ATC121024: Budgetary Review and Recommendations Report of the Portfolio Committee on Public Enterprises, dated 17 October 2012

Public Enterprises

Budgetary Review and Recommendations Report of the Portfolio Committee on Public Enterprises, dated 17 October 2012

Budgetary Review and Recommendations Report of the Portfolio Committee on Public Enterprises, dated 17 October 2012

1. Introduction

Section 77(3) of the Constitution stipulates that an Act of Parliament must provide for a procedure to amend money bills before Parliament. This constitutional provision gave birth to the Money Bills Amendment Procedure and Related Matters Act (No. 9 of 2009). The Act gives Parliament powers to amend money bills and other legislative proposals submitted by the executive whenever they deem it necessary to do so.

The Money Bills Amendment Procedure and Related Matters Act therefore make it obligatory for Parliament to assess the Department’s budgetary needs and shortfalls vis-à-vis the Department’s operational efficiency and performance. This is done taking into consideration the fact that the Department has oversight responsibilities over nine state-owned companies (SOCs), namely Alexkor, Broadband Infraco, Denel, Pebble Bed Modular Reactor, Eskom, South African Airways (SAA), South African Express (SAX), Safcol and Transnet.

2 . Mandate of the Committee

The Committee’s mandate is to:

§ Consider legislation referred to it;

§ Exercise oversight over the Department of Public Enterprises and the nine state-owned companies (SOCs);

§ Consider international agreements referred to it;

§ Consider the budget vote of the Department of Public Enterprises;

§ Facilitate public participation in its processes;

§ Consider all other matters referred to it in terms of legislation and the rules of the National Assembly.

3. The Department of Public Enterprises

3.1 Vision of the Department

To drive investment, productivity and transformation in its portfolio of state-owned companies (SOCs), their customers and their suppliers to unlock growth, drive industrialisation , create jobs and develop skills.

3.2 Entities reporting to the Department of Public Enterprises

For the financial year under review the Department has been responsible for nine state-owned companies listed in schedule 2 of the Public Finance Management Act (Act 1 of 1999). These are Alexkor, Broadband Infraco Company (InfraCo), Denel, Eskom, Pebble Bed Modular Reactor (PBMR) (Pty), Safcol, South African Airways (SAA), South African Express and Transnet. The Department’s overall objectives are to provide an effective state-owned enterprise shareholder management system and to support and promote economic efficiency within each of the state-owned companies.

3.3 Oversight responsibilities over state-owned companies

The oversight responsibilities encompass the following:

§ Appointment of all directors by the Minister after Cabinet approval;

§ Appointment of executive directors upon recommendation from the Board;

§ Approval of significant and material transactions;

§ Issuing of a statement of strategic intent;

§ Conclusion of binding shareholder compacts;

§ Accessing information to monitor and evaluate performance;

§ Enforcing accountability and taking remedial action;

§ Production of good practice notes.

3.4 Strategic role of the Department of Public Enterprises

The Department of Public Enterprises has a distinct mandate of shareholder management on behalf of the state. In the period ahead, the Department will focus on:

  • Consolidating the Shareholder Management Model;
  • Shifting of emphasis to ensure that SOCs drive investment, growth and employment;
  • Overseeing the strategic, financial and operational turnaround of

challenged SOCs.

3.5 An Efficient, Competitive and Responsive Economic Infrastructure

Network (Outcome 6)

The Department is focused on achieving the outputs and sub-outputs linked to outcome 6 and those contained in the Minister’s Service Delivery Agreement.

These are:

  • Improving the delivery and maintenance of infrastructure and monitoring the roll-out of Transnet and Eskom’s build programmes;
  • Achieving policy and regulatory clarity in sectors in which the state-owned companies operate;
  • Improving the operational efficiencies of the state-owned companies, particularly in relation to the reliable delivery of rail and ports services and the reliable generation, distribution and transmission of electricity; and
  • Developing operational indicators for each of the required sub-outputs

identified as part of the delivery agreement. Where necessary, these will be included in the shareholder compacts concluded between the Boards of the SOCs and the Minister.

3.6 Performance of Department in relation to Outcome 6

This is how the Department has performed in relation to outcome 6:

3.6.1 Improving competition and regulation

· Work on the Rail Policy and Rail Act has progressed to the finalisation of a draft green paper, including industry stakeholder consultations.

