Committee Oversight: Treasury briefing; Sector Workshop and Alexkor Subcommittee Reports

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Public Enterprises

23 February 2005
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Meeting report

PUBLIC ENTERPRISES PORTFOLIO COMMITTEE

PUBLIC ENTERPRISES PORTFOLIO COMMITTEE
23 February 2005
COMMITTEE OVERSIGHT: TREASURY BRIEFING; SECTOR WORKSHOP AND ALEXKOR SUBCOMMITTEE REPORTS

Chairperson:
Mr Y Carrim (ANC)

Documents handed out:
Ministry, Department and Portfolio Committee Workshop Report: 2nd Draft
Report of the Alexkor subcommittee
Treasury PowerPoint presentation: Oversight Role of Parliament - Budgets and Annual Reports
Treasury briefing: Guideline for Legislative Oversight through Annual Reports

SUMMARY
The Chairperson outlined the timetable and objectives for the upcoming Ministry, Department and Committee workshop. The Committee endorsed the aims and objectives of the workshop. The Chairperson also briefly reported back on the discussions that had taken place in the Chairperson’s Forum, and their implications for the Committee

The Alexkor subcommittee then reported back on the problems that had been experienced by women's groups and with Black Economic Empowerment (BEE) in the Alexkor project. After a discussion, the Committee endorsed the findings and recommendations of the subcommittee. This focused on the need for Alexkor to transfer skills to the involved empowerment companies during the BEE project.

The National Treasury also briefed the Committee on guidelines regarding the oversight role of Parliament as it related to budgets and annual reports of Departments and state owned enterprises. The ensuing discussion focused on the Committee’s oversight role and the implications that the guidelines, and new legislation, had for this.

MINUTES

Ministry, Department and Committee Workshop
The Chairperson announced that the Workshop had been approved and would take place on 8 March 2005. The main goal would be for the Committee to receive an overview of the Ministry’s and the Department’s programme. The workshop would also aid in the finalisation of the Committee’s 2005 Programme; and also serve as a precursor to the 2005 budget hearings. It would aid in clarifying the responsibilities of the Committee. These aims and the workshop’s timetable could still be altered if the Committee felt strongly before the end of the day.

Discussion
Mr S Manie (ANC) was concerned that the Ministry and the Department would possibly set the agenda for the Workshop and programme. This would mean that the Committee’s input would possibly be limited.

He also expressed concern that none of the parties fully understood all aspects of the relationship between one another. This needed to be clarified so that each one could understand its specific function. He inquired whether the Committee had a mandate to hold state owned companies accountable when they had not performed acceptably, or if this was the Department’s or Minister’s responsibility.

The Chairperson noted that working towards clarifying the roles of each entity would be part of the Workshop process. He also stated that he had already raised the issue of input with the Ministry and Department. The Chairperson noted that the nature of the Committee’s work also made its role difficult to define. It was noted that no Member had a problem with the aims and timetable of the workshop.

Chairperson’s Forum report back
Mr Carrim noted that during the Forum on 21 February, the Chairpersons had raised several important issues. The majority of the Chairpersons aired a concern that the plan to squeeze all the budget votes into a three-week period was unreasonable. This would not allow for effective budget oversight.

The Chairpersons had also been informed that their budgets had been reduced for the new financial year. Parliament had requested R95 million, but it had received only R23 million. Due to the elections last year, many Committees had not spent their 2004 budgets. There was, therefore, a suggestion that an attempt should be made to spend these budget rollovers by 31 March. In the light of this, Mr Carrim suggested that the Portfolio Committee should use two of the remaining Fridays, before 31 March, to visit state owned entities, such as Denel.

Mr Carrim also explained that Parliament planned to include more Constituency Weeks in the second quarter. This was partially related to the voter registration drive for municipal elections.

Discussion

Alexkor subcommittee report
Ms P Mnandi (ANC) reported back on the subcommittee’s visit to Alexkor, which was undertaken to assess the problems raised around the women’s project. During the visit the subcommittee interviewed all the stakeholders in order to clarify the facts.

Ms Mnandi stated that the subcommittee met with the women’s groups, which formed part of the Black Economic Empowerment (BEE) drive at Alexkor. These groups highlighted a perception that the finances of the Alexkor project were not being properly accounted for. They also felt that there was a lack of transparency, and that they were not being allowed to participate fully in the project.

The subcommittee also met with the Mountain and Desert Development Committee (MDDC), who formed part of the BEE initiative. They were concerned that they lacked experience and knowledge of the diamond mining industry.

