PUBLIC ENTERPRISES 2006-2009 STRATEGIC PLAN AND FINANCIAL OVERVIEW

1. PUBLIC ENTERPRISES 2006-2009 STRATEGIC PLAN AND FINANCIAL OVERVIEW PRESENTATION TO THE PORTFOLIO AND SELECT COMMITTEES 9 & 10 MAY 2006

2. Introduction • The Committee in its Report on the 2005 Budget Vote requested that the department • Elaborates on the shareholder management model, and • Outlines the key activities of the different programmes and sub-programmes, including • Measurable objectives • Time frames • Budget allocations • All these conditions have been met in the current strategy • The strategy also includes a section highlighting the department’s contribution to the Accelerated and Shared Growth Initiative of South Africa 2 2

3. Contents • Introductory remarks • Mandate, vision and mission • Key achievements • Priority areas and planned activities 3

4. THE MANDATE, VISION and MISSION 4

5. Mandate of the department The mandate of the DPE is to coordinate with policy and regulatory departments and 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 5

6. Vision of the department Our vision is to have SOE that: • Are efficiently managed, meeting industry operational benchmarks domestically and internationally • Play a role in their industry that ensures an optimal allocation of responsibility between the public and private sector • Undertake investment programmes that provide the necessary capacity to accommodate faster economic growth • Implement their investment programmes in such a manner that national economy is strengthened in a sustainable manner 6

7. Mission of the department Our mission as a department is to create a clear operating environment for SOE by ensuring policy coherence and translating policy fundamentals into strategic mandates for each SOE. For DPE this means that we must: • Work with National policy and regulatory departments to enable a greater understanding of policy objectives and where necessary indicate policy incoherence • Work with the SOE Boards in particular to enable better understanding of government priorities • Work with policy departments, especially the Departments of Trade and Industry, Defence, Mineral and Energy Affairs and Water and Forestry to better understand sector strategies to enable the targeting of relevant activities for local content promotion in the SOE investment programmes 7

8. Performance over the past year • Internal structural adjustments to • Build a highly skilled and competent department • Establish efficient internal processes, procedures and documentation systems • Ensure effective and efficient governance • CEO, Chairs, CFO and Risk Managers Forums • EXCO • Projects Meeting • DPE provided mandate clarity for the SOE • Focus on core operations: Transnet – rail and freight transport, separation of SAA Eskom – generation transmission and non-metro distribution Denel – change strategy focusing on core capability & capitalisation Alexkor – negotiated settlement • Translating sector policy into clear and unambiguous strategic direction • Monitor build programme 8 8

9. Major changes to the structure • Introduction of the Joint Projects Facility (JPF) within the Corporate Strategy and Structure Unit with the objective of : ‘leveraging the SOE to catalyse regional and sectoral economic development opportunities’ • The JPF was created with the following sub-divisions with specialist skills in each area: • Continental Investments • Energy & Pipelines • Human Resources & Capacity Building • ICTs • Property • Investment Optimisation 9 9

10. Major changes to the structure The merging of the Legal, Governance and Secretariat Unit with the Corporate Finance and Transactions Unit. The Unit is now called the Legal, Governance and Transactions Unit Rationale: • Ensure alignment with our focused role in Transactions • To strengthen the integration of the Transactions and Legal skills • To ensure enterprise accountability for transactions • To strengthen the capacity to evaluate and recommend applications for Section 54 transactions Creation of a specialist position to deal with special projects such as the resolution of Aventura and now Alexkor 10 10

11. DPE Organisational structure DPE is comprised of four units, including the Legal, Governance and Transactions (LGT) • Distill and communicate clearly the SOE mandates and ensure alignment of SOE governance systems, compliance and performance with government policy objectives, oversee and manage significant and material SOE transactions. Analysis and Risk Management (ARM) • Provide in-depth analysis of the operations and financial performance of SOE, and systematically manage risks arising from the business of SOE. Corporate Strategy and Structure (CSS) • Identify the most efficient industry structure, within that definition describe the core business of the SOE, and identify and leverage SOE assets and capabilities to contribute to economic growth and development . Specialist position especially used for closing outstanding transactions and strategic negotiations (replacing Corporate Finance and Transactions) Administration • Provide overall operational support and management of the ministry and the department.

