Hogan on Eskom, Cronin on the roads

Transcript of infrastructure development cluster briefing, March 1 2010

Transcript of Infrastructure Development Cluster Briefing, following a statement by Transport Minister Sibusiso Ndebele at Imbizo Media Centre, Cape Town, March 1 2010

Panel: Sibusiso Ndebele, Minister of Transport, Barbara Hogan, Minister of Public Enterprise, Jeremy Cronin, Deputy Minister of Transport, George Mahlalela, Director-General of Transport.

Questions and answers

Journalist: Just a couple of clarifications: the first is that on page 7 you refer to spending 18 billion on road and 23 billion on the Gauteng freeway. I wonder it that can be right is that 23 billion on the freeway and 18 billion on roads in general.

Secondly you say twice the Cape Town Airport - does that mean that we have to put up with it as it is the rest of its existence, it really doesn't seem complete to me. You travel a lot more than I do - I presume you're aware of this. There is another numerical report of Kusile on its way to become operational in 2009. Is it operational or not operational, is it this year or next year.

Jeremy Cronin: Michael spotted the gremlin that crept around the port of Kusile getting ready beginning its operational face in 2009; it was a gremlin that crept in. The beginnings of operations at the port Kusile came with the first vessel that docked. The operational side is not completed, so you right with that. In terms of the road-spend, basically 23 billion is the multiyear figure for the Gauteng freeways, in addition 18 billion is being spend on roads nationally in this financial year.

We are aware of the Bus Rapid Transit (BRT) that is underway, the parking is still a problem. There is massive progress on the airport building; it is completed or near completion, and the first plane should land there in May this year

Journalist: On page 14, the sentence under broadband roll out, It says the cluster will be increasing penetration from 2% to 5%. I don't understand that sentence are you talking about percentage of population or geographical area.

Then just set top boxes - when will we see the first manufacturing begin for digital migration. Can you give us some idea on the update on the upgrading of the Infraco that took over the transfer from Transtel that is becoming a bit old right now. Can you give us some idea how much it will increase by. Also Infraco percentage in the West.

Tiyani (Department of Communications): With regard to your question of 2%/5% the current information that we have on the research we conducted, is that only 2% of South Africans use broadband, We aim to increase it to 5% and with regard to the set top boxes, it also a matter serving before cabinet. The document is ready, Cabinet will look at them after which they will make comments, and get on the process of manufacturing.

Journalist: Minister Hogan just shortly after the budget the Director-General (DG) spoke about the renationalisation or review of state-owned enterprises and that you were part of that process. Could you just elaborate where we are with that review and speak to some details.

Then on page 12 it says here as a result of Eskom build programme it is estimated that 40 000 direct construction jobs will be created and then it speaks of 160 000 new jobs direct and indirect. Are these new targets and where do they fit in with the overall job target - that is for any of the other ministers. Could you also give an update on the Expanded Public Works Programme, the job opportunities that supports the 97% target that the President spoke of. I'm not sure how we got to that total given the problem we have with municipalities and the Expanded Public Works Programme

Barbara Hogan: The question on the inter-ministerial - we‘ve done work on the terms of reference and the Minister and I are about to begin the review. .

On the question of the job target, this isn't the Public Works target. You must clearly distinguish between the two. These are not just job opportunities, these are real jobs on site for construction in Eskom. The construction in the Medupi construction alone is the biggest build in the southern hemisphere. When I went to visit the site recently there were 5 000 workers on site. You find that the local unskilled labour is being recruited entirely in that area round Lephalale, and it is a huge amount of people that has been employed. When we talk about 40 000 jobs it's 40 000 in real construction work and 160 000 jobs that are indirectly created as a consequence of that. On the Medupi Power Station for instance finally 1 000 jobs will be created for the operation and maintenance of that project. The Extended Public Works Programme isn't really part of this cluster, it relates to the social cluster where jobs are created into infrastructural investment. There is a small extended public works programme in transport around road creation and maybe the Minister wants to speak about that.

Journalist: If you could just give a more details on that review process. You just talked of the terms of reference, or are you not able to say.

Barbara Hogan: We will be reviewing performance and financial performance as well and we are making recommendations to Cabinet in that regard. I'm not certain of a time frame and I don't want to commit at this stage - remember we have over 200 parastatals in our stable.

Journalist: Minister if I can ask a follow up, it's been a number of months since government announced that it would be reviewing state-own enterprises and yet the targets haven't been finalised, the dates haven't been finalised. The state-owned enterprises are supposed to be a key economic driver in the country and we have the President speaking about the problems, we had massive lobby groups speak about the problems, we have calls for boards to be scrapped, it doesn't seem any work has been done in this regard.

