Department of Public Enterprises 2023/24 Annual Performance Plan (incl Shareholder Compacts); with Deputy Minister

Meeting report

The Chairperson welcomed the Members of the Committee, the Department, and all those in attendance. The Department would be presenting its Annual Performance Plan.

The Chairperson welcomed the Deputy Minister. The Committee would allow him an opportunity to provide an overview. Thereafter, the Department would make the presentation.

Deputy Minister Obed Bapela, Department of Public Enterprises, greeted the Members of the Committee. The Department was to present the APP for consideration and approval. The APP was based on the Department’s strategic five-year plan 2020-2025. The Department would be presenting each target as indicated for each financial year. The Department would be presenting if it had reached its performance targets. Where it had not achieved, it would provide explanations as to why it was not able to achieve those particular targets. The presentation would also respond to the AGSA’s findings and the Department’s responses to those particular findings. The presentation would also include the Department’s 2023/24 APP priorities per each programme. The main presentation was accompanied by a supplementary addendum. That addendum identified the issues that had been raised by the AGSA. There was also additional information included in the addendum. The Members should read the main presentation and the supplementary document. Adv Makobe would lead the delegation from the Department. He would respond to questions relating to policy matter. The technical matters would be responded to by the delegation from the Department.

Briefing by the Department of Public Enterprises

Adv Melanchton Makobe, Acting Director-General, Department of Public Enterprises, briefed the Committee on the Department’s Annual Performance Plan 2023/24.

The presentation provided an overview of the programmes and a response to the AGSA’s findings on the Department’s APP. The presentation highlighted the Strategic Plan 2020-2025, the 2023/24 APP targets per programme, and the progress on Shareholder Compacts. In 2023/24, the Department will sign six Shareholder Compacts. This would be with Eskom, Alexkor, SAFCOL, Denel, Transnet and SAA.

The presentation also detailed the budget overview. Expenditure was expected to increase at an average annual rate of 2.9%, from R303 million in 2023/24 to R330 million in 2025/26. This is due to a normal general increase. The Department’s main cost driver is the compensation of employees, spending on which increases at an average annual rate of 3%, from R185 million in 2023/24 to R202 million in 2025/26. To ensure that the Department remained within the expenditure ceiling for compensation of employees over the MTEF period, only critical vacant posts will be filled.

(See Presentation)

Discussion

Mr S Gumede (ANC) said that the presentation was well-detailed. He thanked the Department for having responded to the AGSA. Was this the new approach by the AG? It was the first time the Committee confronted a situation where there were issues raised that the Department had not factored in or what the Department had not specified in terms of measurability. He thanked the Department for having responded. He noted the finances. His concern was that many of the entities were being crippled by the resources. Were there enough resources to address the plans that the entities and Department had? He was worried about the allocation. The presentation was positive. He discussed Denel. The 3.4 had been allocated but there were still stringencies that were put forward. This hampered Denel from taking off. He would be happy when the outstanding financial reports were finalised. That would help the Committee realise that Denel had a brighter future. Without the recapitalisation of these SOEs, this plan may be defunct. Before the implementation of this plan, it may necessitate that Treasury was engaged. It was something he had commented on last time. Looking at what was being presented, it was a plan that needed to be monitored. Some of the things that were mentioned in the APP were not mentioned for the first time. He discussed the issue of the Bill. The Bill had been talked about being finalised as well as the Shareholder Compact. This did not give the Members confidence that many other things were happening. The Department and the Committee needed to improve how they did their oversight.

Mr G Cachalia (DA) said it was concerning that besides SAFCOL there was no acknowledgement that every single one of the entities under the aegis of the Department was effectively in the intensive care unit. That had to be recognised. The Committee heard that ‘much was continuing’ and ‘it would be finalised shortly’. Those comments did not get the Department anywhere. He noted Denel, the ports, and the unbundling of Eskom. These issues had been going on perennially. There needed to be timeframes for actions. What actions were tangibly recommended? What timeframes were in place? What consequences would emerge from the non-adherence to those timeframes? He listened to the acknowledgement by the presenter of the AG’s concerns. What he was interested in was not the acknowledgement, but what measures would be taken to expedite what had been highlighted. Given the crisis that the entities were in all these areas, urgency was required. The Committee needed to know how that was going to happen and when it was going to happen. He did not have to explain where the country was regarding load shedding. He did not have to explain where the country was regarding ports or the road-to-rail issues. These were not new. They were perennial. The presentation mentioned local content regarding Eskom and Transnet. These and others presented a serious logjam in respect of problems of Eskom and ports at Transnet. Why was there this continued focus? Surely there needed to be wise measures about side-lining these at a particular time so that the serious problems at hand could be focused on, rather than focusing on the nice-to-haves. The country was in crisis. He discussed governance. The Committee heard of an index, how appointments were going to be made, and how they were going to be evaluated. Where were the consequences for non-adherence? What were the proposed interventions in the event of transgression? These were the issues which should be front of mind. He discussed the unbundling of Eskom. What was the precise progress in this regard? The Committee had been told for how long this was ongoing. It was not good enough. The Committee needed to know exactly what was going on, and the presentation did not inform the Committee one bit in that regard. He discussed the ports. The presentation noted that corporatisation was continuing. The Committee needed to have the detail around this, around the measures of corporatisation. So that the Committee can interrogate them. The Committee heard of various sub-programmes regarding the implementation of the AG’s concerns, which had been quite serious. These needed to be detailed. The Members did not want to know that there was a subcommittee being established. The Committee wanted to know the detail of those subcommittees. Otherwise, the presentation meant nothing. He discussed the establishment of the transmission company and the board in Eskom. The presentation noted that the board was going to be appointed and the company established. There needed to be timeframes. The Committee needed to understand when these important things were going to be done. He could go back in history and show the Department that all of this had been said before, year in and year out. That was because of a lack of action and lack of progress in these areas.

