Update by DPE on progress made in addressing governance challenges facing state-owned companies; Jamestown Petition

Meeting report

Chairperson’s opening comments

The Chairperson said that the purpose of the meeting was a briefing from the Department of Public Enterprises (DPE) to appraise it on developments that had taken place in state-owned enterprises (SOEs) since the last engagement, and the progress being made in addressing their governance challenges. There were many processes and changes taking place in the SOEs, some of which got reported in the media. The briefing was meant to inform the Committee about all the activities that were of interest to it as the legislative arm of this Parliament.

The Committee had learned of the resignation of the chief executive officer (CEO) of Denel, the agreement between South African Airways (SAA) and the unions on severance packages, and many widely reported developments. The Chairperson’s office had received a lot of correspondence from employees, former employees, and contractors seeking interventions in labour disputes relating to Eskom, Denel, Transnet, SAA Express and other entities. Some stakeholders had complained about a lack of consultation, mainly at Alexkor. There were three weeks in this term, and the Portfolio Committee (PC) would like to engage with the DPE before engaging with SOEs such as Denel and Transnet. The PC hoped that in this presentation, the Director-General (DG) would be in a position to get SOEs to assist the Committee on the abovementioned matters.

A problem the PC was facing was that sometimes things happened quickly. Sometimes things happened in between the meetings, and found their way into the public domain. In that process, the PC was caught out by getting asked many questions by the media.

The Chairperson welcomed the meeting participants. He congratulated Mr Khathatso Tlhakudi, who was now officially the Director-General of the DPE. The PC wished Mr Tlhakudi all the best, and hoped that they would continue a working relationship as partners in endeavours to improve the capacity of SOEs. The SOEs were in a serious situation. Parliament was trying to revive something that was “already in ICU,” so it would like to work closely with the Department and improve the situation.

The Chairperson said he had just been informed that the Minister and the Deputy Minister were in a Cabinet meeting which had started at 08:30, and if it finished in time, they would join the Committee meeting.

Mr Disang Mocumi, the Committee Secretary, said that the Auditor-General (AG) was also at the meeting out of interest in the issues that were related to governance.


Progress in addressing governance challenges facing SOEs

Mr Tlhakudi said the Committee sought to understand the specific governance challenges facing SOEs. The Department would also refer to labour matters as these were unfolding at its entities. At the end of the presentation, the PC would see how the DPE could address some of those issues. It would have been helpful if the PC had received the specific issues that had been highlighted as having made it into the media. He hoped the Department would get an opportunity to address those issues going forward.

He said the Department may have underestimated the damage that had been done at its entities over years by people who were ill-intentioned. Changing boards, putting in place new executives, and giving cash injections was not enough when the damage was large. There had been some reaction to ensure that those who had caused damage had had the full extent of the law visited upon them. The funding of entities was a challenge, so the Department had to be innovative.

The Department was structured according to three programmes:

Programme 1: Administration and corporate management;
Programme 2: SOC governance, assurance and performance; and
Programme 3: Business enhancement, transformation and industrialisation.

Over the last three years, the Department had obtained a clean audit. In the 2015/2016 financial year, there had been a “hiccup,” but it was seeking to maintain the clean audit track record. It was also in a rebuilding phase, not only with his own appointment, but it would also be filling appointments at an executive level, and also at lower levels, so that it could get the right skills.

Summary of SOE performances

Alexkor

Ms Jacky Molisane, Deputy DG: Financial Analysis and Investment Unit, DPE, said Alexkor had reported a loss in the 2019/2020 financial year, and did not have any other revenue-generating activities. It derived its income from debt. It had a very erratic performance due to poor management, low diamond prices and corruption. The Pooling and Sharing Joint Venture’s (PSJV’s) liquidity challenge had had an impact on Alexkor’s financial position, and therefore it was currently not a going concern. Its cash reserves would be depleted by September 2020, and the Department was not able to provide further funding, and without an ability to generate revenue, it would not be able to go into the financial market to access funding. There were no projections for the 2020/21 financial year (FY) due to the winding down of the Alexkor head office.

Denel

Denel had recorded another loss of R1.7bn for the 2019/20 FY, due to a significant decline in revenues. This was directly attributable to the current liquidity challenges. Its equity had been significantly below the level of R4 billion required by investors. This was mainly due to low profits and losses recorded over the years. Its equity level had decreased substantially, despite the injection of R1.8bn that had been disbursed in the 2019/20 FY. Furthermore, R576 million had been allocated for the 2020/21 FY, but had not been disbursed. The SOC’s assets were predominantly funded by debt.
The projections for the 2020/21 FY were expected to be revised due to the impact of COVID-19.

Eskom

The increase in revenue was underpinned by the increase in tariffs. Although the cash from operations was increasing, earnings before interest, taxes, depreciation, and amortization (EBITDA) were not sufficient to cover increasing costs. The value of the shareholder equity had been eroded by increasing debt. The business was not generating returns for the shareholder. The projections for the 2020/21 FY were expected to be revised due to the impact of COVID-19.

South African Forestry Company Limited (Safcol)

For the 2019/20 FY, Safcol had reported a loss of R47 million. This was mainly as a result of the decline in revenue and high operating expenses. Without the fair value adjustment, the loss for the year would have been worse. The SOC needed a re-investment in its capital assets and operations.
The Department was concerned that the company’s performance had been stagnant over the past 10 years. The projections for the 2020/21 FY were expected to be revised due to the impact of COVID-19.

