Minister of Public Enterprise Budget Speech

Minister of Public Enterprise, Mr Ms Lynne Brown , gave her Budget Vote Speech on the 16 July 2014

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Honourable Chairperson
Honourable Ministers and Deputy Ministers
Honourable Members
Chairpersons & Board Members of State-Owned Companies
The Director-General of the department
Chief Executives and Senior Managers of State-Owned Companies
Distinguished guests
Ladies and gentlemen

Chairperson,

The way in which you get to appreciate the very real way in which this portfolio touches the lives of every citizen is when your ‘phone rings minutes after the President has just named you as the member of his Cabinet responsible for the Public Enterprises portfolio.

The first call is to let you know that the lights are off in a street in your old neighbourhood. The second is from an old aunt wanting to know if you know that the price of electricity is going to increase soon.

While it was a source of amusement initially, on reflection, it brought home a fundamental message very clearly. This portfolio is not just about the very impressive mega-initiatives to develop and grow the economy which I will speak to later. It is about making it possible for the two people who called me and all other citizens and businesses to do what they need to do every moment of every day, worry-free.

A second light bulb moment, if you will excuse the pun, was when I first heard myself being referred to as the Representative of the Sole Shareholder – my formal role in relation to most of the eight State-Owned Companies in the portfolio. I understood that, while the State is the formal shareholder, it holds these companies in the name of all citizens.

So, I understood early in my tenure who I was serving and who my true bosses are.

Chairperson,

The department exists to support the representative of the shareholder in playing her role, performing her duties, exercising her responsibilities and discharging her obligations.

In doing so, I require it to operate at four levels.

• To distil government policy and strategy into a Shareholder’s Compact, or performance agreement, with each of the Companies and to provide careful, incisive and detailed scrutiny of the way in which each Company performs against the agreed targets.
   
• To assist and support the Companies to achieve the targets and help remove blockages in their operating environment.
   
• To undertake interventions to harness the combined capacities and capabilities of all the Companies and other key players to unlock inclusive growth, drive industrialisation, create jobs, develop skills and “deracialise” the economy.
   
• To join me in engaging other relevant players in the policy and regulatory terrain to obtain certainty and secure the most conducive circumstances for the Companies within which to operate and succeed.

Chairperson,

Naturally, I have expectations of the State-Owned Companies as well.
Given that this is the first time that I am speaking as the Representative of the Sole Shareholder in introducing Vote 11, I would like to use the opportunity to reflect briefly on my expectations and how I hope to inhabit this role.

First, State-Owned Companies must simply get the basics right. Those with a direct interface with citizens and businesses must deliver quality, affordable and accessible services consistently.

In old-fashioned parlance, they must ensure that the trains run on time, in our case, of course, these would be freight trains.

Second, State-Owned Companies must continue to serve as effective strategic instruments of industrial policy and economic inclusion. This must be as central to their thinking as performing their core business is.

Third, the visionary National Development Plan and its effective five-year implementation plan – the Medium Term Strategic Framework of the Fifth Democratic Administration – assign pivotal roles to State-Owned Companies in achieving the radical socio-economic transformation of which the State President spoke in the recent State of the Nation Address.

These are to contribute substantially towards:

• Accelerating and sustaining inclusive economic growth beyond five percent,
• Ensuring much higher levels of employment creation and decent work,
• Rapidly reducing inequality, including the deracialisation of the economy

Pushing back the triple challenges of poverty, inequality and unemployment will require government and the Companies to do things differently.

Fourth, the Boards and Management of State-Owned Companies must be paragons of strong, visionary and strategic leadership, cutting edge business practices, innovation and exemplary governance.

Chairperson,

There are two obvious questions which arise from such expectations:

• Will I act in relation to those Boards who fiddle while precious public money burns and/or who fail to ensure that the company fulfils its core mandate? The answer is: Yes.
• Does this mean that I will micro-manage the companies or, to put it more bluntly, will I “interfere”? The answer is: No. I have outlined how the department and I will approach matters. What I will do, like any responsible Shareholder Representative, is scrutinise quarterly performance very carefully and provide immediate and appropriate feedback.

