Gigaba preaches BEE, industrialisation

Address by the Minister of Public Enterprises, Mr Malusi Gigaba MP, on the occasion of Budget Vote 11 at the Extended Public Committee on Public Enterprises in Cape Town

14 May 2013

Leading by example: State-Owned Companies driving growth and transformation in the South African economy.

We are honoured to present to this EPC today our Budget Vote for 2013/14.

Our portfolio of State-Owned Companies (SOC) have aggressively been accelerating investment to maintain aggregate demand precisely when there is a downturn globally and the private sector is too apprehensive to invest.

Three years ago, our portfolio of SOC invested R53 billion; but in the next financial year, we will be investing over R113 billion.

Chairperson,

I wish to state it unequivocally that in relation to industrialisation and transformation, we have an unyielding political will.

In October 2012, we convened a Transformation Dialogue as the first step in the development of a transformation framework and guidelines for SOC to be launched during the course of the 2013/14 financial year.

Having awarded the single largest audit appointment of a South African black-owned auditing practice, Sizwe-Ntsaluba-Gobodo, Transnet went further to award a R1.3 billion internal audit contract to a group of three audit firms led by SekelaXabiso, involving Nkonki and KPMG.

Furthermore, Eskom’s total procurement spend for 2012/13 financial year was about R120 billion and total spend on Broad Based Black Economic Empowerment (BBBEE) compliant companies is R103.4 billion, which is 86.3% against the target of 70%.

As at February 2013, B-BBEE spend at Transnet stood at R58 billion or 87% of Total Procurement Spend.

The procurement of 1 064 Transnet locomotives we spoke about last year is now far advanced and shall be concluded in due time.

This historic procurement will result in the development of qualitatively new industrial capabilities and the comprehensive transformation of the locomotive supply chain.

Pursuant to the last Budget Vote’s commitment, the Department of Public Enterprises (DPE) held the Supplier Development Summit attended by SOC’s suppliers, customers and other key stakeholders.

At the summit, the SOC communicated their next generation supplier development, localisation and transformation plans and further explored how they and large companies in strategic sectors can collaborate around supplier development to create a truly national effort around achieving our objectives.

I am confident that within the next six months we will have some exciting announcements to make in this regard.

Over the coming year, we will be mobilising our entire SOC portfolio, along with their customers and suppliers, to give added momentum to a comprehensive industrialisation and transformation programme in our economy.

As part of this we will be exploring set-asides and other mechanisms radically to accelerate the promotion of black industrialists and the entrance of youth and women owned businesses into the mainstream economy.

We will be reaching out to our large private sector customers and suppliers in the resource extraction and processing sectors to partner with us in our developmental programmes; and will also be drawing on our influence over SOC-related pension funds to provide additional leverage to this process.

The detail of this programme will be unveiled at a later stage.

Chairperson,

I will now provide you with an overview of how we are directing our SOC to achieve their developmental mandates whilst ensuring that they remain financially-viable.

Eskom continues to increase its investment with R58 billion spent over the last year.

Over the last financial year, 260 MW of generating capacity has been added to the system through returning to service previously mothballed plants and a further 787 km of high voltage transmission lines were installed.

This year, Eskom will be spending about R65 billion and R337 billion over the next five years to complete Medupi, Ingula and Kusile.

Eskom has committed to ensuring that the first unit of Medupi starts delivering power by the end of the year.

The commercial operation of the Sere wind plant, that will save an estimated 252 603 tons of carbon emissions per annum, is scheduled for 30 December 2014 at a total cost of R2.4 billion, of which R104 million has been spent to date.

The draft procurement strategy for the Concentrated Solar Power plant in the Northern Cape, estimated to cost around R9 billion, has been completed and will be finalised after going through Eskom’s internal governance processes.

Chairperson,

Eskom’s funding plan for the currently committed build programme has been finalised, and about 82% of the funding has been secured.

We note NERSA’s decision of an 8% average increase annual over the next five years and are analysing its full implications for Eskom.

As the Shareholder, we are committed to ensure that Eskom remains sustainable and is able to deliver on its build commitments.

Chairperson,

The electricity supply system continues to experience constraints, but we have put comprehensive plans in place to manage this.

Evidence from a survey commissioned by Eskom suggests that our efforts at mobilising the population around the energy saving campaign are bearing fruit, in that the level of awareness of the 49M campaign is as high as 73%.

As we approach the winter season, and in order to intensify communication and make South Africans participate in monitoring their own personal impact, Eskom and the SABC have collaborated to create an exciting initiative, to be launched tomorrow, to educate and inform consumers about the country’s electricity status.

Chairperson,

Over five years, Eskom is projected to spend over R200 billion for the supply of coal.

In light of this, I had an engagement with established miners, the Chamber of Mines, South African Mining Development Association (SAMDA) and Emerging Miners in the coal and limestone value chain, during which I also launched the Black Emerging Miners Strategy the essence of which is to increase black participation and ownership in the coal mining sector.

