CONFIDENTIALCONFIDENTIAL

Presentation on DPE’s Strategic Plan

2012/13 – 2016/17

1

Portfolio Committee on Public Enterprises

6 March 2012

Table of Contents

• Context

• Key Achievements and budget expenditure against current year Strategic Plan (2011/12)

• Progress against Outcome 6 and Minister’s Delivery Agreement

• Strategic Plan 2012/13 : Priorities, Budgets, Structure and HR statistics

• Risks

• Challenges facing the Department

• Assistance from the Committee

• Annexure : Programme Specific Key Outputs and Progress Report

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Evolution of the Department and corresponding mandates

• The Department of Public Enterprises was established in early 1990s as the office for privitisation.

• In late 1990s, the emphasis shifted to halting and reversing the privatisation policy in favour of developing SOC as sustainable entities delivering on specific strategic economic mandates.

• From early 2000 to the current period, there has been a more formal articulation of a strategic perspective on SOC, as levers for directing the economy towards higher growth and employment rates, through investment, industrialisation and transformation.

• This evolution has informed the mandate and expansion of the DPE’s shareholder oversight function, on behalf of the State.

• Whilst the DPE’s shareholder oversight role is well-established, it has to now respond to the expanded role of SOC in infrastructure development via the massive infrastructure investment programmes of Eskom and Transnet.

• Evolution of the DPE will be informed by the President Review Committee on State Owned Enterprises (PRC).

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The DPE has successfully developed and implemented a Shareholder management and governance model.

DPE reviews SOC performance (Treasury Regulation 29.3)Isibuko DashboardMinister issues Investor Briefs to SOC Boards on emerging SOC performance trends, highlighting need for corrective action in event of any deviation from agreed key performance areas and indicators. SOC AGMs.SOC reporting to Parliament (PFMA Sec 65).

Performance Monitoring &

Evaluation

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The Shareholder has distinct responsibilities…

• Shareholder owns shares, not enterprise assets.

• These shares give the shareholder specific rights and powers: – Shareholder Minister to appoint all directors after Cabinet approval -

executive directors appointed upon recommendation from Board.

– Approval of significant & material transactions.

– Issuing of a strategic intent statement.

– Conclusion of binding shareholder compact.

– Access information to monitor and evaluate performance.

– Enforce accountability and take remedial action.

– Production of good practice notes.

Shareholder Responsibility

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…as distinct from the Board and Management….

• Responsible for ensuring the financial sustainability of the company through coherent utilisation of company’s assets

• Responsibility for development and implementation of the strategy:

– Development of strategic and business plans and subsidiary plans. (financial, risk management, operational, marketing, etc).

– Appointment of management and staff.

– Management of all aspect of operations.

– Development of detailed company policies (e.g. remuneration, procurement, etc) within guidelines defined by practice notes and implementation of company practice in adherence to the policy.

Board and Management Responsibility

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Whilst the DPE Shareholder oversight role is well-established, there is still much scope for improvement.

In the period ahead, we will focus on:

Consolidating the Shareholder Management Model.

Shifting of emphasis to ensure that SOC drive investment, growth and employment.

Overseeing the strategic, financial and operational turnaround of challenged SOC.

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Current strategic context for the Department

• The current prioritisation of infrastructure expansion for growth and employment creation and the role of DPE’s SOC, especially the infrastructure SOC (Eskom, Transnet and Broadband Infraco) will challenge and shape the future trajectory of the Department.

• We will be challenged in new ways in respect of the capacity to oversee the investment programmes and its intended impacts i.e. industrialisation, job creation, skills development, etc both from a Shareholder perspective as well as from an SOC performance perspective.

• In parallel, South Africa faces significant economic development challenges:

• A relative decline in manufacturing capabilities and output since the 1970s and associated loss of employment.

• A continued over-whelming dependence on commodity exports, leaving the country vulnerable to the commodity cycle.

• A negative current account balance that is driven by manufactured imports, many of which are required by the SOC build programmes.

• A market structure and business culture that is associated with key sectors of the economy extracting rents, rather than investing in the future.

• Racially skewed economic ownership and management structure and income distribution.

How will the DPE respond?8CONFIDENTIAL

In this context, the DPE has revised its Vision to the following…..

“To drive investment, productivity and transformation in its portfolio of State

Owned Companies (SOC), their customers and their suppliers to unlock

growth, drive industrialisation, create jobs and develop skills.”

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We have undertaken an organisational review process which resulted in the development of a new organizational model and functional structure in line with our strategic objectives. Concurrently, a new Strategic Plan for the Department has been developed and describes in detail the objectives and work the DPE will undertake in the period 2012-2016, guided by the overarching policy and strategic direction and priorities of Government, as articulated in the New Growth Path, the draft National Development Plan, and the recent State of the Nation Address by President Jacob Zuma.

Key Achievements and Budget Expenditure against current year Strategic Plan

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Overview of key achievements

• The DPE’s shareholder oversight role and model has become well-established and has continued to be implemented as intended to a large extent, although there are major challenges and much still to be achieved.

• For example:

• all our SOC conclude Shareholder Compacts, submit Corporate Plans, quarterly reports (as required by statutes), hold Annual General Meetings, and prepare Annual Reports.

• Development of frameworks/guidelines for shareholder management to strengthen coherence, discipline and consistency in our Shareholder oversight of SOC.

