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20

07

ANNUAL

REPORT

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Never doubt that

a small group

o thoughtul,

committed citizenscan change the

world. Indeed, it is

the only thing that

ever has.

Margaret Mead

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c o n t e n t s

A N N U A L R E P O R T

MINISTERS FOREWORD 2

DIRECTOR-GENERALS REPORT 4

OVERVIEW 10

ORGANISATIONALSTRUCTUREOFTHEDPE 18

THEMINISTRY 20

PROGRAMME1:Administration 25

PROGRAMME2:AnalysisandRiskManagement 28

PROGRAMME3:Legal,GovernanceandSecretariat 29

PROGRAMME 4: Corporate Strategy and Structure 31

PROGRAMME 5: Corporate Finance and Transactions 34

REPORTBYTHEAUDITCOMMITTEE 36

ANNUAL FINANCIAL STATEMENTS 42

HR OVERSIGHT 97

ACRONYMS 109

2 00 7

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M i n i s t e r s F o r e w o r d

The 2006/2007 nancial year has been a challenging and productive one or the Departmento Public Enterprises (DPE) and the State Owned Enterprises (SOE) that report to the DPE as their

shareholder Ministry and Department. With the improvement in the growth rate and econo-

mic activity, the challenges acing our inrastructure capacity are very much more onerous than

beore. The key challenge acing the inrastructural SOE is to ensure that we do not act as a brake

on growth prospects in what is now a very buoyant economic environment.

Over the last three years the Boards and the DPE have worked hard to strengthen the SOE, so

that they can carry the burden or development that lies on their shoulders. Now the pace o

actual investment is picking up and this means that attention has to be paid to maintaining

existing inrastructure in good working order and building signicant new capacity. This willstretch all to the limits. However, it is a very dynamic time oering endless opportunities to our

people.

The activities o the SOE are critical to the sort o growth envisaged in the Accelerated and Shared

Growth Initiative or South Arica (ASGISA). To ensure that we share the growth that will most

certainly be generated by the inrastructure investment, we need to ensure that the investment

programme has a wider impact on the South Arican economy and indeed the Arican econo-

mies. To this end we are ocussing on our main areas: ensuring that the capital programmes

keep to their time lines; introducing a Competitive Supplier Development Programme to acili-

tate competitive new manuacturing capacity open to all our people; investing heavily in skill

development and human resources and paying more attention to research and developmentso that we deepen our economic capacity. In these programmes were working closely with the

Joint Initiative on Priority Skills in South Arica (JIPSA), and other government departments such

as Trade & Industry and Science & Technology.

We are also working closely with policy departments in the development o new strat-

egies and approaches to the questions o nuclear energy, the deence related indus-

tries, the orestry sector and the beneciation o diamonds. This work has a bearing on

Eskom, PBMR, Denel, Sacol and Alexkor respectively and means working with the Department

o Minerals & Energy, Science & Technology, Deence, Trade & Industry and Water Aairs & For-

estry. With the Department o Transport we have successully completed the process o moving

Metrorail across to the DOT and will ollow this in the near uture with Shosholoza Meyl.

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We are also working with them to nalise our approach to ports and partnerships in ports and

the uture o low-density lines. We have commenced a very constructive engagement with the

Department o Environmental Aairs and Tourism with regard to Environmental Impact Asses-

ment and Airlit and believe that this will be o benet to all.

We are pleased that we were nally able to sign the Settlement Agreement with the Richtersveld

Community, ater 10 years o negotiations. In the year ahead we will ocus on its implementation,

initially on the Pooling and Sharing Joint Venture (PSJV), in which Alexkor and the Community

will hold a 51 % interest and 49% interest respectively.

Interesting developments are also occurring in the local broadband sector. As a result o improve-

ments in technology, the world economy is increasingly integrated by the power o broadband

communication. Access to broadband has thus become an essential requirement or any eco-

nomy. The establishment o Broadband Inraco will give South Arican businesses a air chance at

competing in the global economy, and we are pleased at the progress made by the team thus arin ensuring that the work gets underway.

It was an exacting year or SAA, which has also been at the mercy o rising international oil

prices. The airline has now embarked on its turnaround strategy, which should, when successully

implemented, yield a protable, rst-class airline with massive potential. It will be a tough ew

months ahead or the airline, but we are condent the team at SAA is up to the task.

The Transnet team has also managed to turn the entity around rom its bleak position just a ew

years ago, and the ocus is now on implementing key inrastructure investments in rails, ports

and pipelines, ater the disposal o non-core assets.

The workload in the DPE and in the SOE has increased exponentially and I am very pleased that

despite the strain, we have largely kept up with the pace. This increased workload has provided a

wealth o experience and insight into what role the SOE can realistically play in growth and deve-

lopment o our economy. It is clear that their role is central and this has given us urther insight

into the activities o a Developmental State and how we can build major new initiatives and part-

nerships with the private sector, both local and international. It is our intention to capture these

lessons in new legislation that provides or the shareholder management o these key SOE.

In the year ahead we will ocus on ensuring that the SOE press ahead with the programmes out-

lined and in urther building the capacity o the DPE and its sta. The DPE under the energetic

and innovative leadership o the Director-General Portia Molee has more than perormed to myexpectations and I am sure will go onto new heights. The Boards, Management and Sta o the

SOE have done amazing work as they reorganise the SOE to carry out this massive responsibility.

They too will go onto new heights in the coming year.

Mr Alec ErwinMINISTER OF PUBLIC ENTERPRISES

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Director-Genera l s Repor t

Through the Accelerated and Shared Growth Initiative o South Arica (ASGISA), our economy is beingpositioned or a new and more sustainable growth trajectory. Our State Owned Enterprises (SOE) span a range

o sectors rom Transnet in logistics, Eskom in electricity generation, transmission and distribution, Denel in

deence manuacturing to the Pebble Bed Modular Reactor (PBMR) in nuclear technology. These enterprises

have a signicant role to play in both acilitating and catalysing this economic growth.

The role o the Department o Public Enterprises (DPE) is that o providing shareholder oversight on the

SOE, with the objective o ensuring their commercial sustainability, while optimising the enterprises

contribution to the growth process.

Eskom and Transnet in particular play a critical role in acilitating economic growth through the provision o

adequate inrastructural capacity to support the requirements o a higher growth rate. This undamental business

objective in and o itsel creates considerable challenges and risks to the SOE, particularly in a context where there

has been limited investment in inrastructure over the last thirty years. These include:

Risks to the SOE balance sheet in unding an aggressive investment programme without overly

leveraging the enterprise.

Inationary risks, as at least a portion o the investment programme may need to be unded

through signicant tari increases in the short term.

Roll-out challenges relating to the capacity o the SOE to manage the implementation o the

investment programmes timeously.

Short to medium-term challenges relating to an adequate skills supply to meet the challenges

o the inrastructure roll-out, both in the SOE and in their supplier industry.

The Department has invested considerable resources in order to be able to play an eective oversight role, and

to ensure that these risks are adequately managed and the challenges are overcome.

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In many respects the SOE are growth engines in the economy. This implies the need or the SOE

to play a proactive catalytic role. Key strategic initiatives that have been undertaken in this regard

include:

The establishment o a new SOE, Broadband Inraco, to increase and bring down

the cost o broadband, thereby ensuring accessibility.The Competitive Supplier Development Programme (CSDP) has been designed

and implemented, whereby the SOE will proactively leverage their procurement

programmes to develop their supplier communities, with South Arica and the

continent.

Denel has introduced a global strategic partner into the aerostructures business

to enable the transer o world-class manuacturing skills as well as composite-

based aerostructure technologies ,within the context o an over-arching deence

related industry strategy.

In addition, over the last year signicant progress was made in the design o a new shareholder

management model or government as a whole.

With respect to the PBMR, we have spent the last year designing a new co-operation agreement

between government and all the partners on the project. Our initial discussions with Sasol are

very encouraging as it was always our ambition to bring in strong global South Arican companies

into this world-class project.

In order to carry out our mandate more eectively, the Department was restructured into

multi-disciplinary SOE-acing teams. These teams have the capacity to provide comprehensive

assessments o the strategy, investment plans, governance processes and risk proles o the

SOE that report to the Department. The benets o this approach are already visible as teams

develop in-depth, specialist knowledge o the SOE and their related industries. In addition, the

Joint Project Facility, which oversees the employment o specialised project managers to develop

business cases or strategic initiatives, has been systematically integrated into the operations o

the Department.

The achievements over the last year would not have been possible without the considerable

eort o the Departments sta and the leadership and support o the Minister. To them, I wish to

express my sincere thanks, and gratitude. Without you, the year would not have been as much

un, I am sure. It is indeed a privilege to serve with the people at DPE.

