ATC130418: Report of the Portfolio Committee on Public Enterprises on the Budget Vote [Vote 11] and the annual performance plan for 2013/14 of the Department of Public Enterprises dated 17 April 2013

Report of the Portfolio Committee on Public Enterprises on the Budget Vote [Vote 11] and the annual performance plan for 2013/14 of the Department of Public Enterprises dated 17 April 2013

The Portfolio Committee on Public Enterprises having received a briefing from the Department of Public Enterprises on the Annual Performance Plan and budget vote, the committee reports as follows:

1. Introduction

Guided by the Rules of Parliament, promulgated in terms of the Constitution, the Portfolio Committee on Public Enterprise plays an oversight role on the Ministry, Department and the Entities. The Committee has to scrutinise the Strategic Plan and Annual Performance Plan of the Department and its Entities in order to see if the funds requested are aligned to the objectives as stated in the respective strategic plan documents .

1.1 Background

The global economic downturn, due to the collapse of the financial system, affirmed the need for a strategic role of the state in counteracting the effects of the downturn and stimulating recovery, this entailed increasing investment in the economy by the state and much more effective use of monetary policy to stimulate economic activity. The recognition of the role of the state in the economy has increased the need to ensure that state-owned companies ( SOCs ) align their activities to support the broad developmental outcomes of Government. This required the Department to:

• Strengthen oversight on the activities of SOCs and ensure their alignment to the developmental objectives of Government; and

• Strengthen oversight mechanisms to improve governance within SOCs .

The annual performance plan of the Department of Public Enterprises for 2013/14 is informed by the Department’s Strategic Plan that is aligned to the National Development Plan (NDP), and seeks to achieve the objectives of National Growth Path and Industrial Policy Action Plan.

The annual performance plan seeks to:

• Build on the progress that has been made since 2009;

• Sustain and accelerate the implementation of key programmes within the Department and its SOCs to meaningfully contribute to the objectives of Government, but It does not reflect a change in strategy; and

• Develop new frameworks to support implementation of existing programmes rather than the development of new initiatives.

2. Strategic Plan of the Department for 2012-2016

The Department of Public Enterprises presented their Annual Performance Plan to the Portfolio Committee on Public Enterprises. The department described the overarching policy and strategic direction and priorities of Government, as articulated in the State of the Nation Address by the President, Budget speech, and National Development Plan.

The department revised their vision statement and strategic plan for 2011/12 to 2014/15. This has been done in order to reflect the impact of the SOCs investment and operational activities on economic growth and development.

In order for the department to implement its vision, five key changes have been made to the shareholder oversight processes:

· The SOCs need to change their investment planning framework from one based on what their balance sheet can afford to one based on what investments are required to unlock growth in their customers and to create a stable demand platform for their suppliers;

· New sources of funding for the expanded investment plans need to be mobilised, potentially including our development finance institutions, pension funds and big SOC customers;

· The SOCs need to procure from their suppliers in a way that promotes investment in national industrial capabilities through providing medium term demand information and entering into longer terms relationships with key suppliers;

· The Department needs to provide the Minister with relevant support for bi-monthly meetings with SOCs top management to monitor progress in the implementation of key efficiency enhancing initiatives; and

· Coordination between the Department, the SOCs and all levels of government need to be improved to ensure SOCs capabilities are fully leveraged: that implementation is accelerated and that the impact of programmes is optimised.

2.1 Strategic Priorities of the Department 2013/14

The strategic priorities of the Department for the financial year will include the following:

• Increasing oversight on the implementation of the build programme of SOCs in particular Eskom and Transnet;

• Strengthening capacity of the Department to oversee the build programme;

• Facilitating the creation of a supportive policy environment for SOCs to increase investment into the economy;

• Promoting increased localisation of procurement spend through the Competitive Supplier Development Programme;

• Explore ways to support challenged SOCs financially;

The revised vision for the Department necessitated changes on the initial organisational structure. These changes require that the Department builds new capabilities; that the responsibilities of existing units be expanded and that the organogram is restructured to provide for these skills. This requires the following:

§ The SOCs facing teams need to develop a comprehensive understanding of how the SOC’s investment and operational plans impact on the growth of customers and suppliers so as to ensure that the SOC’s planning cycle incorporates our growth and productivity objectives;

§ A new Programme called “Strategic Partnerships” has been established to identify strategic initiatives where these external funds can be mobilised and to structure the projects and associated funding and governance arrangements to facilitate this process; and

§ The Joint Project Facility unit will become the Economic Impact and Policy Alignment unit which build capability to monitor our national economic policy processes to determine in which areas our SOCs can make new strategic contributions, to implement programmes that will align the SOC’s capabilities with our national objectives and to put relevant reporting mechanisms in place, for both the shareholder and all SOC’s stakeholders.

