Hon Chairperson, hon Minister Hogan, hon members of this House, the leadership of the Department of Public Enterprises and the leaders of state-owned enterprises, I've decided to be cool today and start my speech with The Lion and the Statue, one of Aesop's fables.
This is the story of an argument between a man and a lion over which species is stronger. Clarifying this point, the man takes the lion to the public gardens and points to a statue of Hercules strangling a lion. "This proves," the man explains, "that humans are the stronger species". "No", the lion replies, "It proves nothing, since a man made the statue. If lions could make statues, Hercules would be lying under the lion's paw."
I raise this particular point because in the debate around public enterprises people have been erecting statues in public gardens. Minister Hogan, in her address, has alluded to those statues that some have erected in public gardens. We have not been able to erect our own statues, but now it is time for the hammer and the chisel to be given to the lions.
Having said that, the overriding challenge facing South Africa's network industries, particularly in transportation and power generation, is the implementation of large infrastructure investment programmes that are required to enable the country to achieve its ambitious growth and development objectives and global competitiveness.
Just by way of indication, about 60% of the R846 billion referred to by the Minister of Finance is within our portfolio. The following points are current constraints in that regard. For most of our developmental needs, the demand for energy far exceeds available capacity. At 14% of GDP, the cost of logistics is higher than the average of around 10% that is found in developed countries.
Transport costs account for more than 50% of total logistics costs, which compares poorly with the international average of 39%. And there is a significant imbalance in the freight transport system between road and rail. Road transport comprises 90% of transport costs, with the fuel price being the single biggest cost driver for road freight.
The net effect is that any changes in the fuel price have a significant impact on total commodity costs, highlighting our vulnerability to an external uncontrollable variable. Additional challenges include the significant infrastructure backlog across all areas of the freight system and the high cost of container shipping in the region. In addition, owing to the forecasted freight demand increase in the economy over the next two decades, there will be a need for sustained high levels of investment over an extended period.
Transnet, an SOE entrusted to be the custodian of critical port, rail and pipeline network infrastructure and operations, plays a leading role in addressing this critical freight challenge. Members of the House, this is why we need fully functional and effectively run public enterprises, because they play a catalystic role in the development and growth of our economy. Despite the recession, our SOEs have managed to strive to achieve their mandates and objectives. The following are some examples. Over the past financial year, Transnet was able to improve its profits from operations by 12,8%, year on year, in spite of the negative impact of the global economic crisis. Over the same period, Transnet invested R18,3 billion, bringing total investment over the past five years to R72 billion.
This has made a significant contribution towards the eradication of the infrastructure backlog in the port, rail and pipeline network. Major projects completed in 2009-10 include the widening and deepening of the entrance channel at the Port of Durban, and the expansion in capacity of the iron ore channel from 32 million tons to 47 million tons.
In addition, Transnet plans to invest about R93 billion over the next five years. A recent study conducted by our department found that Transnet's 2009/2010 plan to invest R80 billion in infrastructure over five years will contribute R113 billion to the GDP.
Eskom has committed to a 100-megawatt solar concentrating plant. I am told that this is one of the biggest projects of its kind, given that another project in Spain produces 20 megawatts and that the first phase of a planned project in China produces 30 megawatts, although it is intended to produce more. Eskom plans to double its generation capacity to about 80 000 megawatts by 2028. Currently, 90% of electricity is generated by coal. However, it is envisaged that by 2025 only 70% of generation will be coal-based. The renewable and nuclear energy sources will be critical to filling in that space, consistent with our low carbon energy trajectory.
The global aviation sector experienced huge losses in the past two years. However, our domestic aviation industry, particularly the SOEs, has remained profitable both in the domestic and international lines. For instance, the largest airline in the Middle East reported a fall in profits of 72% for the 2008-09 fiscal year, yet in the same period SAA and SA Express recorded significant profits.
Our SOEs are playing a critical role in the broad-based black economic empowerment space as well. For example, Transnet has rapidly scaled up its BBBEE procurement spending from 37% of total procurement spending in 2007 to 65% in the past financial year. This translates into an absolute figure of R13,5 billion spent on BBBEE-accredited organisations during 2009-10.