Ms O Maotwe (EFF) said that the presentation started with an overview of the history of the Department, which was very interesting. Had the Department lived up to its mandate, which was to champion and direct the restructuring of SOEs and to ensure their optimal economic and developmental impact? What would the Department be doing differently to turn things around? The Department had lost its mandate because SOEs were not performing optimally and economically. Some were being privatised. Some were being liquidated. Some were failing to pay salaries and creditors. Some were failing to provide sustainable electricity to the country. Even the appointed Minister had said that bold steps needed to be taken to privatise. What would the Department be doing differently to turn all these things around? The AGSA said that the indicators, which the presentation confirmed, did not correlate with the annual target and desired performance. That was one of the findings of the AGSA. The Department’s response to that was that it played ‘a monitoring, coordination and facilitation role in infrastructure vandalism and cable theft’. How was this response by the Department addressing the AGSA’s findings? The Department was literally not saying anything. The AGSA was clear that the Department’s annual targets did not correlate with the desired performance. Then the Department responded that it played a monitoring, coordination and facilitation role. Was the Department in denial that the targets and the performance did not correlate? She asked the Department to provide clarity on that matter. The Department went further and said that one of the indicators was that it needed to increase the energy availability factor. It said its baseline was 73.74% and the target was 80%. Currently, what was the energy availability factor, with load shedding hitting stage six? When the Department said it wanted to improve to 80% in 2024, did it mean that there would be no load shedding in the country anymore when the energy availability factor was at 80%? What drastic steps was the Department going to take to ensure that the target of 80% would be reached? She discussed the unbundling of Eskom. The Minister of Finance announced during the Budget Speech that Treasury was funding the transmission and distribution. What was happening with energy generation? There was no budget for the generation of energy for Eskom. How was the unbundling into three sectors going to benefit the people of South Africa, and at what cost to taxpayers? Under Transnet, the Department said that it wanted to complete the long-term rail strategy. That was its indicator. The target was that the Department would contribute to the long-term rail strategy. She failed to understand this kind of target. How was this measurable? How did the Department measure contributing inputs to the strategy? After the AGSA told the Department that some of its indicators were not measurable, that was one of the findings. The Department still continued to say that it would contribute inputs. She did not understand. The Department was simply doing this exercise to tick a box. The Department needed to explain to the Committee how it would complete a rail strategy through inputs. There was no deadline or deliverables. There was nothing. The presentation said that Transnet and Portnet. What was Portnet? She discussed Eskom, under 8.3.2. The presentation said that with regard to the monitoring of the energy availability factor, the sub-programme will monitor the implementation of Eskom interventions to increase energy availability to above 65% in 2023/24. Yet earlier on the Department said the bassline was 73.7%. Which one was which? The Minister of Electricity was appointed around 6 March 2023. Having been in office since 6 March, what had been achieved? When was load shedding going to end?

Mr N Dlamini (ANC) acknowledged the attempt of the Department to respond to the concerns raised by the AG. He cautioned against being carried away to a point where Members started to be economical with the truth. It was not true that all SOEs were in ICU. That was not true, and all the Members knew it. He said that Members should refrain from fabricating facts. It was unethical. He discussed Eskom. It was time to be bold enough and acknowledge that more generation needed to be built. He did not see how one could work around it. Load shedding could not be ended without producing more power. It was going to be impossible. The government needed to move towards that direction. He was concerned about Transnet International. The Committee never heard anything about it. Yet Transnet was soldering on inviting the private sector to participate in the space. Was Transnet International a facilitator of privatising Transnet? Why was the Committee not told anything about it? Why was it that whenever there was going to be an interim board, the processes led to one house? There were so many young people who did not have the chance to participate in the running of these SOEs. There were over 60 million people in the country, but whenever the Department needed to constitute a board it went to one house. How did that work? Why was that the case? The Committee needed to be taken into confidence on the matter. He discussed Alexkor. Was there an explanation for why it had not finalised its financial reports? He had hoped that its financials would be ready before the new financial year. Why was there a delay? It needed to be remembered that things went south when there was a delay in finalising these financial reports. Things had been moving in the right direction before the new interim board. What was the problem now? The Committee needed to get an understanding of what was happening.

Mr F Essack (DA) said that in March the AGSA pointed out that there was clearly a repeat of the prior year’s target, considering the report that he had just listened to. The APP was not fully reviewed to check if it was linked to the new 2023/24 activities. That was pointed out by the AGSA back in March. The Committee needed to ensure that the AGSA’s findings were incorporated into the Department’s APP well before the Department’s budget vote was accepted. Some activities were not reported in the APP but only in the Annual Operation Plan that the Committee had seen from the reports that had been presented. He recommended that the Department must explain to the Committee why this was the case. The Department should make the AOP available to the Committee for scrutinisation. What was so secretive about this document? Otherwise, going through all of these indicators was just a repetition of what had been seen in the prior years. The Committee needed to be realistic if it wanted to bring some fruition to these SOEs.

