DEPARTMENT OF PUBLIC ENTERPRISES

ANNUAL PERFORMANCE PLAN

2015/16

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Table of Contents FOREWORD BY THE MINISTER ______4 Official sign-off ...... 6 Glossary ...... 7 PART A: STRATEGIC OVERVIEW ______11 UPDATED SITUATIONAL ANALYSIS ...... 11 REVISIONS TO LEGISLATIVE AND OTHER MANDATES ...... 15 OVERVIEW OF BUDGET AND MTEF ESTIMATES ...... 18 3.1 Creating an efficient, competitive and responsive economic infrastructure network (Outcome 6) ...... 22 3.2 Outcome 4: Decent employment through inclusive growth ...... 26 3.3 Outcome 5: A skilled and capable workforce to support an inclusive growth path ...... 27 3.4 Outcome 7: Vibrant, equitable and sustainable rural communities with food security for all ...... 29 PART B: PROGRAMME AND SUB-PROGRAMME PLANS ______30 PROGRAMMES ...... 30 4.1 PROGRAMME 1 – ADMINISTRATION AND CORPORATE MANAGEMENT ...... 30 4.2 PROGRAMME 2 - LEGAL & GOVERNANCE ...... 37 PROGRAMME 3 - PORTFOLIO MANAGEMENT AND STRATEGIC PARTNERSHIPS ...... 43 4.1 ENERGY ENTERPRISES: ...... 43 4.2 MANUFACTURING ENTERPRISES ...... 47 4.3 TRANSPORT ENTERPRISES ...... 49 4.4 ECONOMIC IMPACT AND POLICY ALIGNMENT ...... 53 4.5 STRATEGIC PARTNERSHIPS ...... 55 PART C: LINKS TO OTHER PLANS ______59 5 LINKS TO THE LONG-TERM INFRASTRUCTURE AND OTHER CAPITAL PLANS ...... 59 6 CONDITIONAL GRANTS ...... 60 7 STATE OWNED COMPANIES REPORTING TO THE DEPARTMENT ...... 60 7.1 Alexkor ...... 60 7.2 Denel ...... 62 7.3 Eskom ...... 63 7.4 Pebble Bed Modular Reactor (PBMR) mention that PBMR is now with Eskom ...... 64 7.5 South African Forestry Company ...... 64 7.6 South African Express Airways...... 65 7.7 Transnet ...... 65

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FOREWORD BY THE MINISTER

Ms Lynne Brown, MP

Over the past eight months, the Department of Public That is why I can announce that one critical milestone Enterprises has commenced with putting in place the within sight is the commissioning of Medupi Power building blocks to ensure that in the 2015/16 fiscal year Station‟s unit 6 towards the end of the first quarter of there is an even greater working trajectory. the 2015/16 financial year. Although Medupi will add 800MW to the grid, this will relieve pressure on the This includes a clear understanding of the Department‟s constrained grid. But we will not be out of the woods role in relation to the Minister, as the Shareholder until the end of 2016. Representative. In essence, the Department exists to support me to obtain the best possible outcomes for I can confidently say that Eskom is expediting its build the State, the fiscus and hence, all citizens of the programme for the construction of Medupi, Kusile and country. Ingula power stations which are scheduled to supply an additional 10 000 MW to the grid between June 2015 The Annual Performance Plan is critical as it once again and May 2020. provides a detailed articulation of the Department‟s activities and undertakings. With a portfolio of six SOCs eager to commence revitalisation of effort towards the developmental The Department has received an “in principle” objectives of the State, I am confident that the content mandate to proceed with the development and submit of this APP does provide assurance in this regard to the Government Shareholder Management Bill to me ensure that we leverage on SOCs. Transnet has for consideration. The Bill will be aligned to the ambitions to lead increased volumes onto rail, giving a recommendations of the Presidential Review life and relief to our roads with a target of 330 million Commission (PRC) and Government‟s expectation of a tons shifted from road to rail by 2019 compared to the coherent single piece of legislation for State Owned current 207 million tons. This is in spite of the coal Companies (SOCs). business having under-achieved on its annual target of 95.151 million tons in 2014. The actual achievement It would be naive to dispute that the current energy for coal was 83,13 million tons in 2014, which constraints are a major inconvenience and that the represents a 12.6% under-achievement. Mitigation disruptions caused by load shedding hinder economic measures, lessons learned and renewed coordination growth. Nevertheless the nation should rest assured are some of the key signals for our renewed optimism. that Government and its partners are doing all we can during this trying time. Government has established National logistics and ease of business, by definition, the War Room on Electricity to accelerate solutions should reap the rewards of this vision and safety factors and this structure will continue as a mechanism to keep for our roads can be capitalised on. the nation informed of our plans to ensure adequate electricity supply and diversified energy mix.

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We can congratulate the national freight carrier on Whilst we are sure to highlight success, we remember improving its performance by 24% in terms of on-time that there is much work to be done. train departures compared to the previous year and by 5% compared to budget; this was due to diligent The Department and the SOCs must infuse renewed monitoring and follow-up on the root causes for urgency in efforts to deliver on the delivery of the deviations. infrastructure build programme, with Transnet continuing with the Market Demand Strategy to drive Overall, financial sustainability of our SOC is the order sustainability and inclusive growth. of the day within this APP and is explicitly outlined in the DPE Strategy. One of the significance shareholder functions is the ability to identify strong board members for SOCs. CAPEX programmes across Eskom and Transnet will Board membership requires active and decisive leaders substantially increase and perhaps see an injection into who collectively possess the ability to steer the the already large collective asset value of these 2 SOCs company towards creating sustainable shareholder currently at R740 bn. value and long-term growth for the SOCs and the country. The Boards needs to be composed of Denel continues to demonstrate a solid fiscal path and credible and expert directors given the strategic and the APP seeks to capitalise on its increased value. The critical nature of the SOCs to the economy. To this company, by June 2013, reported a R21 billion order end, I will continue reviewing and strengthening the book, which increased to R30 billion by December Boards of the SOCs as it is a critical part of our 2013. This has enabled Denel to meet its plan of shareholder oversight function. doubling revenues to R8 billion by 2018/19. Critical has been securing the R10 billion contract from the It gives me great pleasure to table the Annual Department of Defence to produce 238 Hoefyster Performance Plan for the 2015/16 fiscal year for the infantry fighting vehicles (IFV) for the South African Department of Public Enterprises. Army. 2 000 jobs are to be created at Denel and in the related South African defence industry through this contract. This attests to the DPE‟s oversight capacity, which continues to improve.

Alexkor has delivered on Government obligations to the Richtersveld Community, with a R120 million upgrade of the Alexander Bay Township infrastructure (roads, electrical and water reticulation and waste Ms Lynne Brown, MP water treatment) having been completed on 31 March Minister 2013 and the town‟s registration confirmed on 22 November 2013. The value of property in the town that will be transferred to the Community is estimated at R200 million. This will be a highlight in the upcoming financial year.

SAFCOL spent R6.591 million on socio-economic development initiatives. This represents 3.3% of the Net Profit After Tax (NPAT) - a significant achievement compared to the Shareholder Compact (SHC) target of 1%. This trajectory is set to continue for the upcoming financial year.

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Official sign-off

It is hereby certified that this Annual Performance Plan was developed by the management of the Department of Public Enterprises under the guidance of Ms Matsietsi Mokholo, Acting Director-General, and was prepared in line with the current Strategic Plan of the Department of Public Enterprises.

It accurately reflects the performance targets which the Department of Public Enterprises will endeavor to achieve given the resources made available in the budget for the 2015/2016 financial year.

Mr Gcina Hlabisa

Signature: Date: 19/03/2015 Director: Strategy

Ms. Tintswalo Mofokeng Signature: Date: 19/03/2015 Acting Chief Financial Officer

Mr Mzwandile Radebe Signature: Date: 19/03/2015 Acting Deputy Director-General: Corporate Management

Ms Matsietsi Mokholo Signature: Date: 19/03/2015 Acting Director-General

Approved by: Ms Lynne Brown, MP Signature: Date: 19/03/2015 Minister

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Glossary

Below is a glossary of acronyms used in the Department of Public Enterprises

ACSA Airports Company of South Africa

AFDB African Development Bank

AGM Annual General Meeting

APP Annual Performance Plan

BB-BEE Broad Based Black Economic Empowerment

CAPEX Capital Expenditure

CFO Chief Financial Officer

CS Corporate Services

CSDP Competitive Supplier Development Programme

DAFF Department of Agriculture, Forestry and Fisheries

DCT Durban Container Terminal

DEA Department of Environmental Affairs

DG Director-General

DDG Deputy Director-General

DHET Department of Higher Education and Training

DM Deputy Minister

DMR Department of Mineral Resources

DOC Department of Communications

DOD Department of Defence

DOE Department of Energy

DOT Department of Transport

DPE Department of Public Enterprises

DRDLR Department of Rural Development & Land Reform

DTI Department of Trade and Industry

DTPS Department of Telecommunications and Postal Services

EDI Electricity Distribution Industry

EE Economic Equity

EIA Environmental Impact Assessments

EMP Environmental Management Plan

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ExCo Executive Committee

FET Further Education and Training

FMCG Fast Moving Consumer Goods

FOSAD Foundations of Security Analysis and Design

FSN Full Services Network

GCH Gross Crane Move per hour

GFB General Freight Business

HR Human Resources

ICASA Independent Communications Authority of South Africa -

ICT Information and Communication Technology

IGR Inter-Governmental Relations

IP Intellectual Property

IPO Initial Public Offering

IPP Independent Power Producers

IRP Integrated Resource Plan

ISMO Independent System and Market Operator

EIPA Economic Impact Policy Alignment

JV Joint Venture

KLF Komatiland Forests

KPI Key Performance Indicator

LTTS Long Term Turnaround Strategy

MDS Market Demand Strategy

MISS Minimum Information Security Standards

MOU Memorandum of Understanding

MTEF Medium-Term Expenditure Framework

MTSF Medium Term Strategic Framework

MYPD Multi- Year Price Determination

NCPM National Corridor Performance Measurement

NDP National Development Plan

NEDLAC National Economic Development and Labour Council

NERSA National Energy Regulator

NGP National Growth Path

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NT National Treasury

PAIA Promotion of Access to Information Act

PBMR Pebble Bed Modula Reactor

PICC Presidential Infrastructure Coordination Commission

PFMA Public Finance Management Act

PPP Public-Private Partnerships

PRC Presidential Review Committee

PSJV Pooling and Sharing Joint Venture

PSP Private Sector Participation

R&D Research and development

RBCT Richard Bay Container Terminal

RMC Richtersveld Mining Company

SAA South African Airways

SAAT South African Airways Technical

SAFCOL South African Forestry Company Ltd

SAQA South African Qualification Authority

SAX South African Express Airways

SCM Supply Chain Management

SIP Strategic Integrated Projects

SLA Service Level Agreement

SOCs State Owned Companies

SSA State Security Agency

TEU Twenty-foot Equivalent Unit

TNPA Transnet National Ports Authority

TOR Terms of Reference

TFR Transnet Freight Rail

WACS West Coast Submarine Cable

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The table below lists the SOCs that report to the Minister:

Name of Entity Legislative Mandate Minister‟s Financial Nature of Operations Relationship with the SOCs

Alexkor Alexkor Limited Act 116 of Shareholder A diamond mining company that operates primarily 1992 Representative in Alexander Bay and the greater Namaqualand area.

Denel None Shareholder A defence company and although it was established Representative as a private company, in terms of the Companies Act of 2008, Government exercises full control over the company.

Eskom Eskom Conversion Act 13 of Shareholder Eskom generates, transmits and distributes 2001 Representative electricity to industrial, mining, commercial, agriculture and residential customers and re- distributors.

South African Forestry Management of State Forests Shareholder The South African Forestry Company Limited is the Company Act 128 of 1992 Representative Government's forestry company. It conducts timber harvesting, timber processing and related activities, both domestically and regionally.

South African Express South African Express Act 34 Shareholder South African Express is the domestic and regional of 2007 Representative air carrier with a mandate to be an African airline.

Transnet Legal Succession to the Shareholder Transnet is a freight and logistics company South African Transport Representative responsible for pipelines, ports, and rail transport Services Act 9 of 1989 infrastructure and operations in South Africa.

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PART A: STRATEGIC OVERVIEW

UPDATED SITUATIONAL ANALYSIS

Understanding the Environment

The National Development Plan (NDP) defined the structural challenges that the South African economy currently faces to respond to these structural challenges, a series of actions have been proposed that need to be implemented within a specified timeframe. These actions will require significant improvement in the capacity of the state. These also include the further repositioning of the SOCs to strengthen their role in the economy. The NDP indicates that for the triple challenges of poverty, unemployment and inequality, the state needs to play transformative and developmental role. This requires well and effectively coordinated institutions.

Industrialisation and economic nationalisation are key drivers of the developmental state. A crucial aspect of the industrialisation project is to grow the manufacturing sector and promote foreign direct investments. Economic nationalism is about stimulating export led growth and increasing beneficiation. In the South African context, these two elements appear starkly in the focus that the government places on economic development and how it enables this development through its various policy measures (e.g. the NDP and the National Industrial Policy Framework), which accomplish high level national objectives (e.g. Industrialisation)1.

Being a developmental state and driving industrialisation as well as economic nationalism imposes a number of responsibilities on the South African government. Firstly, for South Africa to grow, its focus must be placed on the following key drivers of growth, namely: investment in the economy, creating an enabling policy framework that will support the growth of the productive sectors, facilitating private sector investments and raising exports. These have been outlined in Chapter 4 of the NDP.

South Africa has historically not fared as well as it could within the context of these drivers of growth. Between 2002 and 2007, the South African economic growth accelerated but was negatively affected by the global financial crisis. As seen in figure 1 below, the country has experienced weak economic growth since the 2008 global recession. The growth rate has been insufficient to meet target levels of between 3% - 5%. Capital formation has itself experienced some challenges. Gross Fixed Capital Formation (GFCF) has not been a priority leading up to 20052; this has resulted in slow growth and had a negative impact on local industry and human capital. In addition, this poor investment performance has stifled the country‟s manufacturing capabilities. In the period between 2009 and 2014 the government began to lay a foundation for accelerated investment in the economy with the creation of the Presidential Infrastructure Coordination Commission (PICC), the 20 Year Infrastructure Plan and the Infrastructure Development act, however, this has not been enough to create an infrastructure network capacity to support the productive sectors of the economy. Finally, the country‟s balance of payment has remained low over the past 10 years and this has been reflected in the weak economic environment and a depreciating currency.

1 National Industrial Policy Framework, 2007 2 SARB Quarterly Bulletin, 2014 11

Figure 1: Economic Trends

Amidst all of this, the importance of the role of the State has been reinforced. State intervention within the context of a developmental state is crucial for economic development, particularly in light of the large scale of investment required and the associated risks.

However, key levers have to be pulled by the State in order to place the country on the growth trajectory that will enable the developmental state to realise outcomes defined in the National Development Plan.

These levers are:

Strategy

 Develop national policy to steer and direct South Africa on a sustainable growth path;  Unite the public sector, business, labour and civil society in a partnership geared to implement this shared programme;  Establish clear, measurable and time bound targets for common programmes, and for monitoring their implementation; and  Inter-governmental and integrated planning across spheres of government and between different governmental departments.

