Strategic Plan and Annual Performance Plan Presentation to

Strategic Plan and Annual Performance Plan Presentation to Portfolio Committee & Select Committee on Public Enterprises and Communication 02 MAY 2018 1

Purpose of the presentation • The purpose of the presentation is to brief the Portfolio Committee on : • The strategic context: NDP, 2014 -2019 MTSF and SONA • The strategic outcomes that will be pursued by the Department for the remainder of the MTSF period • Outline SOCs challenges and actions to address these challenges • Outline the 2018/19 priorities for the Department • Reversing the effects of State Capture • SOC Shareholder Compact performance targets • Progress on the implementation of the BRRR Report Confidential 2

Preamble • • • SOCs are used by the State to intervene in the economy to fulfil the social and economic development objectives of the country. Economic growth and creation of sustainable jobs are key government priorities where SOCs have a critical role to play. There is a need to accelerate SOC investment and expansion programmes to enable SOCs to support the key policy priorities. Therefore, repositioning of SOCs and improving their current architecture will be fundamental towards the SOCs and departmental mandate. SOC Reform – improving collaboration among SOCs and the departments’ oversight. SOC Mandate: Eskom: Provide efficient Generation, Distribution and Transmission of Electricity Transnet: Develop and maintain national logistics infrastructure (ports, rails and pipelies) Safcol: Ensure security of supply of Saw Logs for the country Denel: Develop and Maintain critical defence industrial capabilities in support of SANDF Alexkor: Established as State Mining Company SAX: Development of secondary airline routes to enable economic development 3 Confidential

CONTEXT – State of the Nation Address • • President Ramaphosa SONA 2018 pronouncements on the state-owned entities informs DPE strategy going forward In this regard the focus going forward will be (Minister Gordhan, 7 March 2018): – Review current boards – Improve efficiency – Restore SOC financial sustainability and reduce dependence on the fiscus – Stamp out corrupt practices at SOC – Ensure that SOC mandates are aligned to the State’s developmental agenda President Cyril Ramaphosa, SONA (2018) “…Many of our state owned enterprises are experiencing severe financial, operation and governance challenges, which has impacted on the performance of the economy and placed pressure on the fiscus. We will intervene decisively to stabilize and revitalize state owned enterprises. The recent action we have taken at Eskom to strengthen governance, root out corruption and restore its financial position is just the beginning. Government will take further measures to ensure that all state owned companies fulfil their economic and developmental mandates. We will need to confront the reality that the challenges at some of our SOEs are structural – that they do not have a sufficient revenue stream to fund their operational costs. These SOEs cannot borrow their way out of their financial difficulties, and we will therefore undertake a process of consultation with all stakeholders to review the funding model of SOEs and other measures. We will change the way that boards are appointed so that only people with expertise, experience and integrity serve in these vital positions. We will remove board members from any role in procurement and work with the Auditor General to strengthen external audit processes. As we address challenges in specific companies, work will continue 4 Confidential on the broad architecture of the state owned enterprises sector to

OVERVIEW OF DPE SOC PORTFOLIO *SAX figures are unaudited Confidential 5

OVERVIEW OF DPE SOC PORTFOLIO • SOC investment including infrastructure should leverage the private sector participation (PSP) capital and expertise through: Gearing 4, 0 2, 0 1, 20 2, 08 0, 87 0, 00 -2, 0 -4, 0 -6, 0 • Public private partnerships, • Joint ventures, • Public-private collaboration, and • Strategic equity partnerships • Adequate capitalisation of SOCs and ensure optimum capital structure -8, 0 -10, 0 -9, 71 -12, 0 Denel Series 1 1, 20 SA Express Eskom Transnet Safcol (Unaudit ed) 2, 08 0, 87 -9, 71 0, 00 Alexkor 0, 00 • Economic infrastructure, where relevant, must be funded on a Confidential 6

