Minister of Economic Development on infrastructure investment

NCOP Economic and Business Development

27 May 2013
Chairperson: Mr F Adams (Western Cape, ANC)
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Meeting Summary

The Minister of Economic Development addressed the Committee on the Medium Term Expenditure Framework (MTEF) allocations to infrastructure, highlighting the relevance of the Presidential Infrastructure Coordinating Commission and its processes.

The MTEF allocations to infrastructure showed that a total of R11.2 billion had been allocated to national departments for the 2013/14 period, while the provincial departments and local government would be spending more, with allocations of R46.2 billion and 46.9 billion respectively.  State-owned companies had been allocated R129.8 billion, with Transnet receiving R37 billion and Eskom R72.1 billion.  Overall, the state of spending by provinces was on an upward trend.  It was anticipated that by March 2014, the current administration would have spent R1 trillion on infrastructure, an amount that would be double that spent by the last administration.  Underspending by provinces, municipalities and state-owned companies was regularly monitored to ensure that the rate and quality of infrastructure expenditure improved.

The Minister said that the Presidential Infrastructure Coordinating Commission would continue making infrastructure a top priority, focussing on supporting industrialisation, integrated planning, skills mapping and job creation. It would also improve the capacity of government to implement and monitor infrastructure, in addition to supporting the government’s policies on youth employment, local procurement, regional integration and greening the economy through the infrastructure plan.

The Committee raised questions on the Medupi and Kusile power projects, the Infrastructure Development Bill and the powers given to the Minister, gas pipelines, development agencies and the road maintenance budget, special economic zones, the turnaround time for public private partnerships, the interaction between provinces and municipalities and its effect on projects, exploitation of other forms of energy, prospecting on the west coast by private companies, the status of the Mthombo project, and the impact which the “confrontational” activity of unions had on investor confidence
 

Meeting report

The Chairperson welcomed the Minister and the Director-General, and tendered apologies from Ms B Abrahams (DA, Gauteng) and Mr D Gamede (ANC, KwaZulu-Natal), who was attending a conference in Brussels.

Mr Ebrahim Patel, Minister of Economic Development, said he was pleased to attend the meeting at the invitation of the Committee, as it was an opportunity to share some of his Department’s plans.

Briefing by the Minister of Economic Development
PIC Process
The Minister said that the Presidential Infrastructure Coordinating Commission (PICC), which was chaired by the President (in his absence the Commission would be chaired by the Deputy President), was set up by Cabinet to resolve infrastructure challenges through the improvement of both physical infrastructure and human resources. It would also ensure that each billion rand spent had to have the maximum impact on development.

The 18 Strategic Integrated Projects (SIPs) included more than 200 construction projects across the country. The projects were selected from state-owned companies (SOCs) and the private sector, based on their catalytic effect of unlocking economic development and giving effect to government policy which, among others, included job creation, greening the economy, and regional integration.

The national, provincial, and municipal departments, SOCs and the private sector remained fully responsible for the projects and their governance, while the PICC was responsible for facilitating, integrating, coordinating and alignment.  The Economic Development Department (EDD) took responsibility for the technical work, supporting the PICC secretariat through monitoring, reporting, unblocking issues, tracking and giving effect to decisions taken by the PICC, among other responsibilities.

EDD Budget to support PICC and MTEF allocations to infrastructure
The Minister said that an overall amount of R15.178 million had been approved for reprioritisation by the PICC. This had been split into R4.779 million for 2013/14, R5.082 million in 2014/15 and R5.316 million in 2015/16.  The R4.779 million for the 2013/14 was a modest amount, considering that some had expected this to be in billions of rand.

The MTEF allocations to infrastructure showed that a total of R11.2 billion had been allocated to national departments for the 2013/14 period, while the provincial departments and local government would be spending more, with allocations of R46.2 billion and 46.9 billion respectively.  State-owned companies had been allocated R129.8 billion, with Transnet receiving R37 billion and Eskom R72.1 billion.

The assessment of infrastructure spending per province, as monitored by the PICC, revealed that by the end of September 2012, the Eastern Cape had underspent by 37%, but the taking of remedial measures had seen this drop to 25%.   By the end of September 2012, KZN had underspent by 10% and with the right measures and commitment to improve, the end of December 2012 had seen an improvement to a 2% overspend.  Overall, the state of spending by provinces was on an upward trend. Although the EDD had had to deal with court issues, with decisions of the Minister being challenged and thereby creating delays, PICC was working to ensure that there was increased spending of the allocations on infrastructure, and that the spending was in areas where it was most needed.

