South African Airways, Eskom & Pebble Bed Modular Reactor: briefing by Department of Public Enterprises & SAA

Meeting report

The Chairperson delegated the chairmanship of the meeting to Mr Peter Hendrickse (ANC) for the briefings on SAA.
 
Ms Portia Molefe (Director-General; Department of Public Enterprises) advised the Committee that the Department would present briefings on South African Airways (SAA), ESKOM and the Pebble Bed Modular Reactor (PBMR). SAA would present a briefing as well.
 
Department of Public Enterprises (DPE) briefing on South African Airways (SAA)
Dr Andrew Shaw (Deputy Director-General: Transport, DPE) briefed the Committee on SAA from the shareholder’s perspective (see attached document).
 
The downturn in the global economy impacted negatively on the operational environment of SAA, resulting in a dramatic decline in passenger demand in the local, United States, European and Indian markets. Demand in the African market increased but accounted for only a small portion of SAA’s revenue. A graph illustrated the year-on-year quarterly passenger growth statistics for domestic and international passengers between 2001 and 2008.
 
A restructuring plan was introduced after the airline failed to meet going concern requirements in March 2007. The objective of the plan was to improve SAA’s operational competitiveness. An amount of R653 million was transferred to SAA to cover voluntary retrenchment packages. A guarantee of R1.56 billion was given to cover the costs of grounding the Boeing 747-400 fleet. The restructuring measures achieved cost savings of R1.141 billion by March 2008. The airline however failed to meet the requirements for outsourcing the Voyager frequent flyer mileage program, SAA Technical (SAAT), catering and air-freight. Targets for revenue management were not fully met, mainly as a result of the decline in load factors caused by the economic downturn.
 
The international aviation business environment was characterised by substantial reductions in profitability as a result of high fuel prices and a reduction in demand, leading to the liquidation of 35 airlines in the previous year. Forecasts predicted continued losses in the industry for 2009. The cost-saving measures implemented by SAA were similar to the measures taken by other international airlines. Graphs illustrating international aviation trends were included in the presentation.
 
Compared to other airlines, SAA was severely under-capitalised. In a comparison of ten international airlines, SAA had the highest on and off balance sheet gearing ratio (exceeding 1400%) and the highest level of debt to turnover ratio (110%). The challenge for the shareholder was to improve the equity situation of SAA in order to enhance the sustainability of the airline. A table detailing the funds and guarantees furnished to SAA since the transfer of the airline from Transnet to Government was presented. Funds transferred totaled R653 million and guarantees for R1.3 billion and R1.56 billion respectively were provided by Government. The Department was concerned that the provision of guarantees made the airline less sustainable. The conversion of the R1.56 billion guarantee into a full equity injection announced in the 2009 Budget reduced SAA’s debt to a certain extent. The purpose of the equity injection was to fund the grounding of the Boeing 747-400 aircraft.
 
Strategic changes in direction were required to improve SAA’s capitalisation position, to reverse the culture of dependence on Government, to improve revenue and route profitability, to convert support services into profit centres and to acquire additional skills and expertise.
 
Dr Shaw concluded the presentation by listing the resolution of the Voyager liability on SAA’s balance sheet, the finalisation of the negotiations on the Airbus order placed in 2002, finalisation of the litigation on competition matters in the US, UK and Australia and the re-negotiation of non-core supplier contracts as immediate challenges that needed to be addressed.
 
Ms Molefe listed two core issues, namely the need to reduce the cost of borrowing by converting the guarantees and the operation of SAA as a commercial enterprise. She explained that there were costs associated to guarantees in addition to the borrowing costs on the loans that were raised on the strength of the guarantees. The airline required shareholder support to become commercially viable.
 
Briefing by South African Airways
Prof Jakes Gerwil (SAA Chairman) welcomed the opportunity to brief the Committee on positive aspects of the airline’s performance. He deplored the national propensity to regard the airline in a negative light when SAA was in fact doing quite well in a global context. He felt that constant references to taxpayers bailing out the airline needed to be revisited. The restructuring of the airline was fairly successful and the need to re-capitalise SAA was made clear in the DPE presentation. He took the opportunity to thank the airline’s staff and management for their efforts.
 
