Public Enterprises Strategic Plan and Budget: Department briefing

Meeting report

PUBLIC ENTERPRISES PORTFOLIO COMMITTEE AND LABOUR AND PUBLIC ENTERPRISES SELECT COMMITTEE
6 April 2005
PUBLIC ENTERPRISES STRATEGIC PLAN AND BUDGET: DEPARTMENT BRIEFING

Chairperson: Mr Y Carrim (ANC)

Documents handed out:
Department PowerPoint presentation
Department Budget
Department Strategic Plan 2005-2008

SUMMARY
The Committee was briefed on the Parliamentary Capacity Building Project (PCP), signed by South Africa with the African Capacity Building Foundation that worked with 23 African parliaments. Mr S Kholwane (ANC) was unanimously voted to represent the Committee on the PCP Programme.

The Department then presented its Strategic Plan and budget for the 2005/06 financial year. Issues raised with the Director-General during the ensuing deliberations included:
- the identity of Department’s ‘strategic partners’;
- that all the State Owned Enterprises (SOEs) needed formal risk management plans and guidelines;
- the need to award best-performing SOEs and discipline underperforming ones;
- that the Department and the Committee needed to deepen their oversight over SOEs;
- whether SOE Boardmembers should be appointed full-time
- that there should be clear transaction guidelines for SOEs; and
- Transnet housing transactions versus other consolidated property projects.
The Department Budget Vote in the National Assembly would take place on Friday 15 April 2005.

MINUTES

Parliamentary Capacity-building Project
Mr M Seopela (Project Co-ordinator) noted that the Parliamentary Capacity-building Project (PCP) Agreement had been signed with the African Capacity Building Foundation (ACBF) in 2003. The ACBF had been founded in 1991 and received its donor funding from institution such as the African Development Bank, the World Bank and the United Nations Development Programme (UNDP). It had membership of 32 countries within Africa, but South Africa is not yet a member of the Foundation. Its aim was to provide institutional support to African Members of Parliament. There are already two quarterly reports that had been compiled by the programme and they could be assessed through their project office at 90 Plein Street, Cape Town.

The Chairperson called on the Committee to appoint a Member to represent them on the PCP programme. Mr S Kholwane (ANC) was unanimously appointed.

Department budget briefing
The Department Acting Director-General, Dr Eugene Mohulatsi Mokeyane, and Deputy Director-General: Corporate Structure and Strategy, Ms Portia Molefe, were accompanied by Mr James Theledi (Deputy Director-General: Analysis and Risk Management); Mr Tebogo Mphuti (Deputy Director-General: Corporate Finance and Transactions); Mr Mario Van der Walt (Chief Financial Officer); Mr Andrew Aphane (Chief Director: Communications and External Relations); Mr Paul Venier (Director: Strategy and Business Planning Administration and Ms Rentia Solomon (Director: Corporate Governance and Policy).

Mr Mario Van der Walt (Chief Financial Officer) took the Committee through the presentation. He noted that the Department had been allocated a budget of R91.9 million for the 2005/06 financial year and thus its financial resource shortfall would be supplemented through donor funding (see presentation).

Discussion
Mr S Manie (ANC) asked why the staff compensation component was larger than the total amount allocated to the administration programme of the Department.

Mr Van der Walt responded that the reason was that other programmes of the Department had also taken a share in the personnel costs. These were therefore not the sole responsibility of the administration programme.

The Chairperson asked whom the Department considered as ‘strategic equity partners’ (SEPs). Mr Van der Walt responded that these were partners considered ‘relevant and effective in addressing the strategic objectives of Alexkor’, based on a purely business perspective.

The Acting Director-General added that SEPs should be viewed as those who had invested sizeable equity into Alexkor and were able to give strategic direction to its day-to-day business.

Mr Nicky van Zyl (Parliamentary Researcher) was concerned that the late arrival of the Departments' Strategic Plans to Parliament, had put Members and researchers in an awkward position. There had been inadequate time to clearly analyse the figures.