Ms C Phiri (ANC) said that most of the AGSA’s observations had been deleted. If the observations were deleted from the report, then that was a concern. Why had the Department felt the need to delete the output indicators instead of addressing what the AG had observed? The Department needed to forward the reasons to the Committee regarding the deletion of some of the AGSA’s observations. In the indicators, the Department had deleted most of them. In recent years, it had been observed that the SOEs had performed poorly with respect to local procurement. What measures had been taken by the Department to address that matter? The Department was supposed to show the Committee in its APPs how it would try to rectify the poor performance. She discussed the sub-programmes of business enhancement services, under programme three. The Department seemingly addressed the AGSA’s concern regarding sub-programmes of output indicators dealing with the district development model. However, it seems that other output indicators for this programme were deleted. The Department needed to explain what other indicators were deleted and why they were deleted. The Members observed in this APP that there were a number of indicators that were deleted. It was like some things were being hidden. She discussed the sub-programme on energy resources, under programme three. The indicator relating to Eskom was all dependent on external factors which the Department could not control. How would the entity ensure that all these indicators were met? What were the implications on the Department’s plan in light of Eskom being taken by the Minister of Electricity in the Presidency? She discussed the performance target related to SAFCOL. SAFCOL was doing well, and the Members needed to applaud that. The Members needed to applaud the Department for playing its oversight role. The Department should advise the Committee what was meant by ‘Revitalise State Forestry Assets’. It needed to be clear for the Members. She discussed the issue of SAA. She wanted more clarity on what was happening with SAA.

Ms T Siweya (ANC) said that in the previous financial year, the Department planned to draft and finalise the guidelines on SOEs. To date, had the Department met that target? In the previous financial year, the Department had planned the development and test of a local content verification framework with the South African Bureau of Standards (SABS). Had the Department met that target? If not, what had stopped the Department from meeting the target? The Committee was interested in the output and the tangible results from the commitments that the Department was making through the APP. The presentation stated that in the current financial year, the Department would increase the EAF by 65%. What would the Department do if it did not meet this target? The country was in a serious crisis of load shedding. The presentation discussed the feasibility of alternative operation models with Alexkor. Why was the target being carried to this financial year? Did the Department not meet the target in the previous financial year and want to continue with it? Or was it a longstanding target? Why did the Department want to carry on with this target while there was the Presidential State-Owned Enterprises Council, which was also responsible for developing strategies to turn around SOEs? She discussed the planned gender response plan. Where was the Department on that matter? Was it part of the targets for this financial year? Had the Department met the target? Or was it dropping the target? She did not recall seeing it in the APP. There was also an indication that the Department would be signing the shareholder performance agreement with SAA once it resumed operation. SAA was operating currently. Had the Department met that target? Did it sign that shareholder performance agreement? Where was the Department in relation to that? Where was it placed in the APP?

Ms Phiri said that she was concerned about the expenditure that was suggested on the SAA balance sheet. She discussed the national carrier in relation to the strategic equity partner for the current financial year. What was going to happen? The Committee could see that what was allocated was not enough to finalise matters. The Committee had not seen a slide that spoke about the strategic equity partner and SAA. How was the operation? Currently, SAA was doing very well. It was operating normally, and South Africans were proud. The Committee did not have a proper understanding of the strategic equity partner in line with the agreement. What was the real agreement? What would be the role of the Department versus the Committee in terms of performing oversight? The strategic equity partner was the one who had more shares than Government. She wanted clarity and understanding on that matter. How was this incorporated into the Department’s APP? There needed to be a target. This would allow the Committee to follow what the Department was doing.

Ms V Malinga (ANC) discussed the headlines that were making the news. She wanted an honest answer. The reports said that Eskom might increase load shedding to stage eight. She asked for clarity on that matter. Currently, on stage six the country went without electricity for between eight to nine hours. If the country was on stage eight, what was going to happen? She discussed the unbundling of Eskom. The Committee had heard of this issue since December 2022, the creation of the three entities that would be in charge of distribution, generation and transmission respectively. However, there was also the debt of R480 billion that was owed to Eskom. She did not hear the Acting Director-General on the plan of who would accumulate this debt from all three entities. Maybe this would be minus the R270 billion that Government would take over. She discussed the pronouncement made by the President that all entities under the Department of Public Enterprises would fall under line Departments after 2024. How far were the entities in preparation to do that? She noted Transnet. The Committee heard that the line between Durban and Johannesburg had been leased for 20 years. What if the line Department, which in this case would be Transport, was not keen on this decision? Was the Government not opening itself up to litigation? She discussed the national state enterprise holding company. What was happening with the Government Shareholder Management Bill? The Bill needed to be passed in Parliament. How far along was that Bill? She heard the Acting Director-General saying that the Department with the most entities that were not functional was playing a secretariat role to the Presidential state-owned council. There could not be a national state-owned holding company without the Bill being passed by Parliament. She discussed SAA. She noted that SAA was now using big aeroplanes that were usually used for international trips for local trips. Sometimes the planes were not full. Was it wise with SAA’s ailing finances to do that? She was not sure if the Department was aware because the Department was just an overseer of the SOEs. Was SAA able to recover the much-needed revenue that was needed?

