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Date: 13/06/2006
Source: Department of Public Enterprises
Title: Erwin: Public Enterprises Budget Vote debate NCOP
Public Enterprises Budget Vote debate 2006/07 in the
National Council of Provinces (NCOP) delivered by Alec Erwin,
Minister of Public Enterprises
Chairperson, Honourable Members of the National Council of
Provinces, ladies and gentlemen
Today marks the first occasion since the onset of democracy that
the Department of Public Enterprises (DPE) presents its budget in
the National Council of Provinces.
Our presence in this Chamber is an indication that State Owned
Enterprises (SOEs) are increasingly being recognised as vital
players in advancing the objectives of the developmental state and
obtaining the goals and targets set out in the Accelerated and
Shared Growth Initiative for South Africa (AsgiSA). It is also
recognition of the importance of interaction with all spheres of
government in the planning and implementation of economic and
logistics infrastructure. Better communication contributes to
increased synchronisation of programmes, resources and capacity,
thereby enhancing the impact of infrastructure investment on
economic growth and development at a local level.
The Select Committee on Labour and Public Enterprises, under the
leadership of the Honourable Priscilla Themba, has been a key
driver in ensuring that my department and our aligned SOEs remain
accountable to provinces. Over the past few weeks they have been
robustly engaging us on fundamental issues of transformation and
assisting us to assess whether we are indeed contributing to the
structural changes within the economy.
Chairperson, honourable Members, I believe that we are.
The industrial impact of the infrastructure programme
The SOEs are contributing to economic development and job creation
both indirectly and directly at a number of levels. I however only
wish to speak to three.
Firstly, Chairperson, by operating efficiently, effectively and
economically SOEs improve the overall competitiveness of the
economy and increase South Africa’s attractiveness as a
preferred investment destination. A study by the Human Sciences
Research Council indicates that improving telecommunications and
logistics inefficiency could save us as much as 4 percent of Gross
Dometic Product (GDP). Significant resources are being ploughed
into ensuring that SOEs reconfigure to provide world-class,
affordable products that meet the demand arising from our growing
economy. The majority of these resources are being directed at core
input sectors such as energy and transport.
As demonstration of our dedication to provide a secure supply of
energy, Eskom has committed R97 billion to improve generation,
transmission and distribution of electricity. The electricity build
programme includes the refurbishment of existing power stations,
the building of new generation capacity and the generation of
alternative, cleaner sources of energy. A number of programmes are
already underway. These include the refurbishment of mothballed
stations of Camden (2 x 380 MW already on, with further 760 MW by
2008), Grootvlei (1130 MW between 2007 and 2009) and Komati (900 MW
between 2008 and 2011); and the construction of two new peaking
stations Atlantis and Mossel Bay (1 050 MW). In addition other new
base load plants are in the pipeline, including a coal-fired power
station codenamed ‘Project Alpha’.
Efficiency in the port and freight systems is a key ambition, as a
delay in this area would form a fundamental impediment to growth. A
priority of Transnet is thus to accelerate the building of new
ports, expanding capacity in the overcrowded ports and modernising
freight facilities. The new port of Ngqura is being developed and
there will be expansion in Saldanha Bay.
A pre-feasibility study for a container terminal at the Port of
Ngqura has been completed and a full feasibility study and costing
exercise for the terminal is being conducted. In respect of
addressing overcrowding in Durban harbour and Cape Town; the Pier 1
terminal in the Port of Durban is being expanded and redesigned to
provide an additional container terminal with 600 000 TEU’s
(Twenty-foot Equivalent Unit) capacity by 2007. Further work to
meet the environmental impact assessment requirements for the
expansion of the Cape Town container terminal, are underway.
Other key interventions by Transnet include the refurbishment of
Spoornet locomotives and wagons and the purchasing of 110 new
locomotives; as well as the construction of a multi-purpose
pipeline from Durban to Gauteng.
Secondly Chairperson, the capital expenditure programmes being
driven by the SOEs will leverage the growth of the local supplier
industry, thereby catalysing the creation of new economic activity
and re-establishing related industries. Transnet and Eskom’s
capex spend is estimated to contribute 1.5 percent of 2004 GDP per
annum over the next five years.
Spending in key areas of manufacturing will be significant. Based
our on modelling, which we did together with the Industrial
Development Corporation (IDC), it is estimated that R27 billion
will be going to construction, particularly civil engineering; R11
billion for metal products, excluding machinery; R9 billion for
electrical machinery; R8 billion for non-electrical, and R11
billion for transport equipment.
In product terms Eskom’s demand for steel and cement per
annum in the next few years is estimated to be 60 000 and 1 million
tons respectively. The construction of the pipeline from
KwaZulu-Natal to Gauteng will require anywhere between 75 000 and
90 000 tons of steel. The positive impact that the investment spend
will have on the economy cannot be understated.
The development of the Pebble-bed Modular Reactor (PBMR) will also
give rise to a new industrial sector in the form of the supply and
maintenance of these reactors. It is also foreseeable that new
engineering techniques to deal with the heat by-product of the PBMR
will open many new industrial and chemical opportunities.
To maximise local benefit from SOE activity, the department is
developing a local content procurement framework to be completed by
the end of July this year. This framework will focus on local
supplier development, particularly in the areas where we have a
competitive advantage. It will not only seek to strengthen local
industries so that they may optimally benefit from the capex spend,
but it will also serve to move them up the value chain.