Transnet

Revenue performance grew only marginally by 3% to R75 billion in 2019/20 due to lower than previous demand. The decline was associated with low demand and therefore low volume performance. According to the corporate plan, revenue was expected to increase to R78 billion, but the event of COVID-19 and lockdown made it unlikely that this would be achieved. Net profit had decreased to R3.9 billion in 2019/20, due mainly to valuation relation adjustments, in line with contracted expectations of future cash flows. Net profit was projected to increase to R0.3 billion, according to the Corporate Plan. Transnet’s equity had decreased in 2019/20 in line with a negative effect of asset valuations, impairments and fair value adjustments, but was expected to increase again to R145.4 billion in 2020/21, per the corporate plan.


South African Airways (SAA)
 
The airline had been placed under business rescue in December 2019 due to its declining performance and inability to pay its debts as they fell due. A business rescue plan had been approved in July 2020 by creditors. Various options for raising funds to implement the business rescue plan were being considered, including reviewing unsolicited offers by various potential partners to provide funding for the airline. This was being carried out with the assistance of Rand Merchant Bank, which had been appointed as the transaction advisor to ensure that the best option for securing funding was chosen.

SA Express

SA Express had been placed under business rescue in February 2020. Joint business rescue practitioners (BRPs) had been appointed to turn around the airline around. The BRPs had been unable to submit a credible business case to raise the post commencement finance for the entity to continue operating. The airline had then been placed under provisional liquidation by way of a court order on 29 April by the high court. On 6 May, the Master of the High Court had appointed joint provisional liquidators, who had an advertised expression of interest for the sale of the business. Should there be no interest from any potential investor, there was likelihood that the airline may be liquidated on 30 September 2020.

Strengthening of governance structures and tools

Ms Orcilla Ruthnam, Chief Director: Governance Unit, DPE, said the Department had reflected on the executive director recruitment and appointment process, focusing specifically on the chief executive officer (CEO) and chief financial officer (CFO) positions.

With Transnet, the Board had realised the recruitment and successful appointment of the Group Chief Executive Officer (GCEO) and Group Chief Financial Officer (GCFO) in early 2020.

With Eskom, the GCEO and GCFO positions had been occupied.

Denel’s CEO had resigned recently, with effect from 15 August 2020. The Denel board was undertaking a recruitment process.

With SAA and SA Express, key executive positions had not been filled. There was a business rescue process in SAA, and there was an interim CEO in place, as well as a CFO. At SA Express, there was provisional liquidation in progress.

Safcol had a CEO, and the CFO had resigned recently. The CFO recruitment process was under way.

The Alexkor CEO was on a five-year contract term, from 2017 to 2022. He was the appointed accounting authority.
 
Review of the MOI (Step-in rights)

A review of the Memorandums of Incorporation (MOIs) in the DPE portfolio was in progress, and would include the following:

Ÿ Empowering the Minister to intervene when the Board was seriously underperforming by dissolving the board and appointing a “quasi” administrator to turn around the company. These conditions could include:
Ÿ Where the SOC was in financial distress, or there were allegations of maladministration and mismanagement;
Ÿ When the SOC had material governance challenges;
Ÿ When the SOC failed to perform its functions effectively or efficiently; and
Ÿ Where the SOC had acted unfairly or in a discriminatory or inequitable way towards a person to whom it owed a duty under the legislative or policy framework of the SOC; or had failed to comply with any law or any policy envisaged in the legislative or policy framework relevant to the SOC.

The review of the MOI would also look at the existing governance structures in the SOC, especially where there was ambiguity regarding reporting lines, or the system was not working effectively. The Department had developed a standard MOI template that incorporated basic norms and standards for the SOCs’ MOIs.

During the second and third quarters of the current financial year, Minister would engage the boards of the SOEs within the DPE portfolio in order to initiate the process of amending the MOIs in line with section 16(1)(c)(i)-(ii) of the Companies Act 71 of 2008, which provides for amendment of the MOI by the shareholder. It was envisaged that the actual amendment of the MOIs would be completed in the fourth quarter of the current financial year.


Development of SOE remuneration survey

There was a two-year exercise to develop a remuneration survey and review the guidelines for 2020–2022 which had been started earlier this year. The Department had collected data from as many entities as possible, comprising schedules 2 and 3 of the Public Finance Management Act (PFMA). This was quite vast, and beyond the portfolio, particularly as the remuneration guide that was approved by Cabinet in November 2016 had been was for application by these entities. The Department was in the process of looking at its SOEs to determine their remuneration and their practices, and of developing an “as-is” analysis for the next quarter. Thereafter, the Department would develop the survey and, in parallel, review the remuneration.

Performance information

Mr Tlhakudi referred to the performance information, and said the SOEs were currently undergoing an audit. He asked the PC not consider this section in full until the audits were done and the entities reported their results, which should be in the latter part of 2020.

Discussion

Mr S Gumede (ANC) commented that there were still lessons to learn, so that documents would arrive earlier and enable Members to read them sooner, internalise them, and be in a position to ask relevant questions. Denel had made an appointment in the form of an acting CEO, Mr Talib Sadik, after the resignation of the CEO. He was looking Mr Sadik’s qualifications, and hoped he would take the SOE further because of those qualifications. He asked about the Department’s retention strategy. These were critical times, where many people were looking for “greener pastures.” At the same time, with recruitment around the world generally, there was very little that may take place during the critical state of the pandemic.

