DPE 2020/21 Annual Performance Plan; with Deputy Minister

Meeting report

Department of Public Enterprises (DPE) 2020/21 Annual Performance Plan
Mr Kgathatso Tlhakudi, Acting Director General: Department of Public Enterprises, stated that when an state owned entity is in distress, the first port of call is to hold a “mirror” to it to reflect on what is currently being done. He discussed the current oversight process.  DPE is the shareholder representative for government and presently was instructed by the Executive to oversee core strategic state-owned companies (SOCs). DPE is the primary interface between Government and the SOCs and provides input in the formulation of policy, legislation and regulations. DPE does not presently have a legislated constitutional mandate. In effect, it has an agreed and assigned dual responsibility:
- to direct and support improvements in the financial, commercial, operational and environmental performance of the SOCs in their contribution to the South African economy;
- to make a positive contribution to the transformation of the South African economy in line with the NDP to create a better and sustainable economic environment for all South Africans.
He went through the objectives and outcomes of DPE such as transformation and job creation and the risks associated (see document).

He made reference to the APP priorities per programme. The targets have been revised down due to budgetary constraints. For example, the Human Resources programme has since 2018/19 provided 22 training intervention to employees in line with the work skill plan but this year only 15 training interventions will be provided. He noted that the ICT unit will develop an Enterprise Architecture master plan.

On governance, it is important that emphasis is put on SOE board performance as they are responsible for making sure that the SOC performs as mandated. A board performance framework was developed and in this financial year DPE will implement this framework by ensuring that each SOC board undertakes independent board performance audits to ascertain that boards are performing.

Most SOCs within DPE are under financial constraints. DPE will strengthen its monitoring of their finances. DPE will review all Corporate Plans to ensure that SOCs are on the right track in stabilizing their finances. It will monitor the implementation of audit action plans in SOCs to correct the findings identified during the previous year's audit. To drive SOCs to a better financial footing, a dividend framework will be developed.

In terms of business enhancement, the role of SOCs in assisting the transformation of the economy remains important. It is in this light that DPE will continue to monitor the SOCs spend on local content and monitor skills development by the SOCs.

On energy and resources, DPE will monitor Eskom fleet maintenance to ensure that the power utility’s build programmes are efficient and working optimally. The electricity shortage is still a fundamental challenge and the monitoring of electricity margins will be done in this financial year. As announced by the President, Eskom will start with the process of unbundling this financial year.

DPE plans to restructure Alexkor by reviewing its shareholding structure.

In terms of transport and defence, DPE will monitor the restructuring plan of Denel. There will be emphasis on monitoring Transnet to ensure that there is improvement to its rolling stock and its capacity.

Discussion
Ms J Tshabalala (ANC) asked what DPE’s plan is to mitigate the effects of COVID-19 on SOEs that normally do well. The special adjustment budget from the Minister of Finance is needed and she queried what is being done in the interim. She asked if there are vacancies on the boards of SOEs and when those vacancies will be filled. She queried when the work of the administrator will be completed at Alexkor. What developments have taken place to restore normality in the operations of Alexkor? Has DPE received value for money with Alexkor? She asked about the SOE shareholder compacts.

Mr G Cachalia (DA) stated that the presentation of the APP is a ritual and there is no indication of actual changes in the APP. There is a need to address predictability, objectivity and structure within these plans. There needs to be a transparent account of what went wrong in each SOE and what the plan is to solve it. He stated that just as the rationale for public sector intervention is needed when private sector market failure occurs, the private sector should intervene when the public sector market fails. He asked why this plan is being presented now as the budget was tabled more than a month ago. He asked who has DPE hired with sector knowledge to perform oversight of the SOEs. For the revised version of the APP, what is being created to enable economic value, commercial viability, operational excellence and fiscal prudence for SOEs? He asked what constitutes stabilization in phase 1 and how objectives set out in phases 2 and 3 will be achieved. What constitutes an enabling environment for an SOE to succeed? He asked where the shareholder risk profiles are. How does the plan play in terms of environmental costs? He asked how DPE will convince the nation that this plan will be make a qualitative and quantitative difference.