Ms J Mkhwanazi (ANC) discussed the mandate of the Department. One of its mandates was to direct and support the improvement of financial performance over the SOEs. With the current status of the poorly performing SOEs, did the Department have the capacity to assist or deliver on that mandate? It was time the Committee had honest answers. Honest and straight answers would assist the Committee going forward. She discussed the establishment of the National Transmission Company. Was the Department still within the framework? What was the progress? The Department needed to provide clarity on the way forward regarding the Shareholder Management Bill and national state-owned holding company. The Department needed to provide timeframes. Since the Committee started its term, the Department had been speaking about this Bill. Did the Department have a clear plan to deal with the issues raised by the Auditor-General to deal with what was in the AGSA’s report, especially regarding the poorly performing SOEs? She discussed the indicators relating to Eskom. Most of them, if not all of them, depended on external factors and other Departments. The DPE did not have control over them. Was there any coordinated plan from the Department to coordinate these stakeholders to make sure that they were accountable, and the goals were achieved, specifically on the issue of Eskom? She asked the Department to elaborate and provide reasons why there was a late submission of the APPs. She made a proposal to the Committee. The Committee needed to have an ongoing progress report quarterly, especially on the indicators and the Department’s plan to deal with the Auditor-General’s findings.

The Chairperson thanked the Department for the comprehensive presentation. He agreed with most of the questions asked by Members. He asked the Members to not exaggerate the situation. The problem needed to be dealt with where it was. If Members exaggerated, then they would not be doing justice to the problems that the country was facing. Members should not be throwing lies at the problem and exaggerating. Most of the SOEs, especially under this Department, were undergoing serious challenges for different reasons. He agreed with Mr Dlamini. It was not correct nor helpful to suggest that all SOEs except SAFCOL were in the ICU. There were entities that were still having minor challenges that were resolvable, and there were plans to deal with them. It was false to suggest that except for SAFCOL all other SOEs were in the ICU. He noted that when Members exaggerated it provoked a reaction because then other people needed to correct that. He asked Members not to be overwhelmed by their ideological and political positions. He asked for Members to deal with the problems and the situations. He was not suggesting that Members were not ideological and political beings. Members had ideologies. Some Members wanted Government to sell all SOEs and to depend on capital. That was why they would smear everything the same way. It was not helpful to deal with the problem in that way. The majority of the Members of the Committee were there to assist the Department in order to improve the entities and not destroy them. The Committee would experience the problem of reactions if people exaggerated the situation. The Chairperson discussed SAA. He understood that the interim board had been changed with another interim board. What informed that decision? There was a process of finalising the deal in the middle of that process, a board had been changed. Issues had been raised in the public domain about that matter. What informed all those decisions?

The Chairperson handed over to the Department to respond.

Mr Cachalia asked to be acknowledged.

The Chairperson said that Members could ask a second round of questions later. He was allowing the Department to respond to the questions. He handed over to the Deputy Minister.

Mr Cachalia asked to be acknowledged. He needed to respond to what was said by the Chairperson.

Ms Phiri said that Mr Cachalia could not respond to the Chairperson. Mr Cachalia needed to wait for responses from the Deputy Minister and the Department.

Mr Cachalia responded that Ms Phiri was not the Chairperson.

The Chairperson called the Members to order. He had given the Department a chance to respond to questions. He had given all Members a chance to speak. Therefore, the Department would respond. If there were any follow-up questions, he would open for that after the Department had responded.

Mr Cachalia said that the Chairperson had made comments which he wanted to respond to.

Mr Dlamini said that Mr Cachalia needed to allow the Deputy Minister to respond to the questions.

Mr Cachalia said that the Chairperson had made comments before the Deputy Minister responds.

The Chairperson responded that he had ruled on the matter. The Chairperson asked the Deputy Minister to continue.

Deputy Minister Bapela said that the technical questions would be responded to by the Department. He responded to the question of whether it was normal for the Department to not factor in some issues into the submitted APP. It was not new. It was part of the Parliamentary system that existed. There might be issues that were raised in the processes that arise that needed a supplementary response. That was why in the opening remarks he indicated that the Department had a supplementary document. The Department received permission from the Speaker’s Office for that to occur. Therefore, it was not new. He discussed the recapitalisation. The recapitalisation of SOEs was something that needed to be elevated and discussed. Everyone needed to agree on the recapitalisation. All countries did so once in a while. That moment had arisen in South Africa. The government needed to recapitalise SOEs. It was not a bailout. It was more to say that the economy was growing at this level. The infrastructure challenges were now inhibiting that economic growth. This was because the infrastructure was aged and not modernised. The SOEs needed to be recapitalised to give the necessary instruments to modernise and build particular infrastructure. He noted the district development model. There was a programme of the Government for spatial economic zones. Where they were established, there were no railway networks.

Mr Cachalia raised a point of order.

Deputy Minister Bapela said that he did not know what he said wrongly that justified a point of order. He was responding to questions and now all of a sudden there was a point of order.

Mr Cachalia responded that it was not in reference to the Deputy Minister.

Mr Dlamini said that there was no point of order.

Mr Cachalia raised a point of order.

Mr Dlamini said that Mr Cachalia needed to behave.

Ms Phiri said that Mr Cachalia needed to behave.

Mr Cachalia said that his point of order was to the Chairperson and not Mr Dlamini and Ms Phiri.

Mr Essack said that Mr Cachalia needed to be allowed to make his point of order.

Mr Cachalia said that he would not allow being placed in a political corner. He would not allow the grandstanding by the Chairperson. The DA would walk out of the meeting and lay a complaint.

