on electricity and generation provision, that went beyond the “fanfare” that earlier surrounded the Medupi and Kusile Power Stations, which had been seen as a panacea for South Africa’s electricity generation challenges.

Mr Cachalia recalled that these two new entities within Eskom could provide 25% of electricity generation needs at full capacity. What was being done to address this?

The President had said that unbundling was on track and would be completed by December 2022. Could this timeline be confirmed and stuck to?

In a previous arrangement with Eskom, the Chairman of the Board had agreed with Mr Cachalia that a specific, detailed and transparent timeline was required to clarify cost impact and gaps. What progress was being made here? Would the DPE prioritise this?

On SAA, he recalled that a Cabinet statement made on 24 February 2022 had said that further progress around the deal with Takatso had been made. What represented this further progress? What were the statutory requirements to approve the deal? What bodies were needed to approve this deal? What were the criteria for individual approval by these discrete bodies?

SAA had posted losses since it had started running again: R2.7 billion against a budgeted loss of R2.3 billion. What was being done to investigate this gap?

Had the DPE interrogated the reasons behind the business rescue practitioner’s recommendation that Mango resume operations in December 2021? The Board had subsequently rejected this. Mango still incurred staff costs and airline leasing costs; more costs that would provide the “final nail in the coffin” of the airline. This had left competitors, such as Lift, to benefit. Had the DPE investigated the potential conflicts in the ownership of Lift and the demise of Mango?

On SA Technical, there was a loss of R845 million as of December 2021, despite operations of all airlines having resumed. This needed to be interrogated, as there was an uptick in demand and a downward trajectory of profit. This gap needed to be investigated.

There had been bailouts of R2.7 billion so far. Would the DPE advise the Committee on what was being done to ensure profitability?

On SA Express, there had been news reports on its employees being successful in buying the airline. This had fallen flat. Liquidation had been set for July 2022. Could the DPE provide the Committee with updates on the provisional liquidator’s plan to find a buyer? Who were the buyers? On what terms was this necessary for proper oversight?

On Transnet, the ports had issued a request for proposal (RFP) to secure partners for the Durban and Ngqura container terminals, which were envisioned to be in place at the end of October 2022. Would the DPE investigate and share who these were, what their competencies and track records were, the costs, and what would improve operations and profitability?

Could the DPE provide more detail on the segment strategy and private sector participation model to the Committee?

Denel was currently facing liquidation by Saab Grintek, over non-supply of components that had dated back to 2016. Denel had only paid 20% of salaries in May 2021 and had said that it was defending the liquidation bid. On what basis was this? How would it dig itself out of this hole? The DPE needed to investigate this.

Mr Cachalia said that there was yet another five-year plan from Denel, which came soon after assistance to turn around its situation. How would the DPE fix this entity? On what basis? What were the implications and costs?

Treasury’s presentation to the Select Committee on appropriations on 15 February 2022 had been damning. The presentation had stated that there were no financial statements. How would oversight occur? How was Denel going to do innovative funding when its bonds had been suspended by the JSE? Denel could not trade.

Mr Cachalia said that Alexkor was bankrupt and had been beset by ongoing theft and mismanagement. What concrete steps had been taken to ensure that the joint venture was in line with the Public Finance Management Act (PFMA)? What programmes were in place to engage and pay contractors and ensure integrity of the product? The community payment was under administration, while children in the Northern Cape ate sand from the riverbeds. This had to be addressed. This had been ongoing, but the situation remained the same. For how long would this go on?

SAFCOL was holding its head above water. The Committee needed to understand SAFCOL’s three-pronged plan on stabilising, capitalising existing products and then subsequent move into diversification. How was this going to be done? Over what time period? What was the cost benefit analysis? This information was needed for the Committee to monitor this one entity that was doing well, to maintain its progress.

Ms O Maotwe (EFF) said that on the HR management slides in the DPE’s presentation, the DG had mentioned that eight positions had been defunded due to National Treasury’s cost containment measures. How was this going to affect the DPE’s operations and plans to achieve its strategic objectives?

There were 212 vacancies but only 164 had been filled. Today was 2 March, a few days before the end of the financial year. How did the DPE plan to fill up these positions? If the DPE was not planning to fill them, what had it done so far? Had the DPE informed Treasury, so it could reroute the budget since the DPE would not be spending it?

The DPE had shown that with overall expenditure, only 6% had been spent on capital assets. Why was that? Since it was a few days before the end of the financial year, what was the DPE going to do to improve this 6% to exceed 75% of its budget?

In the DPE’s presentation, there was an amount of R900 million that had been declared regular due to the service provider appointment, which was not compliant with Treasury regulations. Was it just one service provider or was it a number of them? What was the DPE doing with that contract? How far along was that contract? What had the DPE done to that contractor so far?

Transnet seemed to be behind. Ms Maotwe expressed concern over the 307 mitigation plans that were behind at Transnet. Why was that? Who was being held accountable for that? These were audit findings. Mitigating factors were such that they assisted with problems. It was very worrying that the progress was lagging. What was being done about it?

