Mr Chair, never before has the role of state-owned enterprises - SOEs - in our economy enjoyed so much attention and created such vociferous debate, and rightly so. We are all custodians of these entities and it is in our own interests that they are viable and efficient engines of economic growth and development.
It is in the midst of this debate that we present our Budget Vote to Parliament today. The tabling of the Budget Vote is always an opportune time for us to account to members, to reflect on what has been achieved and to indicate where we are headeding.
However, I would be the last person to say all is well with every state enterprise that reports to the Department of Public Enterprises. There is much that is yet to be achieved governance-wise, operationally and financially. And that is why government has initiated a review of state- owned enterprises timeously so that a cool and balanced assessment can be made of their contribution to the South African economy. I obviously do not want to anticipate the findings of that review. However, it would be remiss of me if I were not to make some observations about the current tenor of the debate about the role of SOEs.
At the extreme end of the debate is a commentary that is richly peppered with opinions that all SOEs are collapsing, in a state of crisis and that it is the end of the road for them. A supposed symptom of that crisis is the alleged huge financial bailouts that the opposition claims that government is forced to make in order to breathe life back into these dead horses, as they say, thereby creating a massive and unnecessary drain on the fiscus. A glib solution is then proffered: privatise the whole lot of them and all our problems will be wondrously and miraculously solved. [Interjections.] Thank you. Okay, I'm glad you are not part of that. So, we'll find out if they are. Nowhere is this kind of crass discourse ... [Interjections.] Now, listen very carefully, please. I think we are going to reach agreement at the end of today about how much government has funded SOEs, sir. Nowhere is this crass discourse better depicted than in the alternative budget of the DA, wherein it is claimed - I'm not sure that you are aware that this came into your alternative budget, but it is an actual quote - "Parastatals have received more than R243 billion in financial bailouts over the past four years." This is really quite a startling claim to make and, if it is true, it is really serious.
However, we believe that this is wrong and misleading, partly because it includes the R176 billion-worth of guarantees that are destined for Eskom to underwrite its borrowings for its massive building programme. These are contingent liabilities. They are not cash payouts and they are not a drain on the fiscus. They also include other items such as investments government has made in infrastructure and in research and design capability. These items are clearly not bailouts in the classic sense.
The classic sense of a bailout is the act of giving capital to an entity in danger of failing in an attempt to save it from bankruptcy, insolvency or total liquidation and ruin. From time to time, all governments will be constrained to bail out companies in the public and private sectors. There can be no doubt about that. One only has to note the trillions of dollars and billions of pounds that countries such as the United States and the United Kingdom have had to fork out in recent months to rescue banks and other companies in one of the most spectacular, private-sector failures that this world has ever seen, in order to realise how deep a drain on government resources real bailouts can truly be. The truth of the matter is that the claim that the South African government has had to bail out SOEs to the tune of a massive R243 billion in the past four years has muddled things up completely.
For instance, when the state makes strategic investments in infrastructure, whether it be in energy or telecommunications - for example, Eskom and Infraco - then it is promptly called a bailout. When the state makes a strategic investment in high-end research and design capability, such as in the pebble bed modular reactor, it is immediately called a bailout. When the state makes land-claim reparations, as ordered by a court of law as in the case of Alexkor, it is called a bailout.
I submit that this bad habit of conveniently characterising every form of financial assistance and investment by the state in SOEs as a bailout diverts us from the fundamental debate that we ought to be having about the nature, scope, advantages and disadvantages of state investment in SOEs. It also serves to heighten false perceptions that most SOEs are in a state of chaos and are making huge and unnecessary demands on the fiscus. So the reasoned debates - and I do believe that we do have reasoned debates in this House - that we should be having, for instance on whether the state should be investing in telecommunications or not, or the kind of state support that should be given to the renewable or nuclear energy sectors - get completely sidetracked into debates about bailouts.