I would also like to thank the Chairperson o the Portolio Committee and all the members. They

have provided excellent support over the past year.

A clean audit does not just happen, so many thanks to the Chairperson o the Audit Committee

and her committee members.

We would not have made as much progress as we have i we did not enjoy an excellent and

challenging working relationship with the CEOs and Chairpersons o the SOE. I extend my thanks

to the Directors-General o the Economics Cluster, who have been an invaluable support base.

Special thanks goes to the co-chair o the Economics Cluster, Tshediso Matona.

Portia MoleeD I R E C T O R - G E N E R A L

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Do your little bit ogood

where you are; its those

little bits ogood puttogether that overwhelm

the world.

Archbishop Desmond Tutu

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The Department o Public Enterprises (DPE) is the

shareholder representative or government with oversight

responsibility or the ollowing State Owned Enterprises

(SOE): Alexkor, Denel, Eskom, the Pebble Bed Modular

Reactor (PBMR), South Arican Airways (SAA), Sacol,

Transnet and the soon-to-be-established Broadband

Inraco and South Arican Express Airways (SAX).

SOE have a critical role to play in advancing economic

growth, since they are responsible or the development

o key inrastructure and manuacturing capacity.

Inrastructure investments are a core part o the

accelerated growth strategy, and SOE are implementing

comprehensive investment programmes to ensure that

there is adequate capacity to support the growth process.

In addition, this will create opportunities or investment

in SOE supplier industries, ollowing on thirty years o

declining government capital investment. In order tosustain economic growth into the uture, it is crucial

that the culture o maintenance & repair and catalytic

inrastructure investment is entrenched into governments

planning processes and systems,

O V E R V I E W

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visionOur vision is to have State Owned Enterprises (SOE) that:

Are efciently managed, meeting domestic and international industry operational

benchmarks.

Play a role in their industry that supports government policy relating to industry

structure and private sector participation.

Undertake investment programmes that provide the necessary capacity to accom-

modate aster economic growth.

Implement their investment programmes in such a manner that the national economy

is strengthened in a sustainable way.

In order to attain this vision, it is critical that the department develops a world-class shareholder

management model that will enable strong coordination between the shareholder and

the board.

missionOur mission as a department is to provide to SOE:

Clear mandates.

Eective perormance management.

Simple, understandable and implementable governance systems.

mandate

The mandate o the DPE is to ensure alignment between the SOE business

strategies and government policy objectives as well as regulatory requirements, while

ensuring that the SOE are sustainable businesses that provide economic benets to

the country.

Overlea ollows a brie description o each SOE and key issues acing these

enterprises:

o v e r v i e w

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Alexkor The core business o Alexkor is the mining o diamonds. The State has decided to use the

company to promote the beneciation o diamonds in the country. The implementation

o the land claim agreement with the Richtersveld Community will be crucial i this is to be

realised. Ater almost ten years o extensive negotiations and consultations, Government and

the Richtersveld Community signed the settlement agreement, which is expected to unlock any

unnecessary delays in restoring rights and the payment o compensation to the Community. An

interim board, consisting o Alexkor and Richtersveld Community members, has been appointedto acilitate the establishment o a Pooling and Sharing Joint Venture. (PSJV)

Broadband InracoThe high cost o broadband locally means that South Arican businesses cannot successully

compete with their peers globally. South Arica lags behind its international counterparts in

terms o ICT penetration as well as the rate o adoption o new technology. Broadband is viewed

as a key driver o economic growth and wealth generation and it is thereore essential or SA to

gain access to universally available, reliable and aordable broadband. Inraco has the mandate

to both supply capacity and bring down the cost o broadband. Inraco will provide and own

the long-distance Full Service Network (FSN) deployed by Eskom and Transnet. The company,

which is already operational as a subsidiary o Eskom, is expected to become a stand-alone SOE,

reporting to the DPE, in the next nancial year.

DenelThe South Arican Government considers Denel a strategic asset or its role as custodian o the

countrys technological capabilities, and as a driver or skills development in the engineering

and high technology disciplines. The restructuring o the company and the disposal o non-core

assets, are expected to streamline the companys ocus and allow it to pay more attention to core

capabilities. Denel will drive the establishment o manuacturing clusters that will be a catalyst

or the transerence o advanced manuacturing know-how and technologies to the broader

manuacturing sector. This is the economys second largest sector, accounting or just over 16%

o gross domestic product (GDP).

Eskom and PBMR The States key objective through Eskom

and the Pebble Bed Modular Reactor is to

secure long-term, environmentally sustainable

electricity or the country, and Eskoms R150bn

investment programme, which will berolled out over the next ve years (2006

2011), is critical in addressing this issue.

An important component o the build and

supply programme is the introduction

o Independent Power Producers (IPP).

Nuclear power is also expected to make a larger

contribution as a primary source or electricity.

This will be done through conventional

nuclear technology and the new ourth-

generation high temperature reactors oered

by PBMR.

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SacolThe State is in the process o disposing o the last remaining package o Sacol, namely Komatiland

Forests. The process o disposal is expected to be concluded by end March 2009.

South Arican Airways (SAA)State ownership o the airline will allow or greater control in advancing national objectives

such as promoting air links with South Aricas main trading partners, contributing to the

growth o the tourism industry, and strengthening air transport capacity on the continent.SAA is in the process o a comprehensive and undamental restructuring plan an aggressive

campaign to bring the airline back into protability ollowing signicant losses in recent years.

The support that Government is giving to the recapitalisation o SAA is contingent on its turn

around strategy being successully implemented.

South Arican Express Airways (SAX)South Arican Express (SAX) is a regional airline that was established in 1994 as a eeder to South

Arican Airways. SAX will be removed rom Transnets books this nancial year and will be a

stand-alone SOE. The airline operates on secondary routes routes that cannot

be served viably with larger aircrat and provides the necessary links on thinner

routes, to smaller cities and towns such as Kimberley, Richards Bay and George. SAX

has also been successul in opening up routes into Arica with services to regional

destinations such as Walvis Bay in Namibia and Lubumbashi in the Democratic

Republic o Congo. The airline is able to operate protably on routes where major

airlines, with larger aircrats, have incurred losses. SAX is an important contributor

to the countrys socio-economic development, and is an ideal vehicle to help

develop and sustain Arican air routes on a more economical basis.

Transnet Transnet, the rail, ports and pipeline utility, is uniquely positioned to provideintegrated, seamless transport solutions or its customers in the bulk and

manuacturing sectors as part o its drive to improve the efciency and

competitiveness o the South Arican economy. Transnet will spend R78bn over

the next ve years on an investment programme that is aimed at revitalising and

extending its inrastructure and addressing the maintenance backlog. Transnets

investment programme is expected to be sustained well beyond the ve years in

order to meet the needs o a growing economy.

With the drop in gross xed capital investment over the last twenty years, theSouth Arican capital goods industry has stagnated. The Competitive Supplier

Development Programme (CSDP), headed up by the Joint Projects Facility (JPF),

is aimed at addressing this issue. The SOE have the strongest interest in securing

supplier industry development, as this will enhance their own competitiveness

in their core activities and ensure security o supply o key inputs. Through total

procurement spend, the SOE have a powerul instrument to secure investment in

skills, plant and technology by suppliers. This should improve productivity and thus

competitiveness o suppliers. It will also reduce the dependency on imports, and

oreign exchange exposure, and develop niche export areas.

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You are not here merely to make

a living. You are here in order to

enable the world to live moreamply, with greater vision,

with a fner spirit o hope and

achievement. You are here

to enrich the world, and you

impoverish yoursel i you orget

the errand.

Woodrow Wilson

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ORGANISATIONAL STRUCTURE

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D P E O R G A N I S A T I O N A L S T R U C T U R E

Alec ErwinMinister

Public Enterprises

Neo MoonoHead:

Ofce o theMinister

Portia MolefeDirector-GeneralPublic Enterprises

Femida MohamedHead:

Ofce o theDirector General

James ThelediDeputy Director General

Energy & MiningEnterprises

Sandra CoetzeeDeputy Director General

Legal Governance& Secretariat

Litha McwabeniDeputy Director General

ManuacturingEnterprises

Andrew ShawDeputy Director General

TransportEnterprises

Katherine VenierCo-ordinatorJoint Projects

Facility

Vimla MaistryChie o

Communications andInternational Relations

Sandy HutchingsChie

Financial Ofcer

Keneiloe HlaleleChie AuditExecutive

Rashida IsselChie Operations

Ofcer

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THE MINISTRY

The Ministers role is that o providing leadership and political

oversight to State Owned Enterprises in his portolio, in

order to maximise their impact on economic growth and

development. As the Executive Authority in the Department,

his role is to ensure that it delivers on its vision and mission.