On the shareholder contract, she understood that this was yet to be finalised as Alexkor had just appointed a new Board. What were the plans to get this finalised?

What were the reasons for Transnet and Denel not having finalised their shareholder contracts?

On Transnet’s financial performance, 60% of its revenue went to operating expenses. This told the Committee that this entity was in trouble. What was being done to turn the situation around? This also applied to Denel, where over 40% of its revenue had gone to operating expenses.

The Committee had a “beautiful picture” of SAFCOL, which had turned its operating expenses to be funded into revenue. SAFCOL had recorded a negative R670 million. This was how businesses needed to be run. This was what made it profitable. What was being done about Denel and Transnet to change the situation?

Ms Maotwe said that SAA needed R2.3 billion for operating expenses, yet it could only make R543 million. The DPE’s presentation correctly stated that the DPE had wanted to appoint an SAP before the working capital was exhausted. Was the DPE not putting itself under pressure to take everything and anything that came its way because it was in a desperate situation? Why had the DPE allowed the situation to get this bad without rescuing the entity?

Overall, SA Express, SAA, Mango, and Denel were “literally flat on the ground”. She said that the DG had not touched on whether there had been an assessment on the impact of this on the employees’ lives and livelihoods? It had been on the news that Denel employees were taking their lives. Just last week, a couple had taken their lives. This was due to the stress that came with not being paid salaries. As leadership, was the DPE sitting and doing a thorough assessment on the impact this had on the lives and livelihoods of South Africans?

Mr S Gumede (ANC) said that the Committee was dealing with a very saturated structure here. He clarified the structure of the report. It was completely different from the reports the Committee usually received. This was because it included the AG findings and the State Capture progress. He recommended that these two items remain a permanent fixture on the report, especially when it came to State Capture progress reports.

He said that he had tried to categorise the SOEs, so that the Committee knew where it stood with the SOEs. Eskom and Transnet were under category 1.

SAFCOL and Alexkor were under category 2. These two entities were more stable and could have a brighter future depending on the oversight given. All SOEs would have teething problems, though others had serious problems.

The third category included SAA. If SAA did improve, it would be something the Committee needed to pride itself on, as the Committee would have resuscitated SAA when it had been completely dead. The Committee would use it as a model. If all other SOEs happened to fall into a similar pitfall, then the Committee could follow a similar procedure using the lessons learned during the resuscitation of SAA.

SAA had started well, but there was reluctance on the side of those who had power, to release funding. Was the R10.5 million that had been allocated enough? The R3.5 million in the report was a requirement and had not been completely released for the business rescue payment. There was a need to achieve trust to decrease the reluctance in using money. He pointed to the R767 million of working capital that had been used for the creditors.

He thought that the R2.7 million had already been allocated to help Mango. The DG had explained it but the allocated R400 million remained to help Mango. This could overcome all Mango’s issues to get it back on track. This was Category 3.

The last category was Denel, Mango, SA Express. These had a very bleak future. More concentration needed to be placed on category 1. Category 1 was the “must-do SOEs”. South Africans could not live without Eskom or Transnet. These were South Africa’s pillars. If these entities were doing well, it could help the Committee help other SOEs.

The concentration also needed to be on Denel, Mango, and SA Express. The Committee did not know whether Mango would remain an SOE or if it would be sold.

No one spoke the language of SA Express. He acknowledged that there was a challenge. A definite decision needed to be reached so that the Committee members all understood.

He hoped that the Deputy Minister or DG were in a position answer his questions.

Mr Gumede hoped that it was not the case that some of the SOEs were to be sold or done away with.

He agreed with Ms Tshabalala that the DPE's achievement of 80% of its targets needed to be applauded.

He recalled his earlier statement on dealing with SAFCOL and Alexkor. He said that there was an “issue of facts”. He asked if the Committee could be updated on what was being done on the residential units. There were outstanding matters in SAFCOL on land claims. This would be more important to the Committee on issues of leasing. The Committee would be interested to know what it needed to do with the land claims.

Mr Gumede expressed disappointment with Denel. There was a video circulating on social media mocking South Africa for not having a viable army to face Russia at this stage. South Africa was seen as weak. South Africa was not always friendly to all countries. Others could attack South Africa or find it vulnerable.

On the exodus of engineers, he recalled that the Chair of the Board had assured the Committee about the retention of members. The Committee had been guaranteed that if Denel wanted to bring those engineers back, it would definitely be able to bring them back. He was interested in whether the same assurance could be shared today.

His critical concern was intellectual property, which was at risk. The DG or the Deputy Minister needed to report back in the future, as there had been problems with intellectual property. This was at risk because of memory which was with engineers that could leave Denel and be employed somewhere else. Unless there was something in place to stop the engineers from using Denel’s information to boost other companies? Were the contracts still intact?

