1. 2006-2009 STRATEGIC PLAN AND FINANCIAL OVERVIEW
PUBLIC ENTERPRISES
STRATEGIC PLAN AND FINANCIAL OVERVIEW
PRESENTATION TO THE PORTFOLIO AND SELECT COMMITTEES
9 & 10 MAY 2006

2. Introduction
The Committee in its Report on the 2005 Budget Vote requested that the department
Elaborates on the shareholder management model, and
Outlines the key activities of the different programmes and sub-programmes, including
Measurable objectives
Time frames
Budget allocations
All these conditions have been met in the current strategy
The strategy also includes a section highlighting the department’s contribution to the Accelerated and Shared Growth Initiative of South Africa 2 2

3. Contents Introductory remarks Mandate, vision and mission
Key achievements
Priority areas and planned activities 3

4. THE MANDATE, VISION and MISSION4

5. Mandate of the department
The mandate of the DPE is to coordinate with policy and regulatory departments and Ministries and provide oversight and strategic direction for the SOE reporting to the department
The oversight and strategic direction is with the purpose of realising the vision and mission 5

6. Vision of the department
Our vision is to have SOE that:
Are efficiently managed, meeting industry operational benchmarks domestically and internationally
Play a role in their industry that ensures an optimal allocation of responsibility between the public and private sector
Undertake investment programmes that provide the necessary capacity to accommodate faster economic growth
Implement their investment programmes in such a manner that national economy is strengthened in a sustainable manner 6

7. Mission of the department
Our mission as a department is to create a clear operating environment for SOE by ensuring policy coherence and translating policy fundamentals into strategic mandates for each SOE. For DPE this means that we must:
Work with National policy and regulatory departments to enable a greater understanding of policy objectives and where necessary indicate policy incoherence
Work with the SOE Boards in particular to enable better understanding of government priorities
Work with policy departments, especially the Departments of Trade and Industry, Defence, Mineral and Energy Affairs and Water and Forestry to better understand sector strategies to enable the targeting of relevant activities for local content promotion in the SOE investment programmes 7

8. Performance over the past year
Internal structural adjustments to
Build a highly skilled and competent department
Establish efficient internal processes, procedures and documentation systems
Ensure effective and efficient governance
CEO, Chairs, CFO and Risk Managers Forums
EXCO
Projects Meeting
DPE provided mandate clarity for the SOE
Focus on core operations:
Transnet – rail and freight transport, separation of SAA
Eskom – generation transmission and non-metro distribution
Denel – change strategy focusing on core capability & capitalisation
Alexkor – negotiated settlement
Translating sector policy into clear and unambiguous strategic direction
Monitor build programme 8 8

9. Major changes to the structure
Introduction of the Joint Projects Facility (JPF) within the Corporate Strategy and Structure Unit with the objective of :
‘leveraging the SOE to catalyse regional and sectoral economic
development opportunities’
The JPF was created with the following sub-divisions with specialist skills in each area:
Continental Investments
Energy & Pipelines
Human Resources & Capacity Building
ICTs
Property
Investment Optimisation 9 9

10. Major changes to the structure
The merging of the Legal, Governance and Secretariat Unit with the Corporate Finance and Transactions Unit. The Unit is now called the Legal, Governance and Transactions Unit
Rationale:
Ensure alignment with our focused role in Transactions
To strengthen the integration of the Transactions and Legal skills
To ensure enterprise accountability for transactions
To strengthen the capacity to evaluate and recommend applications for Section 54 transactions
Creation of a specialist position to deal with special projects such as the resolution of Aventura and now Alexkor 10 10

11. DPE Organisational structure
DPE is comprised of four units, including the
Legal, Governance and Transactions (LGT)
Distill and communicate clearly the SOE mandates and ensure alignment of SOE governance systems, compliance and performance with government policy objectives, oversee and manage significant and material SOE transactions.
Analysis and Risk Management (ARM)
Provide in-depth analysis of the operations and financial performance of SOE, and systematically manage risks arising from the business of SOE.
Corporate Strategy and Structure (CSS)
Identify the most efficient industry structure, within that definition describe the core business of the SOE, and identify and leverage SOE assets and capabilities to contribute to economic growth and development .
Specialist position especially used for closing outstanding transactions and strategic negotiations (replacing Corporate Finance and Transactions)
Administration
Provide overall operational support and management of the ministry and the department.