· A private sector participation (PSP) framework has been developed to

address private sector participation in rail infrastructure investment.

3.6.2 Generation, distribution and transmission of energy

· Legislation for the creation of an Independent Electricity System Operator (ISMO) was introduced in Parliament by the Department of Energy and is expected to be promulgated during 2012.

· Following the Minister’s directive, Eskom has ring-fenced the System and Market Operator (SMO) unit. The implementation plan to establish the SMO as a subsidiary is being finalised.

· Approximately 248 000 households were electrified during the period from November 2010 to November 2011, and 3 655 homes were connected to off-grid solar systems.

Eskom build programme (as end of 2011)

· Medupi is 35% complete, with 56.9% of the budget having being spent.

· Kusile is 17% complete, with 30% of the budget having being spent.

· Ingula is 41% complete, with 54.3% of the budget having being spent.

· The Return-to-Service programme is 93.5% complete, with 89% of the budget having being spent.

· Transmission projects are more than 70% complete, with 70.4% of the budget having being spent.

· A cooperation agreement between Eskom and Transnet was signed in November 2011 on the development and implementation of a Coal Haulage Road -to-Rail Logistics for Eskom’s fleet of coal-fired power stations.

· The resulting haulage agreement details the routes and sources of coal to be transported to Eskom powers stations.

3.6.3 Logistics: road, rail and ports

The Department reported achievement with regard to:

  • Increasing the market share of total freight from a 177 million tons per annum (mtpa) baseline for rail to an annualised 250 mtpa by 2014, 178 mtpa was achieved in 2010/11. 201 mtpa was achieved in 2011/12 financial year representing a 10.4 % growth in volumes compared to the previous financial year.
  • At the ports, Pier I container terminal at the Port of Durban recorded increased productivity with gross crane moves per hour improving to an average of 28 compared to 23 in the previous financial year.

· Transnet’s build projects are generally on track. Transnet spent R22.3 billion on capital investment. To boost efficiencies and create capacity. Transnet investment and operational activities resulted in the employment of an additional 3 159 new employees and created an estimated 27 964 new jobs in supplier related industries. Transnet’s total investment amounted to R115.5 billion over the past seven years. The two major milestones achieve in the period under review were the completion of the pipelines network and pump station of the National Multi-Product Pipeline project and the official opening of the Port of Ngqura .

  • Three rail branchline opportunities for private sector concession in 2012/13 have been identified and there has been consultation with KwaZulu-Natal , Northern Cape , and Free State provinces in this regard.

3.6.4 Information and communication technology

  • As part of its mandate to increase access to broadband services, Broadband Infraco has access to 18 Points of Presence (POPs), of which 5 are open access sites in the main centres and 1 established in the previously underserviced area to enable provision of services to local government and for e-Health and e-Learning.
  • Wholesale broadband prices have dropped by about 75% since the establishment of Broadband Infraco.
  • Sentech and Broadband Infraco have also commenced with the Broadband Plan for the Kwazulu-Natal province pilot project, and site surveys on three districts have been completed.

3.7 Programme Structure

The department has undertaken an organisational review process that has resulted in the development of a new organisational model and functional structure in line with the Department’s strategic objectives, namely to “drive investment, productivity and transformation in its portfolio of SOCs, their customers and suppliers so as to unlock growth drive industrialization, create jobs and develop skills.” These objectives are guided by the overarching policy and strategic direction and priorities of Government, as articulated in the New Growth Path, Industrial Policy Action Plan (IPAP) and the National Development Plan.

To fulfill these objectives, the Department has trimmed its six programmes into only three, and this also to make it easier for treasury to cluster Departmental budgets without creating the impression that, for example the DPE’s Transport Enterprises’ programme (which has now been transformed into a sub-programme) belongs to the Department of Transport. The three programmes are the following;

3.7.1 Administration

The programme’s mandate is to provide strategic management, direction and administrative support to the Department which enables the Department to meet its strategic objectives. The programme is expected to spend in total about R104.4 million from the 2012/13 Department’s budget. The programme’s priority areas include the following:

• Continuous performance improvement to ensure delivery of the

Department’s strategic goals.