A key element of the strategy is to establish a Mine Development Fund to provide finance for the development of mines mainly at the early exploration stage.

We intend to ensure that by 2018, Eskom procures over 50% of its coal from emerging black coal miners, which would be a significant act of transformation.

To date, significant work has been done to establish the fund, which will go into operation by the end of the 2013/14 financial year.

Chairperson,

I am pleased to report that the implementation of the Transnet’s Market Demand Strategy is on track.

Over the last year, we have seen a 5% growth in rail volumes, a 4.8% overall improvement in operational efficiencies and a 30% increase in capital invested in the build programme to just below R30 billion.

This strong performance has enabled the company to adopt a counter-cyclical investment strategy with a plan to invest R37 billion this coming financial year and about R307 billion over the next seven years.

Chairperson,

Transnet has risen to the challenge of driving industrialisation in our economy through the way it is pricing its services to relevant customers, through the internal development of industrial capabilities and through the way that it procures from suppliers.

R700 million was disbursed in the 2012/13 financial year from the R1 billion ports rebates to the exporters of manufactured goods announced last year; and the remaining R300 million will be disbursed this year.

Transnet has put proposals to the Ports Regulator for a ports pricing strategy that reverses the historical legacy whereby bulk commodities were favoured at the expense of containerised manufactured goods.

We have also established a task team involving the department, Department of Trade and Industry and the Transnet National Ports Authority to develop joint strategies to promote investment in port dependent sectors that are prioritised in our Industrial Policy Action Plan.

We saw progress in 2012 in positioning Transnet Engineering (TE) as a rail and ports manufacturing centre for Africa.

TE invested R1.3 billion in new technology, equipment and plant upgrading in year 2012/13 and plans to invest a further R954 million over this financial year.

TE presently has an order book of over R1 billion for locomotives, wagons and coaches for six countries in Africa.

Our objective in owning TE is to develop strategic industrial capabilities relating to Transnet’s business while supporting the growth of a broader private sector rail and ports supplier cluster.

We have made significant progress over the past year in defining the role of TE in relation to the private sector and will continuously engage with the private sector around our approach.

Building intermediate and advanced industrial capabilities will require enormous effort by all stakeholders in the South African economy.

Over the coming year, we will be exploring how we can more coherently leverage the capabilities in Denel, Transnet Engineering and Rotek to support the localisation of strategic and complex industrial components.

Chairperson,

Broadband Infraco (BBI) has been stabilised over the last financial year with all key management positions having been filled.

The company invested R140 million over the last year and has plans to spend over R700 million to upgrade technology and improve network performance and reach this financial year.

This should enhance the company’s competitiveness and value proposition to both public and private customers.

Building on this enhanced position, and with the department’s support, the company will over the coming year focus on ensuring that government becomes an anchor tenant at a national, provincial and municipal level.

In this regard, I am pleased to announce that the Department of Science and Technology has taken up 70% of the capacity associated with BBI’s investment in WACS in support of the Square Kilometre Array (SKA) project.

The department continues to work with the company on a detailed funding plan to ensure that the infrastructure roll-out takes place and that the company is placed on a stable footing.

Chairperson;

Given the acceleration of our investment programme and the key role played by our SOC in the Strategic Integrated Projects, a number of initiatives have been taken to enhance our ability to design, fund, manage and oversee megaprojects:

  • Eskom has codified the lessons they have learnt in implementing the build programme into a comprehensive toolkit and has established an Institute for Project Management Excellence to provide training based on this tool-kit. We are exploring how to make this a resource that all our SOC and broader government can draw on to enhance their ability to manage complex mega-projects;
  • The Eskom and Transnet Boards have established Sub-Committees which will have the specific responsibility of monitoring progress on the build programmes;
  • The DPE has established a Project Oversight Unit that will focus on intelligently monitoring and adding value to the SOC infrastructure roll out programme as well as to those Strategic Integrated Projects (SIPs) where the Minister or SOC in the DPE portfolio play a leading role; and
  • We have established a funding capability within the Department to work with our SOC to see how we can draw on new sources of equity finance for the build programme. A task team has already been established with Transnet and the Chamber of Mines to explore the funding of specific projects.

Chairperson,

It is no secret that South African Airways (SAA) has had a turbulent year in terms of its leadership and governance.

I hope that the appointment of the new CEO, Mr Monwabisi Kalawe, and the finalisation of the Long-Term Turnaround Strategy will provide SAA with the stability, leadership and direction it requires decisively to turn around.

I am cognisant that SAA has produced a number of turnaround plans over the last ten years, yet none have put the airline on a sustainable footing.

Consequently, the DPE, in collaboration with the SAA Board, will be designing a special governance arrangement to ensure that we are able rigorously to monitor progress on the implementation of the strategy.

