ATC141024: Budgetary Review and Recommendation Report of the Portfolio Committee on Public Enterprises, dated 22 October 2014
Budgetary Review and Recommendation Report of the
Portfolio Committee on Public Enterprises, dated 22 October 2014
The Portfolio Committee on Public Enterprises (the Committee), having considered the performance and submission to National Treasury for the medium term period of the Department of Public Enterprises, reports as follows:
Mandate of Committee
The mandate of
the Committee is to consider legislation referred to it; exercise oversight
over the Department and its eight 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; and to consider all other matters referred to it in terms of legislation
and the rules of the National Assembly.
Description of core functions of the Department
of Public Enterprises has a distinct mandate of shareholder management on
behalf of the state. It has a responsibility to ensure that SOCs
drive investment, productivity and transformation in the sectors within
which they operate. The Department also seeks to unlock growth, drive
, create jobs and develop skills.
Purpose of the BRR Report
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)
set out a process that allows Parliament to make
recommendations to the Minister of Finance to amend the budget of a national
The Money Bills Amendment
Procedure and Related Matters Act therefore make it obligatory for Parliament
to assess the Departments budgetary needs and shortfalls vis-à-vis the
Departments operational efficiency and performance. This is done taking into
consideration the fact that the Department has oversight responsibilities over eight
state-owned companies, namely Alexkor, Denel, Eskom, Pebble Bed Modular Reactor
(PBMR), South African Airways (SAA), South African Express (SAX), South African
Forestry SOC (SAFCOL) and Transnet. There is a policy decision to transfer
Broadband Infraco to the Department of Telecommunications and Postal
hence the Department of Public Enterprises would
not be tabling an annual report for Broadband Infraco.
This report culminated from
a very intense and thorough analysis and interaction with the Department and
state-owned companies through briefings, oversight visits and interaction with
relevant stakeholders. These included a briefing from the Department of Public
Enterprises on its annual report, a briefing from the Office of the
Auditor-General on the audit outcomes and a deliberation on the analysis done
by the support staff on the performance of the Department in terms of its
service delivery targets and financial performance.
of the contents of the Report
The budgetary review and
recommendation report of the Committee contains the following:
Overview of the key
relevant policy focus areas.
Summary of previous key
financial performance recommendations of the Committee.
Overview and assessment of
Overview and assessment of
service delivery performance.
Finance and service
delivery performance assessment.
Committee observation and
Summary of reporting
the key relevant policy focus areas
Policy Context for the Mandate of the Department
The Department of Public
Enterprises (DPE) provides oversight over eight SOCs. These SOCs derive their
mandates from the Department of Public Enterprises and other policy
Departments. The Department of Public Enterprises designed programmes
responsive to their oversight namely; energy and broadband, manufacturing
enterprises, transport enterprises, economic impact and policy alignment and
All the SOCs are
incorporated as companies in accordance with the provisions of the Companies
Act, 2008. Except for Denel, all the SOCs are established in terms of their own
legislation relating for which they were founded. DPE is both the founder and
the administrator/custodian of all legislation relating to the establishment of
In terms of section 62
of the Public Finance Management Act
(PFMA) of 1999, as amended, the Minister of Public Enterprises has, inter alia,
the responsibility of ensuring that SOCs comply with the PFMA legislation and
policies of the Department. The shareholder Ministry acts on behalf of
Governments strategic objectives. This evolution is underpinned by an over-arching
shareholder management process aimed at providing enduring strategic rationale
for SOCs. Expansion of the role of SOCs within the current economic management
framework has required the Department to introduce measures to ensure that SOCs
contribute to the developmental outcomes, as outlined in the National Development
The policy evolution can be
contextualised within the reason for the establishment of the Department. In
the annual report 2013/14 the Director-General acknowledges that the Department
was established initially as a privatisation and corporatisation office. This
reflected the governments policy to restructure its ownership and
participation in the economy. The disposal or privatisation of state assets was
also leveraged to encourage participation of the historically disadvantaged in
the economy. As an Office, limited resources (both financial and human) were
provided to oversee the disposal of the states assets. The process of
privatisation was largely informed by the need to reduce government debt, as
most of the state companies were incurring losses. As the government introduced
and implemented transformative policies, the role of SOCs in driving the
developmental agenda strongly emerged. As a result, the mandate of the
Department has evolved to reflect the change in the policy approach.
further states that the evolution of the mandate has exerted extreme pressure
on the capacity of the Department and has exposed some weaknesses in the
current operational model. As a government department, the DPE operates within
the Public Service Act and Regulations. This constrains the Departments
ability to effectively compete in the labour market. This has resulted in
relatively high staff turnover at senior management level and inability to
attract high calibre individuals.
concedes that, despite the highlighted challenges, the Department has remained
functional with strong institutional structures that oversee implementation and
compliance. This has been reflected in the clean audit record achieved by the
Department over the past eight (8) years, with the exception of the 2012/13
external audit, on which the Department achieved an unqualified audit opinion.
This was as a result of a technical error on the Departments annual financial
statements, rather than a collapse of controls.
The National Development Plan (NDP)
The National Development Plan (NDP) aims to eliminate poverty and reduce
inequality by 2030. The plan spells out that, to accelerate progress, deepen
democracy and build a more inclusive society, South Africa must turn political
emancipation into economic wellbeing for all. Realising such a society will
require transformation of the economy and focused efforts to build the
countrys capabilities. It further states that, to eliminate poverty and reduce
inequality, the economy must grow faster and in ways that benefit all South
The Department of Public Enterprises responds to the NDP through
ensuring that SOCs are critical vehicles for economic growth and development.
The Departments vision to drive investment, productivity and transformation in
its portfolio, SOCs, their customers and suppliers so as to unlock growth,
drive industrialisation, create jobs and develop skills responds and aligns
with the National Development Plan, New Growth Path and the Industrial Policy
Action Plan (IPAP).
The NDP further acknowledges that South Africas development is affected
by what happens in the region and the world. Success will depend on the
countrys understanding and response to such developments. In addition to a
detailed scan of the demographic projections, the plan discusses five notable
trends: global economic shifts, technology, globalisation, climate change and
African economic growth. Long-term shifts in global trade are reshaping the
world economy and international politics. It is likely that world economic
growth over the next decade will be lower that it was during the previous one.
This will require greater policy focus, effective implementation of industrial
policies and improved skills development. South Africas experience of
globalisation includes tangible benefits and increased complexity. The
challenge is to take advantage of opportunities while protecting South Africans
- especially the poor - from risks associated with trade and investment
patterns. Several structural
must be overcome
if Africa is to translate rapid growth and higher demand for commodities into
rising employment and living standards. The high domestic cost of broadband
internet connectivity is also a major hindrance.
The Department of Public Enterprises beyond its oversight role must
strengthen its intergovernmental coordination capabilities with other
Departments in order to respond appropriately to changes in dynamic global
environment. This goes beyond memoranda of understanding (MOUs) to a Cabinet
approved framework that requires joint programme implementation to attain
better policy responses. The Department should focus efforts on how to ensure
regional cooperation and identify areas in which complementary national
endowments offer opportunities for mutual beneficial cooperation. SOCs should
also reduce the global emissions footprints as the effects of climate change
place a burden on health, livelihoods, water and food, with disproportionate
impact on the poor, especially women and children. The Department of Public
Enterprises has improved its planning framework for better policy coordination
efforts for global climate change effects. All South Africans should be able to
acquire and use knowledge effectively. To this end, institutional arrangements
to manage information, communications and technology (ICT) environment need to
be better structured to ensure that South Africa does not fall victim to a
The NDP articulates that, accountability in state-owned enterprises has
been blurred through a complex, unclear appointment processes and at times,
undue political interference. It further recommends clarifying lines of
accountability by developing public-interest mandates that set out how each
serves the public interest,
ensuring appointment processes are meritocratic and transparent, and improving
coordination between policy and shareholder departments. The Minister in the
annual report states that, the Department of Public Enterprises exists to
support the Shareholder Representative in playing her role, performing her
duties, exercising her responsibilities and discharging her obligations. In
doing so, she
the Department to operate at
four levels: to distil government policy and strategy into a Shareholders
Compact, or performance agreement, with each of the Companies and provide
careful, incisive and detailed scrutiny of the way in which each Company
performs against agree targets. Secondly, to assist and support Companies to
achieve targets and help remove blockages in their operating environment.
Thirdly, to undertake interventions to harness the combined capacities and
capabilities of all the Companies and other key players to unlock inclusive
growth, drive industrialisation, create jobs, develop skills and deracialise
Lastly, to join her in engaging other relevant
players in the policy and regulatory terrain to obtain certainty and secure the
most conducive circumstances for the Companies within which to operate and
The Portfolio Committee on Public Enterprises has a responsibility to attain
the vision set out in the National Development Plan through oversight of State
The Minister accountable for ensuring that
the Department develops appropriate planning, monitoring and oversight frameworks
to monitor SOCs.
This will also require that the Department develops a Cabinet
approved framework that will enable better coordinating mechanism through an
appropriate intergovernmental relations system that leverage its developmental
mandate with other national government departments and other spheres of
government such as provincial and local government.
of coordinating responses towards the achievement of the NDP
through appropriate institutional frameworks must be presented to the Portfolio
Committee for engagement and recommendations. This will capacitate the
Department of Public Enterprises in its role and mandate.
State of the Nation Address (SONA)
The President in his State of the Nation
Address 2013 stated, by the end of March this year, starting from 2009,
government will have spent about 860 billion rand on infrastructure. Various
projects are being implemented around the country. The construction of the
first phase of the Mokolo and Crocodile River Water Augmentation has commenced
and it will provide part of the water required for the Matimba and the Medupi
Government will shift the transportation of
coal from road to rail in Mpumalanga, in order to protect the provincial roads.
Thus the construction of the Majuba Rail coal line will begin soon. The
President further states committed to improve the movement of goods and
economic integration through a Durban-Free State-Gauteng logistics and
industrial corridor. Government have also committed to improve the movement of
goods and economic integration through a Durban-Free State-Gauteng logistics
and industrial corridor. In this regard, substantial work is now underway to
develop the City Deep inland terminal in Gauteng. Initial work has commenced in
the expansion of the Pier 2 in the Durban Port. And thirdly, land has been
purchased for the development of a new dug-out port at the Old Durban airport.
The President states that, to improve the
transportation of iron-ore and open up the west coast of the country, we have
expanded the rail capacity through the delivery of 11 locomotives. The first
phase of the expansion to increase iron ore port capacity at Saldanha to 60
million tons per annum was officially completed in September last year.
In the energy sector, government has now laid
675 kilometres of electricity transmission lines to connect fast-growing
economic centres and also to bring power to rural areas. In addition,
government signed contracts to the value of R47 billion in the renewable energy
programme. This involves 28 projects in wind, solar and small hydro
technologies, to be developed in the Eastern Cape, Western Cape,
Cape and in the Free State. We established an 800
million rand national green fund last year. To date, over 400 million rand
investments in green economy projects has already been approved for
municipalities, other organs of state, community organisations and the private
sector across all provinces. We have also rolled out 315 000 solar water
geysers as of January this year, most of which were given to poor households,
many of whom had never had running hot water before. The
of nation pronounce
that government has scored successes in extending
basic services through the infrastructure programme. Close to 200 000 households
have been connected to the national electricity grid in 2012.
