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Read about how the Department of Public Enterprises ensures efficiency of State Owned Enterprises, promotes economic growth, and enhances corporate governance. Learn about their strategies and goals.
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Vision The Department of Public Enterprises (DPE) has oversight responsibilities for key State Owned Enterprises (SOE). Our vision is to use this responsibility to ensure that these SOEs: • facilitate economic growth through locating SOEs in an optimal industry structure and ensuring the efficiency of their operations and the economic effectiveness of their investment programs within this context. • play a leadership role within the economy in the areas of corporate governance and national policy implementation. • catalyse sector and regional economic development opportunities.
Mission • To work with policy and regulatory departments in the National Government to establish optimal industry structures within which the SOE will operate. • To develop a clear policy and operational environment for SOE. • To work with the SOE Boards and management to ensure increased levels of operational efficiency and cost effectiveness of service provision. • To develop economically effective and sustainable investment programmes by the SOE that will enhance economic growth and increase the competitive capacity of the economy. • To ensure that the SOE become exemplary enterprises in respect of corporate governance and the achievement of key policy objectives of the government • To develop systematic programmes with the SOE that will enhance sector and regional economic development potential. Particular attention will be paid to interventions in the ‘Second Economy’. • To develop effective public/private partnerships in the achievement of the vision and mission of the DPE and the reporting SOE.
Mandate The mandate of the DPE is to coordinate with policy and regulatory Ministries and provide oversight and strategic direction for the SOE reporting to the Department. The oversight and strategic direction is with the purpose of realising the vision and mission as described in the previous slides
Definitional Matters • Distinction between Policy, Regulation and Shareholder Responsibility • Definition of State Owned Enterprise • Ownership by the State • Balance sheet capable of engaging with capital markets • Capital injections from Treasury • Shareholder expectations and the shareholder compact • Strategic public objectives that would be compromised by purely private owner particularly given monopoly powers.
Definitional Matters • Shareholder Management: • Needs to reflect the special public purpose of the enterprise • Enterprise level: sustainable enterprise delivering competitively on market demand and inspiring private sector confidence to invest. • Industry level: Design of division of labor with private sector to ensure optimum delivery – in partnership with policy departments. • Sector and regional development level: Optimizing SOE impact in catalyzing industrial and regional development.
Enterprise Level Shareholder Management • Objective is to ensure that the SOE adds to the competitive advantage of the economy as a whole through lowest cost sustainable competitive service provision and investment programs that inspire private sector confidence • Activities • Strategic, business and investment plan reviews to ensure support for government economic strategy • Definition of best practice governance processes – incorporated in shareholder compact • International benchmarking • Key performance indicator definition and target setting and monitoring • Gatekeeper between SOE and policy departments to ensure compliance to statute and consistency of approach. • Compliance with key regulations • Risk analysis
Industry Level Shareholder Management • Objective is to ensure that the key input industries within which the SOEs operate are characterized by efficiency. • There are three levels of intervention which are developed in partnership with relevant policy departments: • Definition of an optimal industry structure through the identification of an optimal division of labor between the SOE and the private sector to ensure overall efficiency. • Facilitation of the desired level of private sector participation as defined by the role of the private sector in the optimal industry structure. • Definition of a competitive pricing regime for the SOE based on ensuring national competitiveness, the promotion of strategic industrial and commercial investment and a fair playing field for the private sector.
Sector and Regional Development Level Shareholder Management • Objective is work with economic cluster and dti to catalyse sectoral and regional economic development through leveraging SOE capabilities and assets.
SOEs Reporting to the DPE • Transnet • Eskom • Denel • Alexkor • Safcol • arrivia.kom
Transnet • Transnet has embarked on a new strategy • Focus on ports, rail and pipelines with aggressive investment plans • Separation of infrastructure from operations • Balance sheet restructuring • Risk management / governance over-haul.
Eskom • Eskom playing a central role in restructured electricity industry. • Aggressive investment plan for new generation to meet future demand • 30% private sector participation in new generation • Maintain monopoly in transmission • Distribution industry being restructured into 6 regional distributors.
