President Cyril Ramaphosa
Speaker of the National Assembly, Ms Thandi Modise,
Chairperson of the National Council of Provinces, Mr Amos Masondo,
I pay tribute to a friend and comrade, the late Minister Jackson Mthembu; anf to the families of the 40000 South Africans, including frontline health workers, who have lost their lives in this pandemic.
In the State of the Nation address, the President gave us a sobering reflection of the unprecedented nature of our current reality and the economic and human devastation caused by the Covid-19 pandemic.
The aim of the Plan is inclusive growth, the creation of sustainable jobs and support of livelihoods and the improvement of infrastructure.
Over the years State-owned enterprises (SOEs), and government more generally, have played an important role in the South African economy. As can be seen now, government has had an even more significant role during this pandemic.
However, for business, the economy, domestic politics and international relations there will be an expanded role for, and support, from governments. “So governments are likely to be permanently more interventionist than before,” given “Particularly significant is pressure ( on government) to “build back better”. FT, November 3, 2020. It says
So in South Africa, well operated and financially sound SOEs are crucial for infrastructure services such as energy, transport, and water, all of which are necessary to grow our economy and to ensure equity.
This is an opportunity to transorm the economic system and ensure that it serves our national interest. However, in order to enable this, we need to reform and restructure the SOE sector which has been so badly impacted by State Capture.
The SOEs became the honey pots of State Capture, largely because of their large procurement spend. As Daniel Kaufmann puts it, “Corruption is the name, but procurement is the game”. We are still recovering from the terrible damage caused.
In a nutshell, the SOE PACKAGE to give effect to our Economic Recovery Plan and recover from ruthless looting and destructon :
Reposition Eskom for the Energy Security, the increased use of clean renewable sources of energy and the energy mix prescribed in the IRP 19, and implement a Just Transition;
Introduce key changes in the Freight logistics : rail, ports and large investments in infrastructure; and partnerships with particularly, the black private sector through appropriate concessions;
DENEL will be repositioned through a new business model; and
SAA will acquire a Strategic Equity Partner.
These strategic areas will be accompanied by other interventions across the SOEs :
Review their Mandates;
Recover funds lost through theft and looting;
Review contracts irregularly obtained;
Change procurement policies for efficiency and integrity;
Ensure the implementation of localisation policies; and
Economic Transformation which will include:
Empowerment of small businesses, and
Madame Speaker, SOE’s will change.
Mr President, you said that, “To support our reform process, the Presidential State-Owned Enterprises Council has outlined a clear set of reforms that will enable these vital public companies to fulfil their mandate for growth and development.”
Furthermore, in the Economic Recovery Plan it is stated that: “We are also reducing the reliance of SOEs on the fiscus by intensifying efforts to stabilise strategic companies, accelerating the rationalisation of SOEs and, where appropriate, identifying strategic partners.”
In 2021 we shall witness changes to the architecture of SOEs and the direction taken. A set of structural reforms is being introduced to ignite growth in the economy and to address our capacity challenges which have been compounded by the COVID-19 pandemic. SOEs will take the lead in, for example:
research and development
innovation and technology development
support ICT developments
These activites will impact on renewable energy, address climate change and support our in education and health sectors.
And in doing so shall be actively seeking was to co-create wealth in partnerships with the private sector.
I shall outline the essential elements of the SOE PACKAGE to give effect to the objectives of our Economic Plan and the 2021 SONA proposals:
ENERGY SECURITY & ESKOM
A priority of the ERRP is to speedily increase energy generation capacity and to guarantee a reliable electricity supply. Restoring ESKOM to operational and financial health and accelerating its restructuring process is central to this objective.
Government’s main objective is to stabilise electricity supply and ensure energy security for South Africans. In this regard, the DPE will work with the Department of Mineral Resources and Energy (DMRE) and other Departments, to ensure that all sources of energy are accessed.
We are following an integrated, coordinated approach in this regard:
Eskom will continue the intensive maintenance of power stations, improve emissions compliance, and complete the construction of the Medupi and Kusile.
Eskom will rapidly develop and deploy new, clean sources of electricity. It will also procure more generation capacity and by opening up the power system to renewable sources of clean energy.
We will finalise the options to resolve the debt burden of Eskom and ensure its financial sustainability
the establishment of a separate legal entity for Transmission, in line with the ESKOM ROADMAP, will be achieved by December, 2021.
