Hansard: NA: Mini-plenary 1

House: National Assembly

Date of Meeting: 25 May 2021

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Minutes

UNREVISED HANSARD

MINI PLENARY - NATIONAL ASSEMBLY TUESDAY, 25 MAY 2021

VOTE NO 10 – PUBLIC ENTERPRISES

TUESDAY, 25 MAY 2021

PROCEEDINGS OF THE MINI-PLENARY SESSION – NATIONAL ASSEMBLY

 

Members of the mini-plenary session met on the virtual platform at 10:00.

 

House Chairperson Mr C T Frolick took the Chair and requested members to observe a moment of silence for prayers or meditation.

 

The Chairperson announced that the virtual mini-plenary sitting constituted a meeting of the National Assembly.

 

RULES OF A VIRTUAL MINI-PLENARY SESSION

(Announcement)

The HOUSE CHAIRPERSON (Mr C T Frolick): Hon members, before we proceed, I would like to remind you that the virtual mini- plenary session is deemed to be in the precinct of Parliament

and constitute a meeting of the National Assembly for debating purposes only. In addition to the Rules of virtual sittings, the Rules of the National Assembly including the Rules of debate shall apply. Members enjoy the same powers and privileges that apply in the sitting of the National Assembly. Members should equally note that anything that is said in the virtual platform is deemed to have been said to the House and may be ruled upon. All members who have logged in shall be considered to be present, and are requested to mute their microphones, and only unmute when recognised to speak. The microphones are very sensitive, and would pick up noise which may disturb the attention of other members.

 

 

When recognised to speak, please unmute your microphone and connect your video. Members may make use of the icons at the bottom of their screens; which has an option that allows a member to put up his or her hand to raise a point of order. The secretariat will assist me in this regard. When using the virtual system, members are urged or refrain or desist from unnecessary points of order or interjections. Members who disturb the mini-plenary may be removed from the platform.

We shall now proceed with the order of this mini-plenary session which is debate on Vote No 10: Public Enterprises Appropriation bill. I will now recognise the hon Minister of Public Enterprises.

 

 

APPROPRIATION BILL

 

 

Budget Vote No 10: Public Enterprises:

 

 

The MINISTER OF PUBLIC ENTERPRISES: Chairperson, hon members, chairpersons and CEOs of the state-owned enterprises SOEs boards, ladies and gentlemen, I have the honour to present the Budget Vote for the Department of Public Enterprises for the 2021-22 financial year. At the outset I wish to pay tribute to our health care workers - their sacrifices and their bravery in putting people’ lives first during the COVID-19 pandemic. I am sure all of us will join in paying tribute to them. They symbolize the caring society we want to be; the resilient people we are; turning adversity into hope and action to save lives. This is a singularly important lesson for all of us in the public sector - political and nonpolitical employees of the democratic South African state.

I also acknowledge the excellent work of the Solidarity Fund and the solidarity of corporates with all our people - workers at Transnet, Eskom, the Passenger Rail Agency of South Africa, Prasa, and many other enterprises for private and public. This is the true meaning of any compact between different sectors of our nation. A day after the 80th birthday of Bob Dylan – and I am sure there are some who remember him - I quote a commentator who said:

 

 

We’re listening to a very political artist. An artist who comes again and again – speaking truth. But an artist who fears that power and greed and corruptible seed seem to be all that there is. And thus an artist trying to fight his way through his disgust and the despair that this vision engenders. An artist who, in so doing, returns us the slim hope provided by artistic communion; that by naming it, and seeing it, and singing it, we might yet overcome our own darker nature or at least keep it at bay

 

 

Chair, the mission assigned to us by the President is absolutely clear - uncover and deal with the past full of corruption and greed; stabilise governance, operations and finances of these SOEs so that they return to their basic

mandate; and importantly repurpose, redirect, restructure them with the board and management to meet the demands of SA’s economy and our people and seize the opportunities in their sectors. This they must do to be innovative, to be market shapers in these sectors and combine their efforts with those of the private sector and civil society. Ultimately, these entities must be capacitated and led with total integrity to the new horizons we set for them. Nothing less will do. At the same time, we are realistic. We fully appreciate that these demand radical changes which will be arduous and will take time. There are indeed no quick fixes. We cannot deny the massive and orchestrated resistance by the engineers and beneficiaries of corruption. That will only stop when all of them are in jail.

 

 

This mission is being pursued vigorously by tens of thousands of people in government and in the SOEs themselves. Our determination remains strong. We are making steady progress and more can and will be done. Our approach is a holistic, systemic one. For the challenges are indeed systemic and not superficial. We have zero tolerance towards mismanagement, malfeasance and the culture of greed and disregard for the wellbeing of the economy and citizens of South Africa.

In this context, the members of the boards and top management are bravely pursuing their mandate. We salute their efforts. Our capacity, we admit, is limited and strained. More will be done to continuously to develop the capabilities of the people working within SOEs and in government generally. Our actions, nonetheless, reflect the struggles against the worst in human nature. We confront the institutional deficits created by those who today profess before the Zondo Commission that they were the architects of good governance. Instead they were the arch destroyers of the assets belonging to all South Africans. Shortcomings, we humbly admit, we’ve had many. But hindsight is the only perfect science. Of course, the armchair is a close second.

 

 

We live in a period where the COVID-19 pandemic has ravaged the global economy, changed the political landscape, heightened social disparities, and starved us of human interaction. In addition, climate change, the consequent energy transition, the disruption of trade and supply chains, the changes in the production geography of the globe are part of the new reality. In addition, vaccine nationalism is seeing rich countries open up their economies faster than developing

countries. And the fact is however that the virus does not respect any borders.

 

 

Increased adoption of technologies has seen greater displacement of vulnerable people from the economy - working class, young people, women and people living with disabilities. The curtailing of travel and social interaction of people has disrupted that which makes us human – the stimulation of our senses through shared experiences. Old business models have been disrupted and are changing in many instances. Above all, a post-COVID-19 world needs to develop new measures to mitigate the impact of the pandemic on working class families and communities in South Africa, and elsewhere.

 

 

The pandemic evokes, paradoxically, tragedy and human solidarity; selfishness and generosity; economic stress and innovation; and exposes old social and economic divides and directs global focus on the workers, the unemployed, those in precarious jobs and the wealth and income divide across the world. This moment begs for strategic leadership towards a different, more inclusive and fairer future. So, what has to be done? A recent paper it is argued that and I quote:

Crises and pandemics can bring society together around a common purpose, but we know from history that such critical junctures can also divide societies and propel them into chaos. Learning the right lessons and being able to galvanise society for positive change is thus one of the key tasks for governments during the ongoing pandemic.

 

 

This “can-do spirit”, is captured by President Ramaphosa in responding to the COVID-19 crisis, when he said and I quote: “We are determined not merely to return our economy to where it was before the coronavirus, but to forge a new economy in a new global reality.” The Economic Reconstruction and Recovery Plan is our initiative as a nation to chart a new way forward. The implementation of this plan which has placed the economy on a new trajectory, is focused on addressing priority interventions, such as accelerating structural reforms by modernising and reforming network industries and associated SOEs and lowering barriers to entry to make it easier for business to start growing their capacity.

 

 

Driving SOEs to a different future is predicated on acknowledging the damage caused by state capture, corruption and ineptitude which is now legend. The actual impact on

governance, operations, finances, institutional culture, however, is barely appreciated by many. In addition, the reputational damage of our SOEs and inadvertently the country is significant. The inability to invest in new infrastructure, replace old equipment, pay salaries to workers, and other obligations is a consequence of the corruption and malfeasance.

 

 

Let us look back to 2020 and look what have we achieved - these are just some examples. Good governance codes are being embedded more firmly in SOEs. An integrity and consequence management framework has been introduced. The pursuit of stolen money has yielded progress as I would point out later. Prosecution of those responsible is beginning to take place, and guidelines to manage conflicts of interest in the state- owned corporations, SOCs, are becoming stricter. Operational efficiencies are being addressed, although not completely yet. The financial stability of SOEs is a mixed picture, particularly in the context of a constrained fiscus. The goal of relieving the pressure on the fiscus remains an important focus and innovative funding solutions are being developed.

There is greater appreciation of the dynamic changes in the energy, logistics and aviation sectors which demand a change in business models and business practices. Organisational transformation initiatives to increase capability and reduce the cost structure are taking place. Regular engagement with various industry associations to address matters in the sectors and in our SOEs is occurring. The Aerospace and Defence Masterplan was published in December 2020 and will be tabled in Cabinet shortly. There is, of course, a lot more.

 

 

Let us turn to the energy sector - vital part of our lives and our economy. The Integrated Resource Plan 2019, IRP19, has projected that renewable energy as part of an energy mix, including nuclear and gas, will contribute a total of 18,2 Gigawatts to the South Africa grid by 2030. If the International Energy Agency’s, IEAs, bold net zero by 2050 report are to be met, this will require South Africa to rapidly embrace renewable and other technologies.

