presentation to the select committee on labour and public enterprises 21 november 2012

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Presentation to the Select Committee

on Labour and Public Enterprises

21 November 2012

2011/12 Annual Report of the Department

of Public Enterprises

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Contents

Economic Context

Strategic Thrust

Programme Performance highlights

DPE Organisational Structure and Statistics

Annual Financial Statements and Highlights

Key areas where we did not achieve the targets

Challenges

Strategic priorities

Economic context

• Economic growth remained below 2007 and 2008 levels and was 3.1% in 2011

• While the economy emerged from the recession in the 3rd quarter of 2009, the fundamentals remained weak

• A countercyclical fiscal framework was adopted to support the economy

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Source: Quarterly Bulletin, 2011

Economic context • Real fixed capital expenditure

by public corporations gathered further momentum on account of an acceleration in capital spending by Eskom and Transnet, further crowding-in private sector investment

• Total capital investments in the economy increased to R560 bn in 2011 compared to R520 bn in 2010 with public corporation spending over R127 bn and increased by 9% in Q4

• This reflect government’s commitment to accelerate infrastructure investment and provide a stimulus to the economy

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Source: Quarterly Bulletin, 2011

Economic context

• Unemployment has remained unacceptably high at 24% compared to the pre-crisis period of 2009

• Investment by the SOC is crucial to ensure that: • The overall capacity and efficiency of the economy is

increased • New industrial capabilities are developed to maximise

impact in the domestic economy • Create a strong foundation for long-term growth

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Against this background, the DPE’s strategy for the period under review was focused on the following 5 areas:

1.Maintain the robust shareholder oversight practices within the framework of shareholder management model that the Department has adopted

2.Stabilising and repositioning of our SOC looking at funding options 3.Recognition that State Owned Companies (SOC) are key instruments

for a Developmental State with regards to: Driving fixed investment (particularly in a counter cyclical manner) to unlock

economic growth. Leveraging procurements to support industrialisation; skills development;

transformation and job creation.

4.Gearing up our shareholder oversight to lead in driving capital investment

5.Enhanced coordination across Government Engaging with policy departments to create an enabling environment for

SOC developmental mandates.

Strategic Thrust

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Strategic thrust

• The key enablers are:

• Appropriate resourcing and institutional repositioning of

the Department;

• A coherent policy and regulatory environment; and

• Effective strategic coordination across the whole of

government

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Highlights of Programme Performance

Summary on the shareholder function

• The Department largely delivered on all the shareholder management functions including: • Signing of shareholder compacts • Delivery of strategic intent statements to SOC boards• Quarterly financial reviews

• The following was not achieved: • The shareholder compact for Infraco was not signed as the new

board required more time to engage with both management and the department

• The 3rd Quarter financial review of South African Express could not be completed as a result of restatement of the company’s financials

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Programme 1 : Administration

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Administration: Chief Investment & Portfolio Management

• Fully populated Isibuko Dashboard and reporting and risk management framework

Targeted output 2011/12 Achievements 2011/12

• Significant enhancement of the Isibuko Dashboard enabling rapid access to key SOC information and timely performance reporting and monitoring

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Administration: Chief Investment & Portfolio Management

• Approval of Minister of Mineral Resources to transfer Alexkor’s mining rights to Richtersveld Mining Company and monitoring establishment of PSJV


• All conditions of the deed settlement were met and PSJV established and has been trading since 7 April 2012

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Programme 2 : Energy & Broadband Enterprises

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Energy and Broadband Enterprises: Eskom

• Report on the implementation of Eskom’s responsibilities with respect to the Medium Term Risk Mitigation Programme (MTRMP) (Demand Side Management and Energy Efficiency, Energy Conversation Scheme implementation, REFIT, etc)

• System adequacy reports


• Eskom’s MTRMP measures monitored as planned and including approval of the maintenance plan

• System adequacy reports monitored including the monitoring of implementation of the emergency plan on “Keeping Lights On”

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• Timeous delivery of new generation capacity and transmission networks

• Funding of the build programme


• By year end, Eskom added 535 MW of generation capacity, 631 km of transmission lines and 2525 MVA of transmission capacity to the system