Eective interaction with various stakeholders o the DPE is an

essential component o the Departments work programme,

and where appropriate, the Minister plays a key role in such

interactions, as part o his ofcial engagements or the year.

The Ministry supports the Minister in ullling his mandate

through the ollowing ways:

Administration: administrative support to the

Minister and sta o the Ministers ofce.

Cabinet services: ensuring high-quality and timeous

responses to Cabinet requests.

Parliamentary services: coordinating the Depart-

ments and SOE interactions with Parliament

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internal audit team

Let to right: Daphney Bokaba,

Keneiloe Hlalele, Livhuwani Maphaha.

human resources teamLet to right: Dineo Masilo, Vincent Mabaso,

Sharonne Scheepers, Sipho Ntombela, Shireen Crosson

(standing), Dorah Mawela, George Malatsi, Zandarine Theron,

Ingrid Mothiba, Anneline Stroebel.

Sitting let to right: Marcus Motlhatlhedi,

Vimla Maistry, Christian Green, Mzimasi Ngqelu.

Standing let to right: Yola Majali, Ayanda Shezi,

Lulu Bam, Lorraine Mokhutsane.

communications team

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inance teamSitting let to right: Sally Thobakgale, Sandy Hutchings, Henry Stopord, Leah Maiwashe.

Standing let to right: Caroline Mokwena, Stephen Dolamo, Roelien Jordaan, Hanlie Bedord, Ntshebo Sekgothe,

Lerato Tselangwe, Reginald Tong, Mumsy Tshioma, Abel Makhaola, Lizette Goosen, Gerhard Julie.

director-generals ofceSitting: Portia Molee. Standing let to right: Femida Mahomed, Sarah Setshedi, Frans Malatsi, Miriam Maroga, Robyn Martin.

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ministry

Sitting let to right: Grace Mashaba,

Georgina Sylvester, Orcilla Ruthman.

Standing let to right: Mpho Banda,

Butie Tsalane, Agnes Motsamai,

Dudu Mhlongo, Elsie Dikgomo.

deence teamLet to right: John Morris,

Mohlala Tabudi, Llyoyd McPatie,

Weekend Bangane,

Charmaine Yssel.

transport enterprises teamStanding let to right: Andrew Shaw, Bill Fielding,

Moeketsi Khoahli, Elvin Harris, Joachim Vermooten, Adam

Seedat. Sitting let to right: Evelyn Mthimunye, Joel Maatjie,

Linda Denga, Busisiwe Molapisi, Christinah Rammutla.

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joint projects acility teamSitting let to right: Mehleli Mpou, Katherine Venier,

Joan Arrikum. Standing let to right: Santhragasen Reddy,

Sean Phillips, Tsholoelo Mosadi, Caroline Richardson, Leah Khutoane.

legal governance andsecretariat team

Sitting let to right: Lerato Lengweng, Sandra Coetzee, Letta Monama,

Mateke Tema, Christo Loots. Middle row let to right: Bridget Holeni,

Relwe Mongale, Matsietsi Mokholo, Phahlani Mkhombo,

Prudence Manyasha, Denzel Matjila, Ursula Fikelep. Back row let to

right: Msekeli Willie, Rentia Solomon, Alred Mmoto, Rebaone Gaoraelwe,

Melanchton Makobe, Dali Mbelani, Dominic Steyn, Joseph Makoro.

inormation management team

Sitting let to right:Truly Mayimele, Vusi Magagula,

Magdaline Mathobela. Standing let to right: Livhuwani Madzuhe,

Alida Titus, Tshepo Chauke.

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ministry cape town

Standing let to right: Zanele Nyameli,

Georgina Sylvester, Jumari Botha.

Sitting let to right: Luvuyo Lupondwana,

Reneva Fourie, Samuel Mandiwana.

corporate services teamFront row sitting: Bontle Mali, Thomas Mabulana, Henriette

Strauss and Sentle Majwa. Middle row standing: Meisie

Letsoko, Rebecca Maumakoe, Dinah Ndala, Kgaladi Watkins,

Elizabeth Brown and Kganthipi Nkuna. Back row standing:

Mojalea Lekitlane, David Moima, Elias Nkosi, Vusi Khumalo,

Heila Mare and Anna Maluleka.

Sitting let to right: Ester Sibiya,Anthony

Kamungoma, Mantombi Dlamini.

Back row standing: Mbulelo Kibido,

Stanley Mokgobu, Bongi Gasa, Divashya Kanaye,

Mvikeli Ngcamu, Simon Malete and Slingsby Mda.

analysis and riskmanagement team

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P R O G R A M M E 1

ADMINISTRATION

This programme is responsible or providing key management and support services to the Ministry and

Department in the ollowing areas:

1. PLANNING, MONITORING AND EVALUATIONPurpose the provision o proper business planning and review, in accordance with legislation, in

order to achieve departmental goals.

Targeted outputs

An integrated business plan that aligns the Departments objectives to broad government policies

and objectives.

The development o an integrated approach to managing and monitoring projects peormance.

Achievements

All reports were presented to the Portolio and Select Committees on time.

The perormance monitoring o programmes has been eectively reported on a monthly basis,

and the three-year business plan was approved.

Challenges

To have a Business Plan that is aligned to the Estimates o National Expenditure (ENE), which

speaks to the Annual Report or a specic year.

2. HUMAN RESOURCES

Purpose to analyse the skills needs o the DPE, and to recruit and retain valued sta.

Targeted outputs

An approved Employment Equity Plan and organisational structure.

A structured internship programme in line with the Skills Development Act.

Achievements

The unit has implemented a more efcient and eective recruitment and selection process, which

has positively impacted on the Departments ability to achieve its objectives.

The implementation o the balanced score card system served as a vehicle to manage individual

and team perormance.

A successul internship programme, in which 23 interns were recruited during the year under

review.

Improved Employment Equity status with regard to people with disabilities. The Department iscontinuing to improve its disability employment rate.

Challenges

The structural constraints in a department with a growing mandate; retention and recruit-

ment o scarce and skilled proessionals, as well as the recruitment o people with disabilities

and women at SMS level in a competitive and highly specialised environment.

3. COMMUNICATIONS

Purpose to provide a communications and external relations plan o action that will support the

Departments ability to ull its mandate.

Targeted outputs

A successul Imbizo.

To improve the Departments communications and external relations strategy.

Tabling o the Budget Vote and the Annual Report in parliament.

The ormation and implementation o communications strategies on cluster projects as outlined in

the Economic Clusters Programme o Action.

Achievements

The unit successully tabled the Annual Report and coordinated the Budget Vote, Ministerial

Imbizo, launched the DPE website, 16 days o Activism Against Women and Children Abuse and

the launch o the Khanyiselani Development Trust Community Centre in Kokstad.

The DPE/SOE Crisis Management Plan was approved.

The International Relations sub-unit was re-established in the department in September 2006 and

is located in the Communications Unit.

Challenges

Given the act that the IR Directorate was dormant or a while, the main challenges were to build

the necessary institutional memory o the DPE and our SOE engagements aboard, as well as

building relations with the relevant stakeholders, e.g. the Department o Foreign Aairs, oreign

embassies, SOE, etc. These challenges were met by implementing an eective work process thatenabled the International Relations Directorate to successully manage the Ministers and Director-

Generals international engagements.

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c o n t . . . P R O G R A M M E 1

4. INFORMATION MANAGEMENT

Purpose to provide the required inormation and management systems.

Targeted outputs Network stability.

IT and data availability.

Achievements

The unit successully achieved 98 % network availability, security and stability.

The rst phase o the Firewall Security Solution was implemented and completed in the

Pretoria ofce.

5. FINANCE and SUPPLY CHAIN MANAGEMENT

Purpose to provide eective nancial management and nancial planning, as well as to ensure

that transparent supply chain processes are maintained.

Targeted outputs

Preparing nancial statements or audits, and achieving unqualied nancial statements without

emphasis.

Preparing and submitting Adjustments Estimates to National Treasury.Achievements

Supply Chain Management successully completed the asset register on LOGIS and the targeted

dates on all legislative reporting requirements were met.

6. CORPORATE SERVICES

Purpose to create an environment in which internal clients (sta) are provided with essential

support services.

Targeted outputs

The installation o a re-detection system that is linked to the access control system.

The installation o a new security and access control system, as well as the X-ray machine and

metal detector.

An electronic ling system, a centralised records centre, and a ully unctional Resource Centre.

Achievements Renovations to the ofces were completed and a new security access control system was

implemented.

A canteen was opened in February 2007.

An o-site storage acility was implemented.

The Express Shop (production room) has been ully unctional since February 2007.

The services o the departmental library were upgraded.