Eskom should play a leading role in facilitating the connection of renewable energy by expanding and strengthening the transmission grid,
ESKOM will itself participate in the building of renewable energy, and private sector partners, must build a significant part of the renewable capacity
Just Energy Transition
The transition to a low-carbon future is not only about the introduction of renewables. It will also have an impact in numerous ways on a wide range of companies, jobs and communities. Eskom has established a Just Energy Transition Office whose role is to:
Accelerate the repurposing and repowering of stations;
Actively pursue a share in renewable energy allocation in line with Integrated Resources Plan (IRP) 2019; and
Implement an integrate socio-economic strategy, including reskilling of workers.
Eskom Social Plan
Eskom will work with all social partners to implement the NEDLAC Framework Agreement for the Social Compact on supporting Eskom for Inclusive Economic Growth The key elements of this framework are to ensure operational and financial sustainability; resolve debt and move toward cost-reflective tariffs; implement the just transition; and repair the results of corruption.
This journey of transformation is not easy. Let me repeat previous remarks I’ve made: “Eskom as an institution is very much in a transition phase in the past 2 years or so. It’s trying to remove itself from the grips of state capture from both political forces and economic players as well. There is still significant resistance to change by ex-managers of Eskom and from some within Eskom itself. Eskom is acting wherever it can against corruption both in terms of individuals and companies”.
Madam Speaker, Mister President
The logistics and the transport sector are vital to the success of the Economic Recovery Plan and stimulate economic growth. Our ports and rail must become efficient and competitive We need to lower the cost of doing business.. We need to implement third-party access on freight rail lines.
New capital projects/investment
The three Transnet Port Terminals (TPTs) - Cape Town, Richard’s Bay and Durban - are the focus for opportunities for new entrants to drive transformation in port operations. (This offers the opportunity for new and emerging entrants to considerably enhance the logistics footprint and capability
Freight logistics – the key changes
Transnet will appoint a turnkey service provider for the extension of the rail corridor (SouthCor) to enable auto exports through Port Elizabeth. This will increase the throughput of complete automotive units by three times.
By the end of December 2021, the PE manganese (Mn) terminal will be decommissioned and will be moved to Ngqura. Transnet, in partnership with Transnet National Port Authorities (TNPA) and Transnet Port Terminals (TPT), will build a new high-performance manganese export terminal with an expected medium-term capacity of 16 million tons per annum.
The initiative to reposition Durban as a hub port for Southern Hemisphere shipping will see Transnet, the National Port Authorities and Transnet Port Terminals initiate the process to concession Point Terminal for construction and operation.
This is expected to more than double annual capacity for containers already provided and it will considerably improve operational performance and create capacity to accommodate ultra-large container vessels.
Durban Container Terminal (DCT): Transnet will initiate a process to identify an International Terminal Operator (ITO) partner at the Pier 2 Container terminal at the Port of Durban. Transnet anticipates that this will rapidly improve terminal performance and attract additional investment into terminal handling capacity.
Ngqura Container Terminal (NCT): Transnet will initiate a process to identify a cargo owning equity partner for TPT at NCT to drive the transhipment strategy. This will guarantee an increase in direct container traffic and develop a transhipment hub catering for cargoes from South East Asia and specifically China.
Madam Speaker, Mr President
DENEL – NEW BUSINESS MODEL
Denel is part of our national defence industry and system. The success of Denel is dependant on a clear national vision of the role and place of defence and related industries in a changing globalised world. The new business model of Denel must respond to these challenges.
Today Denel continues to have financial, operational and people challenges. A new business model for the SOEs is being urgently developed.
Denel will be restructured so that it can become fit for purpose, commercially sustainable and not dependent on the fiscus. We anticipate that Denel will enter into strategic partnerships with Original Equipment Manufacturers (OEMs) to add-value to the local economy, while benefiting from a growing and untapped international market.
South African Airways has been in business rescue for just over a year. This process has taken too long. The business recue practitioners must now exit We believe it will result in the emergence of a competitive, viable and sustainable national airline that is agile, techno-savvy and without any further funding from the fiscus.
Government is nearing finality with the appointment of a strategic equity partner that will not only fund the new airline, but also introduce the technical expertise to ensure a successful SAA.
SAA has begun a process of paying the Voluntary Severance Package (VSP) to non-management workers. The rest of the payment will be made on Friday 19 February 2021. More than 3000 workers have taken up the VSP offer. Some of displaced workers will take advantage of the social plan that was negotiated with labour.
