Hon Chairperson, Deputy Minister Dikobe Ben Martins, hon members, the leadership of our state-owned enterprises, ladies and gentlemen, today is 1 June, International Children's Day, a day that serves as a reminder to all of us gathered in this hallowed Chamber that our actions today must speak to the future. We owe it to our children, the guardians and guarantors of our future, to conduct ourselves in ways that secure them a prosperous and stable future.
We are also mindful of the fact that this is National Youth Month, and hence we are duty-bound to focus on how our actions and plans will bear on the aspirations of our youth. The youth of 1976 and the generations of youth both before and after them were correct to fight steadfastly for freedom in pursuit of a South Africa in which all would share in the country's wealth - a South Africa that belongs to all who live in it.
We are mindful of the fact that South Africa is facing significant economic challenges, which are already captured most eloquently in the ministerial performance agreements, the New Growth Path, NGP, and the Industrial Policy Action Plan, Ipap, all of which provide a comprehensive strategic context for the development of the strategy of the Department of Public Enterprises. The budget presented before this House today is modest, but it provides the tools with which government, as a shareholder, ensures that the state-owned enterprises, SOEs, deliver on their public mandate.
In this context I wish to provide some highlights of progress made in the last year, as well as my vision for the future role of state-owned enterprises, SOEs, as instruments of the developmental state. Finally, I will provide a broad overview of strategic considerations relating to SOEs in our portfolio.
To start with, I have delegated SA Forestry Company Ltd, Safcol; and Alexkor; the winding up of Aventura and the pebble bed modular reactor, PBMR; as well as our strategic interface with the provinces to Deputy Minister Martins. He will expand on some of these themes in his presentation.
During the previous financial year, the department used 98% of its R555,5 million budget, and SOEs made sterling progress in enhancing the state's developmental goals. We also took steps to enhance the performance of the department by, among others, appointing a director-general and tasking him with addressing critical vacancies and the department's future capacity requirements.
Government made the bold commitment to ensure the security of the supply of electricity by approving a funding strategy for Eskom. Buoyed by this commitment, Eskom approached the international capital market to raise debt funding of US$1,75 billion. It was encouraging that the transaction was oversubscribed and generated interest in excess of US$4 billion, demonstrating the confidence of international investors in both Eskom and our country.
We appointed the board of Transnet, the group chief executive, as well as the executive managers of the group and thereby restored leadership stability in that organisation. We commenced with the fleet renewal plan at SA Airways, SAA. Between 2011 and 2015, we will acquire 25 additional aircrafts of varying ranges, to be used for long-range as well as domestic and regional hauls, in order to further enhance SAA's fleet capacity. These new fuel-efficient aircrafts will significantly improve the airline's service offering and will have a positive impact on the reputation of SAA as a leading airline on the continent.
Broadband Infraco invested in its national backbone fibre optic network, which enabled the company to provide strategic international connectivity to operators in the Southern African Development Community, SADC, region and on the west coast of Africa.
During this financial year, we will continue to provide strategic leadership and vision to the department and our portfolio of SOEs, as well as address the organisational needs of the department in order to have the capacity to fulfil our shareholder management function more effectively.
The Department of Public Enterprises has the mandate to provide strategic shareholder oversight of a portfolio of key SOEs. The developmental state needs the ability to plan for long-term growth, drive investment in areas of the greatest impact, and form strategic economic partnerships to develop capabilities in targeted areas of the economy. Most importantly, the concept of the developmental state inspires us to be bold, to play an active and activist role in the management of the SOEs, and not shy away from making tough decisions.
We need to forge partnerships with the private sector and all stakeholders to mobilise skills and capital in pursuing our national objectives, without giving up strategic control of key national economic assets. As the NGP urges us, we need to align all our key stakeholders behind ambitious social compacts so that we move forward together as a united nation.
The NGP sets the target of five million new jobs by 2020. The SOEs can contribute in at least five ways: the expansion of their direct employment; the provision of infrastructure that can unlock jobs in the private sector and in rural areas; the expansion of procurement of locally manufactured components and consumer goods used by SOEs; the provision of skills to the wider economy; and the keeping of tariffs for competitive services and, thus, helping to reduce input costs in the economy. Accordingly, our new vision for the department is to drive investment, efficiencies and transformation in our portfolio of SOEs, their customers and their suppliers to unlock growth, create jobs and develop skills.
