Finance Trevor A Manuel
12 September 2007
Madam Speaker, Ministers and Deputy Ministers, honourable members of the
National Assembly, today we take the unusual step of tabling a Special
Adjustments Appropriation Bill. Though we have occasionally had to table second
adjustments budgets in previous years, this is the first time an appropriation
has been required before the usual adjustments budget. We table this Special
Appropriation Bill due to the fact that in each case, we unfortunately do not
have the option of waiting for the normal adjustments budget at the end of
October.
Both the government in general and I as Minister of Finance have been
hesitant to introduce more than one adjustments budget a year. Where we have
done this, it was either due to an emergency or a clear unavoidable situation.
While the items that we request additional resources for today cannot be
considered a natural or economic emergency, we table this special appropriation
bill after exploring all options to meet the urgent cash-flow requirements. Not
providing this financial support may, in some cases, cost government more than
the amounts requested.
Stadium projects
The first set of additional allocations is requested to ensure speedy
completion of our 2010 Federation International Football Association (Fifa)
World Cup stadium projects. In the Budget in February this year, we announced
an amount of R8,4 billion over four years for the ten stadium upgrade or
construction projects. Today, we are pleased to announce that in certain cases,
construction is proceeding faster than anticipated. For this reason, we are
requesting that R1,9 billion be brought forward from next year's allocation to
the present year. In addition to faster progress on the projects, the
additional funds will be used to pre-fund the procurement of roofing structures
which, in some cases, involve importing expensive fabricated steel products.
Early payment reduces risks of cost escalation and currency risk. In
particular, the Soccer City stadium project in Johannesburg and the Moses
Mabhida Stadium project in eThekwini contain complex roofing structures.
Since we announced the R8,4 billion ceiling on the stadium projects, we have
had a number of requests for additional resources. We have been firm in our
resolve not to provide any additional resources for these projects and we
commend host city municipalities for ensuring that we do not exceed the
financial limits on all of the projects.
A review of all ten stadium projects shows that we are on track to meet the
deadlines set by Fifa. This is again testimony to South Africa's ability to
organise and manage large international projects to the highest standards. We
wish each of the host cities and the local organising committee well in their
endeavours to host a memorable tournament.
State owned enterprises and development finance institutions
Honourable members, in 2004 government signalled a strategic shift in its
approach towards state owned enterprises and our development finance
institutions. We signalled a stronger role for these enterprises and
institutions in driving our developmental agenda. When we took this decision,
we were mindful of the fact that, in some cases, our enterprises were not well
managed in the past, not well capitalised and governance and oversight was
sometimes lacking.
In implementing this strategy, we have had to work tirelessly in increasing
their strategic focus and in improving management. Our approach attempted to
steer away from sterile ideological debates about whether the public sector or
the private sector was better able to deliver services to business and
households. Instead, we have adopted a pragmatic approach that recognised that
there were areas where government had to exit from providing the service, but
there are also areas where we feel that the public sector can play a positive
role in driving investment, lowering the cost of business and crowding in
private sector investment.
Our strategy has entailed taking a tough stance to root out poor management,
focusing these enterprises on their mandated core functions and
responsibilities. We must ensure that we build financially viable enterprises
that can contribute towards development without ongoing access to fiscal
resources. We also knew that, in some cases, as the sole or principal
shareholder, we would have to provide additional resources to finance higher
levels of investment. So far, our strategy has been effective. We have seen
gross fixed capital formation rise, partly driven by higher investment by the
public sector.
In the Budget in February this year, we announced a number of developments
in state owned enterprises and development finance institutions where we were
working to assess business plans improve management competence and increase
strategic focus. In particular, we informed Parliament that we were reviewing
the business plans and activities of the Pebble Bed Modular Reactor Project,
Sentech, the Land Bank and Broadband InfraCo.
We also announced that funds would be provided to some of these entities
once business plans had been approved and a larger than normal contingency
reserve was set aside for this purpose. In terms of Section 30(2)(d) of the
Public Finance Management Act, 1 of 1999, such allocations may be provided for
in an adjustments appropriation bill.
Sentech
Today, we are pleased to announce that an agreement has been reached on the
business plan of Sentech. Government has approved Sentech's role in developing
a national wireless network that can be used by a number of enterprises
including private companies to enhance wireless internet connectivity to both
businesses and households. Sentech will become a wholesale wireless network
provider, investing in signalling and transmission technology to bring down the
costs of wireless internet services to all users. For this purpose, government
is providing R500 million as an initial capital investment in this
infrastructure.
