Speech by Minister of Public Enterprises, Pravin Gordhan, in the debate on the State of the Nation Address, Parliament, 12 February 2019

RENEWING A CAPABLE AND DEVELOPMENTAL STATE

Mr President,

Madam Speaker,

Chairperson, honourable members and guests.

Introduction

A year ago, we set out on a path of growth and renewal. Emerging from a period of uncertainty and a loss of confidence and trust, we resolved to break with all that divides us, to embrace that which unites us.

We resolved to rid our country of the corrosive effects of corruption and to restore the integrity of our institutions.

We resolved to advance the values of our Constitution and, to once again, place at the centre of our national agenda the needs of the poor, unemployed, marginalised and dispossessed.

27 April 1994 heralded the beginning of a new nation and the building of a democratic state guided by the aspirations and values of non-racialism and non-sexism, of patriotism and a commitment to democratic principles. Above all, a commitment to transform the economy, state and society.

We entered into a contract with the poor, the majority of our country. With that we committed that we will lift you out of poverty, that we will give you dignity and self-respect and create opportunities for economic and social wellbeing.

Indeed, we said to all South Africans coming from our diverse backgrounds that we are all part of this new nation.

Similarly, to the aspirant middle class and those who are well off in our society, you will have the space to advance and grow, but as a young nation, you have a particular responsibility to be a patriotic middle and upper class balancing your needs and those of the nation.

But liberation and opportunity to engage in nation building also brings new and complex responsibilities:

- To build a capable and developmental state,

- To mobilise and direct resources,

-  To programmes to overcoming the legacy of apartheid,

-  To position the country to cease the new opportunities available as we became equal global citizens,

Nonetheless, our vision for the role and nature of the state is encapsulated in the Constitution of the Republic of South Africa, the ANC’s Ready to Govern, the RDP and the NDP.

It is this African National Congress that has governed over the past 25 years and has transformed the apartheid state to the democratic state.

It is this African National Congress that has built from a desperate fundamental architecture. We forget that this architecture was built from the remnants of apartheid and the Bantu-stands and Tri-cameral system.

It is this ANC that provided the developmental orientation to the new state machinery and attracted more skilled South Africans to serve the majority poor and indeed all South Africans.

Their aspiration was driven by a higher purpose; to serve, to build, to extract people from poverty and landed a new dynamism to our country.

The strides that have been made are a product of a commitment that the African National Congress made to the people as early as in the lead up to the 1994 elections through the Reconstruction and Development Plan (RDP) that “…we cannot successfully build the economy while millions do not have homes or jobs. And we cannot provide homes and jobs without rebuilding the economy. We need policies and strategies to address all of the problems together…”

For us to get to a developmental state we aspire towards, and as articulated in the Strategy and Tactics (2007) document, we have to put the needs of our people first, driven by nothing else but the desire to change their lives and a need for a sustained and continued development based on high growth rates, the restructuring of the economy and socio-economic inclusion.

The state has made significant progress in the provision of basic services such as housing, water and electricity. The foundations for a capable state have been laid, but there are major concerns about the weaknesses in how these structures function, which constrain the state's ability to pursue key developmental objectives.         

The 2030 vision provides a guide to address twin challenges of poverty and inequality, whereby a state that is capable of playing a transformative and developmental role is needed. This requires well run and effectively coordinated state institutions staffed by skilled public servants who are committed to the public good and capable of delivering consistently high-quality services for all South Africans, while prioritising the nation's developmental objectives. This will enable people from all sections of society to have confidence in the state, which in turn will reinforce the state's effectiveness.

The Role of the State in Development & Innovation

Since 1994, the objective remains that of building a developmental state. To this end, much has been done, with much still to be done. The National Developmental Plan (Chapter 13) introduces the idea of building a capable state.

Since the dawn of democracy, it was realized that what was lacking in our efforts was the capacity to implement policies.

According to Jordan Kyle, author of a discussion paper titled “Perspectives on the Role of the State in Economic Development” it is important for aspiring developmental states to ask themselves the key questions such as; What do we know about developmental states and why they emerged? Second, what have developmental states achieved? In answering this question, I look not only at growth but also at structural transformation, economic “upgrading,” equity, and human capability enhancement. Third, how did developmental states utilize state structures to pursue development?

He further mentions that developmental states are characterized by cohesive, capable, and autonomous bureaucracies that are able to both plan and implement transformative development projects. Jordan is of the view that developmental states are distinguished by dense networks between states and businesses, with states able to hold business accountable for performance.

According to him, states distribute subsidies and incentives to the private sector with the understanding that incentives will be withdrawn if businesses fail to meet expectations. The ability of strong states to hold businesses accountable is key to these relationships. In South Korea, the government gave subsidies but then held businesses accountable “to concrete performance standards with respect to output, exports, and, eventually, R&D” (Amsden 1991, 284).

Recent literature further proposes a more dynamic, strategic and enterprising entrepreneurial role for the public sector. This view is backed by the activist role of the state in research and development.