• The focus of the DPE oversight has been on corporate governance (Board and key management appointments), planning (including infrastructure investment planning) and financial sustainability and operational indicators as as economic /developmental impact (jobs, skills, youth, B-BBEE, supplier development, environment/climate change).

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Programme Specific Highlights Appointment of new Minister, Deputy Minister and Director-General in 2010. Development of a new Vision for the Department and enhanced Mission. The DPE has received an unqualified audit for seven consecutive years. The Minister demonstrated the Activist Shareholder approach to our oversight. Appointment of Eskom Board, Transnet Board, Broadband Infraco Board and Denel

Board and Chief Executive

Development and implementation of a Logical Planning, Monitoring and Evaluation Framework - an annual chronological cycle of tasks and events that links national strategic priorities to SOC delivery and ensures effective shareholder oversight management and achievement of desired strategic outcomes and objectives by the SOC.

Competitive Supplier Development Programme Eskom & Transnet produced 5 yr Supplier Development Plans. Development of next

generation Supplier Development Plans at an advanced stage. Extensive procurement capability training undertaken. Supplier Benchmarking Programme developed, with UNIDO.

Cross-cutting Initiatives A policy for Programmatic and Transactional Procurements was developed, as was a

strategy and business plan for a Centre of Excellence for complex capital procurements with supported interventions defined for the locomotive fleet procurement.

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Energy The Department was instrumental in securing Cabinet support for the funding support

package of an additional R174 billion in Government Guarantees bringing the total Government support to R350 billion.  This will enable Eskom to deliver on the build programme.

Broadband Construction & Maintenance Agreement and Supplier Contract Agreement for the

West African Cable System (WACS) was signed on 8 April 2009. Infraco launched its commercial offering at pricing 10% below market levels in

November 2010.

Defence A Framework for the resolution of Denel Saab Aerostructures was developed. A roll-over of guarantees amounting to R1.85b was secured as interim support to

Denel.

Mining The Richtersveld Community and Alexkor entered into a Pooling and Sharing Joint

Venture on 7 April 2011 with the Richtersveld Mining Company on a 51%/49% profit share respectively.

Funding for obligations arising from the Deeds of Settlement acquired and additional funding being explored for new business ventures.

SOC Specific Highlights

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SOC Specific Highlights

Forestry The Department initiated work on SAFCOL’s future role for consultation with other

stakeholders, to ensure enhanced financial and commercial viability and developmental contribution in light of the role SAFCOL can play in rural development.

Transport Major Competitive Supplier Development Plan (CSDP) contract between Transnet and

General Electric (GE) was signed in June 2010. 90 of the 100 locomotives to be built in South Africa. Transnet received the first two diesel electric locomotives from the GE transaction in February 2011.

SAA approved the Airbus transaction and took delivery of the first A330-200 aircraft in February 2011.

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Please refer to the Annexure at the end of the presentation for a detailed progress report.

Budget allocation for 2011/12 and expenditure to 31 January 2012

Overview of Departmental Expenditure – 31 January 2012

•SUMMARY

•Voted funds for the year 2011/12 R 230 231 000

•Rollovers received R 3 378 000

•Add: Additional Compensation of Employees R 3 478 000

•Transfer funds received R 116 255 000

•Voted funds for the year 2011/12 R 353 342 000

•Less: Expenditure from 1.04.2011 – 31.01.2012 R 297 337 069

•Less: Commitments as at 31.01.2012 R 13 385 804

•Remaining funds R 42 619 127

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DESCRIPTION BUDGET EXPENDITURE

TO DATE COMMITMENTS AVAILABLE

BUDGET COMPENSATION OF EMPLOYEES 100 017 000 81 057 421 - 18 959 579

GOODS AND SERVICES 94 117 000 58 188 339 13 379 391 22 549 270

TRANSFER PAYMENTS 157 008 000 156 286 103 - 721 897

CAPITAL ASSETS 2 200 000 1 805 207 6 413 388 381

353 342 000 297 337 069 13 385 804 42 619 127

• The department has spent 84.15% of its budget. The standard item expenditure is as follows:

• Compensation of Employees: An amount of R 19 million remains unspent under this item. The underspending is due to vacant posts mainly at MMS and SMS level.

• It is estimated that an amount of R4.5 million will remain unspent under this item after salaries are paid for February and March.

 

• Goods and Services: The expenditure under this item is R 58.2 million. If commitments (orders placed) are taken into consideration, 76.04% of the total budget has been spent. An amount of R 22.5 million remains unspent under this item, however if projections from units for projects still underway amounting to R8.6 million are taken into account in addition to normal operational expenditure ,it is estimated that this figure will be considerably reduced.

 

• Transfer Payments: The transfer payments influence the overall expenditure of the Department as they comprise 44.4% of the total budget. The transfer payment to PBMR of R 40 million was disbursed in May 2011 and the payment to Denel of R 116.2 million was disbursed in December 2011.

• R 721 897 under the economic classification for Transfer to Households is a provision for gifts, donations and sponsorships.

• Capital Expenditure: The expenditure under this item amounts to R 1.8 million, which is 82.05% of the total budget for capital expenditure. If commitments are taken into consideration, 82.35% of the budget has been spent.

