Department of Public Enterprises on its 2014 Strategic Plan

NCOP Public Enterprises and Communication

09 July 2014
Chairperson: Ms E Prins (ANC)
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Meeting Summary

The Department of Public Enterprises (DPE) through the Minister was the shareholder representative for government, with oversight responsibility for eight State Owned Companies (SOC), namely Eskom, Denel, SAFCOL, Broadband Infraco, Alexkor, Transnet, South African Airways (SAA), and South African Express Airways (SAX).

The DPE presented its Strategic Plan against the background of a shrinking economy, implying that the DPE has to improve its delivery with fewer resources. Its budget for 2013/14 was R272 468 million and its budget for 2014/15 was R259 800 million. Important points which came out of the presentation was that SAA was struggling to make a profit and the situation had to be addressed, the SOCs needed to be leveraged to accelerate the rate of industrialisation of the SA economy, the SOCs had to maximise local procurement, a new model needed to be developed to address land claims as it impacted on SAFCOL, the energy crisis as it unfolded and the role of Eskom and its two new power plants, Medupi and Kusile, in it.

An important challenge to the DPE was retaining critical skills, and its implications for making use of consultants. On the positive side, it had a vacancy rate of only 1.8%.

Members asked for a breakdown per province, of the projects the different SOCs were involved in, as well as its economic impact on the respective provinces. Members also asked whether DPE had enough budget to fulfil its mandate, whether it struggled to attract and retain the specialised business and financial skills it needed, and how this impacted on its need for, and spending on, consultants. Members asked whether the many international airlines which operated in SA did not impact negatively on SAA’s ability to turn a profit, and whether SA’s ‘Open Skies’ policy was not in need of revision. Members also asked whether the Medupi power station, when it started operations would not allow some of Eskom’s older power plants to retire in order to shrink Eskom’s carbon footprint, and how Eskom was involving small electricity generating business like solar- and wind farms to alleviate the energy shortages in small towns and rural villages which were not connected to the grid.

Meeting report

Mr Tshediso Matona, DPE Director General, presented. The department was required by legislation to develop a Strategic Plan that outlined the objectives to be pursued by the department over the Medium Term Strategic Framework (MTSF) period. The strategy development process was informed by the following principles: Coordination and coherence with government overarching policy frameworks, identifying clear outcomes, delivering in the constrained economic environment and focusing on cross-cutting outcomes within the department and government. The strategy had been presented to the Executive Authority and extensively discussed with senior management. The focus was now on implementation through the Annual Performance Plan (APP)

The mandate of the department was to ensure that the SOCs within its portfolio were directed to serve government’s strategic objectives as outlined in the National Development Plan and further articulated in the New Growth Path (NGP) and the Industrial Policy Action Plan (IPAP).

The DPE oversaw three programmes:
▪ Programme 1 (Administration) which provides strategic management, corporate management and administrative support, which enables the Department to meet its strategic objectives
▪ Programme 2 (Legal and Governance)  which provides legal services and corporate governance systems, and facilitates the implementation of all legal aspects
▪ Programme 3 has five sub-programmes which were where the SOCs were located. The programmes were: Energy and Broadband Enterprises, Manufacturing Enterprises, Strategic Partnerships, Economic Impact and Policy Alignment and Transport Enterprises.

The South African economy remained constrained and growth over the past five years had been low. The government has developed a suite of policy interventions targeted to accelerate growth. The Strategic Plan is informed by this overarching objective as outlined in the National Development Plan (NDP), Medium Term Strategic Framework (MTSF) of the new administration, New Growth Path (NGP), National Infrastructure Plan (SIPs) and the Industrial Policy Action Plan (IPAP).

The strategic objectives of the DPE were to review the shareholder oversight to ensure alignment of SOC to developmental outcomes, promote good corporate governance, build internal capacity to enhance the department’s ability to execute its strategic plan, stabilise our SOCs, looking at strengthening of balance sheets and funding options, drive economic infrastructure investment to enhance the capacity of the economy with emphasis on the Strategic Integrated Projects, and leverage SOC procurement spend to support industrialisation and transformation.

