Mid-term performance report of DPE & SOEs

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Public Enterprises

23 November 2022
Chairperson: Mr K Magaxa (ANC)
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Meeting Summary

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The Committee met with the Department of Public Enterprises (DPE) in a virtual meeting to be briefed on the mid-term performance reports of the DPE and state-owned companies (SOCs).

The DPE reported that its mid-term performance in meeting set targets was at 70 percent, with 23 of 33 targets being achieved. Response plans were being implemented to ensure achievement of those not met. There had been progress towards achieving key priorities as outlined in the medium-term strategic framework and the economic reconstruction recovery plan. The Department continued to provide strategic support to SOCs. Governance and accountability were prioritised. 

Actual spending as at the end of September 2022 amounted to R5.9 billion against the projected spending of R21.9 billion. Of the R26.7 billion allocated to SOCs in respect of government-guaranteed debt, R4 billion had been disbursed to Eskom, R1.6 billion to South African Airways (SAA) and R201 million to Denel.

The Committee was told that Denel continued to face liquidity challenges, which had resulted in the 2020/21 and 2021/22 financial statements not being audited. It had been allocated R3.4 billion in the Medium-Term Budget Policy Statement to implement a turnaround strategy and continue to dispose of non-core assets to supplement this allocation.

Alexkor was solvent and did not have interest-bearing debt, but the 2021/22 financial year audit was still outstanding. Revenue had been stagnant over the past three years due to low diamond production. Large capital investment would be required to bring the operations to sustainable levels.

Eskom has not been profitable since 2019. Debt levels were unsustainable, and cash from operations was insufficient to meet debt obligations, so a portion of Eskom's debt would be transferred to the sovereign balance sheet. The audit of the 2021/22 financial year was still outstanding.

SAFCOL was the best performing SOC, achieving 86 percent of its targets. Revenue has been on an increasing trend for the past three years. It had no solvency and liquidity challenges.

Transnet was implementing its turnaround strategy and required R136 billion for rail and port infrastructure. It sought to attract private sector investment.

SAA commenced scheduled flights on 23 September 2021. It flew to eight destinations in September 2022. Its year-to-date income performance was ahead of budget due to high ticket prices. Regional and domestic flights were increased to 4 125 in the year. The Special Investigating Unit was still investigating SAA’s affairs.

The Committee asked if the deadline of March 2023 for the Government Shareholder Management Bill would be met.? How would the funding allocated to Denel be used? What were the non-core assets that were going to be sold by Denel? When would the Committee receive a report on Alexkor’s 2021/22 audited financial statements?

Some Members said that the presentation provided no real solutions to challenges faced by SOCs. What was the DPE going to do to ensure that Eskom became sustainable? What has the Presidential State-owned Enterprises Council, proclaimed in February 2020,  achieved since then? Details were required on the strategic equity partner for SAA. How would private sector participants in Transnet work when they were competitors in the logistics industry?
 

Meeting report

The Chairperson welcomed the Committee Members and representatives from the Department Of Public Enterprises (DPE). He invited them to present the mid-term performance reports of the DPE and state-owned companies (SOCs).

DPE mid-year performance report

Ms Jacky Molisane, Acting Director-General, DPE, told the Committee that the Department achieved 70 percent, or 23 out of 33, of its mid-year performance targets. She said there had been progress towards achieving key priorities outlined in the medium-term strategic framework (MTSF) and the Economic Reconstruction Recovery Plan (ERRP). Response plans were being implemented to ensure achievement of targets. The Department continued to provide strategic support to address the operational and financial challenges faced by SOCs. Governance and accountability were prioritised.

(See slides 6 to 8 for non-achieved targets and measures being taken.)

Ms Molisane reported on the Department’s performance per programme. (See slides 9 to 16.)

In Programme 1: Administration, three of five key performance indicators (KPIs) were not achieved. These were the implementation of signed agreements with stakeholders to reduce vandalism of infrastructure at SOCs; a media and public perception survey; and improving ICT capability. KPIs for maintaining availability of ICT systems and for the signing of individual performance contracts were met. 