The Department of Public Enterprises should
in its plans reveal how it supports the delivery of the complementary
infrastructure. This should be coordinated, implemented, monitored and reported
supported through approved institutional framework such as Presidential
Infrastructure Coordination Commission (PICC), and forums with a mandate to
coordinate Strategic Infrastructure Programmes (SIPs).
The Presidential Review Committee (PRC)
on State Owned Enterprises
The Presidential Review
Committee on state owned enterprises concluded its work in the year of
reporting. The PRCs mandate was linked to the Medium Term Strategic Framework
(MTSF) (2009-2014). The PRC had 21 terms of reference based on four work
streams namely: development and transformation, governance and ownership,
business case and viability and strategic management and operational
effectiveness. The PRC identifies four key areas that contribute towards a
well-run and successful State Owned Enterprise (SOE). The Department of Public
Enterprises has a responsibility in implementation of the recommendations of
the PRC and in assessing these four areas: strategy setting and portfolio,
government and management, standard monitoring methods and management and
In its last Budgetary
Review and Recommendation Report (BRRR) 2013, the Portfolio Committee
recommended that the Department integrates the four areas raised in the PRC into
its planning process. Whilst the investigation of SOCs conducted by the PRC was
not confined to SOCs within the Department of Public Enterprises portfolio, it
is important for the Department to develop a mechanism in which these will find
expression in their mandate. In this regard, there is need for the Department
to institutionalise the PRCs recommendations. The Department must ensure that
as part its Strategic Plan and Annual Performance Plan development process a
mechanism should be spelt out on how it will contribute to the PRC
recommendations. This process should be aligned to programme implementation
within the departments organisation structure.
agreement targets for 20
relation to Governments 12 Outcomes, the Department is primarily contributing
to creating an efficient, competitive and responsive economic infrastructure
network (Outcome 6), which forms the basis of the delivery agreement signed in
October 2010. This delivery agreement forms the core of the performance
agreement between the President and the Minister. Furthermore, the Department,
through the activities of its SOCs, contribute to other outcomes such as decent
employment through inclusive growth, skills development and rural development.
following is the Departments contribution towards achieving the
that have been prioritised by government:
Creating an efficient,
competitive and responsive economic infrastructure networ
MTSF was adopted during the recession. One of the key objectives was to
stabilise the economy and place it on a different growth trajectory. At the
centre of this objective was: implementation of the capital expenditure
programme that would address the capacity constraints experienced by the
economy during high growth periods between 2005 and 2007; to act as a stimulus
to jump-start the economy. In this regard, Eskoms build programme, as well as
the Transnet capital expenditure programme, formed the core of the governments
infrastructure investment strategy.
progress that has been made to accelerate infrastructure investment in the
economy is highlighted below.
build programme up to 2018
of the build programme emerged as one of the major challenges with roll-out of
the build programme in the electricity sector. This is as a results of tariffs
not being sufficient to cover operational costs as well as provide a reasonable
return on investment to allow the utility to fund investment in additional
generating capacity. Over the past five years, the Department has supported
Eskom to secure tariff adjustments that will support its financial
sustainability as well as provision of guarantees to keep the financing cost
lower. As at 31 March 2014, R271.6 billion (90.5%) of the R300 billion
borrowing programme had been secured. The R300
programme is based on the original funding requirements as at April 2010 and
covers the period 1 April 2010 to 31 March 2017.
should be noted that additional funding requirements, including those resulting
from the lower than expected MYPD 3 tariff determination, are not included in
this borrowing programme. The draw
downs for the year ending 31 March
2014 against the R300 billion funding plan is R44.7 billion, bringing the
cumulative amount that has been drawn to execute the build programme to R188.7
billion. Additional funding for the
period until 31 March 2018, as a
result of the MYPD3 decision amounts to R301 billion which still needs to be
on delivery of build programme (Medupi, Kusile, Ingula, Transmission Lines and
spent R58.2 billion on capital expenditure in 2013/14, reflecting a sustained
increase in the capital expenditure in support of Government outcomes. The following
are the key achievements of the build programme:
completed the return-to-service project during the reporting period. All three
power stations (Camden, Grootvlei and Komati) are fully operational. The last
unit of this project Komati Power Stations Unit 3 was commissioned in
September 2013. This brought the total amount of generating capacity for
return-to-service added to the grid since 2005 to 3 731MW. This has been one of
the factors that have played a crucial role in averting the collapse of the
national electricity grid.
refurbishment projects have made good progress, despite the ongoing challenge
of outage constraints. All the Kriel units have now been refurbished, with the
final unit (Unit 5) being synchronised on load on 15 March 2014. Furthermore,
three of the six Matla units have been refurbished, with the third unit (Unit
5) synchronised on load on 25 March 2014. Delays were experienced at Duvha due
to outage movements.
at 31 March 2014, Medupi had a day variance of 24.48 days (within the target of
30 days late variance). Eskom remains on track for synchronisation during the
second half of 2014. Commissioning of the first unit has started and Eskom is
working with contractors to ensure that agreed schedules and processes are
adhered to. Key challenges include finding solutions for the control systems.
achieved a day variance of 12.9 days (within the target of 30 days late
variance). The station is scheduled for synchronisation by the end of 2015. The
key challenge is finding a solution for control systems to avoid a repetition
of the delays experienced at Medupi. Four medium term contracts have been
signed for coal supply to Kusile Power Station during the commissioning phase.
The conclusion of long term coal and limestone supply agreements for Kusile
Power Station remains a focus area.
continues at Ingula, but the tragic incident that cost the lives of six
contractors has affected the schedule. The delay has been estimated at 18
months. At the end of the reporting period, Ingula had a day variance of 11.6
days (within the target of 30 days late variance). Work to install turbines and
generators will begin soon.
of the 100MW Sere Wind Farm is progressing well, with 69% of the tower
foundations and 17% of the turbines completed.
811km of power lines and 3 790MVA of sub-station capacity were also
commissioned during the course of the year.
Generation Projects reported construction progress as follows as at 31 March
2014 Medupi -60%; Kusile - 30%; Ingula - 72%; and Sere Wind Farm - 47%.
contracts that have been signed
electricity industry is undergoing reforms targeted at: enhancing participation
of the private sector; attracting additional investment to address current capacity
challenges; enhance the use of renewable energy. The first project under the
(DOE) renewable independent power producers (RE-IPP) programme was connected to
the grid on 27 September 2013 and the first IPP was commissioned on 15 November
2013. A total of 467.3MW is currently available to the system from these
independent power producers (IPPs). The DOE approved an additional 1 457MW,
pursuant to the third window submissions. No contracts have yet been signed for
this capacity. Further PPAs, totalling 1 005MW, for DOE Peaker Plants were
entered into on 3 June 2013 and became effective on 29 August 2013 (DOE Peaker
Programme). Commissioning of these plants is expected during the 2015/6
2014/15 financial year is the third year of Transnets roll-out of the Market
Demand Strategy (MDS) that is underwritten by a rolling capital programme worth
over R300bn. In the past five years, Transnet has invested over R120bn in
infrastructure and capital projects, most of which has been committed to the
rail business. This is crucial to enhance the efficiency of the logistics
system and to reduce the cost to move goods, which will contribute to the
overall competitiveness of the economy. Key projects executed by the company
over the past five years included the following:
the 2013/14 financial year, Transnet awarded a R50 billion contract for
acquisition of 1 064 locomotives (599 new dual-voltage electric locomotives and
465 diesel locomotives) this makes it the largest locomotive acquisition
contract in the history of South Africa. Not only will this acquisition of
locomotives enable Transnet to increase its rail volume capacity, but the
procurement process has been structured in such a way as to allow for
maximisation of localisation benefits. The transaction is expected to boost the
countrys manufacturing capacity while also transforming the rail industry.
Nine of the 95 electric locomotives were delivered in the 2013/14 financial year.
Local assembly of the locomotives commenced on 4 February 2014 at Transnet
Engineering in Koedoespoort. The remaining 23 of the 43 Class 43 diesel
locomotives were received in the 2013/14 financial year.
ore line expansion up to 60,0mt
last 26 of the 32 locomotives needed to facilitate the increase in iron ore
capacity to 60,0mt were tested and accepted into operations during the 2013/14
financial year. The pre-feasibility study to expand capacity from 61mt to
82,5mt has been completed. Phase 1D (being the addition of a 3rd tippler and
associated rail works) has been approved by the Transnet Board of Directors, at
a cost of approximately R1,6 billion. The 3rd tippler will ensure that 60mt can
be exported on a sustainable basis, as the existing two tipplers currently do
not allow for any down time.
line expansion up to 81,0mt
work required to expand the coal line from 68mt to 81mt commenced during the
2013/14 financial year. The work is expected to gain momentum during the
2014/15 financial year, with construction of the consolidation yards at
Saaiwater and Blackhill yards.
Container Terminal (DCT)
has commenced with the reconstruction and deepening of seven steel sheet piled
berths at Maydon Wharf, in the Port of Durban. Construction of the first berth
was successfully completed and is now fully operational. The contract for the
remaining six berths was awarded recently and on-site construction is expected
to commence in the near future.
Durban International Airport (DIA) site acquisition from ACSA was concluded
during the 2012/13 financial year at a total cost of R1,85 billion. The DIA
site is proposed to be developed into a dig-out port to address demand
requirements in the container, liquid bulk and automotive sectors up to 2040.
Town Container Terminal
of the Cape Town Container Terminal aims to increase capacity from 0.9 million
TEUs to 1,4 million TEUs to address growth in demand for containers in the
Western Cape region. The capital project to deepen berths and increase
container handling capacity to 900 000 TEUs has been completed. Consideration
is now being given to increasing the container handling capacity to 1, 4
Ngqura Container Terminal
Nqgura Container Terminal was launched in 2012. The port is positioned as a
trans-shipment hub and a gateway for container traffic into Southern Africa.
The second phase A of the project, to expand capacity from 800 000 TEUs to 1.5
million TEUs, has commenced and is expected to be completed during the 7
year MDS period.
Multi-Product Pipeline (NMPP)
progress has been made on the NMPP with favourable weather conditions having
enabled accelerated construction work to take place. The project has, however,
faced some challenges with regard to industrial action and tank construction
work. In spite of these challenges, the project is expected to be completed
the period under review, ship turnaround time was slightly below the target of
59, largely due to inclement weather. The gross crane moves per hour (GCH) on
Pier 1 and Pier 2 are below target, with Pier 1 at 24 moves (target is 28) and
Pier 2 at 25 moves (target is 30). Anchorage waiting time was also below
target, at 57 hrs (target is 46). Infrastructure upgrades are being implemented
to improve functioning of the port.
(j) Port of
ship turn-around time was 29,6hrs better than the set target of 30hrs. The
gross crane moves per hour were better than target, at 34 moves against a
target of 32. Anchorage waiting time was below target at 57 hrs (target was 46
hrs). Average ship turn-around time in Cape Town and Durban improved from the
previous year. The Port of Durban improved anchorage waiting time from the
previous year, which is important for customer satisfaction. Cape Towns
performance was marginally lower than in the previous year.
