Department of Public Enterprises 2021/22 Annual Performance, with Deputy Minister

Meeting report

Mr Magaxa greeted the members in the meeting. He informed them that the Minister would not be present as he was attending a Cabinet meeting. He saw that the Director-General was present in the meeting. Today was a Joint Meeting with the Portfolio Committee and the Select Committee on Public Enterprises. He said he would not spend a lot of time introducing people. The Director-General, Mr Kgathatso Tlhakudi, was present and he would introduce his team when he gave the presentation. The Committees were to receive a report on the Department of Public Enterprises presentation of the Strategic Plan 2020-2025 and the Annual Performance Plan 2021/22. The Director-General and his team would be delivering that presentation. The Chairperson informed the Committee that the Deputy Minister was present. The Chairperson asked the Deputy Minister to make opening remarks and then the Department, led by the DG, would give the presentation.

Mr Phumulo Masualle, Deputy Minister: Department of Public Enterprises, greeted the members of the Joint Committee and the delegation from the Department. In the interest of time and given the fact that the DG was ready to make the presentation, he would defer any commentary and engagement once the Committee was dealing with the substance. He was having a network problem and asked for the DG to proceed with the presentation.

The Chairperson acknowledged Mr Matibe who would be chairing the second part of the meeting.

Briefing by the Department of Public Enterprises on the Strategic Plan and Annual Performance Plan and for the 2021/22 financial year

Mr Tlhakudi briefed the Joint Committee on the Strategic Plan for 2020-25 and Annual Performance Plan for the 2021/22 financial year. The presentation detailed an overview of the Department. The strategic context within which the Department would implement its plans was provided. The presentation defined the strategic objectives of the Department. The 2020-2025 Medium Term Strategic Framework (MTSF) priorities were given.

The Department outlined its priorities are planned targets for the 2021/22 financial year.

The Department's budget decrease from R77.8 billion 2020/21 to R297.6 million in 2023/24 at an average annual rate of 84,4%. This is due to substantial allocation made to SOCs in 2020/21 as follows:

- Eskom: R56 billion

- SAA: R20.7 billion

- SA Express: R0.164 billion

- Denel: R0.576 billion

Excluding payments for financial assets, compensation of employees (COE) is the Department’s largest cost driver, spending on which is expected to decrease at an average annual rate of 0.9 per cent, from R185.2 million in 2020/21 to R180 million in 2023/24.

Cabinet approved reduction on the Department’s baseline amount to R123.5 million over the medium term, to be effected on COE (R102.3 million) and goods and services (R21.2 million).

Payments for financial assets includes R31.7 billion for Eskom in 2021/22, and R6.1 billion (R4.3 billion in 2021/22 and R1.8 billion in 2022/23 for SAA to settle government guarantee debt.

(See Presentation)

Discussion

Mr S Gumede (ANC) thanked the Department for the presentation. He acknowledged that these were very critical times where there was a need to assess the performance of the Department and the SOEs due to the current pandemic. The Department always excelled in with regards to the performance of the actual Department. However, when it came to the SOEs the performance was weaker. Accepting the constraints of the SOEs, what could be done to improve the submissions of the financial reports or the performance plans from the SOEs? He disagreed with the notion that said that some of the SOEs failed to submit because of Covid. The non-submission started a long time ago. He acknowledged that there may be cases where the non-submission could have been caused by the pandemic. He was worried about Denel. He had been trying to do the analysis. His analysis told him that there were three SOEs that may be self-sustaining and there were four that needed close monitoring. However, when it came to the budget allocation Eskom was one of those that were weak because it was always funded by the fiscus. Eskom benefitted from an allocation of R31.7 billion. SAA will be benefited R4.8 billion. SA Express’s fate was unknown. It was facing potential liquidation but at the same time there was an outstanding sales agreement that needed to be finalised. He then discussed Denel. The R0.576 billion that was spoken about was the remanence of the 2019/2020 financial year which had already been consumed in 2021. In terms of improving the revenue performance of Denel, there were no resources. However, the Department came up with very good strategies and recommendations. How would the Department make sure that Denel would survive the situation it was in? Denel was a unit the South Africa could not afford to lose. He made an observation that in many instances cuts were made and he was not sure if the Department could perform as expected if there were cuts of that nature.

Ms O Maotwe (EFF) asked the DG to explain the six Alexkor employees who were referred to in the presentation. She did not understand and needed clarity on the matter. She saw in the presentation that the Department wanted to change its current oversight process to a balanced model. What exactly was going to change? She failed to see how the Department’s oversight process was changing? The slide thereafter just explains the process itself and was just theory. There was nothing tangible that the Department was telling the Committee it was going to do. How was the balanced model going to be different from the Department’s current model? She then discussed the Department’s strategy review. Once again the presentation was not saying much. It said that the NDP would position SOCs to support the re-industrialisation of the South African economy. The Department did not say how it was going to implement this re-industrialisation. Instead, the Department spoke about governance which was a good thing but then it spoke about developing a strong shareholder or implementation of infrastructure programmes. The Department was not answering the question of how it was positioning the SOEs to support the re-industrialisation. She wanted the Department to clarify that matter. She then discussed the measuring of outcomes. In Programme 1: Socio-Economic Impact the Department said ‘increase the contribution by SOCs in support of the transformation of the South African economy’. The baseline was new. The target was five years and 80%. Was the Department saying that it was pushing for SOEs to support the transformation of the South Africa economy by 80%? If so, from when until when? What was the five-year period? Was it 2020 until 2025? What was the annual target that needed to be achieved for the Department to reach the overall target of 80%?

