RESTRUCTURING AND REVIEWAL OF ENTITIES BRIEFING TO THE PORTFOLIO COMMITTEE ON MINERAL RESOURCES AND ENERGY - iVocacy
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RESTRUCTURING AND REVIEWAL OF ENTITIES
BRIEFING TO THE PORTFOLIO COMMITTEE ON
MINERAL RESOURCES AND ENERGY
18 AUGUST 2020; Held Virtually
Presentation Outline
▪ The presentations seeks to provide the Portfolio Committee on Mineral
Resources and Energy with a status update on the restructuring of
entities within the DMRE
▪ These are:
✓ CEF Group
✓ NECSA Group
▪ Annexure: Provide a status update on the migration of the carbon
capture utilization and storage programme from SANEDI to CGS
2
CEF GROUP
Purpose
• Detail the strategic rational for the merger and other restructuring activities as
well as key benefits
• Give assurance on the capabilities of our implementation partner for such a
complex project
• Define the strategic approach, implications and other key dependencies for
success
• Share the Programme governance structures in line with international best
practices
• Outline a high level roadmap and key milestones
• Way forward
4The Central Energy Fund (CEF)
CEF is a State Owned Entity focused on contributing to security of energy supply for the country
WHO WE ARE THE ROLE OF CEF GROUP
The Mandate of CEF is derived from the • Contribute to security of energy supply by providing
MANDATE CEF Act (No 38 of 1977) and the Ministerial affordable, reliable, diverse use of primary energy
directives issued thereafter. The mandate
is in essence to contribute to the resources and contribute to economic development and alleviate
security of energy supply for the country. poverty in an environmentally responsible manner.
•Be a strategic partner to the Department of Mineral
Resources and Energy (DMRE) for providing insights in
To be a leading diversified energy support of policy development and regulation,
company that provides sustainable •Be a financially sustainable company that can be relied on to
VISION
energy solutions for Southern Africa. This support the implementation of policies and programmes of the
way CEF contributes to national energy Department.
security.
To grow our footprint in the energy • Reduce the country’s over dependence on
sector, to be the catalyst for multinationals.
economic growth and energy poverty • As the implementing arm of the DMRE, to align with
MISSION government’s broad objectives (NDP) and act as a vehicle
alleviation through security of supply, and
access to acceptable affordable energy in for economic growth, poverty alleviation and economic
Southern Africa. transformation.
• Batho Pele
This will be done through the acquisition, exploitation and manufacture
• Respect
VALUES of appropriate energy solutions [from coal, oil, gas and renewable
• Integrity
energy resources] to meet the future energy needs of South Africa,
• Continuous Improvement
the SADC and the sub- Saharan African regions.
• Stewardship
5Current structure of the CEF Group
CEF SOC Parenting Strategy Department of Mineral Overview
Holding Company providing Resources and Energy • CEF SOC which is the holding
strategic direction, monitoring and company for a number of
evaluation, Group oversight and subsidiaries is a Schedule 2
development of new sustainable
entities in support of security of
entity and it required to be
energy supply. commercially viable to
support governments
broader initiatives.
• CEF subsidiaries operate
across the energy sector
value chains with
commercial, strategic,
regulatory and
developmental roles
• Each subsidiary has its own
Board of Directors that is
accountable to the of CEF
Board Directors and
subscribes to core
governance regulations.
6Parenting Strategy
The characteristics of our effective parenting strategy will result in
a number of successes that will provides the following;
• Financial, strategic & functional control,
A hybrid of • Strategic Operational oversight,
Strategic Guide and Functional • Stakeholder management,
parenting strategy is preferred. • Energy advisory, and
Then CEF SOC will: • Centralized incubation of Groups growth portfolio up
until final investment decision.