3. Annual Performance Plan for 2013/14.

3.1 Programme 1 - Administration

Programme 1 is a support function and its primary focus is to create an organisational environment necessary to achieve the objective outlined in Department’s Strategic Plan and APP. This programme provides support to the core programmes to ensure that the Department is sufficiently resourced and meets all legislative and regulatory requirements. In the 2013/14 financial year, the focus will be on achieving the following:

· Strengthening financial management tools to maintain the clean audit record;

· Strengthening the monitoring and evaluation function through the review of the policy on management of performance information;

· Payment of invoices within 30 days;

· Finalisation of Department’s performance management policy and begin implementation to promote a high performance culture within the organization;

· Strengthening of the human resource management policy within the Department to ensure that the vacancy rate at below 10 percent as a norm; and

· Implementation of the Department’s communication strategy including improving engagements with provinces and other stakeholders.

3.2 Programme 2 – Legal and Governance

Programme 2 provides legal services and corporate governance systems, as well as facilitates the implementation of all legal aspects of transactions that are strategically important to the Department and SOC, and ensures alignment with Government’s strategic intent.

For the 2013/14 financial year this programme will focus on the following priority areas:

• Provide advise and assistance in taking forward the recommendations of the Presidential Review Committee;

• Strengthen the implementation of the SOCs Logical Framework for Planning, Monitoring and Evaluation;

• Secure Cabinet approval on the Government Shareholder Management Model;

• Implementation of SOCs Board and Executive Remuneration Standards;

• Develop a framework for SOCs procurement of mega projects;

• Review of the current Board Performance Framework;

• Development of an Enterprise Risk Management Framework; and

• Develop proposals to reduce copper theft.

3.3 Programme 3 – Portfolio Management and Strategic Partnerships

Programme 3 seeks to align the corporate strategies of the SOC with Government’s strategic intent, as well as monitoring and benchmarking their financial and operational performance and capital investment plans. The programme seeks also to align shareholder oversight with overarching Government’s economic, social and environmental policies as well as building of focused strategic partnerships between the SOC, strategic customers, suppliers and financial institutions.

The sub-programmes in this Programme are as follows:

• Energy and Broadband Enterprises – Includes Eskom, Pebble Bed Modular Reactor (PBMR) and Broadband Infraco .

• Manufacturing Enterprises - Includes Denel , Alexkor and South African Forestry Company (SAFCOL).

• Transport Enterprises - Includes South African Airways (SAA), South African Express (SAX) and Transnet Limited.

• Economic Impact and Policy Alignment – aligns SOCs with overarching government economic, social and environmental policies.

• Strategic Partnerships – aims to ensure the SOC’s commercial sustainability and attainment of desired strategic outcomes and objectives by SOCs .

3.3.1 Energy and Broadband Enterprises

The priority areas for this programme will include the following:

• Ensure effective shareholder oversight and monitoring of Eskom and Broadband Infraco ;

• Support Eskom in ensuring the security of electricity supply;

• Assessment of Eskom’s financial position and technical capacity to undertake the build programme post 2017;

• Reduce dependence on the fiscus by monitoring cost escalations, delivery schedule (time) and workmanship quality for the capital investment programme and developing innovative funding mechanisms;

• Implementation of the PBMR care and maintenance programme;

• Support increased access to broadband;

• Strengthening oversight on the roll out of the build programme;

• Development of industry benchmark to improve operational efficiencies within the companies;

• Quarterly monitoring of the build programme, financial and operational performance;

• Secure Cabinet decision on the PBMR end state post December 2013; and

• Approval of Broaband Infraco’s capital expenditure programme and funding plan.

3.3.2 Manufacturing Enterprises

The priority areas for this programme will include the following:

Denel

• Review Denel’s Strategy;

• Implementation of Denel’s Turnaround Plan and oversight of the Recapilisation exercise;

• Denel Aerostructures business sustainability;

• Develop framework that outlines interventions to improve financial sustainability of Denel ;

• Alignment of Denel’s industrial capabilities and Department of Defence acquisition and support requirements; and

• The review of the Rooivalk Programme.

Alexkor

• Definition of Alexkor’s role as a state-owned mining company;

• Oversight of Richtersveld Deed of Settlement implementation; and

• Review of Alexkor’s financial sustainability and recommendation to Cabinet on its future role as a state owned mining company.

Safcol

• Implementation of Safcol’s new strategy based on Cabinet approval;

• Enhancement of the company’s developmental contribution;

• Enhance the financial stability (capacity adequacy) and growth of Safcol ;

• Enhancement of Safcol Development Contribution; and

• Monitor IFLOMA investment and its alignment to the business strategy.

3.3.3 Transport Enterprises

The priorities for this programme include the following:

Transnet

• Ensure the contribution of Transnet to achieving an efficient, competitive and responsive infrastructure (output 3 of outcome 6) – As per Minister ’ s performance agreement;

• Oversee the concessioning of 3 branch lines pilot phase;

• Review of the logistics cost in the economy; and

• Develop a long term integrated transport infrastructure network plan.

South African Airways and South African Express (SAA and SAX)

• Develop long term strategies for the airlines; and

• Fleet acquisition programme for SAA and SAX.