Mr Chris Smyth (Acting Chief Executive Officer; SAA) agreed that the airline faced major challenges as a result of the economic downturn and its thinly-capitalised position and welcomed the opportunity to demonstrate that SAA was operationally sound. He introduced the delegates from SAA: Mr Kaushik Patel (Chief Financial Officer; SAA), Mr Bhabhalazi Bulunga (General Manager: Human Resources; SAA), Ms Vera Kriel (Head of Department: Corporate Strategy; SAA), Mr Robyn Chalmers (Head of Department: Group Corporate Affairs; SAA) and Ms Nomvula Nkabinde (General Manager: Sales and Marketing; SAA).
 
The presentation focused on the airport and flight operations performance of SAA, the impact of the restructuring measures, market performance and customer service delivery (see attached document).
 
The improvement in the airline’s on-time performance and the beneficial impact of the increased use of boarding card readers were illustrated with graphs. The improvement resulted from the change in handler, the focus on operational efficiency and the introduction of daily measurements and the increased use made of technology in the processing of passengers through airports.
 
A 20% decline in mishandled baggage was reported. Although the pilfering of baggage had declined by 40%, there was room for further improvement. Additional technological initiatives included self service and web check-in facilities for passengers.
 
Ms Kriel briefed the Committee on the impact of the restructuring of SAA, the market performance and customer service delivery performance of the airline. Three categories of initiatives comprised the restructuring plan, namely global initiatives, revenue initiatives and departmental initiatives. By March 2008, the restructuring program achieved R30 million (3%) in cost savings in excess of the target set. The target of R2.3 billion by March 2009 was achieved by December 2008. A summary of the performance in each of the operational areas was included in the presentation. The achievements were verified by independent external auditors.
 
Changes to the initial restructuring program presented to the Committee in June 2008 included the grounding of the Boeing 747-400 fleet. Attempts to sell the aircraft failed but the aircraft were subsequently leased to the Angolan airline TAAG. A saving of R177 million as at 31 December 2008 was achieved. Partnership relationship negotiations had stalled but some savings were realized through additional network improvements and codeshare agreements. Global distribution system (GDS) contracts left little room for re-negotiation but savings were achieved by reducing promotion and advertising spend. An overview of the restructuring program was included in the briefing.
 
Ms Kriel provided details of SAA’s market performance. All domestic routes were profitable and market share in Africa had grown satisfactorily. SAA’s market share had grown in the Australasian, South American and Asian markets. Passenger growth to North America had declined. Traffic from South Africa had declined by 2%. The airline continued to increase its capacity in the most profitable markets.
 
Ms Kriel reported on customer service delivery results. Customer satisfaction surveys indicated an increase of 7% to 77%. Although a higher customer satisfaction index was desired, SAA was satisfied with the rate of improvement achieved. Similar results were achieved in the quarterly assessment of Star Alliance members. SAA achieved rankings of 11^th for business class and 14^th for economy class in the global Skytrax ranking of 167 airlines. The Skytrax survey included the responses of ten million passengers. SAA was the top ranking airline in Africa.
 
Mr Smyth concluded the briefing with a summary of the issues covered in the presentation. Operational performance exceeded the targets set, the restructuring program was considered to be successful, market share in the focus areas was growing and customer satisfaction indicated an improvement. SAA was expected to make an operational profit for the 2009 financial year but was likely to post a bottom line loss because of the decline in revenue experienced since December 2008, the payment of R300 million in interest on loans raised against Government guarantees, the steep increase in fuel prices and hedging losses because of volatility in fuel prices.
 
Discussion
Ms Chohan wanted to know for what the R1.6 billion allocation announced by the Minister of Finance during his 2009 Budget speech was earmarked. She said that the Committee was well aware of the under-capitalisation of SAA but understood that injections of capital were necessary to ensure ongoing operations. She asked what was the total amount requested from National Treasury for re-capitalisation purposes and what reasons were given by the Treasury for not granting more funding.
 
Ms Chohan asked what the implications were of the 2010 FIFA Soccer World Cup and what preparations were made by the airline.
 
Ms Chohan noted that the DPE and SAA presentations differed on the achievement of the restructuring targets set for revenue management and market share.
 
Ms Chohan referred to the recent arrests of SAA personnel at London Heathrow for drug-smuggling offences. She said that the incidents damaged the reputations of both SAA and the country. She wanted to know what actions were taken by the airline to improve security and if the airline had a face-saving marketing strategy in place.
 
The Committee had raised concerns over the retention bonuses paid to personnel on previous occasions. Ms Chohan asked whether the bonuses were still being paid.
 