Set Group policies and
This is further supported by an effective Operating model will have
processes, promote sharing of
the following core elements:
best practice and drive
functional initiatives
1. Effective governance structures
Track detailed plans and 2. Functional business processes
budgets, drive improvement 3. Fit for purpose organizational structures and engaged
initiatives and approve major workforce
decisions and drive Group 4. Integrated cutting edge technology systems
Operational Excellence 5. High performance and learning culture
6. Business Performance Management and incentives
7National Treasury Status of SOE’s 2019
Ongoing Monitoring Close Monitoring Stabilisation intervention ❑ The National Treasury assessment
required / on-going of SOEs, placed the CEF Group
Total assets with a number of commercially
> R30 bn IDC TRANSNET Eskom
struggling entities that require
serious stabilization and
Land Bank CEF intervention on an ongoing
DBSA
basis. The CEF Group assessment
TCTA raised the following:
• Group financial sustainability as a
Total assets R30bn-
ACSA
R10bn result of PetroSA challenges
SAA
• Ineffective operating model
SAPO • Decommissioning liability
• Lack of Growth
Total assets
DENEL • Inability to execute on complex
< R10bn SAX projects
ATNS ARMSCOR INFRACO
SABC • Lapses in Governance
SAFCOL
NECSA
❑ Equally the major banks and
ALEXKOR
insures have also raised concerns
around the Group pertaining to:
As a result of the strategic challenges • Lack of stable leadership
• Impact on Liquidity, Solvency and Profitability impact. • PetroSA turnaround
• Impact on Group Commercial sustainability • Governance
• Inability to fulfil our mandate • Strategic stock issues
• Inability to support the broader government initiatives and the NDP • Irregular expenditure
8CEF Group Strategic Trajectory & Long Term Renewal Approach
Underpinned by
1 2 3 4
Stabilising the CEF Group Drive growth and increase Development of key Energy Group Consolidation to
and improve long term Market Share through Infrastructure programs in exploit synergies and improve
commercial sustainability diversification of Iincome support of economic scale for strategic relevance
and strategic relevance streams & product portfolio development & growth turning around struggling
entities.
Response to Strategic Challenges Key Strategic Themes Long term Key Results
• Group Commercial Consolidation & Turnaround 1. 5 % market share
sustainability
2. R4 Billion return by 2025
• PetroSA Financial crisis Commercial sustainability
3. ROA OF 12% by 2025
• Poor business performance
Strategy & Long Term Growth 4. Brand Reputation Score of 75%
• Lack of Group growth
5. Integrated National Energy Company
• Poor Operational inefficiency Operational Efficiency
6. R2.7 Billion income from new business
• Overlap in mandates
Human Capital & 7. Creation of a High Performance Culture
• Archaic Group Operating Model Organisational Alignment
8. Strategic acquisitions
• Weak Group Value Proposition
The next slides depict how we plan to execute on the CEF Group strategic renewal Programme
9Strategic Rational & Key Objectives
• Following the Cabinet decision to support the merger, the CEF Group has been working very hard to initiate an integrated
• approach in achieving Group stabilisation, consolidation and turnaround, growth and commercial sustainability
imperatives.
• The approach will be two pronged which will focus on the (1) Business of Today and the (2) Business of Tomorrow
• This will see the merging of the three of its subsidiaries namely (1) Igas, PetroSA and SFF to form an integrated National
Petroleum Company in the next 6 months to reposition the Group for long term commercial sustainability and
enhancement of our strategic importance in the South Africa’s energy landscape in support of security of Energy Supply.