Ms O Moatwe (EFF) said that she hopes that DPE plans the revised budget with the knowledge that COVID-19 will be a long-term problem with lasting impacts. She stated that the National Development Plan (NDP) and DPE objectives are not aligned. She asked what DPE will do to industrialize the economy by using SOEs, as it is evident that this is needed. She asked for the targets for measuring outcomes and where DPE is right now in achieving these targets as well as how DPE will achieve this.

She asked why the Independent Board Performance Report was put into the targets for only the last quarter of 2020/21. This is problematic as there is no fall back plan if the report is not conducted in the last quarter. She does not believe that DPE is taking advantage of Transnet and other SOEs where there is traction and people are willing and eager to contribute positively. She stated that what happened with SAA should not happen again. More effort needs to be put into SAA and SA Express, especially as the SAX employees have not been paid. She stated that more budget needs to be put into Eskom.

Mr S Gumede (ANC) asked how the strategic goals will be achieved, especially the development of skills, in the light of COVID-19, the downgrading of the economy and the Zondo Commission. He asked how DPE will fulfill those strategic goals in this climate. Denel has failed to comply with rules set out by previous plans. He asked what strategy DPE has developed to ensure that this is not repeated. He asked for the strategic approach for Denel and noted that Denel is likely to lose skills.  

Ms M Mokause (EFF) stated that the SOEs were in a state of disarray prior to COVID-19. She asked DPE for a clearer plan on how they are planning on saving the state entities. "Who are the buyers? When did it take place and how did it take place? [Ms Mokause did not state what was being sold].

Mr M Nhanha (DA) referred to nuclear energy media reports, and asked if the state will go the nuclear energy route. He referenced media reports again and asked if it is true that senior executives put their salary packages ahead of their state responsibility. He referred to slide 16 on sustainability indicators with the target set at 60%. That is a very low target and he asked what informed these targets. He asked if the railway lines in the Cape are being replaced with a standard gauge railway. He said that a pipe dream, without detailed plan, is set to fail. He asked if DPE really believes that they are able to fulfill oversight responsibilities with this budget. He asked what happened to the intellectual property with regard to the Training Programme Management Review.

Ms L Bebe (ANC) asked what DPE is doing about protecting SAFCOL and the surrounding communities from land claims. Secondly, she asked about the reports of maladministration at SAFCOL and what is being done in this regard. She asked why there is no mention of the Shareholder Management Bill in the APP and if it is in DPE’s plan.

Ms C Phiri (ANC) asked when the SAA business rescue process will be completed and when will the restructuring begin. She asked how this will affect the APP. She would like DPE to explain their progress in obtaining assistance for SAA workers in need and how it is planning on overcoming the SAA challenge. She asked how DPE will use the COVID crisis to prepare for the future of SAA.

Ms R Komane (EFF) noted the challenges between DPE and the business rescue practitioners. The budget speaks to SAA, but the Committee does not have an understanding of how it will be rescued. This is due to the fact that the SAA financial statements have not been submitted to Parliament. SA Express employees have still not been paid. DPE needs to explain when they will be paid. She asked why SA Express cannot be liquidated and referred to the court application by the business rescue practitioners calling for liquidation.

Mr A Cloete (FF+) stated that the pandemic has nothing to do with the SOEs not coping, as they were not coping before. Denel workers are suffering as cash flow has dried up and salaries cannot be paid and UIF, medical aid and pension for workers are in disarray. He asked what the current position is on Denel operation. He stated that Alexkor is not functioning properly due to geological data that was lost and asked where the investigation is now.

