DPE PRESENTATION TO PORTFOLIO COMMITTEE ON SOE PERFOMANCE AGAINST AGREED KPI’S FOR 2006/07 SEPTEMBER 2007

1. DPE PRESENTATION TO PORTFOLIO COMMITTEE ON SOE PERFOMANCE AGAINST AGREED KPI’S FOR 2006/07 SEPTEMBER 2007

2. Flow of Presentation • Evolution (Phases 1 & 2) • Process • Components • SOE Performance Against Agreed KPI’s for 2006/07

3. Evolution • Phase 1: • Initially voluminous and difficult to interpret • Resultant lengthy conclusion process • KPIs primarily balance sheet focused due to SOE financial difficulties • Lack of performance and output target focus • Limited review

4. Evolution • Phase 2: • Slim compact format adopted with emphasis on performance and output targets • Obligation to mirror mandate and strategic intent statement • KPIs to cascade down to SOE subsidiaries • Compact reviewed annually – limited tweaking of strategic objectives with amendments focused on KPIs • Compact a live document

5. Flow of Presentation • Evolution • Process • Components • SOE Performance Against Agreed KPI’s for 2006/07

6. Process • Annual agreement between Executive Authority (Minister) and Accounting Authority (SOE Board) • Key Performance Measures & Indicators determined from Corporate Plan • Shareholder Compact negotiated • Quarterly Performance Reporting and Monitoring against agreed indicators • Annual Performance Reporting and Monitoring against agreed indicators • Annual Review and renegotiation

7. Process Policy Proposed KPIs Annual report on Performance Negotiated KPIs Reporting on Performance

8. Flow of Presentation • Evolution • Process • Components • SOE Performance Against Agreed KPI’s for 2006/07

9. Components - Clauses • Interpretation; • Functions of shareholder compact; • Mandate; • Strategic objectives; • Key performance indicators and evaluation; • Period of compact; • Appendice: Key performance indicators Generic Review annually

10. Components - Generic KPIs • Capital Efficiency • Financial Efficiency • Operating Efficiency and Effectiveness • Gearing Ratios • Developmental objectives • ASGI-SA • Skills development • Broad Based Black Economic Empowerment • Strategic Supplier Development • SOE Strategy / Maturity Specific: • Investment (Capacity Delivery) • Infrastructure Investment • Sales • Revenue Increases

11. SOE Compacts 2006/2007 • Signed SC • Transnet • Eskom • Denel • Safcol (Process KPIs) • Not signed • SAA (then not within DPE portfolio) • Alexkor (Land claim process)

12. SOE Compacts 2007/2008 (Phase 3) • Compacts extended in width (All SOE) and depth (Extended Performance Indicators and Targets). • Ability to measure quarterly performance greatly increased

13. Flow of Presentation • Evolution • Process • Components • SOE Performance Against Agreed KPI’s for 2006/07 (Safcol)

14. Safcol Mandate Core business is the conduct of forestry, timber harvesting, timber processing and related activities, both domestically and internationally.

15. Safcol • At the time the Shareholder Compact and KPIs for SAFCOL were being developed, an in-depth review of the future of the company was in progress. The review was instructed by the Minister in April 2006. • As a result, at the time of KPI development, no decision had been taken on the future role and strategy for the company and thus it was not clear at that time which KPIs would be needed in future Compacts. For this reason, an “Interim Shareholder Compact” was agreed, which contained “Interim KPIs”, and which it was expected would be significantly revised after the decision on the future role of the company. These Interim KPIs were intended to: • ensure that performance data was prepared and reported, using an appropriate and consistent definition • obtain base-line data for certain KPIs which were likely to be needed in the following year • establish performance targets for certain fundamental measures, such as the presence or absence of “good forest management”

16. Safcol • In order for the KPIs and performance data to be meaningful, they must be defined very precisely and that definition must be applied consistently over time. Failure to do this will render the KPIs at least less helpful, potentially meaningless and potentially open to manipulation. • Note that, as a result of the decision confirmed by Cabinet in March 2007 that KLF should be transferred to the private sector and that SAFCOL should be wound-up, the new Compact for 2007-08 includes KPIs relating to those transactions. Such KPIs were deliberately not included in the 2006-07 Compact.

17. Safcol • Specific mandate for 2007/2008: - Complete the transfer to the private sector of Komatiland Forests (Pty) Ltd in accordance with the Transaction Guidelines; - Maintain sustainable management and value of forests and other assets until transfer is completed; - Reform the system used for sale of sawlogs; - Assist the Shareholder Representative with the sale of IFLOMA; - Prepare for an orderly winding up.

