Date: 10/04/2003
Source: Ministry of Public Enterprises
Title: Radebe: Public Enterprises Dept Budget Vote 2003/2004


BUDGET VOTE BY THE MINISTER OF PUBLIC ENTERPRISES, JEFF RADEBE, TO THE NATIONAL ASSEMBLY, 10 April 2003

Madam Speaker
Honourable Members
Chairs and CEOs
Ladies and Gentlemen

It is said of Shaka ka Senzangakhona:

USalakumenyezelwa
UsiShaka kasishayeki
Ilemb' eleq amany' amalembe ngokukhalipha
Umoy' omzansi womngenelo
Ohlez' ubangenela nangomnyango
Oth' esadli ezinye, wadl' ezinye
Wath' esadli' ezinye, wadl' ezinye!

(1) Praises to a mighty warrior and king that echo down through the ages, and which today stir our thoughts towards a warrior of humble birth: Chris Thembisile Hani. Cde Chris' lifelong commitment to the ANC and SACP's epic struggle to eradicate poverty and place Africa's poor at the centre of our attention informs even today the policy and programmes of the African National Congress. Let us recall his cruel assassination, but let us continue to give flesh and blood to our political democracy by building a living monument to his memory enshrined in economic and social justice for our people.

Allow me, Madam Speaker, to welcome economics students from Cape tertiary institutions. I hope that they will be so motivated by today's debate to join our state owned enterprises in the near future.

A very special welcome, though, to a comrade and compatriot of African liberation: Cde Slava Tetekin. His activism for our liberation stretches back to the USSR's Afro-Asian Solidarity Committee, and who today is the Parliamentary Secretary to the Leader of the Russian Communist Party, Cde Gennady Zyuganov, in Moscow.

Budget votes provide single snapshots on the role of film that is Government's total programme and activity. The contribution, performance, and restructuring of public enterprises, is but one link in the chain of Government's development policy.

Because SOEs are major instruments of the developmental state to combat poverty, we have defined and implemented the restructuring of state owned enterprises in a non-ideological fashion, seeking the best results by analysing the balance of evidence on a case-by-case basis, selecting an appropriate method to achieve our goals.

My report to Parliament today takes a thematic approach that reflects on the impact of restructuring in its broadest sense. The evidence reveals a direct link between restructuring and the stronger contribution SOEs are making to the development of our country and continent.

SOEs are important strategic financial actors in South Africa, whose restructuring has released financial resources for social and economic programmes throughout the country.

The major state-owned enterprises play a significant financial role in our economy. For example, although South Africa's external debt was just over R32 billion at the end of June 2002, the share of SOE borrowings dropped to 14.9%, compared to 46% in 1990. Public corporations contribute about 5.5% of GDP. The total surplus of non-financial public corporations represented 2.4% of GDP in 2002. They also contributed 10.8% of gross domestic fixed capital formation. Their credit ratings remain stable. The financial well-being of SOEs is an obvious priority and, assisted by compliance with the PFMA, must continue.

Last year Government carried out 11 transactions to bring to 27 the number since 1997. These included outright disposals, equity sales, participation of BEE groups, dividend payments, proceeds from the rationalisation of interests across SOEs, and the Telkom IPO. To date, and these are the most recent figures we have, total proceeds were R35, 5 billion, with the National Revenue fund absorbing just under R22, 5 billion.

Income for 2002 was R8,126 billion, and was affected by the cancellation of the Komatiland transaction, and slippage in the disposal of Rosherville Vehicles, Properties and Construction; finalisation of the Amatola and Alexkor through legal action; complex negotiations around BAE Systems and Denel; and liability problems at the remaining Aventura resorts. We expect finalisation of these during the nest few months.

Vigorous restructuring activity during 2003 include the 100% disposal of the loan books of Eskom Finance Company and Transnet housing that, taken together, are worth about R6 billion. The partial sale of Freightdynamics and Autopax to BEE interests, the selection of an SEP for Viamax, the concession of Luxrail and the disposal of Transmed's pharmacies will proceed this year, as will the disposal of government's remaining interest in MTN. Transnet's end-state will be finalised, and we continue to pursue options for SAA.

Two major transactions will dominate 2003. First is the preparation to dispose of 30% of Eskom generation, including a 10% BEE disposal, subject as always to the general market conditions we would be foolish to ignore. A more detailed outline of the plans for Eskom is contained in the parliamentary reply I provided yesterday and distributed to members earlier today.

The second is the concession of Durban Container Terminal. Government is moving decisively on this front and RFQs will be issued in June 2003, once the preparatory work is complete. There is a high level of interest from the business community in the opportunities that this programme presents, including improved performance in the transport sector to support South African trade.

The reworked National Ports Bill provides for the incorporation of the National Ports Authority as a Transnet subsidiary before becoming a stand alone SOE in the longer term, and for an interim regulator to manage the relationship between the Authority and the Transnet Group. This reworked Bill will be returned to Parliament very soon.