Strategic Objectives
Under Objective 1, which was to review the shareholder oversight to ensure alignment of SOC to development outcomes, the important issues were strengthening of legislation and modernisation of the oversight function.

Under Objective 2, which was to promote good governance, the important issues were to improve the level of compliance within the Department and its SOCs to Public Finance Management Act (PFMA) provisions and aligning SOC plans with provincial economic development strategies.

Under Objective 4, which was to stabilise SOCs, looking at strengthening of the balance sheets and funding options, the important issues were the need to assist SOCs to mobilize additional funding from outside the state, the need to ensure commercial and financial sustainability of the state-owned airlines SAA, as well as the Alexkor diamond mine at Alexander Bay, and reviewing the land claims model as it applied to SAFCOL.

Under Objective 5, which was to drive economic infrastructure investment to enhance the capacity of the economy with emphasis on the Strategic Integrated Projects (SIPs), the important issues were to monitor delivery of the build programme focusing on key projects outlined in the MTSF, as well as implementation of the Africa Strategy, which coordinates investment activities of SOCs into the continent, promoting regional development.

Under Objective 6, which was to leverage SOC procurement spend to support industrialisation and transformation, the important issues were the establishment of a maintenance, repair and operations (MRO ) hub for the airlines industry and the need to establish downstream enterprises in partnership with SAFCOL.

Also under Objective 6 were the need to review procurement rules to aggressively implement the Competitiveness Supplier Development Program (CSDP), to maximise the spending on domestic products and services and support the development of industrial capabilities. The DPE also had to develop a tool to measure SOC contribution to economic growth and job creation.

Budget Overview
The Department's budget had decreased from R1.4 billion for the 2012/13 Financial Year (FY) to R259 million for 2014/15. However it continues to increase by 9.9% to 2016/17. The decrease from R1.4 billion was the result of transfers to the SOCs.

Over the medium term, compensation of employees was expected to increase from R149.6 million in 2014/15 to R169.9 million in 2016/17 as a result of the expansion of the establishment over this period.

Goods and services including payments for capital assets is expected to increase from R110 million in 2014/15 to R115.7 million in 2016/17 to support the expanded establishment.

Human Resources Situation
The DPE staff complement increased from 168 in 2009 to 210 in the 2012/13 FY and would increase to 227 over the MTEF period. The Department had also succeeded in reducing its vacancy rate from 11.9% in March 2013 to 1.8%. The Department however still faced challenges in the retention of specialists skills.

Mr O Sefako (ANC, North West) welcomed the presentation and expressed concern with the possibility that the large number of international airlines operating in SA posed a threat to the profitability and sustainability of SAA and asked how the Committee could best intervene to create a more favourable situation.

The DG replied that in terms of the ‘Open Skies’ policy, the government had bilateral air services agreements with a number of countries and airlines. In terms of these agreements these airlines had access to the South African market, but there has been no consideration of the economy-wide impact of these agreements. One needed to consider what impact it had on SAA as well as smaller airlines. The Committee should ask the Department of Transport for information in this regard.

SA decided to open up the skies in the build-up to the 2010 FIFA Soccer World Cup Tournament. After the tournament the large numbers of people stopped coming, but the access remained. Currently, SAA was struggling to make a profit. Its profitability is negatively influenced by other factors as well, such as high jet fuel prices and exchange rates.

Mr Sefako asked whether some of the older coal power stations would be able to retire when the new Medupi power station started operations.

Eskom representative, Mr. Simphiwe Makhathin, Deputy Director General: Energy and Broadband replied that initially the Medupi Power station would add generation capacity, but older power stations would only be able to retire in the long run. There was a long term plan, led by the Department of Energy, the Integrated Resource Plan, which would determine the electricity generation capacity for the next 20 years. It would look at the new technologies and try to balance the competing objectives around infrastructure development, like affordability, environmental health, emissions etc. The plan was under review and would be finalised by the end of the FY. The new plants would include plants working with renewable and nuclear energy.