Financing

 Ensuring prudent macroeconomic policy and counter cyclical fiscal management measures; and  Provision of guarantees to facilitate required investments where necessary to do so.

Technology

 Systematically enhance South Africa‟s existing technological capacity;  Proactively respond rapidly to global technology developments and to partner with the private sector to access new technologies; and  Translate broad objectives into programmes and projects and to ensure implementation.

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In summary, these three levers are required to be executed upon by the State, given the scale, complexity and associated risks of the requirement to develop the economy. Furthermore, institutional innovations across all levels of Government will be required to facilitate this growth. The NDP and other policy framework such as the New Growth Path (NGP) and the Industrial Policy Framework provide the overarching framework required to change the structure of the economy.

The Minister as shareholder representative acting on behalf of Government is supported by the Department in execution of her shareholder responsibilities. As a Department, DPE seeks to maximise the overall financial and operational benefits derived from Government continued ownership of the SOCs at the same time, to successfully execute its mandate. We (DPE and its portfolio of SOCs) need to generate shareholder value and enjoy public confidence.

Therefore, to protect State investments in the SOCs, the Department is required to explore alternative and innovative funding mechanism to support SOCs needs.

Figure 1: Major Under-investment in South African Infrastructure

The 2015/16 Annual Performance Plan (APP) is targeted to implement the Strategic Plan of the Department for the current administration period (2014-2019). The APP outlines the Key Performance Indicators that must be pursued by the Department to realise its strategy and outcomes. The focus in the current financial year (2015/16) is to ensure that SOCs within the Department‟s portfolio remain financially stable for them to be able to advance the developmental mandate.

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Organisational Structure

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Overview of Programmes

PROGRAMME 1 - ADMINISTRATION AND CORPORATE MANAGEMENT Ministry Minister Deputy Minister Management Director-General Corporate Management Corporate Services Security and Facilities Management Information Management and Technology Chief Financial Officer Chief Financial Officer Human Resources Human Resources Communications Communications Strategic Planning, M and E Strategic Planning, Monitoring and Evaluation Inter-Governmental and Inter-Governmental and Stakeholder Relations Stakeholder Relations Internal Audit Internal Audit Office Accommodation Office Accommodation PROGRAMME 2 - LEGAL AND GOVERNANCE Management Legal Governance Risk PROGRAMME 3 - PORTFOLIO MANAGEMENT AND STRATEGIC PARTNERSHIPS Energy Enterprises Management Eskom Manufacturing Enterprises Management Denel Alexkor SAFCOL Transport Enterprises Management Transnet South African Express Airways Economic Impact and Policy Alignment Management Environmental Policy Alignment Economic Policy Alignment Transformation, Skills and Youth Development Strategic Partnerships Management Project oversight Funding Mechanisms Supplier Relationships

REVISIONS TO LEGISLATIVE AND OTHER MANDATES

As the shareholder Ministry, on behalf of Government, the Department‟s mandate continues to evolve to ensure that SOCs within its portfolio are clearly directed towards the prioritised outcomes. This is essential to support the execution of Government‟s policy priorities. An overarching shareholder management process aimed at providing enduring strategic rationale for the SOCs underpins this evolution.

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Expansion of the role of the SOCs within the current economic management framework, has required the Department to introduce measures to ensure that SOCs contribute to the following:

 Promotion of economic growth by facilitating development of new industrial capabilities through supplier development and expansion of local content particularly in the build programme;  Expansion of training and skills development programmes to support the Government to develop skills required by the economy;  Achievement of minimum standards of universal service and affordability for key services such as rail and electricity; and  The correction of past social injustice.

While there is alignment between the SOCs activities, there are still challenges in relation to the shareholder function and how it interfaces with other functions of Government e.g. policy making and regulatory functions. This challenge partially contributes to the current performance of SOCs and their weaknesses. The development of the overarching legislation for SOCs will begin to address this challenge.

The February 2015 Cabinet Lekgotla took a number of resolutions to support the strengthening of SOCs through the implementation of the Presidential Review Committee (PRC) on SOCs. Consequently, the Department will be developing legislation on the SOCs. The purpose of the legislation will be to codify the shareholder function and ensure that there is a clear legislative framework to support the management of SOCs, clear delineation of roles, and clarity on the required level of private sector involvement in SOCs businesses.

PENDING COURT CASES

Litigation remains a significant and inherent shareholder risk as the Minister (Shareholder Representative) is often cited as a defendant whenever SOCs are sued. The Department continues to manage this risk by working closely with the State Attorney‟s Office to reasonably extricate the Minister wherever possible. There are pending court case(s) against Alexkor, Eskom and Transnet, the details of which may not be disclosed as they are sub-judice.

KEY EVENTS IMPACTING THE PORTFOLIO

Over the past twelve months major events occurred in the policy and SOCs operational environment that significantly altered the Department‟s portfolio as well as the execution of the oversight mandate. The occurrence of these events has been informed by both the need to strengthen Government‟s shareholder oversight, optimize its shareholding in some key sectors as well as directly improve operational and financial performance of SOCs.

During this period, two SOCs were transferred from the Department to other Government Departments. These transfers were informed by the need to optimise Government‟s shareholding and drive performance in areas that had lagged behind.

Post the 2014 national election, Government resolved that there was a need to consolidate SOCs within the Information and Communication Technology (ICT) sector. This consolidation is intended to support the rapid execution of the South Africa Connect Strategy (broadband rollout policy) to ensure that universal broadband access is achieved by 2020. This consolidation will create the capacity within the State to drive broadband rollout in partnership with the private sector.

In December 2014, Cabinet resolved to shift the oversight of SAA from the Department to National Treasury. Since the adoption of the Long Term Turnaround Strategy in 2012, major progress was made to improve the technical and operational performance of the company. However, these improvements were not accompanied by strong financial performance. The transfer of oversight responsibilities to National Treasury will ensure that the financial performance of the SOC is improved without compromising progress made on the operational performance. To achieve this, the collaboration between the Department and National Treasury is necessary for the full turnaround of the Airline.

The current challenges on the electricity supply prompted Cabinet to adopt the Five Point Plan in December 2014. The Plan is intended to accelerate the implementation of interventions to improve electricity supply and reduce demand in the short to medium term. The Plan also contained emergency measures to stabilise and improve the generation plant performance of Eskom.

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The interventions contained in the Five Point Plan have been incorporated into this APP as well as the shareholder compact concluded between the Minister and the Eskom Board of Directors and will be cascaded down to the senior executives.

The Department has already begun to implement interventions to improve the maintenance practices at Eskom as well as the overall financial sustainability of the company. The Department endorsed the maintenance strategy of Eskom that will ensure that units that were scheduled for maintenance were indeed taken down for servicing. This is critical for arresting the rapid drop in the energy availability factor that declined from 94% in the early 2000/01 financial year to just less than 75% in 2014/15 financial year. In September 2014, Government also adopted the Eskom‟s Support Package to strengthen the liquidity position of the company.

The past twelve months also saw the synchronization of the first Unit of Medupi in the new build programme. Despite the delay and challenges in delivery of the Unit, this achievement is a great milestone and has confirmed that South Africa still possesses the capacity to execute mega and complex infrastructure projects. This lays an important foundation to stabilise the supply of electricity. The lessons learned on the current build programme on pre-planning, contracting, financing and post transaction monitoring needs to be codified to ensure that delivery of mega projects is significantly improved.

Denel is one of the SOCs that have been successfully turned around. This has given the company a solid launch pad to advance its capabilities and create strategic partnerships that will deepen its manufacturing capabilities. Fuelled by South African rocket science and satellite technology, Denel has launched Spaceteq as a newly formed space engineering business unit. This follows the incorporation of satellite manufacturer SunSpace into the Denel Group in July 2013 in a move, which optimises the highly advanced engineering and technology skills between the combined businesses.

This strengthens Denel‟s position as a leader in innovative and advanced aerospace systems and technology. Space has been identified as one of South Africa‟s “five grand challenges.” The Departments of Science and Technology (DST) and Trade and Industry (DTI) have identified satellite production as a high-technology manufacturing niche that South Africa should be pursuing.

Therefore, the new strategy of the Department has been framed to support the reform of the SOCs to ensure that Government‟s role in the economy is optmised and support the advancement of developmental state aspirations as outlined in the NDP. The APP contains specific interventions to realise the objectives of the new strategy of the Department.

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OVERVIEW OF BUDGET AND MTEF ESTIMATES Table 1 Department of Public Enterprises

Audited Audited Audited Adjusted Revised Revised Revised Revised

outcome outcome outcome appropriation Estimate baseline baseline baseline

2017/1 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 R million 8

Programmes

115,367 156,859 108,635 133,295 156,859 158,587 155,485 Administration 164,05 8

23,477 24,311 Legal and Governance 19,518 23,158 24,311 23,829 26,235 27,558

1,225,450 138,368 Portfolio Management and Strategic 215,524 112,943 138,368 85,065 92,594 Partnerships 98,179

289,79 Total for programmes 343,677 1,364,294 269,396 319,538 319,538 267,481 274,314 5

Direct charge against the National Revenue Fund ------

289,79 Departmental total 343,677 1,364,294 269,396 319,538 319,538 267,481 274,314 5

Change to 2014 Budget Estimate (63,141)

Economic classification

285,77 Current payments 182,622 192,906 208,439 252,077 252,077 263,810 270,485 7

176,66 Compensation of employees 93,867 102,730 124,868 147,065 147,065 152,265 166,206 2

176,66 Salaries and wages 93,867 102,730 124,868 147,065 147,065 152,265 166,206 2

Social contributions ------

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Audited Audited Audited Adjusted Revised Revised Revised Revised

outcome outcome outcome appropriation Estimate baseline baseline baseline

2017/1 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 R million 8

109,11 Goods and services 88,755 90,176 83,571 105,012 105,012 111,545 104,279 5

Administrative fees 131 866 527 810 810 793 830 919

Advertising 1,778 1,962 4,705 2,515 2,515 2,667 2,517 2,515

Assets less than the capitalisation threshold 362 444 357 1,055 1,055 1,053 1,031 1,139

Audit costs: External 4,117 1,908 2,087 2,200 2,200 2,213 2,204 2,261

Bursaries: Employees 629 393 463 1,400 1,400 1,007 1,054 1,111

Catering: Departmental activities 1,136 1,341 1,621 749 749 1,316 1,152 1,153

Communication (G&S) 3,260 3,741 3,741 3,645 3,615 4,641 4,393 4,913

Computer services 2,726 3,078 4,126 3,974 3,974 4,884 4,730 5,542

Consultants and professional services: Business and advisory services 26,668 22,837 12,741 35,349 35,529 38,083 32,682 37,924

Consultants and professional services: Legal costs 2,396 430 1,878 3,059 3,059 3,282 3,402 3,698

Contractors 1,012 2,250 909 1,898 1,898 2,032 1,738 1,847

Agency and support/ outsourced services 2,542 4,110 2,624 3,479 3,479 840 1,476 800

Entertainment 60 32 19 312 312 310 311 323

Fleet services (including government motor transport) 765 805 1,190 1,108 1,108 1,538 1,175 1,587

Inventory: Clothing material and accessories - - 29 - - - - -

Inventory: Food and food supplies 122 113 ------

Inventory: Fuel, oil and gas - 21 ------

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Audited Audited Audited Adjusted Revised Revised Revised Revised

outcome outcome outcome appropriation Estimate baseline baseline baseline

2017/1 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 R million 8

Inventory: Materials and supplies 85 64 2 - - 2 3 4

Inventory: Medical supplies 1 8 2 - - - - -

Inventory: Medicine - 2 ------

Inventory: Other supplies 24 25 - - - - - 21

Consumable supplies - 34 822 708 708 839 1,172 974

Consumable: Stationery, printing and office supplies 2,028 2,693 2,375 1,361 1,361 1,572 1,507 1,536

Operating leases 1,720 1,814 1,297 1,790 1,790 3,412 3,248 2,086

Property payments 6,884 9,137 7,504 8,472 8,472 8,918 9,380 9,850

Travel and subsistence 24,329 23,499 24,017 24,919 24,769 25,855 24,967 23,075

Training and development 2,386 1,624 1,858 2,604 2,604 2,112 2,004 2,093

Operating payments 1,655 3,618 1,132 1,491 1,491 1,326 1,093 1,374

Venues and facilities 1,939 3,327 7,545 2,114 2,114 2,564 2,005 2,104

Rental and hiring - - - - - 286 205 266

Transfers and subsidies 156,978 118,638 57,612 63,392 63,392 105 111 117

Provinces and municipalities - - 2 - - - - -

Municipalities - - 2 - - - - -

Municipal bank accounts 2

Public corporations and private enterprises 156,255 118,313 57,250 63,141 63,141 - - -

Public corporations 118,313 63,141 - -

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Audited Audited Audited Adjusted Revised Revised Revised Revised

outcome outcome outcome appropriation Estimate baseline baseline baseline

2017/1 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 R million 8

156,255 57,250 63,141 -

Other transfers to public corporations 156,255 118,313 57,250 63,141 63,141

Households 723 325 360 251 251 105 111 117

Social benefits - - - 196 196 - - -

Other transfers to households 723 325 360 55 55 105 111 117

Payments for capital assets 4,071 2,742 3,250 4,069 4,069 3,566 3,718 3,901

Machinery and equipment 3,922 2,649 2,769 4,069 4,129 3,464 3,614 3,795

Transport equipment 1,411 - 563 3,356 3,056 2,853 3,005 -

Other machinery and equipment 2,511 2,649 2,206 713 1,073 611 609 3,795

Software and other intangible assets 149 93 481 - -60 102 104 106

Payments for financial assets 6 1,050,008 95 - - - - -

289,79 Total economic classification 343,677 1,364,294 269,396 319,538 319,538 267,481 274,314 5

Relating expenditure trends to strategic outcome oriented goal

The assets held by Government through SOCs oversight constitute essential part of South African national wealth (refer to figure 2: SOCs Asset Value below) hence the need to manage these assets with extra care and accountability. Therefore, constant monitoring and evaluation of the SOCs must be informed by the need to achieve the best possible results (financial, operational and social) at any given time.

The Department‟s medium term focus will be on facilitating a conducive environment for repositioning SOCs to advance their developmental mandate. It will also prioritise enhancing the efficiency of strategic transport corridors and the implementation of Government‟s support package to Eskom. The focus will also be on improving internal efficiencies and the functioning of the Department. Support for the achievement of the NDP goals will form the central part of the oversight function. To this end, the personnel establishment is expected to remain constant at 223, excluding interns and graduates. Currently, a large number of positions are Corporate Management and this must be reversed as the Department intends to build its capacity and focus in the specialist fields.

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To carry out the Department‟s high level stakeholder interactions, intergovernmental and coordinating activities and general oversight role of the Government‟s investment in SOCs, personnel travel extensively domestically and internationally; and the Department relies on the services of consultants who conduct highly technical research in the transport, manufacturing, and energy sectors. As a result of Cabinet budget reductions, travel and subsistence being the largest spending items are expected to decrease over the medium term. The Department intends to rationalise the use of consultants and draw on internal capacity where possible. Other reductions to the budget are the result of the transfer of the shareholder oversight function of Broadband Infraco to the Department of Telecommunications and Postal Services (DTPS).

