Committee Report on Oversight visit to Denel; Discussion on Venezuela and Brazil Study Tour

Meeting report

Report on Oversight Visit to Denel
The Committee edited the report line by line. As the report had been circulated via email, Members were asked to please go through documents in advance to save time in the meetings.

Proposed amendments to the report were:

The date in the heading suggested that the visit took place on 23 August 2011; to be changed to the date of the visit.

1. The heading to be changed to Introduction and Purpose of the Visit. The sentence beginning the purpose of the visit was to investigate the challenges – the word investigate to be changed to ‘update the Committee’.

1,1 Mr A Mokoena (ANC) was present, to be added to the delegation. Ms G Borman (ANC) was not present, her name to be deleted.

2.2 The last sentence that Saab had terminated the A400M programme with Denel Saab Aerostructures (DSA), the facts to be verified as Dr G Koornhof (ANC) understood that they had sold a 20% share in DSA.

3. Was considered to be incomplete, the Committee Secretary to improve on the detail. After the last sentence to add, ‘it was reported as follows:’

4. The second bullet – negotiation contracts with key customers; to add that the Committee had suggested looking further afield than South Africa.

5. First line to be deleted.

5.3 The second and fourth bullets – were contradictory, to be worded differently.

6.2 The sentence referred to the A400M deal – the word deal to be substituted by the word ‘project’. Saab had withdrawn its 20% shareholder deal – the words shareholder deal be substituted by ‘shareholding’.

6.4 Clarity was sought on the reasons why Saab terminated the contract with DSA and what the financial implications were for the entity. The words 'contract with DSA' to be replaced with ‘shareholding with DSA’.

7.2 The Airbus A400M was the main project for Denel. The word 'Denel' must be replaced by 'DSA'.

7.6 Was not correct. The Denel group needed the money, but the Department owed money to it. The sentence to be changed to project that. The figure of about R2 billion mentioned to be replaced by the specific figure.

7.7 To be rewritten to include the need for support from political leaders for international deals. In the last phrase the word 'leadership' to be replaced by the word ‘management’; it was to read 'management was in continuous discussion with interested parties'. Add 'they asked for Government support for marketing efforts internationally'.

7.9 Industrial Policy Action Plan (IPAP) did not refer to Denel, it referred to the Aero Structures; to be corrected. The second sentence referring to Defence and Military Veterans to be listed as a separate point.

Ms C September (ANC) said 7.8 and 7.9 related to responses to questions raised; without the questions the responses did not make sense, and both should be corrected.

Concern was raised that there had been media reports that Denel had launched an unmanned airborne vehicle for observation purposes, which had been successful, yet that had not been mentioned to the Committee.

Recommendations
The Chairperson stressed the issue of the absence of further education and training.

The Committee recommended:

• Noting the financial difficulties experienced by DSA, the Committee recommended that DSA provide the Portfolio Committee on Public Enterprises with progress on its restructuring progress by a date in October 2011.
   
• It must be established why the Department only gave DSA half the amount promised to it.
  
  
• The Chief Executive Officer (CEO) and top management must be present on Committee oversight visits with Denel.
  
  
• The Department of Traditional Affairs (DTA) to do its utmost to ensure recruitment of students from rural areas to participate in their training programmes.
  

• Regarding the financial losses of DSA there was already a recommendation on the progress report, a restructuring report, as well as on the financial losses and the turnaround strategy on the financial losses. That could be combined.
  
• Interaction between two portfolio committees on the absence of the defence update. Part of that update was that a general Defence update was outstanding since 2005. The absence of that had a knock-out effect on orders to Denel.

Mr L Greyling (ID) commented on the media report of a Cheetah plane that malfunctioned en route to Ecuador.

Discussion on Venezuela and Brazil Study Tour

The Chairperson asked Members for their reflections on the study tour that would give input to the draft report. Some headings were corporate governance and the developmental role of the state-owned enterprise (SOE) in Venezuela and Brazil, and the oversight role of the Executive in Parliament.

