Department%20of%20Public%20Enterprises%20Vote%209%20Strategic%20Plan

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Department of Public Enterprises Vote
9Strategic Plan
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Vision
The Department of Public Enterprises (DPE) has
oversight responsibilities for key State Owned
Enterprises (SOE). Our vision is to use this
responsibility to ensure that these SOEs

• facilitate economic growth through locating SOEs
  in an optimal industry structure and ensuring the
  efficiency of their operations and the economic
  effectiveness of their investment programs within
  this context.
• play a leadership role within the economy in the
  areas of corporate governance and national policy
  implementation.
• catalyse sector and regional economic development
  opportunities.

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Mission

• To work with policy and regulatory departments in
  the National Government to establish optimal
  industry structures within which the SOE will
  operate.
• To develop a clear policy and operational
  environment for SOE.
• To work with the SOE Boards and management to
  ensure increased levels of operational efficiency
  and cost effectiveness of service provision.
• To develop economically effective and sustainable
  investment programmes by the SOE that will
  enhance economic growth and increase the
  competitive capacity of the economy.
• To ensure that the SOE become exemplary
  enterprises in respect of corporate governance
  and the achievement of key policy objectives of
  the government
• To develop systematic programmes with the SOE
  that will enhance sector and regional economic
  development potential. Particular attention will
  be paid to interventions in the Second Economy.
• To develop effective public/private partnerships
  in the achievement of the vision and mission of
  the DPE and the reporting SOE.

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Mandate
The mandate of the DPE is to coordinate with
policy and regulatory 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 as described in
the previous slides

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Definitional Matters

• Distinction between Policy, Regulation and
  Shareholder Responsibility
• Definition of State Owned Enterprise
• Ownership by the State
• Balance sheet capable of engaging with capital
  markets
• Capital injections from Treasury
• Shareholder expectations and the shareholder
  compact
• Strategic public objectives that would be
  compromised by purely private owner particularly
  given monopoly powers.

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Definitional Matters

• Shareholder Management
• Needs to reflect the special public purpose of
  the enterprise
• Enterprise level sustainable enterprise
  delivering competitively on market demand and
  inspiring private sector confidence to invest.
• Industry level Design of division of labor with
  private sector to ensure optimum delivery in
  partnership with policy departments.
• Sector and regional development level
  Optimizing SOE impact in catalyzing industrial
  and regional development.

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Enterprise Level Shareholder Management

• Objective is to ensure that the SOE adds to the
  competitive advantage of the economy as a whole
  through lowest cost sustainable competitive
  service provision and investment programs that
  inspire private sector confidence
• Activities
• Strategic, business and investment plan reviews
  to ensure support for government economic
  strategy
• Definition of best practice governance processes
  incorporated in shareholder compact
• International benchmarking
• Key performance indicator definition and target
  setting and monitoring
• Gatekeeper between SOE and policy departments to
  ensure compliance to statute and consistency of
  approach.
• Compliance with key regulations
• Risk analysis

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Industry Level Shareholder Management

• Objective is to ensure that the key input
  industries within which the SOEs operate are
  characterized by efficiency.
• There are three levels of intervention which are
  developed in partnership with relevant policy
  departments
• Definition of an optimal industry structure
  through the identification of an optimal division
  of labor between the SOE and the private sector
  to ensure overall efficiency.
• Facilitation of the desired level of private
  sector participation as defined by the role of
  the private sector in the optimal industry
  structure.
• Definition of a competitive pricing regime for
  the SOE based on ensuring national
  competitiveness, the promotion of strategic
  industrial and commercial investment and a fair
  playing field for the private sector.

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Sector and Regional Development Level Shareholder
Management

• Objective is work with economic cluster and dti
  to catalyse sectoral and regional economic
  development through leveraging SOE capabilities
  and assets.

 
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SOEs Reporting to the DPE

• Transnet
• Eskom
• Denel
• Alexkor
• Safcol
• arrivia.kom

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Transnet

• Transnet has embarked on a new strategy
• Focus on ports, rail and pipelines with
  aggressive investment plans
• Separation of infrastructure from operations
• Balance sheet restructuring
• Risk management / governance over-haul.

