Briefing on issues emanating from SONA and on progress regarding the business rescue process of Mango

Meeting report

Issues emanating from State of the Nation Address (SONA)

Ms Jacky Molisane, acting Director-General (DG), Department of Public Enterprises (DPE), briefed the Committee on the key issues emanating from the 2023 SONA, and gave an update on the progress made on issues emanating from the 2022 SONA, assisted by Mr Irvindra Naidoo, Transnet's Group General Manager: Strategy, on the Transnet issues.

She said the priorities outlined in the SONA regarding state-owned enterprise (SOE) reforms indicated under-investment in infrastructure, the effects of state capture and shortages of skills, in terms of the Department's commitments. It was implementing the recommendation of the Presidential SOE Council to establish a state-owned holding company as part of a centralised shareholder model that would ensure effective oversight of SOEs.

Commitments made in the SONA 2023 were:

1. The government would support Eskom to secure funding for diesel for the rest of the financial year.
2. Eskom would be finalising the debt takeover equitably and fairly.
3. It would reduce the severity of load shedding.
4. Investment Rail network.
5. A roadmap for Transnet.
6. Transnet partnerships, as there was a need to bring in some funding and investment in equipment.

Progress on issues emanating from 2022 SONA

The Presidential SOE Council, appointed in 2020, had recommended that government adopt a centralised shareholder model for its key commercial entities.

Commitments made in the SONA 2022 were:

1. Overarching legislation for SOEs would be tabled at Cabinet this financial year, and in Parliament in the next financial year.
2. Preparatory work had begun to establish a state-owned holding company (HoldCo) to house strategic SOEs and execute coordinated shareholder oversight.
3. Progress on finalisation of Eskom unbundling was due in December 2022.
4. Progress on the improvement of operational efficiencies at ports.
5. Proposals for private partners for Durban and Ngqura terminals.
6. Transnet was to start the process of providing third-party access to its freight rail network in April 2022, by making slots available on the container corridor between Durban and City Deep in Gauteng.
7. The rail corridor from Gauteng was being extended to enable the export of vehicles through Gqeberha.

(See attached document for details)

Mango Airline's limited business rescue process

Adv Melanchton Makobe,  Deputy Director- General: State-Owned Companies Governance, Assurance and Performance, DPE, gave an update on the business operation at Mango Airline.

His presentation provided the background to the business rescue plan and its adoption, the business rescue timeline, how far the process of bringing in an investor had gone, the section 54(2) (c) Public Finance Management Act (PFMA) application, the funding and the next step in the process.

(See attached document for details)

Discussion on issues emanating from the SONA

Ms C Phiri (ANC) said she wanted to understand what would enable or accelerate private investment in power generation capacity as a public enterprise, especially in Eskom. What was the plan? She inquired how certain they were that what had been presented to the Committee corresponded to what the President had stated during the SONA. One of the reasons she did not have much to say was because most of the time, what they told in the SONA was different when it came to implementation -- things were different and not implementable. When those responsible were questioned, the response they received from the outgoing or departed chief executive officer (CEO) was that the CEO had nothing to do with briefing the President. This caused confusion, because Eskom was the implementer and the DPE was in charge of oversight. She would like to know how the Department planned to stimulate and accelerate what had been presented in the SONA.

Mr G Cachalia (DA) said Eskom had received new funding for diesel from the government, and he would like to know if this was on Eskom's balance sheet or the government's balance sheet, and how much it amounted to. When it came to fixing the power plants and accelerating private investment in procuring new generating capacity, they were simply told that resources were being deployed. The details of the plan were insufficient -- the Committee needed to know exactly what was being done, and the DPE needed to think about it before returning to the Committee and telling them when they would be able to do so. This was urgent and dovetailed with the current crisis they were sitting with.

Mr Cachalia questioned the skills that were being brought in to deal with the Eskom situation, and how this compared to the recent removal of 500 white personnel from the utility. Assuming they had proper skills, why were they removed and why were new people being brought in? How did the how the new skills compare to those that were being removed?

Regarding rail, in the previous round, they had one qualified bidder, and he asked what the status of the new round was. He said that the Transnet road maps were long-term in nature, and he would like to know what was being done to prevent it from going the Eskom route in the short term. Had their port rankings improved from the previous year regarding container handling? He asked that the statistics be provided to him.

The Department had claimed that there was overarching legislation for SOE employees regarding the SOE bill to create the State Holding Company. What was the exact purpose of the whole exercise, given the performance of the state's intervention in previous and current initiatives to accelerate privatisation and the conflict therein? Was the goal simply to centralise the privatisation of a company that needed to be privatised quickly, or to maintain control? They had to know what was intended.

Mr Cachalia said it had been four years since the intention to unbundle Eskom had been announced. Given the current crisis, this was an urgent matter. He asked how would it be accelerated, and how much new transmission capacity was expected to be added, by whom and at what cost.

When could the Department commit to providing the Committee with a progress report on what had been accomplished concerning what they said they were doing in slides 10 - 13? There was a lot in the pipeline that was envisioned to fix things, but the Committee had to understand each point that could measure what was being done, because measurement was critical -- without measurement, it meant nothing. He asked how much money was required in total for rail and rolling stock expansion. How much money was currently on the table, and where was the remainder expected to come from?

Ms O Maotwe (EFF) inquired about establishing the state holding company, and questioned whether it would make a difference compared to what was currently taking place. What would the Department's role be concerning the holding company? She said that the focus of the SONA had been on transmission, and less on generation. She questioned the Department's understanding of generation, pointing out that one could not transmit or generate something one did not have. Who would be generating electricity on behalf of Eskom or the DPE, which would then be transmitted in accordance with the SONA commitments?

Regarding rail policy, she stated unequivocally that the plan was to privatise Transnet at some point. Her view was that Transnet and private companies must form alliances. She stated that while it may appear to be a port terminal partnership at this point, the Committee was aware that when Transnet came to present two weeks ago, they had discussed Transnet engineering and Transnet freighting. They had discussed transportation partnerships and opening up the rail network to private users. It appeared as if they were eating the elephant piece by piece. She inquired about the Department's position on the matter, as she believed its mandate was to protect the public's interest, which was to retain the state-owned entities, but it appeared to be the same state that was saying "let's privatise."

She asked about Eskom's unbundling, as they knew it was a government entity and continued advising government not to unbundle it. It was also clear from the SONA that much emphasis was placed on the transmission and distribution of something that they did not generate, so if Eskom was unbundled, it would mean they were bringing the private sector into Eskom, which would eat away at the state entity.

Turning to the Gauteng rail corridor, she asked whether the private sector was involved in expanding the rail network. It appeared that SONA's commitment was to say that they needed to move cargo from road to rail, but the focus was solely on the transportation of vehicles -- why was the DPE focusing only on expanding the section of the rail that focused on vehicles, and less on moving more cargo such as manganese, iron ore, coal, chromium, and so on. Bulk commodities had a higher volume than vehicles, and any rail company that needed to survive relied on bulk commodities. She said South Africa had a much larger rail network than any other country on the continent and had a lot of minerals that were bulk commodities, which was the core of what a rail network company required to survive. Why was the emphasis solely on vehicles? It was a drop in the ocean compared to what bulk commodities would do.

Mr S Gumede (ANC) agreed with Ms Phiri's assessment that the commitments appeared to be too good on paper, but very weak in practice. He was satisfied with what had been presented, but his concern was whether they would be able to implement it. If one listened to the presenters, one would notice that things were always "in progress." He suggested that the Committee conduct oversight to compare what had been said with what they would see on the ground.

He was most interested in slides three and four, which were critical for him because they discussed debt reduction, which was an intervention, the deployment of resources, and the recruitment of skilled personnel. His concern with the presentation was the lack of timeframes, unless it stated that the commitments would be completed within the year.

Mr Gumede suggested that the Committee should thank government for contributing to reducing Eskom's debt. The R254 billion would leave Eskom with R60 billion to cover its existing debt. They were due to repay an R118 billion debt, and if one took the R254 billion, which was more than 50%, it gave Eskom a little bit plus R60 billion, which they could use to cover a shortfall they previously had.

