Departmental Budget: briefing

Meeting report

PUBLIC ENTERPRISES PORTFOLIO COMMITTEE; LABOUR & PUBLIC ENTERPRISES SELECT COMMITTEE: JOINT MEETING
3 March 2000
DEPARTMENT OF PUBLIC ENTERPRISES: BUDGET BRIEFING

Documents handed out
Explanatory Memorandum: Vote 23 - Public Enterprises Estimate 2000/2001
Department of Public Enterprises Budget Presentation (see Appendix 1)

SUMMARY
The Head of the Restructuring Programme in the Department of Public Enterprises (DPE), Mr Leslie Maasdorp presented the 2000/2001 budget. He pointed out that the DPE had only been functioning as a full department since September 1999, and its role for this year would therefore be significantly increased from last year. A large part of the role would be the oversight of privatisation plans for various State owned enterprises (SOEs) as well as performance monitoring of these SOEs. Four key state assets would be concentrated on: Eskom, Transnet, Telkom and Denel.

The total budget of R45m would be divided into four programmes, each with the following allocations:
Programme 1: Administration - R23.2m
Programme 2: Restructuring of SOEs - R10.5
Programme 3: Performance monitoring of SOEs - R9.2m
Programme 4: Alternative service Delivery - R2.1m

A key concern of committee members was the wish to see black economic empowerment included in the department's agenda. Mr Maasdorp indicated that this would indeed be one of the priorities informing each individual privatisation programme.

MINUTES
Introduction
Mr Maasdorp presented the budget, first offering the committee some background to the department, which, he said, was substantially different this year from the previous year. He noted that it was established in 1994 as the Office for Public Enterprises with a limited mandate and had subsequently been functioning as a full department only since September 1999. The department's newly increased role explained its increased budget allocation for the coming year.

He identified the key mandates of the department:
- The development of a coherent approach to restructuring in order to ensure maximum economic impact, and
- Performance monitoring of SOEs and ensuring their alignment with government policy

He also identified a number of constraints which the department faced, including the fact that the department had been severely under-resourced in the past, with only 41 staff members. Also there had previously been a heavy dependence on external advisors. Both of these constraints had been addressed for the coming year.

The restructuring programme of the department would include a consolidated policy framework which would be complete by April. Also within the department, there would be an increasing specialist management capability to strengthen co-ordination and a centralising of the oversight role over SOEs.

Budget allocations for the four programmes
Programme 1 (Administration)
He noted that there were budget implications for the upgrade of the department. Personnel expenditure included salaries for the minister and deputy minister as well as the entire department.

Programme 2 (Restructuring of State Owned Enterprises)
The budget figures suggest a reduced reliance on external advisors. Additionally that HSBC's contract with the department costing R10m had been terminated in September 1999. One of the key outputs the department would provide, would be a restructuring plan per entity, outlining policy objectives. An example in this regard would be ensuring that the price of electricity remained constant for consumers when restructuring Eskom. He said the Department would seek "social consensus" (ie stakeholder participation and consultation) and would in this way try to avoid opposition from labour and consumer groups.

Programme 3 (Performance Monitoring)
This new programme had as its main objective, increased accountability from SOEs. Policy objectives should inform the restructuring agenda and this should also be co-ordinated with other line departments. Broader issues would also have to be taken into account when addressing restructuring and there would have to be a common point of reference between the shareholder, policy oversight and the treasury roles.

The Department would also introduce regulatory reform, including the monitoring of service delivery of newly privatised companies. Shareholder compacts would also be issued, explaining how loss-making SOEs, such as Transnet, would be turned around. Finally, a consistent approach to empowerment strategies would have to be adopted.

Programme 4 (Alternative Service Delivery)
This was also a new programme which would have as its goal, the more effective utilisation of SOEs. It would seek to get SOEs to work together to develop alternative service delivery mechanisms. One example Mr Maasdorp quoted in this regard, was that of information technology (IT) which could serve as the basis for an alternative service delivery method which some of the larger SOEs could co-operate on.

Questions by Committee Members:
The accuracy of the figure of 68.9% at the bottom of page 3 of the explanatory memorandum was queried. This was acknowledged to be incorrect.

Several members asked which assets are due for privatisation and to what extent, black empowerment would actually benefit from privatisation?

Mr Maasdorp stated that from this year, every privatisation programme would take into account empowerment goals. He stressed that there must be a balance between value and empowerment. He also stressed that there would be consistency between the privatisation of different state assets.

There would be an announcement in April as to which assets are due for privatisation. However, he did say that the nature of each individual SOE would determine how soon it would be privatised. For example, Aventura [the tourism parastatal] would be privatised soon since there was no compelling reason why the government should own it. Eskom on the other hand, provided an essential service and would thus have to be dealt with carefully, necessitating a lengthier approach. The department's policy document would be coherent and consistent.

