Honourable Ministers and Deputy Ministers [Deputy Minister Bulelani Magwanishe]
Chairperson of the Portfolio Committee
The Director-General of the Department
Chairpersons and Board Members of State-Owned Companies
Chief Executives and Senior Managers of State-Owned Companies
Distinguished guests who are present here today
Ladies and gentlemen
Africa continues to experience the effects of a global economic and
fiscal crisis since 2008. Despite, being affected by the crisis, the
state owned companies within my portfolio have joint assets of around
R908 billion and their capital expenditure assisted avert a deeper and
protracted global economic crisis and fiscal decline.
is to ensure that these assets deliver value for all South Africans.
Given their strong asset base, State Owned Companies will be in a better
position to go into the capital markets on the strength of their
balance sheet with the support of the shareholder in order to fund their
Capital investment through state owned
companies have assisted in cushioning the country by playing a critical
counter cyclical role in the SA economy. These companies are
contributors to job creation, infrastructure development and
We must maintain the ownership of these State
Owned Companies given their size and contribution to our economy. This
will be done with private sector participation. They are key and
strategic assets that we need to keep intact and continue to grow in
order to guarantee the future of our children and create viable,
sustainable and dependable future employers to reverse the current
Active shareholding and participation in our
domestic economy is still dominated by race and class. The majority of
our citizens still experience high levels of stubborn household poverty,
indebtedness and inequality. We cannot continue to ignore this
Josef Stieglitz, the Nobel Laureate for Economics tells
us in his book, The Great Divide "why we should care about the large
increase in inequality". It is not only a matter of values and morality
but also of economics, the nature of our society and our sense of
Going forward, growing our productive sectors
and supporting re-industrialisation is critical for moving the economy
to a different trajectory. State Owned Companies exist because they are
critical to ensure that we accelerate the development of our economy and
getting more of our citizens to benefit from the fruits of our
We cannot continue with more of our people being
excluded from participating in the economy. The capital programs of SOCs
will allow us to deepen localisation of strategic industries creating
opportunities for enterprise development and critical and scarce skills
State Owned Companies Reform
recognise that the achievement of the National Development Plan’s
objectives of improving the social and economic condition of the
citizens, in part, is dependent on State Owned Companies’ abilities to
effectively and efficiently provide the necessary infrastructure and
In turn, Government as the shareholder expects
that the SOCs will deliver on their mandate and reduce their reliance on
There have been strides in exploring an appropriate
shareholder model. We have drawn lessons from countries that have
similar challenges, but also acknowledge the uniqueness of the South
African environment. This is an evolving process and engagements with
various stakeholders are ongoing.
Powering the South African economy
the last year, South Africa experienced a serious electricity supply
constraint, which resulted in Eskom implementing load shedding. Some of
the analysts and prophets of doom had predicted that South Africa was
going to experience a complete blackout. I must say, this undermined our
efforts to position South Africa as a preferred destination for Foreign
If there is one thing that the energy
challenge brought was a mushrooming of energy experts who have now gone
undercover since their prophecies have not come true. Some of the
debates happened in this house and influenced perceptions which sought
to cast doubt on this government.
I am comfortable with the
progress that Eskom has made in ensuring security of supply through
sound maintenance program. I commend the team at Eskom for doing
sterling a job of stabilising the company.
For the longest of time
South Africans have had their lights on and load shedding has become a
distant memory. Eskom has been able to reduce the diesel usage from R800
million to R40 million since October 2015.
In fact Eskom has been able to build up sufficient capacity to be able to support the region at times.
new build programme has improved the generation capacity and created
space for Eskom to do the maintenance of the existing plants. In
addition to Medupi Unit 6 that is already providing power to the grid,
Eskom has now delivered Ingula units 4 and 3. In the next year, Eskom
will deliver the remainder of Ingula. Over the next five years Eskom
will spend R340 billion in Capex, ensuring completion of the build and
With all its challenges, Eskom still
connected 190 000 households to the grid in the last year. While having
electricity may have become normal for some people, for households that
only received electricity only this year, this is a life changing and
empowering moment. In the gallery chair I have Mr. & Mrs. Mbebe from
Ngoliloe village in Matatiele whose house received electricity for the
first time on the 01 March 2016.
have been having discussions with provinces in an effort to come up
with sustainable solutions for municipal debt. These engagements are
I am well aware of the need to keep a downward
pressure on Eskom’s costs, particularly coal, to ensure that electricity
remains affordable in an increasingly competitive environment.
primarily sources 51% of its coal from four major key suppliers at a
cost of R23 billion of Eskom's total cost of coal of R45 billion. Eskom
is a 60% off taker of coal in SA and should therefore be in a position
to command better prices but contrary to that, Eskom coal costs have
been growing above inflation levels.
It is important to mention
that Eskom has been making the capital investment for the establishment
of these cost plus mines. These arrangements are being reviewed to find
the most optimal and cost efficient structure for the consumer.
would also like to acknowledge the twenty women from Eskom in the
gallery. This afternoon I will be launching a book on the journey of
transformation for women in the last twenty years. We have indeed made
Strengthening the freight logistics system
has spent about R124 billion on its Market Demand Strategy in the
upgrading and building of rail and port infrastructure, acquisition of
new locomotives and wagons for the train system as well as cranes for
the port system.