7. INTERNAL AUDIT AND COMPLIANCE

Purpose to provide impartial opinion, practical actions, and cost-eective solutions to assist the

department in mitigating business risks and achieving its objectives.

Targeted outputs

Eective risk management practice.

Compliance with the Institute o Internal Auditors Proessional Practice standards.

Achievements A risk-based operational plan was approved and implemented which enabled the unit to evaluate

the eectiveness o risk management, internal control and governance processes.

Challenges

Due to capacity constraints within the unit, a co-sourcing arrangement was undertaken.

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At the end o the rst quarter o the 2006/07 nancial year, the Department reviewed

the eectiveness o its structure and a decision was taken to re-align the Programmes

based on the SOE residing within the various sectors. This involved creating multi-disciplinary SOE-ocused teams with the responsibility o providing comprehensive

analyses o all aspects o the SOE o relevance to the shareholder.

The risk component currently residing within Programme 2 (Analysis and Risk

Management (ARM)) will remain as a sub-programme within the new structure.

Programme 3 (Legal Governance and Secretariat (LGS)) and Programme 5 (Corporate

Finance and Transactions (CFT)) were merged into one programme headed up by

one manager. The Programme Manager within CFT deals with special projects such

as the resolution o Aventura, as well as Alexkor. In addition, the Joint Projects Facility

will be treated as a separate programme.

For the year under review, the Pebble Bed Modular Reactor (PBMR) was shited rom

the Department o Trade and Industry (DTI) to the DPE. A budget or Broadband

Inraco was also allocated.

For the purpose o this Annual report, the business units will be classied according

to the structure as approved in the Estimates o National Expenditure 2006.

B U S I N E S S U N I T S o v e r v i e w

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Government Approved Dec 06 Completed and ongoing checking oFinancial recommendations nancial exposure.Exposure in SOE by the Minister

Analysis o the Approved report on April 06 Completed.Corporate Plans Corporate Plans

Analysis or all SOE

SKPIs & targets Approval o the April 06 Transnet and Eskom completed.SKPIs & targets

Analysis o Approval o report on March 06 Analysis o Eskom & Alexkor quarterlyQuarterly the quarterly Finalisation o report completed.Perormance perormance o SOE targets oro SOE Transnet

Analysis o Approved annual Aug 06 Analysis o annual reports or Eskom andAnnual reports analysis reports Alexkor completed.o SOE

5-year nancial Approved review by June 06 (Budget Completed.perormance the Minister vote)

review

Sub- Output Measure/Indicator 2006/07Target/Achievements programme Milestone

Risk Finalise Approved risk December 2007 Management the risk management

management rameworkramework

P R O G R A M M E 2

ANALYSIS AND RISK MANAGEMENT (ARM)

Purpose:

To analyse and monitor the nancial, operational and socio economic perormance o the SOE to ensure compliance

with Corporate Plans, the Shareholder Compacts and actively mitigate key risks owing rom the SOE activities.

Measurable Objective:

Analyse the nancial, operational and socio-economic perormance o the SOE and mitigate the key risk related tothe SOE. The Analysis component continuously analyses the perormance o the SOE, ocusing on their operations

and nancials, as well as the role they play in socio-economic development. The Risk Management component is

responsible or risk analysis; advising on section 54 o PFMA applications rom the SOE and materiality rameworks.

It reports on risks, vulnerabilities and potential shocks in and across the SOE, and advises on risk mitigation plans.

Service delivery objectives, indicators and achievements:

The risk management ramework wasfnalised and approved by the RiskForum, the DG and the Minister. The riskmanagement ramework includes SOE risk

reporting requirements, guidelines or riskmanagement and treasury risk managementin the SOE. An approval by a joint CEOsand Chairpersons orum scheduled orNovember 2006 was rescheduled to the2007/08 fnancial year. It is envisaged that

this will be achieved by June 2007.

Maintain the Quarterly QuarterlyRisk meetingsForum

Quarterly risk orum meetings betweenthe Department and its SOE were held. The Department also established aninternal Risk Management Committee. The Committees inaugural meeting washeld in July 2006.

Review SOE Assessment May 06Risk report orManagement each SOEPlans

The review o the risk management planswas completed. SOE risk proles were alsomonitored on quarterly basis.

A high level assessment o the riskmanagement practices in the SOE wascompleted and tabled at the DepartmentsRisk Management Committee and theRisk Forum.

Conduct an Assessment reports Oct 06assessment o or all SOErisk manage-ment practiceso each SOE

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Sub- Output Measure/Indicator 2006/07Target/ Achievements programme Milestone

Shareholder Legislation on July 2006 Progress has been made on allManagement Shareholder modules, none completed.

model management model GovernanceUpdated protocol Updated protocol October 2005 Completed.on corporategovernance or theSOE

Legal Contract All contracts within Ongoing Successully achieved,Management DPE via legal and completed.(incl. drating,vetting and storage)

EskomFinance Restructuring Finalise term sheet & May 2006 Successully achievedCompany o unding transaction documents and completed.

mechanismthrough Establishment osecuritisation Special Purposeo loan book Vehicles or the

securitisationImplementation Monitor progress on Successul agreements Business agreement Finalisation o business

ofDenels business agreements Strategic Equity signed with all and establishment o New Cos. businessstrategy partners partners

Provide advice on NewCos established PFMA approvalsPFMA approvals

Monitoring oMonitor establishment progress and inputo New Cos & assist into ARMwith PFMAapprovals Quarterly report

reviews PBMR Reviewed Amended and/or December 2006 Successully achieved and

Shareholders and renewed agreements completed.Ancillary agreements

Disposalof Contributions to Cabinet Memo 28 February 2006 Successully achieved andMetrorail Share Sale completed.

Agreement Keeping to date

o sale

SeparationofSAA Transer o SAA to Concluded share sale 31 March 2007 Share sale agreement successully fromTransnet Government agreement concluded.

Transer o Guaranteesto Government SAA and Transnet Pension Fund.Enactment o SAA &Transnet Pension Fund

Amendment Bills successullyAmendment Bills adopted by Parliament.

Establishmentof Transer Inraco Enactment o Inraco 31 March 2008 Share sale agreement with Eskom Infraco rom Eskom Bill Enterprises successully concluded.

Enterprises &establish Inraco Conclude share saleas a State Owned agreement withEnterprise Eskom Enterprises

Conclude FSN saleagreements withEskom Enterprisesand Transnet

P R O G R A M M E 3

LEGAL, GOVERNANCE AND SECRETARIAT (LGS)

Purpose:

Provide clear SOE mandates and ensure alignment o SOE governance systems, compliance and perormance with

government policy objectives.


Develop eective governance and policy rameworks that ensure that all SOE activities are perormed with integrity,

honesty and in compliance with appropriate legislation.

Legal, Governance and Secretariat (LGS) is comprised o three unctional areas:Corporate Governance, Legal Ofce and Secretariat. All three deliver internal services. Corporate Governance has a

distinct role in the interace with the SOE, National Treasury and other Government Departments. A substantial

portion o the Secretariats workload relates to the Economic Cluster. The main ocus o LGS is the interpretation o

current law, monitoring o statutory/contractual compliance and the induction o good governance protocol.

LGS is also a repository and disseminator o actual records and inormation supporting the unctions o the

Department and Ministry, as well as the Economic Cluster.


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Other achievements o the programme:

Claim or R61 million by Century One Holdings was withdrawn in May 2006.

A R2 million claim by Ramaolo or injuries sustained was settled in September 2006.

Claim by Conerence Call or R100 000 was settled in October 2006.

A subpoena by ACSA and Equity Aviation against the DG was withdrawn in March 2007.

Various claims by Paharpur/Londoloza Consortium, one application granted in avour o the Consortium in May 2006

and the other one still pending.

Establishment o the Legal Panel was completed in July 2006.

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Sub Output Measure/Indicator 2006/07 Target/ Achievementsprogramme Milestone

Perormance Quarterly reporting Quarterly Completed.management o assessment to

Transnet & core Minister within 14 daysdivisions o receipt

Procurement o Approval or Obtain approval Internal position papers developed butprivate sector transaction structure or PSP project not achieved. Framework willpartner or the be revisited, agreed and implemented.Coega container RFP issuedterminal Establish joint

PSP awarded transaction team Transport with National

Port AuthorityAugust 2006

Separation o SAA DPE, National Signed Heads o Successully concluded.rom Transnet Treasury & Transnet Agreement

agreement on between DPE,transaction Transnet and SAA

All contingent

liabilities &assets conrmedJuly 2006

Energy Develop an Corporate strategy or April 2006 Good progress was made, howeverintegrated Eskom and industry nalisation will be achieved duringramework that structure or the the coming nancial year.aligns Eskoms electricity sectorstrategies to agreed by DPE Ministergovernment and Eskom Boardpolicies & objectives

P R O G R A M M E 4

CORPORATE STRATEGY AND STRUCTURE

Purpose:

Dene and implement industry structures, public/private services and SOE strategies that will optimise overall

industry efciency, service provision, and pricing and economic development.


