ATC100413: Report on Budget Vote [Vote 10] and Strategic Plan 20010/11 – 2012/13
Report of the Portfolio Committee on Public Enterprises on the Budget Vote [Vote 10] and Strategic Plan 20010/11 – 2012/13 of the Department of Public Enterprises and its Entities, dated 13 April 2010
The Portfolio Committee on Public Enterprises, after receiving a briefing from the Department of Public Enterprises on the strategic plan and budget vote, reports as follows:
Guided by the Rules of Parliament, promulgated in terms of the Constitution, the Portfolio Committee on Public Enterprise plays an oversight role on the Ministry, Department and the Entities. The Committee has to scrutinise the Strategic Plan document of the Department and its Entities in order to determine whether the funds requested are aligned to the objectives as stated in the respective strategic plan documents.
2. Strategic Plan of Department of Public Enterprises
The Department of Public Enterprises’ 20010/11 – 2012/13 Strategic Plan is informed by the following Mission:
To optimise the alignment between the role of State-Owned Enterprises (SOE) in the
national economic strategy and the performance of the DPE’s portfolio of enterprises
through delivering best practice shareholder management services and engaging
with stakeholders to create an enabling environment for such alignment.
For the financial year under review the department has been responsible for nine State-owned enterprises listed on schedule 2 of the Public Finance Management Act (Act 1 of 1999). These are; Alexkor, Broadband Infrastructure Company (InfraCo), Denel, Eskom, Pebble Bed Modular Reactor (BMR) (Pty), Safcol, South African Airways (SAA), South African Express and Transnet. The Department’s overall objectives are to provide an effective state-owned enterprise shareholder management system and to support and promote economic efficiency within each of the state owned enterprises.
2.1 Policy Priorities for 2010/11
The department’s revised mission and strategic focus has thus been organised around the need to actively engage with stakeholders, within and outside government, so that the role of each State-owned enterprise is aligned with broader economic policies and strategies, and to ensure that sectoral policies and regulations support this alignment. The department’s immediate focus is to align State-owned enterprises planning and performance with the outcomes defined by the national medium term strategic framework.
The Department has developed a State Shareholder Management Model to bring coherence and consistency to the management of all SOEs. This model will allow government to systematically leverage SOEs’ capacity to achieve strategic national objectives without compromising their financial sustainability. Over the medium term the Department will focus on getting government’s acceptance of this Shareholder Management Model and driving its implementation at all the State-owned enterprises. The Shareholder Management Model seeks to achieve the following key challenges:[i]
2.2. Role of State Owned Enterprises in the economy
• Ensuring the security of supply and the efficient and competitive provision of key economic infrastructure.
• Facilitating the development of advanced manufacturing capability through:
direct investment via current or new SOEs
• SOE investment and procurement programmes
• strategic partnership engagements with global enterprises.
• SOEs can be used by the State to sort out economically stifling market or regulatory failures especially in the area of network infrastructure.
The Department has the following support programmes to other national government departments:
• Aligning skills development programmes within the SOEs with the programmes and objectives of the responsible national government departments
• Aligning investments in and by SOEs with the national innovation development programmes of the responsible national government departments
• Supporting government strategies focused on labour absorption and rural development by providing infrastructure investments and SOE-services with marginal commercial viability
2.3 Priority areas and expected outcomes
For the period under review, the Department and SOEs have indentified key measurable outputs. These include:
• Delivery of new Electricity Generation capacity by Eskom according to its approved build plan and as directed by the Integrated Resource Plan (IRP)
• Facilitation of the introduction of Independent Power Producers as determined by the IRP
• Restructuring the Pebble Bed Modular Reactor Company
• The restructuring of Denel
• The creation of a Remuneration Panel that will promote appropriate remuneration policies and practices for Chief Executives and the Boards of Directors of SOE
• The appointment of CEOs and Board Members to SOEs and ensuring that vacancies are filled with minimum delays
• Agreement on a way forward with the Richtersveld Community to ensure that the lives of the community are improved
• Pursuing completion of the land settlement claims at Safcol and to have concrete plans regarding the future of the SOEs
• Rail reform policy process and implications for Transnet Freight Rail
• Efficiency improvements on the main freight corridors
• Create scope for multi-operator involvement in under-utilised branch lines
• Assessment of strategic options for a future SAA and alignment to African Aviation Strategy
• Continuing to leverage SOEs as instruments of industrial policy to achieve the State’s social and economic development objectives
• The creation of a clear path of sustainability for the SOE, thus reducing their dependence on the fiscus
• Leveraging private sector investment to retain momentum in the infrastructure build programme and to promote competition in targeted areas.