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Explanatory notes regarding budget expenditure as at 31 January 2012

Minister’s Service Delivery Agreement

Outcome 6 : An Efficient, Competitive and Responsive Economic Infrastructure Network

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Outcome 6 : An Efficient, Competitive and Responsive Economic Infrastructure Network

The Department is focused on achieving the outputs and sub-outputs linked to Outcome 6 and those contained in the Minister’s Service Delivery Agreement. These are:

•improving the delivery and maintenance of infrastructure and monitoring the rollout of the Transnet’s and Eskom’s build programmes;

•achieving policy and regulatory clarity in sectors in which the state owned enterprises operate;

•improving the operational efficiencies of the state owned enterprises, particularly in relation to the reliable delivery of rail and ports services and the reliable generation, distribution and transmission of electricity;

•and developing operational indicators for each of the required sub-outputs identified as part of the delivery agreement. Where necessary, these will be included in the Shareholder Compacts concluded between the Boards of the SOC and the Minister.

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Outcome 6 : Progress to date (1)

• Improving competition and regulation• Work on the Rail Policy and Rail Act has progressed to the finalisation of a draft

green paper, now under industry stakeholder consultation.• A Private Sector Participation (PSP) framework has been developed to address

private sector participation in rail.

• Generation, distribution and transmission of energy • Legislation for the creation of and Independent Electricity System Operator (ISMO)

was introduced in Parliament by the Department of Energy and it is expected to be promulgated during 2012.

• Following the Minister’s directive, Eskom has ring-fenced the System and Market Operator (SMO) unit. The implementation plan to establish the SMO as a subsidiary is being finalised.

• Approximately 248 000 households were electrified during the period from November 2010 to November 2011, and 3 655 homes were connected to off-grid solar systems.

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• Generation, distribution and transmission of energy Eskom build programme (as end of 2011)

• Medupi is 35% complete, with 56.9% of the budget having being spent.• Kusile is 17% complete, with 30% of the budget having being spent.• Ingula is 41% complete, with 54.3% of the budget having being spent.• The Return to Service program is 93.5% complete, with 89% of the budget having being

spent.• Transmission projects are more than 70% complete, with 70.4% of the budget having

being spent.

• Regarding the development and implementation of Coal Haulage Road-to-Rail Logistics for Eskom’s fleet of coal-fired power stations, a Cooperation Agreement between Eskom and Transnet has been signed by both parties in November 2011. The resulting Haulage Agreement details the routes and sources of coal to be transported to Eskom powers stations.

Outcome 6 : Progress to date (2)

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• Logistics: road, rail and ports • With regard to increasing the market share of total freight from a 177 mtpa baseline

to rail, to an annualised 250 mtpa by 2014, 178 mt was achieved in 2010/11. Up to December 2011, 148mt was recorded and Transnet is on track to achieve 206mt by the end of the 2011/12 financial year.

• With regard to productivity improvements at the Durban container terminal (DCT), an average of 24.8 crane moves per hour was achieved in 2010/11, from 21 crane moves/hour in 2009/10, in line with the target of 25 crane moves/hour for that year.

• Transnet’s build projects are generally on track. Two container berths at the Ngqura port have been completed and an additional two will be completed by March 2012. 875 000 containers have been handled at Ngqura since it opened in October 2009, and the additional two berths will improve capacity to 800 000 containers per annum.

• The National Multi Products Pipeline (NMPP) 24 inch trunk line for petroleum products from Durban to Jameson Park was completed and commissioned in January 2012.

• Three rail branchline opportunities for private sector concession in 2012/13 have been identified and there has been consultation with KZN, Northern Cape, and Free State Provinces in this regard.

Outcome 6 : Progress to date (3)

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• Information and communication technology • Following the establishment of Broadband Infraco, wholesale broadband prices

have dropped by about 73%.• As part of its mandate to increase access to broadband services, Broadband

Infraco has access to 18 Points of Presence (POPs), of which 5 are open access sites in the main centres.

• Sentech and Broadband Infraco have also commenced with the Broadband Plan for the Kwazulu-Natal Province Pilot project, and site surveys on three districts are complete.

Outcome 6 : Progress to date (4)

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2012/2016 Strategic Plan Priorities, Budget, Organisational Structure and HR Statistics

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Programme 1: Administration

Priority Areas

•Continuous performance improvement to ensure delivery of the Department’s strategic goals.

•Effective talent management and attraction and retention of key skills.

•Consistent and clear messaging on Government’s intent for SOC.

•Implementation and improvement of appropriate policies, processes, procedures, time-lines and co-ordination and management of outcomes-based reporting.

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Priority Areas • Provide legal services to the Department and support oversight of SOC as well

as developing affective corporate governance and shareholder management services on an ongoing basis.

• Facilitate effective monitoring of corporate governance and compliance indicators within the Department as well as the SOC via the Isibuko Dashboard on a quarterly basis. Monitor and assess the impact of various legislation on SOC and alerting them to changes and possible risks where detected.

• Repeal of the Aventura Resorts Act: This will be initiated once the process to wind up and deregister Aventura is completed.

Programme 2: Legal and Governance

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Programme 3 : Portfolio Management and Strategic Partnerships

The sub-programmes in this Programme are as follows:

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

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

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

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

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

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Energy and Broadband Enterprises

Priority Areas

•Effective shareholder oversight of Eskom and Broadband Infraco.

• Support Eskom in ensuring security of electricity supply.

• Reduce dependence on the fiscus by monitoring cost escalations, delivery schedule (time) and quality of the build programme and developing innovative funding mechanisms.