PRESIDENTIAL STATE –OWNED ENTERPRISES COUNCIL (PSEC)
The President’s State Owned Enterprises Council (PSEC) is already hard at work. It is constituted by talented South Africans who are giving their time in the interest of the country. They bring in the much needed with experience, skill, foresight and a burning desire to make our country work.
The PSEC is considering crucial changes to the portfolio of SOEs:
Mandates of the SOEs will be re-evaluated to ensure that they are responsive to the current economic environment and are in support of the Economic Recovery Plan;
Innovative partnerships and funding solutions;
End to bailouts from the fiscus within the next two years;
A more aggressive approach to introducing private sector participation;
The establishment of a restructuring unit with the necessary expertise and capabilities to intervene in SOEs that are in crisis; and
Proposals for access to global climate financing to implement a just transition.
Government will be taking more decisive steps to recover assets, money and intellectual properties stolen from SOEs as part of State Capture.
Most of the money has been sent out of the country using complex financial mechanisms and schemes. The stolen money belongs to the people of South Africa. It is money required to maintain and upgrade SOE operations – like supplying electricity to homes and factories, getting rail passengers to work on time and then back home in the evening, and for moving freight across the country.
It is not only money that has been expropriated: intellectual property for example - the work of our scientists and researchers has also been stolen. We need to redouble our efforts in getting this back into the country.
Mr President, it is important that we endorse the position of the ANC NEC this past weekend, that we “unequivocally reaffirm the position of the ANC against corruption and state capture and its impact on the people and the country”. You have made a commitment to demonstrate ethical and accountable leadership and to appear before the Commission on behalf of the ANC.
We also need to reaffirm the ANC’s position: no one is above the law.That is the Rule of Law.
Review of Contracts
Madame Speaker, Board Procurement Committees were repurposed to expedite illegal diversion of resources during the state capture period. Procurement processes and contract management were deliberately collapsed and as a result, billions were paid by SOEs with no services being rendered or with zero value accruing to the state.
So, as part of the effort to clean up after State Capture, the SOCs are continuing to review existing contracts. Corrupt contracts will be set aside.
In his SONA address President Ramaphosa noted that an increase in local production is one of the four priority interventions of the Economic Reform and Recovery Plan (ERRP).
As we reform State Owned Companies, making them more dynamic and responsive, one of the key public interest mandates they need to embrace is that of localisation. SOCs are key contributors to this initiative as purchasers of steel and components, as facilitators of South Afica’s manufacturing base in logistics and energy supply, as drivers of innovation using the research and other capacities they have brought to market. In the process, localisation can drive a growth in jobs and economic output.
In response to the country’s economic recovery plan the DPE has contracted all SOCs within its portfolio on the following:
75% Procurement spend on locally manufactured product and services % of Total Measurable Procurement Spend (TMPS);
75% Procurement spend from companies with more than 51% Black Ownership as a % of Total Measurable Procurement Spend (TMPS);
Women - 15% Procurement spend from Companies with more than 51% Women Ownership as a % of Total Measurable Procurement Spend (TMPS);
Youth - 10% Procurement spend from Black youth owned entities as a % of Total Measurable Procurement Spend (TMPS)-
SMMEs development – SOCs are contracted to spend 1% of their Total Measurable Procurement Spend (TMPS) on Enterprise Development (ED) initiatives to new /existing black owned enterprises, with the objective to facilitate business sustainability and operational independence; and
Additionally, depending on the size of the entity, SOCs are expected to provide sub-contracting opportunities to Small and Emerging Enterprises as a way of integrating them into their value chains and those of their suppliers.
Madam Speaker, Let me repeat. The year 2021 will see distinctive and decisive actions to reposition, repurpose and stabilise the SOEs to accelerate economic growth and development. We expect of SOEs to boost and support the economy and in doing so play an entepreneurial role.
We are committed to stop the reliance of SOEs on the fiscus. Bail-outs need to be a thing of the past. We are determined to root-out corruption and all vestiges of state capture. Once repositioned, reformed, repurposed and stabilised, the SOEs will be at the forefront of co-creating value and transforming the economy for national prosperity.
We are single-minded in this endeavour. We shall give no quarter to those bent on retaining the status quo to advance their self-interest. No amount of disruption or what-about-ism will stop us from reclaiming our sovereign assets – human and material. These institutions belong to South Africans. They must serve the national purpose - not sectional interest!