 

 

South Africa can emerge as a leader in this sphere, providing opportunities to local industry and the development of appropriate solutions for the continent. However, the IEA Report is at pains to emphasise that and I quote, “Clean

energy transitions must be fair and inclusive, leaving nobody behind” and that, and I quote again, “ ... the transition to net zero is for and about people.” It states that because not every worker in the fossil fuel industry can ease into a clean energy job. Governments need to promote training and devote resources to facilitating new opportunities. Citizens must be active participants in the entire process, making them feel part of the transition of the transition and not simply subject to it.

 

 

Moreover, the IEA points out that each country will need to design its own strategy, taking into account its specific circumstances. There is no one-size-fits-all approach to clean energy transitions it says. Eskom is implementing its just energy transition strategy and the Komati Power Station has been prioritised as the pilot project.

 

 

What then are some of the achievements at Eskom, notwithstanding the challenges of load shedding? The progress that has been achieved at Eskom has indeed otherwise been reassuring: A Just Energy Transition Office has been established. Eskom’s social compact and the National Economic Development and Labour Council, Nedlac, was signed in December

2020. The National Energy Regulator of South Africa (NERSA) has approved a 15% tariff increase that will assist with Eskom’s financial stability. The Medupi power station is almost complete, with the last unit ready for commissioning by July 2021. Kusile’s units 2 and 3 have been brought into commercial operation in October 2020 and March 2021 respectively.

 

 

Eskom has been recovering money that was stolen by companies doing business with it. The return of one of the Koeberg units in a few days’ time to operation after many months of maintenance work will assist the energy supply. In addition, Eskom has achieved substantial progress towards functional restructuring and it is envisioned that the process will be concluded by 30 June 2021. The progress includes finalised divisionalisation and launching of three divisions. Each division will have its separate profit and losses account. A total of some 6 773 employees have moved from corporate functions to divisions in readiness for legal separation.

 

 

The legal separation of the Transmission Company will be completed by 31 December 2021, while also working towards legal separation of the distribution and generation companies

within Eskom Holdings by 31 December 2022. As far as finances are concerned, in 2005 Eskom embarked on the construction of the major projects in the Build Programme, including the Medupi and Kusile and Ingula Pumped Storage Plant. However poor procurement strategy, insufficient planning, poor project management, lack of skills and corruption as we can see in the court today - led to cost overruns and schedule overruns at Medupi and Kusile. Eskom has been correcting the latent defects at Medupi and Kusile. Money that was stolen from the projects are being recovered from the people and the companies involved.

 

 

The management of Eskom’s debt is one of the key priorities to return the entity onto a sustainable path. The entity is continuing to implement its cost reduction initiative, with a saving of R13,5 billion achieved in the 2021 financial year.

Most notably was the R83 billion reduction in debt in the 2021 financial year, from R484 billion to R401 billion due to the repayment of the maturing debt and changes in the exchange rate. Those are significant numbers, a reduction in debt from R484 billion to R401 billion. Eskom’s consumer debt continues to escalate and additional attention must be given to municipalities that are indebted to Eskom.

Eskom has introduced a new Active Partnership Model at Maluti- a-Phofung municipality and certain other municipalities in order to take over the distribution function and that the proper management systems are put in place so that bulk electricity supplies are paid. The next step is to roll out the same model to the municipalities indebted to Eskom.

 

 

Transnet and the logistics sector has also been indebted by the pandemic, and this pandemic has changed the dynamics of trade, ports, shipping and supply chains. The capacity and efficiency of the port system in South Africa is vital for trade for the South African economy and the region. In order to maintain a competitive advantage, there must be new investment in infrastructure to increase port capacity, investment in adequate equipment, an increase in productivity at the ports, and appropriate tariffs.

 

 

There is a need to align the Transnet National Ports Authority, TNPA, pricing methodologies to those of port regulation for competitiveness and efficiencies of the terminal operators. The institutional structure of Transnet, the establishment of TNPA – a ports authority - as a subsidiary, and new creative partnerships with the private

sector, particularly black businesses, is absolutely imperative.

 

 

Transnet has supplied equipments to ports such as Cape Town in order to increase the efficiencies at the port and to manage the load of citrus and other exports from the port of cape Town. In addition, greater efficiencies have been introduced at the Durban Port. The Durban Port terminals are also partnering research institutions and innovation hubs to address the weather challenges which also contribute to congestion in the ports. The transformation and reconfiguration of Transnet to meet the mandate outlined in South Africa’s Economic Reconstruction and Recovery Plan is underway. Transnet’s new strategy is to drive volume growth through private sector participation by developing key strategic partnerships in its core segments. The redesign of the Port of Durban and to reposition it as an African and Indian Ocean hub for containerised cargo.

 

 

In addition to the container and automotive growth strategies, Transnet is enhancing its export growth capability in the bulk sector focussing on mega corridors through the road to rail initiatives. Equipment is currently being transferred from the

port of Durban to the port of Cape Town to support the export capacity of cold goods. Engagements with property developers to acquire land parcels for truck staging for cargo to the Maydon Wharf terminals is being undertaken. These and other initiatives will be announced shortly and many of them will begin these processes in this financial year.

 

 

Denel, as we all know, is in financial difficulties and operational difficulties. However, it has been a difficult year as I said - for Denel. It has a confirmed order book of R11 billion but is unable to secure the necessary capital or the support of suppliers to execute on the contracts. It is highly regrettable that Denel last paid full salaries in May 2020. The current amount owing is approximately R500 million. The business has subsequently experienced a loss of critical skills to both domestic and foreign companies. The board continues to make efforts to secure funding in order to pay salaries and to implement its turnaround strategy and to restructure Denel in to a far more effective organisation.

Denel’s core capabilities are consolidated and restructured from five divisions into engineering and manufacturing, and Maintenance. Discussion with critical stakeholders such as Department of Defence and others is taking place currently.

As far as the SA Airways, SAA, is concerned, the aviation sector as we all know, has been decimated by the pandemic with 2020 being the worst year in the history of air travel.

According to the International Air Transport Association, Iata, the demand for air travel reduced by 66% in 2020 compared to 2019, with international air travel reducing by 75%. The business rescue has ended at the SAA on 30 April 2021. I want to convey sincere regret and solidarity with the employees of SAA and their unions. This has been a difficult process, but we are not too far from achieving government’s objectives - a viable airline, not dependent on the fiscus, with the agility to cope with uncertain times. Our success will be measured in how efficiently and how quickly we get the job done. The acquisition of a Strategic Equity Partner is at an advanced stage and could be concluded in the next four to six weeks. At the same time decisions will be made on the future of the subsidiaries.

 

 

The Department of Public Enterprises is the secretariat to the Presidential SOE Council, and there is excellent work happening in the council – which the President will announce its outcomes in a short while. In my rounding up later, I will indicate the kind of work that has been done against

corruption – the recovery of funds, and the extent of prosecutions. And I would then present finally the programme overview of the department which is an allocated R36,3 billion in the 2021-22 financial year. Of these funds, R36 billion is allocated to the SOEs in respect of the government guaranteed debts. After excluding transfers to SOEs, compensation of employees is the department’s largest cost driver. However, this spending is expected to decrease at an average annual rate of 0,9 percent, from R185 million to R180 million in the 2023-24 financial year. The department’s baseline, which is R123,5 million over the medium term will be effected on compensation of employees and goods and services.

 

 

In conclusion, my sincere thanks to the Chair and Whip of the portfolio committee and select committee for their sterling work. My thanks also to the Deputy Minister, my chief of staff, and staff in the Ministry. A special word of gratitude to the Director-General Mr Tlhakudi and the band of officials who have done an extraordinary service to this portfolio committee and our country. We appreciate the boards of the SOEs for their integrity and courage in executing a difficult mandate. The CEOs of the SOEs have offered bold leadership in

a challenging environment and have introduced innovative thinking.

 

 

It is in these difficult and trying times as I conclude, that we hear Abraham Lincoln’s call to the “Better Angels of our Nature” – as difficult as that might be. This is a call for all of us to dig deep into ourselves and go beyond the call of duty. As with similar defining moments in our history, we have risen and we will continue to rise to the occasion. These times have positively defined our national identity. This is who we are - Mandela’s people. I submit this budget for your approval. Thank you very much.

 

 

Mr K E MAGAXA: Hon Chair, this budget vote occurs at a time when the department has made steady progress to reverse the effects of state capture and corruption. At the same time, the ANC-led government is poised to commence implementation of the Economic Reconstruction and Recovery Plan. Any means of progress in the opposite benches ... [Inaudible.] ... of course, will seek to undermine these strides.

 

 

For us in the ANC, this steady progress by the department is commendable particularly in the context of the difficult

circumstances imposed by the COVID-19, health and economic pandemic, that affected state-owned owned, SOEs, and the entire economic system.

 

 

This pandemic occurred on the back of slow economic growth and high unemployment. It is for this reason for the mantra that we cannot go back to the crisis before the crisis remains destructive. Therefore, in this budget vote we need to have...

... [Inaudible.] ...