Mr A Arnolds (EFF) referred to the Director General's introduction: "when a SOE is in distress, the first port of call is to hold a mirror to it to reflect on what is currently being done". If one were to hold up a mirror and reflect on past performance, what one will see is fraud, maladministration, unsustainable business models and oversight with little or no consequences. It is not clear how DPE will deal with the internal risk of organisational structure and limited capacity. DPE must give the Committee confidence about how they will deal with the associated risks. If DPE does not deal effectively with risk, it means it will just continue on the same path with these SOEs. He referred to Programme 2 SOE Oversight on slide 15 and asked if "80% per Board" is a real indicator. The interventions are inefficient and he called for more clarity.

Ms W Ngwenya (ANC) asked if Transnet has reached its targets in 2019/20 on increasing technicians. She asked for the current state of rail tracks used by passenger and goods trains. She asked what initiatives are being used to deal with Durban harbour's congestion. She recommended that Transnet must continue to strengthen its infrastructure and technical support to support the SA economy.

Mr C Smit (DA) said that public enterprises used to be very important in stimulating the economy and providing services to citizens and businesses which they might not be able to do on their own. However, why is it necessary for these entities to be in existence today, since there are private businesses capable of performing the same task? He asked what bold changes will be incorporated to transform the economy. He asked how DPE will adjust to the new normal of working, and what impact will it have on the budget. He asked which entities will be closed, restructured or combined – as the President and others have indicated.

Ms T Modise (ANC) noted that there is no mention of the rationalization of SOEs. She asked if that means that no SOE are affected by this process. What is the relationship between Denel and South African's National Conventional Arms Control Committee (NCACC)? She asked if Denel is exporting to Saudi and UAE and how Denel was so advised.

Ms D Dlamini (ANC) stated that the Presidential Review Committee (PRC) on State Owned Enterprises has a constitutional duty to oversee its report implementation such as for Transnet. She asked if the Transnet outreach programme can provide health services. She asked what commitment Transnet has put in place to implement the strategy to attain the Sustainable Development Goals.

Response
The Deputy Minister replied that the budget was tabled in February this year and thus one cannot speak to new plans without that process running its course. When the Finance Minister returns with an adjusted budget, there will be a new process to rework the APP and its projects taking into consideration the Covid-19 crisis. The Department takes note of the Committee members' suggestions.

The Acting Director General replied that the APP is for DPE and not the SOEs specifically, thus the detail on SOEs is lacking. The SOEs have their own corporate plans. The shareholder compacts are released annually in the SOE annual reports where they report against the compact. It is not proper practice to release them while they are being implemented for commercial reasons.

On vacancies within DPE, they are planning soon after lockdown to advertise in the papers to fill the non-SMS (Senior Management Service) positions. They will use a parallel process to reorganize DPE so the most senior positions will be filled in due course. The timelines will be determined by the lifting of the lockdown.

On the SOE board vacancies, Mr Tlhakudi requested that he submit a written report which they have on this to the Committee rather than read through it line by line. To a large extent they have stable boards. There are one or two vacancies. For those SOEs in business rescue, the business rescue practitioners become the accounting authority in place of a board. The only entity without a board is Alexkor.

Mr Tlhakudi says one cannot dispute what Mr Cachalia said about the SOEs. DPE is committed to ensuring that there is the right leadership on the SOE boards. They are looking forward to the SOEs fulfilling their mandate. The boards have appointed people with knowledge in the SOEs which is what is needed. DPE has communicated its strategic priorities to the SOEs. On a quarterly basis, they evaluate the SOEs if they are delivering on what they have agreed to. DPE has young people with knowledge and experience, they do not have enough and more need to be brought in. DPE has a ministerial task team with very experienced individuals to assist the department energy team to ensure increased oversight on Eskom. There is a financial analysis team from outside that helps augment their financial analysis in DPE.

He referred to the comment that the APP is qualitatively and quantitatively deficient. That required detail will be in the SOE plans when made available. DPE will be able to speak to the work that is being done in those entities. What DPE can do is ensure that the bureaucratic processes are properly implemented. They have a track record as a Department for ensuring that those processes are done but will ensure that there is impact and a moving beyond bureaucratic processes.

