ATC140711: Report of the Portfolio Committee on Public Enterprises on the Budget Vote (Vote 11) and the Strategic Plan of the Department of Public Enterprises, dated 9 July 2014
Public Enterprises
Report of the
Portfolio Committee on Public Enterprises on the Budget Vote (Vote 11) and the
Strategic Plan of the Department of Public Enterprises, dated 9 July 2014
The
Portfolio Committee on Public Enterprises having received a briefing from the
Department of Public Enterprises on the strategic plan and budget vote, reports
as follows:
1. Introduction
Guided
by the Rules of National Assembly, promulgated in terms of the Constitution,
the Portfolio Committee on Public Enterprise plays an oversight role on the
Ministry, Department and the entities. The Committee has to scrutinise the
Strategic Plan and annual performance plan of the Department and its entities
in order to see if the funds requested are aligned to the objectives as stated
in the respective strategic plan documents
.
1.1
Background
The global economic downturn, due to the collapse of
the financial system, affirmed the need for a strategic role of the state in
counteracting the effects of the downturn and stimulating recovery, this
entailed increasing investment in the economy by the state and much more
effective use of monetary policy to stimulate economic activity. The
recognition of the role of the state in the economy has increased the need to
ensure that state-owned companies (SOCs) align their activities to support the
broad developmental outcomes of Government. The strategic plan of the
department is informed by the following principles:
Coordination and coherence with government overarching
policy frameworks;
Identifying clear outcomes to be pursued by the
Department;
Delivering in the constrained economic environment;
and
Focusing on cross-cutting outcomes within the
Department and Government.
2.
Strategic Plan of the Department of
Public Enterprises
The
Department of Public Enterprises presented their Strategic Plan to the
Portfolio Committee on Public Enterprises and elaborated a separate Annual
Plan.
The department described the
overarching policy and strategic direction and priorities of Government, as
articulated in the State of the Nation Address by the President, Budget speech,
and National Development Plan.
2.1 Mandate of
the Department of Public Enterprises
The
mandate of the Department is to ensure that state-owned companies within its
portfolio are directed to serve Governments strategic objectives as outlined
in the National Development Plan and further articulated in the New Growth
Path, and the Industrial Policy Action Plan. The Department exercise
shareholder responsibility over the eight state-owned companies. The Department
aims to ensure the sustainability of the state-owned companies and supports the
governments strategic priorities of economic growth, expanding employment and
developing infrastructure.
2.2
Strategic Goals of the Department 2014/15
The
Department is focusing on implementing the National Development Plan during the
2014/15 financial year.
The main goal of
the Department is to ensure that the state-owned
companies support the implementation of the National
Development Plan and contribute to the achievement of outcomes outlined in the
plan.
The Departments strategic objectives over the medium
term are to:
Review the shareholder oversight to
ensure alignment of SOC to developmental outcomes;
Promote good corporate governance
Build internal capacity to enhance Departments
ability to execute its Strategic Plan and fulfill its mandate
Stabilise and strengthen the
state-owned companies, focusing on their balance sheets and funding options
Drive economic infrastructure
investment to enhance the capacity of the economy, with emphasis on the
strategic integrated projects
Leverage off state-owned companies
procurement spending to support industrialisation and transformation.
2.3
Policy Priorities for 2014/15
As
a shareholder representative of Government, the Department does not have the
mandate for developing sector-specific policies but policies relating to the
overarching shareholder mandate of oversight and governance.
Some of the powers and duties of the Department
are intertwined with those of other Government Departments who are key role
players in the SOC regulatory environment. These include the Department of
Energy, the Department of Transport, the Department of Communications, and the
Department of Mineral Resources, among others.
However, the Department and its SOCs are required to align with various
other economic policies such as the National Development Plan (NDP), the New
Growth Path (NGP), the Industrial Policy Action Plan and various other charters.
The
National Development Plan specifically mentions state-owned companies and the
role they have to play in improving infrastructure in the country. The plan
specifically identified the institutional weaknesses related to state-owned
companies
responsible
for network infrastructure.
The plan
goes on to state that averting such problems requires clear institutional
arrangements, transparent shareholder compacts, clean lines of accountability
and sound financial models to ensure sustainability.
The plan sets out clear actions required to
meet the institutional weaknesses mentioned above. Infrastructure is also
highlighted in the New Growth Path as a driver of job creation, which was
echoed in the Presidents State of the Nation Address delivered in February
2014.
