In a virtual meeting, the Committee was briefed by the Department of Public Enterprises (DPE) on its 2020-2025 strategic plan and annual performance plan (APP) for the 2023/24 financial year. The meeting was urgently scheduled because the DPE was under immense pressure due to the challenges of South Africa’s electricity supply instability.
The DPE’s expenditure was expected to increase at an average annual rate of 2.9%, from R303 million in 2023/24 to R330 million in 2025/26. The increase resulted from a normal general increase in expenses. The DPE’s main cost driver was the compensation of employees, which would increase at an average annual rate of 3%, from R185 million in 2023/24 to R202 million in 2025/26. Only critical vacant posts would be filled in the Department to stay within its budget.
The Committee was impressed with the South African Forestry Company Limited (SAFCOL) performance and asked if the DPE had plans to use SAFCOL’s working model in other state-owned entities (SOEs). Members were concerned that the presentation did not mention anything about Alexkor, even though it was in a state of disaster. A Member asserted that the DPE was very predictable in its answers. The issues at Alexkor had been left unresolved for many years, and usually, when the Department claimed to be dealing with the matter, it was indirectly ignoring the question.
Would the DPE be able to effectively exercise its oversight functions on all SOEs with its current budget and staff levels, especially after the findings of the State Capture Inquiry? What were the stringent conditions National Treasury (NT) imposed on the funds allocated to Denel? The DPE’s suspended Director-General had made serious allegations about various unpleasant activities. Was the matter being handled, or was the DPE hoping the allegations would be dismissed?
The Chairperson said the Department of Public Enterprises (DPE) would brief the Committee on its strategic plan and annual performance plan (APP) for the 2023/24 financial year, which would ultimately assist the Committee in making a representation to the National Council of Provinces (NCOP). The meeting had been urgently scheduled because the Committee had an internal deadline of engaging with the DPE by 24 May. Additionally, South Africa’s electricity supply instability challenges had put the DPE under immense pressure.
He acknowledged that the Minister of Public Enterprises, Mr Pravin Gordhan, had forwarded his written apology to the Committee, but asked the Deputy Minister of Public Enterprises, Mr Obed Bapela, who was in attendance, to table Mr Gordhan’s apology officially. Mr Bapela would also give a brief high-level political overview and introduce the DPE senior official leading the presentation.
Mr M Nhanha (DA, Eastern Cape) said that when a Member was consistently absent from Committee meetings, the workload which was supposed to be covered by that Member automatically became the responsibility of other Committee Members. It was unacceptable for a Member to be persistently absent from Committee meetings but conveniently available for oversight trips. The Chairperson and the Presiding Officers needed to address the matter at hand.
The Chairperson said the concern raised was valid, and would be addressed in a closed Committee meeting when guests were not in attendance.
Ms W Ngwenya (ANC, Gauteng) said she would soon excuse herself, as she had another meeting to attend.
Deputy Minister's overview
Deputy Minister Bapela explained that Minister Gordhan was not in attendance as he had prior commitments to attend to. He confirmed that Mr Gordhan had sent his apology to the Committee.
The DPE would brief the Committee on its APP for the 2023/24 financial year which was informed by its 2020-2025 strategic plan, which would guide the Department for the five-year period ending 31 May 2025. He hoped that the targets in the strategic plan would be reported annually over the five-year period to track the progress of the DPE. Several targets had already been achieved and would not be reflected in the APP for the 2023/24 financial year. However, the DPE would indicate the differences between the current financial year’s targets and those of the prior financial year. The targets which were yet to be achieved would also be indicated. Additionally, the presentation would address the Auditor-General of South Africa’s (AGSA’s) APP findings.
Some state-owned entities (SOEs) were experiencing major challenges. Eskom has been experiencing challenges since the State Capture Inquiry. Loadshedding, which was affecting the whole country, contributed to those challenges. SOEs like Transnet, South African Airways (SAA), Denel and Alexkor were also implicated in the State Capture Commission Report, with SAA and Denel nearly being liquidated.