Key Objectives of the Restructuring and Merger Programme
Business of Today
• Redefine Group’s value proposition, strategic
1-Stabilization of PetroSA financial crisis partnerships and Operating Model to support strategic
and other related restructuring activities
objectives & new market entry strategy, and enhance
& ring-fencing good assets for Business
of Tomorrow. overall competitiveness of assets
2-Defining the future role of CEF SOC in • Increase business efficiencies, reduce costs, address
a changing energy landscape legacy challenges, and drive value creation for
shareholders by leveraging synergies through the merger
Business of Tomorrow • Reposition the Group for growth by stabilising current
1-Merger of IGAS, PetroSA and SFF in operations, introducing an operational excellence
line with international best practices programme for the refining asset to optimize costs, and
2-New Value Proposition acquiring new assets
3-Construct of new Group Operating • Set up the new merged entity in a consultative manner,
Model & new organizational structures integrating and managing inputs of all key stakeholders,
4-Group Shared Services Model & providing strong change management support, and
Common IT Platform
establishing strategic partnerships for the future
10Business of Today-Progress to Date
• Initiatives underway for dealing with the PetroSA liquidity challenges to avoid organisational collapse
• Feedstock initiatives: leveraging the Group balance sheet & assets
PETROSA CRISIS • Cost optimization (Contracts negotiations/ Payment terms/ Disposal of non core assets / Shared Services
• Operational efficiency – GTL Refinery focus –Capacitation of Trading & Supply – Margin improvement
• Have secured the services of external service providers to assist the Group with the following
STRATEGIC • Development of the CEF Group strategy (Regional and continental –Where to play –Group Value
proposition
DIRECTION • Acquisition and Funding Strategy
• New Operating Model design will change the look and feel of the Group
• Appointments of Boards and subcommittees
• Group business performance oversight priority focus
GOVERNANCE
• Monitoring and evaluation and automation of reporting initiatives
STRUCTURE • Adoption of Group Parenting Strategy and constitution of Chairman's Forum
• Appointment of permanent Group CEO and other Executives across the Group
• Ongoing capacitation of key managerial roles
CAPABILITIES • Group Competency Matrix development
• Development of key policies to give effect to talent attraction, retention and development
• Aggressive drive towards acquisition of operating assets (busy review a number of options and have
FINANCIAL done Due Diligence processes)
• Portfolio diversification initiatives and have more play downstream
SUSTAINABILITY • Reprioritization of Group funding activities to take into effect short, medium and long term returns
The above under the leadership of the CEF Board and Group CEO illustrate a number of initiatives already
under way for stabilising the Group and ensuring that we prepare ourselves for the business of tomorrow.
11Business of Tomorrow
Future Value Proposition Socio-economic Context
• Economic transformation and job
• To be an efficient, effective and
creation through strategic partnerships
integrated commercially viable SOC
• Support the DMRE in the delivery of the
that contributes to socio-economic
security of energy supply mandate
growth.
• Transition the country to Low carbon
• We will be at the forefront of developing
footprint as an integrated energy
new energy solutions for the country
company.
through innovation, thought
• Energy Sector thought leader & One-
leadership and strategic partnerships.
stop energy center for the country
• Long term growth & commercial
• New energy technologies in support of
sustainability will be achieved through a
Security of Energy Supply
balanced portfolio of assets & services
• Financially sustainable and integrated
that deliver value.
holding company and Group
12Key Project Deliverables & Benefits (Not Exhaustive)
Deliverables Intended Benefits
• Detailed Corporate Strategic (Where to play) • Improved Operational Efficiency and margins
• NewCO Operating Model & ORG structures • Strategy articulation and plans
• Revised Legislation and MOI ; • Combined Synergies and mandate clarity
• NewCO and Group Governance Framework; • Growth : Increased Market Share and Scale
• “NewCO” establishment Legal Compliance • Effective execution of security of supply mandate
• Revised Business process & Optimization Plans; • Profitability and Portfolio diversification
• Detailed Funding Plans • Vertical integration
• Shared Services Model & Implementation; • Fit for purpose operating model and structures
• Stakeholder & Change Management Plan; • Brand strength
• Group Restructuring • Leading energy role in the region and continent
• Common IT Platform
13Implementation Partners Overview
The Consortium that will provide a unique value proposition to the CEF Group with extensive Global and local experience
in the energy practice and M&A
Who they are Track Record
• 94 Years in operation • 50+ M&A Projects per year
• Presence in over 90 countries • 100+ global M&A practitioners
• Fortune 500 Partnerships • 400+ Oil & Gas and Chemicals projects per year
• 250+ Downstream refining projects
Their presence in Africa… Consortium unique value proposition
… specifically in Kearney proprietary tools
CEF’s markets
Expert leadership team and senior
advisory board
Countries in which consortium
has worked
Countries in which Kearney
has project offices/legal entities
Operating in South Africa for
>25 years
14They have successfully worked with an extensive range of both global and local blue-chip energy companies, state-
owned entities, and NOCs, many of which our consortium has served collaboratively
Sample consortium reference clients
1. Consortium team
15Proposed Project approach
The planned Group merger initiatives will be executed in consultation with a wide range of Stakeholders over a period
of Six Months for the first phase of the project. This is to ensure that the project is implemented in a sustainable and
effective manner to bring out the desired objectives. Below are indicative timelines for steps to be followed:
Phase 1 : Strategy & merger detailing and implementation –Setting the Foundation will consist
of the following mini phases:
❑ 1A. Strategy & merger design (8 weeks) : Focus will be on Baselining & gap analysis of strategy & design whilst
at the same time capturing any low hanging value capture & quick win identification
❑ 1B. Merger detailing (6 weeks): Focus on Detailed strategy design, Operating Model and other organizational
structure designs. Included here is work around the Shared services model
❑ 1C. Merger implementation (10 weeks): Focus on the core merger implementation initiatives parallel with other
key legal, commercial, environmental, technological components
To give effect to a seamless project and Programme execution process, we will be setting up an Integration
Management. Office. It will ensuring operations continuity, interface to existing internal programs & management of
interfaces with other advisors (e.g. Legal)
We will also ensure that a leadership culture and change management process exists to support the projects(incl.