18. Flow of Presentation • Evolution • Process • Components • SOE Performance Against Agreed KPI’s for 2006/07 (Denel)

19. Denel Mandate • Denel’s mandate is to supply strategic defence capabilities to the SANDF (and the SAAF) and to act as a catalyst for advanced manufacturing in the broader economy. Strategic Objectives • Strategic Role • Capital and financial efficiency • Investment • Consolidation • Capability Improvements and Operational Efficiency • Developmental Objectives Key Performance Indicators See next slide

20. Denel

21. Denel

22. Denel

23. Denel Improvements in the 2007/08 Proposed Shareholder Compact • The Strategic objectives have been consolidated and streamlined for the 2007/08 Compact: • Strategic and economic role in South Africa • Financial and operational efficiency • Consolidation and equity partnerships • Developmental objectives • The financial KPI’s have been expanded to enable improved monitoring of Denel’s performance (particular attention has been paid to monitoring Denel’s debt position as it is entering the market to raise its remaining funding requirements): • Profitability ratios • Management effectiveness • Liquidity ratios • Cash Cycle Days • Order Coverage • Investment • Debt and Gearing

24. Denel Improvements in the 2007/08 Proposed Shareholder Compact (contd.) • Business performance indicators include: • Measurable indicators: Export sales, cost reductions, exit of non-viable and non-core businesses, improvements in governance and risk management policies and systems and compliance with legislation. • Best endeavour indicators: Consolidation of the business and the establishment of manufacturing clusters, equity partnerships and local collaborative partnerships, alignment of product lines to strategy, the management of major programmes, contract management and contracting improvements and reductions in the overall liability under the A400M programme.

25. Flow of Presentation • Evolution • Process • Components • SOE Performance Against Agreed KPI’s for 2006/07 (Eskom)

26. Transnet Mandate • Key role – assist in lowering the cost of doing business in S.A and enabling economic growth through providing appropriate infrastructure and ensuring system reliability in a cost effective, efficient manner & within acceptable benchmark standards

28. Economic Operating Profit (EOP) • Measures the economic operating profit created by the business after paying for the use of capital (including working capital) to the providers thereof. Minimum return required from the business should result in EOP being zero. This minimum required return (opportunity cost) includes a charge for the capital employed to produce the outputs. EOP is derived from the following calculation: Operating Profit XXX Add Depreciation XXX EBITDA XXX Less Economic Tax (XXX) EBITDA After Tax XXX Less Total Capital Charge on Assets (XXX) Economic Profit XXXX Add EBITDA After Tax XXX Less Capital Charge for Working Capital (XXX) Economic Operating Profit (EOP) XXXX

29. Generation Capital Expenditure This is the capital expenditure that will be spent by Capital Expansion Department (CED) on behalf of Generation Division on new generation capacity projects and other generation projects in accordance with the enabling agreement between CED and line divisions. • Transmission Capital Expenditure This is the capital expenditure that will be spent by Capital Expansion Department (CED) on behalf of Transmission Division including the design and construction of new transmission networks and major extensions and strengthening of the existing grid major transmission projects in accordance with the existing enabling agreement. • Distribution Capital Expenditure This is capital expenditure spent on distribution infrastructure managed within the Distribution Division. This captures capital expenditure on new customer connection, refurbishment, strengthening and continuous business improvement (electrification is excluded)

30. Generation capacity installed & commissioned This is the nominal number of megawatts installed and commissioned within the financial year. This does not track the number of megawatt sent out or the maximum capacity demand which is always less than the nominal amount installed. • Transmission lines installed This is the number of kilometres of transmission lines installed within one financial year. This includes kilometres of line that are installed and commissioned and those that are not yet commissioned within the financial year. • Transmission MVA installed This is the total transform capacity measured in MVA installed within one financial year.

31. Major Incidents A major incident is an interruption incident that results in the loss of 1 system minute or more. The measure is scored on the basis of the degree of severity of these events. The degree of severity of a major interruption is defined internationally as follows: [Severity Degree 1: System minutes lost ≥ 1 and smaller than 10] [Severity Degree 2: System minutes lost >10 and < 100] [Severity Degree 3: System minutes lost ≥ 100] This measure tracks the number of significant interruption incidents. • System Minutes Lost (≤ 1 min) This measure is the sum of system minutes lost per incident over a 12 month moving window. Only system minute events less than 1 system minute are counted in this index. This measure describes the underlying performance (severity of the load interrupted) over a 12-month period. Major events are excluded from this measure. • Unplanned Capability Loss Factor (UCLF) This measure indicates the effectiveness of plant programmes and practices in maintaining systems available for safe electrical generation. It is defined as the ratio of the unplanned energy losses during a given period of time, to the reference energy generation, expressed as a percentage. Unplanned energy loss is energy that was not produced during the period because of unplanned shutdowns, outage extensions, or unplanned load reductions due to causes under plant management control.