The department and I are also called upon to play roles beyond the immediate oversight and support of the State-Owned Companies. Let me touch on the most pressing. The Fifth Democratic Administration has placed resolving the electricity supply problem at the centre of its agenda.

I want to assure the two people who called me about their problems related to the affordability and reliability of their electricity supply and all other citizens and businesses that this issue is being addressed very seriously and very urgently.
There are critical talks happening between ministries and departments and others to address this issue not as an Eskom problem but as a national priority.

Chairperson,

Let me now turn to Vote 11.

The proposed budget for the 2014/15 fiscal year is R259.8 million with the two outer MTEF years being R279.3 million and R285.6 million respectively.
Following tradition, the Deputy Minister and I will cover the portfolio together.
Let me reflect briefly on infrastructure investment.

Eskom’s build programme and Transnet’s capital expenditure programme form the core of Government’s infrastructure investment strategy.

Eskom spent R58.2 billion on capital expenditure in 2013/14.

The key achievements of its build programme are:

• Completion of the Return To Service project. All three targeted power stations – Camden, Grootvlei and Komati – are fully operational. This added 3,700 MW generating capacity to the grid since 2005.
• The refurbishment projects have made progress. All the Kriel units and three of the six Matla units have been refurbished. Delays were experienced at Duvha.

The first project under the renewable energy independent power producers programme was connected to the grid in September 2013 and the first IPP was commissioned in November 2013. A total of 467MW is currently available to the system from these producers.

On to Transnet

During the 2013/14 financial year, Transnet awarded a R50-billion contract for the acquisition of 1,064 locomotives. Not only will this acquisition of locomotives enable Transnet to increase its rail volume capacity, but the procurement process has been structured in such a way as to allow for maximisation of localisation benefits.

Chairperson,

Broadband Infraco will be transferred to the Department of Telecommunications and Postal Services as soon as necessary processes allow.

Denel is doing well.

Denel has returned to sustainable operating profit:

• The majority of its revenues are now derived from export orders.
• The business order book has grown from R21 billion to R30 billion in the past financial year.
• Revenues will double to over R8 billion by 2018/19.