• R350 bn government guarantee approved. Eskom’s domestic borrowing programme increased from R65 bn to R100 bn. 76% of the funding required for the build programme up to 2017 secured

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• Ring-fencing of purchasing function with approved governance arrangement to optimally structure the system operator including engagements with other departments


• Ring-fencing of the purchasing functions included in the Eskom’s shareholder compact and concluded in February 2012

• Process to establish ISMO as a subsidiary of Eskom is being finalised

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Energy and Broadband Enterprises: Infraco

• Monitoring the rollout of the national and international network according to the national broadband targets


• Seven new Points of Presence added and 292 km of fibre optic to the network

• WACS delivered only in the first quarter of 2012/13 financial year

• Infraco establishment and investment into new network contributed significantly in the reduction of wholesale prices

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Programme 3 : Legal & Governance

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Legal and Governance

• Monitor SOC adherence to corporate governance principles


• Risk management practices at both operational and shareholder level have been consolidated and a Governance and Risk Forum to harmonise governance and risk management across all SOC established

• Standard template for

memorandum of incorporation developed and presented to SOC

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Legal and Governance

• Implementation and monitoring of the Aventura winding up process


• Approach to the winding up process for Aventura was reviewed and approved, the Department had the 2010/11 AFS audited, and secured the Master of the Court directive on the provision of security requirements (subsequently the SOC passed a resolution to liquidate the company at its AGM in May 2012)

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Programme 4 : Manufacturing Enterprises

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Manufacturing Enterprises: Denel

• Renegotiation and exit of DSA Airbus A400M contract


• The challenges at DSA have been contained and the restructuring process undertaken over the past two years beginning to yield positive results

• The term sheet on the contract renegotiations with Airbus to improve prices of the different sets was signed in December 2011

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Manufacturing Enterprises: Denel

• New business/growth strategy for Denel


• The company received export orders in excess of R5bn in 2011/12 and pursuing prospects of over R40bn in the short to medium term.

• The Department and National

Treasury exploring funding options to enable the company to exploit the new business opportunities

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Manufacturing Enterprises: SAFCOL

• Intergovernmental consultations and consensus on SAFCOL future role


• Consultation with key policy departments continues on the future role of SAFCOL

• In 2011/12 SAFCOL launched an extensive programme to support timber framed building structures as an alternative method of construction in South Africa

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Programme 5 : Transport Enterprises

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Transport Enterprises: Transnet

• Improvement in operational indicators as part of Minister’s commitment to the Delivery Agreement


• A new record of 1.22 million tons and 1.6 million tons per week were achieved on the iron ore and coal lines respectively

• Overall efficiency has improved by 17% compared to the previous period

• Volumes increased by 7.4% as a result of capital spending and operational improvements

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Transport Enterprises: Transnet

• Delivery of the build programme


• Procurement of 95 locomotives for the general freight business to enable reliable and predictable service

• New rolling stock for the iron ore and coal lines

• Acquisition of the Durban International Airport site for the construction of the new Dig out Port in Durban

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Transport Enterprises: SAA and SAX

• Launch of new routes


• SAA launched 5 additional African routes – Ndola, Kigali, Bujumbura, Pointe Noire and Cotonou and launched a direct link to Beijing in February 2012

• SAX launched operations into the African region from King Shaka International Airport and plans are underway to increase capacity to Zambia, Zimbabwe and DRC

• Weak market conditions including rising fuel costs has worsened the financial position of the two airlines

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Programme 6 : Joint Project Facility

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Joint Project Facility: CSDP

• DPE procurement framework for supplier development


• SOC have comprehensively revised their procurement policies to align with the DPE procurement framework

• Eskom has leveraged commitments of over R1,2 bn in investment into new manufacturing capacity with over R600 mn already invested

• Transnet has entered into over R14 bn contracts containing R5,4 bn in supplier development commitments

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Joint Project Facility: Skills and youth development

• Implementation and monitoring of SOC skills and youth development programmes


• Transnet provided training for 3 500 engineering-related learners and enrolled 854 new artisan learners

• Eskom trained about 5 400 learners, of whom 4 200 are in engineering related field and enrolled 1 066 new artisans

• SAA Enrolled 254 learners • Denel has enrolled 229 learners at

the Denel Technical Academy • Broadband Infraco, SAFCOL, SAX

have together enrolled 191 learners

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DPE Organisational Structure and Statistics

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.