The Chairperson appealed that the Department's Strategic Plan be submitted to Parliament at least seven days before the presentation. He then asked what had caused such difficulty in filling the senior vacant posts in the Department.

The Acting Director-General responded that there were a number of issues had contributed. They felt it unnecessary to reflect on funded posts for this financial year, since they had not had the opportunity to consult with all their programmes to determine which their posts were funded or not. Only through that process could they be able to ‘redraw’ their new organisation structure.

Administration Programme briefing
Mr Van der Walt noted the ongoing output programmes and measurable indicators. The total budget allocated to the administration for 2005/06 was R36 679 million. (See presentation).

Discussion
Mr Manie (ANC) asked the Department to clarify the continuous nature of their output programmes in order to assist Members to assess whether they were able meet their targets as laid down in the Strategic Plan.

Mr Van der Walt responded that as each subprogramme prepared its own business plan for the year, the Department could provide the Committee with such information at a later date if required. Mr Manie (ANC) and the Chairperson welcomed this proposition. The Acting Director-General noted that they had taken into account these concerns.

The Chairperson noted the lack of high level of skills within the Department, and assured that the Committee would always be available to assist whenever called upon to do so.

Analysis and Risk Management Programme briefing
Mr James Theledi (Deputy Director-General: Analysis and Risk Management) noted that before restructuring had taken place within the Department, this programme had been part of the former ‘Performance Monitoring and Benchmarking Unit’. The programme’s main purpose was to ensure that the Department's issues surrounding SOEs oversights programme were effectively concretised. Realising that a number of SOEs did not have formal risk management systems in place, they had developed key outputs projects aiming at ‘immunising’ the SOEs to avoid risk management ‘surprises’. The Department planned to have the risk management framework in full operation by the end of the year (see presentation).

Discussion
Ms N Mnandi asked whether were there any plans to ensure that every SOEs had a workable formal risk management system. Mr Manie (ANC) also asked whether were there any key performance measures to determine risk management strategies and analysis of the SOEs.

Mr Theledi responded that while the SOEs were required by the Public Finances Management Act of 1999 (PFMA) to send their risk management and corporate plans at the beginning of every year, they had all failed to do so. The plan now was to ensure that the Department and the SOEs conversed on a continuous basis to concretis the risk management frameworks. The Department planned to publish a report containing the strength of every SOE’s risk management system on 15 April 2005.

Mr Kholwane (ANC) asked whether would it be compulsory for SOEs to implement the proposed risk management framework. Mr Theledi responded that since they intended to conduct a broad consultation on the framework, compliance would not be negotiable. The framework aimed at ensuring that a uniform standard for risk management was set for all the SOEs in line with the PFMA and the National Treasury (NT) regulations.

Notwithstanding that the Minister had assured the Committee in their previous meeting that the budget allocated was sufficient, Ms N Mokoto (ANC) was concerned that the budget might not be able to cover the the Strategic Plan of the Department. The Chairperson noted that this was a political matter that could not be answered by the Department.

Mr C Gololo (ANC) asked if the Department intended to award the best-performing SOEs, what would it do with those that under-performed? Mr Theledi responded that mechanisms would be put in place to ensure that all SOEs performed.

The Chairperson noted that the Committee wanted to see discipline being fostered. He asked the Department to raise the matter with the Minister. The Acting Director-General performance management issues would require the alteration of the whole system.

Ms Mnandi (ANC) was concerned about the ‘comparability’ of SOEs. She asked the Department to explain what criteria would be used to make these performance awards.

Mr Theledi responded that the aim was to reward all SOEs that had demonstrated good performance in a particular year. Thus it was imperative that all the key roleplayers be involved in the process of determining the criteria to be employed in selecting the achievers. The Chairperson noted that they would have to discuss this matter further at a latter stage.