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Eskom

• Eskom playing a central role in restructured
  electricity industry.
• Aggressive investment plan for new generation to
  meet future demand
• 30 private sector participation in new
  generation
• Maintain monopoly in transmission
• Distribution industry being restructured into 6
  regional distributors.

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Denel

• Denel is under-going a major strategy review to
  place the business on a sustainable footing and
  ensure developmental role is realised.
• New leadership being appointed
• A400M program represent an exciting development
  for industry as a whole.
• Requirement for global strategic partners for
  successful implementation of a range of programs
  (e.g. Rooivalk)
• Defense procurement review critical.

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Alexkor, Safcol and arrivia.kom

• Alexcor
• Restructuring dependent on community land claim
• Enterprise viability being monitored
• Developmental initiatives around agriculture and
  aquaculture to be explored.
• Safcol
• Undergoing a strategic review to assess future
  role post divestures of key assets.
• Competition commission ruling pending on
  Komatiland.
• Arrivia.kom
• Strategy review underway to define companys
  future operations and role in the ICT sector.

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Joint Project Facility Initiative

• The need for a financial facility that will
  enable the development of cross-cutting projects
  has been recognized.
• Objective to facilitate the rapid development of
  projects to the point where an investment case
  has been accepted by financial community and
  operational companies.
• Five areas have been identified
• ICT
• Property
• Africa
• Human Resource Development
• Energy
• Highly skilled project managers appointed who
  will report to DPE and committee of chair-persons
  and CEOs.

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Shareholder Compacts

• Key document containing a performance agreement
  between the DPE and the SOEs so as to formalize
  government expectations of management
• Compact contains
• Key performance indicators and associated
  management targets such as expected rate of
  return, efficiency and investment spend targets
  and balance sheet ratios.
• Governance and reporting systems within the SOE
  and between the SOE and government.
• Special initiatives such as private sector
  participation and development projects.
• Although historically this aspect of shareholder
  management has been neglected significant
  progress has been made in finalizing Transnet and
  Eskom compacts which are planned to be signed by
  end of June.

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Organagram
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Budget Vote
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VOTE 9 DPE 2005 MTEF

• Budget allocation R 91,9 million (05/06)
• Allocation includes R 13 million transfer to
  Alexkor for refund of costs incurred during
  cancelled SEP process
• Transfers to Trusts cease during 2005/06
• Personnel intensive
• Additional budget allocation of R 5 million
  during 2007/08
• Donor funding supplements financial resource
  shortfall

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2005 MTEF
POLICY OPTIONS 2004/05 R000 2005/06 R000 2006/07 R000
1) Corporate Finance And Transactions (P5) 6 105 6 330 6 436
2) Sector Specialists (P4) 2 280 2 360 2 485
3) Cluster Co-Chairing 1 262 1 360 1 428
TOTALS 9 647 10 050 10 349
PROGRAMMES 2005/06 R000 2006/07 R000 2007/08 R000
ADMINISTRATION 38 332 40 746 43 242
ANALYSIS AND RISK MANAGEMENT 10 109 10 478 10 696
GOVERNANCE AND POLICY 13 956 15 800 16 590
CORPORATE STRATEGY AND STRUCTURE 20 627 17 001 17 246
CORPORATE FINANCE AND TRANSACTIONS 19 105 6 330 6 436
TOTALS 102 129 90 355 94 210
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BUDGET Per Programme
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Budget Vote
Telkom IPO
Alexkor
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Budget Vote
Telkom IPO
Alexkor
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BUDGET - SCOA
Diabo Trust, Khulisa Trust and Alexkor
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BUDGET - SCOA
Alexkor
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BUDGET - SCOA
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Donor Funding
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AdministrationProgramme 1Portfolio Committee
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Administration
Minister Public Enterprises
Office of the Minister (support staff)
Special Advisor
Director General Public Enterprises
Office of the Director-General (support staff)
CHIEF OPERATIONS OFFICER
Director Internal Audit
Chief Director Communications External
Liaison
Chief Financial Officer (CFO)
Chief Director Legal Counsel
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Work Programme
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Administration Budget
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Analysis and Risk Management Programme
2Portfolio Committee
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Outline

• Overview
• Key Objectives of ARM
• Medium-term Outputs
• Challenges

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Overview

• Analyzing and Monitoring the efficiency of SOEs
  operations and the economic effectiveness of
  their programs.
• Ensure SOEs are exemplary in the areas of
  corporate governance and risk management.