 

 

The Department of Public Enterprise has made good corporative governance a priority and it is slowly but surely being restored through the appointment of new boards and management. With the new boards and management, financial controls are being restored, the SOEs and corruption being dealt with through law enforcement and consequent management. The tide is turning against corruption.

 

 

Assets are being seized and financial recoveries have commenced as in the case of Eskom. Law enforcement agencies are working on many cases of corruption in different SOEs and the law must take its course.

The department’s Annual Performance Plan is taking us down a path restoring corporate governance, creating operational stability and creating financial stability. While we understand that there are still many challenges that need to be overcome it under difficult circumstances and important start has been made and we must progressively build on all those efforts.

 

 

The SOEs function in strategic sectors of the economy and positively contribute to national and local economic development. In a joint sitting of the NA and the NCOP the state President unveiled the Economic Reconstruction and Recovery Plan and in the state of the nation, Sona, 2021, the country received a report back on progress to date and the implementation plan for the path to economic renewal. The SOEs in partnership with the private sector will play a critical role in the implementation of the plan for infrastructure development, industrialisation and localisation.

 

 

It is difficult to support the view that due to challenges facing these SOEs government should abandon SOEs as the facts point in the opposite direction. Those who are due for wholesale privatisation of SOEs want to reinforce the tyranny

of profit maximisation at the expense of development. It is Albert Einstein who once said and I quote:

 

 

The economic anarchy of capitalist society as it exists today is, in my opinion, the real source of the evil.

 

 

We must not promote economic anarchy but ensure support of the strategic value of SOEs as corporate viable for inclusive development. The fact is that the SOEs make an important contribution to the economy as the total revenue of SOEs correspond to 8,7% of gross domestic product, GDP. While this contribution does not crowd the economy or crowd out the private sector it is most certainly a significant contribution. Eskom contributes nearly one third of that revenue.

 

 

Most of these SOEs are not small businesses as the SOEs only in the Department of Public Enterprise, stable have a revenue stream of some R277 billion. This excludes other SOEs such as Airports Company South Africa, ACSA, or the Central Energy Fund which report to the Ministry of Transport and the Minister of Mineral Resources respectively.

These revenue numbers are not based on a good year, but rather on the last financial year which was negatively affected through the disruption of the COVID-19 pandemic. These are businesses which make a serious contribution to the economy and will continue to do so and financially perform much better under normal economic conditions especially when we don’t have corruption.

 

 

The SOEs make a serious contribution to the employment of thousands of South Africans who have good quality jobs in many different professions. Wherever SOEs function they are able to positively contribute to the local economy, whether in electricity generation, transmission and distribution, ports, rail, mining armaments and forestry and the list extends itself to even other SOE’s outside the DPE stable.

 

 

Since the beginning of the 6th Parliament while progress to ensuring good governance, operational and financial stability may appear to be measured there is much progress which can be highlighted that is encouraging. The stability created in SOEs through the appointment of new boards and management has begun to actively deal with corruption in conjunction with law

enforcement agencies and financial recoveries have begun to be made which are significant.

 

 

There has been a reduction in losses, as well as irregular and fruitless and wasteful expenditure. While the situation in this regard is not ideal and much parliamentary oversight will be focussed in this area. It is crucial to acknowledge that progress is being made and we are moving in the right direction.

 

 

Hon members, it is important to note that some of the irregular expenditure reflected in the last financial year was historical and is being dealt with. What I am not suggesting is that SOEs in the Department of Public Enterprise stable that things are completely corrected. What I am suggesting is that progress is being made due to the corrective action taken and this approach is leading to the success of achieving operational viability.

 

 

Operations are starting to improve with renewed focus on the development of the SOEs business under difficult economic conditions as the economy has not as yet normalised due to the pandemic. It is clear that upon ensuring good governance that

operational and financial stability must be achieved to reduce the dependency of the SOEs on the fiscus. The funding which many have received from the fiscus are part of the legal responsibility of the shareholder and was also based on an understanding of direct and indirect economic contribution of the SOEs to the country. Challenges need to be confronted and resolved and not merely abandon an entity due to challenges it may be experiencing.

 

 

All SOEs are showing signs of improvement in terms of corporate governance. Eskom has shown an ability to function in a new way given the level of action taken against corruption as well as the maintenance undertaken. The functioning of Medupi Power Station and Kusile Power Station is slowly improving and should be heading towards optimal production.

 

 

The Business Rescue Proceedings of South African Airways, SAA, is finally concluded and the new interim Board and management can now develop the airline on a new business plan. This process could not have ended fast enough. Alexcor after experiencing many challenges has reduced its losses and is starting to show signs of recovery and this must be encouraged

irrespective of the approach of integrating all state assets in the mining sector.

 

 

Denel has experienced many challenges due to state capture and corruption. The salaries of workers not being paid is always a source of concern. The entity is undergoing restructuring and developing plans for its sustainability which requires to be implemented in this financial year. It must also be acknowledged that the problems with Denel and not from the 6th Parliament but were inherited from the state capture and corruption in the previous Parliament.

 

 

The committee will focus on progress which is being made in regard to all SOEs as part of its enhanced oversight as we like the department seek success from the entities. Corporate plans need to be more vigorously interrogated. Losses need to be reduced and irregular and wasteful expenditure needs to decline even further or eradicated in the entities which report to the department.

 

 

While the progress made with SOEs has been slow, it has been steady and in a positive direction. Legal process always has its own time. The restoring of SOEs to operational, commercial

and financial sustainability must be geared towards enhancing shareholder value. The enhancement of this value means the ability of these entities to reach a post capture and corruption stage to be able to invest in infrastructure development off its balance sheet and not rely on the fiscus.

 

 

The department is functioning under difficult conditions in the ‘new normal’ and is succeeding. The department’s plans and programmes seek to take SOEs to the next level of viability in the current financial year. As the old adage goes that “Rome was not built in one day.” The progress is encouraging and only success emerges from such a positive and focussed approach. The ANC supports the Budget Vote of Public Enterprises.

 

 

Mr G K Y CACHALIA: House Chairperson, the President has just promised, “A new era in the management of state-owned companies, SOEs,” and announced the establishment of the Presidential SOE Council, which aims to provide political oversight and strategic management to reform, reposition and revitalise SOEs. The fact is, Covid-19 withstanding: Almost all SOEs are fully state-owned, but loss-making companies

struggling to balance broader public policy objectives with commercial viability.

 

 

Since they are largely operating in monopolistic markets, they function in an environment where market discipline is replaced by bureaucratic, regulatory and administrative scrutiny that in the past was susceptible to ‘capture’ by interest groups.

Part of the SOE problem seems to have arisen from the existence of multiple objectives: Commercial objectives vs broader developmental goals; and often competing objectives of different government departments and agencies.

 

 

What compounds the problem is that the system of SOE oversight is effectively run by civil servants who are by definition more vulnerable to direct political pressure and less inclined to be practical in addressing emerging problems. At the same time, they are less accountable in their relatively protected positions and not incentivised to pursue stewardship performance for which they would be accountable.

 

 

The Portfolio Committee on Public Enterprises has been presented by the DPE with the blessing of its Minister, as it does year after year, with a PowerPoint overload of plans,

promises and platitudes – none of which appear to understand that we are on the brink of economic and financial ruin.

State-owned enterprises, SOEs, are intended to play an important role in the South African economy and be a significant vehicle for achieving economic growth and poverty reduction.

 

 

They are intended to address market failure and deliver key infrastructure services, such as energy, transport, and water that allow the economy to grow while ensuring equity through access and quality of social services to all citizens. The theory of the game is that through these initiatives, the government’s goal is to ensure that SOEs deliver on broader developmental goals and that they support the transformation and competitiveness of the economy. The reality is otherwise!

 

 

Before the Covid-19, more than 10 million people were unemployed. The average growth rate hovered between 1–3%. We are likely to see economic growth of 2,9% year-on-year in 2021, as it rebounds from the -7.3% year-on-year collapse of last year.

The muted recovery has been accompanied by an unsustainable expansion in government borrowings and a widening fiscal deficit – helped by the dollops dished out to flights of fancy like the new SA Airways and continued bailouts of other SOEs – that the death of Denel, the attenuation of Alexkor and the entropy of Eskom bears sad witness to.

 

 

Moreover, according to the 2020 edition of the Economic Freedom of the World Report South Africa ranked 90th in the world, after a high of 58th in 2000. After years of dedication to state controls and ‘state-led growth’ the much-promised prosperity has not been realised. And, there is little hope of realising the requisite levels of growth if Minister Gordhan continues to be locked in an ideological straightjacket that balks at allowing the private sector to address patent market failure in the state sector.

 

 

He believes well-run SOEs are important because the free market, in his words, “... is not a panacea for resolving economic and institutional challenges.” What he doesn’t understand is that vested interests of government prevent SOEs from responding to market forces like supply and demand as nimbly as companies in the private sector – never mind

systemically entrenching cadre deployment and avenues for corruption to flourish.

