Report of the Select Committee on Communications and Public Enterprises (the Committee) on an Oversight Visit to the entities under the Department of Public Enterprises (DPE), dated 18 February 2015
Report of the Select Committee on Communications and Public Enterprises (the Committee) on an Oversight Visit to the entities under the Department of Public Enterprises (DPE), dated 18 February 2015.
The Select Committee on Communications and Public Enterprises undertook an oversight visit on 23 and 24 of October 2014. The visit’s focus was mainly on State-owned enterprises under the Department of Public Enterprises, namely Denel, Transnet, South African Airways and South African Express Airways.
The oversight visit was undertaken in conjunction with the Select Committee on Land and Mineral Resources. This is due to the fact that both committees share membership. Tuesday and Wednesday (21 and 22 October 2014) was dedicated to oversight visits by the Select Committee on Land and Mineral Resources, and Thursday and Friday (23 and 24 October 2014) to the Select Committee on Communications and Public Enterprises.
The delegation of the Committee comprised Mrs E Prins (Chairperson and Leader of the delegation), Mr MI Rayi, Mr JP Parkies, Mr EM Mlambo, Mr AJ Nyambi, Mr CFB Smit, Mr MA Matebus, Ms C Labuschagne and Ms BS Masango.
3. Support Staff
Mr E Boskati, Content Adviser; Ms PH Sibisi, Committee Secretary; Mr X Simelane, Committee Researcher and Ms A Zindlani, Committee Assistant.
4. Terms of reference
The oversight visit follows a decision taken by the committee at the Strategic Planning session held on 2 and 3 August. Members of the committee were of the view that in accordance with the establishment of the 5th Parliament, that it will be of great benefit to the committee to familiarise themselves with the activities and projects carried out by the relevant State-Owned Companies (SOC).
The main purpose of the visit was therefore to give members of the committee the opportunity to practically assess the performance of the relevant SOCs and also to acquaint themselves with the relevant factors responsible for SOC’s challenges and/or successes.
5.1 DENEL GROUP
The committee visited Denel on the morning of 23 October 2014. Denel is a holding company, wholly owned by the state as the sole shareholder. The associated businesses in the Denel Group have equity partnerships with major international companies in the air-motive, aero-structures, and electro-optics and munitions fields. Denel provides turn-key solutions of defence equipment to her clients by designing, developing, integrating and supporting artillery, munitions, missiles, aero-structures, aircraft maintenance, unmanned aerial vehicle systems (AVS) and optical payloads based on high-end technology.
Denel is managed as one, integrated business, it has an executive management team responsible for daily operations, reporting to an independent Board of Directors appointed by the South African Government through the Minister of Public Enterprise. Denel’s core operating divisions are clustered according to geographical location and similarity of businesses and they are:
- Denel Land Systems and Denel Mechem (Lyttelton Campus)
- Denel Aviation, Denel Technical Academy and Aerostructures (Kempton Park)
- Denel Overberg Test Range (Western Cape Campus)
- Denel Pretoria Metal Pressings (Pretoria West Campus)
- Denel Dynamics (Somerset West).
In addition to Denel’s division the Group owns a number of properties under the Denel Properties (DeniProp) portfolio. Currently this portfolio manages sites in the Gauteng, North West and Western Cape provinces with more than 600 000 square metres under one roof and over 5000 hectares of land with an asset value in excess of R1billion. DeniProp ranges from offices, warehouses, laboratories, aircraft hangars and light to heavy workshop areas to chemical production and testing areas.
5.2 Denel’s financial performance
The Denel Group has been transformed from a loss making entity (from 2004 to 2010) into a profitable company in 2011. In 2008 the group embarked on a turn-around strategy that yielded positive results in 2011. In 2011 the group reported a minimum profit of R150 million. The following financial years (2012 and 2013) Denel’s profit dropped down from R150 million to less than R50 million but picked up again to R194 million in the 2014 financial year.
The Group is now on a financial sustainable path and continues to improve on historic results as a result of restructuring and turn-around interventions. Denel’s strategic focus is now on significantly growing revenue by aggressively driving business development, as well as enhancing technology and capabilities.
5.3 Site tour
Members of the committee were taken on a site tour to see Denel’s products, capabilities and projects in arms manufacturing. During the tour members of the committee had the opportunity to see different types of 5th Generation air-darter missiles, with their different features, properties and functions. This includes unmanned aerial vehicle systems (UAVS) that are guided at ground control and those that have in-built software systems that are autonomous and are able to return to the base if they get lost.