If Denel did improve, government’s reliance was on the work being done there. If that work was not there, this would be a challenge for the Committee.

With the allocation of R300 billion to SOEs, there would be a share given to both the Department of Defence and Denel, so that it could start “walking again”. He suggested that when money was allocated, referring to the business rescue process, funds could be allocated according to activities.

For all the entities under the DPE, he asked whether these entities could provide a plan for how they wished to spend the allocated money. This would give the Committee better oversight.

With SAA, the Committee was in a position to talk about the R10.5 million, the R2.7 million, or whatever amount had been allocated. The Committee would be in a position to oversee spending as it would know what amount was allocated for which activity.

Mr Gumede was worried that the number had been too high. If 122 members were trying to defraud the procurement procedures, was this not a similar situation to State Capture? The Committee had been saying that the Executive needed to help ensure that the remnants of such people were not there.

Mr N Dlamini (ANC) commended Alexkor on its positive results. The Committee needed to note that previously, part of the problem had started with the old Board. Mechanisms needed to be put in place to ensure that the new Board did not interfere with the good work that was being done by the new team at Alexkor.

Contrary to what Mr Cachalia believed, things were turning around at Alexkor. DPE had told the Committee clearly that things were indeed turning around, though Mr Cachalia wanted to convince the Committee otherwise.

The DPE was the Department responsible for all SOEs. The DPE itself needed to play a role in both economic growth and job creation. How many jobs had been created? How much had the DPE contributed to growth of the economy? The Committee needed to know this information before opposition parties were allowed to convince the DPE to sell all the SOEs because they were failing, even when evidence had been presented to show the contrary was true.

Mr Dlamini commended the Air Force for recovering money that could have been lost. He was concerned that the Committee was confining itself to what State Capture and Zondo were saying, as SAA’s problems had started before State Capture. When the government was advised to sell its fleet, only to list it back, over R200 million had been spent. Was it possible to recover that money?

On Eskom and SAFCOL, he wanted to discuss the local mission that South Africa wanted to pursue and the role SAFCOL could play to mitigate carbon emissions. Perhaps the working relationship between these two could be enhanced. This would shape the direction South Africa would take on its own carbon emissions.

On Transnet’s issues, Transnet had convinced the Committee that public sector participation was the way to go, that Transnet was overstaffed, and needed to shed jobs.

Transnet had come up with voluntary severance packages. A layperson on the street could think that once a company decided on severance packages to trim down the company, those holes would be closed up. It seemed that something different had been happening at Transnet. People had been taking packages and these jobs were then advertised. How was this going to work? Why was Transnet encouraging experienced people to leave and then employing new people? Who was going to train these people? How was this going to work to the imperatives of Transnet?

The Transnet Freight Rail (TFR) had said that it was going to allow the public sector to participate in the rail network. That was all good and dandy, but if the Committee looked at what was going to be privatised, it was the rail lines that were really run down. The lines needed to be built from scratch.

The private sector had been expected to foot the bill and secure the lines. How was it going to get to that point when the rail lines were still shared between Transnet and Prasa? Who was going to be responsible for issues of encroachment along the railway line? Who was going to secure the railway line from cable theft and related crimes? These were issues that needed to be clarified.

The Committee could not avoid discussing the problem of the China North Rail and the China South Rail and their merger which had formed CRRC. This spoke directly to the 1064 locomotive problem. On this, the route of court had been decided on. However, the Committee needed to realise that Transnet and China South Rail had previously had a relationship, where China South Rail had provided locomotives to Transnet without issue.

On the 1 064 problem, China South Rail had delivered the trains that had been ordered. After the merger with China North Rail, CRRC did not want to give spares to Transnet. These were state-owned companies. The DPE, through the Minister, and maybe through the President, needed to discuss the political level with China to resolve this. As it stood, there were over 200 locomotives from China that could not be used. That was money lost.

How far was the DPE in recovering the money lost in this transaction? Not necessarily from China, but from the people who were involved in this transaction at the local level. These locomotives were on South Africa’s tracks and working daily but could not be serviced because China would not provide spares.

Not all the money would necessarily be recovered, but there needed to be some form of recovery. The situation needed to be rescued. What was the DPE doing about it outside the courts? The courts would set aside the contract, but this would not address the money put into this transaction. Over R50 billion was lost. The effort to recover this money needed to be strengthened. Locomotives were needed on South Africa’s tracks so that the economy was able to function efficiently.

On Eskom, Mr Gumede asked how far the DPE was in recovering money from the design flaws at Kusile and Medupi? From an engineering point of view, if the design did not work then someone needed to pay. It could not just be written off.

Was the DPE recovering this money? What was the DPE doing about it? What options did the DPE have?

To grow the economy, there needed to be a stable electricity supply at all material times so that it was easier for investment to come into South Africa. Jobs would then be created. The private sector would create jobs. The DPE and Committee’s job was to create the environment for the private sector to do that. That environment could not be created with loadshedding as a reality. What was the DPE planning to do about that? The DPE’s presentation did not clearly show what would be done. A lot had been done, but there were still many problems that had not been solved.