This is not to deny that there are instances in the Department of Public Enterprises' portfolio and in other portfolios in which the state has indeed had to bail out certain SOEs in the form of recapitalisation. When Denel was found to have a severe liquidity problem in 2005, the state had to bail it out in the amount of R3,5 billion. Similarly, SAA, in its restructuring exercise, had to receive R744 million. These are instances which should not arise in the context of parastatals, but they do. This is what requires the serious attention of all of us in the House, and I believe we all are paying attention to that.
The fact remains: of the R17 billion cash that was transferred to state- owned enterprises in the department over a seven-year period, approximately R6 billion was for classic bailout purposes. The remainder was for research and infrastructural investment purposes.
The total cash transfers by government to SOEs from 2005 to 2008, other than those in the department's stable, amount to R26 billion. These amounts, large enough in themselves, nevertheless represent less than 1% of total government expenditure over that period and are a very, very far cry from the R240 billion that has been put forward as evidence of profligate financial bailouts by the state.
Might I also add, just for the record, that neither Transnet nor Eskom received cash transfers from the state during this period. Now, I'm talking about cash transfers, not loans and not guarantees.
The recent financial assistance given to Eskom in the form of the R176 billion guarantee and the R60 billion loan agreement represent a conscious strategic investment by government in the energy infrastructure of this country that will have multiple counter-cyclical economic spin-offs such as job creation and economic growth, as well as securing our supply of energy for 20 years going forward into the future.
Had it not been for these financial support measures from government, the full financial burden of Eskom building would have had to be carried by a much higher electricity tariff than the present 25% tariff hike. We regard these initiatives as essential to the wellbeing of consumers and for the economy. I therefore say: let us not talk so easily about bailouts, and let us focus on those bailouts that really require the attention of this House.
In developing the strategic plan and Budget Vote of the department, we are extremely mindful of our responsibilities as shareholders, particularly in periods of economic downturns such as the one we have currently experienced. We have had to make some very painful decisions, one of which is the virtual cutting off of all cash injections to SOEs in the DPE portfolio. This is reflected in the small amount of transfers for SOEs under the DPE for this financial year, amounting to only R174 million.
The fact that the pebble bed modular reactor, the PBMR, has not yet been able to secure either an investor or a customer has meant that the programme had to effect a drastic staff reduction. The intention, however, is still to retain critical skills, capabilities and intellectual property.
There is no uncertainty about the soundness of the technology; in fact, the PBMR has been nominated by the American government as a partner in its Next Generation Nuclear Programme. However, alternative funding mechanisms are being sought for this programme as government no longer has pockets deep enough to fund it on the scale for the and length of time required. An interministerial committee will be making proposals to Cabinet in this regard in the coming months.
The PBMR has played an indispensable role in shoring up and expanding our nuclear research and design capabilities, which can only stand us in good stead as we decide on our energy options going forward.
Now, regarding two of the largest SOEs in our country and in our portfolio: Transnet and Eskom, it is obvious that their operational performance is essential to the underlying wellbeing of the economy. Both are undertaking massive building programmes to ensure the security of supply of the energy going forward and to dramatically enhance our port and freight rail capacities. Both will give much-needed impetus to local manufacturing capacity in terms of our Competitive Supplier Development Programme. My colleague the hon Deputy Minister will speak later in depth about the considerable achievements within Transnet.
With regard to energy, the recent Nersa - National Energy Regulator of SA - ruling on the 25% tariff hike in electricity has had profound implications for Eskom. Not only does the tariff hike not cover the full operating and interest costs of Eskom in the initial years going forward, but it also means that the Kusile building programme will be delayed owing to some serious funding gaps. This has the potential of endangering the security of the supply of energy in the future if appropriate steps are not taken by government.
The interministerial committee convened by Cabinet is engaged as never before on matters relating to energy. Some of the matters receiving attention are mitigation for the poor as a result of the tariff increase, and the funding model for Eskom's building programme with at least 46 options under consideration. Conscious of the severe energy security supply constraints in the next few years, specific attention is being given to demand-side management and efficiency measures such as the aggressive roll-out of solar water geysers. Here we need to pause and thank business for coming to the table in a remarkable way and voluntarily offering to reduce their consumption of energy going forward. We call on all South African citizens to really look at ways in which they can save energy.
