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Business & Technology
Apr 13 2012 10:44AM
Driving investment vision
State Enterprises Minister Malusi Gigaba. Picture: Fati Moalusi
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Malusi Gigaba

Last year, I announced a new vision for the Department of Public Enterprises, with a strong emphasis on driving investment, productivity and transformation in our portfolio of state-owned enterprises and their customers and suppliers, so as to unlock growth, drive industrialisation, create jobs and develop skills.

I will provide you with some of the concrete initiatives undertaken by both the state-owned enterprises and the department to turn this vision into a reality.

In the Transnet market-demand strategy, we are beginning to see results from an approach to planning based on what is required to unlock growth, rather than what the balance sheet can afford. Transnet has increased its planning horizon from five to seven years and the planned investment programme from R110bn over five years, to over R300bn over seven years.

This an average increase from R22bn a year to about R43bn a year. In addition, 55% of the investment will be used for qualitatively new capacity to support growth. In the previous programme only 30% was used for new equipment.

Transnet management has put considerable effort into improving operational efficiencies. A 24-hour, seven-day national command centre has been introduced to plan, resource and manage the movement of trains across the country. A scheduled departure system has been introduced in general freight. The results of management’s focus on efficiency are spectacular.

Year-on-year efficiency measurements have improved on average by 17%. Volumes on rail have grown 7.3%.

New weekly records have been set and then improved upon for both the coal and iron ore lines. These productivity improvements have allowed some of Transnet’s key customers to expand production with associated increases in employment and exports.

To support the focus on productivity improvements on our logistics system, the department has invested substantially in the National Corridor Performance Measurement Project. This is an information technology based intervention to measure the operational efficiencies of different processes along key logistics corridors to identify areas for improvement and enhance collaboration between different players on the logistics chain.

In response to President Zuma’s call for a lower price increase this financial year, the department and Eskom worked on the proposals to reduce the increase such that it achieves a balance between the interests of the country, the industry and Eskom and its credit providers.

A revised price increase giving back more than R11bn to consumers was developed in line with the energy regulator’s processes, and was approved and announced on March 15. It is expected that the tariff reduction will filter down to the different sectors of the economy, cushioning end-users, especially the poor and vulnerable.

What is not fully appreciated is that the reduced tariff was made possible by a range of initiatives in Eskom, which resulted in a reduction in the five-year capital expenditure programme of over R70bn without sacrificing any objectives of the programme.

This process included a comprehensive review of all capital projects to effectively prioritise and identify savings through better planning, scoping and prioritisation, through more effective sourcing and contracting and through faster delivery.

In addition, Eskom’s management has put considerable effort into improving the cost, speed and effectiveness of maintenance processes and into optimising outputs from each power station.

I wish to emphasise the importance of the effort both Eskom and Transnet have put into building their capabilities to manage and leverage the procurement of large capital projects and complex capital equipment to get both value for the enterprise and drive an industrialisation process in their supply chains.

After a 20-year gap in investment, the two companies and many of their national suppliers have been on an extremely steep learning curve.

Although certain projects have fallen behind schedule, I am comfortable that the programme as a whole is on track and that contingency measures have been put in place between the state-owned enterprises and their key suppliers to bring the delivery of delayed projects back to an acceptable and predictable timeline.

Eskom and Transnet are building capacity to implement and leverage projects of a scale and complexity that is beyond the capability of any other organisation in South Africa.

Towards the end of May this year, Eskom will perform pressure tests on one of the boilers at Medupi, the first step towards finishing the commissioning of the first unit there over the next 12 months. This is a significant step towards ensuring that we have first power at Medupi by 2013.

At Ingula, most underground tunnelling work is almost completed. The upper and lower dams are completed and by 2014, Ingula should be completed.

At Kusile, the first boiler is going up and we are on track to have the first unit coming on stream by 2014.

We are in the process of harnessing this capacity in designing a programme office for the Presidential Infrastructure Projects to ensure that we achieve high levels of coordination between the multitude of different stakeholders that will be involved in the implementation of these historic and catalytic projects.

Since the establishment of Broadband Infraco, the price of broadband has dropped by more than 80%, which is testimony to the importance of the government’s presence in this sector to prevent abuse of monopoly power.

Over the past year, the department has focused on bringing stability to Infraco’s management and business processes. This has been achieved and the company is now poised to coherently and efficiently roll out its network to enhance access to broadband capacity in both developed and under-serviced areas.

There are various opportunities and partnerships we are pursuing in and with various provincial and metro governments.

South African Airways, in collaboration with South African Express, has been focusing on building its network in Africa.

Earlier this year, when he opened the Dube trade port in Durban, the president made some significant announcements about this.

It will support continental trade and economic integration.

To remain competitive, SAA will need to replace its wide body aircraft, mostly used for intercontinental flights, in the next few years with more fuel efficient aircraft. This will require a capital injection to pay for the aircraft and to put SAA on a firmer financial footing.

This investment into SAA will be money well spent. The state should provide security of supply of international air travel into South Africa, given the highly volatile nature of the industry and our location as a relatively small country on the southern tip of Africa.

SAA’s statutory mandate requires it to provide reliable and extensive air transport capacity and air links with South Africa’s main business, trading and tourism markets in African and other emerging markets. It is also required to contribute to key domestic, intra-regional and international air linkages.

The state intends to retain it as a national carrier – an African airline with global reach.

Of course, this is not a blanket mandate for the airline not to be profitable, as we expect it to achieve more strategic profitable routes into each of the major continents linking to key cities and their airports.

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