The department has historically put considerable effort into the development of a shareholder management model. While this model undoubtedly lays a firm foundation for our management of SOEs, it has its limitations. Initially, the evolution of our SOEs was premised purely on legalistic principles not cognisant of the practical management of SOE activities.
The department is embarking on a paradigm shift to ensure proper alignment between SOE performance and executive or directors' remuneration. This paradigm shift requires patience and careful consideration to ensure ultimate successful implementation. Remuneration of SOE executives and board members is an important and complex area for the governance of SOEs, and it requires careful consideration in consultation with Cabinet, which the department is currently seized with. I intend to take it forward with the necessary speed in order to support stability in the governance of SOEs.
The very rationale for SOEs is the developmental mandate they have, which relates to providing services in poorer parts of the country, skills development, creating industrial opportunities they for local suppliers, and many more. There is a need for innovation in the governance of SOEs if our new vision is to be achieved. These innovations will be focused on five key areas that relate to planning, funding, procurement, improving productivity in SOEs, and integrating SOE developmental initiatives more effectively with overarching government programmes.
The sharp decline in public investment in infrastructure in our country between 1976 and 2004 has created a significant backlog in infrastructure investment, which has led to a significant constraint in respect of investment and growth in key SOE customer sectors. As commercial enterprises, SOE plans are based on the funds they can raise off their balance sheets. Clearly, there is a funding gap between the required investment to unlock growth in customers and these existing investment plans.
Furthermore, a narrow approach by SOEs would ignore what economists refer to as "positive externalities", for example, the societal benefits to the environment of moving more passengers and cargo from road to rail; the foreign exchange benefits of reducing the nation's fuel bill; and improvement to commuter safety. Consequently, the department will continue to put considerable effort into the formulation of a new development- focused planning paradigm. No single institution, including the fiscus, is going to fill the funding gap. We need to start engaging creatively with key stakeholders in the private sector to see how we can qualitatively increase the rate of investment to fill the gap.
Our economy is characterised by very large mining, industrial and financial services companies that have the most to gain from an accelerated infrastructure programme and with whom we need to forge social compacts to unlock their balance sheets and actively build funding partnerships to speed up the rate of investment in infrastructure and our strategic customer sectors. We need to begin this dialogue that aligns private-sector players with our national economic objectives through concrete investment processes.
Another area of focus pertains to leveraging our capital and operational procurements to promote investment in relevant industrial capabilities. Consequently, we have implemented the Competitive Supplier Development Programme that requires the SOEs to integrate supplier development considerations into the heart of the procurement planning and execution processes.
This has been complemented by the fleet procurement approach that aims to provide a 10 to 15-year consistent demand platform for the building of advanced industrial capabilities in relevant supply chains. Both programmes have the objective of moving from a transactional relationship between SOEs and their local and international suppliers to longer-term developmental partnerships based on the continuous building of national industrial capabilities.
It is critical that demand-side initiatives are co-ordinated with appropriate forms of supplier support. Consequently, Minister Davies and I will jointly provide direct ministerial oversight to the roll-out of the procurement leverage programme to ensure that it gets appropriate focus and support. I am also working with Minister Patel to ensure alignment between the procurement programme of SOEs and the new focus of the Industrial Development Corporation, IDC, on building industrial capabilities in South Africa to identify opportunities for small businesses and enterprises in the social economy, and to integrate SOEs within the delivery mechanisms of the NGP.
We realise that the quality of service delivery of some SOEs is below acceptable levels in key areas. We need to ensure that SOE operational efficiency is continuously improving, even as we roll out our investment programmes. Improvements in productivity simply mean that we are using our assets more efficiently, producing more with less. Consequently, I am implementing a programme of bimonthly meetings with the chairpersons and CEOs of the SOEs in our portfolio. These meetings, the design and implementation of which will be closely monitored by the department, will systematically identify areas requiring productivity improvements and define interventions in these areas.
Turning to skills development, it is critical that we enhance the level of interdepartmental co-ordination. There are currently over 9 000 learners enrolled in training processes in SOEs; the bulk of the training is related to scarce and critical skills: 2 242 engineering students, 1 064 technicians and 4 273 artisan students. A number of our SOEs have specialised and proven training infrastructure and associated capabilities that are being used to meet the needs of these SOEs internal, but are not being used to their full capacity because of funding constraints. Consequently, I am working closely with Minister Nzimande to enhance the output from these facilities to produce skills for the economy as a whole by accessing additional sources of funding from the National Skills Fund. Our plan is to increase the output of artisans from SOE training facilities by 60%, and that translates into 6 780 students for the coming year.