Mr A Nyambi (ANC, Mpumalanga) welcomed the presentation, remarking that it responded to the priorities the President set out in the State of the Nation Address (SONA). He asked in what phase the Government Shareholder Management (GSM) Bill was currently.

The DG replied that the GSM Bill was an attempt by the department to close the legislative gap. The department developed it, consulted around it and benchmarked it internationally. For its time, it was the best possible endeavour to deal with state ownership. It was worth the effort if it was clear that the state would continue to exercise ownership over companies. If the state intended not to own companies in the future, it would not be worth it. This was at the heart of the Presidential Review Committee (PRC) Report, because the Report was premised on the fact that the state would continue to maintain ownership, but it wanted to rationalise. It wanted to create a much clearer framework and guidelines on how these companies had to be funded, monitored and governed. The PRC Report stated that the Department of Public Enterprises was correct to develop the legislation. The legislation did not go through, because at the same time, National Treasury was reviewing the PFMA and the Department of Trade and Industry (which he was working for at the time) had to review the Companies Act. Within these three Acts there was a common engagement with SOCs. Cabinet then said that one could not have three pieces of legislation. It instructed the departments to go back and harmonise and rationalise. This process did not materialise. Eventually National Treasury abandoned the effort. When the department eventually wanted to restart the process, it was advised to wait for the PRC review. The PRC had concluded and supported the initiative. This is why the department had put it on its programme agenda. The department hoped that the revisiting of the legislation would start within the current FY.

Mr Nyambi said the Auditor-General’s report for the 2012/13 FY stated that the department did not adhere to the SMART (Specific, Measurable, Attainable, Relevant, Time-bound) principle for its performance indicators. How did the department intend to deal with this situation for the current financial year?

The DG replied that the AG made some findings against the department, but he had to explain the context of those findings. Until recently the AG only audited financial information, but for the last five years, the AG warned departments that he was going to start auditing for performance, which it did during the last auditing cycle. The issues were of a technical nature for example, the strategic plan stated that the department had to produce an approved share holder compact. The performance indicator for it would be a compact signed by the minister. The department would do all the work, the DG would sign it off and hand it over to the minister, but the DG had no control over when the minister would sign the compact. In the meantime the AG arrived and found that no compact was approved and signed by the minister. This item was then reported as not achieved, while the department did all it had to do, but it could not make or force the minister to sign the document. This finding of the AG he wanted to locate within this context.

The department would have to look at how it phrased targets and objectives. The department could only take responsibility for what it was directly responsible for and not for duties which had to be executed by another department. The department was learning how to navigate this area.

Mr J Parkies (ANC, Free State) said the DG spoke about the performance audit and said the department could not be held responsible for something it could not do. It did not allow the department to escape the performance audit. He supposed that this was not what the DG meant.

The DG replied that the department had to defend its performance and disputed the finding of the AG. The AG found that the department performed at 32%. It was about the availability of documentation in terms of how the department said it would be monitored. Through engaging with the AG, it was pushed up to 68%, which was still below the required 80%. It was still a low point, because the department had the impressive track record of eight consecutive clean audits without any emphasis of matter. When the DG arrived, the department had a track record of clean audits and he made sure that he continued in the same vein. He made sure that all the controls were in place to keep matters on track. For the last FY the percentage was back at 80%.

The Chairperson said the presentation referred to the retention of critical skills as one of the department’s challenges.

Ms Yolisa Makhasi, DPE Chief Operations Officer (COO), replied that the department dealt with people with highly specialised skills. SOCs paid better than the DPE, because the DPE was a government department. The SOCs could recruit DDGs, who earned just more than R1 million per year and offer them R2 million per year. The department could not compete with the private sector on the basis of salary, but it offered a package which contained other perks which made it worthwhile for candidates. In this way the department was able to retain the skills it needed.

Mr Nyambi noted that the department had a vacancy rate of less than 2%, which was encouraging, but that a significant amount was still earmarked for the use of consultants. He asked the department to explain.

Mr Parkies asked whether there was convergence on the usage of consultants versus the inability of the department to retain specialised skills.

The DG replied that the issue of consultants was a very sensitive one. The department had to do it right and scientifically. It only used consultants when it needed professional expertise.

