Tag Archive | portfolio committee on public enterprises

SAA turnaround plan involves flight changes

A strategy that can be achieved…..

SAAMonwabisi Kalawe, the newly appointed CEO of SAA, told parliamentarians that that the new long term strategy for SAA, four months in the making, “is within the reach of SAA and that a turnaround in the fortunes of the national airline can be achieved.” His subject was the SAA annual report, Minister Gigaba having introduced him and endorsing the turnaround plan.

Noting that the twenty year long-term turnaround strategy (LTTS) had no financial figures attached, a fact questioned by MPs a number of times, Kalawe responded with the reply, “Since we are still deep in discussions with national treasury and matters relating to guarantees and estimates of cost, it would be both ill advised and premature to discuss numbers. We are still in the middle of a bid to recover the balance sheet.”

Public Enterprises “comfortable”

Both the new CEO and the plan itself were introduced by the minister of public enterprises, Malusi Gigaba, together with the chairperson of SAA, Duduzile Myeni, both of whom said they were also “comfortable” with the plan.

The strategy plan, Kalawe said, had been drawn up in time to meet an April 2013 deadline in production and was approved by cabinet in August. MPs noted that in the last few years, no less than nine strategic plans for SAA had been presented to Parliament costing many millions of rands.

The consensus of opinion from MPs was that SAA’s new plan looked hopeful, particularly bearing in mind that no less than seven outside groups had been used in this round of consultations and other international airlines had also been contacted for opinion.

New routes on flight plans

The minister said he had instructed that a “new route network had to be designed and that SAA’s procurement programme had to be re-thought out. An “Africa” strategy had to be evolved, fully cognisant of the facts that the airlines market was characterised by low margins, constantly increasing fuel costs and changing geo-politics.”

“There has to be a turnaround in the fortunes and profitability of SAA and any strategy had to be a holistic document that is both aimed at developmental needs and financial accountability to the shareholders”, the minister concluded.

Kalawe said that on analysis SAA had an “impeccable safety record” and that technical needs of SAA were to be contracted out to Denel and that this would allow that state body to build its services throughout Africa.   He said that an assessment of SAA had indicated at present high cost factors running the airline that were intolerable; “a sub optimal capital structure” and he described the airline as having been run on a “value destructive business model”.

Re-branding on the way

“South Africa”, he continued, “was a long way from market centres and there had been a failure in the past to recognise the geographic situation”.  A new group would be formed to handle the SAA brand and information technology, updated to compete properly in the international market, Kalawe told parliamentarians.

Savings of R100m this year would be effected, he said, and a complete review of all non profitable routes debated with government departments to establish what was necessary in the national interest and what could be discontinued. Emphasis would be on developing cargo carrying in Africa, localised regional sub-Saharan traffic. Mango would open a service to Zanzibar.

Voyager to be tackled

Kalawe noted that the new LTTS would focus on a sustainable economic future for SAA and said, “We have set up a body that will track the implementation of our strategic plan”.  He said the Voyager customer service division was undergoing major changes with various customer improvement, aviation being a key developer in the National Economic Plan, supplying as it did some 35,000 jobs and R6.8m to GDP.

The financial controller of SAA admitted there had been too much “ad-hockery” in the past with regard to decisions on routes, “with an ambassador always somewhere in the globe calling for an SAA service to their area”.

Three in one

From now on, Kalawe promised MPs, there would be on-going focus on cost efficiency and the creation of an integrated group by combining SAA itself; Mango as a low-cost carrier; and SA Express as a regional operator; all into one cohesive unit serving the globe and particularly Africa. “However, it could take us well into next year to sort out both the business, loan and legal implications of such a move”, he concluded.

Minister Gigaba finally noted that a “re-worked route network” would be completed in stages over the next twelve years, having established priorities with government policy but the next stage was to satisfy Treasury with a long term and sustainable budget before any major capital injections would be considered.

Neither party would be drawn into any form of discussion on such costs.

Refer previous articles in this category
http://parlyreportsa.co.za//cabinetpresidential/aim-prc-report-connect-tiers-public-service/
http://parlyreportsa.co.za//cabinetpresidential/public-enterprises-reports-on-a-rocky-and-controversial-year/

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Public Enterprises reports on rocky and controversial year

Minister  Malusi Gigaba, introducing the debate on the department of public enterprises (DPE) 2011/12 annual report, said. “We have a dual role as government departments and utilities because we have to build an understanding of why our state public enterprise components do certain things operationally and why they do certain things as a result of government policy.”

He thus indicated that at times the two may be at variance and underlined DPE’s role in harmonising the two.

He said that one of the biggest issues currently was to monitor the oil and gas companies in order to bring together a common strategic picture and obtain a better picture with data of the situation. This was the last time oil and associated products and gas were mentioned in the entire presentation, matters relating to Eskom and SOEs being of main focus.

