23 August 2002
I would like to concentrate my remarks this morning on the important area of infrastructure investment. Thereafter I will make some remarks on other restructuring related issues.
The restructuring of State Owned Enterprises has progressed steadily during the last financial year. I will not repeat the details that I outlined during the DPE Budget Vote earlier this year.
Our principle focus in the restructuring programme is to ensure that SOEs, particularly the 'Big Three' logistics, service, technology and infrastructure giants [Transnet, Eskom and Telkom], generate micro-economic efficiencies to boost local, domestic quality service and to ensure their global competitiveness. We need to ensure that the costs of doing business in South Africa decrease, that the accessibility and quality of product and service to customers and consumers alike increases. We must bridge the urban rural divide, and address the spatial discrimination that divides our people along race, class, language and cultural and even religious lines.
At the same time we need to ensure that developments within our state borders are integrated with similar actions in the SADC region and which merge with the overall architecture of NEPAD.
Amongst other things, the recent Cabinet lekgotla discussed the role and capacity of SOEs alongside financial and other institutions and in partnership with the private sector to implement a practical yet radical infrastructure programme in the immediate term.
I recently referred to Transnet's immediate future as a 'period of infrastructure renewal and extension.' Transnet has forecast infrastructure expenditure of R45,8 billion for the next 6 or 7 years, allowing for R9,1 billion in 2003, R11,4 billion in 2004, another R4,8 billion in 2005 and some R19,7 billion for 2006 and thereafter. These are large figures and have been linked to specific programmes, projects and initiatives.
The resources for massive infrastructure spend accrue from a range of initiatives. Not least of these are the little noticed restructuring steps taken over the past few years to produce a situation where Transnet now enjoys excellent international and domestic credit ratings. The successful restructuring of the Pension Debt albatross has had a major impact on releasing resources that just 18 months ago cost Transnet R1,5 billion per annum for debt servicing! The pension fund liability has now been reduced from R15 billion to about R4 billion, with further progress still on the cards.
Spoornet has a comprehensive plan to address the estimated R16 billion backlog in rail infrastructure alone that accumulated over the last 20 or so years. Nearly R10 billion is earmarked to improve electrical infrastructure, rolling stock, locomotives, signals, railway stations and general improvement to strategic network development. Spoornet will also expand the refurbishment, repair and maintenance of the large number of locomotives and rolling stock leased to a number of African countries.
A number of important propulsive infrastructure projects in the region as a whole are under consideration and in some instances are quite far advanced. These include projects in Tanzania, Zambia, Angola, Mocambique and Malawi.
The improvement of our rolling stock and locomotive capacity in particular has been a priority for some time. This has recently been highlighted with reference to the logistics required to ensure that food assistance gets to the crisis areas in southern Africa. Dealing with such a natural disaster would stretch the resources of any well-resourced country, and we will all need to pool all our efforts to ensure that the process runs as smoothly as possible. In this regard, Transnet, through Viamax, have put together a plan that will see an initial consignment of some 400 000 tonnes of grain and cereals carried to countries as far north as Uganda. Much needs to be done, and no effort must be spared to ensure that this mission is successful without creating further strains on our own domestic requirements.
At the same time Government has instructed Spoornet, through Transnet, to be ever vigilant that their administered pricing policy, particularly as it relates to tariff increases on the transportation of basic foods, does not impact negatively on the cost of living. We are mindful of the fact that food inflation is much higher for the poor than it is for those who earn more. In short, Spoornet's pricing regime must remain within the limits of inflation targeting, if not improve on them.
As far as ports facilities go, much has already been said about the Coega IDZ and port development. A large portion of the NPA's proposed R7,3 billion over the next few years will go towards the Coega port development. However, the deepening of the East London Harbour, further development in Richards Bay and other areas, including the west coast, will continue apace as well.
SAA's acquisition of new Airbus aircraft was heavily influenced by the better economics associated with medium haul travel into Africa itself, and improved returns from better fuel consumption, freight friendly cargo carriers, reduced pilot training costs. The acquisition will amount to some 53% of the total Transnet infrastructure allocation.
Transnet's contribution to an integrated transport logistic service that combines air, land and sea, at least through cargo, freight and passenger transportation will help reshape the infrastructure environment of this strategic sector in the coming months and years. These efforts will be conducted in conjunction with NEPAD partners to ensure that the way to prosperity begins with practical projects and sound infrastructure.
Information technology and infrastructure continues to focus on roll out of land lines, improving teledensities and ensuring that an effective and just system of regulation oversees the introduction of more actors in this critical field. E-commerce, the establishment of a technology university, improved access and concentration on information technology go hand in hand with expanded possibilities for all our communities.
