Department of Public Enterprises Annual Report: briefing

Meeting report

PUBLIC ENTERPRISE PORTFOLIO COMMITTEEPUBLIC ENTERPRISE PORTFOLIO COMMITTEE 11 October 2005 DEPARTMENT OF PUBLIC ENTERPRISE ANNUAL REPORT: BRIEFING Chairperson: Mr Y Carrim (ANC) Documents handed out: Annual Report 2004-5 Presentation Annual Report 2004-5 (available shortly on the Department of Public Enterprises website) SUMMARY The Department briefed the Committee on the Annual Report of 2004-05. It focussed on its vision, achievements, challenges and planned activities for the next three years. Certain State Owned Enterprises (SOE) were undergoing major changes particularly the Energy Sector. All state owned enterprises were faced with the challenge of accessing experienced staff. Members' concerns included the Department's non-compliance with Employment Equity, the Department's increased legal costs and the South African National Defence Force not buying their arms from Denel, the high staff turnover, people with disabilities and that communities on the ground were not benefiting from the Black Economic Empowerment deals that were struck by the SOEs and certain groupings. MINUTES Ms Portia Molefe, Director General, said that her Department was responsible for a number of State Owned Enterprises, two of which were in the process of being handed over to the community and BEE consortiums respectively. The report highlighted a number of achievements which included improved operations, analysis and risk management, governance and policy, corporate structure and strategy. Challenges included access to suitably qualified staff, a performance management system that aligned with a project-based work programme. The financial year's expenditure was compared with the Department's budget. The Department had made significant improvements on the revenue collected, compared to the previous financial year. She outlined the planned activities in their defence, energy, transport, forestry and ICT sectors for the next three years. She explained the Joint Project Facility that included investments within the African continent especially in the energy and the transport sector, human resources capacity-building, increased access to Information and Communications Technology, pipelines, industrial cluster developments. Discussion Mr P Hendrikse (ANC) referred to section of the Annual Report dealing with the Department's staff and asked why it appeared as if the Department of Public Enterprise did not have to comply with Employment Equity. The staff profile did not reflect demographics of the country. The DG replied that the Department did not reflect the population composition of the country. The Department was expected to reflect provincial demographics. She admitted there were challenges especially with the disabled and gender balance. The situation needs to be redressed. Mr Hendrikse commented that The DPE was a national department not a provincial department. Its just that it is situated in the "capitalist Gauteng" he then asked if some people were appointed to more than one of the boards of State Owned Enterprises. He suggested that the Department should have reflected in its mission statement that "the Department would interact with Parliament". He asked why the Auditor's Report had used the phrase, "In my opinion". Mr J Theledi, DDG Analysis and Risk Management, replied that auditors often used that phrase to protect themselves so that they would not be held responsible for things they had not audited or seen. The DG said that there was a strong need to equip board members with necessary skills to be watchdogs of the SOEs. A list of board members for all SOEs would be forwarded to the committee see whether they were board members of more than one SOE board. The Chairperson said that the Department should not view the Committee as opponents but as partners with common goal of uplifting the masses. Mr Hendrikse asked for clarity on the following matters: why South African Airways (SAA) was regarded as a "legacy carrier", the reason for legal fees going up, the SAA hedge-book, who the UK donors were and what was the donation. Mr T Mphuthi, DDG: Corporate Finance, replied that the legal fees had been paid to a law firm that would help the Richtersveld community to prepare their case against Alexkor. The DG replied that the UK donors had seconded people with technical expertise but there was no financial donation. Transnet had borrowed the money on behalf of SAA as the sole shareholder and the debt had been paid off hence the closure of the hedge-book. Legislation would be set up in 2006 which would enable SAA to borrow from the market without relying on Transnet. Legacy carriers were those carriers which had been operating for some time as opposed to the recent emergence of low cost carriers. It was not profitable to fly to smaller centres such as East London or Pietermaritzburg - unlike the golden triangle of Durban, Cape Town and Johannesburg. SAA introduced SA Express to service smaller centres. Mr Hendrikse asked why the South African National Defence Force was not buying armaments from Denel. The trend world wide was for national defence forces to buy from domestic manufacturers. Further, he could not