Ms Chohan remarked that SAA had an image problem and the South African public saw the airline as a white elephant. The perception was that other airlines could step in and take over the market if SAA went out of business. She asked what impact SAA had on the South African economy and drew a comparison with the recent demise of the Brazilian national airline Varig.
 
Ms Molefe explained that the R1.6 billion allocation in the 2009 budget was intended to convert the R1.65 billion guarantee into cash equity. The benefit derived was a reduction in interest costs. A total of R5.2 billion was requested from National Treasury to deal with the Voyager liability on the SAA balance sheet in accordance with international accounting standards and to take up the Airbus contract and avoid being sued. The conversion of the guarantee was necessary to provide for operational reserves and would have dealt with the worst of the capitalisation issues faced by SAA.
 
Ms Molefe said that a study of the demise of Varig and the impact on the Brazilian economy had been commissioned by the DPE. She offered to report to the Committee when the results of the study became available. Various factors needed to be taken into consideration when assessing the impact of an airline on the economy. Airline revenue was retained in the country of ownership and South Africa only benefited from costs incurred in the country by foreign-owned airlines. With the prevailing economic downturn, airlines needed to re-assess the volume and viability of the South African market. South Africa remained SAA’s primary market and the Department had previously brought the danger of losing control over the volume of business travel to South Africa to the Committee’s attention.
 
Prof Gerwil said that SAA had always understood that the Cabinet insisted on the continued existence of the airline. He said that an external forensic investigation on a number of issues, including the matter of retention bonuses, had been commissioned by SAA. The impression that managers paid themselves bonuses was incorrect. The management of SAA was concerned about the loss of skills and had identified a number of persons and skills that needed to be retained. The bonus scheme was an approved skills retention program.
 
Mr Smyth agreed that the drug-smuggling incidents were horrendously damaging to SAA and had widespread repercussions on the security measures and other operations of the airline. SAA took swift action following the first incident in January 2009, when the crew of an SAA airliner was arrested in London. He explained how two staff members, acting in collusion, abused the baggage tag system to smuggle the drugs. Subsequently, the bag tracing tag security system was tightened and random searches of crew baggage were undertaken. It was however impractical to search all the baggage of all the crew members of SAA flights and the second incident occurred when staff members used carry-on luggage to bypass the security system. He said that SAA appeared to have become a target for drug syndicates from the Far East and South America. He reported that Kenya Airways had a similar problem with drug-smuggling, which was addressed by tightening security measures. Current baggage scanning equipment was ineffective against detecting drugs and SAA planned to introduce more effective equipment. The airline had formed a task team comprising representatives from SAA, the South African Police Services (SAPS), Airports Company of South Africa (ACSA) Security and Customs. He said that the airline could not combat crime on its own and help was required from other law enforcement agencies.
 
Ms Nkabinde advised that Emirates was the official airline for the 2010 FIFA World Cup. SAA was in the process of negotiating with FIFA to be appointed one of the three domestic tour operators. The airline was working with other tour operators on the transport of passengers to the events. SAA planned to finalise the final booking strategy by the end of the financial year and would start to implement the marketing strategy in April 2009.
 
Mr Smyth explained that air traffic was regulated by countries and routes were allocated to airlines operating in a country to encourage healthy competition. Countries without a national airline tended to pay very high prices for air travel if there was a lack of competition.
 
Ms Nkabinde said that recent media attention was either focused on particular persons within the organisation or on SAA as a business. The public expressed a lack of confidence in SAA, which can only be addressed by reinforcing the airline’s value proposition. The airline’s upcoming 75^th anniversary presented an opportunity to launch a marketing campaign designed to celebrate the milestones achieved. SAA can only attempt to change the perceptions in the market by clarifying the challenges faced by the airline and to address the specific customer and person issues. The airline focused on re-selling SAA as a brand but responses to negative media reports on the drug-smuggling incidents were limited because of the investigations undertaken. SAA could only focus on the business and on issues under its own control.
 
Ms Molefe said that frankness was important in facing the challenges. She remarked that both SAA and the shareholder needed to own some of the issues that had a negative effect on the airline’s reputation. She pointed out that SAA operated in a competitive environment and the carriers in competition with the airline will take advantage of the negative press. Other airlines operating in South Africa did not have the same public exposure as SAA. SAA had to be commercially viable and she considered criticism on that point as fair. The airline needed to be properly capitalised to ensure that it could operate in a sustainable manner. The matter of the ownership of SAA Technical was important. SAAT should offer the same service to SAA as to other carriers. She conceded that SAA had a reputation for being predatory but felt that changes in the airline’s operation were necessary. The re-capitalisation of SAA was essential in achieving the operational objectives.
 