He said that no matter how hard they tried to avoid other issues, loadshedding was always a concern for them. They could not control what was said on social media, but their job was to try and confirm from the side of the executive or the DPE to help the Committee determine whether the things that were said were true or not. There was far too much emphasis on the failure or collapse of the grid. He had seen something in the morning news about preparing for stage 18, which he interpreted as a total blackout. They needed to be informed by officials about what was being said.

He expressed his satisfaction with the diesel strategy, and was aware of the plan that had been given to them, which took them to 2025. Many people would be pleased if the emphasis was on reducing the severity of load shedding.

There was a stark contrast when it was said they wanted to create jobs without electricity. If they had to go with renewables, they must do so, because some of the tax relief proposals presented by the Finance Minister were good, but depended on implementation by people who had money.

Ms J Mkhwanazi (ANC) supported Ms Phiri's remarks about the SONA commitments and the issue of implementation. She would appreciate it if the DPE report included implementation timelines so they could follow up and monitor the issues they had previously stated were in progress. She suggested that they lock each item onto timelines so that they could keep track of them.

She wanted to enquire about the DPEs' mandate for oversight over the SOEs, and the Committee's capacity to assist them in carrying out their mandate. This was because, when looking at all the SOEs, the report showed that they were in a state of crisis, and they could not trace it back to say what role the DPE played in risk management or consequence management, or avoiding what might happen to small and medium enterprises (SMEs) and giving support to SOEs.

She asked about reinvesting in power stations to help reduce load shedding. She had not heard any reporting about the programme or the timeline for its implementation on the ground.

Mr F Essack (DA) said during the discussion about dealing with sabotage, a report stated that 20 hotspots for specific economic sabotage had been identified. He stated that he had not seen or heard anything about what had been achieved in dealing with these hotspots. An update on that would be appreciated, as Eskom loses millions due to production losses.

He stated that he was aware that Transnet spends approximately R1.5 billion on security each year, yet its revenue losses had increased dramatically. He would like to learn more about what was being done to alleviate the R1.5 billion spending from which they would receive no return on their investment.  

He said an urgent plan needed to be implemented to address the lack of technical skills and project management. Nothing had been said about Denel in the SONA 2023, but he recalled that in the medium term budget policy statement (MTBPS), it was mentioned that the entity would be allocated R204 million to reduce its contingent liabilities. A further allocation of R3.4 billion had been made to assist Denel's turnaround plan, but he had not heard anything about it. He said a report on the Denel issue would be greatly appreciated.

Mr N Dlamini (ANC) requested a benchmark of all plans presented so that they could reference where they were, and if the conceptual factors were distinct. He said that because most people in South Africa could not afford to pay for electricity, the government had to step in on occasion. He predicted that if things continued as they were, Eskom would charge unaffordable fees for electricity and most people would be disconnected. If they were hypothetically to disconnect all those not paying for electricity, they would discover that there would be no load shedding, indicating an unusual situation in the country.

He said Transnet had been discussing moving from road to rail for years without discussing the obstacles to such a move. Large purchases had to be supported by logistics companies moving cargo. He claimed the rails were riddled with "potholes," which would necessitate some investment, in addition to the signalling issues, and acknowledged that the private sector would have to foot the bill. He asked what effect it would have on the cost of transporting goods by rail, as a train would take 36 hours to transport goods that could be there in ten hours.

DPE's response

Ms Molisane responded to Ms Phiri's question about private sector investment by stating that they were referring to independent power producers (IPPs) who were discussing accelerating private investment that needed to be connected to the grid. The procurement was handled by the Department of Mineral Resources and Energy (DMRE) through the IPP office, while Eskom was responsible for implementing the collection of those IPPs to the grid. On the question of how these matters were coordinated and expedited, she said that the DG in the Presidency had convened the National Energy Crisis Committee, where all stakeholders, departments and colleagues from the government dealt with any issues or challenges that may arise.

The goal was to eliminate red tape and transition to "smart tape," which would reduce the time it took to get approvals in place and provide a one-stop shop. The Presidency was convening the meetings, and the DPE was a part of them, ensuring that any bottlenecks were eliminated, that the necessary megawatts were available to deal with the electricity crisis at the highest level, and that all relevant stakeholders were involved.

Regarding diesel funding, they had pressed Eskom and examined internal cash flows to secure some to fund it. National Treasury had indicated that they would provide guarantees for them to be able to raise funding in the range of R4 to R5 billion in that regard, ensuring that the entity secured the necessary diesel to power some of the open cycle gas turbines (OCGTs) to deal with elevated levels of load shedding. They determined that there was a skills issue at different power stations that needed to be looked at. They needed to augment the current skill capacity because it had been established that experience was very important, so they were bringing in skills from outside.

Referring to the Shareholder Management bill, she said that the purpose was to streamline, standardise, and coordinate oversight over the SOEs. They needed to separate policy, shareholding and regulation, as this would ensure effective oversight in terms of balancing it, bringing efficiency and accountability.

The Minister of Finance had announced the R254 billion debt takeover, and the DPE and National Treasury were working closely to ensure this was factored in. They were currently working with the debt takeover conditions.

In dealing with loadshedding, they looked at various initiatives to ensure the impact was minimised. They were considering procurement, including additional megawatts from the South African power pool. Ms Molisane was aware of the increased load shedding at stage 6, and they were closely monitoring it. They also considered other initiatives, such as demand management, to resuscitate the previous campaign.

She accepted Ms Mkhwanazi's suggestion that they provide time frames, and they would do so.

They did need to ensure that they were bringing capacity to the Department, so they were filling all vacancies to perform their role and carry out their oversight mandate to oversee that the SOEs deliver on their mandate. They were working hard to fill critical positions, particularly at the senior management service (SMS) level. 

The issue of prioritising power stations was being closely monitored, and Eskom had a board sub-committee looking into those power stations that were not providing the desired megawatts. This was to ensure that there was a recovery plan in place,

Denel's management had raised the issue of economic sabotage at the entity, and the DPE was also working to bring that report on economic sabotage to the Presidency. Concerning Eskom and Transnet, they were monitoring cable theft and attempting to take a state-wide approach. It had been stated that some South African Defence Force (SADF) personnel were deployed to hotspots at identified power stations.

Ms Molisane said that in recent months, the South African Police Service (SAPS) had identified several coal yards where coal was being swapped with stones, and there have been several arrests. They were beginning to collaborate closely with the SAPS and other law enforcement agencies to combat this issue, which was detrimental to the economy.

The issue of Denel had not been raised in this meeting because they were focused on the responses to the SONA address. She confirmed that National Treasury had provided some funding for Denel's turnaround plan. They were collaborating with National Treasury to ensure that the turnaround plan was implemented and that the necessary conditions were met to ensure the money was transferred.

They were also working closely with National Treasury to attach specific conditions to the debt takeover, because they did not want to simply take over the debt without conditions, so that they could hold colleagues accountable.

Mr Donald Nkadimeng, Chief Director, DPE, said that to expedite the Eskom restructuring, the road map anticipated they would begin with transmission. Significant progress had been made, culminating in the subsidiary being incorporated in 2021. For it to be operational, there were outstanding issues that were external to the entity itself:

Firstly, the National Energy Regulator of South Africa (NERSA) had to finalise a licence. The application had been submitted to NERSA in November of last year, and NERSA had published a notice to begin consulting on the issuance of that licence.

Secondly, they had to consider the lender's concern about restructuring. The lenders had indicated that they were waiting for a clear indication from the Minister of Finance regarding the amount of debt that would be taken from Eskom. Eskom was currently awaiting feedback from the lenders following the announcement of the debt relief quantum. The process was still ongoing -- the lenders were going through credit committees, and would negotiate once a decision was made.

He emphasised that they had another concern, which was about the entire restructuring rather than a specific subsidiary. Transmission, in this case, was the first subsidiary to be established. The work on distribution was underway, and they were aware that Public Financial Management Act (PFMA) approval was required from both the Minister of DPE and the Minister of Finance regarding establishing the distribution company. However, Eskom had already completed the necessary work to secure the distribution company's registration.

