Presentation to the Select Committee on Labour and Public Enterprises 21 November 2012

1. Presentation to the Select Committee on Labour and Public Enterprises 21 November 2012 2011/12 Annual Report of the Department of Public Enterprises

2. Contents Economic Context Strategic Thrust Programme Performance highlights DPE Organisational Structure and Statistics Annual Financial Statements and Highlights Key areas where we did not achieve the targets Challenges Strategic priorities 2

3. Economic context • Economic growth remained below 2007 and 2008 levels and was 3.1% in 2011 • While the economy emerged from the recession in the 3rd quarter of 2009, the fundamentals remained weak • A countercyclical fiscal framework was adopted to support the economy Source: Quarterly Bulletin, 2011

4. Economic context • Real fixed capital expenditure by public corporations gathered further momentum on account of an acceleration in capital spending by Eskom and Transnet, further crowding-in private sector investment • Total capital investments in the economy increased to R560 bn in 2011 compared to R520 bn in 2010 with public corporation spending over R127 bn and increased by 9% in Q4 • This reflect government’s commitment to accelerate infrastructure investment and provide a stimulus to the economy Source: Quarterly Bulletin, 2011

5. Economic context • Unemployment has remained unacceptably high at 24% compared to the pre-crisis period of 2009 • Investment by the SOC is crucial to ensure that: • The overall capacity and efficiency of the economy is increased • New industrial capabilities are developed to maximise impact in the domestic economy • Create a strong foundation for long-term growth

6. Strategic Thrust Against this background, the DPE’s strategy for the period under review was focused on the following 5 areas: • Maintain the robust shareholder oversight practices within the framework of shareholder management model that the Department has adopted • Stabilising and repositioning of our SOC looking at funding options • Recognition that State Owned Companies (SOC) are key instruments for a Developmental State with regards to: • Driving fixed investment (particularly in a counter cyclical manner) to unlock economic growth. • Leveraging procurements to support industrialisation; skills development; transformation and job creation. • Gearing up our shareholder oversight to lead in driving capital investment • Enhanced coordination across Government • Engaging with policy departments to create an enabling environment for SOC developmental mandates.

7. Strategic thrust • The key enablers are: • Appropriate resourcing and institutional repositioning of the Department; • A coherent policy and regulatory environment; and • Effective strategic coordination across the whole of government

8. Highlights of Programme Performance

9. Summary on the shareholder function • The Department largely delivered on all the shareholder management functions including: • Signing of shareholder compacts • Delivery of strategic intent statements to SOC boards • Quarterly financial reviews • The following was not achieved: • The shareholder compact for Infraco was not signed as the new board required more time to engage with both management and the department • The 3rd Quarter financial review of South African Express could not be completed as a result of restatement of the company’s financials

10. Programme 1 : Administration

11. Achievements 2011/12 • Significant enhancement of the Isibuko Dashboard enabling rapid access to key SOC information and timely performance reporting and monitoring Administration: Chief Investment & Portfolio Management Targeted output 2011/12 • Fully populated Isibuko Dashboard and reporting and risk management framework

12. Achievements 2011/12 • All conditions of the deed settlement were met and PSJV established and has been trading since 7 April 2012 Administration: Chief Investment & Portfolio Management Targeted output 2011/12 • Approval of Minister of Mineral Resources to transfer Alexkor’s mining rights to Richtersveld Mining Company and monitoring establishment of PSJV

13. Programme 2 : Energy & Broadband Enterprises

14. Achievements 2011/12 • Eskom’s MTRMP measures monitored as planned and including approval of the maintenance plan • System adequacy reports monitored including the monitoring of implementation of the emergency plan on “Keeping Lights On” Energy and Broadband Enterprises: Eskom Targeted output 2011/12 • Report on the implementation of Eskom’s responsibilities with respect to the Medium Term Risk Mitigation Programme (MTRMP) (Demand Side Management and Energy Efficiency, Energy Conversation Scheme implementation, REFIT, etc) • System adequacy reports

15. Achievements 2011/12 • By year end, Eskom added 535 MW of generation capacity, 631 km of transmission lines and 2525 MVA of transmission capacity to the system • R350 bn government guarantee approved. Eskom’s domestic borrowing programme increased from R65 bn to R100 bn. 76% of the funding required for the build programme up to 2017 secured Energy and Broadband Enterprises: Eskom Targeted output 2011/12 • Timeous delivery of new generation capacity and transmission networks • Funding of the build programme