Barbara Hogan: You are very incorrect. A huge amount of work is being done individually by government departments that are responsible for the different state-owned enterprises. The review doesn't replace the ongoing shareholder responsibility. Please do not confuse the review with share holder management. Secondly the Minister of Finance and myself have both been involved in budget processes, we had the budget meeting, policy statement and these, but now the budget process is finalised we will be able to move forward on these.

Journalist: Just on that will the review include the update on state-owned enterprises. Is there a concern by Government over the extent of the guarantees and the repeated payouts? I understand from the Minister of Energy that the Department of Public Enterprises (DPE) is involved with the funding options for Eskom?

Barbara Hogan: The question of the funding options is very important for Government, as you can see from the Infrastructure Cluster we are engaged in the biggest infrastructure investment that this country has ever seen, and one of the biggest infrastructure investments in the world. The funding options then becomes the important issue, how is this done and I think we have seen this in the Eskom Build Programme that loading onto the tariff the Capital Expansion Programme has enormous consequences for the country, So that definitely is going to be one of the issues that the Inter-ministerial Committee will be looking at.

But it would be incorrect to deduce from that, that the funding for the present Infrastructure Investment Programme is not there. That has been secured and that is going forward as seen in the budget. The extended guarantees, Government do not extend guarantees if it's not able to back that guarantee up. The Assets and Liability Unit of the National Treasury is very careful around the guarantees and you can sit in endless guarantee meetings with them and they are very careful not to overexpose - in terms of contingent liabilities - South Africa to the guarantees, so we are very confident that the guarantees that we have given we can meet.

The question of bailouts, it's become a catch all phrase and I just want to clarify this. Government is a shareholder. Normally shareholders provide equity to provide for capacity expansion, for all manner of operations. So a company operates on equity and borrowings and they operate on retained earnings. A bailout is when a company is going insolvent and you bail it out as the whole of Western Europe, America and north America, United States have been doing this constantly on scales that South Africa could never exemplify. A 60 billion investment in Eskom is not a bailout, that is Government contributing towards Eskom's infrastructure build. If you look at Transnet for instance, all their lending, all their investments which is the biggest investment Transnet has ever made and a massive upscale, all of it has been done off their balance sheet; they haven't asked Government for extras. There are instances where Government has had to bail out and assist. I think the issue with the funding model is if Government is a shareholder what Government is then required to bring, is an equity partner and I think this is one of the issues that state-owned enterprises are raising with us and they are saying what recapitalisation can we expect from Government given that they can't issue shares on the stock exchange. You are on the cliff edge when you call something a bailout when it's a recapitalisation. Certainly those are the big issues that this Committee will have to be looking at.

Journalist: Two aspects I want to follow up on, one was the review. President Zuma said he has a final solution for the state-owned enterprises which will solve their problems forever. Has he shared that with you, can you tell us anything about it. The figures will now have to change in the recent announcement by Nersa. What do we expect on that, what can you tell us about that? What recapitalisation can Eskom expect from Government? Is that still in discussion the idea of further recapitalisation?

Journalist: There was an issue that Eskom had two political heads / ministers. I just want to find out if that is also part of the review.

Barbara Hogan: The Nersa ruling - we are examining it and I do not want to comment too extensively on it at the moment until we have had a good opportunity to examine its consequences. What the Nersa ruling does, is that it allows Eskom the requisite income revenue for it to be able in its operations as they stand at the moment. We all know that the tariff has been very low and Eskom has seen a dramatic plunging in its revenue from 1991 until now because the tariff was kept so very low. So Eskom has not even been able to meet its operational expenditure because the revenue was simply not able to cover it. With this in increase it will be able to cover its operational expenditure but what was loaded into the tariff was also part, and I stress only part, of its Build Programme going forward. The other part was funding, that Build Programme going forward is borrowings and Eskom had projected that they would borrow R123 billion over the next three years, Government would give R60 billion and Eskom was hoping to recover the remainder of that out of the tariff.

Now we will need to make a judgement call as to how much of the Build Program will now be covered by that tariff and then will have to make a judgement on how that will affect Eskom's Build Programme and what will be done in order to mitigate that risk. At this stage Eskom asked for 45%, they revised their application to 35% and now they have received 25%. So from the original application it's gone down 20% so obviously there is a serious implication for Eskom going forward, so we will be dealing with those issues.