A model to leverage Eskom’s procurement spend has already
been completed and is outlined in a brochure, which has been
distributed to Members along with copies of the speech.
Thirdly Chairperson, the disposal of non-core properties, as part
of the process of making SOE more focused and streamlined, is an
enabler of black economic empowerment and local economic
development. The non-core properties have been classified according
to various disposal options namely, sale, housing, transfer and
development.
Properties for sale have been identified based on their relative
location, size, market demand, topography and potential. Sales,
such as with the Victoria and Alfred Waterfront, will be an open
and competitive tender process. Broad Based Black Economic
Empowerment (BBBEE) guidelines have been developed to ensure that
the disposal process contributes to transforming the property
sector. For smaller property holdings the guidelines include
stratified preference for people who reside in the area in which
the property is located to allow for a more equitable geographic
spread of economic ownership.
The department will further play a catalytic role in negotiating
with relevant departments to fast track the transfer or development
of SOE properties, which can contribute to government’s
broader socio-economic objectives in respect of social, residential
and industrial development. Information sharing sessions between
DPE and the Department of Housing have already begun. The
department is also working closely with affected municipalities to
ensure the optimal utilisation of targeted property.
Strategic Governance Systems
In order to make the necessary impact on the economy, SOEs have to
be financially and commercially viable entities with sound
corporate governance practices. They have to display operational
efficiency and maintain healthy, independent balance sheets. This
requires stable, institutionalised governance systems that are able
to maximise shareholder value. The department is currently
developing a Shareholder Management Framework to be concluded next
year. We are also developing shareholder compacts with reporting
SOEs based on clear performance targets that capture both strategic
intent and economic return.
Internally the department established processes to improve our risk
management capacity. Financial indicators informed by the HOLT
valuation system were introduced, and a benchmarking exercising was
conducted using a Cash Flow Return on Investment Framework. The
tools are further supported by a Risk Management Questionnaire to
measure SOE compliance with the Public Finance Management Act
(PFMA) and performance risk analysis reviews are conducted
quarterly.
Our primary obligation however remains to ensure that SOE play a
strategic role in advancing the objectives of the developmental
state. Activities of SOE are critical for the economic integration
of the second economy and hence their outputs have to be carefully
monitored. A project to model infrastructure impact on the economy,
social equity and the natural environment is underway to align
capex planning with macro-economic and industrial policy targets.
Furthermore, an investment dashboard is being introduced to track
the outputs of capex related projects, thereby increasing
transparency, accountability and effective implementation.
Communication
Chairperson, because of its significance, I repeat my message to
the National Assembly. The electricity problems we have and may
experience in the Cape have driven home some lessons. A key one is
that of communication and reliable information. There are a number
of aspects to this matter. The first is a consistent message on
growth and the investment required to meet and facilitate that
growth. What the last two or three years have shown is that this
economy is indeed capable of a higher growth rate and that this is
a very robust and competitive economy. It is now time for both the
public and private sector to internalise this reality and adjust
their decision-making accordingly.
In the public sector, from the local through to the national level,
full attention has to be paid to every aspect of infrastructure and
efficient and continuous maintenance of that infrastructure. In the
private sector the supplier industries, where investment lead times
are longer, business leaders must have the confidence and foresight
to invest now. Hesitancy and timidity is an obstacle to the growth
that we can achieve. This is not an incitement to reckless planning
but it is a call to courage. The leaders of both the public and
private sectors must now take personal responsibility for training
of our talented and capable people.They are the bedrock assets of
the economy.
From the side of the DPE and the SOEs we will attempt to improve
our communication with the stakeholders so that more information is
available for decision-making. Interaction with potential suppliers
into the investment programme is important both to facilitate such
a large programme and to open opportunities for the largest and the
smallest of enterprises. We will ensure that opportunities arising,
both from the investment programme and the property disposal
process, are advertised broadly and well in advance to enable broad
participation. We have redesigned our website to increase
accessibility and we are already achieving a higher amount of
hits.
Let me take this opportunity to thank the people of Cape Town and
the surrounding areas for their co-operation in the saving of
energy. I would also like to thank the business community in
particular for their detailed co-operation. Without this a
difficult situation would have been even worse. We will have to
continue our efforts to save on energy over the next two months
until we have the second unit back in operation. I thank all who
are co-operating in this task.
Conclusion
The priority areas for the department for the coming year are to
implement an effective shareholder management system; to ensure the
implementation of the infrastructure investment programme; to
support SOEs in maintaining healthy balance sheets; to facilitate
partnerships with the private sector where required; and to
maximise the impact of the capex programme in the economy. For this
our department is requesting a modest sum of R683.4 million.
Allow me to thank the Select Committee Chairperson, Ms Priscilla
Themba and the Select Committee Members for their open and vigorous
engagement. Thank you to the Chief Executive Officers and Board
Chairpersons for the co-operative relationship that we have been
able to establish. Lastly I would like to thank the
Director-General, Portia Molefe and the staff in the department for
their enthusiasm and commitment.
Enquiries:
Ms Gaynor Kast
Ministerial Spokesperson
Cell: 083 271 4350
Issued by: Department of Public Enterprises
13 June 2006
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