Figure 2: DPE SOCs asset value

Breakdown of the SOCs overseen by the DPE (Rbn)

Alexkor BBI Denel Eskom SAA SAFCOL SAX Transnet

Breakdown of SOCs overseen by the DPE by Revenue, Profit and Asset Value (Rbn) ~96% of the total revenue Name Sector Revenue Profit Asset Base generated by the DPE’s Value SOCs can be attributed to Eskom Energy 139.5 7.1 504.9 Transnet and Eskom collectively (98% profits) Transnet Transport 56.6 5.1 240.1 SAA Transport 30.0 -0.4 15.2 These sectors contribute Denel Defence 4.6 0.2 8.0 significantly to the SAX Transport 2.2 0.01 1.4 economy: Transport: 9% SAFCOL Agriculture 0.9 0.1 Energy: 2% Alexkor Mining 0.15 0.04 0.9 Mining: 5% Agriculture: 2% BBI Communication 0.2 -0.2 1.6 Manufacturing: 15% To tal 203.95 11.9 755.4

Note: Assumption being made is that due to scale of Transnet and Eskom as collective, interventions applied to theses two entities can ensure the success of MTSF In relation to Government‟s 12 SoOutcomes,urce: relevant SO theC fin aDepartmentncial statements; DisPE .primarilygov.za; Team Acontributingnalysis to creating an efficient, competitive and responsive economic infrastructure network (Outcome 6) of the Medium Term Strategic Framework (MTSF). The Outcome 6 chapter the core of the performance agreement between the President and the Minister. Furthermore, the Department, through the activities of its SOCs, contributes to other outcomes such as decent employment through inclusive growth, skills and rural development.

The following is the Department‟s contribution towards achieving the outcomes that have been prioritised by Government:

3.1 Creating an efficient, competitive and responsive economic infrastructure network (Outcome 6) The past MTSF was adopted during the recession. One of the key objectives was to stabilise the economy and place it on a different growth trajectory. At the centre of this objective was: implementation of the capital expenditure programme that would address the capacity constraints experienced by the economy during high growth periods between 2005 and 2007; to act as a stimulus to jump-start the economy.

In this regard, Eskom‟s build programme, as well as the Transnet capital expenditure programme, formed the core of the Government‟s infrastructure investment strategy. This remains a priority in the current MTSF.

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The progress that has been made to accelerate infrastructure investment in the economy is highlighted below.

Eskom

Funding of the build programme up to 2018

Funding of the build programme emerged as one of the major challenges with roll-out of the build programme in the electricity sector. This is as a result of tariffs not being sufficient to cover operational costs as well as provide a reasonable return on investment to allow the utility to fund investment in additional generating capacity. Over the past five years, the Department has supported Eskom to secure tariff adjustments that will support its financial sustainability as well as provision of guarantees to keep the financing cost lower. As at 31 March 2014, R271.6 billion (90.5%) of the R300 billion borrowing programme had been secured. The R300 billion borrowing programme is based on the original funding requirements as at April 2010 and covers the period 1 April 2010 to 31 March 2017.

It should be noted that additional funding requirements, including those resulting from the lower than expected MYPD 3 tariff determination, are not included in this borrowing programme. The drawdowns for the year ending 31 March 2014 against the R300 billion funding plan is R44.7 billion, bringing the cumulative amount that has been drawn to execute the build programme to R188.7 billion.

Additional funding for the period until 31 March 2018, as a result of the MYPD3 decision amounts to R301 billion which still needs to be secured.

Progress on delivery of build programme (Medupi, Kusile, Ingula, Transmission Lines and Renewable Projects)

Eskom spent R58.2 billion on capital expenditure in 2013/14, reflecting a sustained increase in the capital expenditure in support of Government outcomes. The following are the key achievements of the build programme:

 Eskom completed the return-to-service project during the reporting period. All three power stations (Camden, Grootvlei and Komati) are fully operational. The last unit of this project – Komati Power Station‟s Unit 3 – was commissioned in September 2013. This brought the total amount of generating capacity for return-to-service added to the grid since 2005 to 3 731MW. This has been one of the factors that have played a crucial role in averting the collapse of the national electricity grid.  The refurbishment projects have made good progress, despite the ongoing challenge of outage constraints. All the Kriel units have now been refurbished, with the final unit (Unit 5) being synchronised on load on 15 March 2014. Furthermore, three of the six Matla units have been refurbished, with the third unit (Unit 5) synchronised on load on 25 March 2014. Delays were experienced at Duvha due to outage movements.  Medupi‟s first Unit (Unit 6) has been successfully synchronised.  Kusile achieved a day variance of 12.9 days (within the target of 30 days late variance). The station is scheduled for synchronisation by the end of 2015. The key challenge is finding a solution for control systems to avoid a repetition of the delays experienced at Medupi. Four medium term contracts have been signed for coal supply to Kusile Power Station during the commissioning phase. The conclusion of long term coal and limestone supply agreements for Kusile Power Station remains a focus area for the Department.  Work continues at Ingula, but the tragic incident that cost the lives of six contractors has affected the schedule. The delay has been estimated at 18 months. At the end of the reporting period, Ingula had a day variance of 11.6 days (within the target of 30 days late variance). Work to install turbines and generators will begin soon.  Sere Wind Farm has been completed within schedule and budget and is scheduled for the official launch in March 2015.  Approximately 811km of power lines and 3 790MVA of sub-station capacity were also commissioned during the course of the year.

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IPP contracts that have been signed

The electricity industry is undergoing reforms targeted at: enhancing participation of the private sector; attracting additional investment to address current capacity challenges; enhance the use of renewable energy. The first project under the Department of Energy (DOE) renewable independent power producers (RE-IPP) programme was connected to the grid on 27 September 2013 and the first IPP was commissioned on 15 November 2013. A total of 467.3MW is currently available to the system from these Independent Power Producers (IPPs). The DOE approved an additional 1 457MW, pursuant to the third window submissions. No contracts have yet been signed for this capacity.

Further PPAs, totalling 1 005MW, for DOE Peaker Plants were entered into on 3 June 2013 and became effective on 29 August 2013 (DOE Peaker Programme). Commissioning of these plants is expected during the 2015/6 financial year.

Transnet

TRANSNET CAPITAL INVESTMENT FIVE YEARS REVIEW Division(s) 2009/10 2010/11 2011/12 2012/13 2013/14 TOTAL TFR 9.7 12.5 14.8 18.3 25.1 80.4 TE 0.4 0.5 0.7 1.3 1.0 3.9 TNPA 3.2 2.0 1.7 1.7 1.2 9.8 TPT 2.4 0.7 1.5 2.2 1.6 8.4 TPL 3.1 6.1 4.5 2.8 3.4 19.9 Other (0.4) (0.3) (0.9) 1.1 0.2 (0.3) Total capex 18.4 21.5 22.3 27.4 32.5 122.1

The 2014/15 financial year is the third year of Transnet‟s roll-out of the Market Demand Strategy (MDS) that is underwritten by a rolling capital programme worth over R300bn. In the past five years, Transnet has invested over R120bn in infrastructure and capital projects, most of which has been committed to the rail business. This is crucial to enhance the efficiency of the logistics system and to reduce the cost to move goods, which will contribute to the overall competitiveness of the economy.

Key projects executed by the company over the past five years included the following:

 GFB locomotives During the 2013/14 financial year, Transnet awarded a R50 billion contract for acquisition of 1 064 locomotives (599 new dual-voltage electric locomotives and 465 diesel locomotives) – this makes it the largest locomotive acquisition contract in the history of South Africa. Not only will this acquisition of locomotives enable Transnet to increase its rail volume capacity, but the procurement process has been structured in such a way as to allow for maximisation of localisation benefits. The transaction is expected to boost the country‟s manufacturing capacity while also transforming the rail industry.

Nine of the 95 electric locomotives were delivered in the 2013/14 financial year. Local assembly of the locomotives commenced on 4 February 2014 at Transnet Engineering in Koedoespoort. The remaining 23 of the 43 Class 43 diesel locomotives were received in the 2013/14 financial year.

 Iron ore line expansion up to 60,0mt The last 26 of the 32 locomotives needed to facilitate the increase in iron ore capacity to 60,0mt were tested and accepted into operations during the 2013/14 financial year. The pre-feasibility study to expand capacity from 61mt to 82,5mt has been completed. Phase 1D (being the addition of a 3rd tippler and associated rail works) has been approved by the Transnet Board of Directors, at a cost of approximately R1,6 billion. The 3rd tippler will ensure that 60mt can be exported on a sustainable basis, as the existing two tipplers currently do not allow for any down time.

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 Coal line expansion up to 81,0mt Infrastructure work required to expand the coal line from 68mt to 81mt commenced during the 2013/14 financial year. The work is expected to gain momentum during the 2014/15 financial year, with construction of the consolidation yards at Saaiwater and Blackhill yards.

 Durban Container Terminal (DCT) Transnet has commenced with the reconstruction and deepening of seven steel sheet piled berths at Maydon Wharf, in the Port of Durban. Construction of the first berth was successfully completed and is now fully operational. The contract for the remaining six berths was awarded recently and on-site construction is expected to commence in the near future.  Durban Dig-Out Port The Durban International Airport (DIA) site acquisition from Airport Company of South Africa (ACSA) was concluded during the 2012/13 financial year at a total cost of R1,85 billion. The DIA site is proposed to be developed into a dig-out port to address demand requirements in the container, liquid bulk and automotive sectors up to 2040.  Cape Town Container Terminal Expansion of the Cape Town Container Terminal aims to increase capacity from 0.9 million TEUs to 1,4 million TEUs to address growth in demand for containers in the Western Cape region. The capital project to deepen berths and increase container handling capacity to 900 000 TEUs has been completed. Consideration is now being given to increasing the container handling capacity to 1, 4 million TEUs.  Ngqura Container Terminal The Nqgura Container Terminal was launched in 2012. The port is positioned as a trans-shipment hub and a gateway for container traffic into Southern Africa. The second phase A of the project, to expand capacity from 800 000 twenty-foot equivalent units (TEUs) to 1.5 million TEUs, has commenced and is expected to be completed during the 7 year MDS period.  New Multi-Product Pipeline (NMPP) Significant progress has been made on the NMPP with favourable weather conditions having enabled accelerated construction work to take place. The project has, however, faced some challenges with regard to industrial action and tank construction work. In spite of these challenges, the project is expected to be completed during 2015 financial year.

Ports productivity

Durban

During the period under review, ship turnaround time was slightly below the target of 59, largely due to inclement weather. The gross crane moves per hour (GCH) on Pier 1 and Pier 2 are below target, with Pier 1 at 24 moves (target is 28) and Pier 2 at 25 moves (target is 30). Anchorage waiting time was also below target, at 57 hrs (target is 46). Infrastructure upgrades are being implemented to improve functioning of the port.

Cape Town

The ship turn-around time was 29,6hrs better than the set target of 30hrs. The gross crane moves per hour were better than target, at 34 moves against a target of 32. Anchorage waiting time was below target at 57 hrs (target was 46 hrs).

Volumes Transported by Rail Transnet has continued to move volumes above 200 mt per annum, despite the lacklustre performance of the economy. During the period under review, 210.43 mt were showing a 1.3% increase in volumes compared to the previous financial year.

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The volume growth was attributable to the following:  General freight business (GFB) volumes of 88mt reflected a positive growth of 6% compared to the previous year.  Export coal volumes of 68.2mt were 11% below budget and 1% below the previous year.  Export iron ore volumes of 54.3mt were 12% below budget and 3% below the previous year.  The 8.4% shortfall on the budgeted volume of 229.72mt was mainly due to export coal and export iron ore.

Key reasons for the deviation of a 19mt (88.4%) shortfall on total rail volumes were as follows:

 A 7.3mt shortfall on export iron ore due to customer production problems and a decline in export iron prices due to slow global economic growth.  The 8.8mt export coal volume shortfall was partly due to a decline in export coal prices, customer related equipment failure, as well as internal and external operational constraints (such as locomotive failure and power failure, including Richards Bay Container Terminal (RBCT) cable failure and cable theft).  The GFB sector accounted for the remaining shortfall of 3.2mt. A range of factors affected volume performance, including slow domestic growth, industrial strikes, customer loading and offloading challenges and wet weather conditions.

Migration of transportation of coal from road to rail

The coal business under-achieved on its annual target of 95.151mt. The actual achievement for coal was 83,13mt in 2014, which represents a 12.6% under-achievement.

Road to rail migration efforts are as follows:

 Freight Rail‟s market development initiatives target retention and growth of traditional rail customers in the mining and heavy manufacturing sectors (e.g. export coal and iron ore), including companies that beneficiate mining commodities. Other major customers are in the fuel, chemicals, agricultural and timber sectors.  The business is targeting new customers in the Fast Moving Consumer Goods (FMCG), textile and light manufacturing industries, where there are opportunities for „rail friendly‟ commodity types to be shifted from road to rail.  The rail migration programme that focuses on Eskom coal is progressing well in support of the road to rail programme.

GFB Productivity

On-time train departures improved by 24% compared to the previous year and by 5% compared to budget; this was due to diligent monitoring and follow-up on the root causes of deviations. On-time arrivals also improved by 4.5% compared to the previous year, but declined by 31% compared to budget, partly due to en-route system-failures. Diligent monitoring and follow-up on the root causes of departure and arrival problems will continue.

The gradual delivery of 43 Class diesel locomotives for General Freight and focused attention on operational efficiency and volume growth resulted in an 8% improvement in asset utilization, compared to both the prior year and budget.

3.2 Outcome 4: Decent employment through inclusive growth The Department was identified as one of the contributors required to support implementation of the Outcome 4 which in Department‟s is focused on enhancing Denel‟s manufacturing and technology capabilities and maximizing localization on the capex. Infrastructure investment was identified as one of the job drivers in the NGP. The industrial capabilities that exist within SOCs such as Denel are being leveraged to support the development of advanced manufacturing in the South African economy, in line with IPAP.

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Denel

The turnaround of Denel has been crucial to preserve advanced industrial capabilities within the State‟s portfolio. The company has continued to support the needs of the South African Defence Force, which has played a crucial role in developing capability to secure other markets. In June 2013, the company reported a R21 billion order book, which increased to R30 billion by December 2013. This will enable the business to meet its plan of doubling revenues to R8 billion by 2018/19.

One significant order secured by the SOC in the 2013/14 financial year was a R10 billion contract by the South African Department of Defence to produce 238 Hoefyster infantry fighting vehicles (IFV) for the South African Army. The programme is critical in maintaining the country‟s advanced defence manufacturing capabilities. Importantly, 70% of the components for the vehicles will be developed and manufactured in South Africa, with 2 000 jobs to be created at Denel and in the related South African defence industry.

In 2013/14 Denel revived its space and satellite capabilities, after entering into a collaborative relationship with the South African National Space Agency (SANSA). This will not only ensure that the country‟s space and satellite capabilities are enhanced, but will provide local industry with the opportunity to tap into the growing and strategic global space and satellite industry.

The SOC has delivered and supported the deployment of the Rooivalk combat support helicopter in combat operations in the Democratic Republic of Congo (DRC). The deployments were done under the United Nations Organisation Stabilisation Mission (MONUSCO) and have proven to be a game changer in peace enforcement operations.

Localisation and transformation (Eskom and Transnet)

The Department has continued to monitor implementation of the Supplier Development Plans of both Eskom and Transnet. Furthermore, the Department has incorporated localization targets into the shareholder compacts of these entities; to ensure that their procurement expenditures advance the industrialization programme of Government. The proportion of both components and services sourced locally by these SOC has gradually increased since the introduction of the Competitive Supplier Development Programme (CSDP).