Ms Makhasi replied that from FY 12/13 to 13/14 there had been a significant reduction in spending on consultants. This was a professional services department and it was impossible to have all professional competencies in-house. This meant that the department would have to make use of consultants from time to time, but as the DG indicated, he was monitoring spend on consultants closely and making sure that certain thresholds were not overstepped.

Mr Parkies said the COO contradicted what the DG said about consultants. The DG said the use of consultants would be a once-off affair, while the COO said the department would always use consultants. Could the issue be clarified?

The DG replied that there was no contradiction between what he and the COO said. She said that, institutionally, the department would always use consultants. There were no contradictions. The department would always buy specialised services from consultants, but it did not mean that the department would be tied up with consultants for all time. Consultants would be hired in to do a specific job, but would not become permanent fixtures within the department to do routine jobs.

Mr Nyambi asked, in the light of this being a Select Committee in the National Counicl of Provinces (NCOP), whether the department could in future provide a breakdown of the projects the different SOCs were doing in the different provinces. This was important for intergovernmental relations, as the Select Committee could engage, assist and make recommendations.

Mr Parkies asked which projects were being undertaken in which provinces and what their economic impacts were.

Ms C Labuschagne (DA, Western Cape), asked whether the department could provide a breakdown of the economic impact of each SOC on each province.

The DG replied that the information was available and could be provided.

Mr M Rayi (ANC, Eastern Cape) asked whether there were any monitoring mechanisms in place to monitor the progress made by the ‘Buy Local’ campaign. It also had to be spread across the provinces.

The DG replied that the department monitored it using a process called Competitive Suppliers. It looked at which new suppliers were used, which products they offered and how many additional jobs were added by using a particular supplier. The department wanted to do this on a bigger scale, which would lead to a collaboration with the Department of Economic Development. The IDC, which was part of the Department of Economic Development, had a section which dealt with localisation. The department wanted to develop common monitoring methodologies with this section of the IDC.

Mr Sefako asked whether and to what extent local SMMEs around Medupi were being used as suppliers by the construction process.

The DG replied that the department would supply information on the localisation spend of the company in the Medupi construction process. Some components were procured locally and the information was available.

The Eskom representative replied that Lepalala has developed significantly since 2007. The roads had been upgraded. Eskom and EXXARO joined forces to upgrade one particular road. At one stage 17 000 people had been employed at one site. 40% of the people employed at the project were from the area of Lepalala. This was a construction project, which would end at some point, but people had been trained for future projects. Goods and services to the amount of at least R2 billion had been procured from the immediate area. The Medupi construction project brought massive benefits to the local area.

Mr Parkies appreciated the energy which laced the presentation. What was the DG’s take on accountability in SOCs? There was a call for transparency in SOCs. He stated that Members did study the reports before coming to meetings.

The DG replied that accountability was a process. For example, in the midst of a constrained electricity system, the department told Eskom to speak to the public about the electricity shortages. As a result of this Eskom was doing a quarterly power system briefing to inform the public. Within that context Eskom called for cooperation from the public. South Africa needed to change its culture with regards to electricity use, because in general South Africans were very wasteful in their use of electricity. Historically electricity was cheap, but that time was gone forever. The Regulator would determine how much the prices would increase, but as was obvious, the Regulator kept cost low, to the detriment of Eskom. Eskom was unable to recoup all the cost of producing electricity.

The DG added that in the strengthening of oversight over SOCs, DPE monitored wasteful expenditure. Wasteful expenditure was associated with poor controls and DPE tried to put a spotlight on it. The department called a forum for internal auditors where best practice was shared. It intended to do the same for chairpersons of boards, because they were accounting authorities. The department held the respective boards accountable.

Mr Parkies stated that the resuscitation of the railway line between Bloemfontein and Lesotho would protect poor workers from constantly rising bus fares asked by the interstate bus services which operated on that route.

Mr Rayi asked whether there were any plans to resuscitate the railway connection between Port Elizabeth and East London, the two economic hubs in the Eastern Cape, as there had been no rail connection between the two cities for decades.