16. Achievements 2011/12 • Ring-fencing of the purchasing functions included in the Eskom’s shareholder compact and concluded in February 2012 • Process to establish ISMO as a subsidiary of Eskom is being finalised Energy and Broadband Enterprises: Eskom Targeted output 2011/12 • Ring-fencing of purchasing function with approved governance arrangement to optimally structure the system operator including engagements with other departments

17. Achievements 2011/12 • Seven new Points of Presence added and 292 km of fibre optic to the network • WACS delivered only in the first quarter of 2012/13 financial year • Infraco establishment and investment into new network contributed significantly in the reduction of wholesale prices Energy and Broadband Enterprises: Infraco Targeted output 2011/12 • Monitoring the rollout of the national and international network according to the national broadband targets

18. Programme 3 : Legal & Governance

19. Achievements 2011/12 • Risk management practices at both operational and shareholder level have been consolidated and a Governance and Risk Forum to harmonise governance and risk management across all SOC established • Standard template for memorandum of incorporation developed and presented to SOC Legal and Governance Targeted output 2011/12 • Monitor SOC adherence to corporate governance principles

20. Achievements 2011/12 • Approach to the winding up process for Aventura was reviewed and approved, the Department had the 2010/11 AFS audited, and secured the Master of the Court directive on the provision of security requirements (subsequently the SOC passed a resolution to liquidate the company at its AGM in May 2012) Legal and Governance Targeted output 2011/12 • Implementation and monitoring of the Aventura winding up process

21. Programme 4 : Manufacturing Enterprises

22. Achievements 2011/12 • The challenges at DSA have been contained and the restructuring process undertaken over the past two years beginning to yield positive results • The term sheet on the contract renegotiations with Airbus to improve prices of the different sets was signed in December 2011 Manufacturing Enterprises: Denel Targeted output 2011/12 • Renegotiation and exit of DSA Airbus A400M contract

23. Achievements 2011/12 • The company received export orders in excess of R5bn in 2011/12 and pursuing prospects of over R40bn in the short to medium term. • The Department and National Treasury exploring funding options to enable the company to exploit the new business opportunities Manufacturing Enterprises: Denel Targeted output 2011/12 • New business/growth strategy for Denel

24. Achievements 2011/12 • Consultation with key policy departments continues on the future role of SAFCOL • In 2011/12 SAFCOL launched an extensive programme to support timber framed building structures as an alternative method of construction in South Africa Manufacturing Enterprises: SAFCOL Targeted output 2011/12 • Intergovernmental consultations and consensus on SAFCOL future role

25. Programme 5 : Transport Enterprises

26. Achievements 2011/12 • A new record of 1.22 million tons and 1.6 million tons per week were achieved on the iron ore and coal lines respectively • Overall efficiency has improved by 17% compared to the previous period • Volumes increased by 7.4% as a result of capital spending and operational improvements Transport Enterprises: Transnet Targeted output 2011/12 • Improvement in operational indicators as part of Minister’s commitment to the Delivery Agreement

27. Achievements 2011/12 • Procurement of 95 locomotives for the general freight business to enable reliable and predictable service • New rolling stock for the iron ore and coal lines • Acquisition of the Durban International Airport site for the construction of the new Dig out Port in Durban Transport Enterprises: Transnet Targeted output 2011/12 • Delivery of the build programme

28. Achievements 2011/12 • SAA launched 5 additional African routes – Ndola, Kigali, Bujumbura, Pointe Noire and Cotonou and launched a direct link to Beijing in February 2012 • SAX launched operations into the African region from King Shaka International Airport and plans are underway to increase capacity to Zambia, Zimbabwe and DRC • Weak market conditions including rising fuel costs has worsened the financial position of the two airlines Transport Enterprises: SAA and SAX Targeted output 2011/12 • Launch of new routes