The South African Forestry Company Limited (SAFCOL) was the only SOE that had not been captured nor experienced any corruption or governance issues. It had performed well and was able to inject cash into the fiscus. The DPE wished to apply SAFCOL’s working model to other SOEs so they could yield the same results.
The DPE was working on a turnaround strategy for all its SOEs. Transnet was currently in a recovery state. However, due to locomotive-related issues, Mr Gordhan had previously travelled to China to resolve any disputes, as all 1 064 locomotives were required to reduce the traffic caused by trucks and to commence the freight shift from road to rail programme, which would enable the freight and logistics activities of Transnet. The programme would assist in activating the economy, as goods would be transported from various destinations to Transnet’s ports. Transnet’s port operations were starting to be more optimal.
COVID-19 has also negatively affected the economy. However, the economic recovery and reconstruction plan (ERRP), introduced as a Post-COVID programme aimed at rebuilding the economy, was slowly and positively impacting the economy. With Transnet being an enabler and logistic carrier, the DPE stabilised it for its purpose.
Denel was on the rise. He had recently visited Denel’s Pretoria Metal Pressings (PMP) and Land Systems facilities to inspect if the production on overdue orders had started after National Treasury (NT) had allocated R3.4 billion to the entity during the medium term budget policy statement (MTBPS) in October 2022. However, the NT had very stringent terms and conditions, and the DPE had to negotiate with NT on its proposed terms. The funds were released only in March 2023, and the production of overdue orders commenced after Denel had paid penalties to its clients for its inability to deliver. Other functionalities of Denel also had to be assessed to ensure that the funds released were used appropriately. Following the State Capture Inquiry and COVID-19, Denel employees had to stay at home because they could not be paid for their services. Out of 161 engineers, Denel had retained 61 employees and had lost 100 employees to the private sector and to work opportunities in other countries.
SAA had nearly faced liquidation, but was subsequently placed under business rescue after the DPE intervened and a business rescue practitioner was appointed. SAA was currently out of business rescue and had found a strategic equity partner. The Competition Commission had approved the deal, but the public felt that the state was in an unfavourable position because its stake in SAA had decreased from 51% to 49%.
Alexkor also faced major challenges, but the DPE was working on its turnaround strategy. SOEs were on the rise and turnaround strategies had been developed. The DPE planned to brief the Committee on the turnaround strategies and how they yielded results in the SOEs. SOEs were essential, with South Africa being an emerging country. The country's developmental agenda programme used SOEs as the activists and interventionists in the economy when markets were failing, and to contribute to economic growth like the private sector would do through investments. SOEs still needed assistance until such a time that the economy was thriving. The state’s role was still crucial, because there were services that the markets would not render easily to the poor, the vulnerable, and the working class. Due to the different ideological positions of various political parties, the debate on the state’s relevance would continue, but the current focus was to ensure that the SOEs performed optimally, brought about economic growth, and protected the services that the poor would not usually afford without the state’s intervention.
He said Ms Jacky Molisane, Acting Director-General, DPE, would introduce her team.
The Chairperson was experiencing connectivity issues, and appointed Ms L Bebee (ANC, KZN) as the Acting Chairperson.
DPE's annual performance plan 2023/24
Adv Melanchton Makobe, Deputy Director-General: State-Owned Companies Governance, Assurance, and Performance, DPE, said the Department's expenditure was expected to increase at an average annual rate of 2.9%, from R303 million in 2023/24, to R330 million in 2025/26. The increase resulted from a normal general increase in expenses. The DPE’s main cost driver was the compensation of employees (CoE), which would increase at an average annual rate of 3%, from R185 million in 2023/24, to R202 million in 2025/26. Only critical vacant posts would be filled to ensure that the DPE remained within its expenditure ceiling for the CoE over the medium term expenditure framework (MTEF) period.
The DPE reviewed the APP for the 2023/24 financial year after considering the comments raised by AGSA. It would continue to work with AGSA to ensure that the APP was developed according to the Department of Planning, Monitoring and Evaluation (DPME) and NT regulations.