The DG replied that the state-owned rail services were divided into two sections namely freight- and passenger rail services. Freight rail was overseen by the DPE, but passenger rail services (PRASA) was the jurisdiction of the Department of Transport. He knew that PRASA was in the process of overhauling and renewing its fleet. The reason for the inequality was structural. Over time, because of an imbalance in incentives, there was a gradual shift towards road transport. The country had since realised that it was unsustainable. Government invested in road infrastructure, but there was no equivalent investment in rail infrastructure. It was a disjuncture that needed to be corrected. A lot of rail-friendly freight was transported by road, which was not ideal, but Transnet was dealing with it. Over time, it had to show evidence of winning rail-friendly freight and the same went for PRASA.

The DG added that main rail lines needed feeder branch lines to succeed. Should Transnet not let the provinces or the private sector take over in the provinces? Investment was justified when there were significant volumes of traffic. If there were no volumes of traffic, investment in branch lines would be constrained.

Mr Rayi asked if DPE had ever conducted a study to investigate the viability of reviving unused railway lines.

The DG replied that studies on the viability of reviving branch lines had been done. Branch lines with potential had been identified. The study also looked at the business case and economics of each. It would only be of interest to the private sector if it could be profitably exploited. Transnet had identified three branch lines which would be put out to market to see whether there was any private sector interest.

Mr Parkies asked how far the process was with the Remuneration Review Committee, which was finalised in 2013, as well as the Provincial Policy Framework Act.

The DG replied that the remuneration area was never regulated. Even in the private sector, shareholders were never involved in the remuneration of directors or they did not take it seriously. This was until directors started paying themselves massive salaries and bonuses. Currently all shareholders wanted to approve remuneration. It was part of shareholder activism. There were guidelines, but the department reviewed and strengthened them to give itself a lot more control over that area, limiting the space for abuse. There was a policy of linking bonuses to performance.

Ms Labuschagne asked how the department was planning to stabilise and strengthen SOCs with innovative funding options for infrastructure development. What were the specific plans?

Ms Jacky Molisane, DDG: Strategic Partnerships, DPE, replied that the department looked at how it could include the private sector. The SOCs could not fund all the infrastructure build programmes that had to be undertaken, so it used multi-lateral institutions like the African Development Bank, the World Bank and the Green/Clean Technology Fund. This funding funded the 100 MW solar plant and the 100 MW wind farm.

The department also used project-based funding. It collaborated with the Development Bank of Southern Africa. It has what is called the Infrastructure Investment Programmes of South Africa (IIPSA) Fund for South African privately owned companies as well as SOCs involved in infrastructure development.

Ms Labuschagne asked whether industrialisation and localisation of SOCs did not mean job losses instead of job creation. The presentation talked about skills development and the changing of skills. How would these be aligned?

The DG replied, in contrast to the way Ms Labuschagne saw industrialisation, in his view industrialisation would facilitate sustainable job creation. Manufacturing jobs were more sustainable than service jobs. During downturns in the economy, service jobs offered no job security. In contrast, where employers had invested in skills development, they were more likely to retain workers. The Committee could debate this issue.

Ms Labuschagne asked what the minimum percentage of its budget was that a SOC could receive from government, while still remaining sustainable.

Ms Molisane replied that in the private sector it was either 60%/40% or 70%/30%. As the DG had indicated, the roles of SOCs are both commercial and developmental. The department would then involve the multi-lateral institutions as well as the private sector in the funding of the projects. DPE was working with National Treasury on the Infrastructure Development Team. The department was also looking into how it could engage the private sector through the Banking Association of South Africa (BASA) in order to understand what would motivate the private sector to invest capital into the SOCs. The IIPSA was being monitored by the Development Bank of Southern Africa (DBSA). The request for proposals (RFP) for funding had gone out and people would be looking into how it was going to be funded.

Ms Labuschagne stated that the department’s oversight tools and performance indicators had to be expanded as these had not changed since 2010. Which mechanism would the department use for better tighter oversight? The Select Committee and the Portfolio Committee had to know in order to do oversight.