29. Programme 6 : Joint Project Facility

30. Achievements 2011/12 • SOC have comprehensively revised their procurement policies to align with the DPE procurement framework • Eskom has leveraged commitments of over R1,2 bn in investment into new manufacturing capacity with over R600 mn already invested • Transnet has entered into over R14 bn contracts containing R5,4 bn in supplier development commitments Joint Project Facility: CSDP Targeted output 2011/12 • DPE procurement framework for supplier development

31. Achievements 2011/12 • Transnet provided training for 3 500 engineering-related learners and enrolled 854 new artisan learners • Eskom trained about 5 400 learners, of whom 4 200 are in engineering related field and enrolled 1 066 new artisans • SAA Enrolled 254 learners • Denel has enrolled 229 learners at the Denel Technical Academy • Broadband Infraco, SAFCOL, SAX have together enrolled 191 learners Joint Project Facility: Skills and youth development Targeted output 2011/12 • Implementation and monitoring of SOC skills and youth development programmes

32. DPE Organisational Structure and Statistics

33. The Department undertook an organisational review process which resulted in the development of a new organizational model and functional structure in line with our strategic objectives. Minister Public Enterprises Deputy Minister Public Enterprises Director-General Public Enterprises Programme2: Legal & Governance Programme 1: Administration Programme 3: Portfolio Management And Strategic Partnerships Strategic Partnerships Economic Impact and Policy Alignment Energy and Broadband Enterprises Manufacturing Enterprises Transport Enterprises 33 CONFIDENTIAL

34. DPE Statistics as at 31 March 2012 Total establishment as at 01 April 2011 Filled posts as at 01 April 2011 Interns appointed Graduates Development programme recruits 186 159 19 3 189 168 21 Total establishment as at 31 March 2012 Filled posts as at 31 March 2012 Vacancies as at 31 March 2012 Advertised: 11 Offer Made:2 Interviews in progress:: 4 36 15 8 13 Total new appointments (01/04/11-31/03/12 Level 13 - 16 Level 9 - 12 Level 1 - 8 Total exits (01/04/11-31/03/12) 13 9 2 2 Level 13-16 (8 Resignations,1 Contract Expiry) Level 9 -12 (1 Resignation, 1 Transfer, Level 1 -8 (1Transfers, 1 Discharged misconduct) Vacancy Rate as at 31 March 2012 11.11% Public Sector Vacancy Rate as at 31 March 2012: 10% (Current status as per DPSA Target) Turnover Rate as at 31 March 2012 as per Oversight Report calculation (Total exits divided by Filled posts as at 1 April 2012 Public Sector Turnover Rate as at 31 March 2012: 18 % (overall status) 6.17%

35. Employment Equity Targets as at 31 March 2012 Statistics SA (mid-year population estimates) African Indian Coloured White Disability F M F F M F M M DPSA Target Target Actual 39.2% 74 40.3% 76 1.3% 2  1.2% 2 4.5% 9 4.4% 8 4.7% 9 4.5% 9 2% 3 Achieved % Actual 43.5% 73 39.3% 67 2.4% 4 1.8% 3 3.6% 6 2.4% 4 5.4% 9  1.2% 2 3.6% 6 DPSA SMS Female and Male target = 50/50 DPE SMS Female and Male target = 44.7%/55.3%

36. Progress Update : Statistics as at 30 September 2012 Total establishment as at 30 September 2012 Filled posts as at 30 September 2012 Interns appointed Graduates Development programme recruits 202 170 21 5 Vacancies as at 30 September 2012 32 Interview in progress: 7 Offer Made: 7 Advertised: 9 Appointment in process: 2 Total new appointments (01/04/12-30/09/2012) 17 8 5 4 Level 13 - 16 Level 9 - 12 Level 1 - 8 Total exits (01/04/12-30/09/2012) 14 7 3 4 Level 13-16 (5Resignations, 2 Transfers) Level 9 -12 (1 Resignation, 2Transfers) Level 1 -8 (1 Resignation ,3 Transfers) Vacancy Rate as at 30 September 2012 15.84% Note: This includes 12 critical posts funded by NT during September 2012 Public Sector Vacancy Rate as at 10 October 2011: 10% (Current status as per DPSA Target) Turnover Rate as at 30 September 2012 as per Oversight Report calculation (Total exits divided by Filled posts as at 1 April 2012) Public Sector Turnover Rate as at 10 October 2011: 18 % (overall status) 7.22% 36

