Minister of Public Enterprises Budget Speech, responses by DA, IFP

Watch: Mini-plenary

Speech by Minister Pravin Gordhan, MP 20 May 2022

 

Time to Rebuild, Better, Together

A People Centred Approach

 

CHAIRPERSON, HONOURABLE MEMBERS,

CHAIRPERSONS and CEOs OF SOE BOARDS, LADIES AND GENTLEMEN

I have the honour to present the Budget Vote for the Department of Public Enterprises for the 2022/23 financial year.

We do so in a complex economic, social, and political world in which:

• Geopolitical tensions and war prevail and have resulted in the shocking rise in energy prices (oil, gas, and now renewables), as well as a rise in food prices and other costs of living.
• Huge economic stresses have emerged in many parts of the globe: rising inflation, increasing interest rates, risk of stagflation, and even recession.
• A battle between a multilateral/ multipolar vision of the global order is systematically contested by a unilateral / unipolar vision and actions that pursue this vision.
• The impact of the Covid pandemic leading to a reordering of productive capacity and its location, as well as the disruption of global supply chain.
• The impact of climate change has hastened global efforts to transition to a net zero carbon resilient economy that is just and fair.
• Gross inequality in most parts of the world, is matched only by the extraordinary greed and rapaciousness of elites across the world.
• Fake news, bots, populist narratives, bullying now seek to intimidate and mislead desperate people into wrong political choices.

These factors greatly impact South Africa, its economy, and its people. This compounds the many challenges we have in South Africa: unemployment, low growth, erratic investment, poverty and inequality. We have been through heartrending tragedies in the recent past: state capture, the July unrest, the pandemic, floods earlier this year in KZN, and now the impact of war elsewhere in the world.

In all of this, ours is the responsibility to ensure progress, redress, recovery from the damage caused and unite the progressive forces and people in a joint effort to rebuild, recover, and reinvent SOEs. This is central to government’s Economic Reconstruction and Recovery Plan (ERRP).

The DPE has the mandate to oversee this process in some of the important SOEs. We must, therefore, seize the many opportunities we have and overcome the challenges left to us by our past, to:

 

• Enhance the governance and integrity in SOEs and not only at the level of the Board, but in all other levels;
• Introduce a new ownership model with the guidance of the Presidential SOC Council;
• Implement the structural reforms needed in the network industries;
• To take account of, and implement the recommendations of the Zondo Commission;
• Relentlessly focus on operational improvements and efficiency;
• Improve the financial resilience;
• Reinvent their business models and strategies to take account of global developments and national imperatives;
• Constantly build the professionalism and competence of managers and staff;
• Contribute actively to economic transformation and the creation of new opportunities;
• Cooperate with workers to lead and embrace the substantial changes needed to ensure the sustainability of SOEs;
• Create a collaborative partnership with customers and stakeholders to arrive at mutually beneficial outcomes;
• Encourage public – private partnerships that mobilise the necessary resources and skills to advance the SOE programs; and to
• Actively combat corruption and disruption, whether from within SOEs or from counter-revolutionary quarters / criminals outside SOEs. In this latter context, this morning I heard that the Hendrina power station has been subjected to another act of sabotage. Only insiders could have carried out this crime.

 

A People Centered Approach

It is appropriate to ask: Why do we do all this? Who benefits?

Because the acts of the greedy, the corrupt, the bully, the counter-revolutionary set back our progress as a democracy and stop us from becoming a caring nation. While they sit back to enjoy their spoils, the damage they cause is borne by our communities – by workers, by small businesses, by the unemployed and youth

Now is the time for all of us to join the ranks of those who want to build a better future and better institutions and not just point fingers among us.

Now is the time to care for the hungry, the marginalized, those in despair.

Nothing can destroy the might of an organized people driven by a clear vision and who take their destiny into their own hands and change the course of history.

Strong, organized communities are fundamental to the security of our country’s infrastructure. We must have a sense of national pride in our electricity, rail, water, and other infrastructure assets and protect them from being broken.

 

BUILD PARTNERSHIPS

Working in partnership with all stakeholders is vital in a period of transformation and change:

• COMMUNITIES are impacting by loadshedding, illegal connections, and the energy transition. They must be informed and participate in shaping the future.
• WORKERS both in SOEs and industry play a crucial role, and are impacted by changes in technology and other processes. We must build constructive partnerships that enable us to recover and rebuild SOEs. Most importantly

they must be in the frontline of protecting our infrastructure against criminals and detect any sabotage.

