Presidential SOE Review Committee PRC

1. Presidential SOE Review Committee(PRC)   SEPTEMBER 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

8. 2. Process Summary

10. SOE REVIEW CONTEXT:The role of SOEs in a Developmental State

12. 3. Preliminary Observations

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.

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

28. 6. Participation Platforms

30. Thank you