Medium Term Budget Policy Statement: Minister and Department Public Enterprises briefing
Budget Committee on Appropriation
02 November 2007
Meeting Summary
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Meeting report
JOINT BUDGET COMMITTEE
02 NOVEMBER 2007
MEDIUM TERM BUDGET POLICY STATEMENT: MINISTER AND DEPARTMENT PUBLIC ENTERPRISES
BRIEFING
Chairperson: Ms L Mabe (ANC)
Documents handed out:
Department of
Public Enterprises Presentation
Audio recording
of meeting [Part2]
SUMMARY
The Minister of Public Enterprises was welcomed to the meeting. The
Department of Public Enterprises briefed the Committee on the expenditure
trends and audit outcomes for 2006/07. The final appropriation had been R2.8
billion. There was a saving of R280 million for the 2006/7 financial year,
relating to a misunderstanding on VAT payments, but apart from that there was
0.003% under spending. The audit report
was unqualified. The presentation outlined the significant Medium Term
Expenditure Framework allocations, some additional funding requirements, the
State Owned Enterprise recapitalisation requirements, and internal staffing
matters, and monitoring and evaluation systems. Members asked questions on
transfer payments to the State Owned Enterprises, and if the Department relied
on the reports, how often the Enterprises submitted reports, funding for
Alexkor, improvement of its operations, expansion of internal budget and the
strategy was. Further questions related to reported blockages with suppliers,
the measures taken, the risks that Denel would be facing, and whether
departments should not be more creative and gain competitiveness. The Denel
recapitalisation should receive more attention, and Members wanted some
estimation for it.
The Department was asked to comment on vacancies and resignations. The Minister
described the governance structure for the State Owned Enterprises and gave a
description of the oversight. Some questions were answered but others remained
to be responded to in writing.
MINUTES
Department of Public Enterprises (DPE) presentation
The Minister of Public Enterprises was welcomed to the meeting.
Ms Portia Molefe, Director General, DPE, briefed the Committee on the
expenditure trends and audit outcomes for 2006/07. The final appropriation had
been R2.8 billion, mainly due to an amount of R2.03 million provided for a
court settlement, adjustments for VAT on previous transfer payments, funds
rolled over from the previous year and an amount for Alexkor for completion of
an environmental impact assessment. There was a saving of R280 million for the
2006/7 financial year, of which most was a saving in respect of a transfer
payment for Denel for VAT, since it was established thereafter that the
transfer did not in fact attract VAT. There had been 0.003% under
spending. The audit report was
unqualified. The significant Medium Term Expenditure Framework allocations were
outlined, together with some additional operation funding requirements in some
of the programmes. Medium term policy priorities were set out, with an
illustration of how much was estimated for the projects. The State Owned
Enterprise (SOE) recapitalisation requirements were summarised, amounting to R5
billion in the next year, rising to R5.7 billion by 2010/11. The additional
funding for Alexkor, Denel and broadband recapitalisation was set out, as also
the allocations for the Pebble Bed Modular Reactor (PBMR). The remainder of the
slides dealt with vacancy ratios, personnel, targets in comparison with
national statistics and development and training programmes. It was noted that
DPE did not process grants, but transfer payments to SOEs were subject to
conditions set by the Minister of Finance, and transfers were done on a set
basis. The monitoring and evaluation systems were described.
Discussion
Ms N Dambuza (ANC) was concerned with the issue of violence, how the
Department had accounted for this and why it had not been budgeted for.
Ms Dambuza also asked about the transfer payments to the SOEs. She asked if the
Department had an efficient system to monitor these payments or if it was
simply relying on the reports brought forward by the SOE.
Ms Dambuza wanted a justification for the bonuses paid to the managers,
amounting to R2.9m.
Mr C Wang (ANC) was also concerned with the transfer payments and said that he
observed a situation where the Joint Budget Committee would receive expenditure
reports from the Treasury but nothing from the Department. This made it very
difficult to monitor these transfer payments. Mr Wang also asked how often the
SOEs submitted their reports.
Mr Wang asked the Department about the funding for Alexkor. He said that there
was R260 million funding requested for Alexkor for the next financial year,
and, if he read correctly, the requirement by the National Treasury was that
the Department must enter into a joint venture with the community. He wondered
what would happen if the situation worsened, and how that would be handled.
Mr Wang further asked how the Alexkor operations would be improved in view of
the fact that sea mining had decreased.