The recapitalisation from Government, that will be part of the discussion. But bear in mind that the Build Programme at the moment has built in its operational costs, and now incorporated this will go up to about R486 billion. What is our national budget, it's about what - roughly 700 as a country, this is significant expenditure. If we are asking from some quarters for Government to fund the Build of Eskom you are asking Government to essentially provide two thirds of its entire national budget to one company to build energy going forward, we can't do that. And that is why Eskom is borrowing, but there is also a limit on Eskom's balance sheet for borrowing and so we will have to be looking at this. But the important issue is which is what I think many of us are looking at here is the involvement of independent producers? We can no longer I think in the future regard Eskom as the single provider of energy in the country. Eskom is very shortly due to sign some co-generation contracts so those companies that are already generating power, SAPPI, Sasol those kinds of companies will be signing co-generation agreements with Eskom to provide additional power.

The Independent Power Producer's Framework is virtually in place for Eskom now to purchase power from within the country from people who will be building generators, power stations as well as from outside the country. I think we are facing the fact that a Government parastatal is no longer in a position to provide total energy for the country and we will be looking to supplement that energy from independent power producers providing power from whatever source, renewable and coal going forward. Eskom has never had two political heads; the Minister of Public Enterprises has always been the Minister of Eskom. But the Minister of Energy plays an overarching role on energy; the Minister of Energy is responsible for ensuring the security of supply of energy. So that Minister would have a close working relationship with DPE and with Eskom given the centrality of Eskom's role in the economy and in the provision of energy. I have had discussions with the President on this matter and there is going to be an alignment of his measures with the Inter-ministerial Committee.

Sbusiso Ndebele: Thank you very much I think it's a matter that we have addressed a lot but I think basically as a country this cluster in particular is charged with the task of moving us from underdevelopment to being a developing country to a developed country and the criteria for that is infrastructure.

Is there water, is there road, is there energy and that is what defines whether you want to reside in a place or you want to invest in a place that defines whether the place is worth going to or not. One of the key challenges therefore is to maintain the first class infrastructure that exists in South Africa, particularly the road network, you want to maintain that and expand it; at the same time you want to reach out to that areas that don't have that infrastructure so that it becomes a programme to then bridge what we call the first World and the second economy so that whether we are first World or a second economy you have the basics, you have clean water, roads and energy because without those as a human species we are not going to survive.

In the provision of road and other infrastructure particularly in the second economy you then employ the Expanded Public Works Programme - we have done that quite a lot as a country in several provinces. We have done in KwaZulu-Natal, Mpumalanga and Eastern Cape to ensure you don't necessarily have to bring sophisticated machines to construct roads when you can actually do it through Expanded Public Works Programme and employ more people, both in the construction and the maintenance.

We want to be measurable, we want to say here we are 2010, where are we going to be in terms of the provision of that infrastructure for 2012, where are we going to be by 2014, its quite measurable to say we must have reached all the public facilities like schools, clinics and communities. There should be no communities without these facilities and therefore you want to measure that and say in two years' time we should have reduced this by such a percentage and by 2014 we should be here, generally that is our thrust.

Journalist: A follow up on the issue around world class road and bridges. We have had a situation of Limpopo where a senior person in the African National Congress' (ANC) company is linked to the building of bridges. A newspaper reported that those bridges have collapsed, can the Minister explain if he has been in contact with the province regarding the quality of the services provided there?

Sibusiso Ndebele: Not yet, it's a serious matter, roads are a responsibility of the national Department of Transport, provincial departments and local municipalities all those have original powers as far as building of roads is concerned. We do have this overall task of ensuring that standards are maintained in our country so that a road should be a road whether it's built by a municipality, a bridge should be a bridge whether it's built by a municipality or a province or national. So we will be looking at what has happened there.

Journalist: Any indication what the total megawatts of the coal generation that Eskom will sign? Also, when do you expect the decision to be made on the Kusile 30% private sale, I see you paper mentions June 2010, is that when you expect the final decision to be made?

Journalist: On the Independent Power Producers (IPPs), when would you think that coal generation will actually materialise? And how will the price be set, I mean at what price is Eskom going to buy that. To the Minister of Transport it seems you are saying roads have been underfunded by the tune of R50 billion, what is the solution?

Journalist: It seems as if the mechanism at national level is working in having a National Roads Agency and the toll road system. Is that a recipe for provincial and especially local government where the roads at local government seem to be by far the worst and what is the funding mechanism if it is not that?