He referred to the question on the misalignment between the NDP and the DPE and SOC objectives. If the Committee goes into the APP itself, they will see the elements that go towards the industrialisation objective such as SMME support, local content and skill development. The "how" of the 75% local content comes through directly in the SOE plans. DPE will ensure that the DTI's Industrial Development Programme is implemented with a Supplier Development Programme.

The independent review target in the last quarter reflects the timing of when SOE results are pulled together at the end of quarter 3 for the Annual General Meeting in quarter 4. It is not an attempt to avoid work during the rest of the year.

Mr Tlhakudi agreed that more can be done about leveraging the engineering capabilities at Transnet. He noted that they have used Transnet Engineering to 3D print personal protective equipment (PPE) for hospitals during the pandemic. Certainly more needs to be done going forward.

He noted the importance of the local content measure as there is a lot of leakage in the procurement framework through the "best price" mechanism where local entities with prices of 10 to 15% more are losing out to foreign entities that are dumping product in South Africa. That is some of the unintended consequences of the policies put in place.  They need to see how jointly they can address this.

DPE has intervened about resolving employee payments at SA Express and directed applications to the UIF. It is problem that does not sit well with them. The future of SAX needs to be decided very soon so the workers can start planning their future. It is reliant on what the future of the airline industry will be after the lockdown. What they know from IATA is that airlines around the world are being decimated and the propensity to fly is not going to recover any time soon. It will take three to four years to recover the traffic of pre-Covid-19. It is a very difficult space for this industry. All local airlines are having troubles such as Comair and others needing business rescue thus those that were already limping such as SAX and SAA are in a worse position.

On SOEs not being sufficiently capitalised, they are going to have to be very innovative due to a constrained fiscus and mobilize private capital to ensure sustainable entities as well as bring in more skills, expertise, access to markets and job opportunities. A lot of creativity is needed and we need to see how they can bridge the artificial divide between private and public capital.

Mr Tlhakudi claimed that Denel is performing relatively well on its annual report targets, but it is a business in trouble as there are challenges with the payment of employees. He is confident that with the bold Denel board and the executives, they will be able to perform a turnaround to resolve this.

There will be more focus on operational excellence at the SOEs to turnaround the SOEs. At first there was a stronger governance focus in appointing good boards and some capital injections, but that is not enough. What DPE realized is that there needs to be focus on operational aspects and the detail in this.

On the question of who are the buyers of SOEs, there are no buyers that DPE is speaking to; there is no decision for the entities to be sold. It would like to see a lot more cooperation between the private and public sectors for ensuring a better service to the people. When they want that capital to be brought in, a proper process will be followed and the Committee will be kept abreast of those undertakings.

The nuclear energy question should be directed at the Department of Mineral Resources and Energy. DPE cannot speak of any nuclear energy plans that are being hatched.

Mr Tlhakudi replied about senior executives seemingly more concerned about their performance packages than their performance. All senior executives regardless of race tend to behave in the same way about performance packages. They are packaged to ensure it triggers achievement of the core priorities. The behaviour is all the same and he thinks it is a feature of the capitalistic system that they have adopted.  

The APP targets will be raised as the years go on; this is the nature of SMART targets – they must be achievable.

The nature of strategic plan is a pipe dream and he believes it is an achievable dream. They wish they could have more budget but they are working with what they have. He confirmed that the Shareholder Management Bill has not been mentioned in this APP. DPE had to reprioritise due to the constrained resources it had. DPE has used existing legislation such as the PFMA and the Companies Act to govern how SOEs behave. This may change as they go forward as resources allow.