• Effective talent management and attraction and retention of key skills.

• Consistent and clear messaging on Government’s intent for state-owned companies.

The Department had raised concerns with respect to the challenges facing their staff complement, arguing that overseeing eight state-owned companies operating in different sectors of the economy requires more employees than they can provide. The Director-General, Mr Tshidiso Matona even pointed out that only a budget increase would enable them to appoint the required employees. The current budget however does not cater for a staff increase and this remains a challenge for the Department.

Over the medium term, expenditure is expected to increase to R116. 4 million at an average annual rate of 4.7 % , mainly to provide for inflation related adjustments and the centralisation of services.

3.7.2 Legal and Governance

The programme is responsible for providing legal services and corporate governance systems, and to facilitate the implementation of all legal aspects of transactions that are strategically important to the Department, and the state-owned companies, and ensure alignment with government’s strategic intent. The programme’s expenditure for the 2012/13 financial year is expected to reach R26.9 million, and key focus area include the following:

• To provide legal services to the Department and support oversight of state-owned companies as well as developing effective corporate governance and shareholder management services on an ongoing basis.

• Repeal of the Aventura Resort Act: This will be initiated once the process

to wind up and deregister Aventura is completed.

The programme has about three units, namely Management, Legal Services and Governance. The Management Unit provides strategic leadership and management of the programme personnel. Legal Services provides internal legal services and support to state-owned companies, including transaction and contract management support to the Department as well as commercially related work activities in respect of the state-owned companies.

Expenditure increased from R17.3 million in R2008/09 to R23.7 million in 2011/12, at an average rate of 11.1 % , and is expected to increase to R32.9 million over the medium term, at an average annual rate of 11.6 % . The increase in both periods is driven by centralisation of legal services from the sector units and the shifting of the risk, compliance and secretariat functions from the Administration programme to this programme, as part of the realignment of the Department for efficiency and costs saving purposes.

3.7.3 Portfolio Management and Strategic Partnerships

The programme is responsible for aligning the corporate strategies of state-owned companies with government’s strategic intent whilst also monitoring and benchmarking their financial and operational performance and capital investment plans. This includes aligning shareholder oversight with overarching government economic, social and environmental policies, and build focused strategic partnerships between state-owned companies, strategic customers, suppliers and financial institutions.

This programme is as a result of the programme restructuring that has taken place in the Department. It has five sub-programmes:

• Energy & Broadband Enterprises,

• Manufacturing Enterprises,

• Transport Enterprises,

• Economic Impact and Policy Alignment; and

• Strategic Partnerships

Expenditure decreased significantly from R3.2 billion in 2008/08 to R228.2 million in 2011/12, at an average annual rate of 58.4 percent, due to the reduction in transfer payment to the Pebble Bed Modular Reactor project and Broadband Infraco in 2010/11/. As a result, expenditure in the Energy and Broadband Enterprises sub-programme decreased from R2.1 billion in 2008/09 to R58.5 million in 2011/12, at an average annual rate of 69.9 percent.

Over the medium term, expenditure is expected to decrease to R73.8 million, at an average annual rate of 31.4 % , due to a further reduction in transfer payments to state-owned companies, particularly the Pebble Bed Modular Reactor (PBMR) project and Denel. Expenditure in the economic Impact and Policy Alignment sub-programme is expected to increase from R13.1 million in 2011/12 to R169 million in 2014/15, at an average annual rate of 8.7 % , due to the unit being expanded to accommodate the newly created sub-programme.

4. Analysis of annual report and financial statements 2011/12

In line with the Department’s vision of “[...] unlocking growth, driving industrialisation, creating jobs and developing skills [...],” [1] state-owned companies (SOCs) are key players in achieving the policy mix that Government has outlined in the broader economy such as the New Growth Path, the Industrial Policy Action Plan and the National Development Plan. [2] Government has committed R800 billion for the infrastructure roll-out programme over the next seven years, led mainly by Eskom and Transnet.