3.4 Economic Impact and Policy Alignment

This programme is divided into the following focus areas:

• Environmental Policy Alignment - oversees alignment and implementation of SOC’s strategically important developments ( SIDs ) with special focus on the Eskom and Transnet Build Programmes. It also provides oversight of SOCs alignment with Climate Change Policy and with ‘ Green Economy ’ strategies.

• Economic Policy Alignment - will focus on appropriate macro-economic modeling and research to enhance the links between industrial policy, macro-economic policy and the role of the SOCs . Economic modeling will be outsourced to relevant institutions to determine the impact of SOC’s investment and operations on the economy, including the impact on customers and suppliers.

• Transformation, Skills and Youth Development - will focus on the provision of scarce and critical skills by the SOCs in support of the National Skills Agenda and the New Growth Path as well as optimizing the SOC’s skills training facilities through National Skills Funding, amongst others. Transformation and Youth Development areas will form new areas for incorporation into SOC’s Shareholder Compacts.

The priority areas for the economic impact and policy alignment programme include the following:

• Development of SOC’s macroeconomic model to assess contribution of SOCs to the economy;

• Finalisation of an Aviation Biofuel Strategy and shareholder position on the carbon tax;

• Finalise Memorandum of Understanding between DPE and the

Department of Enviromental Affairs to fast track Environmental Impact

Assessments and water licensing approvals;

• Oversee alignment and the provision of scarce and critical skills by SOCs and their suppliers in support of the National Skills Agenda and the New Growth Path;

• Facilitate partnerships for artisan and technician development to optimise SOC’s training facilities by increasing the number of artisan learners for the national pool;

• Oversee SOC’s compliance with the environmental laws and climate change mitigation measures, while supporting SOC business needs;

• Finalisation and implementation of the Youth Empowerment Programme; and

• The development of an overarching transformation strategy for SOCs .

3.5 Strategic partnerships

The priority areas for this programme include the following:

• Innovative funding solutions to support SOCs to sustain implementation of the build programme;

• Establishment of the Project Management Office (PMO) to improve capacity to oversee the build programme;

• Oversee development and implementation of Strategic Infrastructure Projects’ business plan coordinated by the Department and its SOCs ;

• Quarterly assessment of the implementation of Competitive Supplier Development Programme (CSDP);

• Development of the Private Sector Participation Framework; and

• Development of SOC’s Africa Investment Strategy.

3.6 Budget

The Department's budget decreased from R3.983 billion in 2009/10 to R1.4 billion in 2012/13 and this decrease continues over the medium term to R279.3 million in 2015/16 as a result of reduction in transfers to SOCs . Over the medium term, compensation of employees is expected to increase from R111.5 million in 2012/13 to R155.5 million in 2015/16 as a result of the expansion of the establishment over this period. Goods and Services including payments for capital assets is expected to increase from R96.8 million in 2012/13 to R123.7 million in 2015/16 to support the increased establishment.

3.7 Strengthening Capacity within the Department

The structure of the Department increased from 168 employees in 2009 to 210 in the 2012/13 financial year and will increase to 227 over the MTEF period. The Department has also succeeded in reducing its vacancy rate from 16.7% in 2009 to 11.9% in March 2013. The Department is still faced with challenges in terms of retention of specialists skills, however it is exploring ways to retain key skills beyond increases in remuneration packages.

4. Committee Observations:

4.1 The Committee made the following observations :

The Committee noted that:-

· There is a need for the Department to address the problem of copper and electricity theft with the relevant stakeholders;

· The energy reserve margins in Eskom were very low, and urged the Department to ensure that there is security of electricity supply;

· Board members of SOCs were serving in too many boards, and that the Department should regulate the number of boards they could serve at one point;

· The Presidential Review Committee has tabled its report to the President, but the absence of legislation that empowers the Department to take action against non-performance calls for the Department to draft the shareholder management bill;

· Small and emerging suppliers are not given contracts by SOCs because they are not competitive, and the Committee urged the Department to ensure that small and medium enterprises were supported and promoted to be competitive;

· There is a lack of investment by private sector in infrastructure, and the Committee urged the Department to develop mechanisms to incentivize private sector investment; and

· National Treasury has approved funding of critical skills needed in the department, but the capacity to execute its oversight responsibility was still inadequate.

· The Department should increase oversight to ensure that South African Express Airways completes the reconstruction of the withdrawn financial statements, and they are tabled in Parliament as per the Public Finance Management Act requirement.

5. Recommendations

The Committee recommended that the Minister of Public Enterprises should ensure that:

• The board members of state-owned companies should undertake site visits in order to understand the conditions and challenges of workers, customers and other stakeholders, and most importantly to assess whether the projects are yielding the required developmental results.
• All critical vacant and acting executive positions in state-owned companies should be filled.

6. Conclusion

Having considered the budget vote and the annual performance plan of the Department of Public Enterprises, the Committee recommends that the House passes the budget.

Report to be considered