Department of Public Enterprises Annual Report 2006/07 briefing
Public Enterprises
20 November 2007
Meeting Summary
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Meeting report
PUBLIC ENTERPRISES PORTFOLIO COMMITTEE
20 November 2007
DEPARTMENT OF PUBLIC ENTERPRISES ANNUAL REPORT 2006/07 BRIEFING
Co-Chairpersons: Mr P Hendrikse (ANC) and Ms N Kondlo
(ANC)
Documents handed out:
Department of Public Enterprises Annual
Report Presentation
Department of Public Enterprises Annual
Report
Audio recording
of meeting
SUMMARY:
The Department’s presentation provided an overview of performance during
the past year, as well as the performance review of all programmes. The
presentation provided relevant statistics, as well as a detailed financial
statement. It was noted that the Department had achieved an unqualified audit
report. Although it had a saving of R280 million, this related specifically to
VAT on transfer payments to Denel, which was subsequently discovered should not
be paid, and apart from this there had been only 0.003% under spending. There
were increases in the annual appropriation of funds. The Department was faced
with various challenges, which included high tariff increases that had the
potential of raising inflation, and the skills scarcity, which threatened the
growth, plans of State Owned Enterprises.
Members sought clarity on who constituted on the Joint Project Facility and
asked the Department to comment on the R280 million unspent surplus. Members
felt that the high number of resignations was of great concern and sought
clarity on the profiles and qualification of the senior managers. The
Department was also asked to comment on the whistle blowing policy that had
been implemented, and on issues pertaining to HIV/AIDS testing and prevention.
Some Members questioned the decision to wind up the South African Forestry
Company Limited, and asked if the decision could be reversed, or what other
action could be taken. Further questions were asked about possible litigation
against the Department by the Indian authorities, what had transpired from
irregular expenditure, performance awards, the rating of the State Owned
Enterprises for broad based black economic empowerment, staff debt as mentioned
in the Annual Report, the turnaround strategy of South African Airways and the
future plans for Alexkor.
MINUTES:
Department of Public Enterprises (DPE) Annual Report Briefing
Ms Portia Molefe, Director General, Department of Public Enterprises,
provided an overview of performance during the past year, as well as the
performance review of all programmes. She stated that some of the key
achievements during the financial year were the sale of Metrorail to the
Department of Transport, the settlement of the Richtersveld community land
claim, and the separation of South African Airways (SAA) from Transnet. The Department had also managed to implement
an efficient and effective recruitment system, which had positively impacted on
the Department’s ability to achieve its objectives. It had introduced the
Competitive Supplier Development Programme (CSDP), and had invested in skills
development and improvements of capacity and resources. It had achieved better
employment equity with regard to recruitment and appointment of people with
disabilities.
The progress on policy was outlined, in regard to State Owned Enterprises
(SOE), and it was noted that over-leveraging of SOEs could negatively affect
government’s balance sheet, while high tariff increases could raise inflation.
Various statistics were tabled in relation to the establishment and the filling
of posts, and employment equity. Ms Molefe then proceeded to outline the
targets and the achievements for each of the DPE’s programmes (see attached
presentation). She noted that the Department had reviewed the effectiveness of
its structure and decided to re-align the programmes based on the SOEs residing
within the sectors.
In dealing with the financial statements, Ms Molefe noted that DPE achieved an
unqualified audit, and had approved a risk-based operational plan, which was
implemented successfully to enable the unit to evaluate the effectiveness of
risk management, internal control and governance processes. A saving of R280 million was recorded during
the financial year, and it was in respect to the transfer payments for VAT in
respect of Denel. Other than that, there had been 0,003% underspending by the
Department. There had also been an increase in the annual appropriation of
funds, which included the roll over of funds from the previous financial year,
adjustments for VAT on previous transfer payments in respect of the Pebble Bed
Modular Reactor, a court settlement to an injured party, and completion of an
environmental impact assessment in respect of Alexkor. The Department however
was faced with various challenges, which included high tariff increases that
had the potential of raising inflation, and the skills scarcity, which
threatened the SOE’s growth, plans.