Ms C Phiri (ANC) addressed the fraud and corrupt report. She was happy with the report but had one problem with it. On criminal references, there were no actions, just investigations and waiting for the Special Investigating Unit (SIU). There was no section in the presentation that showed the DPE’s follow up. There needed to be a timeline and a slot in the slides that showed the DPE’s follow-ups. This report would come back in the next financial year with the same items and without a progress report. It would say that the DPE was still waiting for the SIU or waiting for implementation. She felt strongly that there needed to be a time frame for following up on the DPE’s mid-year report.

On SA Express, she said that in the last meeting she had expected to be given an exit report on SA Express, particularly on how far the process was and more details. Was the Committee done with it? As a Portfolio Committee, it needed to be done with discussions on SA Express. SA Express was a hanging SOE and the Committee was not sure what was happening with it. The DG needed to inform the Committee on what was happening with SA Express. She understood that was in the exit plan but had not yet exited the space of being an SOE.

Ms Phiri expressed concerns over SAA. It was back in the air. If there was interest for SAA to be operating, then why were the times not viable for government officials when booking with SAA? If the Committee could not support SAA, how did the Committee expect it to operate? What was the structure for SAA to return to its original level of performance? It was not flying accordingly.

On Eskom, she had raised the problem of the COO during a plenary. From the legal perspective, this should not be under fraud and corruption. As a layperson, she had expected to receive a report on recouping the money. There was no report from the DPE to inform the Committee about progress in on the former Eskom COO paying back the money that had been wrongly paid to his account.

On Denel, the Committee had been providing advice the SOEs can utilise. Denel had a capacity for dealing with aviation. The Committee had been calling for the engineers at Denel to share their expertise with SAA, SA Express, and Mango. This took into account that SA Technical was doing well. The Committee had never received a response from the DPE on this. She had raised this because the report holistically covered all SOEs.

What were the best practices the DPE was learning from IFLOMA in Mozambique to transfer back to South Africa, to improve SAFCOL operations? The Committee wanted SAFCOL to do better than it was currently doing. She wanted the Committee to receive proper plans from the DPE on these best practices.

Responses from the DPE
DPE Deputy Minister Masualle indicated that the DPE oversaw the portfolio of the SOCs and was doing what was best to get all SOCs to good health. There were different depths of challenges. It was encouraging to see some SOCs moving in the right direction.

SAFCOL was doing better and could be improved. There were experiences that the DPE had learned from: very stable Boards and strong, stable executive management. These were ingredients towards sustainability. This also included the implementation of programmes, accompanied by very strong oversight, and supported by consequence management.

On Alexkor, the DPE had seen notable progress. The Minister had recently appointed a new Board, which was very energetic and enthusiastic.

The aim to stabilise the Alexkor PSJV at an operational level was where the Board was going to concentrate their effort so that the diamonds could find their way to the market and get good returns and ensure security.

It was a fact that the DPE had to deal with the community there. The DPE was working with sister departments to normalise the situation. The DPE did not want to trivialise it. The community element could be quite tricky, particularly when there was no unanimity amongst members of the community.

The challenge of who the register of the beneficiaries was, the proper maintenance of it, and the community’s constant meetings—these were things the DPE was seeking with support from the Richtersveld community and the Northern Cape provincial government. This would create an environment that was conducive for the community to reap the benefits of an asset that belonged to it.

The team would provide more detail on SA Express, Mango, and others. He was comforted by the fact that the Committee would still have the opportunity to sit with Eskom, Transnet, and Denel.

SA Express had gone under and the business rescue process had been initiated and was still in progress. There would have been, at different times, an indication of potential buyers, but there were challenges when signing and sealing the deal. This had prolonged the business rescue process. There had been no report on this yet for the court to make a final decision. The DPE team would answer this question.

The DG spoke on the DPE’s capacity for aviation. Capacity was quite lean, as the DPE was a very small department. There were 212 positions and 164 filled. In aviation, there were two people: a director and an ASD. They were assisted by other colleagues in Finance, Business and BES. This was capacity that could be utilised elsewhere in the Department when a decision about ending the oversight of these assets happened. There was still quite a lot of work. The DPE was overseeing the last stages of the SAA transaction and the litigation needed to be overseen to an end.

In the transport unit where aviation was located, there was enough work for colleagues to help the DPE with.

The DPE sought to answer the questions on Denel’s financial performance. The DPE needed cash injections for Denel for its growing concern status. The DPE made policy decisions on what it chose to fund. When the Minister of Finance put out a budget, which was eventually approved by Parliament, the DPE was told not to put money into Denel.

The problems with Denel had started in 2015 with the expulsion of the Board, then the new Board came in and had removed capable people. Then, shoddy contracts had been put in place. Someone needed to put money in to fix Denel. A policy decision had been made that said the defence industry was not important to the country. This was in contrast to the rest of the world, which was doing the opposite.

