Strategy Plan and Budget 2008-2011: Department of Public Enterprises

Meeting report

Transport Enterprises of Department of Public Enterprises (DPE) Briefing
Mr Andrew Shaw, Deputy Director General: Transport, DPE, -Transport, highlighted that the purpose of his Unit was to oversee the activities of Transnet, South African Airways (SAA) and South African Express Airways (SAX). It would examine corporate strategy and structure, operational performance, industry structure, corporate governance and policy, financial and risk assessment, corporate transactions and benchmarking and would develop proposals around how the State Owned Enterprises (SOEs) could play a catalytic role in the development of the associated manufacturing cluster through leveraging their capital investment via competitive supplier development programme.

He said the strategic key performance areas included management of the transport sector (overseeing Transnet) and aviation sector (overseeing SAA and SAX). He pointed out that priorities for 2008/09 included portfolio management, the Coega project, a branchlines position paper, ports and rail master plans approval and implementation, railway supplier study, monitoring of the Transnet Build Programme, and monitoring and implementing the new multi product pipeline (NMPP). There would also be implementation of the SAA technical developments and investigation of the optimal commercial relationship between SAA and SAX. A full description of the projects, the critical activities and the output was tabled (see attached presentation)

From 2007/08 and onwards Mr Shaw explained that expenditure was dominated by transfer payments to SAA and SAX. Expenditure had increased considerably in 2007/08 as R744 million was allocated to SAA for restructuring and its turnaround programme. The budget was set to decrease in 2008/09, but remained high at R605.7 million, to allow for a transfer payment of R585 million to SAX. In 2009/10, expenditure was expected to average below R20 million a year as a result of having no budget for transfers, leaving funds for management and oversight functions of the Department in the transport sector.

Discussion
Mr C Wang (ANC) wanted to know whether the transport enterprises budget reflected the five-year national priority on education. He referred to students in his constituency who were ignorant on courses available in the transport and engineering sectors.

Mr Hendrickse wanted to know whether the Department had enabling frameworks to allow small operators in the rail business.

Mr Shaw commented in general that there was a skills challenge within the transport sector and currently SAA and SAX were utilising expertise from throughout the world. He noted that Transnet and SAA had in-house training programmes for artisans and apprenticeships. However, he bemoaned the high labour turn over within the sector as people looked for greener pastures. He added that there was support for Black economic empowerment (BEE) players through the concession process. He noted that the pilot projects were under way in KwaZulu Natal. He conceded that most of the railways were old, requiring significant maintenance and upgrading.

Mr Hendricks asked about the allegations of theft by Transnet staff and the subsequent disciplinary actions.

Mr Shaw said that he knew nothing of this issue.

The Chairperson expressed concern at safety issues surrounding the SAA, and asked about the morale of staff at SAA, given the recently concluded restructuring exercise. She said the SAA customer service on the Johannesburg-Cape Town route was deplorable. She also bemoaned several turnaround strategies by SAA that had not brought tangible results.

Mr Shaw noted that safety issues remained an integral part of the SAA training, in an environment of continued restructuring. He agreed that SAA needed to be competitive in providing services to retain qualified staff. He noted that SAA had the youngest fleet of aeroplanes at the moment, and that these would thus require lower level maintenance. He added that in respect of customer service, SAA had a programme within its human resources department to ensure customer orientation, and motivation of staff. He said currently SAA was serving in weaker markets.

Mr P Hendrickse (ANC) wanted to know why SAA had turnaround plans every year and why Board members from SAA tended to concur with management plans every time.

Mr Hendrickse asked on the nature of voluntary severance package in Port Elizabeth.

Mr Shaw pointed out that the voluntary severance package process at SAA was transparent and open to all staff, although management retained the authority for approval or disapproval based on skills. He referred to the SAA Technikon, where many employees volunteered to resign as a way of moving to greener pastures, but management only approved four packages. He added that Board composition always took into consideration skills, experience within the sector and knowledge likely to be gained by the SOEs.

Mr Hendrickse asked why did the SAA aircraft carry the voyage starliner logo.

Mr Shaw responded that the voyage starliner logo was a requirement by the company, and that all airlines carried those logos.