For example, we aim to increase the output of Transnet from the present enrolment of 500 artisans to 1 500 artisans. In addition, Eskom intends providing apprenticeships to 10 000 young people, which is up from 4 500. Eskom also intends implementing a youth programme to support about 5 000 young people - up from 200 - to find their way into employment by 2015.
Furthermore, SOEs will directly, and through partnerships with suppliers and commercial customers, provide support to Further Education and Training colleges and provide on-the-job training to graduates from these institutions. We will also be leveraging SOEs in an integrated manner to advance youth development through our skills development, enterprise development and corporate social responsibility processes.
We will work with our colleagues to ensure that our country's SOEs play their role in the expansion of infrastructure on the continent as part of the vision of creating an African common market. We welcome the Presidential Review Commission on SOEs and we are in continuous dialogue with them around the department's experience in shareholder management. We look forward to their report. SOEs in our portfolio will be investing over R105 billion during the 2011- 12 financial year, comprised mostly of infrastructure. Eskom will be investing over R76 billion; Transnet R25,8 billion; and Broadband Infraco over half a billion rand in new broadband infrastructure. With the expansion of operations associated with this investment, SOEs will target growth in their direct operations of at least 13 000 new jobs, and will expectedly help the growth in their South African supply chains by a further 40 414 jobs.
Eskom's core responsibility is to ensure the security of electricity supply, particularly as reserve margins get tight until new capacity is built. This will require close monitoring of the extent and effectiveness of Eskom's maintenance practices and the company's technical plan as a whole. Eskom's rolling capital investment programme has climbed from R92 billion in 2005 to R549 billion to date.
We are working hard to ensure that the funding of the capital investment programme is in place, while ensuring that the roll-out of the programme takes place timeously and efficiently. Eskom is also working on their next- generation supplier development plan to ensure that the impact of this expenditure on our industrial capabilities is optimised.
Eskom has launched the 49 Million campaign to create a culture of energy efficiency and saving to mitigate the risks posed by our constrained power system and respond to the need to reduce our carbon footprint. We are also monitoring Eskom's role in future energy provision as per the integrated resource plan, IRP, which may require us to find new and innovative sources of finance.
Through the Medium-Term Power Purchase Programme, MTPPP, Eskom signed contracts with five independent power producers since April 2010, totalling some 373 megawatts of capacity. They also signed up about 200 megawatts of municipal generation just for this winter. In order to address South Africa's commitment to carbon reduction and clean energy, and in line with the IRP, Eskom has incorporated renewable energy projects into its build programme.
Having received firm government support, work is ongoing to find sources of funding to further strengthen Eskom's balance sheet without placing undue pressure on the fiscus. I am happy to inform this august sitting that the African Development Bank approved a US$ 365 million loan to Eskom for the 100 megawatt concentrated solar power plant and the 100 megawatt wind power plant. Eskom has submitted a US$ 250 million loan application to the World Bank for funding from the Clean Technology Fund, CTF, the final outcome of which is expected later this year.
Transnet's rolling five-year investment programme will be R110,6 billion. We are undertaking a comprehensive assessment of the level of investment required to unlock growth and to move goods from road to rail. In this regard, we intend to embark on a systematic process of engaging with both development and mainstream finance institutions and key customers to develop funding mechanisms for this programme.
I am confident that we will significantly enhance our export capacity in key logistics corridors over the next few years to ensure that we take advantage of the global commodity boom. We are making considerable progress in building a firm foundation for our locomotive manufacturing cluster through comprehensive developmental programmes involving specialised skills development processes, production process redesign and a range of technology transfers.
In addition, direct investments are also being explored. As the next step of this process, we are designing a fleet procurement programme to renew Transnet's locomotives fleet, provide capacity to support growth and fundamentally localise the relevant supply chain. Given the scale of our national demand over the next 15 years, we will be a significant global market for locomotives. We will use this as an opportunity to ensure that South Africa becomes a global manufacturing hub for electrical and diesel locomotives, in partnership with leading original equipment manufacturers and their home countries.
We are also co-operating with the Department of Transport to explore how we can extract synergies from Transnet and the planned Passenger Rail Agency of South Africa, Prasa, fleet renewal programme. In addition, we are engaging with the IDC to seek funding solutions for procurement and to accelerate investment in the supply chain.