• Implementation of the PBMR care and maintenance programme.

• Support Broadband Infraco’s efforts towards increased access to broadband.

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Manufacturing Enterprises

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Priority Areas - DENEL

• Effective shareholder oversight of Denel.

• Definition of Denel’s future role and strategic mandate with associated Turnaround Plan.

• Denel/defence industry support framework .

• Review of the progress of the 2008 Denel End State Cabinet recommendations.

• Denel Aerostructures business sustainability.

Priority Areas - ALEXKOR

• Effective shareholder oversight of Alexkor.

• Re-direction of Alexkor’s commercial focus and sustainability.

• Alexkor Board Review.

• Oversight of Richtersveld Deed of Settlement implementation.

Manufacturing Enterprises

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Priority Areas - SAFCOL

• Effective shareholder oversight of SAFCOL.

• Definition of role and institutional form for SAFCOL.

• Maximising current processing assets.

• Transfer of Minority Shares.

• KLF land claims Settlement Model.

• Enhanced Developmental Contribution.

Transport Enterprises

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Priority Areas - Transnet

• Effective shareholder oversight of Transnet.

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

• Develop National Corridor Performance Measurement (NCPM) tools and indicators.

• Improve investment in transport infrastructure.

• Development of a long term integrated transport infrastructure network plan. 

Priority Areas - SAA and SAX

• Effective shareholder oversight of SAA and SAX.

• Strengthen financial and liquidity position of SAA and SAX to ensure sustainability of the airlines.

• Further development and implementation of the African Aviation Strategy.

Economic Impact and Policy Alignment

The sub-programmes in this Programme are as follows:

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

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

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

This includes overseeing the alignment and implementation of SOC transformation agenda in support of national policies and the New Growth Path Framework, with focus on: job creation; youth development, and development of targeted groups (i.e. women, people with disabilities, co-operatives, etc); Broad-Based Black Economic Empowerment (B-BBEE), Employment Equity (EE) and disposal of non-core property.

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Economic Impact and Policy Alignment

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Priority Areas• Oversee processes to conduct macro-economic modelling, research and impact

evaluation and ensure SOC contribute to New Growth Path.• Supervise processes to enhance and advance alignment between national

industrial policy, macro-economic policy and the role of SOC and monitor implementation.

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

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

• Oversee processes to ensure that SOC comply with the environmental laws and climate change mitigation measures, while supporting SOC business needs.

Strategic Partnerships

Focus Areas

•Identification and oversight of major investment projects that go beyond SOC balance sheet capacity.

•Secure funding for major investment projects that go beyond SOC balance sheet capacity.

•Leveraging SOC procurement programmes to drive industrialisation and create jobs.

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DPE Budget – Appropriation per Programme

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2011/12 2012/13 2013/14 2014/15

Programme Final Appropriation Medium Term Expenditure Estimates

R'000 R'000 R'000 R'000

1. Administration 101 487 104 394 110 567 116 441

2. Legal and Governance 23 675 26 937 30 968 32 948

3. Portfolio Management and Strategic Partnerships 228180 1 117 741 69 210 73 763

TOTAL 353 342 1 249 072 210 745 223 152

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Over the medium term, expenditure is expected to decrease from R353.3 million to R223.2 million, at an average annual rate of 14.2 per cent, as a result of a reduction in transfer payments to State Owned Companies. Spending on Compensation of Employees is expected to increase to R118.1 million over the medium term, at an average annual rate of 5.7 per cent, due to adjustments for improved conditions of service and an increase in the Department’s staff complement. As a result, expenditure on goods and services is also expected to increase to R102.4 million in 2014/15, at an average annual rate of 2.8 per cent to provide support to the larger personnel establishment . In addition to the above, payments for financial assets amounting to R1.05 billion in 2012/13 are allocated to Denel (R700 million) and Alexkor (350 million) in 2012/13.

DPE Budget – Appropriation per Economic Classification

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2011/12 2012/13 2013/14 2014/15

Final Appropriation Medium Term Expenditure Estimates

R'000 R'000 R'000 R'000

Current payments

Compensation of employees 100 017 105 759 111 284 118 083

Goods and services 94 117 91 752 97 481 102 388

Transfers and subsidies

Public corporations and private enterprises 156 255 - - -

Gifts and donations 753 100 100 100

Payments for capital assets

Machinery and equipment 2 200 1 461 1 880 2 581

Payment for Financial Assets - 1 050 000 - -

Total 353 342 1 249 072 210 745 223 152

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DPE Budget – Summary of Transfer payments and Payment for Financial Assets to State Owned Companies

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2011/12 2012/13 2013/14 2014/15

Final Appropriation Medium Term Expenditure Estimates

R000 R000 R000 R000

Alexkor (*Financial Assets) - 350 000 - -

Denel 116 255 - - -

Denel (* Financial Assets) - 700 000

Pebble Bed Modular Reactor 40 000 - - -

Total 156 255 1 050 000 - -

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*The allocation of R350 million to Alexkor to address liabilities in terms of the Deed of Settlement and other obligations as well as R700 million to Denel to re-capitalise Denel Aerostructures in 2012/13 are classified as Payments for Financial assets in the Economic Classification on the Standard Chart of Accounts.

R116.3 million was allocated and paid to Denel in 2011/12 in respect of an indemnity claim granted to Denel Aerostructures.