Mr Hendrickse enquired why SAA was losing its market share on the international stage, but gaining in the domestic market.

Mr Shaw responded that SAA was not competitive internationally because most of its routes such the London and Paris routes were weak. He said this was not caused by prices, because SAA, in comparison to its competitors, was cheaper most of the times.

Mr Wang also expressed concern at the low levels of customer service at SAA, which had been ongoing for a long period. He proposed that there was need to implement a customer feedback strategy to gauge the progress. He also suggested that customer service improvement must be factored in as a key performance area of SAA activities.

Mr Shaw noted that the DPE had interrogated SAA on several occasions as a shareholder. He added that SAA had outsourced its customer feedback programme.

The Chairperson proposed that the SAA issue be deferred to the autumn school.

Mr Wang asked why the DPE was giving SAA money if it was not implementating Committee resolutions.

Ms Ursula Fikelepi, Acting DDG: Legal, Governance, Risk and Transactions, DPE, commented that information regarding SAA was very sensitive although progress reports at SAA were always discussed in parliament. On the issue of board strength, she said Board appointments were based on skill, relevant industrial experience and knowledge. She said financial and business knowledge was key in any board composition.

Joint Projects Facility Briefing
Ms Caroline Richardson, Deputy Director General: Joint Projects Facility, DPE, highlighted that the purpose of the unit was to identify synergies and coordinate and develop cross-cutting projects that leveraged the assets, activities and capabilities of the SOEs to the benefit of the SOE and the economy as a whole. She outlined projects under the joint project facility as including the competitive supplier development programme, human resources and capacity building, nuclear communications strategy, the property project, rest of Africa, Technology and Innovation, communication technology, environmental issues project and the South African power project.

She pointed out that priorities for 2008/09 included aerospace (strategy formulation) the Rest of Africa project, that would implement supplier benchmarking and joint infrastructure development programme with two countries, the Autumn School 2008 roll out, and the Competitive Supplier Development Programme (CSDP), which would concern itself with finalising Eskom, Transnet, and the Pebble Bed Modular Reactor (PBMR) supplier development plans.  Environmental issues would involve finalising guidelines for strategic important developments (SIDs). There would also be an advanced learning programme (of module development), human resources and capacity building, which would involve establishment of the Employment and Skills Development Agency (ESDA), and disposal of non-core property and SA Power Project. There would be a strategy for a globally competitive power cluster to support the build programme.

Expenditure mainly reflected contributions for different projects in the joint project facility (JPF), which was established during 2005/06 and was funded by the SOEs in that year. In 2006/07, the unit was included as a sub programme under the Manufacturing Enterprises programme, but through the realignment of the functions of the Department a new programme was created in 2007/08 and the historical expenditure was adjusted accordingly.

Expenditure increased by 25.9%; from R11.4 million in 2006/07 to R14.4 million in 2007/08, as provision was made for management only from 2007/08. Expenditure was projected to grow to R27 million in 2010/11, an average annual increase of 23.5% over the MTEF period, mainly due to additional capacity and outsourcing of technical and specialist expertise that was required to meet the objectives of the JPF over the MTEF period.

Discussion
Mr Wang wanted to know the DPE’s current efforts with regard to raising public awareness and spreading outreach programmes throughout constituencies. He also asked for more details about the human resources development.

Mr Hendrickse wanted to know the cost of hiring consultants and property sales for JPF. He noted that it was necessary to remain environmentally sensitive in project roll out.

Ms Richardson said she did not know about the educational fund expectations with regard to SOEs. With regard to consultancy and property sales, she pointed out that DPE facilitated discussions between SOEs and partners, and would also consider how the disposal would be carried out without prejudicing the government.

Ms Sandra Coetzee, Deputy Director General: CIPM, DPE, noted that the DPE now was running monthly board meetings with the Minister on the performance of SOEs, especially with regard to the JPF, and these had been helpful in addressing several issues of concern to various stakeholders.

Ms Coetzee thanked the Committee for being quite receptive to the DPE’s budget presentations and undertook to ensure that all relevant documents promised would be delivered timeously.

The meeting was adjourned.