In the 2013/14 financial year, Transnet achieved 92% local content procurement as a percentage of total spend. This is an exceptionally good performance for the year, especially if you take into consideration that the local content target was only 70% of total spend.

Transnet also exceeded the supplier development target by achieving 37% commitment of contract value to be invested in the country: the target was only 35%. Transnet‟s performance in regard to supplier development would have been significantly higher if the SOC was not bound by the Preferential Procurement Policy Framework Act, 2000 (PPPFA). Engagement with National Treasury on the PPPFA is ongoing in order to find a solution that will allow SOC to maximize their procurement spend.

BBBEE spend amounted to 94% of Total Measurable Procurement Spend (TMPS); this was against a target of 70%. Spend on Black Women Owned and Black Youth Owned remains low. The Department is, however, continuing to engage Transnet to find ways to improve spend on these two groups.

3.3 Outcome 5: A skilled and capable workforce to support an inclusive growth path SOCs within the DPE portfolio committed to support the National Skills Agenda through implementation of various skills initiatives, with a specific focus on scarce and critical skills. These initiatives include alignment of skills development programmes to the National Skills Development Strategy (NSDS) and National Skills Accord in support of the NGP and NDP. To ensure alignment to these interventions, the Department has established partnerships with the Department of Higher Education and Training (DHET), the Economic Development Department (EDD) and the Department of Trade and Industries (DTI). This is crucial to ensure that the skills development capacity of SOCs is leveraged to develop core and critical skills to meet the economy‟s requirements.

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The commitments made by SOCs and partnerships with relevant Government departments has resulted in the enhancement of provisioning of scarce and critical skills by SOCs to address skills gaps not only within SOCs themselves but as well as closing the national scarce and critical skills gaps. Thus SOCs alignment to the National Skills Accord focuses on the following commitments:

Commitment 1: Expand the level of training using existing facilities more fully.

Commitment 2: Make internships and placement opportunities available within workplaces.

Commitment 5: Improve funding of training and the use of funds available for training and incentives.

Commitment 8: Improve the role and performance of FET Colleges.

These commitments have been translated to form part of the targets that are included in the shareholder compacts concluded between the Minister and SOCs Boards. In the 2013/14 financial year, and in line with the National Skills Accord, SOCs committed to enroll 2 764 new artisan trainees of which: 1 040 trainees were to be enrolled at Eskom; 1 550 were to be enrolled at Transnet; and the remainder were to be enrolled at South African Airways, South African Airways Express (SAX), Alexkor and SAFCOL.

Transnet‟s enrolment includes 1000 additional artisan trainees funded through the R175 million from the National Skills Fund (NSF) to be trained over a period of three years, which will optimise their training facilities in addressing the national skills gaps and with a special focus on supporting SIPs. To this end, a Memorandum of Understanding (MoU) was concluded between the Department and the DHET in October 2013.

Other commitments made by SOCs within the portfolio include: training of technicians and engineers supported through bursary schemes and internship programmes; enrolment for training of cadet pilots; and training of learners in scarce and critical skills in areas such as train drivers at Transnet, energy field workers at Eskom, forestry workers at SAFCOL and airport crew members at both SAA and SAX.

In addition, Eskom has also committed to ensuring that at least 2 500 matriculants and 2 500 graduates in the pipeline are trained in artisan trade skills and supported in work experiential learning programmes through Eskom and its supplier network.

As at 31 March 2014, a total of 2 109 new artisan trainees were enrolled at SOCs in the Department‟s portfolio, of which: 1 569 artisans were enrolled at Transnet; 94 new artisan were enrolled at Eskom; 306 new artisan trainees enrolled at Denel (237 of the trainees enrolled for training through Denel Technical Academy partnerships with private companies); 147 artisan trainees enrolled at SAA; 36 artisan trainees enrolled at SAX; 4 and 6 artisan trainees enrolled at Alexkor and SAFCOL, respectively.

A total of 459 technician trainees (Transnet – 339; Eskom – 100; Denel – 12; Broadband Infraco – 6; SAFCOL - 2) and 367 engineering trainees (Transnet – 138; Eskom – 179; Denel – 41; Broadband Infraco – 4; and SAFCOL - 4) were enrolled in various programmes supported through bursary schemes and internship programmes. Other SOC scarce and critical skills enrolments include 55 new cadet pilots enrolled for training at SAA (34) and SAX (21), with 2 176 new learners enrolled in sector specific scarce and critical skills learning programmes to address sector skills shortages.

In addition, Eskom has enrolled 172 matriculants in artisan trade skills and 195 graduates in various work experiential learning programmes within Eskom and its supplier network. Thus, as at March 2014, Eskom and its suppliers had 2 718 matriculants and 1 607 graduates in the pipeline, who are being trained and placed in various learning programmes.

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3.4 Outcome 7: Vibrant, equitable and sustainable rural communities with food security for all

Alexkor

The SOC has delivered on Government‟s obligations to the Richtersveld Community, with a R120 million upgrade of the Alexander Bay Township infrastructure (roads, electrical and water reticulation and waste water treatment) being completed on 31 March 2013 and the town‟s registration confirmed on 22 November 2013. This means that the town, which was previously a mining compound, is one of the new towns in South Africa and part of the Richtersveld Local Municipality. The value of property in the town that will be transferred to the community is estimated at R200 million.

The jointly-owned mine, which had previously seen its diamond production decrease substantially due to the land restitution process, has seen an improvement in carat production from 35 000 carats to over 50 000 carats. This has been on the back of a newly commissioned R50 million processing plant at Muisvlak near Port Nolloth, which has created 200 jobs for the community.

During the period under review, the Minister considered the strategy submitted by the Board aimed at diversifying the operations of the company. The Company supported by the Department is developing the business case to realise the diversification objective.

SAFCOL

In 2012/13, the Department revised the SOC mandate to enable product diversification and further vertical integration. The SOC will announce the new corporate strategy within the ambits of the revised role in 2014/15. As at the end of the financial year, SAFCOL spent R6,591 million on socio-economic development initiatives. This represents 3.3% of the Net Profit After Tax (NPAT) - a significant achievement compared to the Shareholder Compact (SHC) target of 1%. SAFCOL continues to create jobs in communities surrounding its plantations through the Extended Public Works Programme (EPWP).

SAFCOL completed 11 socio-economic development initiative projects during the 2013/14 financial year. Details of the completed projects are as follows:

 Emhlabaneni Primary School (classroom and ablution block);  Esihlengeni Combined School (supplied 20 new computers and installed table tops, ICT burglar proofing and electrical work);  Mayflower Disability Centre (retaining walls and burglar proofing);  Dinethemba and Daviddale ECD centres (wash basins and ablution blocks);  Tshitavhadulu Community Hall (new building);  Mantjolo Market Stalls (market stalls and ablution facility);  Ntabamhlophe Primary School (3 ablution blocks);  Thathe-Vondo Guest House (renovations);  Leroro Shelter (burglar proofing);  Diepdale Youth Centre (site establishment has been completed and excavation of trenches is 90% complete); and  Desk Manufacturing Project (industrial machines and tools have been procured).

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PART B: PROGRAMME AND SUB-PROGRAMME PLANS

PROGRAMMES

4.1 PROGRAMME 1 – ADMINISTRATION AND CORPORATE MANAGEMENT Purpose:

Provides strategic management, direction and administrative support to the Department, which enables the Department to meet its strategic objectives.

Programme Overview:

The programme includes the Ministry, the Office of the Director-General and Support Services. The programme is currently made up of the following sub-programmes: Ministry; Management; Corporate Services; Chief Financial Officer; Human Resources; Communications; Strategic Planning, Monitoring and Evaluation; Inter-Governmental and Stakeholder Relations; Internal Audit and Office Accommodation.

Corporate Services is responsible for:

 Security and Facilities Management – Provide a safe and secure environment and internal administration and facilities services to internal customers.  Information Management and Technology – Provide IT services and applications as strategic tools for business enablement, coupled with a comprehensive Records Management, Knowledge Management, Library and Information Services.  Office of the Chief Financial Officer is responsible for Financial Management Services to ensure compliance with various legislation including the Public Finance Management Act, 1999 (Act No 1 of 1999), Public Audit Act, 2004 and Treasury Regulations; and efficient and effective supply chain management services  Human Resources is responsible for assisting line management to implement operational excellence and developing the Human Capital potential in the Department.  Communications is responsible for repositioning the DPE as a strong shareholder Department; make the DPE brand relevant and meaningful to ordinary South Africans; impact media relations and media communication; and improve employee engagement.  Strategic Planning, Monitoring and Evaluation is responsible for co-ordination, management and oversight of outcomes based performance reporting of the Department; implementation of performance monitoring and evaluation processes for individual programmes and business units as a mechanism for measuring delivery of our strategic objectives; and reporting to various stakeholders.  Inter-Governmental and Stakeholder Relations is responsible for coordination, support and provision of advice to the Minister, Deputy Minister, Director-General and the Department on matters related to the Intergovernmental, International and Stakeholder Relations.

 Internal Audit Provide independent and objective assurance and consulting Internal Audit services designed to add value and improve the Department‟s operations. Assist the Department to accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes.  Office Accommodation is for the devolution of funds from the Department of Public Works for the DPE premises.

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PROGRAMME 1: ADMINISTRATION

4.2.4 Quarterly Targets for Legal and Governance for 2015/16

Annual targets Quarterly targets Reporting Performance indicator Period 2015/16 1st 2nd 3rd 4th

Improve service delivery

Inter-Governmental Relations

Approved executive Quarterly Approved Minister Develop the Mid-term review Support the Track progress on annual strategic and Deputy Public on the implementation the stakeholder engagement Minister‟s Public Participation implementation of the PPP implementation of Program/calendar and Participation Programme and of the PPP issues from the support implementation Program (PPP) Calendar. PPP and Support the implementation Support the implementation Track progress Support the report produced. implementation of of the PPP on the implementation of the PPP implementation the PPP of issues from the PPP Track progress Report PPP to the on the Report to the Presidency. implementation Presidency of issues from Report to the the PPP Presidency

Report PPP to the Presidency

Approved DPE Quarterly Approved DPE Develop DPE Quarterly Quarterly Quarterly progress international engagement international International progress report progress report report on programme relations relations on commitments on commitments commitments programme programme and arising from the arising from the arising from the calendar international international international relations relations relations programme programme programme.

Operational efficiency

Human Resources

Reviewed DPE HR Plan Quarterly Review HR Plan HR Plan Report on the Submission of Request submitted and submit to Implementation Implementation recommended to MPSA and DPSA DPSA by 30 Report submitted of departmental June 2015 to DPSA by 31 May structure for 2015 organisational approval structure review interventions produced Reviewed HR Plan (MTEF) submitted to DPSA by 30 June

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Annual targets Quarterly targets Reporting Performance indicator Period 2015/16 1st 2nd 3rd 4th

2015

Approved HOD Quarterly HOD DPE HOD Quality assured Workshop HR Review and update Delegations Guidelines Delegations Delegations by Legal and Delegations DPE delegations developed guidelines and governance and Register approved by 30 Register signed off by September 2015 ADG

DPE critical business Quarterly Re-engineering Critical processes AS_IS processes Improvement Automation of 2 processes re-engineered of critical identified based on mapped and plan (TO_BE critical processes Departmental their impact on gaps identified processes) Business operational developed processes efficiency and completed compliance requirements

Approved Workplace Skills Quarterly WSP approved Produce and Workplace Skills Workplace Workplace Skills Plan Plan (WSP) submitted to by DG by 30 Submit Plan Skills Plan implementation PSETA June 2015 Departmental Skills implementation implementation report produced Plan for approval report produced report produced Internship recruitment for 16/17 intake

Information Management

IT Infrastructure upgrading Annually Develop and Feasibility and Sourcing of Phased Phased programme implement a costing exercise technical implementation implementation Departmental IT completed support based on the based on the modernization programme programme programme

Expenditure Estimates

Table 2: Administration

2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Audited Audited Audited Adjusted Revised Revised Revised Revised outcome outcome outcome Appropriatio Estimate Baseline Baseline Baseline n

Rand thousand

Subprogrammes

Ministry 31,861 30,036 31,342 34,283 34,283 35,963 38,062 36,265

Management 8,240 4,173 9,269 17,298 17,298 24,238 15,187 15,881

Corporate Services 23,920 28,334 27,056 29,100 29,100 26,996 28,740 34,317

Chief Financial Officer 12,125 12,738

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2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Audited Audited Audited Adjusted Revised Revised Revised Revised outcome outcome outcome Appropriatio Estimate Baseline Baseline Baseline n

Rand thousand

11,171 10,074 11,281 12,125 12,283 13,466

Human Resources 9,499 12,698 17,618 25,153 25,153 20,854 21,025 22,177

Communications 13,050 12,840 14,227 11,453 11,453 9,953 10,369 10,989

Strategic Planning, Monitoring and Evaluation - 3,379 4,807 7,553 7,553 6,729 6,717 7,089

Intergovernmental Relations - 1,772 6,711 7,157 7,157 8,077 8,475 8,961

Internal Audit 4,285 3,276 3,743 4,655 4,655 4,976 5,202 5,494

Office Accommodation 6,609 8,785 7,240 8,082 8,082 8,518 8,970 9,419

Total 108,635 115,367 133,294 156,859 156,859 158,587 155,485 164,058

Economic classification

Current payments 103,835 112,390 129,632 152,590 152,590 154,916 151,656 160,040

Compensation of employees 51,287 56,714 66,659 74,664 74,664 74,502 79,333 87,761

Salaries and wages 51,287 56,714 66,659 74,664 74,664 74,502 79,333 87,761

Social contributions ------

Goods and services 52,548 55,676 62,973 77,926 77,926 80,414 72,323 72,279

Administrative fees 131 718 527 810 810 793 830 919

Advertising 1,771 1,883 4,221 2,515 2,515 2,667 2,517 2,515

Assets less than the capitalisation threshold 362 442 354 1,055 1,055 1,053 1,031 1,139

Audit costs: External 4,117 1,908 2,087 2,200 2,200 2,213 2,204 2,261

Bursaries: Employees 1,400 1,054

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2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Audited Audited Audited Adjusted Revised Revised Revised Revised outcome outcome outcome Appropriatio Estimate Baseline Baseline Baseline n

Rand thousand

629 393 463 1,400 1,007 1,111

Catering: Departmental activities 974 1,147 1,309 635 635 1,110 1,023 1,016

Communication (G&S) 2,864 3,344 3,220 2,759 2,759 3,447 3,191 3,667

Computer services 2,726 3,078 4,125 3,974 3,974 4,884 4,730 5,542

Consultants and professional services: Business and advisory services 3,237 2,325 7,887 20,623 20,623 19,135 12,754 13,168

Consultants and professional services: Legal costs 96 - - 893 893 1,000 1,000 1,117

Contractors 983 2,130 809 1,898 1,898 2,032 1,738 1,847

Agency and support / outsourced services 2,199 3,558 1,361 3,479 3,479 840 1,476 800

Entertainment 57 30 19 252 252 247 243 254

Fleet services (including government motor transport) 765 805 1,149 1,108 1,108 1,538 1,175 1,587

