DPE PRESENTATION TO PORTFOLIO COMMITTEE ON SOE PERFOMANCE AGAINST AGREED KPI’S FOR 2006/07

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DPE PRESENTATION TO PORTFOLIO COMMITTEE ON SOE PERFOMANCE AGAINST AGREED KPIS FOR 2006/07 SEPTEMBER 2007. Flow of Presentation. Evolution (Phases 1 & 2) Process Components SOE Performance Against Agreed KPIs for 2006/07. Evolution. Phase 1: - PowerPoint PPT Presentation

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  • DPE PRESENTATION TO PORTFOLIO COMMITTEE ON SOE PERFOMANCE AGAINST AGREED KPIS FOR 2006/07 SEPTEMBER 2007

  • Flow of Presentation

    Evolution (Phases 1 & 2)ProcessComponentsSOE Performance Against Agreed KPIs for 2006/07

  • Evolution

    Phase 1:Initially voluminous and difficult to interpret Resultant lengthy conclusion processKPIs primarily balance sheet focused due to SOE financial difficulties Lack of performance and output target focusLimited review

  • EvolutionPhase 2: Slim compact format adopted with emphasis on performance and output targetsObligation to mirror mandate and strategic intent statementKPIs to cascade down to SOE subsidiariesCompact reviewed annually limited tweaking of strategic objectives with amendments focused on KPIsCompact a live document

  • Flow of Presentation

    EvolutionProcessComponentsSOE Performance Against Agreed KPIs for 2006/07

  • ProcessAnnual agreement between Executive Authority (Minister) and Accounting Authority (SOE Board)Key Performance Measures & Indicators determined from Corporate PlanShareholder Compact negotiatedQuarterly Performance Reporting and Monitoring against agreed indicatorsAnnual Performance Reporting and Monitoring against agreed indicatorsAnnual Review and renegotiation

  • ProcessPolicy Proposed KPIs Negotiated KPIs Reporting on Performance Annual report on Performance

  • Flow of Presentation

    EvolutionProcessComponentsSOE Performance Against Agreed KPIs for 2006/07

  • *Components - Clauses

    Interpretation;Functions of shareholder compact;Mandate;Strategic objectives;Key performance indicators and evaluation; Period of compact; Appendice:Key performance indicators

    Generic Review annually

  • Components - Generic KPIsCapital EfficiencyFinancial EfficiencyOperating Efficiency and EffectivenessGearing Ratios Developmental objectivesASGI-SASkills developmentBroad Based Black Economic EmpowermentStrategic Supplier Development SOE Strategy / Maturity Specific:Investment (Capacity Delivery)Infrastructure InvestmentSalesRevenue Increases

  • SOE Compacts 2006/2007Signed SCTransnet Eskom Denel Safcol (Process KPIs)

    Not signed SAA (then not within DPE portfolio)Alexkor (Land claim process)

  • SOE Compacts 2007/2008

    (Phase 3)

    Compacts extended in width (All SOE) and depth (Extended Performance Indicators and Targets).

    Ability to measure quarterly performance greatly increased

  • Flow of Presentation

    EvolutionProcessComponentsSOE Performance Against Agreed KPIs for 2006/07(Safcol)

  • Safcol

    Mandate

    Core business is the conduct of forestry, timber harvesting, timber processing and related activities, both domestically and internationally.

  • SafcolAt the time the Shareholder Compact and KPIs for SAFCOL were being developed, an in-depth review of the future of the company was in progress. The review was instructed by the Minister in April 2006. As a result, at the time of KPI development, no decision had been taken on the future role and strategy for the company and thus it was not clear at that time which KPIs would be needed in future Compacts. For this reason, an Interim Shareholder Compact was agreed, which contained Interim KPIs, and which it was expected would be significantly revised after the decision on the future role of the company. These Interim KPIs were intended to:ensure that performance data was prepared and reported, using an appropriate and consistent definitionobtain base-line data for certain KPIs which were likely to be needed in the following yearestablish performance targets for certain fundamental measures, such as the presence or absence of good forest management

  • SafcolIn order for the KPIs and performance data to be meaningful, they must be defined very precisely and that definition must be applied consistently over time. Failure to do this will render the KPIs at least less helpful, potentially meaningless and potentially open to manipulation.

    Note that, as a result of the decision confirmed by Cabinet in March 2007 that KLF should be transferred to the private sector and that SAFCOL should be wound-up, the new Compact for 2007-08 includes KPIs relating to those transactions. Such KPIs were deliberately not included in the 2006-07 Compact.

  • SafcolSpecific mandate for 2007/2008:-Complete the transfer to the private sector of Komatiland Forests (Pty) Ltd in accordance with the Transaction Guidelines;-Maintain sustainable management and value of forests and other assets until transfer is completed; -Reform the system used for sale of sawlogs; -Assist the Shareholder Representative with the sale of IFLOMA; -Prepare for an orderly winding up.