Minister Gigaba said “Another issue is that we have had to ask certain utilities to go beyond their own plans in order to meet certain national obligations, especially bearing in mind the infrastructure programmes being embarked upon throughout South Africa.”

Minister Gigaba said that human resources issues have been at the forefront especially bearing in mind the lack of skills acknowledged generally as a national issue and in many cases obstructing SOEs from reaching the objectives set.

On objectives and targets, he was referring the measurement processes set out in the DPE annual report now assessed by the department of performance, monitoring and evaluation (DPME).

He commented that the environment on which SOEs are now operating had changed completely and were continuing to evolve almost daily. He also referred to the challenge of cost increases and marketing conditions that accompanied this.

“DPE has worked closely with all SOE’s to ensure accountability and oversight meetings are held at least twice a month”, he assured parliamentarians. “This is a robust programme in terms of meeting DPME requirements and is geared to see how all SOEs are responding to current conditions”.

But he asked that treasury in future consider an enlarged budget for DPE due to its expanded mandate as “change managers”. The total staff complement of DPE is 189 persons.

DG Tshediso Matona placed each of the DPE portfolios activity in the context of the current economic picture, which he said was important to reflect upon before one considered both the delivery service picture, an internal issue, and also matters of concern which were national issues.

Real fixed capital expenditure by the public corporations gathered great momentum during the period under review as Eskom and Transnet accelerated their spending, he said, and which was “further crowding-in private sector investment”.  He was not asked to explain this by MPs.

Capital investment went up to 560bn; most of the increase of 9% over the previous year of R520bn occurring in the fourth quarter.

During the last year DPE focused on oversight practices;  the business of stabilising the SOEs in terms of the changing economic picture;  and looking at funding options – all the time constantly reminding the SOEs that by driving fixed investment they were unlocking economic growth.

Joint project facilities between all SOEs, particularly in the area of common procurement, had been a focus of DPE during the year, and also the issues of skills training and development. Transnet provided some 3,500 engineering-related learners and enrolled 854 new artisan learners. Eskom trained some 5,400 learners, of which 4,200 had an engineering leaning and 1,066 new artisans. SAA enrolled 254 learners, Denel 229 learners, and Infraco, Safcol and SAX had together added 191 learners.

In terms of delivery service agreements and targets, Tshediso Matona said that DPE had “largely delivered on all shareholder management functions, including signing of shareholder compacts, delivery of strategic intents and quarterly reviews as called for under the PMFA.”

Exceptions where delivery did not take place were that a shareholder contract for Infraco was not signed, since the new board stated it required more time to assess the situation and this was agreed to, and a review of South African Express was not completed on time because of a necessary restatement of financials.

In the area of energy and broadband enterprises, Matona said that achievements were the approval of Eskom’s medium term maintenance plan and implementation of the “keep the lights on” programme.  An R350bn government guarantee was confirmed for Eskom and 76% of the funding for the New Build programme is now in hand. At this stage Eskom had added 535Mw of generation capacity for 2011/12 and 631km of transmission lines.

Transnet for 2011/2012 had upped iron ore transits to 1.22m tons and coal to 1.6m.  Overall efficiency was claimed by DG Matona as being up 17% on the previous year. Procurement of rolling stock had started and a consignment of 95 locomotives.

SAA, which came under considerable questioning by MPs, had worsened insofar as the financial position, although five additional African routes to Ndola, Kigali, Bujumbura, Pointe Noire and Cotonou had been launched and SAA saw such Africa routes as a future area of expansion. Additional African services to Zambia, Zimbabwe and the DRC were working out of King Shaka.

Major problems in an overall sense mainly boiled down to rising fuel costs, increased international airport docking facilities and strong competition, parliamentarians were told.

Both Minister Gigaba and DG Matona responded to a barrage of questions on staffing issues at SAA and loss of market share to other airline competitors but such questions were continued out of parliamentary time and are adequately covered in the media. The minister admitted to MPs that he had been caught short by all the resignations on the SAA board and was “flabbergasted” to hear of some of the reasons.

He said the guarantee which was being obtained for SAA for future funding should, in his opinion, come attached with a requirement for a new strategic plan and a plan for a complete overhaul of the airline. A diagnostic overview of SAA is now being obtained, he said. “A consultant’s report, given to us in September, is being incorporated.”

Minister Gigaba added on the subject of SAA,”We need to work around the clock to achieve a better situation and we are addressing the staff to allay their fears. The long term vision and strategy to be produced must include a procurement plan and a network design incorporating more of Africa.

An experienced task team has to be assembled to facilitate a strategy, not try to do it themselves”, he told parliamentarians in conclusion.  He admitted that there had to be a clearer distinction between the SAA board and its management team.