Ms J Mkhwanazi (ANC) discussed the mandate that was mentioned in the annual performance plan. It stated that the DPE did not have a legislated constituted mandate. She wanted an update on the progress of the Bill. Was the Department confident that it would meet the timelines set for the process? She then discussed the priorities of the Department. Private sector participation was mentioned. Was there an interest on the part of the private sector to participate or invest in the programmes? She discussed the restructuring office. The processes and timelines were discussed. She suggested that maybe in another meeting to discuss the issue of corruption. The Committee could get a detailed report on the current state of recoveries within the Department and the SOEs in fighting against corruption. Lastly, she discussed the budget analysis. With the impact of Covid-19, was the Department able to give the Committee a detailed plan on how it would overcome the effects of the lockdown that the SOEs suffered? There were SOEs that were already in distress.

Ms L Bebee (ANC, KZN) said that one of the challenges that has contributed to the collapse of some of the SOEs has been because of board members who sit on the boards of many companies. Sometimes these members had no relevant skills. How has the Department resolved the problem with regards to the appointment of new board members? She discussed the Department’s oversight responsibilities, especially over SOCs such as Alexkor and SAFCOL. What has the Department done to resolve the challenges facing these two SOCs? She provided the example of the completion of the settlement at Alexkor and the post-settlement at SAFCOL between land claims and SAFCOL.

Mr A Arnolds (EFF, Western Cape) said that the Department had set out in its five-year plan to stabilise SOCs. Was this a realistic target seeing that some of them had collapsed completely while most of them were unsustainable? How was the Department going to save the struggling entities? He discussed the risk integrity management framework. Was the Department confident that it will deliver in terms of the risk integrity management framework to enhance oversight practice? Will there be results? If yes, did the Department have the capacity? He then discussed the recovery of monies. That could not only be a priority on paper. The Committee wanted to see targeted actions and results. SOEs had their own strategic plans. Why did the Department fail in their oversight responsibilities and mandate to detect early the operational challenges? He commented on the Department reducing the number of cases concerning board members and employees doing business with SOCs and the process of vetting of employees. Why reduce? Was that not sending out the wrong message to employees in the Department and to those SOEs? He discussed the slow spending on the compensation of the employees that was due to vacant posts. How did this impact on the Department’s services? He raised the issue of strengthening the Department’s capacity in order to ensure more effective oversight with reference to recruitment of individuals with sector expertise and knowledge. What progress had been made to date?   

Ms W Ngwenya (ANC, Gauteng) said that South Africa recently celebrated 27 years of democracy. What were the success and good stories that the Department could tell Parliament? When will the Department consult the Committee on the Government Shareholder Management Bill? The bill was expected in the 2018/2019 review period. When would the draft bill be presented to Parliament for input? What were the latest developments on the board members of the different SOEs? Were they convening meetings to address the various challenges faced by individual SOEs’ financial, labour-related or legal operations? She then discussed the quality assessment target for financial assessment and investment. The Department had indicated that most of the SOEs overseen by the programme were under financial strain. The Department said it would strengthen this by monitoring and reviewing all corporate policies to ensure that the SOEs were on the right track. Was the target that the Department had set to review annually enough to ensure financial compliance? What was the Department’s plans if this failed? Her last question was about the performance over the medium-term period. The presentation spoke about skills development learning by the SOEs to mitigate transformation of the economy and skills shortage. The Committee appreciated the Department’s collaboration with the Department of Women, Youth and Persons with Disabilities. However, to what extent is the Department of Basic Education and the Department of Higher Education involved in ensuring that the Department achieves the goal of development of skills.

Ms T Modise (ANC, North West) discussed the challenges that were contributing to Eskom’s problems. These were the theft of copper, illegal electrical connection and the municipality debts. What had Eskom done to ensure that these three factors were no longer a threat to its financial sustainability? Was the Department’s budget for the 2021/2022 financial year enough for it to effectively oversee five SOEs? These SOEs not only had a huge budget but also had major projects that required specialist skills for proper monitoring.

Mr R Komane (EFF) said that it was very disappointing to hear that the non-submission (of documents) by SOEs was because of Covid-19. That could not be correct. The Committee should not condone the practice of trying to protect the SOEs. She said that even during Covid-19 work had been done. Some Departments and SOEs had submitted. Non-submission was non-compliance. She wanted to put that on record. The Department should not come in the defence of non-submission. She expressed very serious concern about the performance of the boards, particularly the board of Denel. Denel had appeared before the Committee and the Committee had witnessed that there was a problem them there. What support was given to the boards? The board members had their mandate but there was also the Department. What was the Department’s role and how was it supporting the board members? How did the Department foresee things being done differently? She further discussed the support of the SOEs. She acknowledged that the Department had identified challenges. What methods would be put in place to assist the SOEs or support them? The Committee acknowledged the fight by the Department against corruption. However, in the presentation very little was said about the fight against corruption. The Committee hoped that the Department would provide more information in what was presented. What measures had the Department put in process to fight corruption? How far had the Department gone in recovering the monies that were lost due to corruption and theft?

