Hansard: Appropriation Bill : Debate on Vote No 30 – Public Enterprises

House: National Assembly

Date of Meeting: 22 Jun 2009


No summary available.




Tuesday, 23 June 2009 Takes: 109 & 110




Members of the Extended Public Committee met in the Old Assembly Chamber at 16:11.

House Chairperson Ms M N Oliphant, as Chairperson, took the Chair and requested members to observe a moment of silence for prayers or meditation.


Debate on Vote No 30 – Public Enterprises:

The MINISTER OF PUBLIC ENTERPRISES: Madam Chair … I don't know if I should wait for more enthusiastic applause or not. [Laughter.] [Applause.] That's it! Madam Chair, on your behalf, can I thank everyone for such enthusiastic applause?

Madam Chair, state-owned enterprises, in their past and present form, have played an indispensable role in the development of our country and our economy by providing essential infrastructure, such as postage, rail, water, telephony, communications, fuel, energy and development financing, without which no economy or country could have functioned or survived.

As is the case elsewhere, they are creatures of their time, reflecting in their practices or founding mandates the sociopolitical objectives of their governments. In the case of South Africa in particular, this was most evident in the era of apartheid, when they were aggressively used to disempower blacks and drastically reduce white poverty by privileging the white working class, to insulate the apartheid economy from economic sanctions, and to "develop", euphemistically speaking, the homelands. Finally, they became the aggressive entry point for white Afrikaners into the economy, from beyond the traditional confines of agriculture – a form, in a sense, of white Afrikaner affirmative action.

What we inherited were institutions that, with some restructuring, were well placed to set the engines of our economy moving, and it was a task then, of shifting the focus from the apartheid objectives to the objectives of a new developmental state.

With the advent of democracy in South Africa in 1994, government inherited a large and complex array of state-owned enterprises, with varying degrees of efficiency, efficacy and purpose. Its job, as a developmental state, both then and now, is to reorient the state-owned enterprises towards the twin goals of attaining our socioeconomic developmental goals and maximising operational efficiency and financial sustainability.

From the point of view of efficiency and sustainability, government has adopted a multifaceted approach to restructuring, which, whilst incorporating privatisation as an option, is not limited to that. Restructuring is officially defined as "the matrix of options that includes the redesign of business management principles within enterprises, the attraction of strategic equity partnerships, the divestment of equity either in whole or in part where appropriate, and the employment of various immediate turnaround initiatives".

Privatisation on its own is never a guarantee of either success or failure in attaining efficiencies and sustainability. Decisions have to be taken on a case-by-case basis, with careful consideration of the context and the environment, and of the value of the transaction to the state. For instance, the privatisation of Telkom had some negative consequences, for it did entrench some monopolistic practices and undermined accountability for service provision. The problems are compounded in a poor regulatory environment. On the other hand, the disposal of noncore assets in the Transnet stable has enabled the corporation to focus on its core business, and we look forward to seeing even more dramatic improvements in that regard.

The entities that fall under the Department of Public Enterprises stable are in the main all corporatised, with independent boards. Most of the state-owned enterprises in our portfolio operate in key network infrastructure areas – in the electricity, broadband, aviation, port, rail and pipeline sectors, as well as areas of advanced manufacturing, which have the potential to catalyse economic growth – and this is extremely important – and to ensure that this growth is accompanied by the creation of much-needed jobs.

State-owned enterprises form the backbone of the economy and, if skilfully managed, they can be the engines and the levers of moving the economy forward, as we shall see. To be able to fulfil this role, these state-owned enterprises must be strong enterprises and must be institutionally responsive to the strategic intent of government as a shareholder. Being a strong enterprise means that there is an enabling external environment for the state-owned enterprises to operate in. A strong enterprise also means that they must have adequately capitalised balance sheets; adequate and predictable cash flows going forward, sufficient for the execution of their respective business plans; strong boards and management teams; solid strategic and business plans; alignment with labour; and responsiveness to government's strategic objectives. All of these characteristics are of course to varying degrees in place.

Our responsibility as the shareholder manager is to balance the commercial sustainability of the state-owned enterprise with the state's strategic intent in owning these enterprises. This creates a delicate balance in that, if the strategic purpose subverts commercial viability, the enterprise will collapse, but if commercial considerations override the strategic purpose, government objectives can be compromised. It is our challenge to provide shareholder oversight in a manner that builds financially robust, developmental enterprises, rather than to see these two aspects of state-owned enterprises as mutually exclusive.

This is in line with the ruling party's Polokwane resolution that calls for "strengthening the role of state-owned enterprises and ensuring that whilst remaining financially viable, state-owned enterprises, agencies and utilities – as well as companies in which the state has significant shareholding – respond to a clearly defined public mandate and act in terms of our overarching industrial policy and economic transformation objectives".

Shortly put, in this era with an economic recession and a deficit in infrastructure spending, the strategic mandate of government is to confront the shortfalls in our infrastructure, to assist in turning around the negative consequences of the recession, and also to look forward, even 30 years, to what the economy will require in terms of advanced manufacturing capability. Those three are, in short, what the strategic intent of the state is at the moment with state-owned enterprises. Of course, the particulars will differ with each state-owned enterprise.

In the present worldwide economic recession, and in light of the huge backlog in infrastructural investment, the state-owned enterprises must massively expand the roll-out of their infrastructure programmes. This will help to counteract the economic downturn by accelerating jobs and investment. Comprising an investment of R787 billion, this is the world's third-largest infrastructural investment programme. It is massive, and it is meant to achieve results. Both Eskom and Transnet are critical to this programme.

These infrastructural investment programmes can be used systematically to develop the manufacturers that supply the state-owned enterprises with the components necessary for the infrastructure roll-out. We cannot have investment that simply buys in resources, materials and components from abroad. We have to have the further-downstream impact, enabling industry to engage competitively with this massive infrastructural roll-out.

This leverage is optimised when there is long-term infrastructural planning - we can no longer think short term; we have to be thinking 30, 40 years ahead of what we need - combined with a high level of standardisation of requirements and the building of strategic relationships with national suppliers. This gives industry a firm basis to invest, and allows them to achieve economies of scale and high levels of efficiency as a result of the learning curve.

In the light of this, our department has established the Competitive Supplier Development Programme, which embeds the supplier development process into the heart of the investment programmes. However, in order to achieve these objectives, sophisticated procurement abilities are required – a further reason to emphasise the building of procurement capacity. In addition, it is critical that we build our capacity to co-ordinate a range of government incentives with the procurement process to ensure investment in advanced manufacturing capabilities. We believe effective procurement leverage can result in sustained job creation and, ultimately, in exports.

In speaking to our chairpersons and CEOs of the state-owned enterprises that are charged with the task of rolling out this really historic, massive infrastructural programme, one of the matters that they highlight is the procurement ability, to really procure with the sophistication required to roll out these programmes. For instance, I think we have learnt enormously from the initial programme to procure a nuclear power station, and I believe that we are now on the tip of a learning curve, which can only assist South Africa going forward.

The current regulatory system was established during a period of minimal investment, and has not been adequately revised. This regulatory system was not developed with a build programme in mind. The consequence is that tariffs, particularly in electricity, are not designed to provide the enterprises with the cash flows to fund an aggressive build programme. Given the scale of the investment programmes, it is unlikely that the fiscus will be able to fund the costs of the capital build. This is a major threat to the investment programmes and needs to be given considerable focus. And this is what we will be focusing on, particularly with the funding model for Eskom going forward.

Given the accumulated backlog of investment in infrastructure, it is critical that we create an environment where the private sector can participate in the system alongside state-owned enterprises, rather than as an alternative to them. A further problem with the low tariff regime is that it hinders the ability to introduce private operators and funding into the system, as the returns offered to these players will not be sufficient to justify the investment. These investors do not only bring the much-needed financial capital, but can also introduce a competitive dynamic to the system that will increase efficiencies, and in certain instances will give consumers greater choice.

