PARLIAMEENT OF THE REPUBLIC OF SOUTH AFRICA

SELECT COMMITTEE ON LABOUR AND PUBLIC ENTERPRISES

Ms ND Ntwanambi- Acting Chairperson

MINUTES OF PROCEEDINGS

Friday 28 May 2004 (11:00)

Committee members present:

WESTERN CAPE

Ms ND Ntwanambi (ANC)

EASTERN CAPE

Mr DG Mkono (ANC)

FREE STATE

Mr CJ van Rooyen (ANC)

GAUTENG

Ms S Chen (DA)

Mpumalanga

Ms MP Themba (ANC)

(The Select Committee on Labour and Public Enterprises and the Ad Hoc Committee on Public Enterprises met jointly)

 

Officials present:

1. Mr A Erwin, Minister of Public Enterprises

2. \\\\\\\\\\\\\, Director-General: Department of Public Enterprises (DPE)

 

Staff present:

  1. Mr Marc Philander, control Committee Secretary: Committee Section
  2. Ms Chantal Paulse, Committee Assistant: Committee Section
  3. Ms Beverley Walters, Committee Assistant: Committee Section
  4. Ms Nonzwakazi Stemele, Committee Assistant: Committee Section

Opening:

Ms N D Ntwanambi and Mr B A D Martins were co-chairpersons during the meeting of the Select Committee on Labour and Public Enterprises and the Ad Hoc Committee on Public Enterprises.

Mr Martins welcomed the Minister, officials from the DPE and representatives from Eskom.

Agenda:

1. Briefing by Minister on Budget Vote 9: Public Enterprises, and on strategic plan

The Minister outlined some of the issues raised by the President in his state-of-the-nation address, which identified the priorities in the public enterprises portfolio for the next five years.

The largest of the tasks flowing from the President's address was to provide a more detailed programme of intended investments in state-owned enterprises (SOEs) and how those would be financed. This would establish more clarity in the economy and markets as to what it being focused on in the country's infrastructure.

What emerged from the l0-year review was that the economy had changed considerably. It was more sophisticated, more diverse in its production and export patterns and more value was added in the economy. This posed some real challenges to increase growth rates. While these changes were very positive our economy, in terms of its growth rate, was performing more like a developed industrial economy than a developing economy.

The first challenge was how we could increase the growth rate, which would help to support development. The second challenge emerged from the analysis made that our economy was developing a fault line between the first and second economies. In the first economy we see rising productivity, rising skill levels, rising needs for skills, much more sophisticated production taking place and a very competitive economy. However, people with low skill levels who may have come from relatively poor educational backgrounds who are slightly older or young people who do not have the appropriate skill sets (science, technology, computer literacy) find it very difficult to enter the labour market. They are being pushed to the margins of the economy, and we begin to refer to this as the second economy. The challenge was to prevent this fault line from getting deeper and to reintegrate the economy in various ways.

In respect of the growth rate, the President announced the micro-economic reform strategy in 2001. In addition to specific sectors, it focused on very important transversal aspects of our economic efficiency. These were identified as energy, telecommunications, logistical systems (transportation), research and development, and access to finance.

If we are going to get higher levels of investments and higher growth rates, we have to ensure that our energy system remains efficient, very competitive in cost, and that it is reliable. As our production methods become more sophisticated, we need a very consistent supply. You cannot have breakdowns, etc, when you have the kind of manufacturing that we have in South Africa. We need far more efficient logistics, that is the movement from the point of production to the point of sale.

Over the past 18 months we have seen some real problems emerging. We have had backlogs at our ports. There has been an inadequate alignment between the rail and port systems and between road and port systems. The Minister of Transport has stressed that a top priority is to streamline and integrate our logistical systems so that we get faster times to market. If we can do this, we will attract more investments in the agro industries and advanced manufacturing industries. It will also open more opportunities around the logistical system for medium and small-sized enterprises to come in.

Telecommunications remains a priority. We need to bring down the costs of telephony and ensure that access to broadband transmissions are more accessible and efficient. Research and development and access to finance belong to other portfolios and will not be dealt with at this meeting.

The priority was to strengthen the corporate structures of Transnet and Eskom. In the case of Transnet we need to integrate the different components (Spoornet, National Port Authority, Port Operations) and ensure that the structure of Transnet allowed it to finance the necessary investments. This meant grappling with problems we inherited in respect of debt and pension funds and generally ensuring that we were able to finance these higher levels of investment.

We will continue to deal with those entities which are not part of the core business. If we find in Transnet or Eskom that there are entities or companies that do not relate to the core business, we will sell those to the private sector. We will continue to ensure that there is a (BEE) Black economic empowerment component when we do that. It was the Minister's intention to conclude some of the deals as quickly as possible that have been under consideration for some time,

We will continue to use the instruments we have used before, which were strategic equity partnerships, joint ventures and concessions to involve the private sector wherever it makes sense to do so. When one looks at the recent first-phase restructuring proposals for Spoornet, which relate mainly to its internal operating efficiency, safety levels, HR levels, one will see that a very important proposition was made - we are very supportive of this - for it to develop customer-specific solutions. It is beginning to differentiate its customers between for example heavy bulk ore products to sophisticated manufacturing products or chemical products. This will allow us to bring partners into the rail/freight system.