DPE hopes that the SAA business rescue process will be concluded soon and that the SAA flag will fly after the lockdown and that there is a firmer base going forward to ensure a viable and sustainable airline. They are in discussion with the business rescue practitioners (BRPs) and hope for a better relationship with the BRPs as the understanding was for business rescue not for this to lead to the demise of the airline. DPE is working closely with them this week to ensure there is a plan and that there is a quicker and sufficient intervention. They will have an opportunity to review the SAA APP in two months time. On why they are not opposing the liquidation; to challenge the liquidation, they need the funding to breach the gap. For the funding, they need a plan for the airline; they do not have a plan. It is very difficult in this climate of a decimated industry, to come up with a plan. The courts look very unkindly on those that come before it without substantive reasons for being there. They have sought legal advice on the merits which have not been discouraging.

The Denel board needs to look within Denel to pay its workers their May salaries. It needs to invoice for work done. DPE has noted the comment about the export permits not being issued. The Minister is a member of the National Conventional Arms Control Committee (NCACC). It will bring to the Minister's attention this problem and ensure through the Department of Defence that that process is expedited. The restructuring of Denel is happening. There are assets that have been identified for disposal. Work will be done to ensure it is efficient.

The Alexkor data and assets that were stolen happened a long time ago and thus little can be done as the traceability has been lost.

Operational capacity during the lockdown was halted. Business - at great cost - has responded wonderfully to support the call for the moving of essential cargo to support the Covid response when the cargo rules were lifted. Every effort is made to address these challenges.

The maintenance of the railway lines will be receiving attention. The Durban-Johannesburg line is of concern as they have speed controls in place. Jointly with the Board and Minister, there is a lot of effort going on in the background to solve those challenges.

Internal risks are being dealt with - they are multi-faceted - not only a good oversight system but the right people. DPE's clean audit is a good reflection of what they are able to do.

On the need for SOEs, SOEs around the world have become a significant portion of the world economy. They will continue to be a constant feature as they are great development tools. The country will not have been industrialised without SOEs. The socioeconomic challenges would not have been addressed without them such as the artisan training. There are new challenges today. And these SOEs will be used to solve the new problems.

Transnet has been producing locomotives for decades locally and soon internationally on the continent.

Government reviews its SOE portfolio from time to time and some will be restructured and rationalised.

Mr Tlhakudi replied that the DPE response to COVID-19 has been limited due to its budget. However, the SOEs have been very involved. He commended that Eskom kept the lights on during the lockdown.

The outreach health programme at Transnet has been very involved during this time. The SDGs are being implemented even though it is not discussed in the DPE presentation as it is not part of its core mandate. This is specifically in regard to access to water, building homes and improving female education.

Mr Melachton Makobe, DPE Chief Director: Legal Counsel, replied that the board effectiveness evaluation framework is being introduced called the Independent Board Performance Index is a new framework. DPE will begin by ensuring 80% minimum per board with growth to 100%.  

Ms Makgola Mokololo, DPE Acting Deputy Director General: Energy, replied that following Cabinet's 2010 decision of placing the Pebble Bed Modular Reactor (PBMR) under maintenance, the IP had been packaged and preserved. It is under the care of Eskom.

The Deputy Minister replied that SAFCOL is reliant on the Department of Rural Development's land claims process. Until then, they have special compacts with the communities in the areas and in ensuring good relations and that is the first line of defence for dealing with veld fires.

On the recovery of funds stolen from SAFCOL, this was handed over to the Hawks such as Mpumalanga and there were a few employees you lost their jobs as a result.

Mr Weekend Bangane, DPE Acting Deputy Director General: Transport and Defence, replied that Denel has been compliant in the submission of its financials although it had challenging audit findings. The restructuring to turnaround Denel ensures that the business becomes cost effective. The restructuring will allow for rationalization of structures to ensure cost effectiveness and to avoid duplication. The Middle Eastern markets are the mainstay of Denel. The NCACC researches the geopolitical aspects. Licences were to have been gazetted last week but there NCACC issues about post delivery inspections but this has been sorted out. So those licences can start to be issued and deliveries made. He stated that it is ideal to develop wider markets for Denel so it is not concentrated in one area which is a risk. It needs to spread itself across as many markets. Developing markets is long term and cannot happen overnight. Thus developing partnering and restructuring will take time.