12. Organogram Minister Public Enterprises Director General
Filled Posts: 127
Vacancies: 30
Office of the Minister
(support staff)
Special Advisor
Director General
Public Enterprises
Office of the
Director-General
(support staff)
DDG
Analysis & Risk
Management
DDG
Legal,Governance &
Transactions
DDG
Corporate Strategy
and Structure
DDG
Special
Projects
Head
Communications
Chief
Financial Officer
(CFO)
Director
Internal Audit &
Compliance
Chief Operations
Officer

13. DPE Statistics 2005/2006 Total Posts 157 Filled Posts 127
Approved Structure
Filled Posts
127
Current structure
Vacant Posts 30
Specialised skills and experience
required
Competitive Market
Turnover Rate
13%
Benchmark is 8%
Influenced by Market forces
Vacancy Rate
19%
The challenge is to decrease the
vacancy rate so as to improve
efficiency in the department

14. DPE Statistics 2005/2006

15. Departmental budget ITEMS BUDGET 05/06 BUDGET 06/07
COMPENSATION OF EMPLOYEES
GOODS AND SERVICES
TRANSFERS
CAPITAL
TOTAL

16. Budget vs Expenditure Review
DEPARTMENTAL TOTAL
ITEMS
BUDGET 05/06
EXPENDITURE 05/06
VARIANCE %
COMPENSATION OF EMPLOYEES
GOODS AND SERVICES
TRANSFERS
CAPITAL
TOTAL
The Department realised an underspend for the year amounting to .2% of its annual budget, this figure was achieved due to the R2 billion adjustment for the recapitalisation of Denel. Had this adjustment not been made the department would not have achieved the required 2% margin, and would have reflected a 4.77% underspending for the year. However, this was as a result of the Department not effecting a transfer payment in the sum of R to the Diabo Share Trust as the audited financial statements for the entity were not available. It was deemed to be in the interests of transparency and good governance to withhold the transfer until the documents are received. The balance of the unspent funds would then have amounted to R of which R consisted of transfer payments (details of this amount are explained under Programme 5) which left, in real terms, an amount of R underspent for the year.

17. Five priority areas for the DPE’s activities
Implement an effective shareholder management system
Ensure the implementation of the infrastructure investment programme
Strengthen SOE balance sheets
Introduce private sector partners/operator where optimal
Leverage the Capex programme of SOE to catalyse new economic activities and reestablished industries

18. Shareholder Management Model
Aim: balance enterprise, sector and national economic development objectives so as to optimise the impact of the SOE whilst maintaining its viability as an enterprise.
Informed by the imperative of allowing sufficient scope and space for the Board of Directors and Management of state-owned enterprises to execute their functions without undue interference whilst simultaneously ensuring that the strategic goals of the shareholder are advanced.
We are therefore qualitatively shifting the level and content of SOE shareholder management towards addressing the medium to long-range economic and development goals of the country. In addition to the generic function of maximising shareholder value, the key emphasis of the department with respect to shareholder management will be defined around the following outcomes:
infrastructure investment and delivery
operational and industry efficiency
financial and commercial viability
governance and regulatory compliance 18

19. Accelerated & Shared Growth Initiative
The effective and focused utilisation of state assets is core to the success of ASGISA.
The Department of Public Enterprises, as shareholder manager of seven SOE, therefore forms part of the lead departments responsible for driving the ASGISA programme.
The DPE’s contribution will be presented in the following categories:
Infrastructure programmes
Property and Sector Development
Skills and education initiatives and
Second economy interventions 19

20. Accelerated & Shared Growth Initiative
Infrastructure programmes
Transnet and Eskom are planning to spend R130bn over the next five to seven years on infrastructure and capital goods.
This program will impact upon:
Demand for inputs
Industrial development of important sectors such as capital goods and transport equipment
Crowding in of private investment through greater infrastructure capacity
However, with the twenty five year decline of government expenditure on gross fixed capital investment, supplier industries have been significantly undermined – a consequence of this is that SOE are projecting that over 40% of the capex will be imported.
Consequently, DPE is developing a local content procurement framework and a number of other supporting initiatives with the objective of optimising the impact of the procurement on the development of local supplier industries without increasing the price. 20