It was commendable that the Department had always shown a good performance, with the exception of 2015/2016. It had to find a good mix. How could it lead good SOEs? One could not have an excellent Department and “bad” SOEs. He was not sure what it intended to do when Alexkor’s funds were depleted. The presentation had been clear -- there was poor management, and there was corruption. It was clear that in September 2020, the funds would be depleted. Treasury was not willing to put more funds into the entity.

It was unfortunate that as a country, South Africa could not afford not to have organisation like Denel. The way it was operated, with its liquidity challenges, meant that there was a lot that the PC and the Department needed to do. In past instances, when there were crises of this nature, Members used to go out and see what exactly the situation was. It looked like there were no funds and no revenue. It meant that the PC may experience a scenario where all these other SOEs would be placed under liquidation. It means that eventually all of these SOEs may just disappear and “die a natural death.”

 His only worry on Eskom was its increasing debt. He was not sure if the Department or Treasury would be capitalising that R454 million debt that Eskom had. Eskom was the SOE that South Africa could not lose.

In many of these SOEs, there were losses. For example, Safcol had a R47 million loss.
What were the losses related to? Was it simply irregular spending, or was it due to corruption?

On SAA, he was interested in the plan that had been agreed to. What was happening now was “more or less a political process.”  Was the approved plan implementable? Was the Department expecting that this plan would be approved? Could the plan help to resuscitate SAA? He was not sure -- he thought something was being done with SA Express, where SA Express was being cushioned under SAA in order to accommodate it.

Mr G Cachalia (DA) said that if one looked at the vision and mission statement at the beginning of the presentation, it had said that the aim was to create an enabling environment for SOCs, and to add real economic value by focusing on operational excellence, commercial viability and fiscal prudence.
If one looked at the various entities, none of these three areas was in evidence, and had not been in evidence for a very long time.

Alexkor was in a state of loss -- its cash reserves would be depleted by the end of September. Denel was in a state of loss and was funded by debt, and its equity was below the levels required. Eskom was in a similar position, and was in a very dire state at the moment. Safcol was in a state of loss. Transnet’s revenues were down.

SAA was bankrupt, and the PC was waiting for information about the unsolicited offers. Rand Merchant Bank had been called in to facilitate this, but there were no details about the fees charged by RMB, and no transparency about what officials were on board and what the terms were. SA Express was being liquidated. The only measures that he saw were some that were aimed at governance, which “had been the story forever,” and governance had not been fixed. There were some human resources (HR) measures for fixing recruitment, but that did not really solve anything -- it just shuffled the chairs around the deck. These seven entities were in a dire state. The Department under which the entities sat had failed over many years to rectify this situation. They could continue doing the same things, or restate the problems.

Ms O Maotwe (EFF) joined the Chairperson in congratulating Mr Tlhakudi on his appointment, but said she had been disappointed by simple things. When he was presenting, but did not have the presentation in front of him. He had asked the secretary to put the slides up, but the latter had struggled to do so, and it had been “a mess.” She said: “That’s not what we do as black professionals; you were embarrassing black professionals.” Since he was running a department where he should be driving the Fourth Industrial Revolution (4IR), how would he drive the 4IR if the “simple thing of presentations” was not done correctly? She was glad that the AG was at the meeting so that he could understand the frustration that Members went through when they sat in meetings and things just happened “as if somebody was running a tuckshop”.

The CEO of Eskom had come and told the PC that he had hand-picked companies. She was hoping that when the AG audited the SOEs, he would highlight those irregularities and recommend the immediate removal of the CEOs who were doing such things. It could not be done -- it was the government’s own rules that were supposed to be followed.

The Chairperson had spoken about a number of things when it came to Eskom, in particular regarding labour issues. There were employees who were complaining that they had been moved. Mandla Maleka had not been appointed as treasurer, and there was a failed former finance person from the Edcon Group who had been appointed to that very critical position. There was a whistleblower who had been removed for exposing corruption involving a serious amount of money -- about R43 million -- which today Eskom was defending in court. There was the issue of Ms Madisela, who would have been the first black board chairperson of the pension fund, who had been replaced by a white woman. What was the Department doing? It looks like it was just appointing boards and leaving them to run these SOEs with CEOs who were not doing anything to advance anything that spoke to today’s government. All of the small transformation gains were being reversed at Eskom, and nobody had said anything about that. Transnet had gone to ask for interest on whether to sell, lease, or partner on its own assets. SAA had started selling off its aircraft, after they sell them, do not replace them. Leasing aircraft was now too expensive, and SAA could not pay -- that was why it was in its current situation. That was exactly the route that Transnet was taking, through enablement by the same Department. What was it doing to stop the corruption that was happening? One could not wait for assets to be sold, and then say three years down the line that Transnet was not making money. It would not make money after it had sold its assets. There were many interventions that Transnet could do to grow its revenue, but selling assets was not one of them.

Ms Ruthnam had said that RMB had been appointed to help SAA source funding. What process had been followed, and what was the value of the contract? What were the deliverables that would come out of this contract? How long had the interim CEO been there? When one looked at all of these SOEs, Alexkor had losses, Denel had losses, and the CEO had resigned. Who was the Acting CEO of Denel at the moment? The PC had been told that there was an interim CEO, and the process for recruitment was ongoing. Was the Department planning to bring in someone who had worked at Denel eight years ago? Why was the Department bringing in an interim CEO, and how long was this interim period?