PIC objectives and performance
Addressing the Committee on the objectives of PICC, the Minister said that by increasing the rate of expenditure on infrastructure across the three spheres of government and the SOCs, it was anticipated that by March 2014, the current administration would have spent R1 trillion on infrastructure, an amount that would be double that spent by the last administration.  Underspending by provinces, municipalities and SOCs was regularly monitored to ensure that the rate and quality of infrastructure expenditure improved.

In achieving its objective of redirecting savings from efficiencies and reprioritisations into infrastructure projects, the National Treasury had, at the request of the PICC, redirected an additional R19 billion to infrastructure projects over the current MTEF period. In containing costs and improving efficiencies, the PICC was looking to support standardised designs, as a difference in designs created additional costs.   An example was the involvement of the Council for Scientific and Industrial Research (CSIR) in the building of schools, assessing alternative building technical/methodologies and policy framework.

The Minister said that to eliminate corruption, the PICC would increase monitoring and strengthen its social accord by entering into integrity pacts with the private sector. The PICC would also increase oversight and monitoring of delivery through quarterly updates on construction projects to Cabinet, and would unblock issues and accelerate projects in development.

The PICC’s objective of integrating projects to support economies of scale, industrialisation, skills development, job creation and timely alignment of services to projects would be achieved through programmes such as the Solar Water Heating (SWH) and Integrated National Electrification Programme (INEP), and dealing with distribution backlogs.  The Industrial Development Corporation (IDC) was supporting the PICC with the localisation project unit to support industrialisation, while the Department of Higher Education and Training was supporting the PICC in developing a long-term skills plan.  The PICC would also monitor jobs on all projects, and review and monitor access to services on projects such as water and electricity.

The PICC was exploring funding mechanisms that reflected a better sharing of risk between the private and public sectors, in order to attract funding from pension funds. In collaboration with the National Treasury and the Association for Savings and Investment South Africa (ASISA), it was assessing which projects could be packaged to get access to long-term favourable bond funding.

Way forward
The Minister said that the PICC would continue making infrastructure a top priority, focussing on supporting industrialisation, integrated planning, skills mapping and job creation. It would also improve the capacity of government to implement and monitor infrastructure, in addition to supporting the government’s policies on youth employment, local procurement, regional integration and greening the economy through the infrastructure plan.  The PICC would use the infrastructure plan to tangibly improve the lives of the citizens of the country.

Discussion
Ms E van Lingen (DA, Eastern Cape) thanked the Minister for the presentation. She pointed out that the Medupi and Kusile power stations were still behind schedule. The new Infrastructure Development Bill gave the Minister too much power.  There was a fear that there would be a neglect of the environment.  She added that there was no provision for punishment for non-performance.

Ms Van Lingen said that the CSIR’s involvement in building schools, and the skills analysis for each project, was a good move.  However, she pointed out that the Cacadu district was not receiving money for water. There was also a concern about the gas pipelines. The development agencies were taking too much of the road maintenance budget – was there another formula to curb this?
 
Mr K Sinclair (COPE, Northern Cape) asked for the Minister’s view on special economic zones, as it related to infrastructure. The turnaround time on Public Private Partnerships was quite long, with some taking ten years, which was a concern.  Districts and local municipalities were hampering most of the infrastructure projects due to a number of issues, some of which were political.  He was concerned about the interaction between the provinces and the municipalities.

Mr Sinclair said that there was need to admit that South Africa did not have all the skills and capacity it needed, and that some needed to be imported.  In terms of investor confidence from the private sector, he wanted to know how many foreign direct investment projects were coming to South Africa. There was a need to stabilise the labour force in South Africa if investor confidence was to be boosted.

Mr B Mnguni (ANC, Free State) said that although not related to the presentation, what plans were in place within the current MTEF for the exploitation of other forms of energy?  What had been the response of the private sector to the building of refineries for liquid fuels, or the upgrading of the existing refineries?

Turning to the hydrocarbon sector, he asked as to how many South African companies, besides PetroSA, were involved in prospecting on the West Coast. What was the status of the Mthombo  refinery project?  He asked for the short-term plan on skills development for the implementation of the infrastructure plan. What was being done to unlock some of the funds within the Department?

The Minister responded that there were about 15 000 workers at Medupi Power Station and that managing human resource issues was a challenging task. The bulk of the workers would have to be absorbed in small businesses after 2017 when the project was expected to be completed. He added that there was tight project management and that there had been no major challenges at Medupi.

Regarding skills development, he said that it was important to get it right. South Africa was a major exporter of skills to major infrastructure projects in places like Dubai and other parts of the world, because these places paid well. In the past, South Africa had not had a coordinated infrastructure plan, and that was why the PICC had been formed to develop a 20 to 30-year vision.

