Presentation to the Select Committee on Labour and Public Enterprises

1. Presentation to the Select Committee on Labour and Public Enterprises

2. The Mandate • The DPE has the following mandate: • Developing and directing a coherent approach to the restructuring and transformation of state-owned enterprises (SOEs) to ensure improved economic and social impact; • Creating and implementing restructuring frameworks for state-owned enterprises; • Developing a systematic method for monitoring the performance of state-owned enterprises and ensuring the alignment of their activities with Government policy; • Developing a comprehensive approach to advocating alternative service delivery options as a means of restructuring and transforming state-owned enterprises

3. The Vision VISION Excellence in SOE shareholder management. MISSION To provide an enhanced SOE shareholder management system, inclusive of restructuring in support of promoting economic efficiency towards a better life for South Africans.

4. Discharging the Mandate

5. SA Government’s “results machine”

6. Critical areas of SOE performance

7. GOVERNANCE & OVERSIGHT SYSTEMS

8. DPE Internal Governance • Governance and FinancialManagement • • Fourth year in succession in which unqualified audit opinion • • Unqualified Audit Report and No matter of emphasis • • A Governance Committee has been established • Developed Audit Committee and Internal Audit Charters in-house • Initial Risk Assessment performed and updated regularly • Developed Fraud Prevention Plan and implemented accordingly • Developed and implemented departmental policies and procedures in terms of financial management and business processes, compliant to the PFMA

9. DPE SOE Oversight Systems • Guarantee Exposure Monitoring System (GEMS) is an automated system used to monitor guarantees issued to SOEs on a quarterly basis. This arises when the SOEs in the DPE stable cannot access the capital markets due to weak balance sheets and therefore need Government support in order to access these. • The SOE database is a system whereby you can access the quarterly results plus annual results of the SOEs. This system will also have standing data required from a corporate governance point of view, e.g. Names of Board of Directors, terms of service etc. • Investment Map, which is used to monitor the SOE investments inclusive of those approved under section 54 of the PFMA. This show the country where the investment is made, partners, initial investment amount, guarantees issued by parent company, projected return, actual return etc.

10. KEY SECTORS OFOVERSIGHT

11. Energy

12. Energy Sector • Energy • Cabinet policy regarding ESI restructuring had the following • objectives: • To introduce competition into generation • To divest 30% of generation capacity with a minimum of 10% to Black Economic Empowerment (BEE) groups • To create a separate Transmission company as a separate National entity • To establish the Multi Market Model (MMM) for wholesale electricity trading • Ring fencing of Eskom Generation into Generation Clusters • Ring fencing of Eskom Transmission • Establishing an MMM and drafting market rules • Establishment of the South African Power Exchange (SAPEX)

13. Energy Sector • New Directions • Strategy to include IPP in new 30% Generation • Eskom to continue as supplier of last resort

14. Transport

15. Transport Sector • Railways • Be used mainly for infrastructure investment, including signaling and safety improvements. • Government is gearing towards a policy decision to move forward with rail restructuring and the underlying restructuring models. • Further investigation into access issues will highlight ways to deal with the light and low-density network. • A draft national and provincial strategy for the branch lines is being developed.

16. Transport Sector • Ports • The National Ports Authority (NPA) Bill will be finalised by December 2004. It will create an enabling legal environment for concessions to private sector terminal operators. • South African ports, was initially charged with the phasing out of public sector participation. • In late 2003, the need for a continued public sector presence was recognized and a compromise reached on the employment guarantees in any Public Private Partnership.

17. Transport Sector • Transnet • Transnet strategy • Vertical separation of Operations from Infrastructure

18. Mining .

19. Mining Sector • Alexkor • Cabinet approved the disposal of a 51% stake in Alexkor to an SEP. • The land claims lodged by the Richtersveld community resulted in the suspension of the restructuring process for Alexkor. • Negotiations currently underway with communities to design a settlement

20. Defence

21. Defence Sector • Denel • Denel (Pty) Ltd is a strategic high-technology defence company that accounts for more than half the output of South Africa’s defence–related industries. The restructuring model selected for Denel was to introduce an SEP. • It was terminated by Government because an agreement on outstanding broader contractual and strategic considerations relating to important export markets could not be reached. • Denel strategy under development

22. STRATEGIC SHIFTAND STRUCTURE

23. DPE’s Strategic Processes Policy Translation • Need for strategic shift in emphasis. • Review the department’s structure in the light of the policy priorities. • Review skills composition and attendant budget required to implement priorities. • Locating Transnet, Eskom and Denel within the realm of Public-Private Partnership.

24. STRATEGIC SHIFT • The emphasis is now on ensuring that we increase the levels of investment and that the SOEs are well placed to achieve this objective • There is a need to further increase the efficiency and effectiveness of the key SOEs • Key sectors to commence with are Energy, Transport and Defence

25. Minister Public Enterprises Office of the Minister (support staff) Special Advisor Director General Public Enterprises Executive Office Office of the Director-General (support staff) Chief Financial Officer (CFO) Director Internal Audit Chief Director Legal Counsel Chief Director Communications & External Liaison DDG Analysis & Risk Management DDG Governance & Policy DDG Corporate Strategy and Structure DDG Corporate Finance & Transactions Functional Level CHIEF OPERATIONS OFFICER Support Level DPE Revised Structure