Transported by Rail
has continued to move volumes above 200 mt per annum, despite the lacklustre
performance of the economy. During the period under review, 210.43 mt were
showing a 1.3% increase in volumes compared to the previous financial year.
volume growth was attributable to the following:
freight (GFB) volumes of 88mt reflected a positive growth of 6% compared to the
coal volumes of 68.2mt were 11% below budget and 1% below the previous year.
iron ore volumes of 54.3mt were 12% below budget and 3% below the previous
8.4% shortfall on the budgeted volume of 229.72mt was mainly due to export coal
and export iron ore.
reasons for the deviation of a 19mt (88.4%) shortfall on total rail volumes
were as follows:
7.3mt shortfall on export iron ore due to customer production problems and a
decline in export iron prices due to slow global economic growth.
8.8mt export coal volume shortfall was partly due to a decline in export coal
prices, customer related equipment failure, as well as internal and external
operational constraints (such as locomotive failure and power failure,
including RBCT cable failure and cable theft).
GFB sector accounted for the remaining shortfall of 3.2mt. A range of factors
affected volume performance, including slow domestic growth, industrial
strikes, customer loading and offloading challenges and wet weather conditions.
of transportation of coal from road to rail
coal business under-achieved on its annual target of 95.151mt. The actual
achievement for coal was 83,13mt in 2014, which represents a 12.6%
to rail migration efforts are as follows:
Rails market development initiatives target retention and growth of
traditional rail customers in the mining and heavy manufacturing sectors (e.g.
export coal and iron ore), including companies that beneficiate mining
commodities. Other major customers are in the fuel, chemicals, agricultural and
business is targeting new customers in the FMCG, textile and light
where there are opportunities for rail friendly commodity types to be shifted
from road to rail.
rail migration programme that focuses on Eskom coal is progressing well in
support of the road to rail programme.
train departures improved by 24% compared to the previous year and by 5%
compared to budget; this was due to diligent monitoring and follow-up on the
root causes of deviations. On-time arrivals also improved by 4.5% compared to
the previous year, but declined by 31% compared to budget, partly due to
en-route system-failures. Diligent monitoring and follow-up on the root causes
of departure and arrival problems will continue.
The gradual delivery of 43
Class diesel locomotives for General Freight and focused attention on
operational efficiency and volume growth resulted in an 8% improvement in asset
utilization, compared to both the prior year and budget.
Decent employment through inclusive growth
Department was identified as one of the contributors required to support
implementation of the outcome 4 delivery agreement. Infrastructure investment
was identified as one of the job drivers in the NGP. The industrial
capabilities that exist within SOC such as Denel are being leveraged to support
the development of advanced manufacturing in the South African economy, in line
turnaround of Denel has been crucial to preserve advanced industrial
capabilities within the States portfolio. The company has continued to support
the needs of the South African Defence Force, which has played a crucial role
in developing capability to secure other markets. In June 2013, the company
reported a R21 billion order book, which increased to R30 billion by December
2013. This will enable the business to meet its plan of doubling revenues to R8
billion by 2018/19. One significant order secured by the SOC in the 2013/14
financial year was a R10 billion contract by the South African Department of
Defence to produce 238 Hoefyster infantry fighting vehicles (IFV) for the South
African Army. The programme is critical in maintaining the countrys advanced
defence manufacturing capabilities. Importantly, 70% of the components for the
vehicles will be developed and manufactured in South Africa, with 2 000 jobs to
be created at Denel and in the related South African defence industry.
2013/14 Denel revived its space and satellite capabilities, after entering into
a collaborative relationship with the South African National Space Agency
(SANSA). This will not only ensure that the countrys space and satellite
capabilities are enhanced, but will provide local industry with the opportunity
to tap into the growing and strategic global space and satellite industry. The
SOC has delivered and supported the deployment of the Rooivalk combat support
helicopter in combat operations in the Democratic Republic of Congo (DRC). The
deployments were done under the United Nations Organisation Stabilisation
Mission (MONUSCO) and have proven to be a game changer in peace enforcement
Department has continued to monitor implementation of the Supplier Development
Plans of both Eskom and Transnet. Furthermore, the Department has incorporated
localization targets into the shareholder compacts of these entities; to ensure
that their procurement expenditures advance the industrialization programme of
Government. The proportion of both components and services sourced locally by
these SOCs has gradually increased since the introduction of the Competitive
Supplier Development Programme (CSDP).
the 2013/14 financial year, Transnet achieved 92% local content procurement as
a percentage of total spend. This is an exceptionally good performance for the
year, especially if you take into consideration that the local content target
was only 70% of total spend. Transnet also exceeded the supplier development
target by achieving 37% commitment of contract value to be invested in the
country: the target was only 35%. Transnets performance in regard to supplier
development would have been significantly higher if the SOC was not bound by
the Preferential Procurement Policy Framework Act (PPPFA). Engagement with
National Treasury on the PPPFA is ongoing in order to find a solution that will
allow SOCs to maximize their procurement spend. BBBEE spend amounted to 94% of
Total Measurable Procurement Spend (TMPS); this was against a target of 70%.
Spend on Black Women Owned and Black Youth Owned remains low. The Department
is, however, continuing to engage Transnet to find ways to improve spend on
these two groups.
5: A skilled and capable workforce to support an inclusive growth path
within the DPE portfolio committed to support the National Skills Agenda
through implementation of various skills initiatives, with a specific focus on
scarce and critical skills. These initiatives include alignment of skills
development programmes to the National Skills Development Strategy (NSDS) and
National Skills Accord in support of the New Growth Path (NGP) and the National
Development Plan (NDP). To ensure alignment to these interventions, the
Department has established partnerships with the Department of Higher Education
and Training (DHET), the Economic Development Department (EDD) and the
Department of Trade and Industries (DTI). This is crucial to ensure that the
skills development capacity of SOCs is leveraged to develop core and critical
skills to meet the economys requirements.
commitments made by SOCs and partnerships with relevant government departments
has resulted in the enhancement of provisioning of scarce and critical skills
by SOCs to address skills gaps within SOCs, as well as closing the national
scarce and critical skills gaps. Thus SOCs alignment to the National Skills
Accord focuses on the following commitments:
1: Expand the level of training using existing facilities more fully.
2: Make internships and placement opportunities available within
5: Improve funding of training and the use of funds available for
raining and incentives.
8: Improve the role and performance of FET Colleges.
commitments have been translated to form part of the targets that are included
in the shareholder compacts concluded with the Executive Authority. In the
2013/14 financial year, and in line with the National Skills Accord, SOCs
collectively committed to enrol 2 764 new artisan trainees of which: 1 040
trainees were to be enrolled at Eskom; 1 550 were to be enrolled at Transnet;
and the remainder were to be enrolled at South African Airways, South African
Airways Express (SAX), Alexkor and SAFCOL.
enrolment includes 1000 additional artisan trainees funded through the R175
million from the National Skills Fund (NSF) to be trained over a period of
three years, which will optimise their training facilities in addressing the
national skills gaps and with a special focus on supporting SIPs. To this end,
a Memorandum of Understanding (MoU) was concluded between the Department and
the DHET in October 2013.
commitments made by SOC include: training of technicians and engineers
supported through bursary schemes and internship programmes; enrolment for
training of cadet pilots; and training of learners in scarce and critical
skills in areas such as train drivers at Transnet, energy field workers at
Eskom, forestry workers at SAFCOL and airport crew members at both SAA and SAX.
In addition, Eskom has also committed to ensuring that at least 2 500
matriculants and 2 500 graduates in the pipeline are trained in artisan trade
skills and supported in work experiential learning programmes through Eskom and
its supplier network.
at 31 March 2014, a total of 2 109 new artisan trainees were enrolled at SOCs
in the Departments portfolio, of which: 1 569 artisans were enrolled at
Transnet; 94 new artisan were enrolled at Eskom; 306 new artisan trainees
enrolled at Denel (237 of the trainees enrolled for training through Denel
Technical Academy partnerships with private companies); 147 artisan trainees
enrolled at SAA; 36 artisan trainees enrolled at SAX; 4 and 6 artisan trainees
enrolled at Alexkor and SAFCOL, respectively. A total of 459 technician
trainees (Transnet 339; Eskom 100; Denel 12; Broadband Infraco 6;
SAFCOL- 2) and 367 engineering trainees (Transnet 138; Eskom 179; Denel
41; Broadband Infraco 4; and
- 4) were enrolled in various programmes supported through bursary schemes and
internship programmes. Other SOCs scarce and critical skills enrolments include
55 new cadet pilots enrolled for training at SAA (34) and SAX (21), with 2 176
new learners enrolled in sector specific scarce and critical skills learning
programmes to address sector skills shortages.
addition, Eskom has enrolled 172 matriculants in artisan trade skills and 195
graduates in various work experiential learning programmes within Eskom and its
supplier network. Thus, as at March 2014, Eskom and its suppliers had 2 718
matriculants and 1 607 graduates in the pipeline, who are being trained and
placed in various learning programmes.
7: Vibrant, equitable and sustainable rural communities with food security for
SOC has delivered on government obligations to the Richtersveld community, with
a R120 million upgrade of the Alexander Bay Township infrastructure (roads,
electrical and water reticulation and waste water treatment) being completed on
31 March 2013 and the towns registration confirmed on 22 November 2013. This
means that the town, which was previously a mining compound, is one of the new
towns in South Africa and part of the Richtersveld Local Municipality. The
value of property in the town that will be transferred to the community is
estimated at R200 million.
jointly-owned mine, which had previously seen its diamond production decrease
substantially due to the land restitution process, has seen an improvement in
carat production from 35 000 carats to over 50 000 carats. This has been on the
back of a newly commissioned R50 million processing plant at Muisvlak near Port
Nolloth, which has created 200 jobs for the community. During the period under
review, the Minister approved the strategy for the SOC to become a diversified
mining company; this will include coal supply in support of the national energy
security imperative. The Department is working closely with the SOC to ensure
success of the strategy and significant projects will be announced in 2014/15.
2012/13, the Department revised the SOC mandate to enable product
diversification and further vertical integration. The SOC will announce the new
corporate strategy within the ambits of the revised role in 2014/15. As at the
end of the financial year, SAFCOL spent R6,591 million on socio-economic
development initiatives. This represents 3.3% of the Net Profit After Tax
(NPAT) - a significant achievement compared to the Shareholder Compact (SHC)
target of 1%. SAFCOL continues to create jobs in communities surrounding its
plantations through the Extended Public Works Programme (EPWP). SAFCOL
completed 11 socio-economic development initiative projects during the 2013/14
of the completed projects are as follows:
Primary School (classroom and ablution block)
Combined School (supplied 20 new computers and installed table tops, ICT
burglar proofing and electrical work)
Disability Centre (retaining walls and burglar proofing)
and Daviddale ECD centres (wash basins and ablution blocks)
Community Hall (new building)
Market Stalls (market stalls and ablution facility)
Primary School (3 ablution blocks)
Guest House (renovations)
Shelter (burglar proofing)
Youth Centre (site establishment has been completed and excavation of trenches
is 90% complete)
Manufacturing Project (industrial machines and tools have been procured)
of revised Strategic Plan and Annual Performance Plans including key changes
from 2013/14 and 2014/15 Plans
The Department has achieved 83% of its planned
targets, which is a 19% improvement from the 2012/13 financial year. The Department
has restored its clean audit opinion which is a reflection of the departments
increased focus on performance information and management of performance
contracts with senior management.
of key developments in the organisational and service delivery environments of
Department for 2012/13 and 2013/14 MTEF cycle
In the 2013/14 financial
year, a number of policies were introduced that had an impact on the
operational environment of some SOCs. The most prominent was the National
Broadband Policy, as known as South Africa Connect. The policy seeks to alter
broadband industry structure in order to drive investment to enhance
connectivity. The policy has a direct impact on Infracos operational
environment as one of the State entities that operate within the ICT sector.