Today, if the Crimeans had to be asked if they were to be found in the same position they had been in after the fall of the Berlin Wall, whether they would give up their nuclear weapons, they would say something different. The DG recalled how he had earlier referred to what the Germans had been doing and what the rest of the European Union was doing—they could not rely on other people to defend them.

On what the Department could do, he said that when government had decided to not fund the recapitalisation of this business, this was where other, innovative decisions came in. The DPE had to look at what the private sector could do to assist, whether there were signages in some of the projects or divisions in Denel.

This meant that the Department was reducing the level of ownership it had in Denel. This was a policy decision that the DPE was making.

On Treasury and no financial statements, the DG said that the Committee knew why there were no annual reports at Denel. An audit could not be undertaken because the liquidity position was “very bad”. When statements were prepared, it was done on a liquidation basis. If this had to be done at Denel today, it would be done on a liquidation basis.

The DG said that the DPE needed to ask itself about the implications of the decisions it made. The board was competent and capable but needed to be supported. When matters were brought to the Committee, it was expected that the Committee would “put in the equity” that was needed to help the business.

This was the case for SAA, which had needed to be restructured. The money was found to make this happen. Going forward, the business needed to find others to come in and assume the risk. This was the decision that the DPE had made.

SAA was undergoing audits, after many years of not having financial statements published.

SA Express was in the process of liquidation and was under the control of the liquidators. It was not answerable to the DPE but needed to answer to the High Court. The Committee might want to bring the liquidator in, as had happened in the past, to ask about the liquidator’s progress.

When a business was in liquidation, fixed assets were sold. Only the intangible assets (the brand itself, the operating licence) were left to be sold on the market. Once this was done, the liquidation process would be complete. SA Express post-liquidation would cease to exist as a business owned by the DPE.

The DPE had made specific decisions there as well. The business had gone into business rescue and could not raise the funds to enable the rescue, so it had fallen into liquidation.

On when Alexkor’s process would be completed, the DG said that the audit had been completed and was being reviewed by the Quality Unit of the external auditor. He expected to see the financial statements before the end of this financial year. Arrangements were being made for the AGM to be held during March 2022. The new Board also needed an opportunity to appraise themselves.

On the internal audit review, there was a five-year review being done by a service provider, who had been found through a tender. The first tender that had gone out was not successful. It was after the second tender now and the process had almost concluded, so the internal audit review would be done by the end of this financial year. This five-year review was a requirement. The DPE was addressing this.

On why SARS had been referred on Trillian Management liabilities to Eskom, the DG said that it was the law. As much as the Committee wanted the money to come into Eskom because of its current financial situation, the law dictated that “the taxman came first”.

On the vacancy rate, the DPE was ensuring that the line managers were measured on the filling of vacancies. This would go a long way in ensuring that the responsibilities devolved down the organisation. Of these vacancies, 32 were in the process of being filled now.

The DPE needed to deal with the reality of what form the DPE would take going forward. Work was being done to finalise the [National Labour Migration Policy and Employment Services] Bill. This would demand bringing in different skills. This included skills that correlated with being a department. The DPE had realised that managing a portfolio of state-owned assets was not ideal and that something different needed to be done. Other countries had moved away from this kind of arrangement.

The Eskom board was still in the works. A process needed to be followed when filling boards. Government colleagues had provided possible options to fill these vacancies. It had reached the point where something needed to be done and there needed to be optimal skills on that Board.

On the updates on SAA subsidiaries, the Committee needed to advise the DPE on when it wanted SAA to brief it.

On the TNPA Board, there was an interim board in place currently overseeing Transnet. There were nine non-executive Board members, including the Chair, and three executive members. The DPE was currently looking at applications for permanent Board members. The permanent Board would be announced soon.

The Alexkor arrangement was not optimal. The Alexkor Holding Company lacked on the operations side and the PSJV had operations. Then DPE’s priority was to collapse that. The DPE hoped that the new Board would help with this.

In the long run, the DPE needed to ensure communities had a bigger say on what was happening at Alexkor, which was an asset taken from the community to allow the National Party, the government at the time, to purchase arms for South Africa. The Deed of Settlements had intended to restore that injustice. This meant that the asset needed to go back to the people.

The land and mining rights had been restored, so it was only right that a partner that was right for the community was found. Alexkor’s total diamond production was a very small portion of South Africa’s total output (less than 6%).

The Richtersveld community structure was under administration through the Department of Agriculture, Land Reform and Rural Development. The next time Alexkor came to a Committee meeting, the Committee might want that Department to share their progress on those entities. Some of the obligations that were expected from Alexkor to the community were charged to community entities. With the community entities being under administration and others becoming dormant, Alexkor had found itself strained to meet the requirements of human settlements. The Committee’s intervention would help greatly.