SOC Key Challenges Challenge Theme Internal factors Challenge area Governance Financial Operational Strategy External factors Governance Policy and Regulation Financing Description • Weak and inexperienced boards and management • Negligible board and executive fiduciary accountability for poor performance • Limited direction, oversight and leadership from board/shareholder • Inaction or consequence against corruption • Inefficiencies (operational and financial) • Fragmented (financial) resources across all SOCs • Delays and cost overruns in the delivery of capital expenditure programs • Failure to keep pace with technological improvements in certain industries • • Conflict andthat misaligned given to SOCs Strategies do not mandates keep up with rapidly changing Limited clarity on the roles of various stakeholders competitive environment Unclear reporting or accountability lines Poor alignment strategy to national objectives Current oversight of model lack uniformity • Policy gaps, misalignments and uncertainty and weak regulation • No clear criteria defining where the state should own SOCs • No standardised approach to shareholding within the State • State has limited resources to invest in SOCs whilst meeting all its other priorities • Funding of the developmental mandate to be separated from commercial mandate, with clear provision made by the State for developmental activities 6

ESKOM FINANCIAL PERFORMANCE • Stagnant demand - Revenue • Escalating debt from Municipalities increase driven by tariffs and Soweto - -High gearing • Above inflation primary energy • Insufficient cash generate from increases operations increasing risk of default, • High gearing • Significant exposure to the • Unsustainable capital structure sovereign (R 290 bn exposure)) • Prices not reflecting cost of • Lack of clear long term strategic production, lagging regulatory direction decisions - Confidential - 8

ESKOM LEADERSHIP AND GOVERNANCE • Corruption in the business eroding needed cash and credibility of the institution • Risk of recurring qualification due to PFMA transgression and going concern • Executive Management in Acting position • The position of the former GCE is subject to application in Labour Court and High Court; and • The table below reflects the current status of vacancies and governance compliance requirements 9

Transnet Financial Performance 10

Leadership and Governance • Lack of action and consequence for widely reported allegations of corruptions • Lack of credibility and determination to address the issues of fraud, misconduct and corruption in the entity; • Poor consequence management and inability to close on cases against corruption; and • Repeated audit findings and growth in irregular expenditure. Slide 11

SA Express • • • Poor financial performance due to continued losses resulting in a going concern of the airline; Poor Board performance in executing the fiduciary duties as required in the Company’s Act; delays in the finalisation of commercial agreements with SAA that continues to erode any revenue opportunity for the airline; Unavailability and unreliability of aircraft resulting poor service levels to customs, loss of market share and competitiveness in sustaining routes; Loss of critical skills as a result of inability to attract and retain these due to guarantee conditions; Lack of credible leadership (Board level) to implement consequence management, hold employees accountable for all forms of fraud and misconduct in the airline. Slide 12

Urgent Intervention in SA Express • Appointment of a new Board; • Appointment of strategic positions of CEO AND CFO (the positions of GM: Technical and Commercial are also critical) • Recapitalisation of the airline (i. e. either through equity injection; Strategic Equity Partners; etc. • Finalisation of the Corporate Optimal Structure to ensure that Aviation state assets are optimised; • Finalisation of all outstanding cases of fraud, misconduct and corruption; • Impede SOC employees to do business or trade with the airline. Slide 13

SAFCOL - FINANCIAL AND OPERATIONAL PERFORMANCE • The company was unable to meet any of the strategic targets as agreed in the 2016/17 shareholder compact. ‒ Capital programmes not achieved and shifted to the current financial year. • IFLOMA in care and maintenance and not contributing financially • A billion rand revenue was reported in FY 2016/17, highest in five years. 14% revenue growth compared to prior year is due to increased selling price and volume of logs. • SAFCOL’s financial position of R 4. 7 billion has improved by 1% compared to prior year due to profits reported. • Growth in revenue, available raw materials and low debt to equity ratio places the SOC in a favourable position for securing financing for its capital projects. SAFCOL plans to raise debt of R 420 million for the financial year. CONFIDENTIAL 14

SAFCOL – GOVERNANCE AND RISKS • The board has not dealt effectively with the challenges at the SOC • The board did not have the requisite skills and capacity to deliver • Instability at management level with entire Executive Committee positions vacant • Land claims and neighbouring communities relations – 61% of land claimed and expected to increase. • IFLOMA status and relations with Mozambique • Execution and funding of Capital programmes • Privatised plantations minority shareholdings. • Competition issues – SAFCOL dominant player in the Limpopo and Mpumalanga regions • Instability at Executive Management