The
Department plans to strengthen its oversight function over the state-owned
companies by increasing its capacity over the medium term for which the
Department received R78.3 million in additional allocations in the 2013/14
financial year. The Department will continue to expand its capacity to carry
out its oversight role in relation to the state-owned companies and improve
internal efficiencies and the functioning of the Department.
The Department will contribute to the
objectives of the NDP through Eskoms build programme and Transnets capital
expenditure programme in order to improve industrial capabilities, provide
sustainable jobs and improve the productive capacity of the economy.
3.
Programmes of the
Department
3.1
Programme 1: Administration
The purpose of this
programme is to provide strategic management, direction and administrative
support to the Department, which enables the Department to meet its strategic
objectives.
The spending focus over the
medium term will be on supporting the Department in playing its oversight role
over state-owned companies by providing administrative support to the minister,
and corporate and human resource services to the Department. The programme will
focus on improving the Departments efficiency and productivity by
reconfiguring its business, which will enable it to carry out its mandate; and
will put in place a three-year rolling evaluation plan to assess the impact of
programmes implemented by the Department and state-owned companies.
Over the medium term, the
majority of the allocation is within compensation of employees, which will
provide technical and administrative support to the Department. Expenditure on
compensation of employees constitutes 48.5 per cent over the medium term.
Expenditure on compensation of employees increased between 2010/2011 and
2013/14 by 15.9 per cent due to funding received for improved conditions of
service as well as the increase in personnel to establish new sub-programmes.
Over the medium term, expenditure on
compensation of employees grows by 6.1 per cent from R66.4 million to R79.3
million.
The number of personnel is
expected to increase from 138 in 2013/14 to 141 in 2016/17 within the
programme.
Spending on consultants is
expected to increase significantly by 18.2 per cent over the medium term due to
the reassignment of consultants from the Portfolio Management and Strategic
Partnerships programme to this Administration programme, following the
reorganisation of the Departments programme. The consultants support the
minister and director-general in achieving the Departments strategy.
Goods and services constitute 49.1 per cent
of the budget over the medium term with consultants, constituting 10.4 per cent
of the goods and services budget. Travel and subsistence constitute 11.6 per
cent of the goods and services budget, which is required by the programme to
carry out its oversight function of the state-owned companies, situated
throughout South Africa.
3.2
Programme 2: Legal Governance
The purpose of this
programme is to provide legal services and corporate governance systems, as
well as facilitating the implementation of all legal aspects of transactions
that are strategically important to the Department and state-owned companies,
and ensures alignment with Governments strategic intent.
3.2.1
Sub-programmes
The
Management
sub-programme comprises the office of the deputy
director general, which provides strategic leadership and management of the
programmes personnel. This sub-programme had a staff complement of 2 in
2013/14.
The sub-programme
Legal
provides internal legal services
and oversight support to sector teams. This entails providing legal services,
including transaction and contract management support to the Department, as
well as work specifically related to sector teams oversight of commercial
activities of state-owned companies within their portfolios.
The sub-programme on
Governance
develops,
monitors and advises on legislative, corporate governance and shareholder
management systems for the Department and its portfolio of state-owned
companies. Risk and compliance management is a component of this unit which is
responsible for developing and implementing risk and compliance with laws and
regulations.
The spending focus over the
medium term will be on increasing the programmes capacity to provide legal services,
and transactions and contract management support; and on facilitating the
creation of a legislative framework for the Departments mandate to ensure
compliance with applicable legislation and enhance corporate governance
procedures by state-owned companies. The programmes budget increased by 15.1
per cent from R14.7 million in 2010/11 to R22.3 million in 2014/15 due to
increase in the compensation of employees budget, which comprised 61.5 per cent
of the budget during this period.
The
programmes budget is expected to increase by 6.4 per cent to R26.9 million in
2016/17.
The legal component
constitutes the largest unit of the programme at 53.6 per cent of the budget of
the medium term, followed by Governance at 35.2 per cent. The legal unit
increases by 7 per cent from R11.8 million in 2013/14 to R14.5 million in
2016/17.
Over the medium term, 74.5
per cent of the programmes budget is allocated to be spent on compensation of
employees, with the number of personnel expected to increase from 19 in 2013/14
to 27 posts in 2016/17.
The increase in
personnel is a continuation of the increase in establishment seen in
2013/14.
Compensation of employees
increases by 9.9 per cent over the medium term, from R15.4 million in 2013/14
to R20.5 million in 2016/17. Although spending on consultants decreased between
2010/11 and 2013/14 as the internal capacity to perform legal services
increased, due to an expected increase in transaction services, contractual
agreements and governance agreements, spending on legal costs is expected to
increase over the medium term.