Both the tariff increase and the World Bank loan have engendered heated discussion and debate about energy in our country. After all the heat and dust have settled, we as South Africans must reach an informed consensus about all matters relating to energy. We do need to reach that consensus because it affects each and every one of us in our daily lives.
For those concerned that government is not committed sufficiently to renewable energy, let me assure you that this is simply not the case. We voluntarily submitted ourselves to a low carbon trajectory in Copenhagen and we are absolutely determined to meet our commitment in that regard.
Eskom's renewable energy project, through the World Bank loan, will be the largest project on concentrated solar power and wind power that has ever been built in Africa, and this is just the start of our commitment to building renewable energy. It is also very encouraging that Eskom is quite advanced in renegotiating its special pricing agreements.
We need to have transparency about our tariffs and our pricing agreements. There is far more transparency than is actually recognised in the public domain. But, given that municipalities have also added their own surcharges, this creates great confusion for all of us in actually understanding the basis of what we are being charged.
A lot has been said about Chancellor House and its involvement in Hitachi. Let me say from the outset that the boiler project in the Medupi building programme, for which Hitachi have won the contract, is not being funded by the World Bank loan. Secondly, regarding the heat that is being generated on this matter, I think we need to take a little distance and look to see in what way these matters can best be resolved.
The ANC Polokwane resolution in 2007 called for legislation to regulate the manner in which political parties are funded. In terms of section 236 of the Constitution, there is a requirement that Parliament should enact legislation to regulate the way parties are funded. However, the legislation that was, in fact, enacted only dealt with the election funding of political parties; it didn't deal with the general funding of political parties.
Now, in the Idasa application to court which sought to require that all four political parties - the ANC, the IFP, the DA and the New NP - should reveal their sources of funding, the ANC is on record in that court case as saying that they would welcome such legislation. Let it be noted that in that court application, all four parties at that stage vociferously opposed making transparent their funding sources. That applied to all four parties, and there were reasons why that was done. I think that this is a sobering moment for us all to realise that we are all vulnerable in the absence of an appropriate regulatory model and legislation.
We might believe as a party that we are not contracting with high-level parastatals in terms of tenders, but have we thought what happens at local government level? Are we absolutely certain, as each party sitting here, that we can say that there is not a single company tendering for procurement at local government level that doesn't have a strong connection to a political party? We are all vulnerable, and that is why we require that legislation.
We therefore call upon Parliament to look expeditiously at bringing in mechanisms so that this legislation can be enacted. The ANC has endorsed this. In fact, I was in discussions with the secretary-general just yesterday on this matter, and he fully endorses this approach.
The vacancies at senior management level, especially the positions of CEOs in certain enterprises - the SAA, Eskom and Transnet in particular - have been a matter of grave concern for some time. Thankfully, the CEO position at SAA has now been resolved, and the board at Eskom will shortly make recommendations regarding their preferred candidate. Intractable as the Transnet problem has indeed become, and equally regrettable, at least appointments can now be made in the foreseeable future.
However, we must all sit back and reflect on which corporate governance failures have led to such an undesirable situation. For as long as CEOs of parastatals see themselves as being above and even more powerful than the boards that they are accountable to these problems will persist. For as long as CEOs resort to mounting the equivalent of public campaigns to secure their positions, a company will suffer. For as long as the position of CEO becomes a hotly contested matter in the public domain, other candidates who are perfectly qualified and competent to do the job will simply not make themselves available for such positions.
From now on the message must go out very clearly that potential and incumbent CEOs cannot act as though they are above their boards. Just as a municipal manager is accountable to a council, so is a CEO accountable to a board. In equal measure, boards must exercise their prerogatives to hold CEOs accountable. If these two prescripts are adhered to, then we will be on the road to restoring good corporate governance in our parastatals. [Interjections.]