05/23/2023 | Press release | Distributed by Public on 05/24/2023 00:36
Introduction
Chairperson,
Honourable members,
Chairpersons and CEOs of SOE boards,
Ladies and gentlemen
Sanibonani Avhuxeni Molweni Thobela Goeie dag
I have the honour to present the Budget Vote for the Department of Public Enterprises for the 2023/24 financial year.
Around this time next year, South Africans will once again show the world our intent as a nation to unite and to choose a path that will set this country on yet another course to realize its true potential.
Next year's general elections mark a critical milestone in our ongoing quest to create a just and an equitable society, where no one is left behind.
eAs Government, our fundamental responsibility is to create an enabling environment where the dreams of our people are not held hostage by selfish interests driven by greed, cynicism and saboteurs, involving treasonous acts on our infrastructure and pillaging of state resources.
Our socio-economic transformation agenda is predicated on the urgent need to deliver on our commitment to social justice and affirm the ideals enshrined in our Constitution.
State-Owned Enterprises play a vital role in creating and enhancing the economic and social wellbeing of all South Africans. This reality underpins our work to revitalize our SOEs and reclaim them from criminals and the beneficiaries of State Capture, whose treasonous acts mean that Eskom cannot deliver safe and reliable electricity supply.
The network industries -- energy (electricity) and the logistics sector -- are key to South Africa's ability for faster and a more inclusive way to generate economic growth. Our people need a reliable supply of electricity to run their small businesses, light up their streets, and for their children to learn.
Our people need reliable trains to get to work. Our miners and farmers need efficient ports that enable them to export their produce and remain competitive. There is an urgent need to overhaul of our rail, ports and logistics infrastructure in order to cut the cost of doing business, create more jobs, and boost business confidence.
This is a national imperative. This task should unify all of us to work together as South Africans to shoulder the responsibility of creating a bright future for our country. The solutions of yesterday will not take us farther.
Our world faces serious tectonic shifts that require decisive leadership, visionary execution, and a capable state to tackle our daunting triple- challenge of unemployment, poverty and inequality.
The war in Europe has underlined the fragility of our world, not only in economic terms, but also in the way that global governance structures are being tested. Having just emerged from the debilitating COVID-19 pandemic, we are now confronted with supply chain disruptions, soaring food and energy prices, and the specter of more geopolitical shocks.
Of course, many of these factors are out of our control, hence the importance of seizing this opportunity to fix, repurpose, realign our SOEs to deliver on our developmental agenda.
The Reform Imperative
Reform of our SOEs and indeed of our broader society and economy is an absolute imperative.
The National Development Plan (NDP 2030) suggests that the significant SOEs need a clear public-interest mandate and straightforward governance structures, enabling them to balance and reconcile their economic and social objectives.
For the large SOEs involved in economic infrastructure provision, their mandate should include the imperative of financial viability and sustaining their asset base and balance sheet to maintain and expand services.
Secondly, State capture and corruption have played a significant role in hollowing out and preventing our SOEs from playing their developmental role. The Zondo Commission's observation and recommendations have outlined the devastating impact of state capture and corruption.
We now know that SOEs' finances (balance sheets), operations, governance, culture, and skills base have been compromised, and require reform.
Furthermore, SOEs aim to deliver economic and social development: leading to social justice. South Africa is a middle-income country. It finds itself in a middle-income trap where it cannot transit to higher levels of economic development unless we do things differently.
The SOEs must play a crucial role in helping South Africa to move to a higher level of development. We need SOEs to drive skills development and introduce the adoption of new technologies to optimize and streamline business processes as part of the 4th Industrial Revolution.
SA's STRATEGY OF SOE REFORM
So what is the strategy for SOE reform? SOEs are central to advancing national objectives through providing economic and social infrastructure.
The SOE reform process is not unique in the world. Many countries are undertaking similar processes, for example, in Malaysia, reforms to make SOEs more efficient, fit-for-purpose, and to develop new systems of accountability. In order to grow their economies as part of their objective, they established their outfit called Khazana, some 10 to 12 years, starting with five SOEs. Today over 100 SOEs fall under the banner of Khazana.
The President announced on the basis of this evidence, the creation of the Presidential State-Owned Enterprises Council (PSEC) in June 2020, in the midst of the COVID-19 pandemic, to provide independent guidance, noting that:
WHAT HAS BEEN IMPLEMENTED?
THE LEGACY OF STATE CAPTURE
Of course, in the process, we have to overcome the legacy of state capture and to improve operational effectiveness.
ENGAGEMENT WITH OEMS & VISIT TO CHINA
Approach to OEMS: own up to unlawful payments made; OEMs are cooperating to address the wrongs of the past; T & OEMS addressing alleged irregularities - regularization of business - court orders. No immunity from prosecution is guaranteed, where applicable. However, equipment is essential to restore full and proper operations in SOEs.