Dr P Nel (NNP, Free State) asked why there was an increase in expenditure of R5m in Programme One, when it was the policy of the department to be less reliant on external advisors.

Mr Maasdorp responded that since the department was quite small, specialist services would be needed from time to time and these had to be budgeted for.

The Chairperson asked about the R100 000 transfers mentioned in the budget. From whom to whom were these transfers made?

Mr Maasdorp said that they were transfers to SITA (State Information & Technology Agency).

A member queried the vacant posts within the department asking how close the department was to filling these posts.

Mr Maasdorp said several of the posts had in fact already been filled, with a number of staff members starting work just the day before. The remaining posts were in the process of being filled.

Mr S Fenyane (ANC, Northern Province) asked about the Public Finance Management Act (PFMA) which gave the Department of Finance the authority to monitor state assets. Did this not represent an overlap with the role of the DPE?

Mr Maasdorp said that the DPE was aware of the PFMA which was due to come into effect from 1 April and that in this regard his department would work together with the Department of Finance. He also stated that it was the role of the Department of Finance to look at this issue from a strictly financial perspective. His department had a broader oversight role.

A member asked whether or not the DPE had in place an internal audit committee with an external chairperson, which was also mandated by the PFMA.

One of Mr Maasdorp's colleagues answered this question, saying that such a committee had already been set up, however they were still in the process of appointing an external chairperson.

Mr Fenyane asked if the department had the capacity to monitor all SOEs.

Mr Maasdorp replied that it was a new branch of the department and business plans were being put in place. He expected that by March they would have completed a review of all SOEs and an online database would be made available to the committee. He mentioned that 90% of all assets are in four SOEs, namely: Eskom, Transnet, Telkom and Denel. The department would concentrate on these four SOEs although the other entities would also be looked at in parallel to these four.

A member asked who owns Aventura Resorts at the moment and is it being marketed towards previously disadvantaged groups?

Mr Maasdorp answered that this state asset must be made available and more accessible to all people, as is the case with all SOEs.

A concern was raised that emphasis was being placed only on the four largest SOEs. There was the perception that other SOEs such as Alexkor, were completely "up for grabs" and that Alexkor in particular "was going down the drain."

Mr Maasdorp expressed regret at creating the wrong impression. The other SOEs would not be de-emphasised. However in the case of Transnet, for example, its loss last year was greater than the profits of most of the other SOEs combined and this was the reason for concentrating on the larger SOEs.

The Chairperson thanked the department members for the budget review which in fact contained the answers to many of the committee members' questions. He said he was satisfied with the representations made here and with the answers too. Members requiring further information would have to go to the department through the Director General, before the budget vote in April. Mr Maasdorp added that the Director General, Mr Sivi Gounden, was overseas at the moment and offered his apologies.

Appendix 1:

DPE Budget presentation

03/03/2000

Leslie Maasdorp

DPE Mandate
DPE established in 1994 as Schedule 2

• August 1999 - became schedule 1 department
• New Mandate
• Development of a coherent approach to restructuring to ensure maximum economic impact
• Performance monitoring of SOE's and ensuring their alignment with Govt policy
• Promote the business process re-engineering of SOE's
• Comprehensive approach to alternative service delivery

Constraints

• Organisation was severely under resourced
• Restructuring process heavily dependent on external advisors
• Performance monitoring was limited resulting in weak accountability
• Ability to integrate activities of SOE's where potential synergies exist
• Lack of consensus on the objectives of restructuring and limited stakeholder dialogue

Restructuring programme

• Development of a consolidated policy framework
• Policy framework outlining restructuring timetable will be presented to the IMCC - 31 March
• Increasing specialist management capability within DPE to strengthen co-ordination
• New approach is to appoint transaction advisers with DPE managing and directing the process
• Engage in post restructuring evaluation after each transaction

Administration - Programme1

• To conduct the overall management and administration of the department
• Budget implications of the upgrading of the department
• Personnel expenditure includes Minister, DG, corporate services, financial management, internal audit, communication, Minister's staff, and the special advisor.

Restructuring programme - Programme - 2

• Numbers suggest reduced reliance on external advisors
• Key outputs include restructuring plan per entity outlining the policy objectives, regulatory framework, restructuring plan, transaction process
• Stakeholder participation and consultation

Programme 3 - Performance Monitoring

• Development of policy objectives to inform the restructuring agenda
• co-ordination with other line departments
• common point of reference between shareholder, policy oversight and treasury roles
• Overall performance monitoring of SOE's
• Appropriate regulatory reform
• Corporate governance protocol - shareholder compacts
• Consistent approach to empowerment strategies

Programme 4 - ASD
Promoting and advocating alternative service delivery mechanisms within SOE's

• Developing best practice guidelines for ASD
• Providing a technical resource base to SOE's on ASD