The Chairperson said that he was not chairing the meeting with anyone else. He was the Chairperson of the Committee. He would ask Parliament to remove any person who interjects without his authority. He had powers to make rulings and allow people to speak. After the Deputy Minister spoke the Department would respond to the Committee’s questions.

Deputy Minister Bapela said that the DA Members had already left the meeting. He discussed the recapitalisation of SOEs. The country needed to engage and focus on this issue. The country needed to find a response that could recapitalise SOEs. He had provided the reasons of economic growth, population growth, and programmes like the spatial economic zones. These need to be responded to in the plans of the Department. Industrialisation needed a response from public entities to establish the infrastructure needs that arose. Recapitalisation was in that fuller context. It was not limited to the current situation. SOEs needed to be enablers of the economic growth path agenda and a developmental state agenda. He noted that South Africa needed to study how it had been done in other countries. In some countries, they brought in private sector partnerships without losing the SOEs to anybody. They remained 100% owned by the state. The partners could be invited for a limited period. Having partnerships with the private sector could help SOEs modernise, grow and expand. This model existed in SANRAL perfectly. Later the roads would go back to SANRAL once the private sector received its return on investment. The modelling did not mean that it was privatisation. That would need to be debated because the unions were suspicious. Some Members had raised concerns about whether it was privatisation or not. Different models need to be looked at. It needed to be ensured that the State continued to have a role in growth and responded to economic needs. The objective of the Department was to ensure good governance of the SOEs. Where there were problems, the Department would intervene timeously, correct and ensure that there was good governance. He noted the importance of operational efficiency and sustainability of SOEs, so that they were not reliant on the fiscus all the time. Recapitalisation was not a bailout. They needed to be sustainable. The Department would mitigate against any issues that might draw it back like corruption and state capture. The Department would take lessons from the recent state capture to ensure that there were efficient SOEs that were in operation. He agreed with certain Members that it was not correct to declare SOEs to be in ICU. He disagreed that it was only SAFCOL that was performing without challenges and problems. He provided the example of Transnet. There were problems that had beset Transnet to not be optimally operational. He noted the issue of the locomotives. That was why the Minister was in China, to resolve the 1064 locomotives that were needed on the rail network. This was needed to help the mining industry and the automotive industry carry the goods to the ports. As a result of this shortage, Transnet was not able to perform its duties. Therefore, it could not be said that Transnet was in the ICU. It was beset by certain challenges. The Ministry was trying to resolve those challenges. The Transnet team and Minister were in China. Hopefully, when they got back they would announce what could be done. If the locomotives could be released into the network, it would really help a lot in moving the goods. This would help the economy to turn around and grow. He noted that cable theft and vandalism were issues that kept on rearing its head. This resulted in the derailment of trains. Those were operational elements that were affected by external factors. However, it could not be said that Transnet was in the ICU as a result of that. He noted that Alexkor had its own challenges but that it was being turned around. Its earnings were now positive. There was just the delay of the financial report where the Department would indicate what happened and what had been done. Alexkor had deposited positive results in this financial year. When the Department reported on it, the Committee would see the growth and the turnaround that would begin to deliver. It was not correct to say that Alexkor was in the ICU. It was, but it was out of it now. He discussed SAA. Even when there was a new strategic partner that was coming on board, it was performing well. The Minister of Finance was on record saying that with the new operations, SAA was yielding positive earnings. The Committee needed to welcome that. Even before the strategic partner came into being, SAA was already performing. SAA needed to grow its routes. It needed new planes to be leased so that it could do certain international trips. That was why the big planes were being used sparingly because they could be sitting on the ground forever. From time to time, they needed to be used in the air. The route between Johannesburg and Cape Town was the biggest regarding the SAA earnings. Instead of doing three flights, SAA could send a Boeing. The use of Boeing was part of the operational elements. It was strategic that the big planes were kept in the air. He noted that Denel had its cash crisis. It did not have money. The recapitalisation - through the money that was appropriated in October during the MTBPS - was only released at the end of March this year. When the Department reported on Denel in this financial year, the Committee would see positive elements. The creditors had been paid. It was no longer under threat of going through the liquidation processes. The creditors were happy that whatever had been owed to them had been paid. Denel was now focused on productivity and stabilisation. The turnaround strategy was there. He rejected the view that most SOEs were in ICU. Dedicated sessions by the Committee could be arranged where timeframes, consequence management and turnaround strategies on each of them could be shown. The Department would be ready should it be invited. That information would be made available to the Members. He discussed the logjam at the ports. There was a programme that was being run to enable the ports to be as efficient as possible. Smart partnerships were being brought in for a limited time. That was to help the ports where the Department did not have money because of a lack of capitalisation. The Department would use that model, as other countries were doing, without losing the ownership of the entities. He noted the unbundling of Eskom. The Department would address the Members’ questions. He noted that Ms Maotwe had raised critical issues. She had raised points that the Department would deal with. He responded to the question of Ms Phiri about the issue of Eskom and the Minister in the Presidency. The Department did not know what the President would be announcing. The President had indicated to the nation that he was still applying his mind about additional responsibilities that he would give to the Minster of Electricity in the Presidency. As to which entity would go where during this particular interim period to deal with load shedding in the country, the Department would hear from the President at a particular point. Currently, the Ministers of Minerals and Energy, Public Enterprises, and Electricity were working in a joint committee as part of the electricity crisis action plan. They were working in a collective manner. They were guided by policy issues that arose in various legislation. The Committee and Department needed to await the President’s pronouncement on where Eskom would be placed. He discussed SAA. This would require a dedicated session where the Department could present on the matter of the 49% and 51%. In the negotiations, the Government’s position was always 60% Government ownership of SAA. The bidders then negotiated very hard that either the deal went their way with 51% belonging to them and 49% belonging to the State. The bidders were going to be putting money into the deal, so they wanted the right to choose the chair of the board and the CEO. The board membership would be shared between the State and themselves. That was the negotiating that occurred. At the time, they were the only ones who were able to produce proof of funds. Other bidders could not. There ended up being only one bidder. At the time if a deal had not been reached then SAA would have been liquidated. This resulted in the compromise of 49% and 51% and SAA was not liquidated. The business had been under rescue at the time, and it had been difficult to negotiate. The SAA balance sheet was now positive. Those details would be given going forward. He discussed the energy availability of 65% and what would happen if the target was not met. Every effort was in place, including the Presidential energy crisis action plan. The Department was hopeful that now working with the other Ministries and Departments, it would be able to offset load shedding. He knew the target ranged between 12 to 18 months. The Department had targeted 12 months. In the action plan, it looked at what the current situation was. If the Department shifted any closer to 65% in 12 months it would still be an achievement. Whether this target would be met would depend on all those action plans being operationalised. He discussed the ramp-up of load shedding, and whether the country would end up on level eight. The country was on stage six. In between, things were happening. The country was not fully on stage eight. The assessment team was busy assessing the situation for winter. There was a winter plan that did not have stage eight. However, with the collapse of stage eight, the team was relooking at that issue. At an appropriate time, they will make an announcement. There was coordination between the Department of Public Enterprises, the Minister of Electricity and the Department of Energy. They would jointly respond after having completed an analysis of the readiness for the winter season. Winter arrived early and it was cold. As a result, the system was challenged. That team would indicate whether the country would ever reach that stage. The country was currently on stage six while experiencing a few challenges. The Minister reemphasised that not all SOEs were in the ICU.