Finally, it is absolutely critical that our funding models for our enterprises be finalised as soon as possible. Enterprises can be funded from equity, from retained earnings and from borrowings. Our enterprises need to know with certainty how that combination is going to be effected in the months and years going forward. With Eskom, again I say, that is a critical component. We will be addressing this before September. Many of our state-owned enterprises are unable adequately to generate their funding requirements from their own operations and are reliant on borrowings that are often guaranteed by the state. It is absolutely clear that additional sources of funding must be sought. The state as a 100% shareholder is a potential source of equity funding, but, as is well known, the fiscus is simply not in a position to provide that scale of funding.

We are living in harsh economic times, when even yesterday's newspapers were reporting on the imminent collapse of a number of welfare organisations, when only a few months ago a province ran out of antiretroviral medication, and when pressures on the Unemployment Insurance Fund are undoubtedly going to accelerate. These sobering reminders of the desperate need out there must galvanise the department urgently to address the finalisation of appropriate funding models for our state-owned enterprises. This is an absolute priority.

While we deal more intensively with each of the state-owned enterprises in accompanying notes which we have released and which members will be given, it is prudent that we speak here directly to the issue of Eskom.

Despite significant funding challenges, the implementation of Eskom's capacity expansion programme must continue, with particular emphasis on bringing the two new coal-fired power stations, Medupi and Kusile, into service as soon as is humanly possible.

Eskom's planned capacity expansion programme will spend R385 billion in nominal terms over the next five years, and this began in the last financial year. The programme in its entirety plans to double Eskom's generating capacity to 80 000 megawatts by 2026, with a projected spend in excess of R1 trillion.

The funding of Eskom's capital expenditure programme remains a challenge, especially in these times of reduced debt access in the global markets, and in the context of an electricity price that does not accurately reflect the cost of production. The price of electricity, for instance, has not been reflective of the true cost of production, especially in light of the new build programme. Since 1990 Eskom has foregone over R148 billion in revenue in nominal terms – that is R257,8 billion in 2009 money – due to the provision of electricity below its affordable cost. This has led to falling financial reserves, to the point where Eskom is no longer able to meet its expansion requirements without significant borrowings, or financial injection from the state.

The Electricity Pricing Policy approved by cabinet in December states, and I quote:

Revenue from tariffs should reflect the full cost (including a reasonable risk adjusted margin of return) to supply electricity and ensure that the industry is economically viable, stable and fundable in the short, medium and long term.

The principles behind the Electricity Pricing Policy are based on a sustainable electricity supply industry, where a prudent operator can recover the full prudent costs of production and earn a reasonable return on their assets, and energy efficiency is promoted through a cost-reflective tariff.

To ensure efficiency in consumption, revenue generated from tariffs should at the very least cover operational expenditure. This cost is borne by the consumer through a progressive tariff which provides protection for poor households. Let me emphasise: This is a progressive tariff. The intention is to protect poorer households.

The current 34% price increase is based purely on the increases in operational expenditure and excludes the cash-flow requirements for the capital expansion programme. It is absolutely paramount that the Eskom capital expenditure programme continues unabated, as it will also serve to support South Africa's economic growth and provide jobs in these difficult times.

There is some concern over Eskom's ability to access the debt markets to the extent necessary to fully fund its capital expenditure programme in the current economic climate. Any shortfall in funding that is not provided for either by additional government support or through its electricity tariffs will result in a certain curtailment or rephasing of the build programme projects. That is why building a sustainable funding model is so important.

In addition to the capital expenditure, Eskom's cost of operations is on the increase. One of the fastest rising costs is that of primary energy, which is comprised of coal, diesel and water.

It is an imperative that Eskom's operational costs are fully funded through its tariff, which is regulated by the National Energy Regulator or South Africa, Nersa.

The lack of clarity regarding the funding of Eskom's capital expenditure programme and the approximate mix of government support, access to debt and tariff support has necessitated that Eskom apply to Nersa for an interim increase for this year to enable it to cover its operational costs only. Failure to obtain the 34% increase will result in a severe cash-flow shortfall for Eskom and it will have to take the necessary steps to curtail its business operations to remain financially stable.

Finally, in reflecting on the role of the Department of Public Enterprises, we have to say that one of our most important objectives now is to improve our shareholder oversight. Until 2004 official government policy focused simply on privatising state-owned enterprises, rather than leveraging the enterprises to achieve strategic national goals.

HOUSE CHAIRPERSON (Ms M N Oliphant): Hon Minister, I am afraid your time has expired.


HOUSE CHAIRPERSON (Ms M N Oliphant): Before I call the next speaker, I just want to appeal to hon members please to switch off your cellphones. I now call hon M P Mentor, the chairperson of the portfolio committee.

Ms M P MENTOR / End of Take


Ms M P MENTOR: Hon Chairperson, hon Minister and Deputy Minister, committee members, hon guests, the ANC will be supporting this Budget Vote.

Some times in history we need to go back slightly in order to see better the way forward. I take this opportunity today to go back to the speech of the president of the ANC, Oliver Reginald Tambo, in London in May 1987, when he addressed the Business International conference. I quote from that speech:

Liberation must therefore entail the transfer of power to the people of South Africa so that, collectively, we can determine and shape the society we desire, create the institutions and structures required, and decide by whom and how they will be operated.

I want to emphasise the last part of the quote, Madam Chair, which is "create the institutions and structures required, and decide by whom and how they will be operated". The institutions and structures that we are referring to in this Budget Vote are the state-owned enterprises. I want to state categorically, clearly and with a lot of zeal and determination that we shall lead, as the ANC, the decision in terms of how these state-owned enterprises should be structured and how they should be operated to fulfil that very same dream of empowering the people of South Africa collectively, in order to determine and shape the society that we desire to build.

Further on in that speech, Madam Chair, Oliver Tambo went on to say:

Let it be said clearly: The ANC is committed to bringing about fundamental change to the entire socioeconomic and political formation which constitutes the South Africa of today.

I want to emphasise again, Madam Chair: "fundamental change to the entire socioeconomic and political formation which constitutes the South Africa of today". I want to submit to this congregation here that we shall use the state-owned enterprises to do exactly what Oliver Tambo said we should do in 1987.

The last quote from his speech:

We have begun to phase the responsibilities that flow from having to lead our people in the restructuring of our society under the conditions of freedom. At the heart of this process is the need to ensure that the hopes and aspirations of our people find realisation through programmes based on concrete socioeconomic facts. This process involves systematic examination of each aspect of our society from the point of developing guidelines and programmes which can be put before our people for the purpose of consultation.

I want to ask all of us here today, the state-owned enterprises, particularly Eskom, to heed OR Tambo's call in terms of developing, all of us together and the state as the main shareholder, programmes and guidelines, and consultation mechanisms that will bring our people on board, so that we don't only consult them when it is time for tariff hikes, or when we want to hike tariffs to assist Eskom to do its work.

Returning to my speech, the resolution of Polokwane states – and I will quote again to annoy my colleagues on the opposite end …


HOUSE CHAIRPERSON (Ms M L Oliphant): Order, please!

Ms M P MENTOR: I quote:

The developmental state should maintain its strategic role in shaping the key sectors of the economy, including the mineral and energy complex and the national transport and logistics system. Whilst the forms of state interventions would differ, the overriding objective would be to intervene strategically in these sectors to drive the growth, development and transformation of the structure of our economy.

Again, we will use the state-owned enterprises to do exactly that which Polokwane said we must do, to intervene in the economy, using them in order to make sure that we grow the economy, and we bring about development and transformation.

State-owned enterprises have a critical role to play in advancing economic growth, since they are responsible for delivering key infrastructure and manufacturing capacity. Infrastructure investments are a core part of our developmental agenda, and the state-owned enterprises are implementing comprehensive investment programmes to ensure that significant and sustained opportunities for investments are created in supplier industries.

Madam Chair, I will only focus on Denel, Eskom and Infraco, as the other members of the portfolio committee will be looking into other aspects - running through my speech, lest you say my time is finished, Madam Chair.