R40 million was allocated and paid to the PBMR in 2011/12 for the statutory requirement for decommissioning and dismantling the fuel development laboratory.

The Department undertook an organisational review process which resulted in the development of a new organizational model and functional structure in line with our

strategic objectives.

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Director-General

Public Enterprises

Minister

Public Enterprises

Programme 1:Administration

Programme 3:Portfolio Management

And Strategic Partnerships

Programme2:Legal & Governance

Deputy Minister

Public Enterprises

Energy and Broadband Enterprises Transport Enterprises

Manufacturing Enterprises

Strategic PartnershipsEconomic Impact and

Policy Alignment

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DPE statistics as at 1 March 2012

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Total exits (01/04/11-01/03/12)

Interviews: 13Advertised : 3To be advertised: 2

189171

18

Total establishment as at 1 March 2012Filled posts as at 1 March 2012Vacancies as at 1 March 2012Interviews in progress

Public Sector Turnover Rate as at 31 March 2011: 18 % (overall status)

6.13%Turnover Rate as at 1 March 201210 Exits ÷ 163 (Total exits divided by Filled posts as at 1 April 2011)

Public Sector Vacancy Rate as at 1 March 2012: 22% (overall status)

9.52%Vacancy Rate as at 1 March 2012

Level 13-16 (7 Resignations)Level 9 -12 (1 Resignation, 1 Transfer)Level 1 -8 (1 Dismissal)

10721

Level 13 – 16 Level 9 - 12 Level 1 - 8

2616

55

Total new appointments (01/04/11-01/03/12)

186163

196

Total establishment as at 31 April 2011Filled posts as at 01 April 2011Interns appointedGraduate Development Programme

Statistics SA(mid-year

population estimates)

Employment Equity Targets - as at 1 March 2012

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Disability

Target 40.3% 39.2% 1.3% 1.2% 4.5% 4.4% 4.7% 4.5% 2%

Achieved %Actual

43.27% 74

40.35%69

2.33%4

1.75% 3

3.50% 6

2.33%4

5.26% 9

1.16% 2

3.50% 6

Statistics SA(mid-year

population estimates)

White

F M

Coloured

F M

Indian

F M

African

F M

DPSA Target

Top strategic risks identified in DPE (1)

Risk Mitigation Action1. The infrastructure investment programme might not

be delivering the desired targets in terms of addressing capacity constraints (planned progress and completion; budgeted costs; private sector participation; local spend; skills development; job creations; etc)

Increased focus on infrastructure investment research and analysis on the impact on the economy; increased reporting requirements on project progress

2. Ability to provide shareholder support for SOC to access capital from external sources and leverage status as sovereign shareholder

Facilitation role to ensure SOC access capital at appropriate cost and terms, including Government Guarantees and letters of comfort where appropriate

3. Board and senior management competence and ability to interpret SOC mandate and apply its resources in meeting its mandate in an effective; efficient and economical manner

Ongoing refinement of the shareholder management model. Active involvement of the shareholder around the exercise of its key levers of interest (governance; Board appointments; strategy and performance monitoring). Monitoring of performance and trends; capital investment and capital structure and as well as the detection; mitigation and monitoring of cross-cutting shareholder risks on ongoing basis

4. Compliance with relevant laws, regulations, directives, protocol, contractual provisions, etc. Anti-competitive behaviour.

Ongoing review of regulatory compliance through SOC corporate plans and quarterly reporting processes

5. Greater SOC productivity and asset effectiveness to increase revenue and profit and achieve operational excellence with optimum economic impact of SOC activities on their respective sectors and the broader economy. Ability to determine whether SOC performance is on track with the corporate plans; whether strategic objectives have been met and to highlight any emerging risks.

Annual setting of performance targets in Shareholder Compact and ongoing monitoring to determine if SOC is on track with meeting targets, whether strategic objectives are being met and to highlight any emerging risks

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Top strategic risks identified in DPE (2)

Risk Mitigation Action6. Understanding stakeholder expectations in relation

to the SOC environment and Governments strategic objectives. Understanding and incorporation of stakeholders requirements for incident management relationship/engagement

Ongoing, planned engagement with all relevant stakeholders. Review of stakeholder relations management plan

7. Providing leadership to DPE in ensuring effective and efficient teamwork and delivery on a shared vision

Review of internal communications strategy; conducting a climate survey and implementing findings.

8. Ability to formulate strategic intent on each SOC after robust stakeholder engagement process. Ability to communicate strategic intent to SOC aligned with a set of outcomes and crucial output measures based on the Strategic Priorities identified in the MTSF Effective and efficient public and private sector allocation of resources

Annual review of the SOC Strategic Intent Statement and the inclusion of appropriate and measurable key performance measures and indicators to be achieved by the SOC in delivering the desired outcomes and objectives in the Shareholder Compact. Assuring alignment between Shareholder Compact and SOC Corporate Plans

9. Impact of incontrollable economic factors (foreign exchange rates; inflation; interest rates) on SOC revenues; debt and costs

Monitoring financial and economic indicators and review trends arising from these factors to understand their implications on SOC performance. Incident analysis process (gathering and sharing of information with SOC).

10. Having the required number of staff with relevant skills to enable DPE to fully deliver on its mandate. Critical skills include financial analysts, economists, industry specialists, legal and transaction specialists, planning analysts for sector investments.