Denel • Denel is under-going a major strategy review to place the business on a sustainable footing and ensure developmental role is realised. • New leadership being appointed • A400M program represent an exciting development for industry as a whole. • Requirement for global strategic partners for successful implementation of a range of programs (e.g. Rooivalk) • Defense procurement review critical.
Alexkor, Safcol and arrivia.kom • Alexcor • Restructuring dependent on community land claim • Enterprise viability being monitored • Developmental initiatives around agriculture and aquaculture to be explored. • Safcol • Undergoing a strategic review to assess future role post divestures of key assets. • Competition commission ruling pending on Komatiland. • Arrivia.kom • Strategy review underway to define company’s future operations and role in the ICT sector.
Joint Project Facility Initiative • The need for a financial facility that will enable the development of cross-cutting projects has been recognized. • Objective to facilitate the rapid development of projects to the point where an investment case has been accepted by financial community and operational companies. • Five areas have been identified: • ICT • Property • Africa • Human Resource Development • Energy • Highly skilled project managers appointed who will report to DPE and committee of chair-persons and CEOs.
Shareholder Compacts • Key document containing a performance agreement between the DPE and the SOEs so as to formalize government expectations of management • Compact contains: • Key performance indicators and associated management targets such as expected rate of return, efficiency and investment spend targets and balance sheet ratios. • Governance and reporting systems within the SOE and between the SOE and government. • Special initiatives such as private sector participation and development projects. • Although historically this aspect of shareholder management has been neglected significant progress has been made in finalizing Transnet and Eskom compacts which are planned to be signed by end of June.
Minister Public Enterprises Office of the Minister (support staff) Special Advisor Director General Public Enterprises Office of the Director-General (support staff) Functional Level DDG Analysis & Risk Management DDG Governance & Policy DDG Corporate Strategy and Structure DDG Corporate Finance & Transactions Corporate Services Support Level Organagram
VOTE 9 – DPE 2005 MTEF • Budget allocation – R 91,9 million (05/06) • Allocation includes R 13 million transfer to Alexkor for refund of costs incurred during cancelled SEP process • Transfers to Trusts cease during 2005/06 • Personnel intensive • Additional budget allocation of R 5 million during 2007/08 • Donor funding supplements financial resource shortfall
Budget Vote Telkom IPO Alexkor
Budget Vote Telkom IPO Alexkor
BUDGET - SCOA Diabo Trust, Khulisa Trust and Alexkor
BUDGET - SCOA Alexkor
Administration Minister Public Enterprises Office of the Minister (support staff) Special Advisor Director General Public Enterprises Office of the Director-General (support staff) Chief Financial Officer (CFO) Director Internal Audit CHIEF OPERATIONS OFFICER Chief Director Legal Counsel Chief Director Communications & External Liaison
Sub programme Output Measure/Indicator 2005/08 target/milestone Human Resources Effective and efficient human resource management and development services % of policies, processes and procedures finalised 100% of policies, procedures and processes finalised by end March 2006 IT Improve the leverage of IT investment % implementation of new and updated IT systems Implementation of technical redesign 100% by end March 2006 Implementation of paperless and completely mobile environment 100% by end March 2007 Finance Full compliance with PFMA Unqualified audit Continuous Strategy and Business Planning Effective and efficient strategic and business planning Planning and performance charter in place and business/planning processes streamlined Continuous evaluation and annual review Legal Counsel Provision of comprehensive, independent and professional legal services Co-ordination of all legal activities, compliance to legislation and scripting of agreements Continuous evaluation and annual review Internal Audit Identify and evaluate significant exposures to risk and the enhancement of risk management, control and governance processes. Facilitation of Enterprise risk management processes and control mechanisms Continuous evaluation and annual review Communications To ensuring that DPE strategic objectives are communicated in a proactive, disciplined and coherent manner Improved DPE Communication Management Framework Continuous evaluation and annual review Work Programme
Analysis and Risk Management Programme 2Portfolio Committee
Outline • Overview • Key Objectives of ARM • Medium-term Outputs • Challenges
Overview • Analyzing and Monitoring the efficiency of SOEs operations and the economic effectiveness of their programs. • Ensure SOEs are exemplary in the areas of corporate governance and risk management.