At Eskom, there were losses, and the only increases were in tariffs, but South Africa was faced with load-shedding every day. A few years ago, the Deputy President, who was currently the President, had said that load-shedding would be a thing of the past. There was still load-shedding, so clearly nothing had been done. Transnet had losses as well. The PC already knew what was happening with SAA, and SA Express was now being sold. This Government was not giving the PC anything when it came to strengthening the SOEs. The Department could not say it was state capture, because the DG was still there when state capture was happening. What was he doing now, when SOEs were being captured? Andre de Ruyter was “employing his own friends who he worked with at SASOL.” Two years from now, the DG would “claim state capture.”

Adv L Mpumlwana (ANC) said that he had been trying to get into the meeting. The Chairperson said that he would come back to him.

Ms J Mkhwanazi (ANC) joined the Chairperson in congratulating the DG, and said the PC was happy because of the continuity. On the issue of governance, the PC needed to appreciate and acknowledge the progress made, because it had been saying that there needed to be stability in the Department. It had to continue dealing with the challenges in the Department, especially the SOEs. One of the mandates of the DPE was to unlock growth and potential in the economy, and to support marginalised business sectors. What was the concrete plan to make sure that the SOEs were able to deliver on that mandate?

She asked about the Department’s progress in addressing infrastructural challenges. One of the priorities in its budget was to accelerate maintenance progress, making sure that it dealt with infrastructural challenges, especially on the issue of Eskom. Load-shedding and load reduction caused inconvenience and affected economic growth and development. Could the Department talk to how it was with that, and was there any capacity in the Department to deal with those issues?
What was the plan to make sure that the Department could sustain the SOEs, which were all in a dire situation? Was there any particular plan to ensure that there was external assistance, or any engagement, to make sure that the Department sustained them? Going forward, what was its plan to make sure that the SOEs were looking after assets that were sustainable?

Ms R Komane (EFF) asked about Alexkor. The presentation had said that there were corrupt activities there. What kind of management had been put in place? This matter of Alexkor had been reported to the PC for some time now. She wanted to know what subsequent management course the Department had embarked upon.

She asked if the PC could be informed of the timeframe for the CEO at Denel to be appointed. This had been something that had been going on for quite some time now. The PC could not be told that the pandemic had been the reason that this had not been done. The Department had been aware of the challenges at SAA, so what had its intervention been?

Ms V Malinga (ANC) applauded the Department for admitting it had realised that changing boards was not a solution for the SOCs. The last time she was in this PC, it had been said that Alexkor would be moved to the Department of Mineral Resources and Energy (DMRE), and that the process was under way. She was unsure if that process had been stopped because of the challenge of depleted funds at Alexkor. With Transnet, the PC had been told that South African ports were not in a good state. Were the losses as a result of the ports, and had anything been done regarding the security and spacing at the ports?

She asked how Eskom could load-shed and increase tariffs. South Africa was under a pandemic that had shed many jobs. Many communities would not be able to afford the increased tariffs. Had there been any engagement between Eskom and the DMRE through the National Energy Regulator of South Africa (NERSA) regarding the tariffs?

Mr Cachalia said that every single entity under the PC’s purview was in a very difficult situation. Some were bankrupt, all had no funds, equity was in a dire state, revenue was down, and profitability was down. In the case of Transnet, there was “no light at end of the tunnel.” Of all of these entities, Eskom accounted for 80% of the burden on South Africa’s fiscus -- SOEs were part of expenses, and Eskom accounted for 80% of that amount. Cumulatively, these entities were responsible for the financial difficulties that corporate South Africa had been placed in. At a high level, with these tasks of strategic leadership, governance, financial and non-financial performance and support to the shareholder in terms of strategic positioning to enhance operations, he saw “no light and no progress.”

Questions needed to be asked at the highest level. What was being done differently? All he saw was “the same old tinkering,” with a bit of HR, a bit of having different people in different positions, which was essentially rearranging the deckchairs on the Titanic. This was not going to solve the situation. The PC needed to know what measures were being proposed to fix what had become a burden on South Africa’s economy in the most real fashion. This had to be resolved. There were a host of operational issues which one could talk about. One could talk about the new appointments at Eskom, and whether the people appointed have the requisite knowledge and deep structural experience to effect the changes that were required. Where was the visibility regarding what was happening with the business rescue process for SAA? There were massive problems at Transnet. There were a host of operational issues which required addressing. The answers needed to be addressed at a very high level. Every single entity under the PC’s purview was in grave difficulty. If one carried on like this, “South Africa incorporated would fall off a fiscal cliff,” and the country could not do that. He wanted the DG to answer the PC in clear terms about what could be done that was quantitatively different. “We cannot have business as usual.”

Ms J Tshabalala (ANC) thought that the PC needed to up the tempo on oversight. Eskom was an example. The situation was dire at Eskom. Communities were suffering. What the PC was seeing with Eskom, as far as governance was concerned, was that with the transformation agenda, especially at the leadership level, the PC needed to get to the heart of the issues. This included the gentleman who had recently resigned from the Eskom board. The PC needed to have a day dedicated to Eskom in order to attend to these matters. The Department had informed the PC of what was happening, but she thought that it was time to have a session with Eskom, including asking questions about load-shedding and load reduction. With unbundling, the issue of distribution was a problem, and the PC did not know exactly what was happening there. It was winter, and due to supply and demand, there had been overuse. The system was burdened, but issues of infrastructure maintenance remained a critical matter, and the PC had not been informed what exactly the plan around this was. She proposed a dedicated day to deal with these matters, and suggested contacting the gentleman who had resigned from the board to understand the dynamics of the situation. Such a dedicated day would give the people affected an opportunity to speak, and for the PC to listen to them, and not only take what the Department was saying to the PC. She had found what the Department was saying “very disingenuous at times,” compared to what was happening on the ground.