I am happy to report that SAA has already begun to implement its turnaround strategy and achieved its cost compression target of R1.3billion for the year ending March 2013.

Over the next year we will focus on ensuring that SAA’s cash position is stabilised, the cost compression programme is accelerated, the international network is reviewed and the long-term fleet plan is finalised.

During the next quarter, SAA will start taking delivery of a fleet of twenty Airbus A320 aircraft, valued in the order of R10 billion that form part of a broader fleet replacement plan that aims to address the fuel inefficiency of SAA’s current long-haul fleet.

Chairperson,

As reported last year, we have been working with the SAX Board to address internal control challenges in the airline.

To this end, the 2010/11 financial statements were tabled to Parliament on 25 April 2013.

SAX plans to have all outstanding audits finalised by the end of July.

As with SAA, the department and the Board of SAX are working to develop a comprehensive turnaround strategy for the company.

It is pleasing to note that SAX cut R129 million in costs in the last financial year.

Over the coming year SAX will continue to focus on enhancing efficiencies and cutting costs, improving customer service and enhancing internal controls.

Chairperson,

Denel returned an unaudited profit of R60 million in the 2012/13 financial year, breaking a long stretch of losses.

The turnaround is a result of implementing a strategy of global alliances to supplement the domestic revenues.

Last year, Denel signed R3.7 billion in new, predominantly export orders.

Denel received a R1.85 billion government guarantee and a R700 million capital injection in order to position the company to access these international orders.

In the coming year, the company will continue with its three year plan to consolidate its structure and cost base.

We will be focusing on ensuring the success of the Hoefyster infantry combat vehicle production programme and further positioning the business for collaborative product development opportunities, with a focus on Latin America, Africa, Asia and the Middle East.

The department will be also working with SAA to ensure that the supplier development obligations associated with the SAA fleet renewal contribute to the expansion of Denel’s aerostructures, engineering and maintenance capabilities.

In addition, the department will rigorously interrogate how synergies between SAA Technical, SAX Technical and Denel Aviation in the maintenance, repair and overhaul space can be captured to create an organisation with the credibility to capture the growing air-traffic through South Africa.

Chairperson,

SOC continue to play a leading role in skills development and will be investing over R2.8 billion in training over the coming year.

Over the last year, more than 16 000 learners were trained in various scarce and critical skills learning programmes within the SOC in the DPE Portfolio.

Eskom also facilitated the training of 5 248 young learners through their key suppliers.

Transnet has secured an amount of R175 million from the Department of Higher Education and Training to train an additional 1 000 learners, who will be recruited across provinces over the coming year. This will increase artisan learners at Transnet training facilities to 3 000.

In the coming year, we will be focusing on further optimising the use of existing SOC training facilities to increase the number of artisan and technician trainees beyond the portfolio’s requirements.

Chairperson,

In July 2012, we launched the SOC climate change response framework and all our SOC committed to the UN global sustainability Compact.

We have given the SOC eighteen months to design and implement their climate change strategies before they will be integrated into the shareholder compacts.

In this regard,

  • Transnet has aligned energy efficiency objectives with management incentives;
  • Eskom has a collaborative initiative with SAFCOL around the establishment of a charcoal manufacturing plant in Mpumalanga to lower Eskom’s carbon emissions whilst promoting rural development; and
  • SAA, under the leadership of the department, has established an Aviation Biofuels Project in response to the threat of internationally imposed bio-fuel requirements.

Chairperson,

The governance programme in the department is focused on undertaking targeted initiatives to operationally enhance the shareholder management model.

Five Deputy Directors-General (DDGs)  are now appointed, and the outstanding two have been recruited and their appointment is waiting final cabinet approval.

I am proud to say that over 70% of our DDGs are female.

Chairperson,

The Deputy Minister will give further details on some of our achievements and plans in the areas delegated to him.

In conclusion, I hope that I have demonstrated to you that our SOC are a unique instrument of our developmental state, and are systematically driving investment, industrialisation and transformation amongst their customers, suppliers and in the broader economy.

I believe that we are getting an extra-ordinary return on the capital that we have invested in them and they are worthy of our continued unflinching support.

I would like to thank Deputy Minister Bulelani Magwanishe, the Director-General, Tshediso Matona and all the DDGs and staff of the Department for their relentless support and tireless work.

I thank the Chairperson of the Portfolio Committee, the Honourable Peter Maluleke, the Honourable Members of the Portfolio Committee and my Cabinet Colleagues for their support and regular wise counsel.

I hope that this EPC will join me in conveying our sincerest condolences to our Chairperson, Mr Maluleke and his entire family at the sad loss of his brother.

I further wish to thank the Chairpersons, CEOs and all staff of our SOC for their commitment to fulfilling the difficult goals and targets we set them, particularly during this difficult economic climate.

I am humbled to request the EPC to support this budget of R236,889,000 for our department that has received nine consecutive clean audits.

I thank you.

Issued by the department of Public Enterprises

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