Mr G Cachalia (DA) said that the presentation would be an adequate and a good presentation under normal circumstances. However, these were not normal circumstances. Under normal circumstances the Department would monitor, report, produce plans and measure against these things as the presentation attempted to do. The reality was very different. He was sorry that the Minister was not present. The reality was that there were seven entities under the Committee’s aegis. One was profitable with considerable challenges of infrastructure and ongoing maintenance and development. The other entities were a mix of bankruptcy, reckless trading, liquidation and more. All costing the fiscus to the tune of billions and billions. He said that with reference to the mission and vision that had been presented, there had been a patent failure. How different from every single previous process and statement were these? He did not see any swot analysis or statement which would expose and drive the financial stability and operational robustness as was required. He did not see the Department highlight the cost effectiveness in terms of procurement, contracts, tenders or the cost of BBBEE. There was no comment on the issues of cadre deployment or corruption. These were the things that needed to be examined beyond the broad normal headlines as if things were just being dealt with in due course. There was no specific discrete analysis or framework to analyse public-private partnerships. There was no particular framework which stated that ‘here was the line in the sand that acknowledges market failure’ and what the Department was going to do in face of this market failure. What was the President’s SOE Council doing since its inception? What was the progress? What had been achieved? What were the timelines for the White and Green Papers? What were the drivers for cost effectiveness? The Committee needed to understand all of these things. The Committee was presented with targets. Improved EAF and no cross-subsidisation in Eskom. That was why there would be individualisation. Surely that should apply to Transnet as well because there was cross-subsidisation there which affected investments in ports? There were also issues around ports and efficiencies. How were the monitory units different from what was in place for many, many years? He discussed local content. Was that not the objective in the past? How did the Department learn from the past to mitigate the same mistakes in the future? The Department did not appear to be doing that in this framework. He discussed preferential employment and BBBEE. There needed to be an analysis of the past focus and how the past focus contributed to the failure in these specific areas. Then those areas could be improved on. This required a granular approach and not just a generic approach which the Committee was presented with. He said that any second-hand consulting house could come up with this document. It was not good enough. South Africa was in trouble here. Troubled times called for extraordinary interventions. Those were his big questions. There were also granular questions which were absent. He had many granular questions and he would ask them of the individual entities when the Committee met with them. He provided examples of his questions. These were questions that related to load shedding. Why did load shedding occur during Covid when there were the lowest demands since 2007? Was the maintenance programme not working? Surely that required a focus? Otherwise, the country was going to be in trouble. There was also the question of debt. The Department of Minerals and Energy will sign 2000 megawatts in Power Purchase Agreements (PPAs) to Eskom. It will sign to the Eskom balance sheet. How was Eskom going to deal with this increased debt situation? These were the pertinent questions. These questions applied to the entities but the monitoring of these entities needed to take these issues and dissect them in a very clear and concise way. Otherwise, the Committee would be looking at presentation after presentation ticking a few boxes and then fail again. Those were the key questions and they applied to all the entities. He discussed Alexkor. There were no dividends for the past six years. What happened to the geological report which sat there? These questions needed to be looked at. The presentation spoke about new strategic options. How did it incorporate contractors, infrastructure investments, security, payments to communities, partnerships, SAFCOL, the land issues and the visibility of land claims for Eskom? Where was the money going to come from to invest into fix outdated technology and equipment? He discussed Transnet and the road to rail issue. It was a major question because currently road was kicking the backside of rail. That needed to be fixed. The Committee needed to know what it would cost. Was it possible to fix? He then discussed cross-subsidies, pipeline security and details of private sector involvement. There was also the issue of ports. These were important issues. He discussed aviation. Over five years ago the Minister announced in a speech that he was looking for a strategic equity partner. Five years down the line the thing was bankrupt and the Department was still looking for a strategic equity partner in a new entity where the Committee did not have sight of what it looked like. These things needed to be fixed. These were extraordinary times and if the issues were not addressed the country would sink. These seven entities were responsible for a lot in this country. This needed to be addressed. The details of SA Express needed to be fleshed out in more detail. These things dragged on. This is what the DPE should be looking at, in the broader framework and in a more granular framework. He would not talk about Denel because there were so many issues there. The Department needed a new approach. It could not be business as usual. A qualitatively different approach was needed and he wanted his colleagues to support him. The Committee needed evidence and sight of this approach. Not just the same old stuff that had gotten the Department into this problem.

Ms M Clark (DA) said she wanted to see how the Department was actually going to attract skillsets in order to assist SOEs to perform better. What strategic plan has been put in place in order to do that? The presentation said that there were over 3000 employees employed by Denel at this stage. Were all these employees still on the books? In her understanding the employees had not been paid for almost a year and many of the employees of Denel had now left. How would the Department attract a skillset in order to assist Denel to rebuild and recapitalise itself? Denel had no capital funding for any projects that it might receive. The situation at Denel was dire. South Africa had become a risk in terms of combat readiness especially for the SA Airforce. How was this going to be turned around? She wanted the Committee to receive continuous reports aligned with the budgets and APPs. What new strategic operations were going to be put in place? It did not help that the Department put the information on the report but the Committee did not know what to anticipate. She would like to know what was going to happen with that matter. She also wanted to know how many State employees and board members were actually doing business with the SOEs? What did that amount to in monetary value? The Committee had not received any report in terms of that and she wanted to know what the status quo was on that matter? What did the DPE anticipate in terms of attracting private investors and unbundling SOEs to ensure that the financial stability of the SOEs were built up? Covid could not be blamed for the decline of SOEs. This had been happening for many years prior to Covid. Every year it just got worse and worse. The Department needed some extraordinary interventions so that a change could be seen in these SOEs. 

Mr N Dlamini (ANC) said that the presentation spoke about corporatisation of the SOEs. What did that mean? Where was this being benchmarked from? Had the Department looked at Ethiopia for example? Ethiopia’s situation was similar to South Africa’s. Ethiopia was very poor but they were able to turnaround their situation. Their airline was among the top four best performing in the world and was the number one in Africa. What did corporatisation mean in simple terms? It might be confused as privatisation. It might mean something different in other contexts. Most of the SOEs were businesses and have products that they produced. For those products there were markets yet those SOEs found themselves in financial distress. Those of the members who were there when the Committee visited Transnet, an issue was highlighted that they were competing with the private sector in the same space. Transnet said their processes were full of bureaucracy in such a way that it took almost six months to procure a simple item. In the private sector the turnaround time was almost seven days. To what extent do the laws, and the attached bureaucracy, hinder progress and adversely affect these SOEs in terms of their balance sheet and their income generation capacity?