CONFIDENTIAL

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 31 March 2012

Total exits (01/04/11-31/03/12)

Advertised : 11Offer Made:2Interviews in progress:: 4

189168

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Total establishment as at 31 March 2012Filled posts as at 31 March 2012Vacancies as at 31 March 2012

Public Sector Turnover Rate as at 31 March 2012: 18 % (overall status)

6.17%Turnover Rate as at 31 March 2012as per Oversight Report calculation (Total exits divided by Filled posts as at 1 April 2012

Public Sector Vacancy Rate as at 31 March 2012: 10% (Current status as per DPSA Target)

11.11%Vacancy Rate as at 31 March 2012

Level 13-16 (8 Resignations,1 Contract Expiry)Level 9 -12 (1 Resignation, 1 Transfer, Level 1 -8 (1Transfers, 1 Discharged misconduct)

13922

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

Total new appointments (01/04/11-31/03/12

186159

193

Total establishment as at 01 April 2011Filled posts as at 01 April 2011Interns appointedGraduates Development programme recruits

3615

813

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Employment Equity Targets as at 31 March 2012

Disability

Target

Actual

40.3%

76

39.2%

74

1.3%

2

1.2%

2

4.5%

9

4.4%

8

4.7%

9

4.5%

9

2%

3

Achieved %

Actual

43.5%

73

39.3%

67

2.4% 4

1.8% 3

3.6% 6

2.4%

4

5.4% 9

1.2% 2

3.6%

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Statistics SA(mid-year

population estimates)

White

F M

Coloured

F M

Indian

F M

African

F M

DPSA Target

DPSA SMS Female and Male target = 50/50

DPE SMS Female and Male target = 44.7%/55.3%

Progress Update : Statistics as at 30 September 2012

3636

Total exits (01/04/12-30/09/2012)

Interview in progress: 7Offer Made: 7Advertised : 9Appointment in process: 2

32Vacancies as at 30 September 2012

Public Sector Turnover Rate as at 10 October 2011: 18 % (overall status)

7.22%Turnover Rate as at 30 September 2012as per Oversight Report calculation (Total exits divided by Filled posts as at 1 April 2012)

Note: This includes 12 critical posts funded by NT during September 2012Public Sector Vacancy Rate as at 10 October 2011: 10% (Current status as per DPSA Target)

15.84%Vacancy Rate as at 30 September 2012

Level 13-16 (5Resignations, 2 Transfers)Level 9 -12 (1 Resignation, 2Transfers)Level 1 -8 (1 Resignation ,3 Transfers)

14734

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

Total new appointments (01/04/12-30/09/2012)

202170

215

Total establishment as at 30 September 2012Filled posts as at 30 September 2012Interns appointedGraduates Development programme recruits

17854

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Annual Financial Statements and Highlights: 2011/12

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Departmental Expenditure Trends 2010/11 – 2011/12

Programme

2008/09

FinalAppropriation

R ’000

2007/08

ActualExpenditure

R ’000

FinalAppropriation

R ’000

ActualExpenditure

R ’000

The following table provides a summary of actual expenditure incurred vs budget per programme for the 2011/12 and 2010/11 financial years:

2011/12 2010/11

Programme

Final Appropriation

R’000

Actual

Expenditure

R’000

Final Appropriation

R’000

Actual

Expenditure

R’000

1: Administration 119 020 118 632 104 834 101 541

2: Energy and Broadband Enterprises 59 199 58 154 174 476 170 857

3:Legal and Governance 12 480 10 779 50 023 48 797

4: Manufacturing Enterprises 125 301 124 536 192 782 189 595

5: Transport Enterprises 25 258 22 270 22 958 19 077

6. Joint Project Facility 12 084 11 744 10 476 10 134

Total 353 342 346 115 555 549 540 001

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Departmental Expenditure Trends 2010/11 – 2011/12

Programme

2008/09

FinalAppropriation

R ’000

2007/08

ActualExpenditure

R ’000

FinalAppropriation

R ’000

ActualExpenditure

R ’000

• The decrease of R202.2 million in the annual appropriation from R555.549 million in 2010/11 to R353.342 million in 2011/12 is mainly as a result of a decrease in transfer payments to State Owned Companies

• The Department spent 98% of its budget which was within its 2% underspending target and achieved a clean audit

• Underspending amounting to R7.22 million was recorded in the 2011/12 financial year. This amount is made up of current expenditure in the operational budget which was under:

• Compensation of Employees as a result of some posts not having been filled due to scarcity of specialist skills in the market,

• Goods and Services which arose due to some projects having being delayed due to capacity constraints.