We are looking to speed up some of these processes. Our experience in the past three years with public/private partnerships, in particular using the experience gained from the National Treasury's unit on public/private partnerships will allow us to introduce them on a wider scale.

The thrust in the coming five years would be to spell out a detailed statement on the infrastructure we want to bring into play and how we are going to finance it. The first drafts have already been completed - a more coherent logistical strategy and policy for everyone. In the transport and logistics sectors this will allow us to increase the levels of investment, open more opportunities for investment and reduce the backlogs and logjams we have had on some of our infrastructure, not only for exports but also internally.

On energy we are entering a very interesting new phase. The projections made in 1994 as to when we would have to introduce new energy capacity have proven to be too far out. We now have to move more quickly to strengthen our energy capacity The DME will start to put out tenders by the end of this year for new energy capacity construction, in which Eskom will also be able to play a role. We have large projects to complete in the case of Eskom to bring into play the Inca project and the western power pool, and also to consolidate the memorandum of understanding on energy systems in the Zambezi Valley with Mozambique.

The intention to open 30% of the generating capacity to the private sector remains our intention. Opening 30% of the generating capacity to the private sector does not mean that we automatically sell 300/o of Eskom. We will look at possible packages through which Eskom could assist the private sector. However, we are looking for new capacity to come in from the private sector. I want to stress this. For some or other reason people refuse to hear what we say. We are not going back on anything. We are not suddenly changing our mind on whether we are going to sell 30% of Eskom. We never said we would.

We want to strengthen Denel. This requires some further degree of reorganisation within Denel and would require us to consider a more effective strategy to capitalise Denel's activities. I have immediately started engaging with Denel on this matter to see how we could take its very valuable capacity, both technological, scientific and from the point of view of military equipment. We need this capacity to be maintained and strengthened in our economy.

There are many smaller-sized projects, but not unimportant to the communities they affect, that we would continue to deal with. I would certainly like to reach conclusion on the negotiations with the Richtersveld community around Alexkor. Our courts have made some important decisions, namely that we have to accommodate and need to engage and find some mutually beneficial solution. Of prime concern to us is that whatever we do for the community must be sustainable, viable and in the best interests of that community.

We have largely completed the sale of forests in the South African Forestry Company Limited (Safcol). These deals are operational in the main. We have some cleaning up to do in terms of legal work, which we will try and conclude and will shortly make a decision on what role Safcol could continue to play in the forestry industry. I have asked the board of Safcol to give me some advice on this and we will consider the matter.

There are many smaller companies within Eskom, Transnet and Denel that we will be moving into the private sector. I will engage fairly soon with Arivia, which is also owned by the state, in the ICT sector so that we can get a more coherent approach to how we deal with the future of Arivia, which is an important enterprise.

With regard to the trade union movement, our commitment to working with the unions remains absolute. I certainly have a high respect for the function of a trade union, which is to protect its members. We must at all times enter into discussion and negotiation with the trade union movement. Our task is to find solutions, which benefit the country as a whole. I do not place a great deal of store in what is attempting to be made into a large difference or debate between the union movement and government. I believe that there is very little difference to our approaches in these matters. We will continue to engage the unions. Our policy has been consistent in this for the past 10 years.

We will be meeting with the union movement as I have been meeting with many other stakeholders in the sector, so that we can clarify where it is we want to go. The most futile exercise for any serious endeavour is to negotiate your intentions through the media. We will therefore engage directly. My view is very strong on this matter. Nothing is policy unless it comes from my pen and not from any second hand account or a news report or media report. It has to come from official documentation from myself and/or Cabinet. With these guidelines in place we will have a very healthy relationship with all parties in this process.

There are some exciting projects in the DPE to which we can contribute. Last year in the Ministry of Trade and Industry we began to co-ordinate all the role players involved in the Nelson Mandela metropole, which would allow us to increase the movement of manganese and ferro-manganese dumps to the new port of Coega. We can begin redesigning that port area and do much for the city of Port Elizabeth. We will begin doing the same for all-major port cities, and work together with other departments and Ministries to speed up the use of state assets so that we can encourage investment in those areas. Shaka's Island in Durban is an extremely exciting new development. I think it is one of the greatest aquariums in the world. This is the kind of project, which we can begin driving by careful, co-ordinated and efficient use of state land around our ports and harbour cities.

Mr Martins thanked the Minister for his presentation and opened the floor to the committees for questions and comments.

The Minister said that more comprehensive written documentation would be made available during the Budget Vote.

Mr Davidson asked whether the source of financing of Spoornet had been resolved and how the Minister felt that that restructuring should be structured. In respect of Eskom, there are a number of mothball stations that are being refurbished to be brought on tine. Would this be considered selling-off? In this morning's paper the General Secretary of Cosatu had called for a meeting with the Minister. He seems to be indicating that there was a difference of view between himself and the Minister.