It should be acknowledged that Denel's full potential as an arms manufacturing company is yet to be realised. Having passed a stage where it was in a messy state, Denel is beginning to position itself in the arms manufacturing industry and the future looks bright. Denel Land System has been awarded a contract by Armscor to develop the South African Army's new generation infantry combat vehicles. This contract, which is worth R8 billion, is a tremendous boost to local industry. They have skilled human capital at their disposal, but I must say we lament - and we have raised this with Denel - that they are not reaching the targets that we have stated in terms of their management component, their engineers component, their scientist component, technologists, artisans and others. These components fall far short of what we want in terms of reflecting society as it stands today demographically. So we call on Denel: much as they are turning the corner, they will have to improve in terms of the complexion of their management, engineers, scientists, technologists and artisans.

We are very happy with what is happening at the level of Transnet, Madam Chair, and I will not say much about Transnet.

Coming back to Eskom, as the Minister said, it looks like we have to say to South Africans it is inevitable that Eskom must get the tariff hike. I don't think that it is my responsibility or my domain to say at which percentage level that tariff hike should be pegged, but I want to say to South Africans that we should begin to get ready for that kind of eventuality. But I will also call on Eskom to do what OR Tambo said to the Business International conference in London in 1987, that they should consult. They should consult their stakeholders that are in the same field as them as far as energy production is concerned, but they should also embark on an aggressive public education programme that informs the consumer, that informs South African citizens what is tariff hikes, how do they come about, what does Eskom need the money for, what is Eskom going to use the money for.

My last issue will be the issue of cushioning the poor. I think both as a shareholder as government and Eskom, we are not assuring the poor enough that, with this tariff hike, if and when it happens, and the ones that will follow, that we will build mechanisms into those tariff hikes, to make sure that the rich, who are the culprits in terms of heavy usage of electricity, will be the ones that are paying more than the poor, and that we will look for a regime that will cushion the poor and that will ensure that they do not subsidise the rich as far as electricity consumption is concerned.

Because I have one more minute, Madam Chair, Parliament is a platform for national engagement on issues of national interest, I will be failing in my duty as a public representative if I do not relate to this, Madam Minister. You will forgive me: this has nothing to do with public enterprises. This morning the spokesperson for the doctors who are on a wildcat strike said that they would do everything possible to bring the public health sector to its knees so that their demands are met. Now people who have medical aid, if they bring the public sector to its knees, they will have a recourse to go to when their children and spouses and fathers and mothers and sometimes even their dogs and cats fall sick. They will have something to fall back on. I make an appeal, Madam Chair: Parliament would be failing in its duties if we do not say that, because of the law that says that they are rendering an essential service, they cannot continue to make statements like that, to say that they will do everything possible within their power to bring the public health sector to its knees.

Thank you, Madam Chair, and forgive me when I have been expedient. I did so because I had one minute extra. Thank you. [Applause.]

Dr S M VAN DYK / End of Take



Dr S M VAN DYK: Voorsitter, van die openbare ondernemings speel 'n kardinale rol in Suid-Afrika, maar die vraag is of hulle voldoen aan die vereistes waarvoor hulle tot stand gebring is. Die DA wil weet hoe ernstig die staat met sy nege openbare ondernemings is, of vorige Ministers Erwin en Mabandla hul oorsigfunksie gehandhaaf het, of die departement in beheer is van hul aandeelhouersbestuur, en of die Wet op Openbare Finansiële Bestuur na behore toegepas word.

Eerstens, wat betref Transnet, met sy R100 miljard-batestruktuur, is die beheer en bestuur daarvan nie na wense nie. Transnet het ook nou vir Nersa genader vir 'n tariefverhoging van 70% om sy brandstofpypleiding van Durban na Gauteng te voltooi, wat reeds vertraag is tot 2011. Vanjaar stuur Transnet af op 'n 15% inkomsteverlies. Transnet het oor die laaste drie jaar net R4,8 miljard se groei in inkomste getoon, maar hy kort R80 miljard oor die volgende vyf jaar vir sy kapitaaluitbreidingsprogram. Die DA wil weet waar Transnet hierdie geld gaan kry.

Transnet is ook die voog van, en verantwoordelik vir, sy Tweede Vastevoordeel-pensioenfonds – the Second Defined Pension Benefit Fund. Die 80 000 lede van die fonds ontvang net 2% verhoging per jaar in pensioene, terwyl die gemiddelde pensioen net R2 833 per maand beloop, en 40% van hierdie lede reeds minder as die staat se maatskaplike pensioen kry.

Transnet het ook aangekondig dat Transmed, sy mediese fonds, volgende jaar oor geen fondse meer sal beskik nie. Dit is 'n nasionale skande dat Transnet sy pensioenarisse, wat hierdie infrastruktuur oor 40 jaar opgebou het, net so vir die wolwe gooi. Agb Minister, ek het reeds verlede jaar 'n voorlegging aan die vorige twee Ministers voorgehou met voorstelle om die lot van hierdie pensioenarisse te verlig. Die DA sal binne enkele dae weer 'n voorlegging aan u en die portefeuljekomitee voorhou, en ons vertrou dat u dringend sal ingryp om hierdie saak op te los.

Voorsitter, tweedens, Alexkor-diamantmyn in die Noord-Kaap se produksie het as gevolg van die Richtersveld-gemeenskap se grondeise byna tot stilstand gekom. Alexkor soek nou weer R260 miljoen van die belastingbetaler om weer aan die gang te kom.

Derdens, SA Express Airways se roetes is net SA-streekgebonde. Hierdie klein lugredery het net R300 miljoen wins oor vyf jaar getoon en kan geen werklike bydrae tot die staatskas lewer in terme van dividende nie.

Vierdens, die SA Forestry Company Ltd, Safcol, 'n staatsbeheerde bosboumaatskappy, besit plantasies in drie provinsies. Hierdie onderneming met sy klein R3 miljard-batestruktuur kan geprivatiseer word, omdat daar nie regverdiging is om dit in staatsbeheer te hou nie.

Vyfdens, Broadband Infraco, wat nog net twee jaar oud is, sal so gou as moontlik sy dienste aan alle privaat rolspelers beskikbaar moet stel om die koste van internasionale kommunikasie goedkoper te maak. Dit is nog in 'n vroeë fase van ontwikkeling en dit is onbekend wat sy afhanklikheid van die belastingbetaler oor tyd gaan wees.

Sesdens, Denel funksioneer sedert 1998 teen 'n verlies. Die belastingbetaler het in 2008 en 2009 onderskeidelik R660 miljoen en R260 miljoen aan Denel gegee vir oorlewing. Die vraag is of Denel enige strategiese waarde vir Suid-Afrika inhou en of dit nie verkoop of uitgefaseer kan word nie.

Voorsitter, ten opsigte van die sewende openbare onderneming, naamlik die Pebble Bed Modular Reactor, is Suid-Afrika vir tien jaar betrokke by 'n eksperiment wat reeds in Duitsland gestaak is. Dit gaan die belastingbetaler R18 miljard kos, waarvan R10 miljard reeds bewillig is, en dit alles net om 165 megawatt kernkrag teen 2015 te genereer, teenoor 4000 megawatt wat 'n gewone steenkoolkragsentrale kan lewer.


Chairperson, SAA is an embarrassment for South Africa. Last year SAA's total debt amounted to R17,7 billion, and the airline remains R9 billion in debt to its previous parent company, Transnet. Over the past six years the taxpayer bailed SAA out to the tune of R15 billion. Now, SAA called for another R11 billion from the taxpayer for its turnaround strategy. The DA has already called in Parliament for a forensic audit on SAA and that the airline should be privatised.

Lastly, coming to Eskom, the demand for power grew by 50% since 1994, but on the contrary, in 1998 cabinet instructed Eskom not to proceed with the building of new power stations, and in 2001 Eskom then decided to sell off most of its coal stockpile. Now Eskom requires a 34% tariff increase to finance its 125 million ton coal consumption per annum, and so coalmines get subsidised, through the taxpayer, as the coalmines' net profit on coal production increased by almost 200% over the past year. Eskom also needs an extra R343 billion for its capital expansion programme which will not, according to Eskom, be recovered by tariff increases. The taxpayer already granted R60 billion in 2008 for this exercise. The question is: where will Eskom get the remaining R283 billion over the next three years?

The DA already urgently requested an independent commission of enquiry to assess Eskom's management and its current and future production capacity. We as the DA say that the government should not be the sole shareholder of Eskom, and that its policy for Eskom to be a monopoly and the sole purchaser and contributor of power should be revised to create opportunities for the private sector to enter the electricity-generating market.

