Department’s Strategic Plan and Financial Overview 2007-2010

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Public Enterprises

01 May 2007
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PUBLIC ENTERPRISES PORTFOLIO COMMITTEE
02 May 2007
DEPARTMENT’S STRATEGIC PLAN AND FINANCIAL OVERVIEW 2007-2010

Chairperson:
Mr Y Carrim (ANC)

Documents handed out:
2007-2010 Strategic Plan and Financial Overview
Committee Report on 2005 – 2006 Annual Report
Committee Report on Budget Vote 9

Public Enterprises Vote 30

Audio Recording of the Meeting Part1 & Part2

SUMMARY
The Department outlined some of the objectives that set for itself regarding the management of State Owned Enterprises (SOEs). Emphasis was given to the implementation of an effective shareholder management system, the implementation of the infrastructure investment program and the strengthening of SOE balance sheets. The Department also spent some time giving the Committee some insight into its organisational structure. Issues of transformation and equity were discussed, in particular the ways in which the Department was overseeing these processes in the SOE. Some time was also spent discussing the Department’s key achievements for the previous year. Members expressed concern with the seeming inability of the Department to implement transformation policies, and questioned the negative media reports about the Director General, and how the Department measured its success in making South Africa a better place, and noted that there seemed to be lack of clarity as to how the Department could quantify and articulate the ways in which it was improving life for South Africans. Members expressed concern about the number of boards on which members of the Department served, and the lack of progress in providing this information to the Committee.

The Department briefed the Committee on the E
nergy, Mining and Broadband Infrastructure and the Legal, Governance, Risk and Secretariat programmes. The objectives in relation to Eskom, Alexkor and Infraco were set out, and the purpose of each programme was outlined. Members questioned the Department on the Energy Programme. They called for further detailed information on Infraco, and asked for regular progress reports, even if in a closed meeting. They sought clarity on undersea cables, the reserve margin policies of Eskom and the restructuring of Alexkor.

There was a brief discussion on the Committee programme and on the need for Members to be updated on Infraco and the Pebble Bed Modular Reactor.

MINUTES
Department of Public Enterprises (DPE) Strategic plan 2007-10 Briefing, and briefing on Programme 1: Administration

Ms Portia Molefe, Director General (DG), Department of Public Enterprises briefed the Committee on the political mandate of the Department, with particular reference to objectives as set out in May 2004. She indicated that these objectives included halving of poverty from about one third of households in 2004 to less than one-sixth of households by 2014, and halving unemployment from the 30% rate of 2004 to below 15% by 2014

DPE had also given emphasis was also given to interventions under the Accelerated Shared Growth Initiative for South Africa (ASGISA), which involved infrastructure programmes, sector investment strategies, education and skills, second economy & Small, Medium and Micro Enterprise (SMME) interventions, macro-economic issues and public administration Issues and questions of delivery.

DPE was responsible for strengthening State Owned Enterprise (SOE) and departmental governance and administrative systems, managing SOEs, and overseeing an accelerated infrastructure investment programme, an analysis of the budget trends within the Department looked at the budgetary allocation over the six programmes in accordance with specified requirements.

Transformation was an integral responsibility of all SOEs, and the Department was generally satisfied that in terms of transformation all SOEs had set gender and equity targets, had management capacity building programmes and had programmes to make the workplace more gender and disability friendly

The specific mandate of the Department was to provide effective shareholder management to nine named SOEs, to align their business strategies with departmental policies and ensure that their businesses were sustainable. The vision and mission of the Department was set out. The key commitments and achievements for 2006 were outlined. The changes to the DPE structure were set out, and the organogram was tabled.

The budget for 2007/08 and a comparison with 2006 was tabled. Priority areas and planned activities for each programme were included in the presentation pack.

Discussion
Mr P Hendrickse (ANC) noted that there were nineteen vacancies and that there had been eighteen resignations. He noted that during the last presentation of the Quarterly Report of the Department some issues had stood over owing to shortage of time. The Director General had not had the opportunity to respond to the Mail and Guardian criticisms. Allegations concerning Departmental morale or the performance of the DG were always very subjective. However, very specific allegations were made and it would be useful to have the DG’s response. He asked in particular if the Committee could get a copy of the internal audit report. He noted that this was the fourth time in a year that the Department was restructuring and he enquired whether this was necessary, noting that it did not seem to help with stability and must add to the stresses. He asked if those resigning had moved to better posts, or had resigned without having new jobs, and whether they had left because of problems within the Department. He asked whether the staff had been consulted on the restructuring process, and whether this had involved any demotions. He noted that in the previous year the Committee commented on the equity profile of the Department, and he enquired why three of the five Director-Generals were white. He noted that the Mail & Guardian article had raised the issue of correct procedures in the appointment of providers, and asked for comment. Finally he enquired how many resignations related to senior levels of directors and upwards.

