2016/17 Annual Performance Report

1. 2016/17 Annual Performance Report Presentation to the Portfolio Committee on Public Enterprises 4 October 2017

2. Presentation Outline • DPE Vision and Mission • Legislative and other mandates • Strategic Overview (Oversight) • Programme Performance Information • Financial Performance

3. Vision and Mission • Vision: To drive investment, productivity and transformation in the Department portfolio of SOCs. their customers and suppliers so as to unlock growth, drive industrialisation, create jobs and develop skills. • Mission: The SOCs are strategic instruments of industrial policy and core players in the New Growth Path (NGP). The Department aims to provide decisive strategic direction to the to the SOCs, so that their businessess are aligned with the national growth strategies arising out of the NGP. It will do this by ensuring that their planning, investment and activities are in line with Government’s MTSF and the Minister’s delivery agreement commitments.

4. Legislative and other mandates • The Department exercises shareholder oversight on six SOCs. All the SOCs are incorporated as companies in accordance with the provision of the Companies Act. (Act 71 of 2008). Except for Denel, all the SOCs are established in terms of their own enabling legislation which sets out the purpose, mandate and objectives for which they were funded. The Department is the administrator and custodian of the legislation in relation to the establishment of SOCs.

5. Strategic Overview • The South African economy has shown only sluggish growth since the global downturn of 2008/2009, and some sectors of society continued to advocate for the privatisation of certain State-Owned Companies (SOCs). • The country’s GDP growth for 2016 was initially forecast at 1.3%, which is among the assumptions that the Annual Performance Plan and the Shareholder Compacts agreed upon the department (Ministry) and the Boards of SOCs were based on. However the Outlook continued to deteriorate as demonstrated by growth averaged 0.6% during the period under review. • As a result, the Department and SOCs had to explore and invoke new ways of overcoming challenges in the operating environment. Among others, the Department established partnerships with 4 universities (WITS, USB, WSU and UWC) in order to bring in research capabilities and expertise that will help intensify the department’s programme delivery. The arrangement has mutual benefits to both parties as the financial resources availed to universities will alleviate their financial strain while the Department will in the long term manage to enhance its internal capabilities.

6. Strategic Overview continues….. • SA Express was severely affected by challenging economic conditions over the past financial year. However, the company continued to demonstrate the important role it plays as the State’s regional airline pathfinder and economic stimulator by developing thin routes that benefits all South Africa domestic airlines. • SA Express continues to play a leading role in the transformation of the airline industry through the Cadet Training Programme and Artisans training. In addition, the airline is playing a critical role in exposing Previously Disadvantaged Individuals (PDIs) critical and core skills • The Department in collaboration with National Treasury, has made great strides in the development of an Optimal Corporate Structure for the realignment of the South African State-Owned Airlines (SA Express, Mango and South African Airways) under the Executive Authorities of the Ministry of Public Enterprises and Ministry of Finance.

7. Strategic Overview continues….. • Eskom to this end, has managed to turnaround generation performance from the verge of collapse to a situation where in the country has surplus energy that exceeds demand by approximately 4000MW (MTSF) on any given day. • The new build programme has progressed, with Ingula now in full operation, Medupi Units 5 and 6 in commercial operation, and Kusile Unit 1 synchronised and undergoing optimisation tests. The benefits of this massive infrastructural investment will not only accrue to South Africa, but also to the Southern African region and the Continent as a whole. • Transnet also registered great successes by establishing Transnet International Holdings to spread its footprint in the African continent and global markets. Transnet is negotiating partnerships with African countries to address the continent’s freight infrastructure network deficit. In addition, Transnet delivered 37 passenger coaches locally engineered and manufactured for the Botswana Railways. Furthermore Transnet unveiled the first diesel powered Trans-Africa Locomotive (TAL) designed, engineered and manufactured in Africa for specific markets.

8. Strategic Overview continues….. • Transnet increased its contribution to the Road-to-Rail migration particularly in the container and automotive sectors. Branch lines are also identified (e.g. Wolsely-Ceres-Prince Alfred Hamlet, Alicedale-Grahamstown and Umtata-Amabele) in support of rural development and local economic opportunities. The department and Transnet review the financial models to support the branch line processes in the new financial year. • The department together with the SOCs initiated the Provincial Engagement Programme with 7 provinces. This programme has yielded the successful launch of Matlabas Loop in Lephalale, which forms part of Transnet’s expansion programme of the Waterberg Railway Line. The project entails constructing a long passing loop at Matlabas, thus making it possible for a 100 wagon train to cross without disrupting the operation of other trains on the line.

