Tag Archive | Transnet

Parliament updated on SOE finances

…..article dated 25 August 2020……

DPE presents bleak picture…. 

As part of a portfolio committee meeting covering the status of the seven SOEs under the umbrella of the Department of Public Enterprises (DPE), new director general,  Khathatso Tlhakudi,  provided a sombre picture of the current financial malaise within the SA public sector.  However. he ended up on a more positive note with regard to Denel and SAA.    On Eskom, he said,  he would make some comment but as they were reporting on a regular basis to Parliament, he said he would not report in great depth.

On Denel, he commented that he had “a good feeling that acting CEO Talib Sadik would hold the situation until a new CEO was appointed”, saying that “we need Denel for strategic reasons”.  He said that Sadik had the necessary enthusiasm and  drive to hold the fort.

As far as SAA was concerned, DPE “had made good progress with a business rescue plan which had now been approved” which fact  he claimed was “a major milestone after what had happened beforehand”. Now it was just a question if support could be found for the plan.

Outside Eskom

Tlhakudi commented that a good deal of the problem at Eskom, other than the specifics of state capture, was that most of the municipalities were not investing adequately in their distribution networks which he said were “falling apart at the nation’s expense”.

On electricity distribution “much of the problem could be put down to bad town planning”, he said.  “As a result of an inability to provide a proper  “pay as you go” service, informal settlements had simply connected themselves to the network, resulting in overloading and continual damage.”

Another issue was that councils should not just collect rates from communities but had to also invest in those communities. Consumer attitudes had to change, Tlhakudi said. Eskom was not in a position to subsidise non-payment in infrastructure, he said. “Responsible management is called for at community level and consumer attitudes have to change”.  He looked to CoGTA to assist in bring such changes about, as well as  the departments of Human Settlements, Water & Sanitation and Public Works to play their roles more purposefully.

Not all bad

DG Tlhakudi said that an infusion of new thinking had started at DPE.  “New ideas are emerging, he said. Great progress had been made with the ports; business was flowing well through the Maputo Corridor with the export of exporting magnetite; and activities around wine and fresh produce were getting some good numbers, ” he listed.  “The story at Transnet is coming right and the Trade and Industry Committee will be impressed, despite the problems of COVID”.

He concluded that DPE was in the process of finding new ways to intervene and assist timeously in SOE and departmental problems and cut short any drift towards malfeasance and corruption with intervention from the top, on an immediate response basis.

Overview of the SOE seven

In an overview of the DPE portfolio, Ms Jacky Molisane of DPE  took MPs through the sorry picture.

In alphabetical order, she recounted that (1) Alexkor, a diamond mining business and which has been attempting to establish a diamond polishing venture down the line, had reported a loss in the 2019/2020 financial year of R63m. This was in part due to low diamond prices, not helped by corruption at management level at its mine. Its cash reserves will be depleted by September and DPE.  Furthermore, its head office is being wound down.

Denel (2), which had been in the newspapers a lot this month with attempts to save the entity for its strategic value, reported a loss of R1.7bn for the 2019/20, its equity being well below the level of R4bn required as a going concern for investors. This, despite a R1.8bn funding in the year under review.  Ms Molisane said that R576m allocated for the 2020/21 has not been passed on by DPE at this stage, since the impact of COVID-19 had resulted in more strain for Denel, the position now being fluid. An acting CEO was currently holding the fort.

Simple facts

As far as Eskom (3) was concerned, Ms Molisane, giving a short picture, saying the simple facts were that any increase in revenue would purely be mainly reflected as due to increases in electricity tariffs.  Although cash from operations might be increasing, Ms Molisane said, earnings before interest, taxes, depreciation, and depreciation were never going to be sufficient to cover increasing costs.  DPE and the taxpayer, as the shareholder, were not receiving a return on investment and the entity was a serious drain on the economy.

South African Forestry Company (4) had reported a loss of R47m for the year under review, mainly as a result of the decline in revenue and high operating expenses. A fair value adjustment saved the company from worse figures and Safcol badly needs re-investment in its equipment and operations.

