2024 SONA & SOE Developments, SAA Repeal Bill (with Deputy Minister)

Meeting report

Opening remarks by Chairperson
The Chairperson apologised for the last minute change of the agenda as well as the late presentation. At the beginning of 2024 two bills were referred to the Portfolio Committee. The National State Enterprises Bill and the Repeal of South African Airways Bill were supposed to be on the agenda. However, the National State Enterprise Bill was later withdrawn by the National Assembly.  was supposed to have been on the agenda; however, it was later withdrawn by the National The Committee was advised a repeal Bill was not priority. The last time the Committee met was on 13 December 2023 and a decision was taken about South African Airways. Those decisions were to have been discussed in the meeting as well. The Chairperson had asked the Secretary to share correspondence between the Chairperson and the Minister on the SAA matter so that the matter can be finalized. The Committee has asked DPE to brief them on issues emanating from the State of the Nation Address and update them on the latest developments with the state owned entities (SOEs).

The Chairperson said unfortunately there was not enough time to carry out the full meeting because they were expected to attend the SONA debate shortly. He noted the apology from the Minister who was in Cabinet and Deputy Minister who was traveling abroad. [The Committee Secretary noted that the Minister had entered the meeting and the Chairperson thanked him for his appearance].

Minister's comments
Public Enterprises Minister, Pravin Gordhan, said he had come out of a Cabinet meeting just to give his apologies and stated that he would return if he needed to address any questions. He would be advised by his staff if this was required.

SOC Latest Developments
DPE Acting Director General, Ms Jacqueline Molisane, led the presentation on developments in the State Owned Companies (SOCs).

Eskom
When it comes to reducing and ending load shedding:
• Due to the deteriorating Energy Availability Factor (EAF), the Eskom Board approved a Generation Energy Recovery Plan which seeks to recover 6000 MW by March 2025.
• By 31 December 2023 Eskom recovered 2865 MW against a 2023/24 plan of 3115 MW.
• All three Kusile Units returned to service by 30 November 2023 adding 2160 MW to the grid.
• Kusile Unit 5 was synchronised to grid on 31 December adding intermittently 800 MW to the grid.
• Koeberg Nuclear Plant Unit 1 returned to service in December 2023.

On Eskom restructuring, the National Transmission Company of South Africa (NTCSA) was incorporated into a wholly owned subsidiary of Eskom Holdings in December 2021. The National Energy Regulator of South Africa (NERSA) approved NTCSA licences for operating, trading as well as importing and exporting electricity. A Board of Directors was appointed and operationalisation of NTCSA is anticipated by 30 April 2024. Amendments to the Electricity Regulation Act (ERA) to enable a competitive market and establishment of the Transmission System Operator is undergoing parliamentary approval processes. 

The Minister granted approval of the PFMA application in terms of section 54(2)(a) and(d) on 7 August 2023 for the transfer of the distribution business to the National Electricity Distribution Company of South Africa (NEDCSA). Eskom is working on the licence application to NERSA and has completed the New Holdings Company (NewCo) due diligence, and the report submitted to DPE. An independent legal opinion has been sought by DPE.

On Eskom’s Just Energy Transition (JET), phase one site-specific Repowering and Repurposing (R&R) initiatives include Komati, Hendrina, Camden and Grootvlei stations. The R&R projects at Komati will be used as a flagship for Eskom’s energy transition and replicated at all power stations to be shut down in future.
• A Renewable Energy (RE) Training Facility is being developed to facilitate the reskilling, retraining and upskilling of Eskom employees and members of the community.
• Repurposing initiatives - containerised micro-grid assembly line and a 500kWp (Kilowatts Peak) agrivoltaics plant that involves electricity generation from solar photovoltaic and agricultural activities. These projects create new jobs for communities.
• Repowering initiatives - 150MW solar, 70MW wind, 150MW battery storage, and possibility 500MW gas at Komati - these projects support clean electricity production and create jobs.

On Eskom debt relief:
• Minister of Finance announced R254 billion Eskom debt relief during the 2023 budget presentation.
• The debt relief consists of two components:
•  R180 billion debt settlement in three tranches over the medium term:
R78 billion – 2023/24 FY
R66 billion - 2024/25 FY
R40 billion – 2025/26 FY
•  R70 billion direct debt take-over of debt in 2025/26 FY.
• As of January 2024, R44 billion was disbursed to Eskom. Outstanding R34 billion will be disbursed before the end of the current financial year.
• Loan amount of R16 billion out of R44 billion disbursed has been converted into equity due to compliance with debt relief conditions.

Transnet Ports
• Efforts made to improve performance and restore to world-class standards such as accelerating capital investment, maintenance and returning marine fleet to operation and port expansion.
• Increase asset maintenance, replacement and acquisition of additional equipment. On 12 February Transnet received hydraulic tension mooring units to mitigate inclement weather to minimise downtime.
• A board was appointed for TNPA in line with planned reform to corporatise the entity.
• Transnet has appointed an international terminal operator, International Container Terminal Services Inc (ICTSI) to expand and improve its largest terminal at Durban and a preferred bidder selected to build and operate Richards Bay LNG terminal at Richards Bay's South Dunes precinct.