3. Summary of 2013/14 key financial and performance (
of Committee 2013)
Based on the analysis of
the departments budget for the year 2013/14, the following recommendations
Committee recommended that the Minister of Finance should consider:
the necessary resources to ensure the successful implementation of the South
African Airways Long Term Turnaround Strategy;
additional funding to capacitate the Department and address the human resource
constraints that the Department still experience, considering the distinct
shareholder management responsibility of the Department;
a framework for funding SOCs rural development
The Committee recommended
that the Minister of Public Enterprises should:
the annual performance plan of the Department to ensure that the pre-determined
objectives are measurable and quantified;
that there is a direct correlation and alignment between the annual performance
plan and the annual reporting format;
the internal audit function in the Department to ensure an improved record
keeping and compliance with the legislative framework;
introducing relevant systems as well as considering evidential requirements
during the annual strategic planning process in order to ensure that all
predetermined targets are achieved;
oversight over state-owned companies through robust and regular interaction
with CEOs, Board Members, Audit Committees, regular visits to the construction
sites of major infrastructure projects as well as to offices and sites of the
that emphasis is placed on monitoring that the SOCs implementation of
Governments policy objectives is realised, especially their outcomes as they
have an impact on peoples lives;
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;
providing the Committee with shareholder compacts signed with state-owned
companies in order to enhance the oversight role of the Committee;
institutionalisation of the recommendations of the Presidential Review
Committee on SOCs;
that there are improvements in integration, harmonisation and alignment of
planning and implementation across all three spheres of government and
that the guiding frameworks for SOCs are completed timeously and implemented so
as to provide a stable working environment. The Department should ensure that
the SOCs comply with these frameworks.
Overview and assessment of financial performance
The Department spent 92.6
per cent of its budget in the 2013/14 financial year, and received an
unqualified audit report.
Management and Strategic Partnerships
the 2010/11 - 2013/14 period, allocations decreased by 18.3 per cent due to
certain state-owned companies, such as Denel and Broadband Infraco, receiving
This explains the
fluctuations in spending, particularly, within Programme 3: Portfolio
Management and Strategic Partnerships over this period.
The budget decreased by 82.7 per cent from
R1.4 billion in 2012/13 to
million. The Department received an Appropriated Budget of R236.9 million at
the beginning of the 2013/14 financial year, which was adjusted upward with
R57.3 million to an Adjusted budget of R294.1 million. The budget decreased by
R10.7 million or 11.7 percent to R259.8 million in the current financial year,
The Departments budget is
expected to increase by R19.5 million or 7.9 per cent to R279.3 million in the
2015/16 financial yea
the first quarter, April to June 2013, the Department spent R44.8 million or
18.9 per cent of the R236.8 million budget
appropriated for the
2013/14 financial year.
was spent on current payments, Compensation of Employees amounted to R31.1
million while Goods and Services amounted to R13.5 million.
The majority of expenditure took place within
the Administration programme mainly on compensation of employees and goods and
services of R25.9 million.
was followed by expenditure of R12.4 million under the Portfolio Management and
Strategic Partnerships programme and R6.5 million under the Legal and
Governance programme. Expenditure was primarily spent on compensation and goods
The Department spent R44.8
million by the end of the first quarter while scheduled drawings amounted to
R57.8 million, underspending by R13.1 million for the quarter.
This was mainly due to vacant posts and
committed projects no being finalised. The shortfall was expected to be
resolved during the Adjusted Budget as the Department projected to revise their
above indicates poor planning of drawings from the revenue fund as after the
first three months the Department already projected to revise its drawings.
the end of the second quarter, April to September 2013, the Department spent
R85.2 million or 29 per cent of the Adjusted Budget of R294.1 million. The original budget of R236.9 million was adjusted upward by 57.3 million to an Adjusted budget of R294.1 million. Transfers and subsidies account for R57.4 million of the budget, of which R0.1 million was transferred to households. Thus the available budget of the Department was R236.7 million for operations. The Department spent R85.1 million or 35.9 per cent on operations, the majority of which was on Compensation of Employees and Goods and Services. R52 million was spent under Administration programme mainly on Compensation of Employees and Goods and Services. Portfolio Management and Strategic Partnerships programme spent R23.4 million and Legal and Governance programme spent R9.7 million. Both programmes primarily spent on Compensation of Employees and Goods and Services. The Department spent R85.2 million at the end of the second quarter, while scheduled drawings was
R117 million, an expenditure shortfall of R31.8 million. This was mainly due to projects in Portfolio Management and Strategic Partnerships that was scheduled for the second half of the year. Payments were anticipated to be made from October onwards.
Transfer and Subsidies of R57.3 million, the Department has an available
operational budget of R236.7 million of which R142.4 million or 60.2 per cent
was spent by the end of the third quarter of 2013/14, the majority being spent
on compensation of employees and goods and services.
The Administration programme has spent 65.5
per cent by the third quarter of the 2013/14 financial year, mostly for
compensation of employees and goods and services.
Actual expenditure to the end of December
2013 for Legal and Governance amounted to R16.4 million of the available budget
R22.3 million or 73.6 per cent of the budget has been spent. Expenditure in this programme increased by R0.8 million or 5.4 per cent, year-on-year. The increase is primarily due to additional spending on compensation of employees and inflation related increases. The Portfolio Management and Strategic Partnerships programme received R140.8 million and had spent 69.3 per cent by the end of December 2013. This was mainly driven by the transfer of R57.3 million for the indemnity claim against Denel Aerostructures. By the end of the third quarter, actual expenditure was R 199.9 million compared to scheduled drawings of R231.6 million, under spending by R31.7 million to projected drawings. This was mainly due to vacant posts, and also invoices not received from suppliers although funds have been committed.
expenditure at the end of the fourth quarter of 2013/14 amounted to
R272.5 million or 92.6 per cent of the Adjusted Appropriated Budget of R294.1 million. Transfers and subsidies account for R57.5 million of the available budget, of which R57.6 million or 100.3 per cent was spent, mainly on public corporations and private enterprises due to the R57.3 million transferred to Denel Aerostructures. Of the operational budget of R236.7 million, the Department spent R214.8 million or 90.7 per cent, mainly on compensation of employees and goods and services. The Administration programme spent the largest at R132.9 million mainly on compensation of employees and goods and services. The next largest was under the Portfolio Management and Strategic Partnerships programme of R58.7 million, followed by R23.1 million under the Legal and Governance programme primarily for compensation of employees and goods and services.
Department spent R272.5 million to the end of the 2013/14 financial year, while
a budget of R294.1 million was available, under spending by R21.7 million.
The variance was mainly due to under spending
on Compensation of Employees as a result of slow filling of posts due to
scarcity of specialist skills in the market.
Under-spending on Goods and Services was a result of delays in some
projects such as National Corridor Performance Measurement (NCPM) project, the
telecoms benchmarking study, harmonising procurement policy and planning
frameworks in Eskom and Transnet, the review of the Rooivalk Programme and
Denels Strategic Equity Partnership Study.
original budget of R236.9 million was adjusted upward by 57.3 million to an
Adjusted budget of R294.1 million.
additional R57.3 million was allocated to Denel for the eighth indemnity claim
by Denel Aerostructures under the 2007 indemnity agreement with government for
the A400M contract. Total virements between programmes and shifts within
programmes amounted to R5.2 million during the Adjusted budget process.
the Adjustment Budget the Department effected shifts and virements amounting to
Programme 1 shifted funds
from Compensation of Employees and Goods and Services amounting to
R246 000 to Transfers to Households and Compensation of Employees.
Programme 2 shifted funds from Compensation
of Employees and Goods and Services amounting to R1.7 million to Programme 1
for Compensation of Employees and Programme 2 for Compensation of
Programme 3 shifted funds
from Compensation of employees and Goods and Services amounting to R3.2 million
to Programme 1 and Programme 3 for Compensation of employees.
the Adjustment Budget, the Department made the following virements:
amount of R600 000 was viremented for Compensation of Employees from
Programme 3 to Programme 1 for the following purpose
to Communications sub-programme;
to Ministry sub-programme; and
to Human Resources.
amount of R3.070 million was viremented for Goods and Services and Capital
Expenditure from Programme 3 to Programme 1 for the following purposes:
million to the Chief Financial Officer for audit fees and travel administration
to Strategic Planning, Monitoring and Evaluation for project funding; and
for IT for software and computer equipment (CAPEX).
amount of R1.1 million was viremented for Goods and Services from Programme 1
to Programme 2 for projects. A total of R4.8 million was shifted between
programmes at the end of the 2013/14 financial year.
. Final total and
2: Legal and Governance
3: Portfolio Management and Strategic Partnerships
Department had an available budget of R294.1 million for the 2013/14 financial
expenditure amounting to R272.5 million or 92.6 per cent, and under-spending
amounting to R21.7 million.
under-spending of R21.7 million is mainly made up of current expenditure in the
had an available budget
of R134.7 million, with actual expenditure amounting to R133.2 million or 98.9
per cent of the budget, under-spending by R1.5 million.
had an available budget
of R23.4 million, with actual expenditure amounting to R23.2 million or 98.8
per cent of the budget, under-spending by R279 000.
had an available budget
of R136.0 million, with actual expenditure amounting to R116.0 or 85.3 per
cent, under-spending by R20.0 million.
Under-spending in this programme is attributed to delays in the
implementation of some major projects, as stated above.
Department received an unqualified audit report for the 2013/14 financial year,
with no additional finding.
further additional matters were identified by the Auditor-General.
the 2013/14 financial year the Department incurred fruitless expenditure
amounting to R530 000 due to hosting conferences surrounding the BRICS
summit, which had to be cancelled at short notice, which was out of the control
of the Department. The Department incurred irregular expenditure amounting to
R711 000. The official was dismissed that was found guilty of
Financial Performance of Entities
Departments 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).
performance of SOCs has been varied in the period under review.
It is also important to note that the
economic environment under which SOCs operate has been negative.
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.
For the 2013/14 financial year, Alexkor
received an unqualified audit with findings on predetermined objectives and
compliance, unimproved from the 2012/13 financial year.
The challenges at Denel
Aerostructures that led to a negative impact on the overall financial position
of the Group are being contained. For the 2013/14 financial year, the Group
posted a profit of R194 million, an increase of R123 million on the profit
posted in 2012/13, an indication that Denels turnaround strategy is continuing
to yield the desired results.
Broadband received an
unqualified audit opinion for the 2013/14 financial year, with no change on the
previous audit findings.
SAFCOL reported a profit of
R511 million in 2013/14, compared to a profit of R74 million in the 2012/13
This is an indication of
the efforts of the company to implement the turnaround strategy are being
Eskom realised a group net
profit of R7.1 billion for 2013/14, an increase on the R5.2 billion in the
2012/13 financial year.
a regulatory clearing account application to the Energy Regulator who has
allowed Eskom to recover some costs associated with the MYPD 2 determination,
necessitating an increase of tariffs of 12.69 per cent in the new financial
These costs were associated with
the tight supply of electricity and the delays in the new build programme,
which sees Eskom building three new power stations.