Dr P Rabie (DA) said the effectiveness of Denel's risk management system could not be confirmed at this stage. What early warning mechanisms had been put in place? Denel had almost lost about R400 million in 2004/05.

Mr Theledi responded that the Department had resolved that the Denel Board would have to critically discuss risk management. It was important for all the SOEs to come up with formal systems aiming at managing their own risk challenges without relying on insurance to manage for them.

The Chairperson asked the Department to provide the Committee with its early warning system on risk management.

Mr Manie (ANC) asked the Department to explain how it set targets for the SOEs. Mr Theledi responded that the SOE Boards were required, in terms of the PFMA and the National Treasury regulations, to submit their key performance indicators, corporate objectives and strategies to the Department. The Department would analyse these and assist the Minister in suggestions based on accepted international practices. They require the SOEs to submit their quarterly reports on progress.

Mr Manie (ANC) asked how they foresaw overcoming the technical experts' problem faced by Denel, especially around the procurement of arms.

Mr Theledi responded that, due to the role played by the SOEs in the economy, it was important that industry knowledge issues be housed with the Department. There there were plans to ensure that necessary skills were acquired so that SOEs could achieve the government strategic goals and make South Africa globally competitive.

Mr Manie (ANC) asked how the Department exercised its oversight function over the SOEs. Mr Theledi responded that they monitored SOEs’ performance in line with the corporate plans and strategies submitted to the Department at the beginning of every year. The Ministry, Department and SOE ‘Forum’ ensured that all the relevant parties met occassionally to discuss various issues affecting SOEs.

Mr Manie (ANC) felt that all SOE Boardmembers should be appointed on a full-time basis since, as a body, they were accounting officers in terms of the PFMA. The Chairperson felt that the accounting responsibility of the Boardmembers would have to be looked at critically at a later stage.

Mr T Louw (ANC) asked what measures were in place to deal with those Boardmembers who failed to comply with their accountability responsibilities. Mr Theledi responded that they would normally interrogate all the SOE reports to ensure compliance with the stated output measures.

Ms D Ngcengwane (ANC) asked for clarity on the National Ports Authority (NPA) rental agreement. It had been discovered after 50 years that they had been paying R1.

The Acting Director-General responded that a progress had been made since the NPA was engaged in renegotiation with some of the private companies involved in the matter. As the process unfolded, they would inform the Committee accordingly.

The Chairperson noted that since the NP would appear before the Committee separately from Transnet this year, Members could further clarify this matter. Furthermore, he felt that the Committee would have to develop its own reporting format to assist the Department in its reporting.

Corporate Governance and Policy Programme briefing
Ms Rentia Solomon (Director: Corporate Governance and Policy) reported that her unit was divided into three chief directorates, namely corporate governance, policy and secretariat, and internal compliance of the Department (which did not involve SOEs). She expanded on their mission statement, objectives and tools. The unit intended to create uniformity in the manner in which the SOEs were being managed. There would be performance guidelines to ensure that all Boardmembers performed their responsibilities in a transparent and ethical manner. A failure to do so would result in the members being held jointly and severally liable for their negligence under the provisions of the PFMA and the Companies Act (see presentation).

Discussion
Mr Kholwane (ANC) asked whether would this programme also be extended to other SOEs or be limited to those falling under the Department. Ms Solomon responded that the guidelines on corporate governance would be applicable to all the SOEs within government to ensure accountability.

Ms Mnandi (ANC) asked who was responsible for determining the remuneration of Boardmembers. Ms Solomon replied that there was a high competition between the public and private sectors. It was important that they attract, retain and reward skilled people for their services. Therefor a remuneration committee was in place to determine the remuneration packages of the SOEs Boardmembers, and write a policy in this regard.

Ms Mnandi (ANC) asked how the Department viewed the current system of evaluating the Boardmembers’ performance. Ms Solomon responded that the evaluation system was still new and had not yet been implemented by all the Boards. However, there had been tremendous improvement in those SOEs that had commenced with its implementation. Should the system prove unworkable in the long-run, they would replace it.