• PRIVATE SECTOR partnerships will take various forms – from joint investments, to solving challenges, to proactive collaboration. In respect of the latter: Minister Patel and I have agreed, that in view of energy and logistics being vital to the success of our industrialisation efforts, we will launch a forum in which industrialists in key sectors together with Eskom, Transnet and other entities, will enhance collaboration, advance planning, and problem solving. This will enable a better climate for investment and job creation. We are both making this announcement in our respective budget votes which are taking place now.

 

THE ZONDO COMMISSION

Judge Zondo finds that the evidence presented to him revealed that the systemic corruption that collapsed governance in these institutions was led by certain board members and senior executives. These people need to be held accountable.

The Report confirmed state capture tentacles were deeply rooted in Transnet, Eskom, Denel, and SAA, unfortunately overseen by the DPE.

The Department has moved swiftly to ensure the SOES reporting to it:

• Open criminal cases with the law enforcement authorities;
• Pursue civil recoveries to claw back billions of rands;
• Refer cases to the registrar of companies so that former directors of SOEs found guilty are prohibited from ever-again serving as company directors;
• Blacklist companies on the Central Supplier database to prevent them from accessing state procurement opportunities; And
• Refer cases to professional bodies for enquiries to ensure perpetrators of state capture are prohibited from practicing in their respective disciplines.

We must do these things so that the people responsible can be made accountable, and so that we never again allow our institutions to be destroyed,

I applaud the bravery of whistle-blowers who put their lives at risk to expose the rot of state capture. They must be protected and celebrated for their courage.

 

THE SHAREHOLDER MANDATE

The following are some of the plans that will be implemented in this financial year by the SOEs in the DPE portfolio.

 

ESKOM

Eskom’s generation is not under-performing with the Energy Availability Factor languishing at 58% YTD, as opposed to the target of 75% set out in the IRP 19.

The reasons for the poor performance are well known.

 

Generation Performance

Eskom is taking urgent steps to improve the performance of Generation. Daily production and oversight meetings are held to hold power station management accountable for performance. An operations excellence initiative is also in place which to identify the major causes of underperformance and to make improvements. At selected power stations war rooms will be set up to ensure that production challenges get tackled in a systematic way.

A skills mentoring programme using highly experienced power station managers has been launched. This team will be deployed to power stations where load losses are particularly severe.

 

Neglected and poor maintenance

Because past neglect of maintenance is not easily overcome. Contractors are held accountable for direct improvement in the EAF as a result of the work undertaken.

Upgrade skills & training: A lack of engineering and technical skills and experience in Eskom remains a significant challenge. These are pre-requisites for a major industrial operation like Eskom. Eskom has introduced a new training programme at its Academy of Learning to upgrade skills.

Lack of generation capacity: Eskom estimates it needs 4 – 6 GW of additional capacity immediately if it is to properly maintain its power stations. This will allow it to take units off-line for repair while maintaining a supply of electricity.

Bid Windows 5 and 6, as well as the RMIPPP, will, at best, deliver an effective 3,000MW which alone will not create the buffer needed.

The President’s announcement of the lifting of licensing restrictions on own generation to 100MW will undoubtedly assist the position. However, red-tape is holding up the development of these projects.

Recently, Eskom has opened up land it owns in Mpumalanga for long term leases to renewable energy developers.

Poor coal quality, which is often caused by syndicated coal delivery is causing major damage to plants. Eskom is seeking collaboration with the coal mining industry to solve this problem.

Sabotage continues to be a problem. For example, Eskom yesterday announced it had discovered cut cables and tubes which caused a breakdown at Tutuka power station.

Corrupt procurement: several syndicates are involved in delivery of coal, oil, and other supplies, including spares. Measures are being taken to identify the insiders enabling syndicates to gain access. Measures are also being taken to eliminate overpricing and other malpractices.

 

Eskom’s financial stabilization

Eskom has been able to achieve a significant improvement in its EBITDA for the 2022 financial year with early indications (pre-audit finalisation) showing an improvement of over 85% compared to the 2021 financial results.