Mr Bangane replied about the impact of the lockdown on Transnet, saying in April it was able to move at least 60% of planned goods. Thus, it achieved quite a bit in moving freight. The critical issue is rail maintenance. For the next nine years, approximately 74% of the R4.2 billion of infrastructure maintenance has been put aside for maintenance of the rail system. The congestion at ports is being handled and automation is being used.  

Further questions
Mr Smit remarked that DPE is not ready to address the COVID-19 aftermath. One should not applaud Eskom for doing its required task by keeping the lights on during lockdown. The Transnet question was misunderstood. Beyond producing locomotives, rather how many kilometers of new rail infrastructure has been rolled out in the past five years. Thus it does not expand on economic potential in the rural communities. SOEs job is to set up an infrastructure for private companies can flourish and the economy grow.

Ms Motatwe stated that DPE should be supporting the National Development Plan. She asked what DPE is doing to ensure the implementation of the NDP in industrialization. This should be the focus of DPE. She asked why DPE and the Committee cannot act proactively to ensure the SOE targets are met during the year rather than react post-performance like a policemen. She stated that standard gauge railway replacement of Cape gauge cannot happen in South Africa as there is no demand. On volunteering, unemployed youth should be used instead of recycling white retired engineers that are on pension.

Ms Mokause asked about the SA Express corruption cases that are still pending.

Ms Komane said there is no rescue plan for SA Express and SAA. There is no value for money paid. She asked what about the recommendation that allowed for the airline to be put into business rescue. She echoed the point about the SAX corruption cases.

Mr Cachalia understood that the shareholder compact can only be presented with the financial statements. However, many of the financial statements are long overdue. Not producing these is an example of non-flexibility. In terms of the right leadership being effective, the appointment of Mr Mzimela at Transnet does not make sense as he has aviation but no railway experience. This does not make sense.

Mr Nhanha asked about patriotism of senior executives not about bringing back senior people. He said that a proper presentation is needed for a standard gauge railway debate. His question was misunderstood - it was how confident is the DG that with the lean budget and staff to perform effective oversight over six SOEs.

Deputy Minister Masualle welcomed the discussions between the Committee and the Department on the appropriate measures to be considered given the need for them to work at really getting the economy working again. All views should be welcome. The nature of the Sixth Parliament is not reactive but being a proactive and an activist Parliament. They welcome engaging on the plans and not only through the instrument of annual reports. The committee system can make for a multiparty engagement on these matters.

On the energy policy, he acknowledged that government proceeds from the premise of the need for and importance of the multi-pronged sources of energy acquisition or energy generation. The previous nuclear build program was burdened in terms of achievability. It was not a rejection of the nuclear energy option. It was more to do with the costs related to that and the affordability.

He takes Mr Cachalia's point. In the spirit of being more open and they are enjoined to be transparent and as far as he knows they would not withhold any information on which they take decisions – it would be only in very extreme circumstances such as market sensitivities.  But those very basic documents that they rely on to make decisions, he does not think they can hold them back away from Parliament.  

On the assertion that there is no rescue plan for the airlines, not filing to oppose the liquidation was discussed earlier. They appointed BRPs and their role is to rescue. What is amiss with both SAA and SAX is proceeding without having produced a plan. DPE demands a plan. Treasury wants to see a plan to consider the viability for funding.

Industrialization is a critical component to recover the economy and that policy position is not being shied away from.

The Deputy Minister said that they have been providing information from time to time on specific cases. DPE will provide more information on corruption cases. He agreed that all of them are of the same mind – they have to look at the relevance by way of progress that these SOEs undertake to be relevant today. Rail has been undertaking new projects. There have been efforts in revamping the branch lines and even inviting the private sector to participate. There are many aspects of rail that they can convert into a discussion to arrive at a conclusion.

The meeting ended.