Members of the committee also had the privilege to witness one of Denel’s training programmes of young scientist or experts. Some of these trainees are seconded to Denel by Armscor while others are identified by Denel from within. These young scientist are given a budget and a one-year time-frame to complete their projects. In demonstrating their projects the young scientists, a group of five, each explained what she or his role was in the project. The project involved developing a missile aircraft that is ground controlled that can carry more missiles than is normally the case.
The committee visited Transnet in the afternoon of 23 October 2014 in Pretoria, Kooderspoort. Transnet is the largest and the most crucial part of the freight logistics chain that delivers goods to its clients. Every day Transnet delivers thousands of tons of goods around South Africa, through its pipelines and both to and from its ports. Transnet has five operating divisions, namely:
6.1 Transnet Freight: This is the largest division of Transnet. The division maintains an extensive rail network across South Africa that connects with other rail networks in the sub-Saharan region.
6.2 Transnet Engineering: The division is dedicated to in-service maintenance, repair, upgrade, conversion and manufacture of freight wagons, mainline and suburban coaches, diesel and electric locomotives as well as wheels, rotating machines, rolling stock equipment, castings auxiliary equipment and services.
6.3 National Ports Authority: The national ports authority is the landlord of ports in South Africa and provides port infrastructure and marine services at eight commercial seaports in South Africa. In line with the provisions of the National Ports Act (No 12 of 2005), the core functions of the national ports authority are as follows:
- to provide or arrange marine-related services;
- to ensure the provision of port services, including the management of port activities and the port regulatory function at all south African ports; to provide aids to navigation and assistance to the manoeuvring of vessels within port limits and along the coast and
- to plan, provide, maintain and improve port infrastructure.
The national ports authority’s service offering is targeted at mainly port users (which include terminal operators, shipping lines, ship agents, cargo owners and clearing & forwarding agents). As such, it manages the eight commercial seaports along South Africa’s 2 954-km coastline. These ports are Richards Bay, Durban, East London, Ngqura, Port Elizabeth, Mossel Bay, Cape Town and Saldanha.
6.4 Pipeline division: The division is the custodian of the country’s strategic pipelines assets and is currently servicing two key industries namely, gas and fuel. The liquid fuels network traverses the provinces of Kwazulu-Natal, Free State, Gauteng, North West and Mpumalanga.
6.5 Transnet Port Terminals (TPT): TPT is responsible for commercial handling services of sea-route freight across imports, exports and transhipments of containers, bulk, break-bulk and automotive. TPT operates terminals in seven South African commercial ports namely Richards Bay, Durban, East London, Port Elizabeth, Ngqura, Cape Town and Saldanha.
10. SOUTH AFRICAN AIRWAYS (SAA)
The committee visited South African Airways (SAA) in the morning of 24 October 2014 in Johannesburg. SAA is one of the biggest and reputable airlines in the South African airline industry. At the time of the committee’s visit the airline was facing a number of challenges ranging from the delayed annual financial statements, board members resignations to funding challenges.
The Chairperson of South African Airways’ Board, Ms Dudu Myeni, made some opening remarks, alluding to the airline having to balance its developmental agenda role with that of its commercial sustainability in the face of the funding challenges SAA was facing. She however emphasised her confidence in the capacity and capability of SAA’s executive team and the newly established board to turn things around, pointing out that SAA needed the support of all the key stakeholders. The Board Chairperson also pointed out that there are routes that are not profitable for SAA that had to be discontinued, and the major loss making one was the route to China.
In terms of SAA’s Chief Executive Officer, Mr Monwabisi Kalawa, the airline was aware of the challenges it was facing. The long-term turnaround strategy (LTTS) had been developed to comprehensively address all of the challenges. The successful implementation of the LTTS was therefore critical to the airline’s financial stability. Some of the factors that needed to be taken into account in addressing SAA challenges relate to the introduction of an Aviation Policy Framework that would take into consideration the following:
- Airline ownership and funding
- Bilateral market access (for foreign airlines)
- Airport management and charges
- Visa regimes
- Preferential arrangements for SAA from Airports Company.
This Aviation Policy Framework according to SAA executive team was what was responsible for the stability of airlines in Kenya, Ethiopia, Egypt and the United Arab Emirates (UAE). This policy would also help maximise the potential and shareholder mandate for all state-owned airlines, according to SAA CEO.