A comprehensive concession strategy covering all aspects of the cargo handling terminals operated by the Ports Operations division of Transnet is nearly complete. Together with agreed concession architecture principles, the strategy document will provide the policy and regulatory certainty necessary for a smooth restructuring process and are prerequisites for the start of the intended restructuring transactions. These will of course be made public once they are complete.

We are ever mindful of the strategic value of our ports. Their efficient operation is central to the development of our continent. Port rehabilitation, modernisation and infrastructure expansion including landlocked container terminals, and so on, is becoming the norm across Africa to deal with the growing containerisation and increasing container traffic in Africa.

Government considers the strategic employment of SOE procurement budgets as an instrument of black economic empowerment that complements their ongoing transformation. During 2002, Eskom, Transnet, and Denel had a combined discretionary procurement budget of just under R34 billion, of which just over R9 billion was BEE centred. Transnet committed 54.6% of its procurement spend to BEE, followed by Eskom at 21.2% and Denel with 15%.

Eskom and Transnet spread their BEE procurement across manufacturing, production, resource and professional services. Eskom's BEE spend also includes a significant 33.7% of coal purchases. Denel plans to increase the supply of local content products and services from black suppliers to 40% of manufacturing, and including marine freight services, engineering services, electrical components and raw materials. We will continue to monitor BEE spending closely to ensure that it s consistent with our goals.

Government believes that Telkom's IPO is a flagship of black economic empowerment. A short time ago on the JSE the share stood at R31.11, representing a 39% rise in value since listing. R500 and R5000 of Khulisa shares are now worth R684 and R6938 respectively! In New York, the ADR is trading at 13% above the listing price. Telkom's ordinary share has outperformed both the FTSE/JSE Top 40 and the European benchmark index. In New York, it has performed stronger than its sector and made gains in line with the US market.

Over 100 000 South Africans took up the retail offer, representing nearly 9% of the total deal. 58% came through the Khulisa offer and represents nearly 50% of the total retail money. Women represent 55% of the Khulisa offer, and 54% of all retail shareholders are women. 62% of shareholders come from outside Gauteng: almost 18% came from KZN, 11% from the Western Cape 7.7% in Limpopo, and 6% each from Eastern Cape, Mpumalanga, Free State and North West. The Northern Cape was just under 2%. Over 50% of applicants fall in the 31 - 50 year age groups. 439 stokvels, representing over 23 000 members, participate.

Progress continues with employment equity. It is extremely encouraging to note SOEs contribution towards education, training and skill development, aimed at scholars and students. Safcol, Eskom, Transnet and Denel are very active in this exemplary work. Special mention must be made about the extra efforts to bring women into engineering and related areas.

Improved financial performance and management, including the reorganisation of pension funds, permitted an expanding commitment to capital expenditure and investment in infrastructure during 2002. Transnet, Eskom and Denel spent R9 billion, R5.6 billion and R234 million respectively in 2002, and have budgeted R12.6 billion, R9.5 billion and R246 million respectively for 2003. Improved longer-term infrastructure investment planning now stretches in some instances over the next 20 years.

Transnet plans to spend over R37.6 billion in capital expenditure over the next three years. Metrorail is set to spend some R15 billion over the next 10 years, including expenditure to improve safety. Spoornet's long-term projects include a R42 billion investment in rolling stock, refurbishment and fixed infrastructure upgrades between 2002 and 2018. Platinum and ferrochrome plant expansion necessitates sizable investment in Eskom's distribution system upgrades. Denel's investment relates mainly to the replacement and purchase of new equipment required for new contracts.

Too often, interesting detail of specific projects hides behind financial data so let me touch some of the more interesting projects that these three SOEs will engage in during 2003 and beyond.

Spoornet's locomotive and wagon fleet is very old, driving up operating costs, reducing reliability and leading to poor performance. The fixed infrastructure is also dilapidated and raises the urgent concern about safety as well as efficiency. Spoornet seeks to employ more efficient diesel locos in rural areas to revitalise the branch line network and boost economic development in rural areas. The carrying capacity of rail will improve, the shift from road to rail of heavy freight will accelerate, and the real pricing of rail services will drop. Furthermore, 90% of the wagon renewal budget, or R9 billion, and more than 50%, or about R10 billion, of the locomotive budget will be spent in South Africa. Overseas suppliers will transfer skills over the period and will embed their technology in Spoornet and develop local support networks.

I am pleased to see that Government's decision to prevent the closure of low-density lines in 1999 has begun to bear fruit. A number of lines have been identified for rehabilitation and continued use, in consultation with Provinces, in the Eastern and Northern Cape, the North West and Gauteng, and will operate as infrastructure corridors to support industrial, mining and agricultural development, or to boost tourism activities. The GFB lines of KwaZulu-Natal, the Northern Cape, and the Western Cape are earmarked for substantial upgrading. The upgrade of the Kroonstad-Ladybrand line, linked with work on the Maseru Container Terminal, will provide the Vaal Triangle industrial complex and Free State agriculture and Lesotho with greater access to Durban Harbour. Both the Orex and Coallink lines will be upgraded to facilitate export growth of R1, 6 and R3 billion per annum respectively over these lines. New line construction at Brits will see a R30 million line carry ferro-chrome exports of some R2.7 billion per annum through Richards Bay. The R500 million Coega extension line will link Coega with the Port Elizabeth rail network.