Strategies and structures or the SOE and the industries in which they operate that will ensure delivery on

governments economic growth objectives.

This programme is comprised o our components:

Energy, Transport, Deence and Forestry.


Develop pricingpolicy or the elec-tricity sector

NER approvedpricing policy andmulti-year tarif

October 2006 Eskom & Alcan signed the ElectricitySupply Agreement under the DPF.

Developmento investmentrameworks orSOE and nancingarrangementsor ve yearinvestments

25-year investmentplan, orecastand nancingarrangementsapproved by DPEMinister and EskomBoard

April 2006 A high level ramework was developed.However the actual unding is approvedannually via the corporate plans o theentity.

Introduction oPrivate sectorparticipation(PSP)

Power PurchaseAgreement agreedby Eskom in tenderdocumentsPPA signed betweenEskom and IPPPlant commissionedPSP ramework inplace

April 2006 PPA nalisation postponed until end April2007.

Brieng memo done on PPAnegotiations, delays and remainingchallenges.

June 2006

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Defence Oversight o theimplementation oDenels businessstrategy

c o n t . . . P R O G R A M M E 4



Approval o saleo non-core assets

Consolidation oDenels business andincrease in marketshare

Disposal o allnon-core assets,achievement orevenue projectionsrom disposalsand limited risk orDenel

Key partnershipsidentiedJuly 2006

Commencement odisposal processSeptember 2006

Denel Aerostructures/Saab transactiondocuments have been nalised anddiscussions with Treasury on Indemnityin process. PFMA approval providedor incorporation o the AerostructuresNewco, Denel in process o nalisingtransaction with the second globalpartner.

Assessment o Section 54 applicationsand sale o the ollowing non-coreassets: Irenco Plastics, Irenco Electronics,Dendustri, Arrivia.kom, Bonaero Park, SPP,Cosource, Sybase achieving R400 m inrevenue. Note SPP; remaining cash rombuyer outstanding and Co source buyercould not raise unds (transaction to be

restructured).

Development osector strategy

Deence policyalignmentIndustrycollaboration

Scoping andimplementationo short-terminterventionsNov 2006

Deence sector strategy completed to beimplemented in 2007/08.

Forestry Development oSacol strategyand mandate

Strategy andmandate nalisedEfective strategyimplementation

Research onglobal and localindustry trendsSeptember 2006

Recommendations on the uture role oSAFCOL approved on 20 March 2007.SAFCOL now has a new mandate thecompany is to private KLF, its remainingsubsidiary, and SAFCOL itsel is to bewound up once all other responsibilitieshave been completed.

Joint Project

Facility Rest ofAfrica

Human resourcesand capacitybuilding

JPF ICTS

Ecient SOE

inrastructureinvestment on thecontinent

Clearly dened

projects with respectto nancial ordevelopmental goals

Continental

InvestmentsStrategy

Lessons learnt report or investments

made by SOE in Arican countries outsideo South Arica.

Sector and country research undertakenand nal report presented to CEO o theSOE.Re-directed project strategy to examineinrastructure in Arica in a developmentalsense to encompass inrastructure,economic development and capacitybuilding.

Appropriatetraining acilitiesand opportunitiesor the SOEcapital expansionprogramme

Adequate skills inthe economy toacilitate the SOEcapital expansionprogrammes

Programme oAction or the SOE

Skills requirements audit conductedamong the SOE, and inormation givento Joint Initiative on Priority SkillsAcquisition (JIPSA).Training programmes and acilities auditconducted among Eskom, Transnetand Denel to ensure sucient trainingprogrammes and work place experienceprogrammes put in place to increase thenumber o qualied artisans, techniciansand technologists available.

Provision o lowcost telecom-municationsinrastructure

Establishmento call centresin rural/poorcommunities

The SOEnetwork anddata warehouserationalisation

Price o telecomsreduced.

Consolidated theSOE network anddata warehouse

Investigatedrationalisation o theSOE networks anddata warehouses.

Establishment o Broadband Inraco.

Reviewed business model or callcentres in underprivileged areas.Two clients identied or call centresand negotiations underway.

Concluded that this is not viable.

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c o n t . . . P R O G R A M M E 4



JPF - SOEProperty Project


1) PBMR

New Corporate Plan received 2 March 2007.

Conclusion o a new licensing arrangement completed.

Project Inormation Memorandum (PIM) was delivered in February 2007.

PFMA listing and a Shareholders Compact to be completed ater the conclusion o a new Shareholders Agreement.

2) Broadband Infraco

Signing o Sale Shares and Loan agreement with Eskom Enterprises and MoU and Heads o Agreement with Neotel.

ICASA and Department o Communications approved the interim license conditions.

Inraco Funding approved by Minister o Finance or 2007/08 in his Budget Speech.

Disposal oSOE non-coreproperties

Reduce the SOEproperty portoliosto include only coreproperties

First tranchenon-core propertysales. Initiate 5developmentprojects

Cabinet approval or Framework orDisposal o SOE non-core property andBBBEE guidelines or disposal.

JPF CompetitiveSupplierDevelopmentProgramme(CSDP)

Consolidate theSOE procurementor supplierindustrydevelopment

Growth o localsuppliers andreduction o imports(20%) or capitalprogramme

Strategicprocurementrameworkapproved by theDPE Minister

Cabinet approval or Framework orDisposal o the SOE non-core propertyand BBBEE guidelines or disposal.Cabinet approval gained or CompetitiveSupplier Development Programme.Eskom and Transnet have committedthemselves to participate in CSDPand have started to develop supplierdevelopment plans.Management procedures or theprogramme have been established

between the DPE, DTI and SOE.Procurement capacity buildingprogrammes have been put in place.

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Sub- Output Measure/Indicator 2006/07 Target/ Achievementsprogramme Milestone

P R O G R A M M E 5

CORPORATE FINANCE AND TRANSACTIONS (CFT)

Purpose:

Oversee and execute shareholder-initiated transactions such as Initial Public Oerings (IPO), joint ventures andpublic-private partnerships (PPPs).


Successul government-led transactions through efcient and eective nancial and project management,

within the recommended time rames.

This programme is responsible or carrying out all the SOE-related transactions in the department. Corporate

Finance develops optimal nancing structures or the SOE, taking into account the nature and extent o their nance

requirements, their ability to access capital markets, their nancial position and the objective o the transaction (or

example, promoting broad-based black economic empowerment (BBBEE). Transaction SpecialistServices manages,

executes and reports on approved SOE transactions, in accordance with the strategy, legal requirements and

appropriate transaction model.


CorporateFinance

Optimal nancingstrategies alignedwith corporatestructure andstrategy o theSOE

Financing strategysupported byresearch andbenchmarked data

Annually

Reports on theoptimal capitalstructure andadequacy o the

SOE

Published report Annually

Winding down oAventura Resorts

Successulgovernment-ledtransactions throughecient andefective nancialmanagement

June 2006

Sale o equityby Denel inArivia.kom


March 2006

Sale o CahoraBassa

Successulgovernment-led

transactions throughecient andefective nancialmanagement

December 2006


The nalisation o the Diabo Trust payment was concluded in March 2007 (under legal).

Successully restructured undingmechanism o EFC.

All quarterly reports rom the SOEwere analysed.

Reviewed the amendment o the sharesale agreement.

Sold Denels equity at Arivia.

Concluded Proposed FundingMechanism.

Transactions

Separation o SAArom Transnet


June 2006 Concluded share sale agreement.

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Department o Publ ic Enterpr ises

Report by the Audit Committee

introductionWe are pleased to present our report or the nancial year ended 31 March 2007 in terms o the Public

Finance Management Act, 1 o 1999 section 38 (1) a, 76 (4) d and 77, and Treasury regulations 3.1.11.

membership and attendanceThe Audit Committee consists o the ve (5) independent members listed hereunder. During the year

under review the Audit Committee held our (4) meetings as per the approved terms o reerence. All

the Audit Committee members are independent, which is line with the industry corporate governance

practice.