stakeholder management). This process continues through the Programme
Phase 2: Transition Support (up to 12 months : Will focus on transition activities and other
support activities to ensure stability and sustainability of the project and that we do not
reverse any gains made. This will be more around culture, processes and systems.
16Project organisation
• The proposed project organisation structure is based on best practice for large and complex projects to ensure
seamless execution and taking all stakeholders on the project journey.
• The CEF Board will play a major oversight role in overseeing the merger process and other activities related to
integrating merged and entities, with an emphasis on reducing risk in the project activities.
• The Integration Office will become key in being the engine room coordinating a number of key project outputs. For
informed decision making,
• CEF Leadership who together with representatives from the Departments will form a Steering Committee will be
supported by an international team of experts who make up both the (1) Strategy and (2) Mergers Advisory Boards
• There will also be work stream leads who will lead specialist functional areas such as Human Capital, Information
Technology, Communications, Finance etc
• Key Benefits of the Project Organisation
❑ High visibility of Project Objectives
❑ Improved project control and oversight
❑ Better coordination & accountability
❑ Quick decision making
❑ Ability to deal with Group wide complexities
❑ Specialist lead their respective areas
❑ Improved efficiency
17Key Support Dependencies
Factor Support required
• Successful transformation into
a NEWCO will require support Stakeholder
– Ownership of government/shareholder stakeholder management
from across the CEF group on Management
a number of critical factors. Speed of
– Establish and endorse project and merger process governance enabling
• In making important and Decision
adequate speed of decisions
complex business decision, Making
there are key stakeholders that Fiduciary
– Ensure the merger does not jeopardise financial and regulatory compliance
will be involved in decision- Oversight
making.
Executive Management support required
• The above is to ensure that the
project is able to progress as Factor Support required
seamless as possible, within
schedule, budget and required – Regular engagement and management of various stakeholders, viz:
Stakeholder
Government stakeholders; market and industry players; business partners;
quality Management
regulatory bodies; employees; trade unions; general public
Speed of – Ensure key decisions, such as strategic plans and major investment/divestment
• Top-down support is crucial in Decision decisions, are taken timeously to enable 6-month implementation plan
ensuring the long-term success Making – Availability of legal advisory and support
of the merged entity Openness and
– Regular, open and responsive communication between advisors, the Executive
Speed of
Team and the Board
Communicatio
– Commitment and support of the process
n
– Ensure that the strategic direction of the post-merge entity is aligned with the
Strategic
long term-vision of CEF to provide sustainable energy solution and drive national
Alignment
energy security
Nomination of
– Nominate a project team whose motivation is clearly linked to the goals of the
Motivated CEF
project
Project Team
18Way forward - CEF Group
• The planned merger and other Group restructuring activities form part of the Group’s strategic trajectory for
improving our commercial sustainability, stabilizing ailing entities and setting the Group for long term
growth.
• Key to the above is the stabilisation and restructuring of PetroSA which is faced with a financial crisis
technical insolvency.
