Executive Undertakings: Minister of Public Enterprises

Meeting report

Opening remarks

The Chairperson opened the meeting and welcomed all those in attendance. The purpose of the meeting was to consider the progress report by the Minister of Public Enterprises on the following Executive undertakings: During the Questions Session on 11 March 2021, the Deputy President responded to question 4 pertaining to the retrenchments at Eskom and made undertakings thereon; During the Questions Session on 16 March 2021, the Deputy Minister made undertakings pertaining to the restructuring of Eskom and Alexkor.  

Minister’s Remarks

The Minister of Public Enterprises, Mr Pravin Gordhan, said in addition to the written response, he would add a few pieces of information. He highlighted that in terms of the headcount reduction, there had been a decrease in numbers due to attrition and through some of the VSPs that were granted in 2018/19. The new management team found critical shortages in the categories such as artisan, engineering trainees, plant operators, etc. One of the challenges was that in 2010-2020, Eskom management had decided to stop rewarding bursaries, so no people were coming into the pipeline. The Eskom academy was in disuse but was being reactivated so that the power station managers or key operators would enrol in upgrade courses. Former experienced employees of Eskom and university professors were being deployed to the academy.

Regarding efficiencies at Medupi and Kusile, both had serious problems in their design, construction, and installation of some equipment. The defects were being corrected and it was taking a few months per unit but the repairs were on schedule. There were also some operational problems, affecting the total effectiveness of providing megawatts to the system. Kusile had two units under construction; one would be available in 2023 and the second in 2024. There was a mishap two days prior in Kusile therefore it had to be shut down for an impact assessment. This was to determine the damage and how long it would take to fix the problem. The plants were not fully functional in their performance as expected and therefore were not giving the required megawatts.

In terms of the Independent Power Producers (IPPs), the President, on 25 July, made an announcement regarding the security plan for the country which involves processes such as opening up bid windows, increasing the quantity, speeding up the processes, and removing red tape. These were part of the ten work streams that were created with all the relevant roleplayers to cut down the time taken in the various processes such as the environmental impact assessment and issuing of licenses of some had been removed. There was a lot of good work going on but it did not mean that the investment in those areas would happen overnight. It would happen in 15 to 18 months from the approval to the actual delivery.

Regarding the capacity and the transmission grid, a lot of investment was required to extend the grid to the whole country in the years to come. It would mean the megawatts produced by the investment were not going to get connected to the grid. To overcome the problem, Eskom had made land available around the power stations; 32 parcels of the land had been put up for auction. The first 16 had been awarded and the first four had the contracts signed in the previous ten days. It meant that the public land would be used for private investment  (in IPPs) which would help deal with connectivity problems to the grid. The process would start bearing fruit in 12 months and it was going to be a much easier regulatory process.

Regarding the commitments made by the Deputy Minister concerning the acts of criminality, in Mpumalanga and the areas around the power stations, various syndicates supplied low-quality coal that had a very damaging effect on the boilers of the power stations. There were a lot of schemes to make money out of the non-delivery of fuel oil and in some power stations, such as Thuthuka, some of the suppliers had been caught red-handed. There was corruption between insiders and outsiders regarding the types of parts that were purchased, some were counterfeit and some were of poor quality. This caused problems of breakdowns and repeated maintenance. Criminality depended on the capacity of law enforcement agencies to identify the individuals involved and to bring them to book. In some cases, 1 200 to 1 500 cases had been opened of maleficence while others were under investigation and some had gone to court.

On the problems in Kwazulu-Natal, Eskom had a set of people in the distribution areas and it had been very responsive to complaints that it had received. They would assist the municipality and would enter into medium to long-term agreements in the partnership approach. They would also assist municipalities in replacing infrastructure and looking after it.

On question 25, Alexkor was one of the most dysfunctional SOEs the Minister had to deal with. This was because of the neglect and the special arrangement where Alexkor was in a relationship with the Richtersveld Community. A court decision dictated the relationship. There was an interim board in place and a CEO who attempted to identify a roadmap for the entity. Big companies operating in the area had given up exploring; if Alexkor was to do explorations, it required capital to do so but it did not have capital nor does government. There were efforts to reconfigure how some minimum activity started taking place at Alexkor.

Concerning the stolen diamonds, a Special Investigating Unit (SIU) investigation was underway and would result in whoever was involved being prosecuted. The contract with the trader that historically sold the diamond had been terminated. It would take them another three months to map out the direction they needed to take.

Regarding the questions on Denel, funds in the Denel Miracle Benefit Trust have been made available due to a court order. The funds amounted to R990 million. The funds were used to pay salaries and to provide cash flow for operations. The Minister of Finance had made funds available R34 billion to act as the operating capital as a result of a cabinet decision. A much better relationship was cultivated between the chairpersons of Armscor and Denel. Many of the issues that they had were being resolved. There was an order book available where cash was made available so the production process could commence. The chief restructuring officer was also in a position to reorganise Denel for efficient and effective operations. They hoped to see Denel moving in an operational direction in six months. Some parts of Denel remained operational even though it did not make much money- one was a partnership in the Western Cape and the second was the component PNP in Denel which produced ammunition. The ammunition was of world-class quality and to assist the entity in thriving, there was an agreement with SA Police (SAPS) that they would purchase their ammunition from Denel in the future rather than importing. Similarly, Denel Aviation would service the aircraft of the SA National Defence Force.

Discussion

Mr C Dodovu (ANC, North West) asked if there was a clear-cut way forward to resolve the problems in the SOEs.

Mr I Sileku (DA, Western Cape) asked how often the entities met with law enforcement agencies in efforts to deal with criminal activity, especially in fighting people who used electricity without paying.

Responses

Minister Gordhan responded that the way forward was reconstructing the SOEs. Each entity had a clear way forward but generally, they would have to get the governance right, which they had done, and secondly, the operations which would vary. The third step was the financial side which was a big area that suffered from the damage of state capture; each entity had its problems which were being addressed differently. Government gave Eskom R23 billion to enable it to pay debt and an allocation of R34 billion in Denel. Regarding SAA,  it was decided that government would become a minority share and the operations would come from the private sector. Each entity had a different financial solution. The fifth solution was the business model that would change depending on the circumstances since the electricity and logistics models were also changing around the world. Each of the entities had to adapt their business models to the circumstances.

On dealing with criminals, he highlighted the need to bring communities on board. The electricity non-payment has been there for decades and they did not have an answer because some people expected that they would get electricity for free while others were willing to pay for it. There was a need to change the culture in the communities and it could take some time. Regarding the meetings with law enforcement, each of the entities was going to do so to advance the cases identified. The entities would meet with all the law enforcement agencies even though there was a state of impunity amongst some criminals.

The Chairperson thanked the Minister for the information and for making himself available.

The minutes of 13 October was adopted.

The meeting was adjourned.