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Analysis and Risk Management

• PURPOSE
• To conduct insightful analysis and provide
  quality advice on the performance of SOEs , and
  systematically manage key risks on the
  shareholders dashboard
• To proactively monitor and report on strategic,
  operational and financial matters relating to
  SOEs
• To develop a integrated risk management framework
  for SOEs and put in place an integrated risk
  management system.

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Key Medium-Term Outputs

• Annual Publication on the performance of SOE.
• Outcomes of annual client surveys-targeting key
  customers of SOEs
• Award ceremony for SOE sector- best performance
  SOEs
• Key Performance Targets for SOEs- supported by
  global benchmarks on operational efficiencies and
  Financial Performance Rail, Ports, Pipelines,
  Power, ICT, Defence, Aviation

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Key Outputs of Risk Management

1. Annual Report on Risk Management of SOEs-
   supported by Risk Audits, reporting and risk
   management system.
2. Enterprises Wide Risk Management and Treasury
   Risk Management framework
3. Guidelines on Hedging and compliance with
   international accounting standards(embedded
   derivatives)

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SOEs are not immune to risks
Operational risk Operational policies/procedures/i
nstructions do not sufficiently control business
to allow achievement of mission
Technology Risk Systems and technology tools, in
design and operation, do not allow achievement of
mission
Human Resources Risk Management and staff not
sufficient to meet needs and mission of
organization
Environmental Risk Operations or activities
adversely affecting the environment
Financial risk Loss of assets or available
operating or capital budget
Integrity Risk Negative public opinion
Strategic Risk Mission/strategic plan does not
support overall objectives
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Most SOEs do not have a formal risk management
system
Eskom
Yes
Denel
Yes, but effectiveness cannot be confirmed
Alexkor
Yes
Transnet
NO
Safcol
NO
arivia.kom
Yes
Government, as the Shareholder with ultimate
fiduciary responsibility in SOEs does not have a
risk management framework and the PFMA and
protocol on corporate governance for SOEs has not
been vigorously implemented by most Executive
Authorities.
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There is a general lack of proper risk management
oversight in government departments over their
SOEs
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The fiduciary responsibility of the State

• The Boards must manage Risk
• The Shareholder needs assurance
• Early warning system to avoid surprises

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Shareholder risk dashboard
Compliance risks
Risks associated with compliance with relevant
applicable legislation,regulations and licensing
requirements
Investment risks
Risks emanating from the investment plans of
SOEs, capital markets and resulting impact on
service delivery
Restructuring model risks
Risks associated with restructuring models such
as Concessioning, PPP, SEP, JV, etc.
Contractual risks
Risks emanating from contractual obligations such
as pension funds, embedded derivatives,
guarantees, letters of support, etc
Solvency/Liquidity risks
Risks arising from adequacy of capital structures
of SOEs to meet governments mandate
Sector risks
Risks emerging from the sectors in which SOEs are
operating such as ports, rail, road, energy,
defense, etc
Legal risks
Risks emanating from existing and new
legislation, Bills passed in parliament,
regulations, policies, etc
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Outcome of Risk Management
Directorate Outcomes
Strategic Risk Identification and assessment of risks inherent in SOEs business strategies, Risks arising from the industries Identifying and managing macro risks related to the energy, rail, ports, pipelines, aviation, ICT systems dominated by the SOEs
Operational Risk Review operational risks f SOEs Provide operations risk management in SOEs, impact of operations risk, framework and systems put in place Identify risks associated with business processes and procedures in SOEs and management thereof
Financial risk Review of PFMA and Treasury Regulations to ensure SOEs compliance Provide guidelines on Treasury Managements and Parameters in Hedging Identifying financial risks from SOEs financial statements Review investment strategies of SOEs and their pension funds
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Outcome of Analysis Directorate
Directorate Outcomes
Financial Analysis Provide an in-depth analysis of the financial performance of SOEs against agreed upon targets/budgets Analyse funding plans of SOEs inclusive of effects on capital structure and cost of capital
Macro-economic and Strategic Analysis Analyse SOE contribution to the drive to reduce cost of doing business in SA or promote competitiveness Analysis of Corporate Strategies Analyse and monitor the effect of the SOEs on the Administered Price index
Operational Analysis Develop and maintain sector benchmarks for agreed upon indicators Monitor performance against operational included in the shareholder compacts
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Challenges