Ms J Tshabalala (ANC) discussed the appointment of board members. She asked if the Department continuously did the clearance certificate to make sure that the board members appointed were vetted? This should be done to avoid corruption. How did the Department handle the issue of board members ‘double-dipping’? This was when officials would serve within the same entity or portfolio and move around. Were the board members able to bring critical skills and some sort of change if they were serving on more than one board? She then discussed the Shareholder Management Bill. The Department did mention in the APP that it wanted to table it. Did the Department really think that it would meet the timeline of 2022? It needed to be remembered that there was a Presidential SOE Council that to a large extent sought to look into what the shareholder was also supposed to look into. She wanted both Committees to receive a report on that matter to see how far it was. She then discussed the business enhancement and industrialisation programme. She was interested in the BBBEE, the CSI spent and enterprise development contributions. The Committee needed a report so that it could get the climate change responsive initiatives under that programme. She then discussed the matter of SAA. She had read reports about business rescue having tabled its report. Business recue had handed over control to the board and to the Department. How far was the Department with the new airline? What were the timelines that the Department was looking at? The Committee needed to have a report about the matter. What lessons were learned from SAA and how it was run? This needed to be done so that the Department did not take those mistakes to the new airline? She also raised the issue of the equity partner. How far was the Department in finding an equity partner? The Committee needed to know that the processes were unfolding so that it knew where to do oversight. She raised concern about recruitment. Was the Department going to be able to retain critical skills? She raised concern that the aviation industry remained the least transformed. The issue of transformation needed to be addressed in the new line especially when it came to pilots. The aviation industry needed to represent the demographics of a non-racial, democratic South Africa. It was something that the Department needed to do. SA Express was being liquidated and there was a legal process unfolding. What would be required of the Department in this matter? Were there employees that were stilled owed money? She then discussed the matter of job creation. She asked that the Committee receive a spreadsheet that was reflected the types of jobs and skillsets that were present in all of the entities so that the Committee could gage and see the issue of youth employment coming into the industry. The Department highlighted that it had training and lots of programmes in different entities. The Committee had seen lots of initiatives that did training and skills development. The Committee needed to see some sort of spreadsheet so that it was able to appreciate the work of SOEs. Government still remained the largest employer. She then discussed load shedding. What was the Department doing to mitigate load shedding during the winter season? She understood the challenges but there needed to be a strategy to communicate. South Africa was headed towards local government elections and this was where the lives of ward councillors were threatened. There would be protests. Most of the time this would be caused by frustration with Eskom and load shedding. How was the Department going to mitigate this and make sure that the lives of councillors were saved? Communication needed to happen with local structures in regions and provinces when load shedding would occur. Mr Cachalia had said that there was bankruptcy, liquidation and reckless lending. She did not agree with him. She thought that it was mostly the extreme when there was reckless lending. How could it be reckless lending when there were budgeting and Treasury processes? It could not be correct to say that the Committee was reckless. That meant that the Portfolio Committee did not know what it was doing. She thought it was unfortunate and those utterances made around cadre deployment. Cadre deployment was found in politics but should not be found in the public sector. In the public sector the values were governance, merit and application. She encouraged the Committee to speak about the performance of the Department and SOEs and not apportion the matter with politics. This was a very critical time where the Committee needed to perform oversight. The Committee needed to make recommendations instead of just ranting all the time and making rhetoric. She asked that part of the Committee’s oversight would include a visitation to the Durban Port. She also wanted the Committee to visit SAFCOL in Mpumalanga and other areas. The Committee needed to be tight on oversight and needed to be on the ground. The Committee needed to see these things in person. She said that the APPs and performance was taking the Department somewhere and was giving the Committee food for thought. The Committee saw the targets that were set by the Department. The DG needed to make sure that the targets were aligned to what was promised in the NDP. The targets needed to be compared and crossed with the targets of the NDP.

Mr Matibe said he hoped the Department would be able to respond to the questions posed. If not, the Department could provide a written submission to the Committee. He handed over to the Department to respond to the engagements from the Committee.

