during the Budget Vote debate to the National Council of Provinces (NCOP)
22 May 2007
Chairperson
Honourable members of the NCOP
Ladies and gentlemen
It is indeed an honour to stand before you once more and table Budget Vote
30, that of the Department of Public Enterprises (DPE).
This past year was one marked by much activity in the State Owned
Enterprises (SOEs) for which the department is mandated to provide oversight
and strategic direction.
The SOEs carry out their activities in virtually all provinces and often
play a key role. Accordingly it is important for the provincial leadership to
be familiar with their activities. We are making copies of a new DPE
publication available to you today. This deals with a number of the
strategically important developments that will be undertaken by the SOE. Whilst
it is not possible to provide all the detail of SOE activity in each province I
hope that my address will provide useful information.
A second publication, the Supplier Development Programme, will also provide
useful information to the business community.
I will speak to each SOE in detail later but I'd like to say at the outset
that we are very pleased that we were finally able to conclude a settlement
agreement with the Richtersveld community. This is a landmark agreement and
allows for restoring ownership rights and the payment of compensation to the
community. We look forward to the speedy conclusion of the matter. I also
believe that a successful implementation of this settlement will have a
positive developmental impact in the Northern Cape and the broader Namaqualand
area in particular.
Although it is encouraging to note that the economy is now growing at above
4%, we recognise that we still have some way to go in fulfilling our objective
of facilitating economic growth of 6% and above as well as ensuring that more
South Africans are employed and integrated into the first economy.
The year ahead will indeed be a challenging one as we continue in our
mandate to ensure that SOEs are effective and contribute meaningfully to
accelerated and shared growth.
State Owned Enterprises (SOEs)
SOEs have a strategic role to play in the economy and they are critical to
the success of any developmental state. We have decided to use state ownership
in key economic areas to ensure that we achieve strategic objectives in these
sectors. I shall say a little more about this when looking at the proposed
shareholder management legislation. Key to the formation of any developmental
state is political will and capacity, institutional strength and responsiveness
and the necessary resources to give leadership to the national economy and
provide for the most vulnerable members of our society after all, all our
efforts would have been in vain if we fail to create an economy that is
growing, but fails to take care of our most poor and destitute.
In order to mobilise resources in the national and international capital
markets, our SOEs must be financially sound and stable. This requires that they
have a strong balance sheet and that they are able to partner with private
capital. The SOE also need to maintain a balance between maximising economic
outcomes and ensuring their financial success. The scale of the infrastructure
programme and the need for the SOE to be orientated toward growth poses an
additional set of challenges for the SOE to implement major investment
programmes whilst maintaining their financial strength and operational
efficiency.
The SOE activities need to be undertaken within a predictable, effective and
transparent governance system.
I will now briefly discuss the achievements and challenges of each SOE, in
alphabetical order.
Alexkor
The land settlement agreement which we signed recently will make the
Richtersveld community owners of a viable company involved in land mining and
in addition with prospects of sea mining rights and the opportunity to expand
their activities at a later date. The agreement allows us to convert a
vulnerable community into a prosperous one. The implementation of the land
claim settlement will allow the community to use Alexkor as a commercial
vehicle for their own development. It will also provide the basis for the
rationalisation of the Namaqualand diamond fields. We have come a long way with
the process with almost 10 years of consultations. The community leaders also
proved to be tough negotiators and quite capable of representing their
interests. We hope that we will be able to implement the settlement agreement
which we believe will be of great benefit to that community.
Broadband Infraco
High cost broadband availability constrains economic growth, depriving South
Africa the opportunity to interact speedily and more effectively with the rest
of the world. The establishment of Infraco as a stand alone SOE is an important
development for our economy and we look forward to the opportunities that it
will help to unlock.
Under the leadership of its Chief Executive Officer (CEO) Dave Smith,
Broadband Infraco will ensure that South Africa develops broadband
infrastructure. As a result of the establishment of Infraco and the expected
lower bandwidth costs, more businesses can exist which could not before. The
Infraco Bill has been gazetted and we will have public hearings on the Bill
soon.
Infraco will provide a series of new platforms for bandwidth expansion and
affordability. This will be done with partners such as the South African Square
Kilometre Array Radio (SKAR) and the South African Research Network.
Denel
The recent announcement by Denel on the Hoefyster Project which is worth
about R8 billion and is Denel's biggest contract to date, suggests that the
potential for this company to turn itself around into a once again profitable
entity is a possibility. Denel, which has thus far gained R400 million in
revenue as a result of disposal of some non-core assets, will finalise the
disposal of remaining non-core properties in the 2007/08 financial year.
The formation of equity partnerships with global Original Equipment
Manufactures (OEMs), such as the partnership between Denel Aerostructures and
SAAB which was finalised during the year, is a key pillar of Denel's
strategy.
