ATC120829: Report of the Portfolio Committee on Public Enterprises on the oversight visit to state-owned companies, dated 28 August 2012
Report of the
Portfolio Committee on Public Enterprises on the oversight visit to state-owned
companies, dated 28 August 2012
The Portfolio Committee on Public Enterprises (the
committee) undertook an oversight visit to Eskoms power stations, namely
Duvha, Medupi, Kusile (the latter two still under construction). This included
an oversight visit to the South African Express Airways (SAX) offices in
The main purpose of the visit was to assess the progress
made in the construction of the two power stations, Kusile and Medupi. This
included an assessment of the impact the construction has on the immediate
communities around the power stations. Key focus areas included job creation,
skills development, promotion of local businesses and localisation.
Furthermore the committees visit was aimed at interacting
with the board of directors of South African Express Airways in order to
understand the challenges facing the company and the progress made so far in
improving the situation, especially the incident of the withdrawal of the
entitys financial statements, and weak internal controls among other
The committee delegation included the following
Mr Peter Maluleka (Chairperson
of the Committee, ANC), Mr C Gololo (ANC), Dr GW Koornhof (ANC), Miss C
September (ANC), Hon GM Borman (ANC), Mr A Mokoena (ANC), Mr R Sonto (ANC), Ms
N Michael (DA), Mr E Marais (DA) and Mr J Dikobo (Azapo). The delegation was
accompanied by the following parliamentary officials: Mr D Mocumi (Committee
Secretary), Mr G Mankay (Committee Assistant) and Mr E Boskati (Researcher).
to Medupi power station (Lephalale)
The Portfolio Committee was
welcomed by Eskoms Project Manager, and in his welcoming address he conveyed
the apologies of the Group Chief Executive Officer, Mr Brian Dames. Among those
who welcomed the Portfolio Committee was the Mayor of Lephalale, traditional
leaders from the region, representatives of local businesses and organised
of the Medupi project
The Committee was informed
construction of the Medupi power station was on track, and that the project was
It will be completed in
December 2013. Coal supply for the power station will be supplied by Exxaro. Medupi
has a capacity of storing about
million tonnes of coal that could last for 40 days.
Interaction with stakeholders
The interaction with
revealed a lack of
communication from the side of Eskom to all the stakeholders. Stakeholders
(Mayor, Traditional Leaders and the business community) complained about the
non involvement of their communities, whilst the local business community
pointed out that they were not benefitting from the construction of the power
station, as it is mainly big companies who are involved.
creation and skills development
All stakeholders raised concerns regarding the conditions of employment
at Medupi power station. These included, subcontractors not adhering to labour
legislation, workers being given rotten food, importation of foreign labour,
and lack of employment for local young people. The Community was concerned that
there was not enough done to ensure that subcontractors transfer skills to the
local workers and majority of the local workers were employed as unskilled
labour in the project. Contractors were using labour brokers and not paying
decent wages. Eskom informed the Committee that 90% of workers were from
of local small and medium businesses
Eskom informed the Committee that 64% of the R51bn was spent locally.
There was a project labour agreement with the contractors which made provision
for a bargaining council between labourers and contractors. There were clear
conditions on the contracts with companies with regard to localisation. The contractors
were responsible for the working conditions and grievances of workers as per
the project labour agreement.
Representatives of local business complained that contractors such as
Murray & Roberts were frustrating local businesses and subcontractors were
not paid on time. There were no concrete programmes for supplier and enterprise
development and support for emerging local businesses. There were 38
contractors on site, and out of eleven sectors, only one contract of catering
was awarded to the local community.
Community involvement and development
Traditional leaders raised concerns that Eskom had promised in 2009 to assist
by way of investing in education, health, housing and the refurbishing of community
halls, but that has not been done. The municipality also raised concerns that
the community was frustrated because they were left out of the project, and
that the project had no meaningful spin offs and impact in their lives.