Ports are also investing. The R25 million dredging and deepening of East London's harbour will enable larger car carriers to call at East London, on an average of 2 per month to meet the growing demand for the service. The Richards Bay coal terminal will undergo a R2, 4 billion expansions, and work is progressing well on the R3, 2 billion Ngura Port. The Coega project took a giant leap forward yesterday with an agreement between the NPA and French investment and industrial giant, Pechiney.

In some instances, though, project proposals not mentioned may not yet be aligned with some of the restructuring initiatives. New challenges have emerged as well, such as radical requirements for port and container security planning and infrastructure. I have therefore instructed the DG to coordinate a detailed report from SOEs on how their infrastructure investment plans are aligned with restructuring initiatives and government's development priorities, and how they intend dealing with any new challenges.

Over the past ten years Eskom has brought electricity to nearly 3 million homes in South Africa. Backlogs continue, particularly in rural areas and special challenges face us with the growth of informal settlements in urban areas. In addition to improving the quality of life of millions of South Africans, the electrification programme has resulted in the creation of small, medium and micro enterprises within disadvantaged communities.

It must be said, however, that Government is deeply disturbed by the practice of not keeping price increases within inflation limits. Pricing policy is complex, and Eskom's case is no exception, but we must be sensitive to the fact that prices higher than the inflation rate undermine Government's macroeconomic objectives. The costs to the economy are great, but the negative impact on the poorest of the poor is simply not acceptable.

SOEs also promote development programmes beyond our borders. Eskom Enterprises operates in over 30 African countries, covering generation, transmission and distribution sectors across the continent. Transnet divisions are spreading their activities into Africa as well. Denel has also built a platform for improved capacity with defence and security establishments for greater potential participation in peacekeeping activity. SA will continue to promote a policy of commonality and interoperability of equipment.

South Africa is a proud member of the African community of states. We are blessed with natural resources, human skills, strength of industry and solid defence and security capabilities. We are a burgeoning democracy. When we consider South Africa's contribution to NEPAD, and particularly that of our SOEs, we understand that there are no borders between our RDP programmes and how we should operate on the continent. Just as we emphasise SMME and BEE in South Africa for historical reasons, so we encourage our SOEs, when they operate in African countries, to apply similar principles of empowerment and local support.

In the welter of reports around the invasion of Iraq, little note has been taken of Denel's mine clearance activity in Northern Iraq under a UN mandate. Mechem's team consisted of 27 South Africans, 689 local Iraqis and Kurds, and 180 mine detection trained dogs. They have cleared nearly 10 million sq metres of landmines and unexploded ordnance in Mosul, Dohuk, Ebril and Sulaimaniya. Thankfully, the South Africans have left Iraq and are safe, but I must express concern about the safety of the Iraqi and Kurdish members of the team who remain in Iraq, along with the dogs. The current US-led invasion has turned back the clock considerably, with the prospect of even greater horror for the local population as landmines, cluster munitions, and other unexploded bombs litter the Iraqi countryside once more. Mechem's team remains on standby, to return to Iraq at short notice when called upon by the United Nations to do so. I commend their excellent if extremely dangerous work. We wish them god-speed, and hope and pray for their safety. The tragedy really is that the situation was avoidable, and indeed should have been avoided.

Madam Speaker, I have sketched the achievements of our SOEs and our restructuring programme in bold strokes and identified ongoing challenges. Most important of all, the evidence of our collective endeavour tells me that we have truly turned the corner. No longer are the SOEs financial albatrosses around Government's neck. No longer do they wastefully absorb precious human and other resources. They are engaged in the transformation of personnel and purpose to become truly efficient contributors to the economic development of Africa, let alone South Africa. Although problems still arise, as is natural, I would suggest that these are isolated incidents whose impact should not deviate them from their important tasks. We therefore commend the work of all who make these entities a success, from the shop-floor to the Boardroom.

Chris Hani belongs with other African leaders who were cut down by colonial and reactionary oppressors: Bambata, Johannes Nkosi, Omar Mukhta, Eduardo Mondlane, Patrice Lumumba, Dedan Kimathi. He was never shy to confront challenges and always demanded clarity of purpose, commitment to cooperation and consultation. His example is a valuable lesson for us all. May we all continue to learn from him.

It is customary to thank a range of people at the conclusion of my speech, but I shall reserve my appreciation and thanks till my reply, so that I may reflect first on what participants in this debate may say about their performance!

I thank you.

(1) He who listens to no gossip/He who beats, but is not beaten/ the axe that surpasses all other axes in sharpness/ the South wind that keeps blowing in/ Which keeps blowing in through the door/ He who while devouring some, devoured others/ While devouring some, he devoured others!

Issued by Ministry of Public Enterprises
10 April 2003