Referring to Transnet, she said South Africa’s infrastructure was under threat because of corruption. There was not only corruption, but also looting and thuggery in the form of criminal elements that had crippled the country’s infrastructure. The situation was serious -- cable theft was dire. The PC needed to understand the situation. It also needed clarity as far as policing was concerned, and also on the security element -- what the magnitude of the problem was, and its impact on communities. People using the trains were vulnerable. This had to be tackled as a matter of urgency, because these were matters affecting South African people.

From day one, the PC had been told that Denel was not able to properly finance its mandate. It had not been able to fund its human resources adequately; it was not sustaining itself. However, the police could buy weapons. The infrastructure of Denel needed to improve. For her, it reflected on South Africa’s sovereignty as a country, because of the issue of security.

If one looked at the Alexkor situation, did the PC have a report from geologists saying that there were no mining prospects? When the PC got a report to say that corruption was happening, where was the corruption? At what point had the corruption started, and at what point had it ended? Where were the investigating authorities? Was there anything related to the security cluster that came into play? Were there any arrests, or was the PC just going to accept a report that said there was corruption taking place? The PC knew about the PSJV, but the challenge was that the situation was short-changing communities, who owned almost 50% of the venture. She suggested that the PC needed a day with Alexkor, as well as with those communities, so that they could speak for themselves.

At SAA, the Department was looking into an equity partner, etc, but the whole thing was standing still. Every day the PC was in meetings to deal either with questions, or interacting with SAA and its related matters. It was important for the PC to understand its role, and to appreciate it for what it was. It was here to represent the people and the voters, and those voters were today the people who were retrenched.

She proposed that the day to deal with Alexkor should involve inviting the unions to tell their side of the story. As the PC moved along with what the Department was looking at, it also had to assess the situation, and give an opportunity to the people who were affected. The PC still had to have a meeting with the component involving land, so that it could understand the issues of the DMRE and others.

The seven entities were in a dire state. In the sixth administration, the PC needed to be a better oversight body, so that it could sit down and say that it had done its job thus far. It could not afford a situation where R5 billion was lost and went missing, or a situation where the PC read in the newspapers that money had been paid to an entity such as Eskom by mistake. The Committee in the fifth administration had uncovered corruption, and had uncovered this corruption in the last week of that term. These things were happening during this PC’s own administration. Members did not want to find themselves in the last week of term saying that there had been ‘capture’ or corruption happening. Things were happening as the PC was meeting.

She was proposing a dedicated day to deal with these reports for what they were, and not just to receive a report, ask questions, receive a response, the Department leaving, the PC coming back the next week, and the same thing going on for the whole term. The Department had to report specifically on what it had uncovered, provided meaningful comments on the management of the entities, and on the boards that had been appointed. The PC was dealing with three components -- the boards, the Department and management. Those were areas where she felt the PC needed a dedicated time to properly deal with the entities.

Department’s response

Mr Tlhakudi responded to questions, and said that the Department had received short notice regarding the documents. It had needed to get clarity on the issues it had to address when it appeared before the Committee. He apologised for the inconvenience.

The Chairperson apologised, saying a Member had not checked the document in time.

Responding to Mr Gumede, he said the Department did have an acting CEO at Denel -- Mr Talib Sadik, who a CEO at Denel, and had had a successful stint during that particular time. He had been on the board of Denel when a vacancy had arisen. Denel was happy that he had agreed to step in and assist while the Department was seeking a new CEO for the business. The Minister had made it very clear to the board that it needed to get that process going as soon as possible. On the retention of executives, the Department was facing challenges, as it was difficult to attract people to the entities. It had seen this as well, as it sought not only to fill executive positions, but also as it moved to attract people on to its boards. That was an effort that would continue. Fortunately, very capable people had availed themselves to the boards of its entities, because such people understood the importance of these entities to the development of South Africa.

There were engagements going on between the Department and the DMRE to look for a long-term solution at Alexkor. The CEO at Alexkor had been quite involved in the mine to try and bridge the conflict that had developed there as a result of an investigation that had been conducted by one of the forensic firms. The Department had taken action not only to suspend, but to discipline and terminate the contract of the CEO at the mine. It had followed through with some of the recommendations that had been made in the report, to ensure that the malfeasance that was detected did not recur going forward.

The situation at other SOEs would be addressed. The Department had shared its strategic plan, which showed that one of the processes that it was getting going was how to deal with distressed entities. Most of South Africa’s entities were in that state. As part of the reorganisation of the Department, it would be able to have a relatively varied and deep intervention into the SOEs, so that it had a lasting and positive impact on SOEs’ performance going forward.

In due course, the options that were available to the government to address Eksom’s debt would be shared with the PC. The losses were a direct result of not generating enough revenue to cover costs. If one was not efficient enough, one would generate losses. Other issues had also contributed, but there had been an effort to ensure that these were eliminated. Some of the interventions had been publicised quite widely in the media.

