Strategic Plan and Annual Performance Plan

Strategic Plan and Annual Performance Plan • PRESENTATION TO PORTFOLIO COMMITTEE ON PUBLIC ENTERPRISES 10 May 2017 Confidential 1

Presentation outline • Purpose of the presentation • Strategic context • Strategic objectives • Strategic outcomes • 2017/18 priorities • SOC performance targets (shareholder compact) • Resources • Strategy roadmap Confidential

Purpose of the presentation • The purpose of the presentation is to brief the Portfolio Committee on : • The strategic context within which the Department will implement on its plans • The changes that have been introduced into the plans • The strategic outcomes that will be pursued by the Department for the remainder of the MTSF period • Define the Strategic Objectives of the Department • Outline the 2017/18 priorities for the Department and the SOCs • Resourcing of the mandate • The roadmap for the execution of the Strategy Confidential

Strategic context: Domestic economic outlook The South African economic growth has remained relatively steady influenced by both domestic and global factors The structural constraints that impedes accelerated growth remains and accelerating investments remains important for long term economic growth Government has identified a list of interventions that must support economic recovery and put the economy on a different trajectory Over the MTSF period growth is projected to recover but not to the desired levels outlined in the National Development Plan. Source: Res Bank, 2017 Confidential

Strategic context: Economic policy framework National Vision and responding to the triple challenges National Development Plan The current economic policy framework is targeted to stabilise the economy and transform The current plans have been designed to: Support the implementation of the current economic policy framework Pursue the outcomes outlined in the NDP through the appropriate positioning of the SOCs Create a system of Governance that will boost the confidence of the citizenry on the management of State Assets Accelerate the implementation of interventions to essential to turnaround the economy Nine Point Plan Implement projects and develop policies to support movement towards investment driven growth Outcome Six including SIPs

The role of the Department in the Development Context Strategic objectives Promote independent financial sustainability of SOCs Promote commercial viability of SOCs’ operations Position SOCs to support the reindustrialisation of the South African economy Increase contribution of the SOCs to support the transformation of the South African economy Promote institutional alignment in the execution of oversight function Promote the development of a strong shareholder Oversee the implementation of infrastructure programmes within SOCs Vision • The aim of the Department is to drive investment, productivity and transformation in the Department’s portfolio of SOCs, their customers and suppliers to unlock growth, drive industrialisation, create jobs and develop skills. Mandate • The Department has been tasked by Cabinet to lead the Government effort to develop a Government Shareholder Oversight Policy. This will form the framework within which Government will leverage its position to accelerate investments in the economy and its transformation. Confidential

Instruments to be used to achieve the designed outcomes? • SOCs within DPE have a combined asset value of over one trillion Rand and its in key sectors of the economy • This capacity in SOCs can influence the direction of the economy and this is a key leverage for the Department • Investments by SOCs have been central to keep the economy afloat. In 2000, SOCs investment represented only 10 percent of total investment and increased to 20 percent in 2016 * SAX numbers are unaudited Confidential

2017/18 Priorities Per Programme Confidential

Programme 1: Administration • The projects in Programme 1 are targeted to modernise the organisation and improve its influence and on governance systems • The creation of systems will strengthen the capacity of the department to deepen its oversight with the same level of resources Confidential

Programme 2: Legal and Governance • The focus of the programme in 2017/18 is to conclude the Government Shareholder Policy • The draft policy will re-organise and optimise the State investments in the economy and ensure that SOCs drive the developmental requirements of the State • The work to conclude the phasing out of Aventura will be concluded in the current financial year. This work provides an important business case for Government on how to phase out SOCs whose mandate is no longer relevant for current developmental requirements Confidential

Programme 3: Energy Enterprises (a) • The Programme will focus on improving the sustainability of Eskom and improving its contribution to the broader competitiveness of the economy • This will be accompanied by assessing the effectiveness of the business model to deliver on the company’s mandate and influence the long term trajectory of the energy sector Confidential

Programme 3: Manufacturing Enterprises (b) • Denel has shown that Government can implement a turnaround and provided key lessons for incorporating private sector without weakening Government’s influence and control on the company • In the current financial year the Department will focus on providing the company support to strengthen its financial position • SAFCOL will also be supported to improve its processing capacity and supporting the broader transformation of the economy Confidential

Programme 3: Transport Enterprises (c) • The decline in economic activity has had an impact in the operational environment for the transport enterprises • The Department in the current financial year will focus on pursing initiatives to improve their performance and sustainability Confidential

Programme 3: Economic Impact and Policy Alignment (d) • The department continue to persue programmes to support black participation in the manufacturing sector Confidential

Programme 3: Strategic Partnerships (e) • Sustaining the current level of investments will require SOCs to diversify their funding sources • The Department will develop a funding strategy that will improve access to funding for the SOCs Confidential

SOCs performance targets (summary) • Optimisation of State’s role focused on coherent private sector participation is critically imperative.

SOCs performance targets (summary) Cont… • SOC continue to operate under constrained business environment which impact on their financial position and sustainability. • This requires efficient and productivity improvements that will change cost structures of the SOCs. Confidential

SOCs performance targets (summary) Cont… • SAX financial position is significantly constrained and the targets are focused on improving the operational and financial efficiency Confidential

Key events post the tabling of the Strategic Plan and Annual Performance Plan • Post the tabling of the SP and APP there are significant events that have occurred that will require the Department to put in place appropriate responses • The downgrading of the sovereign debt to sub-investments will have the material impact on the ability of SOCs to raise funding i.e. have the potential of increasing the cost of borrowing • The Department has done preliminary assessment of the post-downgrade impact on the credit spread of the SOCs Confidential

Key events post the tabling of the Strategic Plan and Annual Performance Plan (Cont…) • The Department will develop an appropriate response plan that will strengthen investor confidence on the financial position of SOCs in particular Eskom and Transnet • The shareholder’s attention will be increased on the following, which contribute towards cost structure of the SOCs: • Management of primary energy cost to be examined and new contracting options explored • Government guarantee in a short/medium term for SOCs to secure funding • Delivery of the build programmes to ensure budget overruns are contained • Optimal capital structures of SOCs Confidential

Resourcing of the Department: Human resources

Resourcing of the Department: Budget • The Department's budget increased from R266.7 million in 2017/18 to R296.5 million in 2019/20 at an average growth rate of 3.4%. • Compensation of employees is a significant share of the department’s budget over the medium term and this is as a result of the oversight function which requires specialised, highly skilled personnel. • Over the medium term Compensation of Employees is expected to increase from R166.9 million in 2017/18 to R184.6 million in 2019/20 at an average growth rate of 6.2% as a result of the expansion of the establishment over this period. • Goods and Services including Payments for Capital Assets is expected to increase from R96.9 million in 2017/18 to R108.6 million in 2019/20 to support the increased establishment. Confidential 22

Resourcing of the Department: Budget Cont… • Mitigation plan on budget reductions • Funding for priority projects as set out in the strategic and annual performance plan. • Re-alignment of the departmental organisational structure. • Implementation of the cost containment measures (reduction on non-core goods and services). Confidential 23

Strategy roadmap Confidential

THANK YOU Confidential

Strategic Plan and Annual Performance Plan