DENEL - FINANCIAL PERFORMANCE AND POSITION • Revenue increased significantly over the 3 year period. Improvements in revenue are mainly due to most programmes moving from development into production phase, resulting in increased activities. • Export revenue accounted the highest from 2014/15 FY to current FY. • High gearing • Deteriorating liquidity position • Potential going concern risk • Reliance on export market, the risk posed by the growth is the need for credit facility guarantees with a weak balance sheet. • Denel still has to maintain unfunded Do. D products and support putting a further strain on the balance sheet. • High costs of production, high levels of work in progress and finance costs contributed to low net profit levels. • Denel’s assets are mainly financed by debt. . The debt consists of government secured debt of R 1. 85 billion and unsecured debt. • Liquidity challenges have resulted in the entity relying on prepayments to fund working capital requirements. CONFIDENTIAL 16

DENEL – GOVERNANCE AND RISKS • Allegations of Corruptions against previous board and management • Liquidity challenges – Government Guarantee expiring end of September 2017. Minister of Finance agreed to roll it over for 12 months. The limited time could create lack of appetite from potential investors • Contract delivery slippages and delays • Business model of Denel not adequately cash generating • Limited R&D spending • Stakeholder and public relations issues • Single contract and customer dependency • Aging plant and equipment – need for modernisation • Talent retention/succession planning • Supply chain challenges • Leaking of company information at Board level • The Board has demonstrated limited ability in leading an organization of Denel sophistication and product profile

ALEXKOR - FINANCIAL PERFORMANCE AND POSITION • Carat Production – Alexkor commissioned deep sea operations during FY 2017 – Production improved for FY 2017 with over 162 000 carats produced compared to 45 000 carats produced in FY 2016 – The commissioning of the deep sea mining operations improved the performance of the joint venture significantly • Financial Performance – Consolidated revenue increased from R 197 million in FY 2016 to R 386 million in FY 2017 – A Net profit of R 31 million was reported – The enhanced performance is a result of the improved revenue, increase in other income, savings in operating expenses and the dividend that was declared by the joint venture during the second quarter of the financial year – Alexkor’s financial position has improved from R 673 million to R 688 million in FY 2017 CONFIDENTIAL 18

ALEXKOR CHALLENGES • • The board has not dealt effectively with the challenges at the SOC The board did not have the requisite skills and capacity to deliver Instability at Executive Management Going concern: The SOC’s operating cash balance is depleting without a stable source of income. Alexkor may not be able to finance its liabilities in the foreseeable future. • Disruption in the deep sea operations: The deep sea mining vessel caught fire in April 2017 resulting in the interruptions of the operations. Production is not expected for the remainder of FY 2018. Financial performance is likely to deteriorate. • Relationship with the Richtersveld Community : The community has divided views of Alexkor and this has led to a delay in the implementation of the settlement agreement • The feasibility (including legal) of collapsing Alexkor PSJV and Alexkor board, executive and operational structures should be explored - Lack of visibility into the affairs of PSJV • Duplicate costs being incurred without additional value being created (R 4 million per month would be saved) • Alexkor PSJV non-incorporated and non-PFMA compliant structure 1

State of governance • The results are sourced from the 2016/17 annual reports were published: – – – 1 13 2 1 1 Clean audit opinion Unqualified audit opinion with emphasis of matters Unmodified audit opinion Disclaimer of opinion Adverse audit opinion Slide 20