Mr Tlhakudi commented on whether SAA’s plan was implementable, and said the Department had brought in some of the best brains working together around the world to help it implement the plan. The key issue going forward was to ensure that could there was an appropriate plan to ensure that the Department could realise the objectives that were set out in it, and that work was continuing. The Department should release the results of that in due course.

He referred to the recovery of SAA’s original routes. With the strategy implemented at SAA, the Department would also be looking at the feeder network that would sustain the airline, and that point, the decision would be made as to what would be the best way forward. For now, based on the resources available to the Department, the effort required was to help SAA out of the situation it found itself in. SA Express had ended up in liquidation.

He begged to differ with Mr Cachalia, who had said that what the Department was doing was “the same old tinkering.” The error referred to had been a deliberate distraction of the entities, and the Department was seeking to reverse that.

Mr Tlhakdui felt that some of Ms Maotwe’s comments were unfair. The presentations were always sent to the secretariat, and the secretariat was responsible for distributing them. The Department strove for excellence, and unless she had evidence to put before it, it would not be in a position to respond.

The matters relating to appointments at Eskom had been dealt with. Eskom, in due course, would respond to Members who had written about the issue. At some point, the Department would give information about the total makeup of the leadership at the SOEs in terms of demographics, as well as gender. What the Department had seen was that it had transformed the executive level at SOEs.

With regard to Eskom and other SOEs where the Department had appointed white executives, such people were fellow citizens. They were fellow patriots who were availing themselves to the country to assist with the SOEs, and that should be welcomed. The Department had gone through the proper process for those people to be placed in those particular positions. That had not diluted the fact that the Department still had a representative executive team at Eskom, as well as on the boards.

The Department would look into the advertisement from Transnet that Ms Maotwe had referred to.

The turnaround of SOEs was a long-term project -- the Department would not have results immediately. Just as the Department had done with SAA, it was seeking to have a solid base from which progress could come, and that would require a lot of effort, and a lot of skills had to be brought in. The Department would be filling positions and would be recruiting to get some of the best skills that it could find into the Department.

On infrastructure, there were key performance areas (KPAs) linked to the medium-term expenditure framework (MTEF), and targets for the SOEs. For example, Eskom had been contracted in terms of energy availability. Transnet had been contracted in terms of volume; it was expected to deliver efficiency at the ports. The Department was seeing progressive improvements happening, including at Eskom, with energy availability currently at just under 70%, whereas it used to be in the lower 60s. There remained a lot of effort required to stabilise the generation system. There were some further changes that the CEO had brought in to try and strengthen the team at Eskom, to ensure that some gains could be made to the system. The Department was on a progressive route -- it was well-reflected in the roadmap that it had published. If one looks at that map, one would see that the Department was on track. At some point, the Department would come back and give a progress report on how it was doing there.

He responded to Ms Komane’s questions on the issue of corrupt activity. A case in point was what had happened at Transnet. In the past week, the Special Investigating Unit (SIU), through a tribunal at Transnet, had been to recover assets from an employee who used to work at Transnet, and who had been involved in illegal and corrupt activities. Executives directly responsible for some of the challenges the Department had to address now, were being pursued. A lot more would become visible as the Department moved forward. It would ensure that anyone who was found wanting in their judicial responsibility to these state-owned entities would not get off scot-free, and would not enjoy the proceeds of unlawful activities.  

SAA was an example of what could be achieved when stakeholders worked together. The Department and all the unions at SAA had got together, along with a labour consulting firm, to co-develop an input into the business rescue plan. That had been done very successfully. The Department had been able to bridge an area which the business rescue practitioners could not achieve to ensure that the employees’ committee was functional. He thought that that was where the effort should be commended. The unions had commended the work that the Department had done. It had been able to negotiate a voluntary severance package to ensure the right size of the organisation as it sought to establish a solid base.

The Department had established a template, not only for the SOEs, but also for the private sector, of what was possible if management and shareholders gave up a little bit of power in order to give a voice to labour. There had been some very good suggestions that had come from labour on what could be done. The Department had also had positive suggestions from the cabin crew, to ensure that their fellow crew members retained their licenses, and that their active job sharing would be looked at. The PC would get to hear directly from labour on what had been achieved.

Mr Tlhakudi said that he had addressed Ms Malinga’s questions on Alexkor. The Department was making progress. The reality of it was that its past forensic investigation could have been better. The Department wanted to understand the impact of Alexkor on the Richtersveld. Some of the other mining companies that used to operate there, such as De Beers, had left, and Alexkor was now the major employer in that area. With minerals, the offshore mining activities were “still quite potent.” The Department was hoping that the CEO was also doing work to come up with something that could help reverse the situation. The Department was also seeking an appeal from the DMRE to help it.

Great progress had been made with the ports. The Department had received a very good report to say that with exports, business was going well through the Maputo Corridor in terms of exporting magnetite. Activities around wine and fresh produce were getting some good numbers. When Transnet came to the PC, it would be able to share the progress it had made. Transnet had been heavily negatively affected by COVID-19. There had been a loss of life of colleagues at Transnet who were working at the ports. That had meant that the operations at times had had to be brought to a standstill. Transnet had organised labour as well as management to be able to react to that well.