12. Organogram Minister Public Enterprises Filled Posts: 127 Vacancies: 30 Office of the Minister (support staff) Special Advisor Director General Public Enterprises Office of the Director-General (support staff) DDG Analysis & Risk Management DDG Legal,Governance & Transactions DDG Corporate Strategy and Structure DDG Special Projects Head Communications Chief Financial Officer (CFO) Director Internal Audit & Compliance Chief Operations Officer

13. DPE Statistics2005/2006

14. DPE Statistics2005/2006

15. Departmental budget

16. Budget vs Expenditure Review The Department realised an underspend for the year amounting to .2% of its annual budget, this figure was achieved due to the R2 billion adjustment for the recapitalisation of Denel. Had this adjustment not been made the department would not have achieved the required 2% margin, and would have reflected a 4.77% underspending for the year. However, this was as a result of the Department not effecting a transfer payment in the sum of R3 152 000 to the Diabo Share Trust as the audited financial statements for the entity were not available. It was deemed to be in the interests of transparency and good governance to withhold the transfer until the documents are received. The balance of the unspent funds would then have amounted to R1 272 545 of which R287 000 consisted of transfer payments (details of this amount are explained under Programme 5) which left, in real terms, an amount of R985 545 underspent for the year.

17. Five priority areas for the DPE’s activities • Implement an effective shareholder management system • Ensure the implementation of the infrastructure investment programme • Strengthen SOE balance sheets • Introduce private sector partners/operator where optimal • Leverage the Capex programme of SOE to catalyse new economic activities and reestablished industries

18. Shareholder Management Model • Aim: balance enterprise, sector and national economic development objectives so as to optimise the impact of the SOE whilst maintaining its viability as an enterprise. • Informed by the imperative of allowing sufficient scope and space for the Board of Directors and Management of state-owned enterprises to execute their functions without undue interference whilst simultaneously ensuring that the strategic goals of the shareholder are advanced. • We are therefore qualitatively shifting the level and content of SOE shareholder management towards addressing the medium to long-range economic and development goals of the country. In addition to the generic function of maximising shareholder value, the key emphasis of the department with respect to shareholder management will be defined around the following outcomes: • infrastructure investment and delivery • operational and industry efficiency • financial and commercial viability • governance and regulatory compliance 18

19. Accelerated & Shared Growth Initiative • The effective and focused utilisation of state assets is core to the success of ASGISA. • The Department of Public Enterprises, as shareholder manager of seven SOE, therefore forms part of the lead departments responsible for driving the ASGISA programme. • The DPE’s contribution will be presented in the following categories: • Infrastructure programmes • Property and Sector Development • Skills and education initiatives and • Second economy interventions 19

20. Accelerated & Shared Growth Initiative Infrastructure programmes • Transnet and Eskom are planning to spend R130bn over the next five to seven years on infrastructure and capital goods. • This program will impact upon: • Demand for inputs • Industrial development of important sectors such as capital goods and transport equipment • Crowding in of private investment through greater infrastructure capacity • However, with the twenty five year decline of government expenditure on gross fixed capital investment, supplier industries have been significantly undermined – a consequence of this is that SOE are projecting that over 40% of the capex will be imported. • Consequently, DPE is developing a local content procurement framework and a number of other supporting initiatives with the objective of optimising the impact of the procurement on the development of local supplier industries without increasing the price. 20

21. Accelerated & Shared Growth Initiative Property and sector development • The SOE have a significant property portfolio – with a number of assets located in areas that can enable the development of tourism (e.g. waterfront), logistics nodes (e.g. inland terminals and back of sea, rail and air ports) and manufacturing nodes (e.g. supplier parks to Aerospace). • It is critical that the portfolio is reviewed and, where appropriate, properties are made available to stimulate increased economic activity and to realise value that can be added to the SOE’s balance sheets. • The property project is in the process of performing this review and their presentation will provide a sense of the many opportunities that have been identified thus far. 21