Fragmentation in the South African Defence Related Industry (SADRI) is
undesirable and we would much rather see consolidation taking place which we
believe is more sustainable. In this regard the relevant government departments
will focus on interventions to help develop the industry. This will ensure that
Denel is better able to serve South African, regional and international defence
requirements. The Defence Evaluation and Research Institute (DERI) will be
established for the consolidation of test and evaluation facilities.
A catalyst for the transference of advanced manufacturing technologies and
know-how to the broader manufacturing sector will be the establishment of
manufacturing clusters by Denel. These are expected to be world class suppliers
of sub-systems and component and will also critically allow for the development
of skills.
We have no doubt that the management and board of Denel will achieve the
turnaround of the entity and we look forward to the year ahead.
Energy, Eskom and Pebble Bed Modular Reactor (PBMR)
Eskom's R150 billion investment programme for the next five years will
improve the security of supply which is the key to supporting a growing
economy. We need to secure long term environmentally sustainable electricity
for the country and Eskom, as well as the PBMR will be key in this regard. The
most viable alternative to the use of coal as a primary source of energy is
nuclear. With the planned larger nuclear build by Eskom and the progress on the
PBMR project we look to form a new nuclear energy division within Eskom that
will have very positive implications for a future nuclear engineering industry
in South Africa.
The construction of the Pilot Fuel Plant at Pelindaba and progressing
approvals for the construction of the first power plant in the Western Cape,
are expected to occur in the current year.
Locally, private sector interest in the PBMR has grown with Sasol indicating
that it is in talks with the entity on a number of process heat applications.
This indicates that the PBMR is indeed a commercially viable option.
We will be working closely with the Department of Minerals and Energy (DME)
to fast track the introduction of Independent Power Producers (IPP), which will
be valuable additions to generation capacity.
South African Airways (SAA), South African Express (SAX)
High quality, affordable and cost effective air transport will allow South
Africa to link with its regional and international trade partners and thus has
a big role to play in economic growth. It is with this in mind that we have
chosen to retain ownership of SAA. Following legislative processes SAA is now a
stand alone SOE reporting to DPE. We have started a wide ranging restructuring
and recapitalisation process aimed a turning the company into a profitable
airline. The DPE and the board have fully committed to the programme which is
now in progress.
SAX will also be converted into a stand alone entity, following legal
processes. SAX's expertise is in operating regional services in smaller gauge
aircraft of up to 100 passengers while SAA as an African airline with global
reach, operates more heavily used routes.
The business and operations of SAX thus differ fundamentally from SAA's core
business.
Due to the type of equipment it operates, SAX is an ideal vehicle to help
develop African air routes on a more economical basis. SAX has had a remarkable
turnaround in sustainable profitability after its mission was clearly defined
and we look forward to a positive year for the company.
South African Forestry Company Limited (Safcol)
Cabinet approved the disposal of the last remaining package of Safcol,
Komatiland forests. This was a carefully considered decision based on the
significance of Safcol in the forestry industry. The disposal has to be
carefully planned and could have an important impact on Mpumalanga in
particular. We will process the disposal during the course of this year and
will make further announcements as appropriate.
Transnet
Transnet has positioned itself as a provider of world class freight
logistics. Its turnaround now sees a company that is more focused and its
five-year capital budget of R78 billion will ensure that the company's
investment in ports, rail and pipelines improves transport infrastructure,
making the transportation of goods more efficient and the fast tracking of
economic growth a real possibility.
Legislation
There is now more legislative activity arising within the DPE portfolio. In
addition to the SAA, SAX and Broadband Infraco Bills in the latter part of the
year, we will table a shareholder management model bill. This piece of
legislation will allow us to better define our role as shareholder to SOE and
to crystallise the role of the state in these activities as well as our
expectations of these entities. We are referring to this as defining the
strategic intent of the enterprise and Parliament will have a role in this
process.
This is by no means a simple task and poses interesting intellectual and
technical challenges which I am sure the DPE and Parliament will be well up
to.
DPE and the NCOP
I'd like to extend my sincere thanks to the Director-General, Portia Molefe,
who leads a team of very capable and committed staff. The past few years have
been taxing and we expect the next few years to be even tougher as the SOE and
the department, carry out what I call mission critical activities which will
see us attain our primary objectives of economic growth and job creation.
Thank you also to the boards, CEOs, as well as staff of the SOE, without
whose commitment we would be unable to attain our goals.
My thanks go to the honourable Priscilla Themba and all her committee
members for their support. They provide this support despite their heavy work
load across such a range of portfolios. I look forward to their future
participation in the very successful Autumn School we will continue to hold in
future.
I am confident that our aims will be realised and that the DPE and SOE will
continue to attend to the matters mentioned above with the necessary vigour and
attention that they require. I hope that his House will also accept the Budget
allocated to the DPE.
I thank you!
Issued by: Department of Public Enterprises
22 May 2007
Source: Department of Public Enterprises (http://www.dpe.gov.za/home.asp)