3. Budget Summary:
The Department of Public Enterprises (DPE) has been allocated approximately R350.5 million for the 2010/11 financial year. This confirms National Treasury’s statement that much of the infrastructure funding will not come from the fiscus. This is a huge decrease from the R3.9 billion the Department was allocated in the previous financial year. The budget allocation for the Department is mainly for administration and shareholder management of the various SOE’s. Consequently, there are no major transfers to State-owned enterprises and only two SOEs are to be funded from this budget namely, the Infrastructure Company (Infraco, R138 million) and Alexkor (R36 million). The operational budget of the Department remains within the baseline over the period, which is linked to the business plans of the units.
3.1 Programme 1: Administration
The purpose of the administration programme is to achieve the Department’s strategic objectives through providing overarching management and key supporting functions and processes. The programme is allocated R101.2 m.
3.1.1 Priorities of the programme include the following:
• Monitoring in-year cost-saving initiatives
• Attraction and retention of relevant specialist sector skills
• Internal Risk Management
• Effective and efficient knowledge management
• Enhancing departmental performance management reporting
• Continued compliance with relevant legislation e.g. PFMA and Treasury
Regulations including tender and procurement processes
• Secure and stable IT environment
3.2 Programme 2: Energy and Broadband Enterprises
The purpose of the Energy and Broadband Enterprises programme is to provide shareholder oversight over:
• Eskom, which includes the generation, transmission and distribution of electricity, with a particular emphasis on the execution of its infrastructure programme and the optimisation of current operations.
• Broadband Infraco, which includes development of a sustainable business model, assessing the business plan and monitoring the commissioning of the full service network (FSN).
• PBMR, this includes a review of the business plan and the development of a sustainable future business model and structure.
3.2.1 Priorities for the programme
• Monitor Eskom’s system adequacy and the delivery and funding of its capital expenditure programme (Generation, Transmission and Distribution).
• Enable and support the execution and implementation of the Inter-Ministerial Committee on Energy workplan, leading the facilitation of a Strategic Equity Partner for the Kusile new build project as well as the development of a sustainable coal haulage solution.
• Resolution of Infraco’s licensing and the development and implementation of an associated sustainable business model.
• Rationalisation of PBMR whilst protecting skills and intellectual property of value to South Africa’s possible future Nuclear Fleet Build Programme.
3.2.2. Outcomes regarding to Eskom, PBMR and Infraco
§ Shareholder Compact and Corporate Plan alignment to government objectives for the Energy & Broadband Sector.
§ Alignment and delivery against key objectives of Infrastructure IMC outcomes based approach.
§ Guidance to the Minister on Annual General Meeting and associated Shareholder rights.
§ Appropriate skills mix on the Eskom, Infraco and PBMR Boards.
§ Assessment of performance against agreed compact targets.
3.2.3. Outcomes regarding to Eskom, Infraco and PBMR
§ Delivery of Eskom’s infrastructure expenditure programme as planned and directed by the Integrated Resource Plan and the optimisation of its maintenance and operational practices.
§ A sustainable coal haulage solution, the introduction of a Strategic Equity Partner for Kusile and the facilitation of the introduction of Independent Power Producers.
§ Infraco’s impact on Broadband Pricing in South Africa.
§ Development of a sustainable business model for Infraco to achieve its mandate.
§ Infraco’s execution of projects to complete the terrestrial cable network.
§ Implementation of the International Submarine Cable (West Africa Cable System).
§ PBMR successfully restructured.
The programme has been allocated R150.4 m.
3.3. Programme 3: Legal, Governance and Transaction
The purpose of the programme is to provide effective and sound legal advice to the Department that will highlight and manage potential legal risks; and to develop effective corporate governance frameworks that will promote transparency and good corporate governance by SOEs.