To oversee the infrastructure investment programme the Presidential Infrastructure Coordinating Committee (PICC) was established with the sole purpose of ensuring that the infrastructure investment programme is executed more effectively and efficiently, and has the desired impact on economic growth and job creation, especially on local production and industrial development. Conversely, the Department of Public Enterprises’ strategic objectives for the 2011/12 financial year, revolves around mainly three focus areas: [3]

· To provide strategic direction and leadership

· To provide support services to enable the Department to deliver on its organisational objectives in an environment where the human capital within DPE is both motivated and empowered

· To improve the quality of corporate governance and performance monitoring systems by ensuring that appropriate policies, processes and procedures are reviewed, updated and implemented within the DPE.

The Office of the Chief Investment and Portfolio Manager endeavours to apply a portfolio approach to the management and investments of all state-owned companies reporting to the Department, including conducting comprehensive crosscutting portfolio reviews on a quarterly basis.

To enhance its shareholder management capacity the Department has effectively championed the implementation of the Logical Planning Monitoring and Evaluation (LPME) framework. This involves ensuring effective delivery of the Department’s core shareholder management model that links national strategic priorities to SOC planning processes through the shareholder compacts. The framework then ensures effective shareholder oversight via the electrically enabled monitoring and reporting of SOC results against a variety of Key Performance Indicators as defined in the compacts. Below is the 2011/12 Department’s budget allocation.

Table 2.1.1 (a) Department of Public Enterprises’ Budget 2011/12



Nominal Rand change

Real Rand change

Nominal % change

Real % change

R million













- 2.9

2.86 %

-2.87 %

Legal & Governance







15.45 %

9.02 %

Strategic Partnerships







388.5 %

361.29 %



1 249.1





15.27 %

8.85 %

Source: National Treasury (2012)

In the 2011/12 financial year the Department appropriated R353.3 million and R40 million of this amount was a transfer payment to Pebble Bed Modular Reactor (PBMR) for the implementation of the care and maintenance programme to reimburse the South African Nuclear Energy Corporation for the dismantling and decommissioning of the fuel development laboratories as well as the transfer to Denel amounting to R116.3 million for the indemnity claim by Denel Aerostructures under the Indemnity Agreement for the government, leaving the Department with R196.3 million to fulfil its oversight responsibilities. The Department has spent 98% of its 2011/12 budget with 2% remaining as under-spending. There was no substantive impact on meeting targets within programmes as a result of under-spending. In real terms, under-spending amounting to R7.22 million was recorded in the 2011/12 financial year.

This amount is comprised of compensation of employees as a result of some posts not having been filled due to scarcity of specialist skills in the market, as well as Goods and Services which arose due to some projects having been delayed until very late in the year.

4.1 Transfer payments

An amount of R116 255 million was disbursed in December 2011 to Denel in terms of the Denel indemnity agreement, as provided for by Treasury during the Medium Term Adjustment Framework.

An amount of R40 million was disbursed to the Pebble Bed Modular Reactor in May 2011 to reimburse the South African Nuclear Energy Cooperation for the dismantling and decommissioning of the fuel development laboratories.

The long standing objective of Government is to gain greater recognition for State-owned enterprises as strategic instruments of industrial policy. This includes the systematic integration of their key programmes into the broader industrial policy and economic cluster programme of government, and this done through the signing of performance agreements between the Minister and the President.

4.2 Successes

Achievements with regard to outcomes announced by the Department of Performance Monitoring and Evaluation are as follows:

Outcome 6 is: “efficient, competitive and responsive economic infrastructure network,” and DPE’s contribution is specifically with respect to outcome 2 (Ensure reliable generation, distribution of electricity) and output 3 (To ensure the maintenance and strategic expansion of roads and rail network, and operational efficiency, capacity and competitiveness of sea ports) dealing with energy and transport, respectively.

  • Transnet has invested over R22.3 billion in infrastructure replacement and capacity expansion, bringing this to a total of over R115 billion in the past seven years. Major achievements in the rail environment include the completion of 536 of the 800 jumbo wagons built for the coal line operation.

  • In Ports, Transnet Ports Terminals achieved improvements in crane productivity, the Durban container terminal achieved an average of 27 cranes moves per hour, which is expected to continue throughout 2012.

  • The Department took the lead in developing a funding model for Eskom’s build programme to ensure security of supply. Cabinet noted the hybrid funding solution comprising the R20 billion equity injection to Eskom and R174 billion additional guarantees, bringing the total guarantee framework to R350 billion.