On the annual reports, the DPE also wanted the reports to be released in line with the PFMA provisions. The DG reiterated that if entities were not in a position to publish the report, the company law was very specific under the terms on which entities could prepare financial statements. If the Committee was asking for an entity to provide financial statements even without meeting these terms, then it was the same as asking for the entity to close down.

He cautioned the Committee on what it was asking for. This challenge was ultimately for the lawmakers to deal with.

The DPE did not use consultants very often. There were very complex organisations under the DPE. It would not make economic sense to keep some of the skills that were required to do some of the work in the Department temporarily. The DPE would not be able to afford that. It was easier to get an external person to come in for a couple of weeks and prepare a report that would be reviewed and implemented by the Department’s officials.

The DPE was prudent when it came to using consultants, as it understood that in the past, external people hired by the Government had abdicated their responsibilities. The people in the DPE were highly skilled. The DPE had had the important task of writing the SOE Bill but the DPE was not in a fortunate position like the rest of the government, which wrote its own legislation, so had brought in external consultants.

Good progress had been made with Eskom’s transmission business, which had been legally separated from Eskom at the end of 2021. What had been required was the legislation from the Department of Mineral Resources, to license this entity.

Management had been able to reach an agreement with some of the critical suppliers and Original Equipment Manufacturers (OEMs), and work was being done on maintenance at Eskom. Work on design defects was being undertaken.

Transnet was not being unbundled. The DPE was corporatising TNPA in line with the National Ports Act of 2005.

The DG admitted that the numbers on SAA might have been “a bit confusing”. The R2 billion on expenditure included many cost items. In restructuring the business and paying off voluntary severance packages, this money went through the income statement. This was a once-off item and could distort SAA’s performance. This applied to the other restructuring costs, including paying off historical creditors, All this money went through the balance sheet and income statement. The business was doing relatively well.

All the airlines were losing money. State-owned airlines had to publish their numbers. Everyone was suffering. The capacity that airlines had was relative to where the market found itself with the peak being the end of last year. The DPE should not allow itself to be swayed by the exercises being undertaken by its competitors, including statements on SAA not being viable. The competitors needed SAA to disappear so they could have the market to themselves.

Historically marginalised people had been able to get into jobs, professions, and businesses they ordinarily would not have been able to because of SOEs. Had the work of ensuring that South Africans had a share of the economy concluded? Could the government step off business completely? The country was not there yet. 

Well-run SOEs were needed. SOEs needed to address the issue of representation. The pace in the private sector had not been as good as it needed to be, in ensuring that South Africans were well represented. The DG pointed to the problem of women’s representation on boards in the private sector.

The authorities’ approvals that needed to be obtained included the Competition Commission and the BBBEE Commission. The DPE had to go through these hurdles, which had been made public.

Mango had been trimmed down quite a bit. There were no operating costs incurred beyond keeping the post-holders to maintain the accreditation licenses at Mango. There were no unnecessary costs at Mango.

On Lift and Mango’s troubles, the investor had been in a position to make a decision on which parts of SAA they wanted. The decision that the investor had made was that Mango would not be part of that. Lift was managed globally. The DPE would see what would happen and ensure proper decisions were made. There would be proper representation on the Board.

The DPE wanted the High Court process on SA Express to end quickly, because the legal fees for the liquidator came from the assets that had been disposed. If the process went on indefinitely, only one party would benefit.

The DPE said it would wait for the results of the private sector participation (PSP) process. There was a procurement process that had been undertaken. It would be properly reviewed when the results came out. If there had been some wrongdoing that Mr Cachalia had picked up on, he should bring it to the attention of the DPE or the authorities. As far as the DPE knew, the process had been handled with prudence by the team at Transnet.

On the SAAB Grintek liquidation, there had been engagements between the Denel and SAAB Grintek Boards. An arrangement had been agreed upon. Denel was going to be at the Committee meeting next week. The Committee would be able to ask questions then.

On community hardships in Richtersveld, the DG said that this was why the Department of Agriculture, Land Reform and Rural Development was there. There had been infighting within the community. That community was “always in courts against each other”. That was why those structures had been rendered ineffective.

As the government, the DPE was always considering how it could help restore normality to that region. It was a very strategic region for South Africa. The DPE wanted to do right by those communities.

It was important for the Committee to also mediate between some of these disputes. There was a team from the DPE that went there often, so the DPE was aware of what had been happening.

SAFCOL would also make its way to the Committee to share its strategies. On concerns around climate change, wood could be used for products that would create less waste and be biodegradable.

SAFCOL had had to navigate the difficult economy it found itself in. It was a business very much exposed to the economic cycle. If the housing market was depressed, then there were no new houses being built, so SAFCOL could not sell wood for trusses. This also applied to the mining sector.

On the eight positions that had been defunded, the DPE would look at impact on operations and would ensure that operations were not negatively affected. The DPE used to have seven DDGs in the Department and had been told it needed to reduce the size of EXCO and have more people on the ground.