South African Airways (5) has been under business rescue since December 2019 due to its declining performance and now the inability to pay its debts as they fall due.   A business rescue plan was approved in July 2020 by all creditors. Various options for raising funds were now being carried with the assistance of RMB as transaction advisor, Ms Molisane said. There was every hope that a partner would be found before 17 September.

Old story, old routes

On SAA, DG Khathatso Tlhakudi added the fact said the Department had brought in “some of the best brains, working together linked around the world to help it implement a plan mainly people who understood the airline industry.” Once a strategy was implemented for SAA, he said, DPE would be looking, first for a feeder network to sustain the airline, and then a decision was to be made as to the best way forward to recover routes.    Right now, “effort is being applied to help SAA out of the situation it found itself in”.

SA Express (6) was placed under business rescue in February 2020, Ms Molisane said, but a credible business plan was not found and liquidators called in.   With little likelihood that any expression of interest will be shown, SA Express could be liquidated at the end of September this year.

Ms Molisane then quickly touched on Transnet (7) where revenue had grown marginally by 3% to R75bn for the 2019/20 year under review but decline in demand is expected for the coming year due to COVID-19 and lockdown circumstances. Revenue at an expected figure of R78bn for 2020/21 therefore looked very unlikely. Given that Transnet would eventually get over the COVID setback, Molisane’s figures indicated a possible break-even point in the near future.

Dartboard

For three quarters of an hour, MPs from across party lines criticised DPE for its handling of a situation over the months preceding, a period in which in their view things had been allowed to get totally out of hand.    It was pointed our , however, by the DPE team that it was the system of government that was at fault as the individual boards ran the SOEs and there was a limit to which DPE could interfere.

Point after point was raised, eventually leading to a relatively sensible overview from Ghalib Cachalia (DA) who calculated that the seven SOEs were the major debt trap that had cumulatively led South Africa into its present sad state, whilst also being the home of state capture. Cachalia told DPE that they had to go about things differently, and very soon.

Action now

With a warning that SA was  “falling off the fiscal cliff”, Cachalia remarked that “tinkering around with balance sheets and expenses was getting the country nowhere” and that some new management concepts “were needed and needed urgently”.  The objectives of DPE were “to lead with vision a stable of state entities that led South Africa into new territory and uplifted the poor”. Quite the reverse was happening, he said.

Sibusiso Gumede (ANC) said the quagmire that DPE found itself in was contributed to by the inability state to intervene at any particular point, having to deal with a balance sheet problem well after the event.        He said, “Whilst it is commendable that DPE itself has shown good performance, it had to start running ‘good’ SOEs as well.  He said, “One cannot have an excellent department running ‘bad’ SOEs and we cannot have business as usual any more’.

Eskom starts internal overhaul – ParlyReportSA

Posted in Agriculture, Electricity, Finance, economic, Mining, beneficiation, Public utilities, public works, Trade & Industry, Transport0 Comments

Pravin Gordhan’s plan for ailing SOEs

……article dated 3 September 2020……

New DG explains ‘step in’ powers…..

Khathatso Tlhakudi, appointed recently by Pravin Gordhan as the new Director General, Public Enterprises, recently had the unenviable task of taking on angry MPs to explain the current state of South Africa’s disastrous public utility scenario.  It was his parliamentary initiation as the head of public enterprises, responsible for the seven government SOEs all of which currently are responsible for a drain on the SA economy.

From the start of the meeting, MPs from across party lines expressed their extreme displeasure at the performance of government-run utilities under the tutelage of the Department of Public Enterprises (DPE).     The meeting had been called to establish exactly what progress had been made and to provide an overview of where exactly DPE was headed and to hear a report back.

The state of Denmark

It might be said that in fact MPs got a true picture from the meeting as to how bad the situation was.   In presenting his DPE overview, Tlhakudi said the department had worked on a new platform “for more timeous intervention into the affairs of SOEs in future”.

This plan, he explained, was at an advanced stage and had been developed at the instance of Minister Gordhan to intervene at short notice without overtly challenging the independence of SOE boards.     Whilst obviously contentious, such a system would possibly give DPE some form of “step-in powers into the affairs of a state-owned entities where they were failing to comply according with their own frameworks, or where there were obvious material governance issues involved”.