Analysis and Risk Management PURPOSE: • To conduct insightful analysis and provide quality advice on the performance of SOEs , and systematically manage key risks on the shareholder’s dashboard • To proactively monitor and report on strategic, operational and financial matters relating to SOEs • To develop a integrated risk management framework for SOEs and put in place an integrated risk management system.
Key Medium-Term Outputs • Annual Publication on the performance of SOE. • Outcomes of annual client surveys-targeting key customers of SOEs • Award ceremony for SOE sector- best performance SOEs • Key Performance Targets for SOEs- supported by global benchmarks on operational efficiencies and Financial Performance: Rail, Ports, Pipelines, Power, ICT, Defence, Aviation
Key Outputs of Risk Management • Annual Report on Risk Management of SOEs- supported by Risk Audits, reporting and risk management system. • Enterprises Wide Risk Management and Treasury Risk Management framework • Guidelines on Hedging and compliance with international accounting standards(embedded derivatives)
SOEs are not immune to risks Operational risk Operational policies/procedures/instructions do not sufficiently control business to allow achievement of mission Technology Risk Systems and technology tools, in design and operation, do not allow achievement of mission Human Resources Risk Management and staff not sufficient to meet needs and mission of organization Environmental Risk Operations or activities adversely affecting the environment Financial risk Loss of assets or available operating or capital budget Integrity Risk Negative public opinion Strategic Risk Mission/strategic plan does not support overall objectives
Most SOEs do not have a formal risk management system Eskom Yes Denel Yes, but effectiveness cannot be confirmed Alexkor Yes Transnet NO Safcol NO arivia.kom Yes Government, as the Shareholder with ultimate fiduciary responsibility in SOEs does not have a risk management framework and the PFMA and protocol on corporate governance for SOEs has not been vigorously implemented by most Executive Authorities.
There is a general lack of proper risk management oversight in government departments over their SOEs
The fiduciary responsibility of the State • The Boards must manage Risk • The Shareholder needs assurance • Early warning system to avoid surprises
Shareholder risk dashboard DPE Compliance risks Risks associated with compliance with relevant applicable legislation,regulations and licensing requirements Investment risks Risks emanating from the investment plans of SOEs, capital markets and resulting impact on service delivery Restructuring model risks Risks associated with restructuring models such as Concessioning, PPP, SEP, JV, etc. Contractual risks Risks emanating from contractual obligations such as pension funds, embedded derivatives, guarantees, letters of support, etc Solvency/Liquidity risks Risks arising from adequacy of capital structures of SOEs to meet government’s mandate Sector risks Risks emerging from the sectors in which SOEs are operating such as ports, rail, road, energy, defense, etc Legal risks Risks emanating from existing and new legislation, Bills passed in parliament, regulations, policies, etc
Challenges • Setting up economic and financial models to start looking ahead and influencing the planning of SOEs than focusing on the annual financial statements • Setting up operational, financial and strategic targets and commit in shareholder compacts • Setting a an integrated risk management framework and system • Recruiting and retaining skilled personnel
Corporate Governance and Policy Programme 3Portfolio Committee
Structure Divided into 3 Chief Directorates: • Governance • Policy • Secretariat & Compliance • Close co-operation with other Units
Mission of the Branch • To achieve shareholder excellence in the management of SOEs through sound corporate governance and policy imperatives, and to provide reliable secretariat functions whilst ensuring that the department complies with the relevant legislative requirements.
Governance Objectives • To provide guidance and assistance to the Department and Minister on issues related to Governance to enable the Minister to exercise his duties as Shareholder Representative optimally; • To develop and implement a Shareholder Management Model for Government; • To ensure a consistent and transparent governance environment for SOEs; • To have an effective definition and co-ordination of Government’s expectations of SOEs mandate; • To ensure SOE compliance with the PFMA, King II Report, Protocol and best practices thereby ensuring high standards of public accountability; • To manage Government shareholding interests in SOEs; and • To develop ethical guidelines through which SOE’s must carry out their activities.
Cabinet Activities • To develop and implement a Shareholder Management Model for Government; • Strengthening of Sector Regulators mandates; and • Government wide review of performance practices (Remuneration review of executive and non-executive board members).