This is driven by:

• the general recovery in energy consumption after the initial hard lockdown due to the COVID-19 pandemic;
• revenue improvement supported by the NERSA’s standard tariff increase of

15.06%; and

• cost control saving of about 99.5% of the R20 billion target for the year.

Eskom has achieved savings of over R50 billion since inception of the program in the 2019/2020 financial year.

A further reduction in debt to R396 billion (from R401 billion) was also achieved.

However, Eskom’s liquidity issues relate specific areas which need urgent attention:

• A lack of cost-reflective tariffs;
• Non-payment by municipalities;
• Widespread electricity theft and non-payment;
• Infrastructure vandalization and theft.

 

Eskom’s restructuring

The legal separation of the Transmission business has made good progress: key asset transfer agreements are signed, a legal entity registered; and engagements are under way with lenders for their consent to the unbundling.

 

However, enabling amendments to the Electricity Regulation Act, as well as a new Electricity Pricing Policy, need to be approved as a matter of urgency.

 

Climate Change and JET

Eskom’s has a holistic approach to de-carbonization and environmental compliance as part of the country’s Just Energy Transition strategy. This includes accelerating the shutdown of ageing and unreliable coal plants, and the roll out of new no and low carbon generation capacity, in a socially and environmentally responsible manner,

 

TRANSNET

Transnet is key to ensuring an efficient network industry which enables customers supply chains to be globally functional and for transport and logistics to act as a catalyst for economic growth.

Transnet is driving a portfolio of initiatives intended to address challenges to competitiveness of South Africa’s value chains. These initiatives include the following efficiency improvements:

Transnet National Ports Authority (TNPA) plans to improve operations by refurbishing tug and pilot boats, acquiring a new helicopter for pilotage services, and 12 new tugs for the port system.

Transnet Port Terminal (TPT) will focus on three aspects: people, port equipment and processes to reach the desired port efficiencies.

The plans in place entail:

• Equipment operators able to operate more than one type of equipment;
• Replacing and refurbishing equipment;
• Reviewing incentive schemes; and
• Further improving workforce planning.

 

Transnet Pipelines (TPL) where pipeline tapping is just as detrimental as cable theft, as these incidents adversely affect the operations of the New Multi-Product Pipeline (NMPP), thus undermining TPL's ability to ensure fuel security.

Tapping also has a serious environmental impact requiring affected areas to be rehabilitated, often over several years. TPL has the following measures in place to reduce incidents:

• Reducing incident response time,
• Implementing volume optimisation strategies in line with orders and demand, and
• Enhanced security measures to reduce fuel theft incidents and associated environmental rehabilitation costs.

 

Transnet’s Successes

Transnet is implementing the following policy objectives across its operations in rail and ports:

• Approved branch line concession approved and fully operational;
• Recently announced the slots sales on the container and cape corridor for private sector participation (3rd party access on operations);
• Procurement of port equipment [i.e., straddle carriers, Rubber Tyred Gantry (RTG)]; and the
• Corporatisation of Transnet National Ports Authority (TNPA);
• Road to rail migration strategy (capacity) initiatives are being implemented across Transnet operating divisions to attract freight volumes. The focus is on the key corridor segments areas where Transnet will leverage its position.

 

The successes and developments of the corridor segment initiatives for noting in this regard, include:

• Automotive - The development of the pre-feasibility business case and RFI for Kaalfontein and 3 Auto Port Terminals are in progress. Manganese - A decision was taken to limit the expansion via the Port of Ngqura to 16Mtpa, via the

Port of Saldanha to 6Mtpa and to accommodate growth beyond 22Mtpa in the Boegoebaai development.

• Energy - The Richards Bay natural gas import terminal initiative RFI closed on 14 April 2022, with an extension of 1 month as per request from respondents.
• Private Sector Participation (PSP) - Transnet is actively seeking collaboration with private sector partners, for example, by bringing in partners to Pier 2 in the Durban Container Terminal (DCT) and the Ngqura Container Terminal (NCT).
• Furthermore, Transnet has issued several requests for quotation for operations in ports and railways, to increase capacity and partnerships for funding and operations.

 

Financial Performance

Preliminary results for the 2021/22 financial year have reflected a marked improvement since the previous year, when the COVID related lockdown was at its worst.

Lingering after-effects of the previous year’s financial challenges remain.