9. Strategic Overview continues….. • The increased rail capacity, which commences in Lephalale (Limpopo) will pass through North-West, Gauteng, Mpumalanga and end in Richards Bay Coal Terminal in KwaZulu-Natal. The expansion will increase the coal handling capacity from 400 000 tonnes to 2 million tonnes of coal per annum. • The company also managed to move 219 million tons per annum in the 2016/17 financial year. Port and rail efficiencies increased to support South Africa’s position in global ranking (Connecting to Compete 2016: Trade Logistics in the Global Economy, South Africa ranked number 20). • South Africa continues to penetrate the African market in terms of infrastructure development, operations and skills development to facilitate inter- economic trade

10. Strategic Overview continues….. • Denel,SAFCOL and Alexkorcontinued to play a critical developmental role relating to among others, skills development, community development, and job creation. • Despite the constrained environment, the six SOCs holistically managed to produce a total of 10 655 graduate trainees from a variety of programmes in the last financial year. • In terms of socio-economic impact it was further highlighted by the critical role Denel plays in supporting previously disadvantaged communities to access education, particularly in the areas of Physical Science and Mathematics. In this regard, Denel’s initiatives contributed immensely towards the 93.2% matric pass rate achieved by the Free State province.

11. Strategic Overview continues….. • The principles of the new Shareholder Policy were approved by Cabinet in the last financial year. The policy is meant to improve the performance of SOCs as well as to strengthen and sharpen Government’s role as shareholder, regulator and policy maker in the governance of SOCs. • Cabinet’s approval of the new SOC Remuneration and Incentives Standards for Non-Executive Directors, Executive Directors and Prescribed Officers (Rem Standards) was an important milestone. • The department reviewed the CSI programme inline with NDP and government priorities/outcomes to ensure alignment, Rural Development Strategy and Industrialisation Plan draft were developed will be finalised and approved in the new financial year.

12. Programme Performance InformationProgramme 1: Administration Programme had 2 targets to achieve, only 1 was achieved. • Seven Intergovernmental engagement programmes were held as planned. • Improve and implement 4 ICT architecture plans (Share-Point, Lean, Project Management Office and Enterprises Architecture). The target was not achieved, this was due to the delays in procurement processes, realignment process and the relocation of the department. The SharePoint project is already in the testing phase, ToR’s for Lean and Enterprises Architecture have been approved. - Confidential -

13. Human Resource Management Performance • The department embarked in an organisational re-alignment process to ensure that the capacity within the Department exists to execute its strategic objectives is currently underway. Subsequently, the process is intended to improve and strengthen the Department’s ability to provide adequate strategic support to SOCs to deliver on their mandate. First phase of the process was finalised.

14. Human Resource Management Performance continues ……….. • Number of approved posts: 223 • Number of filled posts: 191 • Number of vacant posts: 32 • Overall vacancy rate: 14% • Number of employees additional to the establishment: 5 - Confidential -

15. Programme 2: Legal and Governance Programme had 3 targets to achieve, only 2 were achieved. • Draft Concept Paper on Shareholder Policy, this target was achieved as planned. A special Cabinet approved the principles of the shareholders management policy and that Cabinet members consult further on the policy document itself. Furthermore, the Remuneration Standard was approved for implementation by PFMA (1999) Schedule 2, 3b and 3d entities. • The liquidation of Aventura is at an advanced stage. Cabinet has approved the publication of the repeal of the founding legislation of the Aventura Overvaal Resorts Limited Act (1993) for public comments. This target was achieved as planned. • Outcomes-based shareholder Risk Reporting Procedure Manual, this target was not achieved due to the fact that, the Department did not receive adequate proposals from the market on the services required to deliver on the project. The request for proposals has been re-issued. 15 - Confidential -

16. Programme 3:Sub-programme 1: Energy Enterprises Programme had 4 targets to achieve, all were achieved. • Eskom’s operational performance was monitored as planned. The improved performance of the generation fleet as well as adding new capacity from Medupi, Kusile and Ingula Power Stations ensured that the energy constraints challenges that once affected the country were mitigated. • With regard to Monitoring of the delivery of the build programme (Medupi, Kusile and Ingula) all the Capital Programmes were monitored as planned and the report was produced. The implementation of Eskom’s Capex Programmme has added more capacity to the grid with Ingula units reaching commercial operation for all four units, adding 1333 MW to the grid. Medupi Unit 6 was commercialised, adding 800 MW and Unit 5 synchronised to the grid. Unit 5 of Medupi was synchronised to the grid. Unit 1of Kusile was synchronised, adding 800 MW to the grid. The turnaround in the performance generation fleet and the expedition of the Build Programme has assisted Eskom in restoring security of supply. 16 - Confidential -