1. Setting up economic and financial models to start
   looking ahead and influencing the planning of
   SOEs than focusing on the annual financial
   statements
2. Setting up operational, financial and strategic
   targets and commit in shareholder compacts
3. Setting a an integrated risk management framework
   and system
4. Recruiting and retaining skilled personnel

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Corporate Governance and Policy Programme
3Portfolio Committee
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Structure

• Divided into 3 Chief Directorates
• Governance
• Policy
• Secretariat Compliance
• Close co-operation with other Units

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Mission of the Branch

• To achieve shareholder excellence in the
  management of SOEs through sound corporate
  governance and policy imperatives, and to provide
  reliable secretariat functions whilst ensuring
  that the department complies with the relevant
  legislative requirements.

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Governance Objectives

• To provide guidance and assistance to the
  Department and Minister on issues related to
  Governance to enable the Minister to exercise his
  duties as Shareholder Representative optimally
• To develop and implement a Shareholder Management
  Model for Government
• To ensure a consistent and transparent governance
  environment for SOEs
• To have an effective definition and co-ordination
  of Governments expectations of SOEs mandate
• To ensure SOE compliance with the PFMA, King II
  Report, Protocol and best practices thereby
  ensuring high standards of public accountability
  
• To manage Government shareholding interests in
  SOEs and
• To develop ethical guidelines through which SOEs
  must carry out their activities.

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Cabinet Activities

• To develop and implement a Shareholder Management
  Model for Government
• Strengthening of Sector Regulators mandates and
• Government wide review of performance practices
  (Remuneration review of executive and
  non-executive board members).

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Governance Tools
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Work programme 2005
Development and Implementation of Board
Performance Evaluation Practices

• Implementation
• 1 - Shareholder model
• 2 - Framework on
• Corporate Governance
• Corporate Practices
• Remuneration Practices

Compliance Monitoring in SOEs
Oversight of Development, Implementation
Monitoring Shareholder Compacts
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Work Programme 2005

• ? Development of Dividend Policy for SOEs (In
  co-operation with National Treasury)
• Ethics/Probity framework
• Board Appointments
• ? Stakeholder Management Framework and
• ? Regulatory Management Frameworks.

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Policys Objectives

• Policy advocacy
• Alignment of SOEs policies with government
  broader policy objectives
• BEE
• Gender
• Procurement Practices
• Environmental
• Socio-economic.
• Undertake research and development to enhance DPE
  mandate and
• Ensure SOEs operations comply with government
  policies, e.g. environmental laws.

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Work Programme 2005

• ? Revise policy framework
• Populate Shareholder Compacts (Socio-economic,
  etc)
• SOE environmental compliance assessment
• Research priorities on DPE mandates and
• Reports on SOE contribution to the 2nd economy.

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Secretariat/Compliance objectives

• Organisational effectiveness.
• Effective reliable secretariat functions.
• Heighten awareness of compliance issues
  internally.
• Ensure that all bid processes comply with the
  various rules, regulations and legal
  requirements.
• Promote proper knowledge management.