He referred to generation, and how restructuring was taking place, because they were aware that everything was under one integrated Eskom. The transmission subsidiary had been created as a result of the restructuring. The distribution subsidiary was being formed, leaving generation on its own. The legal opinion obtained was that because they had removed both transmission and distribution while leaving generation out, there was no need to incorporate generation. The generation would automatically become a subsidiary. What was now required was the formation of a holding company. Eskom had put in a lot of effort into this area. The due diligence had been completed and presented to their board, which must now endorse and approve it. When the board approved it, the PFMA application for the establishment of the holding company would be sent to both the DPE and the Minister of Finance.

He said that the work was ongoing, and that the Committee would ensure that, as planned, the transmission was operational before the others. Distribution would come next, followed by generation.

They were accelerating this by forming an intergovernmental steering committee chaired by the DPE DG, and comprised of the DG of the National Treasury, the DG of the DMRE, and the Chief Executive of Eskom. They meet on a monthly basis to provide an update on the work of unbundling. As a result, the steering committee's chief executive officer (CEO) and the DGs oversee that work. Apart from that, they had three work streams focused on the restructuring itself:   

• The financial workstream, led by National Treasury, which handled the debt relief and funding issues.
• The legal work stream, led by DPE, which examined all the legal requirements for the restructuring.
• The policy work stream, led by the DMRE, was looking at amending the policy on the Electricity Regulation Act, which went to the cluster last month and would now go to Cabinet. They were also looking into the electricity pricing policy, which was currently in the consulting stage and had been presented to the National Electricity Crisis Committee (NECC).

He stated that this was ongoing work, and that there were engagements between the work streams that would provide an update on the restructuring work to the intergovernmental steering committee led by the DGs of the three departments and Eskom's CEO.

Mr Naidoo addressed the issues involving Transnet, and responded to the new round of applications. He said Transnet had encountered difficulties in the first round due to a lack of enabling legislation and regulations. As a result, they were unable to reach a long-term agreement, jeopardising the attractiveness of the offer to the private sector. At this point, the economic regulatory capacity process was being worked on in order to try and put the minimum regulatory environment in place for third-party access, while also looking at how a third-party rolling stock company could be established so that a ready market for rolling stock was available for companies that wanted to start buying stocks on the network. The programme was currently in progress, and they were working closely with the Department of Transport to accomplish this.

There has not been an update on the port rankings since the last set of rankings in May 2021. The Transnet National Port Authority (TNPA) had a detailed operational monitoring system known as "TOPs," which involved checks of operational systems across monitoring systems to see if productivity was high and if ships were waiting too long. He stated that they were seeing some stabilisation, and although there were still some challenges in setting up specific terminals, operational performance appeared to have improved. He assured the Committee that the port rankings would be released soon.

He described the rail policy and road map as difficult, because they were trying to deal with rail policy while also looking at how they could start reorienting Transnet to start looking at supply chains and modes. This meant that as they considered how to repair rail, they also had to consider how to repair the coal supply chain. If they looked at where the effort was being made in the short term, they would see that they had several large industrial supply chains heavily reliant on rail to export coal or manganese, for example.

Transnet had engaged in processes with the Minerals Council, and had teams established per corridor to look at specific issues within those corridors and how performance could be improved. One of the binding constraints was the amount of work being done to bring commodities into the system. On the rail network, he said they were also looking at the priority corridors to target the limited capital in those corridors. He said there was a funding gap in order to fully restore the infrastructure backlog. One of the most important aspects of rail policy was securing additional government funding to eliminate the rail infrastructure backlog.

Referring to the rail corridor from Gauteng to Ngqura, he agreed that the corridor was not just to transport a lot of cargo. He explained that when they discussed projects, they separated out issues of rolling stock due to infrastructure issues. What they were trying to do was to accelerate the structural component of the project, because that would provide capacity for autos and also for bulk commodities as well. Transnet was in discussions with the industry, and they understood that rail was only part of the supply chain and that customers were looking into end-to-end solutions. He suggested they get together and see what the various supply chain partners could do to help move the cargo to rail.

He agreed with Mr Dlamini that while road would continue to be faster, rail would remain the better option because moving goods was much cheaper by rail. Even if it was slower, a level of predictability that allowed customers to plan could be achieved. When compared to the road, the price of rail would be advantageous. They collaborated with other private sector and logistics players to determine how to get rail to insert itself into the supply chains. He believed it all came down to the ability to provide efficient, dependable and cost-effective rail service.

Discussion on Mango business rescue process

Ms Phiri said that the Department had previously alluded to receiving a PFMA application from South African Airways (SAA) to dispose of Mango shares in the airline, indicating that Airways (SAA) was completely dissatisfied with the preferred bidder for Mango. The Department had requested critical information to properly assess the transaction and decide on the application. Unfortunately, the business rescue practitioner (BRP) had taken the Department to court. She inquired about the financial implications of this litigation on the overall rescue process.

She said that one of the key pieces of information sourced by the Minister on the assessment of the PFMA application on the disposal of Mango shares by SAA was the business case, so that the Department could see the detailed business plan and be satisfied that the consortium's proposal was viable, and that they had enough working capital to run the airline.

The acquisition proposal was feasible, so her question was whether the Department had recommended that this information be included in the amendment plan. Why was the adequate working capital of the preferred bidder important, given that the airline's exit from the South African market was common knowledge and could be attributed to factors other than financial constraints?

She asked about the assessment conducted prior to the sale of the government's shares in SAA.

What value for money had the government obtained by selling its shares in SAA? She asked how the preferred bidders' sharing of the business plan did not constitute a conflict of interest between the preferred bidders if there was a possibility of a rival at the Department by virtue of overseeing the government shares in the SAA. In this regard, did the Department's business plan adhere to the Competition Act No. 89 of 1998. She stated they were already aware that if this was not resolved, the Air Services Licensing Council would cancel Mango's operating licence. She asked how this would affect the BRP in the future.

Mr Cachalia asked who the preferred bidder was. How much was the preferred bidder willing to pay? Was the preferred bidder still going to purchase Mango if the Council refused to reinstate the licence? He inquired about the current state of Mango's cash balance. He enquired where the R85 million balance of the R872 million that was yet to be paid to Mango. He stated that R282 million had been set aside to pay creditors who were owed R2.8 billion, but what if their negotiations to pay this amount failed? What effect would this have on Mango's rescue?

He had heard that the leases of Mango's aircraft had all been cancelled, but that five to eight of them may be leased in the future, and he would like to know when. He also wanted to know what fees had been paid to the business consultant.

Mr Gumede observed that they appeared to be creating internal competition between Mango and SAA. Many of the factors that appeared to be crippling Mango were suggested by SAA. Members would recall that prior to the proposal, there were items that were preferred for Mango which were suggested by SAA -- even the suspension of the licence for 24 months and a reduction of airlines. It seemed Mango was still accountable to SAA. In light of the new situation, was Mango still a subsidiary of SAA? They appeared to be still reporting, but had followed a similar pattern of business rescue.

He asked about the 24-month suspension of Mango's licences. When had the 24-month period begun, and what was Mango's lead-in time? The issue of costs had been raised, and he was curious about the ramifications if the Department lost the case and what would transpire -- would they have enough to get them through the process? If it was delayed, they could be dictated to by the court, since the practitioner was no longer willing to submit the data requested by the shareholder, which was extremely unfair. Everyone would be relieved if Mango returned, because he understood that 708 people had been laid off. He asked if the Department would consider recalling some of those who had not found work elsewhere, and returned with their skills, as this would help to expedite the situation.

Ms Mkhwanazi said that Ms Phiri and Mr Gumede adequately covered her, particularly regarding the cancellation of the licence and the progress of operations. She wanted to learn more about the local content involved in the deal.

Mr Essack asked whether Mango was currently paying its employees, and whether its licence had been officially revoked or was still pending.

Ms J Tshabalala (ANC) wanted to learn more about the business practitioner. Did they have an idea of how much they were likely to spend on court costs? What areas where the Department could settle out of court if possible, and how much money would they still need from the Department to restructure? She had been raising the issue of business practitioners in terms of accountability, specifically, the issue of them receiving funds from the entity, if not from the Department. However, the Department could not take the BRPs on, which meant they would not receive accountability records for the expenditure, as they were not liable to do so.