In Programme 2: Governance, Legal Assurance and Risk Profiling, the two KPIs were achieved. These concerned the establishment of a Centre of Excellence on Governance and the signing into law of the Government Shareholder Management Bill by 2023.

In Sub-Programme 3: Financial Assessment and Investment Support, one of six KPIs was not achieved. This involved the development of SOC business plans and the establishment of a restructuring unit. The Committee was told that developing the business case to support the Presidential State-Owned Enterprises Council (PSEC) in stabilising ailing SOEs was still at the inception stage. The output of this work would be deferred to the next financial year due to the consultation process currently underway.

In Sub-Programme 3: Business Enhancement Services, KPIs for implementing gender-responsive plans and procurement from women-owned businesses were achieved. The KPI for developing and testing a local content verification framework for SOCs was not achieved, but measures were in place to recover in the next quarter.

In Sub-Programme 3: Energy and Resources, three of eight KPIs were not achieved. Those not achieved concerned a signed shareholder compact between Eskom and SAFCOL; an increased energy availability factor (EAF); and an increase of 15 percent in the electricity reserve margin by 2024. The Department was closely monitoring the implementation of the plan to correct design defects at the Medupi and Kusile power stations and Eskom’s plans to mitigate risks to the EAF. KPIs that were met were the roadmap for unbundling transmission, generation and distribution at Eskom; the number of reports produced on the maintenance of energy levels; and the number of progress reports on an additional 1 000 MW to be commissioned by 2024.

In Sub-Programme 3: Transport and Defence, one of five KPIs was not met - an analysis of progress in achieving milestones for private sector participation (PSP) models at Transnet. The Department had identified transaction initiatives that Transnet would complete in the 2022/23 financial year and would continue to monitor efforts to secure private sector capabilities to complement rail and terminal operations.

In Sub-Programme 3: Research and Economic Modelling, both KPIs were achieved. These were a monitoring report on implementing a Just Energy Transition Framework and conducting one industry-specific research working paper.

DPE financial performance

The overview of the 2022/23 mid-year financial performance reported the following:

• Actual spending at the end of September 2022 amounted to R5.9 billion against projected spending of R21.9 billion. Spending was lower than projected by R16 billion or 73.2 percent. The lower-than-planned spending was because the Department did not transfer funds to Eskom as projected. Eskom was able to utilise its own generated revenue to settle guaranteed debt for the period under review.

• Of the R26.7 billion allocated to the SOCs in respect of government-guaranteed debt, only R4 billion was disbursed to Eskom, R1.6 billion to South African Airways (SAA) and R201 million to Denel.

• The total spending, excluding payments for financial assets (or transfers made to the SOCs), was 68.3 percent of the projected expenditure.

(See slide 18 onwards.)

During the 2022/23 Adjustment Estimate of National Expenditure (AENE) process, the Department’s budget was increased by R3.1 billion, which consisted of R2.9 billion for the repair and replacement of Transnet’s assets that were damaged in the KZN floods and R204.7 million for Denel to settle its guarantee.

There was unauthorised expenditure of R15 million related to a payment the Department made to Denel to acquire assets that a court had ordered to be auctioned off. The Department deemed it prudent to make the payment prior to obtaining approval to prevent the assets being sold for less than their value. Denel had subsequently returned the funds to the Department, which had been surrendered to the National Revenue Fund.

The Department incurred the following irregular expenditure:
R32 million due to material deficiency in the appointment of a service provider. The Department had brought a self-review application to court to have the appointment of the service provider reviewed and set aside.
R972 208 relating to an extension of contract without approval. Investigations had been completed and the Department awaited approval for corrective measures to be taken and for a request for condonation to be submitted to National Treasury.
R3 million relating to the prior and current year due to material non-compliance because of not adhering to legislation and other supply chain management (SCM) prescripts. The matter was under investigation and a preliminary report had been received.