17. Programme 3:Sub-programme 1: Energy Enterprises Continue……. • In terms of Proposal on the reduction of the municipal and residential debts. Position paper on municipal capacitation was developed and the target was achieved. This was achieved through engagement and interactions with intergovernmental stakeholders in trying to resolve the escalating municipal debt challenges. • Identification of new opportunities to support regional development, new market opportunities were identified as part of Africa Strategy. The department has successfully identified strategic business opportunities for collaboration that Eskom will pursue on the continent which will broaden the current Africa Strategy.

18. Programme 3:Sub-programme 2: Manufacturing enterprises • Programme had 4 targets to achieve, all were achieved. • Government and other stakeholders supported the proposal of the Small African Regional Aircraft (SARA). • DPE –SAFCOL Co-operation Agreement with provincial government (s) on leveraging the State forestry industry, these cooperation agreement were signed as planned. • Assessment and review of the Richtersveld Diamond Deposit, Recommendations on the optimal exploration programme of diamond resources was completed. • Review of Deeds of Settlement between government, Alexkor and Richtersveld community. Draft amendment of Deed of Settlement was completed. 18 - Confidential -

19. Programme 3:Sub-programme 3: Transport Enterprises Programme had 3 targets to achieve, all were achieved. • Review of strategic position on the National Freight Logistics Strategy. The review was done and completed. • Review of strategic position on the establishment of the Rail Economic Regulator. The review was done and completed. • Strategic proposal for the optimal group structure of the State Owned Airlines. The proposal was done and completed. 19 - Confidential -

20. Programme 3:Sub-programme 4: Economic Impact and Policy Alignment Programme had 3 targets to achieve, only 2 were achieved. • Develop Black Industrialists and Enterprise Development Programme, the target was not achieved as planned. Due to the fact that Department lost human resource critical to the achievement of the target in the middle of the financial year. The service level agreements will being fast-tracked for the tertiary institutions to assist in developing the concept for the project. • Develop High-impact projects in rural communities, 9 high impact CSI projects were launched in rural areas. The target was achieved as planned. • Economic Impact Assessment on selected SAFCOL Capex Programme was completed. 20 - Confidential -

21. Programme 3:Sub-programme 5: Strategic Partnership Programme had 3 targets to achieve, only 2 were achieved. • SOCs funding Optimisation Strategy, the programme planned to develop a Capital Structure Optimisation Strategy developed for the Department’s portfolio. The target was not achieved as planned due to reasons being further consultation was required on the Capital Structure Optimisation Strategy. To ensure that the project progress, periodic sessions on investment and funding have been put in place as a platform to achieve the desired goal. • The Africa Strategy was revised and updated as planned. • Establishment of the Executive Forum for SIPs chaired by the Minister, the forums was established as planned. 21 - Confidential -

22. FINANCIAL PERFORMANCE The table below provides a summary of actual expenditure incurred vs budget per programme for the 2016/17 and 2015/16 financial years 22

23. ANALYSIS OF EXPENDITURE • The Department has spent R 253.8 million (94.7%) of its total budget. • An underspending of 13.8 million (8.5% variance) in respect of Compensation of Employees (COE) due to vacant posts. These vacancies are due to: • Scarcity of specialist skills in the market • posts that were put on hold due to a departmental realignment process . 23

24. AUDIT OUTCOME • The Department continues to maintain a sound governance and compliance framework in how it utilises resources Unqualified Audit Opinion with no findings: • The Department obtained a Clean Audit opinion for the financial year 2016/17 which is an improvement from the previous year(unqualified with findings) Pre-determined Objectives: • The Auditor-General of South Africa (AGSA) did not identify any material findings on the usefulness and reliability of the reported performance information.

25. AUDIT OUTCOM continue…. Annual Financial Statements: • The department presented the 2016/17 Annual Financial Statements to the Auditor-General (AGSA) which were free from material misstatements. Compliance with Laws and Regulations: • The AGSA did not identify any material findings on compliance with specific matters in key legislation. Internal Controls: • There were no significantinternal control deficiencies identified by the AGSA.

26. Financial Management Payment to suppliers • The Department made payments to suppliers and service providers within 30 days from receipt of invoices in terms of section 38(1)(f) of the Public Finance Management Act (PFMA) and Treasury Regulation 8.2.3. department took and average of 13 days to pay services providers. - Confidential -

27. Thank you - Confidential -