Ms Mnandi said the subcommittee then met with the last component of the BEE initiative, which was the Alexkor Development Foundation (ADF). ADF believed that the contractors, who had been hired to do the mining on behalf of the project, were claiming a lot of the money for ‘operating costs’. Yet, ADF felt that the contractors were not providing sufficient income for the BEE component of the project. The subcommittee also met with the Chief Executive Officer of Alexkor.

On the completion of all these visits, the subcommittee reached the following conclusions. Firstly, all the stakeholders wished to continue with the project, but the implementation of BEE was a problem. Secondly, there was a lack of trust between the stakeholders. Thirdly, some of the BEE parties lacked strategic plans and failed to properly understand the agreements that they had entered into. Fourthly, the BEE parties experienced a lack of effective participation. Finally, Alexkor had not provided proper skills transfer to the BEE parties.

Ms Mnandi concluded that despite these issues, the project should continue. However, Alexkor needed to fulfil its role in providing skills to the BEE parties. Ms Mnandi also recommended that the provincial government and Department needed play a greater oversight role in the project. The project was, however, on hold until the Committee finalised its recommendations.

Discussion
Mr H Bekker (IFP) questioned whether Alexkor itself was a viable entity. He also inquired if Alexkor would be considered for privatisation.

Mr Manie responded that the report back covered the women’s groups and not the whole of Alexkor or privatisation. He stated that there was not enough time available to discuss the Alexkor entity itself.

Mr C Gololo (ANC) stated that on a previous visit, Committee Members had promised workers that the Committee would try to help solve their problems. He wanted to know if the subcommittee had met with the workers during their visit.

Ms Mnandi responded that the subcommittee had not received a mandate to meet the workers.

The Chairperson suggested that when the Committee next met with Alexkor and the Minister, the Committee should raise new questions and not cover old ground. It was not the Committee’s role to solve problems, but rather to facilitate problem solving. If the workers’ problems fell under the facilitation role, then the Committee could be involved. However, the Committee should be cautious when it stated that it would solve problems. Indeed, this issue highlighted the need for clarification on the exact role of the Committee.

He also noted that the Committee endorsed the findings and suggestions of the subcommittee. A report that outlined these would be compiled within seven to ten days. It would be linked to the overall Alexkor reports. The Committee also felt that the provincial government and the Department should take the matter forward.

National Treasury briefing
Mr N du Plessis (National Treasury) presented the guidelines for Parliament’s oversight role of various government departments and public entities. This would be done through the evaluation of budgets and annual reports. This included touching upon the Committee’s oversight role.

Mr du Plessis outlined Parliament’s oversight responsibilities in terms of the Constitution. He then outlined recent reforms that had been implemented to facilitate oversight. These included the introduction of the Public Finance Management Act (PFMA), which provided for a financial management framework that focused on accountability.

He proceeded to discuss the current arrangements for the oversight process at a national and provincial level. He outlined that Portfolio Committees were in a position to play a greater role in oversight because of their involvement in budgets and policy development.

Mr du Plessis also provided information on how to evaluate strategic plans and budgets. He also discussed how information in the annual reports from Departments and state owned entities needed to improve so that their performance could be evaluated by Parliament.

Mr du Plessis then addressed the PFMA requirements for the tabling of annual reports by Departments. Departments would be required to table annual reports by 30 September. The annual reports would then be referred to Portfolio Committees.

He also defined the roles that various institutions should pay in the oversight of annual reports. This included the role of the House, the Public Accounts Committee, the National Treasury, the Provincial Treasuries, the Auditor-General and the Portfolio Committees.

He noted that the Portfolio Committees should focus on the technical quality of annual reports. They should also check whether the annual reports contained performance targets and whether these had been met. The Committees should also be involved in ensuring that the entities implemented service delivery plans. If they did not, the Committees should investigate why not. Committees would also be responsible for investigating under or over expenditure. He also noted that Committees needed to share information with one another to improve the effectiveness of their oversight. Portfolio Committees would also be responsible for submitting oversight reports to Parliament in November. In this way, the Portfolio Committees could influence the Public Accounts Committee.

Mr du Plessis noted that extensive training might be required for Committee Members and staff to enable them to effectively analyse annual reports. Researchers may also be required by Portfolio Committees in order to work through all the annual reports.

Finally, Mr du Plessis noted that these were guidelines, and it was for each legislature to develop a systematic approach to reviewing annual reports and budgets. However, these needed to be documented.