Deputy Minister Masualle thanked the members for the comments and questions that they made. He made a few remarks in response to the questions. The Director-General and the team would then deal with the questions in detail. There was a suggestion that was made by Ms Mkhwanazi and in different ways other members have also spoken to that matter. The suggestion was for a detailed report on the progress of the efforts aimed at curbing corruption. The question was asked what progress had been made? What was the extent of the recoveries that had been made across all the entities? It was fair to accept the proposition Ms Mkhwanazi made that the Department needed a separate session in which a consolidated report was presented that captured the progress of all matters related to efforts of recoveries and the rolling back of corruption within all the entities. If that was agreed to then in the programme of the Committees there may be slots provided to discuss that matter. He then responded to the concern Mr Cachalia raised on the nature of the information that was provided. Mr Cachalia repeatedly referred to the granular detail that was expected. Even if the Committee wanted it would not be able to put that detail into the kind of report that it made. The presentation was a capturing, because of the time available, of the revised strategic plan of the Department which was a five-year programme as well as customising that to reflect an annual programme in the annual performance plan. Even though that was an annual activity it could not capture that granularity in relation to what was the details of each of these areas. Perhaps some of the details could be extracted in the engagement with the respective entities. The Department needed to look at how it devised time and how it dealt with these matters of such detail. The report and presentation were premised on a very detailed examination of the objective reality that obtained. If the Committee wanted sight of that kind of detail it was fair and accepted that the Department needed to create an opportunity for that to take place so that it was able to get to that level of granularity. He then discussed the impact of Covid. It was a worldwide phenomenon. It had the impact of slowing down activity owing to the restrictions that had to be observed. It continued to be a cloud of uncertainty. There was still a possibility of a third wave. Some parts of the country had declared that they were almost in that phase. That brought a lot of uncertainty because accompanying that were the different levels of lockdown. The Covid pandemic continued to be that factor of uncertainty going forward and mitigation needed to be made. Everyone was engaged in efforts to try and undo much of the setbacks that the pandemic imposed. It was a challenge that the entire world was faced with. He discussed a question posed by Ms Modise. It was a succinct question. Based on the environment of the fiscus, the Department could not objectively say whether the budget was adequate for what it wanted to see happen. The Department was affected, like all other Departments, by the cutbacks that had to be done in order to respond to the crisis that the whole nation was facing. There had been the rolling out of cutbacks on what the Department was able to do. This impacted on the programmes of the Department and the entities had also been affected. He discussed the issue of how the Department dealt with asset stripping and theft of cables and the damages done to installations, power stations and transformers. That challenge continued to bedevil the work of ensuring access to electricity in many parts of the country. It has caused the mobilisation of, not only State organs, society to be brought together to focus on this matter as it was a serious dent on the economy. It was a matter that Eskom was engaged on a variety of strategies to deal with. The issue of illegal connections was also being dealt with. It impacted negatively on the stability of the grid system. The President even commented on the issue of the non-payment of services. There had to be the payment of services by those who were in a position to do so. It was a call that many progressives in the community were making. Eskom would get more support across various platforms if Parliament was able to send out the message of the payment of services without any political persuasions. That would be the correct thing to do. He then discussed the issue of the boards. There were a number of members who raised the issues of board performance, board members who were appointed and the calibre of the appointments. One of the key issues that related to the strengthening of governance in SOCs was the appointment of people who were fit for purpose. Departments needed systems in place to ensure there was accountability for those who were appointed. He discussed the issue of the accountability framework within which boards operated which introduced board evaluation and performance which were reported about annually. This would be part of creating an environment in which people who were appointed were fit for purpose and were held accountable to certain standards of good practice. This was a matter that was instituted to try and an improve the performance of board members. This would then be applied to others at executive levels, management levels to make sure that there was the appointment of people who were fit for purpose and were held accountable to performance of identified targets. He said that the team from the Department would go into further detail in response to the concerns that the members had raised.

