Department of Public Enterprises Budget & Strategic Plan: briefings

PUBLIC ENTERPRISES PORTFOLIO COMMITTEE AND SELECT COMMITTEE ON LABOUR AND PUBLIC ENTERPRISES
10 May 2006
DEPARTMENT OF PUBLIC ENTERPRISES BUDGET & STRATEGIC PLAN: BRIEFINGS

Chairperson: Mr Y I Carrim (ANC)

Documents handed out:
Public Enterprises Vote 9
Public Enterprises Budget Presentation to Portfolio Committee
Public Enterprises 2006- 2009 Strategic Plan and Financial Overview: Presentation to Portfolio and Select Committees

SUMMARY
The Department of Public Enterprises presented its 2006-2009 Strategic Plan and 2006/07 Budget to a joint meeting of the portfolio and select committees. Members raised questions about the Department’s role as shareholder representative in state-owned enterprises, the recapitalisation of Denel, the future of Alexkor and the removal of South African Airways from the Transnet group of companies.

MINUTES

Department of Public Enterprises (DPE) Legal Governance presentation

The DPE’s Deputy Director-General: Legal Governance, Ms Sandra Coetzee gave a presentation on the DPE’s organisational structure. She pointed out that during the last year the DPE added transactional functions to its jurisdiction. The Legal, Governance and Transactions (LGT) section saw its function as a facilitator. It would also be involved in the development of guidelines for shareholding management.

The Transaction Unit would assess procurement approvals in terms of the Public Finance Management Act (PFMA) and provide guidelines to the State and State-owned Enterprises (SOEs) on whether a transaction should or should not proceed.

DPE had a representative panel of service providers for legal advice Specialist skills were also needed for professional advice on matters pertaining to substantial contracts. This would also be required for the purpose of providing regular reports on the impact of draft regulations on the DPE and SOEs.

The third element related to the compliance of the DPE with the Promotion of Access to Information Act and the Promotion of Administrative Justice Act. Substantial work was also being done on the Governance function. Referring to the term corporatisation, it was important to ensure SOEs functioned with the same degree of corporate discipline as other enterprises. Therefore, the Director-General was in the process of redefining the classification of SOEs. The key focus on the draft legislation would be to improve corporate governance in SOEs. This process would entail looking at the founding documents, which was more than 10 years old. The same strategic intent would have to be applied in reviewing these founding documents to determine whether they were in line with the strategic approach.

It had been highlighted that the key point of communication and integration with SOEs was their Boards; therefore communication and relationships with the Boards would have to be improved. A programme of action in this regard is to introduce Board induction by shareholders through profiling the SOE Board and harmonised remuneration guidelines. There was a further intention to use the Annual General Meetings as a performance measurement event to deal with internal and external communications.

In terms of the Transaction Unit, the focus should be on what is expected from SOEs in management transactions and integrity of the process that could be measured at Board level. Transaction management guidelines were being prepared. The last two items were mentioned as being particularly important. A form of shared shareholding with the Private Sector was a possibility but SOEs had to be accountable for their transaction as DPE represented the main shareholder.

The Department was attending to the issue of South African Airways (SAA) being separated from Transnet. The focus is on establishing special vehicles for these transaction elements. There were outstanding issues on the SAFCOL transactions, where shareholding has been transferred to communities. Essentially, the Department had to inform the SOE of how to present the applications and how transaction approvals took place.

Ms Coetzee pointed out that the Department’s budget had increased due to increased remuneration of employees, the higher costs of specialists and the costs of refurbishing equipment.

Discussion

A DA Member inquired about the R2 billion that would be used to recapitalise Denel and asked whether the Department was playing any role in the Denel / India controversy.

Ms Coetzee said this issue highlighted the differences in the Department’s and SOEs’ roles. The India deal was negotiated by Denel at the enterprise level and any disputes therefore had to be resolved within the framework of legal liability at enterprise level. The role of the DPE is to advise the Minister and the Department about the obligations of Denel in terms of international treaties between SA and India relating to co-operation and certain corrupt practices. The Department is further involved in monitoring the consequential implications.

Mr SE Kholwane (ANC) asked why the Department’s policy unit did not receive much of a budget allocation and about filling of vacant posts. He also asked why the Department’s litigation level had dropped by 25%.

Ms Coetzee stated that policy contained two dimensions; internal DPE policy on oversight as shareholders and a separate policy for each of the SOEs. In this regard the Department is not the key agent but the conduit for communication.

Ms Coetzee said filling of vacancies was crucial for additional support in the governance division and the legal department. The approach is twofold; training of existing staff and recruitment of people with the sufficient level of expertise.

