Infrastructural Development by State Owned Enterprises: briefing

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Public Enterprises

25 June 2003
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PUBLIC ENTERPRISES PORTFOLIO COMMITTEE
25 June 2003
INFRASTRUCTURE INVESTMENT BY STATE-OWNED ENTERPRISES: BRIEFING

Chairperson:
Mr B Martins (ANC)

Infrastructure Investment by State-owned Enterprises (PowerPoint Presentation)

SUMMARY
Dr Ian Phillips briefed the Committee on infrastructure investments by the three state-owned enterprises (SOEs); Transnet, Eskom and Denel. SOEs had been running a deficit of 5% of GDP in 1993 and, given their financial burdens, had struggled to stay afloat. This situation had been turned around, with SOEs showing a surplus of 2.44% of GDP in 2002. Foreign borrowings had been reduced from 46% to 14.9%. The Democratic Alliance (DA) expressed the view that the investments made were considered too little, too late.

MINUTES
Dr Ian Phillips, Special Adviser to the Minister of Public Enterprises, said that only in 2000 had SOEs been able to commit themselves to longer-term planning and to perform in accordance with their mandates.

Denel
Denel was experiencing financial problems in a loss environment. Nonetheless, increased capital expenditure on aerospace was anticipated from retooling BAe Hawks and BAe/Saab Gripens for the South African National Defence force (SANDF). Denel's work was highly technical rather than labour intensive. The impact of SOEs on social infrastructure rested on Eskom and Transnet.

Eskom
Eskom anticipated an increasing concentration of infrastructural investment from 2005 onwards in re-commissioning mothballed power stations to meet South Africa's growing demand for power. The aluminium smelter at Coega would also be one of its future power generating requirements. Electricity had been supplied to 2.8 million homes since 1993. Eskom was responsible for supplying power to industry and mining and was therefore financially healthy.

Transnet
Transnet's financial problems had been addressed. By 1999 Transnet had been spending R1.9 billion just to service its pension commitments. This had been largely addressed in 2000 by the Transnet Pension Fund Bill. These financial losses had limited capital expenditure, but further commitment was now anticipated with particular emphasis being placed on improving export capacity at the ports of Durban, Saldanha and Richards Bay.

Spoornet had emerged from the loss-making period of 1998 to 2000. Management had proposed to retrench 27 000 workers and to close lines in order to reduce losses. Government had insisted on alternative plans, including making low-density lines available for tourism. A new connection from Brits to the Richards Bay line would cost R30 million, but this would help promote exports of ferrochrome anticipated to be worth R2.7 billion. A rolling stock upgrade until the year 2018 would cost R29 billion. It was intended that much of this expenditure would be in South Africa, and that it would encourage the participation of small and medium enterprises (SMEs) and promote black economic empowerment (BEE).

Government was aware of the work needing to be done to integrate projects with government policy. Minister Radebe had instructed that a detailed audit should be undertaken in conjunction with the Department of Trade and Industry on how labour-intensive work could be promoted.

Discussion
Mr R Mohlala (ANC) asked why there had been such an emphasis on foreign debt reduction.
Dr Phillips replied that there had been no financial discipline under the old regime. Transnet's debt had been particularly large. Since 1994 there had been much more stringent control on borrowing by SOEs. The 14.9% was expected to be reduced further, especially as the Public Finance Management Act obligations came into play.

Dr J Benjamin said that, in Saldanha, people were conscious of the pitfalls of unfulfilled expectations in respect of job creation, and the social consequences of huge migrations of unskilled people when such jobs failed to materialise. How was this going to be addressed?

Dr Phillips replied that the focus of infrastructural development was not job creation. Government relied upon Members of Parliament (MPs) for feedback from constituencies to avoid repetitions of the Saldanha experience.

Mr B Nkophela commented that it was important not to fall into the habit of thinking that SOEs had become a shambles under the ANC government.

The meeting was adjourned.

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