Eskom had opened 6 Central Information Management Offices around
Lephalale, where information regarding developmental and business opportunities
is distributed. There was decent housing provided to 4 workers per communal
unit. The community however raised concern regarding corrupt activities
involving employees who worked in the centres, that they sold employment to
rural youth for R1500. Four workers have since been dismissed for corrupt
Conclusions and Recommendations
The Committee resolved that: (1) Eskom should not give contracts to
companies that do not adhere to labour legislation and treat workers as
sub-human beings. It was ultimately responsible for the workers employed by the
contractors, because Eskom is the custodian of the project. (2) Eskom should
improve the participation and empowerment of women and people with
disabilities. (3) Eskom should expand its skills development to professions
which are needed by society such as doctors, social workers, and not only
skills for the economic market.
It further recommended that Eskom should convene a stakeholder forum
with representatives of local business, organised labour and the local
authority and develop a joint proposal on how to respond to the concerns of the
community and workers. A report should be forwarded to the Portfolio committee
within 3 months after the tabling of this report in Parliament. Eskom should
review the project labour agreement as the interpretation was not clear to the
strategy of Eskom and its interface with the community should be improved.
to Kusile power station
At Kusile power station the Portfolio Committee was welcomed by the
General Manager for corporate Affairs, Mr Chose Choeu and The Group CEO, Mr
Brian Dames. The Committee met with the representatives from the Mayoral
Committee, the provincial Department of Economic Development, members of the community
as well as representatives of local businesses and organised labour.
of Kusile project
The construction of Kusile started in April 2008, and it was 20%
complete and the Committee was informed that the project was within schedule. There
were 90 contractors on site and Eskom constructed the road that link to the N4
road to create access to the plant. There had only been 3 fatalities since the
beginning of the project. Coal will be supplied by Anglo Coal, and the conveyer
belts will only be commissioned once the project was complete. The Committee
was assured that there were systems in place to ensure that the cost of the
project would not escalate.
Interaction with stakeholders
The Committee engaged with all stakeholders to find out whether the
construction of the power station was yielding the expected results and had the
expected impact on communities.
were forums in place to ensure public participation but that was not enough as
challenges of consultation were raised by all stakeholders.
Job creation and skills development
Organised labour raised concerns regarding poor communication from the
managers and lack of consultation on issues affecting workers. Contractors were
not adhering to labour legislation and that there was a need to train workers
on their rights and contractors on their social obligations in terms of the
labour agreement. A high number of young people have been dismissed for ill
discipline because of lack of induction and orientation on the code of conduct.
The Municipality commended Eskom for employing the people of Emalahleni but
concern was raised regarding lack of benefits for the people of Delmas.
Eskom has ensured that there are employment contracts in place with all
contractors and that there were labour relations specialists on site for any
labour disputes. Furthermore, there were programmes in place to ensure that
there was skills transfer taking place and training and bursaries were afforded
to young people in the area to ensure the supply of required skills to sustain
the power station upon completion.
Promotion of local small and medium
Eskom has a partnership with the
The provincial Department of Economic Development informed the committee
that they had a good relationship with Eskom and received regular reports on
progress regarding economic development. They commended Eskom for the supplier
development programme and for the workshops that have been held to create awareness
regarding the opportunities that existed for the broader community.
Local business admitted that they were not ready for the construction
and the opportunities. They raised concern regarding the Construction Industry
Development Board grading, and said that it disadvantaged local businesses from
getting tenders. There was no support for women who are in business and
proposed that the training for women in engineering business should increase
Community involvement and development
For the construction of the power station, Eskom bought a farm and
relocated 18 families. The construction of the power station had revived
economic activities in the community and has brought stability. The community
appreciated the efforts by Eskom to reach out and create awareness, and
believed that more could be done to capacitate young people with skills and
support to businesses.