Recoveries in revenues and significant cost savings during the recently ended financial year should enable Transnet to return to its previous position of solid financial sustainability in the near future.

 

SAA

SAA is on the threshold of concluding the acquisition of the strategic equity partner and concluding the transaction which will ensure the viability and survival of SAA. Certain regulatory processes are now progressing.

Arrangements are also in place to finally implement all the provisions of the Business Rescue Plan. Two key subsidiaries have also been restructured will be operating on a profitable basis in this financial year: SAA Technical and Airchefs. Mango is undergoing the final stages of a business rescue process.

We reiterate that these processes have the approval of cabinet and have all been consistent with legal requirements. There have been deliberate efforts to undermine the effort to restructure and reposition a state asset and introduce a majority private sector partner.

We are particularly pleased that the company under an interim leadership at both board and executive management re-started flight operations in September 2021. The current routes include Cape Town, Durban, Lusaka, Harare, Accra, Lagos, Kinshasa and Mauritius.

The airline’s launching focus on African regional routes has been greeted with much admiration and pride across the African continent. As the airline’s management awaits working with the SEP, the development of the second phase of the re-start strategy is already under consideration, which is an expansion into additional regional routes and selected international cities.

The airline will be developing a medium to long-term strategy which will no doubt grow its market share locally and globally.

The priorities around SAA for the new fiscal year are: to ensure the successful conclusion of the SEP process; the injection of R3 billion of working capital by the SEP; and the consolidation of the state’s preference shares and its “golden share”.

 

SOE GOVERNANCE: A NEW ERA

In the 2022 SONA, President Ramaphosa said that:

“SOEs play a vital role in our economy.

From water and roads, to energy and ports, to defence and aviation, these strategic assets are necessary to keep our country running.

It is essential that we reverse their decline, and position them to contribute positively.

We have therefore embarked on several immediate measures to restore these companies to health, at the same time as we undertake far-reaching reforms that will make our SOEs more efficient, competitive, accountable and sustainable.

The Presidential SOE Council, which I appointed in 2020, has recommended that government adopt a centralised shareholder model for its key commercial state- owned companies. This would separate the State’s ownership functions from its policy-making and regulatory functions, minimise the scope for political interference, introduce greater professionalism and manage state assets in a way that protects shareholder value.

As part of this, preparatory work has begun for the establishment of a state- owned holding company to house strategic SOEs and to exercise coordinated shareholder oversight.

To ensure that SOEs are effectively fulfilling their responsibilities, the Presidential SOE Council is preparing recommendations on SOEs to be retained, consolidated or disposed of.

Any recommendations would be subject to extensive consultation with all stakeholders.”

Further progress will be made in implementing this injunction. A shareholder Bill will be introduced after cabinet approval; the necessary legal documents for the establishment of the holding company are in progress; and the necessary consultations will be concluded.

In addition, PSEC’s work includes:

• Investigating possible financial models;
• In-depth analysis and determination of SOEs that should be consolidated and those that should be disposed of;
• Repurposing those consolidated SOEs; and
• Development of criteria for SOEs that need crisis management.
•  

Climate Change Resilience

While progress has been made in recapturing and repurposing of our SOEs, we must also realise that they operate in a changed environment where issues of climate change and the move to a low carbon economy is having an increasing sway on their operations.

The flood in Kwazulu-Natal is but one reminder of this new reality. In repurposing our SOEs, their critical role in mitigating the impact of climate change should also be recognised.

 

Economic transformation

SOCs are also important contributors to economic transformation and support for SMMEs, skills development, provision of internships and learnerships, and local procurement:

As at 31 March 2022, the SOEs collectively contributed the following towards skills development:

• There is a total learner pipeline of 2,715 trainees currently in the system registered in various programmes across SOEs.
• Of these, 1,621 are artisan trainees, 235 of which are funded through the National Skills Fund as a part of the SOEs programme of Optimising their training facilities; 623 are engineering trainees; 252 technician trainees and 956 trainees in sector specific training programmes.
• A total of 387 students have been supported with bursaries in the 2021/22 FY.
• Over and above these, a total of 334 completions were recorded for the financial year under review, with 107 placements into permanent positions.