NAME OF MEMBER NUMBER MEETING DATESOFMEETINGSATTENDED

1. Zienzile Musamirapamwe 4 31/08/06 23/11/06 22/02/07 20/03/07

(Chairperson)

2. Mattie Joubert 4 31/08/06 23/11/06 22/02/07 20/03/07

3. Cynthia Mbili 3 31/08/06 X 22/02/07 20/03/07

4. Richard Cascarino 3 31/08/06 23/11/06 X 20/03/07

5. Jerry Sithole 4 31/08/06 23/11/06 22/02/07 20/03/07

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committee responsibilityThe Audit Committee conrms that it has complied with its responsibilities arising rom section 38(1)(a) o

the Public Financial Management Act (PFMA) and Treasury Regulation 3.1.13.

The Audit Committee has regulated its aairs in compliance with its approved charter and has discharged

all its responsibilities as contained therein.

In executing its duties during the past nancial year the committee has, inter alia, reviewed the ollowing:

The eectiveness o the internal control systems;

The eectiveness o the internal audit unction;

The procedures or identiying enterprise-wide risks and measures put in place to mitigate the same;

The risk areas o the Department to be covered in the scope o the internal and external audits;

The independence, objectivity, organizational stafng plans, nancial budget, audit plans andstanding o the internal audit unction to ensure adequate support is provided, to enable the

Committee to meet its objectives;

The results o the work perormed by the internal audit unction regarding nancial reporting,

risk management, governance processes and internal controls, and any signicant investigations

and management responses;

The coordination between the internal audit unction and the external auditors;

The annual report and nancial statements, which present a balanced and understandable

assessment o the perormance o the Department;

The external auditors management letter and management responses; and

Problems and reservations arising rom external audit, and any matters external auditors wished to

discuss in the absence o management.

The review o the eectiveness o the system o internal control by the Audit Committee is inormed by

the reports submitted by Internal Audit and Management, who are responsible or the development and

maintenance o the internal control system.

We would like to report that the Audit Committee has had the support o the Minister and Management,

which is reective o a positive tone at the top, critical to an eective control environment.

The Audit Committee has reviewed the annual nancial statements o the Department and concurs with

the conclusion o the Auditor-General. We thereore recommend that the annual nancial statements as

submitted be approved.

Chairperson of the Audit Committee Date

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Action expresses priorities.

Mahatma Gandhi

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ANNUAL FINANCIAL STATEMENTS

or the Department o Public Enterprises

or the year ended 31 March 2007

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c o n t e n t s

A N N U A L F I N A N C I A L

S T A T E M E N T S

REPORT OF THE ACCOUNTING OFFICER 44

REPORT OF THE AUDITOR-GENERAL 56

ACCOUNTING POLICIES 58

APPROPRIATION STATEMENT 64

NOTES TO THE APPROPRIATION STATEMENT 71

STATEMENT OF FINANCIAL PERFORMANCE 72

STATEMENT OF FINANCIAL POSITION 73

STATEMENT OF CHANGES IN NET ASSETS 74

CASH FLOW STATEMENT 75

NOTES TO THE ANNUAL FINANCIAL STATEMENTS 76

DISCLOSURE NOTES TO THE ANNUAL

FINANCIAL STATEMENTS 83

ANNEXURES 89

2 00 7

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Report by the Accounting Ocer to the Executive Authority and Parliament/Provincial Legislature o the Republic o

South Arica.

1. General review o the state o aairs

The State-Owned Enterprises (SOE) that report to the department are critical engines o growth in the South Arican

economy and will have to play an important role in the Accelerated and Shared Growth Initiative o South Arica (ASGI-SA).

One o the oremost objectives o the department is to ensure that the SOE enhance domestic levels o competitiveness and

contribute optimally in their key sectors.

The department is responsible or the provision o clear mandates to the SOE in its portolio by acilitating alignment

between SOE corporate strategies and plans with sector policies and legislation as developed by the sector departments

and the broader socio-economic objectives o government. The department also has to monitor the perormance o the

SOE against a range o nancial, operational and strategic targets and key industry benchmarks. To ensure that all thiswork is undertaken, simple and implementable governance systems are developed that align both enterprise and national

objectives. As part o the departments responsibility or eective perormance management o the SOE, the ramework or

shareholder compacts has now been nalised. In 2007 the department will be introducing legislation that will cement the

Shareholder Management Model, with respect to Schedule 2 entities, across the public sector.

The nature and content o the work perormed by the Department o Public Enterprises has changed signicantly since the

latter part o 2004. Accordingly, a new set o sk ills had to be acquired and the organisation restructured to support this work.

The department is now positioned to provide deeper sector specialisation and more ocused technical oversight.

Signicant projects undertaken or completed during the year

Cabinet approved the establishment o six wall to wall Regional Electricity Distributors as Public Entities to be regulated by

the National Energy Regulator o South Arica (NERSA) on 25 October 2006.

Eskom & Alcan signed the Electricity Supply Agreement under the Developmental Pricing Framework.

PBMR provided its New Project Master Plan and Project Inormation Memorandum during February.

The Nukem License was accepted by all parties.

Determination o the uture role or SAFCOL in orestry development was completed and submitted to Cabinet.

Denel secured R400m on the disposal o non-core assets.

Transnets Shareholder compact was signed on 6 October 2006.

The Transnet Pension Fund Amendment Bill was processed.

The InraCo and South Arican Express bills were submitted to Cabinet.

Slurry pipelines - Letters o support or the Maputo Metallurgical Complex (MMC) rom the SA and Mozambiquan Tradeand Industry Ministers were acquired.

Stakeholder engagements around SAA.

The review o the risk management plans contained in 07/08 corporate plans has been completed, barring Eskoms and

SAAs plans.

Business plans or procurement capability and capacity upgrading or Transnet and Eskom were nalised.

A ramework or disposal o non-core SOE properties was approved by Cabinet; and the BBBEE guidelines or the disposals

were also approved by Cabinet.

An intensive training programme or procurement ocers in the SOE was developed, and the rst such training took place

with Eskom and Transnet procurement ocers.

The Deence Industry Strategy was completed and will be implemented in 2007/08.

The Benchmark study o SOE investments on the continent and a Lessons Learned Report were completed. A sector

analysis and country analysis were also carried out or the Rest o Arica project.

report o the accounting o icer


D E P A R T M E N T O F P U B L I C E N T E R P R I S E S V O T E 9

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The Competitive Supplier Development Programme (CSDP) was designed and launched in 2006 with the specic

objective o leveraging the SOE capital expenditure programmes and maintenance requirements to develop the SOEsupplier industries, particularly in the capital goods sector. The key objective o the CSDP is to create an environment

or investment and learning in supplier industries. In January 2007 Cabinet approved the Competitive Supplier

Development Programme. SOE wishing to participate in the CSDP will be able to achieve the objectives o the National

Industrial Participation Programme (NIPP) through the Supplier Development Programme (SDP) and thus will not be

subject to the requirements o the NIPP. Eskom and Transnet have indicated that they intend to develop SDPs. These will

be nalised in 2008.

The Environmental Issues project identied areas or improvement with respect to the Environmental Impact Analysis

process. The Department o Environmental Aairs and Tourism, DPE and the SOE are now working together to ensure

alignment to achieve an optimum balance in South Arica between inrastructure development or economic growth

and environmental protection.

The Human Resources & Capacity Building project entailed working with our SOE to determine the skills requirement

and potential shortage in the artisan, technician and technologist spheres. This inormation has also been shared withthe Joint Initiative on Priority Skills Acquisition (JIPSA) to ensure a co-ordinated approach to skills acquisition in South

Arica that addresses all sectors. A comprehensive strategy related to the SOE is under development.

Departmental Spending trends

The Department o Public Enterprises voted budget amounted to R2 869 923 000, which was allocated to the

ollowing Programmes:

Programme 1: Administration

Programme 2: Analysis and Risk Management

Programme 3: Legal, Governance and Secretariat

Programme 4: Corporate Strategy and Structure

Programme 5: Corporate Finance and Transactions

The ollowing table provides a summary o actual expenditure incurred or the 2006/07 and 2005/06 nancial years vsbudget appropriated or each programme:

Programme 1: Administration 50 736 50 681 43 241 43 056

Programme 2: Analysis and Risk

Management 12 074 12 052 7 402 7 093

Programme 3: Legal, Governance

and Secretariat 14 906 14 903 12 940 12 796

Programme 4: Corporate Strategy

and Structure 1 856 993 1 856 989 8 587 8 268

Programme 5: Corporate Finance

and Transactions 935 214 655 210 2 020 483 2 017 015

Total 2 869 923 2 589 835 2 092 653 2 088 228

Programme 2006/07 2005/06

Final Actual Final ActualAppropriation Appropriation

R000 R000 R000 R000




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The increase o R777,3 million in the annual appropriation rom R2,093 billion (2005/06) to R2,870 billion (2006/07), is mainly

due to an amount o R2,03 million which was provided or a court settlement to Mr MA Ramaolo or injuries sustainedin 1993, in what was then the Lebowa Government, adjustments or VAT on previous transer payments in respect o the

PBMR (162,4m); Alexkor (R1,9m) and Denel (R280m) as well as unds rolled over rom the previous year which include the

completion o the departments renovations R800 000; R184 000 or Alexkor or the completion o an environmental study

and R3,152 million in respect o the transer payment or the Diabo Trust. In addition, during the adjusted estimates, unding

was approved or Alexkor, (R80m), PBMR (R462m), Denel (R567m) and InraCo (R627m).