[See presentation for further details]
Mr Nhanha asked Deputy Minister Bapela if he could share the stringent conditions that NT had imposed on the funds allocated to Denel, as he wanted to understand the extent to which the conditions were relaxed. He congratulated SAFCOL on its performance, and asked if the DPE had plans to use SAFCOL’s working model in other SOEs. He was aware that a model could not be blindly applied to an entity, but would need to be adapted to the existing material conditions in other SOEs. He was concerned that the presentation had not mentioned anything about Alexkor, even though it was in a state of disaster that affected ordinary people in that area.
The Acting Chairperson asked if the DPE would be able to effectively exercise its oversight functions on all SOEs with its current budget and staff levels, especially after the findings of the State Capture Inquiry.
Ms Nthabiseng Borotho, Chief of Staff, DPE, said the Department was happy to share with the Committee the stringent conditions NT had placed on the SOEs. In its negotiations, the DPE was trying to ensure that the conditions placed on SOEs did not prevent them from performing functions that were in their ordinary course of business. The SOEs were monitored every quarter to determine whether NT’s conditions were adhered to. The DPE’s assessment was shared with NT. She said one of the conditions imposed by NT was that the DPE would not disperse any funds to non-compliant SOEs.
The DPE wanted all its SOEs to emulate SAFCOL’s success. When SAFCOL declared a dividend of R1 million to its shareholders, it embodied an ideal way of conducting business, because shareholders should get returns on their investments. The DPE was in the process of developing a dividend policy across all its SOEs to prevent them from continuously draining the fiscus. The dividend policy was not so much about the amount, but about indicating the position that the SOEs had taken. The fiscus should be able to allocate some money to socioeconomic priorities.
To deal with the issues at Alexkor, the DPE had contracted a service provider with the appropriate expertise to assist in finding solutions, to revitalise the company and to propose a way forward. Once the service provider concluded its work, the DPE would assess the Alexkor report and address the Committee’s questions.
The DPE was accelerating the process of filling vacant positions. The aim was not merely to fill vacancies, but to appoint candidates with the requisite experience and competencies to perform oversight functions adequately. In addressing the issues in the energy and transport sector, the DPE needed to ensure that it appointed appropriate candidates with the required operational, financial and technical skills.
Deputy Minister Bapela said an entity dealt with people, irrespective of whether it employed individuals at a board position level or management level. If the right people were appointed to management positions and thus formed an ideal team, an entity would yield positive results. SAFCOL had a good mix of a sound board of directors and management team. To function properly, SOEs required an optimal mix of a competent and diligent board of directors, capable of addressing issues promptly, and a prudent and innovative management team focused on the company’s mandate. Corruption brought about instability and governance issues which compromised the operational efficiency of an entity. Operational efficiency should be the vision that the company subsequently achieved. Once operational efficiency was achieved and good corporate governance was in place, sustainability would be required to ensure that the entity continued as a going concern by sustaining itself and being independent of the fiscus. Such entities would then contribute to the fiscus. That was the ultimate goal that the DPE aimed to achieve going forward. The DPE wanted the newly formed shareholding company to follow that model. The Committee would be given further details on the entity as the process unfolds.
Cabinet had adopted a policy for the private sector to participate in some SOEs by entering into strategic partnerships. Since the state would retain a 100% stake, the intention was not for the private sector to take over, but to look into programmes that could enhance SOEs. The private sector would receive its investment as a return on investment (ROI) over a period of time and subsequently exit the agreement when the entity was sustainable.
That model had previously been used in the South African National Roads Agency Ltd (SANRAL), where the N1, N3, and Bakwena N4 concessions had demonstrated that the private sector could play a vital role in the sustainability of roads. SANRAL’s contract was in effect for 15-20 years, and indicated that the toll road would be divided into two sections -- the state’s section and the private sector's section. The money generated would be used for building, maintaining and sustaining the road infrastructure. After the 15-20 year period, the private sector would exit the agreement.
The private sector also solely built and ran correctional facilities, such as the Mangaung correctional centre. Normally, after 25 years, the correctional facility would be handed over to the state after the private sector had received its ROI. However, corruption ruined such good partnerships. The DPE was convinced that such models worked, and would thus implement them. The provisions of the law or the related amendments would guide private sector investments.
