Minister Lynne Brown: Public Enterprises Dept Budget Vote 2016/17
26 April 2016
Honourable Chairperson
Honourable Ministers and Deputy Ministers [Deputy Minister Bulelani Magwanishe]
Chairperson of the Portfolio Committee
Honorable Members
The Director-General of the Department
Chairpersons and Board Members of State-Owned Companies
Chief Executives and Senior Managers of State-Owned Companies
Distinguished guests who are present here today
Ladies and gentlemen
South Africa continues to experience the effects of a global economic and fiscal crisis since 2008. Despite, being affected by the crisis, the state owned companies within my portfolio have joint assets of around R908 billion and their capital expenditure assisted avert a deeper and protracted global economic crisis and fiscal decline.
Our mandate is to ensure that these assets deliver value for all South Africans. Given their strong asset base, State Owned Companies will be in a better position to go into the capital markets on the strength of their balance sheet with the support of the shareholder in order to fund their investment programs.
Capital investment through state owned companies have assisted in cushioning the country by playing a critical counter cyclical role in the SA economy. These companies are contributors to job creation, infrastructure development and industrialisation.
We must maintain the ownership of these State Owned Companies given their size and contribution to our economy. This will be done with private sector participation. They are key and strategic assets that we need to keep intact and continue to grow in order to guarantee the future of our children and create viable, sustainable and dependable future employers to reverse the current economic cycle.
Active shareholding and participation in our domestic economy is still dominated by race and class. The majority of our citizens still experience high levels of stubborn household poverty, indebtedness and inequality. We cannot continue to ignore this reality.
Josef Stieglitz, the Nobel Laureate for Economics tells us in his book, The Great Divide "why we should care about the large increase in inequality". It is not only a matter of values and morality but also of economics, the nature of our society and our sense of national identity.
Going forward, growing our productive sectors and supporting re-industrialisation is critical for moving the economy to a different trajectory. State Owned Companies exist because they are critical to ensure that we accelerate the development of our economy and getting more of our citizens to benefit from the fruits of our democracy.
We cannot continue with more of our people being excluded from participating in the economy. The capital programs of SOCs will allow us to deepen localisation of strategic industries creating opportunities for enterprise development and critical and scarce skills development.
State Owned Companies Reform
We recognise that the achievement of the National Development Plan’s objectives of improving the social and economic condition of the citizens, in part, is dependent on State Owned Companies’ abilities to effectively and efficiently provide the necessary infrastructure and related services.
In turn, Government as the shareholder expects that the SOCs will deliver on their mandate and reduce their reliance on the fiscus.
There have been strides in exploring an appropriate shareholder model. We have drawn lessons from countries that have similar challenges, but also acknowledge the uniqueness of the South African environment. This is an evolving process and engagements with various stakeholders are ongoing.
Powering the South African economy
In the last year, South Africa experienced a serious electricity supply constraint, which resulted in Eskom implementing load shedding. Some of the analysts and prophets of doom had predicted that South Africa was going to experience a complete blackout. I must say, this undermined our efforts to position South Africa as a preferred destination for Foreign Direct Investment.
If there is one thing that the energy challenge brought was a mushrooming of energy experts who have now gone undercover since their prophecies have not come true. Some of the debates happened in this house and influenced perceptions which sought to cast doubt on this government.
I am comfortable with the progress that Eskom has made in ensuring security of supply through sound maintenance program. I commend the team at Eskom for doing sterling a job of stabilising the company.
For the longest of time South Africans have had their lights on and load shedding has become a distant memory. Eskom has been able to reduce the diesel usage from R800 million to R40 million since October 2015.
In fact Eskom has been able to build up sufficient capacity to be able to support the region at times.
The new build programme has improved the generation capacity and created space for Eskom to do the maintenance of the existing plants. In addition to Medupi Unit 6 that is already providing power to the grid, Eskom has now delivered Ingula units 4 and 3. In the next year, Eskom will deliver the remainder of Ingula. Over the next five years Eskom will spend R340 billion in Capex, ensuring completion of the build and transmission strengthening.
With all its challenges, Eskom still connected 190 000 households to the grid in the last year. While having electricity may have become normal for some people, for households that only received electricity only this year, this is a life changing and empowering moment. In the gallery chair I have Mr. & Mrs. Mbebe from Ngoliloe village in Matatiele whose house received electricity for the first time on the 01 March 2016.
Municipal debt
I have been having discussions with provinces in an effort to come up with sustainable solutions for municipal debt. These engagements are bearing fruit.
I am well aware of the need to keep a downward pressure on Eskom’s costs, particularly coal, to ensure that electricity remains affordable in an increasingly competitive environment.
Eskom primarily sources 51% of its coal from four major key suppliers at a cost of R23 billion of Eskom's total cost of coal of R45 billion. Eskom is a 60% off taker of coal in SA and should therefore be in a position to command better prices but contrary to that, Eskom coal costs have been growing above inflation levels.
It is important to mention that Eskom has been making the capital investment for the establishment of these cost plus mines. These arrangements are being reviewed to find the most optimal and cost efficient structure for the consumer.
I would also like to acknowledge the twenty women from Eskom in the gallery. This afternoon I will be launching a book on the journey of transformation for women in the last twenty years. We have indeed made progress.