On general DPE issues, key areas where targets were not achieved by the department, said DG Matona, mainly lay in the area of Denel where the defence plan had not been finalised therefore stultifying any progress; Safcol, although the balance sheet had improved; and Transnet where its branch line roll out programme (on freight issues) had been held back.

The Ngqura container terminal position had not developed, neither had a national freight network plan been concluded.  Also, a major issue was the future of Eskom and the IRP2 plan.

Posted in Cabinet,Presidential, Electricity, Energy, Finance, economic, Fuel,oil,renewables, Land,Agriculture, Mining, beneficiation, Public utilities, Trade & Industry, Transport0 Comments

Transnet doing better but resists carving up its assets

Loans a major feature of Transnet balance sheet………

Brian Molefe, CEO of Transnet, on speaking to the  portfolio committee on public enterprises, noted that already South Africa’s freight volumes were threatened by the euro-crisis and Transnet could not absorb this and any other threats, such as reducing its asset base “ if it was to continue without re-negotiating with its lenders.”

Anoj Singh, acting chief financial officer, Transnet, earlier this month, told the portfolio committeethat the rail containers portion of its business was of “ significant focus” and volumes increased by 13.2%, and market share increased to 34%, representing a significant shift from road to rail.

Its general freight business grew by 2.2%, despite a loss of volumes due to industrial action, cable theft and rolling stock related faults. Overall productivity and service were of concern, Singh noted, and delivery turnarounds had deteriorated from the prior year, but measures have been promised and now put in place to turn that around.   Domestic coal volumes grew by 12.4% despite operational challenges and a key focus area for the next five years was to meet Eskom’s domestic coal requirements. Magnetite volumes increased by 3.7 and export manganese volumes increased by 23.1% compared to the prior year.

CEO, Brian Molefe, said that export coal volumes (62mt) reflected marginal growth, but overall productivity and service delivery deteriorated from the prior year, mainly due to the impact of industrial action as well as rail infrastructure problems and operational challenges.

Export iron ore volumes (46.2mt) increased by 3.4% despite an unprecedented number of derailments that resulted in lost volumes and impacted on operational performance levels. Ship loading rates increased at 9.7%, due to the successful implementation of dual and staggered ship loading process installed at the Transnet iron ore terminal .

Concerns were raised by parliamentarians regarding on-time departures and arrivals of freight and their impact on productivity and efficiency, noting that the number of delays had risen according to figures presented.   Mr Molefe responded that the general freight business, by and large, had improved dramatically over the past year. There was a 7.5% increase in containers on rail last year and, for the first time in the history of Transnet, more than 200 million tons of commodities were transported by rail. Over the next seven years, R200 billion of the R300 billion that Transnet was spending on capex would be going into rail.

There was a 1.5% increase in petroleum volumes from the prior year, despite the constraints presented by the existing Durban-Johannesburg pipeline and Transnet spent R21.5 billion on capital investment, with the biggest portion in the rail and pipeline sectors. 94% of the planned spending was achieved.   MPs asked what the future plans were for the Port of Ngqura, and how the Eastern Cape would benefit from that. Molefe responded that there had been a decision to establish a manganese terminal at the Port of Ngqura, with a budget of R300 million.

This would be developed as the transhipment hub. Manganese was currently exported through Port Elizabeth, but would be moved to Ngqura. Cranes and equipment were bought, and paving was finished. Transnet had recently negotiated more transhipment traffic for the Port of Ngqura from Europe.

Brian Molefe said that in order to foil piracy off Somalia, some of the larger world sea vessels, consuming a great deal more fuel to do so, were travelling at high speeds using a Mediterranean Sea to South Africa route direct and reaching the safety of South African waters with its defence frigates and aircraft, to the benefit of SA port facilities.

MPs asked the reason for the decrease in revenue in the pipeline division in 2010/1, which was some 2%.  Molefe responded saying this was largely because of industry issues and that Transnet had received less revenue than projected but that the “pipeline was ready, commissioned and functioning very well” and the situation would soon reverse.

In a subsequent meeting with parliamentarians of the portfolio committee on economic affairs, CEO Brain Molefe warned that changing Transnet’s asset base by selling of assets would change its gearing and thus its ability to finance its expansion plans.

He referred again to the restructuring of the general freight business which depending upon its ability to borrow funds and said that any plans to break up Transnet so that it became an operator competing with the private sector on certain sections of line were to be rejected, he said.

Molefe noted that already South Africa’s freight volumes were threatened by the euro-crisis and Transnet could not absorb this and any other threats, such as reducing its asset base “if it was to continue without re-negotiating with its lenders.”   The general freight business of Transnet, which depended upon its ability to borrow funds, said Molefe, was at a critical stage that any plans to break up Transnet so that it became an operator competing with the private sector on certain sections of line were to be rejected.

 

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