Discussions
Dr M Van Dyk (DA) sought clarity on the critical occupations and asked
the Department to state whether the staff complement at the Department had
enough capacity to oversee the SOEs. The Department should have clarity on the
profiles and qualification of their senior managers. Clarity should also be
provided on the issue of performance bonuses.
Ms Molefe replied that the last section of annual report provided an HR
oversight table, which described the trends of the critical skills of the
Department. The Department would provide the relevant information regarding
qualifications at a later stage. However, it should be noted that the critical
skills required were financial analysts.
With regard to the bonuses, there would be people who would resign and
were due for bonuses, and paid when they transferred through the systems to
other government departments.
Mr C Gololo (ANC) stated that there seemed to be a high number of resignations
and it was of great concern. He asked about issues pertaining to HIV/AIDS,
noting that the Department had begun an initial voluntary testing programme in
order to determine the extent of the prevalence of HIV and AIDS within the
Department. Clarity should also be provided on the R75 million litigation
involving Transnet.
Ms Molefe replied that the resignations were a result of promotions and
contracts expiring. With regard to HIV/AIDS programme, the DPE had initially
done an HIV/AIDS-prevalence testing. She noted that the DPE had no idea about
the R75 million litigation involving Transnet, and this matter would have to be
dealt with by Transnet. The Department was willing to investigate the matter
and would report back to the Committee.
Mr Z Kotwal (ANC) sought clarity on who constituted the Joint Project Facility
(JPF).
Ms Molefe responded that the JPF was a construct made up by people from the
department.
Ms N Kondlo (ANC) asked the Department to comment on the R280 million unspent
surplus.
Ms Molefe replied that the R280 million were in respect of transfer payments
intended for Denel in respect of VAT for the 2005/06 financial year. Subsequent
to this allocation it was discovered that because the transfer was of a capital
nature it would not attract VAT, and therefore the funds were not disbursed.
Mr Kotwal stated that the Department should provide clarity on how it was
assisting communities in gaining mineral rights, and what had been done in
empowering small scale miners.
Ms Molefe replied that the Department was investigating the matter and would
return to the Member with a written report on the issues.
Mr Van Dyk stated that the Department should provide a report on senior
managers and the bonuses they received. It was also unacceptable that the
Department was referring the R75 million issue back to Transnet.
Ms Molefe stated that the Department would provide the Committee with data on
the skills of senior managers at a later stage. The Department had stated that
they would investigate the matter relating to Transnet, and would report back
to the committee at a later stage
Ms Kondlo stated the Department, in its previous Annual Report presentation,
stated that they would look into the role of SOEs in the context of a
developmental state. She asked for an update on the progress of this matter, as
well as comment on what happened to the Diabo Trust.
Ms Molefe responded that in terms of the role of SOEs, there was a document
that was compiled a while back, but the Department had been snowed under with
other matters, and was hoping to go back and revisit the assignment.
Ms Molefe noted that the Trust referred to was created when Telkom was
privatised, and covered people who were employees of Telkom at the time. The
Department was in the process of hiring tracing agents who would identify the
former employees of Telkom so that the Department could make the necessary
transfers.
Mr Gololo stated that South African Forestry Company Limited (SAFCOL) was an
SOE that was performing well, yet was being wound up. He asked why this was
happening.
Ms Molefe replied that the decision to sell off SAFCOL was taken a few years
ago, and it should be noted that Komatiland Forestry Company Limited (KLF) had
already been sold. The KLF transaction did not initially meet the Competition
Commission requirements, so the Department had agreed to hold back the
transaction and review the role of SAFCOL. The conclusion was reached that
SAFCOL by itself was too small to make a big impact in the economy and shift
the structure of the forestry sector.
Mr R Nogumla (ANC) stated that he noticed that there was a time frame for the
winding up of SAFCOL. He would like to know more of the new mandate that was
set for SAFCOL. Clarity should also be provided on when the new mandate would
be concluded, and whether it was possible for the Board to complete its work in
the allocated time frames.