SOC Asset Base • Slide 21

2018/19 RESPONSE PLAN Decisive interventions Review of Operating model SOC in sound financial position Review of Funding models How do we respond Review of MOIs to include step- in rights for the shareholder and global peers and SOCs contracted accordingly Engage financial institutions with a Define and Identify unfunded view to ensuring an appropriate developmental mandates All Directors and employees to Benchmark SOC financial and operational metrics cease doing business with Review of operating models in line with operating context, Assess profitability at BU level government exposure and introduce evolving markets and technology Strictly enforce NT capital SOC to project execution discipline (PSP) SOCs Benchmarked SOC operational performance with domestic Lifestyle audits for NEDs and Executives Implementation of audit findings Review of SMF for closer oversight funding model for the SOCs Leverage the private sector to reduce Poor SOC overall performance with respect to service ensure discipline in accessing and Review of capital structure delivery mandates (electricity blackouts, commuter trains utilization of capital raised Cost saving programme – safety and inability to meet schedule) (borrowings, equity injections, Optimization of resources Review of group structures, subsidiaries and intra-group government guaranteed facilities, ) Adherence to regulatory regimes relations Appropriate tariff structure that facilitate trade and Engagement with lenders on the investment (e. g. : port, rail and electricity tariff structure, SOCs strategy to enable SOCs to tariffs that support export of manufactured products versus borrow – restore credibility raw materials) Identification/Disposal of non-core assets SOC fulfilling their economic and developmental mandate Sound leadership and governance Confront corruption Better co-ordination, oversight of government’s role as shareholder Utilizing the Strategic Intent Appointments of new boards Statement ensure SOC Appointment of strong executive directors mandates are aligned to Credibility of appointment methodology Consequence management (including criminal investigation report are acted prosecution) on emphasise focus on core Strengthen SOC internal audit mandate in order to support the experience and competence and enterprise risk development of the state Ensure succession planning by appointing members management independence developmental mandates should who can learn from the experienced appointees, with and capability be clearly defined including the a particular bias for black females address strategic drift Ensure that SOC shareholder compacts are reflective of the NDP expectations and MTSF targets The SOC commercial and Appoint members who have the requisite integrity, funding thereof Focus on core mandate Review SOC structures and discontinue business operations Confidential Limit role of board in Review of Schedule 2 entities as procurement per cabinet approved complexes Ensure that forensic (mandate & relevance) Appoint an independent and Streamline SOC business to Co-ordinate activities of IMC on reforms Implementation of the DPSA credible organization to Guidelines on Appointment of manage whistleblowing for all Boards and Executive parties can safely report Management; instances of malfeasance Implementation of Executive 10

KEY OUTCOMES Key strategic outcomes i Description of outcome • SOC Financial Sustainability Core Outcomes Commercially viable SOCs Audit Outcomes ii Strong & Effective Shareholder SOCs are entirely capable of funding their own operations, without requiring State intervention • Credibility of SOCs in the debt capital market • • Reduction in guarantees and debt level SOCs meeting their primary mandate (energy security and affordability, on time arrival, reduce cost of logistics etc. ) • SOC delivering their developmental role in the economy • Efficient Operations • Clean audit outcomes • Curb in irregular expenditure and reportable irregularities • Recovery of lost monies / consequences • Effective management and Leadership in the department • Exercise of effective instruments in intervening timeously in SOC • DPE is internally, a robust, capacitated and flexible organisation, that acts as the benchmark for its peers Enabling Outcomes Capacity, Alignment and efficiency across government • Uniformity in broader government’s approach to oversight • Government alignment on SOC reform • Stakeholders are aligned across the institutional model, ensuring a collaborative and synergistic approach to delivery of government policy • Improved ability to fast-track major decisions Confidential 11

KEY PERFORMANCE AREAS Strategic Objective Key Performance Areas n Promote the development of strong shareholder n Development of Government of Shareholder Management Bill n Review boards and appoint new boards n Better co-ordination, oversight of government’s role as shareholder n Report on lifestyle audits of key SOCs officials n Stamp out corruption practices at SOCs n Establishment of Shareholder Anti-Fraud and Corruption Hotline n Forensic Reports from SOCs reviewed and recommendation implemented n Eradication of any irregularities and conflict of interest involving the procurement of services by SOCs Output n Effected consequence management 24 Confidential

KEY PERFORMANCE AREAS Strategic Objective Key Performance Areas n SOCs financial and operational sustainability n Review SOC operating model Output n Sound SOC financial position n Review of SOC capital structure n Approval of the Optimal Corporate Structure of aviation assets (SAA, SA Express and Mango) n Accelerate capital project delivery n Determine Alexkor’s future-state and its role/participation in State mining entities n Monitoring of SOCs infrastructure programme n Optimization of SOCs assets n Adequate investment in the economic infrastructure n Improved delivery of SOC expansion programme 25 Confidential

KEY PERFORMANCE AREAS Strategic Objective Key Performance Areas n Accelerate transformation of the South African economy n Socio economic impact assessment of Transnet selected capital project Output n Enhance understanding of SOC economic impact to stimulate various policy or SOCs program scenarios n Macro-economic and industry specific research n Monitoring of SOCs contribution to skills development n Develop CSI policy framework Confidential n SOCs transformation and socioeconomic development n Refocus CSI into coordinated collaborative and integrated high impact programmes 26