She stated that a joint meeting between the DPE and the Department of Trade Industry was required to address the issue in the Company's Act. She expressed her hope that they would be included in the future, because they were spending too much money on business rescue practitioners. Their lesson from the SAA had been excruciatingly painful and had cost them a lot of money. When they checked the expenditure, it was more about paying consultants to do the work without receiving a plan from them. She found that disturbing and asked if the Department could package it and look at the legal framework and legislation, so they were clear on what they were looking for.

She said the DPE had received a PFMA application from SAA on 30 September to sell SAA shares in Mango Airlines. According to her, this meant that SAA had been completely satisfied with the preferred bidder for Mango. However, the Department had requested specific information and had properly assessed transactions on the application side. The BRP had unfortunately taken the Department to court over this matter. What were the cost implications for the overall BRP? On the key information that the Minister had sought for the assessment of the PFMA application on the disposal of Mango shares by SAA in the preferred bidder's business case, so that the Department could have a sight of the detailed business plan to satisfy itself that the consortium's proposal was viable and that there was adequate working capital to operate the airline and that the acquisition proposal was viable, did the Department recommend that this information be included in the revised business rescue plan, and why was the preferred bidder's adequate capital important? This was because airline exits from the South African market were common, and could be attributed to factors other than financial constraints.

Was any analysis conducted prior to the sale of government shares in SAA? If this was the case, how much money did the government save by selling its stake in SAA?

She expressed concern that the BRP sought transaction approval without extensive due diligence. In light of this, she asked what aspects of the transaction the Department would like to further verify, investigate, and audit. Had they completed the business plan requested by the Department in accordance with the Competition Act?

Responses

Adv Makobe said the litigation process was by definition expensive, and what made matters worse was that the business rescue practitioner was using Mango funds to initiate this litigation. They could have met and reached an agreement. If there was a chance of resolving this, they were willing to sit down with the BRP again and explain the significance of the information they required from him. If he released that information, they would be able to make a decision and the court case would be unnecessary. It was a costly process, and they could not afford to lose at this point.

Concerning the business plan, he stated when the BRP plan was created, it had simply stated that a business investor should be found for Mango. After it was adopted, business rescue practitioners published an expression of interest and identified the investor. The investor and the BRP would then deal with the business case. This was what they were looking at this time, and they were still waiting. This could not have been done before the plan was approved, but it could have been done afterwards.

Concerning the SAA process in terms of legal counsel, he said that SAA was still flying, that it was not in the business rescue process, that it was not liquidated at 49%, and that government owned a golden share. The strategic partner would invest R3 billion in shares as working capital. He believed they were providing good value for money, which was what they were looking for in this Mango deal.

Regarding the Competition Commission, he said that the BRP had issues or concerns that may pose a problem for the Commission. They should go to the Commission and request an advisory in this regard. They had advised him that by submitting the business plan to SAA, he would be able to submit it to the Department, because they were going to be the operator. Despite being a shareholder, they were not an operator in the eyes of the Competition Commission.

He said that despite the suspension of the licences, those licences could still be applied for so that Mango could proceed in that regard.

The Department could not provide information on who the preferred bidder was and how much the bidder would pay, because the transaction had not been finalised, and the matter was before the court. However, they would inform the investor once the transaction had been finalised and the Completion Commission had approved. For the time being, they were bound by a confidentiality agreement, primarily because the matter was before the court.

Mango was still a subsidiary of SAA until the SAA transaction was completed, or the Mango process was completed with the investor. The licences could still be applied for.

The issue of the BRP's accountability was a creditor's process. The business rescue plan would be presented at a meeting, where creditors would vote on the plan, and the business rescue practitioner would then implement a plan. As a shareholder, one did not have much to say on the subject. However, if shares were sold, they must be returned to the shareholder, who must then make the final decision on the shares. The business rescue practitioner could not sell those shares without the shareholder's permission. In this case, the Minister was the shareholder, so the application could not be approved until the Minister said yes, so the BRP was suing the Department.

A DPE representative said R25 million had been paid for the business rescue practitioner to date, and they were still within budget. He also stated that Mango had been granted two licences. One was the route licence for flying regional routes, which had been suspended for 24 months. Mango needed to devise a strategy to resume flying on those regional routes, because, after 24 months, the routes would be available for other airlines to use. The other part of the licence was the Air Operating Certificate (AOC), which must be renewed every year. He said Mango had been suspended because it was not operational, and this licence could be applied for as soon as it was ready to begin operations.

Further discussion

Mr Cachalia said a couple of his questions were not answered, most likely because he had been unclear in asking them. He said SAA had received R812 million from Mango, but R727 million was transferred to Mango, leaving R85 million with SAA. If the R85 million was not going to Mango, should it not be paid to the National Revenue Fund? He stated categorically that it could not be used by SAA. He had also inquired about Mango's current cash balance and whether any current aircraft were owned, and not leased, by Mango.

Ms Phiri stated that the current aviation industry expectations for 2023 were slim margins, and no profit projected for the African aviation industry. She asked if the BRP or DPE believed that the PFMA delay would benefit Mango, because there had been so many delays. She did not believe Mango would be successful. The impact of the PFMA approval delay on the business rescue process, as well as the financial impact on the airline, would simply destroy the effort and everything that they were attempting to achieve. She wanted to get more information and clarity on the delay of the PFMA approval, and asked how it assisted Mango Airlines in returning to its operation and attracting investors.

DPE's response

Ms Molisane stated that if they could skip due diligence and risk losing an investor, this deal would not be viable, and it would stymie or undermine their efforts to turn around these airlines. They had been very cautious in their approach by insisting on due diligence to avoid unnecessary delays. She had stressed to the team that this exercise was extensive, and that they were confident that it would result in the airline's revival.

A DPE representative said the R85 million was still with SAA, and in terms of expropriation, that money had been specifically allocated for the subsidiaries, so SAA could not use it. Once the processes were completed, the money would be transferred to the National Revenue Fund (NRF) rather than Mango, so SAA would be unable to use it for anything else.

Adv Makobe stated that with the R85 million, the simplest way was to ask the business practitioner to negotiate with the creditors. They intended to save it in the NRF so the creditors could contribute.

The Chairperson expressed the Committee's appreciation to the DPE for answering all of their questions during the first and second presentations.

Committee matters

The Chairperson requested that the Secretary of the Committee present the minutes of the previous meeting.

Mr Disang Mocumi, Committee Secretary, said that in terms of the agenda, they had not prepared the minutes and distributed them to the Members because they had expected the meeting to last longer if the BRPs were present.

He said that Denel was scheduled to appear before the Committee the following week on 8 March. Denel had yet to submit its annual report to the Committee. He sought advice from the Committee.

The Chairperson clarified that at the meeting next week, they would invite the outgoing Eskom CEO to come and present to the Committee on the allegations of corruption at Eskom that he had made public. The Eskom CEO would explain what he meant when he said "people continue to squander Eskom's limited resources." Because Denel was unable to attend, this was what the Committee would be dealing with next week.

Ms Maotwe asked if they could have a physical meeting with the outgoing Eskom CEO rather than a hybrid meeting, so that they could interact physically.

The Chairperson said that even though this meeting was not supposed to be virtual, he was always trying to get them to apply for physical meetings because they were ready to meet in the physical space, but the issue was a lack of space in Parliament. He said that the Secretary would look for a suitable venue. He was unsure of the criteria used in Parliament to prioritise giving a venue and was uneasy about how they would respond. They had previously allowed them, and they were now ready to have physical sessions.

Ms Phiri suggested that they arrange a physical meeting somewhere.

She asked how the former Eskom CEO should be referred to now that the company no longer employed him. Would that not violate the Committee's mandate? She needed to check and get proper advice, because he was no longer a part of the entity -- unless the information she had was incorrect.

The Chairperson said that they were Members of Parliament who had been tasked with overseeing six state-owned entities. They had a responsibility to perform that oversight, and as Parliament, they had the authority to summon anyone, regardless of where they worked. Even if Mr de Ruyter had never worked for Eskom, the Committee had the authority to summon him to Parliament. They were responsible for staying on the terrain where they had been deployed as Members of Parliament. 