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Work Programme 2005

• Implement the internal compliance framework
• Develop a risk management strategy
• Information collation project
• Review of policies, processes procedures
• Re-introduction of IDMS/EDMS

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Corporate Structure and Strategy Programme 4
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Objectives of Corporate Structure and Strategy
To design strategies and structures for State
Owned Enterprises (SOEs) and the industries in
which they operate that will ensure that SOEs
deliver on governments economic growth
objectives through

• Increased competitiveness
• Lowest sustainable cost
• Globally competitive service
• Capacity availability
• Use SOEs to strengthen key sectors and for sector
  and regional development

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Work programme

• Annual Reviews
• Projects
• Cross cutting projects
• Sector specific projects

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CSS Work programme

• Annual reviews
• Rolling review of corporate strategy and
  structure for all SOEs
• Review of investment plans for all SOEs
• Review of PSP programme and implementation plans
• Monitoring strategic KPIs given SOE strategy and
  business plan
• Review of half yearly results, annual report and
  SOE investment, financial and operational against
  approved strategy and business plans
• Review of PFMA applications against SOE strategy
• Reporting on lessons learnt

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CSS Work programme

• Cross- Cutting Branch Projects
• Consolidation of SOE property portfolio
• Consolidation of SOE training infrastructure and
  operations
• Development of an SOE strategic procurement
  framework for catalysing domestic industrial
  development leveraging SOE investment programme
  
• Establishment of Africa infrastructure
  development vehicle
• Enhanced Business case for Coega
• Review of Arivia strategy and alignment with
  government objectives
• Optimisation of SOE ICT capability

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Transport Sector Work programme
Objective Establish corporate and industry
structure and strategy plans and objectives
Objective Projects Target Date
Develop an integrated framework that aligns Transnets objectives to government policies and objectives - Definition of operational and financial Key Performance Indicators (KPIs) - Review of non-core assets Ongoing
Develop policy and framework for private sector participation in rail and ports Framework for private sector participation in rail and ports Define policy and implementation for Private Sector Participation - Framework containing guiding principles for rail vertical separation - Development of institutional framework for branch lines November 2005 (Ports) March 2006 (Rail)
Develop and implement framework for SAA strategy and industry structure - Review SAA strategy May 2006
Review of regulatory framework - Principles for transport regulation (position paper) May 2005
Develop a pricing policy for the rail and ports industry - Development pricing policy February 2006
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Transport Sector Work programme (cont)
Objective Transport sector investment and
infrastructure plan
Objective Projects Target Date
Develop shareholder compact Develop shareholder compact for Transnet to be signed by Transnet Board and DPE Minister September 2005
Develop an investment framework for Transnet - Review of Transnet 15 year investment plans for rail, ports and pipeline - Review of SAA 5 year investment plans December 2005
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Energy Sector Work programme
Objective Establish corporate and industry
structure and strategy plans and objectives
Objective Projects Target Date
Develop an integrated framework that aligns Eskoms strategies to government policies and objectives - Define corporate strategy for Eskom and industry structure for the electricity sector - Development of operational and financial KPIs - Definition of non-core assets - Level of SADC investment - Transmission policy - PBMR policy - EDI Policy - Fuel technology - Renewables - Rural electrification July 2005 July 2005 July 2005 October 2005 December 2005 December 2005 December 2005 December 2005 December 2005 December 2005
Review of regulatory framework -    Strengthen NER capacity December 2005
Develop a pricing policy for the electricity industry -    Multi-year tariff -    Development pricing policy -    Forward pricing curve analysis for different policy measures October 2005
Develop Private Sector Participation Policy -    Independent Power Producer (IPP) framework - Target level of private sector participation in infrastructure investment April 2005
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Energy Sector Work programme (cont)
Objective Electricity sector investment and
infrastructure plan
Objective Projects Target Date
Develop Investment frameworks for SOEs -     25 year rolling investment plan and demand forecast April 2005
Financing arrangements for five year investment plans -    Electricity imports policy -    Reserve margin policy July 2005
Introduction of Private Sector Participation -   IPP Power Purchase Agreement (PPA) -   Tender strategy development June 2007 August 2008
Develop shareholder compact Develop shareholder compact for Eskom to be signed by Transnet Board and DPE Minister July 2005
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Defence Sector Work programme
Objective Establish corporate and industry
structure and strategy plans and objectives
Objective Projects Target Date
Implement and develop corporate strategy and investment plan - Define corporate strategy for Denel - Definition of operational and financial Key Performance Indicators (KPIs) - Outline the defence industry development strategy in relations to the global defence industry July 2005
Review of DoD procurement - Participate in the finalisation of DoD procurement review (position paper) December 2005
Review Denel and SAA Technical relationship - Optimise the relationship between Denel and SAA Technical with the aim of improving the business viability of both SAA Technical and Denel December 2005
Signing of the A400M agreement and the development of industry development plan - Signing of agreement between Denel and EADS December 2006
Develop shareholder compact Develop shareholder compact for Denel to be signed by Denel Board and DPE Minister December 2005
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Forestry Sector Work programme
Objective Determine role of Government in
sustainable forestry industry
Objective Projects Target Date
Development of an appropriate forestry industry structure - Strategy to establish appropriate industry structure strategy for forestry industry in South Africa September 2005
Sustainable small saw milling industry - Proposal for support and institutional framework for saw-millers July 2005
Development of a national strategic economic importance analysis/document for the forestry industry - Optimised downstream requirements, export, output and employment analysis May 2005
Viability of niche forest industry (indigenous forests) - Definition of role of SOE in niche forest August 2005
Facilitation of transfer of exit areas for alternative land use - Conversion projects implemeter structure - Funding mechanism - Exit strategy March 2007
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Organogram
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Corporate Finance and Transaction Programme 5
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To oversee, manage, execute corporate legal
structure of SOEs including transactions such as
IPOs, JVs, PPPs and others.