  • Flow of Presentation

    EvolutionProcessComponentsSOE Performance Against Agreed KPIs for 2006/07(Denel)

  • DenelMandateDenels mandate is to supply strategic defence capabilities to the SANDF (and the SAAF) and to act as a catalyst for advanced manufacturing in the broader economy.

    Strategic ObjectivesStrategic RoleCapital and financial efficiencyInvestmentConsolidationCapability Improvements and Operational EfficiencyDevelopmental Objectives

    Key Performance IndicatorsSee next slide

  • Denel

  • Denel

  • Denel

  • DenelImprovements in the 2007/08 Proposed Shareholder Compact

    The Strategic objectives have been consolidated and streamlined for the 2007/08 Compact:Strategic and economic role in South AfricaFinancial and operational efficiency Consolidation and equity partnerships Developmental objectives

    The financial KPIs have been expanded to enable improved monitoring of Denels performance (particular attention has been paid to monitoring Denels debt position as it is entering the market to raise its remaining funding requirements): Profitability ratiosManagement effectivenessLiquidity ratiosCash Cycle DaysOrder CoverageInvestmentDebt and Gearing

  • DenelImprovements in the 2007/08 Proposed Shareholder Compact (contd.)

    Business performance indicators include:Measurable indicators: Export sales, cost reductions, exit of non-viable and non-core businesses, improvements in governance and risk management policies and systems and compliance with legislation. Best endeavour indicators: Consolidation of the business and the establishment of manufacturing clusters, equity partnerships and local collaborative partnerships, alignment of product lines to strategy, the management of major programmes, contract management and contracting improvements and reductions in the overall liability under the A400M programme.

  • Flow of Presentation

    EvolutionProcessComponentsSOE Performance Against Agreed KPIs for 2006/07(Eskom)

  • Transnet Mandate

    Key role assist in lowering the cost of doing business in S.A and enabling economic growth through providing appropriate infrastructure and ensuring system reliability in a cost effective, efficient manner & within acceptable benchmark standards

  • Economic Operating Profit (EOP)Measures the economic operating profit created by the business after paying for the use of capital (including working capital) to the providers thereof. Minimum return required from the business should result in EOP being zero. This minimum required return (opportunity cost) includes a charge for the capital employed to produce the outputs. EOP is derived from the following calculation:

    Operating ProfitXXXAdd DepreciationXXXEBITDAXXXLess Economic Tax(XXX)EBITDA After Tax XXXLess Total Capital Charge on Assets(XXX)Economic Profit XXXX Add EBITDA After Tax XXX Less Capital Charge for Working Capital(XXX)Economic Operating Profit (EOP) XXXX

  • Generation Capital ExpenditureThis is the capital expenditure that will be spent by Capital Expansion Department (CED) on behalf of Generation Division on new generation capacity projects and other generation projects in accordance with the enabling agreement between CED and line divisions.

    Transmission Capital ExpenditureThis is the capital expenditure that will be spent by Capital Expansion Department (CED) on behalf of Transmission Division including the design and construction of new transmission networks and major extensions and strengthening of the existing grid major transmission projects in accordance with the existing enabling agreement.

    Distribution Capital ExpenditureThis is capital expenditure spent on distribution infrastructure managed within the Distribution Division. This captures capital expenditure on new customer connection, refurbishment, strengthening and continuous business improvement (electrification is excluded)

  • Generation capacity installed & commissionedThis is the nominal number of megawatts installed and commissioned within the financial year. This does not track the number of megawatt sent out or the maximum capacity demand which is always less than the nominal amount installed.

    Transmission lines installedThis is the number of kilometres of transmission lines installed within one financial year. This includes kilometres of line that are installed and commissioned and those that are not yet commissioned within the financial year.

    Transmission MVA installedThis is the total transform capacity measured in MVA installed within one financial year.

  • Major Incidents A major incident is an interruption incident that results in the loss of 1 system minute or more. The measure is scored on the basis of the degree of severity of these events. The degree of severity of a major interruption is defined internationally as follows:[Severity Degree 1: System minutes lost 1 and smaller than 10] [Severity Degree 2: System minutes lost >10 and < 100] [Severity Degree 3: System minutes lost 100] This measure tracks the number of significant interruption incidents.

    System Minutes Lost ( 1 min)This measure is the sum of system minutes lost per incident over a 12 month moving window. Only system minute events less than 1 system minute are counted in this index. This measure describes the underlying performance (severity of the load interrupted) over a 12-month period. Major events are excluded from this measure.

    Unplanned Capability Loss Factor (UCLF)This measure indicates the effectiveness of plant programmes and practices in maintaining systems available for safe electrical generation. It is defined as the ratio of the unplanned energy losses during a given period of time, to the reference energy generation, expressed as a percentage. Unplanned energy loss is energy that was not produced during the period because of unplanned shutdowns, outage extensions, or unplanned load reductions due to causes under plant management control.