The meeting was adjourned.

Issues emanating from State of the Nation Address (SONA)

Ms Jacky Molisane, acting Director-General (DG), Department of Public Enterprises (DPE), briefed the Committee on the key issues emanating from the 2023 SONA, and gave an update on the progress made on issues emanating from the 2022 SONA, assisted by Mr Irvindra Naidoo, Transnet's Group General Manager: Strategy, on the Transnet issues.

She said the priorities outlined in the SONA regarding state-owned enterprise (SOE) reforms indicated under-investment in infrastructure, the effects of state capture and shortages of skills, in terms of the Department's commitments. It was implementing the recommendation of the Presidential SOE Council to establish a state-owned holding company as part of a centralised shareholder model that would ensure effective oversight of SOEs.

Commitments made in the SONA 2023 were:

1. The government would support Eskom to secure funding for diesel for the rest of the financial year.
2. Eskom would be finalising the debt takeover equitably and fairly.
3. It would reduce the severity of load shedding.
4. Investment Rail network.
5. A roadmap for Transnet.
6. Transnet partnerships, as there was a need to bring in some funding and investment in equipment.

Progress on issues emanating from 2022 SONA

The Presidential SOE Council, appointed in 2020, had recommended that government adopt a centralised shareholder model for its key commercial entities.

Commitments made in the SONA 2022 were:

1. Overarching legislation for SOEs would be tabled at Cabinet this financial year, and in Parliament in the next financial year.
2. Preparatory work had begun to establish a state-owned holding company (HoldCo) to house strategic SOEs and execute coordinated shareholder oversight.
3. Progress on finalisation of Eskom unbundling was due in December 2022.
4. Progress on the improvement of operational efficiencies at ports.
5. Proposals for private partners for Durban and Ngqura terminals.
6. Transnet was to start the process of providing third-party access to its freight rail network in April 2022, by making slots available on the container corridor between Durban and City Deep in Gauteng.
7. The rail corridor from Gauteng was being extended to enable the export of vehicles through Gqeberha.

(See attached document for details)

Mango Airline's limited business rescue process

Adv Melanchton Makobe,  Deputy Director- General: State-Owned Companies Governance, Assurance and Performance, DPE, gave an update on the business operation at Mango Airline.

His presentation provided the background to the business rescue plan and its adoption, the business rescue timeline, how far the process of bringing in an investor had gone, the section 54(2) (c) Public Finance Management Act (PFMA) application, the funding and the next step in the process.

(See attached document for details)

Discussion on issues emanating from the SONA

Ms C Phiri (ANC) said she wanted to understand what would enable or accelerate private investment in power generation capacity as a public enterprise, especially in Eskom. What was the plan? She inquired how certain they were that what had been presented to the Committee corresponded to what the President had stated during the SONA. One of the reasons she did not have much to say was because most of the time, what they told in the SONA was different when it came to implementation -- things were different and not implementable. When those responsible were questioned, the response they received from the outgoing or departed chief executive officer (CEO) was that the CEO had nothing to do with briefing the President. This caused confusion, because Eskom was the implementer and the DPE was in charge of oversight. She would like to know how the Department planned to stimulate and accelerate what had been presented in the SONA.

Mr G Cachalia (DA) said Eskom had received new funding for diesel from the government, and he would like to know if this was on Eskom's balance sheet or the government's balance sheet, and how much it amounted to. When it came to fixing the power plants and accelerating private investment in procuring new generating capacity, they were simply told that resources were being deployed. The details of the plan were insufficient -- the Committee needed to know exactly what was being done, and the DPE needed to think about it before returning to the Committee and telling them when they would be able to do so. This was urgent and dovetailed with the current crisis they were sitting with.

Mr Cachalia questioned the skills that were being brought in to deal with the Eskom situation, and how this compared to the recent removal of 500 white personnel from the utility. Assuming they had proper skills, why were they removed and why were new people being brought in? How did the how the new skills compare to those that were being removed?

Regarding rail, in the previous round, they had one qualified bidder, and he asked what the status of the new round was. He said that the Transnet road maps were long-term in nature, and he would like to know what was being done to prevent it from going the Eskom route in the short term. Had their port rankings improved from the previous year regarding container handling? He asked that the statistics be provided to him.

The Department had claimed that there was overarching legislation for SOE employees regarding the SOE bill to create the State Holding Company. What was the exact purpose of the whole exercise, given the performance of the state's intervention in previous and current initiatives to accelerate privatisation and the conflict therein? Was the goal simply to centralise the privatisation of a company that needed to be privatised quickly, or to maintain control? They had to know what was intended.

Mr Cachalia said it had been four years since the intention to unbundle Eskom had been announced. Given the current crisis, this was an urgent matter. He asked how would it be accelerated, and how much new transmission capacity was expected to be added, by whom and at what cost.

When could the Department commit to providing the Committee with a progress report on what had been accomplished concerning what they said they were doing in slides 10 - 13? There was a lot in the pipeline that was envisioned to fix things, but the Committee had to understand each point that could measure what was being done, because measurement was critical -- without measurement, it meant nothing. He asked how much money was required in total for rail and rolling stock expansion. How much money was currently on the table, and where was the remainder expected to come from?

Ms O Maotwe (EFF) inquired about establishing the state holding company, and questioned whether it would make a difference compared to what was currently taking place. What would the Department's role be concerning the holding company? She said that the focus of the SONA had been on transmission, and less on generation. She questioned the Department's understanding of generation, pointing out that one could not transmit or generate something one did not have. Who would be generating electricity on behalf of Eskom or the DPE, which would then be transmitted in accordance with the SONA commitments?

Regarding rail policy, she stated unequivocally that the plan was to privatise Transnet at some point. Her view was that Transnet and private companies must form alliances. She stated that while it may appear to be a port terminal partnership at this point, the Committee was aware that when Transnet came to present two weeks ago, they had discussed Transnet engineering and Transnet freighting. They had discussed transportation partnerships and opening up the rail network to private users. It appeared as if they were eating the elephant piece by piece. She inquired about the Department's position on the matter, as she believed its mandate was to protect the public's interest, which was to retain the state-owned entities, but it appeared to be the same state that was saying "let's privatise."

She asked about Eskom's unbundling, as they knew it was a government entity and continued advising government not to unbundle it. It was also clear from the SONA that much emphasis was placed on the transmission and distribution of something that they did not generate, so if Eskom was unbundled, it would mean they were bringing the private sector into Eskom, which would eat away at the state entity.

Turning to the Gauteng rail corridor, she asked whether the private sector was involved in expanding the rail network. It appeared that SONA's commitment was to say that they needed to move cargo from road to rail, but the focus was solely on the transportation of vehicles -- why was the DPE focusing only on expanding the section of the rail that focused on vehicles, and less on moving more cargo such as manganese, iron ore, coal, chromium, and so on. Bulk commodities had a higher volume than vehicles, and any rail company that needed to survive relied on bulk commodities. She said South Africa had a much larger rail network than any other country on the continent and had a lot of minerals that were bulk commodities, which was the core of what a rail network company required to survive. Why was the emphasis solely on vehicles? It was a drop in the ocean compared to what bulk commodities would do.

Mr S Gumede (ANC) agreed with Ms Phiri's assessment that the commitments appeared to be too good on paper, but very weak in practice. He was satisfied with what had been presented, but his concern was whether they would be able to implement it. If one listened to the presenters, one would notice that things were always "in progress." He suggested that the Committee conduct oversight to compare what had been said with what they would see on the ground.

He was most interested in slides three and four, which were critical for him because they discussed debt reduction, which was an intervention, the deployment of resources, and the recruitment of skilled personnel. His concern with the presentation was the lack of timeframes, unless it stated that the commitments would be completed within the year.

Mr Gumede suggested that the Committee should thank government for contributing to reducing Eskom's debt. The R254 billion would leave Eskom with R60 billion to cover its existing debt. They were due to repay an R118 billion debt, and if one took the R254 billion, which was more than 50%, it gave Eskom a little bit plus R60 billion, which they could use to cover a shortfall they previously had.

