Remarks by Minister of Public Enterprises, Mr Malusi Gigaba, MP, at The New Age-SABC Business briefing in Sandton, Johannesburg

12 Apr 2012

Last year I announced a new vision for the Department of Public Enterprises (DPE), with a strong emphasis on driving investment, productivity and transformation in our portfolio of State-Owned Companies (SOC) and their customers and suppliers, so as to unlock growth, drive industrialisation, create jobs and develop skills.

This morning, I will provide you with some of the concrete initiatives undertaken by both the SOCs and the department to turn this vision into a reality.

In the Transnet Market Demand Strategy, we are beginning to see results from an approach to planning based on what is required to unlock growth, rather than what the balance sheet can afford.

As a consequence of this process, Transnet has increased their planning horizon from five to seven years and the planned investment programme from R110 billion over five years, to over R300 billion over seven years.

This an average increase from R22 billion per year to around R43 billion per year.

In addition, 55% of the investment will be used for qualitatively new capacity to support growth, whereas in the previous programme only 30% was used for new equipment.

Transnet management has put considerable effort into improving operational efficiencies.

A 24-hour, seven day national command centre has been introduced to plan, resource and manage the movement of trains across the country.

A scheduled departure system has been introduced in general freight.

The results of management's focus on efficiency are spectacular.

Year on year efficiency measurements have improved on average by 17%.

Volumes on rail have grown by 7.3%.

New weekly records have been set and then improved upon for both the coal and iron ore lines.

At the ports, the Pier 1 Container Terminal at the Port of Durban recorded increased productivity, with gross crane moves per hour improving by 20% to the average of 28 compared to 23 achieved in the previous financial year.

These productivity improvements have allowed some of Transnet's key customers to expand production with associated increases in employment and exports.

To support the focus on productivity improvements on our logistics system, the department has invested substantially in the National Corridor Performance Measurement Project.

This is an information technology based intervention to measure the operational efficiencies of different processes along key logistics corridors so as to identify areas for improvement and to enhance collaboration between different players on the logistics chain.

In response to the President's call for a lower price increase this financial year, the department and Eskom worked on the proposals to reduce the increase such that it achieves a balance between the interests of the country, the industry and Eskom and its credit providers.

A revised price increase giving back more than R11 billion to South African consumers was developed in line with the Energy Regulator's processes, and was approved and announced on 15 March 2012.

It is my expectation that the reduction in the tariff will filter down to the different sectors of the economy, thereby cushioning the end-users, especially the poor and vulnerable.

What is not fully appreciated is that the reduced tariff was made possible by a range of initiatives in Eskom which resulted in a reduction in the five year capital expenditure programme of over R70 billion without sacrificing any objectives of the programme.

This process included a comprehensive review of all capital projects to effectively prioritise and identify costs-savings through better planning, scoping and prioritisation, through more effective sourcing and contracting and through faster delivery.

In addition, Eskom's management has put considerable effort into improving the cost, speed and effectiveness of maintenance processes and into optimising outputs from each power-station.

I wish to emphasise the importance of the effort both Eskom and Transnet have put into building their capabilities to manage and leverage the procurement of large capital projects and complex capital equipment to get both value for the enterprise and drive an industrialisation process in their supply chains.

After a twenty year gap in investment, the two companies and many of their national suppliers have been on an extremely steep learning curve.

Although certain projects have fallen behind schedule, I am comfortable that the programme as a whole is on track and that contingency measures have been put in place between the SOCs and their key suppliers to bring the delivery of delayed projects back to an acceptable and predictable timeline.

I believe Eskom and Transnet are building the ability to implement and leverage projects of a scale and complexity that is beyond the capability of any other organisation in South Africa.

In this regard, I am proud to announce towards the end of May this year, Eskom shall perform pressure test on one of the boilers at Medupi, which is the first step towards finishing the commissioning of the first unit at Medupi over the next 12 months.

This is a very significant step towards ensuring that we have first power at Medupi by 2013.

What attaches such significance to this is the fact that the last new boiler in South Africa was in Majuba almost 20 years ago.

At Ingula, most underground tunnelling work is almost completed; upper and lower dams are completed; by 2014 Ingula should be completed.

For its part, at Kusile, the first boiler is going up and we are on track to have the first unit coming on stream by 2014.

We are in the process of harnessing this capacity in designing a programme office for the Presidential Infrastructure Projects to ensure that we achieve high levels of co-ordination between the multitude of different stakeholders that will be involved in the implementation of these historic and catalytic projects.