Although Eskom received a clean audit
opinion, it will have to manage a weak credit rating, tight supply of
electricity and completion of the build programme within the coming year.
Cabinet also approved a package of support a
strong and sustainable Eskom in order to ensure energy security.
The package will include, amongst others, an
equity injection, debt, and independent power producers.
Transnet improved on their
profit of R4.1 billion in 2012/13 by R1 billion to a profit of
R5.2 billion in the 2013/14 financial year. This is impressive given that it was the second year in which the Market Demand Strategy was rolled out. Transnet will focus on implementing the R312 billion Market Demand Strategy in the coming years.
The Department, SAX and SAA
are in negotiations with the National Treasury on funding the recapitalisation
of the airline as required by the turnaround strategy.
The entities have not tabled their annual
Although the Department
received an unqualified audit report, the Auditor-General raised the following
matter in the 2013/14 audit opinion:
figures for the 2012/13 financial year disclosure note have been restated
as a result of an error discovered during 2013/2014 in the financial
statements of the Department of Public Enterprises for the year ended 31
No other issues were raised
in the Departments audit opinion.
With regards to the
entitys the Auditor-General found an improvement in the audits of the
SAFCOL moved from a qualified
audit to and unqualified audit with findings, while DPE and Eskom improved to
an unqualified audit with no findings.
Denel remained unchanged with an unqualified audit with no findings,
while Alexkor and Transnet remained unchanged with unqualified audits with
The Department needs to ensure
that Alexkor and Transnet implement the AGs recommendations to ensure
improvement in the audits for the 2014/15 financial year.
Department of Public Enterprises financial performance for
The Department has an
available budget of R259.7 million for the 2014/15 financial year, of which
R48.7 million or 18.8 per cent of the budget has been spent by the first
quarter of the 2014/15 financial year.
Transfers and Subsidies
account for R0.1 million of the budget of which the Department has transferred
R0.1 million, mainly to households.
means the Department has an operational budget of R259.7 million, of which
R48.6 million or 18.7 per cent was spent, mainly on Compensation of Employees.
The operational budget was
mostly spent under the Programme 1, which spent R29.2 million mainly on
Compensation of Employees and Goods and Services.
The second largest element was under
Programme 3 amounting to R14.6 million, with Programme 2 spending only R4.9
million, primarily on Compensation of Employees.
The Department has spent R47.8
million compared to the scheduled drawings of
R61.6 million originally planned, leaving a lag of R13.8 million at the end of the first quarter. The delay is mainly due to delays in projects and the change in the administration post elections when a new Executive Authority was appointed in the Department. The lag is expected to be resolved as the Department is monitoring and interrogating the situation on a monthly bases . The lag is expected to be resolved in the Adjustments Estimates.
The lag in expenditure is a
common occurrence for the Department, as the lag in actual expenditure from
planned expenditure also occurred in the 2013/14 financial year.
Being an oversight
department, the major cost driver is Compensation of Employees. Most
under-spending has been within Compensation of Employees due to high staff
turnover in senior management positions, which the Department has not been able
The Department states the lack
of specialist skills for the lack of filling vacant posts.
Given this trend, the Department should be
weary of shifting more funds to Compensation of Employees when the majority of
under-spending takes place here.
The Department has not made
any additional requests for funding over the coming 2015/16 Medium Term
Expenditure Framework period.
equity may be given to Eskom, which will be transferred from DPE to the
This may have an impact on the
DPEs budget over the MTEF period.
The Department proposes to
re-prioritise funds from Programmes 2 and 3 to Programme 1 to accommodate
of funds is given below:
Thus Programme 1
Compensation of Employees increases by R2 million and Goods and services
increases by R109 000.
The Department has
requested rollovers from the 2013/14 Goods and Services budget from National
Treasury for nine projects/contracts amounting to R5.02 million in order for
them to be completed in the new financial year.
MTEF financial allocations for 2014/15
Current Estimates for the 2014/15 Rmillion
Programme 2: Legal and
Programme 3: Portfolio
Management and Strategic Relationships
As seen above in table 3,
the projected allocation for the 2014/15 financial year amounts to R259.8
million, an R22.9 million or 9.7 per cent increase.
Programme 3: Portfolio Management and
Strategic Relationships sees the biggest increase of 14.7 per cent from R85.9
million in 2013/14 to R98.5 million in 2014/15. Programme 1: Administration and
Programme 2: Legal and Governance increases by 6.4 per cent and 9.7 per cent
This allocation is subject
to confirmation and approval by the Minister of Finance during the National
Budget in 2014.
Concluding comments on financial performance
There has been a
significant decrease in the Departments budget from R346.1 million in 2011/12
to R259.8 million in 2014/15.
mainly due to the decrease in the transfers to SOCs.
Over the medium term, expenditure is expected
to increase from R259.8 million in 2014/15 to R302.1 million in 2017/18, based on
projected inflationary increases.
In the previous 4 financial
years the Department was able to spend more than 97 per cent of the available
budget. However, in the 2013/14 year, the Department only spent 92.6 per cent
of its budget, due to the failure to fill critical posts and the delay in the
completion of some projects.
OVERVIEW and assessment of service delivery
Service delivery performance for 201
The Department of Public
Enterprises is not a direct service delivery department, but provides a
distinct mandate of shareholder on behalf of the state. The Medium Term
Strategic Framework identifies ten (10) priorities of government. In order to
achieve these 10 priorities of government, twelve (12) areas of impact/outcomes
have been identified by the Presidencys Department of Performance Monitoring
and Evaluation (DPME). The Department of Public Enterprises is responsible for
Outcome 6 in line with the delivery agreement signed between the Minister and
the President. The outcome relates to the following:
reliable generation, distribution and transmission of electricity;
and strategic expansion of road and rail network and operational
efficiency, capacity and competitiveness of sea ports;
access to information and communication technologies;
employment through inclusive growth.
The department indirectly
contributed to outcomes on:
employment through inclusive growth, and
These outcomes contribute
to targets based on economic growth, employment creation, infrastructure
development, and rural development. This is how the department has contributed
in terms service delivery:
SOC skills development monitoring
Collaboration was enhanced
with DHET, EDD, DTI and SOCs to ensure alignment of SOC interventions to the
national skills agenda. In addition, an MOU was concluded between DPE and DHET
to formalise collaboration between the two departments in order to optimise SOC
training facilities. This is coordinated through the DPE/DHET-led SOC Skills
Development Steering Committee, which is co-chaired by the Department and DHET.
Collaboration between the
two departments resulted in DPE assisting Transnet to secure R175 million in
funding from the NSF for optimisation of Transnet Engineering training
facilities to train an additional 1000 artisan learners in various trades over
a period of 3 years. This project was launched by Minister at the Saltriver
facility in the Western Cape on 31 of October 2013. During the launch, Transnet
signed partnership agreements with three (3) FET colleges in the province, as
part of its efforts in strengthening Further Education and Training (FET)
college support. The Department successfully negotiated with the NSF to earmark
a pool of funding for optimisation of training facilities of Denel, SAA and
Eskom. In addition, a Funding Proposal was developed and submitted to Energy
and Water Sector Education and Training Authority (EWSETA) to source funding
for the Eskom Law Graduate Employment Scheme project.
Corporate Social Investment (CSI)
DPE-SOC: The CSI Forum,
chaired by Deputy Minister, was established to coordinate SOC CSI initiatives.
The CSI Forum & Working Group held a workshop and approved SOC CSI
Flagships Project and a roll-out plan in the area of Education & Health,
including Enterprise Development/Socio-Economic Development. Through
collaboration with the University of Stellenbosch and provinces, the Telematics
satellite-based system (a subject improvement learner/teacher based support
system) was rolled out at rural schools. The first Telematics sponsored by
Broadband Infraco was installed and launched by Minister Gigaba, Premier and
MEC of Education in Limpopo Province at Seshego Secondary School. Deputy
Minister of Public Enterprises Magwanishe and Deputy Minister of Communications
Stella Ndabeni launched the installation in Eastern Cape Province. A computer
lab was also donated by TATA Africa (Pty) Ltd. Denel sponsored 4 boreholes at
Jikindaba Secondary School in Ingquza Hill Municipality to assist villagers to
access water. Telematics installed and launched by Dep. Minister in Eastern
Cape Province donated by Eskom Foundation, with mobile science-kits to St
Johns College at Umtata.
The CSI Summit was held in
partnership with the University
Fort Hare, at their
main campus in Alice, as part of the programme of support for the institutions
project for its centenary in 2016.
Enterprise and Supplier
Development (ESD) Workshop was held with all SOC Procurement Units in
partnership with EDD and NYDA on the Youth Employment Accord to discuss the
current enterprise development initiatives to support designated groups,
including the proposed flagship projects i.e. Youth Cooperatives and
Sector-specific Incubation Hubs.
Partnerships with SOCs and other key stakeholders
The first DPE-SOC Youth
Camp was held and 100 learners doing Maths & Science at mainly rural
schools in the Free State province participated. In addition, five Youth Career
and Information Expos were hosted, in collaboration with SOCs and more than 10
000 Grade 10-12 Maths and Science learners were in attendance. Further, more
than 2000 maths pocket dictionaries were also donated to various school
libraries to support learners doing Mathematics. Female engineers, artisans and
technicians from SOC conducted motivation talks during the various visits to
promote Maths, Science and Engineering studies.
The past year has seen
progress in the roll-out of the CSDP. A major achievement has been the
conclusion of a R50 billion Transnet locomotive fleet procurement contract,
which was announced on 17 March 2014. This will add a further R68 billion of
localisation benefits to the South African economy. A DPE-SOC Industrialisation
and Localisation Forum was established with the purpose of; sharing best
practices in strategic sourcing; supplier development and localisation across
SOCs in the Departments portfolio as well as to spearhead good governance and
facilitate collaboration and provide thought leadership to advance the CSDP.
The Department also
championed and supported the establishment of the Industrialisation Supplier
Development Association (ISDA), which will provide the Shareholder with direct
feedback regarding the effectiveness of SOCs supplier development programmes,
as well as provide ideas about how the impact of these programmes can be
A study was completed into
the adequacy and competitiveness of service provision to the automotive
industry by Transnet and Eskom. The results of the study were presented to the
Minister, Transnet and the National Association of Automotive Manufacturers of
South Africa (NAAMSA); a Task Team was established; and a high level work
programme has been developed for implementation in the new financial year.
The Africa Strategy was
developed to provide an over-arching framework that will guide SOC investment
into the region. The strategy was launched in March 2014 and it is seen as the
market entry strategy that SOCs can align themselves to while developing their
own Africa Strategies. The strategy further aims to provide assistance to SOCs
regarding market assessment and the execution of their own African strategic
Facilitation of the
innovative funding solution was implemented via signing MOUs with Development
Bank of Southern Africa (DBSA). The purpose of the MOU between DSBA and DPE is
to support the origination, feasibility, preparation and funding of major
projects and specifically those managed by SOCs under the portfolio of DPE. The
memorandum was approved in the first quarter of the financial year 2013/2014,
although it was targeted for the third quarter. Consultation was initiated
within DPE prior to the signing. Continuous meetings with DBSA formed part of
the implementation process.