Housing ------

Inventory: Clothing material and accessories - - 25 - - - - -

Inventory: Food and food supplies 122 113 ------

Inventory: Fuel, oil and gas - 21 ------

Inventory: Materials and supplies 61 63 1 - - 2 3 4

Inventory: Medical supplies 1 3 ------

Inventory: Other supplies 24 25 - - - - - 21

Consumable supplies - 34 624 708 708 839 1,172 974

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2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Audited Audited Audited Adjusted Revised Revised Revised Revised outcome outcome outcome Appropriatio Estimate Baseline Baseline Baseline n

Rand thousand

Consumable: Stationery, printing and office supplies 2,021 2,616 2,248 1,361 1,361 1,572 1,507 1,533

Operating leases 1,720 1,814 1,292 1,790 1,790 3,412 3,248 2,086

Property payments 6,884 9,137 7,504 8,472 8,472 8,918 9,380 9,850

Transport provided: Departmental activity ------

Travel and subsistence 16,418 14,838 14,951 16,385 16,385 18,441 17,742 16,077

Training and development 1,932 1,068 1,650 2,604 2,604 2,112 2,004 2,093

Operating payments 1,078 2,352 1,076 1,491 1,491 1,326 1,093 1,374

Venues and facilities 1,376 1,831 6,071 1,514 1,514 1,630 1,003 1,058

Rental and hiring - - - - - 196 205 266

Transfers and subsidies 723 227 318 200 200 105 111 117

Provinces and municipalities - - 2 - - - - -

Municipalities - - 2 - - - - -

Municipal bank accounts - - 2 - - - - -

Municipal agencies and funds ------

Households 723 227 316 200 200 105 111 117

Social benefits - 13 269 145 145 - - -

Other transfers to households 723 214 47 55 55 105 111 117

Payments for capital assets 4,071 2,742 3,249 4,069 4,069 3,566 3,718 3,901

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2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Audited Audited Audited Adjusted Revised Revised Revised Revised outcome outcome outcome Appropriatio Estimate Baseline Baseline Baseline n

Rand thousand

Machinery and equipment 3,922 2,649 2,768 4,129 4,129 3,464 3,614 3,795

Transport equipment 1,411 - 747 3,056 3,056 2,853 3,005 -

Other machinery and equipment 2,511 2,649 2,021 1,073 1,073 611 609 3,795

Software and other intangible assets 149 93 481 (60) (60) 102 104 106

Payments for financial assets 6 8 95 - - - - -

Total 108,635 115,367 133,294 156,859 156,859 158,587 155,485 164,058

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Performance and Expenditure Trends for Administration

The spending focus over the medium term will be on supporting the Department in playing its oversight role over SOCs by providing administrative support to the Minister, including corporate and human resource services to the Department. The programme will also focus on improving the Department‟s efficiency and productivity by reconfiguring its business, which will enable it to carry out its mandate; and will put in place a three-year rolling evaluation plan to assess the impact of programmes that have been implemented by the Department and its SOCs. Thus over the medium term, the bulk of the programme‟s allocation will be spent on compensation of employees, who provide strategic and administrative support to the Department. Spending on this item is projected to grow following the reconfiguration. The number of personnel will not increase significantly however the expenditure will increase by 5.5 per cent over the medium term.

There will be a decrease in expenditure on goods and services over the medium terms as a result of Cabinet budget reductions; this is directly linked to reductions in consultants and travel subsistence. The significant items are consultants and professional services. The utilisation of consultants provides the specialist expertise required particularly in the transport, manufacturing, and energy sectors.

4.2 PROGRAMME 2 - LEGAL & GOVERNANCE

4.2.1 Strategic Objective Annual Targets for Legal and Governance for 2015/16 Over the MTEF period the programme will ensure effective shareholder oversight of SOCs by:

Providing legal services and coordinate governance systems

Facilitate the implementation of all legal aspects of transactions that are strategically important to the Department and SOCs

Ensuring that financial and operational risk management processes are embedded throughout the department as and when required, over the medium term

Addressing constraints on SOCs‟ contract negotiations and management to improve commercial competence and contribute to economic growth and development on a regular basis

Providing assistance on developing and negotiating shareholder compact framework annually in terms of Public Finance Management Act, 1999.

Providing guidance on appropriate delegation frameworks between the SOC Boards and executive management on a regular basis

Advising the Minister regularly on the appointments of board of directors including remuneration, preparations for Annual General Meetings (AGMs), and conducting annual reviews of ownership policies.

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4.2.2 Programme performance indicators and annual targets for 2015/16 Estimated Programme Audited/Actual performance Medium-term targets performance performance indicator 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Strong shareholder

Implementation - - - Dissemination Implementation Implementation, of the SOC and and monitoring of Monitoring and Remuneration consultation the Remuneration Evaluation Standards with standards stakeholders on the Remuneration Standards

Approved Risk - - - Shareholder Draft Modeling Fully Functional Risk Modeling Tools Risk Tool completed Modeling Tool in place and Management and piloting of Risk Guidelines Framework Modeling Tool developed initiated

Alignment and efficiency across institutional model

Develop - - - GSM Draft White Paper Table Draft Bill to Government Concept and Draft Bill Parliament and ratify Shareholder Paper into law Management Model (GSM)

4.2.3 Quarterly Targets for Legal and Governance for 2015/16

Annual Quarterly targets Reporting targets Performance indicator Period 2015/16 1st 2nd 3rd 4th

Strong Shareholder

Approved Risk Modelling Quarterly Shareholder Feasibility Draft Risk Draft Risk Submit Risk Tools and Guidelines Risk Report on risk Managemen Management Management Management modelling tool t Framework Framework to Framework Framework issued for Minister developed comments with external stakeholders

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Annual Quarterly targets Reporting targets Performance indicator Period 2015/16 1st 2nd 3rd 4th

Approved SOC Quarterly SOCs Remuneration Consultatio New Monitoring Remuneration Standards Remuneratio Standards n with remuneration compliance with the and implementation n Standards approved by stakeholders standards new standards monitoring report approved Minister for completed issued external consultation

Alignment and Efficiency Across Institutional model

Government Shareholder Quarterly GSM GSM Issue GSM Present GSM Submit GSM Management Model Concept Concept Concept Concept Concept Paper to developed Paper Paper paper for paper to Cabinet for developed approved by comments Economic endorsement Minister through Sectors, consultation Employment with and External Infrastructure Stakeholder Development s Cluster Fora for consultation and comments

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4.2.4 Reconciling Performance Targets with the Budget and MTEF Expenditure Estimates

Table 3: Legal and Governance

2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Audited Audited Audited Adjusted Revised Revised Revised Revised outcome outcome outcome Appropriat Estimate Baseline Baseline Baseline ion Rand thousand

Sub-programmes

Management 1,822 2,252 3,021 2,826 2,826 2,956 3,067 3,244

Legal 12,775 13,370 12,704 12,335 12,335 13,127 14,461 15,329

Governance 4,921 7,855 7,434 9,150 9,150 7,746 8,707 8,985

Total 19,518 23,477 23,159 24,311 24,311 23,829 26,235 27,558

Economic classification

Current payments 19,518 23,450 23,146 24,311 24,311 23,829 26,235 27,558

Compensation of employees 13,206 14,111 15,178 17,542 17,542 18,773 20,486 20,443

Salaries and wages 13,206 14,111 15,178 17,542 17,542 18,773 20,486 20,443

Social contributions ------

Goods and services 6,312 9,339 7,968 6,769 6,769 5,056 5,749 7,115

Administrative fees - 148 ------

Advertising - 41 ------

Assets less than the capitalisation threshold - 2 ------

Catering: Departmental activities 54 74 46 24 24 28 28 31

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2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Audited Audited Audited Adjusted Revised Revised Revised Revised outcome outcome outcome Appropriat Estimate Baseline Baseline Baseline ion Rand thousand

Communication (G&S) 78 124 139 204 204 544 572 600

Computer services ------

Consultants and professional services: Business and advisory services 422 4,322 2,458 2,450 2,450 655 1,287 2,442

Consultants and professional services: Legal costs 2,300 430 1,878 2,166 2,166 2,282 2,402 2,581

Contractors 28 84 98 - - - - -

Agency and support / outsourced services 343 552 1,197 - - - - -

Entertainment 1 2 - 14 14 13 13 14

Inventory: Materials and supplies 24 ------

Inventory: Medical supplies - 2 ------

Consumable supplies - - 3 - - - - -

Consumable: Stationery, printing and office supplies 2 74 1 - - - - 3

Operating leases - - 4 - - - - -

Travel and subsistence 2,547 2,753 1,723 1,831 1,831 1,358 1,266 1,255

Training and development 120 170 156 - - - - -

Operating payments 275 325 34 - - - - -

Venues and facilities 80 176

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2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Audited Audited Audited Adjusted Revised Revised Revised Revised outcome outcome outcome Appropriat Estimate Baseline Baseline Baseline ion Rand thousand

118 236 231 80 181 189

Rental and hiring ------

Transfers and subsidies - 27 13 - - - - -

Households - 27 13 - - - - -

Social benefits ------

Other transfers to households - 27 13 - - - - -

Payments for capital assets ------

Payments for financial assets ------

Total 19,518 23,477 23,159 24,311 24,311 23,829 26,235 27,558

Performance and Expenditure Trends

The spending focus over the medium term will be on increasing the programme‟s capacity to provide legal services and transaction and contract management support; and on facilitating the creation of a legislative framework for the department‟s mandate to ensure compliance with applicable legislation and enhance corporate governance procedures by SOCs. As a result, the Legal and Governance sub programmes receive the bulk of the programme‟s allocation over the medium term. In line with the laws governing SOCs, the Minister is obliged to exercise care in carrying out these responsibilities. Specialist corporate legal expertise is frequently required to assist on issues including proposals by SOCs, and the assessment of contractual obligations and transactions. Spending on consultants who provide legal services decreased between 2011/12 and 2013/14 as the internal capacity to perform this function increased. However, due to an increase in transaction services, contractual arrangements and governance arrangements, spending on legal costs is expected to increase over the medium term.

Over the medium term, 73.9 per cent of the programme‟s budget is allocated to spending on compensation of employees.

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PROGRAMME 3 - PORTFOLIO MANAGEMENT AND STRATEGIC PARTNERSHIPS

Purpose: to provide shareholder management and oversight of the Eskom business, including the generation, transmission and distribution of electricity with particular emphasis on ensuring security of supply. To also provide strategic financial and transactional analysis of Eskom businesses as well as monitoring of its capital investment programme. Additionally, provide oversight of the implementation of the PBMR care and maintenance programme to preserve intellectual property and assets.

The sub-programmes in this programme are as follows:

 Energy and Broadband Enterprises – Includes Eskom and PBMR.  Manufacturing Enterprises - Includes Denel, Alexkor and SAFCOL.  Transport Enterprises - Includes South African Express (SAX) and Transnet.  Economic Impact and Policy Alignment – aligns SOC with overarching government economic, social and environmental policies.  Strategic Partnerships – has evolved from the work of the Chief Investment and Portfolio Manager (CIPM) and aims to ensure SOC commercial sustainability and attainment of desired strategic outcomes and objectives by SOC.

4.1 ENERGY ENTERPRISES:

Purpose: to provide shareholder management and oversight of the Eskom business, including the generation, transmission and distribution of electricity with particular emphasis on ensuring security of supply. To also provide strategic financial and transactional analysis of Eskom businesses as well as monitoring of its capital investment programme. Additionally, provide oversight of the implementation of the PBMR care and maintenance programme to preserve intellectual property and assets.

Energy Enterprises includes:

 Management comprises the office of the Deputy Director-General which provides strategic leadership and management of the programme personnel.  Eskom - shareholder management and oversight of the Eskom business, including the generation, transmission and distribution of electricity with particular emphasis on ensuring security of supply. To also provide strategic financial and transactional analysis of Eskom businesses as well as monitoring of its capital investment programme. Additionally, provide oversight of the implementation of the PBMR care and maintenance programme to preserve intellectual property and assets.

Over the MTEF period the sub-programme will ensure the following:

 Strengthen the department‟s oversight role by ensuring the alignment of strategic intent in relation to the state owned companies‟ role in achieving government objectives in the energy sector on an ongoing basis.

Contribute to the enhancement of the performance of SOCs by:

 Evaluating corporate plans to determine whether state owned companies‟ performance aligns with agreed key performance indicators, and providing advice and guidance to their boards on an ongoing basis;  Monitoring the implementation of corporate plans and shareholder compacts quarterly;  Assessing shareholder and enterprise performance risk quarterly and directing and advising the Eskom Board; and  Consulting with stakeholders on key risks, policy directives, and alignment with Government objectives.

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Strategic Objective Annual Targets for 2015/16

Strategic Objectives 5 year Strategic Plan Audited/Actual Estimated Medium-term targets Targets performance performanc e 2014/15

2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 Ensure Eskom‟s -Improved Eskom - - Implementation of Monitor and Monitor the implementation financial sustainability balance sheet the government review the of the government support (Explore and implement support package implementation package various funding options) of the government support package

Establish a baseline for MYPD4 Ensure improved and Increased electricity - - - Implement Monitor and Monitor stability of existing sustainable operations reserve margin strategies aimed improve the Eskom fleet at improving implementation operations of the generation sustainability plan

Develop a position on the life assessment of the Eskom generation plant

Ensure delivery of the Increased infrastructure - - - Monitoring the Monitoring the MTSF infrastructure targets build programme investments implementation of implementation met (Medupi full the delivery of the of the delivery of commissioned) Increased electricity build programme the build reserve margin programme

Eskom

Support the security of electricity supply by:

 Review Eskom‟s maintenance plans, operational practices, electricity generation, transmission and distribution efficiency, and its reserve margins on an ongoing basis;  Ensuring that Eskom supplies electricity by monitoring and evaluation of system security and the new build programme to alleviate constraints on an ongoing basis;  Monitoring the rollout of the capital investment programme to ensure it is delivered on time, is of appropriate quality and within budget;  Ensure the legal and regulatory compliance of Eskom by regularly engaging with relevant stakeholders such as the department of Energy, Environmental Affairs and Water Affairs and Sanitation and with the National Energy Regulator of South Africa regarding policies and regulations affecting Eskom; and  Exercise oversight to ensure that Eskom‟s capital investment support local suppliers industries by monitoring the implementation of the competitive supplier industries by the company‟s quarterly reports to assess progress.