• The planned set of projects are expected to take six months culminating in the formation of an integrated
“NEWCO”
• To ensure maximum success and external implementation partner with vast experience in M&A and
organizational turnaround has been selected to support the CEF Group
• A robust project governance structure has been set up to ensure that the project is implemented with precision
and that key decisions can be taken as quickly as possible.
• Various modalities as to the structure and construct of the new entity will form part of the Phase 1 activities along
with other regulatory, legal, strategic and operational requirements.
• Each phase will have a stage gate process where key approvals will be made in consultation with key
stakeholders before moving to the next phase
• We are confident that these initiatives will bear the desired outputs as part of our Group Renewal Strategy
19NECSA GROUP
Necsa Group
• In line with the Government decision to re-purpose the country’s State-Owned
Companies to support growth and development, a single governance structure
for the current Necsa group of companies has been approved in March 2020
• The process will involve rationalisation and repurposing Necsa Group to be a
financially sustainable State-Owned Company to meet the government
developmental objectives.
• The new business model will transition from the current incoherent quasi-holding
operating model dependent on government grant to a fully-fledged new Necsa
Business.
• This will be done in a manner that ensures that Necsa’s core mandate as derived
from the Nuclear Energy Act is not be compromised, but delivered and supported
through commercial objectives and initiatives to ensure sustainability of the
organisation into the future
21Necsa Group
• To date the Necsa Board has since established a Restructuring Board
Sub-Committee
• The Terms of Reference for the appointment of an external
independent service provider were approved by the Board sub-
committee on 22 July 2020.
• The appointment process for an appropriate service provider is
currently under way.
22Necsa Group
The process will be done in consultation with all Stakeholders and in a deliberate
manner to leverage opportunities and increase synergy and efficiencies. Below are
indicative timelines for steps to be followed:
• The Necsa Board will “go ahead” with the Feasibility study on rationalization
(September 2020),
• Consultation with all relevant stakeholders (October 2020);
• Board considers and approval process of new business model, new operating
model and new organogram (November 2020)
• Board submission for Approval to the Minister and Cabinet (February 2021)
• Implementation of the new business and operating model (completed process)
(August 2021).
• It is estimated that this rationalization process would take approximately12
months and will be finalized in the 2021/22 financial year.
23Necsa Group
• In May 2020 and in response to the COVID-19 pandemic business continuity
risks and instability as a result of the risk adjusted lockdown initiatives, Pelchem
repurposed one of its chemical plants to produce World Health Organisation
(WHO) recommended sanitisers.
• Currently Pelchem, produces 100 000L per month ranging from 500mL to 1 000L
packaging.
•
• In April 2020 Ketlaphela Pharmaceuticals (State-Owned Pharmaceutical
Company “Ketlaphela”) obtained a Section 54 Ministerial approvals.
• Pelchem and Mintek have partnered to revitalise Ketlaphela and it is currently in
the operationalisation
24ANNEXURE Re-alignment of functions within some entities
Re-alignment of functions within entities
SANEDI and CGS
• Other than CEF and Necsa Groups who are going through a full
restructuring, there is re-alignment of functions in two entities within the
DMRE, namely; South African National Development Institute (SANEDI)
and Council for Geoscience (CGS)
• This relates to the migration of the carbon capture utilisation and
storage (CCUS) from SANEDI to CGS
• The next slide indicates the status of the transfer thus far in realising
this objective
26Update on CCUS Migration
• Engagements with the CGS are underway to agree on terms and conditions of the transfer.
• Responsibility with regards to project management, planning and all the relevant technical
work for the project has already been ceded to the CGS.
• Approvals have been received for the transfer of project funds from both for non-
government funds and government funding. Funds are due to be transferred to the CGS
from this month, August 2020.
• Parties have agreed that assets and obligations that are attached to the project will transfer
across with the project to the CGS.
• The parties have reached agreement on the transfer of staff from SANEDI to the CGS.
• It is expected that staff will move across from 01 September 2020.
• Essentially by 01 September the transfer of the project from SANEDI to the CGS should be
completed.
27END
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