understand why the Department wanted to privatise Arrivia.kom while their executives were trumpeting its success. Ms Molefe replied that Arrivia.kom was heavily dependent on Eskom and Denel for business. Arrivia kom was owned by Denel therefore reported to Denel and the decision to privatise was taken by Denel. Denel and other arms manufacturers such as Grintek were very good in engineering but "they were atrocious at marketing". Denel did not have a commercial mandate before them. Items such as Corvettes were not manufactured by Denel and so the SANDF had to procure these from other countries. The nature of contracts were such that Denel would employ contract workers for specific projects and orders. At the end of the contract, workers would be redundant. Denel would always be faced with the problem of contracts and would have to deal with them. The DPE was working the Department of Defence to procure everything that could be manufactured locally from the local defence industry. Ms N Ngcengwane (ANC) enquired about the impact of disposal of non core assets on job security, and what had being done to accommodate people with disabilities within the physical environment of the workplace. Mr T Mphuti replied that the Department would not involve themselves in those transactions but would only give "Section 54" approval for the various SOEs to dispose of those assets. The Department was not abdicating its oversight responsibility, but would provide the entities with guidelines when they disposed of their non core assets. The national framework agreement was in place to make sure that there would be no retrenchments. Departments have to go beyond physical environment The DG commented that the Department had formulated a strategy for Denel which would be finished by November and they would look into all the issues involved in this. She said that The Chairperson asked what was being done to sort out the problem of people who used government departments as stepping stones for private sector jobs. Further, what was causing disabled people to leave their jobs in the public sector. The DG replied that most people were hired on a contract basis. She cited the example of all DDGs that were hired on contract basis. This was cause for insecurity amongst staff which then led to a high staff turnover. There was a need to create conducive conditions which would be good for people with disabilities. They were also poached by the private sector, provincial and local government. Mr Z Nogumla (ANC) said that SOEs did not share a common vision on Black Economic Empowerment and communities were complaining that they had not benefited from the SAFCOL deal. Traditional leaders had set up an illegitimate structure and the money would end up in the pockets of chiefs. He asked about monitoring mechanisms for oversight over SAFCOL. He also asked if ESKOM was privatising or not, and what constituted "fronting". The DG replied that the BEE charters were used as guidelines. Different SOEs used different charters because they were from different sectors. Fronting was when a white-owned company used poor black people to win tenders from the Government sometimes without those people knowing that they were being presented as owning that company. One of the new requirements of procurement policies was that the public entity who put out the tender should regularly visit the service provider to see that there were no changes. Fronting was a breach of contract. There was 25% of equity left aside and 10% of that was reserved for the community, 9% for the employees and 6% was left with the Department. The Department of Water Affairs was working together with the Department of Public Enterprises to identify proper community structures that would be recipients of the equity stake. There was very little that the Department could say about SAFCOL at that stage because the court case would be heard in December 2005. They hoped that the matter would be finished by March 2005. Mr B Kholwane asked for clarity on the three year price determination proposals of Telkom. He could not understand why different municipalities had different price structures. Mr Mphuthi replied that the price determination would tie up with the redistribution side when Regional Electricity Distributors were in place. The process would eliminate the 2000 tariffs charged by the municipalities. The Chairperson commended the Department for their improved clarity and vision compared to previous years. There was greater synergy between the SOEs and the Department. He suggested that the wording of the Vision of the Department Public Enterprises should start with direction then oversight - rather than the other way round. Politicians were concerned about delivery rather than with fancy reports. He commended the Department for their performance and the significant advances and progress. The Committee expected the Department to come with a more user-friendly report the next time they came to report. Members were aware of the challenges faced by the Department. The Treasury had told the parliamentary committees that they should look at performance agreements signed between the Minister and the Department as an oversight tool. The meeting was adjourned.