 

Empowering Designated Groups

To illustrate, between 2019 and 2021, ESKOM, Transnet and SAFCOL have supported designated groups:

• R185,72 billion was expended on Black Owned (BO) businesses,
• R78,07 billion on Black Women Owned (BWO),
• R13,69 billion on Black Youth Owned (BYO) companies, and
• R0,91 billion spent on companies owned by people with disabilities. Furthermore, the concept of Gender Responsive Planning, Budgeting, Monitoring, Evaluation and Auditing (GRPBMEA) will be introduced.

 

Localisation

The Department has compacted all its SOEs to procure a minimum of 70% of their goods and services from local manufactures to assist with job creation, re- industrialisation of the economy and support the growth of manufacturing and other productive sectors of the economy.

 

PART C: 2022/ 23 – PROGRAMME OVERVIEW

Chairperson,

The Department has been allocated a budget of R23.9 billion in 2022/23 financial year. Of these funds, payments for financial assets account for 98.2 per cent (R23.6 billion) of the total expenditure over the period ahead. These include additional amounts of R21.9 billion for Eskom and R1.7 billion for South African Airways in 2022/23 financial year.

Compensation of employees is the department’s largest expenditure item, increasing at an average annual rate of 5.8 per cent, from R159 million in 2021/22 to R188.1 million in 2024.25. To ensure that this remains within the expenditure ceiling for compensation of employees over the medium term only critical posts will be filled.

 

PART D: CONCLUSION

In conclusion, I wish to emphasise that rebuilding a broken institution takes time, courage, bold leadership and single-minded determination. Reinventing strategy in the process of rebuilding requires a clear vision, a recognition of market and community volatility, new technology developments, awareness of the competitive environment and astute change management strategies.

The institutions we work with are vital to the recovery and reconstruction of our economy, as well as the wellbeing of millions of our people.

This must be a united national effort which advances the good and defends against the vile and corrupt intent of counterrevolutionaries and criminals.

We must extend our support to the leadership of SOEs, the tens of thousands of honest staff and the members of the boards who provide a national service in many instances.

I invite all of us, regardless of affiliation to join in this national effort. Surely, most of us want to rid SA of corruption wherever it might be; surely, we want to rid SA of inequality and poverty. Surely all of us want to create hope, jobs and skills for our youth and future generations?

I want to express my gratitude to the Deputy Minister, my chief of staff, and staff in the ministry for their support.

I also want to thank the Director General Mr Tlakhudi and the officials in the Department for their efforts during these difficult times.

The Boards and the CEOs of the SOEs should also be commended for their leadership that has been executed with integrity to guide our SOEs during these difficult times.

Finally, let me remind you of the words of President Ramaphosa in the SONA 2022 when he said we have faced many crises in our past, and overcome them in trying times, showing courage and resilience.

I quote:

“Now, we must do so again.

Let us forge a new consensus to confront a new reality, a consensus that unites us behind our shared determination to reform our economy and rebuild our institutions.

Let us get to work.

Let us rebuild our country.

And let us leave no one behind.”

 

__________________________________________________________________________________________________________________________

 

Deputy Minister Phumulo Masualle: Public Enterprises Dept Budget Vote 2022/23

20 May 2022

Budget Vote Speech 2022 Speech by Deputy Minister Phumulo Masualle, MP

Honorable Chairperson
Honorable Ministers and Deputy Ministers
Chairperson of the Portfolio Committee Honorable Members
The Acting Director-General of the Department
Chairpersons and Board Members of State-Owned Companies
Chief Executive officers and Senior Managers of State-Owned Companies
Ladies and gentlemen
Good Morning

Honourable Chairperson, I’m greatly humbled at the opportunity I have been afforded to participate in this debate on the budget vote of our department. Addressing the fourth session of this  democratic parliament, President Mandela had this to say, “ A new year is upon us, once more 
affording us the opportunity to account in a comprehensive manner to the citizens on the awesome  responsibilities they have mandated us to fulfill.

All of us, in  the  executive  and  legislatures,  the  majority  party  and  Members  in  the  opposition  benches,  are  called  upon  to  outline  practical  programmes  to  improve  the  nation's quality of life”

It is common cause that as a country we are emerging from more than two years of a state  of  disaster  occasioned  by  the  global  pandemic  of  Corona  Virus  with  resultant negative economic impacts. As though this wasn’t enough we are also emerging from the debilitating effects of the phenomenon of state capture as reported extensively by the Commission headed by then Deputy Chief Justice Raymond Zondo.