In the 2013/14 financial year Denel secured a R10 billion contract from the South African Department of Defence to produce 238 Hoefyster infantry fighting vehicles.
Importantly, 70% of the components for the vehicles will be developed and manufactured in South Africa, creating 2,000 jobs at Denel and in the South African defence-related industries.
Let me touch briefly on localisation and transformation
A total of 547 contracts, worth R5.6-billion, were awarded during the financial year as part of Eskom’s capital expansion programme, of which the “local content committed” amounted to R3.1-billion.
In the 2013/14 financial year, Transnet achieved 92% local content procurement as a percentage of total spend against an annual target of 70%.
Transnet also exceeded the supplier development target.
Transnet’s B-BBEE spend amounted to 94% of Total Measurable Procurement Spend against a target of 70%.
Skills development 
In the 2013/14 financial year, in line with the National Skills Accord, the Companies collectively committed to enrol 2,764 new artisan trainees.
Chairperson,
Let me turn to the current fiscal year
Over the next 12 months, increased focus will be given to the delivery of the current build programme.
The Synchronisation to the system of Medupi’s first unit will be concluded by December 2014 and subsequent units are scheduled to come on-stream at 9-monthly intervals thereafter.
All three units of Ingula pumped-storage plant are scheduled to be available by the end of 2015.
Eskom has committed to contract at least 3,725 MW of renewable in the year ahead.
Transnet has substantially increased its targeted infrastructure expenditure over the seven-year period beginning in 2011/12 financial year from R110-billion to just over R312-billion. This will address the current capacity constraints and inefficiencies of our national logistics system.
Over the current MTEF period, Transnet will spend R107-billion on its capacity expansion programme. It is projected that the jobs supported by Transnet in the economy will increase from 368,000 in 2011/12 to 570,000 in 2018/19.
In the 2013/14 financial year, the Department developed the Africa Strategy that is intended to coordinate the investment activities of our Companies and reposition them to be able to capture the opportunities that exist in the African continent.
Chairperson,
The financial sustainability of the companies remains a central concern.
The current economic environment presents a major challenge to the financing of the build and capacity expansion programmes of government. It is clear that a sustainable funding framework that is independent of the fiscus is required.
This framework must attract private sector funding and guarantee a reasonable return on assets on the one hand. On the other, it must allow space for Government to leverage the build programme for better developmental outcomes.
Let me touch briefly on the airlines
The environment in which SAA and SAX operate domestically and globally has become ever more challenging with intensified competition, narrow margins, cost pressures due to fuel prices and currency volatility. In this context, their undercapitalized balance sheets severely constrain the airlines, leading to continued losses and affecting the going concern status of the Companies.
It has become clear to me that simply extending State guarantees to the airlines is an inadequate response to the challenge and that an extraordinary intervention is required to put them on a sustainable footing, and to support their turnaround efforts.
The good work in the Industrialisation area will continue
The Department will continue to focus on increasing localisation in the build programme through the competitive supplier development programme.
It is also working with the Airlines to ensure that the Fleet Acquisition Programmes deliver better industrial development outcomes.
Government has invested substantially to enhance the capabilities to manufacture high-value components for the Aerospace industry through Denel Aerostructures and other initiatives that involve the private sector.
Preserving and enhancing these capabilities is fundamental to the development of advanced manufacturing in South Africa is in line with the Industrial Policy Action Plan.
Skills Development
For the period between 2014/15 and 2018/19 financial years, the State-Owned Companies in the Public Enterprises stable will collectively enrol more than 30,000 new learners in various scarce and critical occupations.
Governance
The Department will conclude the consultations on the remuneration standards for Board of Directors and Executive Directors to ensure that their remuneration packages are linked to the achievement of targets contained in the shareholder compacts.
It will also embark on the finalisation of the Shareholder Management Bill that will embed the shareholder management practices that have been developed by the Department over time. 
In conclusion, may I make a special appeal to all the Honourable Members of the House on the subject of the burning issue in this portfolio.
I am sure that all present agree that resolving the challenge of shifting this country to a situation in which we have ample reserves of affordable and reliable electricity is a very high priority.
As we have witnessed, both domestic and international investors and rating agencies are looking for signals that we, as a country, are serious about resolving this problem soon in everyone’s interest.
My appeal is that we not treat this as a partisan issue. It is just too important to our future to get wrong as a result of placing narrower interests first.
If the Committee concurs, I will engage you on how to make such an approach mutually meaningful.
Even though we have worked together for less than two months, I have been overwhelmed by the extraordinary support which I have received from Deputy Minister Bulelani Magwanishe, DG Tshediso Matona and the staff of the Department and the Ministry. Thank you.
I would also like to thank all the stakeholder representatives, friends and family who made time to be here today.
Chairperson, I request the EPC’s support for Vote 11, the budget of the Department of Public Enterprises.
Thank you for your attention.

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Deputy Minister of Public Enterprise, Mr  Bulelani Gratitude Magwanishe, gave his Budget Vote Speech on the 16 July 2014

Honourable Chairperson

Honourable Ministers and Deputy Ministers
Honourable Members
Chairpersons, CEOs and Board members of our SOC
The Director-General of the Department, Mr Tshediso Matona
All DPE colleagues present
Distinguished guests
Ladies and gentlemen.

When we stood before you in our 2013/14 budget votes, with us we had trees.
Some were partly eaten away and some broken because of our recent past.
We had branches whose connection to the trees was weak. And we promised to nurture them.

In nurturing them, we held engagements with seven provinces through our Provincial Engagements programme. In these sessions, engagements on opportunities were held with government (both provincial and local) as well as the youth and the business community. Institutional Support mechanism structures to realise alignment of programmes have been established in the provinces visited.