Mr Tlhakudi responded to Mr Gumede’s question on what needed to be done to improve SOE performance. The SOEs were providing services and products in the market. In some instances, it was a capture market for example in the case of Eskom and Denel they were both sole-source providers. In some cases they were faced with competition. If SOEs were not able to compete then they would lose out in the market. If the cost of providing the product exceed the revenue’s that the SOEs were receiving, then they would be at a loss and that was currently the case. How was that addressed? Firstly, the right leadership team needed to be in place and capable people were deployed throughout the business. There were competencies that were required. The business needed to invest in its operations to ensure that it was producing more efficiently than one’s competitors. Those were the basics that the Department needed to put in place. There was a long list of other issues that have not been mentioned. Those were the basics that the Department had to go back to and were within its control. There needed to be a capable board which also had the necessary credibility and integrity. As representatives of the people, the Department needed to ensure that the products and services produced were aligned to the national objectives. That was what needed to happen and that was what the Department was building towards. The strategic plan was a long journey. It was a five-year plan and the Department was in the second year of it. Slowly but surely the Department was getting there. SAA was in business rescue and now it exited it. That shows that good progress has been made. He discussed the restructuring that has happened at Alexkor. The head office numbers were reduced. There was now only one person permanently employed at head office. The 300 people that were at the plant had to be reduced accordingly. He discussed the submission of reports on time. He agreed that more effort needed to be put in this area. There were other dependencies as well. The audit by the AG was also affected because of Covid in terms of the availability of capacity. There had been a reduction of public servants in offices. That impacted on when the audits could be concluded and that was why the annual reports were delayed. That was an area that could be improved. This was not a new problem. It was a problem that had been there for quite a while. The Committee’s worry about Denel was a worry that the Department had. The Armed Forces were reliant on products that were produced by Denel. The Armed Forces’ operational readiness and operational effectiveness were also impacted. The executive team and board at Denel had produced a new business model. The Department was working on securing funding to ensure the restructuring of the business. The troubles that Denel have found itself in was a direct result of some of the bad appointments that were made there with the last board at Denel. Some of the decisions that were made like getting rid of an effective executive team at Denel was also one of the causes. Denel was reliant on a couple of markets to raise its funding then it should not have done things like that. The operations started to grind to a holt and that was what the Department was dealing with. Going forward the Department needed to learn from that and ensure that it put the best people it could find in these particular roles. He hoped that more capable South Africans with credibility and integrity would avail themselves to serve on these boards. He responded to the questions by Ms Maotwe. That was the end of the 2020 financial year report numbers that the Department put up with regard to the six employees. He said that PSJV was a non-incorporate entity that was not part of Alexkor. The Department would give the Committee the revised numbers of people that were employed. He then discussed the oversight model that the Department had. The Department was seeking to tweak the model. It wanted to ensure that the national priorities were strongly reflected in the Department’s targets. The MSTF targets were very prominent in the annual performance plan of the Department. It was as a result of the tweaking of the oversight model. These started out as theoretical models. The Department believed that structure followed strategy. As the Department organised itself it was reflecting that particular process. It was a creative process. The inputs the Committee had given were welcomed and the Department would make adjustments accordingly. He then responded to the question of targets after five years. The target was 75% and the Department wanted to get it to 80%. That is what the Department was monitoring its entities on. Ultimately, these needed to be authentic numbers. The Department needed to be able to come to the Committee and say because of SOEs placing attention on SMME development and supply development these were the number of employees that were working in the respective entities. It should be able to say ‘these were the young people who now owned businesses’. The Department should be able to tell the Committee about black entrepreneurs that were in the system because SOEs had made it possible. He proposed that there be a spotlight on anti-corruption activities and transformation by the Department. The SOEs should come and present before the Committee on these matters. Later on there could also be a spotlight on the skills development programme. He discussed transformation within SAA. SAA needed to answer questions like what were the impediments legislatively that could be unlocked? SA Express had done quite well in terms of transformation and the training of black pilots. Those were the matters that the Department needed to put before the Committee at some stage. He then discussed the role of the private sector. The private sector was already quite involved in the Department’s businesses. The majority of port terminals were operated by the private sector. There was always an appetite from the private sector to partner with entities. Denel was another example. A large portion of the systems Denel produced were contained subsystems that were produced by the private sector. It was important for the Department to ask how it was possible to leverage that procurement and licensing power SOEs had to ensure more people found a role within these value chains? That is what the Department needed to be looking at. As the SOEs came to present to the Committee, the Committee could ask what it was doing in terms of enabling a greater portion of the economy to be controlled by marginalised people? The Department also did not talk enough about the representation of women within boardrooms of the SOEs. The Department needed to do better on the executive front. In the private sector that was not happening. How did the Department leverage the relationships between SOEs and private companies to ensure that women and other marginalised groups were given a fair opportunity? He discussed the continuity of operations during Covid-19. The Department needed to look at what opportunities that lockdown presented in terms of resetting how business was done in the past. He commented on the progress of the appointment of new members. The Department reviewed the boards in 2018 and brought in new members at the time. They were subject to vetting to make sure that the Department got the right people in. There were vacancies in place. The Department would be augmenting some boards and the same process would unfold again. Integrity was paramount in what the Department was doing so that it did not repeat the mistakes of the past. He discussed the challenges facing SAFCOL and Alexkor. The questions raised about the two entities concerned the work done by the Department of Agriculture, Land Reform and Rural Development. The community structures at Alexkor which needed to be the recipient of the land that had been restituted. That land was under the administration of the Department due to challenges in the community. Once those were restored and proper governance had been restored then that would enable the conclusion of the deed of settlement and transfer of what was due to the people of the Richtersveld. The income of the mine was important. The mine had a limited life. There were less than 20 years of diamond mining left in Alexkor. How did the Department ensure that that income got other business going to continue to provide economic activity to the people of the Richtersveld? He highlighted that agriculture by virtue of where the Orange River was located provided a great opportunity. How would Government ensure that happened? The Department and other individual capacities could be harnessed to help the people of the Richtersveld. He then discussed the land claims. When SAFCOL presented to the Committee it would discuss some of the things it was doing within communities. It was to ensure that communities were empowered partners beyond the land claims settlement. The Department did not want those lands to be lost to forestry. The only way to do that was for communities to see real benefits from diversifying their income base. Community-based enterprises needed to become more involved in various operations. He mentioned an upgrade happening in Venda. The Department needed to ensure that community-based enterprises played a bigger role. The benefits and income that gets generated would then flow into the community and does not go to entrepreneurs that were from outside those particular communities. As the settlements were done, whatever partnership that emerged between SAFCOL and the communities needed to be meaningful. He responded to Mr Arnolds concerns about the response of the Department to ensure entities became sustainable and profitable going forward. The Department was doing this through improving governance, ensuring effective capital injection and the reviewing of business models. There would be a focus on the recovery of funds. He responded to the comment about the Department failing to detect wrongdoing at SOEs. He said that the rot did not stop at the SOEs. The rot made its way to the DPE. This matter had been adequately covered in the media with regard to the role that the DPE played in terms of appointment of boards during that particular time to enable the capture of the SOEs. That was the main reason why the DPE did not do its role. That was what the Department was now trying to correct. The Department was working towards the total elimination of corruption. The Department asked itself the question of whether it would totally eliminate wrongdoing. There was always a bad potato in every bad. He hoped that through the systems and processes, including vetting and lifestyle audits, that corruption would be addressed. He discussed recruitment. The Department was making slow progress in filling up the structures of the Department. The Department issued an advert in December last year. The response from the market was not great and the Department was sending out the advert again. The Department was fortunate in that it had colleagues from other Departments which it borrowed which had come into augment capacity. The Department was making sure it found the best people it could. He discussed the transformation that had occurred in the Department over the past 27 years. In 1994 these businesses were not transformed. In executive or management levels there was hardly any person of colour. That had changed quite a bit. The Department had seen the amount of investment that had been committed by SOEs in improving their capacity during the 27 years. He asked how it would be possible to articulate this into a document that could be made available to the Committee? What is it that the Department had done really in the 27 years? What was the amount of investment that had gone in and what had been the returns for the South African people? He appreciated that question and would not be able to do it justice in answering it now. He said the Department would see how it would be able to respond to it going forward. The boards were meeting. The committees were meeting. These boards and committees were addressing issues but some were constrained due to numbers. In terms of the boards financial responsibilities the Department had not found them wanting. The nature of the scheduling of the reviews was influenced by the number of reports that the Department received. The Department received quarterly reports with the performance of SOEs. There was also an annual review that culminated in the AGM. The Department wanted to reach a stage where it received real-time data from the SOEs. This would provide the Department with the real-time status of operations. Did the Department have enough capacity deployed to enable the movement of freight across the country? Those were some of the questions that the Department wanted to answer fairly quickly. The Department had good collaboration with the Department of Higher Education and Training. It had provided some of the funding that enabled the Department’s SOEs to train beyond their own needs. This has come from the National Skills Fund through the Department of Higher Education. The Department was also working very closely with the Department of Higher Education on a special plan for SAA. The Department was doing relatively well. The Department had started a project with the Department Women, Youth and Persons with Disabilities. The Department was assessing the representation of women across SOEs, in leadership positions and in private-listed companies. The Department hoped it could get that data published before Women’s Month so that proper conversations could be had as South Africans. This dealt with social cohesion, transformation and equity. Whose responsibility was it? It could not only be the responsibility of Government. The license that private businesses operate from is from South Africans. So what role were they playing in ensuring South Africans were well represented? That was a discussion that South Africans need to have. Why was the client not seeing him or herself reflected in the leadership of that particular organisation? Those were the conversations that needed to be had. He hoped that report would start that particular discussion. He discussed copper theft and electricity theft. The Department had a good relationship with the law enforcement agencies but more needed to be done on that particular front to curb this particular scourge. Communities also needed to be the eyes and ears of the law enforcement agencies and SOEs. The Department had seen the state of railway lines and copper that had been stolen. Criminals move into communities after they had committed these acts. That was an area that the Department needed to work on and the initiatives that needed to be seen. He discussed community blackouts. Municipal infrastructure was not adequate to deal with an explosion of settlements especially in informal settlements. People tap onto the electricity line and as a result the infrastructure could not cope. Transformers were blown out as a result and it took time for the municipal electricity departments to replace those. That led to some of the frustration that communities expressed. These incidents were also seen in areas where Eskom provided the distribution services. Soweto had been mentioned. He said that there had been resistance of fitting of paid meters to ensure that people met their obligations with the electricity that they had consumed. He agreed with the Committee that new methods were required to ensure the sustainability of SOEs. That was what the Department sought to do through the new strategic plan and the new APP. The Department was seeking to come up with new ways of doing things. The Department could not be doing the same things over and over again and expect different results. The Department was having fairly regular engagements with the SOE leadership, the board and executives, to get an understanding of how they were redesigning their operations and business models to ensure that they became sustainable going forward. He said that Mr Cachalia might not have noticed it but there were things that had changed in the APP and strategic plan. The Department was doing different things as compared to previously. This was done to change the fortune of the SOEs. The issues Mr Cachalia raised required special sessions to deal with them. He said some of the additional controls the Department had put in place, including deviations must be approved centrally, disadvantage SOEs in terms of quick reaction. The Department had put additional controls in place when it did not have well-intentioned people running the business. Now there were well-intentioned people there but there were the same controls. To repeal those controls took time. The Department had to see improvement in performance and eradication of malfeasance for it to relax them. The SOEs always made reference to bureaucracy. He said that there were skills within the SOEs. What the SOEs did not have was capable leadership and management. In some instances, there was a deliberate pushing out of those executives who were capable. The Department was addressing that. The Department had some of the best trained people in SOEs. That was what the Department was seeking to achieve. In the population of the country there were also capable people who should be attracted to the Department soon to assume responsibilities within SOEs. He said there was below 3000 employees at Denel. He said that there had been a challenge to keep up with some of the payments at Denel. The Department was working very hard to address that. He said that the Department was doing work with Defence and the Aerospace Masterplan. The Department would be able to provide a report on the board and employees doing business. There had been a drive to get everyone to declare their interests and do lifestyle audits across the SOEs. He said that there was private sector involvement in SOEs. In some instances, the Department had seen the socialisation of risk and the privatisation of profits. There were instances of the banks crisis and how they were bailed out with public money but when the profits came they accrued to shareholders and executives. It needed to be done in a way where South Africans, who were the ultimate shareholders of these entities, received their fair share. There needed to be a fair risk-sharing arrangement that needed to be put in place. That was what the Department was intending to ensure happened. Mr Dlamini raised the issue of the corporatisation of TNPA, what was the benchmark and what did it mean. TNPA was a division of Transnet. Corporatisation meant that it became a legal entity. It would get its own board and own executive that would be accountable for its operation. That was what was meant by corporatisation. In the same way that an unbundling of Eskom would end up with a transmission business that was 100% owned by Eskom which was 100% owned by Government. That was the ultimate outcome. This was a product of legislation that had been passed in 2005 that said the Minister of Public Enterprises must ensure that that happened. He commented on the bureaucracy at SOEs and the amount of time it took to get a screw or a pen. That was a direct product of the tightening of controls to ensure that resources were properly spent. This did have unintended consequences. The Department needed to continue to review these to ensure that they were addressed. The Department would start to speak to the spotlight on corruption. What kind of measures could the Department put in place to hopefully totally eliminate the scourge of corruption from SOEs? In the public service the officials had to declare their interests and were monitored. That was what the Department was expecting to do in the SOEs. The board members effectiveness was ultimately a product of their capabilities, their training, their professional training and there had to be proper processes that enabled them to monitor the payments of executives. As the Department developed the new legislation it needed to put particular attention on that area. He highlighted the Bill and if the Department would be able to meet the timelines. He responded to the questions on BBBEE and CSI. Those dealt with the topic of transformation. What was the progress that had been made? Once the Department was able to show the Committee the results then hopefully the spotlight would be on this matter. He responded to the question on SAA and the timeline until the new airline would be operational. Discussions were going very well. The Department hoped that it in the next couple of weeks to provide results on those discussions. The interim executive and board at SAA were working on a plan to get the airline flying. They had entered into arrangements over aircrafts and some of them would be arriving soon. SAA would be communicating in due course with South Africans as to when it would be flying. The two processes were very much linked to each other. He said that job creation was under the large umbrella of transformation that needed to be discussed at some point. The Department needed to be able to give the Committee numbers of how many people were employed off the orders given by SOEs. For example, if there was an order book of R10 billion at Denel how did it translate to businesses out there? The same would be said of Transnet as it put R100 billion into revitalising its ports. What did that translate to in terms of number of enterprises and people that would be employed? That was the information that the Committee deserved to receive so that the members were in a position to report back to their constituents as to what SOEs were doing to better the lives of South Africans. The comments the Committee made on load shedding were well received. It could not be that load shedding became the norm. The maintenance programme that Eskom was undertaking needed to start showing real results in the sense of a reliable electricity supply. The Department needed to get to a point where businesses were investing in the industrial capacity. The NDP was the Department’s guiding light. The 2030 targets that had been set were reflected in the five-year MTSF targets that were given in this APP.