Mr Parkies stated that Eskom had to comply with the environmental legislation and pacts the country signed. SA was part of COP17 and signed these agreements. There had to be medium and long term strategies to take the country towards compliance.

Ms Labuschagne said SA had a coal driven electricity economy by necessity. This was in direct opposition to the objectives of the Department of Environmental Affairs which brief it was to make the economy as green as possible. How did this align with Eskom’s SIP8 which stated that the Green Economy had to form part of Eskom’s brief?

The DG replied that Eskom was the leading polluter in RSA and it was aware for a long time about the green economy issues. The department created a Climate Change Framework for SOCs. This Framework spelled out to SOCs what was required of them in terms of climate change and the environment. Guidelines were developed and the companies were monitored. They were all signatories to the UN’s Climate Change Compact, which required them to invest in clean technology and adopt cleaner practices. The department had a partnership with the Department of Environmental Affairs in this regard.

Ms Makhasi replied that DPE had no option but to comply with all legislation which impacted upon it. It was in compliance with most. In the process of being audited, the department sometimes discovered obscure regulations which it did not comply with, but on the whole it was compliant. The department had a monitoring system in place to prevent such occurrences.

Mr Rayi asked what role this department would play in the building of the Mzimvubu Dam and other projects. What was the overall SIPs strategy?

Ms Molisane replied that DPE was currently involved in the SIP 1 in the Waterberg, coordinated by Eskom, SIP2, coordinated by Transnet in Gauteng, Free State and KZN as well as SIPs 9 and 10. DPE was working closely with SOC Project Management Units to make sure the projects were well coordinated and well aligned.

The DG replied that Eskom was coordinating the SIPs in a number of areas namely SIP 1 and the Green Economy SIP as well as the Transnet SIP.

Ms Labuschagne asked if she understood correctly that at the current stage there was no legislation for this department. The department was guided by the Companies Act, the Strategies and Policies Framework and the NDP. The Draft Bill was before Cabinet for approval.

Mr Rayi said that only the PFMA was mentioned in the presentation under the Administration Programme. Could the department list all the legislation it had to comply with?

The DG replied that he had taken note of the request about legislation. DPE would provide the information.

The Chairperson asked whether the department was satisfied with its budget allocation for the 2014/15 FY

The DG replied that a bigger concern for him was whether the model of a government department was an appropriate model for the role and function of oversight over SOCs. This department started as the “Office of Privatisation”, which it remained until policy changed against privatisation. It was an office but he believed that it had to be more than an office or government department. He believed in an agency format, like the South African Revenue Service (SARS), would be more appropriate. The reason for this belief was that, by its nature, the department needed staff with highly specialised financial and business skills, for which it had to compete with the private sector. The private sector could pay salaries which the department could not afford in terms of its budget allocation, and because it was governed by the Public Service Act. In contrast, SARS was not governed by the Public Service Act. It could compete better for the high level skills that it needed. It was something to consider for the future. No DG was happy with his current budget and always wanted more.

The Chairperson said the DG mentioned that a serious overhaul needed to be done on the department’s oversight model. One would have expected that the Presidential Review Committee on SOCs a few years previously would have done exactly that. Was the department considering the PRC Report’s recommendations?

Ms Makhasi replied that shareholder compacts were signed between the department and each SOC. These were approved by the minister. Lots of work had been done between the department and the SOC in order to agree on targets, informed by in-depth research on industry performance information etc. These targets were monitored constantly. The department employed people to focus on monitoring the quarterly reporting to make sure the SOCs delivered in accordance with the compacts signed with the minister.

She added that a review of SOC performance over the last five years was in progress. The department would share the information as soon as it became available.

Mr Rayi asked whether there was any structural arrangement between the national and provincial governments like a MinMec, where the minister and the MECs met to give opportunities to provinces. For SOCs there was no provincial equivalent as it was a national competency.

The DG replied that there was no MinMec for the DPE, but it had provincial engagements. It had its own ‘MinMecs’. The DPE had concurrent functioning in constitutional terms, but in practical terms, these projects of the SOCs happened in certain localities within the provinces. The provinces had interests and there were opportunities for enhancing synergies.

