Council of Provinces (NCOP) delivered by Alec Erwin, Minister of Public
Enterprises
13 June 2006
Chairperson, Honourable Members of the National Council of Provinces, ladies
and gentlemen
Today marks the first occasion since the onset of democracy that the
Department of Public Enterprises (DPE) presents its budget in the National
Council of Provinces.
Our presence in this Chamber is an indication that State Owned Enterprises
(SOEs) are increasingly being recognised as vital players in advancing the
objectives of the developmental state and obtaining the goals and targets set
out in the Accelerated and Shared Growth Initiative for South Africa (AsgiSA).
It is also recognition of the importance of interaction with all spheres of
government in the planning and implementation of economic and logistics
infrastructure. Better communication contributes to increased synchronisation
of programmes, resources and capacity, thereby enhancing the impact of
infrastructure investment on economic growth and development at a local
level.
The Select Committee on Labour and Public Enterprises, under the leadership
of the Honourable Priscilla Themba, has been a key driver in ensuring that my
department and our aligned SOEs remain accountable to provinces. Over the past
few weeks they have been robustly engaging us on fundamental issues of
transformation and assisting us to assess whether we are indeed contributing to
the structural changes within the economy.
Chairperson, honourable Members, I believe that we are.
The industrial impact of the infrastructure programme
The SOEs are contributing to economic development and job creation both
indirectly and directly at a number of levels. I however only wish to speak to
three.
Firstly, Chairperson, by operating efficiently, effectively and economically
SOEs improve the overall competitiveness of the economy and increase South
Africaâs attractiveness as a preferred investment destination. A study by the
Human Sciences Research Council indicates that improving telecommunications and
logistics inefficiency could save us as much as 4 percent of Gross Dometic
Product (GDP). Significant resources are being ploughed into ensuring that SOEs
reconfigure to provide world-class, affordable products that meet the demand
arising from our growing economy. The majority of these resources are being
directed at core input sectors such as energy and transport.
As demonstration of our dedication to provide a secure supply of energy,
Eskom has committed R97 billion to improve generation, transmission and
distribution of electricity. The electricity build programme includes the
refurbishment of existing power stations, the building of new generation
capacity and the generation of alternative, cleaner sources of energy. A number
of programmes are already underway. These include the refurbishment of
mothballed stations of Camden (2 x 380 MW already on, with further 760 MW by
2008), Grootvlei (1130 MW between 2007 and 2009) and Komati (900 MW between
2008 and 2011); and the construction of two new peaking stations Atlantis and
Mossel Bay (1 050 MW). In addition other new base load plants are in the
pipeline, including a coal-fired power station codenamed âProject Alphaâ.
Efficiency in the port and freight systems is a key ambition, as a delay in
this area would form a fundamental impediment to growth. A priority of Transnet
is thus to accelerate the building of new ports, expanding capacity in the
overcrowded ports and modernising freight facilities. The new port of Ngqura is
being developed and there will be expansion in Saldanha Bay.
A pre-feasibility study for a container terminal at the Port of Ngqura has
been completed and a full feasibility study and costing exercise for the
terminal is being conducted. In respect of addressing overcrowding in Durban
harbour and Cape Town; the Pier 1 terminal in the Port of Durban is being
expanded and redesigned to provide an additional container terminal with 600
000 TEUâs (Twenty-foot Equivalent Unit) capacity by 2007. Further work to meet
the environmental impact assessment requirements for the expansion of the Cape
Town container terminal, are underway.
Other key interventions by Transnet include the refurbishment of Spoornet
locomotives and wagons and the purchasing of 110 new locomotives; as well as
the construction of a multi-purpose pipeline from Durban to Gauteng.
Secondly Chairperson, the capital expenditure programmes being driven by the
SOEs will leverage the growth of the local supplier industry, thereby
catalysing the creation of new economic activity and re-establishing related
industries. Transnet and Eskomâs capex spend is estimated to contribute 1.5
percent of 2004 GDP per annum over the next five years.
Spending in key areas of manufacturing will be significant. Based our on
modelling, which we did together with the Industrial Development Corporation
(IDC), it is estimated that R27 billion will be going to construction,
particularly civil engineering; R11 billion for metal products, excluding
machinery; R9 billion for electrical machinery; R8 billion for non-electrical,
and R11 billion for transport equipment.
In product terms Eskomâs demand for steel and cement per annum in the next
few years is estimated to be 60 000 and 1 million tons respectively. The
construction of the pipeline from KwaZulu-Natal to Gauteng will require
anywhere between 75 000 and 90 000 tons of steel. The positive impact that the
investment spend will have on the economy cannot be understated.
The development of the Pebble-bed Modular Reactor (PBMR) will also give rise
to a new industrial sector in the form of the supply and maintenance of these
reactors. It is also foreseeable that new engineering techniques to deal with
the heat by-product of the PBMR will open many new industrial and chemical
opportunities.
To maximise local benefit from SOE activity, the department is developing a
local content procurement framework to be completed by the end of July this
year. This framework will focus on local supplier development, particularly in
the areas where we have a competitive advantage. It will not only seek to
strengthen local industries so that they may optimally benefit from the capex
spend, but it will also serve to move them up the value chain.