Eskom had already applied that model by dividing the entity into a transmission entity that was 100% state-owned, a distribution entity that would be partially owned by the government and municipalities capable of distributing electricity, and a generation entity where the private sector would generate electricity and supply to the grid to make it available for distribution. While many new companies would be formed, Eskom would continue to generate electricity. The strategic partnership would assist in stabilising and sustaining Eskom.
The budget and the staff levels of the DPE were currently sufficient to perform oversight functions. However, the budget would be reviewed, because the DPE had previously learned from state capture that it had to strengthen its monitoring and oversight functions to have a better chance of detecting and preventing early signs of state capture and its related corruption which had eroded SOEs to the point of liquidation. The DPE hoped that Mango Airlines would potentially be rescued from liquidation, and it was unfortunate that SA Express Airways had been liquidated, as the DPE did not want to see SOEs being liquidated.
The Zondo Commission Inquiry had recommendations on how to strengthen capacity and systems to detect and deal with state capture.
Mr Nhanha said he supported private companies that supported SOEs. On a lighter note, he said that Deputy Minister Bapela had almost ruined his response by mentioning the Mangaung Correctional Centre. He appreciated that the DPE was moving in the right direction.
He said the DPE’s suspended Director-General had made serious allegations about Minister Gordhan's role in various unpleasant activities. Was the matter being handled, or was the DPE hoping the allegations would be dismissed?
He said he was a Member of Parliament (MP) in the fourth administration, and served the public enterprises in the National Assembly. The DPE was very predictable in its answers. The issues at Alexkor had not been resolved for many years. Usually, when the DPE claimed to be dealing with the matter, it ignored the question indirectly.
Deputy Minister Bapela proposed that the Committee revisit the Alexkor matter at a later stage to address it adequately. He was confident that the situation at Alexkor had improved. However, there were existing challenges that the DPE was still addressing. A turnaround strategy had been implemented by Alexkor’s appointed interim board to rescue the entity from destruction, and the DPE had received a positive report on how the board had successfully transformed the entity. The DPE had contracted a service provider to assess Alexkor’s future. After assessing the service provider’s report, the DPE would address the Committee’s concerns.
The investigation involving the suspended Director-General was still ongoing. The President had appointed the Minister of Justice to lead a team that would proceed with the disciplinary process without Minister Gordhan’s intervention. The DPE had left the matter to be dealt with accordingly. The allegations in the media were very disturbing. The suspended Director-General had brought the allegation to the Speaker of Parliament’s attention, and the DPE would follow the National Assembly's process in addressing the allegations.
The allegations implicating SAA were being considered by Minister Gordhan and the SAA board, which was under [forner Minister] Mr Derek Hanekom’s leadership. As per the Minister's recommendation, the SAA board was considering reevaluating the value of SAA’s assets. The DPE would then assist SAA in revaluating its assets to determine whether the allegations were true. Since the allegations had been reemerging, the DPE had not dismissed them but had seriously looked into the matter. The public needed to know if anything was amiss, and a report would be compiled on the allegations.
Mr Mkiva rejoined the meeting as the Chairperson.
He thanked Ms Bebee for leading the discussion and response sessions, and was confident that his connectivity issues had been resolved. He expressed his appreciation to the DPE for addressing the Committee’s concerns. He hoped that the Committee’s comments and suggestions would enrich the DPE’s processes at an executive level to ensure that the strategic plans and APP were in alignment with the expectations of the Committee and the general public. The Committee intended to improve the DPE’s performance and deliver what was expected. He hoped that the DPE would take the comments and suggestions of the Committee constructively. He wished the DPE well in achieving its 2023/24 financial year targets. The Committee would continue to guide the DPE and measure its progress through its oversight function.
He thanked the Members for availing themselves to attend a Friday meeting because it was not necessarily a meeting day, but was reserved for special occasions/circumstances. He acknowledged that Members were expected to travel back to their homes or constituencies.
Deputy Minister Bapela said the Committee needed to adopt the strategic plan and APP.
The Chairperson said the Committee would adopt the strategic plan and APP in a future meeting because the Committee did not form a quorum. The report was noted by the Committee.
The meeting was adjourned.
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