And these provinces are:

• North West,
• KwaZulu-Natal,
• Free State,
• Eastern Cape and the
• Northern Cape province and other provinces will be visited as well.

The government is committed to institutionalise the development and empowerment of youth as expressed in the National Youth Policy.  Our response to this commitment has been through our Youth Economic Participation Programme. Through this, we are coordinating efforts of our State Owned Companies (SOC), to maximise their role in the achievement of the national youth economic empowerment objectives.

These include Skills Development, Job Creation, Enterprise and Supplier Development and Corporate Social Investment (CSI). As a result, Youth Opportunities Expos were held in the various provinces, where information relating to the above areas was shared. Lack of awareness of opportunities in SOC, led us to prioritise people in rural areas, farming communities and townships.

These SOC are not only for the urban or upper middle class but for all South Africans. Thousands of young people attended Expos held at Ekurhuleni, Umhlathuze and the farms De Doorns.

On CSI

In the last budget vote, we committed to host an SOC-Supplier Summit, to address the question of how CSI investment can fund youth development in general.

On the 28th of March 2014, we hosted the Summit in Alice in the University of Fort Hare.

CSI Expenditure continues to grow in South Africa. According to the 2013 Trialogue Audit, the top 100 companies and SOC have a CSI budget with a value of R7.8 billion. We commit to continue redirecting the focus of the SOC-CSI spends towards addressing the triple challenge of inequality, unemployment and poverty.

We have identified three focus areas to streamline the direction of CSI and these are: Education, Enterprise Development, Health and Sport.

On Education

Our priority as the department is the promotion of maths and science. In this respect, we have embarked on a roll-out of the Telematics System to schools in the various provinces. This programme we have been able to pursue in partnership with the University of Stellenbosch.

Our SOC adopted schools in the provinces, facilitated the installation and carried the costs for installation of the system to the schools identified.

Some of the schools connected include the following:

• St John’s College in Umtata Eastern Cape was connected with the support of Eskom.
• Jikindaba Secondary School at Ingquza Hill in the Eastern Cape which was connected with the support of Denel.
• Seshego Secondary School in the province of Limpopo was connected with the support of Broadband Infraco.

Transnet has built a Computer Centre for this school.

Vaal Reefs High School in the North West, Zikode High School and Harding Secondary School in KZN, are due for connection before the end of October this year.

Langa High School in the Western Cape, Moremoholo FET in the Northern Cape and 100 schools from the Free State represented in the Youth Camp, had the benefit of receiving donations from the SOC in the form of maths dictionaries.

In our last budget vote, we promised to respond to a plea made during our visit to the Free State province in December 2012, to host a Youth Camp for grade 10 and 11 learners from the Free State province.

In this regard, the Youth Camp hosted by our SOC, working together with the Free State Dept. of Economic Development, was a great success. Learners from townships and rural areas of the Free State were exposed to opportunities in our SOC. We remain committed to making this a yearly event targeting learners from the different provinces.
                                                    
Before the end of this year, we intend formally launching the Transnet Maritime School of Excellence in Durban.

Through this school we intend building a pool of marine graduates.

On Enterprise Development

Transnet has been on extensive road shows to townships and rural areas around enterprise development. These are meant to educate youth on how to tender for opportunities in Transnet. 

As we move South Africa forward

Transnet has invested over R18 billion to go to youth owned businesses, particularly those in the townships and rural areas. In addition, Transnet has entered into a range of partnerships with both private and public companies, to provide funding to small and micro enterprises.

These interventions are specifically targeting black youth and women owned companies. Transnet has further dedicated an amount of R4,7 billion to bursaries and grants.

Eskom on the other hand has set itself a target of spending over R24 billion a year on black youth owned businesses by 2017. Thus far Eskom has reserved over R10,5 billion of spend for youth owned businesses in a range of industries, including the national electrification project and coal mining.