Ongoing analysis of required skills; recruitment of skilled employees and outsourcing (where necessary)

11. Exposing the fiscus to supplying and guaranteeing unplanned or additional funding due to insufficient retained earnings/equity in the SOC balance sheet to fund new investments and growth

Setting improved performance targets in the Shareholder Compact. Ongoing review of SOC funding models and increased focus on the establishment of strategic partnerships that will ensure private sector participation in the funding of infrastructure investment

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• Legislative framework supportive of DPE’s specific shareholder mandate/role requires clarification.

• Challenges with skills attraction and retention.

• Technical staff capacity constraints means that current resources need to stretch further.

• Budgetary constraints.

• Interdepartmental co-ordination and alignment on mandates of SOC requires strengthening.

• Impact of recession on SOC.

• Established corporate governance frameworks for Shareholder oversight and actual practices of SOC outcomes against these frameworks has been varied e.g. 

• boardroom disputes (between Boards and Management)

• procurement practices, including. for major capital investments

• financial accounting practices

• remuneration practices.

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Challenges facing the Department

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How the Select Committee can assist the Department?

• Adequate notice for presentations and briefings in order to assist with proper planning and execution of functions and duties. This will assist the department with efficient use of resources given current constraints.

• Clear and specific requirements for reporting will result in improved preparation and a common understanding of expectations.

• Assist the Department to secure additional funding for its operations.

• Participation and engagement in the DPE’s annual Parliamentary Learning Programme to provide insight into the sector and key issues of relevance to NCOP.

• Engaging counterpart Committees and Departments that are critical to securing a conducive policy and regulatory environment for SOC.

• Regular engagement on issues of mutual interest affecting the SOC.

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Q & A

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Annexure:Audited Programme Specific Key Outputs and Progress Report to date

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Programme 2 : Energy & Broadband Enterprises

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• Appointment of CEO and Chairman in 2009.

• Funding model for the Generation Capacity Expansion (Build) programme to ensure security of supply.

• Monitoring the Implementation of the Eskom Infrastructure Build Programme.

• Ensuring the development and implementation of Coal Haulage Road-to-Rail Logistics for Eskom’s fleet of coal-fired power stations.

• Creation of regulatory and institutional structures for the introduction of viable Independent Power Producers (IPP) and the start of the process for the participation of IPPs in 2010.

 

Targeted output

• Completed. Process was initiated and concluded successfully.

• Funding model for the Eskom Build has been concluded. A proposal for funding the IRP is currently being concluded between Eskom and DPE for the Minister’s approval.

• Procurement and delivery of new build tracked on quarterly basis. Delivery currently on schedule, despite significant risks.

• 8.2 million tonnes of Coal is targeted to be moved by rail by end of March 2012, a Cooperation Agreement between Eskom and Transnet has been concluded. Haulage Agreement detailing the routes will be concluded soon.

• A ring-fenced System and Market Operator Unit (SMO) unit within Eskom is in place, and the significant work has been done to move this unit to a subsidiary of Eskom as part of the transition to ISMO (Independent System and Market Operator).

Progress Report

Energy (Eskom)

47CONFIDENTIAL

Targeted output 2009/10

• Quarterly assessments completed.

• Ongoing quarterly assessment and project to be completed by mid 2012.

• Compact concluded and signed, despite a delay in the process towards finalisation.

Progress Report

Broadband (Broadband Infraco)

Targeted Output

• Quarterly assessment of the completion of planned capital programmes and roll-out of the National Long Distance Network.

• Monitoring of the construction of the West African Cable System (WACS) project.

• Shareholder Compact with Broadband Infraco.

48CONFIDENTIAL

• Oversight of PBMR.

• PBMR’s Rationalisation.

Targeted output

• PBMR has been granted a PFMA exemption from submitting corporate plans, shareholder compacts and quarterly reports due to the company’s transition to “care and maintenance” in 2010.

• Monthly meetings being held and progress on the rationalisation is being monitored.

Progress Report

Nuclear (PBMR)

49CONFIDENTIAL

Programme 3 : Legal and Governance

50CONFIDENTIAL

• Develop the Government Shareholder Management Model to provide a framework for the legislative imperatives of the SOC.

   

Targeted output

• Legislative review completed. • Implications of the new Companies Act

completed.• Board appointment Framework and

database developed. • Directive on CEO appointments

developed.

Progress Report

Governance (1)

51CONFIDENTIAL

• Conduct a review of Board and executive remuneration in accordance with competencies and SOC profile.

• Submit guidelines on Board performance evaluation.

   

Targeted output

• In progress. Cabinet was briefed on the Review Panel’s report in February 2011.

• Cabinet mandated that the Department engage on closed consultation on a new remuneration model prior to returning to Cabinet with a final decision.

• The stakeholder consultation includes the alignment with National Treasury guidelines and the work of the Presidential Review Committee (PRC). This is still underway.

• Completed. The Department is working on the alignment with the Presidential Review Committee on State Owned Enterprises (PRC) and SOC to implement guidelines thereafter.

Achievements 2009/10

Governance (2)

Progress Report

52CONFIDENTIAL

Presidential Public Liaison (Hotline)

• Timeous response to queries from the Presidential Public Liaison Units

Targeted output

• As at 10 February 2012, 586 calls have been directed to the Department. 381 calls have been resolved and 205 still remain open.