  • The Department performed all its shareholder functions including the evaluation of state-owned companies’ corporate plans, development of shareholder compacts (including shareholder strategic intent statements), quarterly and annual reporting, as well as approval of significant and material transactions were achieved.

  • For the 2011/12 financial year, Eskom has spent R1.4 billion in training recruited 2 273 learners in engineering, 844 in technical, 2 598 artisans and 1 079 persons in other fields. A further 5 159 learners had been recruited through the youth programme.

  • For the 2011/12 financial year, Transnet had spent 3.9% of its employee cost on training and has met the training targets as per the corporate plan. The intake was as follows: 60 engineer trainees, 181 technician trainees, 854 artisan trainees, and 2 506 sector specific trainees.

4.3 Challenges

The Department’s overall objectives are to provide an effective shareholder management system and to support and promote economic efficiency within each of the state-owned companies (SOCs). [4] The performance of state-owned companies has varied in the period under review. It is also important to note that the economic environment under which SOCs operate has been negative. This has had a material impact on the financial performance of the SOC particularly those in the aviation industry.

4.3.1 Alexkor

Alexkor’s performance has been hampered by the implementation of the Deed of Settlement - in particular the court interdict intended to preserve the resources and attendant benefits on behalf of the Richtersveld Community. Subsequent to this, land mining activities were placed under care and maintenance and as a result Alexkor posted losses for the 2011/12 financial year. [5] For the 2011/12 financial year the company has posted a loss of R17.4 million in stark contrast with the R84 million profits reported in the previous financial year. [6]

4.3.2 Denel

The challenges at Denel Aerostructures that led to a negative impact on the overall financial position of the Group are being contained. For the 2011/12 financial year the Group posted a profit of R41 million, an indication that Denel’s turnaround strategy is yielding the desired results. [7]

4.3.3 Safcol

Safcol has been struggling to resolve land-claim issues affecting about 60% of their plantations. This process has also affected Safcol’s future prospects in terms of repositioning the company’s role in the forestry industry. For the 2011/12 financial year the company posted a profit of R209-million compared to the R79 million losses for the previous financial year. [8]

4.3.4 Broadband Infraco

Broadband Infraco received a qualified audit opinion from independent auditors. The basis for the qualified audit opinion is as a result of auditors being unable to obtain sufficient appropriate evidence to support Infraco’s claim of fruitless and wasteful expenditure of R1.9 million and an irregular expenditure of R151.1 million. The unavailability of the electronic communications services licence has disabled the entity from ensuring that underserviced areas are connected as per the mandate of the Broadband Infraco Act (No. 33 of 2007). In the 2011/12 financial year the entity has posted a loss of R95.2 million. [9]

4.3.5 South African Express

South African Express not only received a qualified audit opinion but also the airline’s financial statements for 2010/11, were withdrawn from Parliament few months after being tabled for being incorrectly stated. The incident has led to the resignation and replacement of SAX’s Board members as per the Minister’s request.

4.3.6 South African Airways

South African Airways’ financial position has become a matter of concern as the airline’s weak balance sheet has proved to be inadequate for the airline to raise capital for its operations. The airline’s management team indicated during their engagement with Parliament early this year that they’re in need of further funding estimated to be around R6, 4 billion from government.

Following that, in October of this year (2012) about seven SAA’s board members, including the Chairperson of the Board, tendered their resignation citing lack of support from the Shareholder as the reasons for their resignations. This was followed by the resignation of the Chief Executive Officer and two senior executives. The airline’s debt-to-equity ratio, according to industry analyst has deteriorated to 359%, meaning even if the airline was liquidated, the selling of its assets will not make it possible to pay all its debts. Treasury gave the airline a R5 billion guarantee to raise capital to meet its credit obligation and acquisition of new fleet. Currently a new board has been appointed. A decision to appoint the new CEO and executives will be completed in three months.