Adv Makobe responded to the question of whether the Department had the capacity to implement the plans that it had. Yes, it did have the capacity. However, it continued to build up the capacity to implement the plans and the mandate that it had. The Department required specialised skills which were very difficult to get in the market. The Department continued to headhunt to make sure that it could attract the necessary capacity to do the work it was mandated to do. He discussed the SOE Bill. The drafting of the Bill had been done. He noted that it was an issue that the Members had raised over the years. The drafting process took a bit longer because the Department needed to ensure that the Bill was in line with other practices around the world. It had been necessary to do comparative studies. The Bill was going through internal consultations. Then it would go through Cabinet and the Parliamentary process. He discussed the Shareholder Compacts. Those had been finalised. The negotiation processes had been finalised. What took time was the negotiation of the targets between the Department and the SOEs. It was a negotiated document. This year the Department would ensure that all the Shareholder Compacts were signed on time. He discussed the unbundling of Eskom. The National Transmission Company had been established in December 2021. The Department was finalising the board of the National Transmission Company together with the board of Eskom. the Electricity Regulation Act was in Parliament. The licensing process was being handled by NERSA. They were going through the hearing process. Those were the four milestones with regard to the unbundling of Eskom. He responded to the question of whether the Department lived up to its mandate and what it would be doing differently. It needed to be acknowledged that state capture had a negative impact on the SOEs. It had hollowed out the SOEs. It had a negative impact on the financials. The operations of SOEs had been going down. Governance had gone down as well. That was evident from the report of the State Capture Commission Report in terms of the negative impact that state capture had had on SOEs. The Department had to clear up the process. It had to clean up by starting with the boards. It was now moving to the business model. There were positive signs being seen in terms of stabilising SOEs. The Deputy Minister had indicated that even Denel had gone through a stabilising process. After that stabilisation process, that was when there would be growth in SOEs. The cleaning up as a result of state capture had been a process and had resulted in the hollowing out of SOEs. He discussed the issue of the interim board. The Department looked at the required skills for the boards. It then approached those individuals who would be willing to serve on the boards. Some individuals would turn down the offer. Some would accept to be on the board. The Department had a skills matrix that it used. The Department also had a database of potential board members that it would draw from when it needed to appoint members for the board. There were processes that the Department followed in that regard. He responded to the question of why Alexkor’s financial statements had not been finalised. It had taken time to get the records at Alexkor because of certain issues. Alexkor’s financial department had to be capacitated with the appointment of a financial manager. That took a bit of time. The financials had now been finalised and were going through an auditing process. The Department anticipated that that would be finalised shortly. It would then hold an AGM. The issue had been with getting the records together. He discussed the issue of repeating the previous year’s targets, and whether the APP had been fully reviewed and linked with 2023/24. The Department had discussions with the Department of Planning, Monitoring and Evaluation (DPME) about the APP. He had indicated where the Department had factored in the findings of the APP. Some of them were in the work plans of the Department. The AG would audit both the APP and the AOP. The AG, as part of its audit process, would check whether the Department had addressed its findings. If the Department had not addressed its findings, the AG would put that into the annual report that would serve before this Committee. The Department would ensure that it would not have findings related to the APP. The Department had incorporated most of the comments of the AGSA. The Members could have comfort in that regard. The Department had discussions with the AG with regard to the targets. The AG had said that some of the targets were administrative in nature, especially the targets relating to media and communications. The AG had advised the Department that some of those targets can be in the AOP. It was not that the Department was deleting targets because the AGSA had raised issues with them. The Department had just transferred some targets to the AOP. The AGSA would be able to audit that and report on the matter in the annual report. He responded to the question about the budget allocation for the business rescue process of SAA. An amount of R1 billion had been allocated and given to finalise the business rescue process of SAA. An amount of R1.5 billion was outstanding and would be provided for by the Government to finalise the business rescue process. This went to show that the restructuring of SOEs was possible and could be successful. There were other private airlines that went through the business rescue process and some of them ended up in liquidation. It needed to be celebrated that SAA had successfully gone through a business rescue process. It was doing very well after the restructuring process. This indicated that the decision by the board to put SAA under business rescue and the money that the Government had put into SAA was correct. The money that Government had put into SAA had not gone down the drain. SAA was now a restructured airline that was doing very well. It needed working capital so that going forward it expanded. The strategic equity partner would be able to provide the necessary capital injection into SAA so that it continued to grow. The government had indicated that it would not be putting any more money into SAA. The strategic equity partner would then put in the necessary capital injection into SAA. He responded to the question of what the oversight mechanism would be. The Department was developing a minority framework. The framework would be very clear, where the Government was the minority shareholder and what were the rights of the Government in that regard. The Department had also been able to negotiate a golden share which provided greater rights with respect to the developmental objectives of the Government. On certain issues, the Government had greater voting powers. The minority framework that the Department was developing, was to ensure that as the minority it knew what was required. The government always needed to negotiate the golden share so that it did not compromise the developmental objectives of the Government. The Department had successfully negotiated that as part of the strategic equity partnership of SAA. The minority framework was going through a finalisation process. That was why it was not included in the APP. The Department would be finalising this by the end of the month. He discussed Alexkor. He responded to the question of whether the target of the previous financial year had been achieved. It had not been achieved. That was why the target was included in this financial year. He discussed the gender response plan. He confirmed that the target had been met. He discussed the shareholder performance agreement. It had been signed with SAA. The Department was finalising the Shareholder Compact with the new board. The Department had a meeting with them on Monday. He discussed why SAA was using bigger planes. SAA was looking at the load factors and the traffic along those routes. It saw that there was a need. That was why SAA used those big plans. He responded to the question of why the APP was late. The Department had an engagement with the AGSA regarding the targets of the APP. That was why some of the targets were dropped from the APP and placed in the AOP. Some of the targets were administrative in nature. The AGSA and DPME had told the Department to include more strategic targets that were in line with the Department’s mandate. That process took longer than anticipated. The Department apologises for submitting the APP very late. He responded to the question of why the Department had changed the interim board of SAA. The board was a three-member board. It had not been able to execute its duties. It was not able to form the board committees. The SAA transaction had not been finalised. It needed to be ensured that there were board committees. There were only three members of the board. The Department had to review the board. It had to strengthen the board by bringing in more capacity so that it was able to execute its fiduciary duties, in terms of the Companies Act. It was also necessary to form the board committees in line with the provisions of the Companies Act. That was the rationale behind the Department capacitating the board of SAA.