32. System Average Interruption Duration Index (SAIDI) This measure is the average interruption duration for all customers served during the 12 month period. SAIDI = Sum of customer interruption durations (total hrs / customer / year) Total number of connected customers Rand/Megawatt Hour (R/MWh) (before embedded derivatives) Measures the cost per unit of energy sold. R/MWh = Interest (include fair value) + Operating costs (includes abnormal) + Primary Energy X 100 External sales – GWh • Eskom Trainees / Bursars This indicator tracks the number of learnerships that have been registered with the Eskom learnership programme in the current financial year. This indicator includes both the 18.1 (employed by Eskom) and 18.2 (unemployed) learners.

33. Transnet CAPITAL & FINANCIAL EFFICIENCY KPI’S INTRODUCED IN 2007/08 • EIBT Margin • Return on Average Capital Employed

34. Transnet OPERATIONAL KPI’S INTRODUCED IN 2007/08 • Distribution • System Average Interruption Frequency Index (SAIFI)

35. Flow of Presentation • Evolution • Process • Components • SOE Performance Against Agreed KPI’s for 2006/07 (Transnet)

36. Transnet Mandate • Key role – assist in lowering the cost of doing business in S.A and enabling economic growth through providing appropriate ports, rail and pipeline infrastructure and operations in a cost effective, efficient manner & within acceptable benchmark standards

37. Transnet Strategic Objectives • Capital & Financial efficiency • Operational Efficiency & Effectiveness • Infrastructure Investments • Development Objectives

38. Transnet 2006/07 SKPI’S

39. Transnet OPERATING EFFICIENCY & EFFECTIVENESS

40. Transnet 2006/07 KPI’S • Transnet achieved the capital/financial efficiency and infrastructure investment targets X = Revenue objective not achieved due to Spoornet’s underperformance. Division experienced capacity, constraints, derailments and customer-related problems

41. Transnet 2007/08 SKPI’s • Capital/financial efficiency - Ebitda margin (%) - Cash interest cover (times) - Gearing ratio (%) - Cfroi (%) • Infrastructure investments (capacity delivery) - % of actual capital expenditure compared to budgeted expenditure - % of total maintenance spent compared to budget: Spoornet • Revenue targets – tariff (%) increase and volume (%) increase at group and divisional level • Our focus now shifts from primarily financial to a mix of financial and operational targets • Note: KPI’s remain the same as for 2006/07; 2006/07 targets form the base, new targets to be agreed where required

42. Transnet OPERATIONAL KPI’S INTRODUCED IN 2007/08 • Transnet freight rail • Traffic volume in tonnes • Staff productivity (net ton kilometres / number of staff) • Net ton average / average # of locomotives • Net ton average / average # of wagons • Net operating cost / net ton kilometer • Wagon turnaround (days) • On-time arrival (%) at yardnearest the customer sidings

43. Transnet OPERATIONAL KPI’S INTRODUCED IN 2007/08 • NPA • Annual volumes of cargo and growth per cargo type • Cargo throughput per metre of quay • Berth occupancy (%) • Ship waiting time

44. Transnet OPERATIONAL KPI’S INTRODUCED IN 2007/08 • SAPO • Volume of cargo p.a • Crane productivity • Ship productivity (working time only) • Ship productivity (total time at berth) • Yard productivity • Labour productivity

45. Flow of Presentation • Evolution • Process • Components • SOE Performance Against Agreed KPI’s for 2006/07 (SAA)

46. Mandate • African airline with global reach • Serve wide range of routes – focus on limited number of profitable routes into major continents • Increase African routes • Only serve heavily trade routes in South Africa

47. Due to the unbundling of SAA from Transnet, a Shareholders’ Compact between DPE and SAA was not concluded for 2006/07. KPI’s for the current financial year are cited in the following table . The focus for the department is to monitor performance against the Turnaround Plan devised with the assistance of the Seabury Consulting Group and to this end a team comprising official from National Treasury and DPE has been setup.

48. Flow of Presentation • Evolution • Process • Components • SOE Performance Against Agreed KPI’s for 2006/07 (PBMR)

49. Mandate • Successful commercialisation of pebble bed technology for world energy market • Preferred global provider of standardised nuclear energy systems, fuel and life cycle support • Performance oversight via PIM • Project phase – development of demonstration plant • Shareholder compact to be concluded 2008/2009

50. Flow of Presentation • Evolution • Process • Components • SOE Performance Against Agreed KPI’s for 2006/07 (Infraco)