PRESENTATION TO THE SELECT COMMITTEE ON PUBLIC ENTERPRISES AND COMMUNICATION

PRESENTATION TO THE SELECT COMMITTEE ON PUBLIC ENTERPRISES AND COMMUNICATION ANNUAL PERFORMANCE PLANS AND BUDGET 17 July 2019

Content • Introduction • Role of SOCs and their mandate • SOCs challenges • Overview of the Department • Overview of Department Key Performance Areas and Indicators • 2019/20 Department’s MTEF allocation • Progress report on the PC SOCs recommendations • Conclusion Confidential

Introduction • The year 2019 marked the end of the 5 year planning cycle • The Strategic Plans will be tabled in the next financial year and they will cover the 5 year period of the 6th Administration (2020-2025).This is because the MTSF process will be concluded later in the year. The DPE has undertaken to review its strategy. • This APP is underpinned by the NDP, PRC recommendations, and 2018 and 2019 SONA as well as work done over the last 16 months (i.e. restoring good governance, stabilising operations as well as reviewing the financial structures (i.e. financial performance, stopping the bleeding and financial capital structure) Confidential

Role of SOCs • SOCs are used by the State to intervene in the economy to fulfil the social and economic development objectives of the country. • Economic growth, creation and maintaining sustainable jobs are key government priorities where SOCs have a critical role to play. • Through DPE, continuous review of SOCs to improve their current architecture in order to fulfil their mandate. • As DPE to undertake SOC Reform by enhancing our oversight capacity through an the implementation of an overarching strategy and governance framework. SOC Mandate: Eskom: Provide efficient Generation, Distribution and Transmission of Electricity Transnet: Develop and maintain national logistics infrastructure (ports, rails and pipelines) Safcol: Ensure security of supply of Saw Logs for the country Denel: Develop and Maintain critical defence industrial capabilities in support of SANDF Alexkor: Established as State Mining Company SAX: Development of secondary airline routes to enable economic development SAA Provide reliable and extensive air transportation capacity linking SA with the continent and internationally Confidential

SOC Challenges Challenge Type Description 1 External challenges • Strategic role to be played by the SOCs as a sector and individually not clearly defined • Conflicting and misaligned mandates given to SOCs by different stakeholders • Limited clarity on the roles of various stakeholders and lines of accountability • Lack of uniformity in the oversight model and weak oversight by shareholder departments External Governance Policy and Regulation • Policy gaps and misalignments • Uncertainty and poor quality economic regulation of SOCs • Limited fiscal resources to invest in SOCs and negligible appetite for private ownership • Lack of clarity on whether the government should own SOCs, disperses resources widely • Funding model to cover the cost of non-commercial development mandates not clear Financing • Corporate Governance failures due to weak, inexperienced and compromised boards and management • Negligible sanctions for poor performance and corruption • Limited direction, oversight and leadership from the boards 2 Internal challenges Internal Governance • Strategies that do not keep up with rapidly changing competitive environment • Poor alignment of strategy to national objectives • Limited SOC collaboration leading to overlaps and duplication Strategy • Failure to keep pace with technological improvements in certain industries • Delays and cost overruns in the delivery of capital expenditure programmes • Weak or corrupt procurement • Operational inefficiencies • Overbloated workforce Operational Financial • Weak balance sheets, with unsustainable debt levels • Unviable business models • Financial burden of unfunded non-commercial activities • Overreliance on government bailouts Confidential Confidential

Interventions • New Boards appointed for Eskom, Transnet, Denel, SA Express, Safcol and Alexkor. • Improved operations at Eskom (no load shedding for more 3-months) and SA Express • SOE Council will be important for reforming the SOCs; • By aligning SOCs to national priorities and goals; • Decide on Strategic SOCs and what new SOCs need to be established to align with the 4th industrial revolution; • Reform procurement by SOCs to reduce the likelihood of corruption; • Appointment of competent individuals of integrity on boards and senior management through transparent processes; and • Review business models and capital structure and sources of financing for SOCs e.g. Eskom, SAA and Denel. • We have identified PSP opportunities to better advance better development agenda. • SOEs to maintain and expand infrastructure, e.g. Transnet to invest R153,5 billion over the next five years.

Interventions • The Department is closely monitoring the financial and operational performance of SOCs e.g. Eskom, Denel through weekly and monthly monitoring. • Special Appropriation Bill for Eskom will soon be tabled in Parliament. • The Department is closely monitoring the performance of SAA and SA Express. • Recovery of stolen money e.g. Eskom from McKinsey, Trillian etc. Transnet has laid charges against those who have stolen money from SOCs. • Law Enforcement agencies are pursuing cases against those who have stolen money

Overview of the Department • The Department is tasked with the oversight of the operational, financial and strategic functioning of the SOCs to ensure that they deliver on their mandates. • The Department comprises of three programmes; • Administration • Business Enhancement; and • Governance Assurance and Performance. Confidential

Overview of the department Confidential

Indicators for the 2019/20 FY Programme 1- Administration and Corporate Management Confidential

Indicators for the 2019/20 FY Programme 2- SOC Governance Assurance and Performance -Sub-programme: Governance, Legal Assurance, Risk Profiling and Mitigation Confidential

Indicators for the 2019/20 FY Programme 2- SOC Governance Assurance and Performance -Sub-programme: Financial Assessment and Investment Confidential

Indicators for the 2019/20 FY Programme – Business Enhancement and Industrialisation -Sub-programme: Business Enhancement and Industrialisation Confidential

Indicators for the 2019/20 FY Programme – Business Enhancement and Industrialisation -Sub-programme- Energy and Resources Confidential

Indicators for the 2019/20 FY Programme – Business Enhancement and Industrialisation -Sub-programme- Transport and Defense Confidential

Indicators for the 2019/20 FY Programme – Business Enhancement and Industrialisation -Sub-programme- Research and Economic Modelling Confidential

MTEF ALLOCATION 2019/20 Confidential

Budget overview Confidential

Budget overview • The Department's budget decreased from R6.5 billion in 2018/19 to R332 million in 2021/22. • The Department’s oversight activities are mainly funded in programme 2 and 3. The combined budget for these programmes is expected to decrease at an average annual rate of 71.4% over the MTEF, from R6.4 billion in 2018/19 to R146 million in 2021/22. This is due to additional funding of R5 billion allocated to SAA and R1.2 billion allocated to SAX during the 2018/19 adjustment budget. • Spending on compensation of employees, which is set to increase at an average annual rate of 7.1% from R171.4 million in 2018/19 to R211.2 million in 2021/22, constitutes the Department’s largest cost driver. • The expenditure on Goods and Services and Payments for Capital Assets is expected to increase from R97.5 million in 2018/19 to R120.8 million in 2021/22 to support the department’s priorities outlined in the APP. Confidential

Progress Report on PC SOCs Recommendations Confidential

Conclusion • The Department has started with the process of the planning for the next 5 years (Strategic Plan) • The next 5 years, greater attention and emphasis will be on refining the role of the Department and how it undertakes its oversight. Confidential

THANK YOU Confidential

PRESENTATION TO THE SELECT COMMITTEE ON PUBLIC ENTERPRISES AND COMMUNICATION