Hearings on Budget, Strategic Plan and State of the Nation Address

This premium content has been made freely available

Public Enterprises

09 May 2006
Share this page:

Meeting Summary

A summary of this committee meeting is not yet available.

Meeting report

PUBLIC ENTERPRISE PORTFOLIO COMMITTEE

PUBLIC ENTERPRISE PORTFOLIO COMMITTEE
9 May 2006
HEARINGS ON BUDGET, STRATEGIC PLAN AND STATE OF THE NATION ADDRESS

Chairperson:
Mr Y Carrim (ANC)

Documents handed out:
Strategic Plan and Financial Overview 2006-2009
Public Enterprises Vote 9

SUMMARY
The Department presented its Strategic Plan and Financial overview to the committee. The presentation highlighted the mandate, vision and mission, the key achievements of the Department as well as the priority areas and planned activities.

The discussion focused on the monitoring of state owned enterprises, interference by shareholders with the day to day running of the state owned enterprises and the capacity of the Department to perform risk analysis. Questions from members included affirmative action, specifically the issue of ‘blackness’ versus coloured, and uranium enrichment.

MINUTES
The Chairperson welcomed the Minister of Public Enterprise, Alec Erwin, the Director-General Portia Molefe and the rest of the Department as well as members of the committee.

The Minister stated that the role of state owned enterprises (SOE's) was now clearer. The challenging role had been defining the mandate and responsibility given to SOE's. This had been an intellectually challenging role. However, it would be better to move enterprises to share owners and managers that would take them seriously and to make sure that the enterprises performed their mandate properly.

There had also been interesting developments regarding broad-based Black Economic Empowerment policy and the Minister had been pleased with the policy plan although there had been a shortage of investments in the past 10 years. The budget of the Department had also been smaller than that of other government Departments.

The Department would set clear mandates for macro enterprises and judge them on specific industry requirements. They would measure efficiency of operations according to international standards and against international institutions. The Metrorail spin-off that took place on the 1st of May had been very difficult whereas the South African Airlines (SAA) spin-off had been complex because of overlapping financial links - loan links. The Minister would brief the Committee later in the year on Ports but some of these SOE's needed to be expanded upon.

Without an own airline that was state controlled, it would be difficult to determine an airlines strategy. The state needed to dictate its own air strategies because there was no way of telling if the intentions, for the economy, of the would-be-buyer of SAA would be the same as that of the state. This could not be left to the hands of private institutions or multinationals and government had to own these. With regards to Denel there had been a reformulation of strategy as it could not be a full systems manufacturer. It had been difficult to turn around and it had also run into financial difficulties. The Minister was pleased that strategies to stabilise the situation were on track and was satisfied with the progress made.

The South African Forestry Company (SAFCOL) had reached a turning point and its deal had been terminated with regard to the Kommatieland forest; this also meant that the role that SAFCOL played had to be re assessed. Their strategy plan had to be looked at and this would give perspective as to the strategic issue that had to be confronted. The Minister emphasised that regardless of what the media might say, it had been terminated. However, he thanked the community leaders for their courage and vision although it had been a pity that the legal settlement had not been nice and simple. He stated that, with due respect to the lawyers in the room, when lawyers were around things got complicated. There had however been a great relationship between the Department and the community leaders.

The Minister thanked the Director-General and her team for turning the Department around and thanked the Committee for putting pressure on the Department.

Discussion
Mr B Martins (ANC) stated that SOE's could not just be profit maximising utilities and that there had to be strategic social objectives. Corporatisation had its benefits as seen in Australia and so this remained an option for South Africa. South Africa would have to look carefully at the nuts and bolts of this. He wanted to get view on privatisation and the use of private enterprise in SOEs, such as Eskom. There had been a lot of talk of private power stations run by private enterprises. Transnet was an example, for the use of or institution of certain train services on the network but owned and run by a private enterprise. The question of internships had also not been mentioned.

The Minister responded that Mr Martins was correct. The issue was as he had defined it. Stability and strategic intent was needed in certain areas be it infrastructure or defence. There could be many variants of infrastructure and other issues where usually the size of the enterprise had to be large. The experience had been that you did not necessarily get the strategic certainty from a multinational precisely because it was dealing with a global market. There had been a bit of a rethink but it was necessary to have a certain type of efficiency level both on the use of finance and operation which the private sector has been able to achieve because it had been under pressure for profit maximisation. Balancing these two things had been crucial and so if you could correctly corporatise and structure the entity you would achieve efficiency gains and get the benefits of strategic certainty. This had been the challenge that most economies had been facing. Historically Europe and America had been doing it, Russia, China, India and Brazil had now also been doing the same. In many respects we had been in a very favourable position. South African enterprises had been very effective in the capital markets and we were doing quite well. It was no longer been some crazy ideological debate and government needed to examine these things like sensible political economists.