3.3.1 The outcomes of the programme include the following:
• Transfer Diabo Trust assets to the beneficiaries and wind up the trust
• Transfer remaining Aventura resorts and wind up Aventura
• Internal legal advice to minimise DPE’s legal risk (e.g. adequate legal protection in contracts with service providers)
• Successfully resolve all litigation in government’s favour
• Continuously improve DPE adherence to applicable legislation through developing templates for legal and regulatory compliance (e.g.PAIA, PAJA and PFMA Compliance framework)
• Develop SOEs legal and governance frameworks to
• Align SOEs governance to developments in corporate governance regulation (e.g. Companies Act, 2008, King III)
• Contribute towards shareholder and Board effectiveness (Owner’s Manual; Board Database)
• Oversee SOE adherence to corporate governance principles to promote stronger Boards (including improving reporting on SOEs Board and CEOs remuneration)
• Promote transparency and accountability of governance processes through annual governance audits and strengthening SOEs governance reporting requirements
• Ongoing monitoring of SOEs acquisition and disposal of subsidiary list
The operational budget in this Programme increased slightly as a result of additional funding required to cover anticipated legal costs for a number of transactions as well as inflationary increases in Compensation of Employees.
The transfer payments to Alexkor in 2009/10 and 2010/11 are earmarked for the capitalisation of the pooling and sharing joint venture and the establishment of the Alexander Bay township. These form part of the land claim settlement obligations.
The programme has been allocated R54.4 m.
3.4. Programme 4: Manufacturing Enterprises
The Purpose of the programme is to provide shareholder oversight of Denel which includes business turnaround and sustainability, alignment with the strategic requirements of the Department of Defence and its contribution to government objectives such as skills development and advance manufacturing.
Further provide shareholder oversight of SAFCOL which includes assessing the business plan and the future role of SAFCOL in the economy and other government objectives.
3.4.1 Key outcomes for Denel
The key outcome is a financially sustainable company.
Monthly / Quarterly / Annual Interventions:
• Approved and aligned Corporate Plan, Shareholder Compact, Annual Reports and effective Board control
• Shareholder Strategic Intent communique
• Quarterly investor brief to the SOE Board
3.4.2 Key Deliverables
• Resolution of Denel’s growing concern status and long term solvency issues
• Oversee Denel’s turnaround plan and business growth strategy
• Alignment of Denel’s restructuring plans with Department of Defence’s
• DPE will facilitate:
Denel’s programme delivery, Skills development and transformation, the role of Denel in advance manufacturing and equity partnerships for Denel entities.
The future state of Denel would include the finalisation of the Rooivalk programme, multi year orders from DoDMV, Right sizing and restructuring the Denel Group.
There are no transfer payments planned for Denel. Denel must embark on an operational turnaround and any future recapitalisation must be for growth and not working capital. Furthermore, the decrease in transfers is because future claims cannot be quantified in advance. The expenses have to be incurred and then audited to verify validity of the claim.
The programme has been allocated R16.2m.
3.5 Programme 5: Transport Enterprises
The purpose is to align the corporate strategies and performance of Transnet, South African Airways and South African Express Airways against government's objectives.
3.5.1 Outcomes relating to Transnet, SAA and SAX
• Alignment of Shareholder Compact and Corporate Plan to Government objectives for the transport sector
• Guidance to Minister on AGM and associated shareholder rights
• Appropriate skills mix on the Transnet, SAA and SAX Boards
• Assessment of performance against agreed Compact targets
The significant reduction in the budget for this Programme is attributed to the decrease of transfer payments and the final transfer to South African Airways being in 2009/10. There is no substantial increase in the operational budget in this Programme.
The programme has been allocated R18.5 m.
3.6. Programme 6: Joint Project Facility
The purpose of the programme is to provide project management support for a number of projects that aim to identify and unlock synergies among State Owned Enterprises,
and to coordinate cross-cutting projects that leverage the assets, activities and capabilities of SOEs to the benefit of the enterprise and the economy as a whole.
3.6.1 Outcomes of the programme
• Skills Development, TSAPPRO and CSDP: Leveraging of SOE build programmes to promote investment in plant, technology and skills so as to increase the level of national economic activity and decent employment through inclusive growth.
• Environmental Oversight: Reduction in delays associated with environmental authorisations for the Build Programmes whilst ensuring integrity of environmental assets and natural resource protection.
• Property Project: Release of SOE non-core property ensures state’s right of first refusal for developmental benefits (e.g. contributes to sustainable human settlements) and land use optimisation.
The operational budget for this Programme decreases substantially over the medium term due to the completion of some of the projects and programmes, such as the Aerostructures, Technology Management Framework (TMF) and ICT/Marine Cable projects. The programme has been allocated R9.8m.
4. Committee Observations:
The Committee raised concerns some of which were adequately responded to, while others required further clarification. The Committee will continuously conduct its oversight function and ensure executive accountability on the progress made with respect to the strategic priorities and budget allocation presented by the Department.
Report to be considered.
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