Fruitless and wasteful expenditure of R4 860 relating to the prior year was incurred for a penalty charged for booking a venue and not cancelling in time. The matter was under investigation.

The issue of irregular expenditure was paramount, and the Department would be working closely with the senior management staff to ensure that it became a performance measure in assessing managers.

Denel mid-term results
 
The Committee was told that Denel continued to face liquidity challenges, which had resulted in the 2020/21 and 2021/22 financial statements not being audited. However, there were plans to conclude those audits over the 2022/23 and 2023/24 financial years.

Proceeds from the unwinding of the Denel Medical Benefit Trust assisted in relieving liquidity pressures by settling some of the legacy obligations, including employee salaries.

The majority of the guaranteed debt was settled during the 2021/22 financial year and a further R204 million would be settled during 2022/23. This was one of the key initiatives to restructuring Denel by improving its solvency and relieving interest costs.

Denel had been allocated R3.4 billion in the Medium-Term Budget Policy Statement to implement its turnaround and continue to dispose of non-core assets to supplement this allocation. Implementation of the turnaround plan had commenced, with reduction of fixed costs underway. Capacitating the executive management and the board would be key in ensuring the plan was implemented efficiently.

Alexkor

The audit of the 2021/22 financial year was still outstanding.

Alexkor was solvent and did not have interest-bearing debt. Revenue had stagnated over the past three years due to low diamond production. Large capital investment was required to bring the operations to sustainable levels and to prevent further deterioration of the mining assets. Identification and implementation of viable projects remained critical for the SOC to stabilise.

The Department was awaiting National Treasury’s response to an R88 million funding application. Part of this allocation would finance the capital investment requirement.

There had been delays in the handover of the township to the community and local government.

Eskom

The 2021/22 financial year audit was still outstanding and would likely be finalised in December.

Revenue increases over the past years have been driven by tariff increases as approved by the National Energy Regulator of South Africa (NERSA). Eskom has not been profitable since 2019, recording losses driven by increases in operating costs.

Eskom had been reliant on government equity support to meet debt obligations. The following had been disbursed: 2019/20 - R49 billion; 2020/21 - R56 billion; 2021/22 - R32 billion; 2022/23 – R21.9 billion, with R4 billion disbursed at the end of June 2022.

Debt levels were unsustainable, and cash from operations was insufficient to meet debt obligations. During the Medium Term Budget Policy Statement (MTBPS), the Minister of Finance announced that a portion of Eskom's debt would be transferred to the sovereign balance sheet. The details of the quantum of the debt relief and the mechanism would be announced in the February 2023 budget.
 
Eskom was experiencing the following challenges: Ageing and unreliable power stations; poor maintenance, operation performance and latent defects; and inability to collect outstanding municipal debt. A solution being considered was implementing prepaid meters to ensure upfront receipts of revenue.

SAFCOL

SAFCOL received an unqualified audit opinion for the 2021/22 financial year. It declared a dividend of R1 million at the 2022 annual general meeting. It achieved 86 percent of shareholder compact (SHC) targets for the 2021/22 financial year.

Revenue had been on an increasing trend in the previous three years. SAFCOL was solvent and not experiencing liquidity challenges. It was able to source funds from finance markets without government support.

SAFCOL had experienced some delays in implementing the Timbadola Reinvestment Project which was critical for its 50:50 Strategy. However, plans had been put in place to ensure the project was implemented.

Fifty-seven percent of SAFCOL land was subject to land claims. The Department of Agriculture, Land Reform and Rural Development (DALRRD) was responsible for settling land claims, and delays affected SAFCOL’s relationship with its neighbouring communities.

Transnet

Transnet had, in 2020,  commenced implementing its turnaround strategy to achieve sustainability and competitiveness and develop new capacity. There was a structured approach towards a more segment-oriented view of the business.

Capital required for refurbishment, maintenance, and expansion of rail and port infrastructure was approximately R136 billion over seven years to support the key commodity segments. The capital investment plan relied on cash flows from operations and partnerships. Capital investment through its own balance sheet would be approximately R98,9 billion over the next five years.