According to Mariana Mazzucato (The Entrepreneurial State), the role of the state has gone way beyond creating the right infrastructure and setting the rules. It should be a leading agent in achieving the type of innovative breakthroughs that allow companies, and economies to grow, not just by creating the ‘conditions’ that enable innovation - for her, “the state can proactively create strategy around a new high growth area before the potential is understood by the business community (from the internet to nanotechnology), funding the most uncertain phase of the research that the private sector is too risk-averse to engage with, seeking and commissioning further developments, and often even overseeing the commercialization process. In this sense, the state would have played an important entrepreneurial role”.  

The entrepreneurial state has a vision for strategic change and should dare to think against all odds about the impossible, creating a new technological opportunity, making the large necessary investments, and enabling a decentralized network of actors to enable the risky research, and to allow the development and commercialization process to occur in a dynamic way.

Sadly, over the last few years we’ve betrayed our mission and promise to our people. We have been diverted by those whose preoccupation, selfishness, greed and extraction for personal benefit. Indeed this was just not the problem for the governing party, others in this house who today pontificate about their purity will have many of their skeletons exposed.

ESKOM

Eskom is currently facing massive problems – structural, operational and financial.

1. In the State of the Nation Address last week Mr. President, you said:

Security of energy supply is an absolute imperative.

Eskom is in crisis and the risks it poses to South Africa are great.

It could severely damage our economic and social development ambitions.

We need to “minimise any adverse economic cost to the consumer and taxpayer.”

Eskom will need to develop a new business model

Three separate entities will be established – Generation, Transmission and Distribution – under Eskom Holdings. These will remain the property of the State

2. The facts – generation of power

Coal – 38 639 MW

Water/Peaking Pump – 3 324

Nuclear – 1 860 MW

Gas – 2 409

Maintenance: What is unavailable – Planned: 5 300 MW

o   Forced/Unplanned 5 500

o   Partial 3 800

3. The situation today

This morning Eskom introduced stage three load shedding

Units at least six power stations – at Arnot, Kusile, Kriel, Duvha, Matla, Medupi and Grootvlei – were not in service. The losses to generation capacity have amounted to thousands of megawatts

Today – Availability: 29 711 MW – Demand 27 633 MW

PEAK – Availability: 27 305 MW – Demand 30 033 MW

4. The question South Africa is asking legitimately – WHY is this happening:

Medupi and Kusile: wrong choices were made, wrong designs were introduced and they are not performing.

The costs have escalated – 3 x times higher and they are seven years late – and regularly tripping

Medupi and Kusile were meant to add substantial generating capacity to replace older power stations – they are not performing

Yesterday seven power units tripped within 5 hours – this is an emergency/crisis, last experienced in 2014/15

The dependence on diesel as an emergency measure is expensive, supplies are unreliable. This is not sustainable

These outages have a massive impact on the economy – from mining, big industries, manufacturing to small businesses like coffee shops

It also causes huge frustration, uncertainty, vulnerable and fear amongst communities households and households.

The consequences of unplanned outages, I was reminded today, are severe – (Mantashe):

o   Level four load shedding can cause rocks to collapse in underground mines

o   Without electricity there is no ventilation, water builds up and heat builds up

o   In coal mines, without electricity, the methane builds up in collieries that can kill mine workers.

o   Besides the production losses – there is a real risk to life. Mineworkers can die

This is the result of where money, intended to maintain our electricity infrastructure was stolen at an unprecedented scale and now sits in a few people’s bank accounts.

5. What is the Plan?

We met the board and senior management yesterday

The board must institute an urgent review to establish when – realistically - Medupi and Kusile will be completed

Also to determine the extent of design- and other operational faults, what steps can be implemented to minimize escalating costs and what can be done to increase output

The board will appoint a panel of experts to compile an in-depth, independent audit to ensure that every technical problem is understood

In last week’s SONA you called for “bold decisions and decisive action”. We are running out of time and the country is running out of patience. You are angry and people are angry – rightfully so… We must get to a point where energy certainty is guaranteed.

The proposals in the SONA address Eskom’s structural issues, based on the recommendations of the Presidential Task Team. The Task Team has completed its work.

The Minister of Finance will announce measures in the 2019 Budget to address some of Eskom’s financial requirements.

In order to urgently address the operational problems at Eskom, of which generation is paramount, the Eskom Chairman and I have decided on the following—

We are calling on ENEL, one of the world’s leading energy suppliers, to provide us with external technical assistance. ENEL will be sending 2-3 coal power station engineers to South Africa shortly.

Over the years Eskom has also produced a number of top engineers, many of whom have left Eskom during the period of corruption and state capture and are now working elsewhere such as in Tunisia. In the spirit of Thuma Mina many have indicated their desire to return ‘home’ and to contribute to the rebuilding of Eskom.

These experts will, amongst other things, conduct a full operations audit of all power stations to give us and the board an independent view of where the most serious problems are

They will also train, mentor and transfer skills to a younger generation of Eskom engineers so that we build a capable team to run our electricity system into the future.

Conclusion

In the ANC we don’t run away from confronting difficult and complex challenges that are facing our people. Led by President Ramaphosa, we are confronting our subjective and objective challenges in order to better respond to problems facing our people. We are not going to give short cut solutions and play/ exploit fears of South Africans as populists do and run away from real issues.