21. Accelerated & Shared Growth Initiative
Property and sector development
The SOE have a significant property portfolio – with a number of assets located in areas that can enable the development of tourism (e.g. waterfront), logistics nodes (e.g. inland terminals and back of sea, rail and air ports) and manufacturing nodes (e.g. supplier parks to Aerospace).
It is critical that the portfolio is reviewed and, where appropriate, properties are made available to stimulate increased economic activity and to realise value that can be added to the SOE’s balance sheets.
The property project is in the process of performing this review and their presentation will provide a sense of the many opportunities that have been identified thus far. 21

22. Accelerated & Shared Growth Initiative
Skills
It has been widely publicised that skills shortages are a major constraint to economic growth.
In recognition of the positive multipliers associated with skills development, historically, the SOE trained artisans over and beyond their immediate needs. This practice is to recommence and we are encouraging major SOE suppliers to add to the process.
The SOE have also developed significant training infrastructure – much of which is sub-optimally utilised. The DPE, through the JPF, is in the process of launching a project to audit these facilities and develop a strategy to ensure that they are utilised to meet high priority skill requirements. 22

23. Accelerated & Shared Growth Initiative Integrating the second economy
Without interventions directly aimed at reducing South Africa’s historical inequalities, growth is unsustainable
DPE in collaboration with DoE will be providing specific sector support in the area of business process outsourcing, especially focused on rural call centers
The property project has specific initiatives aimed at integrating the first and second economies
SOE are developing programmes to enable greater participation of local communities in capex projects to ensure geographic spread of economic opportunities 23

24. PRIORITY AREAS AND PLANNED ACTIVITIES PROGRAMMES24

25. Programme 1: Administration
Measurable Objectives, Medium Term Outputs and Expenditure Estimates: Management and Administration
Purpose: Responsible for the overall direction and management of the Ministry and the department and provision of administrative support services to the department.
Measurable objective:
To provide strategic direction and leadership
To provide support services to enable the department to deliver on its organisational objectives in an environment where the human capital within DPE is both motivated and empowered
To improve the quality of corporate governance and performance monitoring systems by ensuring that appropriate policies, processes and procedures are developed and implemented within DPE
Management and Administration includes the Ministry, the Office of the Director-General and Corporate Services. The programme includes policy formulation by the Minister and senior management. Support services are provided by the ministerial support staff, strategy and business planning, human capital, information technology, communications, finance, security services, legal counsel and internal audit.

26. Programme 1: Administration

27. Programme 1: Administration
ITEMS
BUDGET 05/06
BUDGET 06/07
COMPENSATION OF EMPLOYEES
GOODS AND SERVICES
TRANSFERS
CAPITAL
TOTAL
Subprogramme
Minister
Management
Corporate Services
Property Management

28. Programme 2: ARM
Measurable Objectives, Medium Term Outputs and Expenditure Estimates: Analysis and Risk Management
Purpose: The main purpose of Analysis and Risk Management (ARM) programme is to analyse and monitor the financial, operational and socioeconomic performance of SOE to ensure compliance with the Corporate Plans, and Shareholder Compacts and actively mitigate keys risks flowing from the SOE activities.
Apart from the Management component of the programme, there are two sub-programmes:
Analysis sub-programme continuously analyses and monitors the performance of SOE, focusing on their operations, financial performance and their role in socioeconomic development. The sub-programme plays a vital role in the shareholder compact and oversight process as it identifies the key performance indicators and targets for inclusion in the compacts and is responsible for a comparative benchmarking programme of SOE. This activity will be informed by a financial analysis framework.
Risk Management is responsible for formulating risk management framework related to SOE, analyse and monitors risks associated with SOE activities, advise on the section 54 PFMA applications and materiality frameworks, identify key risks to be monitored by the shareholder, assess their impact and likelihood, setting up an early warning and reporting systems. The sub-programme regularly reports on systemic risks, vulnerabilities and potential shocks in and across the SOE and advises on mitigations plans. These key risks include the following, amongst others: Safety, Occupational Health and HIV/AIDS, Environment, Security of key infrastructure- pipelines, ports, railways, and airline, Security of supply against demand in the growing economy, Industrial action, Skills, Solvency of SOE and their contribution to national financial stability, Governance and Litigation. This activity will be informed by a risk management framework.