Journalist: Your statement says the Inter-Ministerial Committee (IMC) will present its findings on protection of the poor from the impact of the electricity price increase to Cabinet in June 2010. Does that means the poor will pay the same increase price as everyone else for the interim? I notice your press statement is silent on the growing concerns around reports that the African National Congress (ANC) front company, Chancellor House, is set to benefit financially from the Build Programme. Surely you have something to say about this as leading members of the ruling party, I mean there is quite a backlash against this from people who can't afford to pay for electricity as it is.

Barbara Hogan: On the coal generation we anticipate about 1 143 megawatts coming through on coal generation, we are also anticipating that it's going to be signed very shortly, within in this month.

One of Nersa's rulings has allowed for Eskom to pass through the cost of that coal generation so at least Eskom can now move on coal generation going forward.

The question of mitigations for the poor, you would have seen in the Budget, about R6.2 billion budgeted to assist with the mitigation for the poor around electricity. What we are doing is a re intensive study in the IMC around how the poor and the impact on different income groups because it's not only the poor, it's people who earning salaries like teachers, nurses, police, they are also affected by that so it's a study to see the differential impact, so mitigation for the poor goes ahead.

On the Chancellor House, I'm not certain of the kind of question you are asking. Are you referring to it because Chancellor House is one of the companies that is part of the Build Programme that costs have increased? Is that the suggestion?

Journalist: I mean the African National Congress (ANC) Treasurer General said in the end of 2008 that he was going to divest Chancellor House from its shareholding in Hitachi Africa because obviously it's a conflict of interest. How can the public be sure if the costs of that power station go up that they can actually rely on that being genuine? It could be that more money needs to find its way into the ruling party's coffers, people might have that perception. As Ministers surely you are aware of that, I mean what do you want to say to the public about that.

Barbara Hogan: Firstly as I understand it, Chancellor House is a minor subcontractor but you know the question of the disassembling of Chancellor House must be directed to the Treasury General, it's really not for me to be answering on those. Quite certainly if a small subcontractor is able to escalate the costs of the Medupi Project which is a massive R200 billion project, I would be very surprised, but if you do have evidence in that effect we will certainly be open to it, but it's a very small part of a huge contract.

Journalist: Sorry, just a follow up, are you not aware that there is a big public perception out there that this is a massive conflict of interest?

Barbara Hogan: A conflict of interest in the sense that the ruling party benefitted from this thing? Yes certainly, it's not desirable but as Mr Phosa himself has said, shutting down the Chancellor House thing is one of his projects and I would imagine that he would have the same view on this, but this was a contract that was established two or three years ago, so you know I'm not certain if you are requesting us now to cancel that contract. I'm not sure.

Jeremy Cronin: We do acknowledge in the statement a major challenge on the road network. That doesn't imply there is no maintenance backlog. There are some challenges on the national road network and certainly as the Department of Transport we are quite proud of the role that the South African National Roads Agency Limited (Sanral) plays as an effective agency, it's one of the really good agencies under Government and generally we have wonderful national road network which visitors to our country often remark favourably about.

However, the problems do tend to occur at a provincial and municipal level and the reasons for this are several. First of all there is underfunding, not as seriously as I've seen some news reports suggest, I have seen figures of R120 billion, R130 billion, R170 billion. We asked Sanral to do a national survey and the figure we have here is R64 billion for the totality of roads in our country. As you fall back from one year to another the conditions of the road gets worse and they deteriorate quite rapidly. So there is a big challenge here, part of an answer is to get more funding and every year we try to do that but as a Department we understand that there are many pressures on the Budget.

We have spend a lot of infrastructure and road infrastructure spend ahead of the 2010 World Cup on the major cities and after hosting the World Cup we can begin to shift both in terms of infrastructure but also public transport spending in general, operations and so on to focus much more on smaller towns and rural areas. So hopefully we can divert some of the spending in that direction, hopefully we can get a little more out of Treasury because Government is very committed to this infrastructure spend and one was very interested to hear the Minister of Finance in his Budget speech say that this has been our principle measure input and it has seen us through reasonably well through this major global recession.

The Minister of Finance has said that our commitment to this infrastructure spending is not over because hopefully the recession was over although he mentioned the possibility of a w rather than a v when it comes to future prospects globally and locally. There is this commitment and therefore I think post 2010 much of the infrastructure spending on the transport side has been 2010 related, airports and so on and hopefully we can now begin to focus on some of the other critical areas of infrastructure including municipal and provincial road infrastructure.