Transnet sought to attract private sector participation in Transnet’s own resources and skills to develop capacity in priority bulk commodities and industrial sectors. It had made significant progress in developing and implementing some of these initiatives, thereby bringing in the private sector and other alternative funding sources. These included: Durban Container Terminal Pier 2 (DC2) and Ngqura Container Terminal (NCT); Richards Bay liquified natural gas (LNG) terminal; Boegoebaai port development; the disposal of wagons; and Transnet Freight Rail (TFR) slot sales.

The Medium-Term Budget Policy Statement of October 2022 allocated Transnet R2.9 billion for infrastructure damaged by rain in KZN and another R2.9 billion to buy locomotives.

South African Airways

The Committee was told that, on 3 November 2022,  the Special Investigating Unit (SIU) gave South African Airways (SAA) a confidential ‘high level progress report’. The SIU was mandated in terms of Proclamation No. R2 of 2020 in the Government Gazette to investigate the affairs of SAA. A total of 23 contracts or events were identified for investigation. The key focus areas for the investigation were: procurement or contracting for aircraft disposals; maladministration in travel rebate benefits; payments to vendors; the implementation of SAA's procurement policy; and any irregular, improper or unlawful conduct by officials or any other person or entity.

The Auditor-General of South Africa (AGSA) commenced an audit of the 2018/19 to 2021/22 financial statements, which was expected to be completed in Quarter 4 of the 2022/23 financial year. Three matters had been concluded and were ready for either filing with the Special Tribunal or prosecution by the National Prosecuting Authority (NPA). Twenty matters were at various stages of investigation, and some had been referred for further work in conjunction with the Directorate for Priority Crime Investigation (DPCI).

Operational update

The Committee was told that SAA commenced scheduled flight activity on 23 September 2021. It flew to eight destinations in September 2022 - Cape Town, Durban, Accra, Harare, Kinshasa, Lusaka, Lagos and Mauritius.

The year-to-date income statement performance was ahead of budget due to high ticket prices.

Regional and domestic flights were increased to 4 125 in the year. Plans were in place to increase destinations and frequencies.

Strategic equity partner process

The department listed critical steps to complete the disposal of government shares in SAA. These were: securing funding to implement the business rescue plan; Competition Commission approvals; and aviation regulatory approvals.

Competition Commission investigations were underway and the findings were awaited. Aviation regulatory submissions made by SAA are currently under consideration.

Discussion

The Chairperson checked if the Minister or Deputy Minister had joined the meeting, and they had not.
He invited Members to discuss the presentation.

Ms J Tshabalala (ANC) said that it was unfortunate that Ms Molisane had to report on behalf of the DPE and the SOCs. She was concerned about whether the department had the capacity to instil the culture and change needed in the SOCs. Privatisation had never been the motto of the state. However, their performance went against the expectation that state-owned enterprises (SOEs) should serve a transformative agenda to enable industries to flourish and ensure a thriving economy. Transformation and employment were not taking place across the board.

Would the deadline of March 2023 for the Shareholder Management Bill be met? Delays in finalising the Bill and submitting it to Parliament could result in the Bill not being finalised during the current administration. Had an external auditor been approved for Alexkor and when would the Committee receive a report on Alexkor’s 2021/22 audited financial statements? The current chairperson of the Alexkor board was over 70 years old. Young people needed to be appointed to these boards.

The Eskom issue was big and the negative effects on the economy could not be ignored. There have been 155 days of load shedding since 1 January 2022. The Department had been informing them about the conditions leading to load shedding such as shortage of generation and limited fuel availability. However, solutions were required. They had reached a point where they could not continuously talk about State Capture. They needed to know what the DPE was going to do, how they were going to do it, and when, to ensure that Eskom became sustainable. She agreed with the installation of prepaid meters in municipalities to ensure payments were received.