Conclusions and Recommendations
The Committee resolved that:
Eskom should convene a
stakeholder forum that will comprise of all concerned parties and should
develop a joint proposal on how to address the concerns raised by the
Eskom should ensure that
the subcontractors are paid on time and are given the necessary support and
Eskom should ensure that
all contractors have corporate social investment projects especially in
education and health.
to Duvha power station
The delegation of Eskom was led by the General Manager for Corporate
Affairs, Mr Chose Choeu and Mr Christo Van Niekerk, Senior General Manager for
Generation Division. The Committee only met with organised labour, and was
informed that because the power station was in the same municipality with
Kusile, stakeholders did not attend the session at Duvha.
The Committee also undertook a site tour of
the power station to familiarise itself with the plant and the conditions of
of Duvha power station
The power station was commissioned between November 1975 and February
1984, and planned to operate until 2044. There were currently 26 units in the
maintenance backlog and the target was to eliminate backlog by end 2013. Eskom was
using open cycle gas turbines (OCGT) designed as peaking power and emergency
reserves. They are diesel-fired and cost 10-15 times much more than coal-fired
stations. OCGT usage has increased in 2011 and 2012 in order to create space
Briefing on accident (explosion of Turbo Generator)
The committee was briefed on the incident that took
9 February 2011, where the Unit 4 turbo generator at Duvha
Power Station destructed during an annual statutory overspeed test. The purpose
of the test was to check the integrity of the mechanical trip mechanism which
should shut off the steam supply and prevent
the turbine exceeding its safe speed limit. The
mechanical trip mechanism failed to operate during the test. The
electro-hydraulic governor failed to impose the safe speed limit. Due to the
rapid acceleration rate allowed by the modification, the operators only had
seconds in which to activate the emergency push buttons near the front pedestal
and in the control room when the turbine exceeded 3 500 rpm. The unit
destructed at about 4 100 rpm. Large parts of the machine such as bearing
pedestals, shaft couplings and turbine blades were ejected. There were no
physical injuries to staff.
A fire broke
out in the area between the intermediate pressure (IP)
cylinder and the front pedestal, but it was effectively
An investigation was conducted and the findings showed
that the direct cause of the incident was attributed to an operating error, in
that the operator did not follow the set procedure while undertaking the
physical overspeed test. The investigation was conducted jointly with the
insurance company, and the claim was R1.9bn, however the report was presented
to all but was the property of the insurance company.
Interaction with organised labour
The Committee interacted with the union
representatives, and these were the findings of the Committee:
Job creation and skills development
Organised labour informed the Committee that the contractors on site
were exploiting workers and were not complying with labour legislation
especially their contribution to the Unemployment Insurance Fund. There were no
mechanisms in place to monitor the performance of contractors, no support was
given to workers who got injured on duty. Money was deducted from employees
salaries for protective clothing.
There were no training opportunities for the employees of Duvha power
stations, and no skills transfer was taking place at the construction of unit
4. Instead pensioners were recycled to come and work as consultants in the
company. Training that was conducted on site was not accredited and was not
Labour raised concerns
regarding the salary parities among workers and the absence of a performance
management and appraisal system. There were no skills development and job
creation initiatives to improve the lives of the adjacent communities.
involvement and development
There was lack of investment in the community and the furniture that was
replaced by Eskom was not donated to organisations within the community.
Concern was raised that Eskom has failed to uplift the community through recreation,
education and skills development. The Committee raised concern with regard to
the appalling conditions of the community, especially the state of houses.
Eskom informed the Committee that it could not invest in the adjacent
community because the land adjacent to the plant which the community occupied
was the property of Anglo American and there were discussions underway with the
local municipality to develop the area
Conclusions and Recommendations
The committee recommended that:
(1) Eskom should convene a stakeholder forum with representatives of
local business, organised labour and the local authority and develop a joint
proposal on how to respond to the concerns of the community and workers. A
report should be forwarded to the Portfolio Committee within 3 months after the
tabling of this report in Parliament.