On Health and Sport

The Transnet Phelophepa Health Train continues to bring health services to disadvantaged communities that do not have access to proper health care. With the train celebrating 20 years of service, we have now launched Phelophepa II, a second train to bolster the annual patients’ reach of the programme.

In 2013, Eskom also approved four paediatric mobile units that will service primary schools around the communities it serves. These mobile units will provide general health care, dental and eye care which is much needed in the rural areas.

Transnet and Eskom are looking at possible collaboration with regard to a health partnership. The success of our battle against lack of training and skilling can be achieved by giving life to collaborative efforts.

The New Growth Path emphasises that the only way to achieve our national economic objectives is through building multi-stakeholder partnerships.

On partnerships

In partnership with the Department of Communications and TATA-Africa, we secured Computer Centres for Jikindaba High school and for a local church of Holy Cross to train the community in computer skills. As the department is engaging COGTA in a collaboration meant to respond to the shortage of artisans and respond to service delivery hot-spots.

A draft MOU and concept document has been prepared to pave way for the Train of Hope. The collaboration is intended to bring artisans /technicians and engineers to municipalities lacking technical capacity and reduce the level of service delivery protests.

The skills we are developing must be able to respond to our transition from a resource economy to a knowledge driven economy. The competitiveness of that economy will be extremely dependent on the quality of the human capital that we produce. So far we have been able to identify 23 district municipalities as priority areas.

In partnership with the Inqguza Hill Local Municipality, realising the need for clean water for learners and the community, Denel provided four boreholes to the area. These are strategically located near the schools to particularly enable learners easy access to clean water.

SAFCOL

South African Forestry Company Limited (SAFCOL) is operating under very difficult economic conditions. We are however happy to announce that SAFCOL will declare a profit in the 2013/14 financial year.

A budget of R6.6 million was allocated towards socio-economic development during 2013/14 financial year. A needs’ analysis and project identification was finalised in collaboration with the Joint Community Forums (JCFs) of Mpumalanga and Limpopo. Projects ranging from building community halls to building schools were successfully undertaken by Safcol flowing from that budget.

ALEXKOR

Alexkor represents another of our good stories of our 20 years of democracy.
This SOC has been able to turn the tide amid all the challenges which existed in their space. Alexkor has accomplished its financial obligations in terms of the 2007 Deed of Settlement obligations. As a result, the Alexander Bay Township now forms part of the Richtersveld Municipality as per registration of 22 November 2013.

The value of property that will be transferred to the Richtersveld communities as part of the DRDLR restitution project, is estimated at R200 million.

As part of the turnaround strategy, the deep sea mining agreement with IMDSA has been concluded. Operations in this respect will commence once the marine mining rights have been granted. We expect more people from the Richtersveld to benefit from this extension of focus.

We have also realised an improvement in carat production from 35 000 carats to almost 42 000 carats in one year. This is on the back of the handing over of the Muisvlak Modular Plant in April 2014. The plant was commissioned during the 2013/14 financial year. The plant operation has created 200 jobs.

When we stood before you in 2013, Alexkor had 109 employees. Today, the Company has 350 employees.

Confirming our unwavering support to empower women, the Witvoorkoppen Women’s Mining Company has been established and has commenced with its land mining operations at Richtersveld.

PBMR

PBMR is now fully incorporated into Eskom as its subsidiary as an interim measure. This will be the situation until a Cabinet decision is made on the future of company.

AVENTURA

Since the liquidation of Aventura, the first meeting of creditors took place in December 2013. The Department intends commencing with the process to repeal Aventura’s Founding Legislation, as part of finalising the winding up of Aventura.

We are anticipating that the Master of the High Court will approve the Liquidation and Distribution Account around November 2014. After that Aventura will be deregistered.

I thank the Minister for her leadership. The previous Minister for the role he played in leading the department. Colleagues at DPE for their support.
Boards, Management and Staff of our SOC for their support.
The ANC Study Group for their guidance.
We commit to work closely with the Portfolio committee.
We thank all the guests for their attendance.
I humbly ask the House for the support of this budget vote.