Some of the fruitful
results of this MOU include the signing of agreement by the European Union and
South African government through the Development Bank of South Africa on
Infrastructure Investment Programme for South Africa (IIPSA) amounting to 100
million. The aim of this programme is to deal with the lack of infrastructure
development that the Southern African Development Communities (SADC) region is
experiencing. IIPSA will support the development of both national and regional
infrastructure projects. The key principle underlying this funding agreement
includes financial leverage and procurement.
During the year under
review, the unit managed to achieve its target pertaining to the establishment
of the Project Management Office (PMO), which will be implemented in the new
financial year. The PMO aims to provide project management support services on
state integrated projects. Furthermore, it aims to standardise reporting by
SOCs, particularly at Eskom and Transnet. The function of the PMO is to ensure
a common approach and consistency of information when the costs, timelines,
project definitions and project information is updated, aligned and transferred
to a common project management platform. Business plans for Strategic
Integrated Projects (SIPs) were approved on 27 November 2013. The team was
instrumental in: de-risking the Junior Miners Fund; optimizing the Mokolo
Pipeline 2 projects; lowering the water tariff by more than 10%; and saving R9
billion on investment during the third phase of this project.
Annual Performance Plan: Total number of targets for 201
and total number achieved
(First Quarter Assessment 2014)
In line with performance
information by Programme the Department in its APP in the Administration
programme, the Department did not deviate in all achieving planned targets with
deviation in only one relating to procurement processes of an irregular
expenditure of R711 000. The legal and governance did not deviate on all
planned targets with only not meeting targets set for the review on Eskom BHP
special pricing agreement and position paper on Eskom and Transnet copper theft
challenges. Energy and Broadband achieved all targets with only one target in
industry benchmarks for Eskom and Broadband Infraco not met. Manufacturing
Enterprises met most of its targets with the exception of negotiation and
approval of SAFCOLs shareholder compact and definition of SAFCOLs role as a
state-owned forestry company. The transport enterprises programme met most of
its targets with the exception of a target on multiple branch lines approval
of PFMA application, assessment of logistics costs in the economy and increased
operational efficiency of strategic freight corridors.
Economic impact and policy alignment
programme did not achieve target set on transformation framework. The sub
programme on strategic partnerships failed to business plans and service
improvement plans, and also couldnt come up with Private Sector Participation
Framework as planned.
Performance per Programme
Programme 1: Administration:
over-arching management and key supporting functions and processes in order for
the Department to achieve its strategic objectives. The programme consists of
Ministry, Management (Office of the Director-General and the Deputy Director
General Corporate Management), Corporate Services (Information Management and
Technology and Security and Facilities Management), Human Resources,
Communications, Office of the Chief Financial Officer, Inter-governmental and
International Relations, Strategic Planning, Monitoring and Evaluation,
Internal Audit and Office Accommodation.
Expenditure in this
programme amounted to R133.294 million in 2013/14, compared to R115.367 million
in 2012/13. This increase was mainly due to inter alia, the fully functional
Inter-Governmental Relations, sub-programme that was established in 2012/13,
the appointment of the DDG: Corporate Management in the Management
sub-programme, a number of large projects undertaken by Human Resources, audit
fees, office accommodation, further alterations to office premises, furniture
and equipment to accommodate staff complement and travel costs for provincial
Programme 2: Legal and Governance:
systems that align state owned companies with corporate governance best
practice and Governments strategic intent. Expenditure in the programme
amounted to R23.159 million in 2013/14, compare to R23.477 million in 2012/13.
There was no substantive change to expenditure on this programme during the
period under review.
Programme 3: Portfolio Management and
: This programme consists of 5 sub-programmes and
overall expenditure for the programme was as follows: Expenditure in this
programme to R116.015 in 2013/14 compared to R1.228 billion in 2012/13. The
decrease was mainly due to payment for financial assets disbursed to Alexkor
and Denel, amounting to R1.050 billion, as well as an amount of R118.313
million paid in respect of an indemnity claim for Denel/SAAB Aerostructures in
2013/14 for payment of the eighth indemnity claim. Underspending on this
programme is attributed to delays in the implementation of some projects, as
reflected in overall expenditure of the Department above.
A breakdown of expenditure
per sub-programme is provided below.
Sub-Programme: Energy and Broadband
aligns the corporate strategies and performance of Eskom, Pebble Bed
Modular Reactor (PBMR) and Broadband Infraco with Governments strategic intent
and performance targets.
Expenditure in this
programme amounted to R15.990 million in 2013/14, compared to R13.944 million
in 2012/13. The increase in expenditure in this sub-programme was mainly due to
the unit being fully resourced. However, two planned projects were not
finalised, due to the Terms of Reference being revised subsequent to a review
of the business requirements of the SOC, which resulted in the under-spending
in this unit. The projects will be rolled out in the 2014/15 financial year.
Sub-Programme: Manufacturing Enterprises:
corporate strategies and Government strategic intent and performance targets.
It develops proposals for SOCs role in the advance manufacturing.
Expenditure in the sub-programme amounted to R68.097 million in 2013/14, compared to R1.178 billion in 2012/13. The decrease in expenditure in this sub-programme amounted to R68.097 million in 2013/14, compared to R1.178 billion in 2012/13. The decrease in this sub-programme was mainly due to payment for financial assets disbursed to Alexkor and Denel amounting to R1.050 billion, as well as an amount of R118.313 million paid to Denel in 2012/13 in respect of an indemnity claim due to Denel/SAAB Aerostructures. An amount of R57.250 million was disbursed to Denel in December 2013 in respect of the eighth indemnity claim. Under-spending in this sub-programme was a result of delays in the commissioning of a number of projects such as the Review of the Rooivalk Programme and Denels Strategic Equity Partnership Study, which only commenced late in the year and which was finalised in 2014/15.
Sub-Programme: Transport Enterprises:
corporate strategies and performance of South African Airways (SAA), South
African Express (SAX) and Transnet with Governments strategic intent and
performance targets. Expenditure in the sub-programme amounted to R20.030
million in 2012/13. The decrease in expenditure in this sub-programme was due
to a delay in a number of planned projects, such as the NCPM and a review of
logistics costs in the economy, which were postponed until the next financial
year. The NCPM project required alignment to Transnets Corridor Framework.
Sub-Programme: Economic Impact and Policy Alignment:
oversight of SOC in relation to overaching government economic, social and
environmental policies; and implements strategic interventions in order to
contribute towards the achievement of national objectives in support of
economic growth and transformation. Expenditure in the sub-programme amounted
to R9.686 million in 2013/14, compared to R9.990 million in 2013/14, compared
to R9.990 million in 2013/14. There was no substantial difference in
expenditure in this unit: the under-spending was mainly due to delays in the
commission of some projects that had a total allocated budget of R5 million.
Sub-Programme: Strategic Partnerships:
establishes and builds
focused strategic partnerships between SOCs, strategic customers, suppliers and
Expenditure in the
sub-programme amounted to R7.256 million in 2013/14, compared to R5.973 million
in 2012/13. The increase in expenditure in this sub-programme is attributed to
expansion in the human resources as additional projects being undertaken by the
project. Under-spending in the sub-programme is attributed to project that were
planned to be outsourced, but were implemented internally. The project on
harmonising procurement policies and the planning framework at Eskom and
Transnet (to enable collaboration and to optimise the supplier development and
transformation initiative) was postponed.
In the 2013/14 financial year, the Programme focused on improving
processes and systems to facilitate effective planning and performance
monitoring within the organisation. During the year under review, the
Organisational Monitoring and Evaluation Policy
developed to enhance organisational performance and align it to individual
performance. Furthermore, the Department successfully completed its planning
cycle, which defined its new strategic objectives as per the NDP.
The programmes capacity was enhanced by the appointment of a Deputy Director-General,
Corporate Management to provide strategic direction within the programme and
improve systems in order to enhance organisational performance. The
capacitation of this office strengthened the Office of the Director-General
considerably and contributed to faster turn-around times in terms of the Departments
internal processes. The filling of new posts emanating from the new structures
approved in the 2012/13 financial year gained momentum in the period under
review. The Department significantly reduced its vacancy rate from above 10% in
2012/13 to its current level of below 2%. Strengthening of the executive
management team was achieved by filling all vacant Deputy Director-General
positions. This reduction can be attributed to an aggressive recruitment drive
that was implemented during the 2012/13 and 2013/14 financial years and which
was supported by the introduction of the use it or lose it policy in terms of
filling vacancies. This policy requires that a vacant position is filled within
three months by a unit or the post is transferred to a unit where a need for
additional capacity exists.
The Department initiated a project to identify its strategic
capabilities and skills gaps relating to its ability to deliver on the set
objectives. This project will be anchored by a Talent Management Programme
aimed at identifying core and critical skills needed by the Department to
deliver on its strategic objectives. These processes will ensure that high
performers in critical positions are retained, in line with the developed
Attraction and Retention Policy. SMS members contract positions in the
Department were converted to permanent positions to support the attraction and
retention of talent
The Programme continued to manage the Departments image and
against reputational risks that arose during the
financial year under review. The Programme heightened its efforts to position
the DPE as an activist shareholder with a positive brand profile through
targeted media events. The Programme maintained consistent visibility in the
different media and this broadened the distribution of messages from the
Department to all corners of the country.
The use of different media platforms, especially new media and social
media, became a regular feature. The Departments global interface website,
was re-launched with updated information and accessible navigation
features. Stakeholder management was boosted with the successful revival of the
SOC Communicators Forum and through this structure regular events were held
throughout the country. Internal communication programmes also became a regular
feature of the Departments activities, with its schedule of events involving
staff including the launch of the Learning Forum, to which external experts are
invited to discuss topics, including the NDP.
The Department hosted a BRICS senior officials meeting in Pretoria,
which was chaired by the Director-General. This meeting emanated from the BRICS
summit held earlier in Durban, at which member countries agreed to enjoin BRICS
Ministers responsible for shareholder oversight over SOCs to explore ways of
cooperation and the exchange of information and best practices. A Joint
Declaration was agreed on and it will be considered by the BRICS Ministers in
the 2014/15 financial year. Another milestone was the MoU signed between the
Department and the State-Owned Assets Supervision and Administration Commission
of the State Council of China, the scope being to enhance information sharing
efforts regarding shareholder management practices and other matters of mutual
The Department has continued to strengthen its inter-governmental
programme through its provincial engagement programme. Meetings were held with
seven Provincial Governments, i.e.: Gauteng, Northern Cape, Eastern Cape, North
West Free State, KwaZulu-Natal and Limpopo. These engagement sessions were held
to establish task teams, led by the Deputy Minister and relevant MECs, which
are to: enhance alignment between the investment plans of SOCs and the
Provincial Growth and Development Strategies; enhance the quality and scale of
relationships between SOCs and provincial stakeholders.
The Internal Audit unit completed all planned audits as per the approved
Annual Operational Plan. Audit reports were issued to management, with
comprehensive recommendations provided to address identified internal control
weaknesses. The Internal Audit unit communicated results for the completed
audits to the Audit Committee and the Departments Executive. This was targeted
to strengthen internal controls.