Mr Rayi said the situational analysis of the socio-economic situation in the country and the provinces should not only look at the economic impact. It also had to look at electricity supply and transport, because the SOCs also had to intervene in socio-economic situations. Each SOC would have its own strategic overview, but the department had to have an overarching situational analysis of these areas.

The DG noted that the department did the situational analysis from a macro-economic perspective. The department would take this point into account for the next round.

Mr Sefako said state ownership was not clearly defined. Was there any attempt to interrogate it and come up with recommendations, which might lead to a solution?

The DG said the definition of state ownership was in the Bill which did not go through, but it was also in the PRC Report, which he advised the committee to read. It did define state ownership and how one would want to deal with it in legal and legislative terms in future.

Mr Sefako referred to Special Economic Development Zones (SEDZ), linking it with the state of the province address in the North West. Around Rustenberg, platinum processing plants and at Klerksdorp, gold processing plants were planned. Will Eskom be able to supply the electricity to these plants? Would the airport at Pilanesberg be upgraded? It was of strategic importance for the mineral industry as well as tourism.

The Eskom representative replied that Eskom did not refuse electricity supply to new clients. Increased demand also meant that the delivery of the Medupi and the Kusile power plants became critical to ensure that the capacity was there to deliver the required electricity supply.

He added that the way in which electricity was supplied depended on the demand at that point in time. Most of the time, Eskom was able to meet the demand, but in the late afternoon the demand increased especially in winter when people went home and started cooking and turned on heaters. During this period, demand exceeded supply. The country had to be more energy efficient. The higher the demand, the higher the spending on infrastructure, the more costs need to be recovered .This leads to the debate between Eskom and the Regulator. When Eskom had invested in infrastructure, it had to pay for the infrastructure, while the Regulator supressed the price the consumer paid. The question was, would Eskom be able to collect enough revenue to repay the loans it had made to pay for the infrastructure.

Mr C Smit (DA, Limpopo) said Eskom, from a community perspective wants to grow and shrink at the same time. People were encouraged to save electricity, but if they saved electricity, it would bring down Eskom’s income. At the same time Eskom wanted to increase its revenue. It was a contradictory situation.

Mr Smit asked what was the reason for the upward trend in electricity fees? The market worked with supply and demand. Was there a lack of supply and a big demand? As a country SA had two problems. Firstly there was a shortage of energy supply, and secondly there was poverty and unemployment. How was Eskom capitalising on this situation? Why did Eskom not invest in solar and wind farms to create employment, involve the unemployed through SMMEs, create jobs, boost the rural economies and solve the electricity problems of small towns? Was Eskom looking at this possibility in the long term? If not, he felt it was something to look at. He asked how Eskom involved small business to generate electricity through solar and wind farms in small towns and rural communities.

The Eskom representative replied that the unit which liaised with small suppliers of electricity was located within the Department of Energy. Eskom also took this into account when investing in infrastructure so that it would in future be able to connect those small towns and rural communities to the grid.

The DG replied that with the democratic dispensation and with the capacity SA had, it was possible to connect communities to the Eskom grid who previously were not connected. When there were capacity constraints, it could not connect more people to the grid. Eskom expanded access depending on resources. The price of electrification was a separate allocation.

The DG replied that in the sparsely populated rural areas it was expensive to connect communities to the grid. In these cases it would make more sense to utilise other energy sources like wind and solar energy, but the Department of Energy would have to lead in this regard. Eskom was merely an agent in this situation.

The Chairperson thanked the department for the excellent presentation. It allowed the Members to engage with it meaningfully. There were three very important points which came out of the presentation. Firstly, the basics of SOCs, secondly, the fact that cutting edge business practices would lay the foundation for economic growth, making sure that there was radical transformation and, thirdly, the importance and urgency of job creation and skills development. The Committee would make sure that it fulfilled its mandate of oversight in order to achieve these objectives. She also acknowledged PMG and welcomed the PMG Monitor to the meeting.

Adoption of Committee Minutes
The Committee adopted minutes from their last meeting on 25 June 2014.

The meeting was adjourned.



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