Under-spending, amounting to R280,088 million, was recorded in the current nancial year. This amount is made up o

current expenditure in the sum o R88 000 in the operational budget and the balance in the sum o R280 million is in respect

o a transer payment not having been made to Denel in respect o an allocation or VAT or the previous nancial years

transer payment. Subsequent to the adjusted estimates being approved it was established that the transer was o a capital

nature and thereore did not attract VAT, and or this reason the unds were not disbursed to Denel.

As a result o the R280 million not having been transerred to Denel, the department did not meet the 98 percent

expenditure benchmark. Excluding this extraordinary item, 99.9 percent o the budget would have been spent.

Administration: provides strategic management, direction and administrative support to the department. The programme

consists o the Ministry, the Oce o the Director General and ministerial support sta as well as Corporate Services

with its sub programmes: human resources, inormation technology, nancial management, acility management and

communications, as well as Property management .

Expenditure or the programme or the year amounted to R50,7 million compared to R43,05 million (2005/06), an increase

o 17.7 percent rom the previous nancial year. The increase was mainly due to provincial road shows and public relations

related initiatives. Other projects included branded stationery with the departments new corporate identity, upgrading

o the IT central hardware and sotware, upgrading o the security system and the devolution o accommodation related

budgets to national departments. From April 1, 2006 costs or leases and accommodation charges were devolved

rom the Department o Public Works to individual departments. In 2006/07 the Department o Public Enterprises received

R3.7 million.

Analysis and Risk Management: is responsible or analysing the nancial operations and socio economic perormance

o the SOE to ensure that they are in line with perormance compacts as well as managing key risks fowing rom the SOE

activities. In addition the unit is responsible or comparative benchmarking and the SOE related risk management and

reporting at the macro level.

Expenditure or the programme or the year amounted to R12 million compared to R7,1 million (2005/06), an increase o 69,9

percent rom the previous nancial year. The increase is mainly due to vacancies having been lled and the implementation

o benchmarking systems being put in place to improve the risk reporting by the SOE and improving the units analytical

capabilities in relation to exercising oversight on the SOE.

Legal, Governance and Secretariat: is responsible or providing clear mandates and ensuring that the SOE governance

systems comply with government policy. The unit also provides advisory and secretariat services to the department and

the economic and employment cluster. The unit has a distinctly legal ocus as it interprets, develops and records actual

rameworks in relation to powers, unctions and duties, and ormal decisions. All legal activities were centralised in this unit.

Expenditure or the programme or the year amounted to R14,9 million compared to R12,8 million (2005/06), an increase o

16.4 percent rom the previous nancial year. The increase is mainly due to the restructuring o the department and transer

o unctions and employees rom other units as well as lling o vacancies during the year.




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Corporate Strategy and Structure: is responsible or optimising the contribution o the SOE to economic growth

through ensuring that the SOE mandates and strategies are aligned with the objectives o overall industry eciency,reliable service provision, competitive pricing o services and national economic development. This can include reviews o

industry structures and possible models o public/private service provision.

Expenditure or the programme or the year, excluding the transer payments to PBMR and InraCo (R1.8 billion) amounted

to R25.6 million compared to R8,3 million (2005/06), an increase o 208.43% percent rom the previous nancial year.

The increase is mainly due to 3 additional sub programmes within this unit namely, the Joint Projects Facility (JPF) where

earmarked unding was allocated rom the scus, as well as Strategy and Economic Research.

Corporate Finance and Transactions: is responsible or carrying out all the SOE related transactions in the department

through a specialist transactions execution and management unit.

Operational expenditure or the programme or the year, excluding the transer payments to Denel or both years, (or

comparison, 2005/06 R2 billion and 2006/07 R567 million) and the transer payment to Alexkor in the current year

(R82,084 million), amounted to R2,5 million compared to R3,2 million (2005/06), a decrease o 21.9% percent rom the

previous nancial year. The decrease is due to the reduction o unctions within the unit.

Virements

The main appropriation or the department changed substantially during the year, mainly due to the act that unds were

allocated or transers to entities during the adjusted estimates process, as well as an amount allocated to Programme 3 or

unoreseeable and unavoidable expenditure incurred with respect to a legal claim.

Furthermore, during the year the department started implementing certain changes to its programmes:

The transaction unctions in Programme 5 were shited to Programme 3, which resulted in a reduction in the operational

budget o Programme 5, however transer payments or Denel and Alexkor were disbursed through this programme.

A portion o these transers were made up o VAT accrued on previous transer payments. However, in the case o Denel, it

was later established that capital transer payments do not attract VAT, accordingly the department did not draw the unds

(R280m). Programme 4 also received unding or transer payments during the adjusted estimates or PBMR and the newly

established InraCo.

It was decided to move the Risk component rom Programme 2 to Programme 3 as this is a cross-cutting unction.

The department started preparing or the reorganisation o the programmes into specialised SOE teams to replace the

cross cutting unctional teams, or nal implementation in the coming year. This resulted in the movement o unds

between the programmes to accommodate the changes.

Programmes Voted or Roll-overs and Virement Total Actual Variance

2006/07 adjustments voted Expenditure

Programme 1 44 329 800 5 607 50 736 50 681 55

Programme 2 16 723 - (4 649) 12 074 12 052 22

Programme 3 15 204 2 030 (2 328) 14 906 14 903 3Programme 4 600 764 1 251 400 4 829 1 856 993 1 856 989 4

Programme 5 6 437 932 238 (3 461) 935 214 655 210 280 004

Total 683 457 2 186 468 0 2 869 923 2 589 835 280 088




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Irregular / unauthorised/ ruitless expenditure

During the year under review the department incurred ruitless expenditure amounting to R80 000 in an out o court

settlement, which was as a result o the late cancellation o a conerence in 2003. The service provider had nalised all

arrangements and in the process incurred various costs. (Reer paragraph 15 : Legal actions - Conerence Call v Department

o Public Enterprises)

The ocials involved in this transaction have since let the department, and no urther action was taken as the legal costs o

recovery could very well exceed the amount claimed. Approval has been granted or this amount to be written o against

the voted unds or the year. Reer Note 6 to nancial statements.

The department continues to implement procedures to prevent irregular, unauthorised and/or ruitless expenditure.

Procurement training is carried out annually and sta are inormed o any updates or changes to the policy. In the event o

any transgressions occurring, the department will implement the necessary disciplinary action.

The department did not incur any irregular or unauthorised expenditure during the year under review.

2. Service rendered by the department

2.1 Tarif Policy

The department does not render services or which a tari can be charged. It is thereore not necessary to

develop a tari policy.

2.2 Free Services

The department did not render any ree services.

2.3 Inventories

The inventories o the department consist mainly o domestic consumables and stationery. The inventories on hand at

31 March 2007 are valued at the weighted average cost method and amounted to R354 426. During the year under

review the department embarked on a strategy to procure consumables and stationery on a needs basis, which reduced

the value o inventories by 47.5%.

3. Capacity constraints

The department continues to experience challenges in attracting highly specialised personnel that are required, given the

nature and extent o the departments activities. This is mainly due to the rigid rules o appointment in the public sector

and the act that the packages in the private sector are more attractive. This is exacerbated by the discrepancy in bonuses

between the private and public sector. These actors impede the departments ability to compete with the private sectorwhen attracting highly specialised and scarce sk ills.

In response to this challenge, the department has practiced a air amount o fexibility regarding the negotiation o packages

to attract key resources. In addition, the department outsourced part o the recruitment process (e.g. headhunting services)

to ensure that the most appropriately skilled and experienced candidates were identied. This approach was implemented

as under the current public service rules the department would not be able to recruit the required specialised skills and

remunerate them at the appropriate levels. The department has used the Department or International Development (DFID)

unded Donor Programme and Support to the Restructuring o Public Enterprises in South Arica (SRPESA) to bring in highly

specialised skills, many with global experience, to enhance the capacity o the department.

The department continues to encourage national and international training opportunities in addition to awarding bursaries

to employees.




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4. Utilisation o donor undsThe department continues to make use o local (SOE) unds and oreign donor technical support (SRPESA). During the year

under review unds were received rom the SOE in support o the JPF and oreign donor unding was received in kind.