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Programme Performance Indicators and Annual Targets for Energy Enterprises for 2015/16

Programme Audited/Actual Estimated Medium-term targets performance performanc performance e indicator 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

Ensure Eskom‟s financial sustainability

Improved - - Eskom Improved Improveme Continued financial sustainability Eskom‟s Support Eskom nt of while meeting national objectives financial Package financial financial sustainability matrices and matrices company financial sustainability

Ensure improved and sustainable operations within Eskom

Improved - - Improved improved Continued stability of existing operation and operations to operations Eskom fleet and set-up for minimised load minimise diversification of base-load shedding load trends shedding

Ensure delivery of Eskom‟s build programme

Progress report Delivery of Review and Ensure MTSF infrastructure targets met on the Delivery Medupi, Monitor the Eskom capital of Eskom‟s Kusile, delivery of projects are capital Ingula and the build on track, Programme Sere Wind programme with produced Farm sustained momentum through effective delivery mechanism

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Quarterly targets for financial year 2015/16

Performance indicator Reporting Annual Quarterly targets Period targets 2015/16 1st 2nd 3rd 4th Ensure Eskom‟s financial sustainability Improved Eskom‟s financial Quarterly Improved Implement Implement Implement Implement sustainability Eskom and monitor and monitor and monitor and monitor financial government government government government matrices support support support support and package package package package company financial Identify gaps Develop Implementa Implementati sustainability to financial business tion and/or on and/or sustainability case for monitoring monitoring of and delivering funding of priority priority on capital options funding funding programmes options options Identify potential funding options and prioritise Ensure improved and sustainable operations within Eskom Improved operation and Quarterly Improved Review Preliminary Implementa Implementati minimised load shedding trends operations to Eskom‟s assessment tion of the on of the minimise load medium term of current recommend recommenda shedding outlook fleet ations tions and/or Assessment of and/or findings of the Eskom‟s findings of fleet maintenance the fleet assessment practice assessment Ensure delivery of Eskom‟s build programme Progress report on the Review and Review the Monitoring Monitoring Monitoring Delivery of Eskom‟s capital Monitor the implementati progress progress progress Programme produced delivery of on of the report report report the build independent produced produced produced programme study on the build (Aecom report)

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4.2 MANUFACTURING ENTERPRISES Management comprises the office of the Deputy Director-General which provides strategic leadership and management of the programme personnel.

Denel – Shareholder management and oversight of Denel‟s financial performance and strategy implementation.

Alexkor – Shareholder management and oversight of Alexkor including review of Alexkor‟s strategy to enhance financial sustainability, and overseeing the implementation of the Richtersveld Deed of Settlement.

SAFCOL- shareholder management and oversight including forestry management, timber harvesting, timber processing and related activities, both domestically and internationally as well as oversight of the entity‟s restructuring.

Strategic Objective Annual Targets for 2015/16

Strategic 5 year Strategic Audited/Actual Estimat Medium-term targets Objectives Plan Targets performance ed perform ance

2012/ 2013/1 2014/1 2015/16 2016/17 2017/18 2018/19 13 4 5 Ensure SOC Improved SOC - - - On path to Maintain Continued financial financial balance sheet financial financially sustainability while meeting sustainability Funding options sustainabilit stable SOC national objectives identified and y for SOC implemented

Over the MTEF period the sub programme will:

 Ensure continuous alignment between shareholder strategic intent and the objective of state owned companies in the defence, mining and forestry sector by annually reviewing their enterprise strategies and mandates in the context of industry and sectorial policy shifts, and alert their boards and enterprises to material deviations;  Support the state owned companies in delivering on their outcome as set out in the shareholder compacts and corporate plan by benchmarking key performance measures annually and analysing quarterly and annual reports in order to assess the extent of progress; and  Collaborate with other state owned companies to contribute to achieving the national economic development objectives.

Denel

Oversee the development of a long term growth strategy to achieve financial stability and growth of manufactured export products.

Leverage off the company‟s advanced manufacturing capability through securing work packages in support of the industrialisation drive aligned with industrial policy action plan.

Alexkor

Monitoring the implementation of Alexkor‟s strategy to promote financial sustainability and monitor the implementation of the pooling and sharing joint venture turnaround strategy to ensure increased production and promote financial stability of joint venture.

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South African Forestry Company

Oversee the formulation and implementation of the SAFCOL corporate strategy, within the forestry sector over the medium term.

4.3.1.2.2 Programme Performance Indicators and Annual Targets for Manufacturing Enterprises for 2015/16

Denel, Alexkor and SAFCOL

Programme Audited/Actual Estimated Medium-term targets performance performance performance indicator 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

Ensure financial sustainability of Denel, SAFCOL, and Alexkor

Improvement - - Strategic Review of Improvemen Improvement Improvement of of intent existing t of new of new new strategies manufacturing statements of strategies strategies strategies enterprises the 3 entities of the 3 financial entities sustainability

4.3.2 Quarterly targets for financial year 2015/16

Denel, SAFCOL, and Alexkor

Annual targets Quarterly targets Reporting Performance indicator Period 2015/16 1st 2nd 3rd 4th

Ensure SOC financial sustainability

Denel Long Term Strategy Quarterly Denel‟s Long New growth Scoping of the Engagement New long term Developed Term Strategy opportunities new with key strategy completed completed identified opportunities stakeholders and submitted to including and their on the the shareholder participation in viability opportunities the delivery of completed initiated the Airline acquisition programme and delivery of the Transnet capacity expansion programme

Quarterly Formulation of Draft strategy Consultation Strategy New strategy the SAFCOL developed and on the strategy submitted to completed Strategy engagement with the key stakeholders shareholder initiated

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4.3 TRANSPORT ENTERPRISES Purpose: to align the corporate strategies of Transnet, South African Airways (SAA) and South African Express Airways (SAX) with Government‟s strategic intent and to monitor and benchmark their financial and operational performance.

Transnet

Provide oversight of Transnet‟s implementation of the market demand strategy to optimise the economic impact of infrastructure investment on the economy by monitoring the rollout of Transnet‟s capital expenditure programme on quarterly and annual basis to assess any significant deviations from corporate plans and potential cost overruns and time delays on major capital projects; and taken necessary action when there are deviations.

Ensures that Transport‟s operates an efficient, competitive and responsive transport and logistics systems by:

 Reviewing the logistics cost in the economy and finalising the methodology o measure Transnet‟s contribution to transport costs as a percentage Gross Domestic Product; this will be completed in March 2016;  Overseeing the introduction of multiple private rail operators on the branch line network to revitalise the rail network, and quantifying the operational efficiency of freight corridors to realise socioeconomic benefits by March 2015; and  Monitoring the implementation of the competitive supplier development programme to leverage off Transnet‟s locomotive fleet procurement for the development of local railway supplier industries by evaluating progress towards achieving localisation targets in the Transnet quarterly and annual reports.

SAX

 Monitor and assist with the implementation of SAX 20:20 Vision and Austerity Measures, in line with the Guarantee conditions, on an ongoing basis;  Facilitate strategic interventions with National Treasury relating to the resolution of the network feeder model, the holding structure of state-owned airlines and the review of commercial arrangements with SAA to ensure SAX‟s long-term financial and commercial sustainability; and  Provide strategic guidance as and when required to strengthen the financial positions of SAX to ensure their long-term sustainability.

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4.3.1 Strategic Objective Annual Targets for 2015/16

Strategic Objectives 5 year Strategic Plan Audited/Actual Estimated Medium-term targets Targets performance performanc e 2014/15

2012/13 2013/1 2014/15 2015/16 2016/17 2017/18 2018/19 4 Ensure SOCs financial Improved SOC - - On path to Maintain Continued financial sustainability sustainability balance sheet financial financially stable while meeting national objectives Funding options sustainability SOC identified and for SOC implemented (SAX) Full compliance to Guarantee Conditions Ensure SOCs Increased freight - - - On the path to Sustained, Improved Operational efficiencies maintain volumes increased incremental at defined targets and substantial commercially viable volumes increases in increases in volumes operations across rail and volumes ports transported across rail and ports

Accelerate capital Increased - - - On path to Ensure Transnet MTSF infrastructure targets met project delivery infrastructure accelerate capital projects investments Transnet are on track, Increased GDP capital with sustained programmes momentum through effective delivery mechanism

Over the MTEF the sub programme will:

 Ensure the alignment of the corporate strategies of Transnet and SAX with government‟s strategic intent and ensure that these state owned transport companies remain competitive, financially sustainable, and deliver an optimal service to the economy.  Support Transnet and SAX in delivering their outcomes by identifying appropriate benchmarks and key performance measures for their respective shareholder compacts and corporate plans and assess their performance on a quarterly and annual basis.  Create an enabling environment for transport enterprises and ensure an appropriate balance between the enterprises‟ interests, sustainability and developmental objectives by engaging with policy departments and relevant regulators at least once every quarter to discuss and resolve areas of misalignment; and inform boards of Transnet and SAX accordingly.  Implement the national corridor performance measurement system, over the medium term, which will identify inefficiencies in the logistics systems in South Africa; contribute to increased competitiveness; ensure an appropriate modal split between road, rail, and pipeline services ensure effective utilisation of existing logistics infrastructure and identify those areas that legitimately qualify for investment and upgrade.  Contribute to and facilitate the national transport policy formulation, as and when required, to achieve improvements in passenger and cargo movements.

Transnet

Provide oversight of Transnet‟s implementation of the market demand strategy to optimise the economic impact of infrastructure investment on the economy by monitoring the rollout of Transnet‟s capital expenditure programme on quarterly and annual basis to assess any significant deviations from corporate plans and potential cost overruns and time delays on major capital projects; and taken necessary action when there are deviations.

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Ensures that Transport‟s operates an efficient, competitive and responsive transport and logistics systems by:

 Reviewing the logistics cost in the economy and finalising the methodology o measure Transnet‟s contribution to transport costs as a percentage Gross Domestic Product; this will be completed in March 2016;  Overseeing the introduction of multiple private rail operators on the branch line network to revitalise the rail network, and quantifying the operational efficiency of freight corridors to realise socioeconomic benefits by March 2015; and  Monitoring the implementation of the competitive supplier development programme to leverage off Transnet‟s locomotive fleet procurement for the development of local railway supplier industries by evaluating progress towards achieving localisation targets in the Transnet quarterly and annual reports.

South African Express Airways

Monitor and assist with the implementation of SAX 20:20 Vision, on an ongoing basis.

Provide strategic guidance as and when required to strengthen the financial positions of SAX to ensure their long-term sustainability.

Programme Performance Indicators and Annual Targets for Transport Enterprises for 2015/16

Programme Audited/Actual performance Estimated Medium-term targets performance performance indicator 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

Ensure SOC financial sustainability

Create a path to - - Review financial Maintain Continued financial sustainability while financial sustainability and financially meeting national objectives sustainability for identify gaps and stable SOC SOC potential funding options

Ensure SOCs maintain commercially viable operations

Path to increased - - On the path to Sustained Operational efficiencies targets defined volumes across increased incremental rail and ports volumes across increases in rail and ports volumes (Transnet) transported across rail and ports

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Programme Audited/Actual performance Estimated Medium-term targets performance performance indicator 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

Accelerate capital project delivery

Increased Increased Ensure MTSF infrastructure targets met volumes across volumes across Transnet rail and ports rail and ports capital projects (Transnet) are on track, through a with sustained review of momentum operational through performance effective delivery mechanism

Quarterly targets for Transport Enterprises for 2015/16

Performance Reporting Period Annual targets Quarterly targets indicator 2015/16 1st 2nd 3rd 4th Ensure SOC financial sustainability

Reviewed financial Quarterly Review financial Review financial Develop business Execution of Execution of priority funding sustainability report sustainability and sustainability of case for funding priority funding options produced identify gaps and SOC options and options potential funding Identify gaps to prioritise options financial sustainability and delivering on capital programmes Identify potential funding options and prioritise

Ensure SOCs maintain commercially viable operations increased volumes Quarterly increased Review the level of Develop business Priority (rail and Priority (rail and port) across rail and ports volumes across performance for rail case for (rail and port) volumes volumes intervention rail and ports and port operations port) volume intervention executed (Transnet) Identify gaps in rail interventions executed through a review and ports operations of operational performance

Identify potential interventions to increase volumes in rail and ports NCPM data Data sourcing on Sign-off to go live Review output and Engage service provider to sourcing corridors and on one corridor sign-off go live on additional monitored Business Units corridors

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Accelerate capital project delivery Path to accelerate Quarterly On path to Review status of Develop Execution of Execution of priority interventions to Transnet capital accelerate current build business case priority expedite build programme programmes Transnet capital projects at for interventions programmes Transnet interventions to expedite and priorities build programme Identify gaps in Position and current project organise SOCs delivery with to commence potential with interventions intervention implementation

4.4 ECONOMIC IMPACT AND POLICY ALIGNMENT The sub-programme has been realigned from a function as a consulting facility (previously in Programme 6: Joint Project Facility) and its purpose is to align Shareholder oversight of SOC in relation to overarching government economic, social and environmental policies, and implement strategic interventions to contribute towards achievement of national objectives in support of economic growth and transformation.

This sub-programme comprises:

 Management - comprises of the Office of the Deputy Director General, which provides strategic leadership, and management of the programme and special projects (i.e property disposal)  Environmental Policy Alignment - oversee alignment and implementation of SOC Strategically Important Developments (SIDs) with special focus on Eskom‟s and Transnet's Build Programmes. Oversight and alignment of the Climate Change Policy Framework for SOC in support of national policies and the green economy.  Economic Policy Alignment - focuses on appropriate macro-economic modeling and research to enhance the links between industrial policy, macro-economic policy and the role of the SOC. Economic modeling will be outsourced to relevant institutions to determine the impact of SOC investment and operations on the economy including the impact on customers and suppliers.  Transformation, Skills and Youth Development - focuses on the provision of scarce and critical skills by the SOC in support of the National Skills Agenda the New Growth Path (NGP) and the National Development Plan (NDP) as well as optimizing the SOC skills training facilities through National Skills Funding amongst others. The unit‟s mandate includes overseeing the alignment and implementation of SOC transformation agenda in support of national policies and the New Growth Path Framework with focus on: Job creation; Youth development and development of targeted groups (i.e. women, people with disabilities, co-operatives, etc); Broad–Based Black Economic Empowerment (B-BBEE), Employment Equity (EE) and disposal of non-core property.

The activities and outputs of this sub-programme entails systematic coordination and partnerships with the relevant government Departments with primary mandate on the above as well as other key stakeholders.

4.3.1.4. 1 Strategic Objective Annual Targets FOR 2015/16 Oversee and supervise processes to conduct macro-economic modelling, research and impact evaluation to ensure SOC contribution towards economic growth Enhance alignment between national industrial policy, macro-economic policy and the role of SOC as well as monitor implementation.

Oversee processes to ensure that SOC comply with the environmental laws and optimise the impact of SOC on the reduction of carbon emissions and development of a green economy, while supporting SOC business needs.

Oversee alignment and implementation of SOC economic and social transformation agenda in support of national policies and economic growth, with specific focus on skills development, job creation, procurement/BBBEE and corporate social investments targeted at designated groups (youth, women, PWD and co-operatives, etc)

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4.3.1.4.2 Programme Performance Indicators & Annual Targets for Economic Impact & Policy Alignment for 2015/16 Programme Audited/Actual performance Estimated Medium-term targets peformance performance indicator 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

Ensure SOC financial sustainability

Economic - - Economic Economic Economic Modelling Economic Modelling Modelling and Modelling and Modelling and and Impact and Impact impact Impact Impact Assessment Assessment assessment Assessment Assessment report produced

Ensure SOCs maintain commercially viable operations

Impact - - - Impact Implement Implement Implement assessment on assessment of recommendati recommendations recommendations Transnet Pricing Transnet pricing ons and and monitor and monitor structures and structures on monitor progress progress logistical cost logistical costs progress report produced

4.3.1.4.3 Quarterly targets for Economic Impact and Policy Alignment for 2015/16 Performance indicator Reporting Annual Quarterly targets Period targets 2015/16 1st 2nd 3rd 4th Ensure SOC financial sustainability Economic Modelling and impact Quarterly Economic Establish Research Modelling High level SOC assessment report produced Modelling partnerships and analysis assumptions economic impact and Impact with relevant developed assessment report Assessment institutions of SOC Ensure SOCs maintain commercially viable operations Impact assessment on Transnet Quarterly Impact Reviews of Draft report Validate Assess the cost of Pricing structures and logistical assessment of the GAIN on pricing limited capacity cost report produced Transnet study and downstrea structure and make pricing best practice m impact of recommendations structures on on logistical pricing logistical costs costs structures

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4.5 STRATEGIC PARTNERSHIPS The sub-programme drives the building of strategic relationships between SOC and key customer and supplier sectors to transform the sectoral and social composition of the economy.

The sub-programme comprises of the following components:

 Management comprises the office of the Deputy Director-General which provides strategic leadership and management of the programme personnel.  Project Oversight - definition of catalytic investments to be driven by DPE and oversight of project implementation from pre-feasibility to completion, including the design of relevant compacts.  Funding Mechanisms - development of innovative funding structures and design of associated compacts with relevant partners.  Strategic Relationships - development of overarching procurement leverage policies; oversight of SOC fleet procurement design and implementation, and development and implementation of capability building programmes and institutions.

4. 6 Strategic Objective Annual Targets for 2015/16  Oversight of catalytic project implementation from pre-feasibility to completion, including the design of relevant compacts.  Implementation of innovative funding structures and design of associated compacts with relevant partners.  Oversight of Eskom‟s and Transnet‟s implementation of the Competitive Supplier Development Programme; oversight of Transnet‟s locomotive fleet procurement design and implementation, and development and implementation of Executive Leadership Programme.

4.5.2 Programme Performance Indicators and Annual Targets for Strategic Partnerships for 2015/16 Audited/Actual Estimated Programme Medium-term targets performance performance performance indicator 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

Ensure SOC financial sustainability

Private sector - - - Private sector Maintain Continued financial participation participation financially sustainability while meeting framework Developed framework stable SOC national objectives

4.5.3 Quarterly targets for strategic partnerships for 2015/16

Performance indicator Reporting Annual targets Quarterly targets Period 2015/16 1st 2nd 3rd 4th Ensure SOC financial sustainability

Private sector participation Quarterly Private sector Review financial Develop Execution of Execution of framework Developed participation position of SOC business case priority priority funding framework for funding funding options Identify gaps to options and options financial prioritise sustainability and delivering on capital programmes Identify potential funding options and prioritise

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Budget and MTEF

Table 4: Portfolio Management and Strategic Partnerships

2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Audited Audited Audited Adjusted Revised Revised Revised Revised

outcome outcome outcome Appropriati Estimate Baseline Baseline Baseline on Rand thousand

Subprogrammes

Energy Enterprises 54,050 11,189 12,919 14,103 14,103 17,376 17,007 17,982

Manufacturing Enterprises 123,423 1,178,268 68,096 80,392 80,392 16,215 18,145 18,958

Transport Enterprises 18,752 20,030 14,985 23,051 23,051 23,417 23,464 25,951

Economic Impact and Policy Alignment 11,744 9,990 9,687 11,570 11,570 12,946 13,903 14,887

Strategic Partnerships 7,555 5,973 7,256 9,252 9,252 15,111 20,075 20,401

Total 215,524 1,225,450 112,943 138,368 138,368 85,065 92,594 98,179

Economic classification

Current payments 59,269 57,066 55,662 75,176 75,176 85,065 92,594 98,179

Compensation of employees 29,374 31,905 43,031 54,859 54,859 58,990 66,387 68,458

Salaries and wages 29,374 31,905 43,031 54,859 54,859 58,990 66,387 68,458

Social contributions ------

Goods and services 29,895 25,161 12,631 20,317 20,317 26,075 26,207 29,721

Administrative fees - - 343 - - - - -

Advertising 7 38 140 - - - - -

- Assets less than the capitalisation

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2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Audited Audited Audited Adjusted Revised Revised Revised Revised

outcome outcome outcome Appropriati Estimate Baseline Baseline Baseline on Rand thousand threshold - - 3 - - - -

Catering: Departmental activities 108 120 267 90 90 178 101 106

Communication (G&S) 298 253 355 652 652 650 630 646

Computer services ------

Consultants and professional services: Business and advisory services 23,156 16,348 2,565 12,456 12,456 18,293 18,641 22,314

Contractors 1 36 2 - - - - -

Agency and support / outsourced services - - 67 - - - - -

Entertainment 2 - - 46 46 50 55 55

Fleet services (including government motor transport) - - 41 - - - - -

Inventory: Materials and supplies - 1 4 - - - - -

Inventory: Medical supplies - 3 1 - - - - -

Inventory: Medicine - 2 ------

Consumable supplies - - 196 - - - - -

Consumable: Stationery, printing and office supplies 5 3 127 - - - - -

Operating leases - - 992 - - - - -

Travel and subsistence 5,237 5,770 6,205 6,553 6,553 6,056 5,959 5,743

Training and development -

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2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Audited Audited Audited Adjusted Revised Revised Revised Revised

outcome outcome outcome Appropriati Estimate Baseline Baseline Baseline on Rand thousand

334 386 53 - - - -

Operating payments 302 941 395 - - - - -

Venues and facilities 445 1,260 875 520 520 758 821 857

Rental and hiring - - - - - 90 - -

Interest and rent on land ------

Transfers and subsidies 156,255 118,384 57,281 63,192 63,192 - - -

Public corporations and private enterprises 156,255 118,313 57,250 63,141 63,141 - - -

Public corporations 156,255 118,313 57,250 63,141 63,141 - - -

Subsidies on products and production (pc) ------

Other transfers to public corporations 156,255 118,313 57,250 63,141 63,141 - - -

Households - 71 31 51 51 - - -

Social benefits - 71 31 51 51 - - -

Other transfers to households ------

Payments for capital assets ------

Payments for financial assets - 1,050,000 ------

Total 215,524 1,225,450 112,943 138,368 138,368 85,065 92,594 98,179

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Performance and expenditure trends

The spending focus over the medium term will be on enhancing the capacity to boosting the department‟s capacity to oversee strategic infrastructure projects. This includes training staff and developing new project management tools to improve oversight of the current build programme. Because of the need to provide effective oversight to the state owned companies spending on compensation of employees increased over the medium term. The increase in the number of personnel from 68 in 2013/14 to 77 in 2017/18 is attributed to additional approved and funded posts to strengthen the strategic oversight function of the department on infrastructure projects. The department makes use of consultants for specialised services in transport, manufacturing, energy and broadband sectors, which, notwithstanding the increased capacity in the department is still a necessity. Expenditure on consultants is expected to increase over the medium term in line with the focus of strengthening the oversight function.

In the Energy and Broadband Enterprises and Manufacturing Enterprises sub programmes, expenditure deceased significantly between 2011/12 and 2014/15 due to the once-off recapitalising payments to state owned companies. The transfer of the shareholder oversight function to Department of Telecommunications and Postal Services is the reason for the significant decrease in Manufacturing Enterprises sub programme. The Denel Indemnity claim has decreased during between 2011/12 and 2014/15.

PART C: LINKS TO OTHER PLANS

5 LINKS TO THE LONG-TERM INFRASTRUCTURE AND OTHER CAPITAL PLANS

The infrastructure plan is one of the measures to counter the negative impact of the global economic downturn and to lay the foundation for long-term growth and economic and social development, as depicted in Government Policies such as the New Growth Path and the Industrial Policy Action Plan.

Transnet and Eskom have a major role to play in the roll out of the infrastructure programme through their role as appointed coordinators of SIP2 and 1, 9 and 10 respectively. The above is achieved by actively participating in the various work streams of the SIPs namely; planning, funding and communication work streams.

Transnet is responsible for coordinating the SIP2 programme, the Durban-Free State-Gauteng Logistics and Industrial Corridor which is fundamentally about improving logistics and creating better access to markets for firms located along the corridor. Efficient logistics is critical if South Africa is to grow and transform the economy. South Africa is a very transport intensive economy and its main centers of economic activity are located very far apart and for international trade, South Africa is far from its main trading partners. This necessitates that the structure of the country‟s logistics system to be more efficient than the international norm in order to overcome the inherent disadvantages South Africa faces as a result of the long transport corridors. The Gauteng-Durban corridor is vital to the future of the national economy and it should be a model for how to strengthen and optimise freight corridors. The corridor handles most of the country's high-value freight and it is the most strategic corridor to achieve a shift of freight from road to rail by overcoming rail's main drawback. The corridor is critical in integrating the Free State Industrial Strategy activities into the corridor.

Eskom is responsible for coordinating the SIP1 programme which focuses on unlocking the Northern Mineral belt with the Waterberg development as the catalyst. The investment programme focuses on investment in rail, water pipelines, energy generation and transmission infrastructure which will catalyse the unlocking of rich mineral resources in Limpopo resulting in thousands of direct jobs across the areas covered. Mining investments includes coal, platinum and other minerals for local use and export, therefore the rail capacity is being extended to Mpumalanga power stations and for export principally via Richards Bay and in future Maputo (via Swaziland link).

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Eskom is responsible for coordinating SIP 9, which focuses on SA electricity generation capacity to its economic and social requirements. The Strategic Partnerships Unit has to oversee the coordination and implementation of this SIP and ensure acceleration of new electricity generation capacity in accordance with the integrated Resource Plan (”IRP”) 2010. Eskom has to coordinate SIP 10 which focuses on increasing the transmission network by 50% and distribute electricity to all South Africans, while at the same time supporting economic development of the country.

The implementation of these projects is intended to transform the economic landscape of SA, create jobs, strengthen the delivery of infrastructure projects and support the integration of African Economies. The infrastructure programme is intended to result in re industrialization through manufacturing of inputs, components and machinery, develop skills aimed at critical categories.

6 CONDITIONAL GRANTS Not Applicable

7 STATE OWNED COMPANIES REPORTING TO THE DEPARTMENT

7.1 Alexkor Alexkor reported better results for the year ended 31 March 2011 than the previous year‟s performance. Alexkor achieved revenue of R195.9 million in 2010/11, and this a 19.5% increase from the R163.9 million achieved in the previous year. Alexkor recorded a gross operating profit of R11.3 million, its first gross operating profit since 2005/06. Net profit for the year amounted to R84.2 million. The improved performance is mainly as a result of higher carat production (13.3% higher carat production achieved compared to the previous year) coupled with better cost management.

The Settlement Agreement reached between Alexkor, Government and the Richtersveld Community in the matter of the Richtersveld Community‟s land claim against Alexkor and the State entails, inter alia, that Alexkor transfer its land mining rights to Richtersveld Mining Company (RMC).

The parties agreed to form a Pooling and Sharing Joint Venture (PSJV) between Alexkor and the Richtersveld Mining Company (RMC) as follows:

 Alexkor will remain the holder of its marine mining rights and RMC will remain the holder of its land mining rights;  Alexkor and RMC will respectively put their marine mining rights and their land mining rights under the full control of a Joint Board of the Joint Venture for purposes of mining both the marine mining resources and the land diamond resources. Alexkor and the Richtersveld Mining Company are each entitled to appoint, remove and replace three (3) members of the Joint Board, who shall be duly authorised to represent that party in respect of all matters relating to the pooled operations; and  Alexkor will have a beneficial interest of 51% in the PSJV and the Richtersveld Community, through RMC, will hold a 49 % interest.

The commencement of the PSJV was subject to the fulfilment of a number of suspensive conditions namely that:

 RMC and Alexkor must obtain the required approvals to implement the pooling transaction from the Competition Authorities under the Competition Act, 1998;  all on an unconditional basis or under circumstances where any conditions attached to any of such approvals, that such conditions are reasonably acceptable to Alexkor and the RMC. The Competition Commission subsequently advised that the transaction was not notifiable;  The Land Claims Court grants an order confirming or noting the Deed of Settlement and, to the extent necessary, the terms, provisions and conditions of the PSJV. The Land Claims Court made the DoS an order of court on 9 October 2007;  The existing Environmental Management Plan of Alexkor will be amended as contemplated in the Deed of Settlement. Alexkor‟s revised EMP was submitted to the Department of Mineral Resources (DMR) in November 2008; and

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 The land mining rights are transferred to RMC with the permission of the Minister of Minerals and Energy, as contemplated in clause 8.2 of the Deed of Settlement. The Notarial Deed of Cession of the Alexkor land mining right (transferring Alexkor‟s land mining right to RMC) was registered by the Mineral and Petroleum Titles Registration Office on 6 April 2011.

All the suspensive conditions for the PSJV to come into effect have been fulfilled. Effectively what this means is that given that Alexkor has transferred its land mining rights to the Richtersveld Mining Company, and that the PSJV has now come into effect, Alexkor‟s operations in Alexander Bay now fall under the control of the Joint Board of the PSJV. In terms of the Deed of Settlement, Alexkor and RMC is each entitled to appoint, remove and replace three members of the Joint Board, who shall be duly authorised to represent that party in respect of all matters relating to the pooled operations. The Joint Board has overall supervision of the operations of the pooled operations and will prepare a development plan in order to upgrade the land and sea diamond resources at Alexander Bay.

An amount of R200 million was allocated to the PSJV, which will be expended both with respect to the land and sea operations, for the establishment of a viable mining operation.

Significant progress has been made in the implementation of the Deed of Settlement signed with the. Alexkor‟s agricultural and maricultural assets have been transferred to the community. All Alexkor, State and Northern Cape Provincial land has been transferred, except for the properties in Alexander Bay Township. These properties will be transferred to the community soon after the upgrade of the township‟s civil and electrical engineering services to municipal standards. The township upgrade project is expected to be completed in June 2012.

The Deed of Settlement has considerably changed the landscape of Alexkor and its strategic outlook. Alexkor currently has the following outstanding obligations and liabilities:

1. Environmental rehabilitation liability at Alexander Bay mine: R256.7 million; and 2. Payment to Richtersveld Property Holding Company to secure Alexkor‟s right of occupation of the transferred residential properties for a period of 10 years: R45 million; and 3. Post-retirement medical aid liability: R58.4 million.

Given that the PSJV has now come into effect, Alexkor‟s operations in Alexander Bay will fall under the control of the Joint Board of the PSJV. Alexkor‟s only source of revenue to fund its obligations and liabilities is revenue from the 51% interest in the profits of the PSJV operations. It is not expected that the mining operations under the PSJV will generate positive returns within the first three years, as the PSJV will first embark on exploration. Alexkor‟s financial resources are currently insufficient to meet its obligations and liabilities. Alexkor must therefore actively seek opportunities to procure new mining ventures to secure new revenue streams beyond the Alexander Bay, and independent of the PSJV operations. This will ensure Alexkor‟s future growth and sustainability and enable the company to effectively address its historical obligations and liabilities. In pursuance of this new strategy, Alexkor will be guided by Government‟s policy objectives. Alexkor will also explore opportunities for downstream beneficiation, to contribute to the creation of new jobs, development of requisite skills, investment in research and development, economic growth, sustainable development and cost-effective support for the broader policies of government.

As these opportunities will undoubtedly require funding, it will be important to explore different funding mechanisms and sources available for the new mining ventures, so as not to depend entirely on the fiscus to fund Alexkor‟s growth opportunities. The new business ventures will bolster the sustainability of the company and contribute to the broader developmental objectives of Government.

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7.2 Denel

Although Denel has made some progress since the company embarked on a turn-around strategy in 2005, the solvency position of Denel continues to pose serious challenges. Nonetheless, the turnaround strategy has seen a noticeable reversal of the downward spiral in the fortunes of Denel.