The Minister stated that he had not touched much on the role that the private sector could play within the enterprise or the sector and he thought this was an important area. With the energy system it had been clear and they were moving with the Independent Power Producers (IPPs)and those requests for final proposals had already closed. The basic framework had been that at least 70% of the new capacity Eskom would be charged with their responsibility for providing and that opened some 30% for IPPs and that was quite significant. We were in a fortunate position that by combining Eskom with the IPPs they could be brought in more easily and probably more cost effective too.
With transport the first priority had been to stabilise Spoornet with operations but the Department had been committed to bringing in private sector involvement. The first major example of that had been the specific agreement with Koeberg and Spoornet around the upgrading of the Oryx line. The variant in that would be the coal producers, the investment in Colex through the Richards Bay was a collective effort with the coal industry. This had not been as precise as the Koeberg agreement but was similar.

The Department would be very keen on particular cooperation agreements with industries, such as the automobile industry and maybe with other heavy mineral and private investment in infrastructure could be organised and kept slightly controlled by the SOEs.

Regarding internships the breakthrough was to put together the SOEs and jointly examine their training. The Department would be revisiting something closer to rebuilding the old apprenticeship system within the context of our new SETAs (Sector Education Training Authorities) and investing heavily in that kind of technical skill. There were large internship programmes that had been emerging in the SOEs. In the joint initiative for priority skills in South Africa, Eskom and Transnet would play a leading role. In short the Department would place more emphasis on using the big SOEs for training

Mr Bonginkosi (ANC) asked for the Department’s view on the announced decision of SAA to compete with low cost airfares because this had been a contested area. He also asked what the general view had been on nuclear power and what the political impact would be if South Africa produced nuclear power. He questioned if this would have a negative impact on the country.

The Chairperson mentioned that the committee had not held a study group the previous day due to the joint sitting of parliament but members should feel free to raise other issues. The meeting was an opportunity for them to raise issues apart from the house and to engage those issues. The committee had not been convinced that not much could be done to Alexkor. With SAA the managerial challenges could be looked at better. In the last year or so there had been decisive progress in clarifying the department's mandate for itself and mandate for the SOEs as well. It had been quite a big shift from April 2005 to the present time. The budget vote 9 that appeared in the estimates of national expenditure and the strategic plan that the committee had raised before did not correlate. What the department did, as shown in the national expenditure, could be improved. The committee also needed a response to a question that they had put forward repeatedly to the department and to the Minister. The Minister or the Director-General should come to Parliament and state the shareholder contacts with Eskom so that the Committee could exercise their oversight role more effectively. The Committee remained convinced that more could be done. They did not have the technical know-how and were guided by their political insight but remained firmly convinced that there had been room for improvement.

The Minister responded that the Chief Executive Officer of SAA had indicated that they would be entering a sensitive commercial area. They had taken a decision to enter the low cost arena. This would be quite a contentious issue as the competition would not be pleased. In essence a choice had been made on an issue that every major airline at some point had to face. A decision had to be made depending on the circumstances relating to whether low cost terrain was left to others and the airline stuck to its roots, and that depended on the nature of the airline and the roots it had and how profitable those roots were. Some airlines had chosen to enter that terrain while others had chosen not to. An announcement would be made but at the moment this remained very sensitive commercially. No further detailed comments would be made until the final announcement was made.

On nuclear power, the issue being referred to had been the enrichment of uranium. Only a few countries had the capacity to do this and South Africa was one of those and could certainly do it again. The rules and regulations of the International Atomic Energy Agency (IAEA) would have to be followed. South Africa would however not face political ‘music’ because it had been exemplary in regard to nuclear proliferation.

The Department's budget would not be growing dramatically and the shareholder compacts needed to be looked at by the committee. Regarding Alexkor's case there remained no strategic reason why government should be in a diamond mine. They had remained there because of the community.

The Chairperson stated that the Committee should welcome progress made with regard to Eskom. He then handed over to the Director General.

Briefing by the Director-General of the Department of Public Enterprises
The Director-General of Department of Public Enterprise, Ms Portia Molefe, presented the Department’s 2006-2009 strategic plan and financial overview. She started by thanking the Minister and other members of the department for being supportive, even when at times when people had doubted her the Minister had stood up for her. He had given her the courage and confidence to do her duties without fear. She stated that the statement had been proven true that in the end all should be revealed. She stated that the Committee, in its report on the 2005 budget vote, had requested that the department elaborate on the shareholder management model, and outline the key activities of the different programmes and sub-programmes. This had included measurable objectives, time frames and budget allocations. All these had been met in the current strategy. She stated that the strategy also included a section highlighting the Department's contribution to the Accelerated and Shared growth Initiative of South Africa (ASGISA).