Progress Report

Legal Advisory Services (1)

53CONFIDENTIAL

Transfer of Telkom shares (previously held in Diabo Share Trust)

•Beneficiation, vesting of benefits to Diabo share beneficiariess

•Tracing and payment of 9000 beneficiariess

Targeted output

• Traced 6000 beneficiaries, 700 of which have been paid.

• Although majority of beneficiaries have been located, approx. 2500 are deceased. Work is currently underway to correctly locate their next of kin.

Progress Report

Legal Advisory Services (2)

54CONFIDENTIAL

Winding up of Aventura

• Prepare company and ensure winding up of Aventuras

• Transfer of remaining resorts to Forever Siyonwabas

Targeted output

• Received audited annual financial statements from 2004 – 2008.

• Company structure and governance risks that were identified has prompted DPE to review its approach to management of the winding up process. Work in progress.

• Process of transfer is underway, with the receipt of the signed certificate of consent from the Minister of Finance for transfer of the resort at Plettenberg Bay. Work in progress.

Progress Report

Legal Advisory Services (3)

55CONFIDENTIAL

Programme 4 : Manufacturing Enterprises

56CONFIDENTIAL

• Enabling Denel’s business sustainability.

• Progress on implementation of Denel future state, especially in areas requiring buy-in from Department of Defence (DoD).

• Funding assessment done. Three Denel guarantees rolled over as interim support mechanism while a turnaround plan is being developed.

• Awaiting finalisation of the ongoing process with regard to the review of Denel’s new mandate.

• Process is underway to align Denel’s capabilities with the DoD’s strategic requirements. This is contingent upon the DoD finalising its Military Strategy.

Manufacturing Enterprises: Defence

Targeted output Progress Report

57CONFIDENTIAL

Targeted output Progress Report

Manufacturing Enterprises: Forestry (1)

• Shareholder Compact concluded with Safcol.

• Assessment of Board strength.

• Preparation of position paper on SAFCOL’s future role.

• Compact signed.

• Comprehensive review undertaken and Board replacements effected.

• To inform the future role, a Turnaround Plan was requested from Safcol and was received in early 2011. Work on the future role of SAFCOL is still underway.

58CONFIDENTIAL

Targeted output Progress Report

Manufacturing Enterprises: Forestry (2)

• Disposal of minority shareholding - shares transferred to communities/alternative institution.

• Rural Development and Land Reform (RDLR) commissioned a legal opinion in July 2010 into an alternative model for the warehousing and transfer of SAFCOL minority shares.

• RLDR is in the process of finalising an alternative model for share transfer to ensure community benefit. Work in progress.

59CONFIDENTIAL

• Richtersveld Deed of Settlement implementation:

• Pooling and Sharing Joint Venture.

• Settlement of the post-retirement medical aid liability.

• Township infrastructure upgrade• Transfer of management of

hospital in Alexander Bay to Northern Cape Provincial Government.

Targeted output

• Richtersveld Community and Alexkor entered into the Pooling and Sharing Joint Venture on 7 April 2011 with the Richtersveld Mining Company on a 51%/49% profit share respectively.

• Second annual payment in respect of the post-retirement medical aid liability made during 2011/12.

• Phase 1 of Township establishment project completed (15 December 2011).

• Hospital transferred to the Northern Cape Provincial Government.

• Implementation of other obligations are included in the Shareholder’s Compact with Alexkor to ensure full compliance with the Deed of Settlement.

Progress Report

Manufacturing Enterprises: Mining

60CONFIDENTIAL

Programme 5 : Transport Enterprises

61CONFIDENTIAL

• Shareholder Compact concluded with Transnet.

• Finalise transaction structure with Department of Transport (DOT) for private sector participation in Ngqura container terminal.

• Awarding and rollout of first wave of concessions to ensure access to branch lines by private operators.

Targeted output

• Shareholder Compact signed.

• Agreed interim licence conditions for Transnet port terminals operations at Ngqura in preparation for competitive process. Work in progress.

• Draft branch lines strategy completed in July 2010. Further work on strategy requested by Ministers of Transport and Public Enterprises to broaden the scope of the current strategy. Three branchlines have been identified as pilots. Work in progress.

Progress Report

Transport Enterprises: Transnet (1)

62CONFIDENTIAL

• Development of National Corridor Performance Measurement tool and operational indicators : Iron ore, export coal.

• Implementation of the National Ports Act, 2005.

• Implementation of Transnet levy for pipelines and corporatisation of Transnet pipelines.

• Monitoring of Transnet capital investment programme.

Targeted output

• First release of IT portal completed.• Completed NCPM implementation on

export Iron Ore, export Coal and export Manganese. Gauteng-Durban and Gauteng-Cape Town corridors underway.

• Completed draft paper to guide structural options in ports and requisite amendments to the Ports Act.

• Completed financial modelling of Transnet Pipelines tariff application and scenarios of tariff increases

• First instalment of levy disbursement to Transnet in August 2010.

• Progress tracked on monthly basis. Delivery on schedule excl. New Multi Purpose Pipeline which is to be completed by end 2013.

Progress Report

Transport Enterprises: Transnet (2)

63CONFIDENTIAL

• Shareholder Compacts concluded with SAA and SAX.

• Implementation of the Africa Aviation Strategy by SAA and SAX.

• Work with SAA to develop a business plan for selected business focus units and assess capital requirements.

• Assessment of feasibility of SAAT as a multi-airline focused African maintenance hub.