Mr Avhasei Ramuhulu, Acting Chief Director: Energy Resources: Department of Public Enterprises, responded to the question on how many staff members were at Alexkor. There were two permanent and four temporary employees. In ESGV there were 76 permanent and 51 temporary staff. There were 658 mining contractors. He commented on what the Department and Eskom were doing in response to load shedding. He responded to the question of why Eskom did load shedding during the time of Covid. This was due to the fact that the plant and fleet was very old. There was no proper maintenance. There was a breakdown. Eskom was currently implementing the reliability maintenance recovery programme that aimed to improve the level of maintenance and also to improve the partial load losses. That was what Eskom was currently doing to increase the planned maintenance so that the issue of the trips was minimised. Eskom was also planning on improving plant performance at Medupi and Kusile. They were the newest stations and needed to be able to improve their energy availability factor. Eskom was undertaking a programme where they wanted to improve EAF according to the design of the machines. The other programme that the Department thought could assist in the short term so that Eskom would be able to improve the level of maintenance was the procurement of additional capacity from the IPPs. One would expect Government to intervene in the procurement of additional power supply. According to the regulatory framework, for now, Eskom had to buy power from IPPs and the consumer had to pay. This led to the increase in tariffs. He commented on municipal debt. It was receiving attention from the Office of the Deputy President. Eskom was willing to come up with the process of partnering so that they could minimise the debt.