Dr Koornhof referred to governance. Venezuela was a question and answer session on what was the role of the state in terms of the rules, standards and monitoring, and also the role of the Executive. The establishment of the boards was also a governance issue that came out quite strongly. Also on what happened to the reports of the SOE; as far as Venezuela was concerned, the Committee could put forward a comprehensive finding on what was presented.

Mr Mokoena noted that their system could only work within a model of socialism. There was too much state intervention. It was fascinating to see how the other side lived and how the socialist model worked. There was very little social discontent. The government deployed an excellent ambassador; he was so well informed.

Mr C Gololo (ANC) found it interesting that when it came to the recession their government used what was termed pension fund to bail out ailing companies; South Africa could learn something from that in terms of bail out from National Treasury.

Mr S van Dyk (DA) thanked his colleague who could speak Spanish and was such a help to the delegates. He also enjoyed the fact that the language on the trip was Afrikaans. Delegates had the privilege of meeting several members of parliament and three deputy ministers, one of whom was the brother of the president, which was an indication of the high priority put on the visit. Those countries also wanted to explore the country’s economy and make use of its expertise; it was a valuable visit. The view of public enterprises differed in the different countries. On investigating the management, construction and administration of the state-owned entity there were differences between governments and lessons could be learnt from their experiences.

Mr Greyling thought it would be quite a contested report as people shared different views. While steering away from the nationalisation debate, the necessary context in which state owned enterprises operated both in Venezuela in Brazil could not be avoided, and one would have to engage. We would have to mention the way that state owned enterprises were formed in Venezuela, and one of those ways was through nationalisation, so the debate could not be avoided. It was necessary to talk about the effect that had on the broader economy, because one was looking at an economy in which SOEs achieved a country’s developmental objective, so one would have to tackle some of the issues and could not simply steer away from it; it was part of the Committee's mandate. It created huge problems in investor uncertainties, stagnated the economy but pushed up the economy to a large extent. Everyone was referring to Venezuela, One should also refer to the corporate governance in Brazil, and very interesting lessons could be learnt from there. Members should write down their thoughts on what should be included.

Ms September appreciated that, apart from the purpose of going there, there were other issues also, such as education. The purpose of the visit was not education, but delegates saw what happened to education in Venezuela and Brazil and Members should also think through those things that fell outside of the mandate, because it was about the national interest of the country. South Africa was a developing country and could only do best if it continued the conversation as to what was the best for the national interest. The Committee was able to see how the two countries derived their current gross domestic product (GDP) and how the state-owned enterprises made their contribution, and the lessons learnt.

The Committee must put in the facts, the findings and the recommendations. Many people did not agree with South Africa’s policies, as South Africa did not always agree with the policies of other countries.

Mr P van Dalen (DA) supported Mr Greyling.

Dr Koornhof agreed with the headings, corporate governance and parliamentary oversight. He suggested beginning the report with a brief socio-political overview of Brazil and Venezuela. It was also important as the oversight role of Parliament; the delegates only visited a parliamentary committee in Venezuela, and it was interesting to note the two visions - government and opposition. It was also interesting and valuable to look at Brazil’s critical success factors. These should also be captured in the findings and reasons for the visit. Our country had much common ground.

Ms G Borman (ANC) was interested in the time frames for the report and was anxious to see what it was the delegates learnt there.

Mr M Nhanha (COPE) learnt a lot about the failures of nationalisation, and particularly of socialism generally and the failing capitalism of the world, which some called the recession. Mr Nhanha had an injury and was thrilled with the service he received at a clinic, he was out within fifteen minutes and it was like a private hospital. He commended our ambassadors, and our Consul-General in Sao Paulo, who were working very hard. He suggested the Chairperson write formal letters of thanks to them for the sterling work and support provided to the delegates.

Mr Gololo thought it important to obtain the presentations by PricewaterhouseCoopers in Brazil.

Mr Mokoena said the report must also reflect how much the visit cost Parliament, and that the Committee did not spend the money frivolously.

Ms September thanked the Chairperson for his leadership.

The meeting was adjourned.