Ms Sobaka asked whether there was a plan to develop the skills of persons in the second economy or whether there was a fund for skills development.

Mr Frolick asked what role the DPE would play in providing linkages for mobility from the second economy into the first economy.

The Minister responded by saying that Transnet and Spoornet borrowed in the capital market. There was no intention to alter that. Transnet should continue to finance the bulk of its activity in the capital market. How this is done across the whole of Transnet and Eskom would be refined. This would have a considerable impact on the overall capital market, and this is why the financing strategy would have to be done in close collaboration with the Treasury.

A new approach that will be looked at is to see whether we can finance a significant proportion of the actual operations through partnerships with the private sector. That would assist the overall financing requirement. This is where the first step taken by Spoornet was a very important one. It arises from work we have been doing with them for a long time, where they have begun to look at more customer-specific solutions. It is not as if we have no idea how to finance - we will enter the capital markets. The precise form of that entry is what we will decide on and announce at the appropriate time after September.

I want to stress again we believe that we should open up to 30% of generating capacity to what are called independent power producers (IPPs). There are various options to explore in this regard. We could bring in completely new operators. We could decide in discussion with Eskom to bring a power station back on steam and bring in an IPP partner for that. These are the issues that will be looked at. Eskom will be bringing into play some of the mothball stations and this needs to be done quite soon. We set ourselves a target of 30% - we are talking about large amounts of funding here. We would like at least 10% to be BEE.

In terms of Cosatu's position, if I am a trade unionist I am going to present my side of the understanding. I do not have any disagreement with the Secretary General's article of this morning. He is quite correct. Our stress is on growth, investment and upgrading of skills. What I have indicated this morning is not at odds with that. We have to do this in the state sector. If there is any slight misunderstanding between ourselves, we will resolve it face to face. We were asked to comment by the media on whether we were meeting the trade unions and we said, yes. I had already requested those meetings some time ago. It is imperative that we meet soon with the trade union. I am absolutely certain that we have no major difference on this matter. I would be very surprised if there were no areas that we had to talk to the unions about, negotiate and disagree on. I welcome a healthy exchange with the unions. The only way they can represent their members is to raise issues.

On the role the DPE and SOEs can play with regard to skills and upgrading, one of the things we stressed in the expanded public works programme was to assist with training. There is a heavy emphasis on training so that we leave skills in the communities where we carry out those activities. I have not as yet had time to fully inform myself of all the training activities of the SOEs, but I think that they are very significant. The social responsibility activities of Transnet, Eskom and others are significant and there are many projects which Eskom runs. I would like to get more information on this and see how we can leverage off that base to achieve more. I was excited to learn from Denel, for example, that we have some 5OO young people currently in training in advanced technical and graduate studies in the areas of engineering, IT, aeronautics and aerospace. I am quite convinced that if we create synergies between the big SOEs to create a great impact in terms of skills training. I would like to report to you at a later stage on what progress we have made on this matter.

There are many roles that we can play in linking the economies. One of the ways would be to open economic opportunities by using the rail links that pass through rural areas or between small towns that have fallen out of use. This is a very exciting challenge. We could bring in a number of partners in respect of these lines. The Minister of Transport and I feel strongly about this project and we will work together closely on it. This is a way of reaching out to the second economy by opening possibilities and by opening transport routes. We can contribute to pulling the second economy closer to

the first economy by providing electricity to as many areas as we can and by linking the schools in rural areas. The President indicated that he would systematically address this issue and this means that all departments have an instruction to systematically spell out what they will do to link the first and second economies. We will not be fully ready for that by our Budget debate, but I hope that we could give you a more comprehensive briefing on those aspects later this year.

Dr Davidson asked about equity financing.

The Minister said that the matter was simple in principle and complex in the final details. He said that Mr Davidson was referring to capex requirements, which could be financed in a range of ways within Transnet. If Transnet wanted R15 billion in capex over four years, it would not be considered a massive amount in the capital markets. It would be inaccurate to suggest that this was some dramatic new impact on the capital markets; it is not. What we will be looking for is the most cost-effective means of financing when we are looking at debt. The reason why it is more difficult to spell out equity is because equity deals are a lot more complex to negotiate. We still remain committed to the principle of a partner in SAA.

If one looks at our own experience with Swiss Air, we went out in search of 30%, obtained 30% and the world airline market suddenly changed. Swiss Air changed and we got it back. We need to take a sensible approach to this matter, which has to be pragmatic. We will enter the deals, we will negotiate as we obtain more reliable information and make it available. We will try to give more certainty in September because there are benefits for the capital markets for everyone to know. We will try to give as much information as we can around this. In respect of equity we cannot give very precise details. It is just the way the market works. This is what the President has instructed us to do, and not just across Spoornet and Eskom. This is part of our thinking in the government's administration. You can see from the budget review document that we have continuously tried to improve the information we give the markets. It would be much better if we could give accurate indicative numbers around our capital markets

Closing:

The meeting adjourned at 11:51.