Adv Melanchton Makobe, Acting Deputy Director-General: Legal, Governance and Risk, Department of Public Enterprises, discussed the SOE Bill. The Department was confident that it would meet the timeline even though it was tight. The first process would be the research and development of policy that would inform the Bill. The policy would have to look at what would be the appropriate oversight model for the SOEs in South Africa. Once that was finalised then the Department would develop the Bill. The Department would table it in Cabinet and then in Parliament. The Presidential SOE Council was also assisting the Department in developing the policy and the Bill. They would also be bringing in capacity so that the work would be finalised on time. He discussed the issue of the appointment of the board members. There was a list of potential board members for SOEs. The Department appointed a company to conduct the vetting of those board members before they were recommended for appointment in the various boards. The Department requested that the individuals provide a commitment in terms of their availability to have the time to serve on the boards. The Department would also make an assessment of the boards that the members sat in and whether they would have time to serve in the boards of SOEs. He commented on the risk integrity management framework. It was intended to standardise integrity assessments in the SOEs by first looking at the declaration of interest which showed that there was a proper declaration of interest by all the employees in the SOCs. It made sure that there were lifestyle audits conducted on all officials of the SOEs. It was also there to prohibit officials in those SOEs with doing business with that particular SOE. It looked to transform the risk and performance within SOEs. It was there to ensure that there were standardised reporting requirements to the Department with regard to risk issues.

Mr Matibe highlighted two issues that were raised which he thought that the Joint Committee needed to look into. The first issue was the oversight. He said that the NCOP had an oversight plan to go to Durban. He said the Portfolio Committee needed to look into that so that there could be a joint oversight visit to Durban. The issues of transformation and skills development had been raised. The Department would need to look at those key issues and the details of the business rescue plan and the reindustrialisation. The Co-Chairperson urged that if members had other questions that they put it in writing so that when the Department brought the detailed response back to the Committee that they also respond to those. 

Mr Magaxa said that there needed to be a session to get an update and report on all matters relating to corruption including the recoveries of the resources stolen. The sectaries of the Portfolio Committee and Select Committee needed to look into that when finalising the next quarter of the programme. The secretaries needed to find a way of organising a joint oversight visit. He thanked the Deputy Minister his availability and assisting the Committee to put issues into context so that the Committee was able to understand all the issues that were pending. He thanked the Department and the DG for the good work. The Department had met the Committee’s standard with regard to the nature of the report. He thanked the Department for assisting the Committee with this information that was necessarily for the Committee’s oversight work. He thanked the members for the dignity they gave to this Parliamentary meeting. The Committee had proven that it was matured and able to safeguard the resources of South Africa. The members had shown in this meeting that they respected the work that they were given by society. By conducting themselves in a dignified way it showed the respect the members had for society. If members were disruptive it was like them showing a middle finger to society. He thanked the Committee for all of the contributions made and the behaviour in the meeting.

The meeting was adjourned.