Presidential SOE Review Committee (PRC)

1. Presidential SOE Review Committee(PRC) SEPTEMBER 2011

2. AGENDA • Establishment of the PRC 2. Process Summary 3. Preliminary Observations 4. Review Framework & ToR 5. Progress Update 6. Participation Platforms

3. Review Of State Owned Entities “The role of state-owned Entities and the development finance institutions will also be crucial to achieve the New Growth Path goals. The institutions will need to operate differently and more effectively”President zuma January 8 statement 2011

4. Establishment of the PRC

5. INTRODUCTION & BACKGROUND • President Zuma announced the establishment of The Presidential SOE Review Committee on the 12 May 2010 during his budget vote • The PRC is a 12 Person Committee • The committee is supported by a limited secretariat • A Steering Committee which comprises of the PRC Chairperson and Vice Chair, Minister of DPME, and Legal Adviser to the President and the DG in the Presidency serves as the Steering Committee of the PRC • The seat of the PRC is at the CSIR Pretoria

6. PRC COMMITTEE MEMBERS • Ms Mangwashi Victoria Phiyega (Chairperson) • Mr Glen Mashinini (Deputy Chairperson) • Dr Simo Lushaba • Mr Deon Crafford • Ms Swazi Tshabalala • Ms Dawn Marole • Mr Pramod Mohanlal • Ms Gugu Ngcobo • Professor Mbulelo Mzamane • Dr Takalani Madima • Mr Lumkile Mondi • Ms Nombulelo Mkhumane

7. Principles guiding the review • Requested to review State Owned Entities : commercial Entities, agencies, regulators and other relevant forms • The review is not a detailed micro audit of individual SOE’s and sectors, but a macro examinationof the government owned entities • This is not a “Greenfields” initiative” - numerous reviews were and are undertaken by various stakeholders – we seek to engage the existing knowledge • Reviews are not unique to South Africa many other country’s have undertaken similar exercises – such shall inform the review process • There are existing benchmarks both internal and external to the country • The review shall leverage that which exists already whilst seeking identify gaps and fresh opportunities

8. 2. Process Summary

9. PRC TIMELINES • An overall period of 21-months is determined for the project . The period is dedicated as follows : • 3 months set up period • 12 months for the actual review • 6 months for the wrap-up and finalisation of the report • Reporting • End July 2011 - an internal interim report to be submitted • Quarterly administrative updates • Final PRC Report end March 2012

10. SOE REVIEW CONTEXT:The role of SOEs in a Developmental State “If we could not first know where we are and whither we are tending, we could then better judge what to do and how to do it” Abraham Lincoln

11. Suggested Best Practice Process of Reviewing State Owned Entities 1 Assess SOE sector Performance & Structure Policies for strengthening Enabling climate 3 4 5 Evaluate organizational and managerial performance Revisit legal structure for SOEs Select reform policy options Establish effective regulatory framework Impose hard budget constraints I Governance and management 2 Propose Future strategy for SOE’ reform Viability Funding Commercialisation Service Delivery Vision for contribution to development Contracting out Governance Entities missions and objectives Public-Private Partnerships Transformation Developmental goals Strategic Focus Performance criteria Skills Development Non Commercialisation Source: United Nations, 2008

12. 3. Preliminary Observations

13. Rationale for Creation of SOEs by Governments • To undertake commercial activities to promote economic growth on behalf of government • To improve service delivery • To undertake infrastructure development and management • To regulate certain sectors where competitive, tariffs, fees, etc are eminent • To promote national values and heritage • To ensure democratic and constitutional values are upheld • Where private sector investors refuse to serve less profitable areas • Where private sector investors do not have the incentive in industries that benefit others without being paid • To ensure constant and reliable supply of life critical commodities

14. At Issue: Some Problem Statement Elements • Are the failures of SOEs exaggerated? • Do commercial Entities in fact perform worse than private firms? • If the failures exist in SOEs , and reform is necessary, how should it be accomplished? • Can SOEs be reformed from within, or are they intrinsically inefficient? • Would changes in the operating environment improve SOE performance, or is a wholesale change of ownership necessary? • Are SOE inefficiencies a by product of government-required social objectives and do the benefits from these social goals outweigh the cost of inefficiency? • What is the role of SOE’s in a Developmental State?

15. Some Critical observations • Role of SOEs in a developmental state • The existence of SOE’s in a developmental state remains a reality • They are legal entities created by government to undertake commercial & other activity on behalf of • The assumption is that government shall own most of the entities

16. Some Critical observations • Definition of SOE • Need for clear and universal definition of what constitutes an SOE • Through the ambiguous definition of SOE’s, it is estimated that there are over 300 SOE’s throughout SA across the 3 spheres of government. The number expands to above 500 when subsidiaries are included • Need for a comprehensive SOE database across the three spheres of Government – the PFMA represents the best effort to date of SOE data – less so the MFMA • The need to identify what is strategic and significant against what is not across the three spheres of government appears necessary

17. Some Critical observations • Current SOE Governance & Ownership Model • 9 SOE’s defined as large public utilities fall under the jurisdiction of the Department of Public Entities • Other SOEs fall under sector departments • There is a potential conflict of interest in locating ownership, regulation and oversight within a sector department that is also responsible for policy coordination • There is a lack of coordination and synergies among most SOE’s resulting therefore in operations that can be defined as largely “silo’d” in nature • An evaluation of the top 30 SOE’s reveal that 4 SOE’s have 91% of the assets and provide 86% turnover and employ 77% of the SOE Employees