Discussion
Mr Manie observed that the guidelines would make the work of the Committee more relevant. He noted, however, that the annual reports and feedback, which the Committee currently received, tended to comply with existing laws, but did not focus on delivery. He felt that ultimately the Committee should focus on whether Departments or state owned entities were delivering. In terms of this, annual reports needed to provide time frames, delivery plans and delivery progress reports.
Mr Manie also observed that by the time the Committee received annual reports, they were already dealing with the history of the Department or publicly owned entity. He noted that one needed to consider how the Committee could use the annual reports to impact on the Departments’ programmes and plans.

He also questioned whether there was a standard reporting format. He said the Treasury could perhaps make a specific report format compulsory.

Mr Manie also felt that the Committee needed firmer guidelines on how it could engage with the Boards of state owned entities that failed to deliver. Indeed, presently, some Boards of state owned entities did not even report back, specifically those that formed part of subsidiaries. He wanted to know how the Committee could make subsidiaries accountable.

Mr Manie and the Chairperson also noted that it was important for the Committees to receive the necessary resources that would enable them to implement their oversight function.

Mr Manie also questioned how the shareholder compact reports would be tested against the Treasury guidelines. He felt a document needed to be produced which set out the criteria needed in the report. This would aid the Committee in its oversight role. Mr Manie and the Chairperson both felt that state owned entities’ shareholder compacts should be submitted to Parliament. Treasury could get them to do this or it could be legislated for in the PFMA. They also felt that the Treasury could have a major impact on forcing Departments and state owned enterprises to deliver proper annual reports.

Mr Manie also highlighted that Parliament needed to make an input into how the budgets of state owned enterprises were drawn up. There should be a tabling before their budgets were finalised.

The Chairperson then inquired about the progress of the Bill which would allow the Committees to amend budgets. He felt that the Executive was perhaps holding up the process. Ms D Ngcengwane (ANC) also questioned at what point of the process would the Committee be able to influence the budget of a Department.

Mr Bekker pointed out that the Committee often dealt with entities that generated their own income and were not dependent on direct government funding. He felt that there should be a specific reference in the PFMA that allowed for the control and oversight of these types of state owned enterprises.

He also inquired how the Committee could force state owned enterprises which were making a loss to be accountable.

Mr Gololo inquired about what steps the Committee could take if a Department did not submit its reports on time.

Ms N Kondlo (ANC) asked about the timetable for monitoring and oversight.

The Chairperson asked what measures the PFMA prescribed in a case where there had been mismanagement in a state owned enterprise.

Mr du Plessis noted that he would respond to some of the questions in writing, as he did not have all the facts at hand.

Mr du Plessis then noted that on the issue of compliance with the PFMA, the Auditor General would conduct compliance and performance audits. This would be done to ensure that the quality of the annual reports were up to standard. Parliament could also request that entities submit budgets and corporate plans if they were not doing so.

Mr du Plessis noted that there was a framework that stipulated how performance information should appear in the annual reports.

Mr du Plessis also stated that the Treasury was considering the possibility that the shareholder compact reports should be submitted with the budget.

Mr du Plessis also stated that the Boards of state owned enterprises were considered to be fully accountable. Currently, there was a process underway that would develop a new shareholder management model for Schedule 2 and Schedule 3 companies. This would ensure that Boards are accountable and would require them to produce corporate plans.

Mr Manie was unaware of this. He stated that the Committee should also be allowed to participate in this.

Mr du Plessis noted that Cabinet had stipulated that National Treasury should review Schedule 3 public enterprises. Part of the process involved getting input from the Public Enterprises Department because they were undertaking a similar programme with Schedule 2 entities. This also involved establishing a revised shareholder management model.

The Chairperson noted that the new shareholder management model was part of the Department’s programme. There the Committee would have a major input.

Mr du Plessis also noted that he would make a copy of the guideline document for the shareholder management model available to the Committee.

Mr du Plessis noted that with regards to financial misconduct, if Boards did not meet certain criteria, the Minister would be responsible for taking action. The Treasury also had the authority to do so. Parliament and Committees could also instruct Boards to undertake an investigation if certain criteria were not met. Committees could also request that disciplinary action be taken against offending parties.

Mr du Plessis agreed that resources were necessary to implement the guidelines he had outlined. However, he was not involved in allocating resources. He would, however, assist Parliament in implementing the PFMA, and could possibly help find funds for this.

The Chairperson and Mr du Plessis agreed that there would be ongoing contact between the Treasury and the Committee regarding its oversight role.

The meeting was adjourned.

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