The question is whether the government is serious about state-owned enterprises. The ANC government is strong on social issues but very weak on business issues. The role of public enterprises, according to the department's annual report and the Appropriation Bill Estimates of Expenditure and the Parliamentary Budget Analysis for Members and Committees of this Parliament is, and I quote: "That Public Enterprises should be efficient, competitive and the turnaround strategies must constantly be on Parliament's oversight agenda."

But in practice it appears that the Department of Public Enterprises does not comply with this. Instead of public enterprises contributing dividends to the fiscus, the taxpayer has to bail them out most of the time, and for this poor management, for example, Eskom's management received …

HOUSE CHAIRPERSON (Ms M N Oliphant): Two minutes left, hon member.

Dr S M VAN DYK: … R50 million in bonuses over the past four years and Transnet management received R43 million in bonuses in 2008, in just one year. This might be the reason why Minister Barbara Hogan has warned unprofitable state-owned enterprises that they cannot be bailed out indefinitely. One of the most senior Ministers, Minister Trevor Manuel, agreed with her when he announced on 22 October last year in Parliament, during the Adjustments Appropriation Bill, and I quote his statement from Business Day:

Minister Manuel highlighted the accumulation of liabilities by state-owned enterprises as a risk to taxpayers and said the control over their contractual obligations had to be strengthened.

On 3 June this year the President of South Africa, Mr Jacob Zuma, also backed Hogan, and I quote from p 14 of his state of the nation address:

To ensure delivery on our commitments we will hold cabinet Ministers accountable through performance instruments. We will also involve state-owned enterprises in the government planning processes and improve the monitoring and evaluation of their performance.

So, ANC committee members, you must please not listen to his master's voice Mantashe, who wants to control Cape Town from Johannesburg. [Interjections.] If he wanted to become an MP, he should have made himself available as an MP. [Interjections.]

HOUSE CHAIRPERSON (Ms M N Oliphant): Order!

Dr S M VAN DYK: Ministers Hogan and Manuel and President Zuma are absolutely correct about their concerns about Public Enterprises. Over the past four years Treasury spent R80 billion on Public Enterprises and the latter needs … [Interjections.]

HOUSE CHAIRPERSON (Ms M N Oliphant): Order, hon members!

Dr S M VAN DYK: … another R372 billion in the next three years for their capital investment programme. Where will the money come from?

The most shocking is the department's announcement last week to the portfolio committee, and I quote:

The [department] recognised that there is a lack of clear definition of the role of state-owned enterprises in the national economic strategy.

What a surprise! Therefore, Chair, the DA calls for the privatisation, or selling off, or phasing out, of some of these public enterprises. SAA should be privatised and Eskom can be transferred to the administration of Energy and Transnet to Transport without affecting the economy. The DA says that the taxpayer cannot bail out Public Enterprises indefinitely. There should be a sunset for their turnaround performance results. I thank you, Chair. [Applause.]

Mr M A NHANHA / End of Take


Mr M A NHANHA: Hon Chairperson, members of the executive present here today, hon members of the Fourth Democratic Parliament, distinguished guests, ladies and gentlemen, a special greeting goes to a couple who are friends of mine from England, now living in South Africa, Dr Keith Boraine and his wife Catherine, who are seated on the gallery. Thank you so much, Keith and Cathy, for honouring this appointment.

May I start by thanking hon Minister Barbara Hogan for a palatable dinner she hosted for the committee last night. I was fortunate to have shared a table with you, Madam. We engaged very constructively. However, as I said last night, whatever was discussed at our table meant very little to me, because I would not change my speech. So allow me to say my say.

Hon Chairperson and members, as you know by now, I am a member of Cope … [Interjections.] … a party that represents noble principles. My party took a decision that in this House we shall be patriotic in our opposition. In simpler terms, we shall give credit where and when it is due. However, we shall not think twice or hesitate to speak out loudly when this government falters. [Interjections.]

HOUSE CHAIRPERSON (Ms M N Oliphant): Order, hon members!

Mr M A NHANHA: Cope wishes to commend the good work done by Transnet, SA Express and, to a limited extent, SA Airways. I shall explain the latter during my speech.

It is our view that the manner in which Transnet and SA Express are conducting their business is a shining example and that other state-owned enterprises that are currently not doing so well should learn from these success stories.

Talking about SAA, may I, on behalf of my party submit that whoever was responsible, in 2002, for placing a R1 billion order for 15 A320 Airbuses that we neither want nor can afford should be brought to account. This includes the former chief executive of SAA, Mr Andre Viljoen. This is nothing else but wreckless business management and fruitless expenditure. [Interjections.] The acting CEO, Mr Chris Smith, correctly said, and Business Day echoed the same, and I quote:

It is fantastic news that SAA is able to report an operating profit of R1,1 billion in the year to March. Fantastic if you are able to overlook the R1 billion in fuel hedging losses, or other large and expensive legacy issues.

It is very clear to me that something is not right at our national carrier, and as a responsible Parliament we cannot fold our arms as if nothing untoward is happening.

Hon Marthinus van Schalkwyk, during his Budget Vote speech, warned SAA to get its house in order or else his department would be forced to reconsider their alliance. Preceding that was a statement attributed to Minister Hogan, cautioning that state-owned enterprises that do not put their house in order should be done away with, because they are costing the nation resources that could be better utilised elsewhere.

Cope is mindful of the strategic security imperatives that some of these state-owned enterprises have and we cannot do without them. However, they cannot perpetually ride on that fact. A strategy to turn around the fortunes of the likes of Denel has got to be developed as a matter of extreme urgency, because in our view the current strategic turnaround of Denel, which they started to implement in 2005, is not good enough.

The total staff complement at Denel is 7198. Shocking statistics reveal that only 1% of these employees are of Indian origin, 16% are coloured and only 30% are African. The three race groups combined make up 47%, and the other 53% are all white. As if this were not enough, only 21,8% of employees at Denel are women.

If you look at their figures of people in management positions, engineers, scientists, technologists and artisans, the situation is even worse.

HOUSE CHAIRPERSON (Ms M N Oliphant): Hon member, your time has expired.



Mr M G ORIANI-AMBROSINI: Madam Chair, this being my maiden speech, I must record my deep gratitude to Prince Mangosuthu Buthelezi and the IFP for the opportunity of serving in this Parliament, along with the many other opportunities I have been afforded since 1991, when I was part of Prince Buthelezi's team in the negotiations from apartheid to democracy.

While expressing our great admiration for the Minister, the IFP must signal its objection to her department's policies in the hope that she may succeed in changing them. The world has undergone changes requiring drastic and immediate action. South Africa is now part of the global depression, causing a dramatic reduction in our tax revenues, while increasing the need for social assistance over and above the additional social programmes announced by President Zuma. The shortfall between diminishing revenues and increasing spending must not be addressed with higher taxes, whether these are taxes paid now or forth onto our children with compound interest in the form of increased public debt.

We must make up for this shortfall by selling public enterprises which the state has no business owning. In times of crisis the state must act as families' and business's bullwark and raise its standing by selling assets that are not needed for the performance of public functions. There is no reason to continue to own SA Airways and SA Express. Combined, they appear ripe for disposal, as SAA is finally being turned around and should not receive the R1,6 billion bail-out it is now asking for.

For ten years Denel has been a major liability to taxpayers and this year it is approaching the Treasury for additional R1,7 billion bail-out. Denel is not overcoming structural difficulties. Domestically and internationally, its weapons are not liked and bought. It is morally repugnant enough to force our population to be our merchants, not to have to bear the injury of continuing to do so at a perpetual loss. There are other arms manufacturers in South Africa and the state ought not to compete with its own citizens.

The combination of arms trade and political power is inherently corrupt. Armscor buys more than it would otherwise to keep Denel afloat, and garners sponsored sale of weapons internationally, while attempts to prevent our weapons arming human rights violators fail. Then chairman of the supervisory cabinet committee Minister Asmal objected to selling weapons to Indonesian dictator Suharto but was overruled in cabinet as President Mandela pointed out that when asked to give a large cheque to the ANC Suharto gave an even larger one. Now Denel calls on government to intervene with the government of India to lift Denel's blacklisting, reportedly on account of commissions or kickbacks Denel paid there.