• Accordingly, the Department has been granted rollovers by National Treasury for two projects amounting to R3.13 million in order for them to be completed in the 2012/13 financial year

• There was no substantive impact on delivery within programmes as a result of this underspending

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Summary of Transfer Payments 2011/12

Programme

2008/09

FinalAppropriation

R ’000

2007/08

ActualExpenditure

R ’000

FinalAppropriation

R ’000

ActualExpenditure

R ’000

• The transfer to Denel is for payment of an indemnity granted to Denel/Saab Aerostructures.

• The transfer to PBMR was to reimburse the South African Nuclear Energy Corporation for dismantling and decommissioning the fuel development laboratories.

*

ENTITYTOTAL

BUDGETR’000

EXPENDITURER’000

REMAINING BUDGET

R’000

% OF TOTAL BUDGET USED

Denel 116 255 116 255 - 100.00

Pebble Bed Modular Reactor (PBMR) 40 000 40 000 - 100.00

Key areas where we have not achieved our targets (1)

Energy Approval/support of the MYPD3 application was delayed due to the proposed

changes to the regulatory framework on which Eskom bases its application Review of Aluminium South Africa (ASA) agreements to minimise impact on

Eskom and economy. The Department supported Eskom to apply for a determination by the regulator of ASA agreements. This process is now outside of the Department’s control

Broadband Conclusion of the Shareholder Compact was delayed to April 2012 due to the

appointment of the new board Exploration and facilitation of access to debt and alternative funding

structures. The delay in the finalisation of the market position study had a negative impact on achieving the deliverable

Legal Government shareholder management model and related legislation has been

held in abeyance due to the finalisation of the PRC Report on SOC. Review of the current DPE remuneration guidelines delayed after Cabinet

directed further consultations with other Government Departments.

Key areas where we have not achieved our targets (2)

Denel Defining Denel’s strategic role and business sustainability to enable its

strategic role in the provision of defence capabilities was not completed. This was contingent upon the DoD finalising the Defence Review. This process has not been finalised

SAFCOL Future role of SAFCOL. An inter-governmental task team has been established

and this process will be completed in the current financial year

Transport Roll-out of the first wave of concessions of branch lines. A new legislative

framework and the assessment of the sustainability fo the lines is required Framework for the private sector involvement in Ngqura container terminal• National Freight Network Design

Challenges

The lack of a clear policy framework has affected the achievement of some key deliverable e.g. concessioning of branch lines and future allocations to Eskom as part of IRP2

Retaining and attracting skilled people to enhance the capacity of the department to perform its oversight function

Worsening global and domestic economic conditions that have negatively impacted on the financial position of some SOC which may delay funding of the build programme

Limited financial resources that meant some of the projects could not be implemented

The following were some of the challenges experienced during the reporting period:

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Strategic priorities for 2012 - 14

• Continuous improvement and consolidation of the shareholder oversight model

• Strengthening strategic alignment and oversight of the build programme

• Improvement of Supplier Development Plans to maximise impact of the capital expenditure in the economy and develop new industrial capabilities

• Streamlining of the skills development programmes across SOC and leverage funding from other departments to meet the Skills Accord commitments

• Supporting the turnaround of our financially challenged SOC • Continue engagements with policy departments to promote a

coherent policy and regulatory environment• Resourcing and capacitation of the department including enhancing

monitoring and evaluation capacity to promote outcomes based planning

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THANK YOU

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presentation to the select committee on labour and public enterprises 21 november 2012

Documents

fixed investment

domestic economy

capital spending

infrastructure investment

soc developmental mandates

public corporations

public enterprises21

public corporation spending