The Corporate Management DDG role had been defunded. The Chief Directors in that programme were having to take on more responsibilities as a result. This had made processes more transparent for the DG.

The DPE had tried to work around this as much as it could. The rest of government was also dealing with cost-cutting.

The DPE was in constant communication with a colleague in the Department of Public Sector Finance. The DG had a good picture of the state of the DPE’s finances. The DPE had not spent money and would have to return this money to Treasury. The DG hoped that this would not happen in the future.

The capital assets that had been referred to were IT assets. The DPE had found itself in a strange situation with suppliers that had been vetted by Treasury. However, these contractors had not been performing. The DPE had not received requirements for a whole year. Delivery did not happen. The DPE was addressing this problem.

The DG was not happy with the supply chain management, which took a long time with turnaround and requirements. The DPE was trying to automate functions in that environment.

On the issue of the R900 000, the fault lay with the DPE, rather than with the contractors. The DPE had used a supplier from Treasury and the contract was with Treasury. The contract had been closed before the supplier had completed its work for the DPE. The communication between the DPE and Treasury could have been better. The DPE had written to Treasury on this and asked for condonation. The DPE hoped to be cleared before the end of the financial year 2021/22.

On the backlog of the Transnet audit findings, the Committee needed to interrogate this matter in great detail as the entities attended Committee meetings. The DPE could provide more information on what “lay behind the table”. The DPE tracked these and put as much pressure as possible on SOEs to ensure the audit findings were addressed.

Some of the findings were linked to irregular expenditure and how Treasury’s guidelines on irregular expenditure had been formulated. The DPE had engaged with Treasury which had agreed that something needed to be done in this area.

It was also linked to the “dodgy contracts” that had been put in place by Transnet. It was taking a lot of effort to go down to the operational level to ensure that these sorts of acts did not continue. At the end of this financial year, the DPE had made good progress, as shown in the presentation.

If a lot of revenue was paying for operational expenses, the DPE would find itself in a difficult period. These ratios were unique to each industry and there could be the same number across the industry. Some of the industries were very equipment-intensive. This was a discussion the DPE needed to have, as it informed how the DPE compacted its shareholders and financial expectations.

On SAA, if there had been any desperation, it was desperation to ensure that the government did not continue to carry the burden of losses. Players in the industry could step in, but this needed to be done responsibly. The DPE needed to ensure that it did not leave people at SAA destitute. This was why there had been an orderly restructuring of the business through business rescue.

It was important that the DPE ensured that the people who had left SAA received voluntary severance packages to sustain them as they looked for other ways to earn an income. The same applied to the Training and Layout Scheme.

The DPE had to find ways of helping SAA in concluding its audit process so that access to facilities could be accessed in the Training and Layout Scheme.

The DPE needed to ensure that skilled people found themselves in the economy, as they did not have jobs.

The DPE was confident that as the economy globally recovered, the new SAA would find its place. He hoped that the discipline that came with private capital would rub off on SAA.

On employees and where they found themselves with the impact of SOCs, the DG said that was what happened. When people chose to become corrupt in running these businesses, as had been articulated by Zondo, and capital was hollowed out, this was what caused businesses to fail. People ended up not being paid salaries. This did not just happen in the public sector, it also happened in the private sector.

In the past, the State would come in and provided equity injections to pay for operational inefficiencies. This could not happen now. Money should be for capital programmes that created new cash flows.

When the government chose not to provide additional funding to these entities, the result was that people only had 20% of their salaries paid. The government and the DPE needed to understand the implications of its decisions, in reaction to the problems in SOEs. The DPE needed to ask itself about the social cost for marginalised people who were disadvantaged by the demise of these entities.

On the structure of the report, the DG appreciated Mr Gumede’s categorisation of the SOEs. He would hear on the retention of the categories Mr Gumede had referred to. This might have solved some of the DPE’s problems in categorising SOEs. The DG thanked Mr Gumede as the DPE did not have to bring in a consultant to do this.

On SAA, the DPE had been able to reach consensus with Treasury. The remainder of what was required for the business rescue process was that some of the liabilities would be settled over a three-year period. The R10.5 million the DPE had received was to take care of the first year of costs. For the subsequent two years, the funds had not come in as the DPE had hoped. The DPE would try to use the R10.5 million to meet that. There had been an agreement that R3.5 billion would be provided.

Mango received R890 million to take care of standing liabilities from the business rescue process, including paying historical creditors. R400 million remained.

The Alexkor rental problem was being addressed by Alexkor management. People in residential addresses were being paid.

Good progress was being made on the SAFCOL land claims. Two years ago, the President had handed over the land in the KwaMkhwanazi area of the North Coast of KZN. More work was being done currently. The forestry team in the DPE was working closely with the Department of Planning, Monitoring and Evaluation to settle the claims. At some point, the DPE would update the Committee on its progress.