Ms Molefe responded that before the Department had decided to wind up SAFCOL,
the Department of Water Affairs and Forestry had stated that they needed an
agent for afforestation. However there was a view that a Schedule 2 company
could not be used for afforestation since this task of necessity implied a
great deal of developmental work. This would therefore have involved changing
SAFCOL from a commercial agency to some sort of developmental agency. The Department was looking into approaching
National Treasury and asking whether it was possible to use the proceeds from
the disposal of SAFCOL to set up an afforestation agency for the Department of
Water Affairs and Forestry.
In regard to time frames, Ms Molefe noted that the Department had decided that
if the Board could not achieve their milestones, the Department would hold a
serious discussion with the board, in order to determine the possibility of an
extension.
Ms Kondlo stated that the Department’s presentation mentioned that there was a
whistle-blowing policy that had been implemented. She asked how effective this
was.
Ms Molefe responded that the whistle-blowing policy was part of the fraud
prevention plan. If a whistle blower came forward, the Department would
undertake an investigation and the whistle blower would always be kept
anonymous.
Mr Gololo sought clarity with regard to issue of the litigation against the
Department by the Indian authorities.
Ms Molefe replied that the Department was still awaiting a clear charge sheet
from the Indian government, and that the matter had not yet been resolved.
Mr Kotwal asked the Department to comment on the issue of irregular
expenditure, as the Annual Report did not mention what happened to the
officials who were liable.
Ms Molefe responded that one of the conditions to resolve the matter was that
the Department take disciplinary action. However the responsible officials had
since left the Department, with the result that disciplinary action was not
taken. The Department had improved its procurement policies and the training of
staff in an attempt to avoid future recurrences.
Ms Kondlo stated that the Annual Report was not very clear on the issue of
performance awards.
Ms Molefe replied that the framework used for performance awards was that set
by the Department of Public Service and Administration, and the balance score
card was used. The Department also had
hired consultants to look into the overall framework of the Department.
Mr Gololo sought clarity on how the Department rated SOEs with regard to Broad
Based Black Economic Empowerment (BBBEE).
Further information should also be provided on the performance awards,
as there needed to be clarity on which employees received the awards.
Ms Molefe replied that the Department let the SOEs do a self assessment of
their BBBEE rating, and the Department had developed a self assessment tool
kit, which was intended to ensure that the SOEs achieved the intended outcome.
With regard to the performance awards, everyone in the Department qualified,
but they were also dependent on how long an individual had been working in the
Department. This proved to be a problem as the rules that were set by the
Department of Public Service and Administration applied to permanent staff, and
most of the Department’s employees were on five-year contracts.
She added that part of the Department’s shareholder compact with the SOEs
related to the BBBEE using the legislation as a basis. The next area where the Department monitored
the BEE Code was that the Department looked at various transactions involving
the disposal of non core assets. On both criteria the SOEs were meeting and
achieving their targets.
Mr Kotwal asked the Department to comment on the issue of staff debt, which was
raised on page 79 of the Annual Report.
Ms Molefe replied that the Department awarded several bursaries, and in
instances where an individual failed the course he was liable to pay back the
Department the amount invested.
Ms Kondlo asked the Department to comment on the issue of South African Airways
(SAA). The Committee was also concerned with Alexkor, and the Department should
also comment on their future plans for Alexkor.
Ms Molefe replied that the Department was happy with SAA’s turnaround strategy,
and the achievements that had been made. It was also good to see that the
unions and SAA had come to some sort of agreement. With regard to Alexkor, the
real challenge faced was that Alexkor was unable to implement a complete
exploration programme. In addition, every time Alexkor tried to reprocess the
dumps, the community would put a work stoppage on it as a result of the
outstanding claims. The Department was looking into moving into forming a new
exploration programme for the company, and also looking into reprocessing some
of the dumps to give revenue generation for the mines. The Department was also
looking into forming a partnership with De Beers to investigate mine
exploration.
The meeting was adjourned.
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