 

 

And so, like Sisyphus in Greek mythology, Minister Gordhan’s condemned to roll a rock up to the top of a mountain, only to have the rock roll back down to the bottom every time he reaches the top. Year-in and year-out, predating Covid-19, we are presented at best with a set of incentive setting box- ticking exercises. At worst, the incentives will always encourage corruption, because of the political connections and potential wealth linked to managing an SOE.

 

 

And, ultimately, those South Africans who most need basic infrastructure services are left literally in the dark. When Eskom fails, a whole country sits without electricity – entirely attributable to government protecting its monopolistic position. When a business fails – as it should, if it cannot adequately serve customer’s needs – it only affects the customers of that business, who will then likely flock to a better competitor.

 

 

If Minister Gordhan and others in government are serious about

 

improving people’s lives, they will implement the pro-economic

freedom reforms the country desperately needs. As Chris Hattingh of the Free Market foundation says, economic freedom both ensures greater capital formation and investment – creating more jobs – and encourages an environment in which greater competition lowers the prices of goods and improves the quality of services.

 

 

Only in freer markets can more people create wealth, and thus they are better for poorer people than central-command economies. Even the Cuban and Venezuelan governments are pursuing more open economic policies ‘to rescue their moribund economies’ – thereby breaking with the Sisyphean madness that the Minister is locked into.

 

 

So, when will this government realise the failings of its chosen ideology? Not while this government – new dawn notwithstanding – and not knowing if it is Arthur or Martha when it comes to cogent economic policy – continues to have its way; not while this government and the party that holds sway, fights amongst its own over the spoils of an increasingly meagre carcass; not while the elites value Bentleys for themselves over bread for the masses; not while a mindset that produced Trabants and sluggish tractors in East

Germany to drive its failing economy remain the loadstar of some quaint notion of progress; and not while the prime purpose is the service of a party over people and to reward this or that faction depending on who wins the unseemly battle for bits of an ever shrinking pie.

 

 

In the interim, it cannot be business as usual, with copious reports, even longer presentations and the absence of decisive action. Ministers and Presidents are supposed to lead and not be start characters in some modern day Sisyphean tragedy. To quote Bob Dylan, which the Minister alluded to, “... the times they are a-changin'”. Time is running out! #TimeForChange. We cannot support this Budget Vote. I thank you.

 

 

Ms O M C MAOTWE: House Chairperson, the EFF rejects the proposed Budget Vote 10: Public Enterprises, with contempt. Since Mr Gordhan was appointed as the Minister of Public Enterprise everyone, except the EFF, has stopped giving a fair and honest reflection of the current state of the state-owned entities in this country. We have come to stand to tell you about the legacy of Mr Gordhan as the Minister of Public Enterprise, and we will tell the future generation and this is what you will be remembered for.

Mr Gordhan, you will be remembered for privatising Eskom and imposing independent power producers and undermining the practicality of rebuilding Eskom. The incompetence and, obviously, the unqualified or [Inaudible.] goes around addressing platform and telling people that the only way of guaranteed energy security in this country is through the privatisation of Eskom. Clearly, on the ruling party’s mandate and that of yours and the one for the opposition. The fourth is [Inaudible.]

 

 

It is misguided to think that we can entrust the private sector with energy security and still expect economic development and transformation. Those who control energy will ultimately control the developmental trajectory of this country and we know those who want to control energy are racists, narrow-minded and only thinking of themselves driven by greed.

 

 

You will be remembered, Minister, for facilitating the continuation of corruption and the capture of Eskom by facilitating South32 contract. In October 2020, the National Treasury rejected Eskom’s request to extend the South32 contract and increase the contract without testing the market.

But we are told today that the contract was extended for another four years increasing the contract by 33%. This is day light corruption and blatant state capture.

 

 

Mr Gordhan, you will be remembered for the collapse and grounding of the SA Airways, SAA, and extortion of taxpayers’ money by the so-called business rescue practitioners. At the same time workers’ livelihoods were destroyed, their families broken and the strategic assets with the capacity and potential to play strategic role in domestic and international trade no longer exist in this country. You are delivering on the mandate to ensure that only white-owned companies play a meaningful role in the aviation space after the collapse of SAA.

 

 

You will be remembered, Mr Gordhan, for destroying the livelihoods of the employees of the SAA Express who were reduced to beggars of the COVID-19 relieve groceries as many passed by without being paid their duly worked salaries. You will be remembered for your failure to make anything of what was left from Transnet. The Port Nolloth today at Alexander Bay has no operations. We are told that Transnet will be expanding the port for export. For how long are we going to

have this talk show without any action? There are 19 licenses issues at Transnet Port Authority and we are told that only 16 belong to Transnet yet Transnet provides the infrastructure for the private sector to do poet operations at a very minimal cost, something that will not benefit the country and the people of this country at all.

 

 

We were told that there are, more than 53% of the train cancellation at Transnet because there is no security, and there is no planning in place to address this issue. We are now told that Transnet will expand the Port of Durban. The first thing you will do , Minister , is to invite private sector under the disguise of operational efficiency yet Transnet has demonstrated over the years good performance. The problem at Transnet is not that there is no operational efficiency, but the problem is the people that you have employed - unqualified, unethical and underexperienced leadership of Transnet that we have today running the entity.

 

 

We were told about Transnet academy that remains a pipedream despite being launched over three years ago. The current chairman of Transnet, Dr Popo Molefe, collects money from Transnet service providers under the guise of foundation

fundraising. And we asked about this, Minister, you said there is nothing wrong. Of course, you see this as nothing wrong because Popo is your puppet, serve the self-interest of deliberate corrupting Transnet so that you can hand it over to private sector. We know these modus operandi and we have written to the Public Protector to report this matter and for further investigation.

 

 

You will be remembered, Mr Gordhan, for reducing Alexkor to nonentity. Diamonds are being stolen, contracts awarded are corrupt and the Zondo commission investigations confirmed this. We are told that there was a total sale of R3,5 bilion, but no dividends were paid to beneficiaries for over 10 years. You will be remembered for reducing Denel into a shadow of its former self. What was once state industrial capacity commendable and admirable capacity to lead into technological innovation and manufacturing the state of the art machines cannot afford to pay salaries of their workers today. Workers are depressed, orders are cancelled, revenues have declined and debt continue to rise with no practical believable or decisive intervention. We know that this is your way of reducing the state’s role in the economy and paving the way for white-owned companies in the defence and military space.

This is your legacy and this is what you will be remembered for today and time immemorial.

 

 

We will rebuild state capacity when we take over and bring to an end the rapid degeneration of all strategic state-owned entities, dysfunctional management, nopayment of workers’ salaries and unmanageable debts.

 

 

As we have said before, we are not surprised by this because we know there is a deliberate and organised plan to handover strategic public assets to the few whites to further entrench the control of the economy. The ultimate aim is to strip the country’s ability to develop. And the biggest losers will be the people of South Africa. To rebuild South Africa’s economy we have to build state capacity in strategic sectors. We must build strong state-owned enterprises, SOEs, and use state procurement and use these SOEs as a driver of localisation. We must confidently show how much was spent on local products on every rand we spend through these SOEs. We know there is no forthcoming commitment from the ruling party and yourself on this issue. Even when it is contained in your conference resolutions and your election manifestos. This is the reason that the government of the day including all SOEs must do away

with outsourcing and tendering. This is also why we must also amend the Public Finance Management Act to ensure that 80% of all government procurement is sourced locally. We know that the boards of SOEs were instructed not to allow dully elected public representatives to conduct oversight despite the mandate given to public representatives given by the voters. We wrote to Denel. Transnet, Eskom, Safcor and SAA that need our attention and we were shocked to learn that none of these entities were willing to co-operate. This attitude will not last long because we have a constitutional obligation to oversee all these SOEs and we will it without fear or favour.

 

 

We know that this is a matter of time, Mr Gordhan. We will not have you preside over SOEs for long because we know that every day that passes is nothing short of us ultimately chairing for the looting of the state-owned entities. [Time expired. I thank you, Chair.

 

 

Mr W W WESSELS: Chairperson, there is no doubt that state- owned entities are rampant and were rampant with corruption of mismanagement. There is no doubt that there is a [Inaudible.]. There is no doubt that we cannot continue on this path. We know that people are suffering. People of South Africa are

funding these state-owned entities which will collapse by corruption. They are funding these state-owned entities by paying unaffordable electricity tariffs during a very economic turmoil time. They are funding these acts of corruption and mismanagement by also funding bailouts.

 

 

The Minister does well to identify and take a firm stance on corruption. But the Minister fails to identify the origin.

This corruption and state capture is not limited to the certain era, and it is not limited to the former President and his comrades. I do not think so. We will not get rid of corruption and exploitation if the system does not change. A system that created a conducive environment for price inflation, a conducive environment for corruption and fraud, a system which allows Eskom to procure for lucent lights for R900,00 while it normally costs R60,00. [Inaudible.] to be procured for R56,00 and a broom for R280 000.

 

 

It is a system where merit does not count, where appointments are not done based on experience and qualification. It is the system which fails the majority of South Africans whilst enriching a select few. Whilst failed ideologies and policies

are prioritised government sticks on doing the same thing over and over expecting different results, sanity will prevail.