I would also like to put into perspective, the
perception of high port costs in South Africa. According to the World
Bank Report on doing business and trading across countries, South
African port charges contribute a mere 15,6% of total transport chain
charges as compared to the international average of 27.7%.
weak performance of the productive sectors of the economy has had a
major impact on the realisation of the rail volume growth targets.
Transnet has introduced various interventions for customers in mining,
steel and container sectors in order to assist to keep them operational
and save jobs. Transnet has given price reductions amounting to more
than R2 billion in the last calendar year.
They have furthermore
taken less than inflation price increases in other areas in order to
keep businesses afloat and to encourage the Road to Rail migration
initiative. Lots of focus went into improving the on time departure and
on time arrival of trains to the mining sector, as well as the
efficiencies of cargo in transit and port offloading facilities.
The company will be exploring alternative markets to reduce its exposure to the mining industry.
is making good progress in the implementation of Operation Phakisa
initiatives that will create the environment for GDP and job creation
through the Oceans Economy. Transnet is in the process of resuscitating
the existing ship repair facilities at South African Ports in order to
serve the market in a safe and efficient manner.
committed a minimum of R1.6 billion towards the upgrade of existing ship
repair facilities. Branch lines are currently a relatively
underutilised part of the country’s transport infrastructure and it is
expected that their revitalisation could unlock potential both
regionally and nationally.
South African Express
Express has been experiencing financial difficulties, which are also
tied to its business and operating model. The general challenges in the
global and local airline industry also contribute significantly to the
position of the state owned airlines. It is therefore imperative that
together with National Treasury, we accelerate on the optimisation of
the airlines portfolio.
Re-industrialisation of the South African economy
growth story will not change if we do not address the challenges that
are faced by our productive sectors of the economy, in particular
manufacturing. We need to enhance the design and manufacturing
capabilities of our South African firms to ensure that they can play
part in the global value chains.
Transnet Engineering as well as
Denel are continuously upgrading their capabilities to be able to
compete in the global market. This is important for our new growth
I am proud to announce that the repositioning of Transnet
Engineering to become an Original Equipment Manufacturer is largely on
track. The first batch of the passenger coaches engineered and
manufactured by Transnet for Botswana Railways were successfully
delivered to Gaborone on 22 March 2016.
The 22 coaches already
delivered were engineered and manufactured to exact specification at
Transnet Engineering facilities in Pretoria and Cape Town.
Engineering is also gearing itself for greater growth in the region and
is progressing very well in developing the prototype of its African
locomotive, which will also strengthen its manufacturing capabilities
and develop South Africa as a locomotive manufacturing hub for Africa.
the gallery today, I would like to acknowledge 10 (ten) engineers from
Transnet Engineering Research and Development who were responsible for
designing and developing systems for the Africa Locomotives.
continues to advance its capabilities in the defence and aerospace
industry. In this regard, the company is working on the development of
the Small African Regional Aircraft that will provide air transport
solution for the African market. Furthermore, Denel is working towards
the mid-life upgrade of the Rooivalk attack helicopter.
has developed a strategy to add further value to its sawlog product
through the upgrade to the Timbadola Sawmill in Vhembe District in
Limpopo and the setting up of a new sawmill and veneer plant in Sabie,
Mpumalanga. The intent is to leverage the investment to create
community-based manufacturing enterprises in partnership with the
Alexkor has commenced
deep sea mining operations. The venture is expected to more than double
current production, which should enable greater economic development
impact opportunities for the Namaqualand region. This would include
realizing the local rough diamond polishing aspirations of the province.
are also working with the department of Rural Development to strengthen
the institutional arrangements between Alexkor and the community of
growth story will be inconclusive if we do not change the growth
dynamics in our region. It is very clear that South Africa’s development
cannot be separated from development of our neighbors. Our commitment
is to ensure that we build the infrastructure that facilitates regional
trade and reduce the cost of trade.
In the current financial year
will have identified priority markets that will pursued, these are: (i)
Tanzania, Kenya and Burundi for Transnet, (ii) DRC, Mozambique and
Uganda for Eskom, (iii) Egypt for Denel, and (iv) Ghana for SA Express.
the electrification capabilities built over the last 20 years, South
Africa though Eskom and other South African companies can export these
skills to the SADC region and the continent to support regional
integration and development.
the role played by the SOCs in the advancement of the South African
economy will require increased cooperation between the Department and
other spheres of government. In this regard, the Department has designed
a programme that will enhance the cooperation between the SOCs and
other spheres of government.
must commit to all South Africans that the changes we are implementing
in the portfolio of the State Owned Companies will not lead to the
erosion of capacity of the State to intervene in the economy. We want to
see State companies being stronger to support the implementation of our
economic policies and deliver on South Africa’s new growth story.
would like to thank the Deputy Minister, Director General, Portfolio
Committee Members, Chairpersons and Chief Executive Officers for their
continued support and counsel.
Chairperson I hereby table Budget Vote number nine of the Department of Public Enterprises.