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PUBLIC ENTERPRISES BUDGET FOR THE MTEF PERIOD 2008/09 – 2010/11 27 FEBRUARY 2008

PUBLIC ENTERPRISES BUDGET FOR THE MTEF PERIOD 2008/09 – 2010/11 27 FEBRUARY 2008. CONTENTS. Public Enterprises Budget for the MTEF period 2008/09 – 2010/11 Consolidated Departmental Budget Economic Classification Summary of transfer payments

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PUBLIC ENTERPRISES BUDGET FOR THE MTEF PERIOD 2008/09 – 2010/11 27 FEBRUARY 2008

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  1. PUBLIC ENTERPRISES BUDGET FOR THE MTEF PERIOD 2008/09 – 2010/11 27 FEBRUARY 2008

  2. CONTENTS • Public Enterprises Budget for the MTEF period 2008/09 – 2010/11 • Consolidated Departmental Budget • Economic Classification • Summary of transfer payments • Operational funding requested and approved • Programme 1 • Programme 2 • SOE funding requested • Programme 3 • SOE funding requested • Programme 4 • SOE funding requested • Programme 5 • SOE funding requested • Programme 6 • 2006/07 Audit findings

  3. DPE BUDGET Over the MTEF, expenditure decreases at a rate of 59.1 percent, from R4.6 bn in 2007/08 to R315 m in 2010/11. Transfers to SOE remain high in the first two years of the MTEF with a combined amount of R4.9 bn, of which R3.5 bn is allocated to the PBMR. The Joint Project Facility is subject to an increase in expenditure over the MTEF rising from R14.4 m in 2007/08 to R27 m in 2010/11.

  4. DPE BUDGET continued Economic Classification

  5. DPE BUDGET continued Summary of transfer payments *R 2.25 million is included in this amount for VAT, subject to confirmation from National Treasury and SARS whether VAT is applicable to a specific portion of the funding earmarked for restructuring. ** R 91.4 million is included in this amount for VAT, subject to confirmation from National Treasury and SARS whether VAT is applicable to the nature of this funding, being in respect of restructuring costs. In the event that SARS finds that VAT is not applicable in these cases the funds will not be drawn. However, this will once again impact on the department’s expenditure where it will not meet its target of 2% for the year.

  6. DPE Operational Funding requested from and allocated by National Treasury During the MTEF process the department requested an amount of R486 646 million over the three year period, which included the normal baseline inflationary increase as well as additional funding for projects. In December 2007 National Treasury allocated an amount of R476 216 million, a deficit of R10 430 million. The allocation for the first year being in deficit of R16 048 million which meant that projects had to be re-prioritised to the outer years. However, in January 2008 National Treasury advised the department that the allocation had been revised to include further inflationary projections. The allocation was increased from R475 916 million to R517 544 million, a total amount of R41 628 million, comprised of R2 817 million for personnel and R38 811 million for non-personnel components of the vote budget by National Treasury to mitigate inflationary pressures. If inflation outcomes are above projections, it will be incumbent on the department to absorb additional costs within the baseline.

  7. PROGRAMME 1ADMINISTRATION There is very little change to this programme other than an inflationary increase for compensation of employees which includes the remuneration of all 48 interns (26 in 07/08 and 22 in 08/09). Equipment contracts, telephones, stationery, training, recruitment advertising and software licences are centralised to this programme.

  8. PROGRAMME 2ENERGY & BROADBAND ENTERPRISES The slight increase in the operational expenditure in this programme over the MTEF period is mainly due to projects in the sector commencing in 2009/10. Over the MTEF period, a total of R727 million has been allocated for Broadband Infraco and R3.5 billion for the PBMR. However, overall expenditure in this programme decreases due to the decline of transfer payments to the SOE. In his budget speech the Minister of Finance indicated that an amount of R60 billion has been set aside in a contingency fund for Eskom over the next 5 years. R20 billion of which is the anticipated requirement over the MTEF. The department will advise the Committee as soon as this allocation has been clarified by National Treasury. The functions and funds in the Mining sub-programme (Alexkor) which previously resided in this programme, has been moved to Programme 3 : Legal, Governance, Risk and Transactions.

  9. Funding requested from and allocated by National Treasury for State owned Enterprises – Broadband Infraco In the 2008 MTEF the department requested an amount of R2 095 billion over the period which was in respect of the national long distance network and the undersea cable. An amount of R727 million was allocated over the period in respect of the State’s contribution. A significant equity contribution is critical if the substantial decrease in broadband costs targeted are to be achieved. The further funds requested, mainly for purposes of investing and constructing a State initiated undersea cable, were not approved by National Treasury. The National Treasury raised major concerns about the extent of Private Sector Participation (PSP) in the cable. There will be significant PSP as will be demonstrated by the Infraco team.