Mr Hendrickse remarked that small, inexpensive changes could be made to improve passengers’ perceptions. For example, if the screen indicating which carousel delivered the baggage from a flight was not functioning, there was nobody available to ask. Personnel tended to blame ACSA. He deplored the loss of good quality staff as a result of the cost cutting measures and gained the impression that flight crew avoided contact with passengers. He noted that SAAT was being run at arms length and asked how many members were on the Board. With regard to the issue of retention bonuses, he said that the Committee had raised its concern over the high staff turnover with the management of SAA on numerous occasions but never received a satisfactory response. Results from exit interviews were not forthcoming and the Committee only had anecdotal reports of staff leaving because of problems with the management of the CEO.
 
Mr Danny Kekana (ANC) pointed out that SAA’s image was important. He said that British Airways (BA) issued gold cards to Members of Parliament every year, enabling them to use the VIP lounges at airports. He asked why SAA did not offer a similar incentive as the airline would generate a lot of business. He asked if SAA was operating at a loss and if a turnaround could be expected in a few years.
 
Mr Z Kotwal (ANC) asked if SAA had considered sealing passengers’ baggage at check-in to prevent baggage theft. He asked if the airline had considered working with tourism organisations and hotels to use the on-board entertainment media on long distance flights to promote tourist destinations in South Africa.
 
Mr C Wang (ANC) requested further details on the fuel price hedging loss referred to in the presentation. He wanted to know the extent of the loss, the airline’s policy on fuel price hedging and what the standard practice was in the aviation industry. He remarked that it was the second time SAA had suffered a substantial loss on dollar fuel price hedging.
 
Mr Wang said that the Committee was unaware of the customer surveys undertaken by SAA. The question was asked of the CEO on previous occasions but the Committee did not receive a positive response. He asked how the surveys were done.
 
Prof Gerwil said that the SAA Board also preferred measurements of customer satisfaction to anecdotal comments during Board meetings. He agreed that the airline suffered from a large staff turnover rate and the Board had raised the issue of staff retention strategies. He would not comment on the management style of the CEO. In response to an earlier question, he said that the Board was not informed of National Treasury’s reasons for refusing to grant the re-capitalisation request but hoped that SAA and the DPE had made a persuasive argument during the briefing.
 
Mr Smyth said that the sealing of luggage with plastic wrap was not effective in discouraging pilfering. The option was still available to passengers, albeit at an additional cost. He said that the issue of baggage pilfering had to be addressed in the baggage handling area and he was aware that ACSA was focusing on the problem. All the role players were aware that baggage theft would be a major problem in 2010 if the issue was not resolved. He conceded that SAA personnel tended to deflect blame to the other service providers at airports but gave the assurance that management’s attitude was that all the role players needed to work together as a team.
 
Ms Nkabinde advised that in-flight advertising opportunities were being explored by SAA but was still a work in progress.
 
Mr Smyth added that there was some advertising and promotion of South African destinations on the in-flight entertainment system and in the in-flight magazine.
 
Ms Nkabinde reported on the initiative to offer car-hire and accommodation packages, which focused on providing more value to the South African travel market. SAA was responsible for the availability of seats but the full service can only be offered through a travel centre. The airline was considering using a franchise package to extend the reach into the domestic market.
 
Mr Patel explained the Voyager loyalty program. Customers needed to fly a certain number of miles on an ongoing basis to retain their status. Gold cards were therefore not automatically re-issued if a customer did not fly the required number of miles with an airline. Mr Hendrickse pointed out that passengers were penalised if the airline cancelled a flight and they had to fly with another airline. Mr Smyth agreed to investigate the issue and to report back to the Committee.
 
Mr Smyth explained that the operational costs incurred to generate revenue and the cost of funding determined whether an airline was profitable. As stated before, SAA was not adequately capitalised and carried a high interest burden. The airline was profitable at an operations level if the cost of funding was excluded and expected to be operationally profitable in the future.
 
Ms Chohan asked if SAA was unprofitable because of the R300 million p.a. paid in interest.
 
Mr Smyth confirmed that SAA would have shown a profit if it wasn’t for the interest cost and the hedging losses incurred.
 
