Medium Term Budget Policy Statement: Minister and Department Public Enterprises briefing

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Meeting Summary

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Meeting report


02 NOVEMBER 2007

Ms L Mabe (ANC)

Documents handed out:
Department of Public Enterprises Presentation

Audio recording of meeting [Part2]

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.

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.

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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