22. Accelerated & Shared Growth Initiative Skills • It has been widely publicised that skills shortages are a major constraint to economic growth. • In recognition of the positive multipliers associated with skills development, historically, the SOE trained artisans over and beyond their immediate needs. This practice is to recommence and we are encouraging major SOE suppliers to add to the process. • The SOE have also developed significant training infrastructure – much of which is sub-optimally utilised. The DPE, through the JPF, is in the process of launching a project to audit these facilities and develop a strategy to ensure that they are utilised to meet high priority skill requirements. 22

23. Accelerated & Shared Growth Initiative Integrating the second economy • Without interventions directly aimed at reducing South Africa’s historical inequalities, growth is unsustainable • DPE in collaboration with DoE will be providing specific sector support in the area of business process outsourcing, especially focused on rural call centers • The property project has specific initiatives aimed at integrating the first and second economies • SOE are developing programmes to enable greater participation of local communities in capex projects to ensure geographic spread of economic opportunities 23

24. PRIORITY AREAS AND PLANNED ACTIVITIESPROGRAMMES 24

25. Programme 1: Administration • Measurable Objectives, Medium Term Outputs and Expenditure Estimates: Management and Administration • Purpose: Responsible for the overall direction and management of the Ministry and the department and provision of administrative support services to the department. • Measurable objective: • To provide strategic direction and leadership • To provide support services to enable the department to deliver on its organisational objectives in an environment where the human capital within DPE is both motivated and empowered • To improve the quality of corporate governance and performance monitoring systems by ensuring that appropriate policies, processes and procedures are developed and implemented within DPE • Management and Administration includes the Ministry, the Office of the Director-General and Corporate Services. The programme includes policy formulation by the Minister and senior management. Support services are provided by the ministerial support staff, strategy and business planning, human capital, information technology, communications, finance, security services, legal counsel and internal audit.

26. Programme 1: Administration

27. Programme 1: Administration • Subprogramme • Minister • Management • Corporate Services • Property Management

28. Programme 2: ARM Measurable Objectives, Medium Term Outputs and Expenditure Estimates: Analysis and Risk Management Purpose: The main purpose of Analysis and Risk Management (ARM) programme is to analyse and monitor the financial, operational and socioeconomic performance of SOE to ensure compliance with the Corporate Plans, and Shareholder Compacts and actively mitigate keys risks flowing from the SOE activities. Apart from the Management component of the programme, there are two sub-programmes: Analysis sub-programme continuously analyses and monitors the performance of SOE, focusing on their operations, financial performance and their role in socioeconomic development. The sub-programme plays a vital role in the shareholder compact and oversight process as it identifies the key performance indicators and targets for inclusion in the compacts and is responsible for a comparative benchmarking programme of SOE. This activity will be informed by a financial analysis framework. Risk Management is responsible for formulating risk management framework related to SOE, analyse and monitors risks associated with SOE activities, advise on the section 54 PFMA applications and materiality frameworks, identify key risks to be monitored by the shareholder, assess their impact and likelihood, setting up an early warning and reporting systems. The sub-programme regularly reports on systemic risks, vulnerabilities and potential shocks in and across the SOE and advises on mitigations plans. These key risks include the following, amongst others: Safety, Occupational Health and HIV/AIDS, Environment, Security of key infrastructure- pipelines, ports, railways, and airline, Security of supply against demand in the growing economy, Industrial action, Skills, Solvency of SOE and their contribution to national financial stability, Governance andLitigation. This activity will be informed by a risk management framework.