Consequence management

The concept was demonstrated in the form of allowing for a series of memoranda of incorporation (MOI) with each of the entities, drawn up to allow a public enterprises minister to intervene in cases of  financial distress, maladministration or certain other defined instances with “step in” rights.

Certain powers would be granted to the minister, such as the ability to call for the resignation of the boards which had been appointed by Parliament and for the minister to request Parliament to re-appoint and re-task new boards after an intervention.

Before the horse bolts

If such a move was to eventually come forward from Minister Gordhan this would probably be in the form of a draft Bill, it was stated by Orcilla Ruthnam, Chief Director: Governance Unit at DPE.   Ruthnam has also undertaken an extensive study of how all CEOs and CFOs came to be appointed by SOEs in recent years and what process each board such appointments had gone through based on their qualifications.

This had been a revealing exercise, she told MPs, and was sufficient to show that the current system had to change before a “runaway” took place.

Agreed upfront

In the light of MPs questions, Orcilla Ruthnam gave detail on the proposed basis of an MOI for the DPE portfolio.  Such would, she said, empower the minister to intervene when a board was seriously under-performing to dissolving the board and appointing a “quasi” administrator to turn around the company…..

  • where the SOC was in financial distress, or there were allegations of maladministration and mismanagement
  • when the SOC had material governance challenges;
  • when the SOC failed to perform its functions effectively or efficiently; and
  • where the SOC had acted unfairly or in a discriminatory or inequitable way towards a person to whom it owed a duty under the legislative or policy framework of the SOC; or had failed to comply with any law or any policy envisaged in the legislative or policy framework relevant to the SOC.

 Powers

The principle of providing the minister with temporary intervention powers in law and which would have to trump long standing legislation enacted to ensure SOE independence was clearly to a river to cross,  Ruthnam explained.  It had to be acknowledged that interference by members if the Cabinet in the affairs of an SOE is specifically disallowed by the Companies Act, the Public Finance Management Act and the founding documents of each SOE, said DPE.

The whole principle behind an SOE’s independence from political interference has been in the past to ensure that their boards and management continue to operate in their own areas of expertise without influence from the body politic, Ruthnam continued, but the MOI was worded in such manner to allow for specific instances under specific circumstances as already outlined to MPs.

There were no questions from MPs on this particular subject, bearing in mind this was a virtual meeting.

 

 

Posted in Energy, Finance, economic, Public utilities0 Comments

Economic Regulation of Transport Bill plans for future


 

…….article 15 July……

Its all about regulating prices, says govt….

The Economic Regulation of Transport Bill, now in final process in Parliament, represents the complex task of bringing together a multitude of factors governing the regulation of the transport in South Africa within one framework, intended to deliver “a transport system enabling economic activity and the stimulation of growth”.  The objective is lower the cost of doing business by the regulation of pricing, says government.

In one of the better Bills to come before Parliament in 2020,  the Bill proposes to empower a Transport Economic Regulator as the functionary authorised to sign off on the prices imposed by regulated transport entities in the sector.  The Bill is the result of two periods of public comment in 2018.

 Order in chaos

A portion of 2019 was used by the Department of Transport (DoT) to digest all the information and come up with a final answer to a complex situation since public comment from stakeholders was extensive.   M

any of the issues, as emerged during the debate in Parliament, have always been about Sou

th Africa’s poor record in port handling facilities; entry and export and other border nightmares; Transnet’s rail turn-around problems; and the country’s prohibitive road transport pricing matters.

Recognising this, the Bill has as an objective to rationalise of transport pricing but in order to do this, DoT has to first consolidate all the working parts into a single framework and policy.

Not just rubber stamping

To take a step back, in order to execute the new plan, the establishment of a Transport Economic Regulator is called for as the working body and, secondly, Transnet must establish a Transport Economic Council which will act as arbiter for decisions made.  This has been achieved but not ratified. There also has to be “a mutual consideration between the many stakeholders to make things work”, DoT says.