 

 

The fiscus will continue to fund failed state-owned companies, and the poorest of the poor will continue to suffer. Blaming the pandemic for failed state-owned entities is ridiculous.

COVID-19 did not inflate the building contracts prices of Kusile and Medupi. Poor planning, corruption and fraud did.

 

 

This department was established by the National Party government to privatise state-owned entities. The aim is neither capitalist nor private sector. State-owned companies which were privatised such as Sasol are successful companies, creating employment, growing the economy and doing more socio upliftments than government does.

 

 

The solution is not more turnaround strategies, more plans, more reports, more promises, more councils or more committees. The solution is not more bailouts whilst the poor are suffering due to lack of basic services delivery. Privatise these entities. Stop failed ideology and policies such as black economic empowerment. Deregulate and ensure healthy competition. Allow the private sector to create jobs and grow

the economy. Stop the system that allow a building ground for corruption and cadre deployment. I thank you.

 

 

Mr S N SWART: Thank you, House Chairperson, House Chairperson, having served with the Minister and others, on the Eskom Parliamentary Inquiry, we in the ACDP are still shocked as day–by-day we hear of even more evidence of state capture and corruption at Eskom.

 

 

The most recent series of investigations by law firm Bowmens indicate tenders for R178 billion have been red-flagged that Eskom awarded to local and international companies over the years, the red flag has been possibly tainted with corruption and misconduct, and these reports fed into SIU investigations into Eskom procurements.

 

 

The reports also relate to the Kusile power station, and the tens of billions of rands looted and plundered there. This, at a time when the country is facing severe power shortages affecting economic recovery. Massive delays and cost overruns have contributed to the critical electricity shortage crippling South Africa’s economy. However, we in the ACDP do commend Eskom on the R83 billion debt reduction. This is

commended as a significant reduction of the debt. Much still needs to be done.

 

 

In this regard the ACDP welcomes the fact that the SIU has referred 66 criminal investigations to the NPA’s corruption- fighting unit, following years of investigations into these big-build projects.

 

 

Chairperson, the evidence is clearly there. Whilst we welcome the progress and look forward to the Minister responding that there ... [Inaudible.] ... further progress, we do realise a lot still need to be done.

 

 

As I have said, over the years, it is lawful and possible to effect the civil recovery of the proceeds of crime anywhere in the world. I am sure the Minister as a previous Minister of Finance would be aware of that; using the SWIFT banking system, and the civil courts and artificial intelligence, it is possible to apply ex parte without notice to the looters for an order freezing the proceeds of crime wherever they may be found throughout the world.

We would encourage SOEs, and particularly Eskom, to approach foreign courts for the freezing orders which are obtainable within days of locating those funds, no matter where they are, they can be recovered.

 

 

Lastly, Chairperson, the ACDP is concerned about the delay in the finalisation of the Shareholder Management Bill. This Bill aims to establish a legal framework which all parastatal operates and to ensure that the boards and executives are accountable. It has been in the pipeline for many years and now is apparently not even one of the departmental targets.

This is highly regrettable and we would like the hon Minister to update us in this regard. I thank you.

 

 

Mr N L S KWANKWA: Thank you very much, Chairperson, at the core of improving South Africa’s growth trajectory, is the need for government and South Africa in particular to sort out its governance framework for its many state-owned enterprises, SOEs as the ... [Inaudible.] ... once indicated last year that such framework would require clear company-specific objectives in terms of profitability, capital structure and the nonfinancial objectives of the company.

Over the past decade, Chair, SOEs have been crippled and captured by rampant corruption and state capture. Unless we do something or government addresses governance failures and introduces a similar framework, our SOEs will continue to be a drain on our fiscus. How can we possibly achieve economic transformation and growth when companies like Eskom, SA Airways, Denel, Alexkor, Transnet are experiencing governance, financial and operational challenges.

 

 

It is very disappointing that these companies are still dependent on government or on the taxpayers for finance to settle operating expenses, something that is not sustainable at all and somehow exposes them to risk of liquidation.

 

 

Every year, Chairperson, Parliament is called upon to deal with bailouts. The unfortunate part is that all of these bailouts never seem to help recover the SOEs to address the governance challenge. The problem we have as the UDM is that we are throwing money right at the problem rather than addressing the underlying causes which ... [Inaudible.] ... We are concerned that the Shareholder Management Bill seems to be dragging on. This Bill is as long as the time I have spent in

Parliament and there doesn’t seem to be movement on the part

 

of to try and show that this matter is been attended to.

 

 

It is very sad that in this day in age, after having taken many oversight visits to companies such as Denel that employees are still being owed monies – salaries by Denel – that Denel is still struggling with financial constraints that we have not been able to address and attend to.

 

 

The recovery of money stolen during state capture is frustratingly slow and this is a major concern for the UDM. I heard the Chairperson say; Rome was not built in one day, yes, we agree with that but we were not the supervisors or foremen in that job. I thank you very much. The UDM does not support the Budget Vote.

 

 

Mr N SINGH: Thank you very much, Chairperson, unfortunately the hon Buthelezi were having some connection problems and I was in another meeting, but I will deliver his speech on his behalf. Hon Chairperson, the IFP has long held the view that this department should not exist, and that its various entities would be far better managed, were they to fall under their respective line function departments.

It would appear that this is the correct viewpoint, given the litany of bad business practices and gross maladministration that have plagued, and which continue to plague the entities that currently fall within its mandate. Unfortunately, as always, South Africa and the South African taxpayers remain the losers.

 

 

The question we should be asking is: Is the current distribution of entities that fall under this department sensical? How is this advancing our constitutional imperatives for transformation and accountability and very importantly, basic service delivery?

 

 

The IFP is of the opinion that this department, if allowed to continue, will break the back of the South Africa economy. As we speak here today, this department remains one of the worst performers of our new democratic dispensation. It glaringly seems to serve but one purpose, and that is advancing the ANC’s cadre deployment policy at the expense of this country, and at the expense of our people. Thus, it is not surprising that the entities under this department are always seeking a bailout. We can count them: Eskom, SA Airways, SAA, and Denel

to name but a few. They have cost us billions of rands in bailouts.

 

 

The IFP believes that if we want to bring stability, we must stop making these entities nomadic. Instead, we should put them under their proper line function departments. This will ensure far greater accountability and stability. It cannot be feasible in any way that when a Cabinet member is reshuffled from one department to another, the state entities under him move with him to the next department. This is a fantastic abuse of budget and leads to ever compounding inefficiencies. By continuing to allow this, this government has set these state entities up for continued failure.

 

 

At the end of the day, it is the people who must pay to bail out these entities. It is the people who must pay for the failures of these entities. It is the people who experience the effects of the failures of these entities, such as load shedding, in the case of Eskom.

 

 

While the department says that this Vote is about driving investment, productivity and transformation to unlock growth, drive industrialisation, create jobs and develop skills, the

IFP believes that this is wishful thinking and negligent, if not wilful misdirection. Like many of its counterparts, this department engages in a smoke and mirrors exercise in its budget, hoping that the people will take the bait as regards the continued promises of jobs and transformation. But the reality is that there are currently no jobs and no transformation at this department, only gaping debt and insolvencies.

 

 

Only recently, South African Airways completed a retrenchment process. Denel is in tatters and cannot pay salaries. Can we really trust that this department will deliver the promise of jobs and transformation? No, that is impossible. The IFP does not support this budget. I thank you.

 

 

Mr N E DLAMINI: Thank you, Chair. Hon Members, good morning. The Budget vote on Public Enterprises is occurring under challenging times given both the social and economic effects of Covid 19 and opportunities to embark on the Economic Reconstruction and Recovery Plan.

 

 

The rebuilding of SOE’s that were negatively affected by state capture and corruption commenced and much progress is being

made to re-establish corporate governance, operational and financial viability of the SOE’s. SOE’s have an important developmental role in South Africa to ensure economic renewal. These entities have both a commercial function and developmental role. They also serve as an arm for the delivery of important Government policy objectives as they operate in strategic spheres of the economy. Many SOE’s have played a key role in the development of key infrastructure which enables the efficient functioning of many other sectors of the economy.

 

 

This budget vote is occurring when there is much steady progress achieved by the Department of Public Enterprises under the 6th Parliament to reverse the negative effects of State Capture and corruption. This has occurred through the appointment of new Boards and management. There has been a rigorous process followed in the appointment of directors to the different boards to avoid any conflicts of interests between the SOE and new directors which are appointed.

 

 

Skills, capacity and capability was another important criteria for appointment of directors to ensure that the different SOE Boards have the correct skills and capacity to restore

operational efficiency, financial controls and achieve financial viability. Financial viability is critical to restore SOE’s to perform on their commercial and developmental mandate and create going concerns. More importantly it is imperative that SOE’s creates and grow shareholder value. In this process the Department has ensured that the Boards have a clear mandate in terms of what is expected by the shareholder and will also under go performance assessments. This is certainly encouraging to ensure that there is focus on developing corporate governance and financial controls for the development of the business.