Of this amount, R2,7 billion is being spent on qualifying small enterprises, with a turnover of between R5 million and R35 million. An amount of R1,9 billion is being spent on exempted micro enterprises, EME, with a turnover of below R5 million, and R837 million has been spent on black-owned companies. Eskom's procurement process for the New Build Programme aligns government's industry development objectives with empowerment. Over 50% local content has been sought for the supply of turbines, water treatment and electrical works. We have entered into supplier agreements which specify targets for SMMEs and women empowerment.
South Africa is emerging from an extremely limited investment period in fixed infrastructure, particularly between 1984 and 2004. Supplier industries to infrastructure, in particular the manufacturing sector, were negatively affected by this lack of investment. This created a reliance on imports, which is not sustainable given South Africa's balance-of-payments constraint. It has also created a security of supply threat, particularly when global markets are overheating.
Together with our department, our SOEs launched the Competitive Supplier Development Programme which has the objective of leveraging SOE procurement to promote investment in plant, skills and technologies in the SOE supplier base. This is being achieved through providing medium to long-term procurement plans in order to give the supplier community visibility of SOE requirements so that they can be positioned to meet them.
Global and national suppliers partner to make the best propositions to SOEs around the development of the relevant supply chain to meet SOE requirements. This is in line with the Department of Trade and Industry's Industrial Policy Action Plan 2 objectives and has the impact of increasing employment, increasing the value delivered by national industries and increasing the skill's profile of the supplier base. It also increases the security of supply and the competitiveness of the national supplier community to meet the needs of the SOEs.
At this stage, I would like to turn to some of the critiques that were raised by our colleagues. When we talk about remuneration we should be careful - we must look at each sector. We must make sure that we attract and retain skills and compare industry to industry. It may well be that if SAA does not pay pilots in line with industrial needs that the pilots will go to other airlines. So, when we look at the remuneration package in the industry, we have to take into account the interests of the various sectors as well.
Reference has been made to Eskom blocking IPPs, Independent Power Producers. I think we must make the point clear that policy has been developed in relation to IPPs. Once the development of that policy has been done, the Department of Energy will then make the necessary announcements next week in relation to the International Organisation for Standardisation, ISO.
With reference to Medupi not being effective until 2012, I think we have to talk the same language. The intention is that by 2012 the first unit, Unit No 1 - not the whole of Medupi - will be commissioned. I think we are on track in relation to commissioning that unit.
Another issue which is quite critical is that we should not trivialise the funding model. It is an important debate in which all of us should participate in a constructive manner. I know Mr Oriani-Ambrosini referred to an Eskom Two. In this regard, we have listened to Mr Oriani-Ambrosini for years. He has said that we must bring in the private sector. We asked Mr Oriani-Ambrosini a couple of months ago what he means by this, and where these private-sector companies are that want to invest in this capacity. He has referred to a company whose name I can't remember.
However, we are having a national debate about the capacity of the country. It is quite important that we distinguish between our interests as political parties and the interests of the country. What we are talking about is the generation capacity of the country.
It has been pointed out that between now and 2028 we need to double the capacity that we have. As to what generation mix that should include will depend on the IRP - Integrated Resource Planning - which is being developed now, in line with the commitments that were made in Copenhagen. So, it is going to be quite important that this debate we are having must be in terms of national interests and sectoral interests. We would, therefore, make the appeal that as we conduct this debate those interests should be the standards. The second set of issues is that part of what we do is what we read in the newspapers. embers of Parliament have to make sure that people respect what they say. If you are a Member of Parliament, everything you say must be based on fact because communities take what we say as the truth. We therefore appeal to Members of Parliament to take that into account.
In relation to what is referred to as privatisation, the ANC has no intention of privatising any institution at the moment. That must be clear. As far as IPPs are concerned, we are asking what the capacity is that we need over the next 20 years. Can Eskom on its own deliver that capacity? The answer to that question is no. Therefore, we have to get extra capacity from other private operators. That is the strategy we have adopted.
We would advise hon members, as part of this debate, to be quite cautious about how we translate this, because at the core of this is not the ANC, not the DA, but national interests. That is central to this debate.
Hence, my warning is the following: A writer said that Members of Parliament have to analyse and be sober, and understand the interests of the country and not rely on what we call experts - and not rely on newspaper cuttings. We have been warned that experts frequently do not know what they are talking about and scholarly opinion, more often than not, is nothing but uninformed gossip. General acceptance does not decide a case, arguments do. Thank you. [Applause.]