Transnet Rail
• Rail reforms proposed in White Paper on National Rail Policy and the Roadmap for Freight Logistics System in South Africa are currently being implemented such as the separation of Transnet Freight Rail (TFR) into a Rail Infrastructure Manager and Train Operator.
• Steps to achieve this include the development of the Network Statement which will usher in third party access for private rail operators on the main network.
• Stakeholder engagements enhanced through the establishment of dedicated teams to turn around five strategic rail corridors that transport goods for export purposes.
(see presentation)

South African Airways
Ms Molisane presented an overview of the strategic, operational, and governance reforms from 2018 to the present, reflecting on the challenges that led to the business rescue (BR) and the ongoing developments with the strategic equity partner (SEP): 

• The operation of the airline was affected by governance instability, financial challenges and operational inefficiencies, which triggered the need for BR.
• Operationally, an aging fleet and unprofitable routes led to elevated costs and reduced competitiveness, necessitating comprehensive strategic intervention. 
• Since the BR, SAA has undertaken rigorous operational reforms, resulting in streamlined processes, a more competitive fleet and significant cost reductions.
• These reforms have markedly improved service delivery and operational efficiency, positioning SAA as a more robust competitor in the aviation market. 
(see presentation)

Denel
Its operational performance has not fully returned to levels reported before 2018 as the state of capabilities deteriorated in its  business divisions. Some of the main factors impacting these divisions are liquidity constraints affecting working capital – with some critical suppliers offering onerous terms. DPE is consulting with National Treasury and Denel to release the balance of the R3.4 billion recapitalisation, as well as delays in the placement of orders with the local client. Discussions between Denel and the client are underway to finalise the contracting.

Alexkor
Its financial affairs, governance and stabilisation were discussed (see presentation).

SAFCOL
• It is solvent and is able to source funds from the financial markets without government support.
• Its financial performance improved from a R80m loss in 2018 to a R230m as of 31 March 2023.
• Revenue increased from R926 million in 2018 to R1.2 billion driven by sales of timber logs
• But the liquidity position faces a risk due to low profit margins.
• It had an unqualified audit opinion since 2019 financial year to date demonstrating an improved internal control ecosystem.
• SAFCOL declared a R1 million dividend to the government as shareholder in 2022.

Discussion
The Chairperson welcomed the presentation and opened the meeting to engagement.

Mr N Dlamini (ANC) said he did not want to comment at that time.

Mr F Essack (DA) said that the presentation had only been received that morning and it was indeed a very detailed presentation that would need much interrogation. To make rational comments at this time was not wise; the document would have to be looked at closely first.

Mr S Gumede (ANC) said that he was worried about the incident that took place after the President addressed the nation on 8 February. Immediately after, the country experienced Stage 6 load shedding. Has anything been commissioned to investigate the matter? Also, in terms of the Eskom Generation Energy Recovery Plan where does one stand? [The escalation marked a deviation from the plan to keep load shedding capped at Stage 4]. What could have crippled the plan?

Ms C Phiri (ANC) said the presentation was well detailed; however, because it was only received that morning, no one was really prepared to properly engage with it. It would be better if another meeting was set where each entity would be discussed on its own.

Ms J Mkhwanazi (ANC) agreed saying it would be better if the SOEs be discussed separately in a different meeting. It would also be better if the Minister was present as well as the Minister of Eskom.

The Chairperson noted the presentation spoke about repurposing and repowering power stations. It lacks information on how many workers are employed currently at those power stations before repurposing. What are the effects of repurposing? There are engineers who are trained to do engineering work on those power stations. Now that they are repurposed, were they retrained? Are people losing or gaining jobs? Further, has organised labour in those power stations been on board and consulted about these power stations?

The Chairperson said he asked this question because previously when the Committee interacted with organised labour at Eskom, there was an outcry from "their political side". Additionally, what effort has DPE made to ensure that government entities support each other?

On Transnet, the Chairperson noted that a certain unnamed senior manager was removed at the Cape Town port. The Committee’s understanding is that the port in Cape Town has been performing better than most ports. The Committee was recently informed that the port manager there was removed for unclear reasons and replaced by a person of a different race. Why was priority placed in Cape Town while other ports were in crisis?

DPE response
Ms Molisane apologised for the delayed submission of the presentation. DPE initially thought that they would be presenting on the Bill. However, subsequently it was informed that it was going to be on SONA 2024.

Ms Molisane explained that repurposing and repowering would require the upskilling of engineers because they would be dealing with a different kind of expertise, but the whole idea is that no one should be left behind and should be included.

Ms Molisane replied that DPE also wants the SOCs to collaborate within the DPE portfolio to ensure that public partnership happens. Additionally, on the ports, the acting GCE of Transnet, Michelle Phillips would respond to raised concerns.

Mr Calib Cassim, Eskom Chief Financial Officer, replied about the Stage 6 event following the President’s address. On that loadshedding, a report had been prepared by Eskom to send to the Minister of Electricity as well as DPE. In summary, over a short period of about two days, Eskom had lost 10 units, a lot of them linked to technical issues mainly around boiler tube leaks That coupled with cloudy conditions meant that there was a drop in solar energy supply into the grid. Also, during that period Eskom had already utilised a lot of their reserves linked to replenish the pumped storage dams and effectively had to take the tough decision of Stage 6 over the weekend to restore pump levels and storage stations.

Mr Cassim fully supported the Committee in wanting the Minister of Electricity present when discussing electricity matters.

Mr Cassim explained that 400 workers were relocated to the Generation portfolio so no jobs were lost from an Eskom perspective. On collaboration, Eskom has been working with Denel in enhancing security across its sites but in particular the power stations.

Ms Michelle Phillips, Acting Group Chief Executive: Transnet, asked not to comment or discuss individual employee matters on such a public platform. Transnet has been asked to ensure that all terminals across the country are productive and that has been its priority.

Closing remarks by Chairperson
The Chairperson said that their role as Members of Parliament is to do oversight. Thus, whenever public funds are involved, it is their duty as Members to ask questions. This includes even if the matter is between Transnet and employee, it is their job to investigate and seek clarity. Part of the job is also having the responsibility to guard against any abuse of power in these entities as well as against oppression and any undue behaviour by public leadership.

Meeting adjourned.