SOC Reform Roadmap Portfolio optimisation Standardised oversight Review of State Oversight & holding in key New refined Governance industries such as portfolio with clear ICT, Mining, Consolidate the governance Transport & oversight function framework as Manufacturing into a single defined in this Department/Agenc policy y 27 Confidential Optimised portfolio with clear mandates and Governance Framework and directly support implementation of Government Policy

RECAPTURING STATE INSTITUTION PROGRESS TO DATE

Progress on Governance Alexkor Denel Eskom Safcol SAX Transnet Qualified Unaudited Unqaulified Emphasis Review of boards Executive management Review of Mo. I Lifestyle Audit Forensic investigation Annual Audit Outcome Unqualified Qualified Emphasis Confidential 15

Review of SOC Forensic Reports • The review will be executed by a dedicated Anti-Corruption Task Team that is earmarked to expedite consequence management concerning confirmed acts of malfeasance, fraud and corruption across six SOCs – The task team will comprise officials legal and forensic experts from DPE, National Treasury, SARS, Asset Forfeiture Unit, Financial Intelligence Centre and the Hawks – Work within the Department will unfold while awaiting the formal establishment of the task team – Recommended approach in using findings and recommendations contained in the reports • Ascertain the probity of the reports as they will be used to declare directors delinquent; conduct civil recoveries/asset forfeiture; and open criminal proceedings where prima facie case of fraud and corruption • APP Initiatives – Launch of Shareholder Anti-Fraud and Corruption Hotline by end of 1 st quarter – Establishment of a dedicated Anti-Corruption task Team by end of June 2018 to expedite consequence management concerning acts of malfeasance, fraud and corruption across six SOCs – Lifestyle audit key officials within SOCs to commence in 2 nd quarter and earmarked for completion by end of financial year – Review of forensic reports across all SOCs to commence in 1 st quarter and implementation of recommendations to commence by 2 nd quarter on the following • Declaration of directors as delinquent • Civil recoveries/asset forfeiture Confidential 15

SIU Investigations • SIU Investigations into the affairs of Eskom, Denel and Transnet: – The President of the Republic published Proclamation No. 11 of 2018 authorizing investigations into alleged acts of malfeasance, fraud and corruption focusing on among others the following: • The contracting for or the procurement of coal; coal transportation services; • Maladministration concerning Medupi, Kusile, Ingula Pumped Storage Scheme Power Station • Appointment of Mc. Kinsey, Trillian and Regiment Capital to render services to Eskom and Transnet • Defective performance by build programme service providers appointed by Eskom • Unlawful appropriation or expenditure of public money or property concerning Transnet and Eskom • Transnet 1064 procurement • Transnet National Multi-Product Pipeline • The investigation will focus on the period between 01 January 2010 and the date of the publication of the proclamation • Inaugural meeting with DPE, SOCs and SIU held 24 April 2018 Confidential 16

Nkonki Contracts Current scope : • DPE: Vetting of Potential board members • Denel: External Auditors • Eskom: Forensic and consulting • DPE’s consultations with IRBA on the matter revealed that: – Nkonki partner implicated in alleged misconduct is registered with IRBA and Nkonki since removed him as partner pending the investigation into the matter by IRBA – It is the client’s prerogative to terminate Nkonki’s services, subject to contract provisions – Nkonki may be referred to IRBA if there a grounds to terminate their contracts i. e. subject to the following: • • • If the company has failed to put in appropriate safeguards to correct the reported misconduct and to prevent recurrence of misconduct that can impair its judgement Nkonki’s continued involvement with SOCs may comprise its independence and impair its judgement Following AG termination of Nkonki contract, SOCs must review impact of Nkonki exit Nkonki undergoing voluntary liquidation Recommendations – The Auditor General will take over the lead of External Audit for Denel – Nkonki / DPE contract has lapsed – but must still be investigati Confidential 17

CONCLUSION 33

2018/19 BUDGET ALLOCATION 34

BUDGET OVERVIEW ECONOMIC CLASSIFICATION Compensation of Employees 2018/19 R'000 2019/20 R'000 2020/21 R'000 171 444 184 514 198 312 Goods & Services Payments for Capital Assets 99 378 105 202 110 972 3 092 3 314 3 551 TOTAL 273 914 293 030 312 835 • The Department's budget increased from R 273. 9 million in 2018/19 to R 312. 8 million in 2020/21 at an average growth rate of 5. 5%. • Compensation of employees is a significant share of the department’s budget over the medium term and this is as the result of the oversight function which requires specialised, highly skilled personnel. • Over the medium term, Compensation of Employees is expected to increase from R 171. 4 million in 2018/19 to R 198. 3 million in 2020/21 at an average growth rate of 8. 1% due to the conditions of service. • Goods and Services including Payments for Capital Assets is expected to increase from R 102. 5 million in 2018/19 to R 114. 5 million in 2020/21 to support the department’s priorities. Confidential 21