A Deputy Director-General in the Department responded to the question on Transnet International Holdings. Transnet International Holdings was no longer active. He discussed the inputs to the road-to-rail strategy. That would be dealt with as part of the roadmap that was currently being developed between Operation Vulindlela, the Department of Transport, DPE and Transnet. Any reference to Portnet was incorrect and an error. The last time the Department heard of Portnet was in the year 2000.

A Deputy Director-General in the Department responded to the question on local content. Local content was a fundamental strategy in the re-industrialisation strategy of the Government. The Department had taken a decision that instead of relying on the outcomes based on what was reported to it, it wanted to have a mechanism in place so that it could verify whether there was sufficient local content in the procurement that the SOEs were doing. Hence, it had an MOU with the SABS that spanned a period of three years. This was the last year of the agreement. It was assisting the Committee to put together a framework that could be used across the SOEs to determine whether local content was being realised. This was a fundamental strategy of the State to re-industrialise the economy. He provided an example of the Department’s projection. SOEs would be spending over R200 billion on infrastructure over the next five years. Local content stated that not all of this money should migrate out of this country to service other economies. Some portion of that money needed to remain in the country. There needed to be supplier development. There needed to be industries owned by women and by young people that needed to benefit from this procurement. Using local content was a tool that the Department wanted to use going forward. All signed Shareholder Compacts would have this aspect of local content. This framework allowed the Department to investigate whether real local content was happening. The Department was working together with the DTIC. There were a number of stakeholders interested in terms of limiting the leakages from the economy. This would be the last year of the agreements with the SABS. 