The DPE was allocated a budget of R23.9 billion, of which R21.9 billion was allocated to Eskom, but it was still unable to settle its debts. Eskom has been requesting additional capacity of between 4 000 and 6 000 megawatts for the past four years. How was the debt going to be sustained? The community in Atteridgeville, Tshwane, had been without electricity for many years; how were they going to be assisted?

Mr G Cachalia (DA) asked why the presentation was marked confidential. If it was not confidential, then it should be accessible to the media and nation and made plain. How often had the Minister been present at the Committee meetings on extremely important issues and why was he not in attendance? The presentation presented a history, future wishes, and an idea of focus but it did not actually make anyone wiser. There was nothing to be calibrated in terms of outcomes. The PSEC was proclaimed in February 2020; what have they achieved since then? The Committee had a responsibility to exercise oversight and if the council was part of the problem, then oversight needed to be exercised over them.

There were concerns from the AG about Eskom and the diesel shortages that needed to be addressed and answers given. How much money was needed to keep the lights on and where would it come from? Eskom represented 80 percent of the problems faced in the Committee, with others being relatively minuscule in comparison. With the EAF declining and the stages of load shedding going up constantly, did Eskom have the capacity to restart the power system in the event of a blackout?

Alexkor had no annual financial statements (AFS) and audit delays were cited, but there had been no support across the board for a Private Member’s Bill which called for consequences for not submitting financial statements. At a previous briefing, Adv Jenkins [parliamentary legal advisor] had said that interim reports had to be tabled. However, they never were. How could performance be measured without them?

How was the R1.2 billion of funding allocated to Denel going to be used? How was the supposed R890 billion from selling non-core assets going to be achieved? What were these non-core assets? This information was necessary to determine the possibility of generating the R890 billion. Detail was required for each entity on what was going to be done, at what cost, to what effect, what the milestones for achievement would be and what the consequences for non-achievement would be.

SAA’s CEO had resigned and it had been incurring losses quarterly. There had been a lack of transparency around the strategic equity partner and their ability to come to the party with the money they were supposed to provide. The AG had highlighted the Minister’s bypassing of Treasury and reliance on the Public Finance Management Act (PFMA), which needed to be addressed.

Could the Committee receive detailed figures on what was transpiring in Transnet, with the promotion of road to rail? All they were seeing was roads being destroyed and ports not being able to deliver what was being produced in the country. Agricultural products were going to waste and mineral products could not be sold. That affected the country’s balance sheet and the performance of the companies that the country relied on. An outcomes-based evaluation was needed on every level. What was happening with the TFR slot sales? What were the terms and timelines? What exactly had been achieved in terms of vandalism and theft? Being told that there was significant progress was not enough, and he would do everything he could to ensure that these matters were addressed.

Mr S Gumede (ANC) said he looked forward to Denel returning on the right track. While there were queries on the plan, at least there was a credible restructuring plan. All that needed to be done was to monitor and ensure that what needed to happen happened within the given timeframes. While the AFS were still outstanding, he was glad that the deadlines for their completion were given. It was expected that the DPE would provide support on the strategic and critical issues faced by Denel. He hoped that the Bill would reach its final stage. Ms Tshabalala’s sentiments about having a vibrant and strong board were shared.

Mr F Essack (DA) agreed with the remarks made by Mr Cachalia about the presentation, saying that it did not make much business sense. Regarding Mr Gumede looking forward to Denel’s turnaround strategy, it was difficult to comprehend as Denel had experienced a loss of skills and financial challenges. What steps had Denel taken to protect its current defence hardware, its market share and its ability to attract new clients? The so-called shareholder struggled to raise the funding and was unsure if that deal would take off.

The Chairperson clarified that the Ministry, Cabinet or Executive was always a shareholder and not a “so-called shareholder” in a state-owned entity.

Mr N Dlamini (ANC) welcomed the report, but expressed concern about Members listening to the same presentation but hearing different things. The report did not mention SAA making a loss. However, Mr Cachalia referred to it as if it was a legitimate point coming from the report. While the financial statements of Alexkor were not available, their last oversight visit to the mine showed that progress was being made and some profit was being made.