It is precisely against this backdrop that our President charged us with  a mandate  to stabilize and restructure these SOEs so that they can play a critical role in the implementation of the country’s Economic Reconstruction and Recovery Plan.

Chairperson in the recent history of our country never before has the role of state-owned  enterprises enjoyed as much attention and created such strident debate and rightly so. As  custodians of these State Owned Entities it is in ours and the country’s best interest that  we ensure  that  they  are  financially  sustainable  and  deliver  on  their  mandates efficiently and become pillars of our economic recovery.

It is exactly in the midst of this debate that we present our budget vote to this august house today. The tabling of budget vote also presents an opportunity for us to come and account to members of Parliament and reflect on our achievements and also indicate where it is that we are headed.

The Budget delivered before this House today is modest, but it provides the tools with which government as a shareholder ensures that the State Owned Enterprises deliver to their public mandate.  However,  in  this  context,  I  wish  to  provide  some  highlights  as follows:

Denel
DENEL is a strategic national security asset and Government is committed to finding a viable solution that recognizes this imperative and the need for self-sustainability. The recent seismic shifts and consolidation of geopolitical dynamics and regional threats of terrorisms underscore the 
strategic importance of Denel.

Denel’s business model
Denel continues to experience significant liquidity challenges. Long overdue payments to creditors and suppliers meant the supply chain was no longer fully available to support the operations.

Denel’s   business   model   as   a   system   integrator,   depends   significantly   on   local manufacturers  to  supply  critical  components  and  subsystems.  The disruption of  this delicate relationship with suppliers has become one of the binding constraints regarding Denel’s operations.

Furthermore, the non-payment of salaries has also had an adverse impact on morale and a significant  number  of  critical  skills  left  the  company.  This  has  further  affected operational performance and delivery of contractual milestones which affected potential cash flow required to support operations.

As we speak, a business case has been developed and it is now awaiting the perusal of both Ministers of Finance and Defence en route to Cabinet for final decision.

Financial Performance
In addition, the Department has taken several steps to assist the SOC.

1.The National Treasury has approved an allocation to settle the R3.4 billion guaranteed debt which was costing Denel more than R200 million in interest payment per annum.

2.The Department has engaged the Department of Defence and ARMSCOR on funding critical capabilities that Denel is managing on behalf of the Department of Defence.

3.The Department gave its full support for Denel to discontinue the Denel Medical Benefit Trust which estimated that it would generate no less than R750 million as a portion to flow to Denel. The funds are expected to flow within the first half of this financial year.

4.The Department is assisting Denel in firming up its business case which will form the basis for asking  further  financial  support.  The  process  involves  identifying  immediate work opportunities which can be targeted to generate the required cash flow to support
operations.

5.The Department is also assisting Denel to finalize its restructuring plans which will form the basis of repositioning the SOC.

The Department is concerned about the human costs that the non-payment of salaries is having on the employees and their dependents and together with Denel, we are doing everything humanly possible to correct this state of affairs.

Government  is determined  to  stabilize the  entity  and to restore it as  trusted supplier, partner and employer.

ALEXKOR

Chairperson

The state diamond miner, Alexkor has gone through its own challenges over the years.

After changing the Board and putting in new management, we are beginning to see the positive results within the entity.

Alexkor’s successes

The focus for the year was to:

Undertake  cost  cutting  initiatives  in  pursuit  of  preserving  the  remaining  cash reserves against the bleak future.

Consolidate the head office and Alexander Bay operations to remove some of the duplicate functions.

The result is that:

While the cost cutting initiatives included a significant loss of jobs, the process assisted in preservation of otherwise restricted cash reserves.

The two entities have provisionally consolidated the function of the CEO, with the Alexkor CEO taking over the role of joint venture CEO.

Alexkor Priorities

The focus for the current year:

Revitalising  the  joint  venture  diamond  operations  –  This  will  include  consideration  of  various funding models for the expansion of the diamond mining operations. Despite the diamond sector facing depletion of high value  deposits,  the  diamonds  from  the  joint venture remain globally sought after due to their gem quality properties.

Strengthening  executive  management  team  –  Both  head  office  operations  and  joint venture operations faced challenges of high turnover of top executive management over the past two years.  The focus is to capacitate both entities with appropriately skilled and competent executive 
management team to effectively lead the operations.