Eskom’s load-shedding was an unfortunate situation, but it was a long-term programme that the Department was in to stabilise generation capacity. The management team on almost every occasion, including this morning on ENCA, had indicated that the system would start to stabilise at the back end of 2021/22. Eskom was stabilising the system, but it did not happen overnight. He requested that the PC show patience and provide support. He also asked it to appreciate the difficult task that had been given to the Department’s colleagues at these entities.

Mr Tlhakudi addressed Ms Tshabalala’s comment that the Department had been disingenuous. He understood that synonyms for that word were “dishonest” and “deceitful”. That was not what the Department was seeking to do. It took its responsibility to Parliament very seriously. It provided information to the best of its knowledge. He was hoping that over time, the Department would convince Ms Tshabalala that the Department did not come to the PC to be dishonest.

There was work that Transnet, Eskom, the Passenger Rail Agency of South Africa (PRASA) and Telkom were doing to deal with cable theft, and the Department would be supporting them. At the end of last year, the security forces and intelligence agencies had been brought in to help. Cable theft had become a major issue, and had become “so blatant” that the Department had seen pictures of people cutting cables during the day.

The security establishment in the country, including the police, correctional services and the Department of Justice, which had been supportive to Denel, had to buy Denel’s products if the DPE expected the entity to sustain itself. The Department had relied on exports for many years through Denel. If one was not using the product that one wanted to export at home, it did not build much confidence with export customers. The Department needed to get to the point where it recognises that the industrial capabilities at Denel were critical to sustain the capabilities of the defence force. The defence force, in relation to the police force, for instance, had had its budget cut over many years. It was a situation that needed to be looked at very closely, and the Department hoped that the PC would also look at it. The entity was now averaging just under 1% of gross domestic product (GDP) compared to the world average of 2%. If one looked at how the money was spent, very little went towards acquiring new equipment or funding infrastructure, which was less than the defence forces around the world were able to do. The Department needed to see how it could develop and reverse that situation.

The Department had “made good progress” at SAA. It had a business rescue plan that had been approved. It was a major milestone. As the PC knew, there were difficulties that the Department had gone through with the business rescue practitioner in the first half of this year. The progress that the Department had made should be commended.

The issue of electricity distribution, and the challenges of communities, had to be addressed. This morning, the Department had had talks with one of the municipalities in North West, next to Pretoria. The municipalities were not investing adequately in their distribution networks -- their distribution networks were “falling apart.” The connection of residents was not well-planned. Informal settlements were connecting themselves to the network, resulting in overloading of the equipment;, which leads to an explosion of transformers and substations. That was what the Department was dealing with.

It was important that that message got across -- that it was not Eskom causing those particular problems. There needed to be honest communication with communities about the detrimental effect of uncontrolled access to these networks. There also needed to be scrutiny of the spending on maintenance of networks, and expansion and strengthening of the networks by the councils. Councils could not just collect rates from communities, but not invest in infrastructure. The Department ended up with the situation that it was sitting with. He hoped that that message was put across very strongly from elected representatives such as the PC. There was also the issue of payment for services, including electricity. Eskom was not in a position to subsidise non-payment. Unless services were paid for, there would not be money to improve and strengthen the infrastructure.

Mr Avhasei Ramuhulu, Acting Chief Director: Financial Analysis, DPE, commented on the Department’s roadmap. The government departments and Eskom were currently discussing their interdependence in terms of various activities. The Department would be finalising the terms of how it would be able to tackle the unbundling. The government and Eskom were in alignment on when the parties were going to be able to achieve the unbundling with a special purpose, and then the parties would have various work streams in order to be able to achieve the objective of the special paper. In the next few months, the Department should be able to appraise the Committee on how far it was. Eskom had done a lot of work on functional separation. He thought that with the assistance of the government, the Department should be able to achieve the objectives set by the paper. It had good institutions to drive the unbundling process, and was ready to deal with all the challenges of the implementation of the special paper.

Further discussion

The Chairperson said the PC had received the Department’s response to questions. He said that Ms Tshabalala wanted to withdraw some remarks.

Ms Tshabalala thought that it was important to say that when the DG was responding to her comment about the Department being disingenuous, if that was how it had come out, she wanted to withdraw that remark and apologise. It was not her intention to describe the Department as persons who were lying to the Committee. She hoped that the Department appreciated the Committee’s constitutional mandate insofar as it was sharing the frustrations of the people on the ground, and also the mandate of Parliament bestowed on it to conduct robust oversight over these matters. The PC needed to have an interaction with those responsible for the entities.

Ms Maotwe said that the DG had mentioned a deliberate attempt to distract the SOEs. The Department was still sitting with executives who were alleged to have been involved in corrupt activities. The PC had been told that R5 billion had been overpaid to a few companies, so what would the Department do about that? Eskom was investigating the chief operating officer (COO), and there were terms of reference that clearly stated that the COO must not be suspended during that period. It was a continuation of the ‘capture’ -- it was something that was currently happening. The Department must not see this as something that had happened in the past -- it was happening now. The question was, what was the Department doing about it? Everything that she had said were not allegations, but were issues that the Department was confronted with. She had written a number of letters to the Department. The PC was not getting any responses, but when the media issued a statement, the Department responded, but it did not respond to the PC’s letters. There was a fear that when the Department responded to the PC, it would be under oath, and it could take the Department on. Why was the Department not responding to the PC, but choosing to respond to the newspapers?

