Implementation of the Zondo Commission Recommendations: DPE briefing (with Minister)

Meeting report

The Chairperson welcomed all those who were present in the meeting.

The Committee, he said, convened the meeting to receive a report from the DPE on the progress of its corrective interventions to address the various challenges at SOEs. Thereafter, he asked if the Committee received any apologies.

Ms Amanda Zindlani (Committee Secretary) said that apologies were received from three Members, Mr Jomo Nyambi, Ms Winnie Ngwenya and Mr Mlindi Nhanha.

The Chairperson then invited the Minister of the DPE to make his opening remarks.

Opening remarks by the Minister

Mr Pravin Gordhan (Minister of Public Enterprises) mentioned that the Department’s presentation would focus on matters arising from the Zondo Commission’s recommendations. Thus far the Ministry has requested each of the SOEs and the department to put into place a plan of action which would give effect to the findings of the Commission.

Several entities, not just those under the Department’s portfolio, were targeted by the beneficiaries of State Capture. State Capture has had a devastating effect on many of the department’s entities, such as SAA. However, this entity has been put on the path of renewal and is currently undergoing a strategic equity partner transaction, which has admittedly gone on very slowly due to the regulatory environment, he said.

State Capture affected the operational performance of boards and entities, with many highly qualified individuals either being removed or leaving. At present several structural changes are occurring in the SOEs to reposition them so that they can be competitive once more.

The recovery from State Capture has been challenging and will not happen immediately, given the extent of the damage. Certain processes need to take place, such as the rebuilding of the institutions, and the renewal of a culture of performance, responsibility, and efficiency, before the entities can compete in the various market places they operate within. If this is not done properly it will have a negative impact on the country’s economy as well as on ordinary people’s livelihoods.

He stressed that the corrective measures did not fall entirely within the powers and scope of SOEs, the department or Ministry only but in other agencies like LEAs (Law enforcement Agencies) – which need to come to the party. Unless serious prosecutions take place against those who were responsible for the malfeasance that took place during the State Capture period, these actions will only continue. In his view, the LEAs were not making the required impact they had to be make to mark their presence and ability to act against corruption and fraudulent behaviour.

Also, he highlighted that the Commission speaks of both the ‘corruptor’ and ‘corruptee’ involved in State Capture, which included large multinational companies, some of which have paid for their bad deeds – while others have not.

Briefing on the DPE’s implementation plan of the key recommendations contained in the SC Report

Adv Melanchton Makobe (Deputy Director-General: State-Owned Companies Governance Assurance and Performance at the DPE) took the Committee through the presentation.

The Department has been working with LEAs, SOEs, and other organs of state to implement consequence management against former directors of entities implicated in State Capture, with the aim of bringing about cultural and organisational change. In addition, steps have been taken to introduce reforms that seek to bring about good governance in SOEs.

Some of the cases investigated against officials have been referred to the South African Police Services (SAPS).

Eskom State Capture Progress Report

• Five employees have resigned at Eskom following the findings of Special Investigating Unit (SIU) investigations into 14 coal transportation service provider concerning payments from 01 January 2010 31 January 2021;
• The SIU Tribunal issued an order to freeze R11.5 million held in a bank account owned of an entity, which a senior Eskom official was a signatory of
• 5624 matters have been referred by the SIU to Eskom for the institution of disciplinary proceedings
• R4.8 billion has been claimed against former contractors and former Eskom directors
• R2 billion unlawfully paid to contractors has been recovered by Eskom and SIU
• A total of R11 billion coal supply agreements (CSA) have been cancelled

Transnet State Capture Progress Report

• The total value of tainted contracts identified by the Commission amounted to R41.2 billion, with the value of contracts under investigation amounting to R57.4 billion
• Thus far Transnet has recovered R744 million from the 1064 locomotives contract and R1.18 billion from a crane contract
• 12 criminal cases have been opened for investigation with LEAs
• SIU and Transnet are working together to certain contracts entered into during the State Capture period

SAA State Capture Progress Report

• The total value of contracts under investigation amounted to R1.8 billion
• 10 criminal cases have been opened with LEAs for investigation
• SAA and SIU are working towards launching a civil claim of R1 billion relating to corruption between third parties, board members and employees of the entity;
• R824 million regarding tender irregularities and contract non-compliance issues on sale and lease back agreement of aircraft; and
• R985m regarding irregular payments and contract extensions concerning procurement of security services.

(See Presentation)

Discussion

Ms L Bebee (ANC, KwaZulu-Natal) said that she had no questions as the presentation was very clear, and would only make one comment.