4.3.7 Department of Public Enterprises

The Department continues to implement various measures to stabilise SAA, SAX and Denel, and have embarked on efforts to reposition SAFCOL and Alexkor. [10]

5. Analysis of expenditure trends for the Department of Public Enterprises

5.1 Public Enterprises

The Department of Public Enterprises maintained a relatively high expenditure rate of 99.0 % in the first three years (i.e. 2007/08, 2008/09 and 2009/10). However in 2010/11 and 2011/12, the Department’s expenditure slowed down to 96.7 % and 98.0 % , respectively. The Department’s highest under-expenditure in terms of Rand value was recorded in 2010/11 by an amount of R15.5 million, and this was preceded by an unspent balance of R7.9 million in 2009/10.

5.1.1 Irregular, fruitless, wasteful and unauthorised expenditure

The Department of Public Enterprises incurred irregular, fruitless and wasteful expenditure in 2004/05 and 2005/06` and unauthorised expenditure between 1998 and 2004, as indicated in Table 2.1.1(a) below. On 31 March 2007 Act 2 of 2007 was proclaimed condoning the unauthorised expenditure. The Department received R25.5 million during 2007/08. On 1 April 2008 a balance of R618 050 of the original amount remained unpaid. During the year under review the Department received R612 321. The remaining balance amounting to R5 728.90 was written back against departmental revenue pursuant to discussions with National Treasury in this regard. Refer Annexure A . Unauthorised expenditure for the period 2011/12 amounts to R4000.

Table 2.1.1(a) Irregular, fruitless, wasteful and unauthorised expenditure [11]

Year Incurred

Irregular Expenditure

Fruitless and wasteful expenditure

Unauthorised Expenditure

1998 – 2004



R26 165 000


R128 000




R228 000













R 0








R 4000






Source: Auditor-General (2006/07-2010/11) Refer 2005/06 and 2006/07 Annual Report audited Financial Statements (Irregular and Fruitless/wasteful expenditure). Refer 2010/11 Annual Report Audited Financial Statements (unauthorised expenditure)

5.2. Public Enterprises, First Quarter Expenditure 2012/13



Available Budget

Actual Expenditure

% of Budget Expended





Public Enterprises

R 1 249 072

R 1 212 785

R 36 287



R 104 394

R 81 751

R 22 643


Legal & Governance

R 26 937

R 23 013

R 3 924


Portfolio Management & Strategic Partnership

R 1 117 741

R 1 108 021

R 9 720



R 1 249 072

R 1 212 785

R 36 287


The Department’s budget increased from R353.3 million in 2011/12 to R1 249.1 billion in 2012/13 as a result of transfers to Denel and Alexkor. Of the total amount, R700 million is earmarked for the recapitalisation of Denel’s Aerostructures division whilst R350 million is earmarked for Alexkor’s outstanding settlement under the Richtersveld Community Deed of Settlement (DoS). After the transfer payments the Department is only left with less than R200 million to fulfil its oversight responsibilities over state-owned companies.

First quarter expenditure of the Department shows that the Department has spent R36.2 million and about 2.91% in terms of percentage. The bulk of the expenditure came from the administration programme, specifically on compensation of employees. Out of the R104.3 million allocated for the administration programme, the Department spent R22.6 million, and about 21.69% in terms of percentage. This is followed by the Legal & Governance programme which only spent R3.9 million, and 14.57% in terms of percentage. The last programme, Portfolio Management & Strategic Partnerships only spent R9.7 million and about 0.87% in terms of percentage.

Transfers earmarked for both Denel and Alexkor were not made at the end of the first quarter. At the end of the first quarter the Department was left with R1.2 billion, having spent only 2.91% of its total budget. However when taking into account transfer payments due to Denel and Alexkor whose total is R1,050 billion the remaining amount for the Department would approximately be R199 million. This amount, therefore give us roughly about 23% of the Department’s first quarter expenditure.

5.3 Department of Public Enterprises Second Quarter Expenditure 2012/13

This is how the Department of Public Enterprises had spent the budget at the end of September 2012:

5.3.1 Compensation of Employees (Administration) : An amount of R46.6 million was spent under this item. This is 41.81% of the total budget. There is an under-spending on this item which is due to vacant posts mainly at Middle Management Services and Senior Management Services levels. It is anticipated that spending under this item will accelerate as vacant positions are expected to be filled in the coming months.