Although
it is stated that legal costs are expected to increase, the table in the budget
documentation does not give the figures for legal costs for this statement to
be verified.
3.3
Programme 3: Portfolio Management and Strategic Partnerships
The purpose of the
programme is to align the corporate strategies of the state-owned companies
with governments strategic intent, as well as monitoring and benchmarking
their financial and operational performance and capital investment plans. It
intends to align shareholder oversight with overarching government economic,
social and environmental policies as well as building of focused strategic
partnerships between the state-owned companies, strategic customers, suppliers
and financial institutions.
3.3.1
Sub-programmes
The sub-programme,
Energy and Broadband Enterprises
,
manages the portfolio of state-owned companies whose focus is energy and
broadband, including Eskom, Pebble Bed Modular Reactor (PBMR) and Broadband
Infraco
, and provides strategic leadership and management
of the programmes personnel. In 2013/14 the Department focused on the
completion and protection of the states intellectual property strategy and on
monitoring the implementation of the care and maintenance of the Pebble Bed
Modular Reactor Company.
The sub-programme
Manufacturing Enterprises
exercises
shareholder oversight over Denel,
Alexkor
and the
South African Forestry Company (SAFCOL). The sub-programme is organised in
terms of management and shareholder oversight over the companies. In 2013/14,
the Department continued to monitor the execution of activities linked to the
deed of settlement with the
Richtersveld
community
supported by the transfer of R350 million in 2012/13 to help
Alexkor
meet all its obligations related to that
settlement.
The sub-programme
Transport Enterprises
exercises
shareholder oversight over Transnet, South African Airways and South African
Express Airways. The sub-programme is organised in terms of management and
shareholder oversight over the three companies performance against targets.
The Department closely monitored the implementation of the Transnet Market Demand
Strategy (MDS), and the capital roll out programme and other key
programmes.
The sub-programme
Economic Impact and Policy Alignment
aligns state-owned companies with overarching government economic, social and
environmental policies. The sub-programme is organised into: management, which
provides strategic leadership and management of the sub-programmes personnel;
environmental policy alignment, which oversees alignment and implementation of
state-owned companies strategically important developments, with a special
focus on Eskoms and Transnets build programmes, and provides oversight and
alignment of the climate change policy framework for state-owned companies in
support of national policies and the green economy; economic policy
integration, which focuses on appropriate macroeconomic modelling and research
to enhance the links between industrial policy, macroeconomic policy and the
role of state-owned companies; and skills development and transformation, which
focuses on providing scarce and critical skills by state-owned companies in
support of the national skills agenda and the new growth path as well as
optimising state-owned companies skills training facilities through national
skills funding, among others. In 2013/14 the sub-programme analysed and
monitored the state-owned companies dashboards and completed a transformation dialogue
report.
The sub-programme
Strategic Partnerships
ensures that
state-owned companies maintain commercial sustainability and attain desired
strategic outcomes and objectives. The sub-programme is organised into:
management, which provides strategic leadership and management of the
sub-programmes personnel; project oversight, which entails defining catalytic
investments to be driven by the Department and overseeing project
implementation from pre-feasibility to completion; funding mechanisms, which
assist in developing innovative funding structures and designing associated
compacts with relevant partners; and supplier relationships, which develops
overarching procurement leverage policies, oversees fleet procurement design
and implementation including panel reviews, and develops and implements
capability building programmes and institutions.
Over the medium-term the
focus will be on enhancing capacity to oversee strategic infrastructure
projects. This includes the training of staff and developing new project
management tools to improve oversight of the current build programme.
Over the period 2010/11 and
2013/14, Energy and Broadband Enterprises and Manufacturing enterprises
constituted 91.9 per cent of the programmes budget. This was due to the
following transfers:
R181.3 million in 2010/11, R116.3
million in 2011/12, R118.3 million in 2012/13 and R57.3 million in 2013/14 to
Denel for indemnity claims and a further R700 million in 2012/13 to
recapitalise the company in the Manufacturing sub-programme; and
R36 million in 2010/11 to
Alexkor
to establish a joint venture with the
Richtersveld
community under the out-of-court settlement
and R350 million in 2012/13 to address obligations in terms of the deed of
settlement in the Manufacturing sub-programme.
R20 million in 2010/11 and R40
million in 2011/12 to the Pebble Bed Modular Reactor Company for the
decommissioning and dismantling of the plant and implementation of the care and
maintenance programme.
R138.6 million to Broadband
Infraco
for capital and operational costs; reflected as a
payment for financial assets during 2010/11.