37. Annual Financial Statements and Highlights: 2011/12

38. Departmental Expenditure Trends 2010/11 – 2011/12 The following table provides a summary of actual expenditure incurred vs budget per programme for the 2011/12 and 2010/11 financial years: 2008/09 2007/08 Programme Final Appropriation R’000 Actual Expenditure R’000 Final Appropriation R’000 Actual Expenditure R’000

39. Departmental Expenditure Trends 2010/11 – 2011/12 • The decrease of R202.2 million in the annual appropriation from R555.549 million in 2010/11 to R353.342 million in 2011/12 is mainly as a result of a decrease in transfer payments to State Owned Companies • The Department spent 98% of its budget which was within its 2% underspending target and achieved a clean audit   • Underspending amounting to R7.22 million was recorded in the 2011/12 financial year. This amount is made up of current expenditure in the operational budget which was under: • Compensation of Employees as a result of some posts not having been filled due to scarcity of specialist skills in the market, • Goods and Services which arose due to some projects having being delayed due to capacity constraints. • Accordingly, the Department has been granted rollovers by National Treasury for two projects amounting to R3.13 million in order for them to be completed in the 2012/13 financial year • There was no substantive impact on delivery within programmes as a result of this underspending 2008/09 2007/08 Programme Final Appropriation R’000 Actual Expenditure R’000 Final Appropriation R’000 Actual Expenditure R’000

40. * Summary of Transfer Payments 2011/12 • The transfer to Denel is for payment of an indemnity granted to Denel/Saab Aerostructures. • The transfer to PBMR was to reimburse the South African Nuclear Energy Corporation for dismantling and decommissioning the fuel development laboratories. 2008/09 2007/08 Programme Final Appropriation R’000 Actual Expenditure R’000 Final Appropriation R’000 Actual Expenditure R’000

41. Key areas where we have not achieved our targets (1) • Energy • Approval/support of the MYPD3 application was delayed due to the proposed changes to the regulatory framework on which Eskom bases its application • Review of Aluminium South Africa (ASA) agreements to minimise impact on Eskom and economy. The Department supported Eskom to apply for a determination by the regulator of ASA agreements. This process is now outside of the Department’s control • Broadband • Conclusion of the Shareholder Compact was delayed to April 2012 due to the appointment of the new board • Exploration and facilitation of access to debt and alternative funding structures. The delay in the finalisation of the market position study had a negative impact on achieving the deliverable • Legal • Government shareholder management model and related legislation has been held in abeyance due to the finalisation of the PRC Report on SOC. • Review of the current DPE remuneration guidelines delayed after Cabinet directed further consultations with other Government Departments.

42. Key areas where we have not achieved our targets (2) • Denel • Defining Denel’s strategic role and business sustainability to enable its strategic role in the provision of defence capabilities was not completed. This was contingent upon the DoD finalising the Defence Review. This process has not been finalised • SAFCOL • Future role of SAFCOL. An inter-governmental task team has been established and this process will be completed in the current financial year • Transport • Roll-out of the first wave of concessions of branch lines. A new legislative framework and the assessment of the sustainability fo the lines is required • Framework for the private sector involvement in Ngqura container terminal • National Freight Network Design

43. Challenges The following were some of the challenges experienced during the reporting period: • The lack of a clear policy framework has affected the achievement of some key deliverable e.g. concessioning of branch lines and future allocations to Eskom as part of IRP2 • Retaining and attracting skilled people to enhance the capacity of the department to perform its oversight function • Worsening global and domestic economic conditions that have negatively impacted on the financial position of some SOC which may delay funding of the build programme • Limited financial resources that meant some of the projects could not be implemented

44. Strategic priorities for 2012 - 14 • Continuous improvement and consolidation of the shareholder oversight model • Strengthening strategic alignment and oversight of the build programme • Improvement of Supplier Development Plans to maximise impact of the capital expenditure in the economy and develop new industrial capabilities • Streamlining of the skills development programmes across SOC and leverage funding from other departments to meet the Skills Accord commitments • Supporting the turnaround of our financially challenged SOC • Continue engagements with policy departments to promote a coherent policy and regulatory environment • Resourcing and capacitation of the department including enhancing monitoring and evaluation capacity to promote outcomes based planning

45. THANK YOU