Chairperson, I want to propose that next time we get an interpreter for people like Mr Oriani-Ambrosini because we do not understand what they are saying. What an honour for me to address this House today. I want my speech to focus on Denel, one of the strategic state- owned entities that have to play a significant role in the economic growth of our country. I will also touch a little bit on Eskom thereafter.
The change in the arms manufacturing global market had a huge impact on Denel's financial sustainability, forcing the company to embark on a turnaround strategy in 2006. The strategy included the disposal of non-core assets as well as joint ventures in the form of equity partnerships with private-sector players in the hopes that this would bring in fresh capital, greater market access, modern technologies and business processes.
Despite numerous challenges, progress has been made and Denel boasts four such partnerships. They are the German-based Rheinmetall Denel Munitions, Carl Zeiss Optronics, the French-based Turbomeca Africa, and the Swedish- based SAAB.
I want to share with you, hon members, that despite the continued losses made by certain business entities within Denel, the group has contributed positively to the economic environment. Denel is a valuable earner of foreign currency. Prevenue earned from exports amounted to about R1,2 billion in 2008. This constitutes the net export sales in respect of the ammunition business, which was sold to the Rheinmetall Denel Munitions group in September 2008. Denel has sustained its global footprint through foreign equity partnerships.
Notwithstanding the above successes, Denel still faces a number of challenges. We all know that. Denel is faced with a critical shortage of skilled technicians and engineers, similar to what is facing many industries in South Africa. The group is a skills-intensive environment in which it is still a challenge to train and retain suitable employees. Given the current economic recession and limited funding for defence products and related support services, market conditions are challenging. The above challenges are shared with Denel's primary customers, notably the Department of Defence and branches of the SA National Defence force, as well as the shareholders in terms of the Department of Public Enterprise. This state-owned enterprises group, aligns its skills development initiatives with those of other state-owned enterprises and government entities. The SA Air Force is also working closely with the group to address the acute shortage of aviation technical employees.
In terms of the bailout or, if I may put it this way, the guarantees, I want to reiterate the point the Minister mentioned earlier on in her speech - that government's total guarantees to Denel in 2007 came to about R2 billion.
In terms of Denel's restructuring, the company has established several independent new companies in which it will hold equity on behalf of the South African government. The process to incorporate the new companies is still under way, although the businesses are already being managed as such. SAAB of Sweden, which is popularly known as Saab, has a 20% holding in Denel's aerostructures business, and the German firm Carl Zeiss Optronics, which makes lenses that are also used for cameras, has acquired a majority holding in Denel Optronics.
I want to comment on defence expenditure in that it should not be seen as just a protective measure against unexpected risk, but as a centre for employment, skills and technology development. The challenges faced by Denel will, however, not be sorted out by guarantees of the company becoming a profitable business enterprise.
This includes Denel's Aerostructures division which continues to incur losses. We are told that a formal audit of business continuity of this division has been contracted to implement specific interventions which we believe, in turn, will turn the business around. Parliament, in its oversight responsibilities, will closely monitor the progress of this division.
I promised earlier that I would touch on Eskom. It is responding to the growing electricity demand and needs to establish new-generation capacity in South Africa over the next few years. Generation capacity today can be met by harnessing different energy sources and applying different technologies.
These technologies, hon Nhanha, will differ markedly in their generation costs, performance and utilisation characteristics, and will do so appropriately for the South African environment and the state of commercial development. The choice of generation technology is multifaceted and complicated and has to be conducted within the context of the South African policy framework and legal and regulatory framework.
An important component of the Eskom capacity-generation programme is, among other things, the introduction of independent power producers who will diversify the revenue sources for the building programme and help ensure the security of the electricity supply. Nuclear power, the most viable alternative to coal as a base-load source of electricity, is also expected to make a larger contribution to the energy mix. This will be done through conventional nuclear technology and the new fourth-generation high- temperature reactors offered by the pebble bed modular reactor, PBMR.
The PBMR is a major development project that requires considerable initial investment by the project partners. This project is important for the retention of skilled professionals within the South African industry. The success of the project will have a positive impact in the country's manufacturing sector and provide leading technology in the reduction of green-house gas emissions.
In terms of the World Bank loan to Eskom, these funds are going towards the construction of the 4 800-Megawatt Medupi power plant, which is set to be the world's fourth largest coal-fired power plant. The project is part of a five-year $50-billion plan by Eskom to increase generation capacity in South Africa.
It is very unfortunate that countries such as the United States of America and the United Kingdom were totally opposed to this loan. The reason they cited was that the new coal plant would deepen South Africa's climate of debt for the poor. It is also regrettable that even the DA's Helen Zille was totally opposed to this loan, which is very, very unfortunate.