On Denel, the DG said that South Africa was very important and a strategic region in the world, by virtue of its position in the south seas, South Africa needed to have a capable navy to ensure that it properly policed the 4 000km coastline and had regular surveillance of the islands on the south-eastern side.

The DPE needed to ensure that the Army and Air Force were adequately funded to protect South Africa’s sovereignty and ensure its safety. These were decisions that the DPE also made, on defunding this area of the government. As the lawmakers, perhaps the Committee was in a better position to ask on the DPE’s behalf. If the DPE was given a budget, it would implement it.

On recovering people who had left Denel, time was against the DPE. The longer people had stayed outside, the harder it was to bring them back. On the IP, the DPE might have the documents, but the background IP was what was needed for new products. The longer this situation went on, the harder it was to recover the situation.

On transparency on allocations made to the SOEs, the Committee had the latitude. This would go to the Finance Committee as well, and the Committee would post their approval. This could be part of the DPE’s regular reporting.

On conflicts of interest in SOEs, the DPE internal team managed this very well. The DPE had developed policy under the risk and integrity framework. A team went around to SOEs regularly to receive updates on revisions concerning this policy. The team also monitored the SOEs finances to pick up on any instances of wrongdoing.

The interim board at Alexkor was comprised of people with skill and integrity. The DG did believe what had happened in the past would happen again, but the DPE would monitor and have regular engagements with the Board to ensure this. At the time, no reports went to the Minister that updated or observed Alexkor. The DPE would ensure that the oversight activities would be transparent enough so that when wrongdoing was pointed out, it could be visible beyond the Department.

The DPE used to have a target on jobs created internally. The DPE found that SOEs created jobs internally. Eskom had 16 000 more people employed than required. Entities create jobs during the construction phase, but then new operations posted jobs. This happened when new businesses were set up. Studies done by the Department had found that for every job in Denel, six jobs were created in the rest of the defence and related industries. The capabilities in the SOEs needed to be used to set up a fully-fledged enterprise to create jobs. This needed to be the focus going forward.

The DPE did commission reports looking at investment programmes. It would make this more visible in its plans going forward.

On the history of Coleman Andrews and what could be done to recover the money, Ms Phiri’s sentiments were welcomed.

On the problem of people being let go and new people being hired, the DG did not have many details on this.

On the branch lines, effort had not been made in the past to maintain its good condition. Other actors had been brought in to ensure that those lines were brought back into operation. The role of the municipalities needed to be looked at. What role could municipalities play? What investment could be mobilised to ensure that once the lines were restored, it was utilised?

On CRRC, the DG said he would leave it to the courts who were better positioned to answer. The DPE had engaged with SASEC, the parent agency in China, on CRRC.

On taking corruption to court, Adv Makobe would speak on this. Law enforcement agencies were independent.

On Cape Town, the Minister had raised this with SAA, which needed to engage with the Office of the Speaker to schedule operations, especially with the peak seasons of Parliament, to have enough capacity (of flights available). SAA was operating for narrow bodies currently, which constrained its flight times.

The DG was not aware of the overpaying of the Eskom CEO.

The SOE collaboration remained a big objective for the DPE. The Transnet engineering team had been engaging with SA Technical. The DPE could facilitate the engagements but could not instruct or interfere in the operations.

On IFLOMA: IFLOMA was benefitting from SAFCOL’s interventions, not the other way around. IFLOMA was a loss-making business for a long time. The DPE was now expecting money to come back in the form of dividends to SAFCOL. SAFCOL had deployed new management which had invested a lot of time in ensuring IFLOMA got itself to where it was.

Adv Makobe said that on law enforcement agencies, there were no timelines because of their independence. The DPE had received progress reports.

Follow-up discussion
Ms Tshabalala asked if in the future, all members of the presenting team could introduce themselves before presenting. She asked about Denel’s solvency, and the possibility of a stronger relationship between Denel and the DPE, Treasury, and other relevant stakeholders.

She asked the DG about the actual volume of under-expenditure being taken back to Treasury. It was unacceptable for money to be going back to Treasury. The DPE needed to ensure its planning and budgeting were thorough. She was worried about this. She congratulated the DG for his responses and capacity for understanding his Department.

The Chairperson clarified that Members needed to ask questions they felt were not adequately answered by the DG, not to ask new questions.

Ms Phiri clarified that her previous question was about the COO not the CEO.

Mr Cachalia said that if he had any new questions, he would put them in writing to the Department

The DG said that Denel would cover their strategy in the next Committee meeting.

There were many other priorities in the government. The DPE held regular sessions with colleagues at the DoD on funding.

On investment in private sector entities that are doing business with Eskom, the DG said that any potential conflicts of interest were thoroughly investigated.

The Chairperson thanked the Department, the Deputy Minister, and the DG for their presentation.

Committee minutes
Committee minutes for 23 February and 16 February 2022 (in this order) were considered and adopted.

The Chairperson thanked Members for their questions.

The meeting was adjourned.