5.3.2 Goods and Services : The expenditure under this item is R35.8 million. If commitments (orders placed) are taken into consideration, 55.28% of the total budget has been spent. It must be noted that the commitments is for recurring expenditure for the financial year. Roll-overs amounting to R3.2 million have been approved by National Treasury in the adjusted budget for the following projects: Project support for the implementation of the locomotive fleet procurement programme R2.7 million, as well as SAFCOL’s Strategy in terms of its future role within the forestry industry – R430 920.

5.3.3 Transfer Payments : The transfer payments influence the overall expenditure of the Department, being R118.4 million of the total budget. To date an amount of R74 257 has been disbursed automatically via PERSAL from this item under households for a leave gratuity. The transfer payment to Denel which has been approved in the adjustments budget amounting to R118.3 million will be disbursed later in the year. R100 000 under the economic classification for Transfer to Households is a provision for gifts, donations and sponsorships.

5.3.4 Payments for Financial Assets : An amount of R1.050 billion which comprises 82.27% of the adjusted appropriation is allocated to Denel (R700 million) and Alexkor (R350 million) respectively under this item. No disbursements have been effected under this item which has a substantial effect on the Department’s overall expenditure.

5.3.5 Capital Expenditure : The expenditure under this item amounts to R1.2 million (55%) of the total budget for capital expenditure. If commitments are taken into consideration, 70% of the budget has been spent. In total the Department has spent 6.07% of its budget by the end of September 2012.

6. Analysis of Auditor-General’s report

For the financial year under review the Department had received an unqualified audit report with no emphasis on any accounting matter. For the past seven years the Department has consistently been receiving clean audits. This was a great achievement for the Department and was not only an indication of good managerial skills on the part of the management team but also a reflection of strong financial management systems and internal controls that are effective and efficient.

7. Liaison with entities

Effective shareholder oversight for the Department of Public Enterprises will require the existence of a Shareholder Management Model in the form of a legislative tool, to enable the Department to coordinate and effectively engage SOCs on their strategic priorities and policy alignments.

The Department of Public Enterprises has established the following structures to enhance its shareholder oversight responsibilities:

· Chief Executive Officers’ Forum

· Board Chairperson’s Forum

· Governance and Risk Forum

· Isibuko Dashboard User Forum

These committees and forums meet on a regular basis throughout the year for strategic and operational oversight of SOC governance and performance, as well as the Department’s internal governance and strategic and operational matters, e.g. policies, budget, supply chain management and compliance issues. [12]

8. Oversight Visits by Portfolio Committee

The Committee undertook oversight visits to Eskom, Transnet, South African Airways and South African Express Airways. The objective of the oversight visits was to assess the impact of the infrastructure projects on communities in terms of job creation, skills development, promotion and support of local businesses.

The Committee was impressed with progress made in the infrastructure projects but was concern that areas such as Port of Saldanha Bay and Medupi power station in Lephalale, there are serious challenges which includes, lack of support to local businesses and lack of consultation and communication with community stakeholders. The Committee has made recommendation to the management of SOCs to ensure that there are stakeholder forums and should address all the concerns that have been raised in the oversight reports.

9. Outstanding issues to be considered by the Committee

Parliament does not have access to the Minister’s Service Delivery Agreement with the President nor the Shareholder Compacts signed with the various state-owned companies. Parliament becomes aware of the latter two only during the tabling of the department’s annual report - when they are referred to.

If SOCs fail to meet job and skills development targets, such failure has no bearing on the SOCs’ performance for that year. Targets that have an impact on the performance of SOCs’ management often are commercial in nature such as, revenue growth, gearing ratio, review of boards, corporate plans, etc. This is a big challenge to stakeholders such as Parliament as it overlooks immediate government objectives necessary for building a thriving economy (especially skills development and job creation).

The capacity expansion programme by Transnet and Eskom, particularly the latter because of the recent protest strike actions by workers at Medupi’s construction sites, needs to be monitored.