SOCs SHAREHOLDER COMPACT 36

Strategic outcomes over the MTSF Period • • • Over the MTSF period, the Department together with SOCs in its portfolio must deliver on four strategic outcomes. These outcomes are at the center of the restructuring of the economy and pursuing a different growth path with better developmental outcomes. The progress against these outcomes reported on a quarterly basis as part of the ESEID Cluster reports to Cabinet. Confidential 37

SOCs 2018/19 performance targets Denel Cash generated from operations ≥R 513 m Value of new orders R 2 bn EBIT Margin 8% Debt/Equity ratio 80/20 R&D investment ≥R 454 m Achievement of cardinal milestones as contractually agreed with clients ≥ 85% Local content 70% Procurement from black owned suppliers as % of local spend 30% Skills development 50 Total number of engineering trainees Total number of artisan trainees 100 KPA Financial sustainability Targets Operational performance KPIs Socio economic Operational performance Financial sustainability KPA SAFCOL KPIs Targets EBITDA Margin 5% Overhead reduction 5% Revenue growth 2% Maintenance of planted area (RSA) 120 500 ha Mozambique new establishment (Sofala) 2 000 ha Lumber Market share 3% Local content 85% BBBEE spend on Qualifying Small Enterprise (QSE’s) 40% BBBEE Spend on Exempted Micro Enterprise (EME’s) 30% Training spend 6% 24

SOCs 2018/19 performance targets Eskom Debt/Equity Ratio 3. 07 EBITDA margin R 18. 90 bn Arrear debt as % of electricity Revenue 1. 29% Average debtors days 65. 82 EME (Exempted Micro Enterprise) attributable spend 15% Local content contracted 70% Training spend 5% KPA KPIs Targets Operational Financial performanc sustainabi e lity Targets EBITDA margin ≥ 41. 5% Gearing ≤ 50% Total Rail Volumes ≥ 235 General Freight Business ≥ 99% Technician trainees ≥ 150 Artisan trainees ≥ 160 Local Content ≥ 75% Socio-economic KPIs Socio-economic KPA Operational Financial performance sustainability Transnet Confidential 25

SOCs 2018/19 performance targets Alexkor Operational Cash buffer R 60 m Rental income collected 85% Implement Coal Strategy Approval to establish Alexcoal Establish a diamond beneficiation facility Feasibility study on establishment of the diamond beneficiation facility Socio economic Local spend 75% KPA Financial sustainability Targets Operational performance KPIs Operational performance KPA Financial sustainability SA Express (Compact not yet signed) KPIs Targets Loan repayment Addressing audit findings Aircraft availability 63% On-Time performance 84% Technical dispatch reliability 88% Delay to finalise SA Express compact was due to the dire financial and operational challenges facing the airline Confidential 26

CONCLUSION • The SONA has re-emphasised the Government’s commitment to address the developmental challenges • Steps to stabilize and reform SOCs required to resolve challenges confronted by SOCs • The financial sustainability of SOCs remains an important focus of the Department without compromising their contribution to developmental imperatives • Measures to stamp out corrupt practices at SOCs are place and have been included in the 2018/19 plans. Confidential 41