He said that no matter how hard they tried to avoid other issues, loadshedding was always a concern for them. They could not control what was said on social media, but their job was to try and confirm from the side of the executive or the DPE to help the Committee determine whether the things that were said were true or not. There was far too much emphasis on the failure or collapse of the grid. He had seen something in the morning news about preparing for stage 18, which he interpreted as a total blackout. They needed to be informed by officials about what was being said.

He expressed his satisfaction with the diesel strategy, and was aware of the plan that had been given to them, which took them to 2025. Many people would be pleased if the emphasis was on reducing the severity of load shedding.

There was a stark contrast when it was said they wanted to create jobs without electricity. If they had to go with renewables, they must do so, because some of the tax relief proposals presented by the Finance Minister were good, but depended on implementation by people who had money.

Ms J Mkhwanazi (ANC) supported Ms Phiri's remarks about the SONA commitments and the issue of implementation. She would appreciate it if the DPE report included implementation timelines so they could follow up and monitor the issues they had previously stated were in progress. She suggested that they lock each item onto timelines so that they could keep track of them.

She wanted to enquire about the DPEs' mandate for oversight over the SOEs, and the Committee's capacity to assist them in carrying out their mandate. This was because, when looking at all the SOEs, the report showed that they were in a state of crisis, and they could not trace it back to say what role the DPE played in risk management or consequence management, or avoiding what might happen to small and medium enterprises (SMEs) and giving support to SOEs.

She asked about reinvesting in power stations to help reduce load shedding. She had not heard any reporting about the programme or the timeline for its implementation on the ground.

Mr F Essack (DA) said during the discussion about dealing with sabotage, a report stated that 20 hotspots for specific economic sabotage had been identified. He stated that he had not seen or heard anything about what had been achieved in dealing with these hotspots. An update on that would be appreciated, as Eskom loses millions due to production losses.

He stated that he was aware that Transnet spends approximately R1.5 billion on security each year, yet its revenue losses had increased dramatically. He would like to learn more about what was being done to alleviate the R1.5 billion spending from which they would receive no return on their investment.  

He said an urgent plan needed to be implemented to address the lack of technical skills and project management. Nothing had been said about Denel in the SONA 2023, but he recalled that in the medium term budget policy statement (MTBPS), it was mentioned that the entity would be allocated R204 million to reduce its contingent liabilities. A further allocation of R3.4 billion had been made to assist Denel's turnaround plan, but he had not heard anything about it. He said a report on the Denel issue would be greatly appreciated.

Mr N Dlamini (ANC) requested a benchmark of all plans presented so that they could reference where they were, and if the conceptual factors were distinct. He said that because most people in South Africa could not afford to pay for electricity, the government had to step in on occasion. He predicted that if things continued as they were, Eskom would charge unaffordable fees for electricity and most people would be disconnected. If they were hypothetically to disconnect all those not paying for electricity, they would discover that there would be no load shedding, indicating an unusual situation in the country.

He said Transnet had been discussing moving from road to rail for years without discussing the obstacles to such a move. Large purchases had to be supported by logistics companies moving cargo. He claimed the rails were riddled with "potholes," which would necessitate some investment, in addition to the signalling issues, and acknowledged that the private sector would have to foot the bill. He asked what effect it would have on the cost of transporting goods by rail, as a train would take 36 hours to transport goods that could be there in ten hours.

DPE's response

Ms Molisane responded to Ms Phiri's question about private sector investment by stating that they were referring to independent power producers (IPPs) who were discussing accelerating private investment that needed to be connected to the grid. The procurement was handled by the Department of Mineral Resources and Energy (DMRE) through the IPP office, while Eskom was responsible for implementing the collection of those IPPs to the grid. On the question of how these matters were coordinated and expedited, she said that the DG in the Presidency had convened the National Energy Crisis Committee, where all stakeholders, departments and colleagues from the government dealt with any issues or challenges that may arise.

The goal was to eliminate red tape and transition to "smart tape," which would reduce the time it took to get approvals in place and provide a one-stop shop. The Presidency was convening the meetings, and the DPE was a part of them, ensuring that any bottlenecks were eliminated, that the necessary megawatts were available to deal with the electricity crisis at the highest level, and that all relevant stakeholders were involved.

Regarding diesel funding, they had pressed Eskom and examined internal cash flows to secure some to fund it. National Treasury had indicated that they would provide guarantees for them to be able to raise funding in the range of R4 to R5 billion in that regard, ensuring that the entity secured the necessary diesel to power some of the open cycle gas turbines (OCGTs) to deal with elevated levels of load shedding. They determined that there was a skills issue at different power stations that needed to be looked at. They needed to augment the current skill capacity because it had been established that experience was very important, so they were bringing in skills from outside.

Referring to the Shareholder Management bill, she said that the purpose was to streamline, standardise, and coordinate oversight over the SOEs. They needed to separate policy, shareholding and regulation, as this would ensure effective oversight in terms of balancing it, bringing efficiency and accountability.

The Minister of Finance had announced the R254 billion debt takeover, and the DPE and National Treasury were working closely to ensure this was factored in. They were currently working with the debt takeover conditions.

In dealing with loadshedding, they looked at various initiatives to ensure the impact was minimised. They were considering procurement, including additional megawatts from the South African power pool. Ms Molisane was aware of the increased load shedding at stage 6, and they were closely monitoring it. They also considered other initiatives, such as demand management, to resuscitate the previous campaign.

She accepted Ms Mkhwanazi's suggestion that they provide time frames, and they would do so.

They did need to ensure that they were bringing capacity to the Department, so they were filling all vacancies to perform their role and carry out their oversight mandate to oversee that the SOEs deliver on their mandate. They were working hard to fill critical positions, particularly at the senior management service (SMS) level. 

The issue of prioritising power stations was being closely monitored, and Eskom had a board sub-committee looking into those power stations that were not providing the desired megawatts. This was to ensure that there was a recovery plan in place,

Denel's management had raised the issue of economic sabotage at the entity, and the DPE was also working to bring that report on economic sabotage to the Presidency. Concerning Eskom and Transnet, they were monitoring cable theft and attempting to take a state-wide approach. It had been stated that some South African Defence Force (SADF) personnel were deployed to hotspots at identified power stations.

Ms Molisane said that in recent months, the South African Police Service (SAPS) had identified several coal yards where coal was being swapped with stones, and there have been several arrests. They were beginning to collaborate closely with the SAPS and other law enforcement agencies to combat this issue, which was detrimental to the economy.

The issue of Denel had not been raised in this meeting because they were focused on the responses to the SONA address. She confirmed that National Treasury had provided some funding for Denel's turnaround plan. They were collaborating with National Treasury to ensure that the turnaround plan was implemented and that the necessary conditions were met to ensure the money was transferred.

They were also working closely with National Treasury to attach specific conditions to the debt takeover, because they did not want to simply take over the debt without conditions, so that they could hold colleagues accountable.

Mr Donald Nkadimeng, Chief Director, DPE, said that to expedite the Eskom restructuring, the road map anticipated they would begin with transmission. Significant progress had been made, culminating in the subsidiary being incorporated in 2021. For it to be operational, there were outstanding issues that were external to the entity itself:

Firstly, the National Energy Regulator of South Africa (NERSA) had to finalise a licence. The application had been submitted to NERSA in November of last year, and NERSA had published a notice to begin consulting on the issuance of that licence.

Secondly, they had to consider the lender's concern about restructuring. The lenders had indicated that they were waiting for a clear indication from the Minister of Finance regarding the amount of debt that would be taken from Eskom. Eskom was currently awaiting feedback from the lenders following the announcement of the debt relief quantum. The process was still ongoing -- the lenders were going through credit committees, and would negotiate once a decision was made.

He emphasised that they had another concern, which was about the entire restructuring rather than a specific subsidiary. Transmission, in this case, was the first subsidiary to be established. The work on distribution was underway, and they were aware that Public Financial Management Act (PFMA) approval was required from both the Minister of DPE and the Minister of Finance regarding establishing the distribution company. However, Eskom had already completed the necessary work to secure the distribution company's registration.