In the energy field, we have seen enormous strides being made in the continued electrification of our rural and urban areas, the expansion of non-grid energy provision in remote areas, and the innovative use of environmentally friendly energy resources such as wind and solar energy in some areas. Gas exploration continues apace, with specific attention being placed on the $800m Kudu-Western Cape and the $600m Pende/Temane-Gauteng gas pipelines. Research into the pebble bed modular reactor continues. Eskom Enterprises continues to expand its partnerships with other state-owned entities and private companies in a number of African countries in projects that are valued in 100s of millions of dollars.
In short, it is clear that South Africa's major SOEs have embarked on a major infrastructure spend that will bring about major advances over the next few years. A critical element of the programmes of each SOE is the manner in which they are integrated and coordinated, not only between themselves, but also in the manner in which they link to other initiatives. The case of Coega is a good example. This project would not get far if it were not for the extensive cooperation between the NPA, Spoornet, and Eskom on the one hand, and the CDC, IDC and industrial offset packages of the strategic defence acquisition. Furthermore, the IDZ concept integrates tourism and environment in the region, rural road development and so on.
We can embark on ambitious programmes like the ones I have outlined because we realise that SOEs can only contribute meaningfully when they are competently organised, focussed efficiently on financial management, operate rationally and in accordance with sound corporate governance and accounting principles. All of our major SOEs have by now experienced some form of restructuring. Thus, action still needs to be taken to remove backlogs and inefficiencies in operations where these continue to hamper growth and development. The National Framework Agreement remains the facility of first resource to engage with organised labour about whatever concerns they might have concerning the process of restructuring, with the understanding that restructuring options follow consultative policy decisions.
Let me turn now to a number of other issues.
I have frequently commented on the need for exceptional levels of probity, ethics, transparency and openness in the way in which SOEs and personnel operate. Public entities must take pride in the fact that the people of South Africa are their primary shareholders. SOEs therefore operate with trust in a highly sensitive environment, and government must act with highest regard as the representative of the people of South Africa as a whole. This belief underpins Government's attitude towards corruption and unethical practices in the public service in particular, and in our country generally.
We have ensured, as Government, that Boards of Directors, through commonly agreed Shareholder Compacts, take full responsibility to ensure that the highest corporate governance principles are honoured and that all evidence of unethical, inappropriate or corrupt practices are rooted out in their entirety. In carrying out their duties, Boards of Directors have full recourse to law, the courts, disciplinary action with the entity and the full range of possible sanctions that are considered appropriate to the problem.
These responsibilities, and action taken where and when necessary, are necessary not only because of the financial and other stra! they place on the business side of SOEs. They are also necessary as a mechanism to allay public fears that their trust is being abused. They also send signals to the wider community, including the investor and business community that we are serious in our endeavours to provide the best service possible at no extra cost to consumer, partner or customers.
Government respects the responsibilities of Boards to implement their side of the Shareholder Compacts. We can note that compliance with Shareholder Compacts is audited and where either signatory is found wanting, corrective action can be taken. However, it is not in our interests, nor in the interests of creating a climate of sound corporate governance for government to intervene in each and every investigation conducted by Boards as they see fit.
It is in this context, therefore, that Government has noted the recent decisions by the Transnet Board in particular.
Recently Spoornet's operational status has come under the spotlight and a number of reasons have been put forward to account for the problems that exist. Let me reflect briefly on these.
A shortage of wagons to meet with the demand of Spoornet's customers, especially exporters. The R10 billion investment infrastructure at Spoornet is aimed at addressing this issue. This is a long haul investment and we are likely to see benefits overtime.
Several customers have complained about inordinate delays when using Spoornet services. Clearly, this is of concern to us. This aspect of Spoornet's performance must be benchmarked against its global peers. We have requested that Transnet includes this item in its basket of key performance indicators against which Spoornet's performance should be assessed.
Taking due cognisance of the concern that have been expressed about Spoornet's performance, I have instructed my Director-General to convene an urgent meeting between Spoornet, Transnet, Spoornet's key customers and ourselves to understand first hand, the problems that are being encountered and to devise an action plan that will address these concerns.
Finally, it is with pleasure that I am able to announce the names of the final two members of the newly constituted Eskom Board of Directors. As you know, these last two places on the Board were reserved for individuals with exceptional international experience, expertise and knowledge. Government has agreed to the appointment of Sir Brian Count and Mr Lars Josefsson. I have also arranged for short CV information on each for your information.