 

 

We also welcome the improvement at Alexkor, they have recorded a profit after a long time of losses, thanks to the new team lead by the CEO there. This is a positive sign that we are going to turn things around at these SOEs.

 

 

SAA has traditionally played an important role in the country in the aviation industry. The geography of the country being at the Southern tip of Africa meant that it was in the national economic interest that the country had a flag carrier in the aviation industry as air travel is the fastest and most efficient mode of transport. Since the creation of the

Democratic South Africa SAA was able to create a regional hub for international flights at OR Tambo international airport. The airline made a major contribution to the tourism industry in the country which has traditionally made a major contribution to the GDP.

 

 

SAA has historically had a number of challenges from a corporate governance and financial point of view. It is well known that the airline was placed in business rescue and that that dragged on for many months. It is a relief that this process is finally concluded and the business has finally been passed back to the interim Board and management.

 

 

Government support for the airline was based on the legal and moral responsibility of the shareholder and the economic importance of the airline for the country. The airline created many direct jobs and indirect jobs as well as contributing to the local economies in which the airline operates.

 

 

The company will have to grow its business on a new business plan and the Department needs to ensure that there is a strategic partner which is sought who has the same vision as SAA to grow the business. The Department will need to assess

the reconstruction of the state’s assets in aviation industry to ensure that economies of scale can be created from these assets to function under adverse conditions afflicting both local and global aviation industry.

 

 

The global lockdown negatively affected the aviation industry and most national airlines are struggling to recover as the aviation industry is a capital intensive and low margin business. The airline, like its international competitors, will take much time to recover given the effects of second and third waves of the pandemic. This means the recovery of the airline is not a quick fix and it will need to prepare for a post Covid-19 world. This can only occur if the majority of countries receive the vaccines as the wealthy northern countries dominate the vaccines.

 

 

SAA must function with vision and its financial controls must efficiently function. Margins in the industry are very tight under normal conditions and it is more difficult under current market conditions. The national airline does have a bright future, but one step at a time. The growth of our tourism industry is critical to the country’s economic growth and this is complemented by the functioning of the national airline.

Transnet plays a critical role in the logistics and freight sector and makes a substantive economic contribution directly and indirectly to the economy. It has divisions which operate the major ports in the country, a national freight rail service and passenger service as well as a petroleum logistics business through ports, rail and tank farms. It is an integrated logistics and freight business.

 

 

The ports and rail service which Transnet operates is crucial to the conduct of many business activities. It is common course that transport enables the movement of goods, people and services throughout the country and therefore the economy is unable to function without such services as provided by Transnet in any substantive manner.

 

 

The ports facilitate the import and export of various types of goods as the country is not close in distance from its major trading partners. The country is dependent on many commodities which are not produced domestically to be imported and also dependent on the rail and ports for the export of minerals, agricultural products and manufactured goods. South African ports are based on international standards.

Transnet financial performance has been encouraging under difficult economic conditions as it was able to generate revenue of over R75 billion and made R3,8 billion in profit. The company has an asset base of R 342 billion. This is encouraging given the difficult economic climate imposed by the pandemic. This is no small operation as it directly employs 55 000 people and contributes to direct employment in the service and engineering industries. This is a large enterprise by any international standards. It is one that needs to be strengthened in order to ensure economic growth and development. Its procurement enables transformation through the support of BEE empowerment companies for services and goods.

 

 

The Department has facilitated the appointment of a new board and management at Transnet. The Board and management have been dealing with state capture and corruption at the entity. This Board is clear that it has to restore financial controls and grow the business. The different business divisions need to improve on its cost structure and its efficiency to ensure optimal functioning.

Transnet is one of the SOE’s which is critical for infrastructure development as part of the Economic Reconstruction and Recovery Plan given the strategic logistics role it plays in economy.

 

 

With growth in the industrial activity and changes in the maritime industry the President correctly announced the development of the Durban port in the SONA of 2020. This is critical to ensure that the larger container vessels are able to dock at the Durban port. Port infrastructure supports exports of South African goods. The Durban port is critical for the exports from the motor industry which has expanded its South African operations in the form of Ford, Toyota and Mercedes. The Cape Town port is crucial for the export of agricultural products just as Richards Bay is crucial for the export of minerals. This expansion of the Durban Port will make the country’s economy more efficient.

 

 

Transnet has already commenced with a feasibility study to commence with this project. This is a major infrastructure upgrade of the Durban port based on world class standards and supports economic renewal and growth. It will also be a source of job creation.

The ANC Government has embarked on a policy of moving freight and goods from road to rail in order to preserve the road network through reduction in the number of heavy duty trucks on the roads. Transnet Rail will play an important role to ensure the realisation of this policy. In this regard the Transnet Rail has embarked on improving security of the rail network and ensuring that it is able to cope with increased freight volume. In addition, Transnet Rail is planning a high speed rail from Durban into the country’s major inland market. This will improve efficiency in the movement of goods and freight between the inland market and the coast. A number of these major projects will be undertaken with the private sector.

 

 

Transnet is seeking to grow its revenue going forward to R100 billion.

 

 

Our 2019 manifesto made the following commitments:

 

 

* To transform the economy to serve the people – to this end government has committed to expand the port of Durban and this will deal with the issue of aging infrastructure and unlock auxiliary opportunities in the port’s

activities and create more jobs thereby growing our economy through the multiplier effect of the rand

* To address the monopolies, excessive economic concentration and abuse of dominance by large corporations to this end there is a program to assist small scale miners to export their call at the Richards Bay Coal Terminal, RBCT. Section 79 of the ports act empowers TNPA to redirect underutilised licenses to businesses which are in need of the same resource

* Education, to this end Transnet...

 

 

The HOUSE CHAIRPERSON (Mr C T Frolick): Hon member, your time has expired.

 

 

Mr N E DLAMINI: Oh, we support the Budget Vote, thank you.

 

 

The HOUSE CHAIRPERSON (Mr C T Frolick): Thank you. I now invite the Hon Lesoma who will preside over the remainder of this virtual mini plenary session.

 

 

Mr A M SHAIK EMAM: Chairperson, yes, I have a crisis because both debates are coming up at the same time. The NFP will support the Budget Vote of Public Enterprises tabled here

today. Having said that, the Public Enterprises has a specific purpose and in my understanding, the purpose was to promote economic development and growth in South Africa, create more jobs and any income that is generated from the state-owned entities will be used to improve the quality of life and reinvested into the economy.

 

 

Having said that, one raises concern about the state-owned entities. The state of the state-owned entities at this point in time leaves a lot to be desired. What is very clear however is that we have learned – I feel vindicated – is that I have repeatedly said that there is no problem with the state-owned entities as such. The problem is the interference. I think if you watched the Zondo Commission, you could see very clearly that cause of the collapse of this state-owned entities, particularly as a result of the deployment committee particularly, the ANC who has been responsible for deploying officials and people on members on these board and who had a mandate to fund the organisations and they have come out very clear about this. Added to that is the fact many of these people who have appointed were people who did not have the necessary capacity to be able to perform those functions optimally.

So, the question is, Minister, what are you going to do to change this, now that we know and understand why the state- owned entities are in this situation today. I think I must also agree with hon Singh that we must ask ourselves if we need the public entities and do we need public works. Why do we not allow these to fall under the relevant department. We would be saving a lot of money and perhaps better management of them.

 

 

If we look at the issue of SAA, I still, Minister, have not had a response on the issue of Coleman Andrews who sold our entire fleet and started leasing it to his own company. I hope at some stage, you initiate some investigation into this, so that we would be able to do that.

 

 

Added to that, it appears that the left hand does not know what the right hand is doing. How do you expect airlines such as SAA, Mango, ... [Inaudible.] ... to survive, when the Civil Aviation Authority continues to issue licences, despite the limited amount of business and travellers in the country, particular with covid-10, and brings in more and more new airlines. Surely, this is going to impact on the performance of the state-owned entity. In the private sector, this will

not be allowed, but because it is the public sector, we can bring in more and more airlines, which is impacting on our very own airline. I believe that is a matter that needs to be dealt with.

 

 

We talk about the fact that we are going to have new boards and a new management. The question is, unless we stop interfere in the running of these entities and let them run independently, we are not going to have success. I will stop there, but the NFP will support it. I see the Chairperson is watching very closely. Thank you.

 

 

Ms M O CLARKE: Hon Chairperson, government’s failure to implement an adjusted governance framework for its many state- owned enterprises will have dire consequences on the fiscal and real economic reform needed in South Africa. Such a framework will set clear aims in terms of profitability expectations, capital structure and nonfinancial objectives for SOEs that are expected to deliver upon.

 

 

Let us start by unpacking the viability of Denel. Government, being the sole shareholder has shown no urgency to deal with its financial freefall. Government’s inability to take

decisive action has made its predicament all the worse. Denel was once at the forefront of developing cutting-edge technology in drones, fifth-generation air-to-air missiles, navel missiles, ancillary systems and protected vehicles. It was once the core in manufacturing arms for the SANDF.