Three weeks ago, I led a delegation comprised of Eskom and Transnet executives to explore ways to unlock some of the solutions needed by these two critical SOEs. This is still work in progress, and given the complexity of what is being dealt with, it will take a bit of time to conclude the negotiations that have commenced or re-commenced. But certainly, we will reach, I believe, an optimistic end.
GREENSHOOTS OF OPERATIONAL ADVANCES AND EXAMPLES OF STRUCTURAL REFORMS
I highlight three entities: Eskom, Transnet, SAA. The Deputy Minister will deal with the others.
As government's shareholder representative with oversight on our SOEs, the Department of Public Enterprises is entrusted with setting in motion plans and strategic interventions to make our SOEs more responsive to the needs of our economy and our people.
ESKOM
Operational and related changes
Strategic initiatives and reforms in line with Roadmap
a) Lenders consent engagements have been completed and response from lenders to be completed before trading.
b) NERSA to issue a trading, importing and exporting license by July 2023.
c) The due diligence for the establishment of a Generation Company and New Holdings will be completed by 31 March 2023.
d) The Electricity Regulation Act for the establishment of a competitive market is before parliament for approval.
TRANSNET
Operational and related changes
Strategic initiatives and reforms
SAA
SAA should be dead. Its assets should have been sold, and it should have been in liquidation, but through the determined effort of government SAA has been saved. It has been restructured. Hundreds of people have retained their jobs.
Operational and related changes
Strategic initiatives and reforms
DENEL
Alexkor and Safcol: Significant improvement in their financials.
SPENDING AND INVESTMENT PLANS
DPE SOEs - We are forecasting that over the next five years, DPE's SOEs will spend more than R200 billion on expanding and improving infrastructure.
Eskom - Projected spend R290 billion over next five years; R152 billion for optimizing generation and R74 billion to strengthen transmission.
Transnet plans to spend R122 Billion over the next five years. The investment is targeted mainly at rail with R84.9bn, but the Port Authority will also see a significant R13.4bn.
Capital will be directed primarily towards restoring the rail and port asset base and utilisation to deliver on revenue commitments in the key commodities.
At least R99.5bn (81%) of this capital investment is geared towards the maintenance and sustaining initiatives to improve operating efficiencies.
HONESTY DEMANDS - TRANSPARENCY ABOUT SHORTCOMINGS
ESKOM
In addition, Government will directly take up to R70 billion of Eskom's loan portfolio in the 2025/26 financial year.
Just Energy Transition -
include agrivoltaics, a microgrid assembly facility and a Training Facility.
Eskom must be fixed and is being fixed. Our national security depends on this.
1) Eskom needs decisive leadership to function in a wholly successful manner for it to deliver on its mandate.
2) Looking into the future, Eskom seeks to address integration of technology to improve business processes and other functions.
TRANSNET
With regards to some of the operational difficulties on the rail sector, there's more work to be done as far as red tape is concerned.
ROADMAP FOR FUTURE OF TRANSNET
Partnerships:
A number of the partnership opportunities are longer term initiatives, with benefits expected in the next 3 to 5 years.
Plan to introduce partners into the Durban Container Terminal, Pier 2 and Ngqura Container Terminals, has registered good progress.
Acquisition of a Strategic Equity Partner for the Durban Container Terminal is imminent and will play an important role in repositioning Port of Durban as a global and regional container hub.
The AfCFTA represents a significant opportunity for South Africa as well as its neighbours to industrialise and diversify their economies through increased regional trade.
The introduction of the partner is anticipated to provide significant benefits in terms of boosting Durban's maritime connectivity.
Establishing the National Ports Authority as a subsidiary of Transnet, will create an enabling environment for 3rd party rail operators.
IMPROVING OPERATING EFFICIENCIES
For now the core focus remains on improving operating efficiencies to unlock capacity. Various detailed interventions are underway within Transnet to address current operating challenges and some of these are detailed below:
For Coal, Focus is on increasing the Richards Bay Coal channel's volume throughput from 49mtpa to 63mtpa for the 2023/24FY through initiatives, including:
For Chrome and Magnetite the focus is on increasing volume throughput from 9.6mtpa to 15.6mtpa for the 2023/24FY by doing the following:
For Iron Ore the focus is on increasing volume throughput from 51mtpa to 60mtpa for 2023/24FY by doing some of the following:
For Manganese the focus is on increasing volume throughput from 14.6mtpa to 15.6mtpa for 2023/24FY by doing the following:
Transnet has to balance a very complex environment. Shortage of locomotives, deteriorating condition of rail infrastructure and historically high levels of theft and vandalism has combined to create significant operational challenges and loss of capacity for the rail businesses, TFR and TE.
At the same time changes in rail policy are set to fundamentally change the railway operating model in South Africa. Through a number of interventions including separating rail infrastructure and operations, and enabling 3rd party access to the rail network, the industry will transform from a monopolistic sector to a more competitive and responsive multi- company model going forward. I will speak more on this later.
SAA
South African Airways emergence from Business Rescue exactly two years ago shows stands as the best representation of what can be achieved as we pursue the restructuring of SOE's.