He referred to generation, and how restructuring was taking place, because they were aware that everything was under one integrated Eskom. The transmission subsidiary had been created as a result of the restructuring. The distribution subsidiary was being formed, leaving generation on its own. The legal opinion obtained was that because they had removed both transmission and distribution while leaving generation out, there was no need to incorporate generation. The generation would automatically become a subsidiary. What was now required was the formation of a holding company. Eskom had put in a lot of effort into this area. The due diligence had been completed and presented to their board, which must now endorse and approve it. When the board approved it, the PFMA application for the establishment of the holding company would be sent to both the DPE and the Minister of Finance.

He said that the work was ongoing, and that the Committee would ensure that, as planned, the transmission was operational before the others. Distribution would come next, followed by generation.

They were accelerating this by forming an intergovernmental steering committee chaired by the DPE DG, and comprised of the DG of the National Treasury, the DG of the DMRE, and the Chief Executive of Eskom. They meet on a monthly basis to provide an update on the work of unbundling. As a result, the steering committee's chief executive officer (CEO) and the DGs oversee that work. Apart from that, they had three work streams focused on the restructuring itself:   

• The financial workstream, led by National Treasury, which handled the debt relief and funding issues.
• The legal work stream, led by DPE, which examined all the legal requirements for the restructuring.
• The policy work stream, led by the DMRE, was looking at amending the policy on the Electricity Regulation Act, which went to the cluster last month and would now go to Cabinet. They were also looking into the electricity pricing policy, which was currently in the consulting stage and had been presented to the National Electricity Crisis Committee (NECC).

He stated that this was ongoing work, and that there were engagements between the work streams that would provide an update on the restructuring work to the intergovernmental steering committee led by the DGs of the three departments and Eskom's CEO.

Mr Naidoo addressed the issues involving Transnet, and responded to the new round of applications. He said Transnet had encountered difficulties in the first round due to a lack of enabling legislation and regulations. As a result, they were unable to reach a long-term agreement, jeopardising the attractiveness of the offer to the private sector. At this point, the economic regulatory capacity process was being worked on in order to try and put the minimum regulatory environment in place for third-party access, while also looking at how a third-party rolling stock company could be established so that a ready market for rolling stock was available for companies that wanted to start buying stocks on the network. The programme was currently in progress, and they were working closely with the Department of Transport to accomplish this.

There has not been an update on the port rankings since the last set of rankings in May 2021. The Transnet National Port Authority (TNPA) had a detailed operational monitoring system known as "TOPs," which involved checks of operational systems across monitoring systems to see if productivity was high and if ships were waiting too long. He stated that they were seeing some stabilisation, and although there were still some challenges in setting up specific terminals, operational performance appeared to have improved. He assured the Committee that the port rankings would be released soon.

He described the rail policy and road map as difficult, because they were trying to deal with rail policy while also looking at how they could start reorienting Transnet to start looking at supply chains and modes. This meant that as they considered how to repair rail, they also had to consider how to repair the coal supply chain. If they looked at where the effort was being made in the short term, they would see that they had several large industrial supply chains heavily reliant on rail to export coal or manganese, for example.

Transnet had engaged in processes with the Minerals Council, and had teams established per corridor to look at specific issues within those corridors and how performance could be improved. One of the binding constraints was the amount of work being done to bring commodities into the system. On the rail network, he said they were also looking at the priority corridors to target the limited capital in those corridors. He said there was a funding gap in order to fully restore the infrastructure backlog. One of the most important aspects of rail policy was securing additional government funding to eliminate the rail infrastructure backlog.

Referring to the rail corridor from Gauteng to Ngqura, he agreed that the corridor was not just to transport a lot of cargo. He explained that when they discussed projects, they separated out issues of rolling stock due to infrastructure issues. What they were trying to do was to accelerate the structural component of the project, because that would provide capacity for autos and also for bulk commodities as well. Transnet was in discussions with the industry, and they understood that rail was only part of the supply chain and that customers were looking into end-to-end solutions. He suggested they get together and see what the various supply chain partners could do to help move the cargo to rail.

He agreed with Mr Dlamini that while road would continue to be faster, rail would remain the better option because moving goods was much cheaper by rail. Even if it was slower, a level of predictability that allowed customers to plan could be achieved. When compared to the road, the price of rail would be advantageous. They collaborated with other private sector and logistics players to determine how to get rail to insert itself into the supply chains. He believed it all came down to the ability to provide efficient, dependable and cost-effective rail service.

Discussion on Mango business rescue process

Ms Phiri said that the Department had previously alluded to receiving a PFMA application from South African Airways (SAA) to dispose of Mango shares in the airline, indicating that Airways (SAA) was completely dissatisfied with the preferred bidder for Mango. The Department had requested critical information to properly assess the transaction and decide on the application. Unfortunately, the business rescue practitioner (BRP) had taken the Department to court. She inquired about the financial implications of this litigation on the overall rescue process.

She said that one of the key pieces of information sourced by the Minister on the assessment of the PFMA application on the disposal of Mango shares by SAA was the business case, so that the Department could see the detailed business plan and be satisfied that the consortium's proposal was viable, and that they had enough working capital to run the airline.

The acquisition proposal was feasible, so her question was whether the Department had recommended that this information be included in the amendment plan. Why was the adequate working capital of the preferred bidder important, given that the airline's exit from the South African market was common knowledge and could be attributed to factors other than financial constraints?

She asked about the assessment conducted prior to the sale of the government's shares in SAA.

What value for money had the government obtained by selling its shares in SAA? She asked how the preferred bidders' sharing of the business plan did not constitute a conflict of interest between the preferred bidders if there was a possibility of a rival at the Department by virtue of overseeing the government shares in the SAA. In this regard, did the Department's business plan adhere to the Competition Act No. 89 of 1998. She stated they were already aware that if this was not resolved, the Air Services Licensing Council would cancel Mango's operating licence. She asked how this would affect the BRP in the future.

Mr Cachalia asked who the preferred bidder was. How much was the preferred bidder willing to pay? Was the preferred bidder still going to purchase Mango if the Council refused to reinstate the licence? He inquired about the current state of Mango's cash balance. He enquired where the R85 million balance of the R872 million that was yet to be paid to Mango. He stated that R282 million had been set aside to pay creditors who were owed R2.8 billion, but what if their negotiations to pay this amount failed? What effect would this have on Mango's rescue?

He had heard that the leases of Mango's aircraft had all been cancelled, but that five to eight of them may be leased in the future, and he would like to know when. He also wanted to know what fees had been paid to the business consultant.

Mr Gumede observed that they appeared to be creating internal competition between Mango and SAA. Many of the factors that appeared to be crippling Mango were suggested by SAA. Members would recall that prior to the proposal, there were items that were preferred for Mango which were suggested by SAA -- even the suspension of the licence for 24 months and a reduction of airlines. It seemed Mango was still accountable to SAA. In light of the new situation, was Mango still a subsidiary of SAA? They appeared to be still reporting, but had followed a similar pattern of business rescue.

He asked about the 24-month suspension of Mango's licences. When had the 24-month period begun, and what was Mango's lead-in time? The issue of costs had been raised, and he was curious about the ramifications if the Department lost the case and what would transpire -- would they have enough to get them through the process? If it was delayed, they could be dictated to by the court, since the practitioner was no longer willing to submit the data requested by the shareholder, which was extremely unfair. Everyone would be relieved if Mango returned, because he understood that 708 people had been laid off. He asked if the Department would consider recalling some of those who had not found work elsewhere, and returned with their skills, as this would help to expedite the situation.

Ms Mkhwanazi said that Ms Phiri and Mr Gumede adequately covered her, particularly regarding the cancellation of the licence and the progress of operations. She wanted to learn more about the local content involved in the deal.

Mr Essack asked whether Mango was currently paying its employees, and whether its licence had been officially revoked or was still pending.

Ms J Tshabalala (ANC) wanted to learn more about the business practitioner. Did they have an idea of how much they were likely to spend on court costs? What areas where the Department could settle out of court if possible, and how much money would they still need from the Department to restructure? She had been raising the issue of business practitioners in terms of accountability, specifically, the issue of them receiving funds from the entity, if not from the Department. However, the Department could not take the BRPs on, which meant they would not receive accountability records for the expenditure, as they were not liable to do so.