The question about learning something from the Sanral example, to be applied at provincial and local level. There is a provincial road agency established a few years ago, it functioned quite well and it was established on the Sanral model for the provincial level but if one wants to believe newspaper reports then there seems to be some challenges there in that provincial road agency. So the model is not necessarily the golden solution, one needs a good professionally run and clean road agency whether it's a provincial or national level. The agency issue then relates to two things the capacity to project manage because the construction is contracted by private companies and that means the State has got to have the capacity to not just spend money and award tenders but to be able to manage effectively and monitor that. I think SANRAL has shown an ability to do that and what is quite interesting is that Sanral's road network has increased to 16 000km and it's due to go up to 20 000k m and that is partly because it's signing memorandum of agreements with a number of provinces to also assist them with project management on some of their road maintenance and construction.

The whole area of tenders is a massive challenge and there is a lot of money devoted through the Budget either nationally or at sub-national level in one form or another and it simply doesn't hit the tar or becomes very shallow and that is partly weaknesses in the ability to project manage but there are other challenges as well and we need to look at the dangers of corruption and so on in this area.

The other difficulty is that much of the allocation for roads at the sub-national level is just on the equitable share basis and what we see with this infrastructure and other forms of infrastructure as well is that allocations for roads for instance ends up addressing some other provincial crisis, salaries or whatever and so we are discussing with treasury how we can effectively move to ring fence funding for instance road infrastructure and other forms of infrastructure.

That has worked very nicely with what's called the Public Transport Infrastructure Systems Grant which we have used for the 2010 infrastructure so we have related directly to cities and we are pleased with what Cape Town is doing, what Johannesburg has done and so on with this dedicated ring fence funding for infrastructure and the BRT and other Integrated Rapid Transit Systems.

It's a very important challenge and of course it's not just about spending, spending effectively, efficiently and without corruption in the system, there are also other challenges and a key problem on our roads is the massive migration of freight, very heavy freight onto roads and it's freight that should be on the rail system and this is where we are working very closely with our colleagues in the Department of Public Enterprises because we have to improve the Transnet Freight Railway System and they are committed to that and in the report you will see that.

Sometimes certain forms of freight are more efficiently carried on road but we need to get much more freight back onto rail. Heavy trucks on our road system is one of the main reasons for the damage to our road systems and when we come to the big power station build we are going to face challenges in terms of getting coal to power stations and what that does to infrastructure, so that's another discussion we are involved in.

Journalist: I don't know which Minister will answer the questions on water. I see that a R195 million is allocated to upgrade the waste water treatment works. The Minister of Water Affairs said about a month ago only 33 of our waste water treatment works are actually 100% operational and functionally correct. Is this enough money to upgrade the waste water treatment works? On page 3 the Minister said in the current recession the cost of borrowing may impact negatively on water tariffs, what does this mean are we going to pay more for water? If so when and what can we expect?

Journalist: Hopefully a lot of tourists here for the World Cup will want to go to the Cradle of Humankind and apparently there is raw sewerage flowing in the river through the site. People have predicted that the next pothole crisis is actually the maintenance of waste treatment plants and their upgrading and modernisation. Could you add that to the mix?

Journalist: Minister of Transport regarding the taxi industry and the World Cup, have you reached any agreement with them on what their role will be during the World Cup?

Sbusiso Ndebele: We are working very well with the taxi industry SANTACO as well as all the operating associations UTAF. You saw last week that there were strikes in Johannesburg, we were able to intervene together with the province and the city. Generally there is an understanding that matters should be solved jaw to jaw rather than fist to fist so there is a good understanding. The experiment of the Confederation Cup was actually very good because we employed the taxi industry to work with all the other modes, the Passenger Rail Agency of South Africa (PRASA) on the one side and the bus industry on the other side and the taxi industry and it worked in a seamless manner, everybody was a winner out of it and we want to repeat that. So the taxi industry I don't think should be an area of concern.

Journalist: After the President delivered his speech a few weeks ago he said that there will be performance agreements signed with the Ministers, Chabane told us that the details of what you agreed on will be given to us during the briefings but I don't find a sense of that in this document. He said that the Ministers will give us the answers to those questions.

Sbusiso Ndebele: There is a process underway and all of us are going to gladly sign those contracts with the Presidency. In my other life we signed with the Citizen's Charter where each community knows what to expect and by when, so its under way and its going to make our life easy because everybody knows what to expect.

Statement issued by Government Communications (GCIS), March 1 2010

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