Ms Coetzee argued that DPE was not in itself litigious. There were however a number of cases which started in 2000 and 2001. The delays in finalising these cases detracted from the Department’s main focus and therefore a target date has been set to resolve outstanding issues. In terms of the Alexkor settlement, the problem lay in the land claim which is managed by the Department of Land Affairs.

An NCOP Member questioned the role of SAA once they were separated from Transnet, and sought clarification of the term “ Golden Shareholding”.

Ms Coetzee said the role of DPE in relation to SAA in future would be the same as the relationship between DPE and Eskom and Transnet. DPE would in other words deal directly with the SOE. “Golden Shareholding” referred to reserved rights for a minority shareholder. Notwithstanding its minority status, the shareholder would still be is able to exercise control over certain decisions.

Mr D Gumede (ANC, KwaZulu) requested additional information regarding the shareholder management model and transaction guidelines.

Ms Coetzee pointed out that the guidelines had not been promulgated and the PFMA regulations therefore stood for the moment. The DPE experienced constraints on its ability to legally enforce theses guidelines. Nevertheless, the DPE has not had any problems with SOE’s in this regard. The management model consisted of inputs from DPE, National Treasury and the Department of Public Service and Administration (DPSA) on a realistic view of all public entities and SOEs. The DPSA’s model restructuring model for public entities was also taken into account.

DPE presentation on Corporate Structure and Strategy

The Deputy Director-General: Corporate Structure and Strategy, Mr L Mowabeni focused on
the details of the Corporate Strategy Structure Programme. This programme is divided into five subprogrammes. Strategic performance management no longer applied to the transport subprogramme. The DPE had to take into account ways in which the private sector were able to start participating in the transport sector. The challenge facing the Department was to determine how to take over the functions of SAA, considering that SAA operated in a very volatile industry.

In regard to the Energy sector, Mr Mowabeni stated that Eskom was a very stable SOE, but there was a need to increase the level of investment in the energy capacity of the country. As such there was also a need for discussion around the pricing of electricity.

On defence, Mr Mowabeni said an agreement had been reached with Treasury on the recapitalisation of Denel. Denel would have to focus more on research, while government might have to provide an undertaking that it would purchase from Denel. The government would continue to be involved in forestry to address wood supply issues, but SAFCOL would have to accommodate smaller enterprises in order to diversify the market. The Department had undertaken discussions in this regard.

The legal requirement of conducting extensive Environmental Impact Assessments (EIAs) had a negative effect on capital expenditure. A number of SOEs did not understand the EIA processes and felt they were hampering efforts and expansion and development. For instance, the proposed Pebble-bed Modular Reactor (PBMR) also had to comply with the environmental protection legislation as did Eskom’s other power stations. There was a dire need for capacity to deal with EIAs, especially in Transnet and Eskom

Discussion

A Member of the DA pointed out that there was no reference to mining under the various subprogrammes. The Member questioned the need for Alexkor to expand their mining activities to other areas as it had an additional 120 km of land available for that purpose. The question related to what strategic evaluation the Department was using in this regard.

Mr Mowabeni said that the strategy for Alexkor was currently being reviewed. It would be difficult to make a decision on expanding Alexkor without a study of the entire diamond mining sector.

A second question related to the involvement of the state in the diamond sector and the reasons therefore. Another question was the structure of the mining sector in general.

Mr Mowabeni said these questions could only be answered by addressing the issue whether the State should be involved in mining at all. The Minister of Public Enterprises did not think the State should have a role in mining, but there were immediate consequences if Alexkor were to be closed down.


Discussion with Deputy Director General on Special Projects: Ms Katherine Venier

A Member commented that in Richard’s Bay and Durban most DPE property was being leased. How did this relate to the issue of disposal of state property over a 5 to 10 year period and where most of these leases were in the hands of whites, how would this issue be dealt with?

Ms Venier said the nature of the property would determine its future. If it were a non-core property it would be sold, subject to Black Economic Empowerment (BEE) criteria. The DPE wanted to see non-core properties disposed of within two years.

Ms P Molefe added that the Minister in 2004 had placed a moratorium on all long-term leases. Transnet and Eskom who owned property were treated slightly differently. In some instances the Department might not want to sell the property, because a long-term lease would be more attractive.

Mr R Nogumla (ANC) asked about disposal procedures and rent protection.

Ms Venier said it would be illegal for anyone to sell a property belonging to a SOE with DPE approval.

Ms Molefe said rent protected properties were subject to binding agreements that could not be changed at this point.

The Chairperson asked that an organogram be prepared to enable the Committee to judge whether DPE was compliant with employment equity legislation.

The meeting was adjourned.