 

 

Denel’s inability in meeting its contractual obligations for product support and maintenance will affect combat readiness within the SANDF. This situation poses a major threat to South Africa and makes our country less secure.

 

 

In the financial year ending in 2020, its losses were R1,9 billion, mainly due to rising operational costs. With its liabilities exceeding its assets, there is a rising risk that Denel will default on its obligations and head into bankruptcy.

 

 

For a number of years, the Auditor-General has issued the most damming qualifications possible - in most instances, a refusal to express an opinion on the financial statements, as information given by the company could not be trusted.

Government has shown no urgency or apparent strategy to deal with the situation. This has only contributed to the further decline at the entity. We have seen chronic mismanagement at Denel that is as a result of rewarding contracts to Gupta- owned companies, cadre deployment and poor financial control in place.

 

 

The Zondo Commission has accused Parliament of being simply a rubberstamp aiding and abetting state capture. All the while, both President Ramaphosa and the Minister of Public Enterprises, Pravin Gordhan have made numerous promises to reform SOEs with no such plan having materialised. In fact, the insistence on bailing our failing SOEs has put the country in financial dire straits and can be directly linked to the economic implosions South Africa is experiencing at the moment.

 

 

I have done oversight at Denel Dynamics. They are broke. I have witnessed with my own eyes the plant at a virtual standstill. Denel Dynamics has asked their staff to work relentlessly on contracts that were secured, so that they may be paid on a future date.

The vehicle manufacturing division has come to a complete standstill. They do not have the capital to finance tenders and contracts that are in the pipeline to sustain itself.

 

 

Denel has not been able to pay staff members, since last year June. It is ironic that the previous chairperson of the board, Ms Hlahla, has not appeared before the Committee on Public Enterprises to account. The Chairperson of the Committee on Public Enterprises had to get her office to summons her to attend this meeting. She is now part of the Presidential SOEs Council that guides the President in terms of political oversight and strategic management reform. It is an absolute disgrace.

 

 

Minister Gordhan, transformation at SOEs will never be able to reform our country if this government does not urgently unbundle, privatise and bring on board strategic equity partners, this needs to be done with haste, a five-letter word this government does not understand. It is for this reason that the DA has called for Denel to be places under business rescue, as it is becoming apparent that the entity has collapsed and will not be able to be saved.

The same can be said about Alexkor that has been subjected to dirty dealings where a dormant shelf company was awarded the tender to mine diamonds receiving its first tranche multimillion rand pay outs in the first month. Yet, another SOE plagued with fraud, corruption and state capture.

 

 

SOEs are the shovels being used to dig this country’s grave. This is a truth that can no longer be denied. You need to realise that bailouts make South Africans poorer and no matter how many councils, committees and advisory bodies you create, this fact will not change. The DA will not support this Budget Vote. I thank you.

 

 

Ms J C N MKHWANAZI: Hon House Chair, hon Minister, hon Deputy Minister, hon members, the Sixth Parliament inherited a situation where the country faced many challenges with the different state-owned entities, SOEs. In the case of Eskom, the country faced the challenge of loadshedding due to greater demand than Eskom could supply which negatively impacted on the economic growth. This was coupled with state capture and corruption which weakened the entity in terms of corporate governance and financial control.

The last Budget Vote was based on ensuring that state capture and corruption needs to be dealt with including the involvement of law enforcement agencies and the restoration of corporate governance and financial control need to occur in SOEs like Eskom. This is characterised by the restructuring of Eskom in line with the Eskom roadmap by the department.

However, this Budget Vote is based on progress made by the Department of Public Enterprises in the fight against state capture and corruption as well as the restoration of corporate governance and financial controls to the different SOEs.

 

 

It should be clear that there are policy differences between the DA and the ANC on this matter. For the DA advocated for the discarding and privatise the SOEs. The ANC-led government when faced with challenges does not abandon entities or merely have a fire sale to sell the silver. Not being able to deal with challenges shows political weakness. So, as the ANC we will find a solution no matter how difficult the problem is, because to every problem there is a solution.

 

 

Hon House Chair, the solutions for challenges facing large institutions which are capital intensive and that operate in strategic sectors of the economy do not have instant

solutions. The role of Eskom is the sole and largest supplier of electricity in the country. It must be noted that it is a fully integrated company which operates throughout the value chain, namely, generation, transmission and distribution.

Eskom generates electricity from different energy carriers such as coal, nuclear and hydropower, and these carriers form an integrated system of supply of electricity. Its power stations supply the bulk of electricity demand to the country complemented at this stage by a small volume generated by Independent Power Producers, IPPs. The country’s large electricity demand cannot be supplied by a single energy carrier.

 

 

It must be noted that in the midst of everything, Eskom has some 47 000 employees and indirectly creates some 188 000 more jobs in service of the electricity sector. It has a large asset base valued at some R823 billion. In the last financial year, the revenue of Eskom was R199 billion and this occurred under trying economic conditions given the effects of the pandemic. This is a significant economic contribution and value-added to the country. This is not small operation and is not capacity that should be abandoned due to challenges in favour of something new that does not exist. This capacity

cannot merely be dismissed in any adventurist manner as it provides the country with security of supply for its baseload of electricity.

 

 

We must note that in the expanding generation capacity for Economic Reconstruction and Renewal, His excellency, the President Ramaphosa, highlighted the problems of Eskom because as government we are not shy to raise the challenges we are facing. We give all our concern and energies to make sure that we deal directly with those challenges.

 

 

The President highlighted the problems of Eskom in terms maintenance, unplanned shutdowns due to ageing power plants and the technical problems associated with Medupi and Kusile. The President committed to Eskom dealing with its challenges whilst at the same time ensuring the expansion of the generation capacity of the country. He also committed to the expansion of the electricity sector through IPP generated power from renewable energy. This was as a result of the growth in electricity demand in the country as we have an energy intensive economy.

In order to maintain a supply and demand balance of electricity expansion of the generation capacity is necessary for inclusive economic growth and development. Simultaneously the President committed to restoring corporate governance, ensuring plant reliability including the optimal functioning of Medupi and Kusile. Moreover, the state of the nation address also committed to the restructuring of Eskom in terms of the DPE Roadmap to ensure commercialisation of the utility to enhance plant reliability for optimisation of assets and enhancing efficiency.

 

 

The expansion of generation capacity through renewable energy is important as it also reduces greenhouse gas emissions.

 

 

The progress made thus far, in the past financial year, Eskom has made progress in a number of areas, and whilst this is not a claim that all problems are resolved but is a recognition of fact that the department has made an important start and its plans and programmes are geared towards taking this progress to the next level.

 

 

The department has ensured that corporate governance has improved through the new board and changes in management.

Corruption at the entity is being addressed and this has been extensively reported and law is taking its course. Financial recoveries have occurred in relation to Medupi as indicated by the hon Minister.

 

 

Eskom has successfully commenced restructuring into three divisions under a holding company and the separation between generation, transmission and distribution has already occurred with separate income and cash flow statements. Executives responsible for the different divisions have already been appointed. This separation into operating divisions will also enable the supply of IPP generated electricity through the transmission grid. It must be noted that the legal separation requires legislation and solution to its debt liability.

 

 

The Eskom revenue of R199 billion was made under difficult economic conditions given the pandemic. There is an improvement in the pricing of coal to the power stations as this occurs on a cost plus basis and not on an import parity basis which is more expensive. This cost plus system is a more transparent cost structure as Eskom is able to view the cost structure of the mines supplying it. Eskom has made great progress in reducing costs and exceeded their planned targets.

There was improvement in municipal debt reduction through the installation of prepaid meters, and this need to be extended to other local areas.

 

 

There have also been improvements in terms of maintenance of the power plants and correction of defects at Medupi and Kusile. Most units at Medupi are functional and Eskom is working on Kusile in the same manner. This approach by Eskom is geared towards improving the entities energy availability factor and increases its generation capacity. It is attempting a green refit of power stations which are nearing the end of its life cycle as part of the just transition.

 

 

The power utility made a R9 billion profit, but this was drowned by its debt repayment of R30 billion which gave the utility a loss of R20 billion. Therefore, the debt liability is the biggest problem facing the utility in terms of achieving financial stability and it is important that some attention is given to reducing the debt liability.

 

 

Irregular expenditure was drastically reduced in the last financial year. Eskom also ensured consequence management to those responsible for a large cost overrun of the project.

This progress on the part of Eskom is certainly commendable and needs to be applauded.

 

 

House Chair, the ANC-led government is in the correct course to restore the operational viability of SOEs like Eskom to make a positive contribution to economic reconstruction and renewal. Therefore, it is difficult to find policy agreement with the approach which the DA has articulated in this House that Eskom is finished. This is only a political narrative and it is not based on the facts as it does not take into consideration Eskom’s role and the fact that no replacement actually exists. In any event the DA has not contributed a substantive idea on the development of energy security which is supportable.

 

 

Hon House Chair, the less said about the EFF’s loud hailing, the better. We will not be able to waste our energy and time on the loud hailing without a sustainable contribution on the policy matter on this issue. In simple English, I am saying that the ANC-led government is the government at work and we moving towards a restructured electricity industry which ... [Time expired.] ... The ANC supports the Budget. Thank you.