Mr Patel explained that SAA had a debt/turnover ration of 110%. In addition to the amount of R300 million p.a. paid in interest on loans, SAA also paid interest to the lessors, from whom the aircraft were purchased. The massive interest burden effectively wiped out any operational profit. He said that no business could survive on borrowed money and must have some capital to continue to operate. The debt was incurred five years ago as a result of a hedge book loss. He said that the current management was living with the legacy of the past and trying to repay a debt incurred in 2004. The interest burden was taking the airline into a loss.
 
Mr Patel compared fuel price hedging to insurance cover. After the hedging losses incurred in 2004, a hedging policy was developed by National Treasury, the DPE and SAA management. SAA’s hedging policy was more conservative than the international benchmarks. During the past year, the oil price varied from $147 to $38 a barrel. According to IATA, the world average was to hedge 80% of the book but SAA hedged 40% to 60%. Fuel prices globally were hedged for four years out but SAA hedged for 12 months out. The extent of the hedge loss can only be determined as at 31 March 2009 and would depend on the fuel price on that day. He said that Cathay Pacific had incurred a hedge loss of $16 billion and compared to other airlines, SAA’s loss was small.
 
Mr Smyth advised that the losses incurred in fuel hedging were offset by profits on foreign exchange hedging. In response to Mr Wang’s question, he explained that, in addition to the internal SAA customer satisfaction surveys, the airline was subject to surveys conducted by Skytrax and Star Alliance.
 
Ms Kriel explained that the internal customer surveys were not intended to be comprehensive and were regarded as a dipstick to measure changes in customer perceptions. Each survey targeted 5000 customers and was allocated to a specific seat number on a flight. The survey intended to record the passenger’s immediate experience at the point of service.
 
Ms Molefe remarked on the need for SAA to look for partners in the absence of re-capitalisation assistance from Government. She noted that other state-owned enterprises were also affected by changes in commodity prices and faced the same challenges with hedging.
 
Ms Chohan resumed the chairmanship of the meeting.
 
Department of Public Enterprises briefing on ESKOM
Mr Chris Forlee (Deputy Director-General: Energy, DPE) presented the briefing on ESKOM (see attached document).
 
The presentation included an explanation of the multi-year price determination (MYPD) applicable to ESKOM, the considerations around the MYPD, the provision of guarantees totaling R175.97 billion by Government to support ESKOM’s existing debt and borrowing program over the next five years, the additional R60 billion subordinated loan from Government, ESKOM’s capital expenditure program for the period 2008/09 to 2012/13 and the major projects to increase power generation capacity.
 
A graph comparing the net energy sent out per week in 2008 and in 2009 illustrated that demand for electricity fell by 7.44% year-on-year. The presentation was concluded with a table illustrating the status of the generation capacity expansion program.
 
DPE briefing on the Pebble Bed Modular Reactor (PBMR)
Mr Forlee briefed the Committee on the Pebble Bed Modular Reactor (see attached document).
 
The presentation included an overview of the original PBMR offering, the challenges with the original offering, the current environment, the four major applications for process heat, the revised approach adopted and the considerations associated with the revised approach and the anticipated value added by the Demonstration Power Plant (DPP). The presentation was concluded with a summary of the future benefits associated with PBMR.
 
Discussion
Adv H Schmidt (DA) noted the dramatic decrease in energy consumption of 7.2% in January 2009. The demand for energy was less than that experienced during load-shedding and came very close to the 10% reduction demanded by ESKOM for demand site management. He asked if there were more substantive reasons for the reduction, other than the reason given that people were on holiday during that time. He asked if the reduced demand was expected to be an ongoing trend. He was concerned over the loss of revenue and the consequences for the consumer if the cost of energy was increased.
 
Adv Schmidt asked for clarity on the Standard Nuclear Island (SNI) approach that was adopted. He recalled that there were concerns over the safety aspects of PBMR and asked if these concerns had been addressed. The previous delivery date was 2016 and he wanted to know what the new time line was and when spin-offs can be expected. He asked how much had been spent on what was essentially a research project and if the project had been scaled down.
 
Mr L Gololo (ANC) asked for clarity on the statement made that fuel was included in the DPP value-add. He asked for progress on the development of skills and the recruitment of personnel.
 