• Management
• Management is responsible for the co-ordination
  and overall strategic management of the
  Programme. .
• Corporate Finance
• This sub-programme is responsible for the
  development of optimal financing structures in
  relation to the nature and extent of the
  transaction taking into consideration the SOEs
  access to local capital markets, financial
  position, objective of the transaction
  (e.g.promotion of investment) etc. The unit will
  also be responsible to act as mediator/liaison
  between of financiers (i.e.Merchant Bank).
• Transactions
• The main responsibility of the unit is
  the execution, management, and oversight
  execution of approved SOE transactions of a
  material nature in accordance with the approved
  corporate strategy.

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Stakeholders

• Lawyers/Attorneys
• Merchant Banks
• Regulatory Authorities e.g. NER
• Transfer Secretaries
• Securities Exchange e.g. JSE
• Cabinet
• Third Parties e.g. Investors

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Transaction execution

• Transactions
• Transaction marketing and promotion e.g road
  shows
• Appointment of transaction advisors
• Preferred bidders nomination
• Finalisation of transactions

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Transaction Management

• All Transactions
• Project Management
• Milestones
• Deadlines

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Transaction Oversight

• Transactions
• Developed transaction objectives and checklist
  for monitoring of SOEs conducted of transactions

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Support through Corporate Legal

• Agreements, e.g PPAs, A400m
• Negotiations, Alexkor, Aventura, Labour
• Funding of SOEs PMBR
• Promotion and investment, Project Alcan

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Successfully executed transactions in accordance
with approved corporate structure and requisite
legal requirements.
Output
Measure/Indicators
Target
Financing strategy supported by research and
benchmarked data.     Implemented guidelines to
support financing strategies where applicable  
Improved capital structure in relation to
corporate structure at the lowest financing
cost. Ongoing
Research and develop optimal financing strategies
aligned to the corporate structure and strategy
of the SOE   Implementation of Public Private
Partnerships (PPPs) guidelines  
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Output
Measure/Indicators
Target
Development of optimal funding structures for
increased infrastructure investments amounting to
R 165 billion.   Improvement of the level of
infrastructural linvestment in SOEs.
Sourced external funding for infrastructure
investment at the most reasonable rate and most
reasonable terms.  
Continuous, based on implementation phases of
investments over the next five financial
years.   Continuous  
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Output
Measure/Indicators
Target
  Development of generic guidelines for the
execution of SOE transactions of a material
nature
Implemented acceptable generic guidelines between
DPE and SOEs.
May 2005.         July 2005
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Transactions
Current Transactions

• Implementation of optimal corporate structure of
  Alexkor
• COEGA, finalisation of the investment by Alcan
  at COEGA Port.
• Execution of restructuring of Denels non-core
  business activities
• Disposal of Denels shareholding in Arivia.kom
• Execution of PBMRs finance strategy
• Eskom Finance Company
• A400m acqisition negotiation
• Aventura finalisation
• Transnet Housing

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Corporate Finance Transactions Structure
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