Land Bank
The Land Bank is a key development finance institution providing access to
credit in the agricultural sector. It has played a pivotal role for almost a
century in the development of commercial agriculture in South Africa. If in
South Africa we are going to expand our agricultural industry and in
particular, if we are going to succeed in bringing black farmers into the
agricultural supply chain, the Land Bank is going to continue to be a key
player in this sector.
However, we are also mindful that the operations and governance of the Land
Bank have not been optimal. The capital adequacy ratio of the bank has fallen
considerably, mainly due to the writing off of some large non-performing loans.
Led by the Minister of Agriculture, government has actively engaged with the
board and the management team to improve the functioning of the institution. We
have made progress in a number of areas that are of concern to government.
However, the task of turning the Land Bank around is still very much work in
progress and the Treasury will continue to monitor financial aspects of this
project.
Given the progress that we have made and noting the low level of capital on
the balance sheet, it is prudent for government to recommend an injection of
R700 million in cash and the provision of a R1,5 billion government guarantee
in order to ensure the sustainable operations of the bank. I will continue to
work with the Board of the Bank and the Minister of Land Affairs and
Agriculture to put this institution on a sound footing.
Pebble bed modular reactor project
Members of this house will be aware that considerable progress has been made
in recent years in the design of a new generation nuclear power plant, known as
the Pebble Bed Modular Reactor. The construction of a demonstration plant has
now begun, for which government has made a financial commitment of R6 billion
over three years. This commitment was also announced in the 2007 Budget speech.
At the time of the budget, the amount required this year and details of the
business plan were not finalised.
At this stage, external funding for the project is not available and an
amount of R1,8 billion is therefore required for the period April to December
this year. This amount will allow the project to fund ongoing recurrent
expenses as well as provide for contractual obligations related to the design
components of the demonstration plant.
Alexkor
It is known to many of you that government's efforts to exit from diamond
mining through state owned mining company Alexkor have been impacted upon by a
protracted land claim made by the Richtersveld community. A Deed of Settlement
in the land claim was signed on 22 April 2007. The settlement constitutes the
conclusion of a lengthy court case in which billions of rands were claimed from
the Government of South Africa.
The settlement was subsequently approved by Cabinet. One of the conditions
of the settlement is that Alexkor Limited should continue to operate as a going
concern and that it will enter into a Pooling and Sharing Joint Venture with a
Richtersveld Mining Company which will become the owner of the converted land
mining rights that presently belong to Alexkor. Funding of R44,7 million is
required for the operational costs and working capital of the Alexkor Mine for
the current financial year, in addition to the restitution amounts provided on
the Land Affairs vote.
This settlement is aimed at providing the community of the Richtersveld with
a legal and corporate structure to benefit from the mining operations while
government takes on some of the liability to rehabilitate the land once the
mining operations are wound down.
Denel
The final item in this special appropriation bill relates to an indemnity
claim in favour of Denel's aero-structures subsidiary. The claim is presently
being verified by auditors appointed by the Department of Public Enterprises
and an amount of R222 million is required as provision against this contingent
liability.
Conclusion
Madam Speaker, in each of these cases, it is not possible to wait until the
normal adjustments appropriation bill, to be tabled on 30 October 2007 in this
house. It is not the intention of government to request approval for the
appropriation of resources more often than is absolutely necessary. If we could
have avoided the need for a special adjustments budget, we would have done
so.
Turning our state enterprises and development finance institutions around so
that they can become effective tools in the hands of a developmental state
requires huge effort on all fronts. I confess that in some cases, we have been
disappointed with our efforts to focus their activities in a manner that
ensures financial sustainability.
We have much more work to do to improve the quality of management and the
strategic direction of these enterprises. However, as shareholder, it is also
our obligation to ensure that these entities do not engage in risky financing
arrangements that would inevitable cost consumers more in the long term. It is
our obligation to provide funding, after due diligence has been completed,
where these funds are required to increase investment or to lower the costs of
doing business in South Africa.
In total, an additional appropriation of R5,195 billion is required for the
Departments of Agriculture, Communication, Sport and Recreation and Public
Enterprises. The anticipated revised total expenditure level, and how it is to
be financed, will be dealt with as usual in the Medium Term Budget Policy
Statement at the end of October.
I thank you
Issued by: National Treasury
12 September 2007