On the Ebola virus, SAA continued to operate flights to West Africa with no changes to any of its routes. The decision was consistent with the position adopted by the World Health Organisation (WHO) and the International Air Transport Association (IATA). The airline had however classified the countries affected and likely to be affected by the virus into three categories, namely:
- High Risk Countries: Guinea, Liberia and Sierra Leone
- Medium Risk Countries: Nigeria, Kenya and Ethiopia
- Low Risk Countries: All the others excluding the above.
11. South African Airways financial performance
The airline had reported a net loss of R1 billion in the 2013 financial year that further reduced its balance sheet. Financial statements for the 2014 financial year had been delayed due to SAA challenges as a going concern.
SAA executive team attributed the airline’s challenges to the high cost of borrowing at approximately R500 million annually. An aging fleet that was not fuel efficient and also international routes that were not profitable.
12. Site tour
Members of the committee were then taken to the air traffic control room where they were shown on big screens how SAA airlines were tracked as they fly to their different destinations both locally and internationally. Following that members were taken outside to an aircraft simulation and were shown how a pilot operate the plane from take-off to landing and which buttons are essential for in-motion flights.
13. SOUTH AFRICAN EXPRESS (SAX)
The committee visited the South African Express (SAX) airline in the morning of 24 October 2014, soon after the engagement with South African Airways. South African Express’ Chief Executive Officer, Mr Inati Ntshanga welcomed members of the committee and gave the committee executive summary of the airlines successes and challenges.
He said that that South African Express operated as a feeder to South African Airways. In other words, as a regional airline South African Express’ passengers connected to South African Airways for domestic flights. The airline was at the time operating about 27 routes network connecting 6 countries.
13.1 South African Express 2020 Vision Strategy
South African Airways had adopted the 20/20 Vision Strategy to turn the company around. The strategy was aimed at assessing, reviewing and defining a new business model that would improve the sustainability of the organisation into the next 20 years. Despite these challenges South African Express served as an incubator for aviation’s critical skills. The airline had over 150 black pilots, 250 technicians and 100 cadet pilots in training.
South African Express is currently in a weak financial position, with a weak balance sheet. Related to the airline’s weak financial position was a weak ICT infrastructure, fleet renewal, inadequate alliance relationship, lack of innovation, not effective internal controls and the need for a new business model. The airline was currently experiencing financial problems and had delayed the tabling of its financial statements for the 2013/14 financial years whilst the National Treasury was still addressing the company’s ongoing concern.
South African Express had embarked on a nation-wide sponsorships, exhibitions and marketing strategies benefiting primary schools, high schools children with disabilities and aspirant pilots. This outreach programme included handing out of school bags to primary school kids in Gauteng, maths equipment (e.g., calculators and mathematical instruments) to high school learners and training young pilots. The outreach programme covered the following provinces; Gauteng, Kwazulu Natal, Free State, Northern Cape, North West, Mpumalanga and the Western Cape.
13.2 Site tour
There was no site tour conducted by South African Express, however South African Express’ management team brought in three young pilots, and products of SAA Cadet Pilot Programme. The three, were two young men and a young lady who shared their stories with the members on how long and how they managed to enrol to the SAA Cadet Pilot Programme. All three were now licenced pilots and the young lady had managed to fly her grandmother to the Western Cape. These were breath-taking success stories by young South Africans.
The oversight visit took four days in overall (21 - 24 October 2014) as it was conducted by two committees, namely the Select Committee on Land and Mineral Resources and the Select Committee on Communications and Public Enterprises. Members of the Select Committee on Communications and Public Enterprises managed to familiarize themselves with the work and activities of the four entities especially those of Denel and Transnet. The visit enabled members to have a better understanding of the capabilities, challenges and constraints of each of the entities visited including both South African Airways (SAA) and South African Express (SAX).
On consolidating the findings of the oversight visit, the members of the Committee recognized the efforts and commitment displayed by Denel’s executive team and its board and felt that there was a need to put a motion in the House to commend Denel’s management team for transforming the entity from loss making to a profit making business entity, and made the following recommendations:
- The Minister of Public Enterprises should ensure that outreach programmes in Mathematics and Sciences conducted by SAA cover all the nine provinces especially those residing in rural communities.
- Questions that Denel, SAA, SAX and Transnet could not be able to give answers to due to time constraints should be sent to the Committee Secretary in writing in four weeks’ time after the report has been published.
Report to be considered.
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