Rather than throwing good billions after bad and manufacturing weapons which do not sell, let us make an investment in a viable future industry. The CSIR operates its nanotechnology research on a mere R18 million budget, yet nanotechnology is at the basis of our future products, including military application, and its gross underfunding is an industrial death wish. There are compelling reasons for the state to fund nanotechnology, research and development and product development companies instead. The same applies for biotechnology.

The policy of holding an unnecessary asset is so embedded in the department that in spite of our full confidence in the Minister, the IFP cannot see its way clear to supporting this budget and must regretfully oppose it until the department embarks on the prioritisation of nonperforming state enterprises and those which have no compelling public function. We call for a new vision for the department, to be the incubator of enterprises ahead of the market but critical to South Africa's industrial future such as biotechnology and nanotechnology research, to break the Transnet rule …

HOUSE CHAIRPERSON (Ms M L Oliphant): Hon member, your time has expired.


Mr L W GREYLING / End of Take


Mr L W GREYLING: Chairperson, let me first congratulate the Minister on her appointment to this Ministry. I certainly wish her the best in what is sure to be a very challenging job. As a social democratic party, the ID believes in the strategic importance of having certain state-owned enterprises, but like you, Minister, we also don't believe in throwing good money after bad. State-owned enterprises need to prove their worth, and cannot continue to be a drain on the public purse.

In this regard we in the ID do not see the logic of continuing to fund the arms manufacturer Denel, or the PBMR company, which between them have swallowed up R13 billion of public money with very little to show for it.

The ID also questions the logic of giving SAA a further R1,6 billion when there are so many other pressing needs in our country, especially in terms of education and health.

And in terms of Eskom, Minister, the ID, along with many other stakeholders, including business representatives, is calling for a public review of Eskom's new build programme. This programme represents the largest public procurement in this country's history, and it is vital that we maximise its potential benefits and minimise its negative impacts, and in this regard the ID has a number of serious reservations about this programme due to its high import intensity, limited employment opportunities and the fact that renewable energy is projected only to supply 1% of the new generating capacity.

Minister, this build programme will lock us into an energy feature for the next 50 years. It is therefore vital that this programme takes into account the way in which energy is being reconceptualised in the world, so that we don't lock ourselves out of new global opportunities. Eskom's lack of commitment to renewable energy is also legendary, and is evidenced by the fact that its 100 megawatt concentrated solar plant has remained in the design phase for over ten years, with Eskom refusing to put the necessary funds towards it.

The ID therefore calls on your department to take it over as a strategic project so that we can finally build on our potential to become a world leader in solar energy, which is proving to be the fastest-growing industry in the world. Doing this will not only reduce our country's considerable contribution to climate change, but also create hundreds of thousands of jobs in the renewable energy industry, and build up a new industrial base. This is surely a vision that we can all get behind. I thank you.

Ms D M RAMODIBE / End of Take


Ms D M RAMODIBE: Madam Chairperson, hon Minister and Deputy Minister, hon members, executives of the state-owned enterprises, ladies and gentlemen, the ANC supports this Budget Vote. The Department of Public Enterprises is responsible for the performance of nine state-owned enterprises. Therefore effective and efficient functioning of these is very important, as they advance the development agenda.

State-owned enterprises are key instruments in our infrastructure development programme, employment creation and innovative economic development and growth. The department has to ensure that state-owned enterprises' business strategies are in line with the policy and regulatory framework such as the Public Finance Management Act, Act 1 of 1999. One of the resolutions taken at the 52nd ANC conference in Polokwane was for the state to intervene strategically in these sectors to drive growth, development and transformation of the structure of our economy.

Chairperson, hon members, we have to strengthen the role of state-owned enterprises in remaining financially viable, to respond to a clearly defined public mandate in terms of our industrial policy and economic transformation. State-owned enterprises must be sustainable, competitive and promote economic efficiency. To this end financial management is very critical. In terms of the manifesto, the President said, and I quote:

The developmental state will play a central and strategic role in the economy. We will ensure a more effective government; improve the co-ordination and planning efforts of the developmental state by means of a planning entity to ensure faster change. A review of the structure of government will be undertaken, to ensure effective service delivery.

The department has registered, among other things, the following progress: The steel sourcing project was completed; a proposed strategy to leverage the 20-year power build to develop national industry is under way; it has availed a self-assessment toolkit on its website; it has established a cross-cutting artisan training initiative; and the department has established a Public Enterprise Employment and Skills Development Agency, which will facilitate Seta-funded workplace placements for the FET college graduates with state-owned enterprise suppliers to enable the graduates to obtain trade certificates.

Let me address myself to three state-owned enterprises, namely the Pebble Bed Modular Reactor, Alexkor and Safcol.

Regarding the Pebble Bed Modular Reactor, while engagement continues to ensue on the utilisation of alternative energy sources, nuclear power generation has dominated discourse in South Africa and the world. The PBMR technology largely addresses the safety and waste management concerns that are raised globally and has been embraced by the staunchest critics of nuclear energy.

To ensure that South Africa is at the cutting edge of nuclear technology development, PBMR Ltd was established in 1999 with the intention to develop and market the pebble bed reactor.

As an alternative, the peddle bed technology stands to reliably provide efficient energy generation. South Africa's energy generation capacity continues to be pressured by increased consumption and operating with tight electricity reserve margins and energy infrastructure investment. To meet energy development challenges, South Africa needs optimally to use all energy sources available and vigorously to pursue energy efficient programmes. PBMR total contributions received from 2005-06 to 2008-09 amount to R6 billion. This is intended to fund essential contracts for the demonstration plant and fuel plant. Expenditure is expected to remain high, at R2,1 billion in 2008-09 and just under R2 billion in 2009-10, as Broadband Infraco and PBMR continue to receive substantial transfer payments. Expenditure is expected to decrease from R2 billion in 2009-10 to R12,7 million in 2011-12, at an average annual rate of 81,9%, when transfers to entities are ceased.

Although there is significant progress in a number of programmes, there are challenges in the implementation of other programmes. For example, Eskom's operating costs increased and derivative instruments continue to be of concern.

Regarding Alexkor, a deed of settlement in the land application lodged by the Richtersveld community against the state and Alexkor was concluded and confirmed by an order of court. The settlement requires a transfer of assets to the Richtersveld community and establishment of a joint venture between Alexkor and the community. It should be noted that the Pooling and Sharing Joint Venture will develop a long-term business plan for a viable mining venture.

In terms of assessing Alexkor's performance, the carat production decreased to 25 620 carats in 2008, from 33 503 carats in 2007. This was 19 080 carats below budget, due to the downscaling of land mining operations and a reduction in the number of production sea days achieved. The poor carat recovery was compensated for by an increase in the average price per carat received for the diamond production. This resulted in the diamond income for the year 2008 being R139,8 million, compared to R109,3 million in 2007, exceeding the budget by R22,6 million.

The SA Forestry Company, Safcol, manages and develops state commercial forests. Its activities include forestry management and timber harvesting and processing, both domestically and in neighbouring countries. Soft saw timber is sold in South Africa, and soft and hardwood saw timber and pulp wood in Mozambique. Komati Forests has an 80% shareholding in the Mozambican forestry company, while the remaining 20% is held by the Mozambican government. Although a decision was taken by cabinet in 2007 to dispose of Komati Land Forests, the decision was revisited due to land claims. About 60% of land on which Komati Land Forests operates is subject to land claims. This will have a bearing on the disposal of the assets.

Due to the land claim status, the disposal has been shelved until 2011-2012. This is intended to allow for the resolution of land claims. Safcol has been mandated to developed a five-year business and corporate plan in order to maintain, where possible, the value of the business. There is another opportunity here to address challenges facing women, youth and people with disabilities.

In 2007-08 a transformation committee was established to track the alignment of Safcol's policies and procedures with government's objectives for social and economic transformation. The portfolio committee's primary tasks are to drive the transformation agenda, maximise community participation and ensure greater empowerment in the forestry sector. One of the milestones reached was the signing of a memorandum of understanding with the Development Bank of Southern Africa jointly to promote the development of sustainable forest communities and industries, and an agreement was also signed with AgriSA to develop the honey industry in one of the Komati Land Forestry plantations.