18. Some Critical observations 4 . Legislative and regulatory environment that is characterised by conflicts, duplication and gaps • Mandate creep • Need for clear mandates for SOEs • SOEs operating under non harmonised plethora of legislation • Possible misalignment between SOE activities and government objectives • Inconsistent application of regulatory framework • Legislative conflicts

19. Some Critical observations 5. Performance of SOEs • There is no common assessment of performance and accountability • Competition for scarce resources and undercapitalization in some areas is a challenge and negatively impact on the performance market value of some of the entities • In some instances areas that are overcapitalized may show no significant return on key metrics • Determination on measurement indicators for success given the bi-focal nature of SOE’s remain an area of concern. • Government as shareholder can not with profound certainty vouch for optimal impact and return on investment.

20. Some Critical observations • Alignment of SOEs to Government Imperatives • There is a lack of evaluation mechanisms for whether entities are aligned or not aligned to the governments imperatives – inconsistencies characterise this area. • Relevance of SOE’s should take into account: • SA circumstances and National strategic priorities • Political imperatives • Social impact: ( creation of jobs; development of critical skills; quality and access of services; pricing; economic empowerment and facilitation); • Economic impact: (creation of new industries, facilitating value creation by Government, effective utilisation of state resources in driving economic growth); • Increased focus on environmental imperatives

21. 4. Review Framework

22. Functions of the Presidential State Owned Entities Review Committee:The Presidential State Owned Entities Review Committee must review State Owned Entities and make recommendations on: • A common understanding and definition for State Owned Entities; • The place of State Owned Entities in a developmental state; • Strategic importance and value creation of State Owned Entities; • The viability and funding of State Owned Entities; • Existing portfolio of investments by the state in strategic businesses; • The efficiency and effectiveness of State Owned Entities with respect to service delivery; • Current policy and regulatory framework and the impact thereof on the management of State Owned Entities; • The balance of social, political and economic imperatives in delivering objectives for State Owned Entities; • Harmonisation of performance measurements among State Owned Entities; • Standardisation of accounting and reporting processes for State Owned Entities; • Shareholder oversight and governance of State Owned Entities. • Recruitment, selection and appointment of boards and executive management of State Owned Entities; • Remuneration policies of State Owned Entities taking into account wage differential aspects; • Current restructuring initiatives (privatisation, retrenchments, PPPs etc) of State Owned Entities, and implications thereof; • State Owned Entities as a platform for sustainable human capital development and a catalyst for scarce skills; • Establishment of a comprehensive database of State Owned Entities across all spheres of government; • Policy for the establishment and de-establishment of State Owned Entities; • Criteria and framework for identifying and establishing priority State Owned Entities; relevant global benchmarking and best practices; • Alignment, collaboration and cooperation among State Owned Entities for the purpose of optimising state resources; • Relationship and collaboration between Government Ministries to facilitate achievement of SOE objectives; • Compliance of State Owned Entities to the government’s development and transformation agenda.

23. PRC WORK STREAMS Development and Transformation • Common understanding & definition... • Place of SOE in development state • Balance of social, political and economic imperatives • Sustainable human capital development; launch pad for scarce skills • Compliance with government’s development and transformation agenda • Current policy and regulatory framework • Standardisation of accounting and reporting ( Transparency & Disclosure) • Shareholder oversight and governance ( board responsibilities) • SOE Database • Recruitment and selection of boards... • Board performance and fees Ownership and Governance • Strategic importance and value creation • Viability and funding • Current restructuring options e.g. PPPs and privatisation • Policy for establishment and de-establishment of SoEs • Criteria for establishing priority SOEs • Relevant global benchmarks Business Cases (Viability) Strategic & Operational Effectiveness • Efficiency and Effectiveness in Service Delivery • Harmonisation of performance measurements • Remuneration policies, wages and accounting • Alignment and collaboration between SOEs, government departments and Ministers Research and Development Unit • To support all research outputs of the PRC • To source for and consolidate all research requirements of the PRC

25. 5. Progress Update

26. Progress to Date • The PRC also collaborates with other allied structures such as the Planning Commission, the AG , The SOE Procurement Forum, The BBBEE Council etc • Provincial SOE seminars are planned to start in August 2011, to extend the reach of the review to all Government spheres as per the mandate of the PRC • SOE engagement and hearings commenced in June 2011, and are continuing • A call for public submissions was published in June 2011, and various stakeholders have also been directly contacted to invite submissions into the review process • Stakeholder engagements with political parties, business and other civil society organisations is embarked upon

27. PRC Stakeholders Matrix Presidency DGs Parliament & Chapter 9 Institutions DPE The Cabinet Deputy Presidency Media Other Govt Departments Provincial Government Public Service Opposition Parties Ruling Party Local Government Importance Other Interest Groups & Political Parties Big Business Community Civil Society Global Stakeholders Financial Institutions Influence SOE’s Suppliers partners

28. 6. Participation Platforms

29. PARTICIPATION OPPORTUNITIES • Information, reports and documentation relevant to the SOE review • Participation: submissions, hearings, policy dialogues • Appraisal on current SOE review/ research activities undertaken by stakeholders • A dedicated person to facilitate engagements with the Committee • Cooperation with research work commissioned by the PRC • Collaboration on strategic case studies • Other relevant recommendations

30. Thank you