Vetting of staff has been strengthened and currently 90% of all staff
(new and old) have completed and submitted their security vetting forms to the
State Security Agency for vetting. All candidates shortlisted for interviews
were subjected to pre-employment screening. Information security audits were
conducted by all the units in the Department. The establishment of the ICT
Steering Committee has made the Department compliant with the ICT Corporate
Governance environment. ICT was also successfully transformed from an outsourced
function to a fully in-sourced function.
(ii) Legal & Governance
As part of the shareholders oversight responsibilities, the Programme
continued to engage with SOC boards through statutory meetings, such as the
Annual General Meetings (AGM), and on a needs basis when key issues arose. Due
to operational and financial difficulties experienced by several SOCs during
the year under review, these engagements were more frequent. The programme
continued to assist the Department (and Government) to exercise its shareholder
influence by ensuring the appropriate appointment of suitably skilled and
competent individuals to SOC boards.
The unit held an induction for SOC boards to apprise directors of the
Governments strategic intent for their SOC, their duties and responsibility as
board members and the need for boards to subject themselves to a
To date, the Department has successfully reviewed and aligned SOCs
constitutional documents to clarify SOC mandates, codify shareholder expectations
through the logical framework and ensure clear delineation of roles between the
Minister (as the shareholder representative) and SOC Boards. Other important
tools that have been developed include: the board appointment process; and
Remuneration and Incentive Standards for Executive Directors, prescribed
Officers and Non-Executive Directors of SOCs.
The new Remuneration Standards were submitted to the Minister and tabled
in Cabinet on two occasions. Based on the Ministers recommendation, the final
submission to Cabinet is expected during the term of the new administration.
Notwithstanding, the unit is in the process of consulting with SOCs on the
implementation of the Standards.
In addition to the above, some of the notable achievements of the Programme
include the following:
1. Successful settlement of the R2 billion legal claim instituted by
Londoloza/Paharpur against the Department and SAFCOL.
2. The appointment of a liquidator to administer and manage the
liquidation of Aventura.
3. Drafting the Transformation Guidelines for the transformation of the
SOC legal environment.
4. Successful negotiations to facilitate Eskoms exit from an onerous
contract in Senegal.
(iii) Portfolio Management
and Strategic Partnerships
Despite reduced sales, due to lower economic growth than expected, Eskom
still remains financially stable, with a projected profitability of R6 billion
at financial year end 2013/14. The Department continues to support Eskom in
maintaining business sustainability by: supporting Eskoms application for
electricity price increases; analysing and supporting measures to close gaps
that have arisen due the differences in Eskoms application and what the
Regulator ultimately approved.
Eskom continues to increase its investment in capital expenditure
projects, with R251 billion to be spent over the next 5 years to complete the
current committed build programme, amongst other things. During the period
under review, Eskom added a total of 120 MW through completion of: the Return to
Service programme; 694 km of new transmission lines; and 790 MVA of sub-station
capacity. Eskom plans to deliver an additional 11 126MW of generating capacity
into the system, which will go a long way to addressing the current constraints
in the power system. The DPE and Eskom have engaged different stakeholders in
an attempt to find mitigation strategies to ensure the projects are on
Following the PFMA approvals by the Department, Eskom signed a total of
2 557 MW of IPPs, including the DOE Open Cycle Gas Turbine power purchase
agreement on 31 March 2014, in support of Governments Renewable Energy
Programme. About 300MW were already operational by the end of March 2014. DPE
remains supportive of Eskoms mandate to deliver on the electricity supply
requirements of the country and ensuring stability of the electricity
supply-demand balance. The Department has continuously engaged Eskom to ensure
improvement in the execution of current maintenance plans, operational
practices, electricity generation, transmission and distribution efficiency and
maintenance of an adequate reserve margin. The Department continues to push
Eskom, through the Shareholder Compact, to improve its demand savings
programmes and its contribution to economic transformation, in particular
procurement and critical skills development (amongst others). More than 3.4
GigaWatts in demand savings have been achieved through the demand side
management programme, since its introduction in 2008/9.
The Department launched the Emerging Miners Strategy, which seeks to
promote participation and increase black ownership in the coal mining sector.
The Strategy, which is premised on five pillars, seeks to assist with the
challenge of capacity to
funding to develop
mines at the early exploration stage mainly; use coal trading as an option to
secure coal resources and enhance transformation and increase black ownership
as a means to transform the industry amongst other things.
With regard to critical skills development, Eskom continues to maintain
a healthy pipeline of learners (about 10000 annually), comprising engineering,
technical, artisans and other learners in the youth programmes that provide
critical work experience to unemployed youth. Furthermore, as part of the Eskom
Professional Welders Development Programme (EPWDP), the company has
successfully opened the Eskom Welding School of Excellence, which will
contribute to the development of technical skills in the long run.
(b) BROADBAND INFRACO
Broadband Infraco plays a critical role of providing backhaul
connectivity for national long distance and international connectivity and
providing broadband services to under-serviced areas. Over the years, the
company has been operating in an environment dogged by policy uncertainty due
to the lack of a coherent national broadband policy. This uncertainty and other
factors, such as the lack of an electronic communications service (ECS) and
reliance on a single customer (Neotel), have impacted negatively on the
companys sustainability. This has prompted the Department to be very active in
raising the policy issues faced by Infraco with the Department of
Communications (DoC) and also in assisting the company to diversify its revenue
stream in order to improve sustainability.
The Department contributed substantially to the development of the
Broadband Policy, with a focus on ensuring an efficient way of rolling out
broadband and realizing the true potential of SOCs, in particular Broadband
Infraco. In December 2013, Cabinet approved the National Broadband Policy,
which included the inputs from the Department, thereby giving a clear role to
Broadband Infraco in the South African broadband sector.
The Department has been working closely with Infraco to assist the
company to diversify its customer base, improve its revenues and reduce
operational costs by improving maintenance of the national long distance
Broadband Infraco invested in the international undersea cable Western
Africa Cable System - which was launched in 2012 and will contribute to the
increased capacity of linking South Africa and Europe and increase the states
ability to provide broadband infrastructure to national projects, such as SKA.
In this regard, the Department assisted the company to conclude the sale of
WACS capacity to the Department of Science and Technology to the value of R600
million. Broadband connectivity with SADC countries has also increased through
the completion of the cross border Points of Presence (PoPs) connections that
link South Africa to Zimbabwe, Botswana, Lesotho, Swaziland, Namibia and
The Department consulted other government departments on the various
possible options to preserve PBMRs assets going forward. This is due to the
fact that a number of PBMR assets present possible research related
opportunities and broader consultation on the possibility of donating these
assets to universities is currently being facilitated. A Cabinet briefing was
prepared on progress regarding the PBMR project and a recommendation was also
made on what to do with the project going forward. This will require that it be
presented to one of the first Cabinet meetings of the new administration.
The SOC was returned to profitability in 2012/13, with a R70 million net
profit, and it is expected to improve on this performance in 2013/14. This was
on the back of a turnaround plan approved by Government in 2011/12, which
required a R700 million cash injection and R1.8 billion in government
guarantees. Denel has been granted the highest possible credit rating by Fitch
Credit Rating Agency. This was largely as a result of improved financial
performance, as well as visible support by the shareholder.
The business reported a R21 billion order book in June 2013 and showed a
50% improvement to R30 billion by December 2013. This will enable the business
to meet its plan of doubling revenues to R8 billion by 2018/19. One significant
order secured by the SOC in the 2013/14 financial year was a R10 billion
contract by the South African Department of Defence to produce 238 Hoefyster
infantry fighting vehicles (IFV) for the South African Army. The programme is
critical in maintaining the countrys advanced manufacturing capabilities in
the defence sector. In order to support the industrialisation programme of
government, 70% of components for the vehicle will be sourced locally, which
will support the creation of 2 000 jobs at Denel as well as the South African
defence related industry.
In 2013/14 Denel revived its space and satellite capabilities, after entering
into a collaborative relationship with the South African National Space Agency
(SANSA). This will not only ensure that the countrys space and satellite
capabilities are enhanced, but will provide local industry with the opportunity
to tap into the growing and strategic global space and satellite industry. The
SOC has delivered and supported the deployment of the Rooivalk combat support
helicopter in combat operations in the DRC. Deployments were under MONUSCO and
they have proven to be a game changer in peace enforcement operations.
The SOC has delivered on government obligations to the Richtersveld
Community, with a R120 million upgrade of the Alexander Bay Township
infrastructure (roads, electrical and water reticulation, and waste water
treatment) being completed in 31 March 2013 and the towns registration
confirmed by 22 November 2013. This means that the town, which was previously a
mining compound, is one of the new towns in South Africa and part of the
Richtersveld Local Municipality. The value of property in the town that will be
transferred to the community is estimated at R200 million. The mine owned
jointly with the Richtersveld Community, which had previously seen diamond
production decrease substantially due to the land restitution process, has seen
an improvement in carat production from 35 000 carats to over 50 000 carats.
This has been on the back of a newly commissioned R50 million processing plant
at Muisvlak near Port Nolloth, which has created 200 jobs for the community.
In the 2013/14 financial year, the Minister approved the strategy for
the SOC to become a diversified mining company to include coal supply in
support of the national energy security imperative. The Department is working
closely with the SOC to ensure success of the strategy and significant projects
will be announced in 2014/15.
The 2013/14 period has proven to be challenging for the SOC, with cost
management being an area of focus. Reliance by the SOC on the mining and
construction industries has proven to be a major obstacle towards
profitability, due to slow recovery of these sectors. The Department revised
the SOC mandate in 2012/13 to enable product diversification and further
vertical integration. The SOC will announce the new corporate strategy within
the ambits of the revised role in 2014/15.
The Department evaluated and approved Transnets PFMA Section 54
application to purchase 1 064 locomotives, which is instrumental in the
drive to move more volume on rail. This approval led to the tender process for
the acquisition of the locomotives, which was concluded in March 2014. Transnet
awarded the tender to supply the 1064 locomotives to 4 companies, i.e. CSR
Zhuzhou Electric Locomotive, CNR Rollin Stock SA, GESA and Bombardier
Transportation SA. CSR Zhuzhou Electric Locomotive and Bombardier
Transportation SA will supply the 599 electric locomotives, whilst General
Electric SA Technologies and CNR Rolling Stock SA will provide the 465 diesel
locomotives. This acquisition will also see various socio-economic benefits
being derived from the Departments Competitive Supplier Development Programme,
whilst also providing opportunities for Transnet Engineering to develop itself
in areas of advanced manufacturing.
Following the submission of the LTTS on 2 April 2013, SAA swiftly
implemented various aspects of this strategy. Some key highlights include the
conclusion of alliances with Air Seychelles, Jet Airways, Etihad, Jet Blue,
Virgin Australia and Rwandair. This has allowed SAA to grow its network and
extend its reach around the world. During the financial year under review, SAA
also took delivery of 4 new A320s, which is part of the programme to modernise
and re-fleet SAA. The airline is also in the process of acquiring long haul
aircraft for its international routes.
The Minister of Public Enterprises has re-established the Ministerial
Task Team (MTT) to monitor the implementation of the LTTS. The MTT is composed
of the DDGs from the Department as well as the executive management from SAA
and SAX. The MTT will report progress on the implementation of the LTTS on a
quarterly basis to the Steering Committee led by the Minister, thereby
enhancing the monitoring of implementation of the LTTS.