Referring to the total makeup of executives at SOEs, she said the PC must not be fooled. The Department put white people into the strategic positions, such as the CEOs and COOs, and filled up “all the useless positions with black people,” and claim that there was transformation because there were more black numbers. There needed to be more black people in strategic positions. There seemed to be a deliberate effort by the Department to put black people in those “useless positions” unapologetically. It had been done in the past -- the Department was “never apologetic” about putting those people in those positions. She asked about Transnet’s selling of its assets. An advertisement had been placed. She had written a letter to the Department, and was waiting for a response.

Department’s response

The DG responded to Ms Maotwe by saying that there had been a response to the fact that were Parliamentary processes that should be available to allow the Department to respond on the record, which it was willing to do. He asked that those specific channels be used. The issues on executive positions were being dealt with by the Eskom board, and in due course they would appear before the PC and give a more comprehensive response.

The boards had to be strengthened, and had to be refreshed. The Department had to bring people of capability and integrity in, and that was what was being done. The Department would continue to review the boards and their performance, and review which skills it brought in to ensure that it had more effective boards.

The Chairperson said that the Department had answered all of its questions, but he needed the it to explain the process. Sometimes the PC was tempted to get involved in the management of entities, because people who were desperately having problems brought the PC Members into their own quagmires in the Department, and the PC found itself having to get involved. The PC’s role was to do oversight, and to get the Department to answer questions on these processes, including the meetings of the PC where it invited the Department. Every Member of Parliament had the right to pose questions to the Minister. There were processes in Parliament for writing to the Minister, where each Member of Parliament was required to ask a question directly to that particular Minister; not necessarily via the PC, but through a process of Parliament that everyone had been informed about. The Chairperson had a number of times received letters that were not supposed to come through the PC; those letters were supposed to go directly to the Department, so that the Minister could be in a position to respond. Everyone was on a learning curve, and would continue to learn until the last day of their presence in Parliament.

Report on the Jamestown petition

The Committee secretary presented the report on the petition from the Jamestown community in Stellenbosch.

The Portfolio Committee on Public Enterprises, having considered a petition from the residents of Jamestown, Stellenbosch, on 31 July, reported as follows:

Introduction

The community of Jamestown in Stellenbosch petitioned the National Assembly to intervene in ensuring that Eskom hand over the power supply and maintenance of street lights in the Jamestown and Mountain View areas to the Stellenbosch Municipality. On 12 March, the above-mentioned petition had been referred to the PC for consideration and report. National Assembly Rule 347(1) determined that a member of the National Assembly must lodge a petition with the Secretary to Parliament for approval and tabling by the Speaker. The petition had been lodged in the name of Dr L Schreiber, MP. On 31 July, the Committee had considered the petition.

Oral presentations to the Committee

Dr L A Schreiber (Member of the National Assembly)

Dr Schreiber gave the background and reasons why the community had decided to petition Parliament. He further highlighted the discussions between the Stellenbosch Municipality and Eskom. He informed the Committee that the purpose of the petition was to appeal to Eskom to fast-track the implementation of the handover of the maintenance and power supply for the street lights of Jamestown to the Stellenbosch Municipality. In respect of streetlight infrastructure, Eskom was responsible for infrastructure maintenance. 

Mr D Louw (Stellenbosch Municipality)

Mr Louw informed the Committee that the municipality had received numerous complaints from the residents of Jamestown regarding streetlights that were not working, which also affected their safety. The municipality had discussed the matter with Eskom, but had also sought the intervention of the National Assembly through the Committee to ensure that Eskom handed over the power supply and maintenance responsibilities of street lights to the municipality without unnecessary delay, since the municipality had the capacity to maintain the street lights.

Mr R Badenhorst (Ward Councillor)

Mr Badenhorst informed the Committee that the residents had complained that street lights were not working. The infrastructure belonged to the municipality, but the supply of electricity was the responsibility of Eskom. He also pleaded with Eskom to expedite the transfer of power to the municipality to enable it to maintain the street lights. 

Ms R Barby (Eskom)

Ms Barby stated in response that a number of residents living in Jamestown and Mountain View had petitioned Parliament to have the street light service and maintenance handed over from Eskom to the Stellenbosch Municipality. Eskom in the Western Cape had engaged the Stellenbosch Municipality on this matter in July 2019 and October 2019, based on a request from the municipality. Both Eskom Western Cape and the Stellenbosch Municipality had agreed in principle that a pilot in Jamestown would proceed after verification of asset ownership and after an asset walk-down had been done. This had been confirmed in the meeting of 4 October 2019. The effective implementation date of the pilot was agreed to be 1 April 2020. The Stellenbosch Municipality could not take over due to the impact of COVID-19, but had requested to review the take-over later in 2020.

Observations

The Committee had made the following observations:

Ÿ There was an in-principle agreement between the parties on the transfer, and the pilot had been due for implementation on 1 April 2020.
Ÿ Due to the COVID-19 pandemic, there had been a delay in the implementation of the transfer.
Ÿ There was no resistance from either party, and it had perhaps been premature to petition the National Assembly at that stage, when the parties concerned had not reached a deadlock.

Recommendations

The Committee recommended that the Minister of Public Enterprises should ensure that Eskom reconvene discussions with the Stellenbosch Municipality in order to expedite the transfer of power supply and the maintenance of street lights to the municipality.

Ms Tshabalala moved the adoption of the report as a true reflection of the meeting. Ms Mkhwanazi seconded the motion.

The meeting was adjourned.