  10. Funding requested from and allocated by National Treasury for State owned Enterprises – PBMR In the 2008 MTEF the department requested an amount of R14 763 100 billion being in respect of funding requirements for operating expenses for payments to contractors for design, development and licensing etc in addition to payments for capital assets. This request was not approved, an amount of R3.5 billion was however approved, being the balance of the R6 billion that was approved by national Treasury during the 2007 MTEF. The Minister has indicated that this is acceptable as further funding will be generated from private investors or other shareholders.

  11. PROGRAMME 3LEGAL, GOVERNANCE, RISK AND TRANSACTIONS Operational expenditure in this programme increases in 2008/09, as a result of additional funding for the legal costs for the Alexkor and Safcol transactions, but remains stable for the following two years. The sub-programme Transactions was created specifically for this purpose. At the same time the transfer payment to Alexkor was shifted from Programme 2 to Programme 3 for oversight of the implementation of the Richtersveld settlement, the final payment being in 2009/10. The historical figures between the Programmes were adjusted accordingly.

  12. Funding requested from and allocated by National Treasury for State owned Enterprises – Alexkor In the 2008 MTEF the department requested R260 000 million to be paid in the 2008/09 financial year. The full amount was allocated, however this was split for disbursement over two years in accordance with the court settlement agreement and is made up of R200 million for State’s final contribution to the Joint Venture to be created between Alexkor and the Richtersveld Community and an amount of R60 million as the balance of the funds required for the development of the township. The funds will be paid over only after the turnaround strategy for the entity has been agreed upon and a viable business plan together with progress reports on the implementation of the settlement have been submitted to National Treasury

  13. PROGRAMME 4 MANUFACTURINGENTERPRISES There is no significant increase in the operational budget for this Programme. The substantial decrease reflected over the period is due to Denel having received a transfer payment amounting to R 1.155 billion in 2007/08, with no further transfers allocated over the MTEF period.

  14. Funding requested from and allocated by National Treasury for State owned Enterprises – Denel In the 2008 MTEF the department requested an amount of R410 million to fund Denel’s consolidation costs at ORTIA (R241 million) and interest costs for the Domestic Medium Term Note (DMTN) (R169 million) over the MTEF period. This request was not approved and National Treasury did not give any reasons for this in the MTEF allocation letter. This is of grave concern given the interest cost associated with Denel’s DMTN borrowing programme which commences at the beginning of 2008/09.

  15. PROGRAMME 5TRANSPORT ENTERPRISES Operational expenditure increases substantially in 2008/09 and thereafter remains stable, as the department will be retaining specialist technical expertise that was previously funded by the Department for International Development (DFID), under the Support for the Restructuring of Public Enterprises in South Africa (SPRESA) programme as well as initial funding received from the SOE for the Pipeline project in the Joint Project Facility which has shifted to this programme. The National Corridor Performance Management project also commences in this period. The slight decrease in the budget in 2008/09 is attributed to a reduction in the amount allocated for transfer payments. In 2007/08 an amount of R 744.4 million was allocated to South African Airways (SAA), whereas an amount of R585 million is allocated for South African Express Airways (SAX) in 2008/09. The long term capitalisation of SAA will be resolved over this financial year.

  16. Funding requested from and allocated by National Treasury for State owned Enterprises – SA Express Airways In the 2008 MTEF the department requested an amount of R104 million for aircraft acquisition transactions. This request was approved as well as a further R481 million in respect of re-imbursement of Transnet loans granted to SA Express (SAX) which constitutes part of the transfer of sale of SAX to Government, which increased the total amount to be transferred to SA Express to R585 million in 2008/09. This amount is payable after SA Express has been legally transferred from Transnet to Government, outstanding issues on ownership and the transfer of assets and liabilities have been finalised and confirmation has been submitted to National Treasury to this effect.

  17. PROGRAMME 6JOINT PROJECT FACILITY The overall increase in this Programme is to meet the objectives of the unit, which includes the commencement of the SA Power Project which will leverage the Eskom build programme to enhance manufacturing, technology and skills base;  The Competitive Supplier Development Programme in 2008/09 to research Eskom and Transnet key commodities and South African capability; UNIDO benchmarking and participating in global supplier exchange programme and Regional Supplier Development Programme enabling the integration of regional suppliers to regional and global value chains, the upward trend in continues into 2009/10 and then reduces in 2010/11 as various projects are completed.

  18. 2006 / 07 Auditor General Report The department achieved an unqualified audit opinion without emphasis of matter for the 2006/07 financial year. 4 Audit Committee meetings were held over the 2007/08 financial year, with an average attendance of 90%. At the commencement of the year under review the committee comprised 5 members, however during the year one member resigned.

  19. THANK YOU

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