29. Programme 2: ARM Analysis Output Indicator Target
-Review the pension & medical aid funds of SOEs
-Due diligence of SOE pension and medical aid funds
-Identify risks in the pension and medical aid funds
-Propose Pension fund reform
October 2006
-Development of the financial analysis manual
-Approved financial analysis manual
May 2006
-Standardization of SOEs annual reports, Corporate plans and quarterly reports for presentation to the Portfolio Committee
-Create the database of KPIs & benchmarks for all SOEs
-Revised Five year review on SOE performance
-Standardized annual reports
-Approved KPIs & benchmarks
-Publishing the five year review
Dec 2006
Nov 2006
June 2006

30. Programme 2: ARM Risk Management -Crisis Management System Output
Indicator
Target
-Risk assessment of each SOE
-Risk register for SOE
September 2006
-Development of the Risk Management Framework
- Approved Risk Management Framework
August 2006
--Procurement of the Risk Management System
Implementation of the Risk Management System
November 2006
-Crisis Management System
Submission of the proposed Crisis Management system to the CEO forum
May 2006

31. Programme 2: ARM ITEMS BUDGET 05/06 BUDGET 06/07 Subprogramme
COMPENSATION OF EMPLOYEES
GOODS AND SERVICES
TRANSFERS
17 520
10 000
CAPITAL
30 000 -
TOTAL
Subprogramme
Management
Analysis
Risk Management

32. Programme 3: LGT
Measurable Objectives, Medium Term Outputs and Expenditure Estimates: Legal, Governance and Transactions (LGT)
Purpose: Provide clear SOE mandates and ensure alignment of SOE governance systems, compliance and performance with government policy objectives.
Measurable objective: Develop effective governance, transactions and policy frameworks that ensure that all SOE activities are performed with integrity, honesty and in compliance with appropriate legislation.
Legal, Governance and Transactions (LGT) is comprised of three functional areas: Legal Office, Corporate Governance, including the Secretariat and Transactions. All three deliver internal services. Corporate Governance has a distinct role in the interface with SOEs, National Treasury and other Government Departments. A substantial portion of the Secretariat’s workload relates to the Economic Cluster. Transactions includes corporate finance and structuring expertise and largely serve as interface with SOE in relation to Pubic Finance Management Act (PFMA) section 54(2) approvals and execute DPE led transactions. The programme has a distinctly legal focus, as it interprets, develops and records factual frameworks in relation to powers, functions and duties, corporate structure and obligations, and formal decisions, hence all legal activities were centralised in one programme this year.
LGT has a four-pronged delivery focus, namely:
interpretation of current law, monitoring of statutory/contractual compliance and induction of good governance protocol
optimal corporate financial and legal structuring
repository and disseminator of factual records and information supporting the functions of LGS, DPE, the Minister and the Economic Cluster
inter-governmental co-ordinator and conduit for communication between other Government Departments and SOE in respect of issues which are SOE-specific.

33. Programme 3: LGT LEGAL OUTPUT INDICATOR 2006/07 2007/08 2008/09
Effective management of litigation risk
Reduction in outstanding litigation
Review and resolution of outstanding litigation with reduction target of 25%-50%
Continued reduction & swift resolution of litigation
In-house Counsel
Swift to the point and succinct legal advice
Legal Panel (service providers)
Regular reports on impact of draft legislation on DPE & SOE
Continued activities
Effective Management of administrative justice & disclosure obligations
Compliance with statutory obligations
Internal DPE procurement guidelines
DPE access to information manual (guidelines and procedures)

34. Programme 3: LGT GOVERNANCE OUTPUT INDICATOR 2006/07 2007/08 2008/09
Shareholder Management Legislative Framework
SOE Act
Conceptual Framework & Draft Legislation
(Classification of SOE, key areas of shareholder oversight, principles, criteria and procedure for strategic intervention,Shareholder Communication & Monitoring Principles, matters to be regulated by regulation (compulsory), matters to be regulated by practice note (recommended), Matters to be published (public domain)
Legislation enacted
Implementation
Aligned SOE Founding Documents
Harmonised SOE founding documents
Harmonisation of board remuneration
Minimum requirements for Memoranda and Articles of Association