Good news is that as part of the process Transnet is about to appoint a Corruption Investigation Officer whose work, no doubt, will be cut out.  What has been achieved in this regard was the subject of a recent parliamentary report, but SOEs about to be drawn into the body of the Regulator will be the Transnet National Ports Authority; Transnet Port Terminals; Transnet Freight Rail; ACSA; Air Traffic and Navigation Services; PRASA and SANRAL plus its concessionaires.

Such a big bite worried MPs in the first transport parliamentary committee meeting as much as it did private sector comment sector beforehand, i.e. the idea of establishing a national entity for all forms of transport i.e. road, rail, air and maritime all in one go. MPs  suggested that the Regulator be allowed to take on one area of endeavour at a time.

Even a bigger bite will be that eventually, the proposed Bill includes the concept of regulation within the taxi industry, it was noted from the meeting from the comments made by DoT representatives in their time slots.

Price determination

The body of the Bill provides that the Regulator will consult with interested parties and the public when considering the pricing proposal of a regulated entity and whether it is fair and reasonable. Subsequently if agreed to, a consent order will be published in the government gazette taking effect on the date set.

On the whole question of the roads on which transport survives for its existence, since the Regulator would be a “Chapter 9 institution outside the public service and its independence subject only to the Constitution”, it therefore can be the functionary authorised to sign off on the prices it decides upon.  Important was the fact that should issues arise, the Economic Regulation of Transport Bill as proposed would trump the SANRAL Act.

Up to date

As a Section 76 Bill, the Transport Economic Regulator Bill will now have to be passed through the NCOP to all nine provinces for comment and mandates.

 

Posted in Finance, economic, Public utilities, Trade & Industry, Transport0 Comments

Hopes pinned on PetroSA comeback

…… may 15 2020…..

CEF outlines plan to save PetroSA

…… In a series of statements to Parliament’s Mining and Energy Portfolio Committee, acting CEO of Central Energy Fund (CEF), Lufuno Makhuba, surprised many with a promise of not only totally restructuring government’s stake in the energy sector but to save ailing oil and gas subsidiary PetroSA with major capital “re-vitalisation”.

He also hinted on plans to enter the fuel retailing industry as a major player, PetroSA currently owning only one fuel station in the Free State.

Pipe plans

Makhuba stated that it would be proposed that “the Transnet fuel pipeline” (which particular one was not named) should fall under the management of CEF with income re-routed accordingly.  The plan also was a request that PetroSA should move towards LNG developments and to execute liquid nitrogen gas (LNG) projects with “strategic partners”.  He also proposed that CEF should receive 25% of the national fuel levy.

In order to breathe new life into PetroSA, Lufuno Makhuba suggested that in addition a proportion of carbon tax funds should be re-directed by Treasury to assist in the “recapitalisation” programme as well as the previously mentioned pipeline income.  He said that CEF would acquire by transfer other state “energy assets” in order to build its portfolio income.

Makhuba told Parliament that the CEF was now “busy reducing operational costs and divesting in unnecessary  buildings” as a holding entity.   The liability on its books of an estimated figure of R8bn mainly arising from the PetroSA Mossel Bay gas to liquid operations would be “dealt with”.

The answer

“Until now”, he commented in his presentation, “CEF had had no operational plan, no strategic direction and has been subjected to a leadership vacuum.”    He said he and his colleagues were at the moment producing the final plan to solve the group’s two most pressing problems – that of restructuring the group so that activities were inter-connected and to provide for the principle that PetroSA becomes “a revenue producing National Oil Company as per its mandate”.

Lufuno said that the new plan would also involve integrating its subsidiaries Strategic Fuel Fund (SFF) and iGas with PetroSA.

Long time coming

Parliament has been demanding a plan during portfolio meetings for PetroSA for over two years, some attempts at doing this being attempted but always they had come before committee with neither Treasury approval or any form of accompanying financial plan. (ParlyReports in 2018/9 refer)  Parliament has rejected all over the months.

