SA Express Airways & Broadband Infraco Bills: Department of Public Enterprises briefing

LABOUR AND PUBLIC ENTERPRISES SELECT COMMITTEE
09 OCTOBER 2007
SA EXPRESS AIRWAYS & BROADBAND INFRACO BILLS: DEPARTMENT OF PUBLIC ENTERPRISES BRIEFING.

Chairperson: Ms M Temba (ANC – Mpumalanga)

Documents handed out:
Department of Public Enterprises Presentation on South African Express Bill
Department of Public Enterprises Presentation on Broadband Infraco Bill
Committee Programme

Audio recording of meeting

SUMMARY

Members met with representatives from the Department in order to discuss the South African Express Bill and the Broadband Infraco Bill. The South African Express presentation outlined the separation of the airline and the implications of the Bill.  The Broadband Infraco presentation provided an overview of the purpose of the Bill, the servitude rights for Infraco and the implications of the Bill.

Members commented favourably on the performance by SA Express, but asked the Department to explain the delay in turning SA Express into a public company. Members also asked the Department to provide clarity on why there were no public comments received. With regard to Infraco, members asked for clarity with regard to the shareholding capacity of Transnet and Eskom in Infraco. Members commented that the cost of telecommunication was too high and some sort of intervention needed to be made. They however feared that a situation might exist where there was a duopoly in the market, and the prices remained the same. Members also asked the Department to state how they planned, through Infraco, to encourage greater use of broadband activities in the underdeveloped communities.

MINUTES

South African Express Airways (SAX) Bill: Briefing by Department of Public Enterprises (DPE)
Ms Ursula Fikelepi, Chief Director, Legal Services, DPE, gave a presentation providing an overview of S A Express Airways (SAX), the separation of SAX from Transnet and the implications of the Bill. She explained that when the decision was taken in 2004 to turn around Transnet by disposing of its non-core business, SAX was one of the entities to be removed. The  transfer of SAX to government would completely exit Transnet from the aviation sector. IN April 2007 Cabinet had approved the separation from Transnet, the establishment of SAX as a State Owned Entity (SOE) and submission of the SAX Bill to parliament for adoption. The Bill was published for public comment in May 2007 but there had been no comments. It was certified by the State Law Advisors on 23 May 2007. The Bill essentially authorised SAX to become an SOE, authorised government to acquire the shareholding in SAX from Transnet, and confirmed that the business of SAX would continue to run.

Ms Fikelepi noted that the Department and Transnet had held preliminary discussions to identify key principles of the separation. A working group had been formed between DPE, Transnet and SAX to deal with the separation. It would agree on issues such as the valuation of assets and liabilities, the transfer of guarantees and letters of support issued by Transnet. She noted that the future conversion of SAX would enable the company to access funding from the private sector easily.

Discussion

Mr N Hendrickse (ANC) [Western Cape] stated that it was good to see SAX performing so well; but he asked for comment why there was a delay in converting SAX into a public company.

Ms Fikelepi responded that before SAX was to be converted into a public company, it first had to be separated from Transnet. The Department was still busy with various processes of finalising the evaluation of SAX with the working group, and the process should be completed before the end of the year.

Ms L Matlhoahela (ID) [Northern Cape] asked for clarity on the public comments and whether there was a lack of interest on the part of the public. Clarity should also be provided on how the Bill would affect the employees of SAX.

Ms Fikelepi stated that with regard to the public comments, the Bill was an establishment Bill which did not have a significant impact on the industry.  With regard to the employees, it should be noted that the direct ownership of SAX was being transferred from Transnet to Government, and there would not be any direct effect upon the employees of the company.

The Chairperson asked which routes were regarded as lower density routes. He also asked who was serving on the steering committee.
 

Ms Fikelepi stated that the low density routes would include areas such as Polokwane, George, Nelspruit and Port Elizabeth, as the low cost carriers did not fly to those areas.

Broadband Infraco Bill: Briefing by DPE
Ms Ursula Fikelepi gave a presentation providing an overview of the purpose of the Bill, the servitude rights for Infraco and the implications of the Bill. She stated that Cabinet had confirmed and approved the establishment of Infraco as a state-owned enterprise on 18 April 2007 and also approved the submission of the Infraco Bill to Parliament. The purpose of the Bill was to provide for the acquisition of the Infraco shareholding by Government and for the future conversion of Infraco into a public company. In terms of servitudes, the Bill extended Eskom’s servitude to electronic communications, and Eskom and Transnet were required to allow Infraco to use these servitudes in order to provide electronic communication network services.

Discussion

Ms N Ntwanambi (ANC) [Western Cape] asked for clarity on the shareholding capacity of Transnet and Eskom in Infraco. She also asked what public comments had been submitted, and whether costs would really go down after Infraco had been established.

Ms Fikelepi responded that Eskom and Transnet both had a 15% shareholding capacity in Infraco.

Ms Fikelepi said that the Department had received a number of public comments, which were mostly from industry players.  Most of the stakeholders welcomed the establishment of Infraco, but had expressed concerns about the commercial agreement between Infraco and Neotel, and the licensing of Infraco.

The Chairperson requested for the Department to provide copies of the public comments to Members.

Mr Hendrickse stated that the cost of telecommunications was still too high and something needed to be done to lower it. He asked the Department to provide clarity on the issue of expropriation and was concerned that land that was under restitution would be expropriated.

Ms Fikelepi stated that despite the fact that the cost would still remain higher when compared with international prices, it should be noted that Infraco was a government intervention, and the pricing would be reasonable. With regard to expropriation of land, it should be noted that government would not be expropriating land on behalf of Infraco any time soon. In cases where land was expropriated, government would have to take into consideration other issues such as restitution claims. The expropriation of land was a fairly lengthy process.

Ms Matlhoahela stated that she was concerned about the possible formation of a duopoly and asked what was being done to prevent this. She also asked for clarity on how it was planned, through Infraco, to encourage greater use of broadband activities in the underdeveloped communities.

Ms Fikelepi responded that on the issue of a duopoly the Electronic Communications Act had already been promulgated, which meant that other stakeholders were able to enter the market without long licencing procedures. With regard to access it should be noted that since Infraco was only providing infrastructure, it did not provide services directly to the end user. It would be a catalyst by which other players would use the infrastructure in order to reach the end user.

The meeting was adjourned.