The Chairperson intervened and stated that the Committee should not intrude on matters that were purely internal, but where there were allegations of dysfunctionality, which impacted on service delivery, it was important for the Committee to look into them.

Ms Molefe replied that there was a restructuring process, and also the continuous process of change. The Department was still in the lengthy process of trying to change the way that it did business so that it became more effective. The nineteen vacancies were not needed and that was why they were not being filled. Some were not even being advertised. In view of the salaries offered, and the expertise that was being sought, some of the positions were almost impossible to fill.

Ms Molefe said that in regard to The Mail & Guardian there were two issues. Firstly it was likely that someone within the Department was expressing a gripe, although the DG in fact had an open door policy precisely so that people could express their problems, and wanting to sabotage the Department. One option would be to respond to what happened and debate the issue in the Mail & Guardian, whilst the other was merely to observe. The personal attacks could be dealt with. A more important issue was the question of sensitive information that people could start supplying to outsiders. Regarding the report; nobody was demoted, even though some people could have been fired. They were not fired because of the difficulty in the Public Service of firing people for non-performance. In relation to equity, the Department had a great problem getting the expertise that it required, for the money that it was offering, and it really had to hire the best people that it could find. The Department was always very mindful of the issues of gender and race representivity.

Mr Hendrickse understood the DG’s explanation and wanted to stress that the issue of the Deputy Director Generals was not personal, but was raised as a matter of principle. The well being of the Department was a priority. He asked whether all in the Department was well, because the high turnover rate signaled that perhaps there was a problem.

Ms Molefe replied that the Department was the only one that had nearly all of its employees on contract and not on permanent employment. This had to do with the demand on the employee skills in the wider job market, and this was the reason for the high turnover rate.

Ms N Kondlo (ANC) asked how the Department measured whether in fact it was improving the lives of South Africans

Ms Molefe responded that the Department currently had a problem in trying to measure progress in a more tangible fashion, and bring those measurements to the Committee.

The Chairperson added that this was an issue that had also been of concern to him, and a strategy needed to be devised that would measure how the Department was improving the life of South Africans.

Programme 2: Energy Mining and Broadband Infrastructure Briefing
This briefing was given by Ms Portia Molefe (Director General), Mr Litha Mcwebeni (Deputy Director General), and Mr James Theledi (Deputy Director General).

The Energy, Mining and Broadband Infrastructure (EMBE)
was intended to align the corporate strategies of Eskom, Alexkor and Infraco with government’s strategic intent and monitor their performance. In regard to the monitoring of Eskom, the Department had implemented an ongoing monitoring system over Eskom’s dashboard. The Department was constantly reviewing and monitoring the current reserve margin in Eskom and planned to achieve the 15% best practice. It was engaging also with the Department of Minerals and Energy (DME) and the Regulator. It was participating in the monitoring of the private sector participation, had submitted proposals on the Eskom distribution following the decision on the Regional Electricity Distributors (REDs) and was evaluating the Accelerated Build programme.

In regard to Alexkor, DPE continually monitoring the development and implementation of Alexkor's dashboard, was negotiating with the community,
was restructuring the business and analysing the implications of closing down units, and researching the funding needs and business model.

With regard the Infraco, the DPE set out the steps for establishment of Infraco, and the oversight operations.

The budget for this programme was tabled and it was noted that the functions and funding of the risk management sub programme had now been moved to Programme 3, so that the budget had dropped.

Discussion
Mr C Wang (ANC) asked for clarity on the computer services, and also whether there was enough capacity for Eskom’s new investment programme. He asked for further detailed information on Infraco, and asked that the Committee should be briefed on all progress, even if this was in a closed meeting.

Mr Theledi responded that computer services were centralized, and there was no budget for Information Technology (IT) equipment for the next two years. If there was a need within the two years to procure any new equipment, then the funds would come from a centralised budget.

In regards to the Eskom investment programmes and the possibility of missing a deadline, the Department felt that this was a manageable risk, and noted that the Department was currently monitoring Eskom’s risk management plan. There were also issues that needed to be tracked and managed on a regular basis, and there were instances where interaction with other departments would be required.