Lufuno said that the CEF group was still making an overall loss, and estimated R330m for 2018/9 which was an “improvement” on the R1.4bn net loss reported in the previous year, most of the loss attributable to  PetroSA. However, no actual numbers were  once again presented.

Right into the red

Makhuba, presumably speaking in his dual capacity as financial officer, his previous position at CEF, said the PetroSA deficit “weighs heavily on the group’s earnings and although PetroSA remains in the red, it had nevertheless improved on the losses reported in  previous years.   PetroSA recently suffered an “impairment” on its balance sheet of R14bn.

Matters to be dealt with in the next few weeks include deploying an external refinery team to optimise refinery operations at Mossel Bay. Other tasks include strengthening sales and business development and institute consequence management

Issues and problems at PetroSA are not being taken lightly,” he told his audience of MPs.  “We can’t have poor business performance, quarter on quarter, and not react as has been the case in the past.  The new plan deals with how to hold people to account and what to do with assets.”

Desperate stuff

In what sounded like a business rescue discussion, Monde Mnyande, acting chairman of CEF, (it appears on loan from SA Reserve Bank) said that CEF had established that in deciding what to do there were three options before them . The first was doing nothing at all, other than finding find R25m to finalise PetroSA accounts for the current year,  which option would probably collapse CEF in the process and lead to costing the taxpayer “billions in write offs” .

The second option was restructuring CEF but closing down PetroSA at a cost of some R15bn with the associated cost to the Mossel Bay and Eastern Cape economy.

Just money

The third option was to source R18bn from equity input and re-structure PetroSA with its new management developing a partnership strategy on the basis of new initiatives in the petroleum industry.

Monde Mnyande said that the third option was preferred but there was no intention of asking Treasury for this as a bailout for PetroSA.  What the new CEF board wanted would be the portfolio committee’s support for the restructuring process as described.

As far as PetroSA was concerned,  he said, such restructuring would involve inviting strategic partners to assist them with upgrading refinery operations, divesting from upstream blocks and investing in downstream activities.

Sasol story

Following this, a major case of misunderstanding by the media arose.  During questioning, Cheryl Phillips (DA,) said she knew that PetroSA only had downstream one filling petrol station in the Eastern Cape but asked if there was any plan for PetroSA was to build more petrol stations of its own or acquire such assets from others.  She reminded MPs of the aborted PetroSA deal with Petronas/Engen.

Monde Mnyande replied that he knew such assets did exist on the market at this moment and in particular he was aware that Sasol was selling such assets.  This sort of thing might be an example of the way PetroSA had to go, he said.

Due to misreporting in minutes and the what perhaps was said somewhat indistinctly by Mnyande, a head line emerged in Business Day that PetroSA was already involved in a deal with Sasol.  Mnyande never said this, confirmed by ParlyReport, and a CEF spokesman denied that he did a week later in a statement.

Looking back

Mnyande continued with his time slot stating that one of CEF’s biggest mistakes in the past was to think it could operate alone without the government and DMRE, especially during turbulent times at Mossel Bay. A great number its executives without experience were in acting roles and failed to follow the basic rules, he said.

In answering questions by Kevin Mileham (DA) on the illegal sale of national strategic fuel stocks by the Strategic Fuel Fund four years ago to a large oil trader-consortium, Lufuno Makhuba  replied that the contested sale was the subject of a court case nearing completion, the oil still being retained in storage in South Africa.       Chair Monde Mnyande said a new CEO, who was a woman well known in the industry, would be appointed as CEO for SSF shortly.

Let’s hear more

In general questioning, which is difficult in virtual, Mileham threw cold water at any plans to save PetroSA in the manner suggested since any such idea at the moment could not be loaded on to the taxpayer’s shoulders. However, he said the DA would await developments and finalisation of the plan before responding in full

He asked if, in the process of restructuring, whether it was CEF’s  plan to move the regulatory authority, the Petroleum Agency of South Africa, out of CEF to a new domain. As the meeting timed-out, the chairperson asked Lufuno to respond to Mileham’s question in writing.

Posted in Energy, Enviro,Water, Finance, economic, Fuel,oil,renewables, Public utilities, Trade & Industry, Transport0 Comments


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