There had been internal structural adjustments to build a highly skilled and competent department, establish efficient internal process, procedures and documentation systems as well as to ensure effective and efficient governance. Mandate clarity had also been provided by the department for the SOEs. Focus on core operations included Transnet -rail and freight transport, Eskom -generation transmission and non-metro distribution, Denel -change strategy focusing on core capability and Alexkor's proposed settlement.

The Director-General highlighted the major changes to the structure which included the introduction of the Joint Projects Facility (JPF) within the Corporate Strategy and Structure Unit created with sub-divisions. There had also been creation of a specialist position to deal with special projects such as the resolution of Aventura and now Alexkor, merging of the legal, governance and secretariat unit with the corporate finance and transactions unit.
She touched on the organisational structure of the DPE, the department statistics, the budget and the budget versus expenditure review.

There had been an underspending for the year amounting to 2% of its annual budget and this figure had been achieved due to the R2 billion adjustment for the recapitalisation of Denel. Had this not been made the department have reflected a 4.77% underspending for the year. This had been a result of the department not affecting a transfer payment in the sum of R3 152 000 to the Diabo Share Trust as the audited financial statements for the entity had not been available. It had been deemed to be in the interest of transparency and good governance to withhold the transfer until the documents had been received.

The five priority areas for the DPE's activities had been to implement an effective shareholder management system, to ensure the implementation of the infrastructure investment programme, strengthen SOE balance sheets, introduce private sector partners where optimal and leverage Capex programme of SOE to catalyse new economic activities and reestablished industries.

The Director-General gave the aim of the shareholder management model and talked on the priority areas and planned activities. She gave the four programmes: Administration, Analysis and Risk Management (ARM), Legal, Governance and secretariat (LGT) and Corporate Strategy and Structure (CSS).

Discussion
Mr C Gololo (ANC) stated that his was a clarity-seeking question. He asked how far the department should go in their oversight of SOEs and if it would be proper to head hunt disabled people to fill in vacancies in the department.

The Director-General stated that whatever help was provided would be appreciated. There were however legislative requirements for senior posts and these had to be posted in newspapers and the competitive route followed. This had been frustrating as it would have been easier to head hunt oneself.

The Chairperson stated that the Director-General should send senior officials of the department to account on a quarterly basis regarding the SOEs.

Mr P Hendrickse (ANC) asked the Director-General to clarify the issue of ‘blackness’ versus coloured. He questioned how this worked in terms of equity.

The Director-General stated that in terms of the department they had to comply with the national framework. She stated that because of South Africa’s history the reality was that the country was still racially divided and in these matters national framework would provide guidance.

The Chairperson stated that the Committee had been of the view that the department should do more to increase the number of people with disabilities. He also stated that it had been quite clear that in the past Africans had been the most oppressed and so they should be the beneficiaries of affirmative action. He asked why the goods and service budget had been reduced.

The Director-General stated that this had been mainly because of transfers between the sections.

Mr Hendrickse asked whether on the analysis sub-programme they had done any report on Alexkor's social programme. He asked if the department had to brief government on pitfalls regarding SOEs.

Mr B Martins (ANC) asked if the shareholders start micro managing, would this not interfere with the day to day running of the SOEs.

Mr James Theledi (Deputy Director General ) stated that there needed to be assurance level and proper reporting and not only reliance on auditors at the end of the financial year. There needed to be an early warning system and there was a plan to recover in case of crisis. There had to be a way to look at these issues without taking away responsibility of board managers.

The Chairperson stated that there was no need for the department to be defensive. Mr Martins was new to the committee and he was entitled to his views.

Mr Hendrickse asked if the risk analysis had been based on the report of other people. If they lied to the department would they believe it as fact? He indicated that this could be responded to at another time.

The Director-General stated that they had to take their word basically. The department however could pick it up if there were inconsistencies and they had the capacity to keep things in order.

Mr Thisani asked how many employees suffered from HIV/AIDS. He asked about the router (for the Koeberg facility) from France and if this was going to affect the Western Cape because it had to be installed. What was happening with the strike of security guards? How did this affect SOEs?

The Deputy Director General stated that HIV/AIDS had been recognised as a risk but there were no exact numbers. With the router, to his understanding it was here to help them. There were also no major reports on how SOEs were affected by strike.

The Chairperson stated that all other issues not dealt with would be discussed at the following day’s meeting.

The meeting adjourned.

Audio

No related

Documents

No related documents

Present

  • We don't have attendance info for this committee meeting

Download as PDF

You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.

See detailed instructions for your browser here.

Share this page: