Presentation to the Portfolio Committee

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Presentation to the Portfolio Committee

• Presenter Nonkululeko Msomi
• Venue Cape Town S26 1st Floor, NCOP Wing
• Date 13 March 2002
• Time 10h00

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Contents

• Introduction
• Aim, Vision and Mission of the Unit
• The current and proposed structure of the Unit
• Objectives for the 2001-2002 financial year
• Projects undertaken during the 2001-2002
  financial year
• Achievements to-date
• Objectives for the 2002-2003 financial year
• The Units approach to managing shareholding
  interests
• Projects planned for the 2002-2003 financial year
• The Units medium-term objectives for the next
  five years
• The Units long term objectives for the next
  ten years
• Conclusion

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Introduction

• Government, as a shareholder in state owned
  enterprises (SOEs) , seeks to protect and
  maximize the benefits of its investments in the
  SOEs.
• This can be achieved by monitoring the overall
  performance of SOEs within their environments
  and benchmarking the said performance with other
  companies whether public or private locally and
  internationally.
• Performance Monitoring and Benchmarking Unit is
  intended to and undertakes the function of
  safeguarding the shareholder interests in SOEs.
• It is, however, the Governments intention to
  consolidate its whole shareholding interests in
  public entities and manage it under one Business
  Unit Model in order to avoid the current
  fragmentation in the management of the
  shareholding interests.
• To give effect to the intention of Government,
  the government shareholding model is currently
  being developed by the Unit.

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Aim of the Unit

• The Units aim is
• To serve as best vehicle to manage Government
  shareholding interests through monitoring and
  evaluating the financial, socio-economic and
  non-financial performance of state owned
  enterprises through the promotion and advocacy of
  best performance management practices
  contributing to enhancement of shareholder value,
  within an improved corporate governance
  environment.

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The Units Vision and Mission

• The Unit's vision is
•  
• To be a shareholder of value in creating a
  portfolio of globally competitive SOEs that
  promotes economic growth for a better life for
  all, in a good corporate governance environment.
•  
• The Units mission is
• To entrench a performance culture in state owned
  enterprises through holistic monitoring and
  evaluation processes in terms of best practices.

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Units current and proposed structure (2)

• A need has been identified to position the Unit
  structurally in order to enable it to deliver in
  terms of the mandate bestowed upon it by the
  Department.
• In doing so, the professional capabilities that
  have been sourced for the Unit ranging between
  the disciplines of Finance, law, economics and
  the Unit continues to identify other capabilities
  that are necessary as determined by the business
  needs.
• The challenge is to find a balance between the
  necessary human capital and the existing budget.
  The Units approach, therefore, is to continue
  engage the Department on these issues whilst
  utilizing the existing human capital to the
  optimum levels.
• The consideration of human capital also involves
  managing training and development, employment
  equity and succession planning. These
  considerations apply to the whole Unit, as we
  believe in the lowest staff turn over and a
  focused continuity of the Unit.

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Units structure (1)
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Objectives for the 2002-3

• In line with the Departmental Business Plan, the
  Branch had set for itself the following
  objectives for the abovementioned period
• Monitor and interrogate the financial performance
  of SOEs with a view to holding leadership
  accountable for performance of the SOE.
• Monitor, implement and advocate improved
  corporate governance ensuring improved ethics and
  probity in SOEs.
• Manage healthy relations between the shareholder
  and SOEs.
• Monitor broader socio-economic indicators of
  SOEs including empowerment strategies.
• Be the State's custodian for the portfolio of
  SOEs and advise government of SOE performance
  and progress towards established targets and
  indicators.
• Develop a database of relevant benchmarks and SOE
  information to entrench a performance mindset in
  the SOEs.

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Projects for the 2002-3

• Development of a financial model as an instrument
  and a framework to measure the financial
  performance of the SOEs.
• Review shareholder compacts for the SOEs as
  instruments to give effect to good governance in
  SOEs.
• Finalize an AS IS corporate governance audit on
  SOEs and within the shareholder to ascertain the
  status of compliance with corporate governance
  principles as set out in the Corporate Governance
  Protocol for Public Entities and in the King 2
  Report.
• Develop a Web based database system of SOEs and
  other Public Entities.
• Develop a shareholding model within which
  government shareholding will be consolidated and
  managed.
• Advocate for good corporate governance within the
  various structures of government through
  presentations, discussions and providing advice.

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Achievements for the 2001-2 period

• Shareholder compacts have been signed with
  Transnet, Eskom and is in the process of being
  signed with Denel.
• The process of operationalizing the shareholder
  compacts is currently under way.
• The revision of the Protocol on Corporate
  Governance for use in the Public Entities is
  under way, and the first draft is out for
  comment.
• Director training commences today and will be an
  ongoing project to empower the boards.
• The boards of the following SOEs have been
  restructured
• Transnet
• South African Airways
• Denel
• Safcol
• Aventura

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Achievements for the 2001-2

• The challenges in Aventura called for the board
  to be restructured before the annual general
  meeting. The new Aventura Board is now in place,
  and therefore, the disposal strategy as approved
  by Cabinet is now under way. The disposal process
  of Aventura is now being handled by the
  Restructuring Unit.
• The government Shareholding end-state/ model
  has been developed albeit being a draft document
  for consideration at this stage.

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Progress on Corporate Governance Audit

• An audit of compliance with corporate governance
  in SOEs is on the second phase whilst the third
  and the final phases are to be completed soon.
  The objective of the audit is to determine the
  status of the SOEs compliance with the
  principles of good governance as spelt out in the
  Protocol and the King Report.
• The report of this audit will assist the
  Department and the SOEs to develop intervention
  measures where shortfalls have been identified.

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Projects for 2002-3 period

• Incorporation of Eskom Holdings Limited
• Eskom Holdings Limited is expected to be
  incorporated on or about the 15th of March 2002.
• This period was targeted to align the
  incorporation process with the expiry of the term
  of office of the existing Electricity Council.
• The challenge is balancing the needs of the new
  Board with those of the outgoing Electricity
  Council.
• These needs are divergent but all in the best
  interest of the company about to be formed.

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Incorporation of Eskom Holdings Limited (2)

• With regard to the Council, membership was drawn
  from various interests groups including inter
  alia organized business, organized labour, civil
  society. This structure worked well as evidenced
  by the successes of Eskom over the years.
• The board representation, on the other hand,
  places emphasis on drawing membership purely
  based on expertise and not on interest groupings.
  In addressing this challenge it has been
  identified that sufficient and due consideration
  should be given to these issues before finalizing
  the board. In its final form, the board should
  also provide Eskom Holdings with continuity
  during the transitional period.

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Incorporation of Eskom Holdings Limited (3)

• This has, therefore, resulted in the extension
  of the term of office of the existing Council
  members until the date of proclamation of the
  Eskom Conversion Act No.13 of 2000.
• All systems, however, are now in place to
  incorporate Eskom Holdings Limited and to form
  the board of Eskom Holdings, accordingly.

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Approach to managing shareholding interests (1)

• The Units approach to the managing government
  shareholding interests is premised on the
  principle of shareholder activism.
• The time is long gone where shareholders waited
  for the financial year end documents in the form
  of financial statements to inform themselves of
  the performance or otherwise of their
  shareholding.
• Even when the financial statements are issued, by
  their very nature, they do not provide a level of
  detail that would comfort the shareholder in
  every respect of the business, and therefore, a
  more proactive approach has been adopted.
• The Units approach is thus, regular reporting as
  set out in the shareholders compact and the PFMA,
  better communication and good relations with the
  management structures of the SOEs, but most
  importantly, provide clear mandate to the SOEs
  and allow them freedom to conduct business.

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Approach to managing shareholding interests (2)

• The challenge is to avoid crossing that fine line
  between what is perceived as shareholder
  interference, shareholder activism and that is
  why it is absolutely vital to communicate with
  the boards regularly.
• The other challenge is to have an adequate
  structure that will be able to interrogate the
  reports from each SOE and to advise the
  shareholder accordingly.
• We are mindful that the shareholder should not
  be rudely awaken by events similar to the Enron
  Saga.

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Projects planned for 2002-3

• Revision of 1997 Protocol on Corporate Governance
  and alignment thereof with the King Report II and
  the PFMA.
• Development of Investment map of SOEs.
• Research on Socio Economic best practice and
  benchmarks for each SOE.
• Conduct second phase of the Post restructuring
  model DPE end- state.
• Awareness of SOE web based database to all SOEs
  resulting in the population of the said database.
• Conduct Directors training.

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The Units medium term / 5 year objectives

• Safe guard of government shareholding interests
  in State Owned Enterprises, thus serving as
  holding company.
• Provide advice to shareholder on performance of
  its investment and continued ownership, on a
  holistic and integrated basis.
• Ensure efficient performance and maximum return
  on investment through rigorous performance
  monitoring and evaluation.
• Continue to harness a culture of and promote good
  corporate governance, probity and business ethics
  in terms of best practices within SOEs.
• Monitor and evaluate socio-economic performance
  and organizational health of SOEs within
  established frameworks.
• Develop and implement intervention measures
  within framework of relevant acceptable
  benchmarks, to enhance value.

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Units medium term/ 5 year objectives

• Approved policies and guidelines for Corporate
  Governance
• Approved economic, investment and integrated risk
  management strategies
• Preparation for Effecting the shareholding
  end-state
• A final report on departmental end state
• Approval and implementation of relevant databases
  for the SOEs
• Sufficiently developed human capital in the
  necessary capabilities
• Approval and implementation of an electronic
  platform/interface between DPE and SOEs

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Units long- term /10 year objectives

• A consolidated government shareholding approach
  which will enhance shareholder value.
• Originally Restructuring was the main priority of
  the Department, however, Performance Monitoring
  will be the main priority of the Department up to
  and including the year 2014.
• Any Restructuring that will be executed post 2004
  will have to be identified through a performance
  evaluation process.This entails monitoring the
  performance of SOEs in inter alia -
• Corporate Governance.
• Financial performance.
• Risk analysis identification, monitoring and
  management.
• Socio Economic and Environmental performance of
  SOEs.

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Conclusion

• The Unit is mindful of challenges that exist and
  will continue to exist in the management of
  shareholder interest, and therefore, will
  continue to research best practices in addressing
  these challenges.
• The approach of shareholder activism will be
  driven passionately guarding against perceived
  interferences.
• The second phase of the Shareholding Model will
  be the focus of the Unit, and be informed by the
  evolving corporate governance as will be provided
  for by the
• Revised Protocol on Corporate Governance.

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Conclusion (2)

• The emphasis on the operationalization of the
  shareholder compacts will be on mandate
  definition, roles and expectations between
  shareholder and the board, setting targets in
  consultation with the board of SOEs in
  particular relating to financial, socio economic
  including health and safety, Black Economic
  Empowerment, Succession Planning.
• Critical to this process will be the evaluation
  of success in terms of the targets set for and by
  SOEs for the purposes of reporting to the
  shareholder.
• The Board of Alexkor will be capacitated better
  in the process of preparing for the introduction
  of a strategic equity partner.

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Presented by

• Nonkululeko Msomi
• Chief Director Performance Monitoring and
  Benchmarking
• Contact Details
• Tel [phone]
• Cell 083 327 4425
• email nonkululeko.msomi_at_dpe.gov.za