SAA seemed to be doing well without the strategic equity partner. Was the strategic equity partner waiting for a time when SAA was fully profitable to come on board instead of being part of the process of rebuilding and resuscitating the entity? Were they needed since SAA was doing well without them and if so, why were they needed and why were they not involved?

It appeared that there was gravitation towards the private sector rescuing Transnet when the private sector was a competitor in the logistics industry. That would be strange. With the private sector funding the expansion of the port of Maputo, would the private sector take charge of Transnet? If so, how would that unfold? What would the role of the Committee be under those circumstances? The question was posed because the Members were made aware that R100 billion was needed to expand the port of Durban, which would come from the private sector.

SAFCOL’s good performance extended to their support of small, medium and micro enterprises (SMMEs) and black businesses. Transnet, however, had not made progress in that regard as there was no significant participation of black businesses, even with the advertisements for RFQs having an element of black business participation. Transformation was a crucial part of their mandate, and thus this needed to be questioned.

Ms V Malinga (ANC) welcomed the fact that SAFCOL was the most solvent entity in the DPE’s portfolio. However, they needed to address the issue of the land claims timeously to avoid it affecting their good efforts. In the process of stabilising Denel, how did the department plan on getting back the skills that had left and the copyrights and designs people left with? How would they ensure that the R3.9 billion allocated to Denel did not go to waste? In their last oversight visit to Transnet Cape Town, they were informed by an engineer that locomotives with the wrong specifications were sent to South Africa. Had that matter been resolved by the department and was the money recouped from the service provider?

While Alexkor was stabilising, it would be beneficial to have the financial results to confirm they were indeed on the right track. She welcomed the intention to keep monitoring Alexkor’s performance to ensure they remained solvent. No consequence management was mentioned for those who failed to adhere to SCM policies. Why were people faltering on the SCM policies not held accountable? In addition to SCM being included as a performance indicator for SOCs, it should also apply to DPE managers. In the past five years, South Africa had borrowed more than R1.5 trillion to bail out SOCs, which the ailing economy could not afford.

Eskom's Chief Operations Officer (COO) needed to be held accountable for failing operations. Why were there no quality assurers to ensure that no low-quality coal was put into the generators, when that was the cause of damaged generators resulting in load shedding? She was told that the same person responsible for quality assurance was also a contractor. This pointed to potential corruption at the expense of poor people, small businesses, and the economy's decline. Meanwhile, the COO got to take his salary home even though his job was not done well. Eskom could learn from Sasol, which had operated well over the years.

There were board members who were always opposed to ANC economic policies. It was unacceptable not to respect the policies of the governing party. Those people would have the opportunity to respect the policies of another party should they win the elections in 2024.

Ms Tshabalala asked if the Department was helping SAFCOL secure the funding for the Timbadola sawmills. Would this result in a positive impact on the entity’s performance and long-term sustainability? She hoped the Department would not give the entity over to the private sector. What plans did the DPE have in terms of SAFCOL’s growth strategy?

Mr Dlamini said that it did not make sense that some of the coal being exported was from Eskom and that some of the coal received had rocks in it. Upon delivery of coal to Eskom, was there a process to determine that the coal was of the correct quantity and quality? If so, how was it that stolen coal went undetected?

Responses

Ms Molisane said that she would try to respond to all the questions, and she would respond to those that she did not manage to get to in writing.

Regarding the transformation agenda, she assured the Committee that it was one of the key areas closely monitored by the DPE. There was a business enhancement unit that dealt with that issue particularly. The SOCs’ mandate was both commercial and developmental. The developmental mandate looked at issues of transformation affecting the youth and small businesses. External parties were on the ground to verify that the transformational targets, including shareholder compacts, were, in fact, being achieved and were measurable. That information would be available to the Members as required.

The Shareholder Management Bill was drafted and the legal unit of the DPE was in consultation with different stakeholders to ensure that it was finalised in the next quarter, which they were confident about.