He asked for an elaboration on the outsourcing of the equipment, as the
Committee had been told that their equipment was outdated and that the money
was not used to purchase new equipment but to test the work already performed.
Mr G Schneemann (ANC) was concerned about the expansion of internal budget and
he asked the Department what their strategy was. He also requested that they
inform the Committee as to what was most critical in terms of the funding.
Mr T Ralane (ANC) asked if the proposed allocations were in line with the
medium term budget statement policies.
Ms J Fubbs (ANC) pointed out that the Committee should be informed about the
previous blockages with the suppliers and the measures that they had taken.
Ms Fubbs indicated that in terms of the adjustments made in the budget and the
protocols of enterprises falling under the Department, such as Denel in particular,
the Committee was given a clear vision. Last week the Committee heard about the
reliance on Denel of certain anticipated orders, and if this did not happen
there was a danger of potential insolvency of decentralised sections of Denel.
She asked if she could be given an example of the risks that Denel would be
facing. She also wondered if Denel should not be asked to look further ahead
and develop some potential relationships because there would be a problem if
something went in the wrong direction.
Ms Fubbs (ANC) pointed out that the other area discussed earlier this year was
that departments were asked if they could not trim their processes and rely on
more efficient methods, by becoming more creative, have risk management plans
and have sound projections to become more competitive. She asked what assurance
the Department could give the Committee that they were exploring ways to gain
competitiveness in this area over the next three years, because the Committee
was relying on Denel for exports.
Mr Z Kolweni (ANC) was concerned with the Denel recapitalisation, where the
Department said that it had not budgeted for the structured costs yet again
said further costs could materialise. He asked why there was not even an
estimation.
A Member asked if the weighing down of some of the SOEs mentioned in the
presentation did not propose opportunities for the Department.
The Member asked what the Department was doing about replenishing the loss on
forestry plantation as this could result in permanent job losses.
The Chairperson said that she noted that there had been many resignations apart
from the expiring contracts and wanted more information on that, and the effect
that had on the operations, as also an indication of what measures the
Department had taken.
The Minister responded that for clarity he wished to first set out the
governance structure for the SOEs. He said that most of these enterprises were
companies subjected to Company Law, and other State Enterprises subject to the
Public Enterprises Act. The Department’s role was the same as that of equity
shareholders, but the difference was that it would set out before the board the
objectives and they would deal directly with the set of financial ratios to
evaluate the efficient use of cash. The DPE also set out benchmarks in terms of
performance of ratios and they signed the shareholder compact. The Board then
would abide by this compact and ensures efficiency. It was difficult for the
DPE to go into specifics therefore it relied on the reports submitted by the
SOEs.
The Minister said that in terms of oversights on bonuses DPE had developed
realistic guidelines on the salary structure of executive management and that
of the board of directors. These guidelines were operated from a practical
point of view and the Cabinet has approved them. The reason for not dealing
with them publicly was that there was a need to compare the DPE guidelines with
the work done for the public services.
The large companies might be assessed on a competitive or market situation,
taking into result turnover, the asset plan and market surveys. This then led
DPE to the realisation that senior executives were crucial to companies, hence
should be remunerated at the upper end of the their packages. The payment
system was also clarified. It consisted of three components; the first being
the benefits to the public service, the second being the annual performance and
lastly the bonus system, where bonuses were paid in cash and their formula was
linked to the Key Performance Indicators.
The Minister noted that for Alexkor, in the absence of a legal settlement, it
was not possible to provide funding, and that was the reason for the
non-intervention in that matter.
Ms Portia Molefe said that the requested allocations from the National Treasury
were discussed with the whole economic cluster and it was said that each
department should look into reprioritising within their individual departments.
The budget was cut dramatically.
Ms Molefe also said that budgeting in government began in July so it was
difficult to be fully accurate. However, around March there would be a planning
session, where the DPE would evaluate what it wanted to do against what it had
done, and if there were things that had not been done it would ask whether DPE
was going to do them and what could possibly prevent it from performing. There
was a further issue that the DPE came often to Cape Town. The dates were not
certain, accommodation and travel was expensive, yet all allocations were in
line with the MTBPS policy.
Ms Molefe noted that, in terms of resignations, employees were often not
satisfied with their salaries, and would resign if it could not be matched to
the market salary.
The Chairperson said that because of time constraints the Department should
respond to unanswered questions in writing.
The meeting was adjourned.
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