10. Committee’s Observations

The Committee made the following observations:

  • For the 2012/13 financial year the Department of Public Enterprises has been allocated R1.249 billion, and based on the Departments’ projections for the Medium Term Expenditure Framework (MTEF) period there will be less funding for the coming year. This must come as a relief to the fiscus as no recapitalisation in future for SOCs is envisaged.
  • There is a need to expand the human resource capacity of the Department in order to enhance its oversight responsibility, including infrastructure projects. Eskom is embarking on a R500 billion capacity expansion programme over five years whereas Transnet’s capacity expansion programme is estimated at R300 billion over seven years. The Department cannot effectively oversee nor monitor these state-owned companies’ capacity expansion programmes if it does not have the high level skills required for its oversight responsibilities.
  • There is a need for a clear or improved policy and regulatory environment for entities such as Transnet. This will enable state-owned companies to plan ahead if policies are clear and the regulatory environment has clear guidelines on tariff applications especially the assessment methodology for increases or decreases.
  • The Department’s shareholder role requires specific capacity and capability to enhance the Department’s technical ability to manage SOC investments, and this means ability to attract and retain specialised skills.
  • The Department is working on establishing a culture that understands, and is responsive to, the often fast-changing and challenging commercial environment within which SOCs operate.
  • The Committee awaits the findings and recommendations of the Presidential Review Committee of state-owned companies, which may give guidelines on the role of state-owned companies in a developmental state.
  • The Committee notes that the Department is working to improve interdepartmental co-ordination and alignment of the mandates of SOCs which currently prove to be a challenge.
  • The Committee notes that National Treasury has written a letter of commitment to the Minister for the funding of 12 out of 24 critical posts that are vacant. However, the Committee observes that National Treasury will fund the remaining critical vacancies possibly in the next financial year.
  • The Committee acknowledges that the policy on the integrated energy resource plan resides with the Department of Energy, but it is concerned that beyond Medupi and Kusile no policy decision has been taken regarding power station construction.
  • The Committee noted with concern that South African Airways and South African Express Airways were unable to meet the deadline for the submission of annual reports and financial statements to Parliament.

11. Recommendations

Based on the analysis of the Department’s budget for the year under review, the following recommendations are made:

The Minister of Public Enterprises should:

  • ensure that emphasis is placed on monitoring that the SOCs’ implementation of Government’s policy objectives is realised, especially their outcomes as they have an impact on peoples’ lives.
  • consider introducing the Shareholder Management Bill which will empower the Department to carry out its oversight responsibilities over state-owned companies more effectively, especially in providing guidance on how to align SOCs’ strategic priorities with government policies.
  • consider providing the Committee with shareholder compacts signed with state-owned companies in order to enhance the oversight role of the Committee.
  • give urgent attention to SOCs such as South African Airways, South African Express Airways and Safcol to ensure that they are stable and financially sustainable and intervene where necessary.
  • ensure that measures are put in place to ensure that the care and maintenance of the PBMR complies with all relevant legislation and that the care and maintenance agreement is adhered to.
  • ensure that measures are put in place to ensure that Infraco and Alexkor adhere to relevant legislation.

The Minister of Finance should:

  • consider funding the remaining vacant critical posts in the Department of Public Enterprises. The Departments’ budget must be able to meet its staff complement’s requirements of specialised skills in order to effectively oversee SOCs’ massive infrastructure programme. The staff complement of the Department is less than 200. The Department needs highly skilled specialists to effectively monitor SOCs (in their different sectors). In the words of the Minister of Public Enterprises, “It is imperative that the gap between the Department’s expanded oversight and management responsibilities and the resources available to it is progressively closed.” [13] In other words, the Department’s budget should correspond to the role or mandate it is expected to execute.

12. Conclusions

The Committee notes the improvements and achievements made by the Department on its performance and the financial management of its budget for both 2011/12 and the six-month period since the beginning of the 2012/13 financial year . The Committee notes the decreasing budget allocations and expenditure trends of the Department and the implication this has on the shareholder management responsibilities of the Department. The filling of vacant posts was a matter of concern as it might have a negative impact on the Department’s oversight responsibilities.

Report to be considered.

[1] Matona, T (2012)

[2] Public Enterprises (2012)

[3] Public Enterprises (2012)

[4] National Treasury (2009)

[5] Alexkor (2011)

[6] Alexkor (2012)

[7] Denel (2012)

[8] Safcol (2012)

[9] Broadband Infraco (2012)

[10] Public Enterprises (2012)

[11] Five Year Expenditure Review (2011)

[12] Public Enterprises (2012)

[13] Public Enterprises (2012)


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