This is in line with the state of the nation address by the President to build economic and social infrastructure, and develop and implement comprehensive rural development linked to land and agrarian reform and food security. I thank you. [Applause.]



The DEPUTY MINISTER OF PUBLIC ENTERPRISES: Madam Chair, Minister, chair of the portfolio committee, the ANC government recognises the importance of the relationship between key constraints, either presented to us by the apartheid legacy or as factors arising from developments in the global economy, on the one hand and the need to drive a thorough transformational agenda, whose key tenets are a focus on the poor and modernising the South African economy in order to be competitive. This balanced approach to economic management has been, and continues to be, the cornerstone of the ANC's strategic programme. In our manifesto we have recognised the importance of this balance, especially given the current global economic downturn.

The acceleration of delivery of infrastructure and electricity, construction of major road infrastructure, ports and rail are deliberately enforced by government and the state-owned enterprises to modernise and grow this economy. These massive infrastructure programmes will also assist us to navigate the current recessional challenges. We are convinced that the scale of this infrastructure spend will ensure that the South African economy is put back on an equitable path.

State-owned enterprises have gone beyond the era of broad restructuring that government was pursuing in the first decade of freedom, and have moved to a phase of massive investment in order to raise capital formation to a level that can deal with unemployment, poverty and underdevelopment. A key challenge is co-ordination, in order also to broaden our skills base.

I may pause a moment, and reflect a bit on the role of state-owned enterprises in skills formation in the past. If you take the figures of 1975, we had about 33 000 registered apprentices, largely white artisans. If you take the same figure in 2000, we had 10% of that, 3000 of all races. If you pose the question, who was providing that training in 1975, it was Iscor before privatisation, Eskom before commercialisation and Transnet. When privatisation of Iscor and Sasol took place, and Transnet became corporatised, the focus was on the bottom line. What was then the victim, was training. An important aspect of this build programme now is to make sure that we can fast-track training of major skills that our economy needs, engineers, technicians. We were just talking to the Transnet people before coming here. They have about 86 centres that are training people, with more than 4000 apprentices going through there, and Eskom has a similar number of 5000. That in itself is beginning to play a developmental role in these institutions.

A second element of this thing: When we spend and invest in this infrastructure, if I may borrow from Keynes, it will be to prime the economy and create demand in our earning power. The question is: How do you make sure that, in that demand, we avoid as much leakage as we can - I would agree with hon Greyling – so that we make sure there is more local content in this regard? Both Eskom and Transnet have done detailed work on what we call the competitive supply developing programme, whose main focus is to ensure that we can achieve as much local content as possible in those programmes.

The last issue which I think I need to deal with is this issue of the poor in relation to electricity. I think part of the dialogue we need to be having is to ensure that most of our poor people understand the rights they have. For instance, as politicians, to what extent are we assisting them to ensure that they understand their free basic electricity? Secondly, when Eskom is granted the tariff by Nersa, they normally give a discriminated price for the poor people and for all of us.

So those are some of the issues, but we are engaging with everybody, including the labour movement, and all other stakeholders in regard to this debate.

We are trying to navigate this thing and do these changes, but in an environment which is not of our choosing. If I may - people who may be in the Communist Party will be happy that I quote Marx in this room - Marx once said: "We are making history in conditions not of our choosing." And I think that is the route we are beginning to navigate with these state-owned enterprises. I thank you. [Applause.]

Mr M A MANGENA / End of Take


Mr M A MANGENA: Chairperson, Minister, hon members, I was a member of the Portfolio Committee on Public Enterprises between 1999 and 2001. In that period the Eskom leadership made presentations to us about the need to build new power stations as generation capacity was likely to be overtaken by demand at around 2008. It is now a known fact that the government did not give Eskom permission to build new power stations, which was a big mistake. This has been acknowledged, regret expressed and a public apology tendered by the government at the highest level. Recriminations followed, of course, and intensified, especially with the advent of load shedding. Up to this day recriminations are continuing.

Eskom belongs to all of us as a nation, and the service it provides is absolutely crucial for our economic activities, comfort and good health. Continued recriminations are now pointless. We should bite the bullet as a nation and provide this company with the resources it needs to build new power stations and maintain existing assets. This might be in the form of a modest tariff increase, coupled with a once-off tax and approach to the markets, and of course investment by the shareholder. If we don't do this, we might in the future rue the fact that we differed when decisive action was required, and the attraction of a once-off tax is that it could target only those with the means to pay. Whatever the present difficulties, Minister, we agree with you that the Eskom build programme must continue.

The capacity for research and development, as well as engineering expertise in our state-owned enterprises, is not inconsiderable. They are capable of incubating new industries or spawning new companies. All we need is to use the recently passed Intellectual Property Rights from Publicly Financed Research and Development Act to protect and exploit as much intellectual property as possible from research activities in our state-owned enterprises. For this to happen more effectively and efficiently, we need to soften the boundaries between the state-owned enterprises and the private sector, so as to promote more effortless collaboration among them. This is what other more successful nations the world over do. Going to the moon or space exploration in general, for example, is an expensive business with very little direct commercial value, but the bigger value in such activities is in research, development and innovation, the generation of intellectual property, which leads to new products, new industries and the development of human technology and capacity.

In our own case, we have seen the development of versatile engineers at Denel who took part in the design and building of the Rooivalk helicopter, the same people participating in the building of the Southern African large telescope in Sutherland, which incidentally is the largest telescope in the southern hemisphere, and the same people leading the work, design and building of South Africa's first battery-driven car.

We will not as a country effectively tackle the trade deficit with the rest of the world as long as we export mainly raw materials and import almost all goods containing intellectual property.

If we run our state-owned enterprises properly, fund them adequately and align their activities properly with our economic priorities, we will reap pleasing benefits. State-owned enterprises are valuable assets that may be harnessed for public good.

HOUSE CHAIRPERSON (Ms M L Oliphant): Hon member, your time has expired.

Mr M A MANGENA: Azapo supports Budget Vote 30. I thank you. [Applause.]

Mr P VAN DALEN / End of Take


Mr P VAN DALEN: Madam Chairperson, together we can do more – this is the slogan of the ruling party. [Interjections.]

HOUSE CHAIRPERSON (Ms M L Oliphant): Order, please!


Mnr P VAN DALEN: Daar is in Afrikaans ook 'n leuse wat sê: Eendrag maak mag. Hierdie is baie kragtige woorde wat spreek van aksie en interaksie.


Today I want to focus on a specific aspect that is not given the prominence that it deserves, but touches every South African of which tribe I am a proud member. This is the protection of our infrastructure, safety of clients and the surety and quality of supply of service we deliver to them.


SAL sal sy sokkies moet optrek om die veiligheid van sy passasiers en hul bagasie te verseker. Suid-Afrika kan nie bekostig dat die besoekers wat hier land vir die 2010 sokker beroof word van hul goedere nog voor hulle in die land aankom nie. Meeste van ons wat gereeld met SAL vlieg, weet wat dit is om bagasie te ontvang waaruit iets gesteel is of jou tas wat oopgebreek is. Die eerste wat moet gebeur, is om te erken daar is 'n problem, maar dat dit nie daadwerklik aangespreek is nie. Agb Minister, kan u vir die Vergadering sê hoeveel van SAL se personeel by die diefstalle betrokke is en al suksesvol vervolg is?

Fifa vereis dat die stadiums van hul eie kragopwekkers gebruik maak, en dat Eskom as 'n bystand moet dien, en nie daarop vertrou moet word nie. Dit spreek definitief nie van vertroue in ons land se kragvoorsiening nie, en maak van ons 'n bespotting.