Foreign aid assistance

The department receives the benet rom a DFID unded programme called Support to the Restructuring o Public

Enterprises in South Arica (SRPESA) in the orm o technical assistance and no direct unds are transerred to the

department. Over the period since 2003 that the programme has been in place, a process or approval o each component

o technical assistance has been ollowed, under which approval by the Director General and then DFID is given, ollowed

by implementation by the project management company Adam Smith International. Broad oversight o this programme is

provided by a steering committee, which includes the Presidency and National Treasury.

Local aid assistance

In the latter part o 2005, the Minister o Public Enterprises and the SOE established a Joint Projects Facility (JPF) that would

enable the development o cross cutting projects that enhance the value o an industry or can leverage o the assets

and/or capabilities o the SOE to the benet o those SOE and the economy as a whole.

In 2005/6 the JPF was unded by the SOE directly and contributions received amounted to R13 million, during 2006/07

a urther amount o R1 million was received as a late contribution to the und. (Reer Annexure 1F o the Financial

Statements).

In 2006/07 National Treasury allocated unds to the Facility, which resides in Programme 4. However, a portion o the unds

received rom the SOE during 2005/06 had not yet been disbursed as a number o the contracts entered into at the time

were over a three year period. The department approached National Treasury requesting retention o the remaining unds

or disbursement specically in respect o the long term contracts entered into during the initial phase o this project and

which terminate in 2008. This request was approved.

5. Trading entities and public entities

Specic achievements o the SOE in the period under review, are as ollows:

Transnet

Transnet is the SOE responsible or the core reight transport operations in South Arica. Its main business units are now

Spoornet (rail transport), South Arican Port Operations, National Port Authority and Petronet (pipelines). Progress is being

made in disposing o all non-core operations. The merger o Metrorail with South Arican Rail Commuter Corporation

(SARCC), eective rom May 2006, which removes Metrorail rom Transnets balance sheet is a major step orward or

Transnet. The separation process o SAA rom Transnet has progressed to a stage where with eect rom 2006/2007,

the entities will report as separate SOE. A key challenge or the company in the coming years is the implementation o

the investment programme and operational improvement in all businesses, but particularly at Spoornet. On the whole,

Transnet is making good progress in the implementation o its strategy, approved in 2004, particularly regarding improved

governance and risk management processes and a signicantly strengthened balance sheet.

South Arican Airways

Signicant progress has been made in respect o SAAs separation rom Transnet. Parliament has completed the processing

o legislation, and the bill is in the process o being submitted to the Presidency or approval. SAA is already reporting

directly to the DPE on its new strategy, which primarily ocuses on reducing operating costs and consolidation o

operations on the Continent. The department is working with management at SAA to ensure alignment o governance

systems with all other SOE.




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Eskom

Eskom remains South Aricas major electricity utility. Its operations are split into the generation, transmission, distribution

and retail o electricity. Government aims to maintain a low-cost, high-quality electricity supply on a sustainable basis, whilst

increasing generation via cleaner uels. Eskom is making excellent progress in the construction o the two Open Cycle Gas

Turbines (OCGT) in the Western Cape and in the procurement o the rst major ossil uel generators. In addition, the sourcing

o Independent Power Producers (IPP) is well underway. This heralds the implementation o the 70 percent / 30 percent split o

new generation capacity between Eskom and IPPs.

PBMR

The Pebble Bed Modular Reactor (PBMR) , our ourth generation inherently sae nuclear generator, has updated its market

orecast to include the upsurge o interest in nuclear process heat or applications ranging rom salt water desalination to

hydrogen production. Both local and international interest in PBMR has continued to grow, and excellent progress has been

made in aligning the Eskom PWR programme planning with PBMRs generation IV plans. This will maximize the localisation o

key technologies that will allow South Arica to compete and partner in the new era o nuclear energy. In the next period PBMR

will go on site or the construction o the Pilot Fuel Plant at Pelindaba and progress the approvals or the construction o the

Demonstration Power Plant in the Western Cape.

Alexkor

Alexkor principally mines diamonds in the Alexander Bay area. This includes marine mining and land mining operations. As part

o the settlement agreement all the non-mining operations will be separated rom the mining activities along with all municipal

unctions that are currently undertaken by the company. Progress is being made with the transer o the school, hospital and

other assets to the municipality. Alexkor is the only large enterprise in the area and supports communities in Alexander Bay and

surrounding areas. This support includes employment, contracting opportunities and the provision o community services.

Denel

Denel is a major player in South Aricas peace keeping and deence-related industries, providing both air and land based

sub-systems and components. Denels turnaround strategy was nalised in the latter part o 2005. Denel has made signicant

progress in implementing the strategy. This includes the assessment o the viability o its businesses, the disposal o non-core

assets, cost cutting initiatives, the ormation o equity partnerships with oreign companies and the securing o major local

deence acquisition contracts. In implementing its turnaround strategy, Denel has realised R400 million in revenue rom the

disposal o non-core assets to date.

At the deence industry level, the DPE has nalised the deence sector strategy which was jointly unded by the DoD, dti, DST,

the Association or Maritime and Deence Industries (AMD), Denel and the DPE. The ndings o the study identied key deence

capabilities that will be the ocus or uture government support. The strategy will also provide a ramework or the urther

consolidation o Denel.

A key pillar o Denels strategy is the ormation o equity partnerships with global OEMs. In this respect, a partnership between

Denel Aerostructures and Saab was nalised during the year. Negotiations on an equity partnership between Denel Optronics

and Carl Zeiss Optronics are progressing well. Progress is also being made in terms o other equity partnership negotiations with

oreign companies.

Signicant deence acquisition contracts have been placed with Denel, including the Hoeyster Inantry Fighting Vehicle (IFV)

which is valued at R8 billion (rst order already placed) and the development o the A-Darter missile (R1 billion, which is jointly

unded between the South Arican DoD and the Brazilian Government). The mechanical contract or the Oryx midlie upgrade

(totalling R271m) has been placed and the avionics contract or this project is in the pipeline. These contracts will not only

benet Denel, but will have positive spin-os or the wider SA Deence Related Industry (SADRI). The DPE, Denel and the DoD

continue to work closely on policy and operational issues.

SAFCOL

SAFCOL currently manages most o the state-owned commercial orestry plantations. The total area o orest in South Aricaunder SAFCOL management at the end o FY 2006-07 was some 129,000 hectares (equivalent to around 7 percent o the




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countrys commercial orest plantations). The great majority (over 90 percent) o this orest area alls under SAFCOLs

Komatiland Forests (Pty) Ltd (KLF) subsidiary and is located in Mpumalanga Province and the Eastern part o Limpopo

Province. KLF also manages small-scale sawmilling operations and has a small subsidiary in Mozambique.

KLF was the last remaining orestry package that was to be disposed o under the orestry restructuring programme, a

majority stake in the other our main operations subsidiaries having been sold during the period 1999 to 2005. A majority

stake in KLF was oered or sale in late 2003 and Bonheur 50 General Trading (Pty) Ltd (Bonheur) was subsequently chosen

as the preerred bidder. Signicant concerns about market structure were raised at the Competition Tribunal in 2005,

during the process required or approval o the proposed merger o Bonheur and KLF. Bonheur withdrew rom the Tribunal

in February 2006. The DPE subsequently terminated the transaction on 17 March 2006.

In March 2007, Cabinet re-conrmed the role o the companies, under which KLF will be transerred to the private sector

(as previously envisaged) and SAFCOL will be wound up.

Broadband InraCo

InraCo is a telecommunication inrastructure company that will operate a broadband (terrestrial and international)

network service to reduce telecommunication prices in South Arica as well as providing access to undeveloped areas and

bandwidth requirements or specic projects o national importance. These services will include, amongst others, scientic

initiatives and video streaming o international events. Currently it houses the long-haul transmission assets o Eskom and

Transnet. Legislation will be processed in the year 2007/08 to establish InraCo as a ully fedged entity.

Aventura

The business o Aventura was sold in June 2003. The transaction was not nalised due to land claims. The Government then

renegotiated the sale to allow the purchaser to purchase the Resorts with land claims on them. The sale o the business

has now been concluded and Aventura Limited is in the process o nalising the transer o the land to Forever Resorts.

This is subject to the signature o the Addendum to the Sale Agreement by the Minister o Public Enterprises. The Auditors

o Aventura have nalised the auditing o the nancial statements which will be signed o by the Directors on nalising

the Directors Report during the course o this year. The nalisation o the nancials are dependent on the signature o the

agreement by the Minister o Public Enterprises.

6. Organisations to whom transer payments have been made

Diabo Trust

The Diabo Trust was established in 2003. The Chairperson o the trust is Dr Danisa Baloyi.

The purpose o the trust is to distribute approximately

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