PROGRESS REPORT ON THE PORTFOLIO COMMITTEE RECOMMENDATIONS – BRR REPORT Confidential 28

Progress Report on PC SOCs RECOMMENDATIONS KEY INTERVENTIONS PROGRESS Recommendations Capacitate SOCs internal audit functions o o Increase and strengthen oversight over SOCs through robust and regular interaction with CEOs, Board Members, Audit Committees, regular visits to construction sites of major infrastructure projects o o o Undertake a comprehensive governance and risk gap analysis Organisational review to assess the capacity and skills gaps undertaken during 2017/18 financial year o The analysis is part of 2018/19 APP, the work commences in Q 1 Quarterly site visits on SOCs major infrastructure programmes Executive Forum for SIP 09 and 10 established to review status, challenges and impact of various projects/components forming part of SIP 09 and 10 Establishment of DPE/SOC Audit Committee Forum to assess SOCs major audits, risks and mitigating plans Review 5 existing boards and appointment of new boards Filling in of SOC vacant executive positions o New Eskom board was appointed. , appointment of Denel board underway o Included as part of the 2018/19 APP Fast-track the introduction of the Shareholder Management Bill to empower the department to carry out its oversight responsibilities o Procure services of the legal firm to assist the Department to develop the Bill and Socio-Economic Impact Assessment of the shareholder policy o Appointment of the legal firm expected to be finalised during quarter 1 and work will commence in quarter 2 Develop SOC guiding frameworks and ensure their implementations to provide stable working environment for SOCs o Development and implementation of the Remuneration Guidelines o The new Guide has been shared with Cabinet Ministers for implementation Ensure that there are punitive measures in place for under-performance against targets for board members, executives o Identified gatekeepers through the Shareholder Compacts. Confidential Remuneration guidelines aligned to o Implementation of the new Remuneration Guide provide critical non-negotiable gatekeepers to be 29

Progress Report on PC SOCs Recommendations RECOMMENDATIONS KEY INTERVENTIONS PROGRESS Ensure finalisation of the future strategic roles for Alexkor and SAFCOL o Part of SOC Reform process o None Finalisation of the Whole of State policy to bring alignment and synergy amongst state aviation assets i. e SAA, SAX and Mango o Consultation with relevant stakeholders on the development of the Optimal Corporate Structure for the realignment of the state owned airlines Develop action plan to guide the finalisation of the Optimal Corporate Structure o Strategic engagements were held with stakeholders to assess the key pillars of the proposed optimal structure; namely reporting structure, Feeder Model Resolutions, Divestment of Non. Core Assets and Governance Recapitalisation of SOCs to address issues of insolvency and liquidity o Engagement on the SOCs recapitalisation are ongoing The review of SOCs funding model as announced by the President during SONA will assist the airline o Address issues relating to SOCs going concern o o Ensure that the Department continues to work closely with policy departments in order to influence the policy environment in which SOCs operate o Cluster participation and individual policy Departments' working arrangements o DPE participation in the outcome clusters Department to rectify wrong audit opinion reported by Denel o Intervention by the Minister, Denel and SNG to amend the audit report o Subsequent to intervention by the Minister, Denel and SNG agreed to amend the audit report in order to resolve the impasse The Department is still awaiting confirmation of these changes from Denel and the process undertaken to arrive at the position o Confidential 30

Progress Report on PC SOCs Recommendations RECOMMENDATIONS KEY INTERVENTIONS PROGRESS Greater emphasis on the monitoring and evaluation of SOCs' implementation of Government's policy objectives o Annual review or reaffirmation of the SOCs Strategic Intent Statement (SIS) o Timely conclusion of the Shareholder Compact (SHC) o Progress on the municipal debt o Intergovernmental engagements o o o Confidential Review of the SOCs SIS already underway. SHC process to commence in quarter 2 Government has appointed an advisory panel which will lead discussion between Eskom and Municipalities. There after provide recommendations Eskom will continue with the PAJA process in order to collect the overdue debt since it is impeding investors' attention to Eskom. 31

Progress Report on PC DPE Recommendations RECOMMENDATIONS KEY INTERVENTIONS Consider introducing relevant systems and evidential requirements during the annual strategic planning process in order to ensure that all predetermined targets are achieved o Review of the department planning processes o Development of the Action Plan to support the implementation of the Strategic Plan and APP o 2018/19 integrated Action Plan developed Ensure that the Department's vacancies are filled, as well as the acting position in the entities with an outcome of developing strategic capacity of the Department o Review of the structure to ensure conducive integration of roles and responsibilities o Implementation of the realignment of the structure on deliberation process Ensure that spending on compensation is fast tracked through acquiring critical skills. o Enforce stringent turnaround time on the filling of vacant positions Complete the objective on Business Mapping Process o Standardisation of the processes for effective coordination of information and decision making process o Process of reviewing oversight process underway Ensure that service providers are paid within timeframes and project management capacity is enhanced in the Department o Enforce turnaround time of 30 day payments o Process in place to ensure payment of invoices are within 30 days Confidential PROGRESS 32

THANK YOU 47 33