She stated that a joint meeting between the DPE and the Department of Trade Industry was required to address the issue in the Company's Act. She expressed her hope that they would be included in the future, because they were spending too much money on business rescue practitioners. Their lesson from the SAA had been excruciatingly painful and had cost them a lot of money. When they checked the expenditure, it was more about paying consultants to do the work without receiving a plan from them. She found that disturbing and asked if the Department could package it and look at the legal framework and legislation, so they were clear on what they were looking for.

She said the DPE had received a PFMA application from SAA on 30 September to sell SAA shares in Mango Airlines. According to her, this meant that SAA had been completely satisfied with the preferred bidder for Mango. However, the Department had requested specific information and had properly assessed transactions on the application side. The BRP had unfortunately taken the Department to court over this matter. What were the cost implications for the overall BRP? On the key information that the Minister had sought for the assessment of the PFMA application on the disposal of Mango shares by SAA in the preferred bidder's business case, so that the Department could have a sight of the detailed business plan to satisfy itself that the consortium's proposal was viable and that there was adequate working capital to operate the airline and that the acquisition proposal was viable, did the Department recommend that this information be included in the revised business rescue plan, and why was the preferred bidder's adequate capital important? This was because airline exits from the South African market were common, and could be attributed to factors other than financial constraints.

Was any analysis conducted prior to the sale of government shares in SAA? If this was the case, how much money did the government save by selling its stake in SAA?

She expressed concern that the BRP sought transaction approval without extensive due diligence. In light of this, she asked what aspects of the transaction the Department would like to further verify, investigate, and audit. Had they completed the business plan requested by the Department in accordance with the Competition Act?

Responses

Adv Makobe said the litigation process was by definition expensive, and what made matters worse was that the business rescue practitioner was using Mango funds to initiate this litigation. They could have met and reached an agreement. If there was a chance of resolving this, they were willing to sit down with the BRP again and explain the significance of the information they required from him. If he released that information, they would be able to make a decision and the court case would be unnecessary. It was a costly process, and they could not afford to lose at this point.

Concerning the business plan, he stated when the BRP plan was created, it had simply stated that a business investor should be found for Mango. After it was adopted, business rescue practitioners published an expression of interest and identified the investor. The investor and the BRP would then deal with the business case. This was what they were looking at this time, and they were still waiting. This could not have been done before the plan was approved, but it could have been done afterwards.

Concerning the SAA process in terms of legal counsel, he said that SAA was still flying, that it was not in the business rescue process, that it was not liquidated at 49%, and that government owned a golden share. The strategic partner would invest R3 billion in shares as working capital. He believed they were providing good value for money, which was what they were looking for in this Mango deal.

Regarding the Competition Commission, he said that the BRP had issues or concerns that may pose a problem for the Commission. They should go to the Commission and request an advisory in this regard. They had advised him that by submitting the business plan to SAA, he would be able to submit it to the Department, because they were going to be the operator. Despite being a shareholder, they were not an operator in the eyes of the Competition Commission.

He said that despite the suspension of the licences, those licences could still be applied for so that Mango could proceed in that regard.

The Department could not provide information on who the preferred bidder was and how much the bidder would pay, because the transaction had not been finalised, and the matter was before the court. However, they would inform the investor once the transaction had been finalised and the Completion Commission had approved. For the time being, they were bound by a confidentiality agreement, primarily because the matter was before the court.

Mango was still a subsidiary of SAA until the SAA transaction was completed, or the Mango process was completed with the investor. The licences could still be applied for.

The issue of the BRP's accountability was a creditor's process. The business rescue plan would be presented at a meeting, where creditors would vote on the plan, and the business rescue practitioner would then implement a plan. As a shareholder, one did not have much to say on the subject. However, if shares were sold, they must be returned to the shareholder, who must then make the final decision on the shares. The business rescue practitioner could not sell those shares without the shareholder's permission. In this case, the Minister was the shareholder, so the application could not be approved until the Minister said yes, so the BRP was suing the Department.

A DPE representative said R25 million had been paid for the business rescue practitioner to date, and they were still within budget. He also stated that Mango had been granted two licences. One was the route licence for flying regional routes, which had been suspended for 24 months. Mango needed to devise a strategy to resume flying on those regional routes, because, after 24 months, the routes would be available for other airlines to use. The other part of the licence was the Air Operating Certificate (AOC), which must be renewed every year. He said Mango had been suspended because it was not operational, and this licence could be applied for as soon as it was ready to begin operations.

Further discussion

Mr Cachalia said a couple of his questions were not answered, most likely because he had been unclear in asking them. He said SAA had received R812 million from Mango, but R727 million was transferred to Mango, leaving R85 million with SAA. If the R85 million was not going to Mango, should it not be paid to the National Revenue Fund? He stated categorically that it could not be used by SAA. He had also inquired about Mango's current cash balance and whether any current aircraft were owned, and not leased, by Mango.

Ms Phiri stated that the current aviation industry expectations for 2023 were slim margins, and no profit projected for the African aviation industry. She asked if the BRP or DPE believed that the PFMA delay would benefit Mango, because there had been so many delays. She did not believe Mango would be successful. The impact of the PFMA approval delay on the business rescue process, as well as the financial impact on the airline, would simply destroy the effort and everything that they were attempting to achieve. She wanted to get more information and clarity on the delay of the PFMA approval, and asked how it assisted Mango Airlines in returning to its operation and attracting investors.

DPE's response

Ms Molisane stated that if they could skip due diligence and risk losing an investor, this deal would not be viable, and it would stymie or undermine their efforts to turn around these airlines. They had been very cautious in their approach by insisting on due diligence to avoid unnecessary delays. She had stressed to the team that this exercise was extensive, and that they were confident that it would result in the airline's revival.

A DPE representative said the R85 million was still with SAA, and in terms of expropriation, that money had been specifically allocated for the subsidiaries, so SAA could not use it. Once the processes were completed, the money would be transferred to the National Revenue Fund (NRF) rather than Mango, so SAA would be unable to use it for anything else.

Adv Makobe stated that with the R85 million, the simplest way was to ask the business practitioner to negotiate with the creditors. They intended to save it in the NRF so the creditors could contribute.

The Chairperson expressed the Committee's appreciation to the DPE for answering all of their questions during the first and second presentations.

Committee matters

The Chairperson requested that the Secretary of the Committee present the minutes of the previous meeting.

Mr Disang Mocumi, Committee Secretary, said that in terms of the agenda, they had not prepared the minutes and distributed them to the Members because they had expected the meeting to last longer if the BRPs were present.

He said that Denel was scheduled to appear before the Committee the following week on 8 March. Denel had yet to submit its annual report to the Committee. He sought advice from the Committee.

The Chairperson clarified that at the meeting next week, they would invite the outgoing Eskom CEO to come and present to the Committee on the allegations of corruption at Eskom that he had made public. The Eskom CEO would explain what he meant when he said "people continue to squander Eskom's limited resources." Because Denel was unable to attend, this was what the Committee would be dealing with next week.

Ms Maotwe asked if they could have a physical meeting with the outgoing Eskom CEO rather than a hybrid meeting, so that they could interact physically.

The Chairperson said that even though this meeting was not supposed to be virtual, he was always trying to get them to apply for physical meetings because they were ready to meet in the physical space, but the issue was a lack of space in Parliament. He said that the Secretary would look for a suitable venue. He was unsure of the criteria used in Parliament to prioritise giving a venue and was uneasy about how they would respond. They had previously allowed them, and they were now ready to have physical sessions.

Ms Phiri suggested that they arrange a physical meeting somewhere.

She asked how the former Eskom CEO should be referred to now that the company no longer employed him. Would that not violate the Committee's mandate? She needed to check and get proper advice, because he was no longer a part of the entity -- unless the information she had was incorrect.

The Chairperson said that they were Members of Parliament who had been tasked with overseeing six state-owned entities. They had a responsibility to perform that oversight, and as Parliament, they had the authority to summon anyone, regardless of where they worked. Even if Mr de Ruyter had never worked for Eskom, the Committee had the authority to summon him to Parliament. They were responsible for staying on the terrain where they had been deployed as Members of Parliament. 

The meeting was adjourned.