Government will soon make an announcement in determining the future role of Alexkor in the context of Repurposing of SOEs.

Chairperson

The South African forestry company (SAFCOL) is one of the SOEs that have given us least challenges. The Board and management  in  place  are  implementing  a  new innovation and growth strategy that is bearing fruits.

SAFCOL’s Innovation & growth strategy

SAFCOL’s strategy aligns with the objectives of the Forestry Masterplan; which includes encouraging sector growth, investment, job creation, and competitiveness.

SAFCOL continues to engage the banking sector on the topic of Green Bonds and Green Loans  for energy  efficient  projects.  The  Combined  Heat  and  Power  (CHP)  strategic project has garnered interest.

SAFCOL’s  strategy  seeks  to  realize  a  50:50  revenue  split  between  logs  sales  and processed  products.  The  Timbadola  Sawmill  is  key  to  achieving  this  objective.  An approach to upgrade the facility with a sound business case was approved by EXCO. Funding  institutions  are  being  engaged  for  this  project.  Implementation  of  additional processing capacity via mobile sawmills is underway.

Diversification of SAFCOL’s product portfolio will be achieved by strategic partnerships with the private sector to implement projects such as the Combined Heat and Power, Eco-Tourism,  and  Pole Treatment.  These  projects  are  being  discussed  with  National Treasury via their GTAC unit.

• SAFCOL aims to contribute to climate change sustainability goals by partnering with entities that own plantations to grow more trees, thereby counteracting the effects of  global  warming.  Increasing  the  size  of  SAFCOL’s  biological  asset  through horizontal   integration   and   expanding   SAFCOL’s   service   offerings   in   the downstream   through   internal processing   underpins   SAFCOL’s   growth   and sustainability strategy.
• The focus is only on the smaller DFFE plantations in Mpumalanga due to the risks associated  with  these  plantations  not  being  properly  managed.  To  this  end,  the socioeconomic benefits of recommissioning   the DFFE plantations in  the Mpumalanga Province is being explored.
   

Financial Stabilisation

• The company continues to maintain costs and grow revenue at a sustainable level.
• A healthy cash balance that exceeds targets is being maintained.
• Revenue growth for the period is projected to be over 30%.
• The company’s strong financial position was recognized recently when the group securing two offerings for asset-backed financing (ABF) for the mechanization project valued at R116m.
• The offer approved by the Board was at an attractive rate of prime + 0.5% which is lower than any other existing ABF on the balance sheet.

We want to be modest with the good financial and operational position of the SAFCOL, as one of the SOEs that have really turned the corner and encourage the Board and Management to continue implementing their strategy for the benefit of the forestry sector.

Chairperson

South African Express

South African Express Airways (“SA Express”) was placed under provisional liquidation since 28 April 2020 by virtue of an order of the South Gauteng High Court. To date, the liquidators, have managed to dispose of the tangible assets raising an amount of R24 748 700.

Following the latter process, the selling of intangible assets is currently under way. On or about March 2022, the liquidators had initiated the third round for the sale of these assets, with the first two rounds having failed to secure buyers who could provide the necessary proof of funding or 
making sustainable offers that were reflective of the fair value of the intangible assets. With the appreciation of complexities associated with this process, the Department has raised and continue to raise its concerns with liquidators.  However, we remain cognizant of the need to secure the 
best deal for the affected parties, including without limitation, the SA Express employees and the State in this provisional liquidation.

The  Department  will  continue  to  work  with the  provisional  liquidators  and  provide  its guidance and support in the sale process of the business. The provisional liquidation is due to return to court for final hearing on 04 July 2022 and the liquidators have intimated that they will 
not seek an extension in this regard.

• On  the  issue  of  the  employees,  they  enjoy  a  special  preference  in  terms  of  the Insolvency Act, 24 of 1936 as well as the Companies Act, 61 of 1973 (partly repealed Act), but will only be paid after the secured creditor’s claims have been proven and settled. We remain hopeful that the process of sale will yield a positive result and that there will be sufficient funds to allow for paying of a dividend to the employees.
   

Despite  the  devastating  effects  of  state  capture  and  corruption  on  our  SOEs,  the Department is turning the corner in restructuring and repurposing these SOEs to ensure they deliver on their developmental mandate.

I urge all of you to support the DPE Budget

I thank you