SAX submitted its 20:20 Vision Strategy in July 2013, which is fully
aligned with the LTTS. This was to ensure a coordinated and integrated approach
to the operations of the States aviation assets. SAX has commenced with
implementation of the Strategy. The airline is also represented on the MTT, in
order to ensure that there is close monitoring of the 20:20 Vision.
The failure for the
airlines SAA and SAX in reporting their annual financial statements on time
remain a challenge. This makes it difficult for understanding their financial
environment. It is imperative that SAA and SAX comply with the Companies Act
and Public Finance Management Act in reporting financial results. Whilst the
Department has restored its clean audit out of eight (8) SOCs only two (2)
Eskom and Denel presented clean audit outcomes whilst SAFCOL, Alexkor,
Broadband Infraco and Transnet were qualified with finding on pre-determined
objectives (PDO) and compliance. An opinion for SAA and SAX could not be
expressed due lack of financial statements.
Economic Impact and Policy Alignment
aviation biofuels and carbon tax issues
WWF (World Wide Fund) was appointed as technical partner to DPE on
climate change. It assisted in the work towards developing the DPE position on
carbon tax, as well as helping with the aviation biofuels work, particularly in
terms of the socio-economic impact of aviation biofuels this in preparation
for the stakeholder work. It facilitated various multi-stakeholder workshops
with industry experts from South Africa and globally, which were held to
explore options for feedstock pathways as well as technology pathways for
aviation biofuels in South Africa. Various multi-stakeholder workshops were
held to shape the DPE position on carbon tax. EIPA enhanced the Departments
international business partnerships and a briefing memo and the scoping report
(including a clear work plan for SAAs Aviation Biofuels Programme) was
approved by the DG. The Unit: improved the Departments relationship;
successfully negotiated with DOE to collaborate on aviation biofuels work going
forward to ensure SAA sustainability and recommended formalisation of this
working arrangement to the DOE and DPE Ministers. Relations have been forged
with international experts in the aviation biofuels technologies industry to
supplement DPE capacity, such as with expertise on aviation biofuels
technologies that are not available in South Africa. Benchmarking on carbon tax
was completed, SOC policy deep dives conducted, and the DPE position on carbon
tax was completed.
Department Collaboration on Water and Environmental issues
A revised MoU with 7 other relevant government departments was
successfully concluded and signed to collaborate and align environmental, water
and other policy matters that affect SOCs and Strategic Infrastructure
Programmes. The MoU was signed on 25 March 2014. The Department has enhanced
its partnership with DEA and other environmental authorities at local and
provincial government level. Furthermore, it provided leadership and support to
Eskom in its engagement to resolve the SOCs environmental compliance
challenges at various power stations, which could potentially lead to partial
closure. Certain amendments to Eskoms new Atmospheric Emission Licenses (AELs)
were successfully negotiated and recommendations made to the Minister regarding
Eskoms required initiatives, therefore reducing the risk of further
significant non-compliance by various coal-fired power stations in the Eskom
Other service delivery performance
The Committee has
undertaken only one oversight visit to Medupi power Station to assess progress
that has been made in the construction of Medupi. The visit coincided with the
countdown towards the synchronisation of the 6
unit of the Medupi
Power Station, scheduled for December 2014.
Relevant external research assessing
performance of the Department
The Department conducted external
research utilising consultants. In the year under review an amount of R6 493 934
was spent on consultants. The Department conducted research on the following:
independent evaluation on Eskoms build programme,
rail reforms phase II,
protocol corporate governance,
of the value of strategic equity partnerships entered between Denel and
International Original Equipment Manufacturers,
on the economic/industrial/technological impact of the Rooivalk Combat Helicopter
Programme and lessons learnt and how the knowledge gained from such
project may be utilised in future major defence acquisition
provide strategic and technical advice pertaining to the transition of a
low carbon economy in relation to SOC,
and update of the Board induction toolkit, and
into the affairs of Alexkor development foundation.
Inconsistencies were identified
during the reporting of utilisation of consultants 2012/13 and 2013/14 projects
as undertaken by the Department and this is depicted in the table below.
The projects reported in
Departmental Annual Report 2012/13
Total number of consultants that worked on the project
Duration: Work Days
Eskom build programme Practices
Freight rail reforms II
Corporate Governance Protocol
The projects reported in
Departmental Annual Report 2013/14
Total number of consultants that
worked on the project
Duration: Work Days
An independent evaluation of
Eskoms build programme Practices
Freight rail reforms II
Corporate Governance Protocol
The Department has seen significant
increase in the contract values in similar projects with similar resources.
These inconsistencies in reporting require further clarification from
based on submission of the
first quarter performance assessments to the National Treasury and Department
of Monitoring and Evaluation in the Presidency.
Administration: out of the 12 APP
targets, the Department achieve 8 targets. The targets that were not achieved
are IT independent assessment, service delivery improvement plan, SOC
performance review standards, approved 3 year evaluation plan and contract
Legal and Governance: Out of 5 set
APP targets, the Department achieved 1 target. The targets not met are
resolution of the 20% state shareholding Namaqualand Mines, Government
Shareholder Management (GSM) Bill, risk modelling tool and SOC procurement
Energy and Broadband Enterprises:
Out of 10 set APP targets, the Department achieved 4 targets. The targets not
met are analysis of annual responses, strategic intent statement, negotiation
and approval of shareholder compact, recapitalisation of BBI funding
requirements and MYPD 3 implication response strategy.
Manufacturing Enterprises: Out of 10
set APP targets, the Department achieved 4 targets. The targets not met are
analysis of annual report, ministers address in preparation of the AGM,
strategic intent statement, negotiation and approval of shareholder compacts,
assessment of PFMA applications and review of SAFCOLs new strategy.
Transport Enterprises: Out of 12
targets, the Department achieved 8 targets. The targets not met are analysis of
Transnet, SAA and SAXs annual reports, strategic intent statement, negotiation
and approval of shareholder compact, assessment of quarterly reports, quarterly
assessment of Transnets investment programme, quarterly assessment of the
airlines fleet renewal programme, monitoring of the SAA LTTS and SAX 20:20
vision and whole of state policy.
Economic Impact and Policy
Alignment: Out of 6 targets, the Department achieved 3 targets. The targets not
met are Transnet pricing structure assessment, transformation measurement tool
developed, transformation indicators incorporated in Shareholder Compacts.
Strategic Partnerships: Out of 9
targets, the Department achieved 3 targets. This programme looks like the best
performer amongst the Departmental programmes in the 1
The targets not achieved are funding strategy for SOCs, private sector
participation concept framework and coal mining fund.
Concluding comments on service
The Department of Public Enterprises
is not a direct service delivery department, but provides a distinct mandate of
shareholder on behalf of the state. The department has within its resources
been able to execute oversight responsibilities of eight SOCs. The Department
has been challenged with its limited human resources and also competing for
critical skills with other organisations.
The Department of Public
Enterprises is not a direct service delivery department, but provides a
distinct mandate of shareholder on behalf of the state. The department has
within its resources been able to execute oversight responsibilities of eight
SOCs. The Department has been challenged with its limited human resources and
also competing for critical skills with other organisations.
The SOCs performance is
still volatile due to the economic context, regulatory environment and
mandates. Eskom in the past year has suffered financially due to the MYDP 3
determination. This was coupled with the policy statement on keeping the lights
at all cost and a possible downgrade by rating agencies. Currently Eskom
require serious interventions from government to continue with its Build
Programme. The reconfiguration of government has led to Broadband Infraco being
moved to the Department of Telecommunication and Postal services. The
transition should be implemented and monitored carefully. SAA and SAX face
governance, financial and reporting challenges. Since its conception the LTTS
has not been resourced and is not implemented appropriately in line with its pillars.
Transnet is counting with its counter-cyclical investment programme. The
economic conditions should be monitored as changes can lead to unintended
consequences. The court related issue of pension funds remains a challenge to
Transnet. The implications of the Deed of Settlement will continue to challenge
Alexkor and its mandate. The company needs to be supported to find sustainable
ways of diversifying its operations while maintaining a positive balance sheet.
SAFCOLs operations are still threatened by land claims. Denel continues to
improve on its performance. The entity still need to monitored and supported in
order to remain sustainable.
The Department should
prioritise research that assist in the implementation of the Annual Performance
Plan, Strategic Plan and achievement of strategic policy thrusts. The
Department did not perform well in the 1st quarter. The Department must review
its set targets continuously in order to meet reporting requirements.
These were the key findings
of the Committee:
The reporting of
performance information in the annual report is a concern as it does not align
to the performance management information format presented in the Annual
Performance Plan. There are some performance targets that are difficult to
hence the Department should ensure that all
performance targets are measurable.
Governance and operational issues
The Department has been
able to stabilise boards of SOCs apart from South African Airways which has
experienced resignations of board members. Most of the policies relevant to
SOCs reside in other policy departments. The Department must in consultation
with policy departments develop a framework in which they are able to
effectively contribute to the implementation of SOCs strategy and
In this regard a legal
framework to support and enable SOCs performance should be developed.
The Department has relevant
institutional policies to achieve its mandate and to obtain clean audit
outcomes. However, the Departments internal control environment been improved,
and has achieved a clean audit.
Service delivery performance
The Department has achieved 83% of its planned
targets, which is a 19% improvement from the 2012/13 financial year. The Department
has restored its clean audit opinion which is a reflection of the Departments increased
focus on performance information and management of performance contracts with
performance including funding proposals
The Department has improved
on its financial performance and has obtained a clean audit report from the
Auditor General. The department has improved its financial controls and has
reduced the use of
it has also kept its
vacancy rate at 1.8% which is far below the threshold.
Committee recommended that the Minister of Finance should consider:
allocating additional funding to
capacitate the Department and address the human resource constraints that the
Department still experience
considering the distinct shareholder management responsibility of the
framework for funding SOCs rural development programmes.
The Minister of Public
review the annual performance plan of
the Department to ensure that the pre-determined objectives are measurable and
ensure that there is a direct correlation and alignment
between the annual performance plan and the annual reporting format;
capacitate the internal audit function in the Department to
ensure an improved record keeping and compliance with the legislative
consider introducing relevant systems as well as considering
evidential requirements during the annual strategic planning process in order
to ensure that all predetermined targets are achieved;
oversight over state-owned companies
through robust and regular interaction with CEOs, Board Members, Audit
Committees, regular visits to the construction sites of major infrastructure
projects as well as to offices and sites of the entities;
ensure that emphasis is placed on monitoring that the SOCs
implementation of Governments 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
consider providing the Committee with shareholder compacts
signed with state-owned companies in order to enhance the oversight role of the
consider institutionalisation of the recommendations of the
Presidential Review Committee on SOCs;
ensure that there are improvements in integration,
harmonisation and alignment of planning and implementation across all three
spheres of government and state-owned companies;
ensure that the guiding frameworks for SOCs are completed
timeously and implemented so as to provide a stable working environment. The
Department should ensure that the SOCs comply with these frameworks;
ensure that there are punitive measures in place for under
performance against targets for board members, executives and contractors of
The Committee would like to
express its gratitude to the Minister and management of the Department of
Public Enterprises, the Office of the Auditor-General, state-owned companies
reporting to the Department of Public Enterprises and the parliamentary
officials supporting the Committee for their hard work and co-operation during
Report to be considered.
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