(2) The committee further recommended that Eskom should develop a
corporate social investment to address the issues of education, skills
development and housing with the local authorities, labour and local
(3) It should make an effort to develop and support local suppliers in
order to improve the local economy of the area.
to South African Express Airways
The committee was welcomed by the Chairperson of the Board and the chief
executive officer, Mr Inathi Ntshanga. The committee interacted with the
employees of SAX and the customers at OR Tambo International Airport to
establish the challenges facing the company and how the company could improve
its customer service. The committee also visited the
The Committee visited employees working at the counters at OR Tambo
International Airport and they highlighted the following challenges: communication
problem between frontline staff and the boarding gates, cancellation of flights
and delays, overbooking of flights, lack of security for frontline staff
(counters), change of sizes of carriers by flight controllers causing
challenges to accommodate booked passengers.
The customers raised concern regarding flight
delays and cancellations, but were happy with the service etiquette of the
Observations of the
The Committee noted with concern that there was lack of support given to
the employees, and that they were working under difficult conditions. They were
not empowered with enough information to handle queries and frustrations of
The employees were very
motivated and showed commitment and loyalty to the company.
with the board of directors
The Chairperson of the board, Ms Boyle, apologised for the board members
who could not make it to the meeting. In the briefing she highlighted the
There has been no change in the status quo of
the 2010/11 financial statements, and the reconstruction thereof was still
Reassured the Committee that all the problems
facing the entity were not related to fraud and corruption, but related to
The Company had appointed Sizwe Ntsaluba
Gobodo and KPMG as external auditors, and it has reviewed the structure of the
organisation and addressed the skills requirement. There were new control
systems that have been introduced including, a new formula used to audit assets
in order to prevent over-valuation or over-statement.
Both internal and external auditors have
given the audit committee assurance in writing that all internal controls were
In response to the problem of flight delays,
she informed the Committee that the company had two aircrafts that were broken
and the cleaning of aircrafts were the main reasons the company experienced
In conclusion, the
chairperson of the board told the Committee that the forensic report has been
completed and has been submitted to the auditors for verification, thereafter
it will be forwarded to the Minister then the Portfolio Committee.
The Committee expressed its discomfort with regard to the effectiveness
of the board and governance of SAX and requested the board to be thorough in
the execution of its duties, so that the incident of incorrect financial
statements did not reoccur. It further resolved that SAX should address all the
concerns that have been raised by the customers and employees and should
improve its customer service.
keep the Portfolio Committee informed timeously of the developments within the
Meeting with the Board of Trustees of
TSDBF and TPF
The Committee met with representatives of the board of trustees of both
the Transnet Pension Fund and the Transnet Second Defined Benefit Fund. The
purpose of the meeting was to get a progress update on the implementation of
the committee resolutions that relate to the pension funds of Transnet.
The presentation highlighted the following:
Transnet Second Defined Benefit Fund
The Board of Trustees has been in a process of amending the rules in
order to effect the increase policy, but the process was taking very long because
members had to be consulted broadly. The trustees did experience some
resistances from some pensioners. The pension fund has covered the 5 months back-pay,
but including two bonuses paid to the pensioners. That was done through a rule
that allows the trustees to pay out annual bonuses, subject to affordability.
The Committee was informed that there are too many processes that were
hampering progress, which included, court cases, threats, and malicious lies in
Transnet Pension Fund
The pension fund was
administering 4 000 pensioners of which 1 500 are active members. In December,
the pension fund made a 5-month pay out to the pensioners.
The challenge that the pension fund had was that there was a discrepancy
among pensioners, as there were pensioners who only joined 5 years before
retirement. Most of which were racially excluded from being affiliated to the
fund. The fund was looking at making special arrangements for pay outs to the
previously disadvantaged pensioners.
The Committee resolved that the pension funds should improve their
communication strategies towards the pensioners in order to prevent confusion
and misleading information fed to pensioners. Furthermore, the trustees of the
TSDBF should still consider to fulfil the full 5 months back-pay which would
mean a further two months payout in place of the two bonus payments that have
already been included in the pay-outs of the five months back-pay. The
Committee resolved that the trustees of both funds should forward quarterly
report to the Committee on progress regarding the pay-outs to pensioners.
Report to be considered.
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