35. Programme 3: LGT

36. Programme 3: LGT TRANSACTIONS OUTPUT INDICATOR 2006/07 2007/08 2008/09
Transaction Good Practice Framework
Harmonised SOE & DPE transaction approaches
Transaction Management Guidelines Guidelines
ESOP & MBO Guidelines
BBBEE & PP Guidelines
Corporate structure guidelines (special emphasis on “golden shareholding”)
Model Shareholders Agreements
Implementation
Transaction Execution
Successful transaction completion
EFC securitization
PBMR
SAA transaction
Property Project
InfraCo
SAFCOL – ESOP, NEF shareholding
To be determined
Transaction Approval
Swift & credible PFMA sec 54(2) approvals
Application, processing & approval guideline

37. Programme 3: LGT ITEMS BUDGET 05/06 BUDGET 06/07 CFT: ITEMS
COMPENSATION OF EMPLOYEES
GOODS AND SERVICES
TRANSFERS
17 129
9 000
CAPITAL
TOTAL
CFT: ITEMS
BUDGET 05-06
BUDGET 06-07
COMPENSATION OF EMPLOYEES
GOODS AND SERVICES
TRANSFERS
CAPITAL
6 000 -
TOTAL
Subprogramme
Management
Legal and Litigation
Governance and Secretariat
Legal Transactions

38. Programme 4: CSS
Measurable Objectives, Medium Term Outputs and Expenditure Estimates : Corporate Strategy and Structure
Purpose: Define and implement industry structures, public/private service delivery and SOE strategies that will optimise overall industry efficiency, service provision, pricing of services and economic development   
Measurable Objectives: The principal objective of the CSS Unit is to design strategies and structures for SOE and the industries in which they operate that will ensure delivery on Government’s economic growth objectives. This will be achieved through:
·        Increased competitiveness:
o       Lowest sustainable input costs
o       Globally competitive services
o       Sufficient capacity provision
·        Utilising SOE to strengthen key sectors
The following are the other objectives:
·        To review level of investment in SOE infrastructure and improve quality of investment
·        Development of back of port IDZ industry
·        To liaise with the Joint Project Facility in the development of strategies
The branch is comprised of four sub-branches including Energy, Transport, Defence and Forestry. The above programme objectives cut across the four branches. The JPF is a financial facility that will enable the development of projects that enhance the value of an industry or can leverage off the assets and/or capabilities of the SOEs to the benefit of those SOE and the economy as a whole. An investment dashboard will serve as a tool to monitor key objectives.

39. Programme 4: CSS
Measurable Objectives, Medium Term Outputs and Expenditure Estimates : Corporate Strategy and Structure

40. Programme 4: CSS
Measurable Objectives, Medium Term Outputs and Expenditure Estimates : Corporate Strategy and Structure

41. Programme 4: CSS
Measurable Objectives, Medium Term Outputs and Expenditure Estimates : Corporate Strategy and Structure

42. Programme 4: CSS ITEMS BUDGET 05/06 BUDGET 06/07 Subprogramme
COMPENSATION OF EMPLOYEES
GOODS AND SERVICES
TRANSFERS
15 205
CAPITAL
52 000
96 000
TOTAL
Subprogramme
Transport
Energy
Strategy
Economic Research Unit
Joint Project Facility#

43. JPF
The Joint Project Facility is a financial facility that will enable the development of projects that enhance the value of an industry or can leverage off the assets and/or capabilities of the SOEs to the benefit of those SOE and the economy as a whole.
Measurable Objectives: to facilitate the rapid development of projects to the point where an investment case and/or costed operational plan has been accepted by relevant operational companies and, where appropriate, financial investors.
Six areas have been identified for projects, namely Continental Investment, Energy & Pipelines, Human Resources & Capacity Building, Information Communication Technologies (ICTs), Property and Optimisation.
Continental Investment: The development of a SOE to consolidate Africa initiatives in a systematic manner.
Energy & Pipelines : identification of pipeline projects & development of the gas & liquid fuels pipelines masterplan
Human Resources & Capacity Building: Enhance national skills development through better and fuller utilisation of the capacity for skills development in SOE in South Africa
ICTs: The establishment of a telecommunications infrastructure company and a business process outsourcing development initiative.
Property: To unlock economic value through SOE property development project
Investment Optimisation (this project aims to reduce imports and build a capital goods industry for the capital expansion programmes of Eskom and Transnet)

44. JPF

45. JPF PROJECT External Consultants TOTAL Project Leaders External
Continental Investments -
Energy and Pipelines
ICT’s
HR & CB
Property
Optimisation

46. THANK YOU 46