Since the establishment of Broadband Infraco, the price of broadband has dropped by over 80%, which is testimony to the importance of government's presence in this sector to prevent abuse of monopoly power.

Over the last year, the department has focused on bringing stability to Infraco's management and business processes.

I am pleased to say that this has been achieved and the company is now poised to coherently and efficiently roll out its network in a manner that will enhance access to broadband capacity in both developed and under-serviced areas.

There are various opportunities and partnerships we are pursuing in and with various provincial and metro governments.

South African Airways, in collaboration with South African Express, has been focusing on building its network in Africa.

Earlier this year, when he opened the Dube Trade Port in Durban, the President made some significant announcements in this regard.

This will support continental trade and economic integration.

To stay competitive, SAA will need to replace its wide body aircraft mostly used for inter-continental flights in the next few years with more fuel efficient aircraft.

This will require a capital injection both to pay for the aircraft and to put SAA on a firmer financial footing.

I believe this investment into SAA will be money well spent.

I believe the state needs to provide security of supply of international air-travel into South Africa, given the highly volatile nature of the industry and our location, as a relatively small country, on the Southern tip of Africa.

SAA's statutory mandate requires it to provide reliable and extensive air transport capacity; air links with the Republic's main business, trading and tourism markets within the African continent and other emerging markets; as well as to contribute to key domestic, intra-regional and international air linkages.

In this regard, the State intends to retain it as a national carrier - an African Airline with Global Reach.

Of course, this is not a blanket mandate for the airline not to be profitable as we expect it to achieve more strategic profitable routes into each of the major continents linking to key cities and their airports.

Government therefore expects SAA to increase its operations to African routes and serve heavy-traded routes in South Africa.

SAA operates in a heavily liberalised market and has recently been very negatively affected by the hikes in fuel prices, the global economic downturn which has reduced passengers as well as high airport charges.

These challenges are however not insurmountable.

Denel as a group is stabilising its financial footing despite the challenging global trading environment.

The company's core defence entities are breaking even.

Denel Aerostructures and interest payments loans have been the main drivers of the losses in the Group.

However, Denel and Airbus have reached an agreement on the pricing of the work packages produced by Denel Aerostructures which will fundamentally alter the financial outlook for the company.

It should be noted that Airbus has praised the capability and delivery record of Denel Aerostructures on the A400M programme.

This is a significant vote of confidence in the company from a leading global aerospace company.

As developmental companies, we are committed to leveraging our SOCs to train beyond their immediate business needs to provide skills for the broader economy.

Currently, more than 5 200 learners are enrolled for training in Eskom and its supplier network, about 2 800 of whom are matriculants undergoing trade training and there are 2 400 graduates in internships.

Recently, we launched the Eskom Welding Academy and are soon to launch both the Leadership and Project Management Academies.

Transnet is providing training for about 3500 engineering-related learners including technicians, artisans and sector specific scarce skills such as train drivers.

Transnet enrolled 854 new artisan learners which is significantly beyond its business needs and is exceeding the targets agreed in the national skills accord.

In total, when including the baseline of 9735 as at March 2011, more than 15 000 learners were trained in various scarce and critical skills learning programmes within the SOCs in our portfolio.

Further to this, SAA Technical last year signed a Memorandum of Understanding with the Ekurhuleni West College to train young people in aviation skills.

The department continues to engage with the Department of Higher Education and Training to find ways to further to improve on this performance through raising additional resources.

The DPE also launched the Youth Economic Participation Programme in June 2011 to systematically mainstream youth participation in the economy within SOC business.

A forum is being established between the department and the SOCs to implement this programme which includes a mechanism to help young entrepreneurs to access capital using the collaboration of the development finance institutions such as Khula, National Empowerment Fund, Industrial Development Corporation through a dedicated fund, an idea that will be finalised by the end of this financial year.

Through the SOC operations, investment programmes and developmental interventions we are laying a foundation for growth, investment and employment creation in the South African economy.

I am confident that by 2020, the South African economy will be operating at a very different level because of the initiatives that we are taking through our SOC today.

In addition, because of the bold decisions taken by our SOC's to effect transformation and bring into the fold black players, we should see an increased participation by black people in business in areas where they had hitherto been faced with barriers.

We hope these black people who will get such opportunities will act decisively and magnanimously to open up space for more.

I thank you.

Issued by the Department of Public Enterprises, April 12 2012

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