Strengthening the freight logistics system
Transnet has spent about R124 billion on its Market Demand Strategy in the upgrading and building of rail and port infrastructure, acquisition of new locomotives and wagons for the train system as well as cranes for the port system.
I would also like to put into perspective, the perception of high port costs in South Africa. According to the World Bank Report on doing business and trading across countries, South African port charges contribute a mere 15,6% of total transport chain charges as compared to the international average of 27.7%.
The weak performance of the productive sectors of the economy has had a major impact on the realisation of the rail volume growth targets. Transnet has introduced various interventions for customers in mining, steel and container sectors in order to assist to keep them operational and save jobs. Transnet has given price reductions amounting to more than R2 billion in the last calendar year.
They have furthermore taken less than inflation price increases in other areas in order to keep businesses afloat and to encourage the Road to Rail migration initiative. Lots of focus went into improving the on time departure and on time arrival of trains to the mining sector, as well as the efficiencies of cargo in transit and port offloading facilities.
The company will be exploring alternative markets to reduce its exposure to the mining industry.
Transnet is making good progress in the implementation of Operation Phakisa initiatives that will create the environment for GDP and job creation through the Oceans Economy. Transnet is in the process of resuscitating the existing ship repair facilities at South African Ports in order to serve the market in a safe and efficient manner.
Transnet has committed a minimum of R1.6 billion towards the upgrade of existing ship repair facilities. Branch lines are currently a relatively underutilised part of the country’s transport infrastructure and it is expected that their revitalisation could unlock potential both regionally and nationally.
South African Express
SA Express has been experiencing financial difficulties, which are also tied to its business and operating model. The general challenges in the global and local airline industry also contribute significantly to the position of the state owned airlines. It is therefore imperative that together with National Treasury, we accelerate on the optimisation of the airlines portfolio.
Re-industrialisation of the South African economy
Our growth story will not change if we do not address the challenges that are faced by our productive sectors of the economy, in particular manufacturing. We need to enhance the design and manufacturing capabilities of our South African firms to ensure that they can play part in the global value chains.
Transnet Engineering as well as Denel are continuously upgrading their capabilities to be able to compete in the global market. This is important for our new growth story.
I am proud to announce that the repositioning of Transnet Engineering to become an Original Equipment Manufacturer is largely on track. The first batch of the passenger coaches engineered and manufactured by Transnet for Botswana Railways were successfully delivered to Gaborone on 22 March 2016.
The 22 coaches already delivered were engineered and manufactured to exact specification at Transnet Engineering facilities in Pretoria and Cape Town.
Transnet Engineering is also gearing itself for greater growth in the region and is progressing very well in developing the prototype of its African locomotive, which will also strengthen its manufacturing capabilities and develop South Africa as a locomotive manufacturing hub for Africa.
In the gallery today, I would like to acknowledge 10 (ten) engineers from Transnet Engineering Research and Development who were responsible for designing and developing systems for the Africa Locomotives.
Denel
Denel continues to advance its capabilities in the defence and aerospace industry. In this regard, the company is working on the development of the Small African Regional Aircraft that will provide air transport solution for the African market. Furthermore, Denel is working towards the mid-life upgrade of the Rooivalk attack helicopter.
SAFCOL
SAFCOL has developed a strategy to add further value to its sawlog product through the upgrade to the Timbadola Sawmill in Vhembe District in Limpopo and the setting up of a new sawmill and veneer plant in Sabie, Mpumalanga. The intent is to leverage the investment to create community-based manufacturing enterprises in partnership with the provinces.
ALEXKOR
Alexkor has commenced deep sea mining operations. The venture is expected to more than double current production, which should enable greater economic development impact opportunities for the Namaqualand region. This would include realizing the local rough diamond polishing aspirations of the province.
We are also working with the department of Rural Development to strengthen the institutional arrangements between Alexkor and the community of Richtersveld.
Africa Development
Our new growth story will be inconclusive if we do not change the growth dynamics in our region. It is very clear that South Africa’s development cannot be separated from development of our neighbors. Our commitment is to ensure that we build the infrastructure that facilitates regional trade and reduce the cost of trade.
In the current financial year will have identified priority markets that will pursued, these are: (i) Tanzania, Kenya and Burundi for Transnet, (ii) DRC, Mozambique and Uganda for Eskom, (iii) Egypt for Denel, and (iv) Ghana for SA Express.
With the electrification capabilities built over the last 20 years, South Africa though Eskom and other South African companies can export these skills to the SADC region and the continent to support regional integration and development.
Provincial Engagement
Advancing the role played by the SOCs in the advancement of the South African economy will require increased cooperation between the Department and other spheres of government. In this regard, the Department has designed a programme that will enhance the cooperation between the SOCs and other spheres of government.
Conclusion
I must commit to all South Africans that the changes we are implementing in the portfolio of the State Owned Companies will not lead to the erosion of capacity of the State to intervene in the economy. We want to see State companies being stronger to support the implementation of our economic policies and deliver on South Africa’s new growth story.
I would like to thank the Deputy Minister, Director General, Portfolio Committee Members, Chairpersons and Chief Executive Officers for their continued support and counsel.
Chairperson I hereby table Budget Vote number nine of the Department of Public Enterprises.
Thank you.
Issued by Department of Public Enterprises, 26 April 2016