  • System Average Interruption Duration Index (SAIDI)This measure is the average interruption duration for all customers served during the 12 month period.SAIDI = Sum of customer interruption durations (total hrs / customer / year)Total number of connected customers Rand/Megawatt Hour (R/MWh) (before embedded derivatives)Measures the cost per unit of energy sold. R/MWh = Interest (include fair value) + Operating costs (includes abnormal) + Primary Energy X 100External sales GWhEskom Trainees / BursarsThis indicator tracks the number of learnerships that have been registered with the Eskom learnership programme in the current financial year. This indicator includes both the 18.1 (employed by Eskom) and 18.2 (unemployed) learners.

  • TransnetEIBT MarginReturn on Average Capital EmployedCAPITAL & FINANCIAL EFFICIENCY KPIS INTRODUCED IN 2007/08

  • TransnetDistributionSystem Average Interruption Frequency Index (SAIFI)

    OPERATIONAL KPIS INTRODUCED IN 2007/08

  • Flow of Presentation

    EvolutionProcessComponentsSOE Performance Against Agreed KPIs for 2006/07(Transnet)

  • Transnet Mandate

    Key role assist in lowering the cost of doing business in S.A and enabling economic growth through providing appropriate ports, rail and pipeline infrastructure and operations in a cost effective, efficient manner & within acceptable benchmark standards

  • Transnet Strategic Objectives

    Capital & Financial efficiencyOperational Efficiency & EffectivenessInfrastructure InvestmentsDevelopment Objectives

  • Transnet2006/07 SKPIS

  • TransnetOPERATING EFFICIENCY & EFFECTIVENESS

  • Transnet2006/07 KPIS Transnet achieved the capital/financial efficiency and infrastructure investment targetsX = Revenue objective not achieved due to Spoornets underperformance. Division experienced capacity, constraints, derailments and customer-related problems

  • Transnet2007/08 SKPIs

    Capital/financial efficiency- Ebitda margin (%)- Cash interest cover (times)- Gearing ratio (%)- Cfroi (%)Infrastructure investments (capacity delivery)- % of actual capital expenditure compared to budgeted expenditure- % of total maintenance spent compared to budget: SpoornetRevenue targets tariff (%) increase and volume (%) increase at group and divisional levelOur focus now shifts from primarily financial to a mix of financial and operational targets

    Note: KPIs remain the same as for 2006/07; 2006/07 targets form the base, new targets to be agreed where required

  • TransnetTransnet freight railTraffic volume in tonnesStaff productivity (net ton kilometres / number of staff)Net ton average / average # of locomotivesNet ton average / average # of wagonsNet operating cost / net ton kilometerWagon turnaround (days)On-time arrival (%) at yard nearest the customer sidingsOPERATIONAL KPIS INTRODUCED IN 2007/08

  • OPERATIONAL KPIS INTRODUCED IN 2007/08NPAAnnual volumes of cargo and growth per cargo typeCargo throughput per metre of quayBerth occupancy (%)Ship waiting time

    Transnet

  • TransnetSAPOVolume of cargo p.aCrane productivityShip productivity (working time only)Ship productivity (total time at berth)Yard productivityLabour productivityOPERATIONAL KPIS INTRODUCED IN 2007/08

  • Flow of Presentation

    EvolutionProcessComponentsSOE Performance Against Agreed KPIs for 2006/07(SAA)

  • Mandate

    African airline with global reachServe wide range of routes focus on limited number of profitable routes into major continentsIncrease African routesOnly serve heavily trade routes in South Africa

  • Due to the unbundling of SAA from Transnet, a Shareholders Compact between DPE and SAA was not concluded for 2006/07. KPIs for the current financial year are cited in the following table .

    The focus for the department is to monitor performance against the Turnaround Plan devised with the assistance of the Seabury Consulting Group and to this end a team comprising official from National Treasury and DPE has been setup.

  • Flow of Presentation

    EvolutionProcessComponentsSOE Performance Against Agreed KPIs for 2006/07(PBMR)

  • Mandate

    Successful commercialisation of pebble bed technology for world energy marketPreferred global provider of standardised nuclear energy systems, fuel and life cycle supportPerformance oversight via PIMProject phase development of demonstration plantShareholder compact to be concluded 2008/2009

  • Flow of Presentation

    EvolutionProcessComponentsSOE Performance Against Agreed KPIs for 2006/07(Infraco)

  • InfracoTo expand the availability and affordability of access to electronic communications, including to underdeveloped and underserviced areas, in accordance with the Electronic Communications Act and commensurate with international best practice and pricing, through the provision of

    (a) electronic communications network services; an(b) electronic communications services.

    Mandate

  • InfracoCurrently subsidiary of Eskom EnterprisesDepartment has the agreement of Eskom Enterprises to monitor performance of Infraco on the following KPIs:-EBITDA Margin (%)-Cash Interest Cover (Times)-Gearing Ratio (%)-ROA (%)-ROE (%)

    SKPIs

  • Conclusion2007/2008 compact process greatly improvedNegotiation of compacts with majority of SOEIncreased depth and width of compact content proving invaluable performance toolOngoing identification and negotiation of KPIs following shareholder strategic objectives and market changesMajority of KPIs achieved by SOE for 2006/2007

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