Since 2005, when the company posted a loss of R1.6 billion, Denel has steadily reduced its losses and recorded a R111 million profit in the 2010/11 financial year. Denel‟s Aerostructures business remains a challenge to the entire Denel group as it continues to be the major contributor to Denel‟s losses. This is largely as a result of the A400M contract concluded with Airbus Military which is not commercially viable. A framework for the resolution of DSA has been developed and is underway. The framework included internal restructuring and renegotiation of the Airbus A400M work package contracts. The 28% improvement in the performance of the Aerostructures business in the previous year was an encouraging sign that the company is beginning to turnaround, mainly due to the ongoing restructuring in the business. Whilst the trading losses in the other trading entities have been reduced, some of Denel‟s business entities remain financially challenged. A more robust turn-around plan; one that pursues financial recovery and stability through improvements in its operational and financial performance needs to be developed to secure the company‟s long term viability.

The current mandate of Denel is to:

 Provide the Department of Defence (DoD) with key strategic defence equipment and services in an efficient and sustainable manner;  Contribute towards the building of a dynamic defence-related industrial cluster;  Act as a catalyst for advanced manufacturing in the broader economy; and  Earn export revenue.

In the main, the current mandate of Denel is still relevant as it points to the company being a strategic state asset that provides the DoD with key strategic defence equipment and services. However, Denel‟s current defence-related strategy is not optimally aligned with the DoD‟s strategic defence requirements. A structured mechanism will thus be required in order to effect the necessary re-alignment of Denel‟s defence-related strategies with those of the DoD.

Globally, cutbacks in defence budgets may be seen in the lower turnover figures for companies specializing in defence. The reduction in orders for the defence industry has been reflected by a contraction of activity and has led to an unsustainable rise in production costs due to reductions in economies of scale. Shrinking defence budgets have resulted in the scaling back of certain procurement programmes, with lower economies of scale and increasing unit costs. In addition to this first source of cost increases, the defence industry is subject to the general phenomenon of increases in Research and Development (R&D) spending (and hence overheads). When combined, these two trends lead to an increase in unit costs of such magnitude that they can no longer be covered solely by military budgets. There is thus a need to re-think Denel‟s strategic direction going forward.

Given the downward trends in domestic defence spending, Denel must increasingly rationalize defence production, while concentrating on its competitive strengths.

Denel must pare back its product lines, collaborate with other firms that have complementary technological assets, and focus on poles of excellence where it enjoys a technical or market advantage.

Denel needs to limit its dependence on defence work and expand its market share in commercial areas, as well as exploring new markets for its product offerings. In the current environment, those companies whose economic survival depends on a narrow range of military products will be exposed to sharp fluctuations in procurement, putting them at risk of going out of business. The more a firm is diversified into the civil sector, the better it can survive slowdowns in military or commercial sales; assuming, of course, that both markets do not decline simultaneously. Denel must diversify by developing civil spin-offs of its core military technologies.

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The ability to offer products to both civilian and military markets also holds out the prospect of restructuring production operations to benefit from joint expenditure and various synergies. Diversification into civilian sectors will make up for the drop in military budgets and exploit technological dynamics.

One further trend that Denel and the country may have to consider is increased collaboration on military programmes to contain escalating R&D costs. The success achieved in the A-Darter programme with Brazil provides the country with a blueprint. This will assist both Denel and the country to continue improving capabilities whilst containing costs.

The advanced industry results in networks of skills and technologies being created in order to deliver the high technology products and/or services. During this process, the newly created skills and knowledge are provided free of charge to other firms in related industries. The process of „learning by doing‟ is one of the most effective ways of learning and innovating as it is aims at building tacit knowledge – the most difficult type of knowledge to generate and transfer. The development of new knowledge and skills by the advanced industry is analogous to what occurs at a university. However, in an advanced industry the skills development and learning is not restricted to graduate level as it also takes place at the unskilled and artisan level. In addition to skills and technology development, a commercial product is being produced which creates revenue and a sustainable learning environment. Denel will be expected to accelerate its efforts towards skills-development and transformation. The company must generate skills across the full spectrum, ranging from artisan level to engineers and highly skilled technologists.

7.3 Eskom Eskom generates 95 per cent of the electricity used in South Africa and 45 per cent of the electricity used in Africa. Eskom‟s reserve margin has been steadily declining since 1999 as a result of increasing demand, increases in maintenance backlogs, and under-investment in the new generation capacity required to meet rising demand. This was particularly acute in January 2008, when the reserve margin dropped to alarmingly low levels (3.6 percent commercially available), which resulted in extensive load shedding that impacted the economy negatively, and diminished investor confidence in Eskom‟s ability to provide reliable electricity supply.

Eskom has since introduced a recovery plan, which includes securing enough primary energy (coal stockpile to 42 days level). This has resulted in the average reserve margin increasing to over 10 percent commercially available.

Additionally, Eskom has since 2004 been undertaking a capacity expansion (build) programme to ensure the secure and reliable supply of electricity. Completed projects between 2005/06 and 2011/12 include the return to service and construction of three power stations. As a result, Eskom installed and commissioned 5 381MW of additional generating capacity into the system and installed and strengthened 3 531 km of transmission networks. The focus for 2012/13 includes securing the balance of the required funding to complete the new build programme; monitoring the rollout of this programme improving operational and maintenance performance to ensure security of supply; assessing the role of Eskom in the implementation of the IRP 2010, and developing the appropriate investment plan for Eskom‟s future build programme.

Over the five-year period from 2011/12 to 2017/18, the cost of Eskom‟s build programme is estimated at R453 billion. Eskom plans to deliver additional 11 699MW of capacity into the system and to install 1 169 km of transmission network by 2017/18.

Eskom continues on its profitability path, recording a net profit after tax of R8.4 billion for the 2010/2011financial year, following a net profit of R3.6 billion in the 2009/10 financial year. The operating profit for the year was R16.4 billion while in 2009/10 it was R4.8 billion. The 139% increase in profitability can be attributed mainly to the tariff increases in the 2010/11 financial year, rather than sales volume.

Cabinet approval was obtained for Eskom to be granted R174 billion additional guarantees, bringing the total guarantee framework to R350 billion. As a result of the Government Support Package, Eskom was able to issue a US$ bond and raise R12 billion, without utilising a Government guarantee. Eskom‟s funding plan to 2017 has been finalised, and 70% of the funding has been secured.

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7.4 Pebble Bed Modular Reactor (PBMR) mention that PBMR is now with Eskom

The PBMR project was initially set up as a nuclear architect engineering company focused on the design and licensing of a standardised nuclear heat supply system and pebble fuel. It was established in 1999 to develop and market small scale, high temperature reactors locally and internationally. The company has not been able to acquire additional investment into the PBMR project, nor has it been able to acquire a customer, despite revising its business model in 2008/09, since Government‟s last funding allocation in 2007, of which the last transfer was made in 2009/10. The company‟s business model was subsequently revised in May 2009 and the company‟s main focus will be the preservation and maintenance of intellectual property and assets.

In the light of the PBMR‟s participation, a consortium in the United States Department of Energy‟s next generation nuclear programme which did not materialise, Cabinet approved that the company be placed into care and maintenance to protect its intellectual property and assets, while ensuring that no additional funding will be required from Government. The Department of Public Enterprises will therefore be monitoring the implementation of this transition.

No further funds have been committed by Government, except for R20 million, which was provided in the adjustments budget and which was disbursed in 2010/11, and a further R40 million disbursement in 2011/12. These funds were allocated to ensure that the necessary provision for the statutory requirement for decommissioning and dismantling the fuel development laboratory is met by the company.

During 2011/12, the Department commissioned a retrospective review of the PBMR project, as part of the winding down of PBMR in line with Cabinet decision. The focus for 2012/13 includes assessing the recommendations of the retrospective reviews, and monthly and quarterly monitoring of the implementation of the care and maintenance strategy.

7.5 South African Forestry Company

South African Forestry Company (SAFCOL) manages and develops commercial forests. The company‟s activities include forestry management and timber harvesting and processing. The company‟s main subsidiary, Komatiland Forests, operates in Mpumalanga, Limpopo, KwaZulu-Natal and Mozambique. Softwood saw timber is sold in South Africa and soft and hardwood saw timber and pulp wood in Mozambique. Komatiland Forests has an 80 per cent shareholding in the Mozambican forestry company, Indùstrias Florestais de Manica (IFLOMA), while the remaining 20 per cent is held by the Mozambican government through its Instituto de Gestão das Participações do Estado. The company plays an important role in rural development, and various enterprise development projects have been initiated to contribute to poverty alleviation in the rural areas in which it operates.

In 2007, the Minister of Public Enterprises extended the disposal of the company by five years to 2011/12 to allow for the resolution of the land claims lodged with the Department of Rural Development and Land Reform, since 61 per cent of South African Forestry Company land is subject to land claims, with the understanding that shareholder value would be preserved in the interim. However, the company‟s operations and revenue have been severely impacted by the prevailing economic conditions over the past two years. The company reported a net loss of R468.9 million in 2009/10, yet has since seen improvements, with the net loss of R79.1million in 2010/11, SAFCOL managed to turnaround the previous two year‟s results by generating cash from operations of R73m and posting a net profit of R205m for the 2011/12 financial year.

Government is currently re-examining the privatisation of Komatiland Forests and the future role of the South African Forestry Company, in the context of the developmental state.

While the Department is carrying out its own review, the Presidency is conducting a broader review of State Owned Enterprises across all spheres of Government. The department will be engaging closely with the Presidential Review Committee on the implications for the company, as well as other key stakeholders such as the Department of Agriculture, Forestry and Fisheries and the Department of Rural Development and Land Reform. Thereafter, a joint proposal will be submitted to Cabinet for consideration.

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7.6 South African Express Airways

South African Express Airways (SAX) was established in 1994 and transferred to the Department of Public Enterprises in 2008/09. It operates regional and domestic flights from OR Tambo International Airport in Johannesburg, serving secondary routes in South Africa and the continent. SAX operates regional routes to Botswana, Namibia, the Democratic Republic of the Congo and Mozambique. It also provides a feeder air service that connects with the South African Airways network.

The airline‟s joint venture with a local partner in the Democratic Republic of Congo (DRC), Congo Express, which began in February 2010 as part of the implementation of the African hub strategy, was dissolved in September 2010. This was subsequent to efforts to address the financial and operational performance having failed to improve the joint venture prospect. Lessons learnt from the failed operations in DRC will be used in all future implementation of the African hub strategy.

SAX has been consistently generating profits in the last six years which in turn strengthened its balance sheet. The financial position improved from accumulated losses of R228 million in the 2006/07 financial year to accumulated profits of R288 million by 2009/10 financial year. However due to recent economic slowdown the airline has not been able to sustain similar levels of profit generation. Most significantly, the operation of aged aircraft, most of which are over 15 years of age, resulted in high maintenance cost and disruption in flight schedules due to regular breakdown, and this affected the performance of the airline. Fortunately SAX has now commenced with a fleet replacement programme, and the first six new aircraft were received in the second half of the 2011/12 financial year. SAX expects to receive the remaining 18 aircraft over the next two years.

There were allegations of irregularities at SAX in the 2011/12 financial year, which may have arisen over several years back. The investigations have been concluded resulting to the restatement of 2010/11 financial results.

The focus over the MTEF period will be to expand SAX operations in the African market, and to strengthen the airlines balance sheet through generation of profit and cash flow to fund the fleet renewal programme.

7.7 Transnet Transnet‟s mandate is to assist in lowering the cost of doing business in South Africa, enabling economic growth and ensuring security of supply by providing appropriate port, rail and pipeline infrastructure in a cost-effective and efficient manner, within acceptable benchmarks.

Transnet has relentlessly focussed on improving service levels and customer responsiveness over the past five years. Significant investments have been made in infrastructure and equipment to improve the condition of assets in order to support the drive for greater operating efficiencies, service levels and customer responsiveness.

For the first six months ended 30 September 2011, Transnet posted an impressive set of financial results as ongoing efficiencies, productivity improvements and the growth in volumes were driven by the increased capital expenditure programme.

Export iron ore volumes increased significantly by 21.5% to 24.9Mt (2010: 20.5Mt) due to improvements in operational efficiencies, and additional capacity created through the capital investment programme. Export coal volumes improved only marginally by 2.6% to 31.3Mt, primarily due to the extended period during which the line was shut down during the first quarter, as well other operational challenges faced by the business.

Transnet Freight Rail (TFR) recorded a 6.3% increase in general freight volumes and reported an impressive 25.3% improvement in containers transported by rail, thereby reducing the number of trucks on the roads.

Management focus is now on on-time departures and arrivals for the general freight business and export coal line. For the GFB, a 24-hour, seven days national command centre has been introduced and manned by TFR executives to plan, resource and manage the movement of trains across the country. This initiative is already yielding positive results. At the ports, the Pier 1 Container Terminal at the Port of Durban recorded and impressive leap in productivity with gross crane moves per hour (GCH) – a key measure of productivity for container terminals – improving to an internationally acceptable average of 28 GCH compared to 23GCH achieved in the prior period.

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The New Multi-Product Pipeline (NMPP) is a strategic investment to secure the supply of petroleum products to the inland market over the long term. This line will replace the old Durban-Johannesburg pipeline, which is running at full capacity and nearing the end of its economic life. Some of the benefits of the new multi-product pipeline include (when fully operational) a reduction in congestion on the roads, and a reduction in carbon emissions from road transportation of petroleum products.

The NMPP construction is progressing according to the revised plan, and Transnet Pipelines successfully commissioned the Kendall-Watloo, Jameson Park-Alrode and Alrode-Langlaagte sections of the pipeline on 31 May 2011.

Construction of the pipeline and pump stations are now complete, and the focus will be aimed at completing the construction of the coastal and inland terminals.

The financial performance for the six months ending 30 September 2011 reported improved profits and cash flows.Net profit from continuing operations for the period was R2.3 billion, which represents an increase of 33.5% per cent compared to R1.7 billion up to 30 September 2010. This was mainly due to an increase in revenue. Revenue increased by 20.3per cent to R22.4 billion (30 September 2010: R18.7 billion). The growth in revenue is mainly due to the 7.1% weighted average growth in volumes, as a result of strong growth in iron ore and container volumes.

Cash generated from operations increased by 25.6 per cent to R10 billion (2010: R7.9 billion), demonstrating the company‟s ability to generate strong and sustainable cash flows. The cash-interest cover ratio has decreased to 3.1 times from 3.4 times compared to the same period in 2009/10, due to an increase in net finance costs, which is a consequence of the capital expenditure programme. This ratio, however, remains above the target of a minimum of 3 times.

Transnet is planning to borrow approximately R33 billion over the next five years to fund the rolling five year capital expenditure programme. The Group commenced the financial year with a cash balance of R10.9 billion. Consequently only an amount of R1.9 billion was raised during the six months ended 30 September 2011. The capital expenditure for the six months ended 30 September 2011 (excluding capitalised borrowing costs) was R9.5 billion. R5 billion of the total capital expenditure was invested in expanding the current infrastructure and equipment, while R4.5 billion was invested in maintaining the existing capacity.

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RP: 109/2015

ISBN: 978-0-621-43477-4

Pretoria Address: Suite 301, Infotech Building, 1090 Arcadia Street, 0083, Private Bag X15, Hatfield, 0028

Pretoria Tel: 012 431 1000

Fax: 086 501 2624

Cape Town Tel: 021 469 6760

Fax: 021 461 1741

Website Address: www.dpe.gov.za

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