Rather than opt for what some thought was an inevitable fate for SAA, we decided on the path of seeking a strategic economic partner (SEP) would be the most prudent process that would ensure South Africans are served well into the future, with a national carrier that can act as a critical economic lever and a catalyst for connectivity with the rest of the world, we chose.
Through this transaction, SAA will be capacitated financially, strategically and operationally, to reclaim its position among the world's leading Airlines, but also in Africa, where economic opportunity abounds.
Uncover and Deal with Corruption and Recapture - The SAA board and management are fully cooperating and supporting law enforcement agencies, including the execution of the SIU proclamation initiated by the department to uncover and deal with corruption concerning the affairs of the company. While investigations continue to uncover, trace and recover resources illegally diverted from the company, progress registered to date on civil recoveries is as follows:
Stabilise Governance - Once the SAA Strategic Equity Partner (SEP) is on board, the composition of both the Board and Management will be strengthened.
Stabilise Operations - In September 2021, SAA recommenced its flight operations. The resumption of domestic and regional flights has significantly increased air connectivity in our country, fostering a robust aviation sector that supports trade, tourism, and regional integration.
As of March 2023, SAA has expanded its network to 11 key destinations, including Cape Town, Durban, Accra, Harare, Kinshasa -- demonstrating the resilience and determination of SAA to reclaim its position as a leading carrier in Africa.
Stabilise Finances - Through the business rescue process, the Airline cost structure has been successfully restructured allowing SAA to be solvent and liquid again. I am delighted to announce that, for the first time since 2011, SAA Group will report a profit for the year.
Restructure - DPE initiated a competitive bidding process to identify a suitable strategic equity partner for SAA. Takatso Consortium selected as preferred partner.
DPE is currently working diligently towards finalizing the SEP deal. Conditional approval was received from the Competition Commission earlier this month.
This partnership is vital to secure the airline's financial stability and long- term viability while enhancing the efficiency and competitiveness of our state-owned assets.
The successful implementation of this partnership will send a powerful message to the market, demonstrating our commitment to the sustainable management and revitalization of our state-owned assets.
We are working with the relevant authorities to expedite this process.
Moreover, securing government funding of R1.5 billion for SAA's business rescue obligations such as payment of creditor's claims is an integral part of the process. SAA has received R1 billion towards the end of the 2022/23 financial year out of the required R2.5 billion for business rescue obligations.
ACTING AGAINST CORRUPTION
DPE has taken proactive measures to implement the recommendations of the Report of the Zondo Commission in respect of the Department and the SOEs:
Referrals made to Professional Bodies - The Department has referred 6 cases relating to former board members of SOEs, accounting and law firms implicated in state capture to their respective professional bodies to ensure they are disciplined with the aim of preventing individuals or consultancy firms from practicing as professionals in future.
The breakdown is as follows: Denel - 1 case, Eskom - 1 case, SAA - 4 cases, Transnet - 1 case.
A complaint laid with South African Institute of Charted Accountants (SAICA) resulted in former Chair of SAA's Board Audit and Risk Committee (Ms Yakhe Kwinana) being fined R6.1 million and barred from practicing as a chartered accountant by SAICA.
Another complaint laid with Independent Regulatory Board of Auditors (IRBA) resulted in Mr Aaron Buyiswa Mthimunye being fined R5.1 million and barred from practicing as auditor for incorrect audit opinion in respect of Eskom's 2016 audit.
Delinquent Director Referrals - The Department is finalising the process to launch director delinquency proceedings against 73 former board members and senior executives who were implicated.
The breakdown is as follows: Denel - 10 cases, Eskom - 13 cases, SAA - 25 cases, Transnet - 25 cases.
The proceedings are led in partnership with law enforcement agencies to ensure alignment between criminal and civil proceedings instituted against perpetrators of state capture.
Criminal and Civil Proceedings Eskom
Transnet
SAA
PROGRAMME/BUDGET OVERVIEW
Expenditure for the Department is expected to increase at an average annual rate of 2.9 percent, from R303 million in 2023/24 to R330 million in 2025/26. This is due to the normal general increase.
The Department's main cost driver is compensation of employees, spending on which will increase at an average annual rate of 3 percent, from R185 million in 2023/24 to R202 million in 2025/26.
To ensure the Department remains within the expenditure ceiling for compensation of employees over the MTEF period, only critical vacant posts will be filled.
CONCLUSION:
I would like to thank all our partners in Government, the Boards of the SOCs, the staff and the officials of the DPE, and everyone that has made contribution to our SOCs in every possible way.
WIN PUBLIC TRUST, CONFIDENCE,
BE A NATION OF HOPE AND OPTIMISM.
MADIBA : THE ULTIMATE EMBODIMENT OF HOPE said:
"I am fundamentally an optimist. Whether that comes from nature or nurture, I cannot say. Part of being optimistic is keeping one's head pointed toward the sun, one's feet moving forward. There were many dark moments when my faith in humanity was sorely tested, but I would not and could not give myself up to despair. That way lays defeat and death."