Nog voorbeelde hiervan is die verlies van ongeveer R2 biljoen van Transnet, Telkom en Eskom aan diefstal en vandalisme van sy infrastruktuur in die laaste twee jaar. In 2008 is 26 km spoorlyn in die Oos-Kaap gesteel en niemand weet waar dit heen is nie. Dit gebeur nie oornag nie, en is so baie staal dat 'n mens dit ook nie in jou motorhuis kan wegsteek nie. Tog het hulle nie 'n duidelike plan met meetbare uitkomste om dit te probeer hokslaan nie. Waarom sal hulle? Die belastingbetaler sal maar die rekening moet betaal. Wat hulle nou doen, is om hierdie sekuriteitsdienste uit te kontrakteer sodat hulle die blaam van hulself af kan wegskuif.


It is also not in the interests of these outsourced security companies who are merely job brokers to catch the criminals and bring them to book. They would not have a job tomorrow if they do this. They also refuse to go to court and give evidence, as they are not paid for this function, but merely for watching that little bit that they are paid for.

Hon Minister, the DA suggests that we set up a task team - and, as committee members for the DA, we will offer you our time and knowledge for this - that we will investigate and come back to the portfolio committee to report on the situation on the ground with matters pertaining to the security of the infrastructure at these enterprises, and come forward with recommendations on how we can work smarter with what we have, and with other agencies such as the Non-Ferrous Theft Combating Committee and the SA Revenue Protection Association.


Hierdie is entiteite wat saamgestel is en al lank besig is om gesamentlike pogings te koördineer. Hulle het goeie planne, en behaal groot suksesse, maar het nie die ondersteuning op hoë vlak van staatsentiteite en politici nie. Hierdie is die mense wat ons moet bemagtig en, Minister, u behoort onmiddellik 'n daling te sien in die diefstal van ons infrastruktuur.

Meeste van hierdie ondernamings soos Telkom, Eskom en Transnet woon hierdie vergaderings met "Business Against Crime" en die SAPS by, maar gebruik dit net om te sê "ons is besig met 'n plan" maar niks meer nie. Dit is nou tyd vir aksie en interaksie: Eendrag maak mag!


I thank you. [Applause.]

Mr J J MAAKE / End of Take


Mr J J MAAKE: Madam Chair, hon Minister, Deputy Minister and my colleagues, today as we debate the Budget Vote of the Department of Public Enterprises, we need to look objectively at its mission and analyse its successes and failures.

People nowadays talk about challenges, in almost everything, in a school, in an institution, in companies, in entities, maybe even in a farm, maybe even here in Parliament. I wonder what happened to problems. I don't think that by using the new terminology of "challenges" it is being suggested that we are rubbing the term "problem" from every dictionary. [Laughter.]

The duty of the parliamentary portfolio committee is to monitor, assess and keep in check the executive and therefore government departments and the institutions they are responsible for. The Department of Public Enterprises is responsible for state-owned enterprises, nine of them. I will only deal with three of these, and they are Transnet, SAA and SA Express, as my colleagues have already dealt with the other enterprises.

My approach will be to deal with the objectives of the establishment of these enterprises and not to bore you with their operational information, which anyone can page on their website, or even get their reports and business plans, which are freely available, especially to the opposition.

We are talking about three entities which have got, relatively, a combined size by asset base, as at 2007-08, of R117,6 billion, with Transnet having R98,9 billion, SAA R17,6 billion and SA Express R1,1 billion. SA Express became solvent in the financial year 2007‑08 and has sustained and improved on this status. This is what we expect from entities that belong to our people, the public. We are also happy that SA Express won the overall Q400 Airline Reliability Performance Award for the Q400 aircraft type from Bombardier, and also that they have been awarded a contract to carry all the teams domestically during the Fifa Confederations Cup, which should be happening to almost all state-owned enterprises, relatively speaking, which means that other sister entities are not so good. [Interjections.] It does not mean that SA Express is the best, just better than the others.

The SAA turnaround strategy, called Bambanani, was supposed to have rescued the airline from its financial woes, but with the rising oil prices and the strike in the 2004-05 financial year, this turnaround strategy was ineffective. We haven't heard of any other strategy. I think we need "Bambanani 2". [Laughter.] The overall picture is that SAA is operating at a loss. Despite all these challenges, it is imperative for SAA management and board members to commit themselves to turning the fortunes of the airline.

As I said earlier on, I am not going to get into the operational nitty-gritty of these entities but will give the political overview as clearly articulated in Polokwane by my organisation, the ANC, which, by the way, is the ruling party in this country. [Interjections.]

HOUSE CHAIRPERSON (Ms M L Oliphant): Order, please!

Mr J J MAAKE: To those who forget very fast!

During apartheid, farmers would get leases, subsidies and government allocations, because they wanted them to remain in the border areas and act as a preventative measure for the so-called terrorists. If we keep on injecting funds into these entities without receiving anything, it will seem that we are throwing our taxes into a bottomless pit.

Those that benefited during apartheid still think and hope that things can remain the same. We are in this mess because of their policies and lack of foresight. [Interjections.]

HOUSE CHAIRPERSON (Ms M L Oliphant): Order, hon members! [Interjections.] Order, please!

Mr J J MAAKE: What is sickening and disgusting, is that they have never apologised to us … [Interjections.] … who were on the receiving end of those stupid policies. And they are still not prepared to do so, even now. Instead they think we are going to privatise these entities. Who will benefit if we do that? They themselves! Because we don't have the type of capital to acquire these entities, which are supposed to be belonging to us. All we are going to do is to help these entities to be viable and help the poorest of our poor … [Interjections.]

HOUSE CHAIRPERSON (Ms M L Oliphant): Order, hon members!

Mr J J MAAKE: … as our people mandated us to do at Polokwane. By the way, that is where I come from, and I am proud of the place.

In South Africa today we are talking about a developmental state, which means that the economics that must be followed by the country is developmental economics. Developmental economics tells us that the state must intervene on behalf of its people. It means that the state must create and monitor institutions and/or entities whose objectives will be to take our people out of the poverty-stricken misery. In this case we are talking about state-owned enterprises. Every state that is serious about caring for its people will follow that route. [Interjections.]

HOUSE CHAIRPERSON (Ms M L Oliphant): Order, please!

Mr J J MAAKE: The apartheid state was the best in doing exactly that, but for a small section of our community, at the expense of the majority of its people.

In conclusion, one must point out that entities have been established … [Interjections.]

HOUSE CHAIRPERSON (Ms M L Oliphant): Order, hon members!

Mr J J MAAKE: … with the sole aim of helping and subsidising our people, especially the poor, and therefore cushion their poverty. Therefore these entities cannot be allowed to operate at a loss in perpetuity. We need assurances that these entities are going to break even and start making a profit, and start paying the dues to those who established them. For a village boy like myself with no business background it is very difficult to understand how senior managers manage to pay themselves bonuses from a balance sheet with a loss. [Interjections.] [Laughter.]

HOUSE CHAIRPERSON (Ms M L Oliphant): Order, please!

Mr J J MAAKE: The explanation given was that if the company was having a loss of, say, R10 billion the previous year, and the following year the deficit is reduced to R8 billion, then it means the senior managers are effective and therefore deserve bonuses! [Interjections.] That is exactly what is difficult for me to understand.

HOUSE CHAIRPERSON (Ms M L Oliphant): Order, hon members!

Mr J J MAAKE: What motivation would they have if profits or losses are just the same in relation to their earnings? For a farmboy like myself it would make sense if the performance bonuses of senior management was linked to dividends declared. In response to my lack of understanding I am then told that the company cannot retain staff under such circumstances.

Capital injections by Treasury on an annual basis must be a thing of the past because it is totally unacceptable. [Interjections.]

HOUSE CHAIRPERSON (Ms M L Oliphant): Order, hon members!

Mr J J MAAKE: Every company pays dividends to its shareholders. The public is the shareholder and they definitely need their dividends as of yesterday. [Interjections.]

There is something wrong with Cope. They made me an ancestor, young as a am. [Laughter.] Surely the ancestor is the ANC, so it means I am their ancestor. [Laughter.]

HOUSE CHAIRPERSON (Ms M L Oliphant): Order, please!

Mr J J MAAKE: Hon van Dyk said that government should not be the sole owner … [Interjections.]

HOUSE CHAIRPERSON (Ms M L Oliphant): Order, please! Hon members, order, please!