In order to secure the supply of liquid fuels to the hinterland, the construction of the new multiproduct pipeline connecting Durban with Johannesburg will be commissioned in the third quarter of this financial year and should be fully operational by the end of December 2013. Arising out of concern for the time delays and cost escalations associated with this project, the department commissioned a team of experts to analyse this earlier this year, and we are at present reviewing their report.
Furthermore, we are focusing on improving the efficiency and reliability of rail and port services. Decisive steps will be taken in this regard, including through investing in new equipment, especially in the port facilities.
Although Denel has made some progress since the company embarked on a turnaround strategy in 2005, its solvency position continues to pose serious challenges, with Denel Saab Aerostructures, DSA, being the major contributor to the entity's losses. A framework for the resolution of DSA has been developed and is under way. While the trading losses in the other entities have been brought down, the majority of Denel's business entities remain loss-making. Clearly, the business is not sustainable in its current model. A more robust turnaround plan that pursues financial recovery and stability through improvements in its operational and financial performance needs to be developed to secure the company's long-term viability. A structured mechanism is required in order to effect the necessary alignment of Denel's business plan with the requirements of the Department of Defence. Shrinking defence budgets have resulted in the scaling back of certain procurement programmes, with lower economies of scale and increasing unit costs. Going forward, there is a need to rethink Denel's strategic direction to ensure its financial sustainability.
With regard to aviation, the focus of SAA and SA Express is on expansion in Africa, something that will contribute significantly to economic integration on the continent. SAA's primary focus on the African continent is to establish itself as a leading network carrier from OR Tambo International Airport to other primary airports across the continent. SAA plans to introduce additional routes and frequencies to broaden operations and improve its African footprints. This strategic focus is also fundamental to SAA's strategy to strengthen its balance sheet as the African market boasts good demand and better profit margins.
SAA has two long-term financial challenges. The first is to capitalise itself through the accumulation of strong retained earnings, and the second is to ensure that adequate cash is available to fund the Airbus transaction without government financial support. On the other hand, SA Express has a route network covering five African countries. It acts as a strategic feeder connecting secondary airports with one another and also with large hub airports. Most significantly, SAX plays an important role ... That is SA Express - don't get excited. [Laughter.] SAX plays an important role in providing safe and reliable air services in African states where safety and reliability are challenging. [Interjections.]
In 2010 SAX launched Congo Express as a joint venture airline with Biz Afrika based at Lubumbashi in the Democratic Republic of the Congo, DRC. However, other commercial risk factors have resulted in our withdrawing operations from this route. With commodity-led economic growth in Africa, SA Express is optimistic about its expansion plans on the continent and has identified the underutilised cargo business as a core focus area. The new operating model for the cargo business will be finalised this year, which may include the conversion of current aircrafts into dedicated freighters.
In the 2010-11 financial year, SAX embarked on a fleet renewal plan with the objective of meeting demand over the next 10 years. The plan is aimed at delivering improvements in reliability, introducing cleaner technology to reduce green house emissions, and offering greater customer comfort while remaining cost efficient. The acquisition of new aircrafts will commence in the first half of this year and will result in an average capacity growth of 8,6% per annum over the next four years.
We will also continue to monitor the roll-out of the Infraco broadband network while working on a strategy to secure the long-term viability of the business. In particular, we are exploring strategic synergies between Infraco and Sentech in order to optimise our capacity. The network has established 13 600 km of long-distance fibre and five open-access points of presence in key metropolitan areas, while a further seven open-access points of presence are to follow. Work is continuing further to facilitate the roll-out of broadband access in remote rural areas and to facilities such as hospitals, clinics and schools.
Wholesale long-distance connectivity prices have come down by more than 75% over the past two years, further unlocking economic value by reducing the cost of connectivity. A deputy director-general from the department was seconded as acting CEO of Infraco, following the resignation of the then CEO of the organisation.
The delivery of this vision implicitly involves an expansion of the scope of the shareholder management process and the development of new capabilities in the department. Our SOE shareholder management teams in the department have the critical job of developing compacts, engaging with the policy-formulation process, and monitoring the sustainability and impact of SOEs based on their corporate plans and quarterly reports. These teams will need to expand their capabilities to include growth planning and the monitoring of specific operational enhancement initiatives.
We will also have to significantly strengthen our capabilities in the areas of project design and finance and the development of co-investment arrangements and associated compacts. In addition, we will also be focusing on strengthening our capabilities in a range of specialised crosscutting areas such as economic impact modelling, procurement leverage, skills development, youth development, climate change and broad-based black economic empowerment.
We are in the process ...