The MINISTER OF PUBLIC ENTERPRISES: Thank you, Chairperson and good morning to you and thank you for all of the contributions that we've had this morning. Some of them demonstrate the deep thought that some people have put into the challenges that the SOEs and equally we've seen a demonstration of the paucity of thought around matters that are of absolute national interest.

 

 

So we have differences in ideology and policy, which we are not going resolve here, but I can certainly say that the government's approach to the SOEs in terms of restructuring, repositioning, including private sector participation and not by privatisation and bringing in elements of competition in order to increase the performance is correct approach. We have continuously seen the neglect for development throughout the world where well-run SOEs are making a major contribution to the economic growth, to network industries and the efficiency, and indeed, the creation of jobs for the professionals and the young people. Our aim is to move out of this era of state capture; to move away from the kind of damage that has been caused, which many seek, during this debate, to ignore. And in fact, we have an interesting form of corruption, denialism, where very few speakers have made reference to the damage that has been caused during this particular period, hon Singh, for

example, was part of the Inquiry into Eskom. He knows the kind of lies that were given to the party mandatory inquiry during that particular point in time yet, I suppose, the party line matters and as the hon Mkhwanazi has pointed out, the facts do matter. And it is the facts that guide us in this particular regard.

 

 

The second point I want to make in relation to some of the issues raised by the hon members in relation to the Shareholder Management Bill is the following in respect of the SOE Council and I say the following, I'm pleased to report that the SOE Council has been established to strategically reform, reposition, and revitalise the SOEs; the work of the Presidential State-owned Enterprises Council, PSEC, is underpinned in the objectives set out for the work streams for finance, governance and consolidation and crisis management.

The governance works stream is responsible for elaborating the centralised shareholder oversight model and developing key performance management measures for SOEs.

 

 

So this is indeed, hon members, work in progress. It will also contribute to the development of an SOE Bill for new overarching legislation governing these entities; the finance

work stream is working on determining innovative funding solutions for SOEs given the constraint fiscus; the consolidation and crisis management work stream would identify the SOEs that should be consolidated and also review the mandates of the SOEs.

 

 

Of course, the President, as the head of the council, would report on these outcomes in due course. So this is indeed progress that we are making in this particular regard. My third point, in relation to hon Wessels, is there is an interesting new book in the bookshops. The author is Nick Dall, the title of the book is Rogues’ Gallery - An Irreverent History Of Corruption In South Africa.

 

 

So he's right, corruption has a long history going back many years and indeed in world history, every society has been impacted by corruption and the behaviour of the elites and professionals, in this particular regard. Our task is to overcome this legacy. Our task is to minimise this legacy. Our task is to make sure that, notwithstanding the damage caused, as evidenced by the evidence given to the Zondo Commission, is to overcome that, use that evidence in order to learn the lessons that have been put forward to us as the South African

public, as government and indeed Parliament itself, as some colleagues have mentioned, and to ensure that we go beyond that and put the SOEs on a completely new footing. I have elaborately said earlier that putting the SOEs on a different footing is not going to be an easy task. It's an arduous task. There is no available quick fix. Now one can understand that for political reasons, many of the hon members who spoke today, would like it to appear that there was no history to these SOEs; that there was no corruption that we had to worry about. And in fact, that many of us were silent during that particular period, whether it is within Parliament or outside of Parliament.

 

 

Today, this government has the courage to take on these practices of the past; to take on the responsibility, as hon Mkhwanazi pointed out, to set South Africa on a different path and set the SOEs on a different path as well. And of course, the paucity of contributions to some of the major challenges facing both South Africa and the world, whether it's energy supply, whether it's the logistics chain, and the dynamics across the world is on the one hand, not surprising but on the other hand, I think is something that Parliament needs to give serious attention to. On the issue of corruption and evidence

of action being taken by both the SOEs in certain instances. and the law enforcement agencies, I have a 20-page report here of the different culprits who have been reported by the Special Investigating Unit, SIU, reported to the Hawks, reported to the National Prosecuting Authority, NPA, of civil claims that have been of money that has been acquired. And I summarised this as following; the State Capture Commission has heard that approximately R49 billion and some say it goes up to a trillion was lost to the Gupta enterprises and many others.

 

 

Of course, the law enforcement authorities have been investigating 114 key contracts, 33 high profile criminal investigations involving multiple parties, including former board members and executives of SOEs. This includes various third parties such as the companies and individuals who facilitated state capture.

 

 

The Investigative Directorate of the NPA working with the Asset Forfeiture Unit and the Directorate for Priority Crime recently froze R1,4 billion in assets, as you know, of former executives and three private contractors. Significant progress is being made in civil recoveries, the ABB, an engineering

company associated with the new power plants in Eskom, repaid, as you know, R1,5 billion to Eskom, while McKinsey, the consultant has paid back a billion rand to Transnet; an

R171 million claim against Deloitte has been launched; another R870 million between McKinsey and Transnet is about to be settled and many claims have been made against other companies alleged to have received payments for fraudulent contracts; the R5,5 billion Transnet 1 064 locomotive contract; The

R3,8 billion against several former Eskom directors and executives for breaches of fiduciary duties; and R595 million claim against Trillian, which has declared itself insolvent and an R734 million claim against Tegeta and the Brakfontein Mine

 

 

So this is merely a summary of the kind of actions that have been taken in order to ensure that there is indeed recovery. Hon Swart is absolutely right that we need to move to the next stage and the next stage is to identify where the stolen money is elsewhere in the world. And how do we recover that money and bring it back to South Africa and use it to create jobs and investment in this particular country.

And there will be more revelations as we go forward. As we dig deeper, as more culprits identified, conflicts of interest in various SOEs are identified as well and corruption did not end because the Sixth Administration came into place. The fact of the matter is, at many different levels in the private sector, particularly, and also in the SOEs and other sectors of government that corruption is continuing. Hon Kwankwa and hon Clarke expressed understandable frustration and concern about Denel, we're planning to do everything possible to certainly ensure that Denel can find itself on the right kind of footing. But where we acquire the money is a crucial question that the board is confronted with. There is a reform plan, hon Clarke, for SOEs. We have spelt some of it out today. And if you want to, as I say, there's none so deaf as those who will not hear are none so blind as those who don't want to see. The plans are there. They are being put into action. There are people of integrity in the boards that have been into place.

And in the management scenes that have been constituted and they are constantly at work in order to reposition these SOEs to ensure their operational efficiencies, to make sure that they get out of the financial morass that's state capture and corruption placed them in.

And more importantly, as is the case, both on the logistics side and on the energy side of the sectors of our economy, there are innovative things that are happening and will continue to have to happen in this financial year, which will demonstrate that we are not only dealing with the past and stabilising the present but we are also putting in place the foundations that will help us to deal with the future challenges that we are confronted with. Mr Shaik Emam makes reference to Coleman Andrews but that's a long history, a long time ago, we'll check if they have some investigations in that particular regard. And his concern about the issuing of licenses is something that we will certainly raise with the Minister of Transport as this falls within his particular domain. The other entities such as Alexkor and the SA Forestry Company SOC Limited, Safcol, Safcol is an extremely well-run entity at the moment and the more creative things are planned in that particular entity, Alexkor requires a more profound solution as we go forward and more fundamental changes to overcome the legacy the hon Clarke has actually mentioned and others have mentioned as well.

 

 

And that will enable us to ensure that the Richtersveld community, on the one hand, the workers at Alexkor on the

other hand, are part of an enterprise that continues to sustain them as we go forward. So without much further ado let me say that whilst we might differ on ideology and policy in certain instances and perhaps in certain instances irreconcilably, we are certain as the government that the reconstruction, repositioning, and revitalization of SOEs is an important part of the Economic Reconstruction and Recovery Plan, that although this is tough work and it requires a great deal of resilience to accomplish it, that work will be done.

And we will present to you evidence as we go forward in respect of the milestones that we have crossed. And I suppose ultimately the proof of the pudding is in the eating and there will be sufficient proof, whether it's in relation to a more efficient Eskom, whether we are able to deal with a justice energy transition and we'll probably be amongst the first in the world to repurpose coal power stations and make them sites of investment for renewable energy, but do so in a way in which as the International Energy Agency states, taking great care of the workers, their future training, their future livelihoods and the livelihoods of the communities as well.

We will also see later in this year great investments taking place by Transnet and private sector partners and this is not privatisation but it is about running whatever capital it is available and skills that are available in this country in order to ensure that the ports of this country are expanded, the railway infrastructure which is decimated by criminals who steal copper cables in various parts of the railway infrastructure of Transnet, that the railway infrastructure is secured and begins to serve the key industries that keep South Africa's economy going.

So once again, thanks to all of the hon members for their contributions and we hope that in the next debate we have a lot more substance in relation to the challenges and opportunities that we face and find creative answers to them. Thank you, Chairperson.

 

 

Debate concluded.

 

 

The mini plenary rose at 11:57

 

 

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