Mr J J MAAKE: Thank you very much. Anyway, I can't cope with being an ancestor. I think I must stop there. Thank you, Madam Chair. [Applause.]

HOUSE CHAIRPERSON (Ms M L Oliphant): Thank you, hon member. Order, please! Hon members, order, please! I will now call the hon the Minister to respond and close the debate.



The MINISTER OF PUBLIC ENTERPRISES: Madam Chair, do you know when a challenge becomes a problem? It is when I try to understand sometimes people's logic when a challenge becomes a problem. [Interjections.]

HOUSE CHAIRPERSON (Ms M L Oliphant): Order, please!

The MINISTER OF PUBLIC ENTERPRISES: I think we are all struggling, but there is some wonderful logic coming from my colleague at the back here. [Interjections.] Like the Deputy Minister and I, our colleague here is a simple boy from the farm. The Deputy Minister and I are products of the East Rand, and the East Rand, for those who know the East Rand, was at the centre of a major industrial strategy by the previous government, to transform South Africa from a mining-dependent economy to a manufacturing base. I was, I don't want to say privileged because it was not a privilege to live during apartheid, but during the period of the sixties, those of us who were alive then were able to see what benefits could be derived from an economy that was going at full steam: the jobs that it created, the skills that it gave, the empowerment, the wealth, the benefits that we got out of this country during that period.

With respect, we need to be moving into that vision. We don't have time to be say "let's decrease unemployment", "let's do this", "let's do that", "let's be nice to everyone". We have to get down to the hard tacks, these next five years, as a new government, of how we are seriously going to change this economy, how we are seriously going to get it on track and moving full steam to derive the benefits that those of us who were living during the sixties certainly benefited from.

I fully hear what people are saying when they say: Why don't you sell off an enterprise because it's not performing, because it's doing this or doing that? Firstly, I want to say that sometimes when we throw out notions that this or that is not performing, we must be careful that we are not just dealing with conventional wisdom. For instance, we get told that SAA is now almost bankrupt, and is not producing anything. The recent turnaround programme at SAA has generated cost savings of R2,6 billion. SAA is now generating operational profits. What is going to bedevil it still, is the legacy that we have inherited around the Airbus contracts and whatever.

But let us not underestimate the pain of what that SAA turnaround did, getting rid of 2000 workers. It is easy for you and I, sitting in the comfort of these benches, knowing that we are going to get pensions and knowing that we are going to be looked after, to disregard what it means to 2000 people to lose a job. And SAA did that, and the union worked alongside SAA. Of course the union did not agree, but in the interests of creating a national service, which we all need commercially, both in this country and Africa, that was a sacrifice. Let us not underestimate the sacrifice that is in this country, that is going to be required for the turnaround, and let us not talk glibly about them. Are we saying to those people who lost their jobs that it was all in vain? It wasn't.

I think that is where we need to be looking at. We need the social compact going forward. People are going to take pain. It is no joke. If we are going to take this economy where it is, there is going to be pain and we are going to have to create reward for that as well.

What we are asking from the state-owned enterprises in this period, particularly, is that we are not in the boom era of the last ten years where the economy has just flourished. We are in the worst recession this country and the world has faced. And as I said in my speech, we are in a time when we do not have money for the bare essentials for the poor of today, and that is why every time a state-owned enterprise registers a loss and we have to bail it out, there's an opportunity cost involved, a serious opportunity cost. Let us not underestimate what that cost means to ordinary people out there in the streets.

But at the same time, to say, because this is happening or because it's not optimal production, let's just get rid of them, let's just look at that concept, let's just privatise … If you're going to privatise a company, you have to recapitalise it. You have to spend as much money as you are recouping losses, in order to make it an attractive company to be bought. If we were now to privatise Eskom, how much would it have to be recapitalised, and how much of the impetus that we have now generated in Eskom going forward would we lose just simply because of an idealistic wish to privatise? I say so with respect.

Privatisation is not just something which we should use to solve problems. It can succeed and it does not succeed. What we have learnt from Telkom was how that very privatisation process actually held back competition in the telecommunications field. Privatisation, if you do not take into account the competitive environment in which it happens, can actually be a worse thing than if you leave it where it is at the moment.

But let us also just confront some of the misgivings people have had about some of these enterprises. Denel, for instance, has come up, and rightly so, for love of debate. Denel has seven subsidiaries; only two remaining loss-making, and we have plans to turn these around. We have brought in strategic equity partners. It hasn't just been a thing of saying, let the state deliver, let it be committed to our policy. If there is opportunity to bring in a strategic equity partner who can really provide value, then we will do it, and that is what we have been doing there. We have to ensure that Denel is appropriately capitalised. Government has to start coming to the table, and that is why the discussion around the funding model becomes very important.

I want to address, too, the question of renewable energy. The Department of Public Enterprises is not responsible for policy; the Department of Energy is. But the renewables target has been set by the policy department, and this is at 4%. On 31 March 2009 the regulator announced the tariffs for renewables, which are much more expensive than at the moment for even conventional coal. However, Eskom is now in a better position to progress investment in renewables, and we do have to look at that, and I think there has to be an appropriate mix around our energy sources. No country going forward can be reliant on one source of energy.

Eskom's coal burn rate is a great concern to all of us. It has decreased since 2000, when it was 61 days of burn to 44 days, and the current levels are now at 42 days. We would like it to decrease, and obviously we need to be going forward.

But I want to address just one issue about the role of state-owned enterprises. I heard someone say "state-owned enterprises are here to generate dividends" and that government can get it. I heard some people say that state-owned enterprises must be sold off to assist the fiscus. Now, implicit in that is that state-owned enterprises are there to "fund" government. Now that is not our vision. State-owned enterprises are not here to fund government. They are here to drive an economic programme. We expect them to break even. We expect them to have retained earnings to decently be able to do expansion programmes, and that is what we are saying to all of them sitting here in this room, that is what we expect. But we do not expect them to be subsidising the fiscus. That is not our programme. That makes it very different from a commercial company, which does, through its taxes, subsidise the fiscus.

We are going to be engaging … And I want to thank all my colleagues here, both from the benches across from me and with the benches over here. We are moving into an era in which we have to succeed. If this country is going to go somewhere, we are going to have to succeed. I have enjoyed the robust debate here. I am not one who doesn't like to be criticised; I think criticism is good. But as our member from Cope said, and the interesting debates that we were having yesterday, all of us have a contribution to make around these debates, but I think we must all try to reach a stage where we do not have just reflex responses, but we really start engaging seriously in these debates. And I look forward to five years of these serious engagements. I mean, Mr Ambrosini was saying to me last night: Why do we need a national airline? That is a debate we need to have. We obviously see reason for it; he doesn't. But we need to be debating this in the interests of going forward in this country to reach consensus.

Because Madam Chair – and this is the last thing I will be saying – we have to move together going forward, ourselves, the unions, our industries. Our position is that we are all South Africans, we are in this together. We have seen the role that state-owned enterprises played during apartheid here – it was phenomenal. OK, they played into an apartheid agenda, but what they were able to achieve was astonishing. And I always say that the transformation, the fact that the South African economy is one of the most advanced economies on the African continent, is being this strange confluence of black oppression and exploitation, the affirmation of what the state-owned enterprises was able bring, and what the private sector was able to bring to that mix. It was a deadly and toxic mix and we never have to do it again, but we are saying here as government, we still believe that state-owned enterprises have a major role in this economy.

And therefore I thank everyone. I thank the chair of the portfolio committee for her leadership and for our members here. I thank my Deputy Minister for being a soulmate, an East Rand soulmate, who is passionate about steelworks, smelters, freight rail. The two of us are at one in these things, and I thank him for his enormous support in even these first couple of weeks, and we look forward to moving forward.

The ANC supports this Budget Vote. We have our CEOs and chairpersons of all of these corporations sitting here. I want to thank them for their commitment and for having to take the flack on many occasions. And then I thank my department, under the extremely able leadership of the senior management and Portia Molefe, the director-general. It has been quite salutary to come into a department that has such high levels of professionalism, and I want to thank them for steering us through this difficult period of initiation and orientation. I think we are on a good road going forward. Thank you. [Applause.]

Debate concluded.

The Committee rose at 17:53.


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