The Chairperson asked how the Department evaluated the Boardmembers’ performance in practice. Ms Solomon responded that they evaluated Key Performance Indicators (KPIs) at the end of each year. Should the SOEs fail to meet the targets set, Boards would be hold accountable.

Ms Mokoto (ANC) asked more about the performance evaluation criteria for Boardmembers. Ms Solomon responded that performance evaluations were conducted by independent bodies. However, the Department would soon produce a more detailed criteria for the performance evaluation of Boardmembers.

Ms D Ngcengwana (ANC) asked how the Department balanced the remuneration packages of the Boards’ Chief Executive Officers (CEOs) against the socio-economic responsibilities of their SOEs. Ms Solomon responded that when CEOs were being rewarded, the focus was not only on the financial targets attained but also the socio-economic conditions of their SOEs. The shareholders played a very important role since members’ individual performances should be in line with KPIs.

The Acting Director-General added that while Boards were also at liberty to appoint independent consultants to review the performance of their organisations, shareholders had the ultimate responsibility in the running the company in terms of the Companies Act. A policy in this regard should be developed.

The Chairperson asked how the Department managed the Boards’ part-time members when it came to accountability.

Ms Solomon responded that when Boardmembers were appointed, their individual time commitments were taken into account. Working part-time provided members with a certain objectivity and independence as they were better able to evaluate management’s performance than employees fully involved in the day-to-day running of the business.

The Acting Director-General added that it was important to understand the strategic nature of the Boards, and therefore distinguish between executive and non-executive Boardmembers.

Corporate Finance and Transactions Programme briefing
Mr Tebogo Mphuti (Deputy Director-General: Corporate Finance and Transactions) noted that this programme had been established to be responsible for all government major transactions. Previously government had employed external transaction consultants whenever a major procurement was to be undertaken. A number of programmes had been identified, including international agreements, negotiations, SOE funding, promotions and investments (See presentation).

Discussion
Ms Mnandi (ANC) asked that Members be provided with the detailed transaction guidelines that the Department had developed for the SOEs. Mr Mphuti agreed to do so.

Ms Mnandi (ANC) asked why Transnet housing had been excluded in the property consolidation process. The Acting Director-General responded that the reason was that the project dealt mostly with commercial assets of properties and lands held by the SOEs. He felt that Transnet housing books should be disposed of outside of the property project.

Ms Mnandi (ANC) asked whether Transnet houses also formed part of the Transnet housing transaction. Mr Mphuti responded that there were two kinds of transactions involved, namely the Transnet housing books and the Transnet housing properties. Initially the commercial banks had not been interested in the housing properties of Transnet but rather in its housing books, as these contained the home loans relating to the properties. However this attitude had since altered due to some changes in property values. A strategy unit had been established to consider how the Department could best dispose of the properties and ensure government benefitted in the process.

Mr Kholwane (ANC) asked whether Spoornet houses, which were presently under-utilised, also formed part of Transnet housing. The Acting Director-General responded that there was a different process for dealing with Spoornet houses. Negotiations were currently taking place between Transnet and the municipalities so that Spoornet houses could be handed to municipalities.

Ms Mokoto (ANC) asked about the implications of the land claim litigation instituted by the Richtersveld community against Alexkor. The Chairperson shared the same concern noted, and hoped that matter could be settled out of court.

Mr Mphuti responded that a settlement package had been proposed by government, but this had been rejected by the Richtersveld community. There was a stalemate and the court date was scheduled for 25 April 2005. The Land Claims Court had been approached to determine the form of restitution. There was contention over the ownership of the land and on the form of restitution.

The Chairperson thanked the Department and would wait to be re-briefed on concerns raised by Members. The Acting Director-General said that these would be addressed soon.

The meeting was adjourned.