Targeted output

• Shareholder Compacts concluded.

• SAA submitted various PFMA to launch new routes on the continent.

• Business plans for South African Airways Technical (SAAT) and Voyager completed.

• Feasibility study for expansion of SAAT completed in March 2011.

Achievements 2010/11

Transport Enterprises: Aviation

Progress Report

64CONFIDENTIAL

Programme 6 : Joint Project Facility

65CONFIDENTIAL

• Oversight of internal SOC skills development: Ensure sufficient scarce and critical skills in place within SOC and the supplier network

• Facilitate partnerships with DHET, SETA and relevant stakeholders to support artisan training to increase the national pool of artisans

Targeted output Progress Report

Human Resources & Capacity Building

• Skills dashboard revised and operational.

• SOC reports submitted, monitored and evaluated quarterly.

• Trainee artisans, technicians and engineers supported by SOC in various programmes (bursaries, internships, learnerships and apprenticeships).

• Regular engagement with key partners to increase pool of artisans (e.g. DHET, EDD, DTI, NBI and SETAs).

66CONFIDENTIAL

SOC National Skills Accord Grouping

Artisan Trainees Scarce Skills Programmes (Technicians, Engineers and Sector Specific i.e.

Train Drivers)

Matriculants in trade Skills and Graduates Placed for Workplace Experience

Eskom 255 481 2,2471,469

Transnet 854 2,142 -

SAA/SAX 75 161 -

Denel 11 6 -

Safcol/Alexkor/Infraco 0 0 -

1,195 2,790 3,716

Note 1: Data does not include learners still in the system enrolled in previous years but reflect only learners enrolled in terms of National Skills Accord Commitment 5 from 1 April to December 2011.

Note 2: Data does not include private learners and learners from private companies and foreign countries trained at Denel Technical Academy.

Skills Development (as at 31 December 2011)

Some of the challenges in this area relate to funding that is required to ensure SOC training facilities are optimally utilised in order to train additional artisans and technicians to increase the national pool in support for NGP. Validation of data is also difficult.

CONFIDENTIAL 67

• Long-term locomotive fleet demand, funding strategy and industry champions.

• Development of supplier development policy.

Targeted output

• Pre-feasibility study completed for locomotive procurement including demand analysis, funding and industrialisation strategy.

• Comprehensive programmatic and transactional procurement policy developed.

• Design and implementation of supplier development concerns into procurement policies, processes and systems at both Eskom and Transnet is advanced.

• Procurement capacity building programme implemented at both Eskom and Transnet.

Progress Report

Competitive Supplier Development Programme (CSDP)

68CONFIDENTIAL

• Eskom:• R1,2 billion has been committed by Eskom suppliers in new manufacturing facilities

and thus far over R600 million has been invested. • Eskom suppliers have committed to train 7214 people in critical and scarce skills.• 63% local content achieved on the build programme.

• Transnet: • Constantly increasing local content, technology transfers, skills development and

export development components on locomotive purchases. • CSDP obligations included in a range of rail and port equipment purchases

(investment and skills commitments).

Competitive Supplier Development Programme (2)

CONFIDENTIAL 69

Some of the challenges in the area of procurement leverage relate to the serious shortage of sophisticated procurement skills to implement complex procurements. SOC are also struggling to aggregate demand across different business units.A practice of “emergency” procurement, rather than planned, long term procurement remains prevalent.

• Ensure training institution preparedness for new SWH qualifications. Improved monitoring platform and learning tools.

• Establish conducive environment for uptake of Eskom’s Rebate Programme for accelerated SWH geyser installation and maintenance.

• Facilitate training fundraising.

Targeted output

• New qualification registered in CETA domain. 21 private training sites prepared and accredited for roll-out.

• Slow rebate uptake. Eskom Rebate Programme aligned with professional bodies and has created registered independent SWH installer mechanism.

• Eskom contract for 100 trainees signed. CETA MoU and training contract renewed. World Bank funding proposal revised and re-submitted for possible funding.

Progress Report

Solar Water Heater (SWH) Skills Development Programme

70CONFIDENTIAL

• DPE to host tailored Learning Programme for Portfolio and NCOP Select Committees.

Learning Programme for Parliamentary Portfolio and Select Committee (Autumn/Summer School)

• Successful Learning Programme hosted.

Progress Report Targeted output

71CONFIDENTIAL

• Draft guidelines for SOC-State transactions developed.

• Housing Delivery Agreement signed and multi-stakeholder process initiated to release SOC land.

• Property dashboard developed and refined. Work in progress.

• Alignment not achieved as Property Charter is not yet gazetted.

Progress Report

Property Project

• Land Release in support of national objectives.

• Alignment of SOC Non-Core Property Disposal Policy and BBBEE Guidelines with Property Sector Charter Code not achieved.

Targeted output

72CONFIDENTIAL

• Dashboard developed for improved monitoring of EIA for SID and relevant interventions undertaken to expedite resolution.

• Fund monitored on a quarterly basis and SOC contributions facilitated.

• Participated in Inter-governmental forum on climate change, air quality and water for growth and development.

• Successful participation in COP17 held in December 2011.

Progress Report Targeted output

Environmental Issues

• Monitoring of EIAs for Strategically Important Developments (SID) and appropriate intervention to resolve delays.

• Facilitation of SOC Fund.

• Participation in Inter-governmental committee meetings.

73CONFIDENTIAL