29. Programme 2: ARM Analysis

30. Programme 2: ARM Risk Management

31. Programme 2: ARM • Subprogramme • Management • Analysis • Risk Management

32. Programme 3: LGT • Measurable Objectives, Medium Term Outputs and Expenditure Estimates: Legal, Governance and Transactions (LGT) • Purpose: Provide clear SOE mandates and ensure alignment of SOE governance systems, compliance and performance with government policy objectives. • Measurable objective: Develop effective governance, transactions and policy frameworks that ensure that all SOE activities are performed with integrity, honesty and in compliance with appropriate legislation. • Legal, Governance and Transactions (LGT) is comprised of three functional areas: Legal Office, Corporate Governance, including the Secretariat and Transactions. All three deliver internal services. Corporate Governance has a distinct role in the interface with SOEs, National Treasury and other Government Departments. A substantial portion of the Secretariat’s workload relates to the Economic Cluster. Transactions includes corporate finance and structuring expertise and largely serve as interface with SOE in relation to Pubic Finance Management Act (PFMA) section 54(2) approvals and execute DPE led transactions. The programme has a distinctly legal focus, as it interprets, develops and records factual frameworks in relation to powers, functions and duties, corporate structure and obligations, and formal decisions, hence all legal activities were centralised in one programme this year. • LGT has a four-pronged delivery focus, namely: • interpretation of current law, monitoring of statutory/contractual compliance and induction of good governance protocol • optimal corporate financial and legal structuring • repository and disseminator of factual records and information supporting the functions of LGS, DPE, the Minister and the Economic Cluster • inter-governmental co-ordinator and conduit for communication between other Government Departments and SOE in respect of issues which are SOE-specific.

33. Programme 3: LGT LEGAL

34. Programme 3: LGT GOVERNANCE

35. Programme 3: LGT

36. Programme 3: LGT TRANSACTIONS

37. Programme 3: LGT • Subprogramme • Management • Legal and Litigation • Governance and Secretariat • Legal Transactions

38. Programme 4: CSS Measurable Objectives, Medium Term Outputs and Expenditure Estimates : Corporate Strategy and Structure Purpose: Define and implement industry structures, public/private service delivery and SOE strategies that will optimise overall industry efficiency, service provision, pricing of services and economic development Measurable Objectives: The principal objective of the CSS Unit is to design strategies and structures for SOE and the industries in which they operate that will ensure delivery on Government’s economic growth objectives. This will be achieved through: ·Increased competitiveness: oLowest sustainable input costs oGlobally competitive services oSufficient capacity provision ·Utilising SOE to strengthen key sectors The following are the other objectives: ·To review level of investment in SOE infrastructure and improve quality of investment ·Development of back of port IDZ industry ·To liaise with the Joint Project Facility in the development of strategies The branch is comprised of four sub-branches including Energy, Transport, Defence and Forestry. The above programme objectives cut across the four branches. The JPF is a financial facility that will enable the development of projects that enhance the value of an industry or can leverage off the assets and/or capabilities of the SOEs to the benefit of those SOE and the economy as a whole. An investment dashboard will serve as a tool to monitor key objectives.

39. Programme 4: CSS Measurable Objectives, Medium Term Outputs and Expenditure Estimates : Corporate Strategy and Structure

40. Programme 4: CSS Measurable Objectives, Medium Term Outputs and Expenditure Estimates : Corporate Strategy and Structure

41. Programme 4: CSS Measurable Objectives, Medium Term Outputs and Expenditure Estimates : Corporate Strategy and Structure

42. Programme 4: CSS • Subprogramme • Transport • Energy • Strategy • Economic Research Unit • Joint Project Facility#

43. JPF • The Joint Project Facility is a financial facility that will enable the development of projects that enhance the value of an industry or can leverage off the assets and/or capabilities of the SOEs to the benefit of those SOE and the economy as a whole. • Measurable Objectives: to facilitate the rapid development of projects to the point where an investment case and/or costed operational plan has been accepted by relevant operational companies and, where appropriate, financial investors. • Six areas have been identified for projects, namely Continental Investment, Energy & Pipelines, Human Resources & Capacity Building, Information Communication Technologies (ICTs), Property and Optimisation. • Continental Investment: The development of a SOE to consolidate Africa initiatives in a systematic manner. • Energy & Pipelines : identification of pipeline projects & development of the gas & liquid fuels pipelines masterplan • Human Resources & Capacity Building: Enhance national skills development through better and fuller utilisation of the capacity for skills development in SOE in South Africa • ICTs: The establishment of a telecommunications infrastructure company and a business process outsourcing development initiative. • Property: To unlock economic value through SOE property development project • Investment Optimisation (this project aims to reduce imports and build a capital goods industry for the capital expansion programmes of Eskom and Transnet)

44. JPF

45. JPF

46. THANK YOU 46