Mr Wang remarked that the technical challenges included in the PBMR presentation can be more properly evaluated by the Portfolio Committee on Minerals and Energy. The Portfolio Committee on Public Entities was more concerned with the evaluation of state-owned enterprises as business entities. More information was required on PBMR as a sustainable business entity and it was difficult for the Committee to evaluate a research project. He asked when PBMR would be regarded as a business entity in its own right.
 
Ms Chohan was concerned over the issue of guarantees. The guarantee merely enabled ESKOM to borrow funds and because of the downgrading of its credit rating, ESKOM would be paying higher interest rates on loans. She noted that a guarantee fee was payable in addition to the interest on borrowings. She asked what benefits there were to Government guarantees versus outright loans.
 
Ms Chohan referred to the MYPD considerations. She understood that the purpose of the MYPD allocated to ESKOM by the National Energy Regulator of South Africa (NERSA) was to get some certainty over the cost of energy. She was concerned over the uncontrollable nature of commodity price fluctuations and the potential for hedging losses.
 
Ms Chohan said that time lines for the PBMR program was important. She asked if the change in direction meant that the program would have to be re-started. The change in strategy was understood but she warned that as a research project, PBMR could not expect Government funding ad infinitum. The problem was that the program received less support from the shareholder and needed to become economically viable as soon as possible.
 
Ms Molefe said that the framework for ESKOM required increased revenue and the reduction in demand for energy was an area of concern. The downturn in the economy reduced the demand for energy and resulted in more capacity becoming available but the down-side was a smaller consumer base.
 
With regard to infrastructure funding, Ms Molefe explained that the Department was engaged in developing alternative sources of funding. ESKOM did not have the cash to fund its expansion program and Government guarantees allowed ESKOM to raise loans. The Department however would have preferred shareholder loans. She agreed that there were costs associated with borrowings that would have an effect on energy prices but felt that ESKOM did not have much of an option. Government guarantees shored up the balance sheet and improved ESKOM’s ability to raise loans.
 
On the issue of the volatility in the price of energy, Ms Molefe agreed that greater certainty was needed. A project involving the DPE, the Department of Minerals and Energy and the coal industry was underway to regulate the price of coal. A possible solution could be if the State owned its own coal supply. The cost of coal was the biggest cost driver in the production of energy.
 
Ms Molefe explained that the PBMR project contained an element of manufacturing when it started to manufacture components for the power plant. The remaining element was research and much work still needed to be done on the brayton cycle. The challenge was to reduce the risk associated with developing new technology and discussions with SASOL assisted with the development of a new approach. There was a point in the brayton cycle at which the hydrogen economy became a real possibility. The establishment of the hydrogen economy was a global target within the next fifty years. There was however a risk associated with the development of new technology and the trade-off was to build a reactor operating at a lower temperature. Even so, the lower temperature was far higher than the current standard. The SNI approach used known technology that limited the risk but there were still some new aspects because of the higher temperatures involved. There was a risk associated with working with helium but the end product can be delivered and licensed sooner. She said that similar changes were made to the project underway in China.
 
Ms Molefe pointed out that South Africa envisaged becoming an advanced manufacturing economy. To achieve this objective, the country needed to conduct advanced research and development projects. Currently, there were two such projects underway – PBMR and the Square Kilometer Array (SKA). Without advanced research projects, South Africa will remain just another manufacturing economy with dismal future prospects.
 
Ms Molefe explained that South Africa needed to retain its intellectual property on pebble fuel. The South African product delivered better quality and given the greater proliferation in nuclear energy, the country will benefit if it remained in the lead.
 
Ms Molefe said that the new strategy had been approved by the PBMR Board. The Board awaited the revised business plan and new time lines. She reported that the skills development program was already in place. The objective was to train more black students but the program offered opportunities across the board.
 
Mr Forlee explained that the SNI approach generated both steam and electricity. In response to Adv Schmidt’s question, he said that the mines and large smelters had reduced production during January 2009. The situation can change quite rapidly and an increase in energy consumption can be expected when the rate of production was increased.
 
The Chairperson remarked that ESKOM’s demand for a reduction in the consumption of energy was a double-edged sword because the reduced demand resulted in a drop in revenue. She asked the Department to continue to report to Parliament on ESKOM and PBMR. She said that Ms Molefe had raised a valid point that the vision of South Africa as an advanced manufacturing economy may not be shared by everyone. She thanked the delegates and attendees for the presentations and participation in the briefing to the Committee.
 
The meeting was adjourned.