The presentation showed that strides have been made in holding officials involved in State Capture to account with the department able to recoup money obtained through illicit means and also freeze the bank accounts of those responsible. She thanked the Department for all the work it has done thus far and hoped that it would continue going forward.

The Chairperson mentioned that SCM was one of the areas identified as vulnerable across all SOEs during the State Capture period. In its last engagement with the Committee Transnet indicated that it was training its SCM personnel to become procurement specialists. He asked if this training would be limited to Transnet or extended to all other SOEs.

Thereafter, he asked if the Department applied policy guidelines across SOEs for the appointment and remuneration of executive directors and board members, to ensure that the people appointed have the relevant expertise to steer the entities on a sustainable path. In addition, he asked that the department also consider applicants from rural areas for board positions in SOEs, to give effect to the transformation agenda.

In his view, it seemed that efforts to provide port allocations to black-owned companies were too slow, which, in turn, was delaying transformation in the sector. He asked if any steps were being taken to improve on this. Moreover, he asked how the department would ensure that the communities within Mpumalanga benefit from the sale of coal in the province to Eskom – he wondered if this could be done by having Eskom require suppliers to invest some of their profits in the communities they operate within.

All in all, he was pleased with the progress made by the department thus far and hoped this would continue going forward.

Minister Gordhan thanked the Committee for noting the Department’s progress so far.

Regarding the question of whether the specialist training of SCM personnel would be extended to all SOEs, he said that SCM remains a vulnerable area because technology in the SOEs has not modernised fast enough to fully prevent instances of corruption at all levels. This needs to be done on an urgent basis, he stressed.

Furthermore, he called for Parliament and the rest of society to assist the government in changing the country’s social and business culture. Parliament could do so by emphasising its stance on corruption and malpractices within SCM. The rest of society should call for the new generation of entrepreneurs to conduct their business with the state in an honest manner as every Rand that is wrongly added to procurement contracts takes away money that SOEs cannot afford to lose.

In response to the question of whether the Department applied policy guidelines across SOEs for the appointment and remuneration of executive directors and board members, he confirmed that these policy guidelines and standards were in place across all SOEs under the DPE portfolio.

Touching on rural representation in boards of SOEs, he stated that this had to be balanced against the skill set required in each board. Over the years, the department has learned that people on boards must understand the business of SOEs, have the courage to stand up against wrongdoing and have a professional background in a relevant field. Going forward, SOEs cannot continue making the mistake of appointing people to boards based on their public profile or relations to people with decision-making powers, he added.

Referring to the question on transformation, he pointed out that the President, accompanied by the DPE’s Ministry, spent some time at the Richards Bay terminal. The major export of coal, 40 to 50 million tonnes, takes place through the privately-owned Richards Bay Coal Terminal (RBCT), where each of the companies that have participated in its creation have an allocated share. Transnet’s coal terminal exports currently stand between 10 and 14 million tonnes, depending on the technical capability of the equipment, whereas the total capacity of the port as a whole is somewhere between 70 and 90 million tonnes.

Provision has been made for smaller players to participate in the RBCT, however, more efforts would have to be made to improve on this, which he believed Parliament could assist with. Transnet’s challenges, he continued, had a significant impact on the quantities of coal that could be exported by businesses when the price of coal increased dramatically.

That export drive also had consequences for the supply of coal to Eskom, as some coal drop yards provided poorer qualities of coal to the entity, causing damage to its equipment.

Regarding the beneficiation of communities, he indicated that it was for mining companies to meaningfully invest in the communities they operate within. Much more had to be done, but taking such steps would greatly contribute to the creation of an inclusive economy, he argued.

Adv Makobe, adding onto the response on SCM, stated that the Public Procurement Bill sought to address the leakages in procurement across the government and its SOEs, and also professionalise the role of procurement officers.

The Chairperson appreciated the responses provided by the department to the questions posed by the Committee. As it was the Committee’s last meeting with the Department for the year, he wished its officials well for the holiday season.

Minister Gordhan responded in kind.

The Chairperson excused the Department so that the Committee could discuss its internal matters.

Committee Matters

Once the officials left the meeting he highlighted that the Committee could not adopt its outstanding minutes as it did not form a quorum. This would then have to be done in the Committee’s first meeting of the next year.

Thereafter, he thanked the Members for their contribution to the Committee’s work for the year and wished them well for the festive season.

Ms Bebee thanked the Chairperson for the leadership he displayed throughout the year.

The meeting was adjourned.