Over the medium-term, the
programmes budget decreases by 10.6 per cent from R140.8 million in 2013/14 to
R100.5 million in 2016/17. The decrease is due to the Department not making
transfers to the state-owned companies in the foreseeable future.
3.4
Budget
The Department's budget has decreased from R1.4
billion in 2012/13 to R259 million in 2014/15. However it continues to increase
by 9.9% to 2016/17. The decrease from R1.4 billion was the result of transfers
to the SOCs. Over the medium term, Compensation of Employees is expected to
increase from R131.9 million in 2014/15 to R169.9 million in 2016/17 as a
result of the expansion of the establishment over this period. Goods and
Services including Payments for Capital Assets is expected to increase from
R110 million in 2014/15 to R115.7 million in 2016/17 to support the increased
establishment.
3.5
Strengthening Capacity within the
Department
The structure of the Department increased from 168
employees in 2009 to 210 in the 2012/13 financial year and will increase to 227
over the MTEF period. The Department has also succeeded in reducing its vacancy
rate from 16.7% in 2009 to 11.9% in March 2013. The Department is still faced
with challenges in terms of retention of specialists skills; however it is
exploring ways to retain key skills beyond increases in remuneration
packages.
4. Committee
Observations:
4.1
The Committee made the
following observations
:
The Committee noted that:-
4.1.1
There
is a need for the Department to find a lasting solution to the problem of
copper and electricity theft with the relevant stakeholders;
4.1.2
The
energy reserve margins in Eskom are very low, and there is a need for the
Department to ensure that there is security of electricity supply;
4.1.3
Some
board members of SOCs were serving in too many boards;
4.1.4
The
Presidential Review Committee (PRC) has tabled its report to the President, and
there was a need for the Department to finalise the shareholder management bill
and the review of the remuneration of executives of SOCs in line with the
recommendations of the PRC;
4.1.5
The
small and emerging suppliers were not given contracts by SOCs because they were
not competitive;
4.1.6
There
is a lack of investment by private sector in infrastructure development;
4.1.7
The
salaries of executives of state-owned companies were too high and exacerbated
the inequalities in the South African economy;
4.1.8
Some state-owned companies do not achieve all their performance targets;
4.1
.9
The Department has a shortage of critical
and highly specialised skills and that has impacted on its capacity to exercise
its oversight responsibilities;
4.1.10
There
is lack of a
legislation that empowers the Department in exercising its unique shareholder
management responsibilities;
4.1.11
There is consistent delays in the
construction of the
Medupi
and
Kusile
projects, mainly caused by the labour unrest, contractors non-compliance with
labour legislation and contractors who did not meet performance targets; and
4.1.12
The
absence of the Electronic Communications Service License
has adversely impacted on Broadband
Infraco
, and the
entity has been unable to deliver on its mandate to roll-out broadband to
underserviced and rural areas.
5.
Recommendations
The
Committee recommended that the Minister of Public Enterprises should ensure
that the Department of Public Enterprises:
5.1
review
the salaries of executives of state-owned companies in line with the
recommendations of the Presidential Review Committee.
5.2
consider
introducing an overarching legislation to empower the Department to execute its
shareholder management responsibility and oversight over state-owned companies.
5.3
consider
mechanisms to curb the scourge of copper theft and report to the Committee
within three months on progress.
5.4
develop
and implement strategies to ensure that Eskom delivers on time in terms of the
construction of
Medupi
, and should report to the
Committee in three months on progress.
5.5
develop
guidelines to regulate the maximum amount of boards that members of the boards
of SOCs can serve on.
5.6
include a performance target in shareholder compacts that will enforce the
promotion and support small and medium enterprises.
5.7
develop
mechanisms to incentivize the private sector to invest in infrastructure
development.
5.8
develop
mechanisms to improve the performance of SOCs with regard to the performance
targets for the 2014/15 financial year.
5.9
reduce
the use of consultants and should develop a strategy to attract and retain the
highly specialized skills required by the Department.
5.10
develop
and implement penalties for contractors that do not adhere to legislation and
those do not achieve performance targets.
5.11
supply
the Portfolio Committee on Public Enterprises with copies of the shareholder
compacts of SOCs to enhance the oversight work of the Committee.
6.
Conclusion
The
Committee resolved that it would interact with the Portfolio Committee on
Telecommunications and Postal Services to jointly address the need to issue an
electronic communications service license to Broadband
Infraco
.
Having
considered the budget vote and the strategic plan of the Department of Public
Enterprises, the Committee recommends that the House passes the budget.
Report
to be considered.
Documents
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