A Deputy Director-General in the Department responded to the matter of Eskom and the debt. Over the next three years, Treasury would be providing Eskom with debt relief, which would amount to R254 billion. This would take the form of bundles of R78 billion in 2023/24, R66 billion in 2024/25, and R40 billion in 2025/26. These debts represented Eskom’s full debt settlement required for the next three years. Eskom was also undertaking lenders’ engagement and discussions with lenders. The establishment of the three subsidiaries and the debt takeover were still being discussed with lenders. She discussed the energy availability factor (EAF). EAF was monitored on a continuous basis. Non-achievement of targets was interrogated at the board level and measures were brought in immediately. Non-achievement affected employee and executive remuneration negatively. Several interventions were being put in place by the Government to bring in additional support to Eskom to assist in achieving this target of 65%. Through the National Electricity Crisis Committee, the Government, DMRE, and the support of the Minister of Electricity, Eskom was implementing the Generation Performance Recovery Plan. This recovery plan was adopted in January 2023. It was geared towards improving the EAF at the top six poorly performing stations. She discussed what the Department was doing differently. The Eskom board had appointed WSP Africa to bring in further technical support to the Eskom team and to implement this recovery plan. Progress would be monitored on a weekly basis. Treasury had also appointed BGB, a consortium of consultants to perform technical evaluations and assess the conditions of the assets at several power stations. Also, assistance had been provided by the Department of Forestry, Fisheries and the Environment. It had granted Kusile Power Station an exemption from the lengthy process that was required to amend its atmospheric emission license. This exemption had allowed Eskom to start the construction of the temporary structure, which would allow Kusile units one, two and three to be online before December. It would then get an additional 2000 MWs to the grid.

The Chairperson thanked the Deputy Minister and the Department for the responses. It assisted the Members in helping understand better the issues that were raised. The Chairperson asked if there were any follow-up questions from the Members.

Mr Dlamini said that he had two issues. What was the means test in terms of selecting members of the interim board? How reliable was it? He noted that the current chairperson of the Alexkor board and the current chairperson of SAA shared the same address. How reliable was this means test? There were over 60 million people in the country, how did the Department find talent in one household? Maybe it was time Eskom looked into the billing systems of municipalities they traded with. He noted the issue of municipal debt. Eskom seemed to be helpless to do anything about it. It was a problem. Municipalities could not bill properly, which was why there was a problem. Eskom needed to look into that matter so that funds could start flowing into Eskom.

Adv Makobe responded that the Department had a skills matrix and looked at the availability of people to serve on the boards. Many people were saying no to the Department. They were not willing to serve on the boards of SOEs. The Department had the matrix and went through the individuals. It matched the skills to the requirements according to the matrix. Then the Department approached individuals. Some said no to the Department. Those that said yes were included on the boards. There was a matrix that the Department had been using over time. It had worked over time.  

Ms Malinga said that that response did not answer the question. Mr Dlamini’s question asked how it was possible for the chairperson of Alexkor and the interim chairperson of SAA to share the same address.

Deputy Minister Bapela responded to the question about the billing systems of municipalities. The functions in the Constitution and the other laws of the country divided the responsibilities of municipalities and Eskom. There needed to be an agreement that managed in detail the core functioning and the roles so that there was no interference with a municipality’s function. He provided an example that nearly ended up in court and had to be mediated. It was around the issue of streetlights and who was responsible for the streetlights in the residential areas, townships or suburbs. There was a point where municipalities said that Eskom was encroaching and that it was not their mandate. Engagements could not succeed. Eskom decided to go to court. The Department had to manage that issue. It would be another difficult situation if Eskom got involved in municipalities’ billing systems. It might lead one to take the other to court. It was not an easy thing. Municipalities were facing many challenges with regard to the billing system. They faced many queries from the residents about the bills that they get. He noted that looking at the metering system was a possible solution going forward so that residents received what they paid for. Money needed to be collected properly so that Eskom could get what was due to it.

He responded to the question about the chairperson of Alexkor and the chairperson of SAA sharing the same address. There was a lack of people who wanted to work in SOEs. Every time people came to serve on boards, their careers ended up being tarnished. These were interim boards for a reason. SOEs came from a very difficult environment of state capture. Almost five SOEs were part of the Zondo Commission, in a variety of degrees on how they were affected. The Minister decided to have interim boards that came in clean. Once the structure was stabilised, then the Department would go through the process of bringing in permanent people. Quite a number of SOEs had interim boards. The screening process was there. The Department ensured that the right people with the requisite skills came in. He discussed the appointment of the board of the SAA. When it was appointed, the current chair of Alexkor indicated that she would want to resign as soon as possible. She indicated that she would tender her letter of resignation having done her duties and turned around Alexkor. Immediately that indication had come to the Department. The letter might come this month or next month. He had pleaded with her not to go at the time because he had seen the good job that she had done. She had contributed to the stabilisation of Alexkor, irrespective of the fact that she shared the same address with the chairperson of SAA. This could be one of the factors why she wanted to leave.

The Chairperson thanked the Deputy Minister for his response. It was a very controversial issue. It remained a very controversial matter.

The Chairperson thanked the Acting Director-General and his team from the Department.

Consideration and adoption of the Second Term Programme 2023

Mr Disang Mocumi, Committee Secretary, took the Committee through the Second Term Programme.

Mr Dlamini moved for the adoption of the Second Term Programme.

Mr Gumede seconded the adoption of the Second Term Programme.

The Committee’s Second Term Programme 2023 was adopted.

Consideration and adoption of minutes

The minutes of the Portfolio Committee on Public Enterprises dated 05 April 2023 were considered.

Ms Siweya moved for the adoption of the minutes.

Mr Gumede seconded the adoption of the minutes.

The minutes were adopted.

The minutes of the Portfolio Committee on Public Enterprises dated 19 April 2023 were considered.

Ms Phiri moved for the adoption of the minutes.

Mr Dlamini seconded the adoption of the minutes.

The minutes were adopted.

The meeting was adjourned.