Mr Theledi noted that the majority of the R627 million transfer for Infraco related to the acquisition of assets. This was also used to revitalise the Infraco network and make sure the network was established. It was important to note however that some funds would be required in the near future in order to keep the project going.

Ms Molefe added that a Chief Executive would be appointed to Infraco, who would be able to be called upon for the answers to various questions.

Ms N Kondlo (ANC) asked the Department to comment on the reserve margin policy process and whether there was any overall framework to deal with the process. The Department was also asked to comment on the discussions with DME regarding the role of Eskom. She asked whether the restructuring of Alexkor had begun.

Ms Molefe replied that in terms of the reserve margins, the Department looked at a UK model, which runs between 20-25%, and saw that a percentage increase would became very expensive for a developing economy. South Africa's reserve margin was therefore set at 15%, since it was difficult to operate with a reserve margin of 20%.

Mr Mcwabeni added that the Department was responding to various problems, in terms of the various policy frameworks in the reserve margin. One of the key problems was Eskom was incorrectly planning capacity growth, which constrained the economic growth of the country in the medium to long term. The Department moved the Eskom reserve margin to 15%, because that margin was regarded as ideal for the developing nations

Mr Theledi added that DME has agreed to come back to DPE in order to solve the issues arising from the reserve margins. He stated that DPE was very clear about protecting the State Owned Enterprises (SOE's), and was meeting with DME to make sure that there was clarity on matters such as the compensation for assets and Eskom’s distribution capability. With regards to Alexkor he noted that the negotiations took longer than expected, and therefore a decision was taken to close down Alexkor’s loss generating business and focus on the marine side.

Mr E Boskati (Committee Researcher) asked the Department to comment on how many companies were involved as partners in Infraco

Ms Molefe replied that the information surrounding Infraco was not necessarily confidential but that the Department had to follow the correct processes before providing information. The information would be available later in the year once the organisation had been established

Mr Wang asked why there was any reason for the Department to withhold information from members, as the project was funded by the public.

Ms Molefe responded that the Department had access to commercially sensitive information that could be damaging to the company if it were readily available.

Mr B Nkosi (ANC) asked the Department to comment on the issue regarding the REDS and how it impacted on the current electricity distribution. He also stated that not enough clarity had been provided regarding the various undersea cables, and asked the Department to comment on them.

Ms Molefe reported that the objective of establishing the REDs was to streamline the various tariffs for electricity, in order for there to be a formalised system. The REDs was an attempt to introduce competition into the system in order to improve efficiency.

Mr Wang He called also for clarity needs to be provided on the undersea cable, and whether the study would be made public.

Ms Molefe responded that the Eassy Cable was a New Partnership for Africa’s Development (NEPAD)project on the East coast that had now been renamed, whereas the SAT3 was on the West coast and was run by Telkom. The Department was proposing to have a third cable on the West coast. The Department did not have access to information on how much of SAT3 was available.

Mr Mcwabeni added that there was not much capacity in the SAT3 that could sustain the various research projects for the country in the long term. The Department needed to ensure that the new cable could deal with issues arising from capacity and pricing.

The Chairperson asked the Department to state whether Eskom did deliver 796 megawatts of electricity as promised

Mr Theledi stated that Eskom did deliver on its promise

Programme 3: Legal, Governance, Risk and Secretariat (LGRS) Briefing
Ms Molefe noted that the Programme 3 related to the Legal, Governance, Risk and Secretariat (LGRS). Its purpose was to provide effective legal services, corporate governance systems, risk management frameworks and secretariat services to the department and SOEs. The legal framework provided legal support for all commercial transactions involving the Department, including establishment of SOEs. The governance framework as used to develop effective corporate governance and shareholder management systems for SOEs. The risk management framework proactively identified, managed and monitored significant risks related to the SOE and their activities. The secretariat framework provides advisory and secretariat services to the department.

The key projects undertaken by each of the sub-programmes and their indicators were set out from 2007 to 2010. There had been a substantial increase in budget following the risk management’s shift to this programme from its original placement under Programme 2.


Other Committee business
The Chairperson announced that the Committee programme had been confirmed for the year. Remuneration guidelines would be considered on 15 August. Transaction guidelines would be considered and discussed on 23 May, as well as SOE anti-corruption strategies and programs. The Infraco and SAA bill would be finalised. He announced that a whole section of next week would be dedicated to Autumn School.

Mr Wang pointed out that last year Members had requested information on Infraco, but neither this nor material on the Pebble Bed Modular Reactor (PBMR) had been received. Members should be updated rather than have to rely on the media to update them.

The meeting was adjourned.

 

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