A model to leverage Eskomâs procurement spend has already been completed and
is outlined in a brochure, which has been distributed to Members along with
copies of the speech.
Thirdly Chairperson, the disposal of non-core properties, as part of the
process of making SOE more focused and streamlined, is an enabler of black
economic empowerment and local economic development. The non-core properties
have been classified according to various disposal options namely, sale,
housing, transfer and development.
Properties for sale have been identified based on their relative location,
size, market demand, topography and potential. Sales, such as with the Victoria
and Alfred Waterfront, will be an open and competitive tender process. Broad
Based Black Economic Empowerment (BBBEE) guidelines have been developed to
ensure that the disposal process contributes to transforming the property
sector. For smaller property holdings the guidelines include stratified
preference for people who reside in the area in which the property is located
to allow for a more equitable geographic spread of economic ownership.
The department will further play a catalytic role in negotiating with
relevant departments to fast track the transfer or development of SOE
properties, which can contribute to governmentâs broader socio-economic
objectives in respect of social, residential and industrial development.
Information sharing sessions between DPE and the Department of Housing have
already begun. The department is also working closely with affected
municipalities to ensure the optimal utilisation of targeted property.
Strategic Governance Systems
In order to make the necessary impact on the economy, SOEs have to be
financially and commercially viable entities with sound corporate governance
practices. They have to display operational efficiency and maintain healthy,
independent balance sheets. This requires stable, institutionalised governance
systems that are able to maximise shareholder value. The department is
currently developing a Shareholder Management Framework to be concluded next
year. We are also developing shareholder compacts with reporting SOEs based on
clear performance targets that capture both strategic intent and economic
return.
Internally the department established processes to improve our risk
management capacity. Financial indicators informed by the HOLT valuation system
were introduced, and a benchmarking exercising was conducted using a Cash Flow
Return on Investment Framework. The tools are further supported by a Risk
Management Questionnaire to measure SOE compliance with the Public Finance
Management Act (PFMA) and performance risk analysis reviews are conducted
quarterly.
Our primary obligation however remains to ensure that SOE play a strategic
role in advancing the objectives of the developmental state. Activities of SOE
are critical for the economic integration of the second economy and hence their
outputs have to be carefully monitored. A project to model infrastructure
impact on the economy, social equity and the natural environment is underway to
align capex planning with macro-economic and industrial policy targets.
Furthermore, an investment dashboard is being introduced to track the outputs
of capex related projects, thereby increasing transparency, accountability and
effective implementation.
Communication
Chairperson, because of its significance, I repeat my message to the
National Assembly. The electricity problems we have and may experience in the
Cape have driven home some lessons. A key one is that of communication and
reliable information. There are a number of aspects to this matter. The first
is a consistent message on growth and the investment required to meet and
facilitate that growth. What the last two or three years have shown is that
this economy is indeed capable of a higher growth rate and that this is a very
robust and competitive economy. It is now time for both the public and private
sector to internalise this reality and adjust their decision-making
accordingly.
In the public sector, from the local through to the national level, full
attention has to be paid to every aspect of infrastructure and efficient and
continuous maintenance of that infrastructure. In the private sector the
supplier industries, where investment lead times are longer, business leaders
must have the confidence and foresight to invest now. Hesitancy and timidity is
an obstacle to the growth that we can achieve. This is not an incitement to
reckless planning but it is a call to courage. The leaders of both the public
and private sectors must now take personal responsibility for training of our
talented and capable people. They are the bedrock assets of the economy.
From the side of the DPE and the SOEs we will attempt to improve our
communication with the stakeholders so that more information is available for
decision-making. Interaction with potential suppliers into the investment
programme is important both to facilitate such a large programme and to open
opportunities for the largest and the smallest of enterprises. We will ensure
that opportunities arising, both from the investment programme and the property
disposal process, are advertised broadly and well in advance to enable broad
participation. We have redesigned our website to increase accessibility and we
are already achieving a higher amount of hits.
Let me take this opportunity to thank the people of Cape Town and the
surrounding areas for their co-operation in the saving of energy. I would also
like to thank the business community in particular for their detailed
co-operation. Without this a difficult situation would have been even worse. We
will have to continue our efforts to save on energy over the next two months
until we have the second unit back in operation. I thank all who are
co-operating in this task.
Conclusion
The priority areas for the department for the coming year are to implement
an effective shareholder management system; to ensure the implementation of the
infrastructure investment programme; to support SOEs in maintaining healthy
balance sheets; to facilitate partnerships with the private sector where
required; and to maximise the impact of the capex programme in the economy. For
this our department is requesting a modest sum of R683.4 million.
Allow me to thank the Select Committee Chairperson, Ms Priscilla Themba and
the Select Committee Members for their open and vigorous engagement. Thank you
to the Chief Executive Officers and Board Chairpersons for the co-operative
relationship that we have been able to establish. Lastly I would like to thank
the Director-General, Portia Molefe and the staff in the department for their
enthusiasm and commitment.
Enquiries:
Ms Gaynor Kast
Ministerial Spokesperson
Cell: 083 271 4350
Issued by: Department of Public Enterprises
13 June 2006