There was no denying that there were areas where skills were lacking, and the new build programme required high-level skills. The way forward was to improve maths and science teaching in schools and numeracy training, for which there needed to be sufficient maths and science teachers. There were incentives in place to increase the uptake in critical areas such as engineers, artisans, technicians and technologists.  The EDD was also working to see that there were training targets set, and no obstacles to skilled immigration - the Department of Home Affairs was doing well in this area, especially where a skill was connected to infrastructure development.  Cabinet would support a programme of skills transfer. There was need to plan ahead by bringing in skills that were scarce and these would be tied to skills transfer. At times there had been poor management of skills. Productivity required accountability and that there had to be consequences for non-performance. This would be partly achieved through local skills training.

Responding to the question on the powers given to the Minister under the new Infrastructure Development Bill, the Minister said that he would speak to the issues raised when the Bill was presented in Parliament. The Bill was well balanced, and as the sustainability of the New Build Programme was tied to the environment, the regulations had to be adhered to.

The Minister said the EDD was working on addressing the area of sanctions for non-performance, and that decisions had to be made expeditiously.

Regarding water in the Cacadu district, the Minister said that in the Eastern Cape, increasing the volume of dammed water was a challenge. With regard to the Mthombo Project, there was a challenge of desalination.  Options were being considered on the availability of a desalination unit at a cost that was manageable for the production of more water.

The Minister said that the Department was taking special economic zones into account, but that it could not predict which areas would be designated as special economic zones. For example, the OR Tambo area was being considered for designation.  

There was on-going discussion on the expansion of the refinery, or the potential for upgrading. The Mthombo project was currently in the business plan stage.  It was going through a feasibility plan which involved aspects like the cost of funding and the number of barrels per day.  He added that the Mthombo project was not to be looked at strictly in the sense of refining, but rather the bigger picture which included the development of the Eastern Cape Province.

The issue of PPPs was a challenge, but the EDD wanted the private sector to be involved on fair and equitable terms. PPP models in other countries were being considered to see how they operated. The independent power producers were an example of PPPs and they were active in the Northern Cape and Eastern Cape provinces.

On the interaction of provinces with municipalities, the Minister said that the role of the EDD was to form partnerships with district municipalities, adding that there were capacity problems in the district municipalities. 

With regard to investor confidence, the Minister said that there was exaggeration of the issue, and informed the Committee that South Africa had been ranked highly in terms of investor confidence. He gave the example of the Kusile project that employed 1 200 workers, with 3 000 workers that were expected to be employed over the next three years. He also referred to the Grand Inga River project, which would help in the provision of clean and cheap energy (pronouncements on this project could not be made as other countries were also involved).

The Minister said that the details of the exploration (prospecting) on the western coast would be sent through to the Committee. Speaking on the unlocking of funds, he said that some resources were available; adding that the private sector through entities like the Association for Investment and Savings South Africa (ASISA) could help to co-support infrastructure development.

Mr Mnguni asked for the Minister’s input on non-performance relation to the confrontational activity of the unions in South Africa, to extent that entities were cautious about making commitments.

The Minister replied that by and large, industries were performing well in the infrastructure sector. 150 000 people had been employed in projects monitored by the PICC.  However, any disruption could have a big effect on these projects. There was a need for discussions between the Government, private sector and trade unions in order to get commitments to avoid disruptions. Workers’ issues had to be addressed to give them the comfort that they would be able to provide for their families.

Ms Van Lingen said that investment by the EDD in junior schools to improve numeracy and literacy was a good move. She asked when the Mthombo cost results would be available.  What was being done on the Medupi project?

The Minister said that there an on-going dialogue on the Medupi construction.  More than 7 000 jobs had been created, with 15 000 direct jobs on site, and there was a multiple impact on the ground. The provinces of Limpopo and Mpumalanga had had a high growth rate in 2012 because of the Medupi project. The high production of energy would ensure energy security and also encourage investment. 

Mr Sinclair said that criticisms directed towards the Government were a way of motivating it by showing what could be corrected. He added that the current administration was neglecting agriculture and tourism.

The Minister said that this was a point to put across to the Minister of Agriculture, Forestry and Fisheries.  However, the IDC had set aside funds for agro processing.  A soya crushing plant in Mpumalanga would create jobs -- there was on-going work with a foreign investor.  Agricultural employment had been declining since 1970s, but in the last 12 months it had increased. Mining remained an important generator of foreign exchange.

The meeting was adjourned.
 

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