It was difficult for any of the entities to complete financial statements if they were not going concerns due to liquidity challenges. Denel receiving the funds and meeting the liquidity test ensured that the auditors could start auditing the AFS.

Regarding load shedding, the Department was aware of its impact on the economy and livelihood of businesses and citizens. They worked hard to ensure that load shedding did not go higher than stage 4. The Minister had met with Eskom’s board to ensure that the issue was dealt with without delays. They were looking at ensuring stability was achieved by procuring funds for diesel for the short term and considering a comprehensive and sustainable strategy to alleviate the issue in the long term. 

The reason why the Department continued to give money to Eskom despite the lack of returns on it was due to the entity raising funds using government guarantees, which it needed to pay back. Therefore, should the DPE not finance Eskom, it could be at risk of default as the capital and interest payments were significant. The lack of repayment of these historic debts would have an adverse impact not only on Eskom, but also on the cost of borrowing for the state and consequently impact the entire economy.

In terms of the road map that the DPE published about unbundling Eskom’s distribution, transmission, and generation functions, the transmission work had been completed and the distribution and generation businesses would be focused on. They wanted the transmission business to be a subsidiary, the board of which was identified and being operationalised. They wanted a better view and understanding of what was happening in the different operations. PMF applications had been received for the distribution and generation businesses, which were being attended to and would be communicated to the Committee and the public when updates were available.

In response to Mr Cachalia, the presentation was marked confidential when it should not have been and would be corrected.

COVID-19 and the KZN floods had adverse effects on the operations and infrastructure of Transnet, thus large amounts of money had to be allocated by the Treasury to counter the impact on performance and revenue. The team at Transnet was commended for achieving audited profits amidst rebuilding and restoring operational capacity. Denel faced similar challenges and was beginning to show signs of improvement. Due to the state providing capital to Denel as the sole shareholder, there was greater certainty of money being available to pay salaries, so the skilled people who had left could be confidently approached to return. Due to Durban port requiring R100 billion, the state needed the financial and operational resources of the private sector to augment Transnet’s struggling balance sheet and would negotiate in ways that resulted in a win-win situation. It was not possible to always turn to the fiscus for money. They needed to be prudent and efficient in the way they ran their operations.

Treasury supplying funds to Denel was conditional on selling the non-core assets to demonstrate the entity’s commitment to reducing their dependence on state resources as these were limited. The purpose of the condition was to enable the entity’s turnaround plan to be implemented, not to serve as a hindrance. The section 54 applications had been sent to the DPE and National Treasury to show that the disposal of the non-core assets was underway, the non-core assets being those whose sale would enable revenue generation without undermining the entity. 

In response to the question about the strategic equity partner (SEP) waiting for SAA to be profitable before being involved, Ms Molisane said that the SEP would only become involved after the relevant approvals had been obtained. Only when there had been a transfer of shares and ownership, could they come in. The SEP still had to honour their historical obligations because they had made those applications.

Boards were appointed using a methodology that had been shared with the Committee. It looked at age, gender, skills, competence, experience, etc.

SAFCOL was the blueprint for the other entities. They wanted it to return some dividend to the state to demonstrate that the SOCs could be managed in a way that fulfilled both the commercial and developmental objectives, while giving back money to the shareholder and fiscus. 

What would happen with the SOCs going forward would be determined by the PSEC which would look at the work of all SOCs and decide which should be merged, consolidated or disposed of. The outcomes would be shared when finalised.

The challenges faced with the quality assurance of coal were due to tampering. Low-quality coal was hidden below high-quality coal in large trucks. Broken conveyor belts inhibited quicker transport of the coal. These factors had to be limited through enhanced security measures internally and externally as they led to inefficiency and breakdowns in power stations.

The questions not answered would be responded to in writing.

The Chairperson indicated that Ms Molisane had answered the questions substantially and welcomed her offer of additional responses in writing. He thanked the Department